CREDIT AGREEMENT


                         DATED AS OF SEPTEMBER 30, 1998


                                      AMONG


                      ARTERIAL VASCULAR ENGINEERING, INC.,
                                  as Borrower,

                           THE LENDERS LISTED HEREIN,
                                   as Lenders,

                           DLJ CAPITAL FUNDING, INC.,
                              as Syndication Agent,

                                    PARIBAS,
                             as Documentation Agent,

                                       and

                              ROYAL BANK OF CANADA,
                             as Administrative Agent




                                  ARRANGED BY:

               DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION


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

                                      S-1

<PAGE>


<TABLE>

                                      ARTERIAL VASCULAR ENGINEERING, INC.

                                                CREDIT AGREEMENT

                                               TABLE OF CONTENTS

<CAPTION>
                                                                                                           Page

<S>      <C>                                                                                                <C>
Section  1.      DEFINITIONS................................................................................  2
         1.1     Certain Defined Terms......................................................................  2
         1.2     Accounting Terms; Utilization of GAAP for Purposes of
                 Calculations Under Agreement............................................................... 40
         1.3     Other Definitional Provisions and Rules of Construction.................................... 40


Section  2.      AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................................................. 40
         2.1     Commitments; Making of Loans; the Register; Notes.......................................... 40
         2.2     Interest on the Loans...................................................................... 49
         2.3     Fees....................................................................................... 53
         2.4     Repayments, Prepayments and Reductions in Revolving Loan
                 Commitments; General Provisions Regarding Payments;
                 Application of Proceeds of Collateral and Payments Under
                 Subsidiary Guaranty........................................................................ 54
         2.5     Use of Proceeds............................................................................ 65
         2.6     Special Provisions Governing Eurodollar Rate Loans......................................... 65
         2.7     Increased Costs; Taxes; Capital Adequacy................................................... 68
         2.8     Obligation of Lenders and Issuing Lenders to Mitigate...................................... 73


Section  3.      LETTERS OF CREDIT.......................................................................... 73
         3.1     Issuance of Letters of Credit and Lenders' Purchase of
                 Participations Therein..................................................................... 73
         3.2     Letter of Credit Fees...................................................................... 77
         3.3     Drawings and Reimbursement of Amounts Paid Under Letters of
                 Credit..................................................................................... 78
         3.4     Obligations Absolute....................................................................... 81
         3.5     Indemnification; Nature of Issuing Lenders' Duties......................................... 82
         3.6     Increased Costs and Taxes Relating to Letters of Credit.................................... 83


Section  4.      CONDITIONS TO LOANS AND LETTERS OF CREDIT.................................................. 85
         4.1     Conditions to Term Loans................................................................... 85
         4.2     Conditions to All Loans.................................................................... 90
         4.3     Conditions to Letters of Credit............................................................ 91

Section  5.      COMPANY'S  REPRESENTATIONS AND WARRANTIES.................................................. 92

                                                      (i)

<PAGE>

                                                                                                           Page
                                                                                                           ----
         5.1     Organization, Powers, Qualification, Good Standing, Business and
                 Subsidiaries............................................................................... 92
         5.2     Authorization of Borrowing, etc............................................................ 93
         5.3     Financial Condition........................................................................ 94
         5.4     No Material Adverse Change; No Restricted Junior Payments.................................. 94
         5.5     Title to Properties; Liens; Real Property.................................................. 94
         5.6     Litigation; Adverse Facts.................................................................. 95
         5.7     Payment of Taxes........................................................................... 95
         5.8     Performance of Agreements; Materially Adverse Agreements;
                 Material Contracts......................................................................... 96
         5.9     Governmental Regulation.................................................................... 96
         5.10    Securities Activities...................................................................... 96
         5.11    Employee Benefit Plans..................................................................... 97
         5.12    Certain Fees............................................................................... 97
         5.13    Environmental Protection................................................................... 98
         5.14    Employee Matters........................................................................... 99
         5.15    Solvency................................................................................... 99
         5.16    Matters Relating to Collateral............................................................. 99
         5.17    Related Agreements.........................................................................100
         5.18    Disclosure.................................................................................101

Section  6.      COMPANY'S AFFIRMATIVE  COVENANTS...........................................................102
         6.1     Financial Statements and Other Reports.....................................................102
         6.2     Corporate Existence, etc...................................................................108
         6.3     Payment of Taxes and Claims; Tax Consolidation.............................................108
         6.4     Maintenance of Properties; Insurance; Application of Net
                 Insurance/ Condemnation Proceeds...........................................................109
         6.5     Inspection Rights; Audits of Inventory and Accounts Receivable;
                 Lender Meeting.............................................................................110
         6.6     Compliance with Laws, etc..................................................................111
         6.7     Environmental Review and Investigation, Disclosure, Etc.;
                 Company's Actions Regarding Hazardous Materials Activities,
                 Environmental Claims and Violations of Environmental Laws..................................111
         6.8     Execution of Subsidiary Guaranty and Personal Property
                 Collateral Documents by Certain Subsidiaries and Future
                 Subsidiaries...............................................................................114
         6.9     Matters Relating to Additional Real Property Collateral....................................115
         6.10    Interest Rate Protection...................................................................116
         6.11    Year 2000 Compliance.......................................................................116

Section  7.      COMPANY'S NEGATIVE COVENANTS...............................................................116
         7.1     Indebtedness...............................................................................116

                                                      (ii)

<PAGE>

                                                                                                           Page
                                                                                                           ----
         7.2     Liens and Related Matters..................................................................118
         7.3     Investments; Joint Ventures................................................................119
         7.4     Contingent Obligations.....................................................................120
         7.5     Restricted Junior Payments.................................................................121
         7.6     Financial Covenants........................................................................121
         7.7     Restriction on Fundamental Changes; Asset Sales and
                 Acquisitions...............................................................................123
         7.8     Consolidated Capital Expenditures..........................................................125
         7.9     Sale or Discount of Receivables............................................................126
         7.10    Transactions with Shareholders and Affiliates..............................................126
         7.11    Disposal of Subsidiary Stock...............................................................126
         7.12    Conduct of Business........................................................................126
         7.13    Amendments or Waivers of Certain Related Agreements........................................127
         7.14    Fiscal Year................................................................................127


Section  8.      EVENTS OF DEFAULT..........................................................................127
         8.1     Failure to Make Payments When Due..........................................................127
         8.2     Default in Other Agreements................................................................128
         8.3     Breach of Certain Covenants................................................................128
         8.4     Breach of Warranty.........................................................................128
         8.5     Other Defaults Under Loan Documents........................................................128
         8.6     Involuntary Bankruptcy; Appointment of Receiver, etc.......................................129
         8.7     Voluntary Bankruptcy; Appointment of Receiver, etc.........................................129
         8.8     Judgments and Attachments..................................................................129
         8.9     Dissolution................................................................................130
         8.10    Employee Benefit Plans.....................................................................130
         8.11    Change in Control..........................................................................130
         8.12    Invalidity of Subsidiary Guaranty; Failure of Security;
                 Repudiation of Obligations.................................................................130
         8.13    Failure to Consummate Acquisition..........................................................131

Section  9.      ADMINISTRATIVE  AGENT......................................................................132
         9.1     Appointment................................................................................132
         9.2     Powers and Duties; General Immunity........................................................133
         9.3     Representations and Warranties; No Responsibility For Appraisal
                 of Creditworthiness........................................................................135
         9.4     Right to Indemnity.........................................................................135
         9.5     Successor Agents and Swing Line Lender.....................................................136
         9.6     Collateral Documents and Subsidiary Guaranty...............................................137

Section  10.     MISCELLANEOUS..............................................................................138
         10.1    Assignments and Participations in Loans and Letters of Credit..............................138

                                                     (iii)

<PAGE>

                                                                                                           Page
                                                                                                           ----
         10.2    Expenses...................................................................................141
         10.3    Indemnity..................................................................................142
         10.4    Set-Off; Security Interest in Deposit Accounts.............................................143
         10.5    Ratable Sharing............................................................................144
         10.6    Amendments and Waivers.....................................................................145
         10.7    Independence of Covenants..................................................................146
         10.8    Notices....................................................................................147
         10.9    Survival of Representations, Warranties and Agreements.....................................147
         10.10   Failure or Indulgence Not Waiver; Remedies Cumulative......................................147
         10.11   Marshalling; Payments Set Aside............................................................148
         10.12   Severability...............................................................................148
         10.13   Obligations Several; Independent Nature of Lenders' Rights.................................148
         10.14   Headings...................................................................................148
         10.15   Applicable Law.............................................................................149
         10.16   Successors and Assigns.....................................................................149
         10.17   Consent to Jurisdiction and Service of Process.............................................149
         10.18   Waiver of Jury Trial.......................................................................150
         10.19   Confidentiality............................................................................151
         10.20   Counterparts; Effectiveness................................................................151

         Signature pages ...................................................................................S-1

                                                      (iv)
</TABLE>

<PAGE>


                                    EXHIBITS

EXHIBIT I        FORM OF NOTICE OF BORROWING
EXHIBIT II       FORM OF NOTICE OF CONVERSION/CONTINUATION
EXHIBIT III      FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
EXHIBIT IV       FORM OF TRANCHE A TERM NOTE
EXHIBIT V        FORM OF TRANCHE B TERM NOTE
EXHIBIT VI       FORM OF REVOLVING NOTE
EXHIBIT VII      FORM OF SWING LINE NOTE
EXHIBIT VIII     FORM OF COMPLIANCE CERTIFICATE
EXHIBIT IX       FORM OF OPINION OF COOLEY GODWARD LLP
EXHIBIT X        FORM OF OPINION OF O'MELVENY & MYERS LLP
EXHIBIT XI       FORM OF ASSIGNMENT AGREEMENT
EXHIBIT XII      FORM OF MORTGAGE
EXHIBIT XIII     FORM OF CERTIFICATE RE NON-BANK STATUS
EXHIBIT XIV      FORM OF COLLATERAL ACCOUNT AGREEMENT
EXHIBIT XV       FORM OF COMPANY PLEDGE AGREEMENT
EXHIBIT XVI      FORM OF SECURITY AGREEMENT
EXHIBIT XVII     FORM OF SUBSIDIARY GUARANTY
EXHIBIT XVIII    FORM OF SUBSIDIARY PLEDGE AGREEMENT
EXHIBIT XIX      FINANCIAL CONDITION CERTIFICATE
EXHIBIT XX       FORM OF PRICING LEVEL DETERMINATION CERTIFICATE

                                    SCHEDULES

Schedule 2.1     Lender Commitments
Schedule 4.1B    Corporate/Capital Structure
Schedule 4.1G    Real Property Subject to Mortgage
Schedule 5.1     State/County of Organization; Subsidiaries; Ownership Interest
Schedule 5.2B    Required Shareholder Consents; Consents under Contractual
                 Obligations
Schedule 5.2C    Required Governmental Consents
Schedule 5.5     Owned and Leased Real Property
Schedule 5.6     Litigation
Schedule 5.8     Material Contracts/Defaults
Schedule 5.11    Employee Benefits Plans
Schedule 5.12    Brokers'/Finders' Fees
Schedule 5.13    Environmental
Schedule 5.19    Patents/Trademarks/Copyrights
Schedule 7.1     Existing Indebtedness
Schedule 7.2     Existing Liens
Schedule 7.3     Existing and Proposed Investments
Schedule 7.4     Existing Contingent Obligations
Schedule 7.10    Existing Transactions with Affiliates

                            (v)

<PAGE>

Schedule 7.12    Description of Business

                                      (vi)
<PAGE>



                       ARTERIAL VASCULAR ENGINEERING, INC.

                                CREDIT AGREEMENT

                 This CREDIT  AGREEMENT  is dated as of  September  30, 1998 and
entered  into by and among  ARTERIAL  VASCULAR  ENGINEERING,  INC.,  a  Delaware
corporation  ("Company"),  THE  FINANCIAL  INSTITUTIONS  LISTED ON THE SIGNATURE
PAGES  HEREOF  (each   individually   referred  to  herein  as  a  "Lender"  and
collectively as "Lenders"), DLJ CAPITAL FUNDING, INC., as Syndication Agent (the
"Syndication  Agent"),  PARIBAS,  as  Documentation  Agent  (the  "Documentation
Agent") and ROYAL BANK OF CANADA  ("Royal  Bank of Canada"),  as  administrative
agent for Lenders (in such capacity, "Administrative Agent").

                                 R E C I T A L S

                 WHEREAS,  on the  Closing  Date,  Company or one or more of its
Designees (as defined below) will purchase pursuant to the Acquisition Agreement
all of the outstanding shares of capital stock of the Bard Catheter Subsidiaries
(as defined below) and those assets of C.R. Bard, Inc. which,  together with the
Bard Catheter Subsidiaries, comprise the Bard Catheter Lab Business;

                 WHEREAS,   Lenders  have  agreed  to  extend   certain   credit
facilities to Company,  the proceeds of which will be used (i) together with the
Company Cash Contribution,  to fund the Acquisition  Financing  Requirements and
(ii) to provide  financing  for  working  capital  and other  general  corporate
purposes of Company and its Subsidiaries;

                 WHEREAS,  Company  desires  to  secure  all of the  Obligations
hereunder  and under the other Loan  Documents  by  granting  to  Administrative
Agent, on behalf of Lenders,  a First Priority Lien on substantially  all of its
real,  personal  and mixed  property,  including  a pledge of all of the capital
stock  of  its  Domestic  Subsidiaries  and  65%  of the  stock  of its  Foreign
Subsidiaries; and

                 WHEREAS,  all of the  Domestic  Subsidiaries  of  Company  have
agreed to guarantee the Obligations hereunder and under the other Loan Documents
and to secure their
                                        1

<PAGE>

guaranties by granting to  Administrative  Agent, for the benefit of Lenders,  a
First Priority Lien on substantially all of their respective real,  personal and
mixed property,  including a pledge of all of the capital stock of each of their
respective  Domestic  Subsidiaries  and  65% of  the  stock  of  each  of  their
respective Foreign Subsidiaries:

                 NOW,  THEREFORE,  in  consideration  of the  premises  and  the
agreements,  provisions and covenants  herein  contained,  Company,  Lenders and
Agents agree as follows:

Section 1. DEFINITIONS

1.1 Certain Defined Terms.

                 The  following  terms  used in this  Agreement  shall  have the
following meanings:

                 "Acquisition"   means  the  transactions   provided  in  and/or
contemplated by the Acquisition Agreement.

                 "Acquisition  Agreement"  means  that  certain  Stock and Asset
Purchase  Agreement by and between  Seller and Company dated as of July 9, 1998,
in the form  delivered  to Agents and Lenders  prior to their  execution of this
Agreement and as such  agreement may be amended from time to time  thereafter to
the extent permitted under subsection 7.13.

                 "Acquisition Financing Requirements" means the aggregate of all
amounts  necessary (i) to finance the purchase price payable in connection  with
the Acquisition  (subject to the Acquisition Purchase Price Adjustment) and (ii)
to pay Transaction Costs.

                 "Acquisition Purchase Price Adjustment" means the adjustment to
the  purchase  price  for  the  Acquisition  to be  paid  to  Seller  under  the
Acquisition Agreement set forth in Section 1.3 of the Acquisition Agreement.

                 "Adjusted   Eurodollar  Rate"  means,  for  any  Interest  Rate
Determination  Date with  respect to an Interest  Period for a  Eurodollar  Rate
Loan,  the rate per annum  (rounded  upwards,  if necessary,  to the next higher
1/100%) equal to (x) the  Eurodollar  Rate divided by (y) a percentage  equal to
1.00% minus the stated maximum rate of all reserve  requirements  (including any
marginal, emergency, supplemental, special or other reserves) applicable on such
Interest  Rate  Determination  Date to any member  bank of the  Federal  Reserve
System in respect of  "Eurocurrency  liabilities" as defined in Regulation D (or
any successor category of liabilities under Regulation D).

                 "Administrative Agent" has the meaning assigned to that term in
the  introduction to this Agreement  (which includes such  administrative  agent
also serving in its capacity as agent under the  Collateral  Documents) and also
means and includes any  successor  Administrative  Agent  appointed  pursuant to
subsection 9.5A.

                                        2

<PAGE>

                 "Affected  Lender"  has the  meaning  assigned  to that term in
subsection 2.6C.

                 "Affected  Loan"  has the  meaning  assigned  to  that  term in
subsection 2.6C.

                 "Affiliate",  as applied to any Person,  means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person.  For the purposes of this definition,  "control"  (including,  with
correlative meanings, the terms "controlling", "controlled by" and "under common
control  with"),  as applied to any Person,  means the  possession,  directly or
indirectly,  of the power to direct or cause the direction of the management and
policies of that Person,  whether through the ownership of voting  securities or
by contract or otherwise.

                 "Agents" means,  collectively,  the  Syndication  Agent and the
Administrative  Agent,  and also means and  includes any  successor  Syndication
Agent  or  Administrative  Agent,  as the  case may be,  appointed  pursuant  to
subsection 9.5A, and each is individually referred to as an "Agent".

                 "Agreement"  means this Credit  Agreement dated as of September
30, 1998, as it may be amended,  supplemented or otherwise modified from time to
time.

                 "Applicable Commitment Fee Percentage" means, as of any date of
determination, a percentage per annum as set forth below opposite the applicable
Pricing Level:

                                       3

<PAGE>

          Pricing                    Applicable Commitment
           Level                        Fee Percentage
------------------------      ---------------------------------

          Level 1                                   0.375%
          Level 2                                   0.45%
          Level 3                                   0.50%
          Level 4                                   0.50%
          Level 5                                   0.50%

                 "Applicable  Tranche A Base Rate Margin" means,  as of any date
of  determination,  a  percentage  per annum as set  forth  below  opposite  the
applicable Pricing Level:


          Pricing                    Applicable Tranche A
           Level                       Base Rate Margin
------------------------      ---------------------------------

          Level 1                                   0.50%
          Level 2                                   0.75%
          Level 3                                   1.00%
          Level 4                                   1.25%
          Level 5                                   1.50%

; provided that for the first six months after the Closing Date,  the Applicable
Tranche  A Base  Rate  Margin  shall be the  higher  of 1.00%  per  annum or the
Applicable  Tranche A Base Rate Margin  shown on the chart  above;  and provided
further  that if the  Consolidated  Leverage  Ratio  is less  than or  equal  to
1.50:1.00 for two  consecutive  Fiscal Quarters tested as of the last day of the
first Fiscal Quarter  subsequent to the one year anniversary of the Closing Date
(which  testing date would be December 31, 1999 for the two  consecutive  Fiscal
Quarters  beginning  July 1, 1999,  assuming the Closing  Date is September  30,
1998) or as of the last day of any Fiscal  Quarter  thereafter,  the  Applicable
Tranche A Base Rate Margin shall be the  percentages  set forth less 0.25% after
the first  Business  Day after the delivery of the Pricing  Level  Determination
Certificate for the period ending on the last day of the second such consecutive
Fiscal  Quarter,  and such 0.25%  reduction  shall  remain in effect  thereafter
during  such  period as the  Consolidated  Leverage  Ratio shall be less than or
equal to exceed  1.50:1.00;  and provided  still further that if,  following any
such 0.25%  reduction  in  accordance  with this  definition,  the  Consolidated
Leverage Ratio is greater than 1.50 to 1.00 for two consecutive Fiscal Quarters,
such 0.25%  reduction  shall cease to be in effect after the first  Business Day
after the delivery of the Pricing Level Determination Certificate for the period
ending on the last day of the second such consecutive Fiscal Quarter.

                                       4

<PAGE>

                 "Applicable  Tranche B Base Rate Margin" means,  as of any date
of  determination,  a  percentage  per annum as set  forth  below  opposite  the
applicable Pricing Level:

          Pricing                    Applicable Tranche B
           Level                       Base Rate Margin
------------------------      ---------------------------------

          Level 1                                   1.00%
          Level 2                                   1.00%
          Level 3                                   1.25%
          Level 4                                   1.50%
          Level 5                                   1.75%

; provided that for the first six months after the Closing Date,  the Applicable
Tranche  B Base  Rate  Margin  shall be the  higher  of 1.25%  per  annum or the
Applicable  Tranche B Base Rate Margin  shown on the chart  above;  and provided
further  that if the  Consolidated  Leverage  Ratio  is less  than or  equal  to
1.50:1.00 for two  consecutive  Fiscal Quarters tested as of the last day of the
first Fiscal Quarter  subsequent to the one year anniversary of the Closing Date
(which  testing date would be December 31, 1999 for the two  consecutive  Fiscal
Quarters  beginning  July 1, 1999,  assuming the Closing  Date is September  30,
1998) or as of the last day of any Fiscal  Quarter  thereafter,  the  Applicable
Tranche B Base Rate Margin  shall be the  percentage  set forth less 0.25% after
the first  Business  Day after the delivery of the Pricing  Level  Determination
Certificate for the period ending on the last day of the second such consecutive
Fiscal  Quarter,  and such 0.25%  reduction  shall  remain in effect  thereafter
during  such  period as the  Consolidated  Leverage  Ratio shall be less than or
equal to 1.50:1.00; and provided still further that if, following any such 0.25%
reduction in accordance with this definition, the Consolidated Leverage Ratio is
greater  than  1.50 to 1.00 for two  consecutive  Fiscal  Quarters,  such  0.25%
reduction  shall cease to be in effect  after the first  Business  Day after the
delivery of the Pricing Level Determination Certificate for the period ending on
the last day of the second such consecutive Fiscal Quarter.

                 "Applicable  Tranche A Eurodollar Margin" means, as of any date
of  determination,  a  percentage  per annum as set  forth  below  opposite  the
applicable Pricing Level:

          Pricing                    Applicable Tranche A
           Level                       Eurodollar Margin
------------------------      ---------------------------------

          Level 1                                   1.50%
          Level 2                                   1.75%
          Level 3                                   2.00%

                                       5

<PAGE>

          Level 4                                   2.25%
          Level 5                                   2.50%

; provided that for the first six months after the Closing Date,  the Applicable
Tranche  A  Eurodollar  Margin  shall be the  higher  of 2.00%  per annum or the
Applicable  Tranche A  Eurodollar  Margin  shown on the chart above and provided
further  that if the  Consolidated  Leverage  Ratio  is less  than or  equal  to
1.50:1.00 for two  consecutive  Fiscal Quarters tested as of the last day of the
first Fiscal Quarter  subsequent to the one year anniversary of the Closing Date
(which  testing date would be December 31, 1999 for the two  consecutive  Fiscal
Quarters  beginning  July 1, 1999,  assuming the Closing  Date is September  30,
1998) or as of the last day of any fiscal  Quarter  thereafter,  the  Applicable
Tranche A Eurodollar  Margin shall be the  percentage set forth less 0.25% after
the first  Business  Day after the delivery of the Pricing  Level  Determination
Certificate for the period ending on the last day of the second such consecutive
Fiscal  Quarter,  and such 0.25%  reduction  shall  remain in effect  thereafter
during  such  period as the  Consolidated  Leverage  Ratio shall be less than or
equal to exceed  1.50:1.00;  and provided  still further that if,  following any
such 0.25%  reduction  in  accordance  with this  definition,  the  Consolidated
Leverage Ratio is greater than 1.50 to 1.00 for two consecutive Fiscal Quarters,
such 0.25%  reduction  shall cease to be in effect after the first  Business Day
after the delivery of the Pricing Level Determination Certificate for the period
ending on the last day of the second such consecutive Fiscal Quarter.

                 "Applicable  Tranche B Eurodollar Margin" means, as of any date
of  determination,  a  percentage  per annum as set  forth  below  opposite  the
applicable Pricing Level:

          Pricing                    Applicable Tranche B
           Level                       Eurodollar Margin
------------------------      ---------------------------------

          Level 1                                   2.00%
          Level 2                                   2.00%
          Level 3                                   2.25%
          Level 4                                   2.50%
          Level 5                                   2.75%

                                       6

<PAGE>

; provided that for the first six months after the Closing Date,  the Applicable
Tranche  B  Eurodollar  Margin  shall be the  higher  of 2.25%  per annum or the
Applicable  Tranche B Eurodollar  Margin shown on the chart above;  and provided
further  that if the  Consolidated  Leverage  Ratio  is less  than or  equal  to
1.50:1.00 for two  consecutive  Fiscal Quarters tested as of the last day of the
first Fiscal Quarter  subsequent to the one year anniversary of the Closing Date
(which  testing date would be December 31, 1999 for the two  consecutive  Fiscal
Quarters  beginning  July 1, 1999,  assuming the Closing  Date is September  30,
1998) or as of the last day of any Fiscal  Quarter  thereafter,  the  Applicable
Tranche B Eurodollar  Margin shall be the  percentage set forth less 0.25% after
the first  Business  Day after the delivery of the Pricing  Level  Determination
Certificate for the period ending on the last day of the second such consecutive
Fiscal  Quarter,  and such 0.25%  reduction  shall  remain in effect  thereafter
during  such  period as the  Consolidated  Leverage  Ratio shall be less than or
equal to exceed  1.50:1.00;  and provided  still further that if,  following any
such 0.25%  reduction  in  accordance  with this  definition,  the  Consolidated
Leverage Ratio is greater than 1.50 to 1.00 for two consecutive Fiscal Quarters,
such 0.25%  reduction  shall cease to be in effect after the first  Business Day
after the delivery of the Pricing Level Determination Certificate for the period
ending on the last day of the second such consecutive Fiscal Quarter.

                 "Arranger"  means  Donaldson,   Lufkin  &  Jenrette  Securities
Corporation, in its capacity as arranger under this Agreement.

                 "Asset   Sale"  means  the  sale  by  Company  or  any  of  its
Subsidiaries  to any  Person  other  than  Company  or  any of its  wholly-owned
Subsidiaries  of (i) any of the  stock of any of  Company's  Subsidiaries,  (ii)
substantially  all of the assets of any  division or line of business of Company
or any of its  Subsidiaries,  or (iii) any other  assets  (whether  tangible  or
intangible) of Company or any of its  Subsidiaries  (other than (a) inventory or
assets sold or  otherwise  disposed of in the ordinary  course of business,  (b)
equipment,  fixtures,  supplies or materials  that are obsolete or worn out, (c)
any such other assets to the extent that the  aggregate  Net Asset Sale Proceeds
of such assets sold in any single  transaction or related series of transactions
is equal to  $1,000,000 or less,  (d) any sales and  concurrent  leasebacks  not
prohibited by this Agreement and (e) any sales of Cash Equivalents).

                 "Assignment   Agreement"  means  an  Assignment   Agreement  in
substantially the form of Exhibit XI annexed hereto.

                 "Assumed Permitted Acquisition Indebtedness" means the existing
Indebtedness  of an entity assumed in connection  with a Permitted  Acquisition;
provided  that (i) such  Indebtedness  was not  incurred  by such  entity or the
Person owning and/or operating such entity in connection with or for the purpose
of financing such Permitted  Acquisition and (ii) such Indebtedness is unsecured
or was secured prior to the date of the Permitted Acquisition;  provided further
such security extends only to the assets being acquired.

                 "Bankruptcy  Code"  means  Title 11 of the United  States  Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.

                 "Bard  Catheter Lab  Business" or "BCL" means the Bard Catheter

                                       7

<PAGE>

Subsidiaries,   a  minority  interest  in  CorMedica  Corporation,   a  Delaware
corporation,  and certain  assets,  in each case to be acquired  pursuant to the
Acquisition Agreement.

                 "Bard  Catheter  Subsidiaries"  means  Bard  Japan  Limited,  a
Japanese  corporation,  C.R. Bard Ireland Ltd., an Irish  corporation,  and Bard
Galway Ltd., an Irish  corporation,  and, if their  respective  share capital is
purchased  pursuant to the Acquisition  Agreement (subject to the conditions set
forth therein  relating to obtaining  the prior  consent from former  holders of
their share capital) Milu S.A., a Luxembourg corporation, and X-trode S.r.L., an
Italian corporation.

                 "Base  Rate"  means,  at any time,  the higher of (x) the Prime
Rate or (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.

                 "Base  Rate Loan"  means any Loan  bearing  interest  at a rate
determined by reference to the Base Rate as provided in subsection 2.2A.

                 "Business Day" means (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday,  Sunday and any day which is a
legal  holiday under the laws of the State of New York or California or is a day
on which banking  institutions  located in such state are authorized or required
by law or other  governmental  action to close,  and (ii)  with  respect  to all
notices,  determinations,  fundings and payments in connection with the Adjusted
Eurodollar  Rate or any  Eurodollar  Rate Loans,  any day that is a Business Day
described  in clause (i) above and that is also a day for trading by and between
banks in Dollar deposits in the London interbank market.

                 "Capital Lease",  as applied to any Person,  means any lease of
any property (whether real, personal or mixed) by that Person as lessee that, in
conformity  with GAAP,  is accounted for as a capital lease on the balance sheet
of that Person.

                 "Cash"  means money, currency or a credit balance in a Deposit
Account.

                 "Cash Equivalents" means, as at any date of determination,  (i)
marketable  Securities (a) issued or directly and unconditionally  guaranteed as
to interest and principal by the United  States  Government or (b) issued by any
agency of the United  States,  the  obligations  of which are backed by the full
faith and credit of the United  States,  in each case  maturing  within one year
after such date; (ii) marketable direct  obligations  issued by any state of the
United States of America or any political  subdivision  of any such state or any
public instrumentality thereof, in each case maturing within one year after such
date and having,  at the time of the  acquisition  thereof,  the highest  rating
obtainable from either S&P or Moody's;  (iii)  commercial paper maturing no more
than one year from the date of creation  thereof and having,  at the time of the
acquisition  thereof,  a rating  of at least  A-1 from S&P or at least  P-1 from
Moody's;  (iv) certificates of deposit or bankers'  acceptances  maturing within
one year  after  such  date and  issued  or  accepted  by any  Lender  or by any
commercial  bank organized under the laws of the United States of America or any
state  thereof or the  District  of  Columbia  that (a) is at least  "adequately
capitalized"  (as  defined in the  regulations  of its primary  Federal  banking
regulator)  and (b) has Tier 1 capital (as defined in such  regulations)

                                       8

<PAGE>

of not less than  $100,000,000;  and (v) shares of any money market  mutual fund
that (a) has at least 95% of its assets  invested  continuously  in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than  $500,000,000,  and (c) has the highest rating  obtainable from either
S&P or Moody's and (vi) such other short-term cash  equivalent-type  investments
made in accordance with Company's policies approved by Agents from time to time.

                 "Certificate   re   Non-Bank   Status"   means  a   certificate
substantially  in the form of Exhibit XIII annexed hereto  delivered by a Lender
to Administrative Agent pursuant to subsection 2.7B(iii).

                 "Change  of  Control"  means  (i) any sale,  transfer  or other
conveyance,  whether direct or indirect,  of a majority of the fair market value
of the assets of Company,  on a  consolidated  basis,  in one  transaction  or a
series of related  transactions,  if,  immediately  after giving  effect to such
transaction,  any  "person" or "group"  (as such terms are used for  purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),  other
than an Excluded Person or Excluded Group, is or becomes the "beneficial  owner"
(as such term is used in Rule 13d-3  promulgated  pursuant to the Exchange Act),
directly or indirectly,  of more than 30% of the equity of the transferee,  (ii)
any "person" or "group" (as such terms are used for  purposes of Sections  13(d)
and  14(d) of the  Exchange  Act,  whether  or not  applicable),  other  than an
Excluded Person or Excluded Group, is or becomes the "beneficial owner" (as such
term is used in Rule 13d-3 promulgated  pursuant to the Exchange Act),  directly
or  indirectly,  of more than 30% of the  equity  of  Company  then  outstanding
normally  entitled to vote in  elections of directors or (iii) during any period
of 12 consecutive months after the date hereof, individuals who at the beginning
of any such  12-month  period  constituted  the Board of  Directors  of  Company
(together  with  any new  directors  whose  election  by  such  Board  or  whose
nomination for election by the shareholders of Company was approved by a vote of
51% or more of the directors  then still in office who were either  directors at
the beginning of such period or whose  election or  nomination  for election was
previously so approved)  cease for any reason to  constitute  51% or more of the
Board of Directors of Company then in office.

                 "Class" means, as applied to Lenders, each of the following two
classes of  Lenders:  (i) Lenders  having  Tranche A Term Loan  Exposure  and/or
Revolving  Loan  Exposure  (taken  together as a single  class) and (ii) Lenders
having Tranche B Term Loan Exposure.

                 "Closing Date" means the date on or before October 30, 1998, on
which the initial Loans are made.

                 "Collateral" means, collectively, all of the real, personal and
mixed property (including capital stock) (other than any Excluded Collateral) in
which Liens are purported to be granted pursuant to the Collateral  Documents as
security for the Obligations.

                 "Collateral  Account" has the meaning  assigned to that term in
the Collateral Account Agreement.

                                       9

<PAGE>

                 "Collateral  Account  Agreement"  means the Collateral  Account
Agreement  executed  and  delivered by Company and  Administrative  Agent on the
Closing Date,  substantially in the form of Exhibit XIV annexed hereto,  as such
Collateral Account Agreement may hereafter be amended, supplemented or otherwise
modified from time to time.

                 "Collateral Documents" means the Company Pledge Agreement,  the
Security  Agreement,  the Collateral  Account  Agreement,  the Subsidiary Pledge
Agreements,  the Mortgages and all other  instruments or documents  delivered by
any Loan Party  pursuant to this Agreement or any of the other Loan Documents in
order to grant to Administrative Agent, for the benefit of Lenders and Agents, a
Lien on any real,  personal or mixed property of that Loan Party as security for
the Obligations.

                 "Commercial  Letter of  Credit"  means any  letter of credit or
similar  instrument  issued for the purpose of  providing  the  primary  payment
mechanism in connection with the purchase of any materials, goods or services by
Company or any of its Subsidiaries in the ordinary course of business of Company
or such Subsidiary.

                 "Commitments" means the commitments of Lenders to make Loans as
set forth in subsection 2.1A.

                 "Company" has the meaning assigned to that term in the Preamble
to this Agreement.

                 "Company Cash  Contribution"  means the amount  contributed  by
Company to the purchase of BCL pursuant to the Acquisition Agreement.

                 "Company Pledge  Agreement"  means the Company Pledge Agreement
executed and delivered by Company on the Closing Date, substantially in the form
of Exhibit XV annexed hereto,  as such Company Pledge  Agreement may be amended,
supplemented or otherwise modified from time to time.

                 "Competitor"  means  any  Person  that is,  or  through a Joint
Venture or Affiliate  is,  substantially  engaged in the business of  designing,
developing,  manufacturing  or  marketing  medical  devices  or  in  a  business
described on Schedule 7.12 annexed hereto or that derives a material  portion of
its revenues from such business.

                 "Compliance  Certificate" means a certificate  substantially in
the form of Exhibit VIII annexed hereto  delivered to  Administrative  Agent and
Lenders by Company pursuant to subsection 6.1(iv).

                 "Confidential   Information   Memorandum"  means  that  certain
Confidential  Senior Debt Syndication  Memorandum relating to Company dated July
1998.

                 "Consolidated  Adjusted EBITDA" means, for any period,  (x) the
sum of the

                                       10

<PAGE>

amounts  for such  period of (i)  Consolidated  Net  Income,  (ii)  Consolidated
Interest  Expense,  (iii)  provisions  for taxes  based on  income,  (iv)  total
depreciation  expense,  (v) total amortization  expense, and (vi) other non-cash
items  reducing  Consolidated  Net  Income  (including  Permitted   Acquisitions
Non-cash  Reserves to the extent  included in such  period) less (y) the amounts
for such period of (a) other non-cash items  increasing  Consolidated Net Income
(b) reversals of non-cash  accrued expenses taken in prior periods and reversals
of reserves taken in prior periods which reduced Consolidated Net Income in such
prior periods,  and (c) non-cash bonus accrual charges,  all of the foregoing as
determined  on  a  consolidated  basis  for  Company  and  its  Subsidiaries  in
conformity with GAAP.

                 "Consolidated  Capital Expenditures" means, for any period, the
sum of (i) the aggregate, without duplication, of all expenditures (whether paid
in cash or other  consideration  or accrued as a liability  and  including  that
portion of Capital Leases which is capitalized on the consolidated balance sheet
of Company and its  Subsidiaries)  by Company and its  Subsidiaries  during that
period that,  in conformity  with GAAP,  are included in "additions to property,
plant or equipment" or comparable items reflected in the consolidated  statement
of cash  flows of  Company  and its  Subsidiaries  plus (ii) to the  extent  not
covered by clause (i) of this  definition,  the aggregate of all expenditures by
Company  and its  Subsidiaries  during  that  period (a) to  purchase or develop
computer  software  or systems  (but only to the extent  such  expenditures  are
capitalized on the consolidated balance sheet of Company and its Subsidiaries in
conformity with GAAP) or (b) to acquire (by purchase or otherwise) the business,
property  or fixed  assets  of any  Person,  or the stock or other  evidence  of
beneficial  ownership  of any  Person  that,  as a result  of such  acquisition,
becomes a Subsidiary of Company (provided, however, that expenditures by Company
and its Subsidiaries in connection with Permitted  Acquisitions  permitted under
subsection  7.7(vi) and in connection with the World Medical  Acquisition  shall
not be included in Consolidated Capital Expenditures) minus the aggregate amount
of all Net Asset Sale Proceeds  received by Company and its Subsidiaries  during
that period in connection  with sale and  lease-backs of any property,  all or a
portion  of the  purchase  price of which was  included  in the  calculation  of
Consolidated  Capital  Expenditures  for that  period or any prior  period.  For
purposes of this  definition (1) the purchase price of any equipment  (including
all  distribution,   retailing,  data  processing,   office  and  motor  vehicle
equipment)  owned  by  Company  or any of its  Subsidiaries  that  is  purchased
simultaneously  with the trade-in or other disposition in the ordinary course of
business of existing  equipment or with insurance  proceeds  received by Company
and its Subsidiaries in respect of the actual or constructive  total loss of any
equipment shall be included in  Consolidated  Capital  Expenditures  only to the
extent of the gross amount of such purchase price less the credit granted by the
seller of such  equipment for the equipment  being traded in at such time or the
amount  of  proceeds  from such  disposition  or the  amount  of such  insurance
proceeds,  as the  case may be and (2) the  amount  of any  expenditure  for any
equipment that replaces  existing leased equipment that was purchased at the end
of the  applicable  lease term and then  subsequently  sold for a greater amount
shall be included in Consolidated Capital Expenditures only to the extent of the
gross amount of the  expenditure  for the new  equipment  less the excess of the
proceeds  received  by Company or any of its  Subsidiaries  from the sale of the
leased  equipment  over the gross  amount of the  purchase  price of the  leased
equipment.

                                       11

<PAGE>

                 "Consolidated   Current  Assets"  means,  as  at  any  date  of
determination,   the  total  assets  of  Company  and  its   Subsidiaries  on  a
consolidated  basis  which may  properly  be  classified  as  current  assets in
conformity with GAAP, excluding Cash and Cash Equivalents.

                 "Consolidated  Current  Liabilities"  means,  as at any date of
determination,  the total  liabilities  of  Company  and its  Subsidiaries  on a
consolidated  basis which may properly be classified as current  liabilities  in
conformity with GAAP.

                 "Consolidated  Excess  Cash Flow"  means,  for any  period,  an
amount (if positive) equal to (i) the sum, without  duplication,  of the amounts
for such period of (a)  Consolidated  Adjusted  EBITDA and (b) the  Consolidated
Working  Capital  Adjustment  minus (ii) the sum,  without  duplication,  of the
amounts  for  such  period  of  (a)  voluntary   and  scheduled   repayments  of
Consolidated  Total Debt (excluding  repayments of Revolving Loans except to the
extent the Revolving Loan Commitments are permanently reduced in connection with
such repayments),  (b) Consolidated  Capital  Expenditures to the extent paid in
Cash during such period,  (c) the amount of  Consolidated  Capital  Expenditures
carried forward into the next succeeding Fiscal Year pursuant to the proviso set
forth in subsection 7.8, (d) Consolidated  Interest  Expense,  (e) the provision
for current taxes based on income of Company and its Subsidiaries and payable in
cash  with  respect  to such  period  and (f) cash  expenditures  for  Permitted
Acquisitions to the extent permitted under subsection 7.7(vi).

                 "Consolidated Fixed Charges" means, as determined as of the end
of any Fiscal Quarter,  an amount equal to the sum of (i) Consolidated  Interest
Expense for the immediately  preceding four consecutive  Fiscal  Quarters,  (ii)
Consolidated  Capital  Expenditures  for  such  period  paid in cash  and  (iii)
Consolidated   Scheduled   Amortization  for  the  immediately  succeeding  four
consecutive Fiscal Quarters.

                 "Consolidated  Interest  Expense" means, for any period,  total
interest  expense (net of interest  income received in such period but including
that portion of interest  expense  attributable  to Capital Leases in accordance
with  GAAP and  capitalized  interest)  of  Company  and its  Subsidiaries  on a
consolidated  basis with respect to all outstanding  Indebtedness of Company and
its  Subsidiaries,  including  all  commissions,  discounts  and other  fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under  Interest  Rate  Agreements,  but  excluding,  however,  any
amounts  referred  to in  subsection  2.3  payable to  Administrative  Agent and
Lenders on or before the Closing Date.

                 "Consolidated   Leverage  Ratio"  means,  as  at  any  date  of
determination,  the ratio of (a)  Consolidated  Total  Debt to (b)  Consolidated
Adjusted EBITDA for the consecutive  four Fiscal Quarters ending on the last day
of the Fiscal Quarter  immediately  preceding such date (or the consecutive four
Fiscal  Quarters  ending  on such  date if such date is the last day of a Fiscal
Quarter).

                 "Consolidated Net Income" means, for any period, the net income
(or loss) of  Company  and its  Subsidiaries  on a  consolidated  basis for such
period taken as a single  accounting  period determined in conformity with GAAP;
provided  that there  shall be

                                       12

<PAGE>

excluded  (i) the income (or loss) of any Person  (other  than a  Subsidiary  of
Company)  in  which  any  other  Person  (other  than  Company  or  any  of  its
Subsidiaries)  has a joint  interest,  except  to the  extent  of the  amount of
dividends  or  other  distributions  actually  paid  to  Company  or  any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Company or is merged
into or  consolidated  with Company or any of its  Subsidiaries or that Person's
assets are acquired by Company or any of its  Subsidiaries,  (iii) the income of
any  Subsidiary  of  Company to the extent  that the  declaration  or payment of
dividends or similar  distributions  by that Subsidiary of that income is not at
the time  permitted by  operation of the terms of its charter or any  agreement,
instrument,  judgment,  decree, order, statute, rule or governmental  regulation
applicable to that Subsidiary,  (iv) any after-tax gains or losses  attributable
to Asset Sales or returned  surplus  assets of any Pension Plan, and (v) (to the
extent not  included in clauses (i)  through  (iv) above) any net  extraordinary
gains or net non-cash extraordinary losses.

                 "Consolidated  Net Worth" means, as determined as of the end of
any Fiscal Quarter,  the sum of the capital stock and additional paid-in capital
plus  retained  earnings  (or minus  accumulated  deficits)  of Company  and its
Subsidiaries on a consolidated basis determined in conformity with GAAP.

                 "Consolidated Scheduled Amortization" means, for any period, an
amount equal to scheduled  payments of principal on  Indebtedness of Company and
subsidiaries   (including  that  portion   attributable  to  Capital  Leases  in
accordance  with GAAP)  determined on a  consolidated  basis in accordance  with
GAAP.

                 "Consolidated   Total   Debt"   means,   as  at  any   date  of
determination,  the aggregate stated balance sheet amount of all Indebtedness of
Company and its Subsidiaries,  determined on a consolidated  basis in accordance
with GAAP.

                 "Consolidated  Working  Capital"  means,  as  at  any  date  of
determination,  the excess of  Consolidated  Current  Assets  over  Consolidated
Current Liabilities.

                 "Consolidated Working Capital Adjustment" means, for any period
on a consolidated  basis,  the amount (which may be a negative  number) by which
Consolidated  Working  Capital as of the beginning of such period exceeds (or is
less than) Consolidated Working Capital as of the end of such period.

                 "Contingent  Obligation",  as applied to any Person,  means any
direct or indirect liability,  contingent or otherwise,  of that Person (i) with
respect to any Indebtedness,  lease,  dividend or other obligation of another if
the primary  purpose or intent  thereof by the Person  incurring the  Contingent
Obligation is to provide  assurance to the obligee of such obligation of another
that  such  obligation  of  another  will  be paid or  discharged,  or that  any
agreements  relating  thereto will be complied with, or that the holders of such
obligation  will be  protected  (in whole or in part)  against  loss in  respect
thereof,  (ii) with  respect to any letter of credit  issued for the  account of
that Person or as to which that Person is otherwise liable for  reimbursement of
drawings or (iii) under Hedge Agreements.  Contingent Obligations shall

                                       13

<PAGE>

include,  (a) the direct or indirect guaranty,  endorsement  (otherwise than for
collection  or  deposit  in  the  ordinary   course  of  business),   co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of  another,  (b) the  obligation  to make  take-or-pay  or similar  payments if
required  regardless  of  non-performance  by any other  party or  parties to an
agreement  and (c) any  liability of such Person for the  obligation  of another
through any agreement  (contingent or otherwise) (X) to purchase,  repurchase or
otherwise  acquire such obligation or any security  therefor or to provide funds
for the payment or discharge of such  obligation  (whether in the form of loans,
advances,  stock  purchases,  capital  contributions  or  otherwise)  or  (Y) to
maintain  the solvency or any balance  sheet item,  level of income or financial
condition of another if, in the case of any agreement described under subclauses
(X) or (Y) of this  sentence,  the  primary  purpose  or  intent  thereof  is as
described in the preceding  sentence.  The amount of any  Contingent  Obligation
shall be equal to the  amount  of the  obligation  so  guaranteed  or  otherwise
supported  or,  if less,  the  amount to which  such  Contingent  Obligation  is
specifically limited.

                 "Contractual  Obligation",  as applied to any Person, means any
provision  of any Security  issued by that Person or of any material  indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.

                 "Credit  Parties"  shall  have the  meaning  given such term in
subsection 3.5B.

                 "Currency  Agreement"  means  any  foreign  exchange  contract,
currency swap agreement,  currency futures  contract,  currency option contract,
currency  synthetic cap or other  similar  agreement or  arrangement  related to
currency exchange rates to which Company or any of its Subsidiaries is a party.

                 "Debt  Securities"  means any debt Securities of Company issued
or outstanding after the Closing Date.

                 "Deposit Account" means a demand,  time,  savings,  passbook or
like account  with a bank,  savings and loan  association,  credit union or like
organization,  other than an account  evidenced by a negotiable  certificate  of
deposit.

                 "Designee"  shall  have  the  meaning  given  such  term in the
Acquisition Agreement.

                 "Dollars"  and the sign "$" mean the lawful money of the United
States of America.

                 "Domestic  Subsidiary"  means a Subsidiary  organized under the
laws of the United  States of America or any state or  territory  thereof or the
District of Columbia.

                 "Eligible  Assignee"  means (A) (i) a commercial bank organized
under the laws of the United  States or any state  thereof;  (ii) a savings  and
loan  association or savings bank organized  under the laws of the United States
or any state thereof;  (iii) a commercial

                                       14

<PAGE>

bank  organized  under the laws of any other country or a political  subdivision
thereof;  provided  that (x) such  bank is  acting  through  a branch  or agency
located in the United  States or (y) such bank is organized  under the laws of a
country  that is a member  of the  Organization  for  Economic  Cooperation  and
Development  or a  political  subdivision  of such  country;  and (iv) any other
entity which is an  "accredited  investor" (as defined in Regulation D under the
Securities  Act) which  extends  credit or buys loans as one of its  businesses,
including,  but not  limited to,  insurance  companies,  mutual  funds and lease
financing companies; and (B) any Lender and any Affiliate or Related Fund of any
Lender; provided that no Affiliate of Company and no Competitor of Company shall
be an Eligible Assignee.

                 "Employee  Benefit Plan" means any  "employee  benefit plan" as
defined in Section 3(3) of ERISA which is or was maintained or contributed to by
Company, any of its Subsidiaries or any of their respective ERISA Affiliates.

                 "Environmental  Claim" means any written  notice of  violation,
claim,  action,  suit,  proceeding,  demand,  abatement  order or other order or
directive (conditional or otherwise), by any governmental authority or any other
Person,  arising  (i)  pursuant to or in  connection  with any actual or alleged
violation of any  Environmental  Law or (ii) in  connection  with any  Hazardous
Materials or any actual or alleged Hazardous Materials Activity.

                 "Environmental  Laws"  means  any and  all  current  or  future
statutes,  ordinances,  orders,  rules,  regulations,   judgments,  Governmental
Authorizations or any other requirements of governmental authorities relating to
(i) environmental  matters,  including those relating to any Hazardous Materials
Activity,  (ii) the  generation,  use,  storage,  transportation  or disposal of
Hazardous Materials or (iii) occupational safety and health, industrial hygiene,
land use or the protection of human,  plant or animal health or welfare,  in any
manner  applicable  to  Company  or  any of its  Subsidiaries  or any  Facility,
including the Comprehensive Environmental Response,  Compensation, and Liability
Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. ss. 1801 et seq.), the Resource  Conservation and Recovery Act (42 U.S.C.
ss. 6901 et seq.),  the Federal Water Pollution  Control Act (33 U.S.C. ss. 1251
et seq.),  the Clean Air Act (42 U.S.C.  ss. 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C.  ss.136 et seq.), the  Occupational  Safety and Health
Act (29 U.S.C.  ss. 651 et seq.),  the Oil Pollution Act (33 U.S.C.  ss. 2701 et
seq) and the Emergency  Planning and Community  Right-to-Know Act (42 U.S.C. ss.
11001 et seq.), each as amended or supplemented, any analogous present or future
state or local statutes or laws, and any regulations promulgated pursuant to any
of the foregoing.

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

                 "ERISA  Affiliate"  means,  as applied to any  Person,  (i) any
corporation  which is a member of a controlled group of corporations  within the
meaning of Section 414(b) of the Internal Revenue Code of which that Person is a
member;  (ii) any trade or  business  (whether or not  incorporated)  which is a
member  of a group of trades or  businesses

                                       15

<PAGE>

under  common  control  within the  meaning of  Section  414(c) of the  Internal
Revenue  Code of which  that  Person  is a member;  and  (iii) any  member of an
affiliated  service  group  within the  meaning of Section  414(m) or (o) of the
Internal Revenue Code of which that Person, any corporation  described in clause
(i) above or any trade or business  described  in clause (ii) above is a member.
Any former ERISA Affiliate of Company or any of its Subsidiaries  shall continue
to be considered  an ERISA  Affiliate of Company or such  Subsidiary  within the
meaning of this  definition  with respect to the period such entity was an ERISA
Affiliate of Company or such Subsidiary and with respect to liabilities  arising
after such period for which Company or such Subsidiary could be liable under the
Internal Revenue Code or ERISA.

                 "ERISA Event" means (i) a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations  issued  thereunder with respect to
any Pension Plan  (excluding  those for which the provision for 30-day notice to
the PBGC has been  waived by  regulation);  (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan  (whether or not waived in  accordance  with Section  412(d) of the
Internal  Revenue  Code)  or the  failure  to make by its  due  date a  required
installment  under Section  412(m) of the Internal  Revenue Code with respect to
any  Pension  Plan  or the  failure  to  make  any  required  contribution  to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section  4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress  termination  described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company,  any of its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more  contributing  sponsors or the
termination of any such Pension Plan resulting in liability  pursuant to Section
4063  or 4064 of  ERISA;  (v) the  institution  by the  PBGC of  proceedings  to
terminate any Pension Plan,  or the  occurrence of any event or condition  which
might constitute  grounds under ERISA for the termination of, or the appointment
of a trustee to administer,  any Pension Plan;  (vi) the imposition of liability
on Company,  any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section  4062(e) or 4069 of ERISA or by reason of the application of
Section  4212(c)  of  ERISA;  (vii)  the  withdrawal  of  Company,  any  of  its
Subsidiaries  or any of their  respective  ERISA  Affiliates  in a  complete  or
partial  withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from
any  Multiemployer  Plan if there is any potential  liability  therefor,  or the
receipt by Company,  any of its  Subsidiaries or any of their  respective  ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency  pursuant  to  Section  4241 or 4245 of ERISA,  or that it intends to
terminate or has  terminated  under Section  4041A or 4042 of ERISA;  (viii) the
occurrence  of an act or  omission  which could give rise to the  imposition  on
Company,  any of its Subsidiaries or any of their respective ERISA Affiliates of
fines,  penalties,  taxes or related  charges  under  Chapter 43 of the Internal
Revenue Code or under Section 409,  Section 502(c),  (i) or (l), or Section 4071
of ERISA in  respect of any  Employee  Benefit  Plan;  (ix) the  assertion  of a
material  claim (other than routine  claims for  benefits)  against any Employee
Benefit Plan other than a Multiemployer  Plan or the assets thereof,  or against
Company,  any of its Subsidiaries or any of their respective ERISA Affiliates in
connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the  failure  of any  Pension  Plan (or any other  Employee
Benefit  Plan  intended to be  qualified  under  Section  401(a) of the Internal
Revenue Code) to qualify under Section  401(a) of the Internal  Revenue Code, or
the  failure  of any trust  forming  part of any  Pension  Plan to

                                       16

<PAGE>

qualify for exemption from taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a Lien pursuant to Section  401(a)(29) or 412(n)
of the  Internal  Revenue  Code or pursuant to ERISA with respect to any Pension
Plan.

                 "Eurodollar  Rate" means,  for any Interest Rate  Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum (rounded upward, if necessary,  to the next higher 1/16%) equal to (x) the
offered rate for deposits in Dollars for a period equal to such Interest Period,
commencing on the first day of such Interest  Period,  which appears on Telerate
Page 3750 (or such other page as may replace  Telerate Page 3750 on that service
or any successor  service for the purpose of displaying London interbank offered
rates of major  banks) as of 11:00 a.m.  (London  Time),  on the day that is two
Business Days prior to the first day of such Interest Period.  If the Eurodollar
Rate for an Interest  Period  cannot be  determined  pursuant  to the  preceding
sentence,  then the Eurodollar Rate for such Interest Period shall be determined
on the basis of the rates at which  deposits  in  Dollars  are  offered  to each
Reference  Lender at  approximately  11:00 a.m. (London time) on the day that is
two  Business  Days prior to the first day of such  Interest  Period,  and in an
amount  approximately  equal to the principal amount of such Reference  Lender's
Eurodollar Loans to which such Interest Period is applicable. The Administrative
Agent will request the principal London office of each of the Reference  Lenders
to  provide  a  quotation  of its  rate.  If at least  two such  quotations  are
provided,  the Eurodollar  Rate for such Interest Period shall be the arithmetic
mean of those  quotations.  If fewer than two such  quotations  are  provided as
requested, then Section 2.6B shall apply.

                 "Eurodollar  Rate Loans" means Loans bearing  interest at rates
determined  by  reference  to  the  Adjusted  Eurodollar  Rate  as  provided  in
subsection 2.2A.

                 "Event  of  Default"  means  each of the  events  set  forth in
Section 8.

                 "Exchange  Act" means the  Securities  Exchange Act of 1934, as
amended from time to time, and any successor statute.

                 "Excluded Collateral" means any of the following:

         (a) any licenses or permits held by any Loan Party which by their terms
prohibit such granting of security interest or assignment by way of security;

         (b) motor vehicles or other vehicles owned or leased by any Loan Party;

         (c) real property  owned or leased by any Loan Party not required to be
subject to a Mortgage hereunder or under the other Loan Documents; and

         (d) copyrights,  Trademarks,  Patents and similar Intellectual Property
interests  held under the laws of  countries  other  than the  United  States of
America.

                 "Excluded  Group"  means a  "group"  (as  such  term is used in
Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded
Persons;  provided  that

                                       17

<PAGE>

the voting power of the capital stock of Company  "beneficially  owned" (as such
term is used in Rule 13d-3  promulgated under the Exchange Act) by such Excluded
Persons (without  attribution to such Excluded Persons of the ownership by other
members of the "group") represents a majority of the voting power of the capital
stock "beneficially owned" (as such term is used in Rule 13d-3 promulgated under
the Exchange Act) by such group.

                 "Excluded  Person"  means any  member of senior  management  of
Company.

                 "Facilities"  means any and all real  property  (including  all
buildings,  fixtures or other  improvements  located thereon) now,  hereafter or
heretofore owned, leased, operated or used by Company or any of its Subsidiaries
or any of their respective predecessors or Affiliates.

                 "Federal  Funds  Effective  Rate"  means,  for  any  period,  a
fluctuating  interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers,  as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal  Reserve  Bank of New York,  or, if such rate is not so published
for any day which is a Business Day, the average of the  quotations for such day
on such transactions  received by Administrative  Agent from three Federal funds
brokers of recognized standing selected by Administrative Agent.

                 "Financial  Plan"  has the  meaning  assigned  to that  term in
subsection 6.1A(xii).

                 "First Priority"  means,  with respect to any Lien purported to
be created in any Collateral pursuant to any Collateral Document, that such Lien
is the only Lien (other than Permitted Encumbrances and Liens permitted pursuant
to subsection 7.2) to which such Collateral is subject.

                 "Fiscal Quarter" means a fiscal quarter of any Fiscal Year.

                 "Fiscal  Year"  means  the  fiscal  year  of  Company  and  its
Subsidiaries ending on June 30 of each calendar year.

                 "Foreign  Subsidiary"  means  any  Subsidiary  which  is  not a
Domestic Subsidiary.

