<PAGE>




                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                FORM 10-K/A No. 1

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For The Fiscal Year Ended February 28, 1997

                         Commission File Number: 1-10583

                             ATC GROUP SERVICES INC.
             (Exact name of Registrant as specified in its charter)


          Delaware                                         46-0399408
  -------------------------------              ---------------------------------
  (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                      Identification No.)

  104 East 25th Street, 10th Floor
         New York, New York                                    10010
  --------------------------------              --------------------------------
  (Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (212) 353-8280

                 Securities registered pursuant to Section 12(b)
                                  of the Act:
                                      None

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

                          Common Stock, $.01 Par Value
                 -----------------------------------------------
                                (Title of Class)


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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (        229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  as of May  28,  1997,  was  approximately  $54,890,000  representing
5,047,362  shares of Common Stock at $10.875 per share,  the last reported sales
price for the Registrant's Common Stock on such date.

The number of shares outstanding of the Registrant's  Common Stock as of May 28,
1997 was 7,802,987.






<PAGE>





                                                          2

Item 11.   Executive Compensation.

         Summary  Compensation Table - The following table provides  information
with respect to the compensation of ATC's Chief Executive  Officer (CEO) and its
executive officers,  other than the CEO, who where serving as executive officers
at the end of fiscal 1997 whose total annual salary and bonus, if any,  exceeded
$100,000.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
<S>                            <C>          <C>               <C>        <C>        <C>           <C>         <C>       <C>
----------------------------------------------------------------------------------- ----------------------------------- ---------  
                                                                                          Long Term Compensation
                               Annual Compensation                                           Awards           Payouts
----------------------------------------------------------------------------------- ------------------------- --------- ---------
             (a)                   (b)            (c)            (d)        (e)         (f)          (g)        (h)       (i)
                                                                                                    Secur-                All
                                                                           Other                    ities                Other
                                  Year                                    Annual     Restricted     Under-                Com-
          Name and                Ended                                   Compen       Stock        lying       LTIP      pen-
          Principal             February         Salary         Bonus     sation      Award(s)     Options    Payouts    sation
          Position               28 (29)          ($)            ($)        ($)         ($)          (#)        ($)       ($)
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------

Morry F. Rubin,                   1997          268,750        259,943      -0-         -0-          -0-        -0-       -0-
President and                     1996          225,000        141,774      -0-         -0-          -0-        -0-       -0-
                                                                                                     (2)
Chief Executive Officer           1995          225,000        132,500      -0-         -0-          -0-        -0-       -0-
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------

George Rubin,                     1997          268,750        259,943      -0-         -0-          -0-        -0-       -0-
Chairman of the Board             1996          225,000        141,774      -0-         -0-          -0-        -0-       -0-
                                                                                                     (3)
and Secretary                     1995          225,000        132,500      -0-         -0-          -0-        -0-       -0-
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------

Christopher P. Vincze,            1997          170,000        100,000   6,000 (1)      -0-         37,500      -0-       -0-
Senior                            1996          142,308          -0-     6,000 (1)      -0-         30,000      -0-       -0-
Vice President                    1995          105,385        86,500    5,550 (1)      -0-         17,500      -0-       -0-
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------

Nicholas J. Malino,               1997          170,000        100,000      -0-         -0-         57,500      -0-       -0-
Senior                            1996          142,308          -0-        -0-         -0-         30,000      -0-       -0-
Vice President                    1995          105,385        86,500       -0-         -0-         37,500      -0-       -0-
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------

John J. Goodwin                   1997          140,000        51,335       -0-         -0-          -0-        -0-       -0-
President and Director            1996          140,000          -0-        -0-         -0-          -0-        -0-       -0-
ATC InSys Technology Inc.         1995           70,000          N/A        -0-         -0-          -0-        -0-       -0-
                                                  (4)
------------------------------ ------------ ----------------- ---------- ---------- ------------- ----------- --------- ---------
------------

</TABLE>

 (1)     Represents compensation relating to a car allowance.

 (2)     Does not include  options to purchase 81,750 shares of ATC Common Stock
         issued  in   replacement   of   previously   held   options  of  Aurora
         Environmental  Inc.  ("Aurora"),  ATC's former parent company which was
         merged into ATC in June, 1995, with ATC the surviving corporation.

 (3)     Does not include  490,500  warrants to purchase ATC Common Stock issued
         in  replacement  of  previously  held  warrants of Aurora Environmental
         Inc. ("Aurora").

 (4)     John J. Goodwin commenced employment September 1, 1994.


<PAGE>


         Options Grants Table - The following  table provides  information  with
respect to individual  grants of stock options by ATC during fiscal 1997 to each
of the executive officers named in the preceding summary compensation table.
<TABLE>
<CAPTION>

                        OPTION GRANTS IN LAST FISCAL YEAR

----------------------------------------------------------------------------------------------- ---------------------------------
                                                                                                           Potential
                                                                                                       Realized Value at
                                                                                                         Assumed Annual
                                                                                                      Rates of Stock Price
                                                                                                          Appreciation
                                                                                                        for Option Term
                                      Individual Grants                                                       (2)
----------------------------------------------------------------------------------------------- ---------------------------------
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------
<S>                         <C>             <C>               <C>            <C>                <C>               <C>         
           (a)                   (b)              (c)              (d)              (e)               (f)              (g)

                                                  % of
                              Number of          Total
                              Securities        Options
                              Underlying       Granted to
                               Options         Employees        Exercise
                               Granted         in Fiscal          Price         Expiration
           Name                  (#)            Year (1)         ($/Sh)            Date              5% ($)          10% ($)
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------

Morry  F. Rubin                  -0-              -0-              N/A              N/A               -0-              -0-
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------

George Rubin                     -0-              -0-              N/A              N/A               -0-              -0-
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------
                               7,500 (3)          2.1%            7.50        02-06-2007 (4)          35,375          89,648
                              20,000 (3)          5.7%            7.50        02-06-2007 (4)          94,334         239,061
Christopher P. Vincze         10,000 (3)          2.8%            7.50        02-06-2007 (4)          47,167         119,531
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------

                              27,500 (3)          7.8%            7.50        02-06-2007 (4)        129,710          328,709
                              20,000 (3)          5.7%            7.50        02-06-2007 (4)          94,334         239,061
Nicholas  J. Malino           10,000 (3)          2.8%            7.50        02-06-2007 (4)          47,167         119,531
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------


John J. Goodwin                  -0-              -0-              N/A              N/A               -0-              -0-
--------------------------- --------------- ----------------- -------------- ------------------ ----------------- ---------------

</TABLE>
         N/A - not applicable
------------


(1)      The "% of Total  Options  Granted to Employees in Fiscal Year"  (Column
         (c)) is based upon options  granted to ATC employees  only and excludes
         options granted to non-employees.

(2)      The potential  realizable  value of each grant of options  assumes that
         the market price of ATC's Common  Stock  appreciates  in value from the
         date of grant to the end of the option term at  annualized  rates of 5%
         and 10%,  respectively,  after subtracting out the applicable  exercise
         price.

(3)      The  options  granted in fiscal 1997 represent  replacement  options of
         previous grants.

(4)      The options granted to Messrs.  Vincze and Malino are in replacement of
         prior  grants  which  terminated.  At the date of grant,  the number of
         options  which  were  exercisable   under  the  original  grant  became
         exercisable  under the  replacement  grant with the  remaining  options
         vesting at varying  dates over two to three years and expire within ten
         years.


<PAGE>


         Aggregated  Option  Exercises  and Fiscal  Year-End  Option Table - The
following  table  provides  information  with respect to each  exercise of stock
options  during  fiscal  1997 by each of the  executive  officers  named  in the
preceding  summary   compensation   table  and  the  fiscal  year-end  value  of
unexercised options.

<TABLE>
<CAPTION>
                        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR - END OPTION VALUES

--------------------------- ------------------------- ------------------------ ------------------------- -------------------------
           (a)                        (b)                       (c)                      (d)                       (e)
                                                                                      Number of
                                                                                      Securities                 Value of
                                                                                      Underlying               Unexercised
                                                                                     Unexercised               In-the-Money
                                                                                      Options at                 Options
                                     Shares                                           FY-End (#)              at FY-End ($)
                                  Acquired on                  Value
                                    Exercise               Realized (1)              Exercisable/              Exercisable/
           Name                       (#)                       ($)               Unexercisable (1)         Unexercisable (1)
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------
<S>                         <C>                       <C>                      <C>                       <C>              

Morry F. Rubin                        -0-                       -0-                   161,750                    701,128
                                                                               /         -0-             /         -0-
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------


George Rubin                          -0-                       -0-                   490,500                 3,184,625
                                                                               /         -0-             /         -0-
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------


Christopher P. Vincze                 -0-                     $28,750                   40,000  /                123,563 /
                                                                                        25,000                    21,750
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------


Nicholas J. Malino                    -0-                       -0-                     36,100  /                  32,775 /
                                                                                        33,400                     28,350
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------


John J. Goodwin                       -0-                       -0-                       -0-                       -0-
                                                                               /          -0-            /          -0-
--------------------------- ------------------------- ------------------------ ------------------------- -------------------------
</TABLE>
------------

(1)      The  aggregate  dollar  values in column (c) and (e) are  calculated by
         determining the difference  between the fair market value of the Common
         Stock  underlying  the options and the exercise price of the options at
         exercise or fiscal year end, respectively. ATC's last sale price at the
         close of  business on February  28, 1997 was $8.25.  Stock  options and
         warrants of Aurora converted into ATC options and warrants  pursuant to
         the terms of the Merger Agreement are included above.


<PAGE>


         Ten-Year Option  Repricing - The following  table provides  information
with respect to adjustments or amendments to previously awarded stock options to
the executive officers named in the preceding summary compensation table.
<TABLE>
<CAPTION>

                           TEN-YEAR OPTION REPRICINGS

--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------
              (a)                    (b)            (c)              (d)              (e)             (f)              (g)
                                                  Number           Market          Exercise                         Length of
                                                    of            Price of           Price                          Original
                                                Securities        Stock at            at                           Option Term
                                                Underlying          Time              time                          Remaining
                                                  Options            of               of                           at Date of
                                                 Repriced         Repricing        Repricing          New           Repricing
                                                    or          or Amendment          or            Exercise      or Amendment
                                                  Amended            ($)         Amendment ($)       Price             (1)
              Name                   Date           (#)                                                ($)
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------
<S>                               <C>         <C>               <C>             <C>              <C>             <C>         
Morry F. Rubin
President and
Chief Executive Officer              N/A            N/A              N/A              N/A             N/A              N/A
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------

George Rubin,
Chairman   of  the   Board   and
Secretary                            N/A            N/A              N/A              N/A             N/A              N/A
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------

Christopher P. Vincze               2/7/97       7,500 (2)          7.50              9.50            7.50            30.7
Senior                              2/7/97      20,000 (2)          7.50             13.43            7.50            40.4
Vice President                      2/7/97      10,000 (2)          7.50             11.50            7.50            45.4
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------

Nicholas J. Malino,                 2/7/97      27,500 (2)          7.50              9.50            7.50            30.7
Senior                              2/7/97      20,000 (2)          7.50             13.43            7.50            40.4
Vice President                      2/7/97      10,000 (2)          7.50             11.50            7.50            45.4
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------

John J. Goodwin
President and Director
ATC InSys Technology Inc.            N/A            N/A              N/A              N/A             N/A              N/A
--------------------------------- ----------- ---------------- ---------------- ---------------- --------------- ----------------
</TABLE>
------------

(1)      The  length of  original option term remaining represents the number of
         months determined as of February 28, 1997.

(2)      The Company's  Board of Directors  determined  the  replacement  grants
         appropriate   in  order  to  compensate   the   individual   for  their
         performance,  as  more  fully  described  in the  Report  on  Executive
         Compensation which follows. The replacement option price represents the
         fair market price based on the average of the high and low sales prices
         on the date of the grant.

Compensation Committee Report on Executive Compensation

         The Compensation Committee of ATC is composed of three members, namely,
Morry F. Rubin, Chief Executive Officer ("CEO"), and outside directors, Julia S.
Heckman and Richard S. Greenberg.  The Compensation Committee is responsible for
reviewing and  determining the annual salary,  bonuses,  stock option grants and
other compensation of the executive officers of ATC.


<PAGE>


         This report  describes the policies and rationales of the  Compensation
Committee in establishing the principal components of executive  compensation in
fiscal 1997. The Compensation  Committee's review and determination of executive
compensation  includes  consideration of the following factors: (a) compensation
surveys of similar size companies, (b) past and future performance contributions
of each executive  officer and (c) the  performance of ATC, both  separately and
relative to similar size companies.

         Under the direction of the Compensation Committee,  ATC has developed a
compensation  strategy  designed to compensate  its  executives on a performance
basis. The strategy is intended to (a) reward executives for long-term strategic
management and the enhancement of Stockholder  value, (b) facilitate ATC's short
and  long-term  planning  process  and (c)  attract  and retain  key  executives
critical to the long-term success of ATC.

         Compensation for the CEO and other Named Executives consists of a fixed
base  salary and  variable  components,  including  both  short-  and  long-term
incentive  compensation  in the form of  bonuses  and stock  option  grants.  In
evaluating the performance  and setting the incentive  compensation of executive
management,  the Compensation  Committee  considered the factors described above
and that ATC completed various  acquisitions and experienced  growth in revenues
and earnings during the past three fiscal years.

         Based on the foregoing,  the Compensation Committee believes that ATC's
executive  management  is dedicated  to its  corporate  objectives  of achieving
significant  improvements in long-term financial and operating performance.  The
executive  compensation  program  outlined  below is designed to implement  this
strategy by rewarding management for achieving these objectives.

         Base Salary.  ATC's base salary is designed to recognize  the sustained
and  cumulative   effect  on  long-term   results  that  its   executives   have
demonstrated.  The base salary is a  remuneration  for services  provided and is
generally fixed at levels which are competitive  with amounts paid to executives
at comparable companies.

         Short-Term Incentives. Short-term incentives in the form of bonuses are
paid to each of the  Executives  named  in the  summary  compensation  table  to
recognize  performance  that is related to the  achievement of key financial and
operating  objectives  that  have  been  established  for a fiscal  year.  Since
short-term incentives should generally reflect one year contributions,  the size
of the  payments  may vary  considerably  from  year to year,  depending  on the
performance  of ATC, the executive,  his individual  activities and terms of any
employment.

         Long-Term  Incentives.   The  Compensation  Committee  recognizes  that
long-term  incentive  compensation  is a substantial  component of the total pay
package  linking  executive pay and  corporate  performance,  At ATC,  long-term
incentive  compensation in the form of equity based  compensation is intended to
link the interests of its executives with the interests of ATC's Stockholders by
rewarding   executives   with  stock  options  for  both  past  and  anticipated
achievements of the Executive.

         Chief   Executive   Officer's   Fiscal  1997   Compensation.   As  more
specifically set forth in the Summary  Compensation  Table,  during fiscal 1997,
Mr. Morry F. Rubin earned an annual salary of $268,750 and an annual bonus equal
to 2-1/2 % of ATC's  consolidated  pre-tax  profits.  At June 1997,  Mr. Rubin's
salary is $300,000 per annum.

         In  determining  Mr.  Rubin's  1997   compensation,   the  Compensation
Committee  considered the factors  applied to the  compensation of all executive
officers as discussed above. The Compensation  Committee  decided that, based on
these criteria,  ATC's performance  based on the creation of Stockholder  value,
cash flow,  and net income and that his annual  compensation  is generally  less
than that paid to CEO's of similar companies.

         The  foregoing   report  has  been  approved  by  all  members  of  the
Compensation Committee.

                                    Morry F. Rubin
                                    Julia S. Heckman
                                    Richard S. Greenberg


<PAGE>
Comparative Performance by ATC

         ATC is presenting a chart  comparing the cumulative  total  stockholder
return on its Common Stock with the cumulative Stockholder return of (1) a broad
equity market index,  and (2) a published  industry  index or peer group for the
past five years.  Such chart compares the  performance of the ATC's Common Stock
with (1) the NASDAQ Stock Market Index and (2) a group of public  companies each
of whom are listed in the peer group  sanitary and other services and assumes an
investment  of $100 in ATC's Common Stock and on March 1, 1992 an  investment of
$100 in each of the stock  comprising  the  NASDAQ  Stock  Market  Index and the
stocks of the peer group sanitary and other services.

        COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
                     PERFORMANCE GRAPH FOR
                     ATC ENVIRONMENTAL INC.

Prepared by the Center for Research in Security Prices
Produced on 06/04/97 including data to 02/28/97

   Date      Company     Market    Market      Peer   Peer  
             Index       Index     Count      Index   Count 
 02/28/92,   100.000,   100.000,    3956,   100.000,     34
 03/31/92,    91.071,    95.280,    3968,    83.041,     36
 04/30/92,    80.357,    91.195,    3967,    72.965,     35
 05/29/92,    76.786,    92.379,    3955,    73.113,     35
 06/30/92,    71.429,    88.768,    3935,    68.455,     35
 07/31/92,    92.857,    91.912,    3899,    67.447,     34
 08/31/92,    75.000,    89.103,    3880,    63.925,     34
 09/30/92,    76.786,    92.415,    3878,    63.433,     34
 10/30/92,    64.286,    96.055,    3890,    61.283,     34
 11/30/92,   125.000,   103.699,    3906,    64.795,     34
 12/31/92,   132.143,   107.516,    3930,    62.644,     36
 01/29/93,   117.857,   110.577,    3918,    65.465,     35
 02/26/93,   114.286,   106.452,    3949,    64.355,     35
 03/31/93,   105.357,   109.532,    3973,    63.571,     35
 04/30/93,    87.500,   104.858,    4007,    58.415,     35
 05/28/93,   126.786,   111.122,    4035,    58.091,     34
 06/30/93,   162.500,   111.636,    4071,    55.098,     34
 07/30/93,   178.572,   111.767,    4103,    55.871,     32
 08/31/93,   145.536,   117.545,    4138,    53.027,     31
 09/30/93,   171.429,   121.045,    4173,    53.430,     31
 10/29/93,   192.857,   123.766,    4221,    53.579,     32
 11/30/93,   217.857,   120.075,    4304,    53.355,     32
 12/31/93,   203.572,   123.422,    4376,    52.352,     32
 01/31/94,   192.857,   127.168,    4400,    54.973,     33
 02/28/94,   196.429,   125.982,    4439,    53.893,     33
 03/31/94,   242.857,   118.234,    4491,    49.629,     33
 04/29/94,   285.714,   116.701,    4520,    46.261,     33
 05/31/94,   332.143,   116.985,    4562,    43.911,     33
 06/30/94,   303.572,   112.708,    4576,    42.199,     30
 07/29/94,   300.000,   115.019,    4594,    40.696,     30
 08/31/94,   271.429,   122.352,    4612,    41.005,     30
 09/30/94,   285.714,   122.039,    4615,    43.044,     31
 10/31/94,   389.286,   124.437,    4637,    44.147,     31
 11/30/94,   492.858,   120.310,    4653,    42.222,     32
 12/30/94,   464.286,   120.647,    4658,    43.038,     32
 01/31/95,   416.072,   121.323,    4648,    43.292,     32
 02/28/95,   378.572,   127.739,    4650,    42.526,     31
 03/31/95,   403.572,   131.525,    4644,    42.349,     32
 04/28/95,   496.429,   135.666,    4655,    43.838,     32
 05/31/95,   428.572,   139.164,    4654,    52.546,     32
 06/30/95,   428.572,   150.442,    4671,    55.994,     32
 07/31/95,   460.715,   161.500,    4690,    66.420,     32
 08/31/95,   428.572,   164.773,    4713,    66.467,     32
 09/29/95,   428.572,   168.562,    4709,    69.357,     33
 10/31/95,   392.857,   167.596,    4746,    66.808,     32
 11/30/95,   357.143,   171.531,    4778,    73.412,     33
 12/29/95,   335.715,   170.618,    4818,    82.598,     33
 01/31/96,   364.286,   171.452,    4808,    79.912,     33
 02/29/96,   350.000,   177.987,    4838,    78.788,     33
 03/29/96,   357.143,   178.578,    4877,    82.207,     34
 04/30/96,   360.715,   193.395,    4922,    86.209,     34
 05/31/96,   435.715,   202.277,    4980,   115.643,     32
 06/28/96,   375.000,   193.156,    5033,   125.759,     32
 07/31/96,   407.143,   175.952,    5065,   102.635,     32
 08/30/96,   367.857,   185.809,    5089,   112.108,     33
 09/30/96,   367.857,   200.021,    5095,   124.898,     33
 10/31/96,   310.715,   197.811,    5137,   129.359,     33
 11/29/96,   300.000,   210.044,    5177,   135.417,     31
 12/31/96,   264.286,   209.825,    5174,   130.770,     30
 01/31/97,   225.000,   224.697,    5159,   163.711,     29
 02/28/97,   235.714,   212.304,    5169,   144.099,     29
<PAGE>
Compensation Committee Interlocks and Insider Participation

         The Board of  Directors  of ATC is  composed of five  members,  namely,
George  Rubin,  Chairman  of the Board,  Morry F. Rubin,  ATC's Chief  Executive
Officer  ("CEO"),  Richard  L.  Pruitt,  Vice  President,  Principal  Accounting
Officer,  Julia S. Heckman,  Managing Director with Rodman and Renshaw,  Inc.'s.
Investment  Banking  Group and  Richard S.  Greenberg  Esq.,  a director  of the
Environmental  Management Group at Coopers & Lybrand. The Board of Directors has
an Audit  Committee and a Compensation  Committee  consisting of three directors
including Morry F. Rubin and outside directors Richard S. Greenberg and Julia S.
Heckman.  The Audit Committee is responsible,  among other things, for approving
any  transactions  between  the Company  and any of its  directors,  officers or
affiliates.  Since August 1995, the  Compensation  Committee is responsible  for
setting  compensation of the executive  officers of the Company and for granting
any further  options to purchase  Common Stock.  Prior to August 1995, the Board
had sole  responsibility  for  reviewing  and  determining  the  annual  salary,
bonuses, stock option grants and other compensation of the executive officers of
ATC.

         George  Rubin  and Morry F.  Rubin are  officers  and/or  directors  of
certain ATC's subsidiaries.  Morry F. Rubin and George Rubin each receive all of
their respective cash compensation through ATC.

         George Rubin is one of two directors of National Diversified  Services,
Inc.  ("National").  During  National's  fiscal year ended December 31, 1996, no
cash  compensation  was paid to any officer of ATC.  During the past fiscal year
ATC and their subsidiaries had no business relationship with National.

Employment Contracts and other Compensating Arrangements

         As of June  1997,  George  Rubin,  Morry  Rubin,  Nicholas  Malino  and
Christopher  P.  Vincze  receive  annual  salaries  of  approximately  $300,000,
$300,000,  $170,000  and  $170,000,  respectively.  Salaries  of  all  executive
officers of ATC (9 persons),  currently aggregate approximately $1,404,500.  ATC
has no  employment  contracts  with its  executive  officers.  All  salaries and
bonuses  are at the  discretion  of the Board of  Directors,  however,  ATC pays
annual  bonuses of 2 1/2% of pretax profits to each of George Rubin and Morry F.
Rubin based upon the prior years operating results and to Christopher Vincze and
Nicholas Malino based upon operating income exclusive of ATC's  subsidiary,  ATC
InSys  Technology,  Inc. ATC Group  Services  Inc.  pays John J. Goodwin a bonus
based upon a percentage  of pretax  operating  profits of ATC InSys  Technology,
Inc.  The bonuses to be paid to such  officers  are not  pursuant to any written
agreements.

         During fiscal 1990, ATC approved an employee  savings plan which allows
voluntary  contributions by eligible employees into designated investment funds.
ATC  may,  at  the  discretion  of  its  Board  of  directors,  make  additional
contributions on behalf of the Plan's  participants.  No contributions were made
by the Company in fiscal years 1995, 1996, and 1997.

         ATC has no  other  annuity,  pension  or  retirement  benefits  for its
employees. ATC provides life, dental and health insurance, which is available to
all full-time  employees.  ATC has not afforded any of its officers or directors
any personal benefits,  the value of which exceeds 10% of his salary,  which are
not directly  related to job  performance or provided  generally to all salaried
employees. During fiscal 1997, ATC granted replacement options to purchase 7,500
shares and  additional  options  to  purchase  7,500  shares to each of Julia S.
Heckman and Richard S. Greenberg,  Esq., ATC's two outside  directors.  No other
compensation  was paid to ATC's directors  during fiscal 1997 for serving in the
capacity  of  director  and  there  are  no  current   arrangements  for  future
compensation  of directors.  Depending  upon the number of meetings and the time
required for ATC's operations, ATC may decide to compensate its directors in the
future.

ATC Stock Option Plans

         On January  12,  1988,  the board of  directors  of ATC adopted a Stock
Option Plan (the "1988 Plan") which was ratified by  Stockholders on January 12,
1988.  The Plan  covers  200,000  shares of Common  Stock  and was  utilized  to
strengthen ATC's ability to attract and retain in its employ experienced persons
and to attract other persons to become associated with, and/or to maintain their
association  with,  ATC  and  its  subsidiaries  in  various   capacities  (e.g.
consultants,  salespersons)  other than that of an employee,  by affording  such
employees and other  persons an  opportunity  to hold a proprietary  interest in
ATC. The Plan  authorizes the issuance of the options  covered thereby as either
"Incentive  Stock  Options"  within the meaning of the Internal  Revenue Code of
1986, as amended, or as "Non-Statutory Options". While any person is eligible to
receive  Non-Statutory  options,  only  employees  are  eligible  to  receive an
Incentive  Option under the provisions of applicable law. The Plan also provided
that no options may be granted after January 11, 1998.

         The Plan is  administered  by ATC's Board of  Directors,  which has the
authority to determine the persons to whom options shall be an Incentive  Option
or a  Non-Statutory  Option,  the number of shares to be covered by each option,
the time or times at which  options will be granted or may be exercised  and the
other terms and  provisions  of the options  except that the Plan  prohibits the
exercise of an Incentive Stock Option unless the Optionee has been  continuously
employed  by ATC from the  date of grant to the date of  exercise.  Accordingly,
Incentive Stock Options terminate upon termination of the Optionee's  employment
with  ATC for any  reason  whatsoever.  The Plan  also  provides  that:  (i) the
exercise price of options granted  thereunder shall not be less than 100% (or in
the case of an Incentive  Option,  110% if the optionee  owns 10% or more of the
outstanding voting securities of ATC) of the fair market value of such shares on
the date of grant,  as determined by the Board,  and (ii) no option by its terms
may be  exercised  more than ten years (five  years in the case of an  Incentive
Option, where the optionee owns 10% or more of the outstanding voting securities
of ATC) after the date of grant. Any options which are canceled or not exercised
within the option period become available for future grants.

          On July 16, 1993,  ATC adopted the 1993  Incentive  and  Non-Qualified
Stock Option Plan covering  200,000  shares (the "1993 Plan").  In 1995 the 1993
Plan was amended to increase the number of shares covered to 500,000 shares.  In
1996 the 1993 Plan was  amended  to  increase  the  number of shares  covered to
1,000,000  shares.  The 1993 Plan  provides no options may be granted after July
15, 2003. The 1993 Plan is similar in all respects to the 1988 Stock Option Plan
described above.

         On June 29, 1995 ATC adopted a new stock  option plan (the "1995 Plan")
to replace  Aurora's 1987 Stock Option Plan,  except that the shares  covered by
the new plan are limited to 81,750.  These  options were granted to Morry Rubin,
in  replacement  of Aurora's  options  previously  held, at an exercise price of
$5.32 per share and expire January 2004.

         As of  February  28,  1997,  ATC has  options  outstanding  to purchase
720,340  shares (under the 1988,  1993 and 1995 Plans and for grants  outside of
the Plans) at exercise  prices ranging from $1.88 per share to $17.00 per share.
As of February  28,  1997,  options to purchase  457,550  shares of ATC's Common
Stock are currently exercisable.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a) (3)  Exhibits

         A list  of  exhibits  required  by  Item  601 of  Regulation  S-K is as
follows:


<PAGE>


EXHIBIT INDEX
-------------------------------------------------------------------------------

Exhibit        Description
----------     ----------------------------------------------------------------

2              Agreement  and  Plan  of  Merger  to  reincorporate  in  Delaware
               (contained in Exhibits 3(b) and 3(c), (1)

2(a)           Agreement and Plan of Merger between ATC  Environmental  Inc. and
               Aurora Environmental Inc. (5)

3(a)           Certificate of Incorporation of Registrant (1)

3(b)           Certificate of Ownership and Merger of Registrant (Delaware) (1)

3(c)           By-Laws (1)

3(d)           Certificate of Merger (Aurora Environmental Inc. Merging with and
               into ATC Environmental Inc.) (8)

10             Employee Savings (401(k)) Plan (2)

10(a)          New York City Lease (3)

10(b)          Form of Indemnity Agreement (9)

10(c)          Asset  Purchase  Agreement  between  ATC  Environmental  Inc.,  a
               Delaware  corporation,  and Hill  International  Inc., a Delaware
               corporation, executed on November 10, 1995 (4)

10(d)          Six-Month   Promissory   Note   executed  and  delivered  by  ATC
               Environmental   Inc.  on  November  10,  1995,  payable  to  Hill
               International, Inc. in the amount of $300,000 (4)

10(e)          Irrevocable  Letter of Credit  executed by  Atlantic  Bank of New
               York on November 8, 1995, and delivered by ATC Environmental Inc.
               on November  10, 1995,  payable on or after May 1, 1996,  to Hill
               International, Inc. in the amount of $730,625.00 (4)

10(f)          Bill of Sale  delivered on November 10,  1995,  conveying  assets
               referenced in assets purchase agreement from Hill  International,
               Inc. to ATC Environmental Inc. (4)

10(g)          Non-Competition   Agreement   of   Irvin   E.   Richter   to  ATC
               Environmental Inc. Delivered on November 10, 1995 (4)

10(h)          Non-Competition   Agreement   of   David   L.   Richter   to  ATC
               Environmental Inc. Delivered on November 10, 1995 (4)

10(i)          Agreement  for Sale and  Purchase of  Business  Assets on May 24,
               1996,  among  ATC  Environmental   Inc.,   American  Testing  and
               Engineering Corporation d/b/a ATEC Associates, Inc. and Gerald D.
               Mann. (10)

10(j)          Assumption of  Liabilities  Agreement on May 24, 1996,  among ATC
               Environmental Inc., American Testing and Engineering  Corporation
               and Gerald D. Mann. (10)

10(k)          Master  Equipment  Lease  Agreement on May 24, 1996,  between ATC
               Environmental   Inc.   and  American   Testing  and   Engineering
               Corporation. (10)

10(l)          Master   Sublease   Agreement  on  May  24,  1996,   between  ATC
               Environmental   Inc.   and  American   Testing  and   Engineering
               Corporation   covering  premises  leases  at  Indianapolis,   IN,
               Atlanta, GA and Dallas, TX. (10)





EXHIBIT INDEX (continued)
-------------------------------------------------------------------------------



<PAGE>


Exhibit        Description
----------     ----------------------------------------------------------------

10(m)          Non-Competition   Agreement   on  May  24,   1996,   between  ATC
               Environmental   Inc.   and  American   Testing  and   Engineering
               Corporation. (10)

10(n)          Mann  Non-Competition  Agreement  on May 24,  1996,  between  ATC
               Environmental Inc. and Gerald D. Mann. (10)

10(p)          Security  Agreement  on May 24,  1996,  among  ATC  Environmental
               Inc., American Testing and Engineering  Corporation and Gerald D.
               Mann. (10)

10(q)          $500,000  Letter of Credit on May 24, 1996,  from Chemical  Bank,
               N.A.  against the account of ATC  Environmental  Inc. in favor of
               American Testing and Engineering Corporation. (10)

10(r)          Agreement  for Sale and  Purchase of  Business  Assets on May 28,
               1996, among ATC InSys  Technology  Inc., 3D Information  Services
               Inc. and Ciro De Saro. (10)

10(s)          Assumption of  Liabilities  Agreements  on May 28, 1996,  between
               ATC InSys Technology Inc., 3D Information  Services Inc. and Ciro
               De Saro. (10)

10(t)          Stockholders  Non-Competition  Agreement on May 28, 1996, between
               ATC InSys  Technology Inc. and the stockholders of 3D Information
               Services Inc. (10)

10(u)          Three-year,  $2,500,000 Promissory Note on May 29, 1996, from ATC
               Environmental Inc. to 3D Information Services Inc. (10)

10(v)          Employment  Agreement on May 29, 1996,  between ATC Environmental
               Inc. and Ciro De Saro. (10)

11             Statements re:  Computation of per share earnings (**)

21             Subsidiaries of Registrant (**)

23             Independent Auditors' Consent-Deloitte & Touche LLP (**)

27             Financial Data Schedule (**)

99             1988 Stock Option Plan (6)

99(a)          1993 Stock Option Plan (7)

99(b)          Amendment to 1993 Stock Option Plan (**)

99(c)          1995 Stock Option Plan (*)

99(d)          Note Agreement,  ATC Group Services Inc. $32,500,000 8.18% Senior
               Secured Notes due May 31, 2004 dated May 29, 1997 (*)

99(e)          Credit  Agreement  dated  as of May  29,  1997  among  ATC  Group
               Services Inc.,  Borrower,  the Lenders Party Hereto and The Chase
               Manhattan Bank (*) ---------------------------

*    Filed herewith.

**  Included  with  the  Company's  initial  Form  10-K  report  filed  with the
Commission on May 29, 1997.


<PAGE>


EXHIBIT INDEX (continued)
-------------------------------------------------------------------------------

Exhibits  incorporated  by reference  from  previously  filed  documents  are as
follows:

     (1)   Reference is made to the Registrant's Registration Statement File No.
           33-19889 on Form S-1, which is incorporated by reference and contains
           exhibits 2, 3(a), 3(b) and 3(c).

     (2)   Reference is made to the  Registrant's  Form 10-K for the fiscal year
           ended  February  28,  1990  which  is   incorporated by reference and
           contains Exhibit 10.

     (3)   Reference is made to the  Registrant's  Form 10-K for the fiscal year
           ended February  29,  1992  which  is  incorporated  by  reference and
           contains exhibit 10(a).

     (4)   Reference  is made to the  Registrant's  Form 8-K dated  November 10,
           1995,  as amended,  which is  incorporated  by reference and contains
           Exhibits 10(c), 10(d), 10(e), 10(f), 10(g) and 10(h).

     (5)   Reference  is  made  to  the  Registrant's  Form S-4     Registration
           Statement, file No. 33-88380  which is  incorporated by reference and
           contains  Exhibit 2(a).

     (6)   Reference  is  made  to  the   Registrant's   Form S-8   Registration
           Statement,  file No. 33-55592 which is incorporated by reference  and
           contains Exhibit 99.

     (7)   Reference  is  made  to  the   Registrant's   Form S-8   Registration
           Statement,  File No. 33-77578 which is incorporated by  reference and
           contains Exhibit 99.1.

     (8)   Reference is made to the Registrant's Form 10-Q for the quarter ended
           May 31, 1995, which is incorporated by reference and contains Exhibit
           3(d).

     (9)   Reference is made to the  Registrant's  Form 10-K for its fiscal year
           ended  February  28,  1995,  which  is  incorporated by reference and
           contains Exhibit 10(b).

     (10)  Reference is made to the Registrant's  Form 8-K dated May 24, 1996 as
           amended,  which is  incorporated  by reference and contains  Exhibits
           10(i), 10(j), 10(k), 10(l), 10(m), 10(n), 10(o), 10(p), 10(q), 10(r),
           10(s), 10(t), 10(u) and 10(v).



<PAGE>


                                   SIGNATURES

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

ATC GROUP SERVICES INC.
           (Registrant)

/s/ RICHARD L. PRUITT                                              June 26, 1997
----------------------------------------------------------         -------------
                                                                        (Dated)
Richard L. Pruitt,
  Vice President and Principal Accounting Officer; Director

<PAGE>
                      1995 NON-QUALIFIED STOCK OPTION PLAN

                                       OF
                             ATC ENVIRONMENTAL INC.
                              In Replacement of the
                      1987 Non-Qualified Stock Option Plan
                          of Aurora Environmental Inc.
                          Pursuant to Merger Agreement


1.       Purpose

         The purpose of this Non-Qualified  Stock Option Plan (the "Plan") is to
provide an incentive for officers,  directors,  and employees to render services
and make  contributions to ATC  Environmental  Inc. and each of its subsidiaries
(the "Company"), and to give them an increased interest in the Company's welfare
and progress by affording them an opportunity to acquire ownership of its stock.

2.       Stock Subject to the Plan

         The stock to be issued upon exercise of options  granted under the Plan
shall consist of authorized but unissued shares (or of reacquired shares) of the
Common  Stock,  par value $.01 per share,  of the Company,  as determined by the
Board of  Directors.  The  aggregate  number of shares which may be issued under
options is 81,750 subject to adjustment as provided in Section 8.

         If any  options  granted  under the Plan  expire or  terminate  for any
reason  without  having been  exercised in full,  the  unpurchased  shares shall
become available for further options pursuant to the Plan.

3.       Eligibility of Optionees

         Options may be granted at the discretion of the Board of Directors only
to  officers,   directors,   and  employees  of  the  Company  and  any  of  its
subsidiaries.  More than one option may be granted to any  optionee.  Subject to
the foregoing,  no further  restrictions are placed on the Board of Directors in
determining eligibility or participation for granting Options.

4.       Administration



<PAGE>


                                                         4

         The Plan shall be  administered  by the Board of  Directors  or, in the
discretion of the Board, by a Committee (the "Committee"); hereinafter, which if
appointed  by the Board of  Directors,  shall  consist  of not less  than  three
directors.  The Board of Directors shall fill all vacancies in the Committee and
may remove any member of the Committee at any time,  with or without cause.  The
Committee  shall  select its own  Chairman  and shall hold its  meetings at such
times and places as it may determine. The acts of a majority of the Committee at
any meeting, or acts approved in writing by all members of the Committee,  shall
be the acts of the Committee.

         Subject to the express  provisions of the Plan,  the Board of Directors
or the Committee shall have full authority (a) to determine,  in its discretion,
the individuals  (including  members of the Board of Directors or the Committee)
to whom, and the times at which,  options shall be granted, the number of shares
subject to each option,  and the provisions of the respective  option agreements
(which  need  not  be  identical),  including  but  not  limited  to  provisions
concerning the time or times when,  and the extent to which,  the options may be
exercised,  the  transferability  of each  option,  the  conditions  of exercise
(including  non-competition  with the Company after  termination of service) and
the effect of approved leaves of absence on continuity of service; and the terms
and  conditions of payment for shares in full or in  installments,  the issue of
certificates  for shares to be paid for in  installments,  any limitations  upon
transferability  of such shares and the voting and dividend  rights to which the
holders  of  such  shares  may  be  entitled,  though  the  full  amount  of the
consideration  therefor has not been paid;  (b) to prescribe,  amend and rescind
rules and  regulations  relating  to the  Plan;  (c) to  interpret  the Plan and
determinations   necessary  or  advisable  for   administering   the  Plan.  All
determinations  and  interpretations  by the Board of Directors or the Committee
shall be binding and conclusive upon all parties.

         Notwithstanding  the powers vested in the Committee,  if such Committee
be appointed,  the Board of Directors  may also grant  options  hereunder by the
vote of a majority of the directors.

5.       Option Price

         The purchase  price per share under each option shall be  determined by
the Board of Directors or the Committee.

6.       Exercise of Options

         (a) Each option granted under the Plan shall become exercisable at such
time,  or in  installments  at such times,  as may be provided  therein.  To the
extent  that any  installment  of an option  has become  exercisable,  it may be
exercised  thereafter,  until termination,  in whole at any time or from time to
time in part.

         (b) Each option  granted  under the Plan shall  terminate no later than
ten years after the date on which it was granted,  but the Board of Directors or
the  Committee  in its  discretion  may  prescribe  a  shorter  period  for  any
individual option or options.

         (c) An option shall be exercised by written notice of such exercise, in
the form prescribed by the Board of Directors or the Committee, to the Secretary
or Treasurer of the Company,  at its principal office.  The notice shall specify
the address to which the  certificates are to be mailed,  the optionees'  social
security number and the number of shares for which the option is being exercised
(which number, if less than all of the shares then subject to exercise, shall be
50 or a multiple  thereof)  and shall be  accompanied  by payment in full of the
purchase  price  of such  shares.  Any  required  Federal  income  tax or  other
withholding  amount  shall also be paid (in full) by the optionee at the time of
such  exercise.  No shares shall be delivered  upon exercise of any option until
all laws,  rules and  regulations  which the Board of Directors or the Committee
may deem applicable  have been complied with. If a registration  statement under
the  Securities  Act of 1933 is not then in effect  with  respect  to the shares
issuable upon such exercise,  it shall be a condition  precedent that the person
exercising  the  option  give  to  the  Company  a  written  representation  and
undertaking, satisfactory in form and substance to the Board of Directors of the
Committee,  that he is acquiring  the shares for his own account for  investment
and not with a view to the distribution thereof.

         (d) The person  exercising  an option shall not be  considered a record
holder of the stock so purchased  for any purpose  until the date on which he is
actually  recorded  as the holder of such  stock  upon the stock  records of the
Company.

         (e) The Company shall pay all original  issue and transfer taxes (other
than  required  withholding  taxes) with respect to the issuance and transfer of
shares of Common  Stock of the  Company  pursuant  hereto and all other fees and
expenses necessarily incurred by the Company in connection therewith.

7.       Other Option Conditions

         (a) Nothing in the Plan or in any option granted pursuant thereto shall
confer on any  individual  any right to continue in the employ of the Company or
interfere in any way with the right of the Company to terminate  his  employment
at any time.

         (b) Each option  granted  pursuant to the Plan shall be  evidenced by a
written option agreement duly executed by the Company and the optionee.

         (c) No holder of any  option  under the Plan  shall,  by virtue of hold
such option, be entitled to any rights of a stockholder in the Company.

8.       Adjustments Upon Changes in Capitalization

         The option  agreements  shall  contain such  provisions as the Board of
Directors or the Committee  shall determine to be appropriate for the adjustment
of the kind and number of shares  subject  to each  outstanding  option,  or the
option prices,  or both, in the event of any changes in the  outstanding  Common
Stock, recapitalizations,  reorganizations,  mergers,  consolidations,  sales or
exchanges  of  assets,   combinations   or  exchange  of  shares,   offering  of
subscription rights or any other type of change. In the event of any such change
in the  outstanding  Common  Stock,  the kind and  aggregate  number  of  shares
available  under  the  Plan  shall be  appropriately  adjusted  by the  Board of
Directors or the Committee, whose determination shall be conclusive.


<PAGE>


9.       Term of Plan

         The Board of Directors may terminate this Plan at any time. Termination
of the Plan will not affect rights and obligations  theretofore granted and then
in effect. No options may be granted later than November 10, 1997.

10.      Transferability

         No  options  granted  under  this  Plan  shall be  transferable  by the
optionee except as permitted by the Board of Directors.

11.      Amendment and Revocation

         The Board of  Directors  alone  shall  have the right to alter,  amend,
extend or revoke the Plan or any part thereof at any time and from time to time,
provided,  however, that without the consent of the optionees,  no change may be
made in any option theretofore  granted which will impair the rights of existing
optionees.


<PAGE>

                                                            CONFORMED COPY

















                             ATC GROUP SERVICES INC.





             $32,500,000 8.18% Senior Secured Notes due May 31, 2004






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

                                 NOTE AGREEMENT
                                 --------------










                                  May 29, 1997







<PAGE>






                                      (ii)

                                TABLE OF CONTENTS

                                                                            Page

1.       Authorization of Notes; Security......................................1

2.       Sale and Purchase of Notes............................................2

3.       Closing...............................................................3

4.       Conditions to Closing.................................................3
         4.1.     Representations and Warranties Correct.......................3
         4.2.     Performance; No Default; No Material Adverse Change..........3
         4.3.     Contemporaneous Transactions.................................4
         4.4.     Compliance Certificate.......................................4
         4.5.     Security Documents; Collateral...............................4
         4.6.     Opinion of Counsel for the Company...........................5
         4.7.     Opinion of Your Special Counsel..............................5
         4.8.     Certain  Additional Documents to be Delivered at or Prior to 
                  the Closing..................................................5
         4.9.     Sale of Notes to Other Purchasers............................6
         4.10.    Legal Investment; Certificate................................6
         4.11.    Sale and Purchase Not Forbidden by Law.......................6
         4.12.    Payment of Transaction Costs.................................6
         4.13.    Proceedings and Documents....................................6

5.       Representations and Warranties........................................6
         5.1.     Organization, Standing, etc. of the Company..................6
         5.2.     Subsidiaries.................................................7
         5.3.     Qualification................................................7
         5.4.     Business, etc................................................7
         5.5.     Capital Stock................................................7
         5.6.     Financial Statements.........................................8
         5.7.     Changes; Solvency, etc.......................................9
         5.8.     Tax Returns and Payments.....................................9
         5.9.     Funded Debt, Current Debt, Liens, Investments, Transactions
                  with Affiliates and Leases...................................9
         5.10.    Title to Properties; Liens; Leases..........................10
         5.11.    Litigation, etc.............................................10
         5.12.    Valid and Binding Obligations; Compliance with Other
                  Instruments, Borrowing Restrictions, etc....................11
         5.13.    ERISA.......................................................12
         5.14.    Consents, etc...............................................13
         5.15.    Proprietary Rights; Licenses................................14
         5.16.    Offer of Notes..............................................14
         5.17.    Government Regulation.......................................14
         5.18.    Regulation G, etc...........................................14
         5.19.    Investment Bankers, etc.....................................15
         5.20.    Disclosure..................................................15
         5.21.    Labor Relations; Suppliers and Customers and Clients........15

6.       Use of Proceeds......................................................16

7.       Financial Statements and Information.................................16

8.       Inspection; Confidentiality..........................................20

9.       Prepayment of Notes..................................................21
         9.1.     Required Annual Prepayment Without Premium of Notes.........21
         9.2.     Optional Prepayment With Premium of Notes...................21
         9.3.     Prepayment of Senior Debt at the Option of each Holder with
                  Available Net Proceeds and Available Unused Proceeds........22
         9.4.     Prepayment Without Premium of the Notes at the Option of
                  Holders of the Notes upon a Change of Control...............24
         9.5      Notice of Optional Repayments of Notes......................25
         9.6.     Maturity; Accrued Interest..................................26
         9.7.     Purchase of Notes...........................................26
         9.8.     Payment on Non-Business Days................................26

10.      Purchase for Investment..............................................26

11.      Certain Regulatory Matters...........................................28

12.      Method of Payment of Notes...........................................28

13.      Liabilities to Other Holders.........................................28

14.      Covenants of the Company.............................................28
         14.1.    Books of Record and Account; Reserves.......................28
         14.2.    Payment of Taxes; Existence; Maintenance of Properties;
                  Compliance with Laws; Lines of Business; Proprietary
                  Right and Licenses..........................................29
         14.3.    Insurance...................................................30
         14.4.    Discount or Sale of Receivables.............................30
         14.5.    Funded Debt, Current Debt and Preferred Shares..............30
         14.6.    Limitation on Restricted Investments and Restricted 
                  Payments....................................................32
         14.7.    Certain Financial Covenants.................................34
         14.8.    Liens.......................................................34
         14.9.    Transactions with Affiliates................................36
         14.10.   Limitation on Issuance of Shares of Subsidiaries and
                  Disposition of Shares.......................................36
         14.11.   Limitation on Consolidation or Merger, etc..................37
         14.12    Limitations on Leasebacks...................................38
         14.13.   Limitation on Dispositions of Property .....................38
         14.14.   Modification of Certain Documents, Agreements and
                  Instruments; Renewal of Bank Credit Documents; Replacement
                  Collateral Agency and Intercreditor Agreement...............39
         14.15.   Limitation on Tax Consolidation.............................40
         14.16.   Revolving Credit Facility...................................40
         14.17    Accounts....................................................40
         14.18    Further Assurances..........................................40

15.      Definitions..........................................................40
         15.1.    Definitions of Capitalized Terms............................40
         15.2.    Other Definitions...........................................55
         15.3.    Accounting Terms and Principles; Laws.......................55

16.      Remedies.............................................................55
         16.1.    Events of Default Defined; Acceleration of Maturity.........55
         16.2.    Suits for Enforcement, etc..................................60
         16.3.    Remedies Cumulative.........................................60
         16.4.    Remedies Not Waived.........................................60
         16.5.    Application of Payments.....................................61

17.      Registration, Transfer and Exchange of Notes.........................61

18.      Replacement of Notes.................................................62

19.      Amendment and Waiver.................................................62

20.      Expenses; Indemnity..................................................63

21.      Communications.......................................................63

22.      Survival of Agreements, Representations and Warranties, etc..........64

23.      Successors and Assigns; Rights of Other Holders......................65

24.      Governing Law; Jurisdiction; Waiver of Jury Trial....................65

25.      Miscellaneous........................................................65



<PAGE>

<TABLE>
<CAPTION>
<S>                     <C>
Schedule I              Schedule of Information for Payment and Notices

Exhibit 1(a)            Form of Note
Exhibit 1(b)            Form of Note Guarantee
Exhibit 1(c)(i)         Form of Security Agreement
Exhibit 1(c)(ii)        Form of Collateral Agency and Intercreditor Agreement
Exhibit 3               Wire Instructions
Exhibit 4.3(d)          ATEC Subordination Agreement
Exhibit 4.6             Opinion of Kaufmann, Feiner, Yamin, Gildin & Robbins, LLP
Exhibit 4.7             Opinion of Choate, Hall & Stewart
Exhibit 4.8             Additional Documents to be Delivered at or Prior to the Closing
Exhibit 5.2             Subsidiaries
Exhibit 5.5(a)          Shares; Stockholders
Exhibit 5.5(b)          Other Securities; Commitments; Preemptive and Registration Rights
Exhibit 5.6(a)          Financial Statements
Exhibit 5.6(b)          Projections
Exhibit 5.6(c)          Pro Forma Unaudited Balance Sheet
Exhibit 5.7             Restricted Payments and Restricted Investments
Exhibit 5.8             Taxes
Exhibit 5.9             Funded Debt, Current Debt, Liens, Investments, Affiliates,
                        Transactions with Affiliates and Leases
Exhibit 5.12(a)         Filings and Recordings
Exhibit 5.14            Consents
Exhibit 5.21            Labor Relations
Exhibit 6               Use of Proceeds
Exhibit 7(c)(iv)        Information as to New Subsidiaries
</TABLE>

<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

JOHN HANCOCK MUTUAL LIFE
  INSURANCE COMPANY
John Hancock Place
200 Clarendon Street
Boston, MA 02117


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

JOHN HANCOCK VARIABLE LIFE
  INSURANCE COMPANY
John Hancock Place
200 Clarendon Street
Boston, MA 02117


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

JOHN HANCOCK LIFE INSURANCE
  COMPANY OF AMERICA
John Hancock Place
200 Clarendon Street
Boston, MA 02117


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

SIGNATURE 1A (CAYMAN), LTD.
c/o John Hancock Mutual Life
Insurance Company, Portfolio Advisor
John Hancock Place
200 Clarendon Street
Boston, MA 02117


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

ORIX USA CORPORATION
780 Third Avenue, 48th Floor
New York, NY 10017


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").



