EXCLUSIVE DISTRIBUTOR AGREEMENT


This EXCLUSIVE DISTRIBUTOR AGREEMENT, including the attached 
Exhibits (the "Agreement"), is made and entered into as of August 
21, 1997 (the "Effective Date"), by and between ArthroCare 
Corporation, a Delaware corporation with offices at 595 North 
Pastoria Avenue, Sunnyvale, California 94086 ("ArthroCare"), and 
Kobayashi Pharmaceutical Co., Ltd., a corporation organized under 
the laws of Japan with offices at 3-6, 4-Chome, Doshomachi, Chuo-
Ku, Osaka, 541 Japan ("Kobayashi").

A.      ArthroCare is engaged in the business of 
manufacturing, distributing, and selling Products (as defined 
below) and desires to engage a marketing and distribution partner 
in Japan;

B.      Kobayashi desires to solicit orders for Products from 
customers in Japan, and desires to be ArthroCare's sole marketing 
and distribution partner in Japan for Products solely for use 
within the Field (as defined below); 

C.      Kobayashi desires to purchase, and ArthroCare desires 
to sell to Kobayashi, such Products for the purpose of resale to 
customers in Japan; and

D.      The relationship between Kobayashi and ArthroCare is 
that of buyer and seller. 

NOW, THEREFORE, in consideration of the mutual promises 
contained herein, the parties agree as follows:


1.      DEFINITIONS

1.1     "Affiliate" shall mean any entity which controls, is 
controlled by or is under common control with Kobayashi or 
ArthroCare.  An entity shall be regarded as in control of another 
entity for purposes of this definition if it owns or controls more 
than fifty percent (50%) of the shares of the subject entity 
entitled to vote in the election of directors (or, in the case of 
an entity that is not a corporation, for the election of the 
corresponding managing authority). 

1.2     "Field" shall mean arthroscopic applications.

1.3     "Marketing Approval Application" shall mean any 
application with a governmental regulatory agency for authority to 
market a Product within Japan, including without limitation an 
import approval application ("yunyu shonin shinsei"), import 
license application ("yunyu kyoka shinsei"), or other similar 
application or filing.


1.4     "Product(s)" shall mean, collectively and 
individually, ArthroCare's (i) disposable, bipolar arthroscopic 
wand, (ii) connecting cable and, (iii) radio frequency power 
controller; in each case as defined in ArthroCare's 510K filed 
with the U.S. Food and Drug Administration prior to the Effective 
Date and supplements thereto, to the extent such products are 
specifically intended for use within the Field and with respect to 
modifications or improvements thereto, to the extent that 
ArthroCare has the right to include the same hereunder.  It is 
understood that Products, and/or any component thereof, may be 
changed, substituted or added to by ArthroCare to the extent such 
changes do not require modifications or changes to a Market 
Approval Application for a Product approved by the Ministry of 
Health & Welfare in Japan to market and distribute such Product in 
Japan, upon ninety (90) days prior written notice to Kobayashi.  
If a change to a Product requires modifications or changes to a 
Market Approval Application for such Product approved by the 
Ministry of Health & Welfare in Japan, the parties shall consult 
in good faith to determine a reasonable transition period with 
respect to implementation of such Product change in Japan.  The 
parties contemplate the addition of other products to the 
Agreement on terms substantially similar to those herein, which 
addition shall only be made upon the mutual agreement of the 
parties.  ArthroCare shall be under no obligation to continue the 
production of any Product, except as provided herein.

2.      GRANT OF DISTRIBUTION RIGHTS

2.1     Appointment. Subject to the terms and conditions of 
this Agreement, ArthroCare hereby grants to Kobayashi the 
exclusive right to market, sell and distribute Products in Japan 
solely for use in the Field.  Kobayashi agrees not to market, 
promote or distribute any Product for use outside the Field or 
outside Japan.  Notwithstanding anything herein to the contrary, 
Kobayashi shall market, promote, sell, and otherwise distribute 
Products in accordance with all applicable law and regulations.  
ArthroCare reserves all rights not expressly granted herein.

2.2     Exclusivity of Efforts.  During the term of this 
Agreement, neither Kobayashi nor their Affiliates shall directly 
or indirectly market, sell or otherwise distribute in Japan any 
product lines or products which, in ArthroCare's or Kobayashi's 
reasonable judgment, compete with any Products.

2.3     No Rights Beyond Products.  Nothing in this Agreement 
shall be deemed to grant to Kobayashi rights in products or 
technology other than the Products; nor shall any provision of 
this Agreement be deemed to restrict ArthroCare's right to exploit 
Products, or patents or any other intellectual property rights, 
outside the Field, outside Japan or in products other than 
Products.

2.4     Sale Conveys No Right to Manufacture or Copy.  The 
Products are offered for sale and are sold by ArthroCare subject 
in every case to the condition that such sale does not convey any 
license, expressly or by implication, to manufacture, duplicate or 
otherwise copy or reproduce any of the Products. 

3.      PRICE AND PAYMENT

3.1     Prices.  The transfer price paid by Kobayashi for each 
Product shall be as set forth in Exhibit A, and shall remain fixed 
from the Effective Date until the [*****] of such Effective Date. 
 Thereafter, ArthroCare may increase the transfer prices in 
Exhibit A [*****] upon at least [*****] prior written notice to 
Kobayashi, provided that any such price increases [*****].   Price 
decreases on Products hereunder will be effective when declared.

3.2     Payment Terms.  Kobayashi shall make payments to 
ArthroCare under this Agreement by wire transfer in United States 
dollars in immediately available funds to a bank account 
designated by ArthroCare.  Payment for Products supplied hereunder 
shall be made net [*****] after the date of invoice.  Any payments 
due hereunder which are not paid on the date such payments are due 
shall bear interest at the lesser of [*****] or the maximum rate 
permitted by California law, calculated on the numbered days such 
payment is delinquent.  This Section 3.2 shall in no way limit any 
other remedies available to ArthroCare.

3.3     Taxes.  Any and all amounts payable hereunder do not 
include any government taxes (including without limitation, 
withholding, sales, use, excise, and value added taxes) or duties 
imposed by any Japanese governmental agency that are applicable to 
the export, import, or purchase of the Products (other than taxes 
on the net income of ArthroCare), and [*****].

4.      TERMS OF PURCHASE AND SALE

4.1     Terms and Conditions.  All Product purchases hereunder 
shall be subject to the terms and conditions of this Agreement.  
Nothing contained in any purchase order submitted pursuant to this 
Agreement shall in any way modify or add any terms or conditions 
to said purchases, unless otherwise agreed in writing by the 
parties. 

