CONFIDENTIAL 

                              TERM SHEET 
                  LICENSE AND DISTRIBUTION AGREEMENT 
                      BETWEEN XOMED AND ARTHROCARE
                              June 25, 1998


1.  License Grant:  ArthroCare shall grant to Xomed an exclusive, 
worldwide, non-transferable, license, without the right of sublicense or 
right to manufacture,under the Intellectual Property Rights, with the 
right to use, market, sell and distribute ArthroCare's Products (as 
defined in section 3) solely for use in the Field ("License Rights").  
The Field shall mean the use of Coblation TM technology in 
Otorhinolaryngology and head and neck procedures, and ENT surgeons in 
the AAFPRS that practice facial plastic surgery. 

The Intellectual Property Rights shall include all of ArthroCare's 
patents and patent applications in the Field and all of ArthroCare's 
registered trademarks and trademark applications in the Field.  
ArthroCare will have direct access to Xomed accounts to gain market and 
clinical feedback.  

Under the License Rights, ArthroCare will have the initial right, but 
not the obligation, to enforce the Intellectual Property Rights 
including the right to sue for patent infringement.  In the event 
ArthroCare chooses not to initiate any Action involving the License 
Rights, Xomed shall have the right, but not the obligation, to enforce 
these rights.

2.  License Consideration:  In consideration for the exclusive nature of 
the license and  distribution agreement, Xomed will pay ArthroCare a 
License Fee of [*****] shall be non-refundable even in the event of a 
Xomed termination as outlined in section 11.  During the period between 
the execution of the term sheet and the execution of the definitive 
agreement, the parties will rely upon and operate in good faith under 
this term sheet as outlined in section 14.  

The remaining [*****] of the License Fee shall be payable to ArthroCare 
based upon the first achievement of each of the following milestones:
[*****] 

*Conversion Units will allow ArthroCare and ENTec Model 2000 Controllers 
to be used for dermatology and cosmetic surgery.

In addition to the License Fee, Xomed will pay running royalties on 
ArthroCare Disposable Wands sold by Xomed.  The running royalties shall 
be [*****]of the Net Sales of Disposable Wands, payable on a quarterly 
basis.

"Net Sales" shall mean revenues on an accrual basis, in accordance with 
U.S. generally accepted accounting principles, as follows:  the invoice 
price of ArthroCare Disposable Wands sold by Xomed to third parties 
(including sales made in connection with clinical trials), less, to the 
extent included in such invoice price the total of:  (a) ordinary and 
customary trade discounts actually allowed; (b) credits, rebates and 
returns (including, but not limited to, wholesaler and retailer 
returns); (c) freight, postage, insurance and duties paid for and 
separately identified on the invoice or other documentation maintained 
in the ordinary course of business, and (d) excise taxes, other
consumption taxes, customs duties and compulsory payments to 
governmental authorities actually paid and separately identified on the 
invoice or other documentation maintained in the ordinary course of 
business.  Net Sales shall also include the fair market value of all 
other consideration received by Xomed in respect of ArthroCare 
Disposable Wands, whether such consideration is in cash, payment in 
kind, exchange or another form.

3.  Product Manufacture and Sale:  ArthroCare will agree to manufacture 
and sell to Xomed, and Xomed will agree to exclusively purchase from 
ArthroCare, Xomed's requirements for Products in the Field.  Products 
shall include Controllers, Conversion Units, Cables (standard cable and 
handpiece cable) and Disposable Wands, and ArthroCare will supply 
Products to Xomed at the following prices:

        System 2000 Controllers (incl.1 standard cable): [*****]
        VisageT Conversion Units:                        [*****]     
        Disposable Wands:                   See Section 4
        Rep. Cables:            [*****]
         [*****]


ArthroCare and Xomed recognize that the manufacturing cost of 
Controllers may change as volumes increase, and as new models are 
introduced.  Accordingly, ArthroCare and Xomed agree to meet and discuss 
new Controller pricing as ArthroCare introduces new models, and as 
ArthroCare realizes manufacturing efficiencies.  

4.  Disposable Wand Transfer Price:   ArthroCare will sell the 
Disposable Wands identified  below at the prices set forth below.  
ArthroCare may add to this list from time to time as new products are 
developed.

 AccESST wands(9, 12 channel):             [*****]
 Plasma ScalpelT:                          [*****]
 HummingbirdO Tip:                         [*****]
 CollagENTO:                               [*****]
 ReFLEXO:                                  [*****]
 Visage Stylet:                            [*****]

5.  Forecasts and Stocking Order: :  Xomed will make an initial stocking 
order of [*****] upon the signing of the term sheet.  [*****].   
ArthroCare will agree to relabel these Controllers, at its expense, once 
the Xomed labels are available, and the payment terms for these initial 
[*****] Controllers shall be net 60 days. The mix of wands may be 
selected by Xomed.  During the course of the Agreement, Xomed shall 
furnish ArthroCare with a 6-month forecast with estimated purchase dates 
and quantities of Products, and shall deliver an updated forecast on a 
monthly basis.  The first two months of each forecast will
be binding on Xomed. ArthroCare agrees to use its best efforts to 
support any demand that is higher than the forecast.  

6.  Product Development:  ArthroCare, at its expense and initiative, 
will continue to pursue clinical studies and product development efforts 
in collaboration with Xomed.  If Xomed requests additional product 
development beyond ArthroCare's planned efforts, ArthroCare will provide 
a budget for such product development based on its direct cost plus 
[*****] for overhead.