<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

THE CANADA LIFE ASSURANCE COMPANY 330 University Avenue Toronto, Ontario, Canada
M5G 1R8


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").



<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                    May 29, 1997

CANADA LIFE INSURANCE COMPANY
  OF AMERICA
330 University Avenue
Toronto, Ontario, Canada M5G 1R8


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>





                             ATC GROUP SERVICES INC.
                              104 East 25th Street
                               New York, NY 10010


                                                                        29, 1997

CANADA LIFE INSURANCE COMPANY
  OF NEW YORK
330 University Avenue
Toronto, Ontario, Canada M5G 1R8


Ladies and Gentlemen:

         ATC GROUP SERVICES INC., a Delaware corporation (the "Company"), agrees
with you as follows:

Authorization of Notes; Security.Security

                  (a) The Company has authorized the issue and sale of its 8.18%
         Senior Secured Notes due May 31, 2004 (herein,  together with any notes
         issued in exchange therefor or replacement thereof, called the "Notes")
         in the aggregate  principal amount of $32,500,000.  The Notes are to be
         substantially in the form of Exhibit 1(a) attached hereto.  Payments of
         interest  on the Notes shall be due and  payable  semi-annually  on the
         last day of each May and November, commencing November 30, 1997, and at
         maturity,  all as further provided herein and in the Notes. In no event
         shall the amount  paid or agreed to be paid by the  Company as interest
         and  premium on any Note exceed the  highest  lawful  rate  permissible
         under any law applicable thereto.

                  (b) The Notes are to be  guaranteed by each of ATC New England
         Corp.,  a Delaware  corporation,  ATC  Blattert  Inc.,  a South  Dakota
         corporation,  Hygeia Laboratories,  Inc., a Delaware  corporation,  ATC
         Management,  Inc., a South  Dakota  corporation,  ATC Insys  Technology
         Inc., a Delaware  corporation,  and ATC Environmental  Inc., a Delaware
         corporation, each a Wholly-Owned Subsidiary of the Company, and by each
         Person which hereafter becomes a Subsidiary of the Company, pursuant to
         separate  guarantees,  each  substantially  in the form of Exhibit 1(b)
         attached  hereto (as amended,  modified and  supplemented  from time to
         time, each, a "Note Guarantee"; collectively, the "Note Guarantees").


<PAGE>






                                                    -69-



                  (c)  The  Notes  are  to be  secured  by and  entitled  to the
         benefits of first priority security interests in all accounts, accounts
         receivable,  work in process,  general intangibles,  customer lists and
         cash on deposit with The Chase Manhattan  Bank,  including all proceeds
         and  products  thereof,  of the Company  and each of its  Subsidiaries,
         pursuant to separate security  agreements  between the Collateral Agent
         and the  Company  and  each  of its  Subsidiaries,  respectively,  each
         substantially  in the  form of  Exhibit  1(c)(i)  attached  hereto  (as
         amended,  modified and supplemented from time to time, each a "Security
         Agreement";  collectively,  the "Security Agreements").  The Collateral
         Agent shall be appointed to act as collateral  agent for the holders of
         the Notes and the Banks,  and shall have agreed to act as such pursuant
         to a collateral agency and intercreditor agreement substantially in the
         form of Exhibit  1(c)(ii)  attached  hereto (as  amended,  modified and
         supplemented   from  time  to  time,   the   "Collateral   Agency   and
         Intercreditor Agreement").

                  The  Note  Guarantees,   the  Security  Agreements,   and  the
         Collateral  Agency and Intercreditor  Agreement,  together with any and
         all other agreements, documents and instruments heretofore or hereafter
         securing the Notes and/or other  obligations  of the Company and/or any
         Subsidiaries of the Company under the Operative Documents,  as amended,
         modified and supplemented from time to time, are sometimes  hereinafter
         referred  to  collectively  as  the  "Security   Documents"  and  each,
         individually,   as  a  "Security  Document".  All  accounts,   accounts
         receivable,  work in process,  general intangibles,  customer lists and
         cash  described  in this  section  1(c),  together  with any  additions
         thereto and  replacements  and proceeds and  products  thereof,  all as
         further  described  in any of the  Security  Documents,  are  sometimes
         hereinafter referred to collectively as the "Collateral".

                  (d) The  Notes  are to be  issued  under  this  Agreement  and
         separate  Note  Agreements  (the  "Other  Note  Agreements")  identical
         herewith  (except  as to the  name  and  address  of each of the  other
         purchasers) being entered into concurrently by the Company with each of
         the other  purchasers  (the  "Other  Purchasers")  named in  Schedule I
         attached  hereto.  The issue of Notes to you and the issues of Notes to
         each of the Other Purchasers are separate  transactions,  and you shall
         not be  liable or  responsible  for the acts or  defaults  of the Other
         Purchasers.

Sale and Purchase of Notes.  The Company will issue and sell to you and, subject
to the terms and conditions hereof and in reliance upon the  representations and
warranties of the Company contained herein and in the other Operative Documents,
you will purchase from the Company,  at the Closing  specified in section 3, the
Notes  as  specified  on that  portion  of  Schedule  I  attached  hereto  as is
applicable to you, at a purchase price of 100% of the principal amount thereof.

Closing.  The  closing  of the sale and  purchase  of the Notes  hereunder  (the
"Closing")  shall take place at the  office of Messrs.  Choate,  Hall & Stewart,
Exchange Place, 53 State Street,  Boston,  Massachusetts  02109, on May 29, 1997
(the "Closing  Date") not later than 11:00 A.M.  Boston time (your  reinvestment
deadline).  At the  Closing,  the  Company  will  deliver to you the Notes to be
purchased by you against  payment of the purchase  price  thereof to (or for the
benefit of) the Company in immediately  available  funds in accordance  with the
wire instructions set forth on Exhibit 3 attached hereto.  Delivery of the Notes
to be purchased by you at Closing shall be made in the form of one or more Notes
(as specified on Schedule I), in each case, dated and bearing interest from, the
Closing Date and  registered  in such name or names as are specified on Schedule
I. If at the Closing the Company  shall fail to tender the Notes to be delivered
to you thereat as provided  herein,  or if at the Closing any of the  conditions
specified in section 4 shall not have been fulfilled to your  satisfaction,  you
shall,  at your  election,  be relieved of all  further  obligations  under this
Agreement,  without  thereby  waiving any other rights you may have by reason of
such failure or such non-fulfillment.

Conditions to Closing.  Your  obligation to purchase and pay for the Notes to be
purchased by you hereunder at the Closing is subject to the  fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:

         Representations  and  Warranties   Correct.   The  representations  and
warranties made by the Company herein and in the other  Operative  Documents and
otherwise made in writing by or on behalf of the Company in connection  with the
transactions  contemplated by the Operative Documents shall have been correct in
all material respects when made and shall be correct in all material respects at
and as of the time of the Closing  (both  before and  immediately  after  giving
effect to the  consummation  of the  transactions  contemplated by the Operative
Documents).

         Performance;  No Default; No Material Adverse Change. The Company shall
have  performed in all material  respects all  agreements  and complied with all
conditions  contained herein and in the other Operative Documents required to be
performed or complied with by it prior to or at the Closing, including,  without
limitation,  those referred to in section 4.3, and at the time of the Closing no
Default or Event of Default  shall exist and no condition  shall exist which has
resulted in, or could  reasonably  be expected to result in, a Material  Adverse
Change.



<PAGE>



         Contemporaneous Transactions.  ctions


                  (a) The Company shall have repaid all Indebtedness outstanding
         under the Credit  Agreement dated as of May 24, 1996 among the Company,
         its Subsidiaries and The Chase Manhattan Bank (as successor to Chemical
         Bank),  individually  and as agent, and the other banks parties thereto
         (as amended, the "Old Bank Agreement"),  the Old Bank Agreement and all
         related  agreements,  documents and instruments  executed in connection
         therewith   shall  have  been   terminated,   all  Liens  securing  any
         obligations  thereunder shall have been terminated and discharged,  and
         all  financing  statements  or other  instruments  filed or recorded to
         perfect such Liens shall have been terminated or discharged.

                  (b) The Company  shall have entered  into that certain  Credit
         Agreement dated May 29, 1997 (as amended, modified or supplemented from
         time to time in  compliance  with  section  14.14,  together  with  any
         renewals  thereof,  the "Bank Credit  Agreement" and, together with all
         agreements, documents and instruments executed in connection therewith,
         in each case as amended,  modified or supplemented from time to time in
         compliance with section 14.14,  together with any renewals thereof, the
         "Bank Credit  Documents")  with The Chase Manhattan Bank,  individually
         and as  administrative  agent  (the "Bank  Agent"),  for itself and the
         other lenders parties thereto from time to time (collectively, together
         with successor lenders under the Bank Credit  Documents,  the "Banks"),
         the terms and conditions of all of which shall be  satisfactory to you,
         and no default or event of default shall exist thereunder.

                  (c) The  Company,  each of the  Banks,  the  Bank  Agent,  the
         Collateral  Agent,  you and each of the  Other  Purchasers  shall  have
         entered into the Collateral Agency and Intercreditor Agreement.

                  (d) American Testing and Engineering  Corporation,  an Indiana
         corporation  ("ATEC"),  and  Gerald D. Mann  shall  have  executed  and
         delivered to you and the Banks a Subordination Agreement in the form of
         Exhibit 4.3(d) attached hereto,  and related UCC-3's  subordinating the
         Liens in favor of ATEC to the  Liens  in the  Collateral  securing  the
         Notes and the Indebtedness under the Bank Credit Documents.

         4.4.     Compliance Certificate.  You  shall have received an Officers'
         Certificate,  dated  the  Closing  Date, certifying that the conditions
         specified in sections 4.1 and 4.2 have been fulfilled.

         4.5.     Security Documents; Collateral.

                  (a) The Security  Documents  shall have been duly  authorized,
         executed and  delivered by each of the parties  thereto and shall be in
         full force and effect and all  agreements,  documents  and  instruments
         required to be executed, delivered, filed and/or recorded in connection
         therewith shall have been so executed, delivered, filed and/or recorded
         so as to perfect  the first  priority  Liens  created  by the  Security
         Documents,  and such  Liens  shall be subject to no prior or pari passu
         Lien except such other Liens as may be permitted under section 14.8.

                  (b) You and your  special  counsel  shall be  satisfied in all
         respects as to: (i) the title to the Collateral (and the absence of any
         Liens,   other  than  those   permitted  under  section  14.8,  or  any
         outstanding claims with respect to the Collateral);  (ii) the condition
         and value of the  Collateral;  (iii) the recording,  filing,  validity,
         perfection and priority of all Liens created by the Security  Documents
         (and the payment of all related fees and taxes) and (iv) the receipt by
         the Company of all consents of parties to any  agreement  whose consent
         is or may be necessary in connection  with the execution,  delivery and
         performance of any of the Operative Documents.

                  (c) In  connection  with  the  foregoing,  at or  prior to the
         Closing,  you shall have  received the following  items,  each of which
         shall be in form and substance satisfactory to you:

                           (i) UCC financing  statements (naming the Company and
                  each of its  Subsidiaries,  respectively,  as  debtor  and the
                  Collateral  Agent as secured  party) in proper form for filing
                  in the offices specified on Exhibit 5.12(a); and

                           (ii) lien  searches  on the  Company  and each of its
                  Subsidiaries,  respectively,  from the  applicable  offices in
                  each  jurisdiction  in which  any of the  Collateral  shall be
                  located  at or after the  Closing,  which  searches  shall not
                  reveal any prior financing  statement  covering any portion or
                  all of the Collateral  (other than financing  statements to be
                  terminated  at or prior to the  Closing  and  other  financing
                  statements permitted under section 14.8).

         Opinion of  Counsel  for the  Company.  You shall  have  received  from
Messrs. Kaufmann, Feiner, Yamin, Gildin & Robbins, LLP, counsel for the Company,
an opinion,  dated the Closing  Date,  substantially  in the form of Exhibit 4.6
attached hereto.

         Opinion of Your Special  Counsel.  You shall have received from Messrs.
Choate,  Hall & Stewart,  your special  counsel,  an opinion,  dated the Closing
Date, substantially in the form of Exhibit 4.7 attached hereto.

         4.8.  Certain  Additional  Documents to be Delivered at or Prior to the
Closing.  You shall have  received  the items  specified on Exhibit 4.8 attached
hereto, each of which shall be satisfactory to you in all material respects.

         4.9.  Sale of Notes to Other  Purchasers.  At the Closing,  the Company
shall issue and sell to the Other  Purchasers  the Notes to be  purchased at the
Closing by the Other Purchasers  pursuant to the Other Note Agreements and shall
receive payment in full of the purchase price thereof.

         4.10. Legal Investment;  Certificate.  Your purchase of the Notes to be
issued to you pursuant  hereto shall be permitted under the laws and regulations
of any jurisdiction to which you are subject (without resort to any provision of
any such law permitting limited investments by you without restriction as to the
character of the  particular  investment),  and you shall,  if requested by you,
have received an Officers' Certificate, dated the Closing Date, certifying as to
such  factual  matters  as to the  Company  as you may  request to enable you to
determine whether your purchase is so permitted.

         Sale and Purchase Not  Forbidden  by Law.  The offer,  issue,  sale and
delivery  by the  Company  of the Notes to be issued  pursuant  hereto  and your
purchase of such Notes at the Closing shall not be prohibited  by, and shall not
subject you to any tax,  penalty,  liability or other onerous condition under or
pursuant to, any law, statute, rule or regulation.

         Payment  of  Transaction   Costs.   The  Company  shall  have  paid  in
immediately available funds all fees, expenses and disbursements incurred by you
at or prior to the  time of the  Closing  in  connection  with the  transactions
contemplated by the Operative  Documents,  including,  without  limitation,  the
reasonable fees,  expenses and  disbursements  of your special counsel,  Choate,
Hall & Stewart.

         Proceedings  and  Documents.  All  proceedings  in connection  with the
transactions  contemplated  by  the  Operative  Documents  and  all  agreements,
documents and instruments incident to such transactions shall be satisfactory in
substance  and form to you and your  special  counsel,  and you and your special
counsel shall have received all such counterpart originals or certified or other
copies  of  such  agreements,  documents  and  instruments  as you or  they  may
reasonably request.

Representations  and Warranties.  The Company represents and warrants that (both
before and immediately  after giving effect to the  transactions  consummated at
the Closing):

         5.1.     Organization, Standing, etc. of the Company.  The  Company  is
a  corporation   duly  organized,  validly  existing  and in good standing under
the laws of the State of Delaware,  and has all  requisite  corporate  power and
authority to own, lease and operate its properties,  to carry on its business as
now  conducted  and now proposed to be conducted as described in the  Disclosure
Document referred to in section 5.4, to execute, deliver and perform each of the
Operative  Documents to which it is (or is to be) a party and to consummate  the
transactions  contemplated  by the Operative  Documents,  and no approval of the
stockholders  of the  Company or any class  thereof is  required  in  connection
therewith.
         Subsidiaries.  Exhibit 5.2  attached  hereto is a complete  and correct
list  of  the  Company's  Subsidiaries  (corporate  or  other)  which  correctly
specifies as to each such Subsidiary (a) its legal name, (b) the jurisdiction of
its  organization,  (c) each other  jurisdiction  in which it is qualified to do
business,  (d) the authorized Shares of such Subsidiary (specifying the class or
classes thereof) and the number of such Shares outstanding,  (e) the number (and
percentage)  of such  outstanding  Shares  owned by the  Company  and its  other
Subsidiaries  and (f) the name of each other  holder,  if any,  of such  Shares,
together  with the  number  (and  percentage)  held by such other  holder.  Each
Subsidiary  of the Company is a  corporation  or other  entity  duly  organized,
validly  existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority to own, lease and operate
its properties,  to carry on its business as now conducted,  and now proposed to
be conducted,  as described in the Disclosure Document, and to execute,  deliver
and perform each of the Operative Documents to which it is (or is to be) a party
and to consummate the transactions  contemplated thereby. All of the outstanding
Shares of each  Subsidiary  of the Company are  validly  issued,  fully paid and
nonassessable  and not  subject  to  preemptive  rights on the part of any other
Person, and all of such Shares have been offered,  issued and sold by the issuer
thereof  in  compliance  with all  applicable  laws.  All of the  Shares  of the
Company's  Subsidiaries  owned by the Company and its  Subsidiaries  as shown on
Exhibit 5.2 attached hereto are so owned of record and  beneficially and free of
any  Lien,  proxy,  voting  agreement,  voting  trust or  similar  agreement  or
restriction.

         Qualification.  Each  of the  Company  and  its  Subsidiaries  is  duly
qualified  or  licensed  to  do  business  and  is  in  good  standing  in  each
jurisdiction  in which the  character of the  properties  owned or leased or the
nature  of the  activities  conducted  makes  such  qualification  or  licensing
necessary,  except  for  those  jurisdictions  in  which  the  failure  to be so
qualified  or licensed or to be in good  standing has not resulted in, and could
not reasonably be expected to result in, a Material Adverse Change.

         5.4. Business, etc. The Company and its Subsidiaries are engaged in the
business of engineering, environmental,  geotechnical and construction materials
testing and  consulting,  construction  and  environmental  project  management,
information  technology  consulting  and  related  services  (collectively,  the
"Business"),   as  further  described  in  the  Company's  Confidential  Private
Placement  Offering  Memorandum dated December 1996,  including all exhibits and
appendices  thereto,  prepared  by the  Company  with  the  assistance  of Chase
Securities  Inc., a true,  correct and complete copy of which has been furnished
to you (the "Disclosure Document").

         Capital Stock.al Stock

                  (a) The authorized,  issued and  outstanding  capital stock of
         the  Company  are fully and  accurately  described  on  Exhibit  5.5(a)
         attached hereto. All of the outstanding Shares of the Company have been
         validly  issued  and are fully  paid and  non-assessable  and have been
         offered,  issued  and  sold  by the  Company  in  compliance  with  all
         applicable  laws.  The number of shares of Common  Stock of the Company
         beneficially  owned  by each  director  and  executive  officer  of the
         Company and its Subsidiaries  and each other Person that,  individually
         or together with its Affiliates,  beneficially  owns 5% or more of such
         shares  of Common  Stock (on a fully  diluted  basis),  along  with the
         percentage of total  outstanding  shares of Common Stock of the Company
         that such number  represents of Common Stock of the Company (on a fully
         diluted basis), are set forth on Exhibit 5.5(a) attached hereto.  There
         are no outstanding Preferred Shares of the Company.

                  (b) Except as set forth on Exhibit 5.5(b) attached hereto: (i)
         there are no outstanding  rights,  options,  warrants or agreements for
         the  purchase  from,  or sale or issuance by, the Company or any of its
         Subsidiaries  of any capital  stock or securities  convertible  into or
         exercisable  or  exchangeable  for  such  stock;   (ii)  there  are  no
         agreements  on the part of the  Company or any of its  Subsidiaries  to
         issue,  sell or distribute  any securities or any assets of the Company
         or any of its  Subsidiaries;  and (iii)  neither the Company nor any of
         its  Subsidiaries  has any  obligation  (contingent  or  otherwise)  to
         purchase,  redeem or  otherwise  acquire any of its  securities  or any
         interest  therein or to pay any  dividend or make any  distribution  in
         respect thereof.

         Financial Statements.atements

                  (a) You have  been  furnished  with the  financial  statements
         referred  to  on  Exhibit  5.6(a)  attached  hereto,   which  financial
         statements are complete and correct in all material respects  (subject,
         in the case of any unaudited financial  statements,  to normal year-end
         and audit  adjustments),  have been  prepared in  accordance  with GAAP
         applied on a consistent  basis  throughout the periods  covered thereby
         and present fairly in all material respects the financial  position and
         the results of operations and cash flows of the Person(s)  purported to
         be covered  thereby as at the  respective  dates and for the respective
         periods indicated, in conformity with GAAP (subject, in the case of any
         unaudited   financial   statements,   to  normal   year-end  and  audit
         adjustments).

                  (b) The Company has furnished to you the  projected  financial
         information  referred  to on  Exhibit  5.6(b)  attached  hereto,  which
         projections  were  prepared in good faith,  are based upon  assumptions
         that the Company  believed were reasonable at the time such projections
         were made and took into account all material information  regarding the
         matters set forth therein. Such projections, when provided, represented
         the Company's best estimate of the future financial  performance of the
         Company  and  its  Subsidiaries,  assuming  no new  acquisitions.  Such
         projections  continue to represent the Company's  present best estimate
         of  the  future   financial   performance   of  the   Company  and  its
         Subsidiaries,  subject  to the  activities  inherent  in the  Company's
         business,  including,  without  limitation,  acquisitions  and  project
         timing.  There is no  guarantee  that any of such  projections  will be
         attained  and actual  results may vary from such  projections  and such
         variations may be material.

                  (c) The pro forma unaudited  consolidated balance sheet of the
         Company included as Exhibit 5.6(c) attached hereto, fairly presents the
         financial  position of the Company and its  Subsidiaries as at November
         30,  1996,  adjusted  on a pro  forma  basis  to  give  effect  to  the
         consummation  of  the   transactions   contemplated  by  the  Operative
         Documents,  and reflects all known  liabilities  of the Company and its
         Subsidiaries, contingent or other, as at November 30, 1996, required by
         GAAP to be reflected therein.

         Changes;  Solvency, etc. Since February 29, 1996, (a) there has been no
change in the assets,  liabilities or financial condition of the Company and its
Subsidiaries  from that set forth on the balance  sheet as of such date referred
to on Exhibit  5.6(a),  other than changes in the  ordinary  course of business,
which have not been, either in any case or in the aggregate, materially adverse;
(b) no  condition  or  event  has  occurred  which  has  resulted  in,  or could
reasonably be expected to result in, a Material  Adverse Change;  and (c) except
as set forth on Exhibit 5.7 attached hereto,  neither the Company nor any of its
Subsidiaries has, directly or indirectly,  declared,  ordered,  paid or made any
Restricted Payment or Restricted Investment. Each of the Company and each of its
Subsidiaries is and, after giving effect to the transactions contemplated by the
Operative Documents, will be Solvent.

         Tax Returns and Payments.  The Company and its Subsidiaries  have filed
all tax returns  required by law to be filed and, except as set forth on Exhibit
5.8 attached  hereto,  have paid all taxes,  assessments and other  governmental
charges  levied  upon  any  of  their  respective  properties,  assets,  income,
franchises  or  sales  other  than  those  not yet  delinquent  and  those,  not
substantial in aggregate  amount,  being or about to be contested as provided in
section  14.2(a).  The  income  tax  liability  of the  Company  and each of its
Subsidiaries  has  been  finally  determined  by  all  applicable   governmental
authorities,  including without  limitation,  the Internal Revenue Service,  and
satisfied,  or the time for audit has  expired,  for the fiscal  years listed on
Exhibit 5.8 attached hereto. Neither the Company nor any of its Subsidiaries has
executed  any waiver or waivers  that  would  have the effect of  extending  the
applicable  statute of  limitations  in respect of income tax  liabilities.  The
charges,  accruals and reserves in the  financial  statements of the Company and
its  Subsidiaries in respect of taxes for all fiscal periods are adequate in the
opinion of the Company, and, except as set forth on Exhibit 5.8 attached hereto,
the Company knows of no unpaid  assessments for additional  taxes for any fiscal
period or of any basis therefor.

         Funded  Debt,  Current  Debt,  Liens,  Investments,  Transactions  with
Affiliates and Leases. Exhibit 5.9 attached hereto correctly describes:

                  (a) all Funded Debt and/or  Current Debt of the Company and/or
         any of its  Subsidiaries  to be outstanding  immediately  following the
         Closing and/or all agreements  pursuant to which the Company and/or any
         of its  Subsidiaries  has (or have)  the  right to incur the same,  and
         identifies any collateral which secures (or will secure) the same;

                  (b) all Liens to which any of the properties and assets of the
         Company  and/or any of its  Subsidiaries  will be  subject  immediately
         following the Closing  (other than those of the character  described in
         section  14.8(b))  which   individually  or  in  the  aggregate  secure
         Indebtedness of $50,000 or more;

                  (c) all  Investments  (and all agreements  and  commitments to
         make  Investments) of the Company and/or any of its  Subsidiaries to be
         owned or held (or in effect) immediately  following the Closing (except
         for Investments  described in clauses (b) through (i) of the definition
         of Permitted Investments);

                  (d) each of the  Affiliates  of the  Company  (other  than its
         Subsidiaries)  and  of  each  of its  Subsidiaries,  and  all  material
         transactions  with such Affiliates  which were  consummated  during the
         12-month  period  ended on the Closing Date or which the Company or any
         Subsidiary is now obligated or now intends to consummate at any time in
         the  future,  other  than any  such  transaction  consummated  or to be
         consummated  in the  ordinary  course of business  and on  arm's-length
         terms; and

                  (e) each  material  lease,  other than Capital  Leases,  under
         which the  Company or any of its  Subsidiaries  is lessee or  sublessee
         and,  with  respect to each such  lease,  the name of the  lessor,  the
         lessee or sublessee,  a general description of the property leased, the
         annual Rental Obligations payable thereunder and the term thereof.

         Title to Properties;  Liens;  Leases.  The Company and its Subsidiaries
have good and marketable  title to all of their respective  material  properties
and assets, including, without limitation, the Collateral and the properties and
assets  reflected on the most recent balance sheet referred to on Exhibit 5.6(a)
attached hereto, except properties and assets disposed of since such date in the
ordinary course of business. None of such properties or assets is subject to any
Lien or  leases  or  occupancy  agreements  (whether  oral or  written),  or any
options,  except those  described  on Exhibit 5.9 attached  hereto or those of a
character described in section 14.8(b). Each of the Company and its Subsidiaries
enjoys peaceful and undisturbed possession under all material leases under which
it operates, and all of such leases are valid,  subsisting and in full force and
effect. None of such leases contains any unusual or burdensome provision, which,
in either case, has resulted in, or could reasonably be expected to result in, a
Material Adverse Change.

         5.11. Litigation,  etc. There is no action, proceeding or investigation
pending  or  threatened  (or any  basis  therefor  known to the  Company)  which
questions the validity of any of the Operative  Documents or any action taken or
to be taken pursuant to any of the Operative Documents or which has resulted in,
or could reasonably be expected to result in, a Material  Adverse Change.  There
is no  outstanding  judgment,  decree or order which has  resulted  in, or could
reasonably be expected to result in, a Material Adverse Change.

         5.12.  Valid   and   Binding   Obligations;  Compliance   with   Other
Instruments,  Borrowing   Restrictions,  etc.  Valid  and  Binding  Obligations;
Compliance  with Other Instruments, Borrowing Restrictions, etc.

                  (a) This  Agreement  has been duly  authorized,  executed  and
         delivered by the Company and  constitutes the valid and legally binding
         obligation of the Company enforceable against the Company in accordance
         with its  terms.  Each of the other  Operative  Documents  to which the
         Company  or any of its  Subsidiaries  is (or is to be) a party has been
         duly  authorized by such Person and, when executed and delivered,  will
         constitute  the valid and legally  binding  obligation  of such Person,
         enforceable  against it in  accordance  with its terms,  subject to the
         effect of applicable  bankruptcy or similar laws of general application
         now or  hereafter  in effect  affecting  the  rights  and  remedies  of
         creditors and general equity principles. The provisions of the Security
         Documents  are  effective  to create in favor of the  Collateral  Agent
         legal,  valid and enforceable  security  interests in all of the right,
         title  and  interest  of  the  Company  and  its  Subsidiaries  in  the
         Collateral.  At the Closing,  by virtue of the  recording and filing of
         the financing  statements  and other  instruments  specified on Exhibit
         5.12(a)  attached  hereto  in the  applicable  offices  listed  on such
         exhibit,  all of which  recordings  and filings will have been made and
         will be in full  force  and  effect at or prior to the  Closing,  there
         shall  have  been  created  in  favor  of the  Collateral  Agent  fully
         perfected first security  interests in all right, title and interest of
         the Company and its Subsidiaries in the Collateral, subject to no other
         Liens or claims of any other  Person  other  than the Liens in favor of
         the Bank Agent  permitted  under  section  14.8(c).  No other filing or
         action  is  presently  required  in  order  to  perfect  such  security
         interests,  except  that  perfection  of  such  security  interests  in
         Collateral consisting of cash must be perfected by possession.

                  (b)  Neither the  Company  nor any of its  Subsidiaries  is in
         violation of or in default  under any term of its  charter,  by-laws or
         other  organizational   document,   or  of  any  agreement,   document,
         instrument,  judgment,  decree, order, law, statute, rule or regulation
         applicable  to the Company or any of its  Subsidiaries  or any of their
         respective  properties and assets, in any way which has resulted in, or
         could  reasonably be expected to result in, a Material  Adverse Change.
         Without  limiting the generality of the foregoing,  the Company and its
         Subsidiaries  are in  compliance  with (and have not, and none of their
         predecessors in interest have, received any notice to the contrary) and
         there is no reasonable possibility of any liability of or any judgment,
         decree or order binding upon or applicable to the Company or any of its
         Subsidiaries or any of their  respective  properties or assets under or
         on account of any  Environmental  Laws,  except  where the same has not
         resulted  in,  and could not  reasonably  be  expected  to result in, a
         Material Adverse Change.

                  (c)  The  execution,  delivery  and  performance  of  and  the
         consummation  of  the   transactions   contemplated  by  the  Operative
         Documents will not violate or constitute a default under, or permit any
         Person to accelerate or to require the  prepayment of any  Indebtedness
         or the  repurchase  of any  securities  of  the  Company  or any of its
         Subsidiaries  or to terminate  any  material  lease or agreement of the
         Company  or any of its  Subsidiaries  pursuant  to,  or  result  in the
         creation  of any Lien  (other  than the Liens  created by the  Security
         Documents and the Bank Credit  Documents) upon any of the properties or
         assets of the Company or any of its  Subsidiaries  pursuant to any term
         of the charter, by-laws or other organizational document of the Company
         or any of its Subsidiaries or of any agreement,  document,  instrument,
         judgment, decree, order, law, statute, rule or regulation applicable to
         the  Company  or any of its  Subsidiaries  or any of  their  respective
         properties and assets, including, without limitation, the Collateral.

                  (d) Neither the Company nor any of its Subsidiaries is a party
         to  or  bound  by  or   subject  to  any   charter,   by-law  or  other
         organizational  document,  or  any  agreement,   document,  instrument,
         judgment,  decree,  order, law, statute, rule or regulation (other than
         the Bank Credit  Agreement and laws,  statutes,  rules and  regulations
         applicable to corporations  generally) (i) which restricts its right or
         ability to incur and repay Funded Debt or Current Debt;  (ii) under the
         terms of or  pursuant  to which its  obligation  to pay all amounts due
         from it and/or  to  perform  all  obligations  imposed  on it and/or to
         comply  with the  terms  applicable  to it under  any of the  Operative
         Documents is in any way restricted;  (iii) which restricts its right or
         ability  to pay  dividends  and/or to make any other  distributions  in
         respect of its Shares,  to mortgage  or dispose of its  properties,  to
         make  Investments  or capital  expenditures,  to enter into and perform
         leases and/or to pay executive compensation; or (iv) which has resulted
         in, or could  reasonably  be expected to result in, a Material  Adverse
         Change.

         ERISA.   ERISA

                  (a) The Company and each ERISA  Affiliate  have  operated  and
         administered  each Plan in compliance  with all applicable  laws except
         for such  instances  of  noncompliance  which have not resulted in, and
         could not  reasonably  be  expected  to result in, a  Material  Adverse
         Change.  Neither the Company nor any ERISA  Affiliate  has incurred any
         liability  pursuant  to Title I or IV of ERISA or the penalty or excise
         tax  provisions  of the Code  relating  to employee  benefit  plans (as
         defined in section 3 of ERISA), and no event,  transaction or condition
         has occurred or exists that could  reasonably  be expected to result in
         the  incurrence  of any such  liability  by the  Company  or any  ERISA
         Affiliate,  or in the  imposition  of any  Lien  on any of the  rights,
         properties or assets of the Company or any ERISA  Affiliate,  in either
         case  pursuant  to Title I or IV of ERISA or to such  penalty or excise
         tax provisions or to section  401(a)(29) or 412 of the Code, other than
         such liabilities or Liens as would not individually or in the aggregate
         result in a Material Adverse Change.
                  (b) The present  value of the  aggregate  benefit  liabilities
         under each of the Plans (other than Multiemployer Plans), determined as
         of the end of such Plan's most recently ended plan year on the basis of
         the actuarial assumptions specified for funding purposes in such Plan's
         most recent actuarial  valuation  report,  did not exceed the aggregate
         current  value of the  assets of such Plan  allocable  to such  benefit
         liabilities.  The term "benefit  liabilities" has the meaning specified
         in section  4001 of ERISA and the terms  "current  value" and  "present
         value" have the meaning specified in section 3 of ERISA.

                  (c) The Company  and the ERISA  Affiliates  have not  incurred
         withdrawal  liabilities  (and are not subject to contingent  withdrawal
         liabilities)  under  section  4201 or  4204  of  ERISA  in  respect  of
         Multiemployer  Plans that individually or in the aggregate could result
         in a Material Adverse Change. The Company and the ERISA Affiliates have
         made all required  contributions  to Multiemployer  Plans.  Neither the
         Company nor any ERISA  Affiliate  has  incurred,  nor would  reasonably
         expect to incur,  any  Withdrawal  Liability upon a complete or partial
         withdrawal  from any  Multiemployer  Plan that  individually  or in the
         aggregate could result in a Material Adverse Change. To the best of the
         Company's  knowledge,  no  Multiemployer  Plan  is,  or  is  reasonably
         expected to be,  insolvent,  in reorganization or terminated within the
         meaning of Title IV of ERISA.

                  (d)  The   expected   post   retirement   benefit   obligation
         (determined  as of the last day of the most recently  ended fiscal year
         of the Company in accordance with Financial  Accounting Standards Board
         Statement  No.  106,  without  regard to  liabilities  attributable  to
         continuation  coverage  mandated  by section  4980B of the Code) of the
         Company is $0.

                  (e) The consummation of the  transactions  contemplated by the
         Operative Documents will not involve any transaction that is subject to
         the prohibitions of section 406(a) of ERISA or in connection with which
         a tax could be imposed  pursuant  to section  4975(c)(1)(A)-(D)  of the
         Code. The  representation in the first sentence of this section 5.13(e)
         is made by the Company in reliance  upon and subject to the accuracy of
         your  representation  in section  10(b) as to the  sources of the funds
         used to pay the purchase price of the Notes to be purchased by you.

         Consents,  etc.  No consent  or filing  with,  or other  action by, any
Person (including,  without limitation, any creditor of or lender to the Company
or any of its  Subsidiaries  or any  governmental  authority)  is  required as a
condition precedent to the valid execution,  delivery and performance of and the
consummation of the transactions  contemplated by the Operative Documents and/or
the  exercise by the  Collateral  Agent or any holder of any Notes of any of its
rights under the Operative Documents or otherwise in respect of the Notes, other
than (a) those specified on Exhibit 5.14 attached hereto, all of which have been
obtained (or will have been obtained on or prior to the  Closing),  are (or will
be at the time of the Closing)  unconditional and are (or will be at the time of
the  Closing)  in full force and effect and not  subject to appeal or review and
(b) the filing and recording of the Security  Documents and/or related financing
statements and instruments  specified on Exhibit 5.12(a) attached hereto, all of
which filings and recordings have been made (or will have been made on or before
the Closing).

         Proprietary Rights; Licenses. The Company and its Subsidiaries have all
Proprietary  Rights  and  Licenses  as are  adequate  for the  conduct  of their
respective businesses as now conducted and now proposed to be conducted, without
any known conflict with the rights of others.  Each such  Proprietary  Right and
License is in full force and  effect,  all  material  obligations  with  respect
thereto have been fulfilled and performed,  and there is no infringement thereof
by any other Person.  No default in the performance or observance by the Company
and/or  any of its  Subsidiaries  (or any of their  respective  predecessors  in
interest) of its  obligations  thereunder has occurred  which permits,  or after
notice or lapse of time or both would permit,  the  revocation or termination of
any Proprietary  Right or License or which has resulted in, or could  reasonably
be expected to result in, a Material Adverse Change.

         Offer of Notes.  Neither the Company,  any of its  Subsidiaries  or any
Person acting on their behalf (a) has directly or  indirectly  offered the Notes
or any part thereof or any similar securities for issue or sale to, or solicited
any  offer to buy any of the  same  from,  anyone  other  than  you,  the  Other
Purchasers and not more than 75 other  institutional  investors or (b) has taken
or will take any action  which  would bring the  issuance  and sale of the Notes
within the provisions of Section 5 of the Securities Act or the  registration or
qualification provisions of any applicable blue sky or other securities laws.

         Government Regulation.  Neither the Company nor any of its Subsidiaries
is subject to regulation  under the Public Utility  Holding Company Act of 1935,
the Federal  Power Act,  the  Investment  Company Act of 1940 or the  Interstate
Commerce Act.

         Regulation  G, etc.  Neither the  Company  nor any of its  Subsidiaries
owns,  will use all or any  part of the  proceeds  of the  sale of the  Notes to
acquire,  or has any  intention  of  acquiring,  any "margin  stock"  within the
meaning  of  Regulation  G (12 CFR Part  207) of the Board of  Governors  of the
Federal Reserve System (herein called a "margin security"). None of the proceeds
of the Notes will be used directly or indirectly,  for the purpose of purchasing
or carrying  any margin  security or for the purpose of reducing or retiring any
Indebtedness  which was  originally  incurred  to  purchase  or carry any margin
security  or for any other  purpose  which  might  constitute  the  transactions
contemplated by the Operative Documents a "purpose credit" within the meaning of
said  Regulation  G or  cause  this  Agreement  or any of  the  other  Operative
Documents  to  violate  Regulation  G or any  other  regulation  of the Board of
Governors of the Federal Reserve System, or the Exchange Act.

         Investment Bankers,  etc. Neither the Company,  any of its Subsidiaries
or any Person  acting on their  behalf (a) has dealt  with any  broker,  finder,
commission  agent or other  similar  Person in  connection  with the sale of the
Notes and the other transactions  contemplated by the Operative  Documents other
than Chase  Securities  Inc. or (b) is under any  obligation to pay any broker's
fee, finder's fee or commission in connection with such transactions, other than
a fee to Chase  Securities  Inc.,  which  fee is the  obligation  solely  of the
Company.

         Disclosure.  Neither  this  Agreement  nor any of the  other  Operative
Documents nor any other document,  certificate or written statement furnished to
you by or on behalf of the Company or any of its Subsidiaries in connection with
the transactions  contemplated by the Operative  Documents,  contains any untrue
statement  of a material  fact or omits to state a material  fact  necessary  in
order to make the statements  contained herein and therein not misleading in the
light of the  circumstances  under  which such  statements  were made,  it being
understood  that,  except as set forth in  section  5.6,  no  representation  or
warranty is made with respect to any projections or other prospective  financial
information.  There is no fact  known to the  Company  (other  than  information
concerning general economic  conditions known to the public generally) which has
resulted in, or could  reasonably  be expected to result in, a Material  Adverse
Change  that has not  been set  forth in this  Agreement,  the  other  Operative
Documents and the other documents,  certificates and written statements referred
to above in this section 5.20.

         Labor Relations; Suppliers, Customers and Clients.  lients

                  (a) Except as disclosed on Exhibit 5.21  attached  hereto,  no
         dispute or controversy involving employees of the Company or any of its
         Subsidiaries has resulted in, or could reasonably be expected to result
         in, a Material  Adverse  Change.  Neither  the  Company  nor any of its
         Subsidiaries  anticipates that its  relationships  with its unions,  if
         any,  or its  employees  will  result in, or are  reasonably  likely to
         result in, any Material Adverse Change.

                  (b) The relationships  with the suppliers to and customers and
         clients  of  the  Company  and/or  its  Subsidiaries  are  satisfactory
         commercial working  relationships and, during the 12-month period ended
         on the Closing Date, no such supplier,  customer or client has canceled
         or  otherwise   terminated  its  relationship  with  or  decreased  its
         services,  supplies  or  materials  to or its usage or  purchase of the
         services or products of the Company or any of its Subsidiaries,  as the
         case may be, in a manner which has resulted in, or could  reasonably be
         expected to result in, a Material  Adverse  Change.  The Company is not
         aware  of,  nor has it  received  any  notice  concerning,  any plan or
         intention  of any such  supplier,  customer  or client to take any such
         action.

Use of Proceeds.Proceeds

                  (a) The  proceeds of the sale of the Notes will be used on the
         Closing  Date to make the  payments to the Persons and for the purposes
         specified  on Exhibit 6 attached  hereto and any  remaining  balance of
         such  proceeds  will  be  used  for  general  corporate   purposes  and
         acquisitions effected in compliance with this Agreement.

                  (b) The Company will not,  and will not permit any  Subsidiary
         to,  directly  or  indirectly,  use any part of such  proceeds  for any
         purpose  which  would  violate any  provision  of any  applicable  law,
         statute,  regulation,  rule, order or restriction,  including,  without
         limitation,  Regulation  G or any  other  regulation  of the  Board  of
         Governors  of the  Federal  Reserve  System  (herein  called a  "margin
         security") or for the purpose of reducing or retiring any  Indebtedness
         that was originally  incurred to purchase or carry any margin  security
         or for  any  other  purpose  that  might  constitute  the  transactions
         contemplated by the Operative  Documents a "purpose  credit" within the
         meaning  of said  Regulation  G or cause this  Agreement  or any of the
         other  Operative  Documents  to  violate  Regulation  G  or  any  other
         regulation of the Board of Governors of the Federal Reserve System,  or
         the  Exchange Act or any other  applicable  law,  statute,  regulation,
         rule, order or restriction.

Financial  Statements  and  Information.  The  Company  will  furnish  to you in
duplicate,  so  long as you  shall  hold  any of the  Notes,  and to each  other
institutional holder from time to time of any Notes:

                  (a) as soon as available and in any event within 50 days after
         the end of each quarterly  accounting period in each fiscal year of the
         Company,  the consolidated  and, if otherwise  prepared,  consolidating
         balance sheets of the Company and its  Subsidiaries  at the end of such
         period  and  the  related  consolidated  and,  if  otherwise  prepared,
         consolidating  statements of operations,  stockholders' equity and cash
         flows for such  period and for the portion of such fiscal year ended on
         the last day of such period,  in each case setting forth in comparative
         form the  corresponding  figures for the same period and portion of the
         next preceding  fiscal year, all in reasonable  detail and certified by
         the chief financial officer or controller of the Company to be true and
         correct  in  all  material  respects  and  to  have  been  prepared  in
         accordance with GAAP, subject to normal year-end and audit adjustments;

                  (b) as soon as  available  and in any  event  within  105 days
         after the end of each fiscal year of the Company, the consolidated and,
         if otherwise prepared,  consolidating balance sheets of the Company and
         its  Subsidiaries at the end of such year and the related  consolidated
         and, if otherwise  prepared,  consolidating  statements of  operations,
         stockholders' equity and cash flows for such year, in each case setting
         forth  in  comparative  form  the  corresponding  figures  for the next
         preceding fiscal year, all in reasonable  detail and accompanied by the
         standard  unqualified report on such consolidated  financial statements
         of the Company and its  Subsidiaries  of Deloitte & Touche LLP or other
         accountants of recognized national standing selected by the Company and
         consented to by the Required  Holders of the Notes (which consent shall
         not be unreasonably withheld or delayed),  which report shall (i) state
         that the audit of such accountants in connection with such consolidated
         financial  statements has been  conducted in accordance  with generally
         accepted auditing standards and that such accountants believe that such
         audit provides a reasonable  basis for their opinion,  (ii) contain the
         other statements  required from time to time by the American  Institute
         of Certified Public Accountants for an auditor's  standard  unqualified
         opinion  (and shall not contain any  additional  explanatory  paragraph
         concerning  uncertainties or other matters),  (iii) include the opinion
         of such accountants that such consolidated financial statements present
         fairly in all material respects the consolidated  financial position of
         the Company and its  Subsidiaries as at the end of such fiscal year and
         the  consolidated  results of operations and cash flows for such fiscal
         year,  in  conformity  with  GAAP,  and  (iv) be  accompanied  by (A) a
         separate report or certificate  from such  accountants or a footnote in
         the  audited  financial  statements,   in  either  case  which  report,
         certificate  or  footnote  shall  state (x) that such  accountants  are
         familiar with the terms of the Operative Documents and provide negative
         assurance  relative to compliance with the applicable  covenants of the
         Operative  Documents  as they  relate  to  accounting  matters  and (y)
         whether or not their examination has disclosed the existence, during or
         at the end of the  fiscal  year  covered by such  financial  statements
         and/or  the date of such  certificate,  of (I) any Change of Control or
         (II) any  Default or Event of Default  and,  if their  examination  has
         disclosed  such a condition or event,  specifying in reasonable  detail
         the nature and period of existence  thereof,  provided  that in issuing
         such certificate or approving such footnote such accountants  shall not
         be required to go beyond  normal  accounting  procedures  conducted  in
         connection  with  issuing  their  report  referred to above,  and (B) a
         letter  from such  accountants  with  respect to the  internal  control
         structure  of the Company  and its  Subsidiaries  with  respect to such
         fiscal year most recently ended, issued in accordance with Statement on
         Auditing Standards No. 60 issued by the Auditing Standards Board of the
         American Institute of Certified Public Accountants.

                  (c)  together  with  each  delivery  of  financial  statements
         pursuant to sections  7(a) and 7(b),  an  Officers'  Certificate  which
         shall:

                           (i) state that, after due inquiry, the signers do not
                  have  knowledge  of the  existence  during the  fiscal  period
                  covered by such financial statements or as at the date of such
                  Officers'  Certificate,  of (A) any "reportable condition" (as
                  defined in  Statement on Auditing  Standards  No. 60 issued by
                  the  Auditing  Standards  Board of the  American  Institute of
                  Certified   Public   Accountants)  in  the  internal   control
                  structure of the Company or any of its  Subsidiaries,  (B) any
                  Change of Control or (C) any Default or Event of Default,  or,
                  if such is not the case,  specifying in reasonable  detail the
                  nature and period of  existence  thereof  and what  action the
                  Company or the applicable  Subsidiary has taken, is taking and
                  proposes to take with respect thereto and the date, if any, on
                  which it is estimated the same will be remedied;

                           (ii)  show  in  reasonable  detail  all  computations
                  required to demonstrate  compliance,  during and at the end of
                  the fiscal period covered by such financial  statements,  with
                  the provisions of sections 14.5, 14.6, 14.7, 14.8 and 14.13;

                           (iii)  include  in  reasonable  detail   management's
                  discussion  and analysis of the results of operations  and the
                  financial  condition of the Company and its Subsidiaries as at
                  the end of and for the fiscal period covered by such financial
                  statements,   including  a  supplemental   discussion  of  any
                  significant  variations  from  the  budgets  for  such  period
                  delivered pursuant to section 7(h); and

                           (iv) if  there  shall  exist  any  Subsidiary  of the
                  Company as of the date of such Officers' Certificate which did
                  not  exist as of the date of the  last  Officers'  Certificate
                  delivered  pursuant to this section 7(c), specify with respect
                  to each such Subsidiary the information  called for by Exhibit
                  7(c)(iv),  contain a brief  description  of the nature of each
                  such   Subsidiary's   business   and  certify  that  such  new
                  Subsidiary  is a  party  to a Note  Guarantee  and a  Security
                  Agreement.