4.2     Initial Stocking Order.  An initial stocking order 
placed by Kobayashi on the Effective Date is attached hereto as 
Exhibit B and will be processed upon notification by Kobayashi no 
later than ninety (90) days from receipt of regulatory approval 
for Products by the Ministry of Health and Welfare in Japan.  Such 
initial stocking order will be Kobayashi's minimum performance 
requirement for the first calendar year following regulatory 
approval of Products in Japan.

4.3     Forecasts.  At least [*****] prior to the first 
commercial sale of a Product in Japan, and thereafter, on a 
calendar monthly basis, by the [*****] day of each calendar month, 
Kobayashi shall provide to ArthroCare a good faith rolling [*****] 
forecast showing Kobayashi's prospective purchases of Products on 
a monthly basis for the next [*****], which forecasts shall 
commence on the first day of the calendar month following 
submission of the forecast to ArthroCare (the "Forecasts").  Such 
Forecasts are for ArthroCare's planning purposes only and shall 
not constitute a binding obligation upon ArthroCare or Kobayashi. 
 In the event that Kobayashi believes, in good faith, that the 
information provided in any Forecast is no longer accurate, 
Kobayashi will promptly notify ArthroCare and provide ArthroCare 
with revised Forecast.

4.4     Order and Acceptance.  Kobayashi shall use its 
commercially reasonable efforts to place its firm orders with 
ArthroCare for Products [*****] in advance of the requested 
delivery date, and ArthroCare will use its commercially reasonable 
efforts to fulfill purchase orders in accordance with its normal 
practices and lead times then in effect.  Kobayashi will use its 
commercially reasonable efforts to submit purchase orders in a 
regular fashion, i.e., monthly, so as to allow for efficient 
scheduling of ArthroCare production and warehousing.  All orders 
for Products submitted by Kobayashi shall be initiated by the 
office at Kobayashi's address for notice hereunder.  All orders 
shall be by means of signed written purchase orders by Kobayashi 
to ArthroCare, sent to ArthroCare at ArthroCare's address for 
notice hereunder and requesting a delivery date during the term of 
this Agreement.  Orders may initially be placed by telephone, 
provided that a signed confirming purchase order is received in 
writing (which may include telecopy transmission) by ArthroCare 
within five (5) business days after, a telephone order is placed. 
 ArthroCare will notify Kobayashi within five (5) business days 
from receipt of a purchase order of the proposed delivery date to 
Kobayashi.  ArthroCare agrees to accept purchase orders that do 
not exceed the quantities projected in the Forecasts by more than 
[*****].  ArthroCare will have no liability to Kobayashi with 
respect to purchase orders that are not accepted.  No partial 
shipment of an order shall constitute the acceptance of the entire 
order, absent the written acceptance of such entire order. 
Kobayashi may cancel or reschedule purchase orders for Products 
only with ArthroCare's prior written approval.  

4.5     Shipping.  All Products delivered pursuant to the 
terms of this Agreement shall be suitably packed for shipment in 
ArthroCare's standard shipping cartons marked for shipment to the 
destination point indicated in Kobayashi's purchase order and 
delivered to Kobayashi at such destination points.  ArthroCare 
shall ship Products F.C.A. ArthroCare's facility using the carrier 
specified in Kobayashi's purchase order provided that if Kobayashi 
does not provide instructions with respect to the carrier to be 
used, ArthroCare shall select the carrier.  All freight, 
insurance, and other shipping expenses, as well as any special 
packing expenses, shall be paid by Kobayashi.  Kobayashi shall 
also bear all applicable taxes, duties and similar charges that 
may be assessed against the Products after delivery to the carrier 
F.C.A. ArthroCare's facility location.  All shipments and freight 
charges shall be deemed correct unless ArthroCare receives from 
Kobayashi, no later than [*****] after the shipping date of a 
given shipment, a written notice specifying the shipment, the 
purchase order number, and the exact nature of the discrepancy 
between the order and shipment or discrepancy in the freight cost, 
as applicable. 

4.6     Product Returns.  Except as set forth in Article 6 
below, Kobayashi may return sterile wands and undamaged Products 
in saleable condition only with ArthroCare's prior written 
approval and only within [*****] of receipt by Kobayashi.  
Products returned to ArthroCare other than under Article 6 shall 
be returned F.O.B. the destination point designated by ArthroCare 
and Products returned more than [*****] after receipt by Kobayashi 
of such Products shall be subject to a restocking fee in an amount 
equal to [*****] of the transfer price paid by Kobayashi to 
ArthroCare for such Products.

5.      ACCEPTANCE

Kobayashi shall inspect all Products promptly upon receipt 
thereof and may reject any Product that fails to conform to the 
warranties set forth in Article 6 below at the time of delivery to 
Kobayashi, provided that Kobayashi complies with the provisions of 
Section 6.2 below.  Except as set forth in this Article 5 and 
Article 6 below, Kobayashi shall return Products to ArthroCare 
only with ArthroCare's prior written approval.

6.      WARRANTY

6.1     Product Warranty.  ArthroCare warrants to Kobayashi 
that at the time of delivery to Kobayashi the Products purchased 
by Kobayashi shall (i) conform to packaging and labeling 
specifications agreed upon by the parties, (ii) meet the 
specifications for the Products set forth in the Marketing 
Approval Application for such Product approved by the Ministry of 
Health and Welfare, (iii) be free from defects in design, 
materials or workmanship, (iv) be of merchantable quality and fit 
for the purpose for which they are intended; and (v) the 
manufacture of such Products will comply with all applicable laws 
in the place of manufacture.  This warranty is contingent upon 
proper use of Products in the application for which they were 
intended as indicated in the Product label claims, and ArthroCare 
makes no warranty (express, implied, or statutory) for Products 
that are modified (except as expressly contemplated herein), or 
subjected to accident, misuse, neglect, unauthorized repair, or 
improper testing or storage.