                 "Funding  and  Payment   Account"  means  (i)  the  account  of
Administrative  Agent with The Chase  Manhattan  Bank, New York, ABA# 021000021,
account of Royal Bank of Canada, New York, account no.: 920-1-033363 for further
credit to account no. 293-685-4. Ref. Arterial Vascular Engineering or (ii) such
other  account of  Administrative  Agent as may from time to time  hereafter  be
designated  as such in a written  notice  delivered by  Administrative  Agent to
Company and each Lender.

                 "Funding  Date" means the date of the funding of a Loan,  which
shall be a

                                       18

<PAGE>

Business Day.

                 "GAAP" means,  subject to the  limitations  on the  application
thereof set forth in subsection 1.2,  generally accepted  accounting  principles
set forth in opinions and  pronouncements of the Accounting  Principles Board of
the American  Institute of  Certified  Public  Accountants  and  statements  and
pronouncements of the Financial  Accounting Standards Board, in each case as the
same are applicable to the circumstances as of the date of determination.

                 "Governmental  Acts"  shall have the  meaning  assigned to that
term in subsection 3.5A.

                 "Governmental   Authorization"   means  any  permit,   license,
authorization,  plan, directive,  consent order or consent decree of or from any
federal, state or local governmental authority, agency or court.

                 "Guaranty Payment" shall have the meaning assigned to that term
in subsection 2.4D(ii).

                 "Hazardous  Materials"  means  (i) any  chemical,  material  or
substance at any time  defined as or included in the  definition  of  "hazardous
substances",  "hazardous wastes",  "hazardous  materials",  "extremely hazardous
waste",  "acutely hazardous waste",  "radioactive waste",  "biohazardous waste",
"pollutant",  "toxic pollutant",  "contaminant",  "restricted  hazardous waste",
"infectious waste",  "toxic substances" or any other term or expression intended
to  define,  list or  classify  substances  by reason of  properties  harmful to
health,  safety  or  the  indoor  or  outdoor  environment   (including  harmful
properties  such  as  ignitability,  corrosivity,  reactivity,  carcinogenicity,
toxicity,  reproductive  toxicity,  "TCLP toxicity" or "EP toxicity" or words of
similar  import)  under  any  applicable   Environmental  Laws;  (ii)  any  oil,
petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling
fluids,  produced  waters  and other  wastes  associated  with the  exploration,
development  or  production of crude oil,  natural gas or geothermal  resources;
(iv) any flammable substances or explosives; (v) any radioactive materials; (vi)
any  asbestos-containing  materials;  (vii) urea  formaldehyde  foam insulation;
(viii)  electrical   equipment  which  contains  any  oil  or  dielectric  fluid
containing  polychlorinated  biphenyls;  (ix)  pesticides;  and  (x)  any  other
chemical,  material or substance,  exposure to which is  prohibited,  limited or
regulated by any governmental authority.

                 "Hazardous  Materials  Activity"  means  any past,  current  or
threatened  activity,  event or occurrence  involving  any Hazardous  Materials,
including  the  use,  manufacture,   possession,   storage,  holding,  presence,
existence,   location,  Release,   threatened  Release,  discharge,   placement,
generation,  transportation,  processing,  construction,  treatment,  abatement,
removal,  remediation,  disposal,  disposition  or  handling  of  any  Hazardous
Materials,  and any corrective  action or response action with respect to any of
the foregoing.

                 "Hedge  Agreement"  means  an  Interest  Rate  Agreement  or  a
Currency Agreement  designed to hedge against  fluctuations in interest rates or
currency values,

                                       19

<PAGE>

respectively.

                 "Incurred    Permitted    Acquisition    Indebtedness"    means
Indebtedness incurred in connection with a Permitted Acquisition;  provided that
such Indebtedness is unsecured.

                 "Indebtedness",  as  applied  to  any  Person,  means  (i)  all
indebtedness  for borrowed money,  (ii) that portion of obligations with respect
to Capital Leases that is properly  classified as a liability on a balance sheet
in conformity with GAAP,  (iii) notes payable and drafts  accepted  representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation  owed for all or any part of the deferred  purchase price of
property or services  (excluding  any such  obligations  incurred  under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the  obligation  in  respect  thereof or (b)  evidenced  by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that  Person  regardless  of whether the  indebtedness
secured  thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.  Obligations  under Interest Rate Agreements and Currency
Agreements   constitute  (X)  in  the  case  of  Hedge  Agreements,   Contingent
Obligations,  and (Y) in all  other  cases,  Investments,  and in  neither  case
constitute Indebtedness.

                 "Indemnitee"   has  the  meaning   assigned  to  that  term  in
subsection 10.3.

                 "Intellectual   Property"   means  all   Patents,   Trademarks,
copyrights,  trade secrets,  customer lists, inventions (whether or not patented
or patentable), technical information, knowledge, know-how, designs, procedures,
models, drawings, materials,  processes, articles of manufacture,  compositions,
devices, and machines.

                 "Interest Payment Date" means (i) with respect to any Base Rate
Loan,  each  March 31,  June 30,  September  30 and  December  31 of each  year,
commencing on the first such date to occur after the Closing Date, and (ii) with
respect  to any  Eurodollar  Rate  Loan,  the last day of each  Interest  Period
applicable to such Loan;  provided that, in the case of each Interest  Period of
longer than three months,  "Interest  Payment Date" shall also include each date
that would have been an Interest Payment Date had successive Interest Periods of
three-month duration been applicable.

                 "Interest  Period"  has the  meaning  assigned  to that term in
subsection 2.2B.

                 "Interest  Rate   Agreement"   means  any  interest  rate  swap
agreement,  interest rate cap agreement, interest rate collar agreement or other
similar  agreement or arrangement to which Company or any of its Subsidiaries is
a party.

                 "Interest Rate  Determination  Date" means, with respect to any
Interest Period, the second Business Day prior to the first day of such Interest
Period.

                 "Internal  Revenue  Code" means the  Internal  Revenue  Code of
1986,  as 

                                       20

<PAGE>

amended to the date hereof and from time to time  hereafter,  and any  successor
statute.

                 "Inventory" means, with respect to any Person as of any date of
determination, all goods, merchandise and other personal property which are then
held by such  Person  for sale or lease,  including  raw  materials  and work in
process.

                 "Investment" means (i) any direct or indirect purchase or other
acquisition  by  Company  or any  of its  Subsidiaries  of,  or of a  beneficial
interest in, any  Securities of any other Person (other than a Person that prior
to such  purchase  or  acquisition  was,  or as a  result  of such  purchase  or
acquisition becomes, a Subsidiary of Company), (ii) any direct or indirect loan,
advance  (other than advances made to employees  for moving,  entertainment  and
travel  expenses,  drawing  accounts  and similar  expenditures  in the ordinary
course  of  business)  or  capital   contribution  by  Company  or  any  of  its
Subsidiaries  to any other  Person  (other  than a  wholly-owned  Subsidiary  of
Company),  including all  indebtedness  and accounts  receivable from that other
Person  that are not  current  assets or did not arise  from sales to that other
Person in the ordinary course of business,  or (iii) Interest Rate Agreements or
Currency  Agreements  not  constituting  Hedge  Agreements.  The  amount  of any
Investment  shall be the original cost of such  Investment  plus the cost of all
additions thereto,  without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.

                 "IP Collateral" means,  collectively,  the Collateral under the
Company Patent and Trademark  Security  Agreement and the Subsidiary  Patent and
Trademark Security Agreements.

                 "Issuing  Lender" means,  with respect to any Letter of Credit,
the Lender  which  agrees or is  otherwise  obligated  to issue  such  Letter of
Credit, determined as provided in subsection 3.1B(ii).

                 "Joint  Venture"  means a joint venture,  partnership,  limited
liability company,  limited liability  partnership or other similar arrangement,
whether in corporate, partnership or other legal form; provided that in no event
shall any corporate Subsidiary of any Person be considered to be a Joint Venture
to which such Person is a party.

                 "Leasehold  Property" means any leasehold  interest of any Loan
Party as lessee under any lease of real property,  other than any such leasehold
interest  designated  from  time to time by  Administrative  Agent  in its  sole
discretion as not being required to be included in the Collateral.

                 "Lender" means each person  identified as a "Lender" and listed
on the  signature  pages of this  Agreement,  together with its  successors  and
permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall mean
all such Lenders and shall  include  Swing Line Lender and each  Issuing  Lender
unless the context otherwise  requires;  provided that the term "Lenders",  when
used in the context of a particular  Commitment,  shall mean Lenders having that
Commitment.

                                       21

<PAGE>

                 "Letter of  Credit"  means any  Commercial  Letter of Credit or
Standby  Letter of Credit  issued or to be issued by an  Issuing  Lender for the
account of Company pursuant to subsection 3.1.

                 "Letter   of   Credit   Usage"   means,   as  at  any  date  of
determination,  the sum of (i) the maximum  aggregate  amount which is or at any
time  thereafter  may become  available  for drawing under all Letters of Credit
then  outstanding and (ii) the aggregate amount of all drawings under Letters of
Credit  honored by Issuing  Lenders and not  theretofore  reimbursed  by Company
(including  any  such  reimbursement  out of the  proceeds  of  Revolving  Loans
pursuant to subsection 3.3B).

                 "Lien" means any lien,  mortgage,  pledge,  assignment  (to the
extent  such  assignment  is intended to secure an  obligation  of any  Person),
security interest,  charge or encumbrance of any kind (including any conditional
sale or other title retention  agreement,  any lease in the nature thereof,  and
any  agreement to give any  security  interest)  and any option,  trust or other
preferential arrangement having the practical effect of any of the foregoing.

                 "Loan"  means any  Tranche A Term  Loan,  Tranche B Term  Loan,
Revolving  Loan or Swing  Line Loan and  "Loans"  means  all or any  combination
thereof.

                 "Loan Documents"  means this Agreement,  the Notes, the Letters
of Credit  (and any  applications  for,  or  reimbursement  agreements  or other
documents  or  certificates  executed  by Company in favor of an Issuing  Lender
relating to, the Letters of Credit),  the  Subsidiary  Guaranty,  the Collateral
Documents and the Collateral Account Agreement.

                 "Loan  Party"  means  each  of  Company  and  any of  Company's
Subsidiaries from time to time executing a Loan Document.

                 "Margin  Stock"  has  the  meaning  assigned  to  that  term in
Regulation  U of the Board of  Governors  of the  Federal  Reserve  System as in
effect from time to time.

                 "Market   Disruption   Event"  means  (a)  any   suspension  or
limitation  of trading in  securities  generally on the New York Stock  Exchange
(not  including  any  suspension  or  limitation  of trading  in any  particular
security as a result of computerized  trading limits), or any setting of minimum
prices for trading on such exchange;  (b) any banking moratorium declared by any
United States federal or State of New York or any Canadian federal or provincial
governmental  authority;  or (c) any outbreak or escalation of major hostilities
in which the United States or Canada is directly involved.

                 "Material  Adverse  Effect"  means (i) (a) prior to the Closing
Date, a material  adverse  effect upon the business,  operations,  properties or
financial  condition of Company and its  Subsidiaries  and the Bard Catheter Lab
Business  taken as a whole or (b) from and after the  Closing  Date,  a material
adverse effect upon the business, operations,  properties or financial condition
of Company and its Subsidiaries taken as a whole or (ii) the material impairment
of the ability of Company  individually  or the Loan Parties taken as a whole to

                                       22

<PAGE>

perform, or of Agents or Lenders to enforce, the Obligations.

                 "Material Contract" means any written contract or other written
arrangement to which Company or any of its  Subsidiaries  is a party (other than
the Loan Documents) for which breach, nonperformance, cancellation or failure to
renew would with reasonable likelihood have a Material Adverse Effect.

                 "Material  Subsidiary"  means each  Subsidiary  of Company  now
existing or hereinafter  acquired or formed by Company which,  on a consolidated
basis for such Subsidiary and its  Subsidiaries,  (i) for the most recent Fiscal
Year, accounted for more than 5% of the consolidated revenues of Company and its
Subsidiaries  or (ii) as at the end of such Fiscal  Year,  was the owner of more
than 5% of the consolidated assets of Company and its Subsidiaries.

                 "Moody's" means Moody's Investors Service, Inc.

                 "Mortgage" means (i) a security  instrument (whether designated
as a deed of trust or a mortgage or by any similar title) executed and delivered
by any Loan Party, substantially in the form of Exhibit XII annexed hereto or in
such other form as may be approved by Administrative Agent in its discretion, in
each case with such  changes  thereto as may be  recommended  by  Administrative
Agent's local counsel based on local laws or customary local mortgage or deed of
trust practices,  or (ii) at  Administrative  Agent's option,  in the case of an
Additional Mortgaged Property (as defined in subsection 6.9), an amendment to an
existing  Mortgage,  in form satisfactory to Administrative  Agent,  adding such
Additional  Mortgaged  Property to the Real Property  Assets  encumbered by such
existing Mortgage,  in either case as such security  instrument or amendment may
be amended,  supplemented or otherwise  modified from time to time.  "Mortgages"
means all such instruments,  including the Closing Date Mortgages (as defined in
subsection  4.1G) and any Additional  Mortgages (as defined in subsection  6.9),
collectively.

                 "Mortgaged  Property"  means a Closing Date Mortgaged  Property
(as defined in subsection 4.1G) or an Additional  Mortgaged Property (as defined
in subsection 6.9).

                 "Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.

                 "Net  Asset Sale  Proceeds"  means,  with  respect to any Asset
Sale,  Cash payments  (including  any Cash  received by way of deferred  payment
pursuant to, or by monetization of, a note receivable or otherwise,  but only as
and when so received) received from such Asset Sale, net of any bona fide direct
costs  incurred in connection  with such Asset Sale,  including  (i)  reasonable
brokerage commissions, underwriting fees and discounts, legal fees, expenses and
commissions,  (ii) income  taxes  reasonably  estimated  to be actually  payable
within  two  years  of the  date of such  Asset  Sale as a  result  of any  gain
recognized  in  connection  with  such  Asset  Sale  and  (iii)  payment  of the
outstanding principal amount of, premium or penalty, if any, and interest on any
Indebtedness  (other  than the Loans)  that is secured by a Lien on the stock or
assets in question and that is required to be repaid under the

                                       23

<PAGE>

terms  thereof as a result of such Asset Sale and (iv) the costs and expenses of
any repairs, alterations or improvements made to the property sold in connection
with such Asset Sale to the extent such repairs, alterations or improvements are
required pursuant to the terms of such Asset Sale.

                 "Net  Debt   Proceeds"   means  the  Cash   proceeds,   net  of
underwriting  discounts and commissions and other  reasonable costs and expenses
associated  therewith,  including  reasonable legal fees and expenses,  from the
issuance of any Debt Securities of Company or any of its Subsidiaries  after the
Closing  Date,  excluding  any such  proceeds  from  Debt  Securities  issued in
connection with Incurred Permitted Acquisition Indebtedness.

                 "Net  Equity   Proceeds"  means  the  Cash  proceeds,   net  of
underwriting  discounts and commissions and other  reasonable costs and expenses
associated  therewith,  including  reasonable legal fees and expenses,  from the
issuance of any equity  Securities of Company or any of its  Subsidiaries  after
the Closing Date.

                 "Net  Insurance/Condemnation  Proceeds" means any Cash payments
or  proceeds  received  by  Company  or any of its  Subsidiaries  (i)  under any
business  interruption or casualty insurance policy in respect of a covered loss
thereunder  or (ii) as a result of the taking of any assets of Company or any of
its  Subsidiaries  by any  Person  pursuant  to the  power  of  eminent  domain,
condemnation  or  otherwise,  or  pursuant  to a sale of any  such  assets  to a
purchaser with such power under threat of such a taking, in each case net of any
actual  and  reasonable  documented  costs  incurred  by  Company  or any of its
Subsidiaries  in connection  with the  adjustment or settlement of any claims of
Company or such Subsidiary in respect thereof.

                 "Notes" means one or more of the Tranche A Term Notes,  Tranche
B Term Notes, Revolving Notes or Swing Line Note or any combination thereof.

                 "Notice of Borrowing" means a notice  substantially in the form
of  Exhibit I annexed  hereto  delivered  by  Company  to  Administrative  Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.

                 "Notice    of    Conversion/Continuation"    means   a   notice
substantially  in the form of Exhibit II annexed hereto  delivered by Company to
Administrative  Agent  pursuant to  subsection  2.2D with  respect to a proposed
conversion or continuation of the applicable  basis for determining the interest
rate with respect to the Loans specified therein.

                 "Notice  of  Issuance  of  Letter  of  Credit"  means a  notice
substantially  in the form of Exhibit III annexed hereto delivered by Company to
Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed
issuance of a Letter of Credit.

                 "Obligations"  means all  obligations  of every  nature of each
Loan Party from time to time owed to  Arranger,  Agents,  Lenders or any of them
under the Loan  Documents,  whether for principal,  interest,  reimbursement  of
amounts  drawn  under  Letters of Credit,  fees,  expenses,  indemnification  or
otherwise.

                                       24

<PAGE>

                 "Officer's Certificate" means, as applied to any corporation, a
certificate  executed on behalf of such corporation by its chairman of the board
(if  an  officer),  its  president,  or any of its  vice  presidents  its  chief
financial  officer,  its  principal  accounting  officer,  its  treasurer or its
controller;  provided  that  every  Officer's  Certificate  with  respect to the
compliance with a condition precedent to the making of any Loans hereunder shall
include  (i) a  statement  that the  officer  making  or giving  such  Officer's
Certificate  has read such  condition and any  definitions  or other  provisions
contained in this  Agreement  relating  thereto,  (ii) a statement  that, in the
opinion  of the  signer,  he or she has  made  or has  caused  to be  made  such
examination or  investigation as is necessary to enable him or her to express an
informed  opinion as to whether or not such condition has been complied with and
(iii) a statement as to whether,  in the opinion of the signer,  such  condition
has been complied with.

                 "Operating  Lease" means,  as applied to any Person,  any lease
(including  leases  that may be  terminated  by the  lessee  at any time) of any
property  (whether  real,  personal or mixed) that is not a Capital  Lease other
than any such lease under which that Person is the lessor.

                 "Patents" means all letters patent of, or rights  corresponding
thereto in, the United  States of America or any other  country and all European
Patents and all  registrations  and recordings  thereof and all applications for
letters  patent of, or rights  corresponding  thereto  in, the United  States of
America or any other  country,  and all Patent  Cooperation  Treaty and European
Patent applications, including registrations, recordings and applications in the
PTO,   and   all   reissues,   reexaminations,    continuations,    divisionals,
continuations-in-part and extensions of any of the foregoing.

                 "PBGC" means the Pension  Benefit  Guaranty  Corporation or any
successor thereto.

                 "Pension  Plan" means any Employee  Benefit Plan,  other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.

                 "Permitted   Acquisitions"  means  any  acquisitions  permitted
pursuant to subsection 7.7(vi) hereof.

                 "Permitted   Acquisitions  Non-cash  Reserves"  means  for  any
period,  (i) non-cash charges taken by Company or any of its Subsidiaries  based
on a Permitted  Acquisition in accordance with subsection 7.7(vi) resulting from
the  write-off of in-process  research and  development  expenditures,  and (ii)
incremental  non-cash  restructuring  charges,  write-offs  or  reserves  of not
greater  than  $100,000,000  in the  aggregate  taken or accrued  for by Company
resulting from the consolidation of any facilities related to the acquisition of
the Bard Catheter Lab Business which shall include reserves for severance costs,
lease  termination  fees and other plant shutdown costs, all of the foregoing as
determined in conformity with GAAP.

                 "Permitted  Encumbrances"  means the  following  types of Liens
(excluding

                                       25

<PAGE>

any such Lien imposed  pursuant to Section  401(a)(29) or 412(n) of the Internal
Revenue  Code or by ERISA,  any such Lien  relating to or imposed in  connection
with any  Environmental  Claim,  and any such Lien  expressly  prohibited by any
applicable terms of any of the Collateral Documents):

                 (i) Liens for taxes,  assessments  or  governmental  charges or
         claims the payment of which is not, at the time, required by subsection
         6.3;

                 (ii) statutory Liens of landlords, statutory Liens of banks and
         rights  of  set-off,   statutory   Liens  of  carriers,   warehousemen,
         mechanics,  repairmen, workmen and materialmen, and other Liens imposed
         by law, in each case  incurred in the  ordinary  course of business (a)
         for  amounts  not  overdue for a period of more than 30 days or (b) for
         amounts  that are  overdue  and  that (in the case of any such  amounts
         overdue for a period in excess of 30 days) are being  contested in good
         faith by  appropriate  proceedings,  so long as such  reserves or other
         appropriate provisions, if any, as shall be required by GAAP shall have
         been made for any such contested amounts;

                 (iii) Liens incurred or deposits made in the ordinary course of
         business  in  connection  with  workers'   compensation,   unemployment
         insurance and other types of social security, or to secure liability to
         carriers under insurance or self-insurance  arrangements,  or obtaining
         utility  service or to secure the  performance  of  tenders,  statutory
         obligations,   surety  and  appeal  bonds,  bids,  leases,   government
         contracts,  trade contracts,  performance and return-of-money bonds and
         other similar obligations  (exclusive of obligations for the payment of
         borrowed money), so long as no foreclosure, sale or similar proceedings
         have been  commenced  with respect to any portion of the  Collateral on
         account thereof;

                 (iv) any attachment or judgment Lien not  constituting an Event
         of Default under subsection 8.8;

                 (v) leases or subleases  granted to third parties in accordance
         with  any  applicable  terms  of  the  Collateral   Documents  and  not
         interfering  in any material  respect with the ordinary  conduct of the
         business of Company or any of its Subsidiaries;

                 (vi) easements, rights-of-way, restrictions, encroachments, and
         other minor defects or  irregularities  in title, in each case which do
         not and will not  interfere in any  material  respect with the ordinary
         conduct of the business of Company or any of its Subsidiaries;

                 (vii) any (a) interest or title of a lessor or sublessor  under
         any lease  permitted by subsection  7.9, (b) restriction or encumbrance
         that the interest or title of such lessor or  sublessor  may be subject
         to, or (c)  subordination  of the  interest of the lessee or  sublessee
         under such lease to any  restriction or encumbrance  referred to in the
         preceding clause (b);

                                       26

<PAGE>

                 (viii)  Liens  arising  from  filing UCC  financing  statements
         relating solely to leases permitted by this Agreement;

                 (ix) Liens in favor of customs and revenue  authorities arising
         as a matter of law to secure  payment of customs  duties in  connection
         with the importation of goods;

                 (x) any zoning or similar law or right reserved to or vested in
         any governmental office or agency to control or regulate the use of any
         real property;

                 (xi)  Liens  securing   obligations   (other  than  obligations
         representing   Indebtedness   for  borrowed  money)  under   operating,
         reciprocal  easement or similar agreements entered into in the ordinary
         course of business of Company and its Subsidiaries; and

                 (xii) licenses of Patents,  Trademarks  and other  Intellectual
         Property  rights granted by Company or any of its  Subsidiaries  in the
         ordinary course of business and not interfering in any material respect
         with  the  ordinary   conduct  of  the  business  of  Company  or  such
         Subsidiary.

                 "Permitted  Subordinated Debt" means Indebtedness  evidenced by
subordinated  obligations up to an aggregate  amount of  $250,000,000;  provided
that, (i) the maturity of such  obligations  shall not be earlier than September
30, 2006,  (ii) proceeds from the sale of such  obligations  shall be treated as
Net  Debt  Proceeds  and  applied  as  mandatory  prepayments  of the  Loans  in
accordance with subsection 2.4B(iii),  (iii) the terms of such obligations shall
not provide for any  scheduled or  mandatory  prepayments  of principal  thereof
prior to  September  30,  2006 other than  mandatory  prepayments  required as a
result of asset dispositions if the terms of such subordinated obligations allow
Company to satisfy such mandatory prepayment  requirement by prepayment of Loans
under this Agreement or other senior  obligations of Company or  reinvestment of
the asset  disposition  proceeds  within a specified  period of time,  (iv) such
Indebtedness  shall be unsecured and expressly  subordinated to all existing and
future  senior  indebtedness  of Company  and its  Subsidiaries  (including  the
Obligations)  with  customary  standstill  provisions  with regard to nonpayment
defaults under the Loans, (v) such obligations shall not be  cross-defaulted  to
(but may be  cross-accelerated  to) other  obligations  of Company or any of its
Subsidiaries,  (vi) the negative  covenants  with  respect to such  subordinated
obligations  shall be no more  restrictive  than the negative  covenants in this
Agreement as in effect at the time such  subordinated  Indebtedness is incurred,
(vii) the affirmative  covenants with respect to such  subordinated  obligations
shall be no more restrictive than the affirmative covenants in this Agreement as
in effect at the time such  subordinated  Indebtedness  is incurred,  (viii) the
terms of such  subordinated  obligations  shall include  customary  turnover and
other  subordination  provisions,  (ix) payments in respect of such subordinated
obligations shall be automatically  and permanently  blocked following a payment
default by Company under this Agreement;  and (x) the  documentation  evidencing
such  subordinated  obligations shall contain such other terms and conditions as
may be approved by Agents; it being understood that Debt Securities  convertible
into the common stock of the Company  satisfying  the conditions set forth above
shall also constitute "Permitted Subordinated Debt".

                                       27

<PAGE>

                 "Person"  means and includes any natural  person,  corporation,
limited  partnership,  general partnership,  limited liability company,  limited
liability partnership, joint stock company, Joint Venture, association, company,
trust, bank, trust company,  land trust,  business trust or other  organization,
whether or not a legal entity, and government (whether federal,  state or local,
domestic or foreign,  and  including  any  political  subdivisions  thereof) and
agency or other administrative or regulatory body thereof.

                 "Pledged   Collateral"   means,   collectively,   the  "Pledged
Collateral" as defined in the Company Pledge Agreement and the Subsidiary Pledge
Agreements.

                 "Potential  Event of Default"  means a condition or event that,
after notice or lapse of time or both, would constitute an Event of Default.

                 "Pricing  Level"  means,  as of any date,  the  Pricing  Level,
whether (in ascending order from the lowest Pricing Level to the highest Pricing
Level)  Pricing  Level 1, Pricing  Level 2, Pricing  Level 3, Pricing Level 4 or
Pricing  Level 5, that  corresponds  to the ratings of the Loans from Moody's or
S&P as set  forth in the  most  recent  effective  Pricing  Level  Determination
Certificate   delivered  in  accordance   with  the   provisions  of  subsection
6.1A(xvii):

                                       28

<PAGE>

       Pricing Level                            Ratings of Loans
------------------------      --------------------------------------------------

          Level 1             BBB- or higher by S&P and Baa3 or
                              higher by Moody's
          Level 2             BB+ by S&P or Ba1 by Moody's
          Level 3             BB by S&P or Ba2 by Moody's
          Level 4             BB- by S&P or Ba3 by Moody's
          Level 5             B+ or lower by S&P or B1 or lower
                              by Moody's

In the case of a split  Rating in which  Moody's  and S&P are one  rating  level
apart, the more creditworthy of such Ratings (i.e., the Rating which implies the
lower  borrowing  spread for Company) shall  determine the Pricing Level (except
for Level 1, in which case both rating agencies must assign a Rating at least as
high as the Ratings  specified  above).  In the case of a split  Rating in which
Moody's and S&P are more than one rating  level  apart,  the Rating which is the
midpoint  between the split Ratings (i.e., an equal number of rating levels from
the higher and lower Ratings) shall  determine the Pricing Level;  provided that
if the midpoint  falls between  Rating levels (i.e.,  the Ratings set by Moody's
and S&P are an odd number of rating  levels  apart),  the Rating  closest to the
midpoint which is the more creditworthy (i.e. the Rating which implies the lower
borrowing  spread for  Company)  shall be used to  determine  the Pricing  Level
(except as provided for Level 1 in the preceding sentence).  For the purposes of
determining the Pricing Level, a Pricing Level  Determination  Certificate shall
be deemed effective on the first Business Day following  Administrative  Agent's
receipt thereof,  and the Pricing Level shall change on such Business Day to the
extent  necessary  to reflect the debt rating for the Loans as set forth in such
Pricing Level Determination Certificate.

                 "Pricing Level  Determination  Certificate" means a certificate
substantially   in  the  form  of  Exhibit  XX  annexed   hereto   delivered  to
Administrative Agent and Lenders by Company pursuant to subsection 6.1A(xvii).

                 "Prime Rate" means the rate of interest per annum determined by
Royal  Bank of Canada in New York  City  from time to time as its  Dollar  prime
commercial lending rate for such day, as in effect from time to time.

                 "Pro Forma Financial Covenant Compliance" means, as of any date
of determination,  the pro forma compliance of Company and its Subsidiaries on a
consolidated basis with each of the financial  covenants set forth in subsection
7.6 for the  immediately  preceding  Fiscal Quarter period prior to such date of
determination  (the  "Compliance  Period"),  such  pro  forma  compliance  being
calculated as follows: to the extent that during the Compliance Period for which
calculation  is being  made,  Company or any  Subsidiary  of Company  has made a
Permitted  Acquisition permitted under subsection 7.7(vi) or has disposed of any
assets or operations in an amount for any such  transaction or series of related
transactions exceeding $5,000,000, (i) such calculation shall be made as if such
Permitted  Acquisition or such  disposition  took place on the first day of such
Compliance  Period on a

                                       29

<PAGE>

pro  forma  basis  for the  portion  of such  period  prior  to the date of such
Permitted  Acquisition  or after the date of such  disposition  and on an actual
basis for the portion of such Compliance Period after the date of such Permitted
Acquisition or before the date of such disposition, (ii) such calculations shall
be made after giving  effect to the  incurrence,  assumption or repayment of any
Indebtedness made in connection with such acquisition or disposition,  and (iii)
such calculation shall be made after giving  retroactive  effect to demonstrable
net cost  eliminations  or net cost savings  arising by virtue of such Permitted
Acquisition  (such as inflated  compensation paid to employee owners to maximize
tax efficiencies),  which cost eliminations and cost savings are demonstrated in
the Officer's  Certificate  required under subsection 7.7 and (A) are consistent
with standards and practices for pro forma  presentation  pursuant to Regulation
S-X as promulgated by the Securities and Exchange Commission and are reviewed by
Company's  independent  accountants,  or  (B)  are  reasonably  satisfactory  to
Requisite  Lenders.  With respect to any such  Permitted  Acquisition,  such pro
forma  calculations  shall be based on the audited or reviewed financial results
delivered in compliance with clause (c)(3) of subsection 7.7(vi).

                 "Pro Rata  Share"  means,  with  respect  to each  Lender,  the
percentage  obtained by dividing (x) the sum of the Tranche A Term Loan Exposure
of that  Lender  plus the  Tranche B Term Loan  Exposure of that Lender plus the
Revolving Loan Exposure of that Lender by (y) the sum of the aggregate Tranche A
Term  Loan  Exposure  of all  Lenders  plus the  aggregate  Tranche  B Term Loan
Exposure  of all  Lenders  plus the  aggregate  Revolving  Loan  Exposure of all
Lenders,  in any such  case as the  applicable  percentage  may be  adjusted  by
assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of
each  Lender is set forth  opposite  the name of that  Lender  in  Schedule  2.1
annexed hereto.

                 "PTO" means the United States  Patent and  Trademark  Office or
any  successor or  substitute  office in which  filings are necessary or, in the
opinion of Administrative  Agent,  desirable in order to create or perfect Liens
on any IP Collateral.

                 "Rating"   means,  as  at  any  date  of   determination,   the
then-current rating given to the Loans by S&P or Moody's, as applicable.

                 "Real Property Asset" means, at any time of determination,  any
interest then owned by any Loan Party in any real property.

                 "Reference Lenders" means Royal Bank of Canada,  Union Bank and
Fleet National Bank.

                 "Refunded  Swing Line Loans" has the  meaning  assigned to that
term in subsection 2.1A(iv).

                 "Register" has the meaning  assigned to that term in subsection
2.1D.

                 "Regulation D" means  Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

                                       30

<PAGE>

                 "Reimbursement  Date" has the meaning  assigned to that term in
subsection 3.3B.

                 "Related  Agreements"  means the Acquisition  Agreement and the
Ancillary Agreements (as defined in the Acquisition Agreement).

                 "Related Fund" means, with respect to any Lender that is a fund
that  invests in bank  loans,  any other fund that  invests in bank loans and is
advised  or  managed  by the same  investment  advisor  as such  Lender or by an
Affiliate of such investment advisor.

                 "Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge,  dispersal, dumping,
leaching  or  migration  of  Hazardous  Materials  into the  indoor  or  outdoor
environment (including the abandonment or disposal of any barrels, containers or
other closed  receptacles  containing  any Hazardous  Materials),  including the
movement of any  Hazardous  Materials  through the air,  soil,  surface water or
groundwater.

                 "Requisite Class Lenders" means, at any time of  determination,
(i) for the  Class  of  Lenders  having  Tranche  A Term  Loan  Exposure  and/or
Revolving Loan  Exposure,  Lenders having or holding more than 65% of the sum of
the  aggregate  Tranche A Term Loan  Exposure of all Lenders plus the  aggregate
Revolving  Loan Exposure of all Lenders and (ii) for the Class of Lenders having
Tranche B Term Loan  Exposure,  Lenders  having or holding  more than 65% of the
aggregate Tranche B Term Loan Exposure of all Lenders.

                 "Requisite  Lenders"  means Lenders having or holding more than
50% of the sum of the aggregate Tranche A Term Loan Exposure of all Lenders plus
the  aggregate  Tranche B Term Loan  Exposure of all Lenders plus the  aggregate
Revolving Loan Exposure of all Lenders.

                 "Restricted  Junior  Payment"  means (i) any  dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company now or hereafter  outstanding,  except a dividend  payable  solely in
shares of that class of stock to the holders of that class, (ii) any redemption,
retirement,  sinking fund or similar payment,  purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of Company now or
hereafter  outstanding,  (iii) any  payment  made to  retire,  or to obtain  the
surrender  of, any  outstanding  warrants,  options  or other  rights to acquire
shares of any class of stock of Company now or hereafter  outstanding,  and (iv)
any payment or prepayment of principal of,  premium,  if any, or interest on, or
redemption,  purchase,  retirement,  defeasance (including in-substance or legal
defeasance),  sinking fund or similar  payment  with  respect to, any  Permitted
Subordinated Debt.

                 "Retained   Excess  Cash  Flow"  means,   as  at  any  date  of
determination,  the amount of  Consolidated  Excess Cash Flow not required to be
applied as a mandatory  prepayment  of the Loans or  reductions of the Revolving
Loan Commitments pursuant to subsection 2.4(iii)(d); provided that prior to June
30, 1999, for purposes of subsection  7.3(x), the amount of Retained Excess Cash
Flow shall be deemed to be zero.

                                       31

<PAGE>

                 "Revolving Loan Commitment" means the commitment of a Lender to
make Revolving Loans to Company pursuant to subsection 2.1A(iii), and "Revolving
Loan Commitments" means such commitments of all Lenders in the aggregate.

                 "Revolving  Loan Commitment  Termination  Date" means September
30, 2003.

                 "Revolving Loan Exposure" means,  with respect to any Lender as
of any date of determination, (i) prior to the termination of the Revolving Loan
Commitments,  that  Lender's  Revolving  Loan  Commitment,  and (ii)  after  the
termination  of the  Revolving  Loan  Commitments,  the sum of (a) the aggregate
outstanding  principal amount of the Revolving Loans of that Lender,  (b) in the
event that Lender is an Issuing Lender,  the aggregate Letter of Credit Usage in
respect of all Letters of Credit  issued by that Lender (in each case net of any
participations purchased by other Lenders in such Letters of Credit and any such
participations  in any  unreimbursed  drawings  thereunder),  (c) the  aggregate
amount of all participations purchased by that Lender in any outstanding Letters
of Credit or in any  unreimbursed  drawings under any Letters of Credit,  (d) in
the case of Swing Line Lender, the aggregate outstanding principal amount of all
Swing Line Loans (net of any participations  therein purchased by other Lenders)
and (e) the aggregate amount of all  participations  purchased by that Lender in
any outstanding Swing Line Loans.

                 "Revolving  Loans"  means the Loans  made by Lenders to Company
pursuant to subsection 2.1A(iii).

                 "Revolving  Note"  means  (i) any  promissory  note of  Company
issued  pursuant  to  subsection  2.1E(i)(c)  on the  Closing  Date and (ii) any
promissory  note issued by Company  pursuant to the last  sentence of subsection
10.1B(i) in connection  with  assignments of the Revolving Loan  Commitments and
Revolving  Loans  of any  Lenders,  in each  case  substantially  in the form of
Exhibit VI annexed  hereto,  as it may be  amended,  supplemented  or  otherwise
modified from time to time.

                 "Revolving Pro Rata Share" means, with respect to all payments,
computations  and other matters relating to the Revolving Loan Commitment or the
Revolving Loans of any Lender or any Letters of Credit issued or  participations
therein  purchased by any Lender or any  participations  in any Swing Line Loans
purchased by any Lender,  the percentage  obtained by dividing (x) the Revolving
Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all
Lenders.  The  initial  Revolving  Pro Rata  Share of each  Lender  is set forth
opposite the name of that Lender in Schedule 2.1 annexed hereto.

                 "S&P" means Standard and Poor's Ratings Services.

                 "Securities" means any stock,  shares,  partnership  interests,
voting trust  certificates,  certificates of interest or  participations  in any
profit-sharing agreement or arrangement,  options,  warrants, bonds, debentures,
notes,  or other  similar  evidences  of  indebtedness,  secured  or  unsecured,
convertible,  subordinated or otherwise,  or in general any

                                       32

<PAGE>

instruments  commonly known as  "securities"  or any  certificates  of interest,
shares or participations  in temporary or interim  certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.

                 "Securities  Act" means the  Securities Act of 1933, as amended
from time to time, and any successor statute.

                 "Security  Agreement" means the Security Agreement executed and
delivered by Company and by the existing  Subsidiary  Guarantors  on the Closing
Date or executed and delivered by any additional  Subsidiary Guarantor from time
to time thereafter in accordance with subsection 6.8, in each case substantially
in the form of Exhibit XVI annexed  hereto,  as such  Security  Agreement may be
amended, supplemented or otherwise modified from time to time.

                 "Seller" means C.R. Bard, Inc., a New Jersey corporation.

                 "Solvent"  means,  with  respect to any Person,  that as of the
date of determination  both (A) (i) the then fair saleable value of the property
of such Person is (y) greater  than the total amount of  liabilities  (including
contingent  liabilities)  of such  Person and (z) not less than the amount  that
will be required to pay the probable  liabilities on such Person's then existing
debts as they become absolute and matured considering all financing alternatives
and  potential  asset  sales  reasonably  available  to such  Person;  (ii) such
Person's  capital is not  unreasonably  small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably  believe) that it will incur,  debts
beyond its ability to pay such debts as they become due;  and (B) such Person is
"solvent"  within the meaning given that term and similar terms under applicable
laws relating to  fraudulent  transfers  and  conveyances.  For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and  circumstances  existing at
such time,  represents  the amount that can  reasonably be expected to become an
actual or matured liability.

                 "Standby  Letter of Credit" means any standby  letter of credit
or similar  instrument  issued for the purpose of supporting (i) Indebtedness of
Company  or any  of  its  Subsidiaries  in  respect  of  industrial  revenue  or
development  bonds or  financings,  (ii) workers'  compensation  liabilities  of
Company  or any of its  Subsidiaries,  (iii)  the  obligations  of  third  party
insurers of Company or any of its Subsidiaries  arising by virtue of the laws of
any jurisdiction  requiring third party insurers,  (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries,  in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
Letters  of Credit may not be issued for the  purpose  of  supporting  (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).

                 "Subsidiary"   means,   with   respect  to  any   Person,   any
corporation,  partnership, limited liability company, association, joint venture
or other  business  entity of

                                       33

<PAGE>

which  more  than 50% of the  total  voting  power of  shares  of stock or other
ownership   interests   entitled  (without  regard  to  the  occurrence  of  any
contingency)  to  vote  in  the  election  of the  Person  or  Persons  (whether
directors,  managers,  trustees or other Persons  performing  similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or  controlled,  directly  or  indirectly,  by that
Person or one or more of the other  Subsidiaries of that Person or a combination
thereof.

                 "Subsidiary  Guarantor"  means any  Subsidiary  of Company that
executes and delivers the  Subsidiary  Guaranty on the Closing Date or from time
to time thereafter pursuant to subsection 6.8.

                 "Subsidiary  Guaranty" means the Subsidiary  Guaranty  executed
and delivered by existing  Subsidiaries of Company on the Closing Date and to be
executed and delivered by additional  Subsidiaries  of Company from time to time
thereafter in  accordance  with  subsection  6.8,  substantially  in the form of
Exhibit  XVII  annexed  hereto,  as such  Subsidiary  Guaranty  may be  amended,
supplemented or otherwise modified from time to time.

                 "Subsidiary  Pledge  Agreement"  means each  Subsidiary  Pledge
Agreement  executed  and  delivered by an existing  Subsidiary  Guarantor on the
Closing Date or executed and delivered by any  additional  Subsidiary  Guarantor
from time to time  thereafter in accordance  with  subsection  6.8, in each case
substantially  in the form of Exhibit XVIII annexed  hereto,  as such Subsidiary
Pledge Agreement may be amended, supplemented or otherwise modified from time to
time,  and  "Subsidiary  Pledge  Agreements"  means all such  Subsidiary  Pledge
Agreements, collectively.

                 "Supplemental  Collateral  Agent" has the  meaning  assigned to
that term in subsection 9.1B.

                 "Swing Line Lender"  means Royal Bank of Canada,  or any Person
serving as a successor  Administrative Agent hereunder, in its capacity as Swing
Line Lender hereunder.

                 "Swing Line Loan Commitment" means the commitment of Swing Line
Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iv).

                 "Swing Line Loans" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(iv).

                 "Swing  Line  Note"  means (i) the  promissory  note of Company
issued  pursuant  to  subsection  2.1E(ii)  on the  Closing  Date  and  (ii) any
promissory note issued by Company to any successor Swing Line Lender pursuant to
the last sentence of subsection 9.5B, in each case  substantially in the form of
Exhibit VII annexed  hereto,  as it may be amended,  supplemented  or  otherwise
modified from time to time.

                 "Syndication  Agent" has the  meaning  assigned to that term in
the  introduction  to this  Agreement  and also means and includes any successor
Syndication Agent

                                       34

<PAGE>

appointed pursuant to subsection 9.5A.

                 "Tax"  means any  present or future tax,  levy,  impost,  duty,
charge,  fee,  deduction or  withholding of any nature and whatever  called,  by
whomsoever, on whomsoever and wherever imposed, levied,  collected,  withheld or
assessed;  provided  that "Tax on the overall  net income" of a Person  shall be
construed  as a  reference  to a tax imposed by the  jurisdiction  in which that
Person is organized or in which that Person's  principal office (and/or,  in the
case of a Lender,  its  lending  office)  is  located  or in which  that  Person
(and/or,  in the case of a Lender,  its  lending  office)  is deemed to be doing
business on all or part of the net income,  profits or gains (whether worldwide,
or only insofar as such income,  profits or gains are  considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).

                 "Term Loans" means, collectively,  the Tranche A Term Loans and
the Tranche B Term Loans.

                 "Total Utilization of Revolving Loan Commitments"  means, as at
any date of determination,  the sum of (i) the aggregate principal amount of all
outstanding  Revolving Loans (other than Revolving Loans made for the purpose of
repaying any Refunded  Swing Line Loans or reimbursing  the  applicable  Issuing
Lender for any amount  drawn under any Letter of Credit but not yet so applied),
(ii) the  aggregate  principal  amount of all  outstanding  Swing Line Loans and
(iii) the Letter of Credit Usage.

                 "Trademarks"  means all trademarks,  tradenames,  trade styles,
service  marks,  logos or other  source or  business  identifiers  in the United
States of America or any other  country  and all  registrations  and  recordings
thereof and all  applications  in  connection  therewith in the United States of
America  or any other  country,  including  all  registrations,  recordings  and
applications in the PTO.

                 "Tranche A Pro Rata Share" means, with respect to all payments,
computations and other matters relating to the Tranche A Term Loan Commitment or
Tranche A Term Loan of any Lender,  the percentage  obtained by dividing (x) the
Tranche A Term Loan Exposure of that Lender by (y) the aggregate  Tranche A Term
Loan  Exposure  of all  Lenders.  The  initial  Tranche A Pro Rata Share of each
Lender is set forth  opposite  the name of that Lender in  Schedule  2.1 annexed
hereto.

                 "Tranche  A Term Loan  Commitment"  means the  commitment  of a
Lender to make a Tranche A Term Loan to Company  pursuant to subsection  2.1A(i)
and "Tranche A Term Loan  Commitments"  means such commitments of all Lenders in
the aggregate.

                 "Tranche  A Term Loan  Exposure"  means,  with  respect  to any
Lender as of any date of determination,  (i) prior to the funding of the Tranche
A Term Loans,  that Lender's Tranche A Term Loan Commitment,  and (ii) after the
funding of the Tranche A Term Loans,  the  outstanding  principal  amount of the
Tranche A Term Loan of that Lender.

                 "Tranche  A Term  Loans"  means the Loans  made by  Lenders  to
Company

                                       35

<PAGE>

pursuant to subsection 2.1A(i).

                 "Tranche A Term Note" means (i) any promissory  note of Company
issued  pursuant  to  subsection  2.1E(i)(a)  on the  Closing  Date and (ii) any
promissory  note issued by Company  pursuant to the last  sentence of subsection
10.1B(i) in connection with  assignments of the Tranche A Term Loan  Commitments
or Tranche A Term Loans of any Lenders,  in each case  substantially in the form
of Exhibit IV annexed  hereto,  as it may be amended,  supplemented or otherwise
modified from time to time.

                 "Tranche B Pro Rata Share" means, with respect to all payments,
computations and other matters relating to the Tranche B Term Loan Commitment or
Tranche B Term Loan of any Lender,  the percentage  obtained by dividing (x) the
Tranche B Term Loan Exposure of that Lender by (y) the aggregate  Tranche B Term
Loan  Exposure  of all  Lenders.  The  initial  Tranche B Pro Rata Share of each
Lender is set forth  opposite  the name of that Lender in  Schedule  2.1 annexed
hereto.

                 "Tranche  B Term Loan  Commitment"  means the  commitment  of a
Lender to make a Tranche B Term Loan to Company pursuant to subsection 2.1A(ii),
and "Tranche B Term Loan  Commitments"  means such commitments of all Lenders in
the aggregate.

                 "Tranche  B Term Loan  Exposure"  means,  with  respect  to any
Lender as of any date of determination,  (i) prior to the funding of the Tranche
B Term Loans,  that Lender's Tranche B Term Loan Commitment,  and (ii) after the
funding of the Tranche B Term Loans,  the  outstanding  principal  amount of the
Tranche B Term Loan of that Lender.

                 "Tranche B Term  Loan"  means a Loan made by Lenders to Company
pursuant to subsection 2.1A(ii).

                 "Tranche B Term Note" means (i) any promissory  note of Company
issued  pursuant  to  subsection  2.1E(i)(b)  on the  Closing  Date and (ii) any
promissory  note issued by Company  pursuant to the last  sentence of subsection
10.1B(i) in connection with  assignments of the Tranche B Term Loan  Commitments
or Tranche B Term Loans of any Lenders,  in each case  substantially in the form
of Exhibit V annexed  hereto,  as it may be amended,  supplemented  or otherwise
modified from time to time.

                 "Transaction  Costs" means the fees, costs and expenses payable
by Company in connection with the consummation of the transactions  contemplated
by the Loan Documents and the Related Agreements.

                 "UCC"  means the  Uniform  Commercial  Code (or any  similar or
equivalent legislation) as in effect in any applicable jurisdiction.

                 "World  Medical   Acquisition"  means  the  merger  of  Walleye
Acquisition Corporation,  a Florida corporation and a wholly owned Subsidiary of
Company ("Merger Sub"), with and into World Medical Manufacturing Corporation, a
Florida  corporation  ("World Medical"),  pursuant to the terms of the Agreement
and Plan of Merger and

                                       36

<PAGE>

Reorganization  dated as of April 10, 1998, as amended from time to time, by and
among Company, World Medical and Merger Sub.

                 "Year 2000 Compliant" means, in regard to any Person,  that all
material software, hardware,  firmware,  equipment, goods or systems utilized by
or material to the business,  operations  or financial  condition of such Person
will properly perform date sensitive functions (including immediately before and
during and after the year 2000).

                 1.2  Accounting  Terms;  Utilization  of GAAP for  Purposes  of
Calculations Under Agreement.

                 Except as otherwise  expressly provided in this Agreement,  all
accounting terms not otherwise  defined herein shall have the meanings  assigned
to them in conformity  with GAAP.  Financial  statements  and other  information
required to be  delivered by Company to Lenders  pursuant to clauses (i),  (ii),
(iii) and (xiii) of subsection 6.1 shall be prepared in accordance  with GAAP as
in effect  at the time of such  preparation  (and  delivered  together  with the
reconciliation  statements provided for in subsection  6.1(v)).  Calculations in
connection  with  the  definitions,  covenants  and  other  provisions  of  this
Agreement  shall utilize  accounting  principles and policies in conformity with
those used to prepare the financial statements referred to in subsection 5.3.

1.3      Other Definitional Provisions and Rules of Construction.

                 A. Any of the terms  defined  herein  may,  unless the  context
otherwise  requires,  be used in the  singular or the plural,  depending  on the
reference.

                 B.  References  to  "Sections"  and  "subsections"  shall be to
Sections and  subsections,  respectively,  of this  Agreement  unless  otherwise
specifically provided.

                 C. The use herein of the word  "include" or  "including",  when
following any general statement, term or matter, shall not be construed to limit
such  statement,  term or  matter to the  specific  items or  matters  set forth
immediately  following such word or to similar items or matters,  whether or not
nonlimiting  language  (such as "without  limitation" or "but not limited to" or
words of similar  import) is used with  reference  thereto,  but rather shall be
deemed to refer to all other  items or matters  that fall  within  the  broadest
possible scope of such general statement, term or matter.

                                       37

<PAGE>

Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS

2.1      Commitments; Making of Loans; the Register; Notes.

                 A.  Commitments.  Subject to the terms and  conditions  of this
Agreement and in reliance upon the representations and warranties of Company set
forth  herein,  (1) each  Lender  hereby  severally  agrees  to make  the  Loans
described in subsections  2.1A(i),  2.1A(ii) and 2.1A(iii) and Swing Line Lender
hereby agrees to make the Loans described in subsection 2.1A(iv).

                          (i) Tranche A Term Loans. Each Lender severally agrees
         to lend to Company on the Closing Date an amount equal to its Tranche A
         Pro Rata  Share of the  aggregate  amount  of the  Tranche  A Term Loan
         Commitments to be used for the purposes  identified in subsection 2.5A.
         The amount of each Lender's Tranche A Term Loan Commitment is set forth
         opposite  its name on  Schedule  2.1 annexed  hereto and the  aggregate
         amount of the Tranche A Term Loan Commitments is $200,000,000; provided
         that the Tranche A Term Loan  Commitments  of Lenders shall be adjusted
         to  give  effect  to  any  assignments  of  the  Tranche  A  Term  Loan
         Commitments  pursuant to subsection 10.1B. Each Lender's Tranche A Term
         Loan Commitment shall expire  immediately and without further action on
         October  30, 1998 if the Tranche A Term Loans are not made on or before
         that date. Company may make only one borrowing under the Tranche A Term
         Loan  Commitments.  Amounts borrowed under this subsection  2.1A(i) and
         subsequently repaid or prepaid may not be reborrowed.

                          (ii)  Tranche  B Term  Loans.  Each  Lender  severally
         agrees to lend to Company on the  Closing  Date an amount  equal to its
         Tranche B Pro Rata Share of the aggregate  amount of the Tranche B Term
         Loan  Commitments to be used for the purposes  identified in subsection
         2.5A. The amount of each Lender's Tranche B Term Loan Commitment is set
         forth  opposite  its  name  on  Schedule  2.1  annexed  hereto  and the
         aggregate   amount  of  the   Tranche  B  Term  Loan   Commitments   is
         $350,000,000;  provided  that the  Tranche B Term Loan  Commitments  of
         Lenders  shall be  adjusted to give  effect to any  assignments  of the
         Tranche B Term Loan  Commitments  pursuant to  subsection  10.1B.  Each
         Lender's  Tranche B Term Loan Commitment  shall expire  immediately and
         without  further action on October 30, 1998 if the Tranche B Term Loans
         are not  made on or  before  that  date.  Company  may  make  only  one
         borrowing under the Tranche B Term Loan  Commitments.  Amounts borrowed
         under this subsection  2.1A(ii) and subsequently  repaid or prepaid may
         not be reborrowed.

                          (iii) Revolving Loans.  Each Lender severally  agrees,
         subject to the  limitations set forth below with respect to the maximum
         amount of  Revolving  Loans  permitted to be  outstanding  from time to
         time, to lend to Company from time to time during the period from three
         days  after  the  Closing  Date to but  excluding  the  Revolving  Loan
         Commitment  Termination  Date an  aggregate  amount not  exceeding  its
         Revolving Pro Rata Share of the aggregate  amount of the Revolving Loan
         Commitments to be used for the purposes  identified in subsection 2.5B.
         The original

                                       38

<PAGE>

         amount of each Lender's Revolving Loan Commitment is set forth opposite
         its name on Schedule  2.1  annexed  hereto and the  aggregate  original
         amount of the Revolving Loan Commitments is up to $50,000,000; provided
         that the  Revolving  Loan  Commitments  of Lenders shall be adjusted to
         give  effect  to any  assignments  of the  Revolving  Loan  Commitments
         pursuant to subsection 10.1B; and provided,  further that the amount of
         the Revolving  Loan  Commitments  shall be reduced from time to time by
         the amount of any  reductions  thereto  made  pursuant  to  subsections
         2.4B(ii) and 2.4B(iii).  Each Lender's  Revolving Loan Commitment shall
         expire  on the  Revolving  Loan  Commitment  Termination  Date  and all
         Revolving  Loans and all other amounts owed  hereunder  with respect to
         the Revolving Loans and the Revolving Loan Commitments shall be paid in
         full no later than that date;  provided  that each  Lender's  Revolving
         Loan Commitment shall expire  immediately and without further action on
         October 30, 1998 if the Term Loans are not made on or before that date.
         Amounts  borrowed  under this  subsection  2.1A(iii)  may be repaid and
         reborrowed to but excluding the Revolving Loan  Commitment  Termination
         Date.

                 Anything   contained   in  this   Agreement   to  the  contrary
         notwithstanding, the Revolving Loans and the Revolving Loan Commitments
         shall be subject  to the  limitation  that in no event  shall the Total
         Utilization  of  Revolving  Loan  Commitments  at any time  exceed  the
         Revolving Loan Commitments then in effect.

                 (iv) Swing Line Loans. Swing Line Lender hereby agrees, subject
         to the  limitations  set forth below with respect to the maximum amount
         of Swing Line Loans  permitted to be outstanding  from time to time, to
         make a portion of the Revolving Loan  Commitments  available to Company
         from  time to time  during  the  period  from the  Closing  Date to but
         excluding  the Revolving  Loan  Commitment  Termination  Date by making
         Swing Line Loans to Company in an aggregate  amount not  exceeding  the
         amount of the Swing Line Loan  Commitment  to be used for the  purposes
         identified in subsection 2.5B, notwithstanding the fact that such Swing
         Line  Loans,  when  aggregated  with  Swing Line  Lender's  outstanding
         Revolving Loans and Swing Line Lender's Revolving Pro Rata Share of the
         Letter of Credit Usage then in effect,  may exceed Swing Line  Lender's
         Revolving Loan  Commitment.  The original amount of the Swing Line Loan
         Commitment is $5,000,000;  provided that any reduction of the Revolving
         Loan  Commitments  made  pursuant to  subsection  2.4B(ii) or 2.4B(iii)
         which reduces the aggregate  Revolving  Loan  Commitments  to an amount
         less than the then  current  amount of the Swing  Line Loan  Commitment
         shall result in an automatic  corresponding reduction of the Swing Line
         Loan Commitment to the amount of the Revolving Loan Commitments,  as so
         reduced,   without  any   further   action  on  the  part  of  Company,
         Administrative  Agent  or  Swing  Line  Lender.  The  Swing  Line  Loan
         Commitment  shall expire on the Revolving Loan  Commitment  Termination
         Date and all Swing Line Loans and all other amounts owed hereunder with
         respect  to the Swing  Line  Loans  shall be paid in full no later than
         that date;  provided that the Swing Line Loan  Commitment  shall expire
         immediately  and without further action on October 30, 1998 if the Term
         Loans are not made on or before that date.  Amounts borrowed under this
         subsection  2.1A(iv) may be repaid and  reborrowed to but excluding the
         Revolving Loan Commitment Termination Date.

                                       39

<PAGE>

                 Anything   contained   in  this   Agreement   to  the  contrary
         notwithstanding,   the  Swing  Line  Loans  and  the  Swing  Line  Loan
         Commitment  shall be subject to the  limitation  that in no event shall
         the Total  Utilization of Revolving Loan Commitments at any time exceed
         the Revolving Loan Commitments then in effect.