                  (d) as  promptly  as  practicable  (but in any event not later
         than five Business Days) after receipt  thereof,  copies of all reports
         or written  comments  (including,  without  limitation,  audit reports,
         so-called  management  letters and any other reports or  communications
         with respect to the internal control structure of the Company or any of
         its  Subsidiaries)  submitted to the Company or any of its Subsidiaries
         by independent accountants or others;

                  (e) as  promptly  as  practicable  (but in any event not later
         than five Business  Days) after the same are  available,  copies of (i)
         all press releases,  notices,  proxy statements,  financial statements,
         reports and documents as the Company or any of its  Subsidiaries  shall
         release or make available  generally to their stockholders and (ii) all
         periodic and special  reports,  documents and  registration  statements
         (other than on Form S-8) which are  furnished or filed,  or any officer
         or director or  stockholder  of the Company or any of its  Subsidiaries
         furnished  or  filed  with  respect  to  the  Company  or  any  of  its
         Subsidiaries with the Commission (or any analogous foreign governmental
         authority) or any securities exchange;

                  (f) as  promptly  as  practicable  (but in any event not later
         than five Business  Days) after the  occurrence of any of the following
         conditions or events, an Officers' Certificate specifying in reasonable
         detail the nature and period of existence thereof,  and what action has
         been taken,  is being  taken and is  proposed to be taken with  respect
         thereto: (i) with respect to any Plan, any reportable event, as defined
         in section 4043(b) of ERISA and the regulations  thereunder,  for which
         notice thereof has not been waived  pursuant to such  regulations as in
         effect  on the date  hereof;  (ii) the  taking  by the PBGC of steps to
         institute,  or the  threatening  by the  PBGC  of the  institution  of,
         proceedings  under section 4042 of ERISA for the termination of, or the
         appointment of a trustee to administer, any Plan, or the receipt by the
         Company or any ERISA  Affiliate of a notice from a  Multiemployer  Plan
         that  such  action  has been  taken by the PBGC  with  respect  to such
         Multiemployer  Plan; or (iii) any event,  transaction or condition that
         could result in the  incurrence  of any liability by the Company or any
         ERISA  Affiliate  pursuant  to Title I or IV of ERISA or the penalty or
         excise tax  provisions of the Code relating to employee  benefit plans,
         or in the  imposition  of any Lien on any of the rights,  properties or
         assets of the Company or any ERISA Affiliate  pursuant to Title I or IV
         of ERISA or such penalty or excise tax provisions, if such liability or
         Lien,  taken  together  with any other such  liabilities  or Liens then
         existing,  has resulted in, or could  reasonably  be expected to result
         in, a Material Adverse Change;

                  (g) as  promptly  as  practicable  (but in any event not later
         than five  Business  Days) after the  occurrence  of (i) any Default or
         Event of Default or (ii) any  condition or event which has resulted in,
         or could  reasonably  be  expected  to result  in, a  Material  Adverse
         Change,  an Officers'  Certificate  specifying in reasonable detail the
         nature and period of existence thereof,  what action the Company or any
         of its  Subsidiaries  has taken,  is taking and  proposes  to take with
         respect thereto and the date, if any, on which it is estimated the same
         will be remedied;

                  (h) as  promptly  as  practicable  (but in any event not later
         than 30 days) prior to the end of each fiscal year of the  Company,  an
         annual  budget  prepared on a  quarterly  basis for the Company and its
         Subsidiaries  for the succeeding  fiscal year  (displaying  anticipated
         consolidated and, if otherwise prepared,  consolidating  balance sheets
         and statements of operations, stockholders' equity and cash flows) and,
         promptly upon preparation  thereof, any other significant budgets which
         the Company or any of its  Subsidiaries  prepares and any  revisions of
         such annual or other budgets;

                  (i) such other  material  information  relating to the Company
         and/or  any of its  Subsidiaries  as shall be  furnished  to any  bank,
         financial  institution  or other  Person to which the Company or any of
         its Subsidiaries is indebted for borrowed money (other than information
         relating  solely  to  collateral  for  such  Indebtedness),  including,
         without limitation, any notice of default or event of default under the
         Bank Credit Agreement,  such information and notices to be furnished to
         the holders of the Notes at the same time as they are  furnished to, or
         immediately  after they are  received  from,  any such bank,  financial
         institution or other Person; and

                  (j)  such  other  information   as    from  time  to time  may
         reasonably be requested.

Inspection; Confidentiality.  iality

         (a) The Company will permit any Person  designated by any institutional
holder  of any of the  Notes  (provided  that  any  such  Person  other  than an
employee,  attorney or  accountant  for any such  institutional  holder shall be
subject  to the  reasonable  approval  of the  Company  prior to making any such
visit,  inspection,  examination or discussion) on reasonable notice and at such
holder's  expense  (unless a Default or Event of Default shall have occurred and
be continuing,  in which case, at the Company's  expense),  to visit and inspect
any of the  properties of the Company and its  Subsidiaries,  to examine its and
their books and records (and to make copies thereof and take extracts therefrom)
and to discuss  its and their  affairs,  finances  and  accounts  with and to be
advised  as to the same by, its and their  officers,  consultants,  counsel  and
accountants (each of whom the Company hereby directs and authorizes to engage in
such discussions), all at such reasonable times and intervals as such holder may
desire.

         (b) For the purposes of this section 8(b),  "Confidential  Information"
means  information  delivered  to any holder of the Notes by or on behalf of the
Company or any Subsidiary in connection with the transactions contemplated by or
otherwise  pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise  adequately  identified  when received by
such holder as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or  otherwise  known to such holder  prior to the time of such  disclosure,  (b)
subsequently becomes publicly known through no act or omission by such holder or
any Person acting on behalf of such holder,  (c) otherwise becomes known to such
holder other than through  disclosure  by the Company or any  Subsidiary  or (d)
constitutes financial statements delivered to such holder under section 7.1 that
are  otherwise  publicly  available.  Each holder of the Notes will maintain the
confidentiality  of such Confidential  Information in accordance with procedures
adopted  by such  holder in good faith to protect  confidential  information  of
third parties  delivered to such holder provided that each holder may deliver or
disclose  Confidential  Information to (i) its directors,  officers,  employees,
partners,  members,  agents,  attorneys  and  Affiliates  (to  the  extent  such
disclosure   reasonably   relates  to  the   administration  of  the  investment
represented by such holder's Notes),  (ii) such holder's  financial advisors and
other  professional  advisors who agree to hold  confidential  the  Confidential
Information  substantially  in  accordance  with the terms of this section 8(b),
(iii) any other holder of any Note,  provided  that such other holder shall have
agreed to hold  confidential  such  Confidential  Information  substantially  in
accordance with the terms of this section 8(b), (iv) any institutional  investor
to which such holder sells or offers to sell its Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such  Confidential  Information to be bound by the provisions of this section
8(b)),  (v) any Person from which such holder offers to purchase any security of
the Company  (if such Person has agreed in writing  prior to its receipt of such
Confidential  Information  to be bound by the  provisions of this section 8(b)),
(vi) any federal or state  regulatory  authority having  jurisdiction  over such
holder, (vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about such holder's investment  portfolio or (viii) any other Person
to which such  delivery or  disclosure  may be necessary or  appropriate  (w) to
effect  compliance  with any law, rule,  regulation or order  applicable to such
holder,  (x)  in  response  to any  subpoena  or  other  legal  process,  (y) in
connection  with any  litigation  to which  such  holder is a party or (z) if an
Event of Default has occurred and is  continuing,  to the extent such holder may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the  enforcement  or for the  protection of the rights and remedies under its
Notes  and  the  other  operative  Documents.  Each  holder  of a  Note,  by its
acceptance  of a Note,  will be deemed  to have  agreed to be bound by and to be
entitled to the  benefits of this section 8(b) as though it were a party to this
Agreement.

Prepayment of Notes.of Notes

         Required  Annual  Prepayment  Without Premium of Notes. On each May 31,
commencing  May 31,  2000,  until the Notes have been paid in full,  the Company
will prepay without premium $6,500,000  aggregate  principal amount of the Notes
(or such lesser principal amount thereof as shall then be outstanding),  subject
to decrease as described in the next  succeeding  sentence.  In the case of each
partial  prepayment of the Notes under this section 9.1, the principal amount of
the Notes to be prepaid shall be allocated among all of the Notes in proportion,
as nearly as practicable,  to the respective  unpaid  principal  amounts thereof
(but  assuming,  solely for purposes of making any such  allocation,  that there
have been no  prepayments  made of any of the Notes under either  section 9.3 or
9.4), with adjustments,  to the extent practicable,  to compensate for any prior
prepayments under this section 9.1 not made exactly in such proportion, provided
that, in the event the foregoing  allocation  would result in the  allocation to
any Note of a prepayment amount in excess of the outstanding principal amount of
such Note, the  prepayment  amount so allocated to such Note shall be reduced by
the  amount  of such  excess  and,  in  addition,  the  aggregate  amount of the
principal  prepayment  required  to be made in respect of all Notes on such date
shall be reduced by the same amount. No partial prepayment of the Notes pursuant
to section 9.2,  9.3. or 9.4 shall alter the  obligation  of the Company to make
the required prepayments provided for in this section 9.1.

         9.2.  Optional  Prepayment  With Premium of Notes.  At any time or from
time to time,  the  Company  may,  at its  option,  upon  notice as set forth in
section 9.5,  prepay all or any part (in an integral  multiple of $100,000 and a
minimum  of  $1,000,000  or  such  lesser  principal  amount  as  shall  then be
outstanding) of the Notes, upon the concurrent payment of a premium equal to the
Make Whole Amount.  Any partial prepayment of the Notes pursuant to this section
9.2 shall be applied to the payment of installments of principal of the Notes in
inverse order of maturity.  In the case of each partial  prepayment of the Notes
under this section 9.2, the principal amount of the Notes to be prepaid shall be
allocated among all of the Notes at the time outstanding (excluding any Notes at
the time owned by the Company of any Affiliate of the Company) in proportion, as
nearly as practicable,  to the respective unpaid principal amounts thereof, with
adjustments,  to the extent practicable, to compensate for any prior prepayments
under this section not made exactly in such proportion.

         9.3.     Prepayment  of  Senior Debt at  the Option of each Holder with
Available Net Proceeds and Available Unused Proceeds.

         (a)  The  Company   shall  during  the  thirty  day  period  after  the
consummation of a Sale of Assets made in compliance  with section  14.13(d) give
written  notice to each holder of Senior Debt of the  occurrence of such Sale of
Assets, which notice shall (i) specify (x) the aggregate Net Asset Sale Proceeds
thereof which are not expected to be applied within 360 days of the consummation
of such sale to the purchase by the Company or its  Subsidiaries of property and
assets  (other than cash or cash  equivalents)  used and useful in the  ordinary
course of  business  of the Company and its  Subsidiaries  (the  "Available  Net
Proceeds"),  and (y) the  portion of the  Available  Net  Proceeds  equal to the
percentage  thereof which the then outstanding  principal  balance of the Senior
Debt of such holder represents of the then outstanding  principal balance of all
Senior Debt (such "Holder's Net Proceeds Prepayment Amount"),  and (ii) offer to
prepay a principal  amount of the Senior Debt of such holder in an amount  equal
to the sum of (x) such  Holder's  Net  Proceeds  Prepayment  Amount plus (y) any
additional  Available  Net Proceeds not required by the other  holders of Senior
Debt  to  prepay  such  other  holders'  Senior  Debt  ("Excess   Available  Net
Proceeds").  Each holder of Notes shall have the right, by written notice to the
Company  delivered  within 30 days after  receipt by such holder of a prepayment
offer from the Company delivered pursuant to this section 9.3(a), to require the
Company to prepay  such  holder's  Notes,  without  premium or  penalty,  in the
principal amount  specified in such notice from such holder,  which amount shall
not exceed such  Holder's Net Proceeds  Prepayment  Amount,  provided  that such
holder may also elect to require that such prepayment amount be increased by the
amount specified in such notice not to exceed the amount of Excess Available Net
Proceeds (it being agreed that  Available Net Proceeds  originally  offered to a
holder of the Notes and not  required  by such  holder to prepay  such  holder's
Notes shall be used first to prepay the Notes of other holders  electing to have
prepayments  made with such Available Net Proceeds  pursuant to this section 9.3
(a), before such Available Net Proceeds may be used to prepay other Senior Debt,
and that  Available  Net Proceeds  originally  offered to holders of Senior Debt
other  than the Notes and not  required  by such  holders  to prepay  such other
Senior  Debt  shall  then be  available  to all other  holders  of Senior  Debt,
including the Notes,  for  prepayment of such Senior Debt on a pro rata basis in
proportion to the amounts  requested by such other holders to be prepaid).  Upon
receipt  from a holder of the Notes of written  notice  pursuant to this section
9.3(a)  requiring a prepayment of such holder's Notes, the Company shall, on the
forty-fifth  day  following  delivery by the Company of the original  prepayment
offer,  prepay the Notes of such holder in the amount  specified in such written
request (including any increase  specified in such written request,  but only to
the extent Excess Available Net Proceeds are available to cover such increase).

         (b) At any time that the aggregate  amount of Available Unused Proceeds
equals or exceeds  $5,000,000,  the Company  shall give  written  notice to each
holder of Senior Debt which notice shall (i) specify (x) the aggregate amount of
Available Unused Proceeds,  and (y) the portion of the Available Unused Proceeds
equal to the percentage thereof which the then outstanding  principal balance of
the Senior  Debt of such holder  represents  of the then  outstanding  principal
balance of all Senior Debt (such "Holder's Unused Proceeds Prepayment  Amount"),
and (ii) offer to prepay a principal amount of the Senior Debt of such holder in
an  amount  equal to the sum of (x) such  Holder's  Unused  Proceeds  Prepayment
Amount plus (y) any  additional  Available  Unused  Proceeds not required by the
other holders of Senior Debt to prepay such other holders'  Senior Debt ("Excess
Available  Unused  Proceeds").  Each  holder of Notes  shall have the right,  by
written  notice to the Company  delivered  within 30 days after  receipt by such
holder of a prepayment offer from the Company delivered pursuant to this section
9.3 (b), to require the Company to prepay such holder's  Notes,  without premium
or penalty,  in the principal  amount specified in such notice from such holder,
which amount shall not exceed such Holder's Unused Proceeds  Prepayment  Amount,
provided that such holder may also elect to require that such prepayment  amount
be increased by the amount  specified in such notice not to exceed the amount of
Excess Available Unused Proceeds (it being agreed that Available Unused Proceeds
originally  offered to a holder of the Notes and not  required by such holder to
prepay  such  holder's  Notes  shall be used  first to prepay the Notes of other
holders  electing to have  prepayments  made with such Available Unused Proceeds
pursuant to this section  9.3(b),  before such Available  Unused Proceeds may be
used to prepay other Senior Debt, and that Available Unused Proceeds  originally
offered to holders of Senior Debt other than the Notes and not  required by such
holders to prepay such other  Senior Debt shall then be  available  to all other
holders of Senior Debt,  including the Notes, for prepayment of such Senior Debt
on a pro rata basis in proportion to the amounts requested by such other holders
to be  prepaid).  Upon  receipt  from a holder  of the Notes of  written  notice
pursuant to this section 9.3(b)  requiring a prepayment of such holder's  Notes,
the Company shall, on the  forty-fifth day following  delivery by the Company of
the  original  prepayment  offer,  prepay the Notes of such holder in the amount
specified  in such written  request  (including  any increase  specified in such
written  request,  but only to the extent Excess  Available  Unused Proceeds are
available to cover such increase).

         (c) Any partial prepayment of a Note pursuant to this section 9.3 shall
be applied to the payment of  installments  of principal of such Note in inverse
order of maturity.

         9.4    Prepayment Without Premium of the Notes at the Option of Holders
of the Notes upon a Change of Control.

                  (a) If any Change of  Control is to occur,  then not less than
         60 days nor more than 90 days prior to the occurrence of such Change of
         Control (or in the event of a hostile tender offer for the Company, not
         less  than  15  Business  Days  nor  more  than 90  days  prior  to the
         occurrence  of such Change of  Control),  the Company  will notify each
         holder of the Notes of such pending Change of Control and the date upon
         which it is scheduled  or  estimated to occur.  If any holder of a Note
         then  outstanding  furnishes a written  request for  prepayment  to the
         Company  (in  accordance  with  section  21) not more  than 60 days (15
         Business  Days in the event of a hostile  tender offer for the Company)
         after  receipt by such  holder of such notice of such Change of Control
         from the Company, the Company will prepay,  without premium or penalty,
         the  principal  amount of the Notes of such  holder  specified  in such
         written  request.  Each such  prepayment  shall  occur on the date upon
         which the Change of Control occurs,  unless the Company and such holder
         agree to a different date, and no prepayment requested pursuant to this
         section 9.4 shall be due unless the Change of Control shall occur.

                  (b) In the event the  Company  fails to deliver to each holder
         of the Notes the notice of a pending  Change of Control as  required by
         section 9.4(a), any holder of a Note may, upon obtaining knowledge of a
         pending or  completed  Change of  Control,  notify the  Company of such
         Change of Control,  whereupon  the Company  shall,  and any holder of a
         Note  may,  promptly  notify  each  other  holder  of the Notes of such
         pending or completed  Change of Control,  the nature  thereof,  and the
         date upon which such  Change of  Control is  scheduled  to occur or did
         occur.  If any  holder  of a  Note  furnishes  a  written  request  for
         prepayment to the Company (in accordance with section 21) not more than
         60 days after  receipt by such  holder of such notice of such Change of
         Control,  the Company shall prepay the principal amount of the Notes of
         such holder specified in such request, without premium or penalty. Each
         such  prepayment  shall  occur (x) in the case of a  pending  Change of
         Control,  on the date on which such Change of Control occurs and (y) in
         the case of a completed  Change of Control,  on the 15th day after such
         written request is so given by any such holder,  unless the Company and
         such holders agree to a different date.

                  (c) For  purposes of this  section  9.4,  the term  "Change of
         Control"  shall  mean any event or  transaction  or series of events or
         transactions  (occurring  for  whatever  reason)  pursuant to which any
         Person  (other than George Rubin or Morry F. Rubin,  who are  presently
         the Chairman and President of the Company, respectively), together with
         "affiliates"  and  "associates"  of such Person,  within the meaning of
         Rule 12b-2 of the  Commission  under the Exchange  Act,  shall  acquire
         control  or  beneficial  ownership   (including   beneficial  ownership
         resulting  from the  formation of a "group"  within the meaning of Rule
         13d-5 of the Commission under the Exchange Act) of more than 50% of the
         outstanding Shares of any class of Voting Stock of the Company.

                  (d) Each notice from the Company  pursuant to this section 9.4
         shall make explicit  reference to this section 9.4 and shall state that
         the right of the  holders  of the Notes  then  outstanding  to  require
         prepayment  thereof must be exercised  within 60 days of the receipt of
         such notice. Not less than 10 days prior to any prepayment of any Notes
         of any holder  pursuant to this section 9.4, the Company  shall deliver
         to such holder an Officers'  Certificate  which shall set forth (i) the
         date fixed for prepayment;  (ii) the aggregate  principal amount of the
         Notes to be  prepaid on such date;  and (iii) the  aggregate  principal
         amount of the Notes held by such  holder to be prepaid on such date and
         the amount of accrued interest to be paid to such holder on such date.

                  (e) For  purposes of this section  9.4,  beneficial  ownership
         shall be  determined  in the  manner  set  forth  in Rule  13d-3 of the
         Commission under the Exchange Act.

                  (f) The  provisions  of this  section  9.4 are  applicable  to
         successive  Changes of Control and no failure on the part of any holder
         to exercise any right under this section 9.4 arising on account of such
         Change of Control shall affect or impair any other right of such holder
         under this Agreement or any of the other  Operative  Documents upon the
         occurrence of any other or any subsequent Change of Control.

                  (g) Any partial  prepayment of a Note pursuant to this section
         9.4 shall be applied to the payment of  installments  of  principal  of
         such Note in inverse order of maturity.

         Notice of Optional Prepayments of Notes. In the case of each prepayment
under section 9.2, the Company shall give written  notice thereof to each holder
of any Notes not less than 30 nor more than 60 days  prior to the date fixed for
such prepayment. Each such notice shall set forth:

                  (a)      the date fixed for prepayment;

                  (b)      the aggregate principal amount of the Notes to be
         prepaid on such date; and

                  (c) the aggregate  principal  amount of the Notes held by such
         holder to be prepaid  on such date and the  amount of accrued  interest
         and an  estimate of the Make Whole  Amount,  if any, to be paid to such
         holder on such date  (together  with the  calculation of such estimated
         premium,  which calculation shall be satisfactory to each holder of the
         Notes to be prepaid).

         Maturity;  Accrued  Interest.  In the case of each prepayment of all or
any part of any Note, the principal amount to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date and the premium, if any, due thereon.

         Purchase  of Notes.  The  Company  will not,  and will not  permit  any
Affiliate  of the Company  to,  directly or  indirectly,  purchase or  otherwise
acquire, or offer to purchase or otherwise acquire, any of the outstanding Notes
except by way of payment or prepayment in accordance  with the provisions of the
Notes and this Agreement.

         Payment on  Non-Business  Days.  If any amount  hereunder  or under the
Notes shall become due on a day which is not a Business  Day, such payment shall
be due on the next succeeding Business Day.

Purchase for Investment.vestment

                  (a) You represent and warrant (i) that you have been furnished
         with all  information  that  you  have  requested  for the  purpose  of
         evaluating  your proposed  acquisition of the Notes to be issued to you
         pursuant  hereto and (ii) that you will acquire such Notes for your own
         account  for  investment  and not for  distribution  in any manner that
         would violate applicable securities laws, but without prejudice to your
         rights to dispose of such Notes or a portion thereof to a transferee or
         transferees,  in  accordance  with such laws if at some future time you
         deem it advisable to do so. The acquisition of such Notes by you at the
         Closing   shall   constitute   your   confirmation   of  the  foregoing
         representations  and  warranties.  You  understand  that such Notes are
         being  sold  to  you  in  a  transaction   which  is  exempt  from  the
         registration  requirements  of the Securities  Act, and that, in making
         the  representations  and  warranties  contained in section  5.16,  the
         Company is relying, to the extent applicable, upon your representations
         and warranties contained herein.

                  (b)  You  represent   that  at  least  one  of  the  following
         statements is an accurate  representation as to each source of funds (a
         "Source") to be used by you to pay the  purchase  price of the Notes to
         be purchased by you hereunder:

                           (i)  the  Source  is an  "insurance  company  general
                  account" as defined in Section V(e) of Prohibited  Transaction
                  Exemption  ("PTE") 95-60 (issued July 12, 1995) and, except as
                  you have disclosed to the Company in writing  pursuant to this
                  section (i), the amount of reserves  and  liabilities  for the
                  general  account  contract(s)  held  by or on  behalf  of  any
                  employee benefit plan or group of plans maintained by the same
                  employer  or  employee  organization  do not exceed 10% of the
                  total  reserves  and   liabilities  of  the  general   account
                  (exclusive of separate  account  liabilities)  plus surplus as
                  set forth in the NAIC Annual Statement filed with the state of
                  domicile of the insurer; or
                           (ii) the Source is a separate account of an insurance
                  company  maintained  by you in which an employee  benefit plan
                  (or its related trust) has an interest, which separate account
                  is maintained solely in connection with your fixed contractual
                  obligations under which the amounts payable,  or credited,  to
                  such plan and to any  participant  or beneficiary of such plan
                  (including  any  annuitant)  are not affected in any manner by
                  the investment performance of the separate account; or

                           (iii) the Source is either (A) an  insurance  company
                  pooled  separate  account,  within  the  meaning  of PTE  90-1
                  (issued January 29, 1990), or (B) a bank collective investment
                  fund,  within the  meaning of the PTE 91-38  (issued  July 12,
                  1991)  and,  except as you have  disclosed  to the  Company in
                  writing  pursuant to this section (iii),  no employee  benefit
                  plan or group  of plans  maintained  by the same  employer  or
                  employee  organization  beneficially owns more than 10% of all
                  assets allocated to such pooled separate account or collective
                  investment fund; or

                           (iv) the Source  constitutes assets of an "investment
                  fund"  (within  the  meaning of Part V of the QPAM  Exemption)
                  managed by a "qualified  professional asset manager" or "QPAM"
                  (within  the  meaning  of Part V of the  QPAM  Exemption),  no
                  employee  benefit  plan's  assets  that are  included  in such
                  investment  fund,  when  combined with the assets of all other
                  employee  benefit plans  established or maintained by the same
                  employer  or by an  affiliate  (within  the meaning of Section
                  V(c)(1) of the QPAM Exemption) of such employer or by the same
                  employee  organization and managed by such QPAM, exceed 20% of
                  the total client assets  managed by such QPAM,  the conditions
                  of Part  I(c) and (g) of the  QPAM  Exemption  are  satisfied,
                  neither the QPAM nor a person controlling or controlled by the
                  QPAM  (applying the definition of "control" in Section V(e) of
                  the QPAM  Exemption) owns a 5% or more interest in the Company
                  and (A) the  identity  of such  QPAM and (B) the  names of all
                  employee  benefit  plans  whose  assets are  included  in such
                  investment  fund have been disclosed to the Company in writing
                  pursuant to this section (iv); or

                           (v)      the Source is a governmental plan; or

                           (vi)  the  Source  is one or  more  employee  benefit
                  plans, or a separate account or trust fund comprised of one or
                  more employee benefit plans, each of which has been identified
                  to the Company in writing pursuant to this section (vi); or

                           (vii)  the  Source  does not  include  assets  of any
                  employee  benefit  plan,  other  than a plan  exempt  from the
                  coverage of ERISA.

         As used in this  section  10(b),  the terms  "employee  benefit  plan",
         "governmental  plan",  "party in interest" and "separate account" shall
         have the  respective  meanings  assigned  to such terms in Section 3 of
         ERISA,  and the term "QPAM Exemption" means PTE 84-14 (issued March 13,
         1984).

Certain  Regulatory  Matters.  The Company will take, or will cause to be taken,
such action as any holder of Notes may  reasonably  request from time to time to
facilitate  any sale or  disposition  by any such  holder of any  Notes  without
registration  under the  Securities Act and/or any  applicable  securities  laws
within the  limitation  of the  exemptions  provided  by any rule or  regulation
thereunder,  including,  without limitation, Rule 144A under the Securities Act,
provided  that the Company  shall not be obligated to incur any expense in order
to facilitate a sale or disposition by a holder of the Notes under  Regulation S
under the Securities Act.

12. Method of Payment of Notes.  Irrespective of any provision  hereof or of the
other Operative  Documents to the contrary,  so long as you (or your nominee) or
any other  institutional  holder (or the  nominee  for such other  institutional
holder) shall hold any Note,  the Company will make all payments on such Note to
you or such other institutional holder by the method and at the address for such
purpose  specified  in Schedule I attached  hereto or by such other method or at
such other address as you or such institutional holder may designate in writing,
without requiring any presentation or surrender of such Note, except that if any
Note  shall be paid,  prepaid  and/or  repurchased  in full,  such Note shall be
surrendered  to the Company  promptly  following  such  payment,  prepayment  or
repurchase and canceled.

Liabilities  to Other  Holders.  Neither  this  Agreement  nor any of the  other
Operative  Documents nor any  disposition of any of the Notes shall be deemed to
create any liability or obligation on your part to enforce any provision  hereof
or of any of the other  Operative  Documents for the benefit or on behalf of any
other Person who may be the holder of any Notes.

Covenants  of the  Company.  From  and  after  the date of this  Agreement,  and
thereafter  so long as any of the Notes shall  remain  outstanding,  the Company
will duly perform and observe, for the benefit of the holders of the Notes, each
and all of the covenants hereinafter set forth:

         Books of Record and Account; Reserves. The Company will, and will cause
each of its  Subsidiaries  to (a) at all times keep  proper  books of record and
account  in  which  full,  true  and  correct  entries  shall  be  made  of  its
transactions  in accordance  with GAAP;  and (b) set aside on its books from its
earnings  for each fiscal year all such proper  reserves as shall be required in
accordance with GAAP in connection with its business.

         14.2.   Payment  of  Taxes;   Existence;   Maintenance  of  Properties;
Compliance with Laws; Lines of Business;Payment of Taxes; Existence; Maintenance
of Properties;  Compliance with Laws; Lines of Business;  Proprietary  Right and
Licenses. The Company will, and will cause each of its Subsidiaries to:

                  (a) pay and discharge  promptly as they become due and payable
         all taxes, assessments and other governmental charges or levies imposed
         upon it or its  income  or  upon  any of its  property,  as well as all
         material  claims of any kind  (including  material  claims  for  labor,
         materials and supplies)  which,  if unpaid,  might by law become a Lien
         upon its  property;  provided  that  neither the Company nor any of its
         Subsidiaries shall be required to pay any such tax, assessment, charge,
         levy or claim if the amount,  applicability  or validity  thereof shall
         currently  be  contested  in  good  faith  by  appropriate  proceedings
         promptly  initiated and  diligently  conducted and if it shall have set
         aside on its books such reserves,  if any, with respect  thereto as are
         required by GAAP and deemed adequate by the Company and its independent
         accountants;  provided,  further, that the Company will, and will cause
         each of its Subsidiaries to, pay any such tax, assessment, charge, levy
         or claim prior to the  commencement  of any proceeding to foreclose any
         Lien securing the same;

                  (b)    do or cause to be done all things necessary to preserve
         and keep in full force and effect its existence;

                  (c) maintain and keep its  properties in good repair,  working
         order and condition,  and from time to time make all needful and proper
         repairs, renewals and replacements,  so that the business carried on in
         connection  therewith may be properly and  advantageously  conducted at
         all times;

                  (d) comply in all material  respects with all applicable laws,
         statutes,   rules,  regulations  and  orders  of,  and  all  applicable
         restrictions imposed by, all governmental authorities in respect of the
         conduct of its business and the  ownership of its property  (including,
         without limitation, Environmental Laws) and all other obligations which
         it incurs  pursuant  to any  contract  or  agreement,  whether  oral or
         written, express or implied, as such obligations become due;

                  (e)  engage  only in the  Business  (and  in  other  lines  of
         business  related  to  the  Business)  and  engage  principally  in the
         environmental  consulting  and  engineering  component of the Business,
         substantially in the manner described in the Disclosure Document; and

                  (f)   own or have a valid license for all material Proprietary
         Rights and Licenses used by it in the conduct of its business.

         Insurance.  The Company will,  and will cause each of its  Subsidiaries
to,  maintain with  financially  sound and reputable  insurers,  insurance  with
respect to its properties and business  against  casualties or  contingencies of
the kinds  customarily  insured  against by Persons  of  established  reputation
engaged  in the same or a  similar  business  and  similarly  situated,  in such
amounts  and by such  methods  as  shall  be  customary  for  such  Persons  and
reasonably deemed adequate by the Company; provided that such insurance shall be
in amounts not less than those  maintained by the Company and its  Subsidiaries,
as the case may be, on the date hereof.

         Discount or Sale of  Receivables.  The Company  will not,  and will not
permit any  Subsidiary of the Company,  directly or  indirectly,  to discount or
sell any of its accounts  receivable,  except that the Company or any Subsidiary
of the Company may settle  doubtful  accounts in the ordinary course of business
or grant  discounts  in the  ordinary  course  of  business  for early or timely
payment  of  accounts  receivable,  and the  Company  and its  Subsidiaries  may
collaterally  assign their accounts receivable as security for the Notes and the
Company's  obligations  under the Bank Credit  Documents to the extent permitted
under section 14.8.

         Funded Debt,  Current Debt and Preferred Shares.  The Company will not,
and will not permit any  Subsidiary of the Company to,  create,  assume,  incur,
guarantee, or in any manner become or be liable in respect of any Funded Debt or
Current Debt (it being agreed that for purposes of this section 14.5  contingent
Indebtedness  shall be deemed to be  incurred  at the  time,  if any,  that such
contingent   Indebtedness   first   becomes   Funded   Debt  or  Current   Debt,
notwithstanding that such contingent  Indebtedness was originally incurred at an
earlier time) or issue,  sell or have  outstanding  any  Preferred  Shares other
than:

                  (a)      in the case of the Company and its Subsidiaries:

                           (i)  Funded  Debt evidenced by the Notes and the Note
                  Guarantees;

                           (ii) Funded  Debt,  Current  Debt and,  solely in the
                  case of  Subsidiaries  of the  Company  (but  not the  Company
                  itself),  Preferred  Shares,  in each case  outstanding on the
                  date  hereof and as  described  on Exhibit  5.9 or Exhibit 5.2
                  attached hereto (but excluding any Funded Debt or Current Debt
                  outstanding under the Bank Credit Documents);

                           (iii)  Funded  Debt or  Current  Debt  under the Bank
                  Credit Documents, provided that the aggregate principal amount
                  (and face amount of any letters of credit) of such Funded Debt
                  and Current  Debt  permitted  by this clause (iii) shall at no
                  time exceed $15,000,000;

                           (iv) additional Funded Debt, Current Debt and, solely
                  in the  case  of  Subsidiaries  of the  Company  (but  not the
                  Company  itself),  Preferred  Shares not  otherwise  permitted
                  under this section 14.5 (including  Funded Debt and/or Current
                  Debt incurred  pursuant to the Bank Credit Documents in excess
                  of the  amount  permitted  by  clause  (iii)  above  and  also
                  including  Funded Debt and/or Current Debt incurred to extend,
                  refinance,  refund or renew any outstanding Funded Debt and/or
                  Current Debt otherwise permitted under this section 14.5(a) or
                  Preferred  Shares  issued in  exchange  for  Preferred  Shares
                  otherwise  permitted  under this  section  14.5(a)),  provided
                  that, both at the time of and immediately  after giving effect
                  to the  incurrence or issuance  thereof and the  retirement of
                  any  Indebtedness or Preferred  Shares which are  concurrently
                  being retired:

                                    (A)     no Default or Event of Default shall
                           have occurred and be continuing; and

                                    (B) Consolidated Total Debt shall not exceed
                           55% of Consolidated Capitalization; and

                                    (C) in the case of additional Funded Debt or
                           Current Debt being  incurred by a  Subsidiary  of the
                           Company  or  Preferred   Shares  being  issued  by  a
                           Subsidiary  of  the  Company,  the  sum  (x)  of  the
                           aggregate  Total Debt of the  Company's  Subsidiaries
                           and  (y)  the  aggregate  liquidation  value  of  all
                           outstanding   Preferred   Shares  of  the   Company's
                           Subsidiaries shall not exceed 10% of Consolidated Net
                           Worth at the end of the immediately  preceding fiscal
                           quarter of the Company; and

                  (b) in the case of any Subsidiary of the Company, Current Debt
or Funded Debt owed to the Company or to a Wholly-Owned  Subsidiary Guarantor or
Preferred Shares owned by the Company or a Wholly-Owned Subsidiary Guarantor.

         For the purposes of this section  14.5, if at any time any Person shall
become a Subsidiary  of the  Company,  such  Subsidiary  shall be deemed to have
issued at such time all Preferred  Shares and to have become liable at such time
in respect of all Current Debt and Funded Debt which such Subsidiary  shall have
outstanding  at such time. The renewal,  extension,  refinancing or refunding of
any Current Debt or Funded Debt or the issuance of Preferred  Shares in exchange
for  Preferred  Shares  permitted  by this  section  14.5 shall  constitute  the
issuance of additional  Current Debt,  Funded Debt or Preferred  Shares,  as the
case may be,  which is, in turn,  subject to the  limitation  of the  applicable
provisions of this section 14.5.

         The Company will not, and will not permit any Subsidiary of the Company
to, become obligated under any Guarantee unless as of the date such Guarantee is
entered into or otherwise created,  assumed or incurred,  (x) the maximum amount
which the Company or such  Subsidiary may become  obligated to pay thereunder is
then known and  determined  and (y) to the  extent  such  Guarantee  constitutes
Funded  Debt or  Current  Debt,  such  Guarantee  may  then be  entered  into or
otherwise created, assumed or incurred in compliance with this section 14.5.

         14.6.    Limitation on Restricted Investments and Restricted Payments.

                  (a) The  Company  will  not,  and will not  permit  any of its
         Subsidiaries  to,  directly  or  indirectly,  at any  time,  authorize,
         declare  or make,  or incur  any  liability  to  make,  any  Restricted
         Investment or any Restricted  Payment,  unless in each case both at the
         time of and after giving effect to such action:

                           (i)  the  sum  of  (x)  the  aggregate  value  of all
                  Restricted  Investments  of the Company  and its  Subsidiaries
                  (valued,   in  the  manner   provided   in  section   14.6(d),
                  immediately  after such action) plus (y) the aggregate  amount
                  of  all   Restricted   Payments   of  the   Company   and  its
                  Subsidiaries, declared or made during the period commencing on
                  the Closing  Date and ending on the date such action is taken,
                  would not exceed the sum of:

                                    (A) the sum of (i) $2,000,000,  and (ii) 50%
                           of aggregate  Consolidated  Net Income for the period
                           commencing  on March 1,  1997 and  ending on the last
                           day of the most recently  completed fiscal quarter of
                           the Company immediately prior to the date such action
                           is taken (the "Test Period"), plus

                                    (B)     the aggregate amount of Net Proceed
                           of Capital Stock for the Test Period; and

                           (ii) the Company  would be permitted to become liable
                  in  respect of at least  $1.00 of  additional  Funded  Debt or
                  Current Debt under section 14.5(a)(iv); and

                           (iii)    no Default or Event of Default would exist.

                  (b) The  Company  will  not,  and will not  permit  any of its
         Subsidiaries  to,  enter  into or be or become  bound by any  agreement
         (other than this  Agreement,  the Other Note  Agreements,  and the Bank
         Credit Agreement) which encumbers or restricts,  or create or otherwise
         cause or  suffer  to exist  or  become  effective  any  encumbrance  or
         restriction upon, the right or ability of any Subsidiary of the Company
         to:

                           (i)      pay dividends or make any other distribution
                  on  its  Shares (or any participation in its profits) owned by
                  the Company or any Subsidiary of the Company;

                           (ii)     pay any Indebtedness owed to the Company  or
                  any Subsidiary of the Company;

                           (iii)    make  loans or advances to or Investments in
                  the Company or any Subsidiary of the Company; or

                           (iv)     transfer  any of its properties or assets to
                  the Company or any Subsidiary of the Company.

                  (c) Each  Person  which  becomes a  Subsidiary  of the Company
         after the  Closing  Date will be deemed to have made,  on the date such
         Person becomes a Subsidiary of the Company, all Restricted  Investments
         of such Person in  existence  on such date.  Investments  in any Person
         that ceases to be a  Subsidiary  of the Company  after the Closing Date
         (but in which the Company or another  Subsidiary  continues to maintain
         an  Investment)  will be  deemed to have been made on the date on which
         such Person ceases to be a Subsidiary of the Company.

                  (d) For  purposes  of this  section  14.6 and for  purposes of
         clauses (i) and (j) of the  definition of Permitted  Investment,  as of
         any date of  determination,  each  Investment  shall be  valued  at the
         greater of:

                           (i)  the amount at which such Investment is initially
                  shown on the books of  the  Company or any of its Subsidiaries
                  (or zero if such Investment is not shown on any such books);
                  and

                           (ii)     either

                                    (A) in the  case  of  any  Guarantee  of the
                           obligation  of  any  Person,  the  amount  which  the
                           Company  or any of its  Subsidiaries  has paid (or is
                           obligated to pay) on account of such  obligation less
                           any  recoupment by the Company or such  Subsidiary of
                           any such payments, or

                                    (B) in the case of any other Investment, the
                           excess  of  (x)  the   greater   of  (1)  the  amount
                           originally entered on the books of the Company or any
                           of its Subsidiaries  with respect thereto and (2) the
                           cost  thereof to the Company or its  Subsidiary  over
                           (y)  any  return  of  capital   (after  income  taxes
                           applicable  thereto) upon such Investment through the
                           sale or other liquidation  thereof or part thereof or
                           otherwise.

         Certain Financial Covenants.  The   Company   will, and  will cause its
Subsidiaries to:

                  (a) Interest  Expense  Coverage Ratio.  Maintain at the end of
         each fiscal quarter of the Company a ratio of (i)  Consolidated  EBITDA
         for  the  four   consecutive   fiscal   quarters  then  ended  to  (ii)
         Consolidated  Interest Expense during such period of not less than 3.00
         to 1.00.

                  (b)      Fixed Charge Coverage Ratio.  Maintain at the end of
         each fiscal quarter of the Company a Consolidated Fixed Charge Coverage
         Ratio of not less than 2.50 to 1.00.

                  (c) Consolidated Net Income.  Maintain Consolidated Net Income
         in  excess of $1.00 for each period of four consecutive fiscal quarters
         of the Company.

                  (d)  Minimum  Consolidated  Net Worth.  Maintain at the end of
         each fiscal quarter of the Company  Consolidated  Net Worth of not less
         than the sum of (i)  $36,351,442,  plus (ii) an amount  equal to 50% of
         aggregate  Consolidated  Net Income (but only if a positive number) for
         the  period  commencing  on March 1, 1997 and ending on the last day of
         such fiscal quarter.

                  (e)  Minimum  Working  Capital.  Maintain  at the  end of each
         fiscal year of the  Company  Consolidated  Working  Capital of not less
         than  $24,000,000 as of the fiscal year ending February 28, 1998, which
         minimum required amount shall increase by $2,000,000 per year as of the
         end  of  each  fiscal  year  thereafter.  This  section  14.7(e)  shall
         automatically  terminate and be of no further force and effect from and
         after the date on which the Bank Credit Agreement ceases to contain the
         covenant set forth in section 5.10(e) of the Bank Credit Agreement.

         Liens The Company will not, and will not permit any  Subsidiary  of the
Company to, create,  assume, incur or suffer to exist any Lien in respect of any
property  of any  character  (whether  owned on the  date  hereof  or  hereafter
acquired) other than:

                  (a)      Liens on the Collateral securing the Notes;

                  (b) Liens  (other than any Lien  created by any  Environmental
         Law or by Section 4068 of ERISA),  charges and  encumbrances  which (i)
         are  incurred  in  the  ordinary  course  of  business  and  which  are
         incidental  to the  conduct  of the  business  of the  Company  and its
         Subsidiaries and the ownership of its and their property,  (ii) are not
         incurred in connection  with the borrowing of money or the obtaining of
         advances or credit,  (iii) do not in the aggregate  materially  detract
         from the value of the  property of the Company or its  Subsidiaries  or
         materially  impair  the use  thereof in the  operation  of its or their
         business  and (iv) do not (and could not  reasonably  be  expected  to)
         materially adversely affect the rights of the holders of the Notes;

                  (c)  Liens  on the  Collateral  securing  Funded  Debt  and/or
         Current Debt or other  obligations of the Company and its  Subsidiaries
         under the Bank Credit  Agreement,  in each case to the extent that such
         Funded Debt or Current Debt is permitted under section 14.5(a) (iii) or
         (iv);

                  (d) any Lien  existing on the date  hereof and  referred to on
         Exhibit 5.9 attached  hereto  (excluding any Lien securing  obligations
         under the Bank Credit  Documents)  and the  replacement,  extension  or
         renewal  of any  such  Lien  upon or in the same  property  theretofore
         subject  thereto,  in each  case as  security  for the  Funded  Debt or
         Current Debt originally secured by such existing Lien (without increase
         in the amount or change in any direct or  contingent  obligor)  of such
         Funded Debt or Current Debt;

                  (e) any Lien  constituting a purchase money security  interest
         (including  Capital  Leases and any other title  retention  or deferred
         purchase device) incurred in the ordinary course of business to finance
         the  acquisition  and/or  improvement (or incurred within six months of
         the  acquisition  or  improvement,  as the  case  may  be) of any  real
         property or equipment (including any Lien on real property or equipment
         if such Lien is incurred to finance the  acquisition by the Company and
         its Subsidiaries of the operating assets  (including such real property
         and equipment) of a third party),  including, in the case of any Person
         which  is to be  acquired  by the  Company  and  thereafter  becomes  a
         Subsidiary,  any  such  Lien  existing  upon or in such  Person's  real
         property or  equipment  at the time such Person  becomes a  Subsidiary,
         provided that (i) such Lien does not extend to or cover any property of
         the Company or any of its  Subsidiaries  other than the property  being
         leased or acquired, (ii) the aggregate principal amount of Indebtedness
         secured thereby shall not exceed the cost of such property and (iii) if
         the  Indebtedness  secured thereby  constitutes  Funded Debt or Current
         Debt,  such  Funded Debt or Current  Debt is  permitted  under  section
         14.5(a)(iv); and

                  (f) additional  Liens upon any of the assets of the Company or
         any of its  Subsidiaries  (other  than the  Collateral)  not  otherwise
         permitted under this section 14.8 (other than additional Liens securing
         obligations  under  the  Bank  Credit  Documents),  provided  that  the
         aggregate  value of such  assets so  subject  to such  Liens at no time
         shall exceed an amount equal to 10% of Consolidated Net Worth as of the
         end of the most recently completed fiscal quarter of the Company.

Notwithstanding anything to the contrary contained herein, in no event shall the
Company  create,  assume,  incur or  suffer to exist  any  Lien,  or permit  any
Subsidiary of the Company to create,  assume, incur or suffer to exist any Lien,
on any of the  Collateral  except Liens  permitted  under clauses (a) and (c) of
this section 14.8 and existing  Liens  described on Exhibit 5.9 attached  hereto
(which Exhibit shall  specifically  describe the  Collateral  encumbered by such
existing Liens).

         Transactions with Affiliates. The Company will not, and will not permit
any Subsidiary of the Company to, engage in any transaction (including,  without
limitation,  the purchase,  sale or exchange of any properties and assets or the
rendering  of any  services)  with  an  Affiliate  of  the  Company  or of  such
Subsidiary  on terms less  favorable  to the Company or such  Subsidiary  in any
material respect than would be obtainable at the time in comparable transactions
of the Company or such Subsidiary with a Person not such an Affiliate.

         14.10. Limitation on Issuance of Shares of Subsidiaries and Disposition
 of Shares.

                  (a) The Company will not permit any  Subsidiary of the Company
         to issue,  sell or otherwise  dispose of any Shares (or any  securities
         convertible  into or  exercisable or  exchangeable  for Shares) of such
         Subsidiary,  except  to the  Company  or to a  Wholly-Owned  Subsidiary
         Guarantor or, in the case of Preferred  Shares, as permitted by section
         14.5(a).

                  (b) The Company will not sell,  transfer or otherwise  dispose
         of any Shares (or any  securities  convertible  into or  exercisable or
         exchangeable  for  Shares)  of any  Subsidiary  of the  Company  or any
         Indebtedness of any Subsidiary of the Company, or permit any Subsidiary
         of the Company to sell, transfer or otherwise dispose of (except to the
         Company  or  to  a  Wholly-Owned   Subsidiary  Guarantor)  any  Shares,
         securities or any  Indebtedness of any other  Subsidiary of the Company
         unless (i) both at the time of and  immediately  after giving effect to
         such  disposition,  no Default or Event of Default  shall have occurred
         and be continuing,  (ii) such  disposition  shall be made in compliance
         with section  14.12,  if  applicable,  and (iii) each of the  following
         conditions shall be complied with:

                                    (A)  simultaneously  with such  disposition,
                           all such Shares,  securities and Indebtedness of such
                           Subsidiary  at the time owned by the  Company  and by
                           every  other  Subsidiary  of  the  Company  shall  be
                           disposed of as an entirety;

                                    (B) the Board of  Directors  of the  Company
                           shall have  reasonably  determined in good faith,  as
                           evidenced by a written  resolution  thereof  promptly
                           delivered  to the holders of the Notes,  that (1) the
                           disposition   of   such   Shares,    securities   and
                           Indebtedness  is in the best interests of the Company
                           and is not disadvantageous in any material respect to
                           the  holders  of  the  Notes  and  (2)  such  Shares,
                           securities and Indebtedness are being disposed of for
                           fair and adequate cash  consideration and on fair and
                           adequate terms; and

                                    (C)   following   such   disposition,    the
                           Subsidiary  being  disposed  of  shall  not  have any
                           continuing  investment in the Company or any other of
                           its  Subsidiaries not being  simultaneously  disposed
                           of.