6.2     Exclusive Remedy.  In the event that any Product 
purchased by Kobayashi from ArthroCare fails to conform to the 
warranty set forth in Section 6.1 above or is recalled pursuant to 
Section 7.8.2, ArthroCare shall, at ArthroCare's sole election, 
repair or replace the Product, or component thereof, or credit 
Kobayashi's account for the amount actually paid for any such 
Product, or component thereof or direct costs of promotion 
actually incurred by Kobayashi as a result of such failure to 
conform or recall within [*****] of receipt by ArthroCare thereof, 
provided that (i) Kobayashi promptly notifies ArthroCare in 
writing that such Product failed to conform and furnishes an 
explanation of any reported nonconformity and requests a return 
material authorization number; (ii) such Product is returned to 
ArthroCare by Kobayashi F.O.B. the address designated by 
ArthroCare during the warranty period with the return material 
authorization number affixed prominently to the outside packaging; 
and (iii) the reported nonconformities actually exist and were not 
caused by accident, misuse, neglect, alteration, repair or 
improper testing or storage.  If such Product fails to so conform, 
ArthroCare will reimburse Kobayashi for shipment charges for 
return of the nonconforming Product.

6.3     Exclusion of Other Warranties.  EXCEPT FOR THE LIMITED 
WARRANTIES PROVIDED IN SECTION 6.1 ABOVE, ARTHROCARE GRANTS NO 
OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, IN 
ANY COMMUNICATION WITH KOBAYASHI OR ITS CUSTOMERS, OR OTHERWISE, 
REGARDING THE PRODUCTS OR VALIDITY OF ARTHROCARE TECHNOLOGY, AND 
ARTHROCARE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTY OF 
NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.  
ARTHROCARE NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO 
ASSUME ANY OTHER LIABILITIES ARISING OUT OF OR IN CONNECTION WITH 
THE SALE OR USE OF ANY ARTHROCARE PRODUCT.

7.      ADDITIONAL OBLIGATIONS OF KOBAYASHI

7.1     Marketing Approval.  Kobayashi shall prepare and file 
all regulatory documents in ArthroCare's name with respect to 
Products.  In addition, Kobayashi agrees to file this Agreement, 
if required, with the Japan Fair Trade Commission (the "JFTC").  
ArthroCare shall own all regulatory filings and shall have the 
right to obtain copies directly from Kobayashi of, and to 
reference, for any purpose, any and all regulatory filings made by 
Kobayashi with respect to Products.  If any Product clinical 
trials are required under the laws of Japan at any time during the 
term of the Agreement, then Kobayashi, at Kobayashi's expense 
(exclusive of Products provided by ArthroCare pursuant to 
Section 8.1), shall organize, conduct and support any and all 
preclinical and clinical trials required to obtain registrations, 
licenses and permits required to comply with the laws of 
regulations of Japan for sale and distribution of Products. 

7.2     Minimum Performance Requirements.  For the [*****] 
following regulatory approval for the Products in Japan, 
ArthroCare and Kobayashi will agree to minimum  performance 
requirements and during each calendar year, Kobayashi shall 
purchase from ArthroCare the quantity of Products required to meet 
the minimum performance requirements.  The minimum performance 
requirements shall be determined in good faith by mutual agreement 
of ArthroCare and Kobayashi.  The parties intend that such 
minimums will be realistic, taking into account the numbers 
actually attained in the immediately preceding year, market 
conditions then prevailing and other relevant factors.  Should the 
parties fail to mutually agree to the minimum performance 
requirements within  [*****] before the beginning of each of the 
[*****], then they shall submit their differences to mediation to 
discuss and attempt to resolve the differences amicable without 
resort to arbitration.  Any differences which have not been 
resolved within [*****] shall be resolved by arbitration in 
accordance with Article 16 of this Agreement.  The minimum 
performance requirements shall be provided for all Products as a 
total, not for a specific Product.  In case of failure to attain 
the minimum performance requirements, both parties shall in good 
faith consult regarding the reasons for such shortfall.  Failure 
to meet such minimum performance requirements will constitute a 
breach of this Agreement.  Beginning in the [*****] following 
regulatory approval for the Products in Japan, upon any failure of 
Kobayashi to meet the minimum performance requirements for [*****] 
Kobayashi will be on a probationary period for a period of [*****] 
and upon Kobayashi's subsequent failure to meet minimum 
performance requirements for such [*****] probationary period, 
ArthroCare shall have the right to terminate this Agreement, such 
termination to be at ArthroCare's discretion either (i) effective 
immediately, or (ii) effective [*****] from notice to Kobayashi of 
ArthroCare's intent to terminate, and in either case there will be 
a wind up period of [*****].

7.3     Advertising and Promotions.

Kobayashi shall:  

i.      list the Products in its catalogs and make such 
Products available to its customers; 

ii.     employ adequate and experienced sales personnel;

iii.    dedicate sufficient product and project 
management, marketing and financial resources to pursue the market 
opportunities for the Product in Japan;

iv.     advertise the Product in trade and other 
relevant publications;

v.      participate in appropriate trade shows; and

vi.     make sales calls on physicians.

7.4     Materials.  ArthroCare shall provide to Kobayashi 
samples of ArthroCare's promotional, educational and training 
materials for the Products in English.  Kobayashi shall translate 
into Japanese, at its own expense, any promotional materials, user 
and technical manuals, or advertising and marketing information 
which Kobayashi determines may be useful in the marketing of 
Products.  Kobayashi shall have an exclusive right to use all such 
materials in Japan during the term of this Agreement in connection 
with its activities pursuant to this Agreement.  ArthroCare will 
pay Kobayashi's reasonable costs for the translation of user and 
technical manuals from English into Japanese, in the event 
ArthroCare elects to own them.  Kobayashi shall provide to 
ArthroCare samples of all promotional, advertising, exhibition, 
training and educational materials prepared by or on behalf of 
Kobayashi and relating to the Products, for informational purposes 
only.

7.5     Product Packaging and Labeling.  Kobayashi shall not 
repackage or relabel Products supplied to Kobayashi by ArthroCare 
hereunder without the prior written consent of ArthroCare, except 
as may be required by regulatory authorities in Japan.

7.6     Inventory.  Kobayashi will use its commercially 
reasonable efforts, at its own expense, to maintain a sufficient 
inventory of the Products and of replacement parts to fulfill 
Kobayashi's forecasted demand for the Products in Japan.

7.7     Market Research.  Kobayashi shall assist ArthroCare in 
assessing customer requirements for the Products, including 
modifications and improvements thereto, in terms of quality, 
design, functional capability, and other features.  Kobayashi 
shall advise ArthroCare on market conditions as reasonably 
requested by ArthroCare.

7.8     Other Reporting.

7.8.1   Kobayashi shall provide, at Kobayashi's expense, 
within thirty (30) days after publication, copies of any and all 
articles, manuscripts, abstracts or other literature relating to 
the Products generated by investigators or others in Japan in each 
case to the extent reasonably available to Kobayashi.