                 With  respect  to any  Swing  Line  Loans  which  have not been
         voluntarily  prepaid by Company pursuant to subsection  2.4B(i),  Swing
         Line  Lender  may,  at any time in its sole  and  absolute  discretion,
         deliver to Administrative Agent (with a copy to Company), no later than
         1:00 P.M. (New York time) on the Business Day immediately preceding the
         proposed  Funding  Date, a notice (which shall be deemed to be a Notice
         of Borrowing given by Company)  requesting  Lenders with Revolving Loan
         Commitments  to make  Revolving  Loans that are Base Rate Loans on such
         Funding  Date in an amount equal to the amount of such Swing Line Loans
         (the "Refunded  Swing Line Loans")  outstanding on the date such notice
         is given  which  Swing Line  Lender  requests  such  Lenders to prepay.
         Anything  contained in this Agreement to the contrary  notwithstanding,
         (i) the  proceeds of such  Revolving  Loans made by Lenders  other than
         Swing Line Lender  shall be  immediately  delivered  by  Administrative
         Agent to Swing Line Lender (and not to Company)  and applied to repay a
         corresponding  portion of the Refunded Swing Line Loans and (ii) on the
         day such Revolving  Loans are made,  Swing Line Lender's  Revolving Pro
         Rata Share of the Refunded  Swing Line Loans shall be deemed to be paid
         with the proceeds of a Revolving  Loan made by Swing Line  Lender,  and
         such  portion  of the Swing  Line  Loans  deemed to be so paid shall no
         longer be  outstanding  as Swing  Line Loans and shall no longer be due
         under  the Swing  Line  Note of Swing  Line  Lender  but shall  instead
         constitute part of Swing Line Lender's outstanding  Revolving Loans and
         shall be due under the Revolving Note of Swing Line Lender.

                 If for any reason (a) any Revolving Loans are not made upon the
         request of Swing Line Lender as provided in the  immediately  preceding
         paragraph at the time required and in an amount sufficient to repay any
         amounts owed to Swing Line Lender in respect of any  outstanding  Swing
         Line Loans or (b) the Revolving  Loan  Commitments  are terminated at a
         time when any Swing Line Loans are  outstanding,  each Lender which has
         or had, as the case may be, a Revolving Loan Commitment shall be deemed
         to, and hereby  agrees  to,  have  purchased  a  participation  in such
         outstanding  Swing Line Loans in an amount equal to its  Revolving  Pro
         Rata  Share  (calculated,  in the  case of the  foregoing  clause  (b),
         immediately   prior  to  such   termination   of  the  Revolving   Loan
         Commitments)  of the unpaid  amount of such  Swing Line Loans  together
         with accrued  interest  thereon.  Upon one  Business  Day's notice from
         Swing Line Lender,  each such Lender shall deliver to Swing Line Lender
         an amount equal to its  respective  participation  in same day funds at
         the Funding  and Payment  Account.  In order to further  evidence  such
         participation  (and  without  prejudice  to  the  effectiveness  of the
         participation  provisions set forth above),  each such Lender agrees to
         enter into a separate  participation  agreement at the request of Swing
         Line Lender in form and substance reasonably satisfactory to Swing Line
         Lender.  In the event any Lender fails to make  available to Swing Line
         Lender the

                                       40

<PAGE>

         amount of such Lender's  participation  as provided in this  paragraph,
         Swing Line Lender  shall be  entitled to recover  such amount on demand
         from such Lender  together with  interest  thereon at the Federal Funds
         Effective Rate for three Business Days and thereafter at the Base Rate.
         In the event  Swing  Line  Lender  receives  a payment of any amount in
         which other Lenders have purchased  participations  as provided in this
         paragraph,  Swing Line Lender shall  promptly  distribute  to each such
         other Lender its Revolving Pro Rata Share of such payment.

                 Anything contained herein to the contrary notwithstanding, each
         Lender's obligation to make Revolving Loans for the purpose of repaying
         any  Refunded  Swing  Line  Loans  pursuant  to  the  second  preceding
         paragraph and each Lender's  obligation to purchase a participation  in
         any unpaid  Swing  Line Loans  pursuant  to the  immediately  preceding
         paragraph shall be absolute and unconditional and shall not be affected
         by  any   circumstance,   including  (a)  any  set-off,   counterclaim,
         recoupment,  defense or other right which such Lender may have  against
         Swing  Line  Lender,  Company  or  any  other  Person  for  any  reason
         whatsoever,  (b) the occurrence or  continuation of an Event of Default
         or a  Potential  Event  of  Default,  (c)  any  adverse  change  in the
         business,  operations,  properties,  assets,  condition  (financial  or
         otherwise) or prospects of Company or any of its Subsidiaries,  (d) any
         breach  of this  Agreement  or any  other  Loan  Document  by any party
         thereto or (e) any other  circumstance,  happening or event whatsoever,
         whether or not  similar  to any of the  foregoing;  provided  that such
         obligations  of each Lender are subject to the condition that (X) Swing
         Line Lender believed in good faith that all conditions  under Section 4
         to the  making of the  applicable  Refunded  Swing  Line Loans or other
         unpaid Swing Line Loans, as the case may be, were satisfied at the time
         such Refunded  Swing Line Loans or unpaid Swing Line Loans were made or
         (Y) the  satisfaction  of any such  condition  not  satisfied  had been
         waived in accordance  with subsection 10.6 prior to or at the time such
         Refunded Swing Line Loans or other unpaid Swing Line Loans were made.

         B. Borrowing Mechanics. Tranche A Term Loans or Tranche B Term Loans or
Revolving  Loans made on any  Funding  Date  (other  than  Revolving  Loans made
pursuant to a request by Swing Line Lender pursuant to subsection  2.1A(iii) for
the purpose of repaying  any Refunded  Swing Line Loans or Revolving  Loans made
pursuant to subsection  3.3B for the purpose of  reimbursing  any Issuing Lender
for the amount of a drawing  under a Letter of Credit  issued by it) shall be in
an aggregate  minimum  amount of (a)  $5,000,000 in the case of Term Loans which
are Base  Rate  Loans or (b)  $5,000,000  in the case of Term  Loans  which  are
Eurodollar  Rate Loans or (c) $3,000,000 in the case of Revolving  Loans and, in
each case, in integral  multiples of $1,000,000 in excess of that amount.  Swing
Line Loans made on any Funding Date shall be in an aggregate  minimum  amount of
$1,000,000  and  integral  multiples  of  $1,000,000  in excess of that  amount.
Whenever  Company  desires that Lenders make Term Loans or Revolving  Loans,  it
shall deliver to  Administrative  Agent a Notice of Borrowing no later than 1:00
P.M.  (New York time) at least three  Business  Days in advance of the  proposed
Funding  Date (in the case of a  Eurodollar  Rate Loan) or at least one Business
Day in advance of the  proposed  Funding Date (in the case of a Base Rate Loan).
Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall
deliver to  Administrative  Agent a

                                       41

<PAGE>

Notice of  Borrowing  no later than 1:00 P.M.  (New York  time) on the  proposed
Funding Date.  The Notice of Borrowing  shall  specify (i) the proposed  Funding
Date  (which  shall  be a  Business  Day),  (ii)  the  amount  and type of Loans
requested,  (iii) in the case of Swing Line Loans, that such Loans shall be Base
Rate Loans,  (iv) in the case of  Revolving  Loans,  whether such Loans shall be
Base  Rate  Loans or  Eurodollar  Rate  Loans  and (v) in the case of any  Loans
requested  to be made as  Eurodollar  Rate Loans,  the initial  Interest  Period
requested  therefor.  Term  Loans and  Revolving  Loans may be  continued  as or
converted into Base Rate Loans and Eurodollar  Rate Loans in the manner provided
in  subsection  2.2D.  In lieu  of  delivering  the  above-described  Notice  of
Borrowing,  Company  may give  Administrative  Agent  telephonic  notice  by the
required time of any proposed  borrowing  under this subsection  2.1B;  provided
that such telephonic  notice shall be promptly  confirmed in writing by delivery
of a Notice of Borrowing to Administrative Agent no later than the next Business
Day thereafter.

                 Neither  Administrative  Agent nor any Lender  shall  incur any
liability to Company in acting upon any telephonic notice referred to above that
Administrative  Agent  believes  in good  faith  to have  been  given  by a duly
authorized  officer or other person authorized to borrow on behalf of Company or
for otherwise  acting in good faith under this subsection 2.1B, and upon funding
of Loans by Lenders  in  accordance  with this  Agreement  pursuant  to any such
telephonic notice Company shall have effected Loans hereunder.

                 Company shall notify  Administrative Agent prior to the funding
of any Loans in the event that any of the  matters to which  Company is required
to certify in the applicable  Notice of Borrowing is or may reasonably  expected
to be no longer  true and correct as of the  applicable  Funding  Date,  and the
acceptance  by  Company  of  the  proceeds  of  any  Loans  shall  constitute  a
re-certification  by  Company,  as of the  applicable  Funding  Date,  as to the
matters to which  Company is  required  to certify in the  applicable  Notice of
Borrowing.

                 Except as  otherwise  provided in  subsections  2.6B,  2.6C and
2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic  notice in
lieu thereof) shall be irrevocable after  Administrative  Agent has given notice
thereof to the relevant Lenders,  and Company shall be bound to make a borrowing
in accordance  therewith unless Company shall pay compensation,  if any, for the
non-commencement  of an Interest Period on the proposed Funding Date as provided
in subsection 2.6D.

         C. Disbursement of Funds. All Term Loans and Revolving Loans under this
Agreement shall be made by Lenders  simultaneously and  proportionately to their
respective Tranche A Pro Rata Shares, Tranche B Pro Rata Shares or Revolving Pro
Rata  Shares,  as the case may be, it being  understood  that no Lender shall be
responsible  for  any  default  by any  other  Lender  in  that  other  Lender's
obligation to make a Loan  requested  hereunder nor shall the  Commitment of any
Lender to make the  particular  type of Loan requested be increased or decreased
as a result of a default by any other Lender in that other  Lender's  obligation
to make a Loan requested  hereunder.  Promptly  after receipt by  Administrative
Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice
in lieu thereof),  Administrative Agent shall notify each relevant Lender of the
proposed  borrowing.  Each Lender shall make the amount of its Loan available to
Administrative Agent not later than

                                       42

<PAGE>

12:00 Noon (New York time) on the applicable Funding Date, and Swing Line Lender
shall make the amount of its Swing Line Loan available to  Administrative  Agent
not later than 3:00 P.M. (New York time) on the applicable Funding Date, in each
case in same day funds in Dollars, at the Funding and Payment Account. Except as
provided in subsection  2.1A(iii) or  subsection  3.3B with respect to Revolving
Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender
for the  amount  of a  drawing  under a Letter  of  Credit  issued  by it,  upon
satisfaction or waiver of the conditions  precedent  specified in subsection 4.1
(in the  case of Loans  made on the  Closing  Date)  and 4.2 (in the case of all
Loans),  Administrative Agent shall make the proceeds of such Loans available to
Company on the applicable Funding Date by causing an amount of same day funds in
Dollars equal to the proceeds of all such Loans received by Administrative Agent
from  Lenders or Swing Line  Lender,  as the case may be, to be  credited to the
account of Company at the  Funding and Payment  Account and shall  transfer  any
funds so credited in accordance with the written instructions of Company.

                 Unless  Administrative  Agent  shall have been  notified by any
Lender  prior to the Funding Date for any Loans that such Lender does not intend
to make  available  to  Administrative  Agent the amount of such  Lender's  Loan
requested on such Funding Date, Administrative Agent may assume that such Lender
has made such amount available to Administrative  Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Company a  corresponding  amount on such Funding Date. If such
amount is not in fact made available to Administrative  Agent by such Lender and
Administrative  Agent has made a  corresponding  amount  available  to  Company,
Administrative  Agent shall be entitled to recover such corresponding  amount on
demand from such Lender together with interest  thereon,  for each day from such
Funding Date until the date such amount is paid to Administrative  Agent, at the
Federal Funds  Effective Rate for three Business Days and thereafter at the Base
Rate.  If such  Lender does not pay such  corresponding  amount  forthwith  upon
Administrative  Agent's  demand  therefor,  Administrative  Agent shall promptly
notify Company and Company shall  immediately pay to  Administrative  Agent such
corresponding amount not paid by such Lender together with interest thereon, for
each  day  from  such  Funding  Date  until  the  date  such  amount  is paid to
Administrative  Agent,  at the rate payable  under this  Agreement for Base Rate
Loans.  Nothing in this  subsection  2.1C shall be deemed to relieve  any Lender
from its  obligation  to fulfill its  Commitments  hereunder or to prejudice any
rights that  Company or  Administrative  Agent may have  against any Lender as a
result of any default by such Lender hereunder.

         D.      The Register.

                 (i)  Administrative  Agent  shall  maintain,   at  its  address
         referred to in subsection  10.8, a register for the  recordation of the
         names and  addresses of Lenders and the  Commitments  and Loans of each
         Lender  from  time to time  (the  "Register").  The  Register  shall be
         available  for  inspection  by Company or any Lender at any  reasonable
         time and from time to time upon reasonable prior notice.

                 (ii)  Administrative  Agent shall  record in the  Register  the
         Tranche A Term Loan  Commitment,  Tranche  B Term Loan  Commitment  and
         Revolving Loan

                                       43

<PAGE>

         Commitment  and the  Tranche  A Term  Loan,  Tranche  B Term  Loan  and
         Revolving  Loans from time to time of each Lender,  the Swing Line Loan
         Commitment  and the Swing  Line  Loans  from time to time of Swing Line
         Lender,  and each  repayment or  prepayment in respect of the principal
         amount of the  Tranche A Term  Loan,  Tranche B Term Loan or  Revolving
         Loans of each Lender or the Swing Line Loans of Swing Line Lender.  Any
         such  recordation  shall be conclusive  and binding on Company and each
         Lender,   absent  error;   provided  that  failure  to  make  any  such
         recordation,  or any error in such  recordation,  shall not  affect any
         Lender's  Commitments  or  Company's  Obligations  in  respect  of  any
         applicable Loans.

                 (iii)  Each  Lender  shall  record  on  its  internal   records
         (including  the Notes held by such  Lender) the amount of the Tranche A
         Term Loan,  Tranche B Term Loan and each  Revolving Loan made by it and
         each  payment  in  respect  thereof.  Any  such  recordation  shall  be
         conclusive and binding on Company,  absent error; provided that failure
         to make any such recordation,  or any error in such recordation,  shall
         not affect any Lender's Commitments or Company's Obligations in respect
         of any applicable Loans; and provided, further that in the event of any
         inconsistency  between  the  Register  and any  Lender's  records,  the
         recordations in the Register shall govern.

                 (iv) Company,  Administrative  Agent and Lenders shall deem and
         treat the Persons  listed as Lenders in the Register as the holders and
         owners of the  corresponding  Commitments  and Loans listed therein for
         all  purposes  hereof,  and no  assignment  or  transfer  of  any  such
         Commitment or Loan shall be effective, in each case unless and until an
         Assignment Agreement effecting the assignment or transfer thereof shall
         have been accepted by Administrative Agent and recorded in the Register
         as provided in subsection  10.1B(ii).  Prior to such  recordation,  all
         amounts owed with respect to the applicable Commitment or Loan shall be
         owed to the Lender listed in the Register as the owner thereof, and any
         request,  authority or consent of any Person who, at the time of making
         such  request or giving such  authority  or  consent,  is listed in the
         Register as a Lender shall be conclusive  and binding on any subsequent
         holder,  assignee or transferee  of the  corresponding  Commitments  or
         Loans.

                 (v) Company hereby  designates Royal Bank of Canada to serve as
         Company's  agent  solely for  purposes of  maintaining  the Register as
         provided in this  subsection  2.1D,  and Company hereby agrees that, to
         the extent Royal Bank of Canada serves in such capacity,  Royal Bank of
         Canada and its  officers,  directors  and  employees  shall  constitute
         Indemnitees for all purposes under subsection 10.3.

         E. Notes.  Company shall execute and deliver on the Closing Date (i) to
each Lender (or to Administrative  Agent for that Lender), as applicable,  (a) a
Tranche A Term Note  substantially  in the form of Exhibit IV annexed  hereto to
evidence  that Lender's  Tranche A Term Loan,  in the  principal  amount of that
Lender's  Tranche  A Term  Loan and with  other  appropriate  insertions,  (b) a
Tranche B Term Note  substantially  in the form of  Exhibit V annexed  hereto to
evidence  that Lender's  Tranche B Term Loan,  in the  principal  amount of that
Lender's  Tranche B Term Loan and with other  appropriate  insertions  and (c) a
Revolving  Note  substantially  in the form of  Exhibit  VI  annexed  hereto  to
evidence that Lender's Revolv-

                                       44

<PAGE>

ing Loans,  in the principal  amount of that Lender's  Revolving Loan Commitment
and with other  appropriate  insertions,  and (ii) to Swing  Line  Lender (or to
Administrative  Agent for Swing Line Lender) a Swing Line Note  substantially in
the form of Exhibit VII annexed  hereto to evidence  Swing Line  Lender's  Swing
Line Loans,  in the principal  amount of the Swing Line Loan Commitment and with
other appropriate insertions.

                 Administrative  Agent  may deem and treat the payee of any Note
as the owner  thereof for all  purposes  hereof  unless and until an  Assignment
Agreement  effecting the assignment or transfer thereof shall have been accepted
by  Administrative  Agent as  provided in  subsection  10.1B(ii).  Any  request,
authority  or consent of any Person who,  at the time of making such  request or
giving such authority or consent,  is the holder of any Note shall be conclusive
and binding on any subsequent holder,  assignee or transferee of that Note or of
any Note or Notes issued in exchange therefor.

2.2      Interest on the Loans.

         A. Rate of Interest.  Subject to the provisions of subsections  2.6 and
2.7,  each Term Loan and each  Revolving  Loan shall bear interest on the unpaid
principal  amount  thereof  from the date  made  through  maturity  (whether  by
acceleration or otherwise) at a rate determined by reference to the Base Rate or
the Adjusted  Eurodollar  Rate, as the case may be. Subject to the provisions of
subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal
amount thereof from the date made through  maturity  (whether by acceleration or
otherwise) at a rate  determined by reference to the Base Rate.  The  applicable
basis for  determining the rate of interest with respect to any Term Loan or any
Revolving  Loan shall be selected by Company  initially  at the time a Notice of
Borrowing  (or  telephonic  notice as  provided  in Section  2.1B) is given with
respect to such Loan pursuant to subsection  2.1B, and the basis for determining
the  interest  rate with respect to any Term Loan or any  Revolving  Loan may be
changed from time to time pursuant to subsection 2.2D. If on any day a Term Loan
or  Revolving  Loan is  outstanding  with  respect to which  notice has not been
delivered to Administrative Agent in accordance with the terms of this Agreement
specifying the applicable  basis for determining the rate of interest,  then for
that day that Loan shall bear interest determined by reference to the Base Rate.

                 (i) Subject to the provisions of subsections  2.2E and 2.7, the
         Tranche A Term  Loans  and the  Revolving  Loans  shall  bear  interest
         through maturity as follows:

                          (a) if a Base Rate  Loan,  then at the sum of the Base
                 Rate plus the Applicable Tranche A Base Rate Margin; or

                          (b) if a Eurodollar  Rate Loan, then at the sum of the
                 Adjusted   Eurodollar  Rate  plus  the  Applicable   Tranche  A
                 Eurodollar Margin.

                 (ii) Subject to the provisions of subsections 2.2E and 2.7, the
         Tranche B Term Loans shall bear interest through maturity as follows:

                          (a) if a Base Rate  Loan,  then at the sum of the Base
                 Rate plus the

                                       45

<PAGE>

                 Applicable Tranche B Base Rate Margin; or

                          (b) if a Eurodollar  Rate Loan, then at the sum of the
                 Adjusted   Eurodollar  Rate  plus  the  Applicable   Tranche  B
                 Eurodollar Margin.

                 (iii) Subject to the  provisions of  subsections  2.2E and 2.7,
         the Swing Line Loans shall bear interest through maturity at the sum of
         the Base Rate plus the Applicable  Tranche A Base Rate Margin minus the
         Applicable Commitment Fee Percentage.

                 Administrative Agent shall determine the applicable margins for
interest rates based upon the Pricing Level Determination  Certificate delivered
to Administrative  Agent pursuant to subsection  6.1A(xvii).  Any adjustments to
such  applicable  margins shall become  effective one Business Day following the
date on which  Administrative  Agent  receives such Pricing Level  Determination
Certificate;  provided,  however,  that  if  such  Pricing  Level  Determination
Certificate  is not delivered  within five Business Days after the date required
hereunder (or such later date consented to by Requisite Lenders),  Pricing Level
5 shall be  applicable  until the next Pricing Level  Determination  Certificate
shall be delivered.

         B. Interest  Periods.  In connection  with each  Eurodollar  Rate Loan,
Company  may,  pursuant  to the  applicable  Notice  of  Borrowing  or Notice of
Conversion/Continuation,  as the case may be, select an interest period (each an
"Interest  Period") to be applicable to such Loan,  which Interest  Period shall
be, at Company's  option,  either a one,  two,  three or six month period or, if
deposits in the interbank  Eurodollar  market are  generally  available for such
period  (as  reasonably  determined  by each  Lender  making,  converting  to or
continuing such Eurodollar Rate Loan), a nine month period; provided that:

                 (i) the initial  Interest  Period for any Eurodollar  Rate Loan
         shall commence on the Funding Date in respect of such Loan, in the case
         of a Loan  initially  made as a  Eurodollar  Rate Loan,  or on the date
         specified in the applicable Notice of  Conversion/Continuation,  in the
         case of a Loan converted to a Eurodollar Rate Loan;

                 (ii) in the case of  immediately  successive  Interest  Periods
         applicable  to a Eurodollar  Rate Loan  continued as such pursuant to a
         Notice of  Conversion/Continuation,  each  successive  Interest  Period
         shall commence on the day on which the next preceding  Interest  Period
         expires;

                 (iii) if an Interest  Period  would  otherwise  expire on a day
         that is not a Business Day,  such  Interest  Period shall expire on the
         next  succeeding  Business Day;  provided that, if any Interest  Period
         would otherwise expire on a day that is not a Business Day but is a day
         of the month after which no further  Business Day occurs in such month,
         such Interest Period shall expire on the next preceding Business Day;

                 (iv) any Interest  Period that begins on the last  Business Day
         of a  calendar  month  (or on a day for which  there is no  numerically
         corresponding  day in the  calendar  month at the end of such  Interest
         Period) shall,  subject to clause (v) of this

                                       46

<PAGE>

         subsection  2.2B, end on  the last Business Day of a calendar month;

                 (v) no  Interest  Period  with  respect  to any  portion of the
         Tranche A Term  Loans  shall  extend  beyond  September  30,  2003,  no
         Interest Period with respect to any portion of the Tranche B Term Loans
         shall  extend  beyond  September  30, 2004 and no Interest  Period with
         respect to any portion of the  Revolving  Loans shall extend beyond the
         Revolving Loan Commitment Termination Date;

                 (vi) no  Interest  Period  with  respect to any  portion of the
         Tranche A Term Loans or Tranche B Term Loans shall extend beyond a date
         on which  Company is required to make a scheduled  payment of principal
         of the  Tranche A Term Loans or Tranche B Term  Loans,  as the case may
         be, unless the sum of (a) the aggregate  principal  amount of Tranche A
         Term Loans or Tranche B Term  Loans,  as the case may be, that are Base
         Rate Loans plus (b) the  aggregate  principal  amount of Tranche A Term
         Loans or Tranche B Term Loans,  as the case may be, that are Eurodollar
         Rate Loans with Interest Periods expiring on or before such date equals
         or exceeds the  principal  amount  required to be paid on the Tranche A
         Term Loans or Tranche B Term Loans, as the case may be, on such date;

                 (vii)  there  shall  be  no  more  than  16  Interest   Periods
         outstanding at any time for all of the Loans; and

                 (viii) in the event Company fails to specify an Interest Period
         for any Eurodollar  Rate Loan in the applicable  Notice of Borrowing or
         Notice  of  Conversion/Continuation,  Company  shall be  deemed to have
         selected an Interest Period of one month.

         C. Interest  Payments.  Subject to the  provisions of subsection  2.2E,
interest  on each Loan  shall be  payable  in  arrears  on and to each  Interest
Payment Date  applicable to that Loan,  upon any prepayment of that Loan (to the
extent  accrued on the amount being  prepaid) and at maturity  (including  final
maturity by  acceleration  or  otherwise);  provided that in the event any Swing
Line Loans or any Revolving Loans that are Base Rate Loans are prepaid  pursuant
to subsection  2.4B(i),  interest  accrued on such Swing Line Loans or Revolving
Loans  through  the  date  of such  prepayment  shall  be  payable  on the  next
succeeding  Interest Payment Date applicable to Base Rate Loans (or, if earlier,
at final maturity by acceleration or otherwise).

         D. Conversion or Continuation.  Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its  outstanding  Tranche A Term Loans,  Tranche B Term Loans or Revolving Loans
equal to  $5,000,000  and  integral  multiples of  $1,000,000  in excess of that
amount from Base Rate Loans to Eurodollar Rate Loans or (ii) upon the expiration
of any Interest Period applicable to a Eurodollar Rate Loan, (a) to continue all
or any  portion of such Loan  equal to  $5,000,000  and  integral  multiples  of
$1,000,000 in excess of that amount as a Eurodollar Rate Loan and (b) to convert
all or any portion of such Loan to a Base Rate Loan; provided,  however,  that a
Eurodollar Rate Loan or portions  thereof may be converted into a Base Rate Loan
on any Business Day

                                       47

<PAGE>

other  than  the  expiration  date  of an  Interest  Period  applicable  to such
Eurodollar  Rate  Loan if and only if  breakage  costs  determined  pursuant  to
subsection 2.6 are paid by Company.

                 Company  shall deliver a Notice of  Conversion/Continuation  to
Administrative  Agent no later  than  1:00  P.M.  (New  York  time) at least one
Business  Day in  advance  of the  proposed  conversion  date  (in the case of a
conversion  to a Base Rate Loan) and at least three  Business Days in advance of
the proposed  conversion/continuation date (in the case of a conversion to, or a
continuation  of, a Eurodollar  Rate Loan). A Notice of  Conversion/Continuation
shall  specify (i) the proposed  conversion/continuation  date (which shall be a
Business Day),  (ii) the amount and type of the Loan to be  converted/continued,
(iii) the nature of the proposed conversion/continuation,  (iv) in the case of a
conversion  to, or a  continuation  of, a Eurodollar  Rate Loan,  the  requested
Interest Period, and (v) in the case of a conversion to, or a continuation of, a
Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has
occurred and is continuing.  In lieu of delivering the above-described Notice of
Conversion/Continuation, Company may give Administrative Agent telephonic notice
by  the  required  time  of  any  proposed  conversion/continuation  under  this
subsection  2.2D;  provided  that  such  telephonic  notice  shall  be  promptly
confirmed  in  writing by  delivery  of a Notice of  Conversion/Continuation  to
Administrative  Agent no  later  than the next  Business  Day  thereafter.  Upon
receipt of written or telephonic notice of any proposed  conversion/continuation
under this subsection 2.2D,  Administrative  Agent shall promptly  transmit such
notice by telefacsimile or telephone to each relevant Lender.

                 Neither  Administrative  Agent nor any Lender  shall  incur any
liability to Company in acting upon any telephonic notice referred to above that
Administrative  Agent  believes  in good  faith  to have  been  given  by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise  acting in good faith under this subsection  2.2D, and upon conversion
or continuation  of the applicable  basis for determining the interest rate with
respect to any Loans in  accordance  with this  Agreement  pursuant  to any such
telephonic  notice Company shall have effected a conversion or continuation,  as
the case may be, hereunder.

                 Except as  otherwise  provided in  subsections  2.6B,  2.6C and
2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of,
a  Eurodollar  Rate  Loan  (or  telephonic  notice  in lieu  thereof)  shall  be
irrevocable after  Administrative Agent has given notice thereof to the relevant
Lenders,  and Company shall be bound to effect a conversion or  continuation  in
accordance therewith.

         E. Default Rate. Any principal  payments on the Loans not paid when due
and, to the extent  permitted by applicable law, any interest  payments  thereon
not paid when due and any fees and other amounts then due and payable hereunder,
shall  thereafter  bear  interest  (including   post-petition  interest  in  any
proceeding  under  the  Bankruptcy  Code or other  applicable  bankruptcy  laws)
payable  upon demand at a rate that is 2.00% per annum in excess of the interest
rate otherwise payable under this Agreement with respect to the applicable Loans
(or,  in the case of any such fees and other  amounts,  at a rate which is 2.00%
per annum in excess of the interest rate otherwise  payable under this Agreement
for Base Rate Loans);  provided that, in the case of Eurodollar Rate Loans, upon
the expiration of the Interest Period

                                       48

<PAGE>

in effect at the time any such  increase  in  interest  rate is  effective  such
Eurodollar  Rate  Loans  shall  thereupon  become  Base  Rate  Loans  and  shall
thereafter bear interest  payable upon demand at a rate which is 2.00% per annum
in excess of the interest rate  otherwise  payable under this Agreement for Base
Rate Loans.  Payment or acceptance of the increased  rates of interest  provided
for in this subsection 2.2E is not a permitted alternative to timely payment and
shall not constitute a waiver of any Event of Default or otherwise  prejudice or
limit any rights or remedies of Administrative Agent or any Lender.

         F. Computation of Interest. Interest on the Loans shall be computed (i)
in the case of Base Rate Loans,  on the basis of a 365-day or 366-day  year,  as
the case may be, and (ii) in the case of Eurodollar  Rate Loans, on the basis of
a 360-day year, in each case for the actual number of days elapsed in the period
during  which it accrues.  In  computing  interest on any Loan,  the date of the
making of such Loan or the first day of an Interest  Period  applicable  to such
Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate
Loan,  the date of  conversion  of such  Eurodollar  Rate Loan to such Base Rate
Loan,  as the case may be,  shall be  included,  and the date of payment of such
Loan or the expiration  date of an Interest  Period  applicable to such Loan or,
with respect to a Base Rate Loan being  converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such  Eurodollar  Rate Loan, as the
case may be,  shall be excluded;  provided  that if a Loan is repaid on the same
day on which it is made, one day's interest shall be paid on that Loan.

2.3      Fees.

         A. Commitment Fees. Company agrees to pay to Administrative  Agent, for
distribution  to each Lender having a Revolving Loan Commitment in proportion to
that Lender's Revolving Pro Rata Share,  commitment fees for the period from and
including  the Closing  Date to and  excluding  the  Revolving  Loan  Commitment
Termination  Date equal to (x) the average of the daily excess of the  Revolving
Loan  Commitments  over  the  aggregate  principal  amount  of  (i)  outstanding
Revolving Loans (but not any outstanding  Swing Line Loans) plus (ii) the Letter
of Credit Usage multiplied by (y) the Applicable Commitment Fee Percentage, such
commitment  fees to be  calculated on the basis of a 360-day year and the actual
number of days elapsed and to be payable  quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing on the first such date
to  occur  after  the  Closing  Date,  and  on  the  Revolving  Loan  Commitment
Termination Date.

         B. Other Fees.  Company  agrees to pay to Arranger,  Syndication  Agent
and/or  Administrative  Agent all fees specified in separate  letter  agreements
among Arranger,  Syndication Agent,  Administrative  Agent and/or Company and to
pay to  Administrative  Agent such other  fees in the  amounts  and at the times
separately agreed upon between Company and Administrative Agent.

                                       49

<PAGE>

2.4      Repayments,  Prepayments and Reductions in Revolving Loan  Commitments;
         General  Provisions  Regarding  Payments;  Application  of  Proceeds of
         Collateral and Payments Under Subsidiary Guaranty.

         A.      Scheduled Payments of Term Loans.

                 (i) Scheduled  Payments of Tranche A Term Loans.  Company shall
         make principal  payments on the Tranche A Term Loans in installments on
         the dates and in the amounts set forth below:

                                                            Scheduled
                                                            Repayment
                                                          of Tranche A
                Date                                       Term Loans
               ------                                     ------------
         June 30, 1999                                      $7,500,000
         September 30, 1999                                 $7,500,000
         December 31, 1999                                  $8,750,000

         March 31, 2000                                     $8,750,000
         June 30, 2000                                      $8,750,000
         September 30, 2000                                 $8,750,000
         December 31, 2000                                 $10,000,000

         March 31, 2001                                    $10,000,000
         June 30, 2001                                     $10,000,000
         September 30, 2001                                $10,000,000
         December 31, 2001                                 $12,500,000

         March 31, 2002                                    $12,500,000
         June 30, 2002                                     $12,500,000
         September 30, 2002                                $12,500,000
         December 31, 2002                                 $15,000,000

         March 31, 2003                                    $15,000,000
         June 30, 2003                                     $15,000,000
         September 30, 2003                                $15,000,000

         Total                                            $200,000,000
                                                          ============


        ; provided that each scheduled installment of principal of the Tranche A
        Term  Loans set forth  above  shall be reduced  in  connection  with any
        voluntary  or  mandatory  prepayments  of the  Tranche  A Term  Loans in
        accordance  with  subsection  2.4B(iv);  and  provided  further that the
        Tranche A Term Loans and all other amounts owed  hereunder  with respect
        to the  Tranche  A Term  Loans  shall  be paid in  full  no  later  than
        September  30,  2003 and the final  installment  payable  by  Company in
        respect of the  Tranche A Term Loans on such date shall be in an amount,
        if such amount is different  from that  specified  above,  sufficient to
        repay all amounts owing by Company under

                                       50

<PAGE>

        this  Agreement with respect to the Tranche A Term Loans.

                  (ii) Scheduled Payments of Tranche B Term Loans. Company shall
        make principal  payments on the Tranche B Term Loans in  installments on
        the dates and in the amounts set forth below:

                                                         Scheduled
                                                         Repayment
                                                       of Tranche B
                Date                                    Term Loans
                ----                                   ------------
          December 31, 1998                                $875,000
          
          March 31, 1999                                   $875,000
          June 30, 1999                                    $875,000
          September 30, 1999                               $875,000
          December 31, 1999                                $875,000
          
          March 31, 2000                                   $875,000
          June 30, 2000                                    $875,000
          September 30, 2000                               $875,000
          December 31, 2000                                $875,000
          
          March 31, 2001                                   $875,000
          June 30, 2001                                    $875,000
          September 30, 2001                               $875,000
          December 31, 2001                                $875,000
          
          March 31, 2002                                   $875,000
          June 30, 2002                                    $875,000
          September 30, 2002                               $875,000
          December 31, 2002                                $875,000
          
          March 31, 2003                                   $875,000
          June 30, 2003                                    $875,000
          September 30, 2003                               $875,000
          December 31, 2003                             $83,125,000
          
          March 31, 2004                                $83,125,000
          June 30, 2004                                 $83,125,000
          September 30, 2004                            $83,125,000
          
          Total                                        $350,000,000
                                                       ============


        ; provided that each scheduled installment of principal of the Tranche B
        Term  Loans set forth  above  shall be reduced  in  connection  with any
        voluntary  or  mandatory  prepayments  of the  Tranche  B Term  Loans in
        accordance  with  subsection  2.4B(iv);  and provided,  further that the
        Tranche B Term Loans and all other amounts owed  hereunder  with respect
        to the  Tranche  B Term  Loans  shall  be paid in  full  no  later  than

                                       51

<PAGE>

        September  30,  2004,  and the final  installment  payable by Company in
        respect of the  Tranche B Term Loans on such date shall be in an amount,
        if such amount is different  from that  specified  above,  sufficient to
        repay all amounts owing by Company under this  Agreement with respect to
        the Tranche B Term Loans.

                  (iii) Scheduled Payment of Revolving Loans. Company shall make
        a  principal  payment  of 100% of  outstanding  Revolving  Loans  on the
        Revolving Loan Commitment Termination Date.

         B.   Prepayments   and   Unscheduled   Reductions  in  Revolving   Loan
Commitments.

                 (i)  Voluntary  Prepayments.   Company  may,  upon  written  or
        telephonic notice to Administrative  Agent on or prior to 1:00 P.M. (New
        York time) on the date of prepayment, which notice, if telephonic, shall
        be promptly  confirmed in writing (which original  written or telephonic
        notice  Administrative  Agent will promptly transmit by telefacsimile or
        telephone  to  Swing  Line  Lender,   whereupon  such  notice  shall  be
        irrevocable),  at any time and from time to time  prepay  any Swing Line
        Loan on any Business Day in whole or in part. Company may, upon not less
        than one Business Day's prior written or telephonic  notice, in the case
        of Base Rate Loans, and three Business Days' prior written or telephonic
        notice,  in the case of  Eurodollar  Rate  Loans,  in each case given to
        Administrative  Agent by 1:00 P.M.  (New York time) on the date required
        and,  if  given  by   telephone,   promptly   confirmed  in  writing  to
        Administrative  Agent  (which  original  written  or  telephonic  notice
        Administrative   Agent  will  promptly   transmit  by  telefacsimile  or
        telephone  to each  relevant  Lender,  whereupon  such  notice  shall be
        irrevocable), at any time and from time to time prepay any Term Loans or
        Revolving  Loans on any  Business  Day in  whole  or in part;  provided,
        however,  that a Eurodollar Rate Loan may be prepaid on any Business Day
        other than the expiration of the Interest Period applicable thereto only
        if breakage  costs  determined  pursuant to subsection  2.6D are paid by
        Company.  Any such voluntary prepayment shall be applied as specified in
        subsection  2.4B(iv).  Voluntary  prepayments of Tranche A Term Loans or
        Tranche B Term Loans shall be without premium or penalty.

                  (ii)  Voluntary  Reductions  of  Revolving  Loan  Commitments.
        Company may,  upon not less than three  Business  Days' prior written or
        telephonic  notice confirmed in writing to  Administrative  Agent (which
        original written or telephonic notice Administrative Agent will promptly
        transmit by telefacsimile or telephone to each Lender),  at any time and
        from  time to time  terminate  in whole or  permanently  reduce in part,
        without premium or penalty,  the Revolving Loan Commitments in an amount
        up to the  amount by which the  Revolving  Loan  Commitments  exceed the
        Total  Utilization  of Revolving  Loan  Commitments  at the time of such
        proposed  termination  or  reduction;

        provided  that  any  such  partial   reduction  of  the  Revolving  Loan
        Commitments  shall be in an aggregate  minimum  amount of $5,000,000 and
        integral  multiples of $1,000,000.  Company's  notice to  Administrative
        Agent shall  designate  the date (which shall be a

                                       52

<PAGE>

        Business  Day) of such  termination  or reduction  and the amount of any
        partial  reduction,  and such  termination or reduction of the Revolving
        Loan  Commitments  shall be effective on the date specified in Company's
        notice and shall reduce the  Revolving  Loan  Commitment  of each Lender
        proportionately  to its  Revolving  Pro Rata Share.  Any such  voluntary
        reduction  of  the  Revolving  Loan  Commitments  shall  be  applied  as
        specified in subsection 2.4B(iv).

                  (iii) Mandatory  Prepayments of Loans and Mandatory Reductions
        of Revolving  Loan  Commitments.  The Loans shall be prepaid  and/or the
        Revolving Loan Commitments  shall be permanently  reduced in the amounts
        and under the circumstances set forth below, all such prepayments and/or
        reductions  to be  applied  as set forth  below or as more  specifically
        provided in subsection 2.4B(iv):

                          (a)  Prepayments  and  Reductions  From Net Asset Sale
                  Proceeds.  No later than the second Business Day following the
                  date of receipt by Company or any of its  Subsidiaries  of any
                  Net Asset Sale  Proceeds in respect of Asset Sales if such Net
                  Asset Sale Proceeds exceed an aggregate  cumulative  amount of
                  $5,000,000 during any given Fiscal Year,  Company shall prepay
                  the Loans  and/or  the  Revolving  Loan  Commitments  shall be
                  permanently  reduced in an aggregate  amount equal to such Net
                  Asset Sale Proceeds;  provided,  however,  that Net Asset Sale
                  Proceeds  shall  be  excluded  from the  requirements  of this
                  subsection  2.4B(iii)(a)  to  the  extent  such  proceeds  are
                  reinvested in assets used by Company and its  Subsidiaries  in
                  the conduct of its business  within 180 days after  receipt of
                  such proceeds; provided further that Company shall, within two
                  Business  Days  of  the  receipt  by  Company  or  any  of its
                  Subsidiaries of Net Asset Sale Proceeds,  deliver to Agents an
                  Officer's  Certificate  setting  forth the  amount of such Net
                  Asset Sale Proceeds and the amount of the mandatory prepayment
                  to be made, if any,  pursuant to this subsection  2.4B(iii)(a)
                  and setting forth in reasonable  detail the calculations  from
                  which such amounts were derived,  and, with respect to any Net
                  Asset Sale  Proceeds  to be  reinvested  as  provided  in this
                  subsection 2.4B(iii)(a), a general description of the intended
                  application thereof and a general estimate of the costs of the
                  reinvestment in accordance with this subsection  2.4B(iii)(a).
                  In the  event  that any  portion  of Net Asset  Sale  Proceeds
                  received  by  Company  or any of its  Subsidiaries  which  are
                  excluded  from  the  mandatory   prepayment   requirement   in
                  accordance with this subsection  2.4B(iii)(a) are not expended
                  for  the  general   purposes   specified   in  the   Officer's
                  Certificate  delivered by the Company in connection  therewith
                  within the 180-day time  period,  Company  shall,  immediately
                  upon  the  expiration  of  the  180-day  time  period,  make a
                  mandatory  prepayment  of the Loans as  specified in the first
                  sentence of this subsection 2.4B(iii)(a) in an amount equal to
                  such unexpended portion.

                          (b)  Prepayments  and  Reductions  Due to  Issuance of
                  Equity  Securities.  No later  than the  second  Business  Day
                  following  the  date  of  receipt  by  Company  or  any of its
                  Subsidiaries of Net Equity Proceeds,  Company shall prepay the
                  Loans  and/or  the  Revolving   Loan   Commitments   shall  be

                                       53

<PAGE>

                  permanently reduced in an aggregate amount equal to (i) 50% of
                  such Net Equity  Proceeds if such Net Equity Proceeds are less
                  than or equal to  $200,000,000  (as determined on a cumulative
                  basis for the period after the Closing Date);  and (ii) either
                  (x)  50%  of  any  such  Net  Equity  Proceeds  in  excess  of
                  $200,000,000  (as  determined  on a  cumulative  basis for the
                  period after the Closing Date) received by Company at any time
                  during such period when the Consolidated  Leverage Ratio as of
                  the  end of the  immediately  preceding  four  Fiscal  Quarter
                  period  (for  which   Administrative  Agent  has  received  an
                  Officer's  Certificate showing the Consolidated Leverage Ratio
                  for such period) is greater than or equal to 2.5:1.0 or (y) 0%
                  of any such Net Equity Proceeds in excess of $200,000,000  (as
                  determined  on a  cumulative  basis for the  period  after the
                  Closing  Date)  at  any  time  during  such  period  when  the
                  Consolidated  Leverage Ratio as of the end of the  immediately
                  preceding four Fiscal Quarter period (for which Administrative
                  Agent  has  received  an  Officer's  Certificate  showing  the
                  Consolidated  Leverage  Ratio  for such  period)  is less than
                  2.5:1.0, as may be applicable.

                          (c) Prepayments and Reductions Due to Issuance of Debt
                  Securities.  No later than the second  Business Day  following
                  the date of receipt by Company or any of its  Subsidiaries  of
                  Net  Debt  Proceeds   (excluding  any  Net  Debt  Proceeds  of
                  Indebtedness  permitted under subsection 7.1(i),  (iv), (vii),
                  (viii) and (ix)),  Company  shall  prepay the Loans and/or the
                  Revolving Loan Commitments shall be permanently  reduced in an
                  aggregate  amount  equal to such Net Debt  Proceeds.  Any such
                  mandatory   prepayments  shall  be  applied  as  specified  in
                  subsection 2.4B(iv).

                          (d)  Prepayments  and  Reductions  from   Consolidated
                  Excess   Cash  Flow.   In  the  event  that  there   shall  be
                  Consolidated  Excess Cash Flow for any Fiscal Year (commencing
                  with the Fiscal  Year  ending June 30,  1999),  Company  shall
                  prepay no later than 90 days after the end of such Fiscal Year
                  the Loans  and/or  the  Revolving  Loan  Commitments  shall be
                  permanently  reduced (a) in an aggregate amount equal to 0% of
                  such  Consolidated  Excess  Cash Flow for each  Fiscal Year in
                  which the Consolidated Leverage Ratio, as determined as at the
                  last day of such Fiscal Year is less than 2.5:1.0,  and (b) an
                  aggregate amount equal to 50% of such Consolidated Excess Cash
                  Flow for each Fiscal Year in which the  Consolidated  Leverage
                  Ratio,  as  determined as at the last day of such Fiscal Year,
                  is greater than or equal to 2.5 to 1.0.

                          (e)    Prepayments    and    Reductions    from    Net
                  Insurance/Condemnation  Proceeds.  No later  than  the  second
                  Business Day following  the date of receipt by  Administrative
                  Agent  or by  Company  or any of its  Subsidiaries  of any Net
                  Insurance/Condemnation   Proceeds  that  are  required  to  be
                  applied to prepay the Loans and/or reduce the  Revolving  Loan
                  Commitments  pursuant to subsection 6.4C, Company shall prepay
                  the  Loans  and/or  the  Revolving  Loan  Commitments  will be
                  permanently reduced in an aggregate amount equal to the amount
                  of such Net Insurance/Condemnation Proceeds.

                                       54

<PAGE>

                          (f) Calculations of Net Proceeds  Amounts;  Additional
                  Prepayments and Reductions  Based on Subsequent  Calculations.
                  Concurrently with any prepayment of the Loans and/or reduction
                  of the  Revolving  Loan  Commitments  pursuant to  subsections
                  2.4B(iii)(a)-(e),  Company  shall  deliver  to  Administrative
                  Agent an Officer's  Certificate  demonstrating the calculation
                  of the amount (the "Net  Proceeds  Amount") of the  applicable
                  Net Asset Sale  Proceeds  or Net Equity  Proceeds  or Net Debt
                  Proceeds  or  Net  Insurance/Condemnation   Proceeds,  or  the
                  applicable  Consolidated Excess Cash Flow, as the case may be,
                  that gave rise to such prepayment and/or reduction.

                          In the event that Company shall subsequently determine
that the actual Net  Proceeds  Amount was  greater  than the amount set forth in
such Officer's Certificate, Company shall promptly make an additional prepayment
of the Loans (and/or,  if applicable,  the Revolving Loan  Commitments  shall be
permanently  reduced)  in an  amount  equal to the  amount of such  excess,  and
Company  shall  concurrently   therewith  deliver  to  Administrative  Agent  an
Officer's  Certificate  demonstrating  the  derivation  of  the  additional  Net
Proceeds Amount resulting in such excess.

                          (g)  Prepayments  Due to Reductions or Restrictions of
                  Revolving  Loan  Commitments.  Company shall from time to time
                  prepay  first the Swing Line  Loans and  second the  Revolving
                  Loans  to  the  extent   necessary   (1)  so  that  the  Total
                  Utilization  of Revolving  Loan  Commitments  shall not at any
                  time exceed the Revolving Loan  Commitments then in effect and
                  (2) to give effect to the  limitations set forth in the second
                  paragraph of subsection  2.1A(iii) and in the second paragraph
                  of subsection 2.1A(iv).

                                       55

<PAGE>

                  (iv) Application of Prepayments and Unscheduled  Reductions of
        Revolving Loan Commitments.

                          (a)  Application  of Voluntary  Prepayments by Type of
                  Loans   and  Order  of   Maturity.   Subject   to   subsection
                  2.4B(iv)(c),  any voluntary prepayments pursuant to subsection
                  2.4B(i)  shall be  applied  as  specified  by  Company  in the
                  applicable  notice of  prepayment;  provided that in the event
                  Company   fails  to  specify  the  Loans  to  which  any  such
                  prepayment shall be applied,  such prepayment shall be applied
                  first to repay outstanding Swing Line Loans to the full extent
                  thereof,  second to repay  outstanding  Term Loans to the full
                  extent thereof, and third to repay outstanding Revolving Loans
                  to the full extent thereof. Subject to subsection 2.4B(iv)(c),
                  any  voluntary  prepayments  of the  Term  Loans  pursuant  to
                  subsection  2.4B(i)  shall be applied to prepay the  Tranche A
                  Term  Loans and the  Tranche B Term  Loans on a pro rata basis
                  (in  accordance  with  the  respective  outstanding  principal
                  amounts thereof) first to scheduled  installments of principal
                  of the  Tranche  A Term  Loans and the  Tranche  B Term  Loans
                  scheduled  within one year of the  prepayment in forward order
                  of  maturity  on a pro rata  basis and  second  to prepay  the
                  remaining scheduled installments of principal of the Tranche A
                  Term  Loans  and  the  Tranche  B  Term  Loans  set  forth  in
                  subsections 2.4A(i) and 2.4A(ii),  respectively, on a pro rata
                  basis.

                          (b)  Application  of Mandatory  Prepayments by Type of
                  Loans.  Any  amount  (the  "Applied  Amount")  required  to be
                  applied  as a  mandatory  prepayment  of the  Loans  and/or  a
                  reduction  of  the  Revolving  Loan  Commitments  pursuant  to
                  subsections  2.4B(iii)(a)-(e) shall be applied first to prepay
                  the Term  Loans to the full  extent  thereof,  second,  to the
                  extent of any  remaining  portion of the  Applied  Amount,  to
                  prepay  the Swing Line Loans to the full  extent  thereof  and
                  thereby to permanently  reduce the Revolving Loan  Commitments
                  by the amount of such prepayment,  third, to the extent of any
                  remaining  portion  of  the  Applied  Amount,  to  prepay  the
                  Revolving  Loans to the full  extent  thereof  and  thereby to
                  further  permanently  reduce the Revolving Loan Commitments by
                  the amount of such  prepayment,  and fourth,  to the extent of
                  any  remaining  portion  of the  Applied  Amount,  to  further
                  permanently  reduce the Revolving Loan Commitments to the full
                  extent thereof.

                          (c) Application of Mandatory Prepayments of Term Loans
                  to  Tranche  A Term  Loans and  Tranche  B Term  Loans and the
                  Scheduled Installments of Principal Thereof.

                                   (1) Any  mandatory  prepayments  of the  Term
                          Loans pursuant to subsection 2.4B(iii)(a)-(e) shall be
                          applied  to prepay  the  Tranche A Term  Loans and the
                          Tranche B Term Loans on a pro rata basis in accordance
                          with  the  respective  outstanding  principal  amounts
                          thereof;  provided  that,  in the  case  of  any  such
                          mandatory  prepayment of the

                                       56

<PAGE>

                          Tranche B Term Loans with respect to which Company has
                          given Administrative Agent written notification, prior
                          to  Administrative  Agent's  receipt of such mandatory
                          prepayment,  that  Company  has  elected  to give each
                          Lender  of  Tranche B Term  Loans the  option to waive
                          their rights to receive such  prepayment  (a "Waivable
                          Mandatory  Prepayment"),  Administrative  Agent shall,
                          upon receipt of such  Waivable  Mandatory  Prepayment,
                          notify  each  Lender of  Tranche B Term  Loans of such
                          receipt and of the amount of such  Waivable  Mandatory
                          Prepayment  to be applied to such  Lender's  Tranche B
                          Term  Loan  and of the  designation  of such  Waivable
                          Mandatory  Prepayment  as  such by  Company;  provided
                          further that Company shall use its reasonable  efforts
                          to notify  Tranche  B Term  Lenders  of such  Waivable
                          Mandatory  Prepayment three Business Days prior to the
                          payment  to  Administrative  Agent  of  such  Waivable
                          Mandatory Prepayment (it being understood that Company
                          shall  have no  liability  for  failing  to so  notify
                          Tranche B Term  Lenders).  In the event any  Tranche B
                          Term Lender  desires to waive such  Lender's  right to
                          receive such Waivable Mandatory  Prepayment,  (A) such
                          Lender shall so advise Administrative Agent in writing
                          (or by telephone with written  confirmation)  no later
                          than the  close of  business  on the date it  receives
                          such  notice  from  Administrative  Agent and (B) upon
                          application  of such  proceeds  from such Lender,  (I)
                          Administrative  Agent shall apply 50% of the amount so
                          waived by such  Lender to  prepay  the  Tranche A Term
                          Loans and to reduce the unpaid scheduled  installments
                          of  principal of the Tranche A Term Loans set forth in
                          subsection 2.4A(i) on a pro rata basis and (II) in the
                          case  of  amounts  so  waived   prior  to  payment  to
                          Administrative   Agent,   Company   shall  retain  the
                          remainder  of the  amount so waived and in the case of
                          amounts  so waived  after  payment  to  Administrative
                          Agent, Administrative Agent shall return the remainder
                          of the amount so waived by such Lender to Company. Any
                          amounts  so  waived  by  any  Tranche  B  Term  Lender
                          thereupon shall be scheduled to be paid to such Lender
                          on September 30, 2004,  and, if not paid prior to such
                          date,  shall be paid on such date as  required  by the
                          second proviso of subsection 2.4A(ii).

                                   (2) Any mandatory  prepayments applied to the
                          Tranche  A Term  Loans  or the  Tranche  B Term  Loans
                          pursuant to subsection 2.4B(iv)(c)(1) shall be applied
                          on a pro rata basis (in accordance with the respective
                          outstanding  principal amounts thereof) to reduce each
                          scheduled  installment  of  principal of the Tranche A
                          Term Loans or the  Tranche B Term  Loans,  as the case
                          may be, set forth in  subsection  2.4A(i) or  2.4A(ii)
                          that is unpaid at the time of such prepayment.

                          (d)  Application of Prepayments to Base Rate Loans and
                  Eurodollar  Rate  Loans.  Considering  Tranche  A Term  Loans,
                  Tranche  B  Term  Loans  and  Revolving  Loans  being  prepaid
                  separately,  any prepayment  thereof shall be

                                       57

<PAGE>

                  applied  first to Base Rate Loans to the full  extent  thereof
                  before application to Eurodollar Rate Loans, in each case in a
                  manner which minimizes the amount of any payments  required to
                  be made by Company pursuant to subsection 2.6D.

        C.        General Provisions Regarding Payments.

                  (i) Manner and Time of Payment.  Without  prejudice to Section
        10.4,  all payments by Company of  principal,  interest,  fees and other
        Obligations  hereunder  and under the Notes  shall be made in Dollars in
        same day funds,  without defense,  setoff or  counterclaim,  free of any
        restriction  or  condition,  and delivered to  Administrative  Agent not
        later than 1:00 P.M.  (New York time) on the date due to the Funding and
        Payment   Account  for  the  account  of  Lenders.   Funds  received  by
        Administrative Agent after such time on such due date shall be deemed to
        have been paid by Company on the next succeeding Business Day.

                  (ii)  Application  of Payments to Principal and Interest.  All
        payments  in respect  of any Loan  shall be  applied  to the  payment of
        interest  then due and  payable in  accordance  with  Section 2.2 before
        application to principal.

                  (iii)  Apportionment  of  Payments.  Aggregate  principal  and
        interest  payments in respect of Term Loans and Revolving Loans shall be
        apportioned  among all outstanding  Loans to which such payments relate,
        in each case  proportionately to Lenders'  respective Tranche A Pro Rata
        Shares,  Tranche B Pro Rata Shares or Revolving Pro Rata Shares,  as the
        case may be.  Administrative  Agent shall  promptly  distribute  to each
        Lender,  at  its  primary  address  set  forth  below  its  name  on the
        appropriate  signature  page  hereof or at such  other  address  as such
        Lender may  request,  its Tranche A Pro Rata  Share,  Tranche B Pro Rata
        Share or  Revolving  Pro  Rata  Share,  as the case may be,  of all such
        payments  received by  Administrative  Agent and the commitment  fees of
        such Lender when received by Administrative Agent pursuant to subsection
        2.3.   Notwithstanding  the  foregoing  provisions  of  this  subsection
        2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice
        of  Conversion/Continuation is withdrawn as to any Affected Lender or if
        any  Affected  Lender makes Base Rate Loans in lieu of its Tranche A Pro
        Rata Share, Tranche B Pro Rata Share or Revolving Pro Rata Share, as the
        case may be, of any Eurodollar  Rate Loans,  Administrative  Agent shall
        give effect thereto in apportioning payments received thereafter.

                  (iv) Payments on Business  Days.  Subject to subsection  2.2B,
        whenever any payment to be made hereunder shall be stated to be due on a
        day that is not a Business  Day,  such payment shall be made on the next
        succeeding  Business Day and such extension of time shall be included in
        the  computation  of  the  payment  of  interest  hereunder  or  of  the
        commitment fees hereunder, as the case may be.

                  (v)  Notation  of  Payment.  Each  Lender  agrees  that before
        disposing  of any Note held by it, or any part  thereof  (other  than by
        granting  participations  therein),  that

                                       58

<PAGE>

        Lender will make a notation  thereon of all Loans evidenced by that Note
        and all principal  payments  previously  made thereon and of the date to
        which interest thereon has been paid;  provided that the failure to make
        (or any error in the making  of) a notation  of any Loan made under such
        Note  shall not limit or  otherwise  affect the  Obligations  of Company
        hereunder or under such Note with respect to any Loan or any payments of
        principal or interest on such Note.