         14.11.  Limitation on  Consolidation  or Merger,  etc. The Company will
not, and will not permit any of its Subsidiaries  to,  consolidate with or merge
into  any  other  Person  or  sell,  lease  or  otherwise   dispose  of  all  or
substantially  all  of  its  property  in a  single  transaction  or  series  of
transactions to any Person or Persons (except that any Subsidiary of the Company
may (x) merge into, or sell, lease or otherwise  dispose of all or substantially
all of its property in a single  transaction  or series of  transactions  to the
Company  (if the  Company  is the  surviving  entity of such  transaction)  or a
Wholly-Owned  Subsidiary  Guarantor of the Company (if the  surviving  entity to
such transaction is a Wholly-Owned  Subsidiary  Guarantor of the Company) or (y)
sell,  lease or  otherwise  dispose of its property in  compliance  with section
14.13 (other than 14.13(d)),  provided that the Company may consolidate  with or
merge into, or sell, lease or otherwise  dispose of all or substantially  all of
its property to, any other Person so long as:

                  (a) the successor formed by such consolidation or the survivor
         of such merger or the Person that acquires all or substantially  all of
         the  property  of the  Company,  as the  case  may be  (the  "Successor
         Corporation"),  shall be a Solvent  corporation  organized and existing
         under the laws of the United  States of America,  any state  thereof or
         the  District  of  Columbia  and  having all or  substantially  all its
         property in the United States of America;

                  (b) if the  Company  is not  the  Successor  Corporation,  the
         Successor  Corporation shall have executed and delivered to each holder
         of  Notes  its  assumption  of the due  and  punctual  performance  and
         observance of each covenant and condition of this Agreement and each of
         the  other  Operative   Documents  (pursuant  to  such  agreements  and
         instruments as shall be reasonably satisfactory to the Required Holders
         of Notes),  and the Company  shall have caused to be  delivered to each
         holder  of  Notes  an  opinion  of   independent   counsel   reasonably
         satisfactory  to the Required  Holders of the Notes, to the effect that
         all  agreements or  instruments  effecting  such  assumption are legal,
         valid and binding obligations of such Successor Corporation enforceable
         against it in accordance  with their  respective  terms (except as such
         enforcement may be limited by insolvency, bankruptcy, reorganization or
         other  laws of  general  application  relating  to the  enforcement  of
         creditors'  rights or by  general  equity  principles),  that the Notes
         remain secured by the Note Guarantees and the other Security  Documents
         pursuant  to  perfected,  first  priority  security  interests  in  the
         Collateral,  and covering such other matters as the Required Holders of
         the Notes may reasonably request.

                  (c)    both before and immediately after giving effect to such
         transaction, no Default or Event of Default would exist; and

                  (d) after giving effect to such transaction, (i) the Successor
         Corporation  shall have a  Consolidated  Net Worth  equal to or greater
         than the  Consolidated  Net Worth of the Company  immediately  prior to
         such transaction and (ii) the Successor  Corporation shall be permitted
         to incur at least $1.00 of additional Funded Debt or Current Debt under
         section 14.5(a)(iv).

No sale,  lease or other  disposition  by the  Company  shall have the effect of
releasing the Company (or any successor  corporation that shall theretofore have
become  such in the  manner  prescribed  in this  section  14.11)  or any of its
Subsidiaries  from  its  liability  under  this  Agreement  or any of the  other
Operative Documents.

         14.12  Limitations  on  Leasebacks.  The Company will not, and will not
permit any of its  Subsidiaries,  directly or  indirectly,  to sell or otherwise
dispose of any of its property if, as part of the same  transaction or series of
related transactions,  any such Person shall then or thereafter rent or lease as
lessee,  or similarly  acquire the right to  possession or use of, such property
(or a major  portion  thereof),  or other  property  which it intends to use for
substantially the same purpose or purposes,  under any lease, agreement or other
arrangement  which  obligates  any such person to pay rent as lessee or make any
other payments for such possession or use.

         14.13.  Limitation on Dispositions  of Property.  The Company will not,
and will not permit any of its  Subsidiaries  to, directly or indirectly,  sell,
lease or  otherwise  dispose of any of their  respective  properties  and assets
(including any right, title or interest in any property or asset), whether owned
on the date hereof or hereafter  acquired and whether  real,  personal or mixed,
tangible or intangible,  including,  without limitation,  Shares,  securities or
Indebtedness of any Subsidiary of the Company, except:

                  (a)   any sale of inventory or work in process in the ordinary
         course of business;

                  (b)   any transaction permitted under section 14.11;

                  (c)   any sale, lease or disposition of assets by a Subsidiary
         to the Company or to a Wholly-Owned Subsidiary Guarantor; and

                  (d) any sale by the Company or any of its  Subsidiaries of any
         of  their  respective  properties  and  assets  (other  than  any  such
         properties or assets which  constitute part of the Collateral)  (each a
         "Sale of Assets") unless (i) both before and  immediately  after giving
         effect to such  transaction,  (x) no Default or Event of Default  shall
         exist,  and (y) the Company  shall be permitted to incur at least $1.00
         of additional  Funded Debt or Current Debt under  section  14.5(a)(iv),
         (ii) such properties and assets are sold for cash  consideration  equal
         to the fair market value of such  properties and assets,  and (iii) the
         Net Asset Sale  Proceeds  of such sale are (x) within 30 days after the
         consummation  of such  sale,  offered  to the  holders  of Senior  Debt
         pursuant  to  section  9.3(a) as  prepayment  of the Senior  Debt,  and
         applied to such  prepayment  to the extent  required  by such  holders,
         and/or (y) applied within 360 days after the  consummation of such sale
         to the purchase by the Company or any of its  Subsidiaries  of property
         and assets (other than cash or cash equivalents) used and useful in the
         ordinary course of business of the Company or such Subsidiary.  The Net
         Asset Sale  Proceeds of any Sale of Assets  pursuant to this clause (d)
         shall be deposited  directly  and held in a  segregated  account at the
         Collateral  Agent  until  applied  in  accordance  with  the  preceding
         sentence,  and any such Net Asset Sale  Proceeds not so applied  within
         360 days after  consummation  of such Sale of Assets  shall  constitute
         "Available  Unused  Proceeds".  When the aggregate  amount of Available
         Unused Proceeds exceeds $5,000,000, the Company shall offer all of such
         Available Unused Proceeds to the holders of the Senior Debt pursuant to
         section  9.3(b) as  prepayment of the Senior Debt.  Any such  Available
         Unused Proceeds which are not so required by such holders to be applied
         in prepayment of the Senior Debt shall be released from the  segregated
         account at the Collateral  Agent,  shall cease to constitute  Available
         Unused  Proceeds  and  thereafter  may be used  for  general  corporate
         purposes of the Company and its Subsidiaries.

         14.14.  Modification of Certain Documents,  Agreements and Instruments;
Renewal of Bank Credit  DocumentsModification  of Certain Documents,  Agreements
and Instruments; Renewal of Bank Credit Documents; Replacement Collateral Agency
and  Intercreditor  Agreement.  The  Company  will not and will not  permit  any
Subsidiary to (a) amend, modify or waive, or permit the amendment,  modification
or waiver of, any term,  condition  or  provision  of its  charter or by-laws or
other organizational  document in any respect which could reasonably be expected
to result in a Material Adverse Change,  (b) file any resolution of the Board of
Directors with the Secretary of State of the jurisdiction of its  incorporation;
(c) change its fiscal year,  or (d) amend or modify,  or permit the amendment or
modification  of, any term,  condition  or  provision  of any of the Bank Credit
Documents  (other  than  any  renewals  thereof)  except  as  permitted  by  the
Collateral  Agency and  Intercreditor  Agreement.  For the  avoidance  of doubt,
nothing contained herein or in the Collateral Agency and Intercreditor Agreement
shall be deemed to limit the  ability of the  Company to enter into  renewals of
the Bank Credit  Documents  on such terms and  conditions  as may be agreed upon
between  the  Company  and the Banks,  without the consent of the holders of the
Notes,  provided  that the Funded  Debt and  Current  Debt  incurred  under such
renewal  agreements  must  otherwise be permitted  under this  Agreement and the
execution,  delivery and  performance of such renewal  agreements must otherwise
not violate any provision of this  Agreement or the other  Operative  Documents.
The holders of the Notes agree to enter into a replacement collateral agency and
intercreditor  agreement with the Banks and the Collateral Agent with respect to
any such renewal  agreements of the Bank Credit  Documents on the same terms and
conditions as the  Collateral  Agency and  Intercreditor  Agreement,  except for
section 7.4 of the Collateral Agency and Intercreditor Agreement,  which section
shall be  omitted  from the  replacement  collateral  agency  and  intercreditor
agreement.

         Limitation  on Tax  Consolidation.  The  Company  will not and will not
permit any  Subsidiary to become a party to a  consolidated  federal  income tax
return with any Person other than the Company and its Subsidiaries.

         14.16 Revolving Credit Facility. The Company will maintain at all times
an aggregate of used and unused borrowing  capacity of not less than $15,000,000
under a committed revolving credit facility.

         14.17 Accounts.  The Company and its Subsidiaries shall maintain at all
times their primary depositary and operating accounts (which shall not be deemed
to include the investment accounts of the Company and its Subsidiaries) with the
Collateral  Agent,  provided  that each  active  office of the  Company  and its
Subsidiaries  may  maintain  with  a  depositary   institution  other  than  the
Collateral  Agent a separate  operating  account  for each such  active  office,
provided  that the amount on deposit in any such  operating  account shall at no
time exceed $10,000.

         Further Assurances.  urances

                  (a) From time to time hereafter,  the Company will execute and
         deliver,  or will cause to be executed and  delivered,  promptly but in
         any event within 5 days,  such  additional  agreements,  documents  and
         instruments  and will  take  all such  other  actions  as the  Required
         Holders  of the  Notes  may  reasonably  request  for  the  purpose  of
         implementing  or  effectuating  the provisions of this  Agreement,  the
         Security Documents and the other Operative  Documents or for more fully
         perfecting  or  renewing  the  rights  of the  Collateral  Agent or the
         holders of the Notes thereunder.

                  (b) Without  limiting the generality of the foregoing,  in the
         event that the  Company at any time or from time to time shall elect to
         organize  or  acquire  any  Subsidiary,  then and in each such case the
         Company  shall  (but in any  event  not  later  than 20 days  prior  to
         consummating any such transaction) notify each holder of Notes and, not
         later than the date upon which such  transaction is  consummated,  will
         cause to be executed and delivered to the holder or holders of Notes, a
         Note Guarantee and Security Agreement executed by such Subsidiary.

     Definitions.  Note:  Bracketed items are cross-references to the section or
sections of the  Agreement in which the  specified  definitions  are used;  they
appear for  purpose of  convenience  only and do not affect the  meaning of such
definitions.

         Definitions  of  Capitalized  Terms.  The terms defined in this section
15.1,  whenever  used in this  Agreement,  shall,  unless the context  otherwise
requires, have the following respective meanings:

         "Affiliate"  of any Person shall mean any other Person which,  directly
or indirectly, controls or is controlled by or is under common control with such
first-mentioned  Person,  or any  individual,  in the case of a Person who is an
individual,  who has a  relationship  by blood,  marriage  or  adoption  to such
first-mentioned  Person not more remote than first cousin, and, without limiting
the  generality  of the  foregoing,  shall  include (a) any Person  beneficially
owning, holding or controlling, directly or indirectly, 10% or more of any class
of Voting  Stock of such  first-mentioned  Person,  (b) any Person of which such
first-mentioned Person owns, holds or controls,  directly or indirectly,  10% or
more of any class of Voting  Stock or (c) any  director,  officer  or  executive
employee of such first-mentioned Person; provided that, in the absence of actual
control, the term Affiliate shall in no event include any financial  institution
which would  otherwise  be an Affiliate  solely by virtue of owning,  holding or
controlling, directly or indirectly, Voting Stock of the Company or by virtue of
having  board  visitation  rights or a designee on the Board of Directors of the
Company;   provided,   further,  that  in  no  event  shall  you  or  any  other
institutional  holder of Notes be deemed to be an Affiliate of the Company.  For
the  purposes  of  this  definition,   "control"  (including,  with  correlative
meanings,  the terms  "controlled by" and "under common control with"),  as used
with respect to any Person,  shall mean the possession,  directly or indirectly,
of the power to direct or cause the direction of the  management and policies of
such  Person,  whether  through the  ownership of Voting Stock or by contract or
otherwise; provided that in no event shall the fact that a Person is a holder of
Indebtedness  of such Person be  considered  sufficient by itself to enable such
Person to direct or cause the direction of the  management  and policies of such
Person.

         "ATEC" shall have the meaning specified in section 4.3.

         "Available Net Proceeds" shall have the meaning specified in section 
9.3.

         "Available Unused Proceeds" shall have the meaning specified in section
14.13.

         "Bank Agent" shall have the meaning specified in section 4.3.

         "Bank Credit Agreement" shall have the meaning specified in section 4.3

         "Bank Credit Documents" shall have the meaning specified in section 4.3

         "Banks" shall have the meaning specified in section 4.3.

         "Business" shall have the meaning specified in section 5.4.

         "Business  Day"  shall mean any day other  than a  Saturday,  Sunday or
other day which  shall be in Boston,  Massachusetts,  or New York,  New York,  a
legal holiday or a day on which banking  institutions  therein are authorized by
law to close.

         "Capitalization"  of any Person shall mean, at any date, the sum of (a)
Total Debt of such  Person at such date,  and (b) Net Worth of such Person as of
the end of the most recently completed fiscal quarter of such Person.
         "Capital Lease" shall mean any lease or similar arrangement which is of
such a nature that payment  obligations of the lessee or obligor  thereunder are
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with GAAP.

         "Change of Control" shall have the meaning specified in section 9.4.

         "Closing"  and  "Closing  Date"  shall  have  the  respective  meanings
specified in section 3.

         "Code" shall mean the Internal  Revenue Code of 1986,  or any successor
federal statute, and the rules and regulations  promulgated  thereunder,  all as
amended, modified or supplemented from time to time.

         "Collateral" shall have the meaning specified in section 1.

         "Collateral Agency and Intercreditor  Agreement" shall have the meaning
specified in section 1.

         "Collateral Agent" shall mean The Chase Manhattan Bank, acting pursuant
to the Collateral Agency and Intercreditor Agreement as collateral agent for the
holders of the Notes and the Banks, and any replacement or successor  collateral
agent thereunder.

         "Commission"  shall mean the  Securities  and Exchange  Commission  and
shall also mean any successor thereto.

         "Common   Stock"  shall  mean  the  Common  Stock  of  the  Company  as
constituted on the Closing Date and any stock into which such Common Stock shall
have been  changed  or any stock  resulting  from any  reclassification  of such
Common Stock.

         "Company"  shall mean ATC Group Services Inc., a Delaware  corporation,
and any successor corporation.


         "Confidential Information" shall have the meaning specified in section
8(b).

         "Consolidated  Capitalization"  [14.5],  "Consolidated  Current Assets"
[14.7], "Consolidated Current Liabilities" [14.7], "Consolidated EBITDA" [14.7],
"Consolidated  Fixed Charges" [14.7],  "Consolidated  Interest  Expense" [14.7],
"Consolidated Net Income" [14.6, 14.7], "Consolidated Net Worth" [14.5, 14.7 and
14.8],  "Consolidated  Rental Obligations" [14.7], and "Consolidated Total Debt"
[14.5],  shall mean the  Capitalization,  Current Assets,  Current  Liabilities,
EBITDA,  Fixed  Charges,   Interest  Expense,  Net  Income,  Net  Worth,  Rental
Obligations,  and  Total  Debt,  as the  case  may be,  of the  Company  and its
Subsidiaries (whether or not ordinarily  consolidated in consolidated  financial
statements of the Company and its Subsidiaries),  all consolidated in accordance
with GAAP, and after giving appropriate effect to outside minority interests, if
any, in Subsidiaries  in accordance with GAAP,  provided that (a) in determining
Consolidated Net Income and Consolidated  EBITDA there shall be excluded (i) the
Net Income of any Person  (other than a Subsidiary  of the Company) in which the
Company or any  Subsidiary of the Company has an ownership  interest,  except to
the extent that any such Net Income has been actually received by the Company or
such  Subsidiary  in the form of  dividends or similar  distributions,  (ii) any
undistributed  Net Income of a Subsidiary of the Company which for any reason is
unavailable  for  distribution  to the  Company or any other  Subsidiary  of the
Company, (iii) the Net Income of any Person accrued prior to the date it becomes
a Subsidiary of the Company or is merged into or  consolidated  with the Company
or a Subsidiary  of the Company,  (iv) in the case of a successor to the Company
by consolidation, merger or transfer of assets, the Net Income of such successor
accrued  prior to such  consolidation,  merger or transfer,  (v) any deferred or
other  credit  representing  the excess of the equity in any  Subsidiary  of the
Company at the date of  acquisition  thereof over the cost of the  investment in
such Subsidiary,  and (vi) any restoration to income of any contingency reserve,
except to the extent  that  provision  for such  reserve  was made out of income
accrued during the same period, and (b) in determining Consolidated Net Worth no
amount  shall  be  included  therein  on  account  of (i)  any  excess  cost  of
acquisition  of shares of any  Subsidiary  of the Company over the book value of
the assets of such  Subsidiary  attributable to such shares on the books of such
Subsidiary at the date of  acquisition  of such shares or (ii) any excess of the
book value of the assets of such  Subsidiary  attributable to such assets at the
date of such acquisition over the cost of acquisition of such assets.

         "Consolidated  Fixed Charges  Coverage Ratio" [14.7] shall mean, on any
date, the ratio of (a) the sum of (i) Consolidated EBITDA for the period of four
consecutive  fiscal  quarters  of the  Company  ending on such  date,  plus (ii)
one-third of  Consolidated  Rental  Obligations  in respect of leases other than
Capital  Leases  for such  period to (b)  Consolidated  Fixed  Charges  for such
period.

         "Consolidated  Working  Capital" shall mean, at any date, the amount by
which  Consolidated  Current  Assets at such date exceeds  Consolidated  Current
Liabilities at such date.

         "Current Assets" [14.7] of any Person shall mean, at any date,  amounts
classified as such according to GAAP.

         "Current  Liabilities"  [14.7] of any Person  shall mean,  at any date,
amounts classified as such according to GAAP, but including,  in the case of the
Company, all sums outstanding under the Bank Credit Agreement.

         "Current Debt" [14.5,  14.7] of any Person shall mean, at any date, (a)
all  Indebtedness  for  borrowed  money or in respect  of Capital  Leases or the
deferred  purchase  price of  property,  whether or not  interest  bearing,  and
whether  secured  or  unsecured,  of such  Person at such date which  would,  in
accordance with GAAP, be classified as short-term Indebtedness at such date, but
specifically  including the current maturities of such Person's Funded Debt, (b)
all Guarantees by such Person at such date of Current Debt of others and (c) the
aggregate  amount which is due on or before the expiration of twelve months from
such date in respect of any Redeemable Shares of such Person.

         "Default" shall mean any condition or event which constitutes or, after
notice or lapse of time or both, would constitute an Event of Default.

         "Disclosure Document" shall have the meaning specified in section 5.4.

         "EBITDA" of any Person  shall mean,  for any period,  the Net Income of
such Person for such period (a) after restoring  thereto  (without  duplication)
amounts deducted for (i) Interest  Expense,  (ii) taxes in respect of income and
profits,  (iii)  amortization  expense,  including  amortization  of  intangible
assets,  including  good will and  covenants  not to compete,  and  depreciation
expense,  and (iv) the write-off of or the establishment of an allowance against
intangible  assets,  including  good will and covenants not to compete,  and (b)
excluding (without  duplication) any gains or losses on the sale of assets other
than in the ordinary  course of business,  in each case determined in accordance
with GAAP.

         "Environmental Laws" shall mean any law, statute,  rule,  regulation or
other  governmental  standard or  requirement  relating or pertaining to (a) the
generation,  manufacture,   management,  handling,  use,  sale,  transportation,
treatment,  storage, disposal,  delivery,  discharge, release or emission of any
waste, pollutant or toxic,  hazardous or other substance,  or (b) any other act,
omission or condition  affecting or involving  the  environment  or air or water
pollution or soil or groundwater contamination.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
or any successor  federal  statute,  and the rules and  regulations  promulgated
thereunder, all as amended, modified or supplemented from time to time.

         "ERISA  Affiliate"  shall mean each trade or  business  (whether or not
incorporated)  that,  together  with the  Company,  would be treated as a single
employer under section 4001(b) of ERISA, or that is a member of a group of which
the  Company is a member and that is a  controlled  group  within the meaning of
section 4971(e)(2)(B) of the Code.

         "Event of Default" shall have the meaning specified in section 16.1.

         "Excess  Available  Net Proceeds"  shall have the meaning  specified in
section 9.3.

         "Excess Available Unused Proceeds" shall have the meaning specified  in
section 9.3.
         "Exchange Act" shall mean the  Securities  Exchange  Act  of  1934,  as
amended, or  any  successor  federal  statute,  and  the  rules  and regulations
promulgated   thereunder,  all as amended, modified or supplemented from time to
time.
         "Fixed  Charges"  for any Person  shall mean,  for any period,  the sum
(without  duplication of amounts) of (a) all Interest Expense of such Person for
such period and (b) one-third of all Rental  Obligations of such Person for such
period in respect of leases other than Capital  Leases and other than  equipment
leases with a term of six months or less entered into for the  performance  of a
specific client project, in each case determined in accordance with GAAP.

         "Funded  Debt"  of  any  Person  shall  mean,  at  any  date,  (a)  all
Indebtedness  for borrowed money or in respect of Capital Leases or the deferred
purchase  price of  property,  whether or not  interest-bearing,  of such Person
which would, in accordance with GAAP, be classified as long-term Indebtedness at
such date, but in any event (i) including all such Indebtedness, whether secured
or unsecured, of such Person which matures (or which, pursuant to the terms of a
revolving credit agreement or otherwise,  is directly or indirectly renewable or
extendible  at the option of such Person for a period  ending)  more than twelve
months after the date of the  creation  thereof,  notwithstanding  the fact that
payments in respect  thereof  (whether  installment,  serial maturity or sinking
fund payments or otherwise) are required to be made by such Person not more than
twelve  months  after  the date as of which the  amount of Funded  Debt is being
determined,  other than any amount which is at the time included in Current Debt
of such Person, and (ii) including  non-contingent  obligations to ATEC pursuant
to a Master Sublease and Master  Equipment Lease  Agreement,  each dated May 24,
1996, but excluding any such obligations which constitute Rental  Obligations of
the Company,  (b) all  Guarantees  by such Person at such date of Funded Debt of
others,  and (c) the aggregate  amount which is due more than twelve months from
such date in respect of any Redeemable Shares of such Person.

         "GAAP" shall mean generally accepted accounting principles as in effect
in the United States from time to time, consistently applied.

         "Guarantee"  of any Person shall mean, at any date,  any  obligation of
such Person at such date guaranteeing,  directly or indirectly, any Indebtedness
or  other  obligation  of any  other  Person  in any  manner,  but in any  event
including all endorsements (other than for collection or deposit in the ordinary
course of business),  all discounts with recourse and all  obligations  incurred
through an agreement,  contingent or otherwise,  (a) to purchase the obligations
of any other Person or any  security  therefor or to advance or supply funds for
the payment or purchase of such obligations,  or (b) to purchase,  sell or lease
(as lessee or lessor) property,  products,  materials or supplies or to purchase
or sell  transportation  or services,  primarily for the purpose of enabling the
obligor  to make  payment  of such  obligations  or to assure  the owner of such
obligations  against  loss,  regardless of the delivery or  non-delivery  of the
property,  products, materials or supplies or the furnishing or nonfurnishing of
the  transportation or services,  or (c) to provide funds for the payment of, or
obligating such Person to make, any loan, advance, capital contribution or other
investment  in the obligor for the purpose of assuring a minimum  equity,  asset
base,  working  capital  or other  balance  sheet  condition  for any date or to
provide funds for the payment of any obligation,  dividend or stock  liquidation
payment, or otherwise to supply funds to or in any manner invest in the obligor.
The amount of any Guarantee shall be equal to the amount of all Indebtedness and
other obligations directly or indirectly guaranteed thereby.

         "Holder's  Net  Proceeds  Prepayment  Amount"  shall  have the  meaning
specified in section 9.3.

         "Holder's  Unused  Proceeds  Prepayment  Amount" shall have the meaning
specified in section 9.3.

         "Indebtedness" of any Person shall mean, at any date, all indebtedness,
liabilities and other  obligations of such Person at such date (other than items
of shareholders'  equity) which would, in accordance with GAAP, be classified as
liabilities of such Person, but in any event including (without duplication):

                  (a)      all Guarantees of such Person;

                  (b)  all  indebtedness,   liabilities  and  other  obligations
         secured  by any Lien in  respect  of  property  owned  by such  Person,
         whether or not such Person has assumed or become liable for the payment
         of such obligations;

                  (c) all  indebtedness,  liabilities  and other  obligations of
         such Person arising under any conditional sale or other title retention
         agreement,  whether  or not the rights  and  remedies  of the seller or
         lender  under such  agreement  in the event of default  are  limited to
         repossession or sale of such property;

                  (d)      the amount of the obligation required to be recorded
         by the lessee in respect of any Capital Lease under which such Person
         is lessee; and

                  (e)  all  indebtedness,   liabilities  and  other  obligations
         arising in connection  with letters of credit,  bankers  acceptances or
         other credit  enhancement  facilities  and in connection  with interest
         rate swaps,  currency swaps and similar  obligations which require such
         Person to make payments,  whether periodically or upon the happening of
         a contingency.

         "Indemnified Costs" shall have the meaning specified in section 20.

         "Indemnitee" shall have the meaning specified in section 20.

         "Interest Expense" [14.7] of any Person shall mean, for any period, the
aggregate  amount of (a) all interest  paid,  payable or guaranteed  during such
period by such  Person in respect of Funded Debt and  Current  Debt  (including,
without limitation, Capital Leases), determined in accordance with GAAP, and (b)
all  interest  capitalized  or  deferred  during  such  period,   determined  in
accordance  with GAAP.  Interest which is payable at a floating or variable rate
shall be  determined  on the basis of the rate in effect on the date as of which
Interest Expense is to be determined.

         "Investment" shall mean any investment made by stock purchase,  capital
contribution,   loan,  advance,   acquisition  of  Indebtedness,   Guarantee  or
otherwise,  provided  that in no event  shall the term  Investment  include  the
direct acquisition of the operating assets of another Person.

         "Licenses" shall mean certificates of public convenience and necessity,
franchises,  licenses and other  permits and  authorizations  from  governmental
authorities.

         "Lien"  shall mean any  mortgage,  pledge,  hypothecation,  assignment,
deposit  arrangement,  lien  (statutory  or  otherwise),  preference,  priority,
security interest,  chattel mortgage or other charge or encumbrance of any kind,
or any other type of preferential  arrangement,  including,  without limitation,
the lien or retained  security  title of a conditional  vendor and any easement,
right of way or other encumbrance on title to real property and any lease having
substantially the same effect as any of the foregoing.

         "Make  Whole  Amount"  shall  mean,  at any date,  with  respect to any
prepayment or payment  (whether on account of  acceleration or otherwise) of any
Notes,  if the  Treasury  Rate plus 50 basis  points at such date is lower  than
8.18% per  annum,  the  excess of (a) the  present  value of the  principal  and
interest  payments on and in respect of the Notes being  prepaid or paid, as the
case may be, that would otherwise  become due and payable (without giving effect
to such prepayment or payment) (including the final payment on the maturity date
of the Notes),  discounted at a rate which is equal to the Treasury Rate plus 50
basis points over (b) the  principal  amount of the Notes being prepaid or paid,
as the case may be, at par.  If the  Treasury  Rate plus 50 basis  points at the
date of such  prepayment  or payment is equal to or higher than 8.18% per annum,
the Make Whole Amount is zero.

         "Material  Adverse  Change" shall mean a material  adverse change in or
effect  upon  any of (a)  the  condition  (financial  or  otherwise),  business,
performance,  operations, properties, profits or prospects of the Company or the
Company and its Subsidiaries taken as one enterprise, (b) the legality, validity
or  enforceability  of this  Agreement,  the Notes or any of the other Operative
Documents,  including,  without limitation,  the Liens created or intended to be
created by the Security Documents;  (c) the rights and remedies of any holder of
Notes or (d) the  ability of the Company or any of its  Subsidiaries  to perform
its obligations  under any of the Operative  Documents and/or to comply with any
of the terms thereof applicable to it.

         "Multiemployer  Plan" shall mean a  "multiemployer  plan" as defined in
section  4001(a)(3)  of ERISA to which the  Company  or any ERISA  Affiliate  is
making or accruing an obligation to make contributions.

         "Net  Asset  Sale  Proceeds"  shall  mean,  in the  case of any Sale of
Assets,  the gross cash proceeds of such sale  whenever  received by the Company
and its Subsidiaries  after deducting:  (a) the aggregate amount of Indebtedness
secured  by a Lien on the  assets so sold or  incurred  in  connection  with the
original  acquisition of the assets so sold, but in each case only to the extent
such Indebtedness is required to be repaid and is so repaid as a condition to or
upon  consummation  of such  sale,  (b) the  reasonable  out-of-pocket  expenses
incurred by the Company and its  Subsidiaries  in connection with such sale, and
(c) all taxes  payable by the Company and its  Subsidiaries  as a result of such
sale, including taxes in respect of income and profits.

         "Net Income" [14.7] of any Person shall mean,  for any period,  the net
income (or net loss), excluding all extraordinary,  unusual, nonrecurring and/or
nonoperating  gains or losses of such  Person  for such  period,  determined  in
accordance with GAAP.

         "Net Proceeds of Capital  Stock" shall mean,  for any period,  all cash
proceeds (net of all costs and out-of-pocket  expenses in connection  therewith,
including,  without limitation,  placement,  underwriting and brokerage fees and
expenses)  received by the Company  during such period,  from the sale of Shares
(but not the sale of Redeemable Shares) of the Company.

         "Net Worth"  [14.7] of any Person shall mean,  at any date,  the sum of
(a) the capital stock (excluding treasury stock and capital stock subscribed and
unissued)  and (b) surplus  (including  retained  earnings,  additional  paid-in
capital and the balance of the current  profit and loss account not  transferred
to surplus) of such Person at such date, determined in accordance with GAAP.

         "Note  Guarantee"  and  "Note  Guarantees"  shall  have the  respective
meanings specified in section 1.

         "Notes" shall have the meaning specified in section 1.

         "Officers'  Certificate"  shall mean a certificate  signed on behalf of
the Company by its President or one of its Vice  Presidents and by its Treasurer
or one of its Assistant Treasurers.

         "Old Bank Agreement" shall have the meaning specified in section 4.3.

         "Operative  Documents"  shall  mean  this  Agreement,  the  Other  Note
Agreements,  the  Notes,  the  Security  Documents,  the  Collateral  Agency and
Intercreditor  Agreement  and  each  of  the  other  agreements,  documents  and
instruments  executed in connection herewith and therewith,  each as it may from
time to time be amended, modified or supplemented.

         "Other  Note  Agreements"  and  "Other   Purchasers"   shall  have  the
respective meanings specified in section 1.

         "PBGC" shall mean the Pension Benefit Guaranty  Corporation,  and shall
also mean any successor thereto.

         "Permitted Investment" shall mean any of the following Investments:

                  (a) Investments existing on the date hereof and referred to in
         Exhibit 5.9 attached hereto;

                  (b)  Investments  by the Company or by any  Subsidiary  of the
         Company  in any  Wholly-Owned  Subsidiary  Guarantor  (or in any Person
         which  simultaneously   therewith  becomes  a  Wholly-Owned  Subsidiary
         Guarantor)  made  by  stock  purchase,  capital  contribution,  loan or
         advance,  provided that (i) both at the time of and  immediately  after
         giving  effect to any such  Investment,  no Default or Event of Default
         shall have occurred and be continuing and (ii) all such Investments are
         made only in Solvent entities (A) which are organized under the laws of
         and conduct  substantially  all of their  respective  businesses in the
         United States of America or a state thereof or the District of Columbia
         and  having  all or  substantially  all of its  property  in the United
         States of America;  and (B) whose lines of business are not  materially
         different from those in which the Company and its  Subsidiaries are now
         engaged;

                  (c) Investments  by  any  Subsidiary  of  the  Company  in the
         Company;

                  (d) readily marketable  obligations  (having a maturity not in
         excess of 12 months from the date of acquisition  thereof) of, or fully
         and unconditionally  guaranteed (as to both principal and interest) by,
         the  United  States  of  America  or an  agency  thereof,  or a foreign
         government, the treasury obligations of which are rated AAA by Standard
         & Poor's Corporation and Aaa by Moody's Investors Service, Inc.;

                  (e) negotiable  certificates of deposit (having a maturity not
         in excess of 12 months from the date of acquisition thereof) evidencing
         direct  obligations of any federally  insured  commercial bank or trust
         company  organized and operating in the United States of America having
         either (i) capital and  surplus and  undistributed  profits of at least
         $100,000,000 or (ii) assets of at least $1,000,000,000 and in each case
         having the highest  rating  available from Moody's  Investors  Service,
         Inc. and Standard & Poor's Corporation;

                  (f) repurchase  agreements  (having a term not in excess of 90
         days) with any commercial bank or trust company described in clause (e)
         above,  provided  that (i) title to and custody of the  collateral  for
         each such  repurchase  agreement  is held by the Company or an agent of
         the  Company  other than the issuer of such  repurchase  agreement  and
         affiliates  thereof,  (ii) the fair market value (for purposes  hereof,
         the fair  market  value of the  collateral  shall  mean the bid  prices
         thereof as published in a standard  publication)  of the collateral for
         each such  repurchase  agreement shall at all times be at least 102% of
         the amount of such  repurchase  obligation and (iii) the collateral for
         each such repurchase  agreement shall be in negotiable  form,  shall be
         free of all liens and shall  consist  solely of  securities of the sort
         described in clause (d) above;

                  (g)  accounts  receivable  arising  from  transactions  in the
         ordinary  course of business;  contingent  liabilities  represented  by
         endorsements of negotiable instruments for collection or deposit in the
         ordinary  course of business;  advances,  deposits,  down  payments and
         prepayments  on account of firm  purchase  orders made in the  ordinary
         course of business;

                  (h)  commercial  paper  and  loan  participations   (having  a
         maturity  not in excess of 270 days from the date of issue ) evidencing
         the direct obligation of any corporation organized and operating in the
         United  States of America  and  having a rating  which is A-1 or P-1 or
         better at the time of acquisition thereof;

                  (i)  commercial  paper  and  loan  participations   (having  a
         maturity  not in excess of 270 days from the date of issue)  evidencing
         the direct obligation of any corporation organized and operating in the
         United  States of  America  and having a rating A-3 or P-3 or better at
         the time of  acquisition  thereof,  provided that the  aggregate  value
         (determined  as  provided  in  section  14.6) of all  Investments  made
         pursuant to this clause (i) shall not exceed $5,000,000; and

                  (j)  other   Investments  made  after  the  Closing  Date  not
         otherwise  permitted  by the  preceding  clauses  of  this  definition,
         provided  that  (i) all  such  Investments  are  made  only in  Solvent
         entities  and (ii)  both at the time of and  immediately  after  giving
         effect to any such Investment, (A) no Default or Event of Default shall
         have occurred and be continuing and (B) the aggregate value (determined
         as provided in section 14.6) of all  Investments  made pursuant to this
         clause (j) does not exceed 15% of Consolidated Net Worth.

         "Person" shall mean an individual,  a corporation,  an  association,  a
joint-stock  company,  a  business  trust  or  other  similar  organization,   a
partnership,  a  limited  liability  company,  a  joint  venture,  a  trust,  an
unincorporated  organization or a government or any agency,  instrumentality  or
political subdivision thereof.

         "Plan"  shall mean an  "employee  benefit  plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or  maintained,  or to which  contributions  are or, within the  preceding  five
years,  have been  made or  required  to be made,  by the  Company  or any ERISA
Affiliate or with respect to which the Company or any ERISA  Affiliate  may have
any liability.

         "Preferred  Shares",  as  applied to shares of any  Person,  shall mean
Shares of such Person which shall be entitled to preference or priority over any
other Shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation.

         "Proprietary Rights" shall mean any patents,  registered and common law
trademarks,  service marks, trade names, copyrights,  licenses and other similar
rights  (including,  without  limitation,  know-how,  trade  secrets  and  other
confidential information) and applications for each of the foregoing, if any.

         "Redeemable" shall mean, with respect to any Shares of any Person, each
Share of such Person that is (a) redeemable, payable or required to be purchased
or otherwise retired or extinguished, or convertible into Funded Debt or Current
Debt of such Person,  (i) at a fixed or determinable  date, whether by operation
of any sinking  fund or  otherwise,  (ii) at the option of any Person other than
such Person or (iii) upon the  occurrence  of a condition  not solely within the
control of such Person or (b) convertible into other Redeemable Shares.

         "Rental  Obligations"  of any Person  shall mean,  for any period,  all
rents and other  amounts  determined in  accordance  with GAAP paid,  payable or
guaranteed  during such period by such Person,  as lessee or sublessee under any
lease,  including,  without  limitation,  any amount required to be paid by such
Person  as rents  or  additional  rents  on  account  of  maintenance,  repairs,
insurance,  taxes,  utilities and similar charges  determined in accordance with
GAAP. Whenever it is necessary to determine the amount of Rental Obligations for
any  period,  to the extent  that such  Rental  Obligations  are not  definitely
determinable by the terms of the lease, the Rental Obligations not so definitely
determinable  shall be estimated in good faith and in such reasonable  manner as
the Board of  Directors  of the Company may select (as  evidenced  by  certified
resolutions  thereof promptly  delivered to the holder or holders of the Notes).
Notwithstanding  the  foregoing,  Rental  Obligations  of the  Company  and  its
Subsidiaries  shall  include  only that  portion of the  amounts  payable by the
Company under the ATEC Master  Sublease and Master  Equipment  Lease  Agreement,
each  dated  May 24,  1996,  which  is being  expensed  by the  Company  and its
Subsidiaries,  which was based on the fair market value of the property  subject
to such agreements.

         "Required  Holders"  as  applied to  describe  the  required  holder or
holders of the Notes,  shall mean, at any date,  the holder or holders of 51% or
more  in  aggregate  principal  amount  of the  Notes  at the  time  outstanding
(excluding  all Notes at the time owned by the Company or any  Affiliate  of the
Company).

         "Restricted Investment"  shall  mean   any   investment  other  than  a
Permitted Investment.

         "Restricted Payment" as applied to any Person shall mean:

                  (a) any dividend or other  distribution or payment  (including
         any distribution of properties,  assets,  cash, rights,  obligations or
         securities),  direct or  indirect,  on  account  of any  Shares of such
         Person now or hereafter  outstanding  (including,  without  limitation,
         Preferred Shares) or any securities  convertible into or exercisable or
         exchangeable  for such  Shares or any  rights,  options or  warrants to
         acquire  any  such  Shares,   except  for  (i)  any  such  dividend  or
         distribution  or  payment  to  the  Company  and/or  any   Wholly-Owned
         Subsidiary  Guarantor and (ii) a dividend payable to all of the holders
         of the Common Stock solely in shares of Common Stock; and

                  (b) any redemption, retirement, purchase or other acquisition,
         direct or  indirect,  of any  Shares of such  Person  now or  hereafter
         outstanding  (including,  without limitation,  Preferred Shares) or any
         securities  convertible  into or exercisable or  exchangeable  for such
         Shares or any rights, options or warrants to acquire any such Shares.

         For purposes of this  Agreement,  the amount of any Restricted  Payment
         made in  property  other than cash shall be the greater of (x) the fair
         market value of such property (as  reasonably  determined in good faith
         by the board of directors (or equivalent  governing body) of the Person
         making such  Restricted  Payment) and (y) the net book value thereof on
         the books of such  Person,  in each case  determined  as of the date on
         which such Restricted Payment is made.

         "Sale of Assets" shall have the meaning specified in section 14.13.

         "Securities Act" shall mean the Securities Act of 1933, as amended,  or
any  successor  federal  statute,  and the  rules  and  regulations  promulgated
thereunder, all as amended, modified or supplemented from time to time.

         "Security   Agreement"  and  "Security   Agreements"   shall  have  the
respective meanings specified in section 1.

         "Security Document" and "Security  Documents" shall have the respective
meanings specified in section 1.

         "Senior  Debt" shall mean all Funded Debt  and/or  Current  Debt of the
Company,  including,  without  limitation,  the Notes and the  Current  Debt and
Funded Debt  outstanding  under the Bank Credit  Agreement,  other than any such
Funded  Debt or  Current  Debt which is  subordinate  in right of payment to the
Notes and/or the Current Debt and Funded Debt outstanding  under the Bank Credit
Agreement.

         "Shares"  of any  Person  shall  include  any and all shares of capital
stock, partnership interests,  membership interests, or other shares, interests,
participations  or other  equivalents  (however  designated of any class) in the
capital of, or other ownership interests in, such Person.

         "Solvent"  as  applied to any Person at any date shall mean that on and
as of such date (a) the fair value of the  properties  and assets of such Person
is greater than the total amount of liabilities,  including, without limitation,
contingent  liabilities,  of such Person,  (b) the present fair salable value of
the  properties  and assets of such Person is not less than the amount that will
be required to pay the  probable  liability  of such Person on its debts as they
become  absolute and  matured,  (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and  liabilities  mature and (d) such Person is not engaged in
business  or a  transaction,  and  is not  about  to  engage  in  business  or a
transaction,  for which such Person's  properties and assets would constitute an
unreasonably  small capital.  The amount of contingent  liabilities on and as of
any date shall be computed as the amount that, in the light of all the facts and
circumstances  existing on and as of such date,  represents  the amount that can
reasonably be expected to become an actual or matured liability. For purposes of
this definition,  "Person" shall mean, where so required by the context in which
the term "Solvent" appears, such Person and its Subsidiaries taken as a whole.

         "Source" shall have the meaning specified in section 10(b).

         "Subsidiary"  of any Person at any date shall mean (a) any other Person
a majority  (by  number of votes) of the Voting  Stock of which is owned by such
first-mentioned  Person  and/or  by one  or  more  other  Subsidiaries  of  such
first-mentioned  Person;  (b) any  other  Person of which  such  first-mentioned
Person or any of its other Subsidiaries is a general partner;  and (c) any other
Person with respect to which such first-mentioned  Person and/or any one or more
other Subsidiaries of such first-mentioned Person (i) is entitled to 50% or more
of such  Person's  profits or losses or 50% or more of such  Person's  assets on
liquidation  or (ii) holds an equity  interest  in such Person of 50% or more or
(iii) is  entitled  to elect or  direct  the  election  of the  majority  of the
directors or other  governing  body of such Person.  As used herein,  unless the
context clearly requires otherwise, the term "Subsidiary" refers to a Subsidiary
of the Company.

         "Successor Corporation" shall have  the  meaning specified  in  section
14.11.

         "Test Period" shall have the meaning specified in section 14.6.

         "Total Debt" [14.5] of any Person shall mean,  at any date,  the sum of
Funded Debt and  Current  Debt of such  Person  outstanding  on such date (which
shall  not be deemed  to  include  undrawn  commitments  under  the Bank  Credit
Documents).

         "Treasury  Rate" at any time with respect to any Notes being prepaid or
paid  (whether on account of  acceleration  or  otherwise),  as the case may be,
shall mean and shall be determined by reference to the applicable display on the
Bloomberg Financial Markets Service as of 10:00 A.M., Boston time, on the second
Business Day prior to the date fixed for such prepayment or payment (or, if such
display is no longer available,  any publicly available source of similar market
data as selected by the Required  Holders of the Notes),  and shall be the yield
on actively  traded United  States  Treasury  securities  adjusted to a maturity
equal to the then remaining  Weighted Average Life to Maturity of the Notes then
being prepaid or paid  (whether on account of  acceleration  or otherwise)  (the
"Remaining  Life").  If the  Remaining  Life is not equal to the  maturity  of a
United States  Treasury  security for which a yield is given,  the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the  weekly  average  yields of the two  closest  United  States
Treasury  securities  for  which  such  yields  are  given,  except  that if the
Remaining  Life is less than one year,  the  average  yield on  actively  traded
United States Treasury  securities  adjusted to a constant  maturity of one year
shall be used.  The Treasury  Rate shall be computed to the fifth  decimal place
(one-thousandth  of a percentage  point) and then rounded to the fourth  decimal
place (one-hundredth of a percentage point).

         "Voting  Stock",  when used with  reference  to any Person,  shall mean
Shares (however  designated) of such Person having ordinary voting power for the
election  of a  majority  of the  members  of the board of  directors  (or other
governing  body) of such  Person,  other than  Shares  having such power only by
reason of the happening of a contingency.

         "Weighted  Average Life to Maturity" of any  Indebtedness or obligation
shall mean,  at any date,  the number of years  obtained  by  dividing  the then
Remaining   Dollar-years  of  such   Indebtedness  or  obligation  by  the  then
outstanding principal amount of such Indebtedness or obligation. For purposes of
this definition,  the "Remaining Dollar-years" of any Indebtedness or obligation
shall mean, at any date, the total of the products  obtained by multiplying  (a)
the amount of each then remaining installment,  sinking fund, serial maturity or
other required payment, including payment at final maturity, in respect thereof,
by (b) the number of years  (calculated to the nearest  one-twelfth)  which will
elapse between such date and the making of such payment.

         "Wholly-Owned   Subsidiary"  shall  mean  any  Subsidiary  all  of  the
outstanding shares of which, other than directors'  qualifying shares,  shall at
the  time be owned  by the  Company  and/or  by one or more  other  Wholly-Owned
Subsidiaries  and the  accounts  of which  are  consolidated  with  those of the
Company in accordance with GAAP.

         "Wholly-Owned   Subsidiary   Guarantor"  shall  mean  any  Wholly-Owned
Subsidiary  that has delivered to each holder of any Notes a valid,  binding and
enforceable Note Guarantee and Security  Agreement,  and all of whose properties
and assets  which  constitute  Collateral  are subject to valid and  enforceable
first priority perfected Liens in favor of the Collateral Agent.

         "Withdrawal  Liability"  shall have the  meaning  given such term under
Part 1 of Subtitle E of Title IV of ERISA.

         Other  Definitions.  The terms defined in this section  15.2,  whenever
used in this Agreement,  shall, unless the context otherwise requires,  have the
respective meanings hereinafter specified.

         "this Agreement" (and similar  references to any of the other Operative
Documents)  shall mean,  and the words "herein" (and  "therein"),  "hereof" (and
"thereof"),  "hereunder"  (and  "thereunder")  and words of similar import shall
refer to, such instruments as they may from time to time be amended, modified or
supplemented.

         "corporation"  shall  include  an  association,  joint  stock  company,
business trust or other similar organization.

         "premium" when used in conjunction  with references to principal of and
interest on the Notes,  shall mean any amount due upon any payment or prepayment
of any of the Notes,  other than  principal and interest,  and shall include the
Make Whole Amount.

         Accounting Terms and Principles; Laws.es; Laws

                  (a) All  accounting  terms used herein which are not expressly
         defined in this Agreement  shall have the respective  meanings given to
         them, all  computations  made pursuant to this Agreement  shall be made
         and all financial  statements shall be prepared in accordance with GAAP
         as in effect in the United States from time to time.

                  (b)  All   references   herein  to  laws,   statutes,   rules,
         regulations and/or to other governmental restrictions, standards and/or
         requirements shall,  unless the context clearly requires otherwise,  be
         deemed to refer to those  promulgated,  issued  and/or  enforced by any
         domestic or foreign federal,  state or local  government,  governmental
         agency,   authority,   court,   instrumentality   or  regulatory  body,
         including, without limitation, those of the United States of America or
         any state thereof or the District of Columbia.