7.    Minimum Royalties:  During each period specified below, in 
addition to any payments of the License Fee in section 2, Xomed's 
minimum running royalty payments for ENTec and Visage Disposable Wands 
will total at least the following:

Q2-Q4 98:   [*****]         
Q1-Q4 99:   [*****]             
Q1-Q4 00:   [*****] 
Q1-Q4 01:   [*****] 
Q1-Q4 02:   [*****]         

[*****]

* Xomed is not required to actually sell the Disposable Wands during 
this specified period.  In this case, the parties can compute the 
required minimum purchase based on average ASP during the specified 
period.

8.   Conflict of Interest:  Xomed agrees that any efforts by Xomed 
itself, or through its distributors, to sell Electrosurgical products 
that compete with ArthroCare's products will constitute a breach of 
Xomed's obligations to market ArthroCare's Products and consequently a 
breach of this term sheet.  ArthroCare recognizes that Xomed already 
distributes RF products that are not competitive with ArthroCare's 
products, and these existing products will be listed in the
definitive agreement and will be deemed non-competitive.

9.  Visage:  [*****]

10.  Trademarks:  ArthroCare has granted Xomed the right to use all of
ArthroCare's registered and pending trademarks and tradenames during the 
term of this Agreement.  In return, Xomed agrees to advertise and 
promote the Products, where appropriate, under ArthroCare's trademarks 
and tradenames.  Notwithstanding the above, ArthroCare agrees to label 
ENTec products sold to Xomed with the Xomed tradename.

11.  Term and Termination:  This agreement shall continue in full force 
and effect for a period  of five years from the effective date of this 
term sheet, and will be automatically renewable on a yearly basis 
thereafter provided that: [*****]

ArthroCare will have the right to terminate this agreement prior to that 
time if Xomed fails to [*****]. If ArthroCare terminates this Agreement 
for either of these reasons, ArthroCare shall [*****]. In addition, 
ArthroCare shall [*****]. 


[*****]

12.     Change of Control:  Both parties agree not to acquire greater 
than 15% of the other party's stock unless such acquisition is pursuant 
to a friendly tender offer endorsed by the other party's board, or 
unless such acquisition is in response to an unsolicited Change in 
Control attempt by a third party.  To the extent not prohibited under 
applicable law, both parties shall use their best efforts to give the 
other party not less than 30 days prior notice of any Change in
Control.  All such information will be treated as confidential by the 
receiving party. Notwithstanding any such Change in Control, both 
parties shall continue to be obligated to perform its obligations under 
this Agreement.  However, both parties would have the option to 
terminate this Agreement upon the Change in Control of either party, and 
in such event, ArthroCare shall have the duty to buy back all 
controllers owned by Xomed according to the formula in Section 11. 
In addition, if ArthroCare terminates this agreement because of any such 
change of control, ArthroCare shall be required to pay Xomed a 
termination fee as described in section 11.

"Change in Control" means: (a)  the sale, lease, exchange or other 
transfer, directly or indirectly, of substantially all of the assets of 
one of the parties (in one transaction or in a series of related 
transactions) to one or more persons or entities that are not affiliates 
of that party; (b) the approval by the shareholders of one of the 
parties of any plan or proposal for its liquidation or dissolution; or 
(c) a merger or consolidation of one of the parties if the shareholders 
of that party immediately prior to the effective date of such merger or 
consolidation have beneficial ownership, immediately following the 
effective date of such merger or consolidation, of securities of
the surviving corporation representing 50% or less of the combined 
voting power of the surviving corporation's then outstanding securities 
ordinarily having the right to vote at elections of directors.
[*****]

13.  Confidential Treatment:  Other than disclosures that may be 
required by securities or other applicable laws, both parties agree to 
use reasonable efforts to maintain the confidentiality of the final 
agreement and any other confidential information obtained from the other 
party during the course of the agreement (e.g., sales forecasts, 
proprietary information, etc).  In addition, both parties agree to use 
reasonable efforts to receive confidential treatment of the substantive 
portions of this term sheet and the definitive agreement from the SEC.  
Neither party shall issue any press release:  (1) relating to this
term sheet or the definitive agreement; or (2) referring to the other 
party, without providing the other party with the opportunity to review 
and comment on the press release.   

14.  Effect of Term Sheet: This term sheet will be considered a binding 
contract on the parties until the definitive agreement is executed.
    *  The parties shall rely upon and operate in good faith under the 
terms of this term sheet, and shall attempt in good faith to negotiate a 
definitive agreement reflecting the terms of this term sheet as well as 
terms incorporating standard covenants, representations and warranties.   
*   Once the term sheet is executed by both parties, while the 
definitive agreement is being drafted, Xomed shall: (1) pay the [*****] 
license payment outlined in section 2 to ArthroCare; (2) shall make the 
stocking order in section 5; and (3) will cease all discussions with 
competitive RF companies.  In exchange, ArthroCare shall: (1) cease all 
discussions with other potential ENT distributors; (2) cease the sale of 
ENT products; (3) cease the execution of any further agreements with 
distributors for ENT products, and (4) shall not hire any direct sales 
representatives for ENT.



ARTHROCARE CORPORATION          XOMED SURGICAL PRODUCTS


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