        D.  Application of Proceeds of Collateral and Payments Under  Subsidiary
Guaranty.

                  (i) Application of Proceeds of Collateral.  Except as provided
        in subsection  2.4B(iii)(a)  with respect to prepayments  from Net Asset
        Sale Proceeds,  all proceeds received by Administrative Agent in respect
        of any sale of,  collection  from, or other  realization upon all or any
        part of the Collateral under any Collateral Document shall be applied in
        full or in part by Administrative  Agent against the applicable  Secured
        Obligations  (as defined in such  Collateral  Document) in the following
        order of priority:

                          (a) To the  payment of all costs and  expenses of such
                  sale,  collection or other realization,  including  reasonable
                  compensation  to  Administrative  Agent  and  its  agents  and
                  counsel, and all other expenses, liabilities and advances made
                  or incurred by Administrative Agent in connection herewith and
                  therewith,  and all amounts for which  Administrative Agent is
                  entitled   to   indemnification   hereunder   and  under  such
                  Collateral  Document and all advances  made by  Administrative
                  Agent   hereunder  and  thereunder  for  the  account  of  the
                  applicable  Loan  Party,  and to the  payment of all costs and
                  expenses   paid  or  incurred  by   Administrative   Agent  in
                  connection with the exercise of any right or remedy  hereunder
                  and under such Collateral Document, all in accordance with the
                  terms of this Agreement and such Collateral Document;

                          (b)  thereafter,  to the  extent  of any  excess  such
                  proceeds, to the payment of all other such Secured Obligations
                  for the ratable benefit of the holders thereof; and

                          (c)  thereafter,  to the  extent  of any  excess  such
                  proceeds,  to the  payment  to or upon the  order of such Loan
                  Party or to whosoever may be lawfully  entitled to receive the
                  same or as a court of competent jurisdiction may direct.

                  (ii)  Application of Payments Under Subsidiary  Guaranty.  All
        payments received by Administrative  Agent under the Subsidiary Guaranty
        ("Guaranty  Payments")  shall be applied  promptly  from time to time by
        Administrative Agent in the following order of priority:

                          (a) To the  payment of the costs and  expenses  of any
                  collection or

                                       59

<PAGE>

                  other  realization  under the Subsidiary  Guaranty,  including
                  reasonable compensation to Administrative Agent and its agents
                  and counsel,  and all expenses,  liabilities and advances made
                  or incurred by Administrative Agent in connection herewith and
                  therewith,  all in accordance with the terms of this Agreement
                  and such Subsidiary Guaranty;

                          (b)  thereafter,  to the  extent  of any  excess  such
                  Guaranty  Payments,  to the  payment  of all other  Guaranteed
                  Obligations  (as  defined in such  Guaranty)  for the  ratable
                  benefit of the holders thereof; and

                          (c)  thereafter,  to the  extent  of any  excess  such
                  Guaranty Payments, to the payment to the applicable Subsidiary
                  Guarantor or to whosoever may be lawfully  entitled to receive
                  the same or as a court of competent jurisdiction may direct.

2.5     Use of Proceeds.

        A.        Term Loans.  The proceeds of the Term Loans, together with the
Company Cash Contribution, shall be applied by Company to fund a  portion of the
purchase price of the acquisition of BCL.

        B.  Revolving  Loans;  Swing Line Loans.  The proceeds of any  Revolving
Loans and any Swing Line Loans shall be applied by Company  for working  capital
and  general  corporate  purposes  (including  the  funding  of the  Acquisition
Purchase Price  Adjustment and replacing the existing  receivables  financing of
BCL of approximately $70,000,000),  and Commercial Letters of Credit and Standby
Letters of Credit shall be issued for the  purposes set forth in the  definition
of such terms.

        C. Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the  borrowing or the  application  of such proceeds to violate
Regulation  U,  Regulation  T or  Regulation  X of the Board of Governors of the
Federal  Reserve System or any other  regulation of such Board or to violate the
Exchange  Act, in each case as in effect on the date or dates of such  borrowing
and such use of proceeds.

2.6     Special Provisions Governing Eurodollar Rate Loans.

                  Notwithstanding  any other  provision of this Agreement to the
contrary,  the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:

        A. Determination of Applicable  Interest Rate. As soon as practicable on
each Interest Rate  Determination  Date,  Administrative  Agent shall  determine
(which  determination  shall,  absent manifest error in  calculation,  be final,
conclusive  and binding upon all parties) the interest  rate that shall apply to
the  Eurodollar  Rate Loans for which an interest rate is then being  determined
for the  applicable  Interest  Period and shall promptly give notice thereof (in

                                       60

<PAGE>

writing or by  telephone  confirmed  in writing)  to Company  and each  relevant
Lender.

        B.  Inability to Determine  Applicable  Interest Rate. In the event that
Administrative  Agent shall have determined (which  determination shall be final
and  conclusive  and binding  upon all parties  hereto),  on any  Interest  Rate
Determination  Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances  affecting the London  interbank market adequate and fair means do
not exist for  ascertaining  the interest  rate  applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Company and each Lender of such  determination,  whereupon (i) no
Loans may be made as, or converted to,  Eurodollar Rate Loans until such time as
Administrative  Agent notifies Company and Lenders that the circumstances giving
rise to such notice no longer  exist and (ii) any Notice of  Borrowing or Notice
of Conversion/Continuation given by Company with respect to the Loans in respect
of which such determination was made shall be deemed to be rescinded by Company.

        C. Illegality or Impracticability of Eurodollar Rate Loans. In the event
that on any date any Lender shall have determined (which  determination shall be
final and  conclusive  and  binding  upon all parties  hereto)  that the making,
maintaining or continuation of Loans bearing interest determined by reference to
the Adjusted  Eurodollar  Rate (i) has become unlawful as a result of compliance
by  such  Lender  in  good  faith  with  any  law,  treaty,  governmental  rule,
regulation,  guideline  or order  (or  would  conflict  with  any  such  treaty,
governmental  rule,  regulation,  guideline or order not having the force of law
even though the failure to comply  therewith  would not be unlawful) or (ii) has
become impracticable,  or would cause such Lender material hardship, as a result
of contingencies occurring after the date of this Agreement which materially and
adversely affect the interbank  Eurodollar market or the position of such Lender
in that market,  then, and in any such event,  such Lender shall be an "Affected
Lender" and it shall on that day give notice (by  telefacsimile or by telephonic
notice  confirmed  in  writing)  to  Company  and  Administrative  Agent of such
determination (which notice Administrative Agent shall promptly transmit to each
other Lender).  Thereafter,  (a) the  obligation of the Affected  Lender to make
Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until
such notice shall be withdrawn  by the Affected  Lender,  (b) to the extent such
determination  by the Affected  Lender  relates to a  Eurodollar  Rate Loan then
being  requested  by Company  pursuant to a Notice of  Borrowing  or a Notice of
Conversion/Continuation, the Affected Lender shall make such Loan as (or convert
such Loan to, as the case may be) a Base Rate Loan,  (c) the  Affected  Lender's
obligation  to maintain its  outstanding  Eurodollar  Rate Loans (the  "Affected
Loans")  shall be  terminated  at the earlier to occur of the  expiration of the
Interest  Period  then in effect  with  respect  to the  Affected  Loans or when
required by law, and (d) the  Affected  Loans shall  automatically  convert into
Base Rate Loans on the date of such termination.  Notwithstanding the foregoing,
to the extent a  determination  by an Affected Lender as described above relates
to a Eurodollar Rate Loan then being  requested by Company  pursuant to a Notice
of  Borrowing  or a Notice of  Conversion/Continuation,  Company  shall have the
option,  subject to the provisions of subsection 2.6D, to rescind such Notice of
Borrowing  or  Notice of  Conversion/Continuation  as to all  Lenders  by giving
notice (by telefacsimile or by telephone confirmed in writing) to Administrative
Agent of such  rescission on the date on which the 

                                       61

<PAGE>

Affected  Lender gives  notice of its  determination  as described  above (which
notice of rescission  Administrative Agent shall promptly transmit to each other
Lender).  Except as provided in the immediately  preceding sentence,  nothing in
this  subsection  2.6C shall affect the  obligation  of any Lender other than an
Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar
Rate Loans in accordance with the terms of this Agreement.

        D.  Compensation For Breakage or  Non-Commencement  of Interest Periods.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the manner and method of computing  such  compensation),
for all reasonable  losses,  expenses and  liabilities,  if any,  (including any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its Eurodollar  Rate Loans and any loss,  expense or liability  incurred by that
Lender in connection with the liquidation or  re-employment of such funds) which
that  Lender may  incur:  (i) if for any  reason  (other  than a default by that
Lender  or due to any  failure  of any  Lender to fund  Eurodollar  Loans due to
illegality  or  impracticability  under  subsection  2.6C)  a  borrowing  of any
Eurodollar Rate Loan does not occur on a date specified  therefor in a Notice of
Borrowing  or a  telephonic  request  for  borrowing,  or  a  conversion  to  or
continuation  of any  Eurodollar  Rate Loan  does not occur on a date  specified
therefor  in a Notice of  Conversion/Continuation  or a  telephonic  request for
conversion or  continuation,  (ii) if any  prepayment  (including any prepayment
pursuant to subsection  2.4B(i)) or other principal payment or any conversion of
any of its  Eurodollar  Rate Loans  occurs on a date prior to the last day of an
Interest Period applicable to that Loan or (iii) if any prepayment of any of its
Eurodollar  Rate  Loans  is not  made  on any  date  specified  in a  notice  of
prepayment given by Company.

        E.  Booking of  Eurodollar  Rate  Loans.  Any Lender may make,  carry or
transfer  Eurodollar  Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.

        F. Assumptions Concerning Funding of Eurodollar Rate Loans.  Calculation
of all  amounts  payable  to a  Lender  under  this  subsection  2.6  and  under
subsection  2.7A shall be made as though that Lender had actually funded each of
its relevant  Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing  interest at the rate obtained  pursuant to clause (i) of the definition
of Adjusted  Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity  comparable to the relevant  Interest Period and
through the transfer of such Eurodollar  deposit from an offshore office of that
Lender to a  domestic  office of that  Lender in the United  States of  America;
provided,  however,  that each Lender may fund each of its Eurodollar Rate Loans
in any manner it sees fit and the foregoing  assumptions  shall be utilized only
for the purposes of calculating  amounts  payable under this  subsection 2.6 and
under subsection 2.7A.

        G.  Eurodollar  Rate Loans After  Default.  After the  occurrence of and
during the  continuation  of an Event of  Default,  (i) Company may not elect to
have a Loan be made or  continued  as, or converted  to, a Eurodollar  Rate Loan
after the  expiration  of any  Interest  Period then in effect for that Loan and
(ii) subject to the  provisions of subsection  2.6D,  any Notice of Borrowing or
Notice of  Conversion/Continuation  given by Company with respect to a requested
borrowing or  conversion/continuation  that has not yet occurred shall be

                                       62

<PAGE>

deemed to be rescinded by Company and be deemed a request to convert or continue
Loans referred to therein as Base Rate Loans.

2.7     Increased Costs; Taxes; Capital Adequacy.

        A. Compensation for Increased Costs and Taxes. Subject to the provisions
of  subsection  2.7B (which  shall be  controlling  with  respect to the matters
covered  thereby),  in the event that any Lender shall  reasonably  determine in
good faith (which determination shall be rebuttably presumed to be correct) that
any law, treaty or governmental rule, regulation or order enacted,  entered into
or promulgated after the date hereof or any change after the date hereof therein
or in the  interpretation,  administration or application thereof (including the
introduction of any new law, treaty or governmental rule,  regulation or order),
or any  determination  of a court or governmental  authority,  in each case that
becomes  effective after the date hereof,  or compliance by such Lender with any
guideline,  request or  directive  issued or made  after the date  hereof by any
central bank or other governmental or  quasi-governmental  authority (whether or
not having the force of law):

                  (i) subjects such Lender (or its applicable lending office) to
        any additional Tax (other than any Tax on the overall net income of such
        Lender or any  franchise  Tax) with respect to this  Agreement or any of
        its  obligations  hereunder  or any  payments  to  such  Lender  (or its
        applicable  lending  office) of principal,  interest,  fees or any other
        amount payable hereunder;

                  (ii)  imposes,   modifies  or  holds  applicable  any  reserve
        (including  any  marginal,  emergency,  supplemental,  special  or other
        reserve),  special  deposit,  compulsory loan, FDIC insurance or similar
        requirement  against assets held by, or deposits or other liabilities in
        or for the account of, or advances or loans by, or other credit extended
        by, or any other  acquisition  of funds by,  any  office of such  Lender
        (other  than any such  reserve  or other  requirements  with  respect to
        Eurodollar  Rate Loans that are reflected in the  definition of Adjusted
        Eurodollar Rate); or

                  (iii)  imposes  on  such  Lender  (or its  applicable  lending
        office) any other condition (other than with respect to a Tax matter) on
        or  affecting  such  Lender (or its  applicable  lending  office) or its
        obligations hereunder or the London interbank market;

and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make,  making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its  applicable  lending  office) with
respect  thereto,  then, in any such case,  Company  shall  promptly pay to such
Lender,  upon receipt of the statement  referred to in the next  sentence,  such
additional  amount  or  amounts  (in the  form of an  increased  rate  of,  or a
different  method of  calculating,  interest or  otherwise as such Lender in its
sole discretion  shall  determine) as may be necessary to compensate such Lender
for any such  increased  cost or  reduction  in amounts  received or  receivable
hereunder;  provided  that a Lender shall not be entitled to avail itself of the
benefit of this  subsection  2.7A to the extent it had an  ability  (subject  to
subsection 2.8A), without incurring,  as determined in its sole discretion,  any
material cost prior to incurrence of such increased  costs or taxes to reduce or

                                       63

<PAGE>

avoid the same through the  relocation of its lending  office or otherwise  (and
failed to do so) and to the extent that any such  increased cost or reduction in
amounts was  incurred  more than six months prior to the time it gives notice to
Company (as provided in the next sentence) of the relevant circumstance,  unless
such circumstance arose or became applicable  retroactively,  in which case such
Lender  shall not be limited to such six month period so long as such Lender has
given  such  notice  to  Company  no  later  than one  year  from the time  such
circumstance became known to Lender to be applicable to such Lender. Such Lender
shall  deliver  to  Company  (with a copy to  Administrative  Agent)  a  written
statement,  setting  forth  in  reasonable  detail  the  basis  for  calculating
additional  amounts to such Lender under this subsection  2.7A,  which statement
shall be rebuttably presumed to be correct.

        B.        Withholding of Taxes.

                  (i) Payments to Be Free and Clear. All sums payable by Company
        under this Agreement and the other Loan  Documents  shall (except to the
        extent  required  by law) be paid  free and clear of,  and  without  any
        deduction or withholding on account of, any Tax (other than a Tax on the
        overall net income of any Lender or any franchise Tax) imposed,  levied,
        collected,  withheld  or  assessed  by or within  the  United  States of
        America  or any  political  subdivision  in or of the  United  States of
        America or any other  jurisdiction from or to which a payment is made by
        or on behalf of Company or by any  federation or  organization  of which
        the United States of America or any such jurisdiction is a member at the
        time of payment.

                  (ii)  Grossing-up  of Payments.  If Company or  Administrative
        Agent is required by law to make any deduction or withholding on account
        of  any  such  Tax  from  any  sum  paid  or   payable   by  Company  to
        Administrative Agent or any Lender under any of the Loan Documents:

                          (a) Company shall notify  Administrative  Agent of any
                  such requirement or any change in any such requirement as soon
                  as Company becomes aware of it;

                          (b) Company  shall pay any such Tax before the date on
                  which penalties  attach  thereto,  such payment to be made (if
                  the  liability  to pay is  imposed  on  Company)  for  its own
                  account or (if that  liability  is  imposed on  Administrative
                  Agent or such Lender,  as the case may be) on behalf of and in
                  the name of Administrative Agent or such Lender;

                          (c) the sum payable by Company in respect of which the
                  relevant  deduction,  withholding or payment is required shall
                  be increased to the extent necessary to ensure that, after the
                  making   of   that   deduction,    withholding   or   payment,
                  Administrative  Agent  or such  Lender,  as the  case  may be,
                  receives on the due date a net sum equal to what it would have
                  received had no such  deduction,  withholding  or payment been
                  required or made;

                          (d) within 30 days after  paying any sum from which it
                  is required

                                       64

<PAGE>

                  by law to make any  deduction  or  withholding,  and within 30
                  days  after  the due date of  payment  of any Tax  which it is
                  required by clause (b) above to pay,  Company shall deliver to
                  Administrative  Agent  evidence   satisfactory  to  the  other
                  affected parties of such deduction, withholding or payment and
                  of the  remittance  thereof  to the  relevant  taxing or other
                  authority;

                  provided that no such  additional  amount shall be required to
                  be paid to any Lender  under  clause  (c) above  except to the
                  extent  that any change  after the date hereof (in the case of
                  each Lender listed on the signature pages hereof) or after the
                  date of the Assignment Agreement pursuant to which such Lender
                  became a Lender (in the case of each other Lender) in any such
                  requirement  for a  deduction,  withholding  or  payment as is
                  mentioned  therein  shall result in an increase in the rate of
                  such deduction,  withholding or payment from that in effect at
                  the date of this  Agreement or at the date of such  Assignment
                  Agreement,  as the case may be, in respect of payments to such
                  Lender.

                  (iii)   Evidence of Exemption from U.S. Withholding Tax.

                          (a) Each  Lender that is  organized  under the laws of
                  any jurisdiction  other than the United States or any state or
                  other  political  subdivision  thereof  (for  purposes of this
                  subsection  2.7B(iii),  a "Non-US  Lender")  shall  deliver to
                  Administrative  Agent for transmission to Company, on or prior
                  to the Closing Date (in the case of each Lender  listed on the
                  signature  pages hereof) or on or prior to the effective  date
                  of the  Assignment  Agreement  pursuant  to which it becomes a
                  Lender (in the case of each other  Lender),  and at such other
                  times as may be necessary in the  determination  of Company or
                  Administrative  Agent (each in the reasonable  exercise of its
                  discretion),  (1) two  original  copies  of  Internal  Revenue
                  Service Form 1001 or 4224 (or any successor  forms),  properly
                  completed and duly executed by such Lender,  together with any
                  other certificate or statement of exemption required under the
                  Internal Revenue Code or the regulations  issued thereunder to
                  establish  that such  Lender is not  subject to  deduction  or
                  withholding  of United States  federal income tax with respect
                  to any payments to such Lender of principal, interest, fees or
                  other amounts  payable under any of the Loan  Documents or (2)
                  if such Lender is not a "bank" or other  Person  described  in
                  Section  881(c)(3)  of the  Internal  Revenue  Code and cannot
                  deliver  either  Internal  Revenue  Service  Form 1001 or 4224
                  pursuant to clause (1) above, a Certificate re Non-Bank Status
                  together with two original copies of Internal  Revenue Service
                  Form W-8 (or any successor form),  properly completed and duly
                  executed by such Lender,  together with any other  certificate
                  or statement of exemption  required under the Internal Revenue
                  Code or the  regulations  issued  thereunder to establish that
                  such  Lender is not subject to  deduction  or  withholding  of
                  United States  federal income tax with respect to any payments
                  to such  Lender  of  interest  payable  under  any of the Loan
                  Documents.

                          (b)  Each  Lender   required  to  deliver  any  forms,
                  certificates  or other

                                       65

<PAGE>

                  evidence  with  respect to United  States  federal  income tax
                  withholding matters pursuant to subsection 2.7B(iii)(a) hereby
                  agrees,  from time to time after the initial  delivery by such
                  Lender of such forms, certificates or other evidence, whenever
                  a lapse in time or change in circumstances renders such forms,
                  certificates  or other evidence  obsolete or inaccurate in any
                  material respect,  that such Lender shall promptly (1) deliver
                  to  Administrative  Agent for  transmission to Company two new
                  original copies of Internal Revenue Service Form 1001 or 4224,
                  or a Certificate re Non-Bank Status and two original copies of
                  Internal  Revenue  Service  Form  W-8,  as the  case  may  be,
                  properly completed and duly executed by such Lender,  together
                  with any other certificate or statement of exemption  required
                  in order to  confirm  or  establish  that  such  Lender is not
                  subject to deduction or  withholding  of United States federal
                  income tax with  respect to payments to such Lender  under the
                  Loan Documents or (2) notify  Administrative Agent and Company
                  of its  inability to deliver any such forms,  certificates  or
                  other evidence.

                          (c)   Company   shall  not  be  required  to  pay  any
                  additional  amount to any Non-US  Lender  under  clause (c) of
                  subsection  2.7B(ii)  if such  Lender  shall  have  failed  to
                  satisfy  the  requirements  of  clause  (a) or  (b)(1) of this
                  subsection 2.7B(iii);  provided that if such Lender shall have
                  satisfied the  requirements of subsection  2.7B(iii)(a) on the
                  Closing  Date  (in  the  case  of each  Lender  listed  on the
                  signature  pages  hereof)  or on the  date  of the  Assignment
                  Agreement pursuant to which it became a Lender (in the case of
                  each other Lender),  nothing in this  subsection  2.7B(iii)(c)
                  shall relieve  Company of its obligation to pay any additional
                  amounts  pursuant to clause (c) of subsection  2.7B(ii) in the
                  event that, as a result of any change in any  applicable  law,
                  treaty or  governmental  rule,  regulation  or  order,  or any
                  change in the  interpretation,  administration  or application
                  thereof, such Lender is no longer properly entitled to deliver
                  forms,  certificates  or other  evidence at a subsequent  date
                  establishing  the fact that  such  Lender  is not  subject  to
                  withholding as described in subsection 2.7B(iii)(a).

        C. Capital Adequacy Adjustment. If any Lender shall have determined that
the adoption, effectiveness,  phase-in or applicability after the date hereof of
any  law,  rule or  regulation  (or any  provision  thereof)  regarding  capital
adequacy,  or any change after the date hereof therein or in the  interpretation
or  administration  thereof  by any  governmental  authority,  central  bank  or
comparable agency charged with the interpretation or administration  thereof, or
compliance by any Lender (or its applicable  lending office) with any guideline,
request  or  directive  published,  rendered  or given  after  the  date  hereof
regarding  capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing  the rate of return on the capital of such Lender or any such
Lender's  holding  company,  if any, as a consequence  of, or with reference to,
such  Lender's  Loans or  Commitments  or  Letters  of Credit or  participations
therein or other obligations  hereunder with respect to the Loans or the Letters
of Credit to a level  below  that  which such  Lender or such  Lender's  holding
company,  if any,  could have  achieved  but for such  adoption,  effectiveness,
phase-in,  applicability,  change or 

                                       66

<PAGE>

compliance  (taking  into  consideration  the  policies  of such  Lender or such
holding company with regard to capital  adequacy) then from time to time, within
five  Business  Days after  receipt by Company from such Lender of the statement
referred to in the next sentence,  Company shall pay to such Lender upon receipt
of such  statement such  additional  amount or amounts as will  compensate  such
Lender or such controlling corporation on an after-tax basis for such reduction;
provided  that a Lender  shall not be entitled to avail itself of the benefit of
this  subsection  2.7C to the  extent  that any such  reduction  of  return  was
incurred  more than six months  prior to the time such  Lender  gives  notice to
Company,  unless such reduction arose  retroactively,  in which case such Lender
shall give such notice  within six months from the time such  reductions  become
applicable to such Lender.  Such Lender shall deliver to Company (with a copy to
Administrative  Agent) a written  statement,  setting forth in reasonable detail
the basis of the calculation of the additional amounts, which statement shall be
conclusive and binding upon all parties hereto absent error.

        D.  Substitute  Lenders.  In the event  Company  is  required  under the
provisions of this  subsection 2.7 to make payments in a material  amount to any
Lender or in the event any Lender  defaults on its obligation to lend to Company
in accordance with this  Agreement,  Company may, so long as no Event of Default
or Potential  Event of Default shall have occurred and be  continuing,  elect to
terminate such Lender as a party to this Agreement;  provided that, concurrently
with such termination, (i) Company shall pay that Lender all principal, interest
and fees and other amounts (including without limitation,  amounts, if any, owed
under this subsection 2.7) owed to such Lender through such date of termination,
(ii) another financial  institution or other entity  satisfactory to Company and
Agents (or if an Agent is also the Lender to be  terminated,  the successor such
Agent) shall agree,  as of such date, to become a Lender for all purposes  under
this  Agreement   (whether  by  assignment  or  amendment)  and  to  assume  all
obligations  of the  Lender  to be  terminated  as of such  date,  and (iii) all
documents and supporting materials  necessary,  in the judgment of Agents (or if
an Agent is also the Lender to be terminated,  the successor to such Agent),  to
evidence the  substitution  of such Lender shall have been received and approved
by Administrative Agent as of such date.

                                       67

<PAGE>

2.8     Obligation of Lenders and Issuing Lenders to Mitigate.

        Each Lender and Issuing  Lender agrees that, as promptly as  practicable
after such Lender or Issuing  Lender becomes aware of the occurrence of an event
or the  existence  of a  condition  that would  cause  such  Lender to become an
Affected  Lender or that would entitle such Lender or Issuing  Lender to receive
payments  under  subsection  2.7 or  subsection  3.6, it will, to the extent not
inconsistent with the internal policies of such Lender or Issuing Lender and any
applicable  legal or  regulatory  restrictions,  and so long as it does not,  as
determined  in its sole  discretion,  incur  material  costs or suffer  material
adverse effect,  use reasonable efforts (i) to make, issue, fund or maintain the
Commitments  of such Lender or the  affected  Loans or Letters of Credit of such
Lender or Issuing Lender through  another  lending or letter of credit office of
such Lender or Issuing  Lender,  or (ii) take such other measures as such Lender
or Issuing Lender may deem reasonable,  if as a result thereof the circumstances
which would cause such Lender to be an Affected  Lender  would cease to exist or
the  additional  amounts  which would  otherwise  be required to be paid to such
Lender or Issuing  Lender  pursuant to subsection 2.7 or subsection 3.6 would be
materially reduced and if, as determined by such Lender or Issuing Lender in its
sole discretion, the making, issuing, funding or maintaining of such Commitments
or Loans or Letters  of Credit  through  such other  lending or letter of credit
office or in accordance with such other measures,  as the case may be, would not
otherwise  materially  adversely  affect such Commitments or Loans or Letters of
Credit or the  interests of such Lender or Issuing  Lender;  provided  that such
Lender or Issuing  Lender will not be obligated to utilize such other lending or
letter of credit office unless Company agrees to pay all reasonable  incremental
expenses incurred by such Lender or Issuing Lender as a result of utilizing such
other lending or credit office  described in clause (i) above.  A certificate as
to the  amount  of any  such  expenses  payable  by  Company  pursuant  to  this
subsection 2.8 (setting forth in reasonable detail the basis for requesting such
amount)  submitted by such Lender or Issuing  Lender to Company  (with a copy to
Administrative Agent) shall be conclusive absent manifest error.


Section 3. LETTERS OF CREDIT

3.1     Issuance of Letters of Credit and  Lenders'  Purchase of  Participations
        Therein.

        A.  Letters of Credit.  In addition to Company  requesting  that Lenders
make Revolving Loans pursuant to subsection 2.1A(iii) and that Swing Line Lender
make Swing Line Loans pursuant to subsection  2.1A(iv),  Company may request, in
accordance  with the provisions of this subsection 3.1, from time to time during
the period from the Closing Date to but excluding the Revolving Loan  Commitment
Termination  Date,  that one or more Lenders having a Revolving Loan  Commitment
issue Letters of Credit for the account of Company for the purposes specified in
the  definitions of Commercial  Letters of Credit and Standby Letters of Credit.
Subject to the terms and  conditions of this  Agreement and in reliance upon the
representations  and  warranties  of Company  herein set forth,  any one or more
Lenders  having a  Revolving  Loan  Commitment  may,  but (except as provided in
subsection  3.1B(ii)) shall not be obligated to, issue such Letters of Credit in
accordance  with

                                       68

<PAGE>

the provisions of this subsection  3.1;  provided that Company shall not request
that any Lender issue (and no Lender shall issue):

                  (i) any  Letter  of Credit  if,  after  giving  effect to such
        issuance,  the Total  Utilization  of Revolving Loan  Commitments  would
        exceed the Revolving Loan Commitments then in effect;

                  (ii) any  Letter of Credit  if,  after  giving  effect to such
        issuance,  the Letter of Credit  Usage would exceed  $10,000,000  at any
        time in the aggregate;

                  (iii) any Standby  Letter of Credit having an expiration  date
        later than the earlier of (a) seven  Business  Days before the Revolving
        Loan Commitment Termination Date and (b) the date which is one year from
        the date of issuance of such Standby Letter of Credit; provided that the
        immediately  preceding  clause (b) shall not prevent any Issuing  Lender
        from  agreeing  that a Standby  Letter of Credit will  automatically  be
        extended for one or more successive  periods not to exceed one year each
        unless such Issuing Lender elects not to extend for any such  additional
        period;  and provided,  further that such Issuing Lender shall elect not
        to extend  such  Standby  Letter of Credit if it has  knowledge  that an
        Event of Default has occurred and is continuing (and has not been waived
        in accordance with subsection 10.6) at the time such Issuing Lender must
        elect whether or not to allow such extension; or

                  (iv) any Commercial  Letter of Credit (a) having an expiration
        date  later  than the  earlier of (X) the date which is 30 days prior to
        the Revolving Loan Commitment Termination Date and (Y) the date which is
        180 days from the date of issuance of such  Commercial  Letter of Credit
        or (b) that is otherwise  unacceptable to the applicable  Issuing Lender
        in its reasonable discretion.

        B.        Mechanics of Issuance.

                  (i) Notice of Issuance.  Whenever Company desires the issuance
        of a Letter of Credit in accordance with subsection 3.1A above, it shall
        deliver to Administrative Agent a Notice of Issuance of Letter of Credit
        substantially  in the form of Exhibit III  annexed  hereto no later than
        1:00 P.M.  (New York time) at least three  Business Days (in the case of
        Standby  Letters  of  Credit)  or five  Business  Days  (in the  case of
        Commercial Letters of Credit),  or in each case (once the Issuing Lender
        has been selected and with the  Administrative  Agent's  approval)  such
        shorter  period  as  may  be  agreed  to by the  Issuing  Lender  in any
        particular  instance,  in advance of the proposed date of issuance.  The
        Notice of Issuance of Letter of Credit  shall  specify (a) the  proposed
        date of issuance (which shall be a Business Day), (b) whether the Letter
        of Credit is to be a Standby Letter of Credit or a Commercial  Letter of
        Credit,  (c) the face amount of the Letter of Credit, (d) the expiration
        date of the Letter of Credit  (subject to subsection  3.1A hereof),  (e)
        the name and  address of the  beneficiary,  and (f) either the  verbatim
        text  of the  proposed  Letter  of  Credit  or the  proposed  terms  and
        conditions  thereof,  including  a precise  description  and list of any
        documents  (including  the  content  thereof)  to be  presented  by  the
        beneficiary  which,  if  presented  by  the

                                       69

<PAGE>

        beneficiary prior to the expiration date of the Letter of Credit,  would
        require the Issuing  Lender to make payment  under the Letter of Credit;
        provided that the Issuing  Lender,  in its  reasonable  discretion,  may
        require changes in the text of the proposed Letter of Credit or any such
        documents; and provided,  further that no Letter of Credit shall require
        payment  against a conforming  draft to be made  thereunder  on the same
        business day (under the laws of the  jurisdiction in which the office of
        the Issuing  Lender to which such draft is required to be  presented  is
        located) that such draft is presented if such presentation is made after
        10:00 A.M.  (in the time zone of such office of the  Issuing  Lender) on
        such  business  day.  Upon the  Administrative  Agent's  receipt of such
        Notice of Issuance, the Issuing Lender shall be determined in accordance
        with subsection 3.1B(ii) hereof.

                          Company  shall notify the  applicable  Issuing  Lender
        (and Administrative  Agent, if Administrative  Agent is not such Issuing
        Lender)  prior to the issuance of any Letter of Credit in the event that
        any of the  matters  to which  Company  is  required  to  certify in the
        applicable  Notice of Issuance of Letter of Credit is no longer true and
        correct as of the  proposed  date of  issuance of such Letter of Credit,
        and upon the issuance of any Letter of Credit Company shall be deemed to
        have re-certified, as of the date of such issuance, as to the matters to
        which  Company  is  required  to  certify  in the  applicable  Notice of
        Issuance of Letter of Credit.

                  (ii)   Determination  of  Issuing  Lender.   Upon  receipt  by
        Administrative  Agent  of a Notice  of  Issuance  of  Letter  of  Credit
        pursuant to subsection  3.1B(i)  requesting  the issuance of a Letter of
        Credit, in the event the Lender that is Administrative  Agent elects, in
        its sole  discretion,  to issue such  Letter of  Credit,  Administrative
        Agent shall  promptly so notify  Company,  and such Lender  shall be the
        Issuing Lender with respect thereto.  In the event that such Lender,  in
        its  sole  discretion,  elects  not to  issue  such  Letter  of  Credit,
        Administrative Agent shall promptly so notify Company, whereupon Company
        may request any other Lender having a Revolving Loan Commitment to issue
        such  Letter  of  Credit  by  delivering  to such  Lender  a copy of the
        applicable  Notice of  Issuance  of Letter of Credit  and  advising  the
        Administrative  Agent of such request in writing or by telephonic notice
        (promptly  confirmed in writing).  Any Lender so requested to issue such
        Letter of Credit shall promptly notify Company and Administrative Agent,
        in writing or by  telephonic  notice  (promptly  confirmed  in writing),
        whether or not,  in its sole  discretion,  it has  elected to issue such
        Letter of  Credit,  and any such  Lender  which so elects to issue  such
        Letter of Credit shall be the Issuing  Lender with respect  thereto.  In
        the event  that all other  Lenders  shall  have  declined  to issue such
        Letter of Credit,  notwithstanding the prior election of the Lender that
        is Administrative  Agent not to issue such Letter of Credit, such Lender
        shall be  obligated  to issue  such  Letter of  Credit  and shall be the
        Issuing Lender with respect thereto,  notwithstanding  the fact that the
        Letter of Credit  Usage with  respect to such  Letter of Credit and with
        respect  to all other  Letters  of Credit  issued by such  Lender,  when
        aggregated with such Lender's outstanding Revolving Loans and Swing Line
        Loans,  may exceed  such  Lender's  Revolving  Loan  Commitment  then in
        effect.

                                       70

<PAGE>

                  (iii)  Issuance  of Letter of  Credit.  Upon  satisfaction  or
        waiver (in accordance with subsection  10.6) of the conditions set forth
        in subsection  4.3, the Issuing Lender shall issue the requested  Letter
        of Credit in accordance  with the Issuing  Lender's  standard  operating
        procedures.

                  (iv) Notification to Lenders.  Upon the issuance of any Letter
        of  Credit,   the  Issuing   Lender   thereof  shall   promptly   notify
        Administrative  Agent and each  other  Lender  having a  Revolving  Loan
        Commitment of such issuance, which notice shall be accompanied by a copy
        of such Letter of Credit.  Promptly after receipt of such notice (or, if
        the Lender that is Administrative Agent is the Issuing Lender,  together
        with such notice),  Administrative Agent shall notify each Lender of the
        amount  of such  Lender's  respective  participation  in such  Letter of
        Credit, determined in accordance with subsection 3.1C.

                  (v) Reports to  Lenders.  Within 15 days after the end of each
        calendar quarter ending after the Closing Date, so long as any Letter of
        Credit shall have been outstanding  during such calendar  quarter,  each
        Issuing  Lender  shall  deliver to  Administrative  Agent,  which  shall
        deliver to each other Lender having a Revolving Loan Commitment a report
        setting  forth for such  calendar  quarter  the daily  aggregate  amount
        available to be drawn under the Letters of Credit issued by such Issuing
        Lender that were outstanding during such calendar quarter.

        C. Lenders' Purchase of Participations in Letters of Credit. Immediately
upon the issuance of each Letter of Credit,  each Lender shall be deemed to, and
hereby  agrees  to,  have  irrevocably  purchased  from  the  Issuing  Lender  a
participation in such Letter of Credit and any drawings honored thereunder in an
amount equal to such Lender's  Revolving  Pro Rata Share of the  Revolving  Loan
Commitments  multiplied by the maximum amount which is or at any time may become
available to be drawn thereunder.

3.2     Letter of Credit Fees.

                  Company  agrees to pay the  following  amounts with respect to
Letters of Credit issued hereunder:

                  (i) with  respect  to each  Standby  Letter of  Credit,  (a) a
        fronting fee, payable directly to the Issuing Lender thereof for its own
        account, equal to the greater of (X) $500 and (Y) 0.25% per annum of the
        daily amount  available to be drawn under such Standby  Letter of Credit
        and (b) a letter of credit fee, payable to Administrative  Agent for the
        account of Lenders having a Revolving Loan Commitment,  equal to (i) the
        Applicable Tranche A Eurodollar Margin (with respect to a Standby Letter
        of Credit)  multiplied by (ii) the average daily amount  available to be
        drawn under such  Standby  Letter of Credit,  each such  fronting fee or
        letter of credit fee to be payable in arrears on and to (but  excluding)
        each March 31, June 30,  September  30 and  December 31 of each year and
        computed  on the basis of a 360-day  year for the actual  number of days
        elapsed;

                                       71

<PAGE>

                  (ii) with respect to each Commercial  Letter of Credit,  (a) a
        fronting fee, payable directly to the Issuing Lender thereof for its own
        account, equal to the greater of (X) $500 and (Y) 0.25% per annum of the
        daily  amount  available  to be drawn  under such  Commercial  Letter of
        Credit and (b) a letter of credit fee, payable to  Administrative  Agent
        for the account of Lenders having a Revolving Loan  Commitment,  in such
        amount  as may be  agreed  by  Company  and  Issuing  Lender,  each such
        fronting  fee or letter of credit fee to be payable at  issuance of such
        Commercial Letter of Credit; and

                  (iii) with respect to the  issuance,  amendment or transfer of
        each  Letter of Credit  and each  payment of a drawing  made  thereunder
        (without  duplication  of the fees  payable  under  clauses  (i) or (ii)
        above),  documentary  and  processing  charges  payable  directly to the
        Issuing  Lender  thereof  for its own  account in  accordance  with such
        Issuing  Lender's  standard  schedule  for such charges in effect at the
        time of such issuance,  amendment,  transfer or payment, as the case may
        be.

For purposes of calculating  any fees payable under clauses (i) and (ii) of this
subsection  3.2,  the daily  amount  available  to be drawn  under any Letter of
Credit  shall  be  determined  as of  the  close  of  business  on any  date  of
determination.  Promptly  upon  receipt  by  Administrative  Agent of any amount
described in clause (i)(b) of this  subsection 3.2,  Administrative  Agent shall
distribute to each Lender having a Revolving  Loan  Commitment its Revolving Pro
Rata Share of such amount.

3.3     Drawings and Reimbursement of Amounts Paid Under Letters of Credit.

        A.  Responsibility  of  Issuing  Lender  With  Respect to  Drawings.  In
determining  whether  to honor any  drawing  under  any  Letter of Credit by the
beneficiary  thereof,  the Issuing Lender shall be  responsible  only to examine
with  reasonable  care the documents  delivered by such  beneficiary  under such
Letter of Credit so as to ascertain  whether such documents appear on their face
to be in accordance with the terms and conditions of such Letter of Credit.

        B.  Reimbursement by Company of Amounts Paid Under Letters of Credit. In
the event an Issuing  Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing  Lender shall  immediately  notify Company and
(for any  Issuing  Lender  other than the Lender that is  Administrative  Agent)
Administrative  Agent  (which  notice shall be in writing or  telephonic  notice
(promptly  confirmed in writing)),  and Company shall  reimburse  Administrative
Agent for the  account  of such  Issuing  Lender on or before the  Business  Day
immediately  following the date on which  notification  that such Issuing Lender
has  determined  to honor  such  drawing  has been  delivered  to  Company  (the
"Reimbursement Date") in an amount in Dollars and in same day funds equal to the
amount of such  honored  drawing;  provided  that,  anything  contained  in this
Agreement  to the  contrary  notwithstanding,  (i)  unless  Company  shall  have
notified  Administrative  Agent and such Issuing Lender prior to 11:00 A.M. (New
York  time)  on the  Reimbursement  Date  that  Company  intends  on such day to
reimburse  Administrative  Agent for the account of such Issuing  Lender for the
amount of such  honored  drawing with funds other than the proceeds of Revolving
Loans,  Company  shall

                                       72

<PAGE>

be deemed to have given a timely  Notice of  Borrowing to  Administrative  Agent
requesting  Lenders  to make  Revolving  Loans  that are Base Rate  Loans on the
Reimbursement  Date in an amount in Dollars  equal to the amount of such honored
drawing and  Administrative  Agent shall promptly notify each relevant Lender of
its  Revolving  Pro Rata  Share of such  Revolving  Loans  and (ii)  subject  to
satisfaction or waiver of the conditions  specified in subsection 4.2B,  Lenders
shall, not later than 3:00 P.M. (New York time) on the Reimbursement  Date, make
Revolving Loans that are Base Rate Loans in the amount of such honored  drawing,
the  proceeds of which  shall be applied  directly  by  Administrative  Agent to
reimburse such Issuing Lender for the amount of such honored  drawing;  provided
further that, in the event that the conditions specified in subsection 4.2B have
not been  satisfied  or waived,  Administrative  Agent may,  upon the request of
Requisite Lenders,  notify Company that Lenders elect not to make such Revolving
Loans;  and provided still further that if for any reason  proceeds of Revolving
Loans are not received by  Administrative  Agent for the account of such Issuing
Lender  on the  Reimbursement  Date in an  amount  equal to the  amount  of such
honored drawing, Company shall reimburse Administrative Agent for the account of
such  Issuing  Lender,  on demand,  in an amount in same day funds  equal to the
excess of the amount of such honored  drawing over the aggregate  amount of such
Revolving Loans, if any, which are so received.  Nothing in this subsection 3.3B
shall be deemed to relieve  any Lender  from its  obligation  to make  Revolving
Loans on the terms and conditions set forth in this Agreement, and Company shall
retain any and all rights it may have  against  any  Lender  resulting  from the
failure of such Lender to make such Revolving Loans under this subsection 3.3B.

                                       73

<PAGE>

        C.  Payment by Lenders of  Unreimbursed  Amounts  Paid Under  Letters of
Credit.

                  (i) Payment by Lenders.  In the event that Company  shall fail
        for any reason to reimburse  Administrative Agent for the account of any
        Issuing Lender as provided in subsection  3.3B in an amount equal to the
        amount of any drawing  honored by such Issuing  Lender under a Letter of
        Credit  issued  by it (such  failure  being  deemed in  accordance  with
        subsection  3.3B a timely request that Lenders make  Revolving  Loans in
        the amount of such unreimbursed  honored drawing) by 1:00 P.M. (New York
        time) on the  Reimbursement  Date,  Administrative  Agent shall promptly
        notify such Issuing Lender and each other Lender having a Revolving Loan
        Commitment  of the  unreimbursed  amount of such honored  drawing and of
        such  other  Lender's  respective  participation  therein  based on such
        Lender's Revolving Pro Rata Share. If for any reason Revolving Loans may
        not be  funded  at the time  required  and in an  amount  sufficient  to
        reimburse Administrative Agent for the account of such Issuing Lender as
        provided  in  subsection  3.3B in an amount  equal to the amount of such
        drawing,  each Lender having a Revolving Loan Commitment  agrees to fund
        its participation in such unreimbursed  honored drawing of the Letter of
        Credit  purchased  pursuant to subsection 3.1C in an amount equal to its
        Revolving Pro Rata Share  thereof.  Each Lender having a Revolving  Loan
        Commitment shall make available to Administrative  Agent for the account
        of such Issuing Lender an amount equal to its  respective  participation
        (whether  as a  Revolving  Loan or as a  participation  in the Letter of
        Credit),  in Dollars  and in same day funds,  to the Funding and Payment
        Account, not later than 12:00 Noon (New York time) on the first business
        day  (under  New York law)  after the date  notified  by  Administrative
        Agent.   In  the  event  that  any  Lender   fails  to  make   available
        Administrative  Agent for the  account  of such  Issuing  Lender on such
        business day the amount of such Lender's participation in such Letter of
        Credit as provided in this subsection 3.3C, such Issuing Lender shall be
        entitled to recover such amount on demand from such Lender together with
        interest thereon at the rate customarily used by such Issuing Lender for
        the  correction  of  errors  among  banks for  three  Business  Days and
        thereafter at the Base Rate.  Nothing in this  subsection  3.3C shall be
        deemed to prejudice  the right of any Lender to recover from any Issuing
        Lender any amounts made  available by such Lender to such Issuing Lender
        pursuant to this  subsection 3.3C in the event and to the extent that it
        is determined by the final judgment of a court of competent jurisdiction
        that the  payment  with  respect  to a Letter of Credit by such  Issuing
        Lender  in  respect  of  which  payment  was made by such  other  Lender
        constituted  gross negligence or willful  misconduct on the part of such
        Issuing Lender.


                  (ii) Distribution to Lenders of  Reimbursements  Received From
        Company.  In the event any Issuing Lender shall have been  reimbursed by
        other Lenders  pursuant to subsection  3.3C(i) for all or any portion of
        any  drawing  honored by such  Issuing  Lender  under a Letter of Credit
        issued by it, such Issuing  Lender shall  distribute  to  Administrative
        Agent for the  account of each other  Lender  which has paid all amounts
        payable by it under  subsection  3.3C(i)  with  respect to such  honored
        drawing  such other

                                       74

<PAGE>

        Lender's Revolving Pro Rata Share of all payments  subsequently received
        by such  Issuing  Lender from Company in  reimbursement  of such honored
        drawing  when such  payments  are  received.  Any such  amount  shall be
        promptly  distributed by Administrative Agent to a Lender at its primary
        address  set forth  below  its name on the  appropriate  signature  page
        hereof or at such other address as such Lender may request.

        D.        Interest on Amounts Paid Under Letters of Credit.

                  (i) Payment of Interest by Company.  Company  agrees to pay to
        each Issuing Lender,  with respect to drawings honored under any Letters
        of Credit  issued by it,  interest  on the amount  paid by such  Issuing
        Lender  in  respect  of each  such  honored  drawing  from the date such
        drawing is honored to but  excluding  the date such amount is reimbursed
        by Company  (including  any such  reimbursement  out of the  proceeds of
        Revolving  Loans) at a rate  equal to (a) for the  period  from the date
        such drawing is honored to but excluding  the  Reimbursement  Date,  the
        rate then in effect under this Agreement with respect to Revolving Loans
        that are Base Rate  Loans  and (b)  thereafter,  a rate  which is 2% per
        annum in excess of the rate of  interest  otherwise  payable  under this
        Agreement  with  respect to  Revolving  Loans that are Base Rate  Loans.
        Interest payable  pursuant to this subsection  3.3D(i) shall be computed
        on the basis of a 360-day year for the actual  number of days elapsed in
        the period during which it accrues and shall be payable on demand or, if
        no demand  is made,  on the date on which the  related  drawing  under a
        Letter of Credit is reimbursed in full.

                  (ii)  Distribution  of Interest  Payments  by Issuing  Lender.
        Promptly  upon receipt by any Issuing  Lender of any payment of interest
        pursuant to subsection 3.3D(i) with respect to a drawing honored under a
        Letter of Credit issued by it, (a) such Issuing Lender shall  distribute
        to  Administrative  Agent for the account of each other Lender  having a
        Revolving Loan Commitment,  out of the interest received by such Issuing
        Lender in respect of the period from the date such drawing is honored to
        but  excluding the date on which such Issuing  Lender is reimbursed  for
        the amount of such drawing  (including any such reimbursement out of the
        proceeds of Revolving  Loans  pursuant to subsection  3.3B),  the amount
        that such other Lender would have been entitled to receive in respect of
        the letter of credit fee that would have been payable in respect of such
        Letter  of Credit  for such  period  pursuant  to  subsection  3.2 if no
        drawing had been  honored  under such  Letter of Credit,  and (b) in the
        event such Issuing  Lender shall have been  reimbursed  by other Lenders
        pursuant to  subsection  3.3C(i) for all or any portion of such  honored
        drawing, such Issuing Lender shall distribute to each other Lender which
        has paid all amounts payable by it under subsection 3.3C(i) with respect
        to such honored drawing such other Lender's  Revolving Pro Rata Share of
        any interest  received by such Issuing Lender in respect of that portion
        of such honored drawing in which such Lender participates for the period
        from the date on which such  participation  was funded to but  excluding
        the date on which such portion of such honored  drawing is reimbursed by
        Company.  Any such distribution shall be made to a Lender at its primary
        address  set forth  below  its name on the  appropriate  signature  page
        hereof or at such other address as such Lender may request.

                                       75

<PAGE>

3.4 Obligations Absolute.

                  The obligation of Company to reimburse each Issuing Lender for
drawings  honored  under the  Letters  of  Credit  issued by it and to repay any
Revolving  Loans made by Lenders  pursuant  to  subsection  3.3B or 3.3C and the
obligations  of Lenders  under  subsection  3.3C(i) shall be  unconditional  and
irrevocable  and shall be paid  strictly  in  accordance  with the terms of this
Agreement under all circumstances including any of the following circumstances:

                  (i) any lack of  validity or  enforceability  of any Letter of
        Credit;

                  (ii) the  existence  of any claim,  set-off,  defense or other
        right  which  Company  or any  Lender  may  have at any time  against  a
        beneficiary  or any  transferee  of any Letter of Credit (or any Persons
        for whom any such transferee may be acting), any Issuing Lender or other
        Lender or any other Person or, in the case of a Lender, against Company,
        whether in connection with this Agreement, the transactions contemplated
        herein  or  any  unrelated   transaction   (including   any   underlying
        transaction   between  Company  or  one  of  its  Subsidiaries  and  the
        beneficiary for which any Letter of Credit was procured);

                  (iii) any draft or other document  presented  under any Letter
        of Credit proving to be forged,  fraudulent,  invalid or insufficient in
        any respect or any  statement  therein being untrue or inaccurate in any
        respect;

                  (iv) payment by the applicable Issuing Lender under any Letter
        of Credit against  presentation  of a draft or other document which does
        not substantially comply with the terms of such Letter of Credit;

                  (v)  any   adverse   change  in  the   business,   operations,
        properties,  assets,  condition (financial or otherwise) or prospects of
        Company or any of its Subsidiaries;

                  (vi) any breach of this  Agreement or any other Loan  Document
        by any party thereto;

                  (vii) any other circumstance or happening whatsoever,  whether
        or not similar to any of the foregoing; or

                  (viii) the fact that an Event of Default or a Potential  Event
        of Default shall have occurred and be continuing;

provided,  in each case, that payment by the applicable Issuing Lender under the
applicable  Letter of Credit  shall not have  constituted  gross  negligence  or
willful misconduct of such Issuing Lender under the circumstances in question.

                                       76

<PAGE>

3.5     Indemnification; Nature of Issuing Lenders' Duties.

        A.  Indemnification.  In  addition  to amounts  payable as  provided  in
subsection  3.6,  Company  hereby  agrees to  protect,  indemnify,  pay and save
harmless  each  Issuing  Lender from and  against  any and all claims,  demands,
liabilities,  damages, losses, costs, charges and expenses (including reasonable
fees,  expenses and  disbursements  of counsel and  allocated  costs of internal
counsel)  which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect,  of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender or (b) the wrongful  dishonor by such Issuing Lender of a
proper  demand for payment made under any Letter of Credit  issued by it (except
for any such  dishonor as a result of  Governmental  Acts as  described  in (ii)
below) or (ii) the failure of such Issuing  Lender to honor a drawing  under any
such Letter of Credit as a result of any act or  omission,  whether  rightful or
wrongful,  of  any  present  or  future  de  jure  or  de  facto  government  or
governmental  authority (all such acts or omissions herein called  "Governmental
Acts").

        B. Nature of Issuing Lenders' Duties. As between Company and any Issuing
Lender  or its  correspondents,  Administrative  Agent  or  Lenders  (all of the
foregoing being  collectively,  "Credit Parties"),  Company assumes all risks of
the acts and  omissions  of, or misuse of the  Letters of Credit  issued by such
Issuing Lender by, the respective  beneficiaries  of such Letters of Credit.  In
furtherance  and not in limitation of the  foregoing,  such Issuing Lender shall
not  be  responsible  for:  (i)  the  form,  validity,  sufficiency,   accuracy,
genuineness or legal effect of any document submitted by any party in connection
with a drawing under any such Letter of Credit,  even if it should in fact prove
to be in any or all respects invalid,  insufficient,  inaccurate,  fraudulent or
forged;  (ii) the validity or  sufficiency  of any  instrument  transferring  or
assigning or  purporting  to transfer or assign any such Letter of Credit or the
rights or benefits  thereunder or proceeds  thereof,  in whole or in part, which
may prove to be invalid or  ineffective  for any  reason;  (iii)  failure of the
beneficiary  of any such  Letter of Credit to comply  fully with any  conditions
required in order to draw upon such Letter of Credit;  (iv)  errors,  omissions,
interruptions  or delays in transmission  or delivery of any messages,  by mail,
cable,  telegraph,  telex or  otherwise,  whether or not they be in cipher;  (v)
errors  in  interpretation  of  technical  terms;  (vi) any loss or delay in the
transmission  or otherwise  of any document  required in order to make a drawing
under  any  such  Letter  of  Credit  or of  the  proceeds  thereof;  (vii)  the
misapplication  by the  beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit;  or (viii) any consequences  arising
from  causes  beyond  the  control  of  such  Issuing   Lender,   including  any
Governmental  Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of such Credit Parties' rights or powers hereunder.

                  In  furtherance  and  extension  and not in  limitation of the
specific  provisions set forth in the first paragraph of this  subsection  3.5B,
any action taken or omitted by any Issuing  Lender under or in  connection  with
the Letters of Credit issued by it or any documents and  certificates  delivered
thereunder, if taken or omitted in good faith, shall not put such Issuing Lender
or any of the other Credit  Parties under any resulting  liability to Company or
the other Credit Parties hereunder.

                                       77

<PAGE>

                  Notwithstanding  anything to the  contrary  contained  in this
subsection 3.5 (including in the immediately preceding paragraph), Company shall
retain  any and all  rights  it may have  against  any  Issuing  Lender  for any
liability to the extent arising primarily out of the gross negligence or willful
misconduct of such Issuing Lender.

3.6 Increased Costs and Taxes Relating to Letters of Credit.

                  Subject to the  provisions of subsection  2.7B (which shall be
controlling with respect to the matters covered thereby),  in the event that any
Issuing  Lender  or  Lender  shall  determine  (which   determination  shall  be
rebuttably  presumed to be correct) that any law, treaty or  governmental  rule,
regulation,  order or  directive,  in each case which is enacted,  entered into,
promulgated  or  rendered  after the date  hereof or any  change  after the date
hereof in any law, treaty or governmental rule,  regulation,  order or directive
or in the  interpretation,  administration or application thereof (including the
introduction of any new law, treaty or governmental rule,  regulation,  order or
directive),  or any determination of a court or governmental  authority, in each
case that becomes  effective after the date hereof, or compliance by any Issuing
Lender or Lender with any guideline,  request or directive  issued or made after
the date hereof by any central bank or other governmental or  quasi-governmental
authority (whether or not having the force of law):

                  (i) subjects such Issuing  Lender or Lender (or its applicable
        lending or letter of credit  office) to any  additional  Tax (other than
        any Tax on the  overall net income of such  Issuing  Lender or Lender or
        any  franchise  Tax) with respect to the issuing or  maintaining  of any
        Letters of Credit or the purchasing or maintaining of any participations
        therein or any other  obligations under this Section 3, whether directly
        or by such  being  imposed  on or  suffered  by any  particular  Issuing
        Lender;

                  (ii)  imposes,   modifies  or  holds  applicable  any  reserve
        (including  any  marginal,  emergency,  supplemental,  special  or other
        reserve),  special  deposit,  compulsory loan, FDIC insurance or similar
        requirement  in respect of any  Letters of Credit  issued by any Issuing
        Lender or participations therein purchased by any Lender; or

                  (iii) imposes any other condition  (other than with respect to
        a Tax  matter) on or  affecting  such  Issuing  Lender or Lender (or its
        applicable  lending or letter of credit office) regarding this Section 3
        or any Letter of Credit or any participation therein;

and the result of any of the  foregoing  is to increase the cost to such Issuing
Lender or Lender of  agreeing  to issue,  issuing or  maintaining  any Letter of
Credit or agreeing to purchase,  purchasing  or  maintaining  any  participation
therein or to reduce any amount received or receivable by such Issuing Lender or
Lender (or its  applicable  lending  or letter of credit  office)  with  respect
thereto; then, in any case, Company shall promptly pay to such Issuing Lender or
Lender,  upon receipt of the statement  referred to in the next  sentence,  such
additional  amount or amounts as may be  necessary  to  compensate  such Issuing
Lender or Lender for any such increased cost or reduction in amounts received or
receivable  hereunder;

                                       78

<PAGE>

provided  that such  Issuing  Lender or Lender  shall not be  entitled  to avail
itself of the  benefit of this  subsection  3.6 to the extent it had an ability,
without  incurring,  as determined in its sole discretion,  any material cost or
suffering  material adverse effect and to the extent not  inconsistent  with the
internal  policies of such Issuing Lender or Lender and any applicable  legal or
regulatory restrictions, prior to incurrence of such increased costs or taxes to
reduce or avoid the same through the  relocation of its lending office or letter
of credit  office or otherwise  (and failed to do so) and to the extent that any
such  increased  cost or reduction in amounts was incurred  more than six months
prior to the time it gives notice to Company (as provided in the next  sentence)
of  the  relevant  circumstance,   unless  such  circumstance  arose  or  became
applicable retroactively,  in which case such Issuing Lender or Lender shall not
be limited to such six-month period so long as such Issuing Lender or Lender has
given  such  notice  to  Company  no  later  than one  year  from the time  such
circumstance  became  applicable to such Issuing Lender or Lender.  Such Issuing
Lender or Lender shall deliver to Company a written statement,  setting forth in
reasonable detail the basis for calculating the additional  amounts owed to such
Issuing Lender or Lender under this  subsection  3.6, which  statement  shall be
rebuttably presumed to be correct.

Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT

                  The  obligations  of  Lenders  to make  Loans  and to issue or
participate in Letters of Credit  hereunder are subject to the  satisfaction  of
the following conditions.

4.1 Conditions to Term Loans.

                  The  obligations  of Lenders  to make the Term  Loans are,  in
addition to the conditions  precedent  specified in subsection  4.2,  subject to
prior or concurrent satisfaction of the following conditions:

        A. Loan Party Documents.  On or before the Closing Date,  Company shall,
and shall cause each other Loan Party to,  deliver to  Administrative  Agent for
Lenders with sufficient originally executed copies, where appropriate,  for each
Lender the following with respect to Company or such Loan Party, as the case may
be, each, unless otherwise noted, dated the Closing Date:

                  (i)  Certified  copies  of  the  Certificate  or  Articles  of
        Incorporation of such Person,  together with a good standing certificate
        from the Secretary of State of its  jurisdiction  of  incorporation  and
        each  other  state  in which  such  Person  is  qualified  as a  foreign
        corporation  to do business and, to the extent  generally  available,  a
        certificate  or other  evidence  of good  standing  as to payment of any
        applicable  franchise  or  similar  taxes  from the  appropriate  taxing
        authority of each of such jurisdictions,  each dated a recent date prior
        to the Closing Date;

                  (ii) Copies of the Bylaws of such Person,  certified as of the
        Closing  Date by  such  Person's  corporate  secretary  or an  assistant
        secretary;

                                       79

<PAGE>

                  (iii)  Resolutions  of the Board of  Directors  of such Person
        approving and authorizing the execution, delivery and performance of the
        Loan Documents and Related Agreements to which it is a party,  certified
        as of the  Closing  Date  by the  corporate  secretary  or an  assistant
        secretary  of such  Person  as being in full  force and  effect  without
        modification or amendment;

                  (iv) Signature and incumbency  certificates of the officers of
        such Person executing the Loan Documents to which it is a party;

                  (v)  Executed  originals  of the Loan  Documents to which such
        Person is a party; and

                  (vi)  Such  other  documents  as   Administrative   Agent  may
        reasonably request.


        B.        Corporate and Capital Structure and Ownership

                  (i)  Corporate   Structure.   The   corporate   organizational
        structure of Company and its  Subsidiaries  after  giving  effect to the
        Acquisition, shall be as set forth on Schedule 4.1B annexed hereto.

                  (ii) Capital  Structure and Ownership.  The capital  structure
        and ownership of Company after giving effect to the Acquisition shall be
        as set forth on Schedule 4.1B annexed hereto.

        C.        Related Agreements.

        Agents  shall have  received (a) a fully  executed or conformed  copy of
        each  Related  Agreement  and  any  documents   executed  in  connection
        therewith,  and each Related Agreement shall be in full force and effect
        and no  provision  thereof  shall  have been  modified  or waived in any
        respect determined by Administrative Agent to be material,  in each case
        without the consent of Agents and Requisite Lenders and (b) an Officer's
        Certificate  from Company,  in form and substance  satisfactory  to each
        Agent and  Lenders,  certifying  that each such  Related  Agreement  and
        document  (which shall be attached  thereto) is correct and complete and
        is in full force and  effect  and  certifying  as to such  matters  with
        respect to each of the Related Agreements.

        D.        Intentionally Omitted.

        E.        Necessary Governmental Authorizations and Consents; Expiration
        of Waiting Periods, Etc.

        Company  shall have  obtained all  Governmental  Authorizations  and all
        consents of other Persons, in each case that are necessary in connection
        with the Acquisition,  the other  transactions  contemplated by the Loan
        Documents and the Related Agreements and the continued  operation of the
        business conducted by Company and its Subsidiaries, giving effect to the
        consummation of the  Acquisition,  and each of the

                                       80

<PAGE>

        foregoing  shall be in full  force and  effect,  in each case other than
        those the failure to obtain or maintain  which would not  reasonably  be
        expected  to  have a  Material  Adverse  Effect.  All  applicable  Hart-
        Scott-Rodino and other similar antitrust or anti-merger  waiting periods
        shall have expired  without any action being taken or  threatened by any
        competent  governmental  authority  which  would  restrain,  prevent  or
        otherwise impose adverse  conditions on the Acquisition or the financing
        thereof. No action,  request for stay, petition for review or rehearing,
        reconsideration, or appeal with respect to any of the foregoing shall be
        pending,  and the time for any  applicable  agency to take action to set
        aside its consent on its own motion shall have expired.

        F.        Consummation of Acquisition.

                  (i) All  conditions  to the  Acquisition  to be  satisfied  by
        Company,  as Buyer,  which  conditions are all set forth in Article V of
        the  Acquisition  Agreement shall have been satisfied or the fulfillment
        of any such conditions shall have been waived by Seller with the consent
        of Agents (acting on the concurrence of Requisite Lenders);

                  (ii) the Acquisition shall have been consummated in accordance
        with the terms of the Acquisition Agreement by no later than October 30,
        1998 for an aggregate  purchase price not in excess of $550,000,000 plus
        the  Acquisition  Purchase  Price  Adjustment  (exclusive of Transaction
        Costs);

                  (iii)  Transaction  Costs  shall not exceed  $25,000,000,  and
        Administrative Agent shall have received evidence to its satisfaction to
        such effect; and

                  (iv) Arranger,  each Agent and each Lender shall have received
        an Officer's  Certificate  of Company to the effect set forth in clauses
        (i)-(iii) above.

        G. Closing Date Mortgages. Administrative Agent shall have received from
Company and each  applicable  Subsidiary  Guarantor fully executed and notarized
Mortgages (each a "Closing Date Mortgage" and,  collectively,  the "Closing Date
Mortgages"),  in proper  form for  recording  in all  appropriate  places in all
applicable  jurisdictions,  encumbering  each  Real  Property  Asset  listed  in
Schedule 4.1G annexed  hereto (each a "Closing  Date  Mortgaged  Property"  and,
collectively, the "Closing Date Mortgaged Properties").

        H. Security Interests in Personal and Mixed Property.  To the extent not
otherwise  satisfied pursuant to subsection 4.1G, each Agent shall have received
evidence  satisfactory to it that Company and Subsidiary  Guarantors  shall have
taken or caused to be taken all such  actions,  executed and delivered or caused
to be executed and delivered all such agreements, documents and instruments, and
made or caused to be made all such filings and recordings (other than the filing
or recording of items  described in clauses (iii),  (iv) and (v) below) that may
be  necessary  or, in the opinion of Agents,  reasonably  desirable  in order to
create in favor of Administrative Agent, for the benefit of Lenders, a valid and
(upon such filing and recording)  perfected First Priority  security interest in
the personal and mixed  property  Collateral.  Such  actions  shall  include the
following:

                                       81

<PAGE>

                  (i) Schedules to Collateral  Documents.  Delivery to Agents of
        accurate and  complete  schedules  to all of the  applicable  Collateral
        Documents.

                  (ii)  Stock   Certificates   and   Instruments.   Delivery  to
        Administrative  Agent in New York, New York of (a)  certificates  (which
        certificates  shall be accompanied by irrevocable  undated stock powers,
        duly endorsed in blank and otherwise  satisfactory in form and substance
        to Agents)  representing all certificated capital stock pledged pursuant
        to the Company  Pledge  Agreement and the Subsidiary  Pledge  Agreements
        which is directly  held by the Company or the  applicable  Subsidiary as
        owner thereof, registered in the name of such Person on the books of the
        issuer  thereof and not held  through any  securities  intermediary  (as
        defined in Section 8-102 of the Uniform  Commercial Code as currently in
        effect in the State of New York) and (b) all  promissory  notes or other
        instruments (duly endorsed, where appropriate,  in a manner satisfactory
        to Agents) evidencing any Collateral;

                  (iii) Lien Searches and UCC Termination  Statements.  Delivery
        to  Administrative  Agent of (a) the  results of a recent  search,  by a
        Person satisfactory to Agents, of all effective UCC financing statements
        and fixture filings and all judgment and tax lien filings which may have
        been made with  respect to any  personal  or mixed  property of any Loan
        Party,  together  with  copies  of all such  filings  disclosed  by such
        search,  and  (b)  UCC  termination  statements  duly  executed  by  all
        applicable Persons for filing in all applicable  jurisdictions as may be
        necessary to terminate any effective UCC financing statements or fixture
        filings  disclosed  in  such  search  (other  than  any  such  financing
        statements  or fixture  filings in respect of Liens  permitted to remain
        outstanding pursuant to the terms of this Agreement).

                  (iv) UCC Financing Statements and Fixture Filings. Delivery to
        Administrative Agent of UCC financing statements and, where appropriate,
        fixture  filings,  duly  executed  by each  applicable  Loan  Party with
        respect  to all  personal  and mixed  property  Collateral  of such Loan
        Party,  for filing in all  jurisdictions  as may be necessary or, in the
        opinion  of  Agents,   reasonably  desirable  to  perfect  the  security
        interests  created  in  such  Collateral   pursuant  to  the  Collateral
        Documents;

                  (v) PTO Cover  Sheets,  Etc.  Delivery  to Agents of all cover
        sheets or other  documents or instruments  required to be filed with the
        PTO in order to create or perfect Liens in respect of any IP Collateral;

                  (vi) Opinions of Local Counsel.  At the reasonable  request of
        any Agent,  delivery  to all  Agents of an  opinion  of  counsel  (which
        counsel shall be reasonably  satisfactory  to each Agent) under the laws
        of each jurisdiction in which any Loan Party or any material personal or
        mixed  property  Collateral  is located with respect to the creation and
        perfection of the security interests in favor of Administrative Agent in
        such  Collateral  and such other  matters  governed  by the laws of such
        jurisdiction   regarding  such  security  interests  as  any  Agent  may
        reasonably  request,  in  each  case in form  and  substance  reasonably
        satisfactory to each Agent.

                                       82

<PAGE>

        I.  Financial  Statements;  Pro Forma  Balance  Sheet.  On or before the
Closing Date,  Lenders shall have received from Company (i) unaudited  financial
statements of Company and its  Subsidiaries for each fiscal quarter ending after
June 30, 1998, and for each month thereafter for which financial statements were
prepared in the ordinary  course  consisting  of a balance sheet and the related
consolidated  statements of income,  and (with  respect to quarterly  statements
only),  statements of cash flows for the periods then ending,  all in reasonable
detail and certified by the chief financial  officer of Company that they fairly
present the financial  condition of Company and its Subsidiaries as at the dates
indicated  and the  results  of their  operations  and their  cash flows for the
periods  indicated,  subject to changes resulting from audit and normal year-end
adjustments  and (ii) pro forma  consolidated  balance sheets of Company and its
Subsidiaries  as at June 30, 1998,  prepared in accordance with GAAP (subject to
such changes as  reflected in the report on Form 8- K filed with the  Securities
and Exchange Commission in connection with the acquisition of BCL and except for
the absence of footnotes) and reflecting the  consummation  of the  Acquisition,
the  related  financings  and the other  transactions  contemplated  by the Loan
Documents  and the Related  Agreements,  all of the  foregoing to be in form and
substance satisfactory to each Agent.

        J.  Solvency  Assurances.  On the  Closing  Date,  each Agent shall have
received a Financial Condition Certificate dated the Closing Date, substantially
in the form of Exhibit XIX annexed hereto and with appropriate  attachments,  in
each case  demonstrating  that,  after giving effect to the  consummation of the
Acquisition the related  financings and the other  transactions  contemplated by
the Loan Documents and the Related Agreements, Company will be Solvent.

        K.  Opinions of Counsel to Loan Parties.  Arranger,  each Agent and each
Lender shall have received  originally  executed copies of one or more favorable
written  opinions of Cooley Godward LLP,  counsel for Loan Parties,  in form and
substance reasonably satisfactory to Administrative Agent and its counsel, dated
as of the  Closing  Date and  setting  forth  substantially  the  matters in the
opinions set forth in Exhibit IX annexed  hereto and as to such other matters as
Agents acting on behalf of Lenders may reasonably request.

        L. Opinion of Agents'  Counsel.  Lenders shall have received  originally
executed copies of one or more favorable  written  opinions of O'Melveny & Myers
LLP,  counsel to Agents,  substantially in the form of Exhibit X annexed hereto,
and as to such  other  matters  as  Agents  acting  on  behalf  of  Lenders  may
reasonably request.

        M.  Fees.  Company  shall  have paid to  Administrative  Agent or at the
direction of Syndication  Agent,  for distribution (as appropriate) to Arranger,
Agents  and  Lenders,  the fees  payable  on the  Closing  Date  referred  to in
subsection 2.3.

        N.  Representations and Warranties;  Performance of Agreements.  Company
shall have delivered to each Agent Officer's Certificates, in form and substance
satisfactory  to  each  Agent,  to  the  effect  that  the  representations  and
warranties in Section 5 hereof are true and correct in all material respects and
omit no material facts which would cause such  representation and warranty to be
materially  misleading  in the  context  in  which  it was made on and as of the
Closing  Date to the same  extent as though  made on and as of that date (or, to

                                       83

<PAGE>

the extent such representations and warranties specifically relate to an earlier
date,  that such  representations  and  warranties  were true and correct in all
material  respects  and  omitted  no  material  facts  which  would  cause  such
representation and warranty to have been materially misleading in the context in
which it was made on and as of such earlier  date) and that  Company  shall have
performed in all material  respects all  agreements and satisfied all conditions
which this  Agreement  provides shall be performed or satisfied by Company on or
before the  Closing  Date,  except as  otherwise  disclosed  to and agreed to in
writing by Agents and Requisite Lenders.

        O. No  Disruption of Financial  and Capital  Markets.  Since the date of
this Agreement there shall have been no Market  Disruption  Event which would be
expected  to  materially  adversely  affect the  syndication  of the  Loans,  as
determined by Arranger in its reasonable discretion.

        P. Ratings.  Lenders shall have received ratings for the Loans from each
of S&P and Moody's and a private placement number for the Loans from S&P.

4.2     Conditions to All Loans.

                  The  obligations of Lenders to make Loans on each Funding Date
are subject to the following further conditions precedent:

                  A.  Administrative  Agent  shall  have  received  before  that
Funding  Date,  in  accordance  with  the  provisions  of  subsection  2.1B,  an
originally  executed  Notice  of  Borrowing,  in each  case  signed by the chief
executive  officer,  the  chief  financial  officer,  the  principal  accounting
officer,  the treasurer or the controller of Company or by any executive officer
of  Company  designated  by any of the  above-described  officers  on  behalf of
Company in a writing delivered to Administrative Agent.

                  B.  As of that Funding Date:

                  (i) The representations and warranties contained herein and in
        the other  Loan  Documents  shall be true and  correct  in all  material
        respects  and shall  omit no  material  facts  which  would  cause  such
        representation or warranty to be materially misleading in the context in
        which it was made on and as of that  Funding  Date to the same extent as
        though  made  on  and  as of  that  date,  except  to  the  extent  such
        representations  and warranties  specifically relate to an earlier date,
        in which case such  representations  and warranties shall have been true
        and correct in all material  respects and shall have omitted no material
        facts  which would  cause such  representation  or warranty to have been
        materially  misleading  in the context in which it was made on and as of
        such earlier date;

                  (ii) No event shall have  occurred and be  continuing or would
        result  from the  consummation  of the  borrowing  contemplated  by such
        Notice of  Borrowing  that  would  constitute  an Event of  Default or a
        Potential Event of Default;

                                       84

<PAGE>

                  (iii) Each Loan Party  shall have  performed  in all  material
        respects  all  agreements  and  satisfied  all  conditions   which  this
        Agreement  provides  shall be  performed  or  satisfied by it (except as
        otherwise  disclosed to and agreed to by Requisite Lenders) on or before
        that Funding Date; and

                  (iv) No order, judgment or decree of any court,  arbitrator or
        governmental  authority  shall  purport to enjoin or restrain any Lender
        from making the Loans to be made by it on that Funding Date.

4.3     Conditions to Letters of Credit.

                  The issuance of any Letter of Credit hereunder (whether or not
the  applicable  Issuing  Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:

        A. On or before the date of  issuance  of the  initial  Letter of Credit
pursuant to this Agreement, the initial Term Loans shall have been made.

        B.  On or  before  the  date  of  issuance  of such  Letter  of  Credit,
Administrative  Agent shall have received,  in accordance with the provisions of
subsection  3.1B(i),  an  originally  executed  Notice of  Issuance of Letter of
Credit, in each case signed by the chief executive officer,  the chief financial
officer,  the principal  accounting officer,  the treasurer or the controller of
Company  or by  any  executive  officer  of  Company  designated  by  any of the
above-described  officers  on  behalf  of  Company  in a  writing  delivered  to
Administrative   Agent,   together  with  all  other  information  specified  in
subsection  3.1B(i) and such other  documents or  information  as the applicable
Issuing  Lender may reasonably  require in connection  with the issuance of such
Letter of Credit.

        C. On the date of  issuance  of such  Letter of Credit,  all  conditions
precedent  described in subsection 4.2B shall be satisfied to the same extent as
if the  issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.

Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES

                  In  order to  induce  Agents  and  Lenders  to enter  into and
perform their  obligations under this Agreement and to make the Loans, to induce
Issuing  Lenders  to issue  Letters  of Credit  and to induce  other  Lenders to
purchase participations  therein,  Company represents and warrants to each Agent
and each Lender, on the date of this Agreement,  on each Funding Date and on the
date of issuance of each Letter of Credit,  that the  following  statements  are
true  and  correct   and  omit  no   material   facts  which  would  cause  such
representation  or warranty to be materially  misleading in the context in which
it was made:

                                       85

<PAGE>

5.1     Organization,   Powers,  Qualification,   Good  Standing,  Business  and
        Subsidiaries.

        A.  Organization  and  Powers.  Each Loan  Party is a  corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto.  Each
Loan Party has all  requisite  corporate  power and authority to own and operate
its properties,  to carry on its business as now conducted and as proposed to be
conducted,  to enter into the Loan Documents and Related  Agreements to which it
is a party and to carry out the transactions contemplated thereby.

        B.  Qualification and Good Standing.  Each Loan Party is qualified to do
business  and is in good  standing  in every  jurisdiction  where its assets are
located and wherever necessary to carry out its business and operations,  except
in  jurisdictions  where the failure to be so qualified or in good  standing has
not had and would not reasonably be expected to have a Material Adverse Effect.

        C. Conduct of Business. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.12.

        D.  Subsidiaries.  All of the  Subsidiaries of Company as of the Closing
Date are identified in Schedule 5.1 annexed hereto,  as said Schedule 5.1 may be
supplemented from time to time pursuant to the provisions of subsection 6.1(xv).
The capital stock of each of the Subsidiaries of Company  identified in Schedule
5.1 annexed hereto (as so  supplemented)  is duly  authorized,  validly  issued,
fully paid and nonassessable  and none of such capital stock constitutes  Margin
Stock.  Each of the  Subsidiaries of Company  identified in Schedule 5.1 annexed
hereto (as so  supplemented)  is duly  organized,  validly  existing and in good
standing  under the laws of its respective  jurisdiction  of  incorporation  set
forth  therein,  has all  requisite  power and  authority to own and operate its
properties  and to carry on its business as now  conducted and as proposed to be
conducted,  and is  qualified  to do  business  and in good  standing  in  every
jurisdiction  where its assets are located and  wherever  necessary to carry out
its  business  and  operations,  in each  case  except  where  failure  to be so
qualified  or in good standing or a lack of such power and authority has not had
and would not reasonably be expected to have a Material Adverse Effect. Schedule
5.1 annexed hereto (as so supplemented)  correctly sets forth, as of the Closing
Date, the ownership  interest of Company and each of its Subsidiaries in each of
the Subsidiaries of Company identified therein.

5.2     Authorization of Borrowing, etc.

        A. Authorization of Borrowing.  The execution,  delivery and performance
of the Loan Documents and the Related  Agreements  have been duly  authorized by
all necessary action on the part of each Loan Party that is a party thereto.

        B. No Conflict. The execution,  delivery and performance by Loan Parties
of the Loan  Documents and the Related  Agreements to which they are parties and
the consummation of the transactions contemplated by the Loan Documents and such
Related  Agreements  do  not  (i)  violate  any  provision  of  any  law  or any
governmental  rule or regulation

                                       86

<PAGE>

applicable to such Loan Party,  the Certificate or Articles of  Incorporation or
Bylaws or other  applicable  organizational  documents of such Loan Party or any
order,  judgment or decree of any court or other agency of government binding on
such Loan Party,  (ii) conflict with,  result in a breach of or constitute (with
due notice or lapse of time or both) a default under any Contractual  Obligation
of Company or any of its  Subsidiaries,  (iii) result in or require the creation
or imposition of any Lien upon any of the properties or assets of Company or any
of its  Subsidiaries  (other  than  any  Liens  created  under  any of the  Loan
Documents in favor of Administrative Agent on behalf of Lenders) or (iv) require
any approval of  stockholders or any approval or consent of any Person under any
Contractual  Obligation of Company or any of its  Subsidiaries,  except for such
approvals  or consents  which will be obtained on or before the Closing Date and
those disclosed on Schedule 5.2B hereto.

        C.  Governmental  Consents.  The execution,  delivery and performance by
Loan Parties of the Loan Documents and the Related  Agreements to which they are
parties  and the  consummation  of the  transactions  contemplated  by the  Loan
Documents  and  such  Related  Agreements  do  not  and  will  not  require  any
registration  with,  consent or approval  of, or notice to, or other  action to,
with or by, any federal,  state or other  governmental  authority or  regulatory
body,  except for (i) filings and  recordings  required in  connection  with the
perfection of security  interests  granted pursuant to the Loan Documents,  (ii)
registrations,  consents,  approvals,  notices  or other  actions  set  forth on
Schedule  5.2C  annexed  hereto and (iii)  registrations,  consents,  approvals,
notices or other  actions the absence of which would not  reasonably be expected
to have a Material Adverse Effect.

        D. Binding Obligation. Each of the Loan Documents and Related Agreements
has been duly  executed and delivered by each Loan Party that is a party thereto
and is the legally valid and binding obligation of such Loan Party,  enforceable
against such Loan Party in accordance with its respective  terms,  except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting  creditors' rights generally or by equitable  principles
relating to enforceability.

5.3     Financial Condition.

                  Company  has  heretofore  delivered  to  Syndication  Agent on
behalf of Lenders, at Lenders' request,  the following financial  statements and
information:  (i) the  audited  consolidated  balance  sheets of Company and its
Subsidiaries  for the Fiscal Years ended June 30, 1995,  1996, 1997 and 1998 and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows of Company and its  Subsidiaries  for the Fiscal  Years then  ended,  (ii)
audited  consolidated  balance sheets of BCL for the fiscal years ended December
31, 1996 and 1997 and the related  consolidated  statements of income of BCL for
the fiscal years then ended and (iii) the unaudited  consolidated balance sheets
of BCL as at June 30, 1998 and the related unaudited consolidated  statements of
income of BCL for the six months then ended.  All such  statements were prepared
in  conformity  with GAAP (subject to such changes as reflected in the report on
Form 8-K filed with the  Securities and Exchange  Commission in connection  with
the  acquisition of BCL and except,  in the case of clauses (ii) and (iii),  for
the absence of footnotes)  and fairly  present,  in all material  respects,  the
financial  position (on a consolidated  basis) of the entities described in such
financial  statements  as at

                                       87

<PAGE>

the respective  dates thereof and the results of operations and cash flows (on a
consolidated  basis) of the entities  described  therein for each of the periods
then ended, subject, in the case of any such unaudited financial statements,  to
changes resulting from audit and normal year-end adjustments.

5.4     No Material Adverse Change; No Restricted Junior Payments.

                  Since June 30, 1998, no event or change (including  pending or
overtly threatened litigation,  proceedings or investigations) has occurred that
has caused or would  reasonably be expected to have a Material  Adverse  Effect.
Neither Company nor any of its Subsidiaries has directly or indirectly declared,
ordered,  paid or made,  or set apart any sum or property  for,  any  Restricted
Junior Payment or agreed to do so except as permitted by subsection 7.5.

5.5     Title to Properties; Liens; Real Property.

                  A.  Title  to  Properties;  Liens.  Each  Loan  Party  and its
Subsidiaries  have (i) good,  sufficient  and legal title to (in the case of fee
interests in real property),  (ii) valid leasehold  interests in (in the case of
leasehold interests in real or personal property) or (iii) good title to (in the
case of all other personal  property),  their  respective  properties and assets
constituting Collateral and reflected in the financial statements referred to in
subsection 5.3 or in the most recent financial  statements delivered pursuant to
subsection  6.1,  in each case  except for assets  disposed of since the date of
such  financial  statements  in the ordinary  course of business or as otherwise
permitted under subsection 7.7. Except as permitted by this Agreement,  all such
properties  and  assets  are free and  clear of  Liens  in  excess  of  $100,000
individually and $500,000 in the aggregate.

                  B. Real Property. As of the Closing Date, Schedule 5.5 annexed
hereto contains a true, accurate and complete list of (i) all fee properties and
(ii)  all  leases,  subleases  or  assignments  of  leases  (together  with  all
amendments,  modifications,  supplements, renewals or extensions of any thereof)
affecting each Real Property Asset of any Loan Party, regardless of whether such
Loan Party is the  landlord  or tenant  (whether  directly  or as an assignee or
successor in interest) under such lease, sublease or assignment.

                                       88

<PAGE>

5.6     Litigation; Adverse Facts.

                  Except as set forth in Schedule 5.6 annexed hereto,  there are
no actions,  suits,  proceedings,  arbitrations or  governmental  investigations
(whether  or  not  purportedly  on  behalf  of  any  Loan  Party  or  any of its
Subsidiaries) at law or in equity, or before or by any federal, state, municipal
or  other  governmental  department,   commission,   board,  bureau,  agency  or
instrumentality,  domestic or foreign (including any Environmental  Claims) that
are  pending or, to the  knowledge  of Company,  overtly  threatened  against or
affecting any Loan Party or any of its  Subsidiaries or any property of any Loan
Party or any of its  Subsidiaries  and that,  individually  or in the aggregate,
would  reasonably be expected to result in a Material  Adverse  Effect.  No Loan
Party nor any of its  Subsidiaries  (i) is in violation of any  applicable  laws
(including  Environmental Laws) that would reasonably be expected to result in a
Material Adverse Effect, or (ii) is subject to or in default with respect to any
final judgments, writs, injunctions,  decrees, rules or regulations of any court
or any federal, state, municipal or other governmental  department,  commission,
board,  bureau,  agency or  instrumentality,  domestic  or  foreign,  that would
reasonably be expected to result in a Material Adverse Effect.

5.7     Payment of Taxes.

                  Except to the extent  permitted  by  subsection  6.3,  all tax
returns and reports of each Loan Party and its Subsidiaries required to be filed
by any of them have been timely  filed,  and all taxes shown on such tax returns
to be due and payable and all assessments,  fees and other governmental  charges
upon such Loan Party and its Subsidiaries and upon their respective  properties,
assets,  income,  businesses and franchises  which are due and payable have been
paid when due and  payable.  No Loan Party knows of any  material  proposed  tax
assessment  against  it or any of its  Subsidiaries  which is due and not  being
actively  contested by it or such  Subsidiary  in good faith and by  appropriate
proceedings;  provided that such reserves or other  appropriate  provisions,  if
any,  as shall be  required  in  conformity  with GAAP  shall  have been made or
provided therefor.

5.8     Performance  of  Agreements;  Materially  Adverse  Agreements;  Material
        Contracts.

                  A. No Loan Party nor any of its  Subsidiaries is in default in
the performance,  observance or fulfillment of any of the obligations, covenants
or conditions contained in any of its Contractual Obligations,  and no condition
exists  that,  with the  giving of  notice  or the lapse of time or both,  would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults,  if any, would not with  reasonable  likelihood have a
Material Adverse Effect.

                  B. No Loan Party nor any of its  Subsidiaries is a party to or
is otherwise  subject to any  agreements or  instruments or any charter or other
internal restrictions which would reasonably be expected to result in a Material
Adverse Effect.

                  C. Schedule 5.8 contains a true,  correct and complete list of
all the Material

                                       89

<PAGE>

Contracts in effect on the Closing  Date.  Except as described on Schedule  5.8,
all such  Material  Contracts  are in full  force  and  effect  and no  material
defaults on the part of Company or its  Subsidiaries  currently exist thereunder
and to Company's  knowledge,  no material  defaults on the part of other parties
thereto currently exist thereunder.

5.9     Governmental Regulation.

                  No  Loan  Party  nor any of its  Subsidiaries  is  subject  to
regulation  under the Public  Utility  Holding  Company Act of 1935, the Federal
Power Act, the Interstate  Commerce Act or the Investment Company Act of 1940 or
under any other  federal  or state  statute  or  regulation  which may limit its
ability to incur  Indebtedness or which may otherwise  render all or any portion
of the Obligations unenforceable.

5.10    Securities Activities.

                  A.  No  Loan  Party  nor any of its  Subsidiaries  is  engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.

                  B.  Following  application  of the proceeds of each Loan,  not
more than 25% of the value of the assets  (either of Company  only or of Company
and its  Subsidiaries  on a  consolidated  basis)  subject to the  provisions of
subsection 7.2 or 7.7 or subject to any  restriction  contained in any agreement
or  instrument  between  Company and any Lender or any  Affiliate  of any Lender
relating to Indebtedness  and within the scope of subsection 8.2, will be Margin
Stock.

5.11    Employee Benefit Plans.

                  A. Each Loan  Party and each of its  Subsidiaries  and each of
their respective ERISA Affiliates is in material  compliance with all applicable
provisions  and   requirements  of  ERISA  and  the  regulations  and  published
interpretations  thereunder with respect to each Employee  Benefit Plan, and has
materially  performed all its obligations under each Employee Benefit Plan. Each
Employee  Benefit Plan which is intended to qualify under Section  401(a) of the
Internal Revenue Code has not been  disqualified by the Internal Revenue Service
and is not currently under any audit,  investigation  or other inspection by the
Internal  Revenue  Service  which  could  lead to the  disqualification  of such
Employee Benefit Plan.

                  B. No ERISA Event has  occurred or is  reasonably  expected to
occur.

                  C. Except to the extent  required  under  Section 4980B of the
Internal Revenue Code or except as set forth in Schedule 5.11 annexed hereto, no
Employee Benefit Plan provides health or welfare benefits  (through the purchase
of insurance or otherwise) for any retired or former employee of Company, any of
its Subsidiaries or any of their respective ERISA Affiliates.

                                       90

<PAGE>

                  D. As of the most recent  valuation date for any Pension Plan,
the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA),  individually  or in the aggregate for all Pension Plans  (excluding for
purposes of such  computation  any Pension  Plans with  respect to which  assets
exceed benefit liabilities), does not exceed $5,000,000.

                  E. As of the most recent valuation date for each Multiemployer
Plan for which the  actuarial  report is available,  the potential  liability of
Company,  its  Subsidiaries and their respective ERISA Affiliates for a complete
withdrawal from such  Multiemployer  Plan (within the meaning of Section 4203 of
ERISA),  when aggregated with such potential liability for a complete withdrawal
from all Multiemployer Plans, based on information available pursuant to Section
4221(e) of ERISA, does not exceed $3,000,000.

5.12    Certain Fees.

                  Except  as set  forth on  Schedule  5.12  annexed  hereto,  no
broker's or finder's  fee or  commission  will be payable  with  respect to this
Agreement or any of the  transactions  contemplated  hereby,  and Company hereby
indemnifies  Agents  and  Lenders  against,  and  agrees  that it will hold such
Persons  harmless from, any claim,  demand or liability for any such broker's or
finder's fees alleged to have been incurred in connection  herewith or therewith
and any expenses  (including  reasonable  fees,  expenses and  disbursements  of
counsel) arising in connection with any such claim, demand or liability.

5.13    Environmental Protection.

                  Except as set forth on Schedule 5.13 annexed hereto:

                  (i) no Loan Party nor any of its Subsidiaries nor any of their
        respective  Facilities  or  operations  are  subject to any  outstanding
        written order,  consent  decree or settlement  agreement with any Person
        relating to (a) any Environmental  Law, (b) any Environmental  Claim, or
        (c) any Hazardous  Materials  Activity that would reasonably be expected
        to have a Material Adverse Effect;

                  (ii) no Loan Party nor any of its  Subsidiaries  has  received
        any letter or other written request for information under Section 104 of
        the Comprehensive  Environmental Response,  Compensation,  and Liability
        Act (42 U.S.C. ss. 9604) or any comparable state law;

                  (iii)  there  are and to  Company's  knowledge,  have  been no
        conditions,  occurrences,  or Hazardous Materials Activities which could
        reasonably  be  expected  to form the  basis of an  Environmental  Claim
        against any Loan Party or any of its Subsidiaries  that could reasonably
        be expected to have a Material Adverse Effect;

                  (iv)  no  Loan  Party  nor  any of its  Subsidiaries  nor,  to
        Company's   knowledge,   any  predecessor  of  Company  or  any  of  its
        Subsidiaries has filed any notice under any Environmental Law indicating
        past or present treatment of Hazardous Materials at any

                                       91

<PAGE>

        Facility;

                  (v)  Commencing  at least one year prior to the Closing  Date,
        Company has maintained an  environmental  management  system for its and
        each of its manufacturing  Subsidiaries'  operations that demonstrates a
        commitment to environmental  compliance and includes  procedures for (a)
        preparing and updating written  compliance  manuals  covering  pertinent
        regulatory areas, (b) tracking changes in applicable  Environmental Laws
        and modifying operations to comply with new requirements thereunder, (c)
        training employees to comply with applicable environmental  requirements
        and updating such training as necessary, (d) performing regular internal
        compliance  audits  of each  Facility  and  ensuring  correction  of any
        incidents  of  non-compliance  detected  by means of such audits and (e)
        reviewing the compliance  status of off-site waste disposal  facilities;
        and

                  (vi)  compliance  with all  applicable  current or  reasonably
        foreseeable future requirements  pursuant to or under Environmental Laws
        will not, with reasonable  likelihood,  give rise to a Material  Adverse
        Effect.

                  Notwithstanding  anything  in  this  subsection  5.13  to  the
contrary,  no event or condition  has  occurred or is occurring  with respect to
Company  or any of its  Subsidiaries  relating  to any  Environmental  Law,  any
Release of Hazardous Materials,  or any Hazardous Materials Activity,  including
any matter  disclosed on Schedule  5.13 annexed  hereto,  which has had or would
reasonably be expected to have a Material Adverse Effect.

5.14    Employee Matters.

                  There is no strike or work stoppage in existence or threatened
involving  any Loan Party or any of its  Subsidiaries  that would  reasonably be
expected to have a Material Adverse Effect.

                                       92

<PAGE>

5.15    Solvency.

                  Each Loan Party is and, upon the incurrence of any Obligations
by such Loan Party on any date on which this  representation  is made,  will be,
Solvent.

5.16    Matters Relating to Collateral.

        A.  Creation,  Perfection  and  Priority  of Liens.  The  execution  and
delivery of the  Collateral  Documents by Loan  Parties,  together  with (i) the
actions taken on or prior to the date hereof pursuant to subsections 4.1G, 4.1H,
6.8 and 6.9 and  (ii)  the  delivery  to  Administrative  Agent  of any  Pledged
Collateral  not delivered to  Administrative  Agent at the time of execution and
delivery of the applicable  Collateral Document (all of which Pledged Collateral
has been so delivered) are effective to create in favor of Administrative  Agent
for the benefit of Lenders,  as security for the respective Secured  Obligations
(as defined in the applicable Collateral Document in respect of any Collateral),
a valid and perfected  First  Priority Lien on  substantially  all (based on the
fair market value thereof) of the Collateral,  and all filings and other actions
necessary or  reasonably  desirable to perfect and maintain the  perfection  and
First  Priority  status of such Liens have been duly made or taken and remain in
full force and  effect,  other than the filing of any UCC  financing  statements
delivered  to  Administrative  Agent  for  filing  (but not yet  filed)  and the
periodic  filing of UCC  continuation  statements  in respect  of UCC  financing
statements filed by or on behalf of  Administrative  Agent. For the avoidance of
doubt,  Loan  Parties  shall not be  obligated  to grant  security  interests to
Administrative  Agent for the  benefit  of Lenders  and  Agents in any  Excluded
Collateral  or in the proceeds  thereof  (except to the extent such proceeds are
Cash).

        B.  Governmental  Authorizations.  No  authorization,  approval or other
action  by,  and no notice to or filing  with,  any  governmental  authority  or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of  Administrative  Agent pursuant
to any of the Collateral  Documents or (ii) the exercise by Administrative Agent
of any rights or remedies  in respect of any  Collateral  (whether  specifically
granted or created  pursuant to any of the  Collateral  Documents  or created or
provided for by applicable law),  except for filings or recordings  contemplated
by  subsection  5.16A and  except as may be  required,  in  connection  with the
exercise  of remedies  in  connection  with  interests  in real  property or the
disposition of any Pledged Collateral,  by laws generally affecting the offering
and sale of securities,  including laws of  jurisdictions  other than the United
States of America affecting foreclosure of security interests in securities.

        C. Absence of Third-Party Filings. Except such as may have been filed in
favor of  Administrative  Agent as contemplated by subsection  5.16A and such as
may have been filed in connection with Liens permitted under subsection 7.2, (i)
no effective UCC financing statement, fixture filing or other instrument similar
in effect  covering all or any part of the  Collateral  authorized by Company or
any other Loan Party is on file in any  filing or  recording  office and (ii) no
effective filing covering all or any part of the IP Collateral is on file in the
PTO.

                                       93

<PAGE>

        D. Margin Regulations.  The pledge of the Pledged Collateral pursuant to
the Collateral  Documents does not violate  Regulation T, U or X of the Board of
Governors of the Federal Reserve System.

        E. Information Regarding Collateral. All written information supplied to
Administrative  Agent by or on behalf of any Loan Party  with  respect to any of
the  Collateral  (in each case taken as a whole with  respect to any  particular
Collateral) is accurate in all material  respects and does not omit any material
facts necessary in order to make the statements contained therein not misleading
in light of the circumstances in which the same were made.

5.17    Related Agreements.

                  A. Delivery of Related Agreements.  Company  has  delivered to
each Agent complete and correct copies of each  Related  Agreement  and  of  all
exhibits and schedules thereto.

                  B. Seller's Warranties. To the knowledge of Company and except
to the extent otherwise set forth herein or in the schedules hereto, each of the
representations  and  warranties  given by Seller to Company in the  Acquisition
Agreement is true and correct in all material respects as of the date hereof (or
as of any earlier date to which such  representation  and warranty  specifically
relates) and will be true and correct in all material respects as of the Closing
Date (or as of such earlier  date,  as the case may be), in each case subject to
the  qualifications  set forth in the  schedules to the  Acquisition  Agreement;
provided that Lenders  shall not be entitled to make any claim  against  Company
(or  utilize  the  breach  of this  subsection  5.17B  as a basis of an Event of
Default  under  subsection  8.4)  based on the  failure of a  representation  or
warranty of Seller  incorporated by this subsection 5.17B to be true and correct
in all material  respects  except to the extent (a) such claims in the aggregate
exceed the indemnification threshold amount of $7,500,000 set out in Section 8.3
of the  Acquisition  Agreement  and (b) Company is  proceeding  in good faith to
obtain  indemnification  or other  compensation  therefor  from Seller under the
Acquisition Agreement.

                  C. Warranties of Company.  Subject to the  qualifications  set
forth therein,  each of the  representations  and warranties given by Company to
Seller in the Acquisition Agreement is true and correct in all material respects
as of the date hereof and will be true and correct in all  material  respects as
of the Closing Date.

                  D.  Survival.  Notwithstanding  anything  in  the  Acquisition
Agreement to the contrary,  the  representations  and  warranties of Company set
forth in  subsections  5.17B  and  5.17C  shall,  solely  for  purposes  of this
Agreement, survive the Closing Date for the benefit of Agents and Lenders.

                                       94

<PAGE>

5.18    Disclosure.

                  No  representation or warranty of any Loan Party or any of its
Subsidiaries contained in the Confidential Information Memorandum or in any Loan
Document or Related  Agreement or in any other document,  certificate or written
statement  furnished  to  Lenders  by or on  behalf  of  Company  or  any of its
Subsidiaries  for use in connection with the  transactions  contemplated by this
Agreement  contains  any untrue  statement  of a  material  fact in light of the
circumstances.  Any projections and pro forma financial information contained in
such materials are based upon good faith estimates and  assumptions  believed by
Company to be reasonable  at the time made, it being  recognized by Lenders that
such  projections  as to  future  events  are not to be viewed as facts and that
actual results during the period or periods covered by any such  projections may
differ from the projected results.

5.19    Intellectual Property Rights.

        Company and its Subsidiaries own, license or otherwise have the right to
use all Intellectual  Property that is material and reasonably necessary for the
operation  of  the  business  of  Company  and  its  Subsidiaries  as  currently
conducted,  taken as a whole.  Each Patent,  Trademark and registered  copyright
owned by  Company  or any such  Subsidiary  as of the  Closing  Date is  listed,
together with applicable federal,  state or foreign application and registration
numbers,  on Schedule  5.19.  No third party has notified  Company or any of its
Subsidiaries    that   Company   or   any   such   Subsidiary   is   infringing,
misappropriating,  breaching or otherwise  violating any unexpired  Intellectual
Property rights owned by such third party in the current conduct of Company's or
such Subsidiary's  business,  nor is any claim now pending or overtly threatened
to such effect, the effect of which  infringement,  misappropriation,  breach or
other violation,  or claim thereof would with reasonable  likelihood result in a
Material  Adverse  Effect.  Except as set forth on Schedule  5.19,  to Company's
knowledge,  there  is  no  infringement,   misappropriation,   breach  or  other
violation,  or claim  thereof  by others of any  Intellectual  Property  that is
owned, licensed or that Company or any Subsidiary otherwise has the right to use
and that is material and reasonably  necessary for the operation of the business
of Company and its Subsidiaries as currently conducted, taken as a whole.

Section 6. COMPANY'S AFFIRMATIVE COVENANTS

                  Company  covenants  and  agrees  that,  so  long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the  Loans and other  Obligations  and the  cancellation  or  expiration  of all
Letters of Credit,  unless  Requisite  Lenders shall have otherwise  given prior
written  consent in  accordance  with  subsection  10.6 to  amendment  or waiver
thereof,  Company shall  perform,  and shall cause each of its  Subsidiaries  to
perform, all covenants in this Section 6.

                                       95

<PAGE>

6.1     Financial Statements and Other Reports.

                  A. Company will maintain,  and cause each of its  Subsidiaries
to maintain,  a system of accounting  established and administered in accordance
with sound business practices to permit  preparation of financial  statements in
conformity with GAAP. Company will deliver to each Agent and Lenders:

                  (i) Monthly Financials:  as soon as available and in any event
        within 20 days after the end of each month ending after the Closing Date
        until  September  30, 1999,  the  consolidated  statements  of income of
        Company and its  Subsidiaries for such month and for the period from the
        beginning  of the then  current  Fiscal Year to the end of such month to
        the extent prepared on a monthly basis, all in reasonable  detail and in
        form  consistent  with  previously   delivered  monthly  statements  and
        certified by the chief financial officer,  principal accounting officer,
        treasurer  or  controller  of Company that they fairly  present,  in all
        material   respects,   the  financial   condition  of  Company  and  its
        Subsidiaries  as at  the  dates  indicated  and  the  results  of  their
        operations for the periods indicated,  subject to changes resulting from
        audit and normal year-end adjustments;

                  (ii)  Quarterly  Financials:  as soon as available  and in any
        event within 45 days after the end of the first three Fiscal Quarters of
        each Fiscal Year, (a) the consolidated balance sheets of Company and its
        Subsidiaries  as at the  end of such  Fiscal  Quarter  and  the  related
        consolidated  statements of income of Company and its  Subsidiaries  for
        such Fiscal  Quarter and for the period from the  beginning  of the then
        current Fiscal Year to the end of such Fiscal Quarter,  setting forth in
        each  case  in  comparative  form  the  corresponding  figures  for  the
        corresponding  periods of the previous Fiscal Year and the corresponding
        figures from the  Financial  Plan for the current  Fiscal  Year,  all in
        reasonable  detail  and in form  consistent  with  previously  delivered
        quarterly  statements  and  certified  by the chief  financial  officer,
        principal  accounting  officer,  treasurer or controller of Company that
        they fairly present,  in all material respects,  the financial condition
        of  Company  and its  Subsidiaries  as at the  dates  indicated  and the
        results  of their  operations  and  their  cash  flows  for the  periods
        indicated,  subject to changes  resulting from audit and normal year-end
        adjustments,  and (b) a narrative  report  describing  the operations of
        Company and its  Subsidiaries  in the form prepared for  presentation to
        senior  management  for such Fiscal  Quarter and for the period from the
        beginning  of the then  current  Fiscal  Year to the end of such  Fiscal
        Quarter;  provided that, so long as Company files  quarterly  reports on
        Form 10-Q with the Securities and Exchange  Commission,  the delivery of
        such Form Q for a Fiscal Quarter shall satisfy the  requirements  of (a)
        and (b) above for such Fiscal Quarter.

                  (iii)  Year-End  Financials:  as soon as available  and in any
        event  within  90  days  after  the  end of each  Fiscal  Year,  (a) the
        consolidated  balance sheets of Company and its  Subsidiaries  as at the
        end of such  Fiscal  Year and the  related  consolidated  statements  of
        income,   stockholders'  equity  and  cash  flows  of  Company  and  its
        Subsidiaries  for  such  Fiscal  Year,  setting  forth  in each  case in
        comparative form the

                                       96

<PAGE>

        corresponding figures for the previous Fiscal Year and the corresponding
        figures  from the  Financial  Plan for the Fiscal  Year  covered by such
        financial  statements,  all in reasonable  detail and in form consistent
        with previously delivered year-end statements and certified by the chief
        financial officer, principal accounting officer, treasurer or controller
        of Company  that they fairly  present,  in all  material  respects,  the
        financial  condition  of Company  and its  Subsidiaries  as at the dates
        indicated and the results of their  operations  and their cash flows for
        the periods indicated,  (b) a narrative report describing the operations
        of Company and its Subsidiaries in the form prepared for presentation to
        senior  management  for  such  Fiscal  Year  and (c) in the case of such
        consolidated financial statements, a report thereon of Ernst & Young LLP
        or other independent certified public accountants of recognized national
        standing   selected   by  Company   and   reasonably   satisfactory   to
        Administrative  Agent, which report shall be unqualified,  shall contain
        no exceptions  regarding the ability of Company and its  Subsidiaries to
        continue  as a going  concern  and shall  state  that such  consolidated
        financial  statements  fairly  present,  in all material  respects,  the
        consolidated  financial  position of Company and its  Subsidiaries as at
        the dates  indicated and the results of their  operations and their cash
        flows for the periods  indicated  in  conformity  with GAAP applied on a
        basis consistent with prior years (except as otherwise disclosed in such
        financial  statements) and that the  examination by such  accountants in
        connection with such consolidated  financial statements has been made in
        accordance with generally accepted auditing standards; provided that, so
        long as Company  files annual  reports on Form 10-K with the  Securities
        and  Exchange  Commission,  the  delivery of such Form 10-K for a Fiscal
        Year  (with all  documents  incorporated  by  reference,  including  the
        auditors'  report for Company and its  Subsidiaries)  shall  satisfy the
        requirements of subsections (a), (b) and (c) above;

                  (iv) Officer's and Compliance Certificates: together with each
        delivery  of  financial  statements  of  Company  and  its  Subsidiaries
        pursuant to  subdivisions  (i),  (ii) and (iii) above,  (a) an Officer's
        Certificate of Company stating that the signer has reviewed the terms of
        this  Agreement  and has made,  or  caused  to be made  under his or her
        supervision,  a review  in  reasonable  detail of the  transactions  and
        condition of Company and its Subsidiaries  during the accounting  period
        covered  by such  financial  statements  and that  such  review  has not
        disclosed the existence during or at the end of such accounting  period,
        and that the signer does not have  knowledge of the  existence as at the
        date of such  Officer's  Certificate,  of any  condition  or event  that
        constitutes  an Event of Default or Potential  Event of Default,  or, if
        any such condition or event existed or exists, specifying the nature and
        period of existence thereof and what action Company has taken, is taking
        and  proposes  to  take  with  respect  thereto;  and  (b) a  Compliance
        Certificate  demonstrating in reasonable detail compliance during and at
        the end of the  applicable  accounting  periods  with  the  restrictions
        contained in Section 7, in each case to the extent  compliance with such
        restrictions  is  required  to be  tested  at the end of the  applicable
        accounting period;

                  (v) Reconciliation  Statements:  if, as a result of any change
        in accounting principles and policies from those used in the preparation
        of the audited financial  statements  referred to in subsection 5.3, the
        consolidated  financial  statements  of

                                       97

<PAGE>

        Company and its  Subsidiaries  delivered  pursuant to subdivisions  (i),
        (ii),  (iii) or (xii) of this subsection 6.1 will differ in any material
        respect from the consolidated  financial statements that would have been
        delivered pursuant to such subdivisions had no such change in accounting
        principles  and policies  been made,  then (a)  together  with the first
        delivery of financial  statements  pursuant to  subdivision  (i),  (ii),
        (iii)  or  (xii)  of  this   subsection   6.1  following   such  change,
        consolidated  financial  statements of Company and its  Subsidiaries for
        (y) the current Fiscal Year to the effective date of such change and (z)
        the full Fiscal Year immediately preceding the Fiscal Year in which such
        change is made,  in each case  prepared  on a pro forma basis as if such
        change had been in effect  during such  periods,  and (b) together  with
        each delivery of financial statements pursuant to subdivision (i), (ii),
        (iii) or (xii) of this  subsection 6.1 following such change,  a written
        statement of the chief financial officer,  principal accounting officer,
        treasurer  or  controller  of  Company  setting  forth  the  differences
        (including any differences that would affect any  calculations  relating
        to the financial covenants set forth in subsection 7.6) which would have
        resulted if such financial  statements had been prepared  without giving
        effect to such change;

                  (vi) Auditors'  Certification:  together with each delivery of
        consolidated  financial  statements  of  Company  and  its  Subsidiaries
        pursuant  to  subdivision  (iii)  above,  a  written  statement  by  the
        independent  auditors  giving the report  thereon (a) stating  that they
        have audited the  financial  statements  in  accordance  with  generally
        accepted auditing standards and issued their report thereon, (b) stating
        whether,  in connection with their audit  examination,  any condition or
        event that  constitutes an Event of Default has come to their  attention
        and,  if  such a  condition  or  event  has  come  to  their  attention,
        specifying  the nature and period of existence  thereof;  provided  that
        such  auditors  shall not be liable by reason of any  failure  to obtain
        knowledge  of any such Event of Default  that would not be  disclosed in
        the course of their  audit  examination  and (c)  stating  that based on
        their audit examination  nothing has come to their attention that causes
        them to believe that Company  failed to comply in all material  respects
        with the terms,  covenants,  provisions or conditions of this  Agreement
        insofar as they relate to component  amounts included in the accounts of
        Company  and  its  Subsidiaries  reflected  in  such  audited  financial
        statements;

                  (vii) Auditors' Reports: promptly upon receipt thereof (unless
        restricted by applicable professional standards),  copies of all reports
        submitted to Company by  independent  auditors in  connection  with each
        annual,  interim or special audit of the financial statements of Company
        and its Subsidiaries made by such auditors, including any comment letter
        submitted by such auditors to management in connection with their annual
        audit;

                  (viii) SEC Filings  and Press  Releases:  promptly  upon their
        becoming  available,  copies of (a) all financial  statements,  reports,
        notices and proxy statements sent or made available generally by Company
        to its security  holders or by any Subsidiary of Company to its security
        holders  other than Company or another  Subsidiary  of Company,  (b) all
        regular and periodic reports and all registration statements (other than
        on Form S-8 or a similar form) and final prospectuses,  if any, filed by

                                       98

<PAGE>

        Company or any of its Subsidiaries with any securities  exchange or with
        the Securities and Exchange  Commission or any  governmental  or private
        regulatory  authority  and (c) all press  releases and other  statements
        made available  generally by Company or any of its  Subsidiaries  to the
        public  concerning  material  developments in the business of Company or
        any of its Subsidiaries;

                  (ix)  Litigation  or  Other  Proceedings:  promptly  upon  any
        officer of Company  obtaining  knowledge of (X) the  institution  of, or
        non-frivolous  overt threat of, any action,  suit,  proceeding  (whether
        administrative,  judicial or otherwise),  governmental  investigation or
        arbitration  against or affecting  Company or any of its Subsidiaries or
        any  property  of  Company  or any of  its  Subsidiaries  (collectively,
        "Proceedings") not previously disclosed in writing by Company to Lenders
        or (Y) any material development in any Proceeding that, in any case:

                          (1)  if   adversely   determined,   has  a  reasonable
                  possibility of giving rise to a Material Adverse Effect (after
                  giving  effect to  coverage  and  policy  limits of  insurance
                  policies  maintained by Company and its  Subsidiaries,  to the
                  extent  such  insurer  is not  disputing  or has not  rejected
                  tender thereof); or

                          (2)  seeks  to  enjoin  or   otherwise   prevent   the
                  consummation of, or to recover any damages or obtain relief as
                  a result of, the transactions contemplated hereby;

        written  notice thereof  together with such other  information as may be
        reasonably  available  to Company  (taking  into  account,  among  other
        things,  Company's  interest in  maintaining  its and its  Subsidiaries'
        attorney-client  privilege  protections)  to  enable  Lenders  and their
        counsel to evaluate such matters;

                  (x)  ERISA  Events:   promptly  upon  becoming  aware  of  the
        occurrence of or  forthcoming  occurrence of any ERISA Event,  a written
        notice  specifying the nature thereof,  what action Company,  any of its
        Subsidiaries or any of their  respective  ERISA Affiliates has taken, is
        taking or proposes to take with  respect  thereto and,  when known,  any
        action  taken  or  threatened  by  the  Internal  Revenue  Service,  the
        Department of Labor or the PBGC with respect thereto;

                  (xi) ERISA Notices: with reasonable promptness,  copies of (a)
        each Schedule B (Actuarial  Information) to the annual report (Form 5500
        Series)  filed  by  Company,  any of its  Subsidiaries  or any of  their
        respective  ERISA  Affiliates  with the  Internal  Revenue  Service with
        respect to each Pension Plan; (b) all notices  received by Company,  any
        of its  Subsidiaries or any of their  respective ERISA Affiliates from a
        Multiemployer  Plan sponsor concerning an ERISA Event; and (c) copies of
        such other documents or governmental  reports or filings relating to any
        Employee Benefit Plan as Administrative Agent shall reasonably request;

                  (xii) Financial Plans: as soon as practicable and in any event
        no later than 20 days after to the  beginning  of each  Fiscal  Year,  a
        consolidated  plan and  financial

                                       99

<PAGE>

        forecast for such Fiscal Year and the next  succeeding  Fiscal Year on a
        quarterly basis (the "Financial Plan" for such Fiscal Years),  including
        forecasted  consolidated  balance  sheets  and  forecasted  consolidated
        statements of income and cash flows of Company and its  Subsidiaries for
        each such Fiscal Year,  together with an explanation of the  assumptions
        on which such  forecasts are based,  together with an explanation of the
        assumptions on which such forecasts are based and such other information
        and projections as any Lender may reasonably request;

                  (xiii)  Insurance:  as soon as practicable and in any event by
        the last  day of each  Fiscal  Year,  a  report  in form  and  substance
        satisfactory to  Administrative  Agent outlining all material  insurance
        coverage  maintained  as of the date of such  report by Company  and its
        Subsidiaries  and  all  material   insurance   coverage  planned  to  be
        maintained by Company and its Subsidiaries in the immediately succeeding
        Fiscal Year;

                  (xiv) Board of Directors: with reasonable promptness,  written
        notice of any change in the Board of Directors of Company;

                  (xv) New  Subsidiaries:  promptly  upon any Person  becoming a
        Subsidiary of Company,  a written  notice  setting forth with respect to
        such Person (a) the date on which such  Person  became a  Subsidiary  of
        Company and (b) all of the data required to be set forth in Schedule 5.1
        annexed  hereto with  respect to all  Subsidiaries  of Company (it being
        understood  that such  written  notice  shall be  deemed  to  supplement
        Schedule 5.1 annexed hereto for all purposes of this Agreement;

                  (xvi) Material  Contracts:  promptly,  and in any event within
        thirty  Business  Days after any Material  Contract of Company or any of
        its Subsidiaries is terminated or amended in a manner that is materially
        adverse to Company  or such  Subsidiary,  as the case may be, or any new
        Material Contract is entered into, a written  statement  describing such
        event with copies of such material  amendments or new contracts,  and an
        explanation of any material actions being taken with respect thereto;

                  (xvii) Pricing Level Determination Certificates:  (a) together
        with  each   delivery  of  financial   statements  of  Company  and  its
        Subsidiaries  pursuant to subdivisions  (ii) and (iii) above, (b) within
        one Business Day after any public release by S&P or Moody's lowering its
        credit rating on the Loans and (c) at such  additional  times as Company
        may elect, a Pricing Level Determination Certificate; and

                  (xviii) Other Information:  with reasonable  promptness,  such
        other  information  and  data  with  respect  to  Company  or any of its
        Subsidiaries  as from time to time may be  reasonably  requested  by any
        Agent or Lender.