Remedies.Remedies

         Events of Default Defined; Acceleration of Maturity. If any one or more
of the following events ("Events of Default") shall occur (for whatever reason),
that is to say:

                  (a) if default  shall be made in the due and punctual  payment
         of all or any part of the  principal  of, or  premium  (if any) on, any
         Note, when and as the same shall become due and payable, whether at the
         stated  maturity  thereof,  by notice of or demand for  prepayment,  or
         otherwise;

                  (b) if default  shall be made in the due and punctual  payment
         of any interest on any Note when and as such interest  shall become due
         and payable and such default shall have  continued for a period of five
         Business Days;

                  (c) if default shall be made in the  performance or observance
         of any term of  sections  7(g),  8,  9.7,  14.2(b),  or 14.5 to  14.18,
         inclusive of this  Agreement or of any term of sections 1.04 or 1.05 of
         any of the Security Agreements;

                  (d) if default shall be made in the  performance or observance
         of any  other  term in this  Agreement  or any of the  other  Operative
         Documents and such default shall have continued for a period of 30 days
         after  the  earlier  to occur  of (i) the  Company's  obtaining  actual
         knowledge  of such  default  or (ii) the  Company's  receipt of written
         notice of such default;

                  (e) if the Company or any Subsidiary of the Company shall make
         a general assignment for the benefit of creditors, or shall not pay its
         debts as they become due,  or shall admit in writing its  inability  to
         pay its debts as they become due, or shall file a voluntary petition in
         bankruptcy,  or shall be  adjudicated  bankrupt or insolvent,  or shall
         file any  petition  or answer  seeking  for itself any  reorganization,
         arrangement,  composition,  readjustment,  liquidation,  dissolution or
         similar relief under any present or future statute,  law or regulation,
         or shall file any  answer  admitting  or not  contesting  the  material
         allegations of a petition filed against it in any such  proceeding,  or
         shall  seek  or  consent  to or  acquiesce  in the  appointment  of any
         trustee, custodian,  receiver, liquidator or fiscal agent for it or for
         all or any substantial  part of its  properties,  or the Company or any
         Subsidiary  of the  Company or its board of  directors  or  controlling
         equityholders shall take any corporate or similar action looking to its
         dissolution or liquidation;

                  (f) if,  within 60 days  after the  commencement  of an action
         against  the  Company or any  Subsidiary  of the  Company  seeking  any
         reorganization,  arrangement, composition,  readjustment,  liquidation,
         dissolution or similar relief under any present or future statute,  law
         or regulation,  such action shall not have been dismissed or all orders
         or  proceedings  affecting the operations or business of the Company or
         such Subsidiary  stayed, or if the stay of any such order or proceeding
         shall  thereafter  be set  aside,  or if,  within  60  days  after  the
         appointment  without the consent or acquiescence of the Company or such
         Subsidiary of any trustee,  custodian,  receiver,  liquidator or fiscal
         agent for the  Company or any  Subsidiary  of the Company or for all or
         any substantial part of their respective  properties,  such appointment
         shall not have been vacated;

                  (g) if, under the  provisions of any law for the relief or aid
         of debtors, any court or governmental agency of competent  jurisdiction
         shall assume  custody or control of the Company or of any Subsidiary of
         the  Company  or of all or any  substantial  part of  their  respective
         properties;
                  (h) if (i) the Company or any  Subsidiary of the Company shall
         fail to make any payment due on any Indebtedness  (other than the Notes
         and Indebtedness  under the Bank Credit  Documents) or other obligation
         or  to  perform,  observe  or  discharge  any  covenant,  condition  or
         obligation  in  any  agreement,   document  or  instrument  evidencing,
         securing or relating to such Indebtedness or other obligation, and such
         failure shall  continue  beyond any  applicable  grace  period,  if the
         aggregate  outstanding  amount  thereof  exceeds  $2,000,000  or if the
         aggregate   outstanding   amount   thereof   together  with  any  other
         Indebtedness or other  obligation as to which the Company is in default
         exceeds  $3,000,000,  (ii) any such  Indebtedness  or other  obligation
         shall  become  due and  payable  by its  terms and shall not be paid or
         extended or (iii) as a consequence of the occurrence or continuation of
         any event or  condition,  the Company or any  Subsidiary of the Company
         shall become  obligated to purchase or repay any such  Indebtedness  or
         obligation   before  its  regular  maturity  or  before  its  regularly
         scheduled  date of payment (or one or more Persons shall have the right
         to require the Company or any  Subsidiary of the Company so to purchase
         or repay such  Indebtedness  or other  obligation);  provided  that any
         payment made into an escrow  account or to a court  appointed  trustee,
         pending the  settlement of a bona fide dispute with respect to any such
         Indebtedness or other obligation, shall not be deemed a failure to make
         such  payment for  purposes of this clause (h) so long as such  payment
         cures or suspends  the  existence of the default  under the  underlying
         obligation;

                  (i) if (i) the Company or any  Subsidiary of the Company shall
         fail to make any payment due on any Indebtedness  under the Bank Credit
         Documents or to perform,  observe or discharge any covenant,  condition
         or obligation  in any  agreement,  document or  instrument  evidencing,
         securing or  relating  to such  Indebtedness,  and such  failure  shall
         continue beyond any applicable grace period, (ii) any such Indebtedness
         shall  become  due and  payable  by its  terms and shall not be paid or
         extended or (iii) as a consequence of the occurrence or continuation of
         any event or  condition,  the Company or any  Subsidiary of the Company
         shall  become  obligated  to  purchase  or repay any such  Indebtedness
         before its regular  maturity or before its regularly  scheduled date of
         payment  (or one or more  Persons  shall have the right to require  the
         Company or any  Subsidiary  of the Company so to purchase or repay such
         Indebtedness);

                  (j) if a  final  judgment  for the  payment  of  money  which,
         together with all other  outstanding final judgments for the payment of
         money against the Company  and/or any of its  Subsidiaries,  exceeds an
         aggregate of $2,500,000  shall be rendered by a court of record against
         the Company or any Subsidiary, and the Company or such Subsidiary shall
         not discharge the same or provide for its discharge in accordance  with
         its terms,  or procure a stay of execution  thereof within 45 days from
         the date of entry  thereof and within  such period of 45 days,  or such
         longer period during which  execution of such judgment  shall have been
         stayed,  move to vacate such judgment or appeal therefrom and cause the
         execution thereof to be stayed pending  determination of such motion or
         during such appeal;
                  (k) if any  representation or warranty made by or on behalf of
         the Company or any  Subsidiary  of the Company in this  Agreement or in
         any of the other Operative  Documents or in any agreement,  document or
         instrument  delivered  under or  pursuant  to any  provision  hereof or
         thereof  shall prove to have been false or  incorrect  in any  material
         respect on the date as of which made;

                  (l)  if,  at any  time,  this  Agreement  or any of the  other
         Operative  Documents  shall for any reason  (other  than the  scheduled
         termination thereof in accordance with its terms) expire, fail to be in
         full  force  and  effect  or  be  disaffirmed,   repudiated,  canceled,
         terminated or declared to be  unenforceable,  null and void (other than
         by a holder of the Notes (excluding the Company or any Affiliate of the
         Company));

                  (m) if any foreclosure  proceeding to exercise a power of sale
         or other  similar  proceeding  is  instituted  or any  attempted  sale,
         seizure or other similar enforcement action is instituted by the holder
         of any Lien upon all or any part of the assets of the Company or any of
         its Subsidiaries  whether or not the Lien is prior to or subordinate to
         any of the Security Documents; or

                  (n) if (i) any Plan shall fail to satisfy the minimum  funding
         standards  of ERISA or the Code for any plan year or part  thereof or a
         waiver of such  standards or extension  of any  amortization  period is
         sought or  granted  under  section  412 of the  Code,  (ii) a notice of
         intent to terminate any Plan shall have been or is reasonably  expected
         to be filed with the PBGC or the PBGC shall have instituted proceedings
         under  section  4042 of ERISA to  terminate  or  appoint a  trustee  to
         administer  any Plan or the PBGC shall have notified the Company or any
         ERISA  Affiliate  that  a  Plan  may  become  a  subject  of  any  such
         proceedings,   (iii)  the   aggregate   "amount  of  unfunded   benefit
         liabilities" (within the meaning of section 4001(a)(18) of ERISA) under
         all Plans,  determined  in  accordance  with  Title IV of ERISA,  shall
         exceed  $250,000,  (iv) the Company or any ERISA  Affiliate  shall have
         incurred or is reasonably  expected to incur any liability  pursuant to
         Title I or IV of ERISA or the penalty or excise tax  provisions  of the
         Code relating to employee  benefit plans,  (v) the Company or any ERISA
         Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
         any  Subsidiary  of the  Company  establishes  or amends  any  employee
         welfare benefit plan that provides  post-employment welfare benefits in
         a manner that would  increase the  liability of the Company  and/or its
         Subsidiaries  thereunder;  and any such  event or events  described  in
         clauses (i) through (vi) above,  either  individually  or together with
         any other such event or events, has resulted in, or could reasonably be
         expected to result in, a Material Adverse Change;

then,  in the case of any  Event of  Default  (other  than one of the  character
described  in  subdivisions  (e),  (f) or (g) of this  section  16.1) and at the
option of the Required Holders of the Notes at the time  outstanding  (excluding
any Notes at the time owned by the  Company or any  Affiliate  of the  Company),
exercised  by written  notice to the Company,  the  principal of all Notes shall
forthwith  become due and  payable,  together  with  interest  accrued  thereon,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby  expressly  waived,  and the Company  shall  forthwith  upon any such
acceleration  pay to the holder or holders of all the Notes then outstanding (i)
the entire principal of and interest accrued on the Notes, and (ii) in addition,
to the extent  permitted  by  applicable  law, an amount equal to the Make Whole
Amount, as liquidated  damages and not as a penalty;  provided that, in the case
of an Event of Default of the character  described in section 16.1(a) or 16.1(b)
and  irrespective of whether all of the Notes have been declared due and payable
by the Required Holders of the Notes at the time  outstanding  (except any Notes
at the time owned by the Company or any Affiliate of the Company), any holder of
Notes who or which has not consented to any waiver with respect to such Event of
Default  may, at the option of such  holder,  by written  notice to the Company,
declare all Notes then held by such holder to be, and such Notes shall thereupon
become,  forthwith  due and payable,  together with  interest  accrued  thereon,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby  expressly  waived,  and the Company  shall  forthwith  upon any such
acceleration pay to such holder (i) the entire principal of and interest accrued
on such Notes, and (ii) in addition,  to the extent permitted by applicable law,
an amount equal to the Make Whole  Amount,  as  liquidated  damages and not as a
penalty;  provided,  further,  that,  in the case of an Event of  Default of the
character described in section 16.1(e),  (f) and (g), the principal of all Notes
shall forthwith  become due and payable,  together with interest accrued thereon
(including  any  interest  accruing  after  the  commencement  of any  action or
proceeding under any bankruptcy,  insolvency or other similar law, and any other
interest that would have accrued but for the  commencement  of such  proceeding,
whether or not any such  interest  is allowed  as an  enforceable  claim in such
proceeding),  without presentment,  demand, protest or other notice of any kind,
all of which are hereby expressly  waived,  and the Company shall forthwith upon
any such  acceleration  pay to the  holder  or  holders  of all the  Notes  then
outstanding (i) the entire  principal of and interest  accrued on the Notes, and
(ii) in addition,  to the extent permitted by applicable law, an amount equal to
the Make Whole Amount, as liquidated damages and not as a penalty.

         Notwithstanding  the  foregoing  provisions,  at  any  time  after  the
occurrence of any Event of Default and of notice thereof,  if any, by any holder
or holders of Notes and before any judgment,  decree or order for payment of the
money due has been  obtained  by or on behalf of any  holder or  holders  of the
Notes, the Required  Holders of the Notes by written notice to the Company,  may
rescind and annul such Event of Default  and/or  notice of such Event of Default
and the  consequences  thereof with respect to all of the Notes  (including  any
Notes  which were  accelerated  pursuant to the first  proviso in the  preceding
paragraph  by any  holder or  holders  on  account of an Event of Default of the
character described in section 16.1(a) or (b)) if (1) the Company has paid a sum
sufficient to pay (A) all overdue  installments  of interest on all Notes at the
rate specified in the Notes, (B) the principal of (and premium,  if any, on) any
Notes  which have become due  otherwise  than by such Event of Default or notice
thereof and interest  thereon at the rate for overdue  amounts  specified in the
Notes and (C) to the extent that  payment of such  interest is lawful,  interest
upon overdue interest at the rate for overdue amounts specified in the Notes and
(2) all  Defaults  and  Events of  Default,  other than the  non-payment  of the
principal of Notes which have become due solely by such acceleration,  have been
cured or waived as provided in section 19. No such  rescission  shall affect any
subsequent default or impair any right consequent thereon.

         16.2. Suits for Enforcement, etc. In case any one or more of the Events
of Default  specified in section 16.1 shall have occurred,  and  irrespective of
whether any Notes have become or have been declared  immediately due and payable
under  section  16.1,  the holder of any Note may proceed to protect and enforce
its rights  either by suit in equity or by action at law,  or both,  whether for
the specific performance of any covenant or agreement applicable to such Note in
this Agreement or any of the other Operative Documents or in aid of the exercise
of any power  granted  herein or therein,  or such holder may proceed to enforce
any other legal or  equitable  right of the holder of such Note,  including  the
payment of such Note.  The Company  stipulates  that the  remedies at law of the
holder or holders of the Notes in the event of any default or threatened default
by the  Company  in the  performance  of or  compliance  with  any  covenant  or
agreement in this Agreement or any of the other Operative  Documents are not and
will not be adequate and that,  to the fullest  extent  permitted  by law,  such
terms may be  specifically  enforced  by a decree for the  specific  performance
thereof,  whether by an  injunction  against a violation  thereof or  otherwise.
Without  limiting the generality of the foregoing (and without  derogating  from
any  provision  contained  in  this  Agreement  or any of  the  other  Operative
Documents),  upon the  occurrence  and  during  the  continuance  of an Event of
Default, the Required Holders of the Notes shall have the right to apply for and
have a receiver  appointed for the Company and its  Subsidiaries,  or any one or
more of them,  by a court of competent  jurisdiction  in any action taken by any
such holders to enforce their respective rights and remedies hereunder and under
the other  Operative  Documents  in order to manage,  protect and  preserve  the
assets of the Company and its  Subsidiaries  and continue  the  operation of the
business  of the  Company  and its  Subsidiaries,  or to sell or  dispose of the
assets of the Company and its  Subsidiaries,  and to collect  all  revenues  and
profits  thereof  and apply the same to the  payment of all  expenses  and other
charges of such  receivership,  including the compensation of the receiver,  and
the Company hereby consents to such appointment  without regard to the existence
of any  misfeasance  or  malfeasance  or the presence of any defenses that would
otherwise be available to such application.

         Remedies Cumulative. No remedy conferred in this Agreement or in any of
the other  Operative  Documents  upon the holder of any Note is  intended  to be
exclusive  of any  other  remedy,  and  each  and  every  such  remedy  shall be
cumulative  and shall be in addition to every other  remedy  given  hereunder or
thereunder  or now or  hereafter  existing  at law or in equity or by statute or
otherwise.

         Remedies Not Waived.  No course of dealing  between the Company and any
of its  Subsidiaries,  on the one hand, and any holder of any Note, on the other
hand,  and no delay by any such holder in  exercising  any rights  hereunder  or
under any of the other  Operative  Documents  shall  operate  as a waiver of any
rights of any such holder.
         Application  of  Payments.  In case  any one or more of the  Events  of
Default specified in section 16.1 shall have occurred, all amounts to be applied
to the prepayment or payment of any Notes,  shall be applied,  after the payment
of all  related  costs  and  expenses  incurred  by  the  holders  of the  Notes
(including,   without   limitation,   compensation  to  any  and  all  trustees,
liquidators,  receivers or similar  officials and reasonable fees,  expenses and
disbursements  of counsel) in such order of  priority  as is  determined  by the
Required Holders of the Notes.

Registration, Transfer and Exchange of Notes.   Notes

                  (a) Notes issued hereunder shall be issued in registered form.
         The Company shall keep at its principal  executive office (which is now
         located at the address set forth at the beginning of this Agreement), a
         register in which it shall provide for the registration and transfer of
         the Notes.  The name and  address of each  holder of the Notes shall be
         registered  in such  register  and at the time of any  transfer  of any
         Notes,  the Company may require the  transferee  to specify its address
         for payments,  notices and other purposes. The Company shall furnish to
         any  institutional  holder of any  Notes,  promptly  following  request
         therefor, a complete and correct copy of the names and addresses of all
         registered holders of the Notes.

                  (b)  Whenever  any Note or  Notes  shall  be  surrendered  for
         transfer  or  exchange  (it being  agreed  that Notes  surrendered  for
         transfer may be submitted  to the Company by either the  transferor  or
         the transferee), the Company at its expense will execute and deliver in
         exchange  therefor  a new  Note or Notes  as may be  requested  by such
         holder,  in the same aggregate  unpaid  principal amount as that of the
         Note or Notes so surrendered. Each such new Note shall be in registered
         form,  shall be dated so as not to result in any loss of  interest  and
         shall be in such  principal  amount or amounts and  registered  in such
         name or names as such holder may designate in writing.

                  (c) The Company may treat the Person in whose name any Note is
         registered  as the owner of such Note for the purpose of receiving  any
         payment due on such Note, whether or not such Note be overdue,  and for
         all other purposes, and the Company shall not be affected by any notice
         to the contrary.

                  (d) The Company  shall not be obligated to issue to any Person
         any Note in a denomination  of less than $500,000  unless the aggregate
         principal amount of all Notes held or to be held by such Person and its
         Affiliates  is $500,000 or more,  in which case the Company shall issue
         such number of Notes and in such  denominations  as such  Person  shall
         request, or such Person is acquiring all of the Notes held by any other
         Person and the Affiliates of such other Person.  The figure  "$500,000"
         in each instance it appears in the immediately preceding sentence shall
         be reduced from time to time in the same  proportion  as the  aggregate
         unpaid  principal  amount of all of the Notes is reduced as a result of
         any prepayment thereof.

Replacement  of Notes.  Upon  receipt  by the  Company  of  evidence  reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Note and
(in case of loss, theft or destruction) of indemnity reasonably  satisfactory to
it, and (in the case of  mutilation)  upon  surrender and  cancellation  of such
Note, the Company at its expense will execute and deliver in lieu of such Note a
new Note of like  tenor and  dated so as not to result in any loss of  interest.
Your  unsecured  agreement to indemnify  and/or  affidavit and that of any other
institutional  holder shall constitute indemnity and/or evidence of loss, theft,
destruction  or mutilation  satisfactory  to the Company for the purpose of this
section 18.

Amendment and Waiver.  Waiver

                  (a) Any term of this Agreement and, unless explicitly provided
         otherwise  therein,  of any of the other Operative  Documents may, with
         the consent of the Company, be amended, or compliance  therewith may be
         waived, by one or more  substantially  concurrent  written  instruments
         signed by the Required Holders of the Notes,  provided that (i) without
         the consent of the holders of all of the Notes at the time outstanding,
         no such  amendment  or  waiver  shall  (A)  change  the  amount  of the
         principal  of or the rate of  interest  on or  amounts  of any  premium
         payable with respect to any of the Notes,  or change the payment  terms
         of any of the Notes,  or  subordinate  the obligation of the Company to
         pay any amount due on the Notes to any other obligation,  or (B) change
         the  percentage  of  holders  of Notes  required  to  approve  any such
         amendment,  effectuate  any such  waiver or  accelerate  payment of the
         Notes;  and (ii) no such  amendment or waiver shall extend to or affect
         any  obligation  not  expressly  amended  or waived or impair any right
         consequent thereon.

                  (b) The Company  will not,  directly or  indirectly,  solicit,
         request or negotiate  for or with respect to any term of the  Operative
         Documents  unless  each  holder  of the  Notes  shall be  afforded  the
         opportunity  of  considering  the same and  shall  be  supplied  by the
         Company with  sufficient  information  to enable it to make an informed
         decision with respect  thereto.  Executed or true and correct copies of
         any amendment or waiver  effected  pursuant to this section 19 shall be
         delivered by the Company to each holder of Notes  forthwith (but in any
         event not later than five days)  following the effective  date thereof.
         The Company will not,  directly or indirectly,  pay or cause to be paid
         any  remuneration,   whether  by  way  of  supplemental  or  additional
         interest, fee or otherwise, to any holder of the Notes as consideration
         for or as an inducement  to the entering into by any holder  thereof of
         any amendment or waiver of any term of the Operative  Documents  unless
         such remuneration is concurrently  offered, on the same terms,  ratably
         to all of the holders of the Notes.

Expenses;  Indemnity. Whether or not the transactions contemplated by any of the
Operative  Documents shall be  consummated,  the Company will pay or cause to be
paid (or reimbursed, as the case may be) and will defend, indemnify and hold you
(and each  other  holder of any of the  Notes)  and each of your (and such other
holder's) directors, officers, employees, agents, advisors and Affiliates (each,
an  "Indemnitee")  harmless  (on an after tax  basis) in  respect  of all costs,
losses,  expenses  (including,  without limitation,  the reasonable fees, costs,
expenses and disbursements of counsel) and damages  (collectively,  "Indemnified
Costs")  incurred by or asserted  against any Indemnitee in connection  with the
negotiation,   execution,  delivery,  performance  and/or  enforcement  of  this
Agreement  or  any  of  the  other  Operative  Documents   (including,   without
limitation,  so-called  work-outs  and/or  restructurings  and  all  amendments,
waivers and consents  hereunder and thereunder,  whether or not effected) and/or
the  consummation of the transactions  contemplated  hereby and thereby or which
may  otherwise be related in any way to this  Agreement  or any other  Operative
Documents or such transactions or such Indemnitee's  relationship to the Company
or any of its  Affiliates  or any of their  respective  properties  and  assets,
including,  without limitation, (a) any and all Indemnified Costs related in any
way to the requirements of any  Environmental  Laws (as the same may be amended,
modified  or   supplemented   from  time  to  time)  or  to  any   environmental
investigation,  assessment, site monitoring, containment, clean up, remediation,
removal,  restoration,  reporting and sampling,  whether or not consented to, or
requested or approved by, any  Indemnitee,  and whether or not such  Indemnified
Cost is attributable to an event or condition originating from any properties or
assets  of  the  Company  or any of its  Subsidiaries  or any  other  properties
previously or hereafter  owned,  leased,  occupied or operated by the Company or
any of its  Subsidiaries,  and (b) any taxes and fees  (including  interest  and
penalties),  including,  without  limitation,  all  recording  and filing  fees,
issuance,  revenue and documentary stamp and similar taxes, which may be payable
by the  Collateral  Agent or any  Indemnitee  in  respect of the  execution  and
delivery  of this  Agreement,  the  Security  Documents  and  each of the  other
Operative Documents, including the execution and delivery (but not the transfer)
of any Note or in respect of any amendment of or waiver under or with respect to
this  Agreement or any of the other  Operative  Documents.  Notwithstanding  the
foregoing, the Company shall not have any obligation to an Indemnitee under this
section 20 with respect to any Indemnified Cost which is finally determined by a
court of competent  jurisdiction  to have arisen solely and directly as a result
of the willful misconduct or bad faith of such Indemnitee.

21.  Communications.   All  communications   provided  for  herein  and,  unless
explicitly  provided otherwise therein,  in any of the other Operative Documents
shall be in writing and sent (a) by telecopy if the sender on the same day sends
a  confirming  copy of such  communication  by a recognized  overnight  delivery
service  (charges  prepaid),  (b) by a  recognized  overnight  delivery  service
(charges prepaid), or (c) by messenger. Any such communication must be sent, (i)
if to the Company (or any  Subsidiary of the  Company),  to the Company (or such
Subsidiary) at:

                           ATC Group Services Inc.
                           104 East 25th Street, 10th Fl.
                           New York, NY  10010
                           Attention:
                           Telecopy No.:  (212) 353-8280

               with a copy (which shall not constitute notice) to:

                           Kaufmann, Feiner, Yamin, Gildin & Robbins, LLP
                           777 Third Avenue, 24th Floor
                           New York, New York 10017
                           Attention: Richard H. Rosenblum, Esq.
                           Telecopy No.: (212) 755-3174

or at such other address (or telecopy  number) as may be furnished in writing by
the Company to each holder of any Note,  and (ii) if to you, at your address for
such  purpose set forth in Schedule I attached  hereto with a copy (which  shall
not constitute notice) to:

                           Choate, Hall & Stewart
                           Exchange Place
                           53 State Street
                           Boston, MA  02109
                           Attention:  Frank B. Porter, Jr., Esq.
                           Telecopy No.:  (617) 248-4000

and if to any other  holder of any Note,  at the  address  of such  holder as it
appears on the applicable  register maintained pursuant to section 17 or at such
other address and/or telecopy number as may be furnished in writing by you or by
any other holder to the Company.  Communications  under this section 21 shall be
deemed given only when actually received.

22. Survival of Agreements, Representations and Warranties, etc. All agreements,
representations  and  warranties  contained  herein  and in the other  Operative
Documents or made in writing by or on behalf of the Company or its  Subsidiaries
in connection  with the  transactions  contemplated  by the Operative  Documents
shall be deemed to have been relied upon by you and shall  survive the execution
and delivery of this Agreement and each of the other  Operative  Documents,  the
issue,  sale and delivery of the Notes and payment  therefor and any disposition
of the Notes by you, whether or not any investigation at any time is made by you
or on your behalf. All statements contained in any certificate  delivered to you
by or on  behalf of the  Company  or its  Subsidiaries  in  connection  with the
transactions   contemplated  by  the  Operative   Documents   shall   constitute
representations  and warranties by the Company under this Agreement and shall be
subject to the terms of this section 22. The  covenants  contained in section 20
shall survive the date upon which none of the Notes shall be outstanding and the
termination of this Agreement and each of the other Operative Documents.

Successors  and Assigns;  Rights of Other Holders.  This  Agreement and,  unless
explicitly  provided  otherwise therein,  each of the other Operative  Documents
shall bind and inure to the  benefit of and be  enforceable  by the  Company and
you,  successors  to the  Company  and your  successors  and  assigns,  and,  in
addition,  shall inure to the benefit of and be  enforceable by each holder from
time to time of any Notes who, upon acceptance thereof,  shall,  without further
action,  be  entitled  to  enforce  the  applicable  provisions  and  enjoy  the
applicable  benefits  hereof and thereof.  The Company may not assign any of its
rights or obligations  hereunder or under any of the other  Operative  Documents
without the written consent of the Required Holders.

Governing Law;  Jurisdiction;  Waiver of Jury Trial.  This Agreement and, unless
explicitly  provided otherwise therein,  each of the other Operative  Documents,
including the validity  hereof and thereof and the rights and obligations of the
parties hereunder and thereunder,  and all amendments and supplements hereof and
thereof  and all  waivers  and  consents  hereunder  and  thereunder,  shall  be
construed in accordance  with and governed by the domestic  substantive  laws of
the State of New York without giving effect to any choice of law or conflicts of
law  provision  or  rule  that  would  cause  the  application  of the  domestic
substantive laws of any other  jurisdiction.  The Company, to the extent that it
may lawfully do so,  hereby  consents to service of process,  and to be sued, in
The Commonwealth of Massachusetts and consents to the jurisdiction of the courts
of The  Commonwealth of  Massachusetts  and the United States District Court for
the District of  Massachusetts,  as well as to the jurisdiction of all courts to
which an appeal  may be taken  from such  courts,  for the  purpose of any suit,
action or other  proceeding  arising out of any of its obligations  hereunder or
thereunder or with respect to the transactions  contemplated  hereby or thereby,
and expressly  waives any and all objections it may have as to venue in any such
courts.  The Company  further agrees that a summons and complaint  commencing an
action or  proceeding  in any of such courts shall be properly  served and shall
confer personal  jurisdiction if served personally or by certified mail to it at
its address set forth in section 21 or as otherwise  provided  under the laws of
the State of New York or The Commonwealth of Massachusetts,  as the case may be.
Notwithstanding the foregoing, the Company agrees that nothing contained in this
section 24 shall  preclude  the  institution  of any such suit,  action or other
proceeding  in  any  jurisdiction  other  than  the  State  of New  York  or The
Commonwealth of  Massachusetts.  THE COMPANY  IRREVOCABLY  WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY SUIT,  ACTION OR OTHER PROCEEDING  INSTITUTED BY OR AGAINST
THE  COMPANY  IN RESPECT  OF ITS  OBLIGATIONS  HEREUNDER  OR  THEREUNDER  OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Miscellaneous. The headings in this Agreement and in each of the other Operative
Documents  are for purposes of  reference  only and shall not limit or otherwise
affect the meaning hereof or thereof.  This  Agreement  (together with the other
Operative Documents) embodies the entire agreement and understanding between you
and the Company and supersedes all prior agreements and understandings  relating
to the subject matter hereof.  Each covenant contained herein and in each of the
other Operative Documents shall be construed (absent an express provision to the
contrary)  as being  independent  of each other  covenant  contained  herein and
therein,  so that  compliance  with any one  covenant  shall not (absent such an
express  contrary  provision)  be  deemed to  excuse  compliance  with any other
covenant.  If any provision in this  Agreement or in any of the other  Operative
Documents refers to any action taken or to be taken by any Person, or which such
Person is prohibited from taking,  such provision  shall be applicable,  whether
such  action is taken  directly or  indirectly  by such  Person,  whether or not
expressly  specified in such provision.  In case any provision in this Agreement
or  any  of  the  other  Operative  Documents  shall  be  invalid,   illegal  or
unenforceable,  the  validity,  legality  and  enforceability  of the  remaining
provisions shall not in any way be affected or impaired thereby.  This Agreement
and, unless explicitly  provided otherwise therein,  each of the other Operative
Documents,  may be  executed  in any number of  counterparts  and by the parties
hereto or  thereto,  as the case may be, on separate  counterparts  but all such
counterparts shall together constitute but one and the same instrument.

                    [The remainder of this page is left blank intentionally.]


<PAGE>





         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President




The foregoing Agreement is hereby agreed to as of the date thereof.

JOHN HANCOCK MUTUAL LIFE
  INSURANCE COMPANY


By: /s/ STEPHEN J. BLEWITT
         Stephen J. Blewitt,
         Senior Investment Officer












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President


The foregoing Agreement is hereby agreed to as of the date thereof.

JOHN HANCOCK VARIABLE LIFE
  INSURANCE COMPANY


By: /s/ STEPHEN J. BLEWITT
         Stephen J. Blewitt,
         Authorized Signatory












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President



The foregoing Agreement is hereby agreed to as of the date thereof.

JOHN HANCOCK LIFE INSURANCE
         COMPANY OF AMERICA


By: /s/ STEPHEN J. BLEWITT
         Stephen J. Blewitt,
         Authorized Signatory











DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President



The foregoing Agreement is hereby agreed to as of the date thereof.

SIGNATURE 1A (CAYMAN), LTD.
By:      John Hancock Mutual Life Insurance
         Company, Portfolio Advisor


By: /s/ STEPHEN J. BLEWITT
         Stephen J. Blewitt,
         Senior Investment Officer












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President


The foregoing Agreement is hereby agreed to as of the date thereof.

ORIX USA CORPORATION


By: /s/ CHARLES D. HOOKER
         Charles D. Hooker, Man. Dir.












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President


The foregoing Agreement is hereby agreed to as of the date thereof.

THE CANADA LIFE ASSURANCE COMPANY


By: /s/ KEVIN PHELAN
         Kevin Phelan, Asst. Treas.












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President



The foregoing Agreement is hereby agreed to as of the date thereof.

CANADA LIFE INSURANCE COMPANY
  OF AMERICA


By: /s/ KEVIN PHELAN
         Kevin Phelan, Asst. Treas.












DS1:330049


<PAGE>







         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company.  Please
then return one of such counterparts to the Company.

                                              Very truly yours,

                                              ATC GROUP SERVICES INC.


                                              By: /s/ MORRY F. RUBIN
                                                  -----------------------------
                                                      Morry F. Rubin, President



The foregoing Agreement is hereby agreed to as of the date thereof.

CANADA LIFE INSURANCE COMPANY
  OF NEW YORK


By: /s/ KEVIN PHELAN
         Kevin Phelan, Asst. Treas.












DS1:330049

<PAGE>

 H:\RE\JH\ATCGROUP\CREDITAG.2\8105-10\5/23/97









                                CREDIT AGREEMENT

                                   dated as of


                                  May 29, 1997

                                      among

                       ATC GROUP SERVICES INC., Borrower,


                            The Lenders Party Hereto

                                       and

                            THE CHASE MANHATTAN BANK,
                             as Administrative Agent

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

















<PAGE>






                                                         1
 H:\RE\JH\ATCGROUP\CREDITAG.2\8105-10\5/23/97


         CREDIT  AGREEMENT  dated as of May 29, 1997,  among ATC GROUP  SERVICES
INC.,  a  corporation  organized  and  existing  under  the laws of the State of
Delaware,  having its principal office and place of business located at 104 East
25th Street,  New York,  N.Y. 10010 (the  "Borrower");  the LENDERS party hereto
(each a "Lender" and, collectively, the "Lenders") and THE CHASE MANHATTAN BANK,
as Administrative Agent.

                                    PREAMBLE

         WHEREAS,  the Borrower is about to issue and sell senior  secured notes
(each a "Note" and collectively,  the "Notes") in the aggregate principal amount
of $32,500,000  pursuant to certain note  agreements as amended,  modified,  and
supplemented,  from  time  to  time,  in  accordance  therewith  (each  a  "Note
Agreement" and collectively, the "Note Agreements") between the Borrower and the
purchasers of such notes  together with their  successors  and assigns,  (each a
"Note Holder" and collectively, the "Note Holders"), and;

         WHEREAS,  the Note  Agreements  require  that the  Borrower  shall have
executed a revolving credit  agreement  pursuant to which the Lenders shall have
agreed to make  revolving  credit loans to the Borrower  from time to time up to
the maximum principal amount at any one time outstanding of $15,000,000, and;

         WHEREAS,  the Notes and the revolving credit loans are to be guaranteed
by the  Guarantors  (such  term,  and the other  capitalized  terms used in this
Agreement,  having the meanings hereinafter defined) and secured by and entitled
to the benefits of first  priority  security  interests in the Collateral of the
Borrower and each of its Subsidiaries,  pursuant to separate security agreements
between the  Collateral  Agent and the  Borrower  and each of its  Subsidiaries,
respectively,  (as amended,  modified and supplemented from time to time, each a
"Security Agreement" and collectively the "Security Agreements"), and;

         WHEREAS,  the Collateral  Agent has been appointed to act as collateral
agent  for the  Note  Holders  and the  Lenders  and has  agreed  to act as such
pursuant  to a  collateral  agency  and  intercreditor  agreement  (as  amended,
modified  and  supplemented  from  time to  time,  the  "Collateral  Agency  and
Intercreditor Agreement") and;

         WHEREAS,  the Lenders have agreed to make the  revolving  credit loans,
subject to the terms of this Agreement,  and the Administrative Agent has agreed
to perform certain services in connection therewith, as herein provided.

         NOW THEREFORE, the parties hereto agree as follows:



<PAGE>


                                    ARTICLE I

                                   Definitions

     SECTION 1.01.  Defined  TermsSECTION  1.01.  Defined Terms. As used in this
Agreement, the following terms have the meanings specified below:

         "ABR",  when  used in  reference  to any Loan or  Borrowing,  refers to
whether such Loan, or the Loans comprising such Borrowing,  are bearing interest
at a rate determined by reference to the Alternate Base Rate.

         "Accounts Receivable" shall mean any and all rights of the Borrower and
its  Subsidiaries to payment for goods sold or leased or for services  rendered,
including  accounts,  contract  rights,  general  intangibles,  purchase orders,
instruments or documents, whether due or to become due and whether or not it has
been earned by performance,  and whether now or hereafter acquired or arising in
the future and any proceeds arising therefrom or relating thereto.

         "Acquisition  Financing"  shall  refer to Loans made  pursuant  to this
Agreement to fund the  acquisition by the Borrower of the stock or the assets of
a  Person  (x) at the  closing  of such  acquisition  or (y) at a later  date as
deferred compensation for the acquisition of such stock or assets.

         "Adjusted LIBO Rate" means,  with respect to any  Eurodollar  Borrowing
for any  Interest  Period,  an  interest  rate per annum  (rounded  upwards,  if
necessary,  to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.

         "Adjusted Alternate Base Rate" means with respect to any ABR Borrowing,
an interest rate per annum equal to 90% of the Alternate Base Rate, except that,
whenever  the Prime  Rate shall be equal to or greater  than 11%,  the  Adjusted
Alternate  Base Rate  shall be an  interest  rate per annum  equal to 95% of the
Alternate Base Rate.

         "Administrative  Agent" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.

     "Administrative  Questionnaire" means an Administrative  Questionnaire in a
form supplied by the Administrative Agent.

         "Affiliate"of any Person shall mean any other Person which, directly or
indirectly,  controls or is controlled  by or is under common  control with such
first-mentioned  Person,  or any  individual,  in the case of a Person who is an
individual,  who has a  relationship  by blood,  marriage  or  adoption  to such
first-mentioned  Person not more remote than first cousin, and, without limiting
the  generality  of the  foregoing,  shall  include (a) any Person  beneficially
owning, holding or controlling, directly or indirectly, 10% or more of any class
of Voting  Stock of such  first-mentioned  Person,  (b) any Person of which such
first-mentioned Person owns, holds or controls,  directly or indirectly,  10% or
more of any class of Voting  Stock or (c) any  director,  officer  or  executive
employee of such first-mentioned Person; provided that, in the absence of actual
control, the term Affiliate shall in no event include any financial  institution
which would  otherwise  be an Affiliate  solely by virtue of owning,  holding or
controlling,  directly or indirectly,  Voting Stock of the Borrower or by virtue
of having board visitation rights or a designee on the Board of Directors of the
Borrower;   provided,  further,  that  in  no  event  shall  you  or  any  other
institutional holder of Notes be deemed to be an Affiliate of the Borrower.  For
the  purposes  of  this  definition,   "control"  (including,  with  correlative
meanings,  the terms  "controlled by" and "under common control with"),  as used
with respect to any Person,  shall mean the possession,  directly or indirectly,
of the power to direct or cause the direction of the  management and policies of
such  Person,  whether  through the  ownership of Voting Stock or by contract or
otherwise; provided that in no event shall the fact that a Person is a holder of
Indebtedness  of such Person be  considered  sufficient by itself to enable such
Person to direct or cause the direction of the  management  and policies of such
Person.

         "Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest  of (a) the Prime  Rate in effect on such day,  (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the  Alternate  Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective  from and  including  the  effective  date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.

         "Applicable   Percentage"  means,  with  respect  to  any  Lender,  the
percentage of the total Commitments represented by such Lender's Commitment.  If
the Commitments have terminated or expired, the Applicable  Percentages shall be
determined based upon the Commitments most recently in effect,  giving effect to
any assignments.

         "Assessment  Rate" means,  for any day, the annual  assessment  rate in
effect  on such  day that is  payable  by a member  of the Bank  Insurance  Fund
classified  as  "well-capitalized"  and within  supervisory  subgroup  "B" (or a
comparable successor risk  classification)  within the meaning of 12 C.F.R. Part
327 (or any successor  provision) to the Federal Deposit  Insurance  Corporation
for  insurance  by such  Corporation  of time  deposits  made in  dollars at the
offices of such member in the United  States;  provided  that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid,  then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative  Agent to be representative of
the cost of such insurance to the Lenders.

         "Assignment and Acceptance" means an assignment and acceptance  entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
         "ATEC" shall have the meaning specified on Schedule 4.01(l).

     "Available Net Proceeds" shall have the meaning specified in section 2.08.

     "Available  Unused  Proceeds"  shall have the meaning  specified in section
6.09.

         "Availability Period" means the period from and including the Effective
Date  to but  excluding  the  earlier  of the  Maturity  Date  and  the  date of
termination of the Commitments.

         "Bank Credit Agreement" shall mean this Agreement.

         "Bank Credit Documents" shall mean the Loan Documents.

         "Base CD Rate" means the sum of (a) the  Three-Month  Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.

         "Board" means the Board of Governors of the Federal  Reserve  System of
the United States of America.

         "Borrower" means ATC Group Services Inc., a Delaware corporation.

         "Borrowing" means a Revolving Borrowing.

         "Borrowing  Certificate"  means a  Borrowing  Certificate  in the  form
annexed hereto as Exhibit D, signed by the Financial Officer of the Borrower.

         "Borrowing  Request"  means a request by the  Borrower  for a Revolving
Borrowing in accordance with Section 2.03.

         "Business"  shall have the meaning specified in Section 3.13.

         "Business  Day" means any day that is not a  Saturday,  Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term  "Business  Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.

         "Capitalization"  of any Person shall mean, at any date, the sum of (a)
Total Debt of such  Person at such date,  and (b) Net Worth of such Person as of
the end of the most recently completed fiscal quarter of such Person.

         "Capital Lease" shall mean any lease or similar arrangement which is of
such a nature that payment  obligations of the lessee or obligor  thereunder are
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with GAAP.

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

         "Change in Control"  shall mean any event or  transaction  or series of
events or  transactions  (occurring for whatever  reason)  pursuant to which any
Person  (other  than  George  Rubin or Morry F.  Rubin,  who are  presently  the
Chairman  and   President  of  the   Borrower,   respectively),   together  with
"affiliates" and  "associates" of such Person,  within the meaning of Rule 12b-2
of the Commission  under the Exchange Act,  shall acquire  control or beneficial
ownership  (including  beneficial  ownership  resulting  from the formation of a
"group"  within the meaning of Rule 13d-5 of the  Commission  under the Exchange
Act) of more than 50% of the outstanding  Shares of any class of Voting Stock of
the Borrower.

         "Change in Law" means (a) the adoption of any law,  rule or  regulation
after the date of this Agreement,  (b) any change in any law, rule or regulation
or in the  interpretation or application  thereof by any Governmental  Authority
after the date of this  Agreement  or (c)  compliance  by any  Lender  (or,  for
purposes of Section  2.12(b),  by any  lending  office of such Lender or by such
Lender's  holding  company,  if any) with any  request,  guideline  or directive
(whether or not having the force of law) of any  Governmental  Authority made or
issued after the date of this Agreement.

     "Class",  when used in  reference to any Loan or  Borrowing,  refers to the
Revolving Loans.

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

         "Collateral"  means  with  respect  to the  Borrower  and  each  of its
Subsidiaries  all of  their  Accounts,  Accounts  Receivable,  work in  process,
General Intangibles, customer lists and all Proceeds of the foregoing, plus cash
on deposit  at The Chase  Manhattan  Bank.  All  capitalized  terms used in this
definition  shall have the meaning given them under the Uniform  Commercial Code
of the jurisdiction where such Collateral is located.

     "Collateral  Agency and  Intercreditor  Agreement"  shall have the  meaning
specified in the Preamble.

         "Collateral Agent" shall mean The Chase Manhattan Bank, acting pursuant
to the Collateral Agency and Intercreditor Agreement as collateral agent for the
Note Holders and the Lenders,  and any replacement or successor collateral agent
thereunder.

         "Commitment" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans expressed as an amount  representing  the maximum
aggregate amount of such Lender's Revolving Credit Exposure  hereunder,  as such
commitment may be (a) reduced from time to time pursuant to Section 2.09 and (b)
reduced or increased  from time to time  pursuant to  assignments  by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's  Commitment
is set forth on Schedule 2.01, or in the  Assignment and Acceptance  pursuant to
which such Lender shall have assumed its Commitment, as applicable.  The initial
aggregate amount of the Lenders' Commitments is $15,000,000.

         "Common  Stock"  shall  mean  the  Common  Stock  of  the  Borrower  as
constituted on the Closing Date and any stock into which such Common Stock shall
have been  changed  or any stock  resulting  from any  reclassification  of such
Common Stock.

         "Consolidated   Capitalization"   "   Consolidated   Current   Assets",
"Consolidated Current Liabilities",  "Consolidated EBITDA",  "Consolidated Fixed
Charges",   "Consolidated   Interest   Expense",   "Consolidated   Net  Income",
"Consolidated Net Worth",  "Consolidated  Rental  Obligations" and "Consolidated
Total Debt", shall mean the Capitalization, Current Assets, Current Liabilities,
EBITDA,  Fixed  Charges,   Interest  Expense,  Net  Income,  Net  Worth,  Rental
Obligations  and  Total  Debt,  as the  case  may be,  of the  Borrower  and its
Subsidiaries (whether or not ordinarily  consolidated in consolidated  financial
statements of the Borrower and its Subsidiaries), all consolidated in accordance
with GAAP, and after giving appropriate effect to outside minority interests, if
any, in Subsidiaries,  provided that (a) in determining  Consolidated Net Income
and Consolidated EBITDA there shall be excluded (i) the Net Income of any Person
(other  than  a  Subsidiary  of the  Borrower)  in  which  the  Borrower  or any
Subsidiary of the Borrower has an ownership interest,  except to the extent that
any  such  Net  Income  has  been  actually  received  by the  Borrower  or such
Subsidiary  in  the  form  of  dividends  or  similar  distributions,  (ii)  any
undistributed Net Income of a Subsidiary of the Borrower which for any reason is
unavailable  for  distribution  to the Borrower or any other  Subsidiary  of the
Borrower,  (iii)  the Net  Income  of any  Person  accrued  prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated  with the
Borrower or a Subsidiary of the Borrower, (iv) in the case of a successor to the
Borrower by consolidation,  merger or transfer of assets, the Net Income of such
successor  accrued  prior to such  consolidation,  merger or  transfer,  (v) any
deferred or other credit representing the excess of the equity in any Subsidiary
of the  Borrower  at the  date  of  acquisition  thereof  over  the  cost of the
investment  in such  Subsidiary,  and  (vi) any  restoration  to  income  of any
contingency  reserve,  except to the extent that  provision for such reserve was
made out of  income  accrued  during  the same  period,  and (b) in  determining
Consolidated Net Worth no amount shall be included therein on account of (i) any
excess cost of  acquisition of shares of any Subsidiary of the Borrower over the
book value of the assets of such  Subsidiary  attributable to such shares on the
books of such  Subsidiary at the date of  acquisition of such shares or (ii) any
excess of the book value of the assets of such  Subsidiary  attributable to such
assets  at the date of such  acquisition  over the cost of  acquisition  of such
assets.

         "Consolidated  Fixed Charges  Coverage  Ratio" shall mean, on any date,
the  ratio of (a) the sum of (i)  Consolidated  EBITDA  for the  period  of four
consecutive  fiscal  quarters  of the  Borrower  ending on such date,  plus (ii)
one-third of  Consolidated  Rental  Obligations  in respect of leases other than
Capital  Leases  for such  period to (b)  Consolidated  Fixed  Charges  for such
period.

         "Consolidated  Total  Unsubordinated  Liabilities" shall mean all items
which, in accordance with generally accepted accounting  principles applied on a
consistent  basis,  would  properly  be included  on the  liability  side of the
balance sheet (other than Subordinated Debt, capital stock,  capital surplus and
retained  earning),  as of the date on which the  amount of  Consolidated  Total
Unsubordinated  Liabilities  is  to be  determined,  of  the  Borrower  and  its
Subsidiaries  computed and  consolidated in accordance  with generally  accepted
accounting principles applied on a consistent basis.

         "Consolidated  Working  Capital"  shall mean for the  Borrower  and its
Subsidiaries,   the  amount  by  which   Consolidated   Current   Assets  exceed
Consolidated Current Liabilities.

         "Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through  the  ability to  exercise  voting  power,  by  contract  or  otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.

         "Current  Assets"  of any  Person  shall  mean,  at any  date,  amounts
classified as such according to GAAP.

         "Current  Debt"  of any  Person  shall  mean,  at  any  date,  (a)  all
Indebtedness  for borrowed money or in respect of Capital Leases or the deferred
purchase price of property, whether or not interest bearing, and whether secured
or unsecured,  of such Person at such date which would, in accordance with GAAP,
be  classified  as  short-term  Indebtedness  at  such  date,  but  specifically
including  the  current  maturities  of  such  Person's  Funded  Debt,  (b)  all
Guarantees  by such  Person at such date of  Current  Debt of others and (c) the
aggregate  amount which is due on or before the expiration of twelve months from
such date in respect of any Redeemable Shares of such Person.

         "Current  Liabilities"  of any Person shall mean, at any date,  amounts
classified  as  such  according  to  GAAP,  but  including,  in the  case of the
Borrower, all sums outstanding under this Agreement.

         "Default"  means any event or condition  which  constitutes an Event of
Default or which  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

         "Disclosed  Matters" means the actions,  suits and  proceedings and the
environmental matters disclosed in Schedule 3.06.

         "Dollars" or "$" refers to lawful money of the United States of America
         "EBITDA" of any Person  shall mean,  for any period,  the Net Income of
such Person for such period (a) after restoring  thereto  (without  duplication)
amounts deducted for (i) Interest  Expense,  (ii) taxes in respect of income and
profits,  (iii)  amortization  expense,  including  amortization  of  intangible
assets,  including  goodwill  and  covenants  not to compete,  and  depreciation
expense,  and (iv) the write-off of or the establishment of an allowance against
intangible  assets,  including  goodwill and covenants  not to compete,  and (b)
excluding (without  duplication) any gains or losses on the sale of assets other
than in the ordinary  course of business,  in each case determined in accordance
with GAAP.

         "Effective  Date" means the date on which the  conditions  specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).

         "Environmental  Laws"  means  all  laws,  rules,  regulations,   codes,
ordinances,  orders,  decrees,  judgments,   injunctions,   notices  or  binding
agreements  issued,  promulgated or entered into by any Governmental  Authority,
relating in any way to the  environment,  preservation or reclamation of natural
resources,  the  management,  release or  threatened  release  of any  Hazardous
Material or to health and safety matters.

         "Environmental Liability" means any liability,  contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties  or  indemnities),  of the  Borrower  or any  Subsidiary  directly  or
indirectly  resulting from or based upon (a) violation of any Environmental Law,
(b)  the  generation,  use,  handling,  transportation,  storage,  treatment  or
disposal of any Hazardous  Materials,  (c) exposure to any Hazardous  Materials,
(d) the  release or  threatened  release  of any  Hazardous  Materials  into the
environment  or (e) any  contract,  agreement  or other  consensual  arrangement
pursuant to which  liability  is assumed or imposed  with  respect to any of the
foregoing.

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

         "ERISA   Affiliate"  means  any  trade  or  business  (whether  or  not
incorporated) that, together with the Borrower,  is treated as a single employer
under  Section  414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and  Section  412 of the Code,  is treated as a single  employer  under
Section 414 of the Code.

         "ERISA Event" means (a) any "reportable  event",  as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice  period is waived);  (b) the existence
with respect to any Plan of an "accumulated  funding  deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing  pursuant to Section  412(d) of the Code or Section 303(d) of ERISA of an
application  for a waiver of the minimum  funding  standard  with respect to any
Plan; (d) the  incurrence by the Borrower or any of its ERISA  Affiliates of any
liability  under Title IV of ERISA with respect to the  termination of any Plan;
(e) the receipt by the Borrower or any ERISA  Affiliate  from the PBGC or a plan
administrator  of any notice  relating to an intention to terminate  any Plan or
Plans or to appoint a trustee to administer  any Plan; (f) the incurrence by the
Borrower or any of its ERISA  Affiliates  of any  liability  with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice,  or the receipt by
any  Multiemployer  Plan from the Borrower or any ERISA Affiliate of any notice,
concerning  the  imposition of Withdrawal  Liability or a  determination  that a
Multiemployer  Plan is, or is expected to be,  insolvent  or in  reorganization,
within the meaning of Title IV of ERISA.