7.8.2   Pursuant to the FDA's Medical Device Reporting 
(MDR) Regulations, ArthroCare may be required to report to the FDA 
information that reasonably suggests that a Product may have 
caused or contributed to the death or serious injury or has 
malfunctioned and that the device would be likely to cause or 
contribute to a death or serious injury if the malfunction were to 
recur.  Each of ArthroCare and Kobayashi agree to supply to the 
other any such information promptly after becoming aware of it so 
that each of ArthroCare and Kobayashi can comply with governmental 
reporting requirements.  It is understood and agreed that 
reporting to ArthroCare shall be within twenty-four (24) hours 
after notification to Kobayashi to enable ArthroCare to comply 
with FDA reporting requirements.  In the event that ArthroCare is 
required by any regulatory agency to recall the Products or if 
ArthroCare voluntarily initiates a recall of the Products, 
Kobayashi shall cooperate with and assist ArthroCare in locating 
and retrieving if necessary, the recalled Products from 
Kobayashi's customers.  Kobayashi shall maintain records of sales 
of Products to customer by lot number, and/or Kobayashi shall make 
such records available to ArthroCare in the event of a Product 
recall or other quality related issue, upon reasonable request 
from ArthroCare.  Kobayashi shall be responsible for obtaining all 
records of Kobayashi sales to end users in the event of a Product 
recall or other quality related issue.  During the time that the 
Products are commercially marketed, distributed, or sold by 
Kobayashi, Kobayashi also shall, within five (5) business days, 
forward all Product complaints which it receives to ArthroCare.  
Kobayashi shall make available to ArthroCare for inspection 
Kobayashi's process and records for adverse event and other 
regulatory reporting purposes at mutually agreed upon times and 
further shall ensure that Kobayashi's processes comply with all 
applicable laws and regulations in the United States and Japan. 

7.9     Business Obligations.  Any and all obligations 
associated with Kobayashi's business shall remain the sole 
responsibility of Kobayashi.  Any and all sales and other 
agreements between Kobayashi and its customers are and shall 
remain Kobayashi's exclusive responsibility and shall have no 
affect on Kobayashi's obligations pursuant to this Agreement.

7.10    Annual Operating and Marketing Plans.  Kobayashi shall 
develop annual operating and marketing plans for the Products 
(collectively, the "Business Plan") which shall include without 
limitation (i) promotion strategy and tactics, (ii) historic 
sales, sales and other marketing plans, and (iii) education 
programs, training programs and plans for support of Kobayashi 
personnel and customers.  For each year during the term of this 
Agreement, the Business Plan shall be provided to ArthroCare for 
review by ArthroCare not later than [*****] of such year.  
Kobayashi shall comply with the Business Plan, and shall appoint a 
product manager who shall be responsible for management of the 
Business Plan. 

7.11    Customer Support.  Kobayashi shall maintain 
knowledgeable support personnel to provide instructions to 
customers in the use of the Products.  Kobayashi agrees that such 
support personnel will, at Kobayashi's expense attend a hands-on 
sales training session relating to the Products in a location to 
be mutually agreed upon, and observe the use of the Products in 
applicable surgical applications to improve the clinical knowledge 
of such personnel relating to the Products.  Kobayashi shall be 
fully responsible for any and all technical support of Kobayashi's 
customers.

7.12    Sales and Inventory Reports.  Kobayashi shall provide 
to ArthroCare a sales report, in English and expressed in units on 
[*****] interval and in a format to be agreed by ArthroCare and 
Kobayashi.  This information will at a minimum include:  item and 
unit reported by month.

8.      ADDITIONAL OBLIGATIONS OF ARTHROCARE

8.1     Samples.  ArthroCare at its expense shall provide to 
Kobayashi samples of  three (3) demonstration controllers and a 
reasonable number of accessories for Kobayashi's use in obtaining 
marketing approval.  If additional clinical applications are 
mutually agreed to by the parties and are required for regulatory 
approved, additional samples will be provided by ArthroCare at 
[*****] of ArthroCare's then fully burdened cost of goods as 
calculated in accordance with generally accepted accounting 
principles.

8.2     Promotional Materials.  ArthroCare, at ArthroCare's 
expense, shall provide to Kobayashi English language samples of 
promotional support materials for the Products.  Such materials 
shall include, without limitation, brochures and advertising 
literature.

8.3     Training.  ArthroCare will provide training for 
Kobayashi's personnel in connection with the marketing, sale, 
installation, maintenance and support of Products; provided, 
however, that such training shall be reasonably available and 
necessary to assist Kobayashi to market and distribute Products 
and to perform its obligations under this Agreement.  All expenses 
incurred by Kobayashi's personnel in connection with all training 
including, without limitation, travel and lodging expenses,  
[*****]. Training shall be conducted at mutually agreed 
facilities.

8.4     Technical Support.  ArthroCare will provide Kobayashi 
access to ArthroCare maintenance and support personnel to assist 
Kobayashi's support personnel in providing maintenance and support 
centers; provided, however, that such training shall be reasonably 
available and necessary to assist Kobayashi to market and 
distribute Products and to perform its obligations under this 
Agreement.

8.5     Scientific and Technical Information.  ArthroCare 
shall provide to Kobayashi scientific and technical information 
required to obtain and maintain registrations, licenses and 
permits required for sale and distribution of the Products in 
Japan, or to respond to inquiries from customers, or governmental 
or regulatory authorities.

8.6     Support.  ArthroCare, at ArthroCare's expense and as 
deemed reasonable by ArthroCare, shall provide consultation to 
Kobayashi concerning technical aspects and use of the Products.  
In addition, if ArthroCare introduces a modified version of a 
Product which is then added to this Agreement, ArthroCare will 
provide to Kobayashi any information and additional marketing and 
sales support materials necessary to permit Kobayashi to promote 
Products in Japan or obtain registration for such Products.

9.      TERM AND TERMINATION

9.1     Term.  This Agreement shall become effective as of the 
Effective Date and shall continue in full force and effect for a 
period of [*****] after approval of the first Marketing Approval 
Application by the Japanese Ministry of Health and Welfare for the 
first Product ("Initial Term"), unless earlier terminated in 
accordance with this Article 9.  At least [*****] prior to the 
expiration of the Initial Term or any subsequent term, this 
Agreement may be renewed for additional  [*****] periods by mutual 
written agreement of the parties.  Unless the parties so agree to 
extend this Agreement, this Agreement shall expire at the end of 
the Initial Term, or subsequent term, as the case may be.