        B.  Company  shall  deliver to each Agent  promptly  upon any officer of
Company  obtaining  knowledge (a) of any condition or event that  constitutes an
Event of Default or  Potential  Event of  Default,  or  becoming  aware that any
Lender has given any notice  (other than to  Administrative  Agent) or taken any
other  action with respect to a claimed  Event of Default or Potential  Event of
Default, (b) that any Person has given any notice to Company or

                                      100

<PAGE>

any of its  Subsidiaries  or taken  any  other  action with respect to a claimed
default or event or condition of the type referred to in subsection  8.2, (c) of
any  condition  or event that would be  required  to be  disclosed  in a current
report filed by Company with the Securities and Exchange  Commission on Form 8-K
(Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Company
were  required  to  file  such  reports  under  the  Exchange  Act or (d) of the
occurrence  of any  event or change  that has  caused or  evidences  a  Material
Adverse  Effect,  an Officer's  Certificate  specifying the nature and period of
existence of such condition,  event or change, or specifying the notice given or
action taken by any such Person and the nature of such claimed Event of Default,
Potential Event of Default, default, event or condition, and what action Company
has taken, is taking and proposes to take with respect thereto.

6.2     Corporate Existence, etc.

                  Except as permitted under  subsection  7.7,  Company will, and
will cause each of its  Subsidiaries  to, at all times preserve and keep in full
force and effect its corporate  existence and all rights and franchises material
to  its  business;  provided,  however  that  neither  Company  nor  any  of its
Subsidiaries  shall be required to preserve  any such right or  franchise if the
Board of  Directors  of  Company or such  Subsidiary  shall  determine  that the
preservation  thereof is no longer  desirable  in the conduct of the business of
Company or such Subsidiary, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to Company, such Subsidiary or Lenders.

6.3     Payment of Taxes and Claims; Tax Consolidation.

                  A. Company will, and will cause each of its  Subsidiaries  to,
pay all taxes, assessments and other governmental charges imposed upon it or any
of its  properties  or assets or in respect of any of its income,  businesses or
franchises before any penalty accrues thereon,  and all claims (including claims
for labor,  services,  materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its  properties or
assets,  prior to the time  when any  penalty  or fine  shall be  incurred  with
respect  thereto;  provided  that no such  charge or claim need be paid if it is
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, so long as such reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made therefor.

                  B.   Company   will  not,  nor  will  it  permit  any  of  its
Subsidiaries  to, file or consent to the filing of any  consolidated  income tax
return with any Person (other than Company or any of its Subsidiaries).

6.4     Maintenance  of  Properties;  Insurance;  Application  of Net Insurance/
        Condemnation Proceeds.

                  A.  Maintenance  of  Properties.  Company will, and will cause
each of its  Subsidiaries to, maintain or cause to be maintained in good repair,
working order and  condition,  ordinary wear and tear  excepted,  all properties
(including  Intellectual  Property)  material  to and useful in the  business of
Company and its  Subsidiaries as it is contemplated at

                                      101

<PAGE>

such  time to be  conducted  and from time to time will make or cause to be made
all appropriate repairs, renewals and replacements thereof.

                  B. Insurance. Company will maintain or cause to be maintained,
with financially sound and reputable insurers,  such public liability insurance,
third party  property  damage  insurance,  business  interruption  insurance and
casualty  insurance with respect to liabilities,  losses or damage in respect of
the assets,  properties  and businesses of Company and its  Subsidiaries  as may
customarily be carried or maintained under similar circumstances by corporations
of established  reputation engaged in similar  businesses,  in each case in such
amounts (giving effect to self-insurance),  with such deductibles, covering such
risks and  otherwise  on such terms and  conditions  as shall be  customary  for
corporations  similarly situated in the industry.  Each such policy of insurance
shall (a) name Administrative  Agent for the benefit of Lenders as an additional
insured  thereunder  as its  interests  may  appear  and (b) in the case of each
business  interruption  and casualty  insurance  policy,  contain a loss payable
clause or  endorsement,  satisfactory  in form and  substance to  Administrative
Agent,  that names  Administrative  Agent for the benefit of Lenders as the loss
payee  thereunder  for any covered loss in excess of $5,000,000 and provides for
at least 30 days prior written  notice to  Administrative  Agent of any material
modification or any cancellation of such policy.

                  C.  Application of Net Insurance/Condemnation Proceeds.

                  (i) Business Interruption  Insurance.  Upon receipt by Company
        or any of  its  Subsidiaries  of  any  business  interruption  insurance
        proceeds constituting Net  Insurance/Condemnation  Proceeds, (a) so long
        as no Event of Default shall have occurred and be continuing, Company or
        such  Subsidiary  may retain  and apply such Net  Insurance/Condemnation
        Proceeds for working  capital  purposes,  and (b) if an Event of Default
        shall have  occurred and be  continuing,  Company  shall apply an amount
        equal to such Net  Insurance/Condemnation  Proceeds  to prepay the Loans
        (and/or the Revolving Loan Commitments  shall be reduced) as provided in
        subsection 2.4B(iii)(e);

                  (ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
        Company  or any of its  Subsidiaries  of any Net  Insurance/Condemnation
        Proceeds other than from business interruption  insurance (a) so long as
        no Event of  Default  shall have  occurred  and be  continuing,  Company
        shall, or shall cause one or more of its  Subsidiaries  to, promptly and
        diligently  apply  such Net  Insurance/Condemnation  Proceeds  to pay or
        reimburse the costs of  repairing,  restoring or replacing the assets in
        respect of which such Net Insurance/Condemnation  Proceeds were received
        within one year of receipt of such Net  Insurance/Condemnation  Proceeds
        or, to the extent not so applied by the end of such one year  period and
        to the  extent the  amount of such Net  Insurance/Condemnation  Proceeds
        exceed  $1,000,000,  to prepay  the Loans  (and/or  the  Revolving  Loan
        Commitments  shall be reduced) as provided in  subsection  2.4B(iii)(e),
        and (b) if an Event of Default  shall have  occurred and be  continuing,
        Company  shall apply an amount equal to such Net  Insurance/Condemnation
        Proceeds to prepay the Loans  (and/or  the  Revolving  Loan  Commitments
        shall be reduced) as provided in subsection 2.4B(iii)(e).

                                      102

<PAGE>

                  (iii)  Net   Insurance/Condemnation   Proceeds   Received   by
        Administrative Agent. Upon receipt by Administrative Agent for itself or
        on behalf  of  Lenders  of any Net  Insurance/Condemnation  Proceeds  as
        additional  insured or as loss payee, if and to the extent Company would
        have been required to apply such Net Insurance/Condemnation Proceeds (if
        it had received  them  directly)  to prepay the Loans and/or  reduce the
        Revolving  Loan  Commitments,  Administrative  Agent shall,  and Company
        hereby   authorizes    Administrative   Agent   to,   apply   such   Net
        Insurance/Condemnation   Proceeds  to  prepay  the  Loans   (and/or  the
        Revolving Loan  Commitments  shall be reduced) as provided in subsection
        6.4(c)(i) or (ii) as  applicable.  All other Net  Insurance/Condemnation
        Proceeds shall be paid over to Company or the  applicable  Subsidiary on
        whose behalf such Net  Insurance/Condemnation  Proceeds were  originally
        paid.

6.5     Inspection Rights;  Audits of Inventory and Accounts Receivable;  Lender
        Meeting.

                  A. Inspection  Rights.  Company shall, and shall cause each of
its  Subsidiaries  to, permit any authorized  representatives  designated by any
Agent or Lender to visit and inspect the chief  executive  offices of Company or
of any of its  Subsidiaries,  to inspect,  copy and take  extracts  from its and
their  financial and accounting  records,  and to discuss its and their affairs,
finances and accounts with its and their officers,  all upon  reasonable  notice
and at such  reasonable  times during normal  business hours and as often as may
reasonably be requested.

                  B. Audits of Inventory and Accounts Receivable. Company shall,
and  shall  cause  each  of  its   Subsidiaries   to,   permit  any   authorized
representatives  designated by Administrative  Agent to conduct one audit of all
Inventory  and  accounts  receivable  of Loan Parties  during each  twelve-month
period after the Closing Date, all upon reasonable notice and at such reasonable
times during normal business hours as may reasonably be requested.

                  C.  Lender   Meeting.   Company  will,  upon  the  request  of
Administrative  Agent  or  Requisite  Lenders,   participate  in  a  meeting  of
Administrative  Agent and  Lenders  once  during  each Fiscal Year to be held at
Company's  corporate  offices (or at such other  location as may be agreed to by
Company  and  Administrative  Agent) at such time as may be agreed to by Company
and Administrative Agent.

                                      103

<PAGE>

6.6     Compliance with Laws, etc.

                  Company shall comply, and shall cause each of its Subsidiaries
to comply, with the requirements of all applicable laws, rules,  regulations and
orders  of  any  governmental  authority  (including  all  Environmental  Laws),
noncompliance  with  which  would  reasonably  be  expected  to cause a Material
Adverse Effect, in each case except to the extent that Company's or Subsidiary's
requirement to comply with any such laws, rules,  regulations or orders relating
to Taxes is being contested in good faith by Company or such Subsidiary,  as the
case may be, and such reserve or other appropriate  provision,  if any, as shall
be required by GAAP shall have been made therefor.

6.7     Environmental  Review and  Investigation,  Disclosure,  Etc.;  Company's
        Actions Regarding Hazardous Materials  Activities,  Environmental Claims
        and Violations of Environmental Laws.

                  A. Environmental Review and Investigation. Company agrees that
Administrative  Agent may, from time to time and in its  reasonable  discretion,
(i) retain an independent  professional  consultant to review any  environmental
audits,  investigations,  analyses and reports  relating to Hazardous  Materials
prepared by or for Company and (ii) in the event Administrative Agent reasonably
believes that Company has materially  breached any  representation,  warranty or
covenant contained in subsections 5.6, 5.13, 6.6 or 6.7 or that there has been a
material violation of Environmental Laws at any Facility or by Company or any of
its  Subsidiaries at any other location,  conduct its own  investigation  of any
Facility  (such  review  (under  subsection  6.7A(i))  or  investigation  (under
subsection  6.7A(ii)) to be at Company's expense if such review or investigation
results in the  discovery of a material  liability not  previously  disclosed to
Administrative  Agent);  provided  that,  in the case of any  Facility no longer
owned, leased,  operated or used by Company or any of its Subsidiaries,  Company
shall  only be  obligated  to use  commercially  reasonable  efforts  to  obtain
permission  for  Administrative  Agent's  professional  consultant to conduct an
investigation of such Facility.  For purposes of conducting such a review and/or
investigation,  Company  hereby grants to  Administrative  Agent and its agents,
employees,  consultants  and  contractors  the  right to enter  into or onto any
Facilities  currently owned,  leased,  operated or used by Company or any of its
Subsidiaries  and to  perform  such  tests on such  property  (including  taking
samples of soil, groundwater and suspected asbestos-containing materials) as are
reasonably  necessary in connection  therewith.  Any such  investigation  of any
Facility  shall  be  conducted,  unless  otherwise  agreed  to  by  Company  and
Administrative Agent, during normal business hours and, to the extent reasonably
practicable,  shall  be  conducted  so as  not to  interfere  with  the  ongoing
operations  at such  Facility or to cause any damage or loss to any  property at
such Facility.  Company and  Administrative  Agent hereby  acknowledge and agree
that any report of any investigation  conducted at the request of Administrative
Agent  pursuant to this  subsection  6.7A will be obtained  and shall be used by
Administrative  Agent and Lenders for the purposes of Lenders'  internal  credit
decisions,  to monitor  and police  the Loans and to protect  Lenders'  security
interests, if any, created by the Loan Documents. Administrative Agent agrees to
deliver a copy of any such report to Company with the understanding that Company
acknowledges   and  agrees  that  (x)  it  will   indemnify  and  hold

                                      104

<PAGE>

harmless  Administrative  Agent  and each  Lender  from  any  costs,  losses  or
liabilities relating to Company's use of or reliance on such report, (y) neither
Administrative  Agent nor any Lender makes any  representation  or warranty with
respect to such report and (z) by  delivering  such  report to Company,  neither
Administrative   Agent  nor  any  Lender  is  requiring  or   recommending   the
implementation of any suggestions or recommendations contained in such report.

                  B.   Environmental   Disclosure.   Company   will  deliver  to
Administrative Agent:

                  (i) Environmental  Audits and Reports.  As soon as practicable
        following  receipt  thereof,   copies  of  all   environmental   audits,
        investigations,  analyses and reports of any kind or character,  whether
        prepared  by  personnel  of  Company  or any of its  Subsidiaries  or by
        independent consultants,  governmental authorities or any other Persons,
        with respect to significant  environmental matters at any Facility which
        would  reasonably be expected to result in a Material  Adverse Effect or
        with  respect to any  Environmental  Claims  which would  reasonably  be
        expected to result in a Material Adverse Effect;

                  (ii)  Notice  of  Certain  Releases,  Remedial  Actions,  Etc.
        Promptly following the occurrence thereof,  written notice describing in
        reasonable  detail  (a)  any  Release  required  to be  reported  to any
        federal,  state or local  governmental  or  regulatory  agency under any
        applicable  Environmental  Laws (the existence of which has a reasonable
        possibility of resulting in a Material Adverse Effect), (b) any remedial
        action  taken by  Company  or any other  Person in  response  to (1) any
        Hazardous  Materials  Activities the existence of which has a reasonable
        possibility  of resulting in one or more  Environmental  Claims having a
        Material  Adverse  Effect or (2) any  Environmental  Claims  that have a
        reasonable possibility of resulting in a Material Adverse Effect and (c)
        Company's  discovery of any occurrence or condition on any real property
        adjoining  or in the  vicinity  of any  Facility  that could  cause such
        Facility or any part thereof to be subject to any material  restrictions
        on the ownership,  occupancy,  transferability  or use thereof under any
        Environmental Laws.

                  (iii) Written Communications  Regarding  Environmental Claims,
        Releases,  Etc. As soon as practicable  following the sending or receipt
        thereof  by Company  or any of its  Subsidiaries,  a copy of any and all
        written communications with respect to (a) any Environmental Claims that
        have a  reasonable  possibility  of giving  rise to a  Material  Adverse
        Effect, (b) any Release required to be reported to any federal, state or
        local  governmental  or  regulatory  agency  and  (c)  any  request  for
        information from any governmental agency that states that such agency is
        investigating  whether  Company  or  any  of  its  Subsidiaries  may  be
        potentially responsible for any Hazardous Materials Activity.

                  (iv) Notice of Certain Proposed  Actions Having  Environmental
        Impact.  Prompt written notice  describing in reasonable  detail (a) any
        proposed  acquisition of stock,  assets or property by Company or any of
        its Subsidiaries that could reasonably

                                      105

<PAGE>

        be  expected  to (1) expose  Company or any of its  Subsidiaries  to, or
        result in,  Environmental  Claims that could  reasonably  be expected to
        have a Material  Adverse  Effect or (2) affect the ability of Company or
        any of its  Subsidiaries  to  maintain  in full  force  and  effect  all
        material  Governmental  Authorizations  required under any Environmental
        Laws for their  respective  operations and (b) any proposed action to be
        taken by Company or any of its Subsidiaries to modify current operations
        in a manner that would  reasonably be expected to subject Company or any
        of its Subsidiaries to any additional  obligations or requirements under
        any  Environmental  Laws that would  reasonably  be  expected  to have a
        Material Adverse Effect.

                  (v) Other Information.  With reasonable promptness, such other
        documents  and  information  as  from  time to  time  may be  reasonably
        requested  by any Agent or Lender in relation  to any matters  disclosed
        pursuant to this subsection 6.7.

                  C. Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.

                  (i)  Remedial   Actions   Relating  to   Hazardous   Materials
        Activities.  Company shall promptly  undertake,  and shall cause each of
        its  Subsidiaries  promptly to  undertake,  any and all  investigations,
        studies, sampling, testing, abatement,  cleanup, removal, remediation or
        other response actions necessary to remove, remediate, clean up or abate
        any  Hazardous  Materials  Activity on, under or about any Facility that
        would reasonably be expected to have a Material  Adverse Effect.  In the
        event Company or any of its Subsidiaries undertakes any such action with
        respect to any Hazardous  Materials,  Company or such  Subsidiary  shall
        conduct and  complete  such  action in  compliance  with all  applicable
        Environmental  Laws and in  accordance  with the  policies,  orders  and
        directives  of all  federal,  state and local  governmental  authorities
        except when, and only to the extent that, Company's or such Subsidiary's
        liability  with respect to such  Hazardous  Materials  Activity is being
        contested in good faith by Company or such Subsidiary.

                  (ii)  Actions  with  Respect  to   Environmental   Claims  and
        Violations of Environmental Laws. Company shall promptly take, and shall
        cause each of its  Subsidiaries  promptly  to take,  any and all actions
        necessary to (i) cure any violation of applicable  Environmental Laws by
        Company or its Subsidiaries  that would reasonably be expected to have a
        Material  Adverse  Effect and (ii) make an  appropriate  response to any
        Environmental  Claim  against  Company  or any of its  Subsidiaries  and
        discharge any  obligations  it may have to any Person  thereunder  where
        failure to do so would reasonably be expected to have a Material Adverse
        Effect.

                                      106

<PAGE>

6.8     Execution  of  Subsidiary  Guaranty  and  Personal  Property  Collateral
        Documents by Certain Subsidiaries and Future Subsidiaries.

                  A.  Execution of  Subsidiary  Guaranty  and Personal  Property
Collateral  Documents.  In the event that any  Person  becomes a  Subsidiary  of
Company  after the date hereof,  Company will promptly (and in any case no later
than 45 days thereafter) notify Administrative Agent of that fact and cause such
Subsidiary to execute and deliver to  Administrative  Agent a Subsidiary  Pledge
Agreement,  and,  with  respect to  Domestic  Subsidiaries  only,  a  Subsidiary
Security  Agreement,  a Subsidiary Patent and Trademark Security Agreement and a
counterpart of the Subsidiary Guaranty and in each case to take all such further
actions  and execute  all such  further  documents  and  instruments  (including
actions,  documents and instruments  comparable to those described in subsection
4.1H) as may be necessary or, in the reasonable opinion of Administrative Agent,
desirable to create in favor of Administrative Agent, for the benefit of Lenders
and Agents,  a valid and perfected First Priority Lien on the personal and mixed
property  assets  of  such  Subsidiary  described  in the  applicable  forms  of
Collateral Documents.

                  B. Subsidiary Charter Documents,  Legal Opinions, Etc. Company
shall deliver to  Administrative  Agent,  together  with such Loan  Documents in
accordance with subsection 6.8A above, (i) certified copies of such Subsidiary's
Certificate  or Articles of  Incorporation  or other  applicable  organizational
documents filed or registered with the state or other jurisdiction in which such
Subsidiary  is  organized,  together  with,  to the  extent  applicable,  a good
standing  certificate  from the  Secretary of State of the  jurisdiction  of its
incorporation  and each other state in which such  Subsidiary  is qualified as a
foreign  corporation to do business and, to the extent  generally  available,  a
certificate  or other  evidence of good standing as to payment of any applicable
franchise or similar taxes from the appropriate taxing authority of each of such
jurisdictions,  each to be  dated a recent  date  prior  to  their  delivery  to
Administrative  Agent,  (ii) a  copy  of  such  Subsidiary's  Bylaws,  Operating
Agreement,  Partnership  Agreement  or other  similar  organizational  document,
certified by its  secretary or an assistant  secretary as of a recent date prior
to their delivery to Administrative  Agent, (iii) a certificate  executed by the
secretary or an assistant  secretary of such  Subsidiary as to (a) the fact that
the attached  resolutions  of the Board of Directors  (or other similar body) of
such  Subsidiary   approving  and   authorizing  the  execution,   delivery  and
performance  of such Loan  Documents  are in full  force and effect and have not
been modified or amended and (b) the  incumbency  and signatures of the officers
of such Subsidiary executing such Loan Documents and (iv) if reasonably required
by Administrative  Agent, a favorable opinion of counsel to such Subsidiary,  in
form and substance  satisfactory to Administrative  Agent and its counsel, as to
(a) the due  organization  and good  standing  of such  Subsidiary,  (b) the due
authorization, execution and delivery by such Subsidiary of such Loan Documents,
(c) the enforceability of such Loan Documents against such Subsidiary,  (d) such
other  matters  (including  matters  relating to the creation and  perfection of
Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent
may  reasonably  request,  all of the foregoing to be  satisfactory  in form and
substance to Administrative Agent and its counsel.

                                      107

<PAGE>

6.9     Matters Relating to Additional Real Property Collateral.

                  From and after the Closing Date, in the event that (i) Company
or any  Subsidiary  Guarantor  acquires any fee interest in real property or any
Leasehold  Property  or  (ii)  at the  time  any  Person  becomes  a  Subsidiary
Guarantor,  such Person owns or holds any fee  interest in real  property or any
Leasehold  Property,  in either case excluding any such Real Property Assets the
aggregate  value of which fee  interests  or  leasehold  interests  is less than
$10,000,000 or the encumbrancing of which requires the consent of any applicable
lessor or (in the case of clause (ii) above)  then-existing  senior  lienholder,
where Company and its  Subsidiaries are unable to obtain such lessor's or senior
lienholder's consent (any such non-excluded Real Property Asset described in the
foregoing clause (i) or (ii) being an "Additional Mortgaged Property"),  Company
or such Subsidiary  Guarantor shall deliver to Administrative  Agent, as soon as
practicable  after such Person  acquires such Additional  Mortgaged  Property or
becomes a Subsidiary Guarantor, as the case may be, the following:

                  A.  Additional   Mortgage.  A  fully  executed  and  notarized
        Mortgage (an  "Additional  Mortgage"),  duly recorded in all appropriate
        places in all applicable jurisdictions, encumbering the interest of such
        Loan Party in such Additional Mortgaged Property;

                  B. Landlord Consent and Estoppel; Recorded Leasehold Interest.
        In  the  case  of  an  Additional  Mortgaged  Property  consisting  of a
        Leasehold Property,  if reasonably required by Administrative Agent, (a)
        a consent and estoppel signed by the landlord thereof  consenting to the
        encumbrance  of such  Leasehold  Property  with a Mortgage and including
        standard  notice and cure rights for  Administrative  Agent on behalf of
        Lenders and (b) evidence that the lease or memorandum for such Leasehold
        Property has been recorded in all places necessary or desirable; and

                  C.   Environmental    Audit.   If   reasonably   required   by
        Administrative Agent, reports and other information,  in form, scope and
        substance   reasonably   satisfactory   to  Agents   and   prepared   by
        environmental   consultants  satisfactory  to  Agents,   concerning  any
        environmental  hazards  or  liabilities  to which  Company or any of its
        Subsidiaries  may be subject with respect to such  Additional  Mortgaged
        Property.

6.10    Interest Rate Protection.

                  At all times after the date which is 90 days after the Closing
Date, Company shall maintain in effect one or more Interest Rate Agreements with
respect to the Loans, in an aggregate notional principal amount of not less than
50% of the Term Loans borrowed on the Closing Date as projected to be reduced by
scheduled  amortization,  each such  Interest  Rate  Agreement to be in form and
substance  satisfactory to Administrative Agent and with a term of not less than
two years after the Closing Date.

6.11    Year 2000 Compliance.

                  Company shall perform all acts reasonably  necessary to ensure
that Company

                                      108

<PAGE>

and its  Subsidiaries  become Year 2000 Compliant in a timely manner.  Such acts
shall include performing a comprehensive review and assessment of all of Company
and its  Subsidiaries'  systems  and  adopting a detailed  plan,  with  itemized
budget,  for the  remediation,  monitoring and testing of such systems.  Company
shall,  immediately upon request,  provide to Administrative  Agent (which shall
furnish  copies  thereof to Lenders) such  certifications  or other  evidence of
Company and its Subsidiaries'  compliance with the terms of this subsection 6.11
as any Agent or Lender (through the Administrative  Agent) may from time to time
reasonably request.

Section 7.        COMPANY'S NEGATIVE COVENANTS

                  Company  covenants  and  agrees  that,  so  long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the  Loans and other  Obligations  and the  cancellation  or  expiration  of all
Letters of Credit,  unless  Requisite  Lenders shall have otherwise  given prior
written  consent in  accordance  with  subsection  10.6 to  amendment  or waiver
thereof,  Company shall  perform,  and shall cause each of its  Subsidiaries  to
perform, all covenants in this Section 7.

7.1     Indebtedness.

                  Company   shall   not,   and  shall  not  permit  any  of  its
Subsidiaries to, directly or indirectly,  create, incur, assume or guarantee, or
otherwise  become or remain  directly or indirectly  liable with respect to, any
Indebtedness, except:

                  (i)  Company  and  Loan Parties  may  become and remain liable
        with respect to the Obligations;

                  (ii) Company and its Subsidiaries may become and remain liable
        with respect to Contingent  Obligations permitted by subsection 7.4 and,
        upon any matured  obligations  actually  arising pursuant  thereto,  the
        Indebtedness    corresponding   to   the   Contingent   Obligations   so
        extinguished;

                  (iii)  Company  and its  Subsidiaries  may  become  and remain
        liable with respect to  Indebtedness in respect of Capital Leases not to
        exceed $15,000,000 in the aggregate at any time outstanding;

                  (iv)  Company  may become and remain  liable  with  respect to
        Indebtedness to any of its direct or indirect wholly-owned Subsidiaries,
        and any direct or indirect wholly-owned Subsidiary of Company may become
        and remain liable with respect to  Indebtedness  to Company or any other
        direct or indirect wholly-owned Subsidiary of Company; provided that (a)
        all such  intercompany  Indebtedness  shall be evidenced  by  promissory
        notes, (b) all such intercompany  Indebtedness owed by Company to any of
        its  Subsidiaries  shall be  subordinated  in right  of  payment  to the
        payment  in  full  of  the  Obligations  pursuant  to the  terms  of the
        applicable promissory notes or an intercompany  subordination  agreement
        and (c) any payment by any  Subsidiary  of

                                      109

<PAGE>

        Company  under any  guaranty of the  Obligations  shall  result in a pro
        tanto reduction of the amount of any intercompany  Indebtedness  owed by
        such  Subsidiary  to  Company  or to any of its  Subsidiaries  for whose
        benefit such payment is made;

                  (v) Company and its  Subsidiaries,  as applicable,  may remain
        liable with  respect to  Indebtedness  described in Schedule 7.1 annexed
        hereto;

                  (vi)  Company  may become and remain  liable  with  respect to
        Permitted Subordinated Debt;

                  (vii)  Company  and its  Subsidiaries  may  become  and remain
        liable  with  respect  to  Indebtedness   constituting   purchase  money
        financing for personal  property or mortgage  financing of Real Property
        Assets in an aggregate principal amount not exceeding $10,000,000 at any
        time outstanding;

                  (viii)  Company  and its  Subsidiaries  may  become and remain
        liable  with  respect to  Indebtedness  constituting  Assumed  Permitted
        Acquisition Indebtedness and Incurred Permitted Acquisition Indebtedness
        in an aggregate principal amount not exceeding  $100,000,000 at any time
        outstanding;  provided  that in the event that the Loans  (after  giving
        effect to the proposed acquisition) obtain a Rating of not less than BB+
        from S&P and Ba1 from Moody's,  Company and its  Subsidiaries may become
        liable  with  respect to such  Indebtedness  in an  aggregate  principal
        amount not exceeding $150,000,000 at any time outstanding; and

                  (ix) Company and its Subsidiaries may become and remain liable
        with respect to other Indebtedness in an aggregate  principal amount not
        to exceed $10,000,000 at any time outstanding.

7.2     Liens and Related Matters.

                  A.  Prohibition  on Liens.  Company  shall not,  and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or permit to exist any Lien on or with  respect to any  property or asset of any
kind  (including  any  document  or  instrument  in respect of goods or accounts
receivable)  of  Company  or any of  its  Subsidiaries,  whether  now  owned  or
hereafter  acquired,  or any income or profits therefrom,  or file or permit the
filing  of, or permit to remain in  effect,  any  financing  statement  or other
similar notice of any Lien with respect to any such property,  asset,  income or
profits  under the  Uniform  Commercial  Code of any state or under any  similar
recording or notice statute, except:

                  (i)   Permitted Encumbrances;

                  (ii)  Liens granted pursuant to the Collateral Documents;

                  (iii) Liens described in Schedule 7.2 annexed hereto;

                  (iv)  Liens  associated  with  Assumed  Permitted  Acquisition
        Indebtedness;

                                      110

<PAGE>

        and

                  (v) Liens securing  Indebtedness  permitted  under  subsection
        7.1(vii) hereof.

        B.  Equitable  Lien  in  Favor  of  Lenders.  If  Company  or any of its
Subsidiaries  shall  create or assume  any Lien  upon any of its  properties  or
assets,  whether now owned or hereafter  acquired,  other than Liens excepted by
the  provisions of subsection  7.2A, it shall make or cause to be made effective
provision  whereby  the  Obligations  will be secured by such Lien  equally  and
ratably with any and all other Indebtedness  secured thereby as long as any such
Indebtedness shall be so secured; provided that,  notwithstanding the foregoing,
this  covenant  shall not be construed as a consent by Requisite  Lenders to the
creation or  assumption  of any such Lien not  permitted  by the  provisions  of
subsection 7.2A.

        C. No Further Negative Pledges. Except with respect to specific property
encumbered to secure payment of particular  Indebtedness  or to be sold pursuant
to an executed  agreement with respect to an Asset Sale, neither Company nor any
of its  Subsidiaries  shall enter into any  agreement  (other than any agreement
prohibiting  only the creation of Liens securing  Permitted  Subordinated  Debt)
generally prohibiting the creation or assumption of any Lien upon its properties
and assets, whether now owned or hereafter acquired.

        D. No  Restrictions  on  Subsidiary  Distributions  to  Company or Other
Subsidiaries.  Except as provided herein,  Company will not, and will not permit
any of its  Subsidiaries  to,  create or  otherwise  cause or suffer to exist or
become  effective any  consensual  encumbrance or restriction of any kind on the
ability  of  any  such  Subsidiary  to (i)  pay  dividends  or  make  any  other
distributions on any of such Subsidiary's  capital stock owned by Company or any
other Subsidiary of Company,  (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other  Subsidiary  of Company,  (iii) make loans or
advances to Company or any other  Subsidiary  of Company or (iv) transfer any of
its property or assets to Company or any other Subsidiary of Company.

7.3     Investments; Joint Ventures.

                  Company   shall   not,   and  shall  not  permit  any  of  its
Subsidiaries  to,  directly or  indirectly,  make or own any  Investment  in any
Person, including any Joint Venture, except:

                  (i) Company and its  Subsidiaries may make and own Investments
        in Cash and Cash Equivalents;

                  (ii)  Company  and its  Subsidiaries  may  continue to own the
        Investments  owned by them as of the Closing Date in any Subsidiaries of
        Company;

                  (iii) Company and its Subsidiaries may make intercompany loans
        to the extent permitted under subsection 7.1(iv);

                  (iv)  Company  and  its  Subsidiaries  may  make  Consolidated
        Capital

                                      111

<PAGE>

        Expenditures permitted by subsection 7.8;

                  (v)  Company  and its  Subsidiaries  may make  Investments  as
        required to consummate Permitted Acquisitions permitted under subsection
        7.7(vi) and the World Medical Acquisition;

                  (vi)  Company  and its  Subsidiaries  may  continue to own the
        Investments  and  proposed  Investments  owned by them and  described in
        Schedule 7.3 annexed hereto;

                  (vii)  Company  and its  Subsidiaries  may make and own  other
        Investments in an aggregate amount not to exceed $10,000,000 at any time
        outstanding;

                  (viii)  Company  and  its   Subsidiaries   may  make  and  own
        Investments in an aggregate amount not to exceed $20,000,000 at any time
        outstanding  consisting  of any  deferred  portion  of the  sales  price
        received by Company or its  Subsidiaries  in  connection  with any Asset
        Sale permitted under subsection 7.7(v);

                  (ix)  Company  or any of its  Subsidiaries  may  make  and own
        Investments  in respect of  Securities  of another  Person  received  by
        Company or such Subsidiary in connection  with a plan of  reorganization
        of such Person or a readjustment of its debt;

                  (x) Company and its  Subsidiaries may make and own Investments
        in Joint Ventures in an aggregate amount not exceeding the lesser of (a)
        Retained  Excess  Cash  Flow  at the  time of  such  Investment  and (b)
        $50,000,000,  each as determined on a cumulative  basis from the Closing
        Date; and

                  (xi) Company may make loans to employees  in  connection  with
        the purchase of the stock of Company by such  employees  pursuant to the
        terms of employment  agreements of such employees in an aggregate amount
        not to exceed $2,000,000 in any Fiscal Year.

7.4     Contingent Obligations.

                  Company   shall   not,   and  shall  not  permit  any  of  its
Subsidiaries to, directly or indirectly,  create or become or remain liable with
respect to any Contingent Obligation, except:

                  (i)  Subsidiaries of Company may become and remain liable with
        respect to Contingent Obligations in respect of the Subsidiary Guaranty;

                  (ii) Company and its Subsidiaries may become and remain liable
        with respect to Contingent  Obligations  in respect of Letters of Credit
        and  Company  and its  Subsidiaries  may become and remain  liable  with
        respect to Contingent  Obligations in respect of letters of credit other
        than  the  Letters  of  Credit  in an  aggregate  amount  not to  exceed
        $15,000,000 at any time outstanding;

                                      112

<PAGE>

                  (iii)  Company may become and remain  liable  with  respect to
        Contingent Obligations under Hedge Agreements;

                  (iv) Company and its Subsidiaries may become and remain liable
        with  respect  to  Contingent   Obligations   in  respect  of  customary
        indemnification  and purchase price adjustment  obligations  incurred in
        connection with Asset Sales or other sales of assets;

                  (v) Company and its  Subsidiaries may become and remain liable
        with respect to Contingent  Obligations under guarantees in the ordinary
        course  of  business  of  the   obligations  of  suppliers,   customers,
        franchisees  and  licensees  of  Company  and  its  Subsidiaries  in  an
        aggregate amount not to exceed $10,000,000 at any time outstanding;

                  (vi) Company and its Subsidiaries may become and remain liable
        with respect to Contingent Obligations in respect of any Indebtedness of
        Company or any of its Subsidiaries permitted by subsection 7.1;

                  (vii) Company and its Subsidiaries,  as applicable, may remain
        liable with respect to Contingent  Obligations described in Schedule 7.4
        annexed hereto; and

                  (viii)  Company  and its  Subsidiaries  may  become and remain
        liable with respect to other Contingent  Obligations;  provided that the
        maximum aggregate liability, contingent or otherwise, of Company and its
        Subsidiaries in respect of all such Contingent  Obligations  shall at no
        time exceed $10,000,000.

7.5     Restricted Junior Payments.

                  Company   shall   not,   and  shall  not  permit  any  of  its
Subsidiaries to, directly or indirectly,  declare, order, pay, make or set apart
any sum for any Restricted  Junior  Payment;  provided that (i) Company may make
regularly   scheduled   payments  of  interest  in  respect  of  any   Permitted
Subordinated  Debt in  accordance  with the  terms  of,  and only to the  extent
required  by, and  subject to the  subordination  provisions  contained  in, the
indenture or other agreement pursuant to which such Permitted  Subordinated Debt
was issued,  as such  indenture or other  agreement  may be amended from time to
time to the extent  permitted under subsection 7.13B and (ii) Company may redeem
or  repurchase  the stock of Company (or  options or  warrants  to acquire  such
stock) from  employees  thereof  pursuant to the terms of employment  agreements
with such  employees  in an  aggregate  amount not to exceed  $2,000,000  in any
Fiscal Year.

                                      113

<PAGE>

7.6     Financial Covenants.

                  For purposes of this  subsection  7.6, the  components  of the
following  financial  covenants shall include the financial  results of the Bard
Catheter Lab Business as if such  business had been acquired at the beginning of
such tested period for purposes of calculating Consolidated Adjusted EBITDA.

        A. Minimum Fixed Charge Coverage Ratio. As measured  quarterly as at the
end  of  each  Fiscal  Quarter,  Company  shall  not  permit  the  ratio  of (i)
Consolidated  Adjusted  EBITDA for any four  consecutive  Fiscal  Quarter period
ending on any date set forth below to (ii)  Consolidated  Fixed  Charges for any
four  consecutive  Fiscal Quarter period ending on such date (or, in the case of
Consolidated   Scheduled   Amortization  for  the  immediately  succeeding  four
consecutive  Fiscal  Quarter  period)  to be less  than  the  correlative  ratio
indicated:

                                                             Minimum
                     Date                        Fixed Charge Coverage Ratio
         --------------------------              ---------------------------

         December 31, 1998                                 2.2:1.0
         March 31, 1999                                    2.2:1.0
         June 30, 1999                                     2.2:1.0
         September 30, 1999                                2.2:1.0
         December 31, 1999                                 2.5:1.0
         March 31, 2000                                    2.7:1.0
         June 30, 2000                                     2.9:1.0
         September 30, 2000                                3.0:1.0
         December 31, 2000                                 3.1:1.0
         March 31, 2001                                    3.2:1.0
         June 30, 2001                                     3.3:1.0

         September 30, 2001
         and each Fiscal Quarter end thereafter            1.0:1.0

; provided  that (a) with respect to the  foregoing  ratio for the period ending
December  31,  1998,  Consolidated  Interest  Expense and  Consolidated  Capital
Expenditures (as utilized in Consolidated  Fixed Charges) shall be calculated as
the  product  of  Consolidated   Interest  Expense  and   Consolidated   Capital
Expenditures for the Fiscal Quarter ending December 31, 1998 multiplied by four;
(b) for the period  ending March 31,  1999,  Consolidated  Interest  Expense and
Consolidated  Capital  Expenditures  shall  be  calculated  as  the  product  of
Consolidated  Interest Expense and Consolidated Capital Expenditures for the two
Fiscal  Quarters ending March 31, 1999 multiplied by two; and (c) for the period
ending June 30, 1999,  Consolidated  Interest Expense and  Consolidated  Capital
Expenditures shall be calculated as the product of Consolidated Interest Expense
and Consolidated  Capital Expenditures for the three Fiscal Quarters ending June
30, 1999 multiplied by one and one-

                                      114

<PAGE>

third.

<TABLE>
         B. Maximum  Leverage Ratio.  Company shall not permit the  Consolidated
Leverage  Ratio at any time to exceed the ratios  indicated  below during any of
the periods set forth below:

<CAPTION>
                        Period                                        Maximum Leverage Ratio 
         -----------------------------------                         ------------------------

<S>                                                                            <C> <C>
         September 30, 1998 through and including December 31, 1998            2.1:1.0
         January 1, 1999 through and including March 31, 1999                  2.1:1.0
         April 1, 1999 through and including June 30, 1999                     2.0:1.0
         July 1, 1999 through and including September 30, 1999                 1.9:1.0
         October 1, 1999 through and including December 31, 1999               1.7:1.0
         January 1, 2000 through and including March 31, 2000                  1.6:1.0
         April 1, 2000 through and including June 30, 2000                     1.5:1.0
         July 1, 2000 through and including September 30, 2000                 1.2:1.0
         October 1, 2000 through and including December 31, 2000               1.1:1.0

         January 1, 2001
         and thereafter                                                        1.0:1.0
</TABLE>

         C. Minimum  Consolidated  Net Worth. As determined  quarterly as at the
end of each Fiscal Quarter,  Company shall not permit  Consolidated Net Worth as
at any such date as set forth below to be less than the sum of $100,000,000 plus
the amount equal to 75% of Consolidated Net Income at such time, as Consolidated
Net Income is  determined on a cumulative  basis from the Closing Date,  without
deductions  for  any  losses  (other  than  any  amounts  accrued  as  Permitted
Acquisitions Non-cash Reserves after the Closing Date).

7.7      Restriction on Fundamental Changes; Asset Sales and Acquisitions.

                 Company shall not, and shall not permit any of its Subsidiaries
to, enter into any transaction of merger or consolidation, or liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution),  or convey, sell,
lease or sub-lease (as lessor or sublessor),  transfer or otherwise  dispose of,
in one transaction or a series of transactions, all or any part of its business,
property  or assets,  whether  now owned or  hereafter  acquired,  or acquire by
purchase or otherwise all or substantially  all the business,  property or fixed
assets of, or stock or other evidence of beneficial  ownership of, any Person or
any division or line of business of any Person, except:

                 (i)  any  Subsidiary  of  Company  may be  merged  with or into
         Company or any direct or indirect wholly-owned Subsidiary Guarantor, or
         be  liquidated,  wound  up or  dissolved,  or all or  any  part  of its
         business, property or assets may be conveyed,

                                      115

<PAGE>

         sold, leased,  transferred or otherwise disposed of, in one transaction
         or a series of  transactions,  to  Company  or any  direct or  indirect
         wholly-owned Subsidiary Guarantor; provided that, in the case of such a
         merger,  Company or such  direct or  indirect  wholly-owned  Subsidiary
         Guarantor shall be the continuing or surviving corporation;

                 (ii) Company and its Subsidiaries may make Consolidated Capital
         Expenditures permitted under subsection 7.8;

                 (iii) Company and its  Subsidiaries  may dispose of obsolete or
         worn out property in the ordinary course of business;

                 (iv) Company and its Subsidiaries may sell or otherwise dispose
         of assets in transactions that do not constitute Asset Sales;

                 (v) subject to subsection  7.11,  Company and its  Subsidiaries
         may make annual Asset Sales of assets having a fair market value not in
         excess  of  5%  of  the  consolidated   revenues  of  Company  and  its
         Subsidiaries for the immediately  preceding Fiscal Year as shown on the
         consolidated  financial  statements of Company and its Subsidiaries for
         such  immediately   preceding  Fiscal  Year;   provided  that  (x)  the
         consideration  received  for such assets shall be in an amount at least
         equal  to the  fair  market  value  thereof;  (y) at  least  85% of the
         consideration  received  shall be cash;  and (z) the  proceeds  of such
         Asset Sales shall be applied as required by subsection 2.4B(iii)(a);

                 (vi)  Company  and its  Subsidiaries  may  acquire,  whether by
         purchase, issuance of stock or other equity or debt securities, merger,
         reorganization or any other method,  not less than eighty percent (80%)
         of the  ownership  interest  of any Person  substantially  engaged in a
         medical  device  business  or a business  described  on  Schedule  7.12
         annexed hereto,  substantially all of the assets of such Person, or any
         division or line of  business  through  which any Person  substantially
         engages in the  medical  device  business  or a business  described  on
         Schedule 7.12 annexed hereto in an aggregate amount up to $200,000,000,
         which amount may consist of an aggregate  amount of up to  $100,000,000
         of  Cash,  Incurred  Permitted  Acquisition  Indebtedness  and  Assumed
         Permitted  Acquisition  Indebtedness,  in each case as  determined on a
         cumulative  basis from the Closing  Date and  excluding  any amounts in
         connection  with the World  Medical  Acquisition;  provided that in the
         event  that  the  Loans   (after   giving   effect  to  such   proposed
         acquisitions) obtain Ratings of not less than BB+ from S&P and Ba1 from
         Moody's, such acquisitions in the aggregate shall be permitted up to an
         unlimited amount, which amount may consist of an aggregate amount of up
         to $150,000,000 of Cash,  Incurred Permitted  Acquisition  Indebtedness
         and Assumed  Permitted  Acquisition  Indebtedness,  as  determined on a
         cumulative  basis from the Closing  Date and  excluding  any amounts in
         connection with the World Medical  Acquisition;  provided further that:
         (a) such Person  becomes a  Subsidiary  of Company,  or such  business,
         property  or other  assets  are  acquired  by  Company  or a direct  or
         indirect wholly-owned Subsidiary of Company; (b) concurrently with the

                                      116

<PAGE>

         consummation of such Permitted  Acquisition,  Company shall,  and shall
         cause its  Subsidiaries to, comply with the requirements of subsections
         6.8 and 6.9 with respect to such Permitted Acquisitions;  and (c) prior
         to the consummation of any such Permitted Acquisition having a purchase
         price in excess of $5,000,000,  Company shall deliver to Administrative
         Agent an Officer's  Certificate  (1) certifying that no Potential Event
         of Default or Event of Default under this Agreement shall then exist or
         shall   occur  as  a  result  of  such   Permitted   Acquisition,   (2)
         demonstrating  that after giving effect to such  Permitted  Acquisition
         and  to all  Indebtedness  to be  incurred  or  assumed  or  repaid  in
         connection  with or as  consideration  for such Permitted  Acquisition,
         that Company is in Pro Forma Financial Covenant Compliance for the four
         consecutive  Fiscal Quarter period ending immediately prior to the date
         of the proposed Permitted Acquisition,  (3) delivering a copy, prepared
         in  conformity  with GAAP  (subject  to  year-end  adjustments  and the
         absence of  footnotes),  of (i)  financial  statements of the Person or
         business so acquired for the  immediately  preceding  four  consecutive
         Fiscal Quarter period  corresponding to the calculation  period for the
         financial  covenants  in the  immediately  preceding  clause  and  (ii)
         audited or reviewed  financial  statements of the Person or business so
         acquired  for the fiscal  year ended  within such period of such Person
         and  (4)  revised  financial   projections  (in  a  form  substantially
         consistent with previously  provided  projections)  for the Company pro
         forma for any proposed  Permitted  Acquisition in excess of $50,000,000
         for the succeeding four Fiscal Quarters; and

                 (vii) Company may consummate the World Medical Acquisition.

7.8      Consolidated Capital Expenditures.

                 Company  shall not, and shall not permit its  Subsidiaries  to,
make  or  incur  Consolidated  Capital  Expenditures  in any  Fiscal  Year in an
aggregate amount in excess of (a) for Fiscal Year 1999, $75,000,000, and (b) for
Fiscal Year 2000 and each Fiscal Year  thereafter,  an amount equal to 5% of the
consolidated  revenues of Company and its  Subsidiaries  for such Fiscal Year as
shown on the  audited  consolidated  financial  statements  of  Company  and its
Subsidiaries  for such  Fiscal  Year (in each case,  the  "Maximum  Consolidated
Capital  Expenditures  Amount");  provided that the Maximum Consolidated Capital
Expenditures Amount for any Fiscal Year shall be increased by an amount equal to
the excess,  if any (but in no event more than 50% of the  Maximum  Consolidated
Capital  Expenditures  Amount  for the  previous  Fiscal  Year (as  adjusted  in
accordance with this proviso)) of the Maximum  Consolidated Capital Expenditures
Amount for the  immediately  preceding  Fiscal  Year over the  actual  amount of
Consolidated Capital Expenditures for such previous Fiscal Year.

7.9      Sale or Discount of Receivables.

                 Company shall not, and shall not permit any of its Subsidiaries
to,  directly or indirectly,  sell with recourse,  or discount or otherwise sell
for less than the face value  thereof,  any of its notes or accounts  receivable
sold for purposes of collection and for which  reserves had been  established in
accordance with GAAP.

                                      117

<PAGE>

7.10     Transactions with Shareholders and Affiliates.

                 Company shall not, and shall not permit any of its Subsidiaries
to,  directly  or  indirectly,  enter  into or permit  to exist any  transaction
(including  the  purchase,  sale,  lease  or  exchange  of any  property  or the
rendering of any service)  with any holder of 10% or more of any class of equity
Securities of Company or with any Affiliate of Company or of any such holder, on
terms that are less favorable to Company or that Subsidiary, as the case may be,
than those that might be  obtained  at the time from  Persons who are not such a
holder or Affiliate;  provided that the foregoing restriction shall not apply to
(i)  any  transaction  between  Company  and  any  of  its  direct  or  indirect
wholly-owned  Subsidiaries or between any of its direct or indirect wholly-owned
Subsidiaries or (ii) reasonable and customary fees paid to members of the Boards
of Directors of Company and its  Subsidiaries  or (iii) as set forth on Schedule
7.10 annexed hereto.

7.11     Disposal of Subsidiary Stock.

                 Except  for any  sale of 100% of the  capital  stock  or  other
equity  Securities of any of its  Subsidiaries in compliance with the provisions
of subsection 7.7(v), Company shall not:

                 (i) directly or indirectly  sell,  assign,  pledge or otherwise
         encumber  or dispose of any  shares of  capital  stock or other  equity
         Securities of any of its  Subsidiaries,  except to qualify directors if
         required by applicable law; or

                 (ii) permit any of its  Subsidiaries  directly or indirectly to
         sell, assign,  pledge or otherwise encumber or dispose of any shares of
         capital  stock or other equity  Securities  of any of their  respective
         Subsidiaries  (including such Subsidiary),  except to Company,  another
         Subsidiary of Company or to qualify directors if required by applicable
         law.

7.12     Conduct of Business.

                 From and after the Closing  Date,  Company shall not, and shall
not permit any of its Subsidiaries to, engage in any business other than (i) the
businesses  engaged in by Company and its  Subsidiaries  on the Closing Date and
similar or related businesses (as described on Schedule 7.12 annexed hereto) and
(ii) such other lines of business as may be consented to by Requisite Lenders.

                                       118

<PAGE>

7.13     Amendments or Waivers of Certain Related Agreements

         A. Amendments or Waivers of Certain Related Agreements. Neither Company
nor any of its Subsidiaries  shall agree to any material  amendment to, or waive
any of its material rights under, any Related  Agreement (other than any Related
Agreement  evidencing or governing any  Permitted  Subordinated  Debt) after the
Closing  Date  without  in each case  obtaining  the prior  written  consent  of
Requisite Lenders to such amendment or waiver.

         B.  Amendments of Documents  Relating to Permitted  Subordinated  Debt.
Company  shall not,  and shall not permit any of its  Subsidiaries  to, amend or
otherwise  change  the terms of any  Permitted  Subordinated  Debt,  or make any
payment consistent with an amendment thereof or change thereto, if the effect of
such  amendment  or change is to increase the  interest  rate on such  Permitted
Subordinated  Debt,  change (to earlier  dates) any dates upon which payments of
principal or interest are due thereon,  change any event of default or condition
to an event of default with respect  thereto  (other than to eliminate  any such
event of default or increase any grace period with respect thereto),  change the
redemption,   prepayment   or   defeasance   provisions   thereof,   change  the
subordination  provisions  thereof (or of any guaranty  thereof),  or change any
collateral therefor (other than to release such collateral), or if the effect of
such amendment or change, together with all other amendments or changes made, is
to increase  materially the  obligations of the obligor  thereunder or to confer
any additional  rights on the holders of such Permitted  Subordinated Debt (or a
trustee  or other  representative  on their  behalf)  which  would be adverse to
Company or Lenders.

7.14     Fiscal Year

                 Company shall not change its Fiscal Year-end from June 30.

Section 8.       EVENTS OF DEFAULT

                 If  any of the  following  conditions  or  events  ("Events  of
Default") shall occur:

8.1      Failure to Make Payments When Due.

                 Failure by Company to pay any  installment  of principal of any
Loan when  due,  whether  at  stated  maturity,  by  acceleration,  by notice of
voluntary prepayment,  by mandatory prepayment or otherwise;  failure by Company
to pay when due any amount payable to an Issuing Lender in  reimbursement of any
drawing  under a Letter of Credit;  or failure by Company to pay any interest on
any Loan or any fee or any other  amount due under this  Agreement  within  five
days after the date due; or

                                      119

<PAGE>

8.2      Default in Other Agreements.

                 (i) Failure of Company or any of its  Subsidiaries  to pay when
due any  principal of or interest on or any other  amount  payable in respect of
one or more  items of  Indebtedness  (other  than  Indebtedness  referred  to in
subsection 8.1) or Contingent  Obligations,  in each case in an individual or an
aggregate  outstanding  principal  amount of  $10,000,000  or more, in each case
beyond the end of any grace period provided therefor; or

                 (ii)  breach or default  by Company or any of its  Subsidiaries
with respect to any other material term of (a) one or more items of Indebtedness
or  Contingent  Obligations  in the  individual or aggregate  principal  amounts
referred to in clause (i) above or (b) any loan agreement,  mortgage,  indenture
or other  agreement  relating  to such  item(s) of  Indebtedness  or  Contingent
Obligation(s), if the effect of such breach or default is to cause, or to permit
the holder or holders of that  Indebtedness  or Contingent  Obligation(s)  (or a
trustee on behalf of such  holder or  holders) to cause,  that  Indebtedness  or
Contingent  Obligation(s)  to become or be declared due and payable prior to its
stated maturity or the stated maturity of any underlying obligation, as the case
may be (upon  the  giving  or  receiving  of  notice,  lapse of time,  both,  or
otherwise); or

8.3      Breach of Certain Covenants.

                 Failure  of  Company  to  perform  or  comply  with any term or
condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or

8.4      Breach of Warranty.

                 Any representation,  warranty, certification or other statement
made by  Company  or any of its  Subsidiaries  in any  Loan  Document  or in any
statement or certificate at any time given by Company or any of its Subsidiaries
in writing  pursuant  hereto or thereto or in  connection  herewith or therewith
shall be false in any material respect on the date as of which made; or

8.5      Other Defaults Under Loan Documents.

                 Any  Loan  Party  shall  default  in  the   performance  of  or
compliance  with any term  contained in this  Agreement or any of the other Loan
Documents,  other than any such term referred to in any other subsection of this
Section 8, and such  default  shall not have been  remedied or waived  within 30
days after the earlier of (i) an officer of Company or such Loan Party  becoming
aware of such  default or (ii)  receipt by Company and such Loan Party of notice
from any Agent or any Lender of such default; or

                                      120

<PAGE>

8.6      Involuntary Bankruptcy; Appointment of Receiver, etc.

                 (i) A court having  jurisdiction  in the premises shall enter a
decree  or order  for  relief  in  respect  of  Company  or any of its  Material
Subsidiaries in an involuntary case under the Bankruptcy Code or under any other
applicable  bankruptcy,  insolvency  or similar law now or  hereafter in effect,
which  decree or order is not  stayed;  or any  other  similar  relief  shall be
granted under any applicable  federal or state law; or (ii) an involuntary  case
shall be commenced against Company or any of its Material Subsidiaries under the
Bankruptcy Code or under any other applicable bankruptcy,  insolvency or similar
law now or  hereafter  in  effect;  or a  decree  or  order  of a  court  having
jurisdiction  in the premises  for the  appointment  of a receiver,  liquidator,
sequestrator,  trustee,  custodian or other officer  having  similar powers over
Company or any of its Material  Subsidiaries,  or over all or a substantial part
of its  property,  shall have been  entered;  or there shall have  occurred  the
involuntary  appointment of an interim  receiver,  trustee or other custodian of
Company or any of its Material Subsidiaries for all or a substantial part of its
property;  or a warrant of attachment,  execution or similar  process shall have
been issued  against any  substantial  part of the property of Company or any of
its  Material  Subsidiaries,  and any such event  described  in this clause (ii)
shall continue for 60 days unless dismissed, bonded or discharged; or

8.7      Voluntary Bankruptcy; Appointment of Receiver, etc.

                 (i) Company or any of its Material  Subsidiaries  shall have an
order for relief  entered with respect to it or commence a voluntary  case under
the  Bankruptcy  Code or under any other  applicable  bankruptcy,  insolvency or
similar  law now or  hereafter  in effect,  or shall  consent to the entry of an
order for relief in an involuntary  case, or to the conversion of an involuntary
case  to a  voluntary  case,  under  any  such  law,  or  shall  consent  to the
appointment of or taking  possession by a receiver,  trustee or other  custodian
for all or a substantial part of its property; or Company or any of its Material
Subsidiaries  shall make any  assignment  for the benefit of creditors;  or (ii)
Company  or any of its  Material  Subsidiaries  shall be  unable,  or shall fail
generally,  or shall  admit in writing its  inability,  to pay its debts as such
debts  become due; or the Board of  Directors  of Company or any of its Material
Subsidiaries (or any committee  thereof) shall adopt any resolution or otherwise
authorize  any action to approve  any of the  actions  referred to in clause (i)
above or this clause (ii); or

8.8      Judgments and Attachments.

                 Any money  judgment,  writ or warrant of  attachment or similar
process  involving (i) in any individual  case an amount in excess of $5,000,000
or (ii) in the  aggregate  an amount in  excess of  $10,000,000  at any time (in
either  case not  adequately  covered  by  insurance  as to which a solvent  and
unaffiliated  insurance  company has acknowledged  coverage) shall be entered or
filed  against  Company or any of its  Subsidiaries  or any of their  respective
assets and shall  remain  undischarged,  unvacated,  unbonded or unstayed  for a
period of 60 days (or in any event later than five days prior to the date of any
proposed sale thereunder); or

                                      121

<PAGE>

8.9      Dissolution.

                 Any order,  judgment or decree shall be entered against Company
or any of its Material  Subsidiaries  decreeing the  dissolution  or split up of
Company or that Material  Subsidiary and such order shall remain undischarged or
unstayed for a period in excess of 30 days; or

8.10     Employee Benefit Plans.

                 There shall occur one or more ERISA Events  which  individually
or in the aggregate results in liability of Company,  any of its Subsidiaries or
any of their respective ERISA Affiliates in excess of $5,000,000 during the term
of  this  Agreement;  or  there  shall  exist  an  amount  of  unfunded  benefit
liabilities (as defined in Section  4001(a)(18) of ERISA),  individually for any
Pension Plans (excluding for purposes of such computation any Pension Plans with
respect to which assets exceed benefit liabilities), which exceeds $5,000,000 or
$10,000,000 in the aggregate for all Pension Plans; or

8.11     Change in Control.

                 A Change of Control shall have occurred; or

8.12     Invalidity of Subsidiary Guaranty;  Failure of Security; Repudiation of
         Obligations.

                 At any time after the execution and delivery  thereof,  (i) the
Subsidiary  Guaranty for any reason,  other than the satisfaction in full of all
Obligations,  shall  cease  to be in  full  force  and  effect  (other  than  in
accordance  with its terms) or shall be declared  to be null and void,  (ii) any
Collateral  Document  shall cease to be in full force and effect  (other than by
reason of a release of Collateral thereunder in accordance with the terms hereof
or thereof, the satisfaction in full of the Obligations or any other termination
of such  Collateral  Document in accordance with the terms hereof or thereof) or
shall be declared null and void, or Administrative Agent shall not have or shall
cease  to have a valid  and  perfected  First  Priority  Lien in any  Collateral
purported to be covered  thereby having a fair market value  individually  or in
the aggregate exceeding  $5,000,000,  in each case for any reason other than the
failure of  Administrative  Agent or any  Lender to take any  action  within its
control, or (iii) any Loan Party shall contest the validity or enforceability of
any  Loan  Document  in  writing  or deny  in  writing  that it has any  further
liability,  including  with respect to future  Loans by Lenders,  under any Loan
Document to which it is a party; or

8.13     Failure to Consummate Acquisition.

                 The  Acquisition  shall not be consummated  in accordance  with
this  Agreement and the  applicable  Related  Agreements  concurrently  with the
making of the initial Loans,  or the Acquisition  shall be unwound,  reversed or
otherwise rescinded in whole or in part for any

                                      122

<PAGE>

reason:

THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid  principal  amount of and accrued interest on the
Loans,  (b) an amount equal to the maximum  amount that may at any time be drawn
under all Letters of Credit  then  outstanding  (whether or not any  beneficiary
under any such Letter of Credit  shall have  presented,  or shall be entitled at
such time to present, the drafts or other documents or certificates  required to
draw  under  such  Letter  of  Credit),  and (c)  all  other  Obligations  shall
automatically become immediately due and payable,  without presentment,  demand,
protest or other  requirements  of any kind,  all of which are hereby  expressly
waived by  Company,  and the  obligation  of each  Lender to make any Loan,  the
obligation  of the Lender  that is  Administrative  Agent to issue any Letter of
Credit and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate, and (ii) upon the occurrence and during the continuation of
any other Event of Default, Administrative Agent shall, upon the written request
or with the written consent of Requisite Lenders,  by written notice to Company,
declare all or any portion of the amounts  described  in clauses (a) through (c)
above to be, and the same shall forthwith  become,  immediately due and payable,
and  the  obligation  of each  Lender  to  make  any  Loan,  the  obligation  of
Administrative  Agent to issue any  Letter of Credit and the right of any Lender
to issue any Letter of Credit hereunder shall thereupon terminate; provided that
the  foregoing  shall not affect in any way the  obligations  of  Lenders  under
subsection  3.3C(i) or the obligations of Lenders to purchase  participations in
any unpaid Swing Line Loans as provided in subsection 2.1A(iv).