         "Eurodollar",  when used in reference to any Loan or Borrowing,  refers
to whether  such Loan,  or the Loans  comprising  such  Borrowing,  are  bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.

         "Event of Default" has the meaning assigned to such term in Article VII

         "Excess  Available  Net Proceeds"  shall have the meaning  specified in
section 2.08.

         "Excess  Available Unused Proceeds" shall have the meaning specified in
section 2.08.

         "Excluded Taxes" means, with respect to the  Administrative  Agent, any
Lender or any other  recipient of any payment to be made by or on account of any
obligation of the Borrower  hereunder,  (a) income or franchise taxes imposed on
(or  measured  by) its net income by the  United  States of  America,  or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal  office  is  located  or,  in the case of any  Lender,  in  which  its
applicable  lending  office is located,  (b) any branch profits taxes imposed by
the  United  States  of  America  or  any  similar  tax  imposed  by  any  other
jurisdiction  in which the  Borrower is located and (c) in the case of a Foreign
Lender  (other than an  assignee  pursuant  to a request by the  Borrower  under
Section 2.16(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section  2.14(e),  except to the extent that such Foreign
Lender (or its assignor,  if any) was entitled,  at the time of designation of a
new lending  office (or  assignment),  to receive  additional  amounts  from the
Borrower with respect to such withholding tax pursuant to Section 2.14(a).

         "Federal Funds Effective Rate" means, for any day, the weighted average
(rounded  upwards,  if  necessary,  to the  next  1/100  of 1%) of the  rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers,  as published on the next succeeding Business
Day by the  Federal  Reserve  Bank  of New  York,  or,  if  such  rate is not so
published for any day that is a Business Day, the average (rounded  upwards,  if
necessary,  to the  next  1/100 of 1%) of the  quotations  for such day for such
transactions  received  by the  Administrative  Agent from three  Federal  funds
brokers of recognized standing selected by it.

         "Financial  Officer"  means  the  chief  financial  officer,  principal
accounting officer, treasurer or controller of the Borrower.

         "Financing  Statements" means the UCC-1 Financing  Statements signed by
the  Borrower  and each  Subsidiary  and to be filed in the  offices  listed  on
Schedule  4.01(h) to perfect the security  interests in the  Collateral  granted
under each Security Agreement.

         "Fixed  Charges"  for any Person  shall mean,  for any period,  the sum
(without  duplication of amounts) of (a) all Interest Expense of such Person for
such period and (b) one-third of all Rental  Obligations of such Person for such
period in respect of leases other than Capital Leases and equipment  leases with
a term of six months or less,  entered  into for the  performance  of a specific
client project, in each case determined in accordance with GAAP.

         "Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction  other than that in which the Borrower is located.  For purposes of
this  definition,  the United  States of  America,  each State  thereof  and the
District of Columbia shall be deemed to constitute a single jurisdiction.

         "Funded  Debt"  of  any  Person  shall  mean,  at  any  date,  (a)  all
Indebtedness  for borrowed money or in respect of Capital Leases or the deferred
purchase  price of  property,  whether or not  interest-bearing,  of such Person
which would, in accordance with GAAP, be classified as long-term Indebtedness at
such date, but in any event (i) including all such Indebtedness, whether secured
or unsecured, of such Person which matures (or which, pursuant to the terms of a
revolving credit agreement or otherwise,  is directly or indirectly renewable or
extendible  at the option of such Person for a period  ending)  more than twelve
months after the date of the  creation  thereof,  notwithstanding  the fact that
payments in respect  thereof  (whether  installment,  serial maturity or sinking
fund payments or otherwise) are required to be made by such Person not more than
twelve  months  after  the date as of which the  amount of Funded  Debt is being
determined,  other than any amount which is at the time included in Current Debt
of such Person and (ii) including non-contingent obligations to ATEC pursuant to
a Master Sublease and Master Equipment Lease Agreement, each dated May 24, 1996,
but excluding any such obligations  which constitute  Rental  Obligations of the
Borrower,  (b) all  Guarantees  by such  Person at such  date of Funded  Debt of
others,  and (c) the aggregate  amount which is due more than twelve months from
such date in respect of any Redeemable Shares of such Person.

     "GAAP" means generally accepted accounting  principles in the United States
of America.

         "Governmental  Authority"  means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government.

         "Guarantors" means ATC New England Corp., a Delaware  corporation;  ATC
Blattert Inc., a South Dakota corporation;  Hygeia Laboratories Inc., a Delaware
corporation;  ATC  Management  Inc.,  a  South  Dakota  corporation;  ATC  Insys
Technology  Inc., a Delaware  corporation;  ATC  Environmental  Inc., a Delaware
corporation and future Subsidiaries.

         "Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise,  of the guarantor  guaranteeing  or having the economic
effect of guaranteeing  any Indebtedness or other obligation of any other Person
(the  "primary  obligor") in any manner,  whether  directly or  indirectly,  and
including any obligation of the guarantor,  direct or indirect,  (a) to purchase
or pay (or  advance  or  supply  funds  for the  purchase  or  payment  of) such
Indebtedness  or other  obligation or to purchase (or to advance or supply funds
for the purchase of) any  security for the payment  thereof,  (b) to purchase or
lease property,  securities or services for the purpose of assuring the owner of
such  Indebtedness or other obligation of the payment  thereof,  (c) to maintain
working capital,  equity capital or any other financial  statement  condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness  or other  obligation  or (d) as an account party in respect of any
letter of credit or letter of guaranty  issued to support such  Indebtedness  or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.

         "Guaranty"  means the joint and  several  guaranty  of  payment  by the
Guarantors of all  principal,  interest,  fees and other sums due to the Lenders
under this Agreement or the other Loan Documents.

         "Hazardous Materials" means all explosive or radioactive  substances or
wastes  and all  hazardous  or toxic  substances,  wastes  or other  pollutants,
including  petroleum or petroleum  distillates,  asbestos or asbestos containing
materials,  polychlorinated  biphenyls,  radon gas, infectious or medical wastes
and all other  substances  or wastes of any  nature  regulated  pursuant  to any
Environmental Law.

         "Hedging  Agreement"  means any  interest  rate  protection  agreement,
foreign currency  exchange  agreement,  commodity price protection  agreement or
other interest or currency exchange rate or commodity price hedging arrangement.

         "Holder's  Net  Proceeds  Prepayment  Amount"  shall  have the  meaning
specified in section 2.08.

         "Holder's  Unused  Proceeds  Prepayment  Amount" shall have the meaning
specified in section 2.08.

         "Indebtedness" of any Person shall mean, at any date, all indebtedness,
liabilities and other  obligations of such Person at such date (other than items
of shareholders'  equity) which would, in accordance with GAAP, be classified as
liabilities of such Person, but in any event including (without duplication):
                  (a)      all Guarantees of such Person;

                  (b)  all  indebtedness,   liabilities  and  other  obligations
         secured  by any Lien in  respect  of  property  owned  by such  Person,
         whether or not such Person has assumed or become liable for the payment
         of such obligations;

                  (c) all  indebtedness,  liabilities  and other  obligations of
         such Person arising under any conditional sale or other title retention
         agreement,  whether  or not the rights  and  remedies  of the seller or
         lender  under such  agreement  in the event of default  are  limited to
         repossession or sale of such property;

                  (d) the amount of the  obligation  required to be recorded  by
         the lessee in respect of any Capital Lease under which such  Person  is
         lessee; and

                  (e)  all  indebtedness,   liabilities  and  other  obligations
         arising in connection  with letters of credit,  bankers  acceptances or
         other credit  enhancement  facilities  and in connection  with interest
         rate swaps,  currency swaps and similar  obligations which require such
         Person to make payments,  whether periodically or upon the happening of
         a contingency.

         "Indemnified Taxes" means Taxes other than Excluded Taxes.

         "Interest  Election Request" means a request by the Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.08.

         "Interest  Expense"  of any Person  shall  mean,  for any  period,  the
aggregate  amount of (a) all interest  paid,  payable or guaranteed  during such
period by such  Person in respect of Funded Debt and  Current  Debt  (including,
without limitation, Capital Leases), determined in accordance with GAAP, and (b)
all  interest  capitalized  or  deferred  during  such  period,   determined  in
accordance  with GAAP.  Interest which is payable at a floating or variable rate
shall be  determined  on the basis of the rate in effect on the date as of which
Interest Expense is to be determined.

         "Interest Payment Date" means (a) with respect to any ABR Loan or Prime
Based Loan, the last day of each March, June,  September and December,  (b) with
respect to any Eurodollar  Loan, the last day of the Interest Period  applicable
to the  Borrowing  of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration,  each day
prior to the last day of such Interest  Period that occurs at intervals of three
months' duration after the first day of such Interest Period.

         "Interest Period" means with respect to any Eurodollar  Borrowing,  the
period  commencing on the date of such  Borrowing and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
thereafter, as the Borrower may elect; provided, that (i) if any Interest Period
would end on a day other than a Business  Day,  such  Interest  Period  shall be
extended  to the next  succeeding  Business  Day  unless  such  next  succeeding
Business Day would fall in the next calendar  month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest Period
pertaining to a Eurodollar  Borrowing that commences on the last Business Day of
a calendar  month (or on a day for which there is no  numerically  corresponding
day in the last calendar  month of such  Interest  Period) shall end on the last
Business Day of the last calendar  month of such Interest  Period.  For purposes
hereof,  the date of a  Borrowing  initially  shall  be the  date on which  such
Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be
the  effective  date of the  most  recent  conversion  or  continuation  of such
Borrowing.

         "Investment" shall mean any investment made by stock purchase,  capital
contribution,   loan,  advance,   acquisition  of  Indebtedness,   Guarantee  or
otherwise,  provided  that in no event  shall the term  Investment  include  the
direct acquisition of the operating assets of another Person.

         "Lenders"  means  the  Persons  listed on  Schedule  2.01 and any other
Person  that shall have become a party  hereto  pursuant  to an  Assignment  and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.

         "LIBO Rate" means,  with respect to any  Eurodollar  Borrowing  for any
Interest Period,  the rate appearing on Page 3750 of the Telerate Service (or on
any  successor  or  substitute  page of such  Service,  or any  successor  to or
substitute  for such  Service,  providing  rate  quotations  comparable to those
currently  provided  on  such  page  of  such  Service,  as  determined  by  the
Administrative  Agent from time to time for purposes of providing  quotations of
interest rates applicable to dollar deposits in the London interbank  market) at
approximately   11:00  a.m.,  London  time,  two  Business  Days  prior  to  the
commencement  of such Interest  Period,  as the rate for dollar  deposits with a
maturity  comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate rounded upwards,
if necessary,  to the next 1/16 of 1% at which dollar deposits of $5,000,000 and
for a maturity  comparable to such Interest  Period are offered by the principal
London office of the Administrative Agent in immediately  available funds in the
London interbank market at approximately  11:00 a.m.,  London time, two Business
Days prior to the commencement of such Interest Period.

         "Lien"  means,  with respect to any asset,  (a) any  mortgage,  deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such  asset,  (b) the  interest  of a  vendor  or a  lessor  under  any
conditional sale agreement,  capital lease or title retention  agreement (or any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing)  relating  to such  asset  and (c) in the  case  of  securities,  any
purchase  option,  call or similar  right of a third party with  respect to such
securities.

     "Loan  Documents"  means this  Agreement,  the  Guaranties,  the Promissory
Notes, the Security Agreements and the Financing Statements.

     "Loans"  means the loans made by the  Lenders to the  Borrower  pursuant to
this Agreement.

         "Margin"  means,  with respect to any Loan  bearing  interest at a rate
based on the LIBO Rate, 1.75%.

         "Material  Adverse  Effect" means a material  adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the  Borrower  and the  Subsidiaries  taken as a whole,  (b) the  ability of the
Borrower to perform any of its  obligations  under this  Agreement or any of the
Loan Documents and (c) the rights of or remedies  available to the Lenders under
this Agreement or any Loan Documents.

         "Material  Adverse  Change" shall mean a material  adverse change in or
effect  upon  any of (a)  the  condition  (financial  or  otherwise),  business,
performance, operations, properties, profits or prospects of the Borrower or the
Borrower  and its  Subsidiaries  taken  as one  enterprise,  (b)  the  legality,
validity or enforceability of this Agreement, the Promissory Notes or any of the
other  Loan  Documents,  including,  without  limitation,  the Liens  created or
intended to be created by the Security Documents; (c) the rights and remedies of
any holder of the Promissory  Notes or (d) the ability of the Borrower or any of
its  Subsidiaries  to perform its  obligations  under any of the Loan  Documents
and/or to comply with any of the terms thereof applicable to it.

         "Maturity Date" means November 30, 1999.

         "Multiemployer  Plan"   means  a   multiemployer   plan  as  defined in
Section 4001(a)(3) of ERISA.

         "Net  Asset  Sale  Proceeds"  shall  mean,  in the  case of any Sale of
Assets,  the gross cash proceeds of such sale whenever  received by the Borrower
and its Subsidiaries  after deducting:  (a) the aggregate amount of Indebtedness
secured  by a Lien on the  assets so sold or  incurred  in  connection  with the
original  acquisition of the assets so sold, but in each case only to the extent
such Indebtedness is required to be repaid and is so repaid as a condition to or
upon  consummation  of such  sale,  (b) the  reasonable  out-of-pocket  expenses
incurred by the Borrower and its  Subsidiaries in connection with such sale, and
(c) all taxes payable by the Borrower and its  Subsidiaries  as a result of such
sale, including taxes in respect of income and profits.

         "Net Income" of any Person shall mean,  for any period,  the net income
(or  net  loss),  excluding  all  extraordinary,  unusual,  nonrecurring  and/or
nonoperating  gains or losses of such  Person  for such  period,  determined  in
accordance with GAAP.

         "Net Proceeds of Capital  Stock" shall mean,  for any period,  all cash
proceeds (net of all costs and out-of-pocket  expenses in connection  therewith,
including,  without limitation,  placement,  underwriting and brokerage fees and
expenses)  received by the Borrower during such period,  from the sale of Shares
(but not the sale of Redeemable Shares) of the Borrower.
         "Net Worth" of any Person shall mean,  at any date,  the sum of (a) the
capital  stock  (excluding  treasury  stock and  capital  stock  subscribed  and
unissued)  and (b) surplus  (including  retained  earnings,  additional  paid-in
capital and the balance of the current  profit and loss account not  transferred
to surplus) of such Person at such date, determined in accordance with GAAP.

         "Note  Agreement"  and  "Note  Agreements"  shall  have the  respective
meanings specified in the Preamble.

     "Note" and "Notes"  shall have the  respective  meanings  specified  in the
Preamble.

         "Note Holder" and "Note  Holders"  shall have the  respective  meanings
specified in the Preamble.

         "Old Bank Debt" means all outstanding  indebtedness of the Borrower and
its  Subsidiaries  to The Chase  Manhattan  Bank and  Atlantic  Bank of New York
incurred  pursuant to a certain  Credit  Agreement  dated as of May 24, 1996, as
amended by a certain First Amendment to Credit  Agreement dated as of August 12,
1996, by a certain Second  Amendment to Credit  Agreement  dated as of September
23, 1996 and a certain Third  Amendment to Credit  Agreement dated as of January
13, 1997.

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

         "PBGC" means the Pension Benefit Guaranty  Corporation  referred to and
defined in ERISA and any successor entity performing similar functions.

         "Permitted Investment" shall mean any of the following Investments:

                  (a)  Investments  existing on the date  hereof  and   referred
         to in Schedule 3.12 attached hereto;

                  (b)  Investments  by the Borrower or by any  Subsidiary of the
         Borrower in any  Wholly-Owned  Subsidiary  Guarantor  (or in any Person
         which  simultaneously   therewith  becomes  a  Wholly-Owned  Subsidiary
         Guarantor)  made  by  stock  purchase,  capital  contribution,  loan or
         advance,  provided that (i) both at the time of and  immediately  after
         giving  effect to any such  Investment,  no Default or Event of Default
         shall have occurred and be continuing and (ii) all such Investments are
         made only in Solvent entities (A) which are organized under the laws of
         and conduct  substantially  all of their  respective  businesses in the
         United States of America or a state thereof or the District of Columbia
         and  having  all or  substantially  all of its  property  in the United
         States of America;  and (B) whose lines of business are not  materially
         different from those in which the Borrower and its Subsidiaries are now
         engaged;
                  (c) Investments by any  Subsidiary  of  the  Borrower  in  the
         Borrower;

                  (d) readily marketable  obligations  (having a maturity not in
         excess of 12 months from the date of acquisition  thereof) of, or fully
         and unconditionally  guaranteed (as to both principal and interest) by,
         the  United  States  of  America  or an  agency  thereof,  or a foreign
         government, the treasury obligations of which are rated AAA by Standard
         & Poor's Corporation and Aaa by Moody's Investors Service, Inc.;

                  (e) negotiable  certificates of deposit (having a maturity not
         in excess of 12 months from the date of acquisition thereof) evidencing
         direct  obligations of any federally  insured  commercial bank or trust
         company  organized and operating in the United States of America having
         either (i) capital and  surplus and  undistributed  profits of at least
         $100,000,000 or (ii) assets of at least $1,000,000,000 and in each case
         having the highest  rating  available from Moody's  Investors  Service,
         Inc. and Standard & Poor's Corporation;

                  (f) repurchase  agreements  (having a term not in excess of 90
         days) with any commercial bank or trust company described in clause (e)
         above,  provided  that (i) title to and custody of the  collateral  for
         each such  repurchase  agreement is held by the Borrower or an agent of
         the Borrower  other than the issuer of such  repurchase  agreement  and
         affiliates  thereof,  (ii) the fair market value (for purposes  hereof,
         the fair  market  value of the  collateral  shall  mean the bid  prices
         thereof as published in a standard  publication)  of the collateral for
         each such  repurchase  agreement shall at all times be at least 102% of
         the amount of such  repurchase  obligation and (iii) the collateral for
         each such repurchase  agreement shall be in negotiable  form,  shall be
         free of all liens and shall  consist  solely of  securities of the sort
         described in clause (d) above;

                  (g)  accounts  receivable  arising  from  transactions  in the
         ordinary  course of business;  contingent  liabilities  represented  by
         endorsements of negotiable instruments for collection or deposit in the
         ordinary  course of business;  advances,  deposits,  down  payments and
         prepayments  on account of firm  purchase  orders made in the  ordinary
         course of business;

                  (h)  commercial  paper  and  loan  participations   (having  a
         maturity  not in excess of 270 days from the date of issue ) evidencing
         the direct obligation of any corporation organized and operating in the
         United  States of America  and  having a rating  which is A-1 or P-1 or
         better at the time of acquisition thereof;

                  (i)  commercial  paper  and  loan  participations   (having  a
         maturity  not in excess of 270 days from the date of issue)  evidencing
         the direct obligation of any corporation organized and operating in the
         United  States of  America  and having a rating A-3 or P-3 or better at
         the time of  acquisition  thereof,  provided that the  aggregate  value
         (determined  as  provided  in  section  6.03) of all  Investments  made
         pursuant to this clause (i) shall not exceed $5,000,000; and
                  (j)  other   Investments  made  after  the  Closing  Date  not
         otherwise  permitted  by the  preceding  clauses  of  this  definition,
         provided  that  (i) all  such  Investments  are  made  only in  Solvent
         entities  and (ii)  both at the time of and  immediately  after  giving
         effect to any such Investment, (A) no Default or Event of Default shall
         have occurred and be continuing and (B) the aggregate value (determined
         as provided in section 6.03) of all  Investments  made pursuant to this
         clause (j) does not exceed 15% of Consolidated Net Worth.

         "Person"  means any  natural  person,  corporation,  limited  liability
company, trust, joint venture, association,  company, partnership,  Governmental
Authority or other entity.

         "Plan"  means  any  employee   pension   benefit  plan  (other  than  a
Multiemployer  Plan)  subject to the  provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA  Affiliate is (or, if such plan were  terminated,  would under Section
4069 of ERISA be deemed to be) an  "employer"  as  defined  in  Section  3(5) of
ERISA.

         "Preferred  Shares",  as  applied to shares of any  Person,  shall mean
Shares of such Person which shall be entitled to preference or priority over any
other Shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation.

         "Prime  Rate" means the rate of interest per annum  publicly  announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal  office in New York  City;  each  change in the  Prime  Rate  shall be
effective from and including the date such change is publicly announced as being
effective.

         "Private   Placement   Documents"   shall  mean  the  Notes,  the  Note
Agreements,  the  Guarantees  of the  Notes,  the  Security  Agreements  and the
Collateral Agency and Intercreditor Agreement.

         "Promissory  Note" means a note of the Borrower  executed and delivered
to each Lender, in the form of Exhibit C.

         "Redeemable" shall mean, with respect to any Shares of any Person, each
Share of such Person that is (a) redeemable  payable or required to be purchased
or otherwise retired or extinguished, or convertible into Funded Debt or Current
Debt of such Person,  (i) at a fixed or determinable  date, whether by operation
of any sinking  fund or  otherwise,  (ii) at the option of any Person other than
such Person or (iii) upon the  occurrence  of a condition  not solely within the
control of such Person or (b) convertible into other Redeemable Shares.

         "Register" has the meaning set forth in Section 9.04.

         "Related  Parties" means,  with respect to any specified  Person,  such
Person's Affiliates and the respective directors,  officers,  employees,  agents
and advisors of such Person and such Person's Affiliates.

         "Rental  Obligations"  of any Person  shall mean,  for any period,  all
rents and other  amounts  determined in  accordance  with GAAP paid,  payable or
guaranteed  during such period by such Person,  as lessee or sublessee under any
lease,  including,  without  limitation,  any amount required to be paid by such
Person  as rents  or  additional  rents  on  account  of  maintenance,  repairs,
insurance,  taxes,  utilities and similar charges  determined in accordance with
GAAP. Whenever it is necessary to determine the amount of Rental Obligations for
any  period,  to the extent  that such  Rental  Obligations  are not  definitely
determinable by the terms of the lease, the Rental Obligations not so definitely
determinable  shall be estimated in good faith and in such reasonable  manner as
the Board of Directors  of the  Borrower  may select (as  evidenced by certified
resolutions  thereof promptly  delivered to the holder or holders of the Notes).
Notwithstanding  the  foregoing,  Rental  Obligations  of the  Borrower  and its
Subsidiaries  shall  include  only that  portion of the  amounts  payable by the
Borrower under the ATEC Master Sublease and Master  Equipment  Lease  Agreement,
each  dated  May 24,  1996,  which is being  expensed  by the  Borrower  and its
Subsidiaries,  which was based on the fair market value of the property  subject
to such agreements.

         "Required  Lenders" means, at any time, Lenders having Revolving Credit
Exposures  and  unused  Commitments  representing  100% of the sum of the  total
Revolving Credit Exposures and unused Commitments at such time.

         "Restricted Investments" means any  investment other than  a  Permitted
Investment.

         "Restricted Payment" as applied to any Person shall mean:

                  (a) any dividend or other  distribution or payment  (including
         any distribution of properties,  assets,  cash, rights,  obligations or
         securities),  direct or  indirect,  on  account  of any  Shares of such
         Person now or hereafter  outstanding  (including,  without  limitation,
         Preferred Shares) or any securities  convertible into or exercisable or
         exchangeable  for such  Shares or any  rights,  options or  warrants to
         acquire  any  such  Shares,   except  for  (i)  any  such  dividend  or
         distribution  or  payment  to  the  Borrower  and/or  any  Wholly-Owned
         Subsidiary  Guarantor and (ii) a dividend payable to all of the holders
         of the Common Stock solely in shares of Common Stock; and

                  (b) any redemption, retirement, purchase or other acquisition,
         direct or  indirect,  of any  Shares of such  Person  now or  hereafter
         outstanding  (including,  without limitation,  Preferred Shares) or any
         securities  convertible  into or exercisable or  exchangeable  for such
         Shares or any rights, options or warrants to acquire any such Shares.

         For purposes of this  Agreement,  the amount of any Restricted  Payment
         made in  property  other than cash shall be the greater of (x) the fair
         market value of such property (as  reasonably  determined in good faith
         by the board of directors (or equivalent  governing body) of the Person
         making such  Restricted  Payment) and (y) the net book value thereof on
         the books of such  Person,  in each case  determined  as of the date on
         which such Restricted Payment is made.

         "Revolving  Credit Exposure"  means,  with respect to any Lender at any
time, the sum of the  outstanding  principal  amount of such Lender's  Revolving
Loans.

         "Revolving Loan" means a Loan made pursuant to Section 2.03.

         "Sale of Assets" shall have the meaning specified in section 6.09.

         "Security  Documents" shall mean each Guaranty,  Security Agreement and
UCC-1 Financing Statement executed and delivered hereunder.

         "Senior  Debt" shall mean all Funded Debt  and/or  Current  Debt of the
Borrower,  including,  without  limitation,  the Notes and the Current  Debt and
Funded Debt outstanding under this Agreement, other than any such Funded Debt or
Current  Debt which is  subordinate  in right of payment to the Notes and/or the
Current Debt and Funded Debt outstanding under this Agreement.

         "Security  Agreement" means an agreement  executed and delivered by the
Borrower and each Subsidiary to the  Administrative  Agent granting a first lien
security interest.

         "Shares"  of any  Person  shall  include  any and all shares of capital
stock, partnership interests,  membership interests, or other shares, interests,
participations  or other  equivalents  (however  designated of any class) in the
capital of, or other ownership interests in, such Person.

         "Solvent"  as  applied to any Person at any date shall mean that on and
as of such date (a) the fair value of the  properties  and assets of such Person
is greater than the total amount of liabilities,  including, without limitation,
contingent  liabilities,  of such Person,  (b) the present fair salable value of
the  properties  and assets of such Person is not less than the amount that will
be required to pay the  probable  liability  of such Person on its debts as they
become  absolute and  matured,  (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and  liabilities  mature and (d) such Person is not engaged in
business  or a  transaction,  and  is not  about  to  engage  in  business  or a
transaction,  for which such Person's  properties and assets would constitute an
unreasonably  small capital.  The amount of contingent  liabilities on and as of
any date shall be computed as the amount that, in the light of all the facts and
circumstances  existing on and as of such date,  represents  the amount that can
reasonably be expected to become an actual or matured liability. For purposes of
this definition,  "Person" shall mean, where so required by the context in which
the term "Solvent" appears, such Person and its Subsidiaries taken as a whole.

         "Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the  denominator of which is the number
one minus the  aggregate  of the  maximum  reserve  percentages  (including  any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established  by the  Board to which the  Administrative  Agent is  subject  with
respect to the Adjusted LIBO Rate, for eurocurrency  funding (currently referred
to as  "Eurocurrency  Liabilities"  in Regulation D of the Board).  Such reserve
percentages   shall  include  those  imposed  pursuant  to  such  Regulation  D.
Eurodollar  Loans shall be deemed to constitute  eurocurrency  funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions  or  offsets  that may be  available  from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.

         "subsidiary"  means,  with respect to any Person (the  "parent") at any
date, any corporation,  limited liability company,  partnership,  association or
other  entity the  accounts  of which  would be  consolidated  with those of the
parent in the  parent's  consolidated  financial  statements  if such  financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership,  association or other
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the equity or more than 50% of the ordinary  voting power or, in the
case of a partnership,  more than 50% of the general partnership  interests are,
as of such date,  owned,  controlled  or held,  or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.

         "Subsidiary" means any subsidiary of the Borrower.

         "Subordinated  Debt" or "Indebtedness"  means all Indebtedness which is
subordinated  in  right  of  payment,  form and  substance  satisfactory  to the
Administrative Agent and each Lender to all Indebtedness of the Borrower to each
Lender.

         "Successor Corporation" shall have the  meaning  specified  in  Section
 6.07.

         "Taxes"  means any and all present or future  taxes,  levies,  imposts,
duties,  deductions,   charges  or  withholdings  imposed  by  any  Governmental
Authority.

         "Test Period" shall have the meaning specified in Section 6.03.

         "Three-Month  Secondary  CD Rate"  means,  for any day,  the  secondary
market rate for three-month  certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding  Business
Day) by the Board through the public  information  telephone line of the Federal
Reserve  Bank of New York (which rate will,  under the current  practices of the
Board, be published in Federal Reserve  Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding  Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at  approximately  10:00 a.m.,  New York City time, on such day (or, if
such day is not a  Business  Day,  on the next  preceding  Business  Day) by the
Administrative  Agent from three  negotiable  certificate of deposit  dealers of
recognized standing selected by it.

         "Total Debt" of any Person shall mean,  at any date,  the sum of Funded
Debt and Current Debt of such Person  outstanding  on such date (which shall not
be deemed to include the undrawn Commitment of any Lender hereunder).

         "Transactions" means the execution, delivery and performance by (i) the
Borrower of this Agreement,  its Security  Agreement,  the Promissory Notes, the
UCC-1 Financing  Statements,  the borrowing of Loans and the use of the proceeds
thereof,  and (ii) by each  Guarantor of its  Guaranty,  Security  Agreement and
UCC-1 Financing Statements.

         "Type",  when used in  reference  to any Loan or  Borrowing,  refers to
whether  the rate of  interest  on such Loan,  or on the Loans  comprising  such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.

         "Voting  Stock"  when used with  reference  to any  Person,  shall mean
Shares (however  designated) of such Person having ordinary voting power for the
election  of a  majority  of the  members  of the board of  directors  (or other
governing  body) of such  Person,  other than  Shares  having such power only by
reason of the happening of a contingency.

         "Wholly-Owned   Subsidiary"  shall  mean  any  Subsidiary  all  of  the
outstanding shares of which, other than directors'  qualifying shares,  shall at
the time be owned  by the  Borrower  and/or  by one or more  other  Wholly-Owned
Subsidiaries  and the  accounts  of which  are  consolidated  with  those of the
Borrower in accordance with GAAP.

         "Wholly-Owned   Subsidiary   Guarantor"  shall  mean  any  Wholly-Owned
Subsidiary  that has delivered to each Lender a valid,  binding and  enforceable
Promissory Note,  Guaranty and Security  Agreement,  and all of whose properties
and assets  which  constitute  Collateral  are subject to valid and  enforceable
first priority perfected Liens in favor of the Collateral Agent.

         "Withdrawal  Liability"  means liability to a  Multiemployer  Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.

         "Working  Capital" shall mean the excess of Current Assets over Current
Liabilities.

         SECTION 1.02.  Classification of Loans and Borrowings.  For purposes of
this  Agreement,  Loans may be  classified  and  referred to by Class  (e.g.,  a
"Revolving  Loan") or by Type (e.g.,  a "Eurodollar  Loan") or by Class and Type
(e.g., a "Eurodollar  Revolving  Loan").  Borrowings  also may be classified and
referred  to by Class  (e.g.,  a  "Revolving  Borrowing")  or by Type  (e.g.,  a
"Eurodollar  Borrowing")  or by Class and Type (e.g.,  a  "Eurodollar  Revolving
Borrowing").

         SECTION 1.03.  Terms  Generally.  The definitions of terms herein shall
apply  equally to the singular and plural forms of the terms  defined.  Whenever
the context may require, any pronoun shall include the corresponding  masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed  by the phrase  "without  limitation".  The word "will"
shall be  construed  to have the same  meaning  and effect as the word  "shall".
Unless the context requires  otherwise (a) any definition of or reference to any
agreement,  instrument or other document  herein shall be construed as referring
to such  agreement,  instrument or other  document as from time to time amended,
supplemented  or  otherwise  modified  (subject  to  any  restrictions  on  such
amendments,  supplements or modifications  set forth herein),  (b) any reference
herein to any Person shall be construed to include such Person's  successors and
assigns, (c) the words "herein", "hereof" and "hereunder",  and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any  particular  provision  hereof,  (d)  all  references  herein  to  Articles,
Sections,  Exhibits  and  Schedules  shall be construed to refer to Articles and
Sections of, and Exhibits and  Schedules  to, this  Agreement  and (e) the words
"asset" and  "property"  shall be  construed to have the same meaning and effect
and to refer to any and all  tangible  and  intangible  assets  and  properties,
including cash, securities, accounts and contract rights.

         SECTION 1.04.  Accounting Terms;  GAAP.  Except as otherwise  expressly
provided  herein,  all  terms of an  accounting  or  financial  nature  shall be
construed  in  accordance  with GAAP,  as in effect from time to time;  provided
that,  if the  Borrower  notifies  the  Administrative  Agent that the  Borrower
requests an amendment  to any  provision  hereof to eliminate  the effect of any
change occurring after the date hereof in GAAP or in the application  thereof on
the operation of such  provision (or if the  Administrative  Agent  notifies the
Borrower that the Required  Lenders request an amendment to any provision hereof
for such  purpose),  regardless  of whether any such  notice is given  before or
after such change in GAAP or in the  application  thereof,  then such  provision
shall be interpreted  on the basis of GAAP as in effect and applied  immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                                   ARTICLE II

                                   The Credits

         SECTION  2.01.  Commitments.  Subject to the terms and  conditions  set
forth herein,  each Lender agrees to make  Revolving  Loans to the Borrower from
time to time during the  Availability  Period in an aggregate  principal  amount
that will not result in (a) such Lender's  Revolving  Credit Exposure  exceeding
such Lender's  Commitment or (b) the sum of the total Revolving Credit Exposures
exceeding the total Commitments.  Within the foregoing limits and subject to the
terms and  conditions  set forth  herein,  the Borrower  may borrow,  prepay and
reborrow Revolving Loans.
         SECTION 2.02.  Loans and  Borrowings.  (a) Each Revolving Loan shall be
made as part of a Borrowing  consisting  of Revolving  Loans made by the Lenders
ratably in  accordance  with their  respective  Commitments.  The failure of any
Lender to make any Loan  required  to be made by it shall not  relieve any other
Lender  of its  obligations  hereunder;  provided  that the  Commitments  of the
Lenders are several and no Lender shall be  responsible  for any other  Lender's
failure to make Loans as required.

                  (b)  Subject to Section  2.14,  (i) each  Revolving  Borrowing
shall be comprised entirely of Eurodollar Loans or ABR Loans as the Borrower may
request  in  accordance  herewith.  Each  Lender  at its  option  may  make  any
Eurodollar  Loan by causing any domestic or foreign  branch or Affiliate of such
Lender to make such Loan;  provided  that any  exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance  with the
terms of this Agreement.

                  (c) At the  commencement  of  each  Interest  Period  for  any
Eurodollar Revolving  Borrowing,  such Borrowing shall be in an aggregate amount
that is an integral multiple of $100,000 and not less than $500,000. At the time
that  each ABR  Revolving  Borrowing  is  made,  such  Borrowing  shall be in an
aggregate  amount that is an integral  multiple of $100,000.  Borrowings of more
than one Type may be outstanding at the same time; provided that there shall not
at  any  time  be  more  than  a  total  of 5  Eurodollar  Revolving  Borrowings
outstanding.

                  (d) Notwithstanding any other provision of this Agreement, the
Borrower  shall not be entitled to request,  or to elect to convert or continue,
any Borrowing if the Interest  Period  requested with respect  thereto would end
after the Maturity Date.

         SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing,  not later than 11:00 a.m.,
New York  City  time,  three  Business  Days  before  the  date of the  proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time,  on the date of the  proposed  Borrowing.  Each such  telephonic
Borrowing  Request shall be irrevocable and shall be confirmed  promptly by hand
delivery or telecopy to the Administrative  Agent of a written Borrowing Request
in a form approved by the Administrative Agent and signed by the Borrower.  Each
such  telephonic  and written  Borrowing  Request  shall  specify the  following
information in compliance with Section 2.02:

                  (i)  the aggregate amount of the requested Borrowing;

                  (ii)  the date of such Borrowing, which shall be a Business
                  Day;

                  (iii)  whether such Borrowing is to be a Eurodollar Borrowing
                  or an ABR Borrowing;

                  (iv)  in the  case  of a  Eurodollar  Borrowing,  the  initial
                  Interest  Period to be  applicable  thereto,  which shall be a
                  period  contemplated  by the  definition of the term "Interest
                  Period"; and

                  (v) the location and number of the Borrower's account to which
                  funds  are  to be  disbursed,  which  shall  comply  with  the
                  requirements of Section 2.07.

If no election as to the Type of  Revolving  Borrowing  is  specified,  then the
requested Revolving  Borrowing shall be an ABR Borrowing.  If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing,  then
the Borrower shall be deemed to have selected an Interest  Period of one month's
duration.  Promptly  following receipt of a Borrowing Request in accordance with
this Section,  the Administrative  Agent shall advise each Lender of the details
thereof  and of the  amount  of  such  Lender's  Loan  to be made as part of the
requested Borrowing.

         SECTION 2.04.  Funding of  Borrowings.  (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the  Administrative  Agent most  recently  designated  by it for such purpose by
notice to the Lenders.  The Administrative  Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
an account of the Borrower maintained with the Administrative  Agent in New York
City and designated by the Borrower in the applicable Borrowing Request.

                  (b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing  that such Lender will
not make  available  to the  Administrative  Agent such  Lender's  share of such
Borrowing,  the  Administrative  Agent may assume that such Lender has made such
share  available on such date in accordance  with  paragraph (a) of this Section
and may, in reliance  upon such  assumption,  make  available  to the Borrower a
corresponding  amount. In such event, if a Lender has not in fact made its share
of the applicable  Borrowing  available to the  Administrative  Agent,  then the
applicable Lender and the Borrower  severally agree to pay to the Administrative
Agent forthwith on demand such corresponding  amount with interest thereon,  for
each day from and  including  the date  such  amount  is made  available  to the
Borrower to but excluding the date of payment to the  Administrative  Agent,  at
(i) in the case of such Lender,  the greater of the Federal Funds Effective Rate
and a rate  determined by the  Administrative  Agent in accordance  with banking
industry  rules on interbank  compensation  or (ii) in the case of the Borrower,
the interest rate  applicable  to ABR Loans.  If such Lender pays such amount to
the  Administrative  Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing, but in no event shall the amount thereof so included
in such Borrowing exceed the aggregate of (x) such corresponding  amount and (y)
interest computed at the interest rate applicable to ABR Loans.

         SECTION  2.05.  Interest   Elections.   (a)  Each  Revolving  Borrowing
initially  shall be of the Type  specified in the applicable  Borrowing  Request
and,  in the case of a  Eurodollar  Revolving  Borrowing,  shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert  such  Borrowing  to a different  Type or to continue  such
Borrowing  and,  in the case of a  Eurodollar  Revolving  Borrowing,  may  elect
Interest  Periods  therefor,  all as provided in this Section.  The Borrower may
elect  different  options  with  respect to  different  portions of the affected
Borrowing,  in which case each such portion shall be allocated ratably among the
Lenders holding the Loans  comprising such Borrowing,  and the Loans  comprising
each such portion shall be considered a separate Borrowing.

                  (b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative  Agent of such election by telephone by the time
that a Borrowing  Request  would be required  under Section 2.03 if the Borrower
were  requesting a Revolving  Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election  Request shall be irrevocable  and shall be confirmed  promptly by hand
delivery or telecopy to the Administrative  Agent of a written Interest Election
Request  in a form  approved  by the  Administrative  Agent  and  signed  by the
Borrower.

                  (c) Each  telephonic  and written  Interest  Election  Request
shall specify the following information in compliance with Section 2.02:

                  (i) the  Borrowing  to which such  Interest  Election  Request
         applies  and, if  different  options are being  elected with respect to
         different  portions  thereof,  the portions  thereof to be allocated to
         each resulting Borrowing (in which case the information to be specified
         pursuant to clauses  (iii) and (iv) below shall be  specified  for each
         resulting Borrowing);

                  (ii) the effective  date of the election made pursuant to such
         Interest Election Request, which shall be a Business Day;

                  (iii)  whether  the  resultin   Borrowing  is  to  be  an  ABR
         Borrowing or a Eurodollar Borrowing; and

                  (iv) if the resulting Borrowing is a Eurodollar Borrowing, the
         Interest  Period to be  applicable  thereto after giving effect to such
         election, which shall be a period contemplated by the definition of the
         term "Interest Period".

If any such Interest  Election Request requests a Eurodollar  Borrowing but does
not  specify  an  Interest  Period,  then the  Borrower  shall be deemed to have
selected an Interest Period of one month's duration.

                  (d)  Promptly   following  receipt  of  an  Interest  Election
Request,  the  Administrative  Agent  shall  advise  each  Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.

                  (e) If  the  Borrower  fails  to  deliver  a  timely  Interest
Election Request with respect to a Eurodollar  Revolving  Borrowing prior to the
end of the Interest Period  applicable  thereto,  then, unless such Borrowing is
repaid as provided  herein,  at the end of such Interest  Period such  Borrowing
shall be converted to an ABR Borrowing.  Notwithstanding  any contrary provision
hereof,  if an  Event  of  Default  has  occurred  and  is  continuing  and  the
Administrative  Agent, at the request of the Required  Lenders,  so notifies the
Borrower,  then, so long as an Event of Default is continuing (i) no outstanding
Revolving  Borrowing may be converted to or continued as a Eurodollar  Borrowing
and (ii) unless repaid,  each Eurodollar  Revolving Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.

         SECTION 2.06.  Termination and Reduction of Commitments.  

                  (a) Unless   previously   terminated,   the  Commitments shall
terminate on the Maturity Date.

                  (b) The  Borrower may at any time  terminate,  or from time to
time  reduce,  the  Commitments;   provided  that  (i)  each  reduction  of  the
Commitments  shall be in an amount that is an integral  multiple of $100,000 and
not less than  $100,000 and (ii) the Borrower  shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance  with Section 2.08, the sum of the Revolving  Credit  Exposures would
exceed the total Commitments.

                  (c) The Borrower shall notify the Administrative  Agent of any
election to  terminate or reduce the  Commitments  under  paragraph  (b) of this
Section  at  least  three  Business  Days  prior to the  effective  date of such
termination  or  reduction,  specifying  such  election and the  effective  date
thereof.  Promptly  following receipt of any notice,  the  Administrative  Agent
shall advise the Lenders of the contents  thereof.  Each notice delivered by the
Borrower  pursuant to this Section shall be irrevocable;  provided that a notice
of termination of the Commitments  delivered by the Borrower may state that such
notice is conditioned  upon the  effectiveness  of other credit  facilities,  in
which  case  such  notice  may be  revoked  by the  Borrower  (by  notice to the
Administrative  Agent  on or  prior  to the  specified  effective  date) if such
condition is not  satisfied.  Any  termination  or reduction of the  Commitments
shall be  permanent.  Each  reduction of the  Commitments  shall be made ratably
among the Lenders in accordance with their respective Commitments.

         SECTION 2.07.  Repayment of Loans;  Evidence of Debt.  (a) The Borrower
hereby  unconditionally  promises  to pay to the  Administrative  Agent  for the
account of each Lender the then unpaid  principal  amount of each Revolving Loan
on the Maturity Date.

                  (b) Each Lender shall  maintain in  accordance  with its usual
practice an account or accounts  evidencing the  indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender,  including the amounts
of  principal  and  interest  payable  and paid to such Lender from time to time
hereunder.

                  (c) The Administrative  Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made  hereunder,  the Class and Type
thereof  and the  Interest  Period  applicable  thereto,  (ii) the amount of any
principal  or interest  due and  payable or to become due and  payable  from the
Borrower to each Lender  hereunder  and (iii) the amount of any sum  received by
the  Administrative  Agent  hereunder  for the  account of the  Lenders and each
Lender's share thereof.

                  (d) The entries  made in the accounts  maintained  pursuant to
paragraph  (b) or (c) of this  Section  shall be  prima  facie  evidence  of the
existence and amounts of the  obligations  recorded  therein;  provided that the
failure of any Lender or the  Administrative  Agent to maintain such accounts or
any error therein shall not in any manner affect the  obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.

                  (e)  Loans  made by  each  Lender  to the  Borrower  shall  be
evidenced  by a  Promissory  Note  payable to the order of such  Lender  (or, if
requested  by  such  Lender,  to  such  Lender  and  its  registered   assigns).
Thereafter,  the Loans evidenced by such  Promissory  Note and interest  thereon
shall at all times  (including  after  assignment  pursuant to Section  9.04) be
represented by one or more Promissory Notes in such form payable to the order of
the payee named therein (or, if such  promissory  note is a registered  note, to
such payee and its registered assigns).

         SECTION  2.08.  Prepayment  of Loans.  (a) The Borrower  shall have the
right at any time and from time to time to prepay any  Borrowing  in whole or in
part, subject to prior notice in accordance with paragraph (b) of this Section.

                  (b) The  Borrower  shall  notify the  Administrative  Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving  Borrowing,  not later than 11:00 a.m., New
York City time,  three  Business Days before the date of prepayment  and (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m.,
New York City time,  one Business Day before the date of  prepayment.  Each such
notice  shall be  irrevocable  and shall  specify  the  prepayment  date and the
principal  amount of each Borrowing or portion  thereof to be prepaid;  provided
that, if a notice of prepayment is given in connection with a conditional notice
of termination of the  Commitments as  contemplated  by Section 2.06,  then such
notice of prepayment  may be revoked if such notice of termination is revoked in
accordance  with Section  2.06.  Promptly  following  receipt of any such notice
relating to a Revolving  Borrowing,  the  Administrative  Agent shall advise the
Lenders of the  contents  thereof.  Each  partial  prepayment  of any  Revolving
Borrowing  shall  be in an  amount  that  would be  permitted  in the case of an
advance of a Revolving  Borrowing of the same Type as provided in Section  2.02.
Each  prepayment of a Revolving  Borrowing shall be applied ratably to the Loans
included in the prepaid  Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.10.

                  (c) The Borrower  shall during the thirty day period after the
consummation  of a Sale of Assets made in compliance  with section  6.09(d) give
written  notice to each holder of Senior Debt of the  occurrence of such Sale of
Assets, which notice shall (i) specify (x) the aggregate Net Asset Sale Proceeds
thereof which are not expected to be applied within 360 days of the consummation
of such sale to the purchase by the Borrower or its Subsidiaries of property and
assets  (other than cash or cash  equivalents)  used and useful in the  ordinary
course of business of the  Borrower and its  Subsidiaries  (the  "Available  Net
Proceeds"),  and (y) the  portion of the  Available  Net  Proceeds  equal to the
percentage  thereof which the then outstanding  principal  balance of the Senior
Debt of such holder represents of the then outstanding  principal balance of all
Senior Debt (such "Holder's Net Proceeds Prepayment Amount"),  and (ii) offer to
prepay a principal  amount of the Senior Debt of such holder in an amount  equal
to the sum of (x) such  Holder's  Net  Proceeds  Prepayment  Amount plus (y) any
additional  Available  Net Proceeds not required by the other  holders of Senior
Debt  to  prepay  such  other  holders'  Senior  Debt  ("Excess   Available  Net
Proceeds").  Each Lender shall have the right, by written notice to the Borrower
delivered within 30 days after receipt by such Lender of a prepayment offer from
the Borrower delivered pursuant to this section 2.08(c), to require the Borrower
to prepay such Lender's  Promissory  Note,  subject to the provisions of section
2.13 hereof,  in the principal amount specified in such notice from such Lender,
which amount shall not exceed such  Lender's  Net  Proceeds  Prepayment  Amount,
provided that such Lender may also elect to require that such prepayment  amount
be increased by the amount  specified in such notice not to exceed the amount of
Excess  Available  Net  Proceeds (it being  agreed that  Available  Net Proceeds
originally  offered to a Note  Holder and not  required by such holder to prepay
such Note  Holder's  Notes shall be used first to prepay the Notes of other Note
Holders  electing to have  prepayments  made with such  Available  Net  Proceeds
pursuant to section 9.3 (a) of its Note  Agreement,  before such  Available  Net
Proceeds  may be used to  prepay  other  Senior  Debt,  and that  Available  Net
Proceeds  originally  offered to holders of Senior Debt other than the Notes and
not  required  by such  holders to prepay  such other  Senior Debt shall then be
available  to all other  holders  of  Senior  Debt,  including  the  Notes,  for
prepayment  of such Senior Debt on a pro rata basis in proportion to the amounts
requested by such other  holders to be  prepaid).  Upon receipt from a Lender of
written notice pursuant to this section  2.08(c)  requiring a prepayment of such
Lender's  Promissory  Note, the Borrower shall, on the forty-fifth day following
delivery by the Borrower of the original prepayment offer, prepay the Promissory
Note of such Lender in the amount  specified in such written request  (including
any increase  specified in such written  request,  but only to the extent Excess
Available Net Proceeds are available to cover such increase).