9.2     Termination for Cause.  Either ArthroCare or Kobayashi 
may terminate this Agreement by written notice stating each 
party's intent to terminate in the event the other shall have 
breached or defaulted in the performance of any of its material 
obligations hereunder, and such default shall have continued for 
[*****] after written notice thereof was provided to the breaching 
party by the non-breaching party. 

9.3     Termination for Serious Adverse Events.  In the event 
a Product causes death or serious injury resulting in a 
requirement by the Ministry of Health and Welfare to cease 
marketing of the Products ("Serious Event"), Kobayashi shall 
notify ArthroCare promptly and thereafter Kobayashi and ArthroCare 
shall consult with one another to determine the cause of the 
Serious Event and the appropriate course of action.  If the 
parties do not agree upon an acceptable course of action during 
the [*****] following a Serious Event, either party may terminate 
this Agreement during the [*****] thereafter upon [*****] prior 
written notice.  

9.4     Termination for Bankruptcy.  Either party may 
terminate this Agreement effective upon written notice to the 
other party in the event the other party declares bankruptcy or 
becomes the subject of any voluntary or involuntary proceeding 
under the U.S. Bankruptcy Code, foreign equivalent or state 
insolvency proceeding and such proceeding is not terminated within 
[*****] of its commencement.

9.5     Effect of Termination.

9.5.1   In the event of termination by either party in 
accordance with any of the provisions of this Agreement, neither 
party shall be liable to the other, because of such termination, 
for compensation, reimbursement or damages on account of the loss 
of prospective profits or anticipated sales or on account of 
expenditures, inventory, investments, leases or commitments in 
connection with the business or goodwill of ArthroCare or 
Kobayashi.  Expiration or termination of this Agreement for any 
reason shall not release any party hereto from any liability 
which, at the time of such termination, has already accrued to the 
other party or which is attributable to a period prior to such 
termination nor preclude either party from pursuing any rights and 
remedies it may have hereunder or at law or in equity with respect 
to any breach of this Agreement.  It is understood and agreed that 
monetary damages may not be a sufficient remedy for any breach of 
this Agreement and that the non-breaching party may be entitled to 
injunctive relief as a remedy for any such breach.  Such remedy 
shall not be deemed to be the exclusive remedy for any such breach 
of this Agreement, but shall be in addition to all other remedies 
available at law or in equity.

9.5.2   Within thirty (30) days after the effective date 
of termination of this Agreement, Kobayashi shall use its 
reasonable efforts to provide ArthroCare with a complete inventory 
of unsold, resalable Products in Japan, and in transit to 
Kobayashi from ArthroCare. 

9.5.3   Upon expiration or any termination of this 
Agreement, ArthroCare or its designee may repurchase and Kobayashi 
shall sell to ArthroCare or its designee, all of Kobayashi's 
inventory of Products existing on the effective date of 
termination.  The price of inventory repurchased upon Kobayashi's 
termination of this Agreement pursuant to Section 9.2 shall be 
[*****].  If ArthroCare terminates this Agreement pursuant to 
Section 7.2 or 9.2, then a restocking charge of [*****] of the 
repurchase price shall be deducted from the transfer price for 
Products repurchased upon termination.  Products repurchased from 
Kobayashi by ArthroCare pursuant to this Section 9.5.3 shall be 
shipped promptly by Kobayashi, at ArthroCare's expense, to a 
location specified by ArthroCare.

9.5.4   Upon expiration or any termination of this 
Agreement, Kobayashi shall transfer any ownership not then 
residing in ArthroCare of any and all Product authorizations, 
registrations, permits, and approvals of any kind with respect to 
Products and applications therefor, including without limitation 
marketing approval applications, and any other governmental 
approvals, registrations and the like to ArthroCare, at 
ArthroCare's cost and expense and shall execute such documents and 
perform such acts as may be necessary, useful, or convenient to 
perfect such transfer. It is understood that ArthroCare may use 
and disclose the foregoing for any purpose. 

9.5.5   Upon termination of this Agreement, ArthroCare 
will fill orders received by Kobayashi prior to the date of notice 
of such termination.

9.6     Return of Materials.  All trademarks, marks, trade 
names, patents, copyrights, designs, drawings, formulas or other 
data, photographs, samples, literature, and sales and promotional 
aids of every kind relating to the Products shall remain the 
property of ArthroCare except those items Kobayashi has solely 
developed or translated.  Effective upon the termination of this 
Agreement, Kobayashi shall cease to use all trademarks and trade 
names of ArthroCare.

9.7     No Renewal, Extension or Waiver.  Acceptance of any 
order from, or sale of, any Product to Kobayashi after the date of 
termination of this Agreement shall not be construed as a renewal 
or extension hereof, or as a waiver of termination by ArthroCare.

9.8     Survival of Certain Terms.  The provisions of Articles 
6, 10, 12, 13 and 15, 16, and 17; Sections 2.3, 2.4, and 9.5; 
shall survive the expiration or termination of this Agreement for 
any reason.

10.     CONFIDENTIALITY

10.1    Confidential Information.  Except as expressly 
provided herein, the parties agree that, for the term of this 
Agreement and for [*****] thereafter, the receiving party shall 
not publish or otherwise disclose and shall not use for any 
purpose, except as expressly permitted herein any information 
furnished to it by the other party hereto pursuant to this 
Agreement which if disclosed in tangible form is marked 
"Confidential" or with other similar designation to indicate its 
confidential or proprietary nature, or if disclosed orally is 
confirmed as confidential or proprietary by the party disclosing 
such information at the time of such disclosure or within [*****] 
thereafter ("Confidential Information").  Notwithstanding the 
foregoing, it is understood and agreed that Confidential 
Information shall not include information that, in each case as 
demonstrated by written documentation:

i.      was already known to the receiving party, other 
than under an obligation of confidentiality, at the time of 
disclosure;

ii.     was generally available to the public or 
otherwise part of the public domain at the time of its disclosure 
to the receiving party;

iii.    became generally available to the public or 
otherwise part of the public domain after its disclosure and other 
than through any act or omission of the receiving party in breach 
of this Agreement; or

iv.     was subsequently lawfully disclosed to the 
receiving party by a person other than a party hereto or developed 
by the receiving party without reference to any information or 
materials disclosed by the disclosing party.