                 Any amounts  described  in clause (b) above,  when  received by
Administrative  Agent,  shall be held by  Administrative  Agent  pursuant to the
terms of the  Collateral  Account  Agreement  and shall be  applied  as  therein
provided.

                 Notwithstanding  anything  contained  in the  second  preceding
paragraph,  if at any time  within 30 days  after an  acceleration  of the Loans
pursuant  to clause  (ii) of such  paragraph  Company  shall pay all  arrears of
interest and all  payments on account of  principal  which shall have become due
otherwise than as a result of such acceleration (with interest on principal and,
to the extent permitted by law, on overdue  interest,  at the rates specified in
this Agreement) and all Events of Default and Potential Events of Default (other
than  non-payment of the principal of and accrued interest on the Loans, in each
case  which is due and  payable  solely  by  virtue  of  acceleration)  shall be
remedied or waived  pursuant to subsection  10.6,  then  Requisite  Lenders,  by
written  notice  to  Company,  may  at  their  option  rescind  and  annul  such
acceleration  and its  consequences;  but  such  action  shall  not  affect  any
subsequent  Event of Default or  Potential  Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind
Lenders to a decision which may be made at the election of Requisite Lenders and
are  not  intended,  directly  or  indirectly,  to  benefit  Company,  and  such
provisions  shall not at any time be construed so as to grant  Company the right
to require Lenders to rescind or annul any acceleration hereunder or to preclude
Administrative  Agent or Lenders from  exercising  any of the rights or remedies
available to them under any of the Loan  Documents,  even if the  conditions set
forth in this paragraph are met.

                                      123

<PAGE>

Section 9.   ADMINISTRATIVE  AGENT

9.1      Appointment.

         A.  Appointment of Agents.  Royal Bank of Canada is hereby appointed as
Administrative  Agent and DLJ  Capital  Funding,  Inc.  is hereby  appointed  as
Syndication  Agent,  each so  appointed  hereunder  and  under  the  other  Loan
Documents,  and each Lender hereby  authorizes each Agent to act as its agent in
accordance  with the  terms of this  Agreement  and the  other  Loan  Documents.
Administrative Agent agrees to act upon the express conditions contained in this
Agreement and the other Loan  Documents,  as applicable.  The provisions of this
Section 9 are solely for the  benefit of each  Agent and  Lenders,  and  Company
shall  have no  rights as a third  party  beneficiary  of any of the  provisions
hereof. In performing its functions and duties under this Agreement,  each Agent
shall act  solely as an agent of  Lenders  and does not  assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for Company or any of its Subsidiaries.

         B. Appointment of Supplemental  Collateral Agents. It is the purpose of
this  Agreement and the other Loan Documents that there shall be no violation of
any  law of any  jurisdiction  denying  or  restricting  the  right  of  banking
corporations or associations to transact business as agent in such jurisdiction.
It is recognized  that in case of litigation  under this Agreement or any of the
other Loan Documents, and in particular in case of the enforcement of any of the
Loan  Documents,  or in case  Administrative  Agent  deems that by reason of any
present or future law of any jurisdiction it may not exercise any of the rights,
powers or remedies  granted herein or in any of the other Loan Documents or take
any other action which may be desirable or necessary in connection therewith, it
may be necessary that Administrative  Agent appoint an additional  individual or
institution as a separate agent,  collateral  agent or collateral  co-agent (any
such additional  individual or institution being referred to herein individually
as  a  "Supplemental   Collateral   Agent"  and  collectively  as  "Supplemental
Collateral Agents").

                 In the event that Administrative  Agent appoints a Supplemental
Collateral  Agent with  respect  to any  Collateral,  (i) each and every  right,
power,  privilege or duty  expressed or intended by this Agreement or any of the
other  Loan   Documents  to  be  exercised  by  or  vested  in  or  conveyed  to
Administrative Agent with respect to such Collateral shall be exercisable by and
vest in such  Supplemental  Collateral  Agent  to the  extent,  and  only to the
extent,  necessary to enable such Supplemental Collateral Agent to exercise such
rights,  powers and  privileges  with respect to such  Collateral and to perform
such duties with respect to such  Collateral,  and every covenant and obligation
contained in the Loan  Documents  and  necessary to the exercise or  performance
thereof by such Supplemental Collateral Agent shall run to and be enforceable by
either Administrative Agent or such Supplemental  Collateral Agent, and (ii) the
provisions  of this  Section 9 and of  subsections  10.2 and 10.3 that  refer to
Administrative Agent shall inure to the benefit of such Supplemental  Collateral
Agent and all references  therein to Administrative  Agent shall be deemed to be
references to Administrative

                                      124

<PAGE>

Agent and/or such Supplemental Collateral Agent, as the context may require.

                 Should any instrument in writing from Company or any other Loan
Party  be  required  by  any  Supplemental  Collateral  Agent  so  appointed  by
Administrative  Agent for more fully and certainly  vesting in and confirming to
it such rights,  powers,  privileges and duties,  Company shall,  or shall cause
such other Loan Party to,  execute,  acknowledge  and  deliver  any and all such
instruments  promptly  upon  request  by  Administrative   Agent.  In  case  any
Supplemental  Collateral  Agent, or a successor  thereto,  shall cease to exist,
become bankrupt or insolvent,  become incapable of acting, resign or be removed,
all the rights,  powers,  privileges and duties of such Supplemental  Collateral
Agent,  to the  extent  permitted  by law,  shall  vest in and be  exercised  by
Administrative  Agent until the  appointment  of a new  Supplemental  Collateral
Agent.

9.2      Powers and Duties; General Immunity.

         A. Powers;  Duties Specified.  Each Lender irrevocably  authorizes each
Agent to take such action on such  Lender's  behalf and to exercise such powers,
rights  and  remedies  hereunder  and  under  the other  Loan  Documents  as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together  with such  powers,  rights and remedies as are  reasonably  incidental
thereto.  Each Agent shall have only those duties and responsibilities  that are
expressly  specified in this Agreement and the other Loan Documents.  Each Agent
may  exercise  such  powers,  rights and  remedies and perform such duties by or
through   its   officers,    directors,    agents,   employees,    trustees   or
attorneys-in-fact.  No Agent shall have,  by reason of this  Agreement or any of
the other Loan Documents, a fiduciary relationship in respect of any Lender; and
nothing in this  Agreement  or any of the other  Loan  Documents,  expressed  or
implied, is intended to or shall be so construed as to impose upon any Agent any
obligations  in respect  of this  Agreement  or any of the other Loan  Documents
except as expressly set forth herein or therein.

         B. No Responsibility for Certain Matters. No Agent shall be responsible
to  any  Lender  for  the  execution,   effectiveness,   genuineness,  validity,
enforceability,  collectibility  or  sufficiency  of this Agreement or any other
Loan  Document or for any  representations,  warranties,  recitals or statements
made  herein or therein  or made in any  written  or oral  statements  or in any
financial or other statements, instruments, reports or certificates or any other
documents  furnished  or made by such  Agent to  Lenders  or by or on  behalf of
Company to such Agent or any Lender in  connection  with the Loan  Documents and
the transactions contemplated thereby or for the financial condition or business
affairs  of  Company  or  any  other  Person  liable  for  the  payment  of  any
Obligations,  nor shall such Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or  agreements  contained  in any of the Loan  Documents or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or as to the existence
or possible  existence  of any Event of Default or  Potential  Event of Default.
Anything contained in this Agreement to the contrary  notwithstanding,  no Agent
shall have any liability arising from confirmations of the amount of outstanding
Loans or the Letter of Credit Usage or the component amounts thereof.

                                      125

<PAGE>

         C. Exculpatory Provisions. No Agent nor any of its respective officers,
directors,  employees,  trustees, agents or attorneys-in-fact shall be liable to
Lenders  for any action  taken or omitted by such Agent  under or in  connection
with any of the Loan Documents except to the extent caused by such Agent's gross
negligence or willful  misconduct.  Each Agent shall be entitled to refrain from
any act or the taking of any action (including the failure to take an action) in
connection  with this  Agreement or any of the other Loan  Documents or from the
exercise  of any  power,  discretion  or  authority  vested in it  hereunder  or
thereunder  unless and until such Agent  shall  have  received  instructions  in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such  instructions  under  subsection  10.6) and,  upon  receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such  Agent  shall be  entitled  to act or (where so  instructed)  refrain  from
acting, or to exercise such power,  discretion or authority,  in accordance with
such  instructions.  Without  prejudice to the generality of the foregoing,  (i)
each Agent shall be entitled to rely,  and shall be fully  protected in relying,
upon any communication,  instrument or document believed by it to be genuine and
correct  and to have been signed or sent by the proper  person or  persons,  and
shall be entitled  to rely and shall be  protected  in relying on  opinions  and
judgments of attorneys (who may be attorneys for Company and its  Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action  whatsoever  against any Agent as a result
of such Agent acting or (where so instructed)  refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of  Requisite  Lenders  (or such other  Lenders as may be  required to give such
instructions under subsection 10.6).

         D. Agents Entitled to Act as Lender.  The agencies hereby created shall
in no way impair or affect any of the rights and powers of, or impose any duties
or obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its  participation in the Loans and the Letters of Credit,  each
Agent shall have the same rights and powers  hereunder  as any other  Lender and
may exercise  the same as though it were not  performing  the agency  duties and
functions  delegated to it hereunder,  and the term "Lender" or "Lenders" or any
similar term shall, unless the context clearly otherwise indicates, include such
Agent in its  individual  capacity as Lender.  Each Agent and its Affiliates and
Related Funds may accept  deposits from,  lend money to and generally  engage in
any kind of banking, trust, financial advisory or other business with Company or
any of its Affiliates as if it were not performing the duties  specified  herein
and may  accept  fees and other  consideration  from  Company  for  services  in
connection  with this Agreement and otherwise  without having to account for the
same to Lenders.

                                      126

<PAGE>

9.3      Representations  and  Warranties;  No  Responsibility  For Appraisal of
         Credit-worthiness.

                 Each Lender  represents  and warrants  that it has made its own
independent  investigation of the financial condition and affairs of Company and
its  Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit  hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Company and its Subsidiaries.  No Agent
shall  have any duty or  responsibility,  either  initially  or on a  continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide  any  Lender  with any credit or other  information  with  respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter,  and no Agent shall have any  responsibility  with
respect to the accuracy of or the  completeness of any  information  provided to
Lenders.

9.4      Right to Indemnity.

                 Each Lender,  in  proportion  to its Pro Rata Share,  severally
agrees to  indemnify  each  Agent,  to the extent that such Agent shall not have
been  reimbursed  by  Company,   for  and  against  any  and  all   liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses (including  reasonable counsel fees and disbursements) or disbursements
of any kind or  nature  whatsoever  which  may be  imposed  on,  incurred  by or
asserted  against such Agent in  exercising  its powers,  rights and remedies or
performing  its duties  hereunder or under the other Loan Documents or otherwise
in its capacity as  Administrative  Agent or Syndication  Agent, as the case may
be, in any way  relating to or arising out of this  Agreement  or the other Loan
Documents;  provided  that no Lender  shall be liable  for any  portion  of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses  or  disbursements  with  respect  to an  Agent  to the  extent
resulting  from such Agent's  gross  negligence  or willful  misconduct.  If any
indemnity  furnished to any Agent for any purpose shall,  in the opinion of such
Agent, be insufficient  or become  impaired,  such Agent may call for additional
indemnity and cease, or not commence,  to do the acts indemnified  against until
such additional indemnity is furnished.

                                      127

<PAGE>

9.5      Successor Agents and Swing Line Lender.

                 A. Successor Agents.  Administrative Agent may resign by giving
30 days' prior written notice thereof to Syndication Agent, Lenders and Company,
and such  resignation  shall  only be  effective  upon the  appointment  of, and
acceptance of such appointment by, a successor  Administrative Agent pursuant to
this subsection 9.5, which successor must be a financial institution  reasonably
satisfactory to Company;  provided that  Administrative  Agent may resign at any
time if Company shall be in default in the payment of any amount owed by Company
to Administrative Agent in such capacity. Administrative Agent may be removed at
any time with or without cause by an instrument  or  concurrent  instruments  in
writing  delivered to Company and  Administrative  Agent and signed by Requisite
Lenders.  Syndication Agent may resign at any time upon one Business Day's prior
notice  thereof to Company  and  Administrative  Agent.  Upon any such notice of
resignation of Administrative  Agent or Syndication Agent or any such removal of
Administrative Agent, Requisite Lenders shall have the right, upon five Business
Days'  notice  to  Company,  to  appoint  a  successor  Administrative  Agent or
Syndication  Agent,  as the case may be, which  replacement  must be a financial
institution  reasonably  satisfactory  to Company.  Upon the  acceptance  of any
appointment as  Administrative  Agent or Syndication  Agent, as the case may be,
hereunder by a successor  Administrative Agent or Syndication Agent, as the case
may be, that successor  Administrative  Agent or Syndication  Agent, as the case
may be,  shall  thereupon  succeed to and  become  vested  with all the  rights,
powers, privileges and duties of the retiring or removed Administrative Agent or
Syndication   Agent,   as  the  case  may  be,  and  the   retiring  or  removed
Administrative  Agent  or  Syndication  Agent,  as the  case  may be,  shall  be
discharged  from its duties and  obligations  under  this  Agreement.  After any
retiring or removed  Administrative  Agent's or Syndication Agent's, as the case
may be, resignation or removal hereunder as Administrative  Agent or Syndication
Agent,  as the case may be, the  provisions of this Section 9 shall inure to its
benefit  as to any  actions  taken  or  omitted  to be  taken by it while it was
Administrative  Agent or  Syndication  Agent,  as the case  may be,  under  this
Agreement.

                 B. Successor  Swing Line Lender.  Any resignation or removal of
Administrative  Agent  pursuant to  subsection  9.5A shall also  constitute  the
resignation  or removal of Royal Bank of Canada or its  successor  as Swing Line
Lender  (notwithstanding  whether  such  Person  may  continue  to  be a  Lender
hereunder),  and  any  successor  Administrative  Agent  appointed  pursuant  to
subsection  9.5A shall,  upon its  acceptance  of such  appointment,  become the
successor  Swing Line Lender for all  purposes  hereunder.  In such  event,  (i)
Company  shall prepay any  outstanding  Swing Line Loans made by the retiring or
removed Swing Line Lender,  (ii) upon such  prepayment,  the retiring or removed
Swing Line Lender shall  surrender the Swing Line Note held by it to Company for
cancellation  and  (iii)  Company  shall  issue  a new  Swing  Line  Note to the
successor  Swing Line  Lender  substantially  in the form of Exhibit VII annexed
hereto, in the principal amount of the Swing Line Loan Commitment then in effect
and with other appropriate insertions.

                                      128

<PAGE>

9.6      Collateral Documents and Subsidiary Guaranty.

                 Each Lender and  Syndication  Agent hereby  further  authorizes
Administrative Agent, on behalf of and for the benefit of Lenders and Agents, to
enter into each Collateral Document as secured party and to be the agent for and
representative  of Lenders and Agents under the  Subsidiary  Guaranty,  and each
Lender  and  each  Agent  agrees  to be bound  by the  terms of each  Collateral
Document and Guaranty;  provided that  Administrative  Agent shall not (i) enter
into or consent to any material amendment,  modification,  termination or waiver
of any provision contained in any Collateral Document or the Subsidiary Guaranty
or (ii)  release any  Collateral  (except as  otherwise  expressly  permitted or
required  pursuant to the terms of this Agreement or the  applicable  Collateral
Document),  in each case without the prior consent of Requisite  Lenders (or, if
required pursuant to subsection 10.6, all Lenders);  provided further,  however,
that,   without  further  written   consent  or   authorization   from  Lenders,
Administrative  Agent may execute any documents or instruments  necessary to (a)
release any Lien  encumbering  any item of  Collateral  that is the subject of a
sale  or  other  disposition  of  assets  permitted  by  this  Agreement  or the
applicable  Collateral  Document or to which  Requisite  Lenders have  otherwise
consented or (b) release any Subsidiary  Guarantor from the Subsidiary  Guaranty
if  all of  the  capital  stock  of  such  Subsidiary  Guarantor  is,  or all or
substantially all of the assets are, sold to any Person (other than an Affiliate
of Company)  pursuant to a sale or other disposition  permitted  hereunder or to
which  Requisite  Lenders  (or such other  Lenders as may be required to consent
under subsection 10.6) have otherwise  consented.  Anything  contained in any of
the Loan  Documents to the  contrary  notwithstanding,  Company,  Administrative
Agent and each  Lender  hereby  agree  that (X) no Lender  shall  have any right
individually to realize upon any of the Collateral under any Collateral Document
or to enforce the Subsidiary  Guaranty,  it being understood and agreed that all
powers,  rights and remedies under the  Collateral  Documents and the Subsidiary
Guaranty  may be  exercised  solely by  Administrative  Agent for the benefit of
Lenders  in  accordance  with  the  terms  thereof,  and (Y) in the  event  of a
foreclosure  by  Administrative  Agent on any of the  Collateral  pursuant  to a
public or private sale,  Administrative Agent or any Lender may be the purchaser
of any or all of such Collateral at any such sale and  Administrative  Agent, as
agent for and representative of Lenders (but not any Lender or Lenders in its or
their respective  individual capacities unless Requisite Lenders shall otherwise
agree in  writing)  shall be  entitled,  for the  purpose of bidding  and making
settlement  or  payment  of the  purchase  price for all or any  portion  of the
Collateral sold at any such public sale, to use and apply any of the Obligations
as a credit on  account  of the  purchase  price for any  Collateral  payable by
Administrative Agent at such sale.

Section 10.  MISCELLANEOUS

10.1     Assignments and Participations in Loans and Letters of Credit.

         A.  General.  Subject to subsection  10.1B,  each Lender shall have the
right at any time to (i) sell,  assign or transfer to any  Eligible  Assignee or
(ii) sell participations to any Person, in all or any part of its Commitments or
any Loan or Loans made by it or its Letters

                                      129

<PAGE>

of Credit or participations therein or any other interest herein or in any other
Obligations  owed to it;  provided  that no such sale,  assignment,  transfer or
participation shall,  without the consent of Company,  require Company to file a
registration  statement with the Securities and Exchange  Commission or apply to
qualify such sale,  assignment,  transfer or participation  under the securities
laws of any state;  provided,  further that no such sale, assignment or transfer
described in clause (i) above shall be effective  unless and until an Assignment
Agreement  effecting such sale,  assignment or transfer shall have been accepted
by  Administrative  Agent and recorded in the Register as provided in subsection
10.1B(ii);  provided,  further  that  no  such  sale,  assignment,  transfer  or
participation of any Letter of Credit or any  participation  therein may be made
separately from a sale, assignment, transfer or participation of a corresponding
interest in the Revolving Loan  Commitment and the Revolving Loans of the Lender
effecting  such sale,  assignment,  transfer  or  participation;  and  provided,
further that,  anything  contained herein to the contrary  notwithstanding,  the
Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not
be sold,  assigned or transferred as described in clause (i) above to any Person
other than a successor  Administrative Agent and Swing Line Lender to the extent
contemplated by subsection 9.5. Except as otherwise  provided in this subsection
10.1, no Lender shall, as between Company and such Lender, be relieved of any of
its obligations hereunder as a result of any sale, assignment or transfer of, or
any granting of  participations  in, all or any part of its  Commitments  or the
Loans, the Letters of Credit or participations therein, or the other Obligations
owed to such Lender.

         B.      Assignments.

                 (i) Amounts and Terms of Assignments.  Each  Commitment,  Loan,
         Letter of Credit or participation  therein,  or other Obligation may be
         (a)  assigned in any amount to another  Lender,  to an Affiliate of the
         assigning  Lender  or  another  Lender,  or to a  Related  Fund  of the
         assigning  Lender  or  another  Lender,  with the  giving  of notice to
         Company and  Administrative  Agent,  or (b)  assigned  in an  aggregate
         amount  of not less than  $5,000,000  (or such  lesser  amount as shall
         constitute the aggregate amount of the Commitments,  Loans,  Letters of
         Credit  and  participations  therein,  and  other  Obligations  of  the
         assigning  Lender) to any other  Eligible  Assignee with the consent of
         (x) Company  (which  consent shall only be required so long as no Event
         of Default has occurred and is continuing)  and (y) the Agents (in each
         case which consent shall not be unreasonably  withheld or delayed).  To
         the extent of any such  assignment in accordance with either clause (a)
         or (b) above, the assigning Lender shall be relieved of its obligations
         with  respect  to  its  Commitments,   Loans,   Letters  of  Credit  or
         participations  therein, or other Obligations or the portion thereof so
         assigned. The parties to each such assignment shall execute and deliver
         to  Administrative  Agent,  for its  acceptance  and  recording  in the
         Register,  an  Assignment  Agreement,  together  with a processing  and
         recordation  fee of  $3,500  and  such  forms,  certificates  or  other
         evidence,  if any,  with respect to United  States  federal  income tax
         withholding matters as the assignee under such Assignment Agreement may
         be required to deliver to  Administrative  Agent pursuant to subsection
         2.7B(iii)(a).   Notwithstanding   anything  to  the   contrary  in  the
         foregoing,  no  processing  and  recordation  fee shall be  payable  in
         respect of assignments  by Syndication  Agent to Lenders with Tranche B

                                      130

<PAGE>

         Term Loan Commitments made within 10 Business Days of the Closing Date.
         Upon such execution,  delivery,  acceptance and  recordation,  from and
         after the effective date specified in such  Assignment  Agreement,  (y)
         the assignee thereunder shall be a party hereto and, to the extent that
         rights and  obligations  hereunder have been assigned to it pursuant to
         such Assignment  Agreement,  shall have (in addition to any such rights
         and obligations theretofore held by it) the rights and obligations of a
         Lender hereunder and (z) the assigning Lender  thereunder shall, to the
         extent that rights and  obligations  hereunder have been assigned by it
         pursuant to such  Assignment  Agreement,  relinquish  its rights (other
         than any rights which survive the  termination of this Agreement  under
         subsection  10.9B)  and be  released  from its  obligations  under this
         Agreement (and, in the case of an Assignment  Agreement covering all or
         the remaining  portion of an assigning  Lender's rights and obligations
         under this  Agreement,  such Lender  shall  cease to be a party  hereto
         (without prejudice to the survival of  representations,  warranties and
         agreements  pursuant  to  subsection  10.9);  provided  that,  anything
         contained in any of the Loan Documents to the contrary notwithstanding,
         if such Lender is the Issuing  Lender with  respect to any  outstanding
         Letters of Credit  such  Lender  shall  continue to have all rights and
         obligations of an Issuing Lender with respect to such Letters of Credit
         until the  cancellation or expiration of such Letters of Credit and the
         reimbursement  of  any  amounts  drawn  thereunder).   The  Commitments
         hereunder shall be modified to reflect the Commitments of such assignee
         and any remaining  Commitment(s)  of such assigning  Lender and, if any
         such assignment  occurs after the issuance of the Notes hereunder,  the
         assigning Lender shall, upon the effectiveness of such assignment or as
         promptly  thereafter as practicable,  surrender its applicable Notes to
         Administrative Agent for cancellation, and thereupon new Notes shall be
         issued to the assignee and to the assigning  Lender,  substantially  in
         the form of Exhibit IV or Exhibit V annexed hereto, as the case may be,
         with  appropriate  insertions,  to reflect the new  Commitments  and/or
         outstanding  Tranche A Term Loans and/or  Tranche B Term Loans,  as the
         case may be, of the assignee and the assigning Lender.

                 (ii)  Acceptance  by  Administrative   Agent;   Recordation  in
         Register.  Upon its receipt of an Assignment  Agreement  executed by an
         assigning  Lender and an assignee  representing  that it is an Eligible
         Assignee,  together with the processing and recordation fee referred to
         in subsection  10.1B(i) and any forms,  certificates  or other evidence
         with respect to United States  federal income tax  withholding  matters
         that such assignee may be required to deliver to  Administrative  Agent
         pursuant to subsection  2.7B(iii)(a),  Administrative  Agent shall,  if
         Agents and Company  (if  required)  have  consented  to the  assignment
         evidenced thereby,  in each case to the extent such consent is required
         pursuant to subsection 10.1B(i)),  (a) accept such Assignment Agreement
         by  executing  a  counterpart   thereof  as  provided   therein  (which
         acceptance  shall  evidence   Administrative  Agent's  receipt  of  any
         required  consent of such Agent and  Company to such  assignment),  (b)
         record the information  contained  therein in the Register and (c) give
         prompt notice thereof to Company. Administrative Agent shall maintain a
         copy of each  Assignment  Agreement  delivered to and accepted by it as
         provided in this subsection 10.1B(ii).

                                      131

<PAGE>

         C.  Participations.  The  holder of any  participation,  other  than an
Affiliate or Related Fund of the Lender granting such  participation,  shall not
be entitled to require such Lender to take or omit to take any action  hereunder
except  action  directly  affecting  (i) the  extension of the  scheduled  final
maturity date of any Loan allocated to such participation or (ii) a reduction of
the principal amount of or the rate of interest payable on any Loan allocated to
such  participation,  (iii)  the  release  of  any  Lien  granted  in  favor  of
Administrative  Agent with respect to 25% or more in aggregate fair market value
of the Collateral, or (iv) any release of any Subsidiary Guarantor or Subsidiary
Guarantors  during the term of this Agreement whose aggregate revenue is greater
than or equal to 25% or more of the  aggregate  revenue of the  Company  and its
Subsidiaries  from its obligations  under the Subsidiary  Guaranty other than in
accordance  with the terms of the Loan  Documents,  and all  amounts  payable by
Company  hereunder  (including  amounts  payable  to  such  Lender  pursuant  to
subsections 2.6D, 2.7 and 3.6 to the extent not resulting in greater obligations
of Company to such participant than to Lender selling such participation)  shall
be determined as if such Lender had not sold such participation.

         D.  Assignments to Federal  Reserve Banks.  For the avoidance of doubt,
the parties to this Agreement acknowledge that the provisions of this subsection
concerning  assignments  of Loans and Notes relate only to absolute  assignments
and  that  such  provisions  do  not  prohibit   assignments  creating  security
interests, including without limitation, any pledge or assignment by a Lender of
any Loan or Note to any Federal  Reserve Bank in accordance with applicable law;
provided  that (i) no Lender  shall,  as between  Company  and such  Lender,  be
relieved of any of its obligations  hereunder as a result of any such assignment
and pledge, (ii) in no event shall such Federal Reserve Bank be considered to be
a "Lender" or be entitled  to require  the  assigning  Lender to take or omit to
take any action  hereunder  and (iii) any Lender that invests in bank loans may,
without the consent of the  Administrative  Agent or Company,  pledge all or any
portion of its rights and obligations hereunder to any trustee for, or any other
representative  of, holders of obligations  owed, or securities  issued, by such
fund, as security for such obligations or securities,  provided further that any
foreclosure or similar action by such trustee shall be subject to the provisions
of this section concerning assignments (including any required consents).

         E.  Information.  Each Lender may furnish  any  information  concerning
Company and its  Subsidiaries in the possession of that Lender from time to time
to   assignees   and   participants   (including   prospective   assignees   and
participants), subject to subsection 10.19.

         F.  Representations  of Lenders.  Each Lender  listed on the  signature
pages hereof hereby  represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition  thereof;  (ii) that it has experience
and expertise in the making or purchasing of loans such as the Loans;  and (iii)
that it will make or  purchase  its Loans for its own  account  in the  ordinary
course of its business and without a view to  distribution  of such Loans within
the  meaning  of the  Securities  Act  or the  Exchange  Act  or  other  federal
securities  laws (it being  understood  that,  subject to the provisions of this
subsection 10.1, the disposition of such Loans or any interests therein shall at
all times remain within its exclusive control). Each Lender that becomes a party
hereto  pursuant to an  Assignment  Agreement  shall be deemed to agree that the
representations  and warranties of such Lender contained in

                                      132

<PAGE>

Section  2(c) of such  Assignment  Agreement  are  incorporated  herein  by this
reference.

10.2     Expenses.

                 Whether or not the  transactions  contemplated  hereby shall be
consummated,  Company  agrees to pay promptly (i) all the actual and  reasonable
costs and expenses of preparation of the Loan Documents incurred by Arranger and
Syndication Agent and any consents,  amendments,  waivers or other modifications
thereto;  (ii) all the costs of  furnishing  all opinions by counsel for Company
(including  any opinions  requested by Lenders as to any legal  matters  arising
hereunder) and of Company's  performance  of and compliance  with all agreements
and conditions on its part to be performed or complied with under this Agreement
and the other Loan  Documents,  including with respect to confirming  compliance
with environmental,  insurance and solvency  requirements;  (iii) the reasonable
fees,  expenses and  disbursements of counsel to Arranger and Agents  (including
allocated  costs of  internal  counsel)  in  connection  with  the  negotiation,
preparation,  execution  and  administration  of  the  Loan  Documents  and  any
consents,  amendments,  waivers  or other  modifications  thereto  and any other
documents  or  matters  requested  by  Company;  (iv) all the  actual  costs and
reasonable  expenses incurred by Syndication Agent and  Administrative  Agent of
creating and perfecting Liens in favor of  Administrative  Agent for the benefit
of Lenders and Agents pursuant to any Collateral Document,  including filing and
recording fees,  expenses and taxes,  stamp or documentary  taxes,  search fees,
title insurance  premiums and reasonable  fees,  expenses and  disbursements  of
counsel to Agents  and of  counsel  providing  any  opinions  that any Agent may
reasonably  request in respect of the Collateral  Documents or the Liens created
pursuant thereto;  (v) all the actual costs and reasonable  expenses  (including
the reasonable fees, expenses and disbursements of any auditors, accountants and
any environmental or other consultants, advisors and agents employed or retained
by Syndication Agent and Administrative Agent or their counsel) of obtaining and
reviewing any environmental audits or reports provided for under subsection 6.7A
or 6.9C and any  audits  or  reports  provided  for under  subsection  6.5B with
respect to Inventory and accounts  receivable  of Company and its  Subsidiaries;
(vi) the  custody  or  preservation  of any of the  Collateral;  (vii) all other
actual and reasonable costs and expenses incurred by Arranger in connection with
the syndication of the Commitments;  and (viii) after the occurrence of an Event
of  Default,  all costs  and  expenses,  including  reasonable  attorneys'  fees
(including  allocated  costs of  internal  counsel)  and  costs  of  settlement,
incurred by Agents (jointly  represented by one lead firm of attorneys and local
counsel (as reasonably  necessary)) and Lenders (jointly represented by one lead
firm of attorneys and local counsel (as reasonably  necessary)) in enforcing any
Obligations of or in collecting  any payments due from any Loan Party  hereunder
or under the other Loan Documents by reason of such Event of Default  (including
in connection with the sale of,  collection from, or other  realization upon any
of the Collateral or the enforcement of the Subsidiary Guaranty or in connection
with any refinancing or restructuring of the credit arrangements  provided under
this  Agreement in the nature of a "work-out"  or pursuant to any  insolvency or
bankruptcy proceedings (including reasonable fees of financial advisors)).

                                      133

<PAGE>

10.3     Indemnity.

                 In addition to the payment of expenses  pursuant to  subsection
10.2, whether or not the transactions  contemplated hereby shall be consummated,
Company  agrees  to  defend  (subject  to  Indemnitees'   selection  of  counsel
reasonably  acceptable to Company),  indemnify,  pay and hold harmless Arranger,
Agents and Lenders, and the officers,  directors,  employees,  trustees, agents,
attorneys-in-fact  and affiliates of Arranger,  Agents and Lenders (collectively
called the "Indemnitees"),  from and against any and all Indemnified Liabilities
(as hereinafter defined); provided that Company shall not have any obligation to
any  Indemnitee  hereunder  with respect to any  Indemnified  Liabilities to the
extent such Indemnified  Liabilities  arise from the gross negligence or willful
misconduct of that Indemnitee.

                 As used herein,  "Indemnified Liabilities" means, collectively,
any  and  all  liabilities,  obligations,  losses,  damages  (including  natural
resource  damages),  penalties,  actions,  judgments,  suits,  claims (including
Environmental Claims),  costs (including the costs of any investigation,  study,
sampling,  testing, abatement,  cleanup, removal,  remediation or other response
action necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity),   expenses  and  disbursements  of  any  kind  or  nature  whatsoever
(including the reasonable fees and  disbursements  of counsel for Indemnitees in
connection  with  any  investigative,   administrative  or  judicial  proceeding
commenced or threatened by any Person,  whether or not any such Indemnitee shall
be designated as a party or a potential party thereto,  and any fees or expenses
incurred by Indemnitees in enforcing this indemnity),  whether direct,  indirect
or  consequential  and  whether  based on any  federal,  state or foreign  laws,
statutes,  rules or  regulations  (including  securities  and  commercial  laws,
statutes,  rules or  regulations  and  Environmental  Laws),  on  common  law or
equitable  cause or on contract or otherwise,  that may be imposed on,  incurred
by, or  asserted  against  any such  Indemnitee,  in any manner  relating  to or
arising out of (i) this  Agreement  or the other Loan  Documents  or the Related
Agreements  or  the  transactions  contemplated  hereby  or  thereby  (including
Lenders' agreement to make the Loans hereunder or the use or intended use of the
proceeds  thereof or the  issuance of Letters of Credit  hereunder or the use or
intended use of any thereof,  or any  enforcement  of any of the Loan  Documents
(including any sale of,  collection  from, or other  realization upon any of the
Collateral or the enforcement of the Subsidiary  Guaranty),  (ii) the statements
contained  in the  commitment  letter  delivered  by any Lender to Company  with
respect  thereto or (iii) any  Environmental  Claim or any  Hazardous  Materials
Activity  relating  to or arising  from,  directly  or  indirectly,  any past or
present activity,  operation,  land ownership,  or practice of Company or any of
its Subsidiaries.

                 To the extent that the undertakings to defend,  indemnify,  pay
and hold  harmless set forth in this  subsection  10.3 may be  unenforceable  in
whole or in part because they are violative of any law or public policy, Company
shall  contribute  the maximum  portion  that it is permitted to pay and satisfy
under  applicable  law to  the  payment  and  satisfaction  of  all  Indemnified
Liabilities incurred by Indemnitees or any of them.

                                      134

<PAGE>

10.4     Set-Off; Security Interest in Deposit Accounts.

                 In  addition  to any  rights  now or  hereafter  granted  under
applicable  law  and not by way of  limitation  of any  such  rights,  upon  the
occurrence  of any Event of Default each Lender is hereby  authorized by Company
at any time or from  time to time,  without  notice to  Company  or to any other
Person,  any  such  notice  being  hereby  expressly  waived,  to set off and to
appropriate  and to apply any and all deposits  (general or special,  including,
but not limited to, Indebtedness  evidenced by certificates of deposit,  whether
matured  or  unmatured,   but  not  including  trust  accounts)  and  any  other
Indebtedness  at any time held or owing by that  Lender to or for the  credit or
the account of Company against and on account of the obligations and liabilities
of  Company  to that  Lender  under this  Agreement,  the  Letters of Credit and
participations therein and the other Loan Documents,  including, but not limited
to, all claims of any nature or  description  arising out of or  connected  with
this Agreement,  the Letters of Credit and  participations  therein or any other
Loan  Document,  irrespective  of whether or not (i) that Lender shall have made
any demand  hereunder  or (ii) the  principal of or the interest on the Loans or
any  amounts  in  respect  of the  Letters  of Credit or any other  amounts  due
hereunder  shall have become due and payable  pursuant to Section 8 and although
said  obligations  and  liabilities,  or  any of  them,  may  be  contingent  or
unmatured.  Company  hereby  further  grants  to each  Agent  and each  Lender a
security  interest  as  security  for the  Obligations  in all right,  title and
interest of Company to all deposits and accounts  maintained  with such Agent or
such Lender.

         Each Lender specifically acknowledges the provisions of this subsection
10.4.  Each Lender further  acknowledges  that one of the  consequences  of such
provisions is that amounts received by  Administrative  Agent for the account of
Lenders may not be distributed on a pro rata basis.  Administrative  Agent shall
be  conclusively  entitled  to rely on any  notice  furnished  pursuant  to this
subsection  10.4 and  neither  Administrative  Agent  nor any of its  directors,
officers,  employees  or agents  shall be liable as such for any action taken or
omitted  by them as  contemplated  or  required  by this  subsection  10.4 or in
reliance  upon any such notice  except to the extent of its gross  negligence or
wilful  misconduct in determining  whether any notice under this subsection 10.4
on its face meets the requirements thereof.

                                      135

<PAGE>

10.5     Ratable Sharing.

                 Lenders  hereby  agree  among  themselves  that  if any of them
shall,  whether by voluntary payment (other than a voluntary prepayment of Loans
made and applied in accordance with the terms of this Agreement), by realization
upon security, through the exercise of any right of set-off or banker's lien, by
counterclaim  or cross action or by the  enforcement of any right under the Loan
Documents or otherwise,  or as adequate  protection of a deposit treated as cash
collateral  under  the  Bankruptcy  Code,  receive  payment  or  reduction  of a
proportion of the aggregate  amount of principal,  interest,  amounts payable in
respect of Letters of Credit,  fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "Aggregate
Amounts Due" to such Lender)  which is greater than the  proportion  received by
any other  Lender in respect of the  Aggregate  Amounts Due of the same Class to
such  other  Lender,  then the Lender  receiving  such  proportionately  greater
payment  shall (i)  notify  Administrative  Agent and each  other  Lender of the
receipt of such  payment  and (ii) apply a portion of such  payment to  purchase
participations (which it shall be deemed to have purchased from each seller of a
participation  simultaneously  upon the receipt by such seller of its portion of
such payment) in the Aggregate Amounts Due to the other Lenders so that all such
recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion
to the  Aggregate  Amounts  Due to  them;  provided  that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or  reorganization  of Company or
otherwise,  those  purchases shall be rescinded and the purchase prices paid for
such  participations  shall be returned to such purchasing Lender ratably to the
extent of such recovery, but without interest. Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien,  set-off or counterclaim  with
respect to any and all  monies  owing by Company  to that  holder  with  respect
thereto as fully as if that  holder  were owed the  amount of the  participation
held by that holder.

                                      136

<PAGE>

10.6     Amendments and Waivers.

                                      137

<PAGE>

                 No  amendment,  modification,  termination  or  waiver  of  any
provision of this Agreement, the Notes or any other Loan Document and no consent
to any departure by Company  therefrom,  shall in any event be effective without
the written concurrence of Requisite Lenders;  provided that any such amendment,
modification,  termination, waiver or consent which: (a) increases the amount of
any of the Commitments or reduces the principal  amount of any of the Loans; (b)
increases the maximum  amount of Letters of Credit or of  Commercial  Letters of
Credit or  Standby  Letters  of  Credit;  (c)  changes  in any manner any of the
following  definitions:  "Class," "Pro Rata Share,"  "Tranche A Pro Rata Share,"
"Tranche  B Pro Rata  Share,"  "Revolving  Pro  Rata  Share,"  "Requisite  Class
Lenders" or "Requisite Lenders"; (d) changes in any manner any provision of this
Agreement which, by its terms, expressly requires the approval or concurrence of
all Lenders;  (e) postpones the scheduled  final maturity date (but not the date
of any scheduled  installment  of principal) of any of the Loans;  (f) postpones
the date or reduces the amount of any scheduled  payment (but not prepayment) of
principal of any of the Loans;  (g)  postpones the date or reduces the amount of
any scheduled  reduction of the Revolving  Loan  Commitments;  (h) postpones the
date on which any interest or any fees are payable;  (i)  decreases the interest
rate borne by any of the Loans  (other  than any waiver of any  increase  in the
interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the
amount of any fees payable  hereunder;  (j)  increases  the maximum  duration of
Interest Periods  permitted  hereunder;  (k) reduces the amount or postpones the
due date of any amount payable in respect of, or extends the required expiration
date of, any  Letter of Credit;  (l)  changes in any manner the  obligations  of
Lenders relating to the purchase of participations in Letters of Credit or Swing
Line Loans; (m) releases any Lien granted in favor of Administrative  Agent with
respect to 25% or more in  aggregate  fair market value of the  Collateral;  (n)
releases any Subsidiary  Guarantor or Subsidiary  Guarantors  during the term of
this Agreement whose  aggregate  revenue is greater than or equal to 25% or more
of  the  aggregate  revenue  of  the  Company  and  its  Subsidiaries  from  its
obligations under the Subsidiary Guaranty, in each case other than in accordance
with  the  terms  of the  Loan  Documents;  (o) or  changes  in any  manner  the
provisions  contained  in  subsection  8.1 or  this  subsection  10.6  shall  be
effective  only if evidenced by a writing signed by or on behalf of all Lenders;
provided, further, that if any matter described in the foregoing proviso relates
only to Tranche A Term Loans or Revolving Loans, the approval of all Lenders who
hold Tranche A Term Loans or Revolving Loan Commitments shall be sufficient and,
if any matter described in the foregoing  proviso relates only to Tranche B Term
Loans,  the  approval  of all  Lenders  who hold  Tranche B Term Loans  shall be
sufficient. In addition, (i) any amendment, modification,  termination or waiver
of any of the  provisions  contained  in  Section 4 shall be  effective  only if
evidenced by a writing  signed by or on behalf of Agents and Requisite  Lenders,
(ii) no amendment,  modification,  termination or waiver of any provision of any
Note shall be effective  without the written  concurrence of the Lender which is
the holder of that Note, (iii) no amendment, modification, termination or waiver
of any  provision  of  subsection  2.1A(iv)  or of any other  provision  of this
Agreement  relating  to the Swing Line Loan  Commitment  or the Swing Line Loans
shall be effective without the written concurrence of Swing Line Lender, (iv) no
amendment, modification,  termination or waiver of any provision of Section 9 or
of any other provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of Agents or of any Agent shall be effective without
the  written  concurrence  of Agents or such  Agent,  as the case may be, (v) no
amendment,  modification,  termination  or waiver of any provision of subsection
2.4 which has

                                      138

<PAGE>

the effect of changing  any  voluntary or mandatory  prepayments  or  Commitment
reductions  applicable  to any Class (the  "Affected  Class")  in a manner  that
disproportionately  disadvantages such Class relative to the other Classes shall
be effective  without the written  concurrence of Requisite Class Lenders of the
Affected Class (it being understood and agreed that any amendment, modification,
termination  or waiver of any such  provision  which only  postpones  or reduces
voluntary or mandatory  prepayment or Commitment  reduction from those set forth
in  subsection  2.4 with  respect to one Class but not the other  Class shall be
deemed   to   disproportionately   disadvantage   such  one  Class  but  not  to
disproportionately  disadvantage  such other  Class for  purposes of this clause
(v)),  and  (vi)  no  amendment,  modification,  termination  or  waiver  of any
Collateral Document having the effect of securing additional Indebtedness (other
than Indebtedness comprising Obligations and Hedge Agreements) by the Collateral
shall be effective without the written  concurrence of Lenders having or holding
more than 66 2/3% of the sum of the  aggregate  Tranche A Term Loan  Exposure of
all Lenders plus the aggregate  Tranche B Term Loan Exposure of all Lenders plus
the aggregate Revolving Loan Exposure of all Lenders.  Administrative Agent may,
but shall have no obligation to, with the written consent of any Lender, execute
amendments,  modifications,  waivers or consents on behalf of that  Lender.  Any
waiver or consent shall be effective  only in the specific  instance and for the
specific  purpose  for which it was given.  No notice to or demand on Company in
any case  shall  entitle  Company  to any other or  further  notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent  effected in accordance  with this  subsection  10.6 shall be binding
upon each Lender at the time  outstanding,  each future Lender and, if signed by
Company, on Company.

10.7     Independence of Covenants.

                 All covenants  hereunder shall be given  independent  effect so
that  if a  particular  action  or  condition  is not  permitted  by any of such
covenants,  the fact that it would be  permitted  by an  exception  to, or would
otherwise be within the  limitations  of,  another  covenant shall not avoid the
occurrence  of an Event of Default or Potential  Event of Default if such action
is taken or condition exists.

                                      139

<PAGE>

10.8     Notices.

                 Unless otherwise  specifically  provided herein,  any notice or
other communication herein required or permitted to be given shall be in writing
and may be personally  served or sent by  telefacsimile or United States mail or
courier  service and shall be deemed to have been given when delivered in person
or by courier service, upon receipt of electronic  confirmation of telefacsimile
or three  Business  Days  after  depositing  it in the United  States  mail with
postage  prepaid and properly  addressed;  provided that notices to Agents shall
not be effective until received.  For the purposes  hereof,  the address of each
party  hereto  shall be as set forth under such  party's  name on the  signature
pages  hereof or (i) as to Company  and Agents,  such other  address as shall be
designated  by such Person in a written  notice  delivered to the other  parties
hereto  and  (ii) as to each  other  party,  such  other  address  as  shall  be
designated by such party in a written notice delivered to  Administrative  Agent
and Company.  Unless otherwise  specifically  provided herein,  notices shall be
deemed  irrevocable  and conclusive  when given and  telephonic  notices (to the
extent  provided  for  herein)  which are to be  confirmed  in writing  shall be
confirmed in writing on the same day.

10.9     Survival of Representations, Warranties and Agreements.

                 A. All  representations,  warranties and agreements made herein
shall survive the execution and delivery of this Agreement and the making of the
Loans and the issuance of and drawing under the Letters of Credit hereunder.

                 B. Notwithstanding anything in this Agreement or implied by law
to the contrary,  the agreements of Company set forth in subsections  2.6D, 2.7,
3.5A,  3.6,  10.2,  10.3 and 10.4 and the  agreements  of  Lenders  set forth in
subsections  9.2C,  9.4 and 10.5 shall  survive  the  payment of the Loans,  the
cancellation or expiration of the Letters of Credit and the reimbursement of any
amounts drawn thereunder, and the termination of this Agreement.

10.10    Failure or Indulgence Not Waiver; Remedies Cumulative.

                 No  failure  or delay on the part of any Agent or any Lender in
the exercise of any power, right or privilege  hereunder or under any other Loan
Document  shall  impair such power,  right or  privilege or be construed to be a
waiver of any default or acquiescence  therein,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof  or of any other  power,  right or  privilege.  All rights and
remedies  existing  under  this  Agreement  and the  other  Loan  Documents  are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

                                      140

<PAGE>

10.11    Marshalling; Payments Set Aside.

                 None of Agents nor any Lender shall be under any  obligation to
marshal  any  assets in favor of  Company  or any other  party or  against or in
payment of any or all of the  Obligations.  To the extent that  Company  makes a
payment or payments  to  Administrative  Agent or Lenders (or to  Administrative
Agent for the  benefit  of  Lenders),  or any of Agents or Lenders  enforce  any
security  interests  or exercise  their  rights of setoff,  and such  payment or
payments or the proceeds of such  enforcement  or setoff or any part thereof are
subsequently invalidated,  declared to be fraudulent or preferential,  set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy  law,  any other state or federal  law,  common law or any  equitable
cause,  then,  to the extent of such  recovery,  the  obligation or part thereof
originally intended to be satisfied, and all Liens, rights and remedies therefor
or related  thereto,  shall be revived and continued in full force and effect as
if such payment or payments had not been made or such  enforcement or setoff had
not occurred.

10.12    Severability.

                 In case any provision in or obligation  under this Agreement or
the Notes shall be invalid,  illegal or unenforceable in any  jurisdiction,  the
validity,   legality  and   enforceability   of  the  remaining   provisions  or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

10.13    Obligations Several; Independent Nature of Lenders' Rights.

                 The obligations of Lenders  hereunder are several and no Lender
shall be  responsible  for the  obligations  or  Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no action
taken by  Lenders  pursuant  hereto or  thereto,  shall be deemed to  constitute
Lenders as a partnership,  an association,  a joint venture or any other kind of
entity.  The amounts  payable at any time  hereunder  to each Lender  shall be a
separate and independent debt, and, subject to subsection 9.6, each Lender shall
be entitled to protect and enforce its rights  arising out of this Agreement and
it shall not be  necessary  for any other  Lender to be joined as an  additional
party in any proceeding for such purpose.

10.14    Headings.

                 Section and subsection  headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.

                                      141

<PAGE>

10.15    Applicable Law.

                 THIS  AGREEMENT AND THE RIGHTS AND  OBLIGATIONS  OF THE PARTIES
HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.

10.16    Successors and Assigns.

                 This  Agreement  shall be binding  upon the parties  hereto and
their  respective  successors  and assigns and shall inure to the benefit of the
parties hereto and the  successors  and assigns of Lenders (it being  understood
that Lenders'  rights of assignment  are subject to  subsection  10.1).  Neither
Company's  rights or  obligations  hereunder  nor any  interest  therein  may be
assigned  or  delegated  by Company  without  the prior  written  consent of all
Lenders. Any attempted or purported assignment in contravention of the preceding
sentence shall be null and void.

10.17    Consent to Jurisdiction and Service of Process.

                 ALL JUDICIAL  PROCEEDINGS BROUGHT AGAINST ANY OF THE PARTIES TO
THIS  AGREEMENT  ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY OBLIGATIONS THEREUNDER,  MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF  COMPETENT  JURISDICTION  IN THE  STATE  AND  COUNTY  OF NEW  YORK.  BY
EXECUTING AND DELIVERING THIS AGREEMENT,  EACH OF THE PARTIES TO THIS AGREEMENT,
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY

                 (I) ACCEPTS  GENERALLY  AND  UNCONDITIONALLY  THE  NONEXCLUSIVE
         JURISDICTION AND VENUE OF SUCH COURTS;

                 (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

                 (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
         IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED  MAIL,  RETURN
         RECEIPT  REQUESTED,  TO COMPANY AT ITS ADDRESS  PROVIDED IN  ACCORDANCE
         WITH SUBSECTION 10.8;

                 (IV) AGREES THAT  SERVICE AS PROVIDED IN CLAUSE  (III) ABOVE IS
         SUFFICIENT  TO CONFER  PERSONAL  JURISDICTION  OVER COMPANY IN ANY SUCH
         PROCEEDING IN ANY SUCH COURT, AND OTHERWISE  CONSTITUTES  EFFECTIVE AND
         BINDING SERVICE IN EVERY RESPECT;

                                      142

<PAGE>

                 (V) AGREES THAT  AGENTS AND  LENDERS  RETAIN THE RIGHT TO SERVE
         PROCESS IN ANY OTHER MANNER  PERMITTED  BY LAW OR TO BRING  PROCEEDINGS
         AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND

                 (VI)  AGREES  THAT  THE  PROVISIONS  OF THIS  SUBSECTION  10.17
         RELATING TO JURISDICTION  AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
         THE FULLEST EXTENT  PERMISSIBLE UNDER NEW YORK GENERAL  OBLIGATIONS LAW
         SECTION 5-1402 OR OTHERWISE.

10.18    Waiver of Jury Trial.

                 EACH OF THE PARTIES TO THIS  AGREEMENT  HEREBY  AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR  ARISING  OUT OF THIS  AGREEMENT  OR ANY OF THE OTHER LOAN  DOCUMENTS  OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR
THE  LENDER/BORROWER  RELATIONSHIP THAT IS BEING ESTABLISHED.  The scope of this
waiver is intended to be  all-encompassing  of any and all disputes  that may be
filed in any court and that  relate to the subject  matter of this  transaction,
including  contract  claims,  tort  claims,  breach of duty claims and all other
common law and statutory claims. Each party hereto acknowledges that this waiver
is a material  inducement to enter into a business  relationship,  that each has
already  relied on this waiver in entering  into this  Agreement,  and that each
will  continue to rely on this waiver in their  related  future  dealings.  Each
party hereto further  warrants and  represents  that it has reviewed this waiver
with its legal  counsel and that it knowingly  and  voluntarily  waives its jury
trial  rights  following   consultation  with  legal  counsel.  THIS  WAIVER  IS
IRREVOCABLE,  MEANING  THAT IT MAY NOT BE MODIFIED  EITHER  ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
10.18 AND EXECUTED BY EACH OF THE PARTIES  HERETO),  AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT  AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR  MODIFICATIONS TO THIS
AGREEMENT  OR ANY OF THE  OTHER  LOAN  DOCUMENTS  OR TO ANY OTHER  DOCUMENTS  OR
AGREEMENTS  RELATING TO CREDIT EXTENDED  HEREUNDER.  In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.

                                      143

<PAGE>

10.19    Confidentiality.

                 Each  Lender  shall hold all  non-public  information  obtained
pursuant to the  requirements  of this  Agreement  which has been  identified as
confidential  by Company in accordance with such Lender's  customary  procedures
for handling confidential information of this nature and in accordance with safe
and sound  commercial  lending  practices,  it being  understood  and  agreed by
Company that in any event a Lender may make  disclosures  to  Affiliates of such
Lender or disclosures reasonably required by any bona fide prospective assignee,
transferee or  participant  in connection  with the  contemplated  assignment or
transfer by such Lender of any Loans or other Obligations or any  participations
therein  or  disclosures  required  or  requested  by  any  governmental  agency
(including,   without   limitation,   the  National   Association  of  Insurance
Commissioners) or representative thereof or pursuant to legal process;  provided
that each such Affiliate and each such bonafide prospective assignee, transferee
or participant shall agree to maintain the  confidentiality  of such information
in accordance  with this  subsection  10.19 and provided  further  that,  unless
specifically  prohibited  by  applicable  law or court order,  each Lender shall
notify  Company of any  request  by any  governmental  agency or  representative
thereof (other than any such request in connection  with any  examination of the
financial  condition of such Lender by such governmental  agency) for disclosure
of any such non-public information prior to disclosure of such information;  and
provided,  further that in no event shall any Lender be obligated or required to
return any materials furnished by Company or any of its Subsidiaries.

10.20    Counterparts; Effectiveness.

                 This  Agreement  and  any  amendments,   waivers,  consents  or
supplements  hereto or in  connection  herewith may be executed in any number of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed and delivered  shall be deemed an original,  but all such
counterparts  together  shall  constitute  but  one  and  the  same  instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single  counterpart so that all signature pages are physically  attached to
the same document. This Agreement shall become effective upon the execution of a
counterpart  hereof by each of the  parties  hereto and  receipt by Company  and
Agents  of  such  counterparts  or,  in the  case  of  any  Lender,  of  written
notification of such execution of signature pages and written  authorization  of
delivery thereof (in each case which may be provided by facsimile transmission).

                  [Remainder of page intentionally left blank]

                                      144

<PAGE>

                 IN  WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first written above.