                  (d) At any time that the aggregate  amount of Available Unused
Proceeds equals or exceeds $5,000,000, the Borrower shall give written notice to
each holder of Senior  Debt which  notice  shall (i)  specify (x) the  aggregate
amount of Available Unused Proceeds, and (y) the portion of the Available Unused
Proceeds equal to the percentage  thereof which the then  outstanding  principal
balance of the Senior Debt of such  holder  represents  of the then  outstanding
principal balance of all Senior Debt (such "Holder's Unused Proceeds  Prepayment
Amount"), and (ii) offer to prepay a principal amount of the Senior Debt of such
holder  in an  amount  equal to the sum of (x)  such  Holder's  Unused  Proceeds
Prepayment Amount plus (y) any additional Available Unused Proceeds not required
by the other  holders of Senior Debt to prepay such other  holders'  Senior Debt
("Excess  Available  Unused  Proceeds").  Each Lender  shall have the right,  by
written  notice to the Borrower  delivered  within 30 days after receipt by such
Lender of a  prepayment  offer  from the  Borrower  delivered  pursuant  to this
section  2.08(d),  to require the  Borrower to prepay such  Lender's  Promissory
Note,  subject to the provisions of section 2.13 hereof, in the principal amount
specified  in such notice from such  Lender,  which amount shall not exceed such
Lender's Unused Proceeds  Prepayment Amount,  provided that such Lender may also
elect to  require  that  such  prepayment  amount  be  increased  by the  amount
specified  in such  notice not to exceed the amount of Excess  Available  Unused
Proceeds (it being agreed that Available Unused Proceeds originally offered to a
Lender and not required by such Lender to prepay such Lender's  Promissory  Note
shall be used first to prepay  the Notes of the Note  Holders  electing  to have
prepayments made with such Available Unused Proceeds  pursuant to section 9.3(b)
of its Note  Agreement,  before such  Available  Unused  Proceeds may be used to
prepay other Senior Debt, and that Available Unused Proceeds  originally offered
to holders of Senior Debt other than the Notes and not  required by such holders
to prepay such other Senior Debt shall then be available to all other holders of
Senior Debt,  including the Notes,  for  prepayment of such Senior Debt on a pro
rata basis in  proportion  to the amounts  requested by such other holders to be
prepaid).  Upon receipt from a Lender of written notice pursuant to this section
2.08(d)  requiring a prepayment of such Lender's  Promissory  Note, the Borrower
shall, on the forty-fifth day following delivery by the Borrower of the original
prepayment  offer, and subject to the provisions of Section 2.13 hereof,  prepay
the  Promissory  Note of such  Lender in the amount  specified  in such  written
request (including any increase  specified in such written request,  but only to
the  extent  Excess  Available  Unused  Proceeds  are  available  to cover  such
increase).

         SECTION   2.09.   Fees.   (a)  The  Borrower   agrees  to  pay  to  the
Administrative  Agent (i) a single facility fee for the Lenders in the amount of
$37,500 on or before the Effective Date and (ii) for the account of each Lender,
a  commitment  fee,  which shall accrue at the per annum rate of L% on the daily
unused  portion of the  Commitment  of such  Lender  during the period  from and
including the Effective Date to but excluding the date on which such  Commitment
terminates; provided that, if such Lender continues to have any Revolving Credit
Exposure  after  its  Commitment  terminates,  then  such  commitment  fee shall
continue  to accrue  on the  daily  amount  of such  Lender's  Revolving  Credit
Exposure from and including the date on which its  Commitment  terminates to but
excluding  the date on which such  Lender  ceases to have any  Revolving  Credit
Exposure. Accrued commitment fees shall be payable in arrears on the last day of
March,  June,  September  and December of each year and on the date on which the
Commitments terminate, commencing on the first such date to occur after the date
hereof;  provided that any commitment  fees accruing after the date on which the
Commitments  terminate shall be payable on demand.  All commitment fees shall be
computed  on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).

                  (b) The Borrower  agrees to pay to the  Administrative  Agent,
for its own account,  annually,  the sum of  $10,000.00,  payable in semi-annual
installments of $5,000 each, commencing on the Effective Date.

                  (c) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent for distribution, in
the case of commitment  fees, to the Lenders.  Fees paid shall not be refundable
under any circumstances.

         SECTION 2.10.  Interest.

                  (a) The Loans comprising each  Eurodollar Borrowing shall bear
interest (i) in the case of a  Eurodollar  Revolving  Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Margin.

                  (b)  The  Loans  compromising  each  ABR  Borrowing shall bear
 interest at the Adjusted Alternate Base Rate.

                  (c)  Notwithstanding  the  foregoing,  if any  principal of or
interest  on any  Loan  or any  fee or  other  amount  payable  by the  Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise,  such  overdue  amount shall bear  interest,  after as well as before
judgment,  at a rate per annum equal to (i) in the case of overdue  principal of
any Loan, 3% plus the rate otherwise  applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 3%
plus the rate  applicable  to ABR Loans as  provided  in  paragraph  (b) of this
Section.

                  (d) Accrued  interest on each Loan shall be payable in arrears
on each  Interest  Payment  Date for  such  Loan  and  upon  termination  of the
Commitments;  provided  that (i) interest  accrued  pursuant to paragraph (c) of
this Section  shall be payable on demand,  (ii) in the event of any repayment or
prepayment  of any Loan,  accrued  interest on the  principal  amount  repaid or
prepaid shall be payable on the date of such  repayment or prepayment  and (iii)
in the event of any conversion of any Eurodollar Revolving Loan prior to the end
of the current Interest Period therefor,  accrued interest on such Loan shall be
payable on the effective date of such conversion.

                  (f) All interest hereunder shall be computed on the basis of a
year of 360 days,  except that  interest  computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual  number of days elapsed  (including
the first day but excluding the last day).  The  applicable  Adjusted  Alternate
Base  Rate,  Alternate  Base  Rate,  Adjusted  LIBO Rate or LIBO  Rate  shall be
determined  by  the  Administrative  Agent,  and  such  determination  shall  be
conclusive absent manifest error.

         SECTION 2.11.  Alternate Rate of Interest. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:

                  (a) the Administrative  Agent determines (which  determination
         shall be conclusive absent manifest error) that adequate and reasonable
         means do not exist for  ascertaining the Adjusted LIBO Rate or the LIBO
         Rate, as applicable, for such Interest Period; or

                  (b)  the  Administrative  Agent  is  advised  by the  Required
         Lenders that the Adjusted  LIBO Rate or the LIBO Rate,  as  applicable,
         for such Interest  Period will not  adequately  and fairly  reflect the
         cost to such Lenders (or Lender) of making or  maintaining  their Loans
         (or its Loan) included in such Borrowing for such Interest Period;

then the Administrative  Agent shall give notice thereof to the Borrower and the
Lenders by  telephone  or telecopy as promptly as  practicable  thereafter  and,
until the  Administrative  Agent  notifies the Borrower and the Lenders that the
circumstances  giving  rise to such  notice no longer  exist,  (i) any  Interest
Election Request that requests the conversion of any Revolving  Borrowing to, or
continuation  of any  Revolving  Borrowing as, a Eurodollar  Borrowing  shall be
ineffective,  (ii) if any  Borrowing  Request  requests a  Eurodollar  Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing.

         SECTION 2.12.  Increased Costs.  (a)  If any Change in Law shall:

                  (i) impose,  modify or deem  applicable  any reserve,  special
         deposit or similar  requirement against assets of, deposits with or for
         the  account  of, or credit  extended  by, any Lender  (except any such
         reserve requirement reflected in the Adjusted LIBO Rate); or

                  (ii) impose on any Lender or the London  interbank  market any
         other  condition  affecting this Agreement or Eurodollar  Loans made by
         such Lender;

and the result of any of the  foregoing  shall be to  increase  the cost to such
Lender of making or  maintaining  any  Eurodollar  Loan (or of  maintaining  its
obligation to make any such Loan),  then the Borrower will pay to such Lender or
such  additional  amount or  amounts  as will  compensate  such  Lender for such
additional costs incurred or reduction suffered.

                  (b) If any Lender  determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company,  if
any, as a consequence of this  Agreement or the Loans made by such Lender,  to a
level below that which such Lender or such Lender's  holding  company could have
achieved but for such Change in Law (taking  into  consideration  such  Lender's
policies  and the  policies of such  Lender's  holding  company  with respect to
capital  adequacy),  then from time to time the Borrower will pay to such Lender
such  additional  amount  or  amounts  as will  compensate  such  Lender or such
Lender's holding company for any such reduction suffered.

                  (c) A  certificate  of a Lender  setting  forth the  amount or
amounts necessary to compensate such Lender or its holding company,  as the case
may be, as specified in paragraph  (a) or (b) of this Section shall be delivered
to the Borrower and shall be  conclusive  absent  manifest  error.  The Borrower
shall pay such Lender the amount shown as due on any such certificate  within 10
days after receipt thereof.

                  (d)  Failure  or  delay on the part of any  Lender  to  demand
compensation  pursuant to this  Section  shall not  constitute  a waiver of such
Lender's right to demand such compensation; provided that the Borrower shall not
be required to  compensate a Lender  pursuant to this Section for any  increased
costs or  reductions  incurred  more  than 270 days  prior to the date that such
Lender  notifies the Borrower of the Change in Law giving rise to such increased
costs  or  reductions  and of such  Lender's  intention  to  claim  compensation
therefor;  provided  further  that,  if the  Change in Law  giving  rise to such
increased costs or reductions is  retroactive,  then the 270-day period referred
to above shall be extended to include the period of retroactive effect thereof.

         SECTION 2.13. Break Funding  Payments.  In the event of (a) the payment
of any  principal  of any  Eurodollar  Loan  other  than on the  last  day of an
Interest Period applicable thereto (including as a result of an Event of Default
or a Sale of Assets, pursuant to Section 2.08 hereof), (b) the conversion of any
Eurodollar  Loan other than on the last day of the  Interest  Period  applicable
thereto,  (c) the failure to borrow,  convert,  continue or prepay any Revolving
Loan on the date specified in any notice delivered  pursuant hereto  (regardless
of whether such notice may be revoked  under  Section  2.08(b) and is revoked in
accordance therewith) or (d) the assignment of any Eurodollar Loan other than on
the last day of the Interest Period applicable  thereto as a result of a request
by the Borrower  pursuant to Section 2.16, then, in any such event, the Borrower
shall compensate each Lender for the loss, cost and expense attributable to such
event.  In the case of a  Eurodollar  Loan,  such  loss,  cost or expense to any
Lender shall be deemed to include an amount  determined by such Lender to be the
excess,  if any, of (i) the amount of interest  which would have  accrued on the
principal amount of such Loan had such event not occurred,  at the Adjusted LIBO
Rate (in the case of a Eurodollar  Loan) that would have been applicable to such
Loan,  for the  period  from the date of such  event to the last day of the then
current  Interest  Period  therefor  (or,  in the case of a failure  to  borrow,
convert or continue, for the period that would have been the Interest Period for
such  Loan),  over  (ii) the  amount  of  interest  which  would  accrue on such
principal  amount for such period at the  interest  rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable  amount  and period  from other  banks in the  eurodollar  market.  A
certificate  of any Lender  setting forth any amount or amounts that such Lender
is  entitled to receive  pursuant  to this  Section  shall be  delivered  to the
Borrower and shall be conclusive  absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

         SECTION 2.14.  Taxes.  (a) Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and without
deduction  for any  Indemnified  Taxes  or  Other  Taxes;  provided  that if the
Borrower shall be required to deduct any  Indemnified  Taxes or Other Taxes from
such payments,  then (i) the sum payable shall be increased as necessary so that
after  making  all  required  deductions  (including  deductions  applicable  to
additional sums payable under this Section) the  Administrative  Agent or Lender
(as the case may be) receives an amount equal to the sum it would have  received
had no such  deductions  been made, (ii) the Borrower shall make such deductions
and (iii)  the  Borrower  shall pay the full  amount  deducted  to the  relevant
Governmental Authority in accordance with applicable law.

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

                  (c) The Borrower shall indemnify the Administrative  Agent and
each Lender within 10 days after written demand therefor, for the full amount of
any Indemnified  Taxes or Other Taxes paid by the  Administrative  Agent or such
Lender on or with respect to any payment by or on account of any  obligation  of
the Borrower  hereunder  (including  Indemnified Taxes or Other Taxes imposed or
asserted on or  attributable  to amounts  payable  under this  Section)  and any
penalties,  interest and reasonable  expenses arising  therefrom or with respect
thereto,  whether or not such Indemnified Taxes or Other Taxes were correctly or
legally  imposed  or  asserted  by  the  relevant  Governmental   Authority.   A
certificate  as to the amount of such  payment  or  liability  delivered  to the
Borrower  by a Lender,  or by the  Administrative  Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.

                  (d) As soon as  practicable  after any payment of  Indemnified
Taxes or Other Taxes by the Borrower to a Governmental  Authority,  the Borrower
shall deliver to the Administrative  Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment and a copy
of the  return  reporting  such  payment  or  other  evidence  of  such  payment
reasonably satisfactory to the Administrative Agent.

                  (e) Any Foreign  Lender that is entitled to an exemption  from
or reduction of withholding  tax under the law of the  jurisdiction in which the
Borrower is located,  or any treaty to which such  jurisdiction is a party, with
respect to payments under this  Agreement  shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or  reasonably  requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.

         SECTION  2.15.  Payments  Generally;  Pro Rata  Treatment;  Sharing  of
Set-offs.  (a) The Borrower  shall make each  payment  required to be made by it
hereunder  (whether of principal,  interest,  fees, or of amounts  payable under
Section 2.12,  2.13 or 2.14, or  otherwise)  prior to 12:00 noon,  New York City
time, on the date when due, in immediately  available funds,  without set-off or
counterclaim.  Any  amounts  received  after  such time on any date may,  in the
discretion of the  Administrative  Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating  interest thereon.  All
such payments  shall be made to the  Administrative  Agent at its offices at 270
Park Avenue,  New York, New York except that payments pursuant to Sections 2.12,
2.13, 2.14 and 9.03 shall be made directly to the Persons entitled thereto.  The
Administrative  Agent shall distribute any such payments  received by it for the
account of any other  Person to the  appropriate  recipient  promptly  following
receipt  thereof.  If any payment  hereunder shall be due on a day that is not a
Business  Day,  the date for payment  shall be  extended to the next  succeeding
Business  Day,  and,  in the case of any  payment  accruing  interest,  interest
thereon  shall  be  payable  for the  period  of such  extension.  All  payments
hereunder shall be made in dollars.

                  (b) If at any time  insufficient  funds  are  received  by and
available  to the  Administrative  Agent to pay fully all amounts of  principal,
interest  and fees then due  hereunder,  such funds  shall be applied (i) first,
towards  payment of  interest  and fees then due  hereunder,  ratably  among the
parties  entitled  thereto in  accordance  with the amounts of interest and fees
then due to such parties, and (ii) second, towards payment of principal then due
hereunder,  ratably among the parties  entitled  thereto in accordance  with the
amounts of principal then due to such parties.

                  (c) If any Lender shall, by exercising any right of set-off or
counterclaim  or  otherwise,  obtain  payment in respect of any  principal of or
interest  on any of its  Revolving  Loans  resulting  in such  Lender  receiving
payment of a greater  proportion of the aggregate  amount of its Revolving Loans
and accrued interest  thereon than the proportion  received by any other Lender,
then the Lender  receiving such greater  proportion  shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary  so that the  benefit  of all such  payments  shall be  shared  by the
Lenders  ratably in  accordance  with the  aggregate  amount of principal of and
accrued interest on their respective  Revolving Loans and;  provided that (i) if
any such  participations  are  purchased  and all or any  portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery,  without  interest,  and
(ii) the  provisions  of this  paragraph  shall not be construed to apply to any
payment  made by the  Borrower  pursuant to and in  accordance  with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or  participant,  other than to the  Borrower  or any  Subsidiary  or  Affiliate
thereof (as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing  and agrees,  to the extent it may  effectively  do so
under applicable law, that any Lender acquiring a participation  pursuant to the
foregoing  arrangements  may exercise against the Borrower rights of set-off and
counterclaim with respect to such  participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.

                  (d) Unless the Administrative Agent shall have received notice
from  the  Borrower  prior  to the  date  on  which  any  payment  is due to the
Administrative  Agent for the account of the Lenders that the Borrower  will not
make such  payment,  the  Administrative  Agent may assume that the Borrower has
made such payment on such date in accordance  herewith and may, in reliance upon
such assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment,  then each of the Lenders  severally
agrees to repay to the  Administrative  Agent  forthwith on demand the amount so
distributed  to such  Lender  with  interest  thereon,  for  each  day  from and
including the date such amount is distributed to it to but excluding the date of
payment  to the  Administrative  Agent,  at the  greater  of the  Federal  Funds
Effective Rate and a rate determined by the  Administrative  Agent in accordance
with banking industry rules on interbank compensation.

                  (e) If any Lender  shall fail to make any payment  required to
be made by it pursuant to Section  2.04(b) or 2.15(d),  then the  Administrative
Agent may, in its discretion  (notwithstanding  any contrary  provision hereof),
apply  any  amounts  thereafter  received  by the  Administrative  Agent for the
account of such Lender to satisfy such Lender's  obligations under such Sections
until all such unsatisfied obligations are fully paid.

         SECTION 2.16.  Mitigation  Obligations;  Replacement of Lenders. (a) If
any Lender  requests  compensation  under  Section  2.12,  or if the Borrower is
required  to pay  any  additional  amount  to  any  Lender  or any  Governmental
Authority  for the  account of any Lender  pursuant to Section  2.14,  then such
Lender shall use reasonable  efforts to designate a different lending office for
funding or booking its Loans  hereunder or to assign its rights and  obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender,  such  designation or assignment  (i) would  eliminate or reduce
amounts  payable  pursuant to Section  2.12 or 2.14,  as the case may be, in the
future  and (ii)  would not  subject  such  Lender to any  unreimbursed  cost or
expense and would not otherwise be  disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.

                  (b) If any Lender requests compensation under Section 2.12, or
if the  Borrower is required to pay any  additional  amount to any Lender or any
Governmental  Authority for the account of any Lender  pursuant to Section 2.14,
or if any Lender  defaults in its obligation to fund Loans  hereunder,  then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative  Agent,  require  such  Lender to assign  and  delegate,  without
recourse  (in  accordance  with and  subject to the  restrictions  contained  in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such  obligations  (which  assignee may be another
Lender,  if a Lender  accepts such  assignment);  provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the  outstanding  principal of its Loans,  accrued
interest  thereon,  accrued fees and all other amounts  payable to it hereunder,
from the  assignee  (to the extent of such  outstanding  principal  and  accrued
interest and fees) or the Borrower (in the case of all other  amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section  2.12 or payments  required to be made  pursuant to Section  2.14,  such
assignment will result in a reduction in such compensation or payments. A Lender
shall not be required  to make any such  assignment  and  delegation  if,  prior
thereto, as a result of a waiver by such Lender or otherwise,  the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.

         SECTION 2.17.  Use of Proceeds.  The proceeds of the Loans will be used
only (i) for working capital, (ii) for general corporate purposes, not to exceed
in the aggregate amount at any one time  outstanding,  the sum of $2,000,000 and
(iii) for Acquisition  Financings,  subject to the limitation that not more than
$7,500,000 of the total  Commitments may be used at any one time for Acquisition
Financings.  No part of the proceeds of any Loan will be used,  whether directly
or  indirectly,  for  any  purpose  that  entails  a  violation  of  any  of the
Regulations of the Board, including Regulations G, U and X.




                                   ARTICLE III

                         Representations and Warranties

         The Borrower represents and warrants to the Lenders that:

         SECTION 3.01.  Organization;  Powers.  (a) Each of the Borrower and its
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the  jurisdiction  of its  organization,  has all  requisite  power  and
authority  to carry on its  business  as now  conducted  and,  except  where the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good  standing  in, every  jurisdiction  where such  qualification  is
required.

                  (b) Schedule 3.01(b) attached hereto is a complete and correct
list  of the  Borrower's  Subsidiaries  (corporate  or  other)  which  correctly
specifies as to each such Subsidiary (a) its legal name, (b) the jurisdiction of
its  organization,  (c) each other  jurisdiction  in which it is qualified to do
business,  (d) the authorized Shares of such Subsidiary (specifying the class or
classes thereof) and the number of such Shares outstanding,  (e) the number (and
percentage)  of such  outstanding  Shares  owned by the  Borrower  and its other
Subsidiaries  and (f) the name of each other  holder,  if any,  of such  Shares,
together with the number (and percentage) held by such other holder.

         SECTION  3.02.  Authorization;  Enforceability.  The  Transactions  are
within the  Borrower's  corporate  powers and have been duly  authorized  by all
necessary  corporate and, if required,  stockholder  action.  This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal,  valid
and binding  obligation of the  Borrower,  enforceable  in  accordance  with its
terms, subject to applicable bankruptcy, insolvency, reorganization,  moratorium
or other laws  affecting  creditors'  rights  generally  and  subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.

         SECTION 3.03. Governmental  Approvals;  No Conflicts.  The Transactions
(a) do not require any consent or approval of,  registration  or filing with, or
any other  action  by,  any  Governmental  Authority,  except  such as have been
obtained  or made and are in full force and  effect,  (b) will not  violate  any
applicable  law or  regulation or the charter,  by-laws or other  organizational
documents  of  the  Borrower  or any of its  Subsidiaries  or any  order  of any
Governmental  Authority,  (c) will not violate or result in a default  under any
indenture, agreement or other instrument binding upon the Borrower or any of its
Subsidiaries  or its assets,  or give rise to a right  thereunder to require any
material payment to be made by the Borrower or any of its Subsidiaries,  and (d)
will not result in the  creation or  imposition  of any Lien on any asset of the
Borrower or any of its Subsidiaries,  other than a lien on the Collateral of the
Borrower and its Subsidiaries pursuant to the Security Agreements.

         SECTION 3.04. Financial Condition;  No Material Adverse Change. (a) The
Borrower has heretofore  furnished to the Lenders its consolidated balance sheet
and statements of income,  stockholders  equity and cash flows (i) as of and for
the fiscal year ended February 28, 1996,  reported on by Deloitte & Touche, LLP,
independent  public  accountants,  and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended  November 30, 1996,  certified by its chief
financial  officer.  Such financial  statements  present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP,  subject to year-end audit  adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.

                  (b)  Since  November  30,  1996,  there  has been no  material
adverse  change in the  business,  assets,  operations,  prospects or condition,
financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole.

         SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries
has good title to, or valid  leasehold  interests  in, all its real and personal
property  material to its business,  including the Collateral,  except for minor
defects in title that do not interfere  with its ability to conduct its business
as  currently  conducted  or to  utilize  such  properties  for  their  intended
purposes.

                  (b) Each of the  Borrower  and its  Subsidiaries  owns,  or is
licensed  to use,  all  trademarks,  tradenames,  copyrights,  patents and other
intellectual  property  material  to its  business,  and the use  thereof by the
Borrower and its  Subsidiaries  does not  infringe  upon the rights of any other
Person,  except  for  any  such  infringements  that,  individually  or  in  the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.

         SECTION 3.06.  Litigation and Environmental  Matters.  (a) There are no
actions,  suits or  proceedings  by or before  any  arbitrator  or  Governmental
Authority  pending  against or, to the  knowledge  of the  Borrower,  threatened
against or  affecting  the Borrower or any of its  Subsidiaries  (i) as to which
there is a  reasonable  possibility  of an adverse  determination  and that,  if
adversely  determined,  could  reasonably  be expected,  individually  or in the
aggregate,  to result in a Material  Adverse  Effect  (other than the  Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.

                  (b) Except for the  Disclosed  Matters and except with respect
to  any  other  matters  that,  individually  or in  the  aggregate,  could  not
reasonably  be  expected  to result in a Material  Adverse  Effect,  neither the
Borrower  nor  any of its  Subsidiaries  (i)  has  failed  to  comply  with  any
Environmental Law or to obtain,  maintain or comply with any permit,  license or
other approval required under any Environmental  Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental  Liability or (iv) knows of any basis for any Environmental
Liability.

                  (c) Since the date of this Agreement, there has been no change
in the status of the Disclosed  Matters that,  individually or in the aggregate,
has resulted in, or materially  increased the likelihood of, a Material  Adverse
Effect.

         SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower
and its  Subsidiaries is in compliance with all laws,  regulations and orders of
any Governmental  Authority applicable to it or its property and all indentures,
agreements and other instruments  binding upon it or its property,  except where
the failure to do so, individually or in the aggregate,  could not reasonably be
expected to result in a Material Adverse Effect.
No Default has occurred and is continuing.

         SECTION  3.08.  Investment  and  Holding  Company  Status.  Neither the
Borrower nor any of its  Subsidiaries is (a) an "investment  company" as defined
in, or subject to regulation under, the Investment  Company Act of 1940 or (b) a
"holding  company" as defined  in, or subject to  regulation  under,  the Public
Utility Holding Company Act of 1935.

         SECTION  3.09.  Taxes.  Each of the Borrower and its  Subsidiaries  has
timely filed or caused to be filed all Tax returns and reports  required to have
been  filed and has paid or caused  to be paid all Taxes  required  to have been
paid by it,  except  (a)  Taxes  that  are  being  contested  in good  faith  by
appropriate  proceedings  and for  which the  Borrower  or such  Subsidiary,  as
applicable,  has set aside on its books  adequate  reserves or (b) except as set
forth on Schedule 3.09 and (c) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

         SECTION  3.10.  ERISA.  No ERISA Event has  occurred  or is  reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material  Adverse  Effect.  The  expected  post  retirement  benefit
obligation (determined as of the last day of the most recently ended fiscal year
of  the  Borrower  in  accordance  with  Financial  Accounting  Standards  Board
Statement No. 106,  without regard to liabilities  attributable  to continuation
coverage mandated by section 4980B of the Code) of the Borrower is $0.

         SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
agreements,  instruments and corporate or other  restrictions to which it or any
of its  Subsidiaries  is  subject,  and all  other  matters  known to it,  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or  other  information  furnished  by  or on  behalf  of  the  Borrower  to  the
Administrative  Agent or any Lender in connection  with the  negotiation of this
Agreement  or  delivered   hereunder  (as  modified  or  supplemented  by  other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements  therein,  in the light
of the circumstances under which they were made, not misleading;  provided that,
with respect to projected  financial  information,  the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be  reasonable  at the time.  Such  projections  continue  to  represent  the
Borrower's  present best  estimate of the future  financial  performance  of the
Borrower  and  its  Subsidiaries,  subject  to the  activities  inherent  in the
Borrower's  business,  including,  without limitation,  acquisitions and project
timing.  There is no guarantee that any of such projections will be attained and
actual  results  may vary  from  such  projections  and such  variations  may be
material.

         .  Schedule 3.12 attached hereto correctly describes:sactions with 
Affiliates and Leases

                  (a) all Funded Debt and/or Current Debt of the Borrower and/or
         any of its  Subsidiaries  to be outstanding  immediately  following the
         Effective  Date and/or all  agreements  pursuant to which the  Borrower
         and/or  any of its  Subsidiaries  has (or  have) the right to incur the
         same, and identifies any collateral  which secures (or will secure) the
         same;

                  (b) all Liens to which any of the properties and assets of the
         Borrower  and/or any of its  Subsidiaries  will be subject  immediately
         following  the  Effective  Date  (other  than  those  of the  character
         described in section  6.04(b)) which  individually  or in the aggregate
         secure Indebtedness of $50,000 or more;

                  (c) all  Investments  (and all agreements  and  commitments to
         make  Investments) of the Borrower and/or any of its Subsidiaries to be
         owned or held (or in effect)  immediately  following the Effective Date
         (except  for  Investments  described  in clauses (b) through (i) of the
         definition of Permitted Investments);

                  (d) each of the  Affiliates  of the  Borrower  (other than its
         Subsidiaries)  and  of  each  of its  Subsidiaries,  and  all  material
         transactions  with such Affiliates  which were  consummated  during the
         12-month  period ended on the  Effective  Date or which the Borrower or
         any  Subsidiary  is now  obligated or now intends to  consummate at any
         time in the future,  other than any such transaction  consummated or to
         be consummated in the ordinary  course of business and on  arm's-length
         terms; and

                  (e) each  material  lease,  other than Capital  Leases,  under
         which the  Borrower or any of its  Subsidiaries  is lessee or sublessee
         and,  with  respect to each such  lease,  the name of the  lessor,  the
         lessee or sublessee,  a general description of the property leased, the
         annual Rental Obligations payable thereunder and the term thereof.

         SECTION  3.13.  Business,  etc. The Borrower and its  Subsidiaries  are
engaged  in  the  business  of  engineering,  environmental,   geotechnical  and
construction   materials   and  testing   and   consulting,   construction   and
environmental project management,  information technology consulting and related
services (collectively,  the "Business"), as further described in the Borrower's
Confidential   Private  Placement  Offering   Memorandum  dated  December  1996,
including all exhibits and appendices thereto, prepared by the Borrower with the
assistance of Chase Securities, Inc., a true, correct and complete copy of which
has been furnished to the Administrative Agent.

                                   ARTICLE IV

                                   Conditions

         SECTION 4.01.  Effective  Date. The  obligations of the Lenders to make
Loans hereunder  shall not become  effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):

                  (a) The  Administrative  Agent  (or its  counsel)  shall  have
         received  from each  party  hereto  either  (i) a  counterpart  of this
         Agreement  signed  on  behalf of such  party or (ii)  written  evidence
         satisfactory to the  Administrative  Agent (which may include  telecopy
         transmission  of a signed  signature page of this  Agreement) that such
         party has signed a counterpart of this Agreement.

                  (b) The  Administrative  Agent shall have received a favorable
         written opinion (addressed to the Administrative  Agent and the Lenders
         and dated the  Effective  Date) of  Messrs.  Kaufmann,  Feiner,  Yamin,
         Gildin & Robbins,  LLP,  counsel for the Borrower  and the  Guarantors,
         substantially in the form of Exhibit B, and covering such other matters
         relating to the Borrower,  this Agreement,  the other Loan Documents or
         the Transactions as the Required Lenders shall reasonably request.  The
         Borrower hereby requests such counsel to deliver such opinion.

                  (c)  The   Administrative   Agent  shall  have  received  such
         documents and certificates as the  Administrative  Agent or its counsel
         may reasonably request relating to the organization, existence and good
         standing of the Borrower, the authorization of the Transactions and any
         other legal  matters  relating to the Borrower,  this  Agreement or the
         Transactions,   all  in  form  and   substance   satisfactory   to  the
         Administrative Agent and its counsel.

                  (d)  The   Administrative   Agent   shall   have   received  a
         certificate,  dated the Effective Date and signed by the  President,  a
         Vice  President  or a  Financial  Officer of the  Borrower,  confirming
         compliance  with the  conditions set forth in paragraphs (a) and (b) of
         Section 4.02.

                  (e) The Administrative  Agent shall have received all fees and
         other  amounts  due and  payable  on or  prior to the  Effective  Date,
         including,  to the  extent  invoiced,  reimbursement  or payment of all
         out-of-pocket  expenses  required  to be  reimbursed  or  paid  by  the
         Borrower hereunder.

                  (f) The Administrative Agent shall have received evidence that
         the Notes have been purchased  pursuant to the Note Agreements and that
         the Net Proceeds  received  therefrom by the Borrower have been applied
         to the payment in full of the Old Bank Debt.

                  (g)  The  Administrative  Agent  shall  have  received  a duly
         executed and acknowledged  Promissory Note in favor of each Lender, the
         Guaranties,  the  Security  Agreements  and the  Collateral  Agency and
         Intercreditor Agreement.

                  (h) The Administrative Agent shall have received evidence that
         the UCC-1 Financing Statements have been filed and/or recorded so as to
         perfect the first priority lien created by the Security  Agreements and
         that such liens are  subject to no prior or pari passu lien except such
         other liens as may be  permitted  under  Section  6.02.  UCC  Financing
         Statements   (naming  the  Borrower  and  each  of  its   Subsidiaries,
         respectively,  as Debtor and the  Collateral  Agent as  Secured  Party)
         shall be in proper form for filing in the offices specified on Schedule
         4.01(h).

                  (i) The Administrative Agent shall have received lien searches
         on the Borrower  and each of its  Subsidiaries,  respectively,  for the
         applicable  offices in each jurisdiction in which any of the Collateral
         shall be  located  at or after the  Effective  Date,  as  specified  on
         Schedule  4.01(h) which searches  shall not reveal any prior  financing
         statement  covering  any portion or all of the  Collateral  (other than
         financing  statements  to be  terminated  at/or prior to the  Effective
         Date).

                  (j) The  Administrative  Agent shall have received evidence of
         compliance by the Borrower and each of its Subsidiaries,  respectively,
         with the insurance requirements of Section 5.05.


                  (k) The  Administrative  Agent shall have received at/or prior
         to the Effective Date, the additional  documents  specified on Schedule
         4.01(l) attached hereto.

The  Administrative  Agent  shall  notify the  Borrower  and the  Lenders of the
Effective Date, and such notice shall be conclusive and binding.

         SECTION 4.02.  Each Credit Event. The obligation of each Lender to make
a Loan on  the occasion  of any Borrowing  is subject to the satisfaction of the
following conditions:

                  (a) The  representations  and  warranties  of the Borrower set
forth in this Agreement  shall be true and correct on and as of the date of such
Borrowing.

                  (b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.

         Each  Borrowing  shall be deemed to  constitute  a  representation  and
warranty by the  Borrower on the date  thereof as to the  matters  specified  in
paragraphs (a) and (b) of this Section and shall be confirmed by delivery to the
Administrative Agent of a certificate signed by the President,  a Vice President
or a Financial Officer of the Borrower.

         SECTION 4.03. Loans For Acquisition  Financing.  The obligation of each
Lender to make any  Loan,  the  proceeds  of which  are to be used  directly  or
indirectly for an  Acquisition  Financing  which exceeds in the aggregate,  with
respect to the stock or assets of a single Person,  $500,000,  is subject to the
receipt by each Lender of a fully  executed  copy of the purchase  agreement and
all other documents related to such Acquisition Financing.


                                    ARTICLE V

                              Affirmative Covenants

         Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been paid
in full the Borrower covenants and agrees with the Lenders that:

         SECTION 5.01.  Financial Statements and Other Information. The Borrowe
will furnish to the Administrative Agent and each Lender:

                  (a) within 105 days after the end of each  fiscal  year of the
Borrower,  its audited  consolidated  balance  sheet and related  statements  of
operations,  stockholders'  equity  and cash flows as of the end of and for such
year,  setting  forth  in each  case in  comparative  form the  figures  for the
previous  fiscal year,  all reported on by  independent  public  accountants  of
recognized national standing (without a "going concern" or like qualification or
exception  and without any  qualification  or  exception as to the scope of such
audit) to the effect that such consolidated  financial statements present fairly
in all material  respects the  financial  condition and results of operations of
the  Borrower  and its  consolidated  Subsidiaries  on a  consolidated  basis in
accordance with GAAP  consistently  applied and within 130 days after the end of
each fiscal year of the Borrower, internally prepared consolidating statements;

                  (b)  within 50 days  after the end of each of the first  three
fiscal quarters of each fiscal year of the Borrower,  its  consolidated  balance
sheet and related statements of operations,  stockholders' equity and cash flows
as of the end of and for such fiscal quarter and the then elapsed portion of the
fiscal year  (including  the financial  statement of ATC Insys  Technology  Inc.
individually and as consolidated with the Borrower),  setting forth in each case
in comparative form the figures for the corresponding  period or periods of (or,
in the case of the balance  sheet,  as of the end of) the previous  fiscal year,
all  certified  by one of its  Financial  Officers as  presenting  fairly in all
material  respects the  financial  condition  and results of  operations  of the
Borrower and its consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit adjustments and
the absence of footnotes;

                  (c)  concurrently  with any delivery of  financial  statements
under  clause (a) or (b) above,  a  certificate  of a  Financial  Officer of the
Borrower (i)  certifying  as to whether a Default has occurred and, if a Default
has occurred, specifying the details thereof and any action taken or proposed to
be  taken  with  respect  thereto,   (ii)  setting  forth  reasonably   detailed
calculations  demonstrating  compliance with the covenants set forth in Sections
5.09, and (iii) stating whether any change in GAAP or in the application thereof
has occurred since the date of the audited financial  statements  referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;

                  (d)  concurrently  with any delivery of  financial  statements
under clause (a) above, a certificate  of the  accounting  firm that reported on
such financial  statements  stating whether they obtained  knowledge  during the
course of their  examination of such financial  statements of any Default (which
certificate  may be  limited  to the  extent  required  by  accounting  rules or
guidelines);

                  (e) within 30 days after the end of each fiscal quarter of the
Borrower,  a quarterly  schedule of Accounts  Receivable of the Borrower and its
Subsidiaries, in form and substance satisfactory to the Administrative Agent and
each  Lender,  current as of the close of business on the last  business  day of
such quarter and certified by the Financial Officer, showing,  separately, those
Accounts  Receivable which are more than 30, 60 or 90 days old, together with an
Accounts Receivable reconciliation;

                  (f) within 30  days after  the  end of each month, a Borrowing
Certificate;

                  (g) promptly after the same become publicly available,  copies
of all periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange  Commission,  or
any  Governmental  Authority  succeeding  to any or all of the functions of said
Commission,  or with any national  securities  exchange,  or  distributed by the
Borrower to its shareholders generally, as the case may be; and

                  (h)  promptly  following  any  request  therefor,  such  other
information  regarding the operations,  business affairs and financial condition
of the  Borrower  or any  Subsidiary,  or  compliance  with  the  terms  of this
Agreement, as the Administrative Agent or any Lender may reasonably request.

         SECTION 5.02.  Notices of Material Events. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:

                  (a) the occurrence of any Default;

                  (b)  the  filing  or  commencement  of  any  action,  suit  or
         proceeding  by or  before  any  arbitrator  or  Governmental  Authority
         against or affecting  the Borrower or any  Affiliate  thereof  that, if
         adversely  determined,  could  reasonably  be  expected  to result in a
         Material Adverse Effect;

                  (c) the occurrence of any ERISA Event that,  alone or together
         with any other ERISA Events that have  occurred,  could  reasonably  be
         expected to result in liability of the Borrower and its Subsidiaries in
         an aggregate amount exceeding $250,000; and

                  (d) any other development that results in, or could reasonably
         be expected to result in, a Material Adverse Effect.

Each notice  delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or  development  requiring such notice and any action taken
or proposed to be taken with respect thereto.

         SECTION 5.03.(a) Existence; Conduct of Business. The Borrower will, and
will  cause  each of its  Subsidiaries  to,  do or cause  to be done all  things
necessary  to  preserve,  renew  and keep in full  force  and  effect  its legal
existence and the rights, licenses,  permits, privileges and franchises material
to the conduct of its business;  provided that the foregoing  shall not prohibit
any merger,  consolidation,  liquidation or dissolution  permitted under Section
6.03.

                  (b) The Borrower will and will cause each of its  Subsidiaries
to engage only in the  Business  (and in other lines of business  related to the
Business) and engage principally in the environmental consulting and engineering
component of the Business.

         SECTION 5.04. Payment of Obligations. The Borrower will, and will cause
each of its  Subsidiaries  to, pay its  obligations,  including Tax liabilities,
that,  if not paid,  could result in a Material  Adverse  Effect before the same
shall become  delinquent or in default,  except where (a) the validity or amount
thereof is being  contested in good faith by  appropriate  proceedings,  (b) the
Borrower or such  Subsidiary has set aside on its books  adequate  reserves with
respect  thereto in  accordance  with GAAP and (c) the  failure to make  payment
pending such contest  could not  reasonably  be expected to result in a Material
Adverse Effect.

         SECTION 5.05. Maintenance of Properties;  Insurance. The Borrower will,
and will cause each of its  Subsidiaries  to, (a) keep and maintain all property
material to the conduct of its  business in good  working  order and  condition,
ordinary wear and tear excepted,  and (b) maintain,  with financially  sound and
reputable insurance companies,  insurance in such amounts and against such risks
as are  customarily  maintained  by  companies  engaged  in the same or  similar
businesses operating in the same or similar locations.

         SECTION 5.06. Books and Records;  Inspection Rights. The Borrower will,
and will cause each of its  Subsidiaries  to,  keep  proper  books of record and
account in which full,  true and correct  entries are made of all  dealings  and
transactions in relation to its business and activities.  The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the  Administrative  Agent or any Lender (provided that any such  representative
other than an employee,  attorney or accountant for the Administrative  Agent or
any Lender, shall be subject to the reasonable approval of the Borrower prior to
making any such visit, inspection or examination), upon reasonable prior notice,
and at the expense of the  Borrower,  to visit and inspect  its  properties,  to
examine  and make  extracts  from its  books and  records,  and to  discuss  its
affairs,  finances and condition with its officers and independent  accountants,
all at such reasonable times and as often as reasonably requested,  but not less
frequently than annually,  and provided that no Event of Default exists,  and/or
no circumstances  shall have arisen which shall  necessitate a greater volume of
work by such representatives than is presently anticipated, the cost of any each
audit shall not exceed $15,000.

         SECTION 5.07.  Compliance  with Laws. The Borrower will, and will cause
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority applicable to it or its property, except where the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

         SECTION 5.08 Guaranties by Future Subsidiaries. The Borrower will cause
each future  Subsidiary  to execute and  deliver to the  Administrative  Agent a
Guaranty, Security Agreement and appropriate Financing Statements.

         SECTION 5.09. Certain Financial Covenants.  The Borrower will, and will
cause its Subsidiaries to:

                  (a) Interest  Expense  Coverage Ratio.  Maintain at the end of
         each fiscal quarter of the Borrower a ratio of (i) Consolidated  EBITDA
         for  the  four   consecutive   fiscal   quarters  then  ended  to  (ii)
         Consolidated  Interest Expense during such period of not less than 3.00
         to 1.00.

                  (b)      Fixed Charge Coverage Ratio.  Maintain at the end of
        each fiscal quarter of the Borrower a Consolidated Fixed Charge Coverage
        Ratio of not less than 2.50 to 1.00.

                  (c)      Consolidated Net Income.  Maintain  Consolidated  Net
         Income  in  excess of  $1.00 for each period of four consecutive fiscal
         quarters of the Borrower.

                  (d)  Minimum  Consolidated  Net Worth.  Maintain at the end of
         each fiscal quarter of the Borrower  Consolidated Net Worth of not less
         than the sum of (i) 80% of the  Consolidated  Net Worth of the Borrower
         at  February  28,  1997 plus (ii) an amount  equal to 50% of  aggregate
         Consolidated  Net Income (but only if a positive number) for the period
         commencing  on March 1, 1997 and ending on the last day of such  fiscal
         quarter.

                  (e) Minimum Consolidated Working Capital.  Maintain at the end
         of each fiscal year of the Borrower Consolidated Working Capital of not
         less than $24,000,000 through February 28, 1998, which minimum required
         amount  shall  increase  by  $2,000,000  per year as of the end of each
         fiscal year thereafter.

         SECTION  5.10.  Accounts.  The  Borrower  and  its  Subsidiaries  shall
maintain at all times their primary  depositary  and operating  accounts  (which
shall not be deemed to include the  investment  accounts of the Borrower and its
Subsidiaries) with the Collateral Agent, provided that each active office of the
Borrower and its Subsidiaries may maintain with a depositary  institution  other
than the  Collateral  Agent a separate  operating  account  for each such active
office,  provided that the amount on deposit in any such operating account shall
at no time exceed $10,000.

                                   ARTICLE VI

                              Additional Covenants

         Until the  Commitments  have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Borrower covenants and agrees with the Lenders that:

         SECTION 6.01.  Discount or Sale of Receivables.  The Borrower will not,
and will not permit any Subsidiary of the Borrower,  directly or indirectly,  to
discount or sell any of its accounts receivable, except that the Borrower or any
Subsidiary of the Borrower may settle  doubtful  accounts in the ordinary course
of business or grant  discounts in the ordinary  course of business for early or
timely payment of accounts receivable, and the Borrower and its Subsidiaries may
collaterally  assign their  accounts  receivable as security for the  Borrower's
obligations  under this Agreement and under the Private  Placement  Documents to
the extent permitted under Section 6.04.

         SECTION  6.02.  Funded Debt,  Current Debt and  Preferred  Shares.  The
Borrower  will not,  and will not  permit any  Subsidiary  of the  Borrower  to,
create,  assume,  incur,  guarantee,  or in any  manner  become  or be liable in
respect of any Funded Debt or Current Debt (it being agreed that for purposes of
this Section 6.02 contingent  Indebtedness shall be deemed to be incurred at the
time, if any, that such  contingent  Indebtedness  first becomes  Funded Debt or
Current Debt,  notwithstanding that such contingent  Indebtedness was originally
incurred at an earlier time) or issue,  sell or have  outstanding  any Preferred
Shares other than:

                  (a)      in the case of the Borrower and its Subsidiaries:

                           (i)      Funded Debt evidenced by the Notes  and  the
                  Note Guarantees;

                           (ii) Funded  Debt,  Current  Debt and,  solely in the
                  case of  Subsidiaries  of the  Borrower  (but not the Borrower
                  itself),  Preferred  Shares,  in each case  outstanding on the
                  date hereof and as described on Schedule 3.12 attached  hereto
                  (but  excluding  any Funded Debt or Current  Debt  outstanding
                  under this Agreement);

                           (iii)   Funded  Debt  or  Current   Debt  under  this
                  Agreement,  provided that the aggregate  principal amount (and
                  face  amount of any letters of credit) of such Funded Debt and
                  Current  Debt  permitted by this clause (iii) shall at no time
                  exceed $15,000,000;

                           (iv) additional Funded Debt, Current Debt and, solely
                  in the  case of  Subsidiaries  of the  Borrower  (but  not the
                  Borrower  itself),  Preferred  Shares not otherwise  permitted
                  under this section 6.02 (including  Funded Debt and/or Current
                  Debt  incurred  pursuant  to this  Agreement  in excess of the
                  amount  permitted  by clause  (iii)  above and also  including
                  Funded Debt or Current  Debt  incurred  to extend,  refinance,
                  refund or renew any  outstanding  Funded Debt  and/or  Current
                  Debt  otherwise   permitted  under  this  section  6.02(a)  or
                  Preferred  Shares  issued in  exchange  for  Preferred  Shares
                  otherwise  permitted  under this  section  6.02(a)),  provided
                  that, both at the time of and immediately  after giving effect
                  to the  incurrence or issuance  thereof and the  retirement of
                  any  Indebtedness or Preferred  Shares which are  concurrently
                  being retired:

                                    (A)     no Default or Event of Default shall
                           have occurred and be continuing; and

                                    (B)     Consolidated Total Debt shall not
                           exceed 55% of Consolidated Capitalization; and

                                    (C) in the case of additional Funded Debt or
                           Current Debt being  incurred by a  Subsidiary  of the
                           Borrower  or  Preferred  Shares  being  issued  by  a
                           Subsidiary  of  the  Borrower,  the  sum  (x)  of the
                           aggregate  Total Debt of the Borrower's  Subsidiaries
                           and  (y)  the  aggregate  liquidation  value  of  all
                           outstanding   Preferred   Shares  of  the  Borrower's
                           Subsidiaries shall not exceed 10% of Consolidated Net
                           Worth at the end of the immediately  preceding fiscal
                           quarter of the Borrower; and

                  (b) in the case of any  Subsidiary  of the  Borrower,  Current
Debt  or  Funded  Debt  owed to the  Borrower  or to a  Wholly-Owned  Subsidiary
Guarantor or Preferred Shares owned by the Borrower or a Wholly-Owned Subsidiary
Guarantor.

         For the purposes of this section  6.02, if at any time any Person shall
become a Subsidiary of the  Borrower,  such  Subsidiary  shall be deemed to have
issued at such time all Preferred  Shares and to have become liable at such time
in respect of all Current Debt and Funded Debt which such Subsidiary  shall have
outstanding  at such time. The renewal,  extension,  refinancing or refunding of
any Current Debt or Funded Debt or the issuance of Preferred  Shares in exchange
for  Preferred  Shares  permitted  by this  section  6.02 shall  constitute  the
issuance of additional  Current Debt,  Funded Debt or Preferred  Shares,  as the
case may be,  which is, in turn,  subject to the  limitation  of the  applicable
provisions of this section 6.02.

         The  Borrower  will not,  and will not  permit  any  Subsidiary  of the
Borrower to, become  obligated  under any Guarantee  (other than service related
bonds or indemnity  warranties  securing the  performance by the Borrower or its
Subsidiaries  in the ordinary  course of the  Borrower's  or such  Subsidiaries'
Business)  unless as of the date such  Guarantee  is entered  into or  otherwise
created,  assumed or incurred, (x) the maximum amount which the Borrower or such
Subsidiary  may become  obligated to pay thereunder is then known and determined
and (y) to the extent such  Guarantee  constitutes  Funded Debt or Current Debt,
such  Guarantee  may then be  entered  into or  otherwise  created,  assumed  or
incurred in compliance with this section 6.02.

         SECTION 6.03.     Limitation on Restricted Investments and Restricted
Payments.

                  (a) The  Borrower  will not,  and will not  permit  any of its
Subsidiaries  to,  directly or indirectly,  at any time,  authorize,  declare or
make,  or  incur  any  liability  to  make,  any  Restricted  Investment  or any
Restricted  Payment,  unless in each  case both at the time of and after  giving
effect to such action:

                           (i)  the  sum  of  (x)  the  aggregate  value  of all
                  Restricted  Investments  of the Borrower and its  Subsidiaries
                  (valued,   in  the  manner   provided   in  section   6.03(d),
                  immediately  after such action) plus (y) the aggregate  amount
                  of  all   Restricted   Payments  of  the   Borrower   and  its
                  Subsidiaries, declared or made during the period commencing on
                  the Closing  Date and ending on the date such action is taken,
                  would not exceed the sum of:

                                    (A) the sum of (i)  $2,000,000  and (ii) 50%
                           of aggregate  Consolidated  Net Income (but only if a
                           positive  number) for the period  commencing on March
                           1,  1997  and  ending  on the  last  day of the  most
                           recently  completed  fiscal  quarter of the  Borrower
                           immediately  prior to the date  such  action is taken
                           (the "Test Period"), plus

                                    (B)     the aggregate amount of Net Proceeds
                           of Capital Stock for the Test Period; and

                           (ii) the Borrower would be permitted to become liable
                  in  respect of at least  $1.00 of  additional  Funded  Debt or
                  Current Debt under section 6.02(a)(iv); and

                           (iii)    no Default or Event of Default would exist.