10.2    Permitted Disclosures.  Notwithstanding the provisions 
of Section 10.1 above, each party hereto may disclose the other's 
Confidential Information to the extent such disclosure is 
reasonably necessary in prosecuting or defending litigation, 
complying with applicable governmental regulations, or submitting 
information to tax or other governmental authorities provided that 
if a party is required to make any such disclosure of another 
party hereto's Confidential Information, to the extent it may 
legally do so, it will give reasonable advance written notice to 
the latter party of such disclosure and will use its reasonable 
efforts to secure confidential treatment of such Confidential 
Information prior to its disclosure (whether through protective 
orders or otherwise).  If the party whose Confidential Information 
is to be disclosed has not filed a patent application with respect 
to such Confidential Information, it may require the other party 
to delay the proposed disclosure (to the extent the disclosing 
party may legally do so), for up to [*****] after receipt of 
written notice from the disclosing party of its intent to 
disclose, to allow for the filing of such an application.  In 
addition, ArthroCare may disclose the existence of this Agreement 
and the terms and conditions hereof to advisors, prospective 
investors, and others under circumstances that reasonably ensure 
the confidentiality thereof.

11.     TRADEMARKS AND TRADE NAMES

11.1    Marks.  During the term of this Agreement, Kobayashi 
shall have the right and agrees to, advertise and promote the 
Products in Japan under ArthroCare's trademarks and trade names 
identified on Exhibit B as modified by ArthroCare pursuant to this 
Section 11.1 ("Marks").  ArthroCare reserves the right to modify 
Marks or substitute alternative marks for any or all of the Marks 
at any time upon ninety (90) days prior written notice, provided 
that ArthroCare shall not modify the Marks unreasonably after the 
filing of the Marketing Approval Application. The rights granted 
under this Section 11.1 shall automatically terminate on 
termination or expiration of this Agreement.  ArthroCare shall 
endeavor to register the Marks with the Japanese Patent Office as 
trademarks in the appropriate classes and maintain the 
registrations of such Marks, and Kobayashi shall cooperate and 
upon ArthroCare's reasonable request, provide full information and 
reasonable assistance to ArthroCare in registering and maintaining 
the Marks, including without limitation providing evidence of use 
of the Marks as reasonably required to renew registrations or 
defend actions for cancellations.

11.2    Use.  Kobayashi shall not remove, modify, or obscure 
Marks affixed to Products without the prior written consent of 
ArthroCare, unless required by law.  Except as set forth in this 
Section 11.2, nothing contained in this Agreement shall grant to 
Kobayashi any right, title or interest in or to Marks whether or 
not specifically recognized or perfected under applicable laws of 
Japan, and Kobayashi irrevocably assigns to ArthroCare all such 
right, title and interest, if any, in any Marks.  At no time 
during or after the term of this Agreement shall Kobayashi 
challenge or assist others to challenge Marks or the registration 
thereof or attempt to register any trademarks, marks or trade 
names confusingly similar to Marks.  All representations of Marks 
that Kobayashi intends to use shall first be submitted to 
ArthroCare for review of design, color, and other details or shall 
be exact copies of those used by ArthroCare.  In addition, 
Kobayashi shall fully comply with all reasonable guidelines, if 
any, communicated by ArthroCare concerning the use of Marks.  

12.     INTELLECTUAL PROPERTY

12.1    Maintenance.  ArthroCare will be responsible for 
maintaining all patents, trademarks, and trade names and 
diligently prosecuting all patent applications covering the 
Products in Japan.

12.2    ArthroCare Defense.  Kobayashi agrees that ArthroCare 
has the right to defend, or at its option to settle, and 
ArthroCare agrees, at its own expense, to defend or at its option 
to settle, any claim, suit or proceeding brought against Kobayashi 
by any third party for infringement of any patent by the Products. 
 ArthroCare shall have sole control of any such action or 
settlement negotiations, and ArthroCare agrees to pay, subject to 
the limitations hereinafter set forth, any final judgment entered 
against Kobayashi on such issue in any such claim, suit or 
proceeding defended by ArthroCare.  Kobayashi agrees that 
ArthroCare shall be relieved of the foregoing obligations unless 
Kobayashi (i) notifies ArthroCare promptly in writing of such 
claim, suit or proceeding; (ii) gives ArthroCare authority to 
proceed as contemplated herein; and (iii) at ArthroCare's expense, 
gives ArthroCare proper and complete information to the best of 
Kobayashi's knowledge and assistance to settle or defend any such 
claim, suit or proceeding for infringement of any patent.  
Notwithstanding the foregoing, ArthroCare's obligation to defend 
Kobayashi under this Section 12.2 shall not apply to any claims, 
suits, or proceedings to the extent they allege infringement of 
third party components.  Notwithstanding the provisions of this 
Article 12, ArthroCare assumes no infringement liability for 
(x) combination of Products with other products not approved by 
ArthroCare, which infringement would not arise from such Products 
standing alone, or (y) the modification of such Products not 
approved by ArthroCare, where such infringement would not have 
occurred but for such modifications.

12.3    Kobayashi Remedy.  Notwithstanding the foregoing, if 
it is adjudicatively determined that any Product infringes, or in 
ArthroCare's sole opinion, may be  found to infringe a third 
party's patent, or if the sale or use of the Products is, as a 
result, enjoined, then ArthroCare may, at its option and expense, 
either:  (i) procure for Kobayashi the right under such patent to 
sell or use, as appropriate, the Products; or (ii) replace the 
Products with other non-infringing functionally equivalent 
products; or (iii) modify the Products to make the Products 
functionally equivalent and non-infringing; or (iv) if the use of 
the Products is prevented by injunction, discontinue Product sales 
under the Agreement and remove any Products in Kobayashi's 
inventory and refund the aggregate payments paid therefor by 
Kobayashi.

12.4    DISCLAIMER.  THE FOREGOING PROVISIONS OF THIS ARTICLE 
12 STATE THE ENTIRE LIABILITY OF ARTHROCARE AND THE EXCLUSIVE 
REMEDY OF KOBAYASHI AND ITS CUSTOMERS, WITH RESPECT TO ANY ALLEGED 
INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS OR OTHER 
INTELLECTUAL PROPERTY RIGHTS BY THE PRODUCTS OR ANY PART THEREOF.

13.     INDEMNIFICATION

13.1    Indemnification of Kobayashi. ArthroCare shall 
indemnify, defend, and hold harmless Kobayashi, and its directors, 
officers, employees, and agents, and the successors and assigns of 
any of the foregoing (the "Kobayashi Indemnitees") from and 
against all claims, losses, costs, and liabilities (including, 
without limitation, payment of reasonable attorneys' fees and 
other expenses of litigation), and shall pay any damages 
(including settlement amounts) finally awarded with respect to 
claims, suits, or proceedings (any of the foregoing, a "Claim") 
brought by third parties against a Kobayashi Indemnitee, alleging 
bodily injury, death or property damage caused by (a) a breach by 
ArthroCare of warranties and representations, or (b) the 
negligence or willful misconduct of ArthroCare, its employees or 
agents, except to the extent such Claim is covered under 
Section 13.2 below or is caused by the negligence or willful 
misconduct of a Kobayashi Indemnitee.

13.2    Indemnification of ArthroCare.  Kobayashi shall 
indemnify, defend, and hold harmless ArthroCare, and its 
directors, officers, employees and agents, and the successors, and 
assigns of any of the foregoing (the "ArthroCare Indemnitees") 
from and against all claims, losses, costs, and liabilities 
(including, without limitation, payment of reasonable attorneys' 
fees and other expenses of litigation), and shall pay any damages 
(including settlement amounts) finally awarded with respect to a 
Claim brought by third parties against a ArthroCare Indemnitee, 
arising out of or relating to (a) Products sold, or otherwise 
distributed by Kobayashi, except to the extent such claim is 
covered under Section 13.1 above; (b) breach of any of the 
representations or warranties made by Kobayashi hereunder, or 
(c) the negligence or willful misconduct of Kobayashi or its 
employees.

13.3    Indemnification Procedures.  A party (the 
"Indemnitee") that intends to claim indemnification under this 
Article 13 shall promptly notify the other party (the 
"Indemnitor") in writing of any claim in respect of which the 
Indemnitee or any of its directors, officers, employees, agents, 
licensors, successors, or assigns intends to claim such 
indemnification, and the Indemnitor shall have sole control of the 
defense and/or settlement thereof, provided that the indemnified 
party may participate in any such proceeding with counsel of its 
choice at its own expense.  The indemnity agreement in this 
Article 13 shall not apply to amounts paid in settlement of any 
Claim if such settlement is effected without the consent of the 
Indemnitor, which consent shall not be withheld unreasonably.  The 
failure to deliver written notice to the Indemnitor within a 
reasonable time after the commencement of any such action, if 
prejudicial to its ability to defend such action, shall relieve 
such Indemnitor of any liability to the Indemnitee under this 
Article 13, but the omission to so deliver written notice to the 
Indemnitor shall not relieve the Indemnitor of any liability that 
it may otherwise have to any Indemnitee than under this 
Article 13.  The Indemnitee under this Article 13, its employees 
and agents, shall cooperate fully with the Indemnitor and its 
legal representatives and provide reasonable information in the 
investigation of any Claim covered by this indemnification.  
Notwithstanding anything to the contrary contained in this Article 
13, neither party shall be liable for any costs or expenses 
incurred without its prior written authorization. 

14.     COMPLIANCE WITH LAWS AND FOREIGN LAW WARRANTIES AND 
OBLIGATIONS

14.1    Compliance with Laws.  Kobayashi shall at all times 
conduct its efforts hereunder with the highest commercial 
standards and in strict accordance with all applicable laws, 
rules, directives and regulations ("Laws").  The Kobayashi shall 
be responsible for current and ongoing familiarity and compliance 
with all Laws applicable to the importation, distribution, 
marketing, sale, operation, use or support of the Products in 
Japan.

14.2    Currency Control.  Kobayashi represents and warrants 
that, on the Effective Date of this Agreement, no currency control 
laws applicable in Japan prevent the payment to ArthroCare of any 
sums due under this Agreement.

14.3    Foreign Corrupt Practices Act.  In conformity with the 
United States Foreign Corrupt Practices Act and with ArthroCare's 
established corporate policies regarding foreign business 
practices, Kobayashi and its employees and agents shall not 
directly or indirectly make any offer, payment, promise to pay, or 
authorize payment, or offer a gift, promise to give, or authorize 
the giving of anything of value for the purpose of influencing an 
act or decision of an official of any government within Japan or 
the United States Government (including a decision not to act) or 
inducing such a person to use his influence to affect any such 
governmental act or decision in order to assist ArthroCare in 
obtaining, retaining or directing any such business in violation 
of the Foreign Corrupt Practices Act.

15.     LIMITATION OF LIABILITY

EXCEPT FOR LIABILITY ARISING UNDER SECTION 13.1 AND 
ARTICLE 12, ARTHROCARE'S LIABILITY ARISING OUT OF THIS AGREEMENT, 
THE TERMINATION THEREOF, AND/OR SALE OF THE PRODUCTS SHALL BE 
LIMITED TO THE AMOUNT PAID BY KOBAYASHI FOR THE PRODUCT.  IN NO 
EVENT SHALL ARTHROCARE BE LIABLE TO KOBAYASHI FOR COSTS OF 
PROCUREMENT OF SUBSTITUTE GOODS, LOST PROFITS, OR ANY OTHER 
SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND 
UNDER ANY THEORY OF LIABILITY ARISING OUT OF THIS AGREEMENT 
WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR 
OTHERWISE.  THESE LIMITATIONS SHALL APPLY WHETHER OR NOT 
ARTHROCARE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND 
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED 
REMEDY PROVIDED HEREIN.

16.     DISPUTE RESOLUTION

16.1    Disputes.  If ArthroCare and Kobayashi are unable to 
resolve any dispute between them, either ArthroCare or Kobayashi 
may, by written notice to the other, have such dispute referred to 
the chief executive officers (or equivalent) of ArthroCare and 
Kobayashi, for attempted resolution by good faith negotiations 
within thirty (30) days after such notice is received.  Unless 
otherwise mutually agreed, the negotiations between the designated 
officers shall be conducted by telephone, within three (3) days, 
and at times within the period stated above as offered by the 
designated officers of Kobayashi to the designated officer of 
ArthroCare for consideration. 

16.2    Arbitration.  Any dispute, controversy or claim 
arising out of or relating to the validity, construction, 
enforceability or performance of this Agreement, including 
disputes relating to alleged breach or to termination of this 
Agreement, shall be settled by final, binding arbitration in the 
manner described in this Section 16.2.  The arbitration shall be 
conducted pursuant to the Commercial Arbitration Rules of the 
American Arbitration Association then in effect ("Rules").  
Notwithstanding those Rules, the following provisions shall apply 
to the arbitration hereunder:

1.      Arbitrators.  The arbitration shall be conducted 
by a panel of three (3) arbitrators ("the Panel").  Each party 
shall have the right to appoint one (1) member of the Panel, with 
the third member to be mutually agreed by the two (2) Panel 
members appointed by the parties or appointed in accordance with 
the rules of the American Arbitration Association.  The 
arbitrators shall be persons in the medical device industry with 
experience in the matters in dispute.