                  (b) The  Borrower  will not,  and will not  permit  any of its
Subsidiaries  to, enter into or be or become bound by any agreement  (other than
this Agreement or the Note Agreements)  which encumbers or restricts,  or create
or otherwise  cause or suffer to exist or become  effective any  encumbrance  or
restriction upon, the right or ability of any Subsidiary of the Borrower to:

     (i) pay  dividends  or make any other  distribution  on its  Shares (or any
     participation  in its profits)  owned by the Borrower or any  Subsidiary of
     the Borrower;

     (ii) pay any  Indebtedness  owed to the Borrower or any  Subsidiary  of the
     Borrower;

     (iii) make loans or  advances  to or  Investments  in the  Borrower  or any
     Subsidiary of the Borrower; or

     (iv)  transfer  any of its  properties  or  assets to the  Borrower  or any
     Subsidiary of the Borrower.

                  (c) Each Person  which  becomes a  Subsidiary  of the Borrower
after the  Effective  Date will be deemed to have made,  on the date such Person
becomes a Subsidiary of the Borrower,  all Restricted Investments of such Person
in  existence  on such  date.  Investments  in any  Person  that  ceases to be a
Subsidiary of the Borrower  after the Closing Date (but in which the Borrower or
another  Subsidiary  continues to maintain an Investment) will be deemed to have
been made on the date on which  such  Person  ceases to be a  Subsidiary  of the
Borrower.

                  (d) For  purposes  of this  section  6.03 and for  purposes of
clauses (i) and (j) of the definition of Permitted Investment, as of any date of
determination, each Investment shall be valued at the greater of:

                           (i)      the  amount  at  which  such  Investment  is
                           initially shown on the books of  the  Borrower or any
                           of its Subsidiaries (or zero if  such  Investment  is
                           not shown on any such books); and

                           (ii)     either

                                    (A) in the  case  of  any  Guarantee  of the
                           obligation  of  any  Person,  the  amount  which  the
                           Borrower or any of its  Subsidiaries  has paid (or is
                           obligated to pay) on account of such  obligation less
                           any recoupment by the Borrower or such  Subsidiary of
                           any such payments, or

                                    (B) in the case of any other Investment, the
                           excess  of  (x)  the   greater   of  (1)  the  amount
                           originally  entered on the books of the  Borrower  or
                           any of its Subsidiaries  with respect thereto and (2)
                           the cost  thereof to the  Borrower or its  Subsidiary
                           over (y) any return of capital  (after  income  taxes
                           applicable  thereto) upon such Investment through the
                           sale or other liquidation  thereof or part thereof or
                           otherwise.

         SECTION  6.04.  Liens The  Borrower  will not,  and will not permit any
Subsidiary of the Borrower to, create, assume, incur or suffer to exist any Lien
in respect of any property of any character (whether owned on the date hereof or
hereafter acquired) other than:

(a)  Liens on the Collateral securing the Promissory Notes;

(b)  Liens (other than any Lien created by any  Environmental  Law or by Section
     4068 of ERISA),  charges  and  encumbrances  which (i) are  incurred in the
     ordinary  course of business and which are incidental to the conduct of the
     business of the Borrower and its  Subsidiaries and the ownership of its and
     their  property,  (ii) are not incurred in connection with the borrowing of
     money or the obtaining of advances or credit, (iii) do not in the aggregate
     materially  detract  from the value of the  property of the Borrower or its
     Subsidiaries  or materially  impair the use thereof in the operation of its
     or their business and (iv) do not (and could not reasonably be expected to)
     materially adversely affect the rights of the Lenders;

(c)  Liens on the Collateral  securing  Funded Debt and/or Current Debt or other
     obligations  of  the  Borrower  and  its  Subsidiaries  under  the  Private
     Placement  Documents,  in each case to the extent  that such Funded Debt or
     Current Debt is permitted under section 6.02(a) (i) or (iv);

(d)  any Lien  existing  on the date hereof and  referred  to on  Schedule  3.12
     attached hereto (excluding any Lien securing  obligations under the Private
     Placement Documents) and the replacement,  extension or renewal of any such
     Lien upon or in the same property theretofore subject thereto, in each case
     as security for the Funded Debt or Current Debt originally  secured by such
     existing  Lien  (without  increase in the amount or change in any direct or
     contingent obligor) of such Funded Debt or Current Debt;

(e)  any Lien constituting a purchase money security interest (including Capital
     Leases and any other title retention or deferred  purchase device) incurred
     in the  ordinary  course of  business  to finance  the  acquisition  and/or
     improvement   (or  incurred   within  six  months  of  the  acquisition  or
     improvement,  as the  case  may  be)  of any  real  property  or  equipment
     (including  any Lien on real property or equipment if such Lien is incurred
     to finance the  acquisition  by the  Borrower and its  Subsidiaries  of the
     operating  assets  (including  such real property and equipment) of a third
     party), including, in the case of any Person which is to be acquired by the
     Borrower and thereafter  becomes a Subsidiary,  any such Lien existing upon
     or in such  Person's  real  property or  equipment  at the time such Person
     becomes a  Subsidiary,  provided  that (i) such Lien does not  extend to or
     cover any  property of  --------  the  Borrower or any of its  Subsidiaries
     other  than the  property  being  leased or  acquired,  (ii) the  aggregate
     principal amount of Indebtedness  secured thereby shall not exceed the cost
     of such property and (iii) if the Indebtedness  secured thereby constitutes
     Funded Debt or Current Debt,  such Funded Debt or Current Debt is permitted
     under section 6.02(a)(iv); and

(f)  additional  Liens  upon any of the  assets  of the  Borrower  or any of its
     Subsidiaries (other than the Collateral) not otherwise permitted under this
     section 6.04 (other than additional  Liens securing  obligations  under the
     Private  Placement  Documents),  provided that the aggregate  value of such
     assets so subject to such Liens at no time shall  exceed an amount equal to
     10% of Consolidated Net Worth as of the end of the most recently  completed
     fiscal quarter of the Borrower.

Notwithstanding anything to the contrary contained herein, in no event shall the
Borrower  create,  assume,  incur or suffer to exist  any  Lien,  or permit  any
Subsidiary of the Borrower to create, assume, incur or suffer to exist any Lien,
on any of the  Collateral  except Liens  permitted  under clauses (a) and (c) of
this section 6.04, and existing Liens described on Schedule 3.12 attached hereto
(which Schedule shall  specifically  describe the Collateral  encumbered by such
existing Liens).

         SECTION 6.05. Transactions with Affiliates.  The Borrower will not, and
will not permit any  Subsidiary  of the Borrower to,  engage in any  transaction
(including, without limitation, the purchase, sale or exchange of any properties
and assets or the rendering of any  services)  with an Affiliate of the Borrower
or of such Subsidiary on terms less favorable to the Borrower or such Subsidiary
in any  material  respect  than would be  obtainable  at the time in  comparable
transactions  of the  Borrower  or such  Subsidiary  with a  Person  not such an
Affiliate.

         Limitation on  Issuance  of  Shares  of Subsidiaries and Disposition of
 Shares.osition of Shares

                  (a)  The  Borrower  will  not  permit  any  Subsidiary  of the
         Borrower  to issue,  sell or  otherwise  dispose  of any Shares (or any
         securities  convertible into or exercisable or exchangeable for Shares)
         of  such  Subsidiary,  except  to  the  Borrower  or to a  Wholly-Owned
         Subsidiary  Guarantor or, in the case of Preferred Shares, as permitted
         by section 6.02(a).

                  (b) The Borrower will not sell,  transfer or otherwise dispose
         of any Shares (or any  securities  convertible  into or  exercisable or
         exchangeable  for  Shares) of any  Subsidiary  of the  Borrower  or any
         Indebtedness  of  any  Subsidiary  of  the  Borrower,   or  permit  any
         Subsidiary  of the Borrower to sell,  transfer or otherwise  dispose of
         (except to the Borrower or to a Wholly-Owned  Subsidiary Guarantor) any
         Shares,  securities or any  Indebtedness of any other Subsidiary of the
         Borrower  unless (i) both at the time of and  immediately  after giving
         effect to such  disposition,  no Default or Event of Default shall have
         occurred  and be  continuing,  (ii) such  disposition  shall be made in
         compliance  with section  6.08,  if  applicable,  and (iii) each of the
         following conditions shall be complied with:

                                    (A)  simultaneously  with such  disposition,
                           all such Shares,  securities and Indebtedness of such
                           Subsidiary  at the time owned by the  Borrower and by
                           every  other  Subsidiary  of the  Borrower  shall  be
                           disposed of as an entirety;

                                    (B) the Board of  Directors  of the Borrower
                           shall have  reasonably  determined in good faith,  as
                           evidenced by a written  resolution  thereof  promptly
                           delivered to the Lenders, that (1) the disposition of
                           such Shares,  securities and  Indebtedness  is in the
                           best   interests   of   the   Borrower   and  is  not
                           disadvantageous   in  any  material  respect  to  the
                           Lenders,   and  (2)  such  Shares,   securities   and
                           Indebtedness  are  being  disposed  of for  fair  and
                           adequate cash  consideration and on fair and adequate
                           terms; and

                                    (C)   following   such   disposition,    the
                           Subsidiary  being  disposed  of  shall  not  have any
                           continuing investment in the Borrower or any other of
                           its  Subsidiaries not being  simultaneously  disposed
                           of.

         SECTION 6.07.  Limitation on Consolidation or Merger, etc. The Borrower
will not, and will not permit any of its  Subsidiaries  to,  consolidate with or
merge  into any  other  Person or sell,  lease or  otherwise  dispose  of all or
substantially  all  of  its  property  in a  single  transaction  or  series  of
transactions  to any  Person  or  Persons  (except  that any  Subsidiary  of the
Borrower  may (x) merge  into,  or sell,  lease or  otherwise  dispose of all or
substantially  all  of  its  property  in a  single  transaction  or  series  of
transactions  to the Borrower (if the Borrower is the  surviving  entity of such
transaction)  or a  Wholly-Owned  Subsidiary  Guarantor  of the Borrower (if the
surviving entity to such transaction is a Wholly-Owned  Subsidiary  Guarantor of
the  Borrower)  or (y) sell,  lease or  otherwise  dispose  of its  property  in
compliance  with section 6.09 (other than  6.09(d)),  provided that the Borrower
may consolidate with or merge into, or sell,  lease or otherwise  dispose of all
or substantially all of its property to, any other Person so long as:

                  (a) the successor formed by such consolidation or the survivor
         of such merger or the Person that acquires all or substantially  all of
         the  property  of the  Borrower,  as the  case  may be (the  "Successor
         Corporation"),  shall be a Solvent  corporation  organized and existing
         under the laws of the United  States of America,  any state  thereof or
         the  District  of  Columbia  and  having all or  substantially  all its
         property in the United States of America;

                  (b) if the  Borrower  is not the  Successor  Corporation,  the
         Successor  Corporation shall have executed and delivered to each Lender
         its  assumption of the due and punctual  performance  and observance of
         each  covenant and  condition of this  Agreement  and each of the other
         Loan Documents (pursuant to such agreements and instruments as shall be
         reasonably  satisfactory  to the  Required  Lenders),  and the Borrower
         shall  have  caused  to be  delivered  to each  Lender  an  opinion  of
         independent counsel reasonably satisfactory to the Required Lenders, to
         the effect that all agreements or instruments effecting such assumption
         are legal, valid and binding obligations of such Successor  Corporation
         enforceable  against  it in  accordance  with  their  respective  terms
         (except as such  enforcement may be limited by insolvency,  bankruptcy,
         reorganization  or other laws of general  application  relating  to the
         enforcement of creditors' rights or by general equity principles), that
         the  Promissory  Notes remain  secured by the Guaranty and the Security
         Agreement  of the  Guarantors  pursuant to  perfected,  first  priority
         security  interests in the Collateral,  and covering such other matters
         as the Required Lenders of the Notes may reasonably request.

                  (c)      both before and immediately after giving effect to 
         such transaction, no Default or Event of Default would exist; and

                  (d) after giving effect to such transaction, (i) the Successor
         Corporation  shall have a  Consolidated  Net Worth  equal to or greater
         than the  Consolidated Net Worth of the Borrower  immediately  prior to
         such transaction and (ii) the Successor  Corporation shall be permitted
         to incur at least $1.00 of additional Funded Debt or Current Debt under
         section 6.02(a)(iv).

No sale,  lease or other  disposition  by the Borrower  shall have the effect of
releasing the Borrower (or any successor corporation that shall theretofore have
become  such in the  manner  prescribed  in  this  section  6.07)  or any of its
Subsidiaries  from  its  liability  under  this  Agreement  or any of the  other
Operative Documents.

         SECTION 6.08.  Limitations  on  Leasebacks.  The Borrower will not, and
will not permit any of its  Subsidiaries,  directly  or  indirectly,  to sell or
otherwise  dispose of any of its property if, as part of the same transaction or
series of related transactions, any such Person shall then or thereafter rent or
lease as lessee,  or similarly  acquire the right to  possession or use of, such
property (or a major portion thereof), or other property which it intends to use
for  substantially the same purpose or purposes,  under any lease,  agreement or
other  arrangement which obligates any such person to pay rent as lessee or make
any other payments for such possession or use.

         SECTION 6.09. Limitation on Dispositions of Property. The Borrower will
not, and will not permit any of its  Subsidiaries  to,  directly or  indirectly,
sell,  lease or  otherwise  dispose of any of their  respective  properties  and
assets  (including  any right,  title or  interest  in any  property  or asset),
whether  owned on the date  hereof  or  hereafter  acquired  and  whether  real,
personal  or mixed,  tangible  or  intangible,  including,  without  limitation,
Shares, securities or Indebtedness of any Subsidiary of the Borrower, except:

                  (a)      any sale  of  inventory  or  work  in  process in the
         ordinary course of business;

                  (b)      any  transaction  permitted  under s ection  6.07;

                  (c)      any  sale,  lease  or  disposition  of  assets  by  a
         Subsidiary to the Borrower or to a Wholly-Owned Subsidiary Guarantor;
         and

                  (d) any sale by the Borrower or any of its Subsidiaries of any
         of  their  respective  properties  and  assets  (other  than  any  such
         properties or assets which  constitute part of the Collateral)  (each a
         "Sale of Assets") unless (i) both before and  immediately  after giving
         effect to such  transaction,  (x) no Default or Event of Default  shall
         exist,  and (y) the Borrower shall be permitted to incur at least $1.00
         of additional  Funded Debt or Current Debt under  section  6.02(a)(iv),
         (ii) such properties and assets are sold for cash  consideration  equal
         to the fair market value of such  properties and assets,  and (iii) the
         Net Asset Sale  Proceeds  of such sale are (x) within 30 days after the
         consummation  of such  sale,  offered  to the  holders  of Senior  Debt
         pursuant  to section  2.08(a) as  prepayment  of the Senior  Debt,  and
         applied to such  prepayment  to the extent  required  by such  holders,
         and/or (y) applied within 360 days after the  consummation of such sale
         to the purchase by the Borrower or any of its  Subsidiaries of property
         and assets (other than cash or cash equivalents) used and useful in the
         ordinary course of business of the Borrower or such Subsidiary. The Net
         Asset Sale  Proceeds of any Sale of Assets  pursuant to this clause (d)
         shall be deposited  directly  and held in a  segregated  account at the
         Collateral  Agent  until  applied  in  accordance  with  the  preceding
         sentence,  and any such Net Asset Sale  Proceeds not so applied  within
         360 days after  consummation  of such Sale of Assets  shall  constitute
         "Available  Unused  Proceeds".  When the aggregate  amount of Available
         Unused  Proceeds  exceeds  $5,000,000,  the Borrower shall offer all of
         such  Available  Unused  Proceeds  to the  holders of the  Senior  Debt
         pursuant to section  2.08(b) as prepayment of the Senior Debt. Any such
         Available  Unused Proceeds which are not so required by such holders to
         be applied in  prepayment of the Senior Debt shall be released from the
         segregated  account at the Collateral Agent,  shall cease to constitute
         Available  Unused  Proceeds  and  thereafter  may be used  for  general
         corporate purposes of the Borrower and its Subsidiaries.

         SECTION  6.10.  Modification  of  Certain  Documents,   Agreements  and
Instruments.  The Borrower  will not and will not permit any  Subsidiary  to (a)
amend, modify or waive, or permit the amendment,  modification or waiver of, any
term,  condition or provision of its charter or by-laws or other  organizational
document in any respect  which could  reasonably  be expected to have a Material
Adverse Effect upon the Borrower or any  Subsidiary,  (b) file any resolution of
the Board of Directors  with the Secretary of State of the  jurisdiction  of its
incorporation, (c) change its fiscal year, or (d) amend or modify, or permit the
amendment  of  modification  of, any term,  condition or provision of any of the
Private  Placement  Documents,  except as permitted by the Collateral Agency and
Intercreditor Agreement and the Note Agreements.

         Limitation  on Tax  Consolidation.  The Borrower  will not and will not
permit any  Subsidiary to become a party to a  consolidated  federal  income tax
return with any Person other than the Borrower and its Subsidiaries.

         SECTION 6.12.       Materially Alter Nature of Business. The Borrower 
will not and will not permit any Subsidiary to  materially  alter the  nature of
its Business without the prior written consent of the Required Lenders.

                                   ARTICLE VII

                                Events of Default

         If any of the following events ("Events of Default") shall occur:

                  (a) the Borrower  shall fail to pay any  principal of any Loan
         when and as the same shall become due and  payable,  whether at the due
         date thereof or at a date fixed for prepayment thereof or otherwise;

                  (b) the Borrower shall fail to pay any interest on any Loan or
         any fee or any other amount (other than an amount referred to in clause
         (a) of this Article) payable under this Agreement, when and as the same
         shall  become  due  and  payable,   and  such  failure  shall  continue
         unremedied for a period of five Business Days;

                  (c) any  representation  or warranty made or deemed made by or
         on behalf of the Borrower or any  Subsidiary in or in  connection  with
         this  Agreement  or any  amendment  or  modification  hereof  or waiver
         hereunder, or in any report, certificate,  financial statement or other
         document  furnished pursuant to or in connection with this Agreement or
         any amendment or modification  hereof or waiver hereunder,  shall prove
         to have been incorrect when made or deemed made;

                  (d)  the  Borrower  shall  fail  to  observe  or  perform  any
         covenant,  condition or agreement contained in Section 5.02, 5.03 (with
         respect to the Borrower's existence) or 5.08 or in Article VI;

                  (e)  the  Borrower  shall  fail  to  observe  or  perform  any
         covenant,  condition or agreement  contained in this  Agreement  (other
         than those  specified in clause (a), (b) or (d) of this  Article),  and
         such failure shall continue unremedied for a period of 10 Business Days
         after  notice  thereof  from the  Administrative  Agent to the Borrower
         (which notice will be given at the request of any Lender);

                  (f) the  Borrower  or any  Subsidiary  shall  fail to make any
         payment required under or to observe or perform any covenant, condition
         or  agreement  contained  in any other Loan  Document  and such failure
         shall  continue  unremedied  beyond the  expiration  of any  applicable
         notice and cure period;

                  (g)  an  involuntary  proceeding  shall  be  commenced  or  an
         involuntary   petition   shall  be  filed   seeking  (i)   liquidation,
         reorganization  or other  relief  in  respect  of the  Borrower  or any
         Subsidiary or its debts, or of a substantial part of its assets,  under
         any Federal, state or foreign bankruptcy,  insolvency,  receivership or
         similar law now or  hereafter  in effect or (ii) the  appointment  of a
         receiver,  trustee,  custodian,  sequestrator,  conservator  or similar
         official for the Borrower or any  Subsidiary or for a substantial  part
         of its assets, and, in any such case, such proceeding or petition shall
         continue  undismissed  for 60 days or an order or decree  approving  or
         ordering any of the foregoing shall be entered;

                  (h) the  Borrower  or any  Subsidiary  shall  (i)  voluntarily
         commence  any  proceeding  or file any  petition  seeking  liquidation,
         reorganization  or other  relief  under any  Federal,  state or foreign
         bankruptcy, insolvency, receivership or similar law now or hereafter in
         effect,  (ii)  consent to the  institution  of, or fail to contest in a
         timely and appropriate  manner, any proceeding or petition described in
         clause  (h)  of  this  Article,  (iii)  apply  for  or  consent  to the
         appointment   of  a   receiver,   trustee,   custodian,   sequestrator,
         conservator  or similar  official for the Borrower or any Subsidiary or
         for a substantial part of its assets, (iv) file an answer admitting the
         material  allegations  of a  petition  filed  against  it in  any  such
         proceeding,  (v) make a general assignment for the benefit of creditors
         or (vi)  take  any  action  for the  purpose  of  effecting  any of the
         foregoing;

                  (i) the Borrower or any Subsidiary shall become unable, admit
         in writing or fail generally to pay its debts as they become due;

                  (j) one or more final judgments for the payment of money in an
         aggregate  amount in excess of $2,500,000 shall be rendered against the
         Borrower,  any Subsidiary or any combination thereof and the same shall
         remain  undischarged  for a period of 60 consecutive  days during which
         execution  shall not be  effectively  stayed,  or any  action  shall be
         legally taken by a judgment  creditor to attach or levy upon any assets
         of the Borrower or any Subsidiary to enforce any such judgment;

                  (k) an ERISA Event shall have occurred that, in the opinion of
         the Required  Lenders,  when taken together with all other ERISA Events
         that  have  occurred,  could  reasonably  be  expected  to  result in a
         Material Adverse Effect;

                  (l) a Change in Control shall occur;

                  (m) if (i) the  Borrower  or any  Subsidiary  of the  Borrower
         shall fail to make any payment due on any Indebtedness  (other than the
         Notes and the  Promissory  Notes) or other  obligation  or to  perform,
         observe or  discharge  any  covenant,  condition or  obligation  in any
         agreement,  document or instrument evidencing,  securing or relating to
         such Indebtedness or other obligation,  and such failure shall continue
         beyond any applicable grace period, if the aggregate outstanding amount
         thereof  exceeds  $2,000,000  or if the  aggregate  outstanding  amount
         thereof together with any other  Indebtedness or other obligation as to
         which the  Borrower  is in default  exceeds  $3,000,000,  (ii) any such
         Indebtedness  or other  obligation  shall become due and payable by its
         terms and shall not be paid or  extended or (iii) as a  consequence  of
         the occurrence or continuation of any event or condition,  the Borrower
         or any Subsidiary of the Borrower shall become obligated to purchase or
         repay any such  Indebtedness or obligation  before its regular maturity
         or before  its  regularly  scheduled  date of  payment  (or one or more
         Persons shall have the right to require the Borrower or any  Subsidiary
         of the  Borrower  so to purchase  or repay such  Indebtedness  or other
         obligation);  provided that any payment made into an escrow  account or
         to a court  appointed  trustee,  pending the  settlement of a bona fide
         dispute  with  respect to any such  Indebtedness  or other  obligation,
         shall not be deemed a failure to make such payment for purposes of this
         clause (h) so long as such payment  cures or suspends the  existence of
         the default under the underlying obligation;

                  (n) if (i) the  Borrower  or any  Subsidiary  of the  Borrower
         shall  fail to make  any  payment  due on any  Indebtedness  under  the
         Private  Placement  Documents or to perform,  observe or discharge  any
         covenant,  condition  or  obligation  in  any  agreement,  document  or
         instrument evidencing,  securing or relating to such Indebtedness,  and
         such failure shall continue  beyond any applicable  grace period,  (ii)
         any such  Indebtedness  shall  become due and  payable by its terms and
         shall  not be  paid  or  extended  or  (iii)  as a  consequence  of the
         occurrence or continuation  of any event or condition,  the Borrower or
         any  Subsidiary of the Borrower  shall become  obligated to purchase or
         repay any such  Indebtedness  before its regular maturity or before its
         regularly  scheduled date of payment (or one or more Persons shall have
         the right to require the Borrower or any  Subsidiary of the Borrower so
         to purchase or repay such Indebtedness);

then,  and in every such event (other than an event with respect to the Borrower
described  in clause  (g) or (h) of this  Article),  and at any time  thereafter
during the continuance of such event, the  Administrative  Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then  outstanding  to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable),  and thereupon the principal of the Loans so
declared to be due and payable,  together with accrued  interest thereon and all
fees and other obligations of the Borrower accrued  hereunder,  shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind,  all of which are hereby  waived by the Borrower and (iii)  proceed to
exercise any and all remedies  permitted under the Loan Documents or by law; and
in case of any event with respect to the Borrower described in clause (g) or (h)
of this Article, the Commitments shall automatically terminate and the principal
of the Loans then  outstanding,  together with accrued  interest thereon and all
fees  and  other   obligations  of  the  Borrower   accrued   hereunder,   shall
automatically become due and payable,  without presentment,  demand,  protest or
other notice of any kind, all of which are hereby waived by the Borrower and the
Administrative  Agent may, and at the request of the Required  Lenders shall, by
notice to the Borrower proceed to exercise any and all remedies  permitted under
the Loan Documents or by law.


                                  ARTICLE VIII

                            The Administrative Agent

         Each of the Lenders  hereby  irrevocably  appoints  the  Administrative
Agent as its agent and authorizes the Administrative  Agent to take such actions
on its behalf and to exercise such powers as are delegated to the Administrative
Agent by the  terms  hereof,  together  with  such  actions  and  powers  as are
reasonably incidental thereto.

         The bank serving as the  Administrative  Agent hereunder shall have the
same rights and powers in its  capacity as a Lender as any other  Lender and may
exercise the same as though it were not the Administrative  Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally  engage
in any kind of business with the Borrower or any  Subsidiary or other  Affiliate
thereof as if it were not the Administrative Agent hereunder.

         The  Administrative  Agent  shall not have any  duties  or  obligations
except those expressly set forth herein.  Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other  implied  duties,  regardless  of whether a Default  has  occurred  and is
continuing,  (b) the  Administrative  Agent  shall not have any duty to take any
discretionary action or exercise any discretionary  powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders (or such other number or
percentage  of the  Lenders as shall be  necessary  under the  circumstances  as
provided in Section  9.02),  and (c) except as expressly set forth  herein,  the
Administrative  Agent  shall  not have any duty to  disclose,  and  shall not be
liable for the failure to disclose,  any information relating to the Borrower or
any of its Subsidiaries  that is communicated to or obtained by the bank serving
as  Administrative  Agent  or  any  of  its  Affiliates  in  any  capacity.  The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary  under the  circumstances  as
provided  in  Section  9.02) or in the  absence of its own gross  negligence  or
wilful  misconduct.  The  Administrative  Agent  shall  be  deemed  not to  have
knowledge of any Default unless and until written notice thereof is given to the
Administrative  Agent by the Borrower or a Lender, and the Administrative  Agent
shall not be  responsible  for or have any duty to ascertain or inquire into (i)
any statement,  warranty or  representation  made in or in connection  with this
Agreement,  (ii) the  contents  of any  certificate,  report  or other  document
delivered  hereunder  or  in  connection  herewith,  (iii)  the  performance  or
observance of any of the covenants,  agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this  Agreement  or any other  agreement,  instrument  or  document,  or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm  receipt of items  expressly  required  to be  delivered  to the
Administrative Agent.

         The Administrative  Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement,  instrument,  document or other writing  believed by it to be genuine
and to have been signed or sent by the proper Person. The  Administrative  Agent
also may rely upon any statement  made to it orally or by telephone and believed
by it to be made by the proper  Person,  and shall not incur any  liability  for
relying thereon.  The  Administrative  Agent may consult with legal counsel (who
may be counsel for the  Borrower),  independent  accountants  and other  experts
selected by it, and shall not be liable for any action  taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.

         The  Administrative  Agent  may  perform  any and all  its  duties  and
exercise  its  rights  and  powers  by or  through  any one or  more  sub-agents
appointed by the  Administrative  Agent. The  Administrative  Agent and any such
sub-agent  may perform any and all its duties and exercise its rights and powers
through their  respective  Related  Parties.  The exculpatory  provisions of the
preceding  paragraphs  shall  apply to any  such  sub-agent  and to the  Related
Parties of the Administrative  Agent and any such sub-agent,  and shall apply to
their  respective  activities in connection  with the  syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

         Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph,  the Administrative Agent may resign at any
time by notifying the Lenders and the Borrower.  Upon any such resignation,  the
Required  Lenders shall have the right,  in consultation  with the Borrower,  to
appoint  a  successor.  If no  successor  shall  have been so  appointed  by the
Required Lenders and shall have accepted such  appointment  within 30 days after
the  retiring  Administrative  Agent gives notice of its  resignation,  then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New York,
or an Affiliate of any such bank.  Upon the  acceptance  of its  appointment  as
Administrative  Agent hereunder by a successor,  such successor shall succeed to
and become  vested with all the  rights,  powers,  privileges  and duties of the
retiring  Administrative  Agent, and the retiring  Administrative Agent shall be
discharged  from its duties and obligations  hereunder.  The fees payable by the
Borrower to a successor  Administrative Agent shall be the same as those payable
to its  predecessor  unless  otherwise  agreed  between  the  Borrower  and such
successor.   After  the  Administrative  Agent's  resignation   hereunder,   the
provisions  of this  Article and Section  9.03 shall  continue in effect for the
benefit  of  such  retiring  Administrative  Agent,  its  sub-agents  and  their
respective  Related  Parties in respect  of any  actions  taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

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


                                   ARTICLE IX

                                  Miscellaneous

         SECTION  9.01.  Notices.  Except  in the  case  of  notices  and  other
communications  expressly  permitted to be given by  telephone,  all notices and
other  communications  provided  for  herein  shall be in  writing  and shall be
delivered  by  hand  or  overnight  courier  service,  mailed  by  certified  or
registered mail or sent by telecopy, as follows:

(a)  if to the Borrower,  to it at ATC Group  Services Inc., 104 E. 25th Street,
     10th Floor, New York, New York 10010, Attention:  President, with a copy to
     ATC Group  Services  Inc.  1515 E. 10th Street,  Sioux Falls,  South Dakota
     57103, Attention: Chief Financial Officer;

(b)  if to the  Administrative  Agent,  to The Chase  Manhattan  Bank,  Loan and
     Agency  Services,  1 Chase Manhattan  Plaza,  8th Floor, New York, New York
     10081, Attention: Leonora Kiernan, Telecopier: (212) 552-5650;

(c)  if to the Lenders, to them at the following addresses:  The Chase Manhattan
     Bank,  Middle Market Banking Group,  Bay Plaza,  2100 Bartow Avenue,  Third
     Floor,  Bronx,  New  York  10475,  Attention:  Richard  F.  Donatuti,  Vice
     President,  Telecopier:  (718)379-8838  and Atlantic Bank of New York,  960
     Avenue of the Americas,  6th Floor,  New York,  New York 10001,  Attention:
     Joseph Fradelos, Vice President, Telecopier: (212) 695-6907.

(d)  if to any other Lender, to it at its address (or telecopy number) set forth
     in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other
communications  hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

         SECTION  9.02.  Waivers;  Amendments.  (a) No  failure  or delay by the
Administrative  Agent or any Lender in exercising  any right or power  hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such  right or  power,  or any  abandonment  or  discontinuance  of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the  exercise  of any other  right or power.  The  rights  and  remedies  of the
Administrative  Agent  and the  Lenders  hereunder  are  cumulative  and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any  provision  of this  Agreement  or consent to any  departure by the Borrower
therefrom shall in any event be effective  unless the same shall be permitted by
paragraph  (b) of this  Section,  and  then  such  waiver  or  consent  shall be
effective  only in the  specific  instance  and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be  construed  as  a  waiver  of  any   Default,   regardless   of  whether  the
Administrative  Agent or any  Lender may have had  notice or  knowledge  of such
Default at the time.

                  (b) Neither this  Agreement  nor any  provision  hereof may be
waived,  amended or modified  except  pursuant to an agreement or  agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders;  provided
that no such  agreement  shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or reduce the rate of interest  thereon,  or reduce any fees payable  hereunder,
without the written consent of each Lender affected thereby,  (iii) postpone the
scheduled  date of payment of the principal  amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any  such  payment,  or  postpone  the  scheduled  date  of  expiration  of  any
Commitment,  without the written consent of each Lender affected  thereby,  (iv)
change Section  2.15(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, or (v)
change any of the  provisions  of this  Section or the  definition  of "Required
Lenders" or any other  provision  hereof  specifying the number or percentage of
Lenders  required  to waive,  amend or modify any rights  hereunder  or make any
determination  or grant any consent  hereunder,  without the written  consent of
each Lender;  provided  further that no such  agreement  shall amend,  modify or
otherwise  affect the  rights or duties of the  Administrative  Agent  hereunder
without the prior written consent of the Administrative Agent.

         SECTION 9.03.  Expenses;  Indemnity;  Damage  Waiver.  (a) The Borrower
shall  pay  (i)  all   reasonable   out-of-pocket   expenses   incurred  by  the
Administrative Agent and its Affiliates,  including the reasonable fees, charges
and  disbursements of counsel for the  Administrative  Agent, in connection with
the syndication of the credit  facilities  provided for herein,  the preparation
and  administration  of this  Agreement  and the other  Loan  Documents,  or any
amendments,  modifications  or waivers of the provisions  hereof (whether or not
the transactions contemplated hereby or thereby shall be consummated),  (ii) all
out-of-pocket  expenses  incurred  by the  Administrative  Agent or any  Lender,
including  the  fees,   charges  and   disbursements  of  any  counsel  for  the
Administrative  Agent or any  Lender,  in  connection  with the  enforcement  or
protection  of its rights in  connection  with this  Agreement or the other Loan
Documents,  including its rights under this Section,  or in connection  with the
Loans  made  including  all such  out-of-pocket  expenses  incurred  during  any
workout, restructuring or negotiations in respect of such Loans.

                  (b) The Borrower shall indemnify the Administrative  Agent and
each Lender,  and each Related Party of any of the foregoing  Persons (each such
Person being called an "Indemnitee")  against, and hold each Indemnitee harmless
from, any and all losses,  claims,  damages,  liabilities and related  expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted  against any  Indemnitee  arising out of, in  connection
with, or as a result of (i) the  execution or delivery of this  Agreement or any
agreement or instrument  contemplated  hereby,  the  performance  by the parties
hereto of their  respective  obligations  hereunder or the  consummation  of the
Transactions or any other transactions contemplated hereby, (ii) any Loan or the
use of the proceeds  therefrom,  (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability related in any way to
the  Borrower  or any of its  Subsidiaries,  or (iv) any  actual or  prospective
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether  based on contract,  tort or any other theory and  regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee,  be available to the extent that such losses,  claims,  damages,
liabilities  or related  expenses  resulted from the gross  negligence or wilful
misconduct of such Indemnitee.

                  (c) To the extent  that the  Borrower  fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such  Lender's  Applicable  Percentage  (determined  as of  the  time  that  the
applicable  unreimbursed  expense or indemnity payment is sought) of such unpaid
amount;  provided that the  unreimbursed  expense or  indemnified  loss,  claim,
damage,  liability  or related  expense,  as the case may be, was incurred by or
asserted against the Administrative Agent in its capacity as such.

                  (d) To the extent  permitted by  applicable  law, the Borrower
shall not assert,  and hereby waives,  any claim against any Indemnitee,  on any
theory of liability,  for special,  indirect,  consequential or punitive damages
(as opposed to direct or actual damages)  arising out of, in connection with, or
as a result of, this  Agreement  or any  agreement  or  instrument  contemplated
hereby, the Transactions, any Loan or the use of the proceeds thereof.

                  (e)  All amounts due under this Section shall be payable not 
later than 10 days after written demand therefor.

         SECTION  9.04.  Successors  and  Assigns.  (a) The  provisions  of this
Agreement  shall be binding upon and inure to the benefit of the parties  hereto
and their respective  successors and assigns permitted  hereby,  except that the
Borrower may not assign or otherwise  transfer any of its rights or  obligations
hereunder  without the prior  written  consent of each Lender (and any attempted
assignment  or transfer by the Borrower  without such consent  shall be null and
void).  Nothing in this Agreement,  expressed or implied,  shall be construed to
confer  upon  any  Person  (other  than the  parties  hereto,  their  respective
successors  and  assigns   permitted   hereby  (and,  to  the  extent  expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
                  (b) Any Lender may  assign to one or more  assignees  all or a
portion of its rights and obligations  under this Agreement  (including all or a
portion of its Commitment and the Loans at the time owing to it);  provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative  Agent must give their prior written
consent to such assignment  (which consent shall not be unreasonably  withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an  assignment  of the  entire  remaining  amount of the  assigning  Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such  assignment  (determined as of the date the Assignment and Acceptance  with
respect to such assignment is delivered to the  Administrative  Agent) shall not
be less than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent,  (iii) each partial assignment shall be made as an assignment
of a  proportionate  part of all the assigning  Lender's  rights and obligations
under this  Agreement,  (iv) the parties to each  assignment  shall  execute and
deliver to the Administrative Agent an Assignment and Acceptance,  together with
a processing and  recordation fee of $3,500,  and (v) the assignee,  if it shall
not be a Lender,  shall deliver to the  Administrative  Agent an  Administrative
Questionnaire;  and provided further that any consent of the Borrower  otherwise
required under this paragraph shall not be required if an Event of Default under
clause (g) or (h) of Article  VII has  occurred  and is  continuing.  Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective  date  specified in each  Assignment  and Acceptance the
assignee  thereunder  shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement,  and the assigning Lender  thereunder shall, to the
extent of the interest  assigned by such Assignment and Acceptance,  be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance  covering all of the assigning  Lender's rights and obligations under
this Agreement,  such Lender shall cease to be a party hereto but shall continue
to be entitled  to the  benefits of Sections  2.12,  2.13,  2.14 and 9.03).  Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this  paragraph  shall be treated for purposes of this
Agreement  as a sale by such  Lender  of a  participation  in  such  rights  and
obligations in accordance with paragraph (e) of this Section.

                  (c) The  Administrative  Agent,  acting for this purpose as an
agent of the Borrower,  shall  maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the  recordation  of the names and addresses of the Lenders,  and the Commitment
of, and  principal  amount of the Loans owing to,  each  Lender  pursuant to the
terms  hereof from time to time (the  "Register").  The entries in the  Register
shall be conclusive,  and the Borrower, the Administrative Agent and the Lenders
may treat each Person  whose name is recorded  in the  Register  pursuant to the
terms  hereof  as a  Lender  hereunder  for  all  purposes  of  this  Agreement,
notwithstanding  notice to the  contrary.  The Register  shall be available  for
inspection by the Borrower and any Lender,  at any reasonable time and from time
to time upon reasonable prior notice.

                  (d)  Upon  its  receipt  of a duly  completed  Assignment  and
Acceptance  executed by an  assigning  Lender and an  assignee,  the  assignee's
completed  Administrative  Questionnaire (unless the assignee shall already be a
Lender  hereunder),  the processing and recordation fee referred to in paragraph
(b) of this  Section  and any  written  consent to such  assignment  required by
paragraph  (b) of this  Section,  the  Administrative  Agent  shall  accept such
Assignment and Acceptance and record the  information  contained  therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.

                  (e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a  "Participant")  in all or a portion of such Lender's  rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it);  provided that (i) such Lender's  obligations under this Agreement
shall remain unchanged,  (ii) such Lender shall remain solely responsible to the
other  parties  hereto for the  performance  of such  obligations  and (iii) the
Borrower,  the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation  shall provide that such Lender shall retain
the  sole  right  to  enforce  this  Agreement  and to  approve  any  amendment,
modification  or waiver of any provision of this  Agreement;  provided that such
agreement  or  instrument  may provide  that such  Lender will not,  without the
consent  of the  Participant,  agree to any  amendment,  modification  or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject  to  paragraph  (f) of this  Section,  the  Borrower  agrees  that  each
Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to
the  same  extent  as if it were a  Lender  and had  acquired  its  interest  by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each  Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender,  provided  such  Participant  agrees to be  subject  to
Section 2.15(c) as though it were a Lender.

                  (f) A Participant shall not be entitled to receive any greater
payment  under Section 2.12 or 2.14 than the  applicable  Lender would have been
entitled to receive with respect to the participation  sold to such Participant,
unless  the  sale of the  participation  to such  Participant  is made  with the
Borrower's prior written  consent.  A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.14 unless
the Borrower is notified of the participation  sold to such Participant and such
Participant  agrees,  for the benefit of the  Borrower,  to comply with  Section
2.14(e) as though it were a Lender.

                  (g) Any  Lender  may at any time  pledge or assign a  security
interest  in all or any  portion of its rights  under this  Agreement  to secure
obligations  of such  Lender,  including  any  pledge  or  assignment  to secure
obligations  to a Federal  Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security  interest;  provided that no such pledge
or  assignment  of a security  interest  shall  release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

         SECTION 9.05. Survival. All covenants, agreements,  representations and
warranties  made  by  the  Borrower  herein  and in the  certificates  or  other
instruments  delivered in connection with or pursuant to this Agreement shall be
considered  to have been  relied  upon by the  other  parties  hereto  and shall
survive  the  execution  and  delivery of this  Agreement  and the making of any
Loans,  regardless of any  investigation  made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, or any Lender may have
had notice or knowledge of any Default or incorrect  representation  or warranty
at the time any credit is extended  hereunder,  and shall continue in full force
and effect as long as the  principal  of or any accrued  interest on any Loan or
any fee or any other amount  payable  under this  Agreement is  outstanding  and
unpaid  and so long as the  Commitments  have not  expired  or  terminated.  The
provisions of Sections 2.12,  2.13, 2.14 and 9.03 and Article VIII shall survive
and  remain in full  force and  effect  regardless  of the  consummation  of the
transactions  contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the  Commitments or the  termination of
this Agreement or any provision hereof.

         SECTION 9.06. Counterparts;  Integration; Effectiveness. This Agreement
may be executed in  counterparts  (and by different  parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken  together  shall  constitute a single  contract.  This  Agreement  and any
separate letter  agreements  with respect to fees payable to the  Administrative
Agent  constitute the entire contract among the parties  relating to the subject
matter hereof and supersede any and all previous  agreements and understandings,
oral or written,  relating to the subject matter  hereof.  Except as provided in
Section 4.01,  this  Agreement  shall become  effective  when it shall have been
executed by the  Administrative  Agent and when the  Administrative  Agent shall
have  received  counterparts  hereof  which,  when  taken  together,   bear  the
signatures of each of the other parties hereto,  and thereafter shall be binding
upon and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors and assigns.  Delivery of an executed counterpart of a signature page
of this  Agreement  by  telecopy  shall be  effective  as delivery of a manually
executed counterpart of this Agreement.

         SECTION 9.07. Severability.  Any provision of this Agreement held to be
invalid,  illegal  or  unenforceable  in  any  jurisdiction  shall,  as to  such
jurisdiction,  be  ineffective to the extent of such  invalidity,  illegality or
unenforceability without affecting the validity,  legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a  particular  jurisdiction  shall not  invalidate  such  provision in any other
jurisdiction.

         SECTION  9.08.  Right of  Setoff.  If an Event of  Default  shall  have
occurred and be  continuing,  each Lender and each of its  Affiliates  is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all  deposits  (general  or  special,  time or
demand, provisional or final) at any time held and other obligations at any time
owing by such  Lender or  Affiliate  to or for the credit or the  account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement  held by such Lender,  irrespective  of whether or
not such Lender  shall have made any demand  under this  Agreement  and although
such obligations may be unmatured.  The rights of each Lender under this Section
are in addition to other rights and remedies  (including other rights of setoff)
which such Lender may have.

       SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.
                  (a)  This Agreement shall be construed in accordance with and
 governed by the law of the State of New York.

                  (b)  The  Borrower  hereby  irrevocably  and   unconditionally
submits,  for itself and its property,  to the nonexclusive  jurisdiction of the
Supreme  Court of the State of New York  sitting  in New York  County and of the
United  States  District  Court of the  Southern  District of New York,  and any
appellate court from any thereof,  in any action or proceeding arising out of or
relating to this  Agreement,  or for recognition or enforcement of any judgment,
and each of the parties hereto hereby  irrevocably  and  unconditionally  agrees
that all  claims in respect of any such  action or  proceeding  may be heard and
determined  in such New York State or, to the extent  permitted  by law, in such
Federal  court.  Each of the parties  hereto agrees that a final judgment in any
such  action or  proceeding  shall be  conclusive  and may be  enforced in other
jurisdictions  by suit on the judgment or in any other  manner  provided by law.
Nothing in this Agreement shall affect any right that the  Administrative  Agent
or any Lender may otherwise  have to bring any action or proceeding  relating to
this  Agreement  against  the  Borrower or its  properties  in the courts of any
jurisdiction.

                  (c)  The  Borrower  hereby  irrevocably  and   unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement in any court
referred to in paragraph (b) of this Section.  Each of the parties hereto hereby
irrevocably  waives,  to the fullest extent  permitted by law, the defense of an
inconvenient  forum to the  maintenance of such action or proceeding in any such
court.

                  (d)  Each  party to this  Agreement  irrevocably  consents  to
service of process in the manner  provided for notices in Section 9.01.  Nothing
in this  Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

         SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY  IN ANY  LEGAL  PROCEEDING  DIRECTLY  OR  INDIRECTLY  ARISING  OUT OF OR
RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY  (WHETHER
BASED ON CONTRACT,  TORT OR ANY OTHER  THEORY).  EACH PARTY HERETO (A) CERTIFIES
THAT NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY HAS  REPRESENTED,
EXPRESSLY  OR  OTHERWISE,  THAT SUCH  OTHER  PARTY  WOULD  NOT,  IN THE EVENT OF
LITIGATION,  SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)  ACKNOWLEDGES  THAT IT
AND THE OTHER PARTIES  HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

         SECTION 9.11.  Headings.  Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and  shall  not  affect  the   construction  of,  or  be  taken  into
consideration in interpreting, this Agreement.

         SECTION 9.12. Confidentiality. Each of the Administrative Agent and the
Lenders agrees to maintain the  confidentiality  of the  Information (as defined
below),  except that Information may be disclosed (a) to its and its Affiliates'
directors,  officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be  informed of the  confidential  nature of such  Information  and
instructed to keep such Information  confidential),  (b) to the extent requested
by any regulatory  authority,  (c) to the extent  required by applicable laws or
regulations or by any subpoena or similar legal process,  (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding  relating to this Agreement or the enforcement
of  rights  hereunder,   (f)  subject  to  an  agreement  containing  provisions
substantially  the  same  as  those  of  this  Section,  to any  assignee  of or
Participant  in, or any  prospective  assignee of or Participant  in, any of its
rights or obligations under this Agreement, (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly  available other than
as a  result  of a breach  of this  Section  or (ii)  becomes  available  to the
Administrative  Agent or any  Lender on a  nonconfidential  basis  from a source
other than the Borrower.  For the purposes of this Section,  "Information" means
all  information  received  from the  Borrower  relating to the  Borrower or its
business,   other  than  any  such   information   that  is   available  to  the
Administrative  Agent  or  any  Lender  on  a  nonconfidential  basis  prior  to
disclosure by the Borrower;  provided that, in the case of information  received
from the Borrower after the date hereof,  such information is clearly identified
at the time of delivery as  confidential.  Any Person  required to maintain  the
confidentiality  of  Information as provided in this Section shall be considered
to have complied  with its  obligation to do so if such Person has exercised the
same degree of care to maintain the  confidentiality of such Information as such
Person would accord to its own confidential information.

         SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein
to the  contrary,  if at any time the  interest  rate  applicable  to any  Loan,
together with all fees,  charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted  for,  charged,
taken,  received or reserved by the Lender holding such Loan in accordance  with
applicable law, the rate of interest  payable in respect of such Loan hereunder,
together with all Charges  payable in respect  thereof,  shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been  payable in  respect  of such Loan but were not  payable as a result of the
operation  of this  Section  shall be  cumulated  and the  interest  and Charges
payable to such Lender in respect of other Loans or periods  shall be  increased
(but not above the Maximum Rate therefor) until such cumulated amount,  together
with  interest  thereon  at the  Federal  Funds  Effective  Rate to the  date of
repayment, shall have been received by such Lender.

                       [The remainder of this page is left blank intentionally.]


<PAGE>


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

                                                 ATC GROUP SERVICES INC.
                                                 a Delaware corporation


                                                 By  /s/ Morry F. Rubin
                                                 Name: Morry F. Rubin
                                                 Title: President

                                                 THE CHASE MANHATTAN BANK, 
                                                 individually and as 
                                                 Administrative Agent,


                                                 By  /s/ Richard F. Donatuti
                                                 Name: Richard F. Donatuti
                                                 Title: Vice President

                                                 ATLANTIC BANK OF NEW YORK


                                                 By  /s/ Joseph Fradelos
                                                 Name: Joseph Fradelos
                                                 Title: Assistant Vice President








<PAGE>






H:\RE\JH\ATCGROUP\CREDITAG.2\8105-10\5/23/97