2.      Proceedings.  The parties and the arbitrators 
shall use their best efforts to complete the arbitration within 
one (1) year after the appointment of the Panel under Section 
16.2.1 above, unless a party can demonstrate to the Panel that the 
complexity of the issues or other reasons warrant the extension of 
the time table.  In such case, the Panel may extend such time 
table as reasonably required. Notwithstanding the foregoing, any 
arbitration of whether a payment is due under Article 3 above 
shall be completed and a decision reached within sixty (60) days 
after the appointment of the Panel.  The Panel shall, in rendering 
its decision, apply the substantive law of the State of 
California, without regard to its conflict of laws provisions, 
except that the interpretation of and enforcement of this 
Article 16 shall be governed by the U.S. Federal Arbitration Act. 
 The proceeding shall take place in the city of Honolulu and 
county of Oahu.  The fees of the Panel shall be paid by the losing 
party which party shall be designated by the Panel.  If the Panel 
is unable to designate a losing party, it shall so state and the 
fees shall be shared equally between the parties.

17.     MISCELLANEOUS PROVISIONS

17.1    Independent Contractors.  The relationship of 
ArthroCare and Kobayashi established by this Agreement is that of 
independent contractors, and nothing contained in this Agreement 
shall be construed to (i) give either party the power to direct or 
control the day-to-day activities of the other, (ii) constitute 
the parties as partners, joint venturers, co-owners or otherwise 
as participates in a joint or common undertaking, or (iii) allow a 
party to create or assume any obligation on behalf of the other 
party for any purpose whatsoever.  

17.2    Notices.  Any notice required or permitted by this 
Agreement shall be in writing and shall be sent by prepaid 
registered or certified mail, return receipt requested, 
internationally-recognized courier or personal delivery, addressed 
to the other party at the address shown at the beginning of this 
Agreement or at such other address for which such party gives 
notice hereunder.  Such notice shall be deemed to have been given 
when delivered:

If to Kobayashi:        Kobayashi Pharmaceutical Co., Ltd.
3-6, 4-Chome, Doshomachi
Chuo-Ku, Osaka, 541 Japan
Attention:  Takafumi Sakaguchi

If to ArthroCare:       ArthroCare Corporation
595 North Pastoria Avenue
Sunnyvale, CA 94086
Attention:  Allan Weinstein
Vice President, Sales & Marketing

17.3    Force Majeure.  Nonperformance of any party hereto 
(except for payment obligations) shall be excused to the extent 
that performance is rendered impossible by strike, fire, 
earthquake, flood, governmental acts or orders or restrictions, 
delay or failure of suppliers, or any other reason where failure 
to perform is beyond the reasonable control and not caused by the 
gross negligence or willful misconduct of the nonperforming party.

17.4    Assignment.  This Agreement shall not be assignable by 
either party to any third party hereto without the written consent 
of the other party hereto, except that either party will assign 
this Agreement without the other party's consent to an entity that 
acquires all or substantially all of the business or assets of the 
assigning party pertaining to the subject matter hereof, in each 
case whether by merger, acquisition, or otherwise.

17.5    No Implied Waivers; Rights Cumulative.  No failure on 
the part of ArthroCare or Kobayashi to exercise and no delay in 
exercising any right under this Agreement, or provided by statute 
or at law or in equity or otherwise, shall impair, prejudice or 
constitute a waiver of any such right, nor shall any partial 
exercise of any such right preclude any other or further exercise 
thereof or the exercise of any other right.

17.6    Partial Invalidity.  If any provision of this 
Agreement is held to be invalid by a court of competent 
jurisdiction, then the remaining provisions shall remain, 
nevertheless, in full force and effect.  The parties agree to 
renegotiate in good faith any term held invalid and to be bound by 
the mutually agreed substitute provision in order to give the most 
approximate effect intended by the parties.

17.7    No Implied Licenses.  Except as expressly provided 
herein, no party hereto grants to any other party hereto any 
rights or licenses under such party's patent rights, trade secrets 
or other intellectual property rights.

17.8    Language.  This Agreement is in the English language, 
which language shall be controlling in all respects, and all 
versions hereof in any other language shall be for accommodation 
only and shall not be binding upon the parties hereto.  All 
communications and notices to be made or given pursuant to this 
Agreement shall be in the English language.

17.9    Counterparts.  This Agreement may be executed in two 
or more counterparts, each of which shall be deemed an original 
and all of which together shall constitute one instrument.

17.10   Entire Agreement.  This Agreement, including the 
Exhibits attached hereto, constitutes the entire agreement of the 
parties with respect to the subject matter hereof, and supersedes 
all prior or contemporaneous understandings or agreements, whether 
written or oral, between ArthroCare and Kobayashi with respect to 
such subject matter.  No amendment or modification hereof shall be 
valid or binding upon the parties unless made in writing and 
signed by the duly authorized representatives of both parties.

<PAGE>


IN WITNESS WHEREOF, the undersigned are duly authorized to 
execute this Agreement on behalf of ArthroCare and Kobayashi as 
applicable effective as of the Effective Date.

ARTHROCARE CORPORATION                 KOBAYASHI PHARMACEUTICAL CO.,LTD.
("ArthroCare")                         ("Kobayashi")

By: /s/ Michael A. Baker               By: /s/ Kazumasa Kobayashi
-----------------------------          -----------------------------

Print Name: Michael A. Baker           Print Name: Kazumasa Kobayashi
-----------------------------          -----------------------------

Title: President and CEO               Title:  Chairman
-----------------------------          -----------------------------

Date:  August 21, 1997                 Date: August 21, 1997                 
-----------------------------          -----------------------------

<PAGE>


                                  Exhibit A

                               TRANSFER PRICES


Demonstration  Controllers                     [*****] each

Resale Controllers                             [*****] each

Wands                                          [*****]

Additional Cables                              [*****] each


<PAGE>



                                   Exhibit B

                            INITIAL STOCKING ORDER


"Initial Stocking Order":

Controllers:

         Sales and  Inventory Units    [*****] x [*****] = [*****]

         Demonstration Units           [*****] x [*****] = [*****]

Wands:                                 [*****] x [*****] = [*****]
                                      ========             -------
                                                           [*****] 
                                                          ========

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

*Certain information on this page has been omitted and filed separately 
 with the Commission.  Confidential treatment has been requested with
 respect to the omitted portions.