                          COMPANY:         ARTERIAL VASCULAR  ENGINEERING, INC.,
                                           a Delaware corporation

                                           By:   
                                                 -------------------------------
                                           Title:  
                                                 -------------------------------

                                           Notice Address:

                                                   3576 Unocal Place
                                                   Santa Rosa, California 95403
                                                   Attention: John Miller
                                                   Telephone: (707) 541-3201
                                                   Telecopy:  (707) 522-2248


                          LENDERS:         DLJ CAPITAL FUNDING, INC.,
                                           individually and as Syndication Agent

                                           By:                           
                                                 -------------------------------
                                           Title:                            
                                                 -------------------------------


                                           Notice Address:

                                                   277 Park Avenue, 9th Floor
                                                   New York, NY  10172
                                                   Attention:  Tom Newberry
                                                   Telephone: 212/892-2409
                                                   Telecopy:  212/892-5286

NOTE:  Signature pages in a separate document

                                       S-1
<PAGE>


                                    EXHIBIT I

                          [FORM OF NOTICE OF BORROWING]

                               NOTICE OF BORROWING


                  Pursuant  to  that  certain  Credit   Agreement  dated  as  of
September 30, 1998 (said Credit Agreement, as amended, supplemented or otherwise
modified,  being the  "Credit  Agreement",  the terms  defined  therein  and not
otherwise  defined  herein being used herein as therein  defined),  by and among
Arterial Vascular  Engineering,  Inc.  ("Company"),  the financial  institutions
listed therein as Lenders ("Lenders"), DLJ Capital Funding, Inc., as Syndication
Agent,   Paribas,  as  Documentation   Agent,  and  Royal  Bank  of  Canada,  as
Administrative  Agent (the  "Administrative  Agent"),  this represents Company's
request to borrow as follows:

1.    Date of borrowing:         ___________________, _________

2.    Amount of borrowing:       $___________________

3.    Lender(s):             a. Lenders, in accordance with their applicable Pro
                                   Rata Shares
                             b. Swing Line Lender

4.    Type of Loans:         a. Tranche A Term Loans
                             b. Tranche B Term Loans
                             c. Revolving Loans
                             c. Swing Line Loan

5.    Interest rate option:  a. Base Rate Loan(s)  (must select for Swing Line
                                   Loans)
                             b. Eurodollar Rate Loans with an initial Interest
                                   Period of ____________ month(s)

The  proceeds  of  such  Loans  are to be  deposited  in  Company's  account  at
Administrative Agent.

                  The undersigned  officer, to the best of his or her knowledge,
and Company certify that:

                         (i) The representations and warranties contained in the
                  Credit  Agreement  and the  other  Loan  Documents  are  true,
                  correct and complete in all material respects on and as of the
                  date hereof to the same extent as though made on and as of the
                  date  hereof,  except to the extent such  representations  and
                  warranties  specifically  relate to an earlier  date, in which
                  case such  representations  and warranties were true,  correct
                  and  complete  in all  material  respects  on  and as of  such
                  earlier date;

                                      I-1

<PAGE>

                         (ii) No event has occurred and is  continuing  or would
                  result from the  consummation  of the  borrowing  contemplated
                  hereby  that  would  constitute  an  Event  of  Default  or  a
                  Potential Event of Default; and

                         (iii)  Company has  performed in all material  respects
                  all agreements  and satisfied all conditions  which the Credit
                  Agreement provides shall be performed or satisfied by it on or
                  before the date hereof.

DATED:_______________________           ARTERIAL VASCULAR ENGINEERING, INC.

                                        By:________________________________

                                        Title:_____________________________

                                      I-2

<PAGE>

                                   EXHIBIT II
                   [FORM OF NOTICE OF CONVERSION/CONTINUATION]

                        NOTICE OF CONVERSION/CONTINUATION


                  Pursuant  to  that  certain  Credit   Agreement  dated  as  of
September 30, 1998 (said Credit Agreement, as amended, supplemented or otherwise
modified,  being the  "Credit  Agreement",  the terms  defined  therein  and not
otherwise  defined  herein being used herein as therein  defined),  by and among
Arterial Vascular  Engineering,  Inc.  ("Company"),  the financial  institutions
listed therein as Lenders ("Lenders"), DLJ Capital Funding, Inc., as Syndication
Agent,   Paribas,  as  Documentation   Agent,  and  Royal  Bank  of  Canada,  as
Administrative  Agent (the  "Administrative  Agent"),  this represents Company's
request to convert or continue Loans as follows:

     1.       Date of conversion/continuation:  __________________, _______

     2.       Amount of Loans being converted/continued:  $_________________

     3.       Type of Loans being                a.       Tranche A Term Loan
              converted/continued:               b.       Tranche B Term Loan
                                                 c.       Revolving Loans

     4.       Nature of conversion/continuation:
     a.       Conversion of Base Rate Loans to Eurodollar Rate Loans
     b.       Conversion of Eurodollar Rate Loans to Base Rate Loans
     c.       Continuation of Eurodollar Rate Loans as such

     5. If Loans are being  converted to or continued as Eurodollar  Rate Loans,
  the duration of the new  Interest  Period that  commences  on the  conversion/
  continuation date: _______________ month(s)

     In the case of a conversion to or  continuation  of Eurodollar  Rate Loans,
the  undersigned  officer,  to the  best of his or her  knowledge,  and  Company
certify that no Event of Default or Potential  Event of Default has occurred and
is continuing under the Credit Agreement.

DATED:_______________________           ARTERIAL VASCULAR ENGINEERING, INC.

                                        By:________________________________

                                        Title:_____________________________

                                      II-1

<PAGE>

                                   EXHIBIT III

                [FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT]

                     NOTICE OF ISSUANCE OF LETTER OF CREDIT

                  Pursuant  to  that  certain  Credit   Agreement  dated  as  of
September 30, 1998 (said Credit Agreement, as amended, supplemented or otherwise
modified,  being the  "Credit  Agreement",  the terms  defined  therein  and not
otherwise  defined  herein being used herein as therein  defined),  by and among
Arterial Vascular  Engineering,  Inc.  ("Company"),  the financial  institutions
listed therein as Lenders ("Lenders"), DLJ Capital Funding, Inc., as Syndication
Agent,   Paribas,  as  Documentation   Agent,  and  Royal  Bank  of  Canada,  as
Administrative  Agent (the  "Administrative  Agent"),  this represents Company's
request for the issuance of a Letter of Credit as follows:

     1.       Date of issuance of Letter of Credit:  ________________, ________

     2.       Type of Letter of Credit:  a.      Commercial Letter of Credit
                                         b.      Standby Letter of Credit

     3.       Face amount of Letter of Credit:  $________________________

     4.       Expiration date of Letter of Credit: ________________, ________

     5.       Name and address of beneficiary:

              _____________________________________________________
              _____________________________________________________
              _____________________________________________________
              _____________________________________________________

     6.       Attached hereto is:

                  a.       the verbatim text of such proposed Letter of Credit

                  b. a description  of the proposed terms and conditions of such
              Letter of Credit, including a precise description of any documents
              (including the content thereof) to be presented by the beneficiary
              which,  if presented by the  beneficiary  prior to the  expiration
              date of such Letter of Credit, would require the Issuing Lender to
              make payment under such Letter of Credit.

              The undersigned officer, to the best of his or her knowledge,  and
Company certify that:

                         (i) The representations and warranties contained in the
                  Credit  Agreement  and the  other  Loan  Documents  are  true,
                  correct and complete in all material respects on and as of the
                  date hereof to the same extent as though made on and as of the
                  date  hereof,  except to the extent such  representations  and
                  warranties  specifically  relate to an earlier  date, in which
                  case such  representations  and warranties were true,  correct
                  and  complete  in all  material  respects  on  and as of  such
                  earlier date;

                         (ii) No event has occurred and is  continuing  or would
                  result from the issuance of the Letter of Credit  contemplated
                  hereby  that  would  constitute  an  Event  of  Default  or  a
                  Potential Event of Default; and

                         (iii)  Company has  performed in all material  respects
                  all agreements  and satisfied all conditions  which the Credit
                  Agreement provides shall be performed or satisfied by it on or
                  before the date hereof.

         7. All Letters of Credit  hereunder  pursuant  to the Credit  Agreement
shall be issued  subject  to and in  accordance  with the  Uniform  Customs  and
Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500.

DATED:_______________________           ARTERIAL VASCULAR ENGINEERING, INC.

                                        By:________________________________

                                        Title:_____________________________

                                     III-1

<PAGE>

                                   EXHIBIT IV

                          [FORM OF TRANCHE A TERM NOTE]

                       ARTERIAL VASCULAR ENGINEERING, INC.

                     PROMISSORY NOTE DUE SEPTEMBER 30, 2003

$[1]                                                                         [2]
                                                                             [3]

                  FOR VALUE RECEIVED,  ARTERIAL  VASCULAR  ENGINEERING,  INC., a
Delaware corporation ("Company"),  promises to pay to the order of [4] ("Payee")
or its registered assigns the principal amount of [5] ($[1]) in the installments
referred to below.

                  Company also promises to pay interest on the unpaid  principal
amount hereof,  from the date hereof until paid in full, at the rates and at the
times  which shall be  determined  in  accordance  with the  provisions  of that
certain Credit  Agreement  dated as of September 30, 1998, by and among Company,
the financial institutions listed therein as Lenders, DLJ Capital Funding, Inc.,
as Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada,
as Administrative Agent (the "Administrative  Agent") (said Credit Agreement, as
it may be amended,  supplemented or otherwise  modified from time to time, being
the "Credit  Agreement",  the terms defined  therein and not  otherwise  defined
herein being used herein as therein defined).

                  Company  shall  make  principal   payments  on  this  Note  in
consecutive  quarterly  installments,  commencing on June 30, 1999 and ending on
September 30, 2003. Each such installment  shall be due on the date specified in
the  Credit  Agreement  and in an  amount  determined  in  accordance  with  the
provisions  thereof;  provided  that the last  such  installment  shall be in an
amount  sufficient  to repay the entire unpaid  principal  balance of this Note,
together with all accrued and unpaid interest thereon.

                  This Note is one of  Company's  "Tranche A Term  Notes" in the
aggregate  principal  amount  of  $200,000,000  and is  issued  pursuant  to and
entitled to the benefits of the Credit  Agreement,  to which reference is hereby
made for a more complete  statement of the terms and conditions  under which the
Tranche  A  Term  Loan   evidenced   hereby  was  made  and  is  to  be  repaid.

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

1        Insert amount of Lender's Tranche A Term Loan in numbers.
2        Insert place of delivery of Note.
3        Insert Closing Date.
4        Insert Lender's name in capital letters.
5        Insert amount of Lender's Tranche A Term Loan in words.

                                      IV-1

<PAGE>


                  All payments of principal and interest in respect of this Note
shall be made in lawful money of the United  States of America in same day funds
at the Funding and Payment  Office or at such other place as shall be designated
in  writing  for  such  purpose  in  accordance  with the  terms  of the  Credit
Agreement.  Unless and until an Assignment Agreement effecting the assignment or
transfer  of this Note  shall have been  accepted  by  Administrative  Agent and
recorded  in the  Register as provided  in  subsection  10.1B(ii)  of the Credit
Agreement,  Company and Administrative Agent shall be entitled to deem and treat
Payee as the owner and holder of this Note and the Loan evidenced hereby.  Payee
hereby agrees, by its acceptance  hereof,  that before disposing of this Note or
any part  hereof  it will  make a  notation  hereon  of all  principal  payments
previously  made  hereunder  and of the date to which  interest  hereon has been
paid; provided, however, that the failure to make a notation of any payment made
on this Note  shall not limit or  otherwise  affect the  obligations  of Company
hereunder with respect to payments of principal of or interest on this Note.

                  Whenever any payment on this Note shall be stated to be due on
a day  which  is not a  Business  Day,  such  payment  shall be made on the next
succeeding  Business  Day and such  extension  of time shall be  included in the
computation of the payment of interest on this Note.

                  This Note is subject to  mandatory  prepayment  as provided in
subsection  2.4B(iii) of the Credit Agreement and to prepayment at the option of
Company as provided in subsection 2.4B(i) of the Credit Agreement.

                  THIS NOTE AND THE RIGHTS AND  OBLIGATIONS OF COMPANY AND PAYEE
HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  WITHOUT
LIMITATION  SECTION  5-1401 OF THE GENERAL  OBLIGATIONS  LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

                  Upon the occurrence of an Event of Default, the unpaid balance
of the  principal  amount of this Note,  together  with all  accrued  and unpaid
interest  thereon,  may become, or may be declared to be, due and payable in the
manner,  upon  the  conditions  and  with  the  effect  provided  in the  Credit
Agreement.  This  Note  is  secured  by  and  entitled  to the  benefits  of the
Collateral Documents.

                  The terms of this Note are  subject to  amendment  only in the
manner provided in the Credit Agreement.

                  This Note is subject to restrictions on transfer or assignment
as provided in subsections 10.1 and 10.16 of the Credit Agreement.

                  No reference  herein to the Credit  Agreement and no provision
of this Note or the Credit  Agreement  shall alter or impair the  obligations of
Company,  which are  absolute  and  unconditional,  to pay the  principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.

                                      IV-2

<PAGE>

                  Company  promises  to pay all  costs and  expenses,  including
reasonable  attorneys'  fees,  all as provided in subsection  10.2 of the Credit
Agreement,  incurred in the collection and enforcement of this Note. Company and
any endorsers of this Note hereby  consent to renewals and extensions of time at
or after the  maturity  hereof,  without  notice,  and hereby  waive  diligence,
presentment,  protest,  demand and notice of every kind and,  to the full extent
permitted by law, the right to plead any statute of  limitations as a defense to
any demand hereunder.

                  IN WITNESS  WHEREOF,  Company  has caused this Note to be duly
executed and delivered by its officer  thereunto duly  authorized as of the date
and at the place first written above.

                                          ARTERIAL VASCULAR
                                          ENGINEERING INC.


                                          By: __________________________
                                          Title: ________________________

                                      IV-3

<PAGE>

                                    EXHIBIT V

                          [FORM OF TRANCHE B TERM NOTE]

                       ARTERIAL VASCULAR ENGINEERING, INC.

                     PROMISSORY NOTE DUE SEPTEMBER 30, 2004

$[1]                                                                         [2]
                                                                             [3]

                  FOR VALUE RECEIVED,  Arterial  Vascular  Engineering,  Inc., a
Delaware corporation ("Company"),  promises to pay to the order of [4] ("Payee")
or its registered assigns the principal amount of [5] ($[1]) in the installments
referred to below.

                  Company also promises to pay interest on the unpaid  principal
amount hereof,  from the date hereof until paid in full, at the rates and at the
times  which shall be  determined  in  accordance  with the  provisions  of that
certain  Credit  Agreement  dated as of  September  30, 1998 by and among by and
among Company, the financial institutions listed therein as Lenders, DLJ Capital
Funding,  Inc., as Syndication Agent, Paribas, as Documentation Agent, and Royal
Bank of Canada,  as  Administrative  Agent (the  "Administrative  Agent")  (said
Credit Agreement, as it may be amended,  supplemented or otherwise modified from
time to time,  being the "Credit  Agreement",  the terms defined therein and not
otherwise defined herein being used herein as therein defined).

                  Company  shall  make  principal   payments  on  this  Note  in
consecutive quarterly  installments,  commencing on December 31, 1998 and ending
on September 30, 2004. Each such installment  shall be due on the date specified
in the Credit  Agreement  and in an amount  determined  in  accordance  with the
provisions  thereof;  provided  that the last  such  installment  shall be in an
amount  sufficient  to repay the entire unpaid  principal  balance of this Note,
together with all accrued and unpaid interest thereon.

                  This Note is one of  Company's  "Tranche B Term  Notes" in the
aggregate  principal  amount  of  $350,000,000  and is  issued  pursuant  to and
entitled to the benefits of the Credit  Agreement,  to which reference is hereby
made for a more complete  statement of the terms and conditions  under which the
Tranche B Term Loan evidenced hereby was made and is to be repaid.

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

1        Insert amount of Lender's Tranche B Term Loan in numbers.
2        Insert place of delivery of Note.
3        Insert Closing Date.
4        Insert Lender's name in capital letters.
5        Insert amount of Lender's Tranche B Term Loan in words.

                                       V-1


<PAGE>


                  All payments of principal and interest in respect of this Note
shall be made in lawful money of the United  States of America in same day funds
at the Funding and Payment  Office or at such other place as shall be designated
in  writing  for  such  purpose  in  accordance  with the  terms  of the  Credit
Agreement.  Unless and until an Assignment Agreement effecting the assignment or
transfer  of this Note  shall have been  accepted  by  Administrative  Agent and
recorded  in the  Register as provided  in  subsection  10.1B(ii)  of the Credit
Agreement,  Company and Administrative Agent shall be entitled to deem and treat
Payee as the owner and holder of this Note and the Loan evidenced hereby.  Payee
hereby agrees, by its acceptance  hereof,  that before disposing of this Note or
any part  hereof  it will  make a  notation  hereon  of all  principal  payments
previously  made  hereunder  and of the date to which  interest  hereon has been
paid; provided, however, that the failure to make a notation of any payment made
on this Note  shall not limit or  otherwise  affect the  obligations  of Company
hereunder with respect to payments of principal of or interest on this Note.

                  Whenever any payment on this Note shall be stated to be due on
a day  which  is not a  Business  Day,  such  payment  shall be made on the next
succeeding  Business  Day and such  extension  of time shall be  included in the
computation of the payment of interest on this Note.

                  This Note is subject to  mandatory  prepayment  as provided in
subsection  2.4B(iii) of the Credit Agreement and to prepayment at the option of
Company as provided in subsection 2.4B(i) of the Credit Agreement.

                  THIS NOTE AND THE RIGHTS AND  OBLIGATIONS OF COMPANY AND PAYEE
HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  WITHOUT
LIMITATION  SECTION  5-1401 OF THE GENERAL  OBLIGATIONS  LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

                  Upon the occurrence of an Event of Default, the unpaid balance
of the  principal  amount of this Note,  together  with all  accrued  and unpaid
interest  thereon,  may become, or may be declared to be, due and payable in the
manner,  upon  the  conditions  and  with  the  effect  provided  in the  Credit
Agreement.  This  Note  is  secured  by  and  entitled  to the  benefits  of the
Collateral Documents.

                  The terms of this Note are  subject to  amendment  only in the
manner provided in the Credit Agreement.

                  This Note is subject to restrictions on transfer or assignment
as provided in subsections 10.1 and 10.16 of the Credit Agreement.

                  No reference  herein to the Credit  Agreement and no provision
of this Note or the Credit  Agreement  shall alter or impair the  obligations of
Company,  which are  absolute  and  unconditional,  to pay the  principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.

                                       V-2

<PAGE>

                  Company  promises  to pay all  costs and  expenses,  including
reasonable  attorneys'  fees,  all as provided in subsection  10.2 of the Credit
Agreement,  incurred in the collection and enforcement of this Note. Company and
any endorsers of this Note hereby  consent to renewals and extensions of time at
or after the  maturity  hereof,  without  notice,  and hereby  waive  diligence,
presentment,  protest,  demand and notice of every kind and,  to the full extent
permitted by law, the right to plead any statute of  limitations as a defense to
any demand hereunder.

                  IN WITNESS  WHEREOF,  Company  has caused this Note to be duly
executed and delivered by its officer  thereunto duly  authorized as of the date
and at the place first written above.

                                          ARTERIAL VASCULAR
                                          ENGINEERING, INC.

                                          By: __________________________
                                          Title: ________________________

                                       V-3

<PAGE>

                                   EXHIBIT VI

                            [FORM OF REVOLVING NOTE]

                       ARTERIAL VASCULAR ENGINEERING, INC.

                     PROMISSORY NOTE DUE SEPTEMBER 30, 2003

$[1]                                                                         [2]
                                                                             [3]

                  FOR VALUE RECEIVED,  Arterial Vascular  Engineering,  Inc.,  a
Delaware corporation ("Company"),  promises to pay to the order of [4] ("Payee")
or its registered  assigns,  on or before  September 30, 2003, the lesser of (x)
[5] ($[1]) and (y) the unpaid  principal amount of all advances made by Payee to
Company as Revolving Loans under the Credit Agreement referred to below.

                  Company also promises to pay interest on the unpaid  principal
amount hereof,  from the date hereof until paid in full, at the rates and at the
times  which shall be  determined  in  accordance  with the  provisions  of that
certain  Credit  Agreement  dated as of September 30, 1998 by and among Company,
the financial institutions listed therein as Lenders, DLJ Capital Funding, Inc.,
as Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada,
as Administrative Agent (the "Administrative  Agent") (said Credit Agreement, as
it may be amended,  supplemented or otherwise  modified from time to time, being
the "Credit  Agreement",  the terms defined  therein and not  otherwise  defined
herein being used herein as therein defined).

                  This  Note  is  one  of  Company's  "Revolving  Notes"  in the
aggregate principal amount of $50,000,000 and is issued pursuant to and entitled
to the benefits of the Credit Agreement, to which reference is hereby made for a
more complete  statement of the terms and  conditions  under which the Revolving
Loans evidenced hereby were made and are to be repaid.

                  All payments of principal and interest in respect of this Note
shall be made in lawful money of the United  States of America in same day funds
at the Funding and Payment  Office or at such other place as shall be designated
in  writing  for  such  purpose  in  accordance  with the  terms  of the  Credit
Agreement.  Unless and until an Assignment Agreement effecting the assignment or
transfer  of this Note  shall have been  accepted  by  Administrative  Agent and
recorded  in the  Register as provided  in  subsection  10.1B(ii)  of the Credit
Agreement,  Company and Administrative Agent shall be entitled to deem and treat
Payee as the owner and holder of this Note and the Loans evidenced hereby.

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

1        Insert amount of Lender's Revolving Loan Commitment in numbers.
2        Insert place of delivery of Note.
3        Insert Closing Date.
4        Insert Lender's name in capital letters.
5        Insert amount of Lender's Revolving Loan Commitment in words.

                                       VI-1

<PAGE>

                  Payee hereby  agrees,  by its acceptance  hereof,  that before
disposing of this Note or any part hereof it will make a notation  hereon of all
principal  payments  previously made hereunder and of the date to which interest
hereon has been paid; provided,  however, that the failure to make a notation of
any  payment  made  on this  Note  shall  not  limit  or  otherwise  affect  the
obligations  of Company  hereunder  with  respect to payments of principal of or
interest on this Note.

                  Whenever any payment on this Note shall be stated to be due on
a day  which  is not a  Business  Day,  such  payment  shall be made on the next
succeeding  Business  Day and such  extension  of time shall be  included in the
computation of the payment of interest on this Note.

                  This Note is subject to  mandatory  prepayment  as provided in
subsection  2.4B(iii) of the Credit Agreement and to prepayment at the option of
Company as provided in subsection 2.4B(i) of the Credit Agreement.

                  THIS NOTE AND THE RIGHTS AND  OBLIGATIONS OF COMPANY AND PAYEE
HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  WITHOUT
LIMITATION  SECTION  5-1401 OF THE GENERAL  OBLIGATIONS  LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

                  Upon the occurrence of an Event of Default, the unpaid balance
of the  principal  amount of this Note,  together  with all  accrued  and unpaid
interest  thereon,  may become, or may be declared to be, due and payable in the
manner,  upon  the  conditions  and  with  the  effect  provided  in the  Credit
Agreement.  This  Note  is  secured  by  and  entitled  to the  benefits  of the
Collateral Documents.

                  The terms of this Note are  subject to  amendment  only in the
manner provided in the Credit Agreement.

                  This Note is subject to restrictions on transfer or assignment
as provided in subsections 10.1 and 10.16 of the Credit Agreement.

                  No reference  herein to the Credit  Agreement and no provision
of this Note or the Credit  Agreement  shall alter or impair the  obligations of
Company,  which are  absolute  and  unconditional,  to pay the  principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.

                  Company  promises  to pay all  costs and  expenses,  including
reasonable  attorneys'  fees,  all as provided in subsection  10.2 of the Credit
Agreement,  incurred in the collection and enforcement of this Note. Company and
any endorsers of this Note hereby  consent to renewals and extensions of time at
or after the  maturity  hereof,  without  notice,  and hereby  waive  diligence,
presentment,  protest,  demand and notice of every kind and,  to the full extent
permitted by law, the right to plead any statute of  limitations as a defense to
any demand hereunder.

                                       VI-2

<PAGE>

                  IN WITNESS  WHEREOF,  Company  has caused this Note to be duly
executed and delivered by its officer  thereunto duly  authorized as of the date
and at the place first written above.

                                      ARTERIAL VASCULAR
                                      ENGINEERING, INC.

                                      By: __________________________
                                      Title: ________________________

                                       VI-3

<PAGE>


<TABLE>
                                                TRANSACTIONS
                                                     ON
                                               REVOLVING NOTE

<CAPTION>
                                                                                Outstanding
                     Type of           Amount of            Amount of            Principal
                    Loan Made          Loan Made         Principal Paid           Balance           Notation
     Date           This Date          This Date            This Date            This Date          Made By
     ----          -----------       -------------       ---------------      ---------------       -------
<S>                  <C>               <C>                 <C>                   <C>                  <C>

</TABLE>

                                       VI-4

<PAGE>

                                   EXHIBIT VII

                            [FORM OF SWING LINE NOTE]

                       ARTERIAL VASCULAR ENGINEERING, INC.

                     PROMISSORY NOTE DUE SEPTEMBER 30, 2003

$[1]                                                                         [2]
                                                                             [3]

                  FOR VALUE  RECEIVED,  Arterial  Vascular  Engineering,  Inc. a
Delaware corporation ("Company"), promises to pay to the order of [4] ("Payee"),
on or before September 30, 2003, the lesser of (x) [5] and no/100 Dollars ($[1])
and (y) the unpaid  principal amount of all advances made by Payee to Company as
Swing Line Loans under the Credit Agreement referred to below.

                  Company also promises to pay interest on the unpaid  principal
amount hereof,  from the date hereof until paid in full, at the rates and at the
times  which shall be  determined  in  accordance  with the  provisions  of that
certain  Credit  Agreement  dated as of September 30, 1998 by and among Company,
the financial institutions listed therein as Lenders, DLJ Capital Funding, Inc.,
as Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada,
as Administrative Agent (the "Administrative  Agent") (said Credit Agreement, as
it may be amended,  supplemented or otherwise  modified from time to time, being
the "Credit  Agreement",  the terms defined  therein and not  otherwise  defined
herein being used herein as therein defined).

                  This  Note  is  Company's  "Swing  Line  Note"  and is  issued
pursuant to and  entitled  to the  benefits  of the Credit  Agreement,  to which
reference  is  hereby  made  for a more  complete  statement  of the  terms  and
conditions  under which the Swing Line Loans evidenced  hereby were made and are
to be repaid.

                  All payments of principal and interest in respect of this Note
shall be made in lawful money of the United  States of America in same day funds
at the Funding and Payment  Office or at such other place as shall be designated
in  writing  for  such  purpose  in  accordance  with the  terms  of the  Credit
Agreement.

                  Whenever any payment on this Note shall be stated to be due on
a day  which  is not a  Business  Day,  such  payment  shall be made on the next
succeeding  Business  Day and such  extension  of time shall be  included in the
computation of the payment of interest on this Note.

-----------------------------------------------
1        Insert amount of Lender's Swing Line Commitment in numbers.
2        Insert place of delivery of Note.
3        Insert Closing Date.
4        Insert Lender's name in capital letters.
5        Insert amount of Lender's Swing Line Commitment in numbers.

                                       VII-1

<PAGE>

                  This Note is subject to  mandatory  prepayment  as provided in
subsection  2.4B(iii) of the Credit Agreement and to prepayment at the option of
Company as provided in subsection 2.4B(i) of the Credit Agreement.

                  THIS NOTE AND THE RIGHTS AND  OBLIGATIONS OF COMPANY AND PAYEE
HEREUNDER  SHALL  BE  GOVERNED  BY,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  WITHOUT
LIMITATION  SECTION  5-1401 OF THE GENERAL  OBLIGATIONS  LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

                  Upon the occurrence of an Event of Default, the unpaid balance
of the  principal  amount of this Note,  together  with all  accrued  and unpaid
interest  thereon,  may become, or may be declared to be, due and payable in the
manner,  upon  the  conditions  and  with  the  effect  provided  in the  Credit
Agreement.  This  Note  is  secured  by  and  entitled  to the  benefits  of the
Collateral Documents.

                  The terms of this Note are  subject to  amendment  only in the
manner provided in the Credit Agreement.

                  This Note is subject to restrictions on transfer or assignment
as provided in subsections 10.1 and 10.16 of the Credit Agreement.

                  No reference  herein to the Credit  Agreement and no provision
of this Note or the Credit  Agreement  shall alter or impair the  obligations of
Company,  which are  absolute  and  unconditional,  to pay the  principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.

                  Company  promises  to pay all  costs and  expenses,  including
reasonable  attorneys'  fees,  all as provided in subsection  10.2 of the Credit
Agreement,  incurred in the collection and enforcement of this Note. Company and
any endorsers of this Note hereby  consent to renewals and extensions of time at
or after the  maturity  hereof,  without  notice,  and hereby  waive  diligence,
presentment,  protest,  demand and notice of every kind and,  to the full extent
permitted by law, the right to plead any statute of  limitations as a defense to
any demand hereunder.

                  IN WITNESS  WHEREOF,  Company  has caused this Note to be duly
executed and delivered by its officer  thereunto duly  authorized as of the date
and at the place first written above.

                                       ARTERIAL VASCULAR
                                       ENGINEERING, INC.

                                       By: __________________________
                                       Title: ________________________

                                       VII-2



<PAGE>

<TABLE>
                                       TRANSACTIONS
                                            ON
                                      SWING LINE NOTE

<CAPTION>
                                                               Outstanding
                      Amount of            Amount of            Principal
                      Loan Made         Principal Paid           Balance           Notation
     Date             This Date            This Date            This Date          Made By
     ----             ---------         --------------         ------------        --------
<S>                    <C>                <C>                    <C>                 <C>

</TABLE>

                                       VII-3

<PAGE>

                                  EXHIBIT VIII

                        [FORM OF COMPLIANCE CERTIFICATE]

                             COMPLIANCE CERTIFICATE


THE UNDERSIGNED HEREBY CERTIFY THAT:

         (1)  I  am  the  duly  elected  [Chief  Financial  Officer,   principal
     accounting   officer,   controller  or  treasurer]  of  Arterial   Vascular
     Engineering, Inc., a Delaware corporation ("Company");

         (2) I have reviewed the terms of that certain Credit Agreement dated as
     of September 30, 1998 (said Credit Agreement,  as amended,  supplemented or
     otherwise modified, being the "Credit Agreement", the terms defined therein
     and not otherwise defined in this Certificate  (including  Attachment No. 1
     annexed  hereto and made a part hereof) being used in this  Certificate  as
     therein defined),  by and among Company, the financial  institutions listed
     therein as Lenders,  DLJ  Capital  Funding,  Inc.,  as  Syndication  Agent,
     Paribas,   as   Documentation   Agent,   and  Royal  Bank  of  Canada,   as
     Administrative Agent, and the terms of the other Loan Documents, and I have
     made,  or  have  caused  to be made  under  my  supervision,  a  review  in
     reasonable  detail of the  transactions  and  condition  of Company and its
     Subsidiaries during the accounting period covered by the attached financial
     statements; and

         (3) The examination  described in paragraph (2) above did not disclose,
     and I have no knowledge  of, the  existence of any condition or event which
     constitutes an Event of Default or Potential  Event of Default during or at
     the  end  of the  accounting  period  covered  by  the  attached  financial
     statements  or as of the date of this  Certificate[,  except  as set  forth
     below].

         [Set forth [below] [in a separate  attachment to this  Certificate] are
all  exceptions to paragraph  (3) above  listing,  in detail,  the nature of the
condition or event,  the period during which it has existed and the action which
Company has taken,  is taking,  or  proposes  to take with  respect to each such
condition or event:

_______________________________________________________________________________]

                                       VIII-1

<PAGE>


                  The foregoing  certifications,  together with the computations
set forth in  Attachment  No. 1 annexed  hereto  and made a part  hereof and the
financial statements delivered with this Certificate in support hereof, are made
and delivered this __________ day of _____________,  ____ pursuant to subsection
6.1(iv) of the Credit Agreement.

                                          ARTERIAL VASCULAR
                                          ENGINEERING, INC.

                                          By: __________________________
                                          Title: ________________________

                                       VIII-2


<PAGE>

<TABLE>
                                ATTACHMENT NO. 1
                            TO COMPLIANCE CERTIFICATE

                  This  Attachment  No.  1 is  attached  to and made a part of a
Compliance Certificate dated as of ____________, and pertains to the period from
____________,   to  ____________,  .  Subsection  references  herein  relate  to
subsections of the Credit Agreement.

<CAPTION>
A.       Indebtedness

<S>  <C>                                                                                  <C>
     1.       Indebtedness permitted under subsection 7.1 (iii):                                      $
                                                                                                      -------------

     2.       Maximum permitted under subsection 7.1 (iii):                                           $  15,000,000
                                                                                                      -------------

     3.       Indebtedness permitted under subsection 7.1(vi):                                        $
                                                                                                      -------------

     4.       Maximum permitted under definition of Permitted

              Subordinated Debt:                                                                      $ 250,000,000
                                                                                                      -------------
     5.       Indebtedness permitted under subsection 7.1(vii):                                       $
                                                                                                      -------------

     6.       Maximum permitted under subsection 7.1(vii):                                            $  10,000,000
                                                                                                      -------------

     7.       Indebtedness permitted under subsection 7.1 (viii):                                     $
                                                                                                      -------------

     8.       Maximum permitted under subsection 7.1 (viii):                              $[100,000,000/150,000,000]*
                                                                                          -------------------------

     9.       Indebtedness permitted under subsection 7.1 (ix):                                       $
                                                                                                      -------------

     10.      Maximum permitted under subsection 7.1(ix):                                             $  10,000,000
                                                                                                      -------------

B.       Investments

     1.       Investments permitted under subsection 7.3 (vii):                                       $
                                                                                                      -------------

     2.       Maximum permitted under subsection 7.3 (vii):                                           $  10,000,000
                                                                                                      -------------

     3.       Investments permitted under subsection 7.3 (viii):                                      $
                                                                                                      -------------

     4.       Maximum permitted under subsection 7.3 (viii):                                          $  20,000,000
                                                                                                      -------------

     5.       Investments permitted under subsection 7.3 (x)                                          $
                                                                                                      -------------

     6.       Maximum permitted under subsection 7.3 (x)                                              $  50,000,000
                                                                                                      -------------
<FN>

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

*$100,000,000 unless Loans obtain a rating of not less than BB+ from S&P and Ba1
from Moody's, in which case the maximum permitted increases to $150,000,000.
</FN>

                                     VIII-3

<PAGE>

     7.       Investments permitted under subsection 7.3(xi)                                          $
                                                                                                      -------------

     8.       Maximum permitted under subsection 7.3(xi)                                              $   2,000,000
                                                                                                      -------------

C.       Contingent Obligations

     1.       Contingent Obligations in respect of
              letters of credit (other than Letters of Credit)
              permitted under subsection 7.4(ii):                                                     $
                                                                                                      -------------

     2.       Maximum permitted under subsection 7.4(ii):                                             $  15,000,000
                                                                                                      -------------

     3.       Contingent  Obligations  under  guarantees of  obligations  of
              suppliers, customers, franchisees
              and licensees permitted under subsection 7.4(v):                                        $
                                                                                                      -------------

     4.       Maximum permitted under subsection 7.4(v):                                              $  10,000,000
                                                                                                      -------------

     5.       Contingent Obligations permitted under subsection
              7.4(viii):                                                                              $
                                                                                                      -------------

     6.       Maximum permitted under subsection 7.4(viii):                                           $  10,000,000
                                                                                                      -------------

D.       Restricted Junior Payments

     1.       Restricted Junior Payments permitted under subsection 7.5(ii):                          $
                                                                                                      -------------

     2.       Maximum permitted under subsection 7.5(ii):                                             $   2,000,000
                                                                                                      -------------

E.       Minimum Fixed Charge Coverage Ratio (for the four-Fiscal Quarter period
         ending _____________,____________)

     1.       Consolidated Net Income
              (for the four Fiscal Quarter Period ending __, ____):                                   $
                                                                                                      -------------

     2.       Consolidated Interest Expense
              (for the four Fiscal Quarter period ending __, ____):                                   $
                                                                                                      -------------

     3.       Provisions for taxes based on income
              (for the four Fiscal Quarter period ending __, ____):                                   $
                                                                                                      -------------

     4.       Total depreciation expense
              (for the four Fiscal Quarter period ending __, ____):                                   $
                                                                                                      -------------

     5.       Total amortization expense
              (for the four Fiscal Quarter period ending __, ____):                                   $
                                                                                                      -------------

     6.       Other  non-cash  items   reducing   Consolidated   Net  Income
              (including  Permitted  Acquisitions  Non-cash  Reserves to the

                                     VIII-4

<PAGE>

              extent included in such period)
              (for the four Fiscal Quarter period ending __, ____)                                    $
                                                                                                      -------------

     7.       Other non-cash items increasing Consolidated Net Income
              (for the four Fiscal Quarter ending ___, ____):                                         $
                                                                                                      -------------

     8.       Reversals of non-cash  accrued expenses taken in prior periods
              and reversals of reserves taken in prior periods which reduced
              Consolidated Net Income in such prior perids
              (for the four Fiscal Quarter period ending ___, ____):                                  $
                                                                                                      -------------

     9.       Non-cash bonus accrual charges:                                                         $
                                                                                                      -------------

     10.      Consolidated Adjusted EBITDA (1+2+3+4+5+6-7-8-9):                                       $
                                                                                                      -------------

     11.      Consolidated Capital Expenditures:                                                      $
                                                                                                      -------------

     12.      Consolidated Scheduled Amortization:                                                    $
                                                                                                      -------------

     13.      Consolidated Fixed Charges (2+11+12):                                                   $
                                                                                                      -------------

     14.      Fixed Charge Coverage Ratio (10):(13):                                                       ____:1.00

     15.      Minimum ratio required under subsection 7.6A:                                                ____:1.00

F.       Maximum Leverage Ratio (as of _____________,     )

     1.       Consolidated Total Debt:                                                                $
                                                                                                      -------------

     2.       Consolidated Adjusted EBITDA [(E.10 above)]:                                            $
                                                                                                      -------------

     3.       Leverage Ratio (1):(2):                                                                      ____:1.00

     4.       Maximum ratio permitted under subsection
              7.6B:                                                                                        ____:1.00

G.       Minimum Consolidated Net Worth (as of ____________,      )

     1.       Consolidated Net Worth:                                                                 $
                                                                                                      -------------

     2.       Minimum required under subsection 7.6C:                                                 $
                                                                                                      -------------

H.       Fundamental Changes

     1.       Aggregate fair market value of assets sold in any
              one or more Asset Sales in one  or more
              transactions permitted under subsection 7.7(v):                                         $
                                                                                                      -------------

     2.       Maximum permitted under subsection 7.7(v):                                              $
                                                                                                      -------------

                                     VIII-5

<PAGE>

     3.       Aggregate amount of assets acquired in a transaction
              permitted under subsection 7.7(vi):                                                     $
                                                                                                      -------------

     4.       Maximum permitted under subsection 7.7(vi):                                   $[200,000,000/unlimited]*
                                                                                            -----------------------

     5.       Amount of Cash, Incurred Permitted Acquisition
              Indebtedness and Assumed Permitted Acquisition
              Indebtedness for assets acquired in a transaction
              permitted under subsection 7.7 (vi):                                                    $
                                                                                                      -------------

     6.       Maximum permitted under subsection 7.7 (vi):                                $[100,000,000/150,000,000]**
                                                                                          -------------------------   

I.       Consolidated Capital Expenditures

     1.       Consolidated Capital Expenditures for Fiscal
              Year-to-date:                                                                           $
                                                                                                      -------------

     2.       Maximum amount of Consolidated Capital Expenditures  permitted
              under subsection 7.8 for
              Fiscal Year:                                                                            $
                                                                                                      -------------
</TABLE>


-----------------------------
*  $200,000,000  unless the Loans  obtain a rating of not less than BB+ from S&P
and Ba1 from Moody's, in which case there is no limit.

**  $100,000,000  unless the Loans obtain a rating of not less than BB+ from S&P
and Ba1  from  Moody's,  in which  case the  maximum  permitted  increase  is to
$150,000,000.

                                     VIII-6
<PAGE>

                           EXHIBIT IX

            [FORM OF OPINION OF COOLEY GODWARD LLP]
               [letterhead of Cooley Godward LLP]


(See separate document from Cooley Godward)

                                       1




<PAGE>


                                    EXHIBIT X

                               FORM OF OPINION OF
                                O'MELVENY & MYERS



October 1, 1998                                                  OUR FILE NUMBER
                                                                     218,107-016



DLJ Capital Funding, Inc.,
    as Syndication Agent
277 Park Avenue, 10th Floor
New York, New York  10172

Royal Bank of Canada,
    as Administrative Agent
One Liberty Plaza
New York, New York 10006

              and

The Lenders Party to the Credit
  Agreement Referenced Below

         Re:      Loans to Arterial Vascular Engineering, Inc. 

     Ladies and Gentlemen:

         We have acted as counsel to DLJ Capital  Funding,  Inc., as Syndication
Agent (in such  capacity,  "Syndication  Agent"),  and Royal Bank of Canada,  as
Administrative Agent (in such capacity, "Administrative Agent" and together with
Syndication Agent, "Agents"), in connection with the preparation and delivery of
a Credit  Agreement  dated as of September 30, 1998 (the "Credit  Agreement") by
and  among  Arterial  Vascular  Engineering,  Inc.  ("Company"),  the  financial
institutions listed therein as Lenders  ("Lenders"),  Syndication Agent, Paribas
as  Documentation  Agent, and  Administrative  Agent, and in connection with the
preparation and delivery of certain related documents.

         In our capacity as such counsel,  we have examined copies of the Credit
Agreement and we have also  participated  in the meeting held on the date hereof
incident to the funding of the initial loans made under the Credit Agreement. On
the basis of such examination, our reliance upon the assumptions in this opinion
and our  consideration  of those  questions of law we considered  relevant,  and
subject to the limitations  and  qualifications  in this opinion,  we are of the
opinion that (i) the Credit Agreement  constitutes the legally valid and binding
obligation of


                                      X-1
<PAGE>
The Lenders, October 1, 1998 - Page 2


Company, enforceable against Company in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating  to  or  affecting  creditors'  rights  generally  (including,  without
limitation,  fraudulent  conveyance  laws) and by general  principles of equity,
including,  without limitation,  concepts of materiality,  reasonableness,  good
faith and fair dealing and the possible  unavailability of specific  performance
or injunctive relief, regardless of whether considered in a proceeding in equity
or at law; and (ii) the forms of the Collateral Account Agreement,  the Security
Agreement, the Company Pledge Agreement, and the Subsidiary Pledge Agreement are
sufficient  as a matter of legal  form to create in favor of the  Administrative
Agent a security  interest in such of the Collateral (as defined in the relevant
agreement) of the Company or the relevant Guarantor, as the case may be, that is
of a type in which a security  interest can be created under Articles 8 and 9 of
the Uniform Commercial Code in effect in the State of New York ("NYUCC").

         We express no opinion as to (a) any  provision of the Credit  Agreement
requiring  amendments or waivers to be in writing in so far as they suggest that
oral or other  modifications,  amendments  or waivers  could not be  effectively
agreed upon by the parties or that the doctrine of  promissory  estoppel may not
apply;  (b) any  provisions of the Credit  Agreement  purporting to constitute a
waiver of any rights,  claims,  or defenses  that Company may have to the extent
such waivers are against  public policy or prohibited by law; (c) the provisions
of  subsection  10.4 of the  Credit  Agreement  purporting  to grant a  security
interest in certain deposits and accounts;  or (d) the effect of  non-compliance
by any  Agent or any  Lender  with  any  state or  federal  laws or  regulations
applicable to the transactions  contemplated by the Credit Agreement  because of
the nature of their respective  businesses.  In addition, we advise you that (a)
public policy considerations,  statutes, or court decisions may limit the rights
of a  party  to  obtain  indemnification  against  its own  negligence,  willful
misconduct or unlawful conduct; and (b) the provisions of subsection 10.17 which
provide for the non-exclusive  jurisdiction of the federal courts sitting in the
State of New York may not be binding on the federal  courts sitting in the State
of New York.

         Our  opinion in clause (ii) above is limited to Articles 8 and 9 of the
NYUCC and  therefore  that  opinion  does not address (i) laws of  jurisdictions
other than New York,  (ii) collateral of the type not subject to Articles 8 or 9
of the NYUCC or (iii) under 9103 of the NYUCC or otherwise  what law governs the
perfection of the security  interests granted in the collateral  covered by that
opinion clause.

         In  rendering  this  opinion,   we  have  assumed  without  independent
verification  that (a)  each of the  parties  to the  Credit  Agreement  is duly
organized,  validly  existing and in good  standing in the  jurisdiction  of its
organization  and has the corporate power and authority to execute,  deliver and
perform its obligations under the Credit Agreement, (b) the Credit Agreement has
been duly authorized, executed and delivered by each of the parties thereto, (c)
the Credit  Agreement is the legal,  valid and binding  obligation of the Agents
and Lenders,  enforceable  against the Agents and Lenders in accordance with its
terms, (d) all consents and approvals required to be obtained in connection with
the Credit Agreement have been obtained,  (e) the parties have complied with all
statutes,  rules and regulations of any  governmental  authority  required to be
complied with in


                                      X-2
<PAGE>
The Lenders, October 1, 1998 - Page 3


order to consummate the  transactions  contemplated by the Credit  Agreement and
(f) the Credit Agreement has not been further amended,  modified or supplemented
in any way by the parties  thereto nor has there been any waiver of any material
provisions  thereof.  In  addition,  we  have  assumed  the  genuineness  of all
signatures,  the  authenticity of all documents  submitted to us as originals or
copies and the due  authority  of all persons  executing  the same,  and we have
relied as to factual matters on the documents that we have reviewed.

         The law  covered by this  opinion is limited to the  present law of the
State  of New  York.  We  express  no  opinion  as to  the  laws  of  any  other
jurisdiction and no opinion  regarding the statutes,  administrative  decisions,
rules, regulations or requirements of any county,  municipality,  subdivision or
local authority of any jurisdiction.

         This opinion is limited to the matters  expressly  stated herein and no
opinion is to be implied or may be  inferred  beyond the  matters  expressly  so
stated.

         This opinion is given as of the date hereof and we assume no obligation
to update or supplement this opinion to reflect any facts or circumstances which
may  hereafter  come to our  attention or any changes in law which may hereafter
occur.

         This  opinion is furnished by us as counsel to Agents and may be relied
upon by you only in connection with the transactions  contemplated by the Credit
Agreement.  It may not be used or relied upon by you for any other purpose or by
any other  person,  nor may copies be delivered  to any other person  without in
each instance our prior written  consent.  You may,  however,  deliver a copy of
this opinion to your accountants, attorneys, and other professional advisors, to
governmental  regulatory  agencies having  jurisdiction over you and to Eligible
Assignees in connection with permitted  assignments  under the Credit Agreement,
and such Eligible Assignees may rely on this opinion as if it were addressed and
had been delivered to them on the date of this opinion.

                             Respectfully submitted,


                                      X-3

<PAGE>


                                   EXHIBIT XI

                         [FORM OF ASSIGNMENT AGREEMENT]

                              ASSIGNMENT AGREEMENT


                  This ASSIGNMENT  AGREEMENT (this  "Agreement") is entered into
by and between the parties respectively  designated as Assignor ("Assignor") and
Assignee  ("Assignee")  above the  signatures of such parties on the Schedule of
Terms attached  hereto and hereby made an integral part hereof (the "Schedule of
Terms") and relates to that certain Credit  Agreement  described in the Schedule
of Terms (said Credit Agreement, as amended,  supplemented or otherwise modified
to the date hereof and as it may hereafter be amended, supplemented or otherwise
modified  from time to time,  being the "Credit  Agreement",  the terms  defined
therein and not otherwise defined herein being used herein as therein defined).

                  IN CONSIDERATION  of the agreements,  provisions and covenants
herein contained, the parties hereto hereby agree as follows:

                  SECTION 1.  Assignment and Assumption.

                  (a) Effective upon the Settlement  Date specified in Item 4 of
the Schedule of Terms (the "Settlement Date"), Assignor hereby sells and assigns
to Assignee,  without recourse,  representation or warranty (except as expressly
set forth herein), and Assignee hereby purchases and assumes from Assignor, that
percentage  interest in all of  Assignor's  rights and  obligations  as a Lender
arising under the Credit  Agreement and the other Loan Documents with respect to
all or such portion of Assignor's  Commitments and outstanding Loans, if any, as
specified in such Schedule of Terms which represents, as of the Settlement Date,
the  percentage  interest  specified  in Item 3 of the  Schedule of Terms of all
rights and  obligations  of Lenders  arising under the Credit  Agreement and the
other Loan Documents with respect to those Commitments and any outstanding Loans
of the  same  Class as such  assigned  rights  and  obligations  (the  "Assigned
Share").  Without  limiting the generality of the foregoing,  the parties hereto
hereby expressly acknowledge and agree that any assignment of all or any portion
of  Assignor's  rights and  obligations  relating to Assignor's  Revolving  Loan
Commitment  shall  include (i) in the event  Assignor is an Issuing  Lender with
respect to any  outstanding  Letters of Credit (any such Letters of Credit being
"Assignor  Letters of Credit"),  the sale to Assignee of a participation  in the
Assignor  Letters of Credit  and any  drawings  thereunder  as  contemplated  by
subsection  3.1C of the  Credit  Agreement  and (ii) the sale to  Assignee  of a
ratable portion of any participations  previously purchased by Assignor pursuant
to said  subsection  3.1C with  respect to any Letters of Credit  other than the
Assignor Letters of Credit.

                  (b) In  consideration  of  the  assignment   described  above,
Assignee hereby agrees to pay to Assignor, on the Settlement Date, the principal
amount of any outstanding Loans included within the Assigned Share, such payment
to be made by wire transfer of immediately  available  funds in accordance  with
the  applicable  payment  instructions  set forth in Item 5 of the  Schedule  of
Terms.

                  (c) Assignor hereby represents and warrants that Item 3 of the
Schedule  of Terms  correctly  sets  forth the  amount of the  Commitments,  the
outstanding  Term  Loan and the Pro Rata  Share  corresponding  to the  Assigned
Share.

                  (d) Assignor  and  Assignee  hereby  agree that,  upon  giving
effect to the assignment and assumption described above, (i) Assignee shall be a
Lender  party to the  Credit  Agreement  and shall  have all of the  rights  and
obligations  under the Loan  Documents,  and shall be deemed to have made all



                                      XI-1
<PAGE>

of the covenants and agreements contained in the Loan Documents,  arising out of
or  otherwise  related  to the  Assigned  Share,  and  (ii)  Assignor  shall  be
absolutely  released  from any of such  obligations,  covenants  and  agreements
assumed or made by Assignee in respect of the Assigned  Share.  Assignee  hereby
acknowledges  and agrees that the  agreement  set forth in this  Section 1(d) is
expressly made for the benefit of Company, Agent, Assignor and the other Lenders
and their respective successors and permitted assigns.

                  (e) Assignor and Assignee hereby acknowledge and confirm their
understanding  and intent that (i) this Agreement shall effect the assignment by
Assignor and the  assumption  by Assignee of Assignor's  rights and  obligations
with respect to the Assigned Share,  (ii) any other assignments by Assignor of a
portion of its rights and  obligations  with respect to the  Commitments and any
outstanding Loans shall have no effect on the Commitments,  the outstanding Term
Loans and the Pro Rata Share corresponding to the Assigned Share as set forth in
Item  3 of  the  Schedule  of  Terms  or on  the  interest  of  Assignee  in any
outstanding Revolving Loans corresponding  thereto, and (iii) from and after the
Settlement Date,  Administrative  Agent shall make all payments under the Credit
Agreement in respect of the Assigned Share (including,  without limitation,  all
payments  of  principal  and accrued but unpaid  interest,  commitment  fees and
letter of credit fees with respect thereto) (A) in the case of any such interest
and fees that shall have accrued prior to the Settlement Date, to Assignor,  and
(B) in all other cases,  to Assignee;  provided that Assignor and Assignee shall
make  payments  directly  to each  other to the extent  necessary  to effect any
appropriate  adjustments in any amounts  distributed to Assignor and/or Assignee
by  Administrative  Agent under the Loan  Documents  in respect of the  Assigned
Share in the event that, for any reason whatsoever, the payment of consideration
contemplated by Section 1(b) occurs on a date other than the Settlement Date.

                  SECTION 2. Certain Representations, Warranties and Agreements.

                  (a) Assignor  represents and warrants that it is the legal and
beneficial owner of the Assigned Share, free and clear of any adverse claim.

                  (b)  Assignor  shall not be  responsible  to Assignee  for the
execution, effectiveness, genuineness, validity, enforceability,  collectibility
or  sufficiency  of any of  the  Loan  Documents  or  for  any  representations,
warranties,  recitals or statements  made therein or made in any written or oral
statements  or in any  financial or other  statements,  instruments,  reports or
certificates or any other documents furnished or made by Assignor to Assignee or
by or on behalf of Company or any of its Subsidiaries to Assignor or Assignee in
connection with the Loan Documents and the transactions  contemplated thereby or
for the financial  condition or business  affairs of Company or any other Person
liable for the  payment of any  Obligations,  nor shall  Assignor be required to
ascertain or inquire as to the  performance  or  observance of any of the terms,
conditions,  provisions,  covenants or  agreements  contained in any of the Loan
Documents  or as to the  use of the  proceeds  of the  Loans  or the  use of the
Letters of Credit or as to the  existence or possible  existence of any Event of
Default or Potential Event of Default.

                  (c) Assignee  represents  and warrants  that it is an Eligible
Assignee;  that it has  experience  and expertise in the making of loans such as
the Loans;  that it has acquired  the Assigned  Share for its own account in the
ordinary  course of its business and without a view to distribution of the Loans
within the meaning of the  Securities  Act or the Exchange Act or other  federal
securities  laws  (it  being  understood  that,  subject  to the  provisions  of
subsection 10.1 of the Credit  Agreement,  the disposition of the Assigned Share
or any  interests  therein  shall  at all  times  remain  within  its  exclusive
control);  and that it has received,  reviewed and approved a copy of the Credit
Agreement (including all Exhibits and Schedules thereto).



                                      XI-2
<PAGE>

                  (d) Assignee represents and warrants that it has received from
Assignor such financial information regarding Company and its Subsidiaries as is
available to Assignor and as Assignee  has  requested,  that it has made its own
independent  investigation of the financial condition and affairs of Company and
its Subsidiaries in connection with the assignment  evidenced by this Agreement,
and  that it has made  and  shall  continue  to make  its own  appraisal  of the
creditworthiness of Company and its Subsidiaries. Assignor shall have no duty or
responsibility,  either  initially  or on a continuing  basis,  to make any such
investigation or any such appraisal on behalf of Assignee or to provide Assignee
with any other credit or other information with respect thereto,  whether coming
into its  possession  before the making of the  initial  Loans or at any time or
times thereafter, and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to Assignee.

                  (e) Each party to this  Agreement  represents  and warrants to
the other party  hereto that it has full power and  authority to enter into this
Agreement  and to perform  its  obligations  hereunder  in  accordance  with the
provisions  hereof,  that this Agreement has been duly authorized,  executed and
delivered by such party and that this Agreement  constitutes a legal,  valid and
binding obligation of such party,  enforceable  against such party in accordance
with  its  terms,   except  as  enforceability  may  be  limited  by  applicable
bankruptcy,  insolvency,  reorganization,   moratorium  or  other  similar  laws
affecting creditors' rights generally and by general principles of equity.

                  (f) The Assignor  represents and warrants that it is the legal
and  beneficial  owner of the interest  being  assigned by it hereunder and that
such interest is free and clear of any adverse claim.

                  SECTION 3.  Miscellaneous.

                  (a) Each of Assignor and Assignee  hereby  agrees upon request
of the other  such  party  hereto,  from time to time,  to take such  additional
actions and to execute and deliver such additional  documents and instruments as
such other party may reasonably request to effect the transactions  contemplated
by, and to carry out the intent of, this Agreement.

                  (b) Neither this Agreement nor any term hereof may be changed,
waived,  discharged or terminated,  except by an instrument in writing signed by
the party (including, if applicable,  any party required to evidence its consent
to or acceptance of this  Agreement)  against whom  enforcement  of such change,
waiver, discharge or termination is sought.

                  (c) Unless otherwise  specifically provided herein, any notice
or other  communication  herein  required or  permitted  to be given shall be in
writing and may be personally served, telexed or sent by telefacsimile or United
States  mail or  courier  service  and shall be deemed to have been  given  when
delivered  in person or by courier  service,  upon receipt of  telefacsimile  or
telex, or three Business Days after depositing it in the United States mail with
postage  prepaid and properly  addressed.  For the purposes  hereof,  the notice
address of each of Assignor and  Assignee  shall be as set forth on the Schedule
of Terms or, as to either such party,  such other address as shall be designated
by such  party in a  written  notice  delivered  to the  other  such  party.  In
addition,  the notice  address of  Assignee  set forth on the  Schedule of Terms
shall serve as the initial notice address of Assignee for purposes of subsection
10.8 of the Credit Agreement.

                  (d)  In  case  any  provision  in  or  obligation  under  this
Agreement shall be invalid,  illegal or unenforceable in any  jurisdiction,  the
validity,   legality  and   enforceability   of  the  remaining   provisions  or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.



                                      XI-3
<PAGE>

                  (e) THIS  AGREEMENT  AND THE  RIGHTS  AND  OBLIGATIONS  OF THE
PARTIES  HEREUNDER  SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING  WITHOUT
LIMITATION  SECTION  5-1401 OF THE GENERAL  OBLIGATIONS  LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

                  (f) This  Agreement  shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and assigns.

                  (g) This Agreement may be executed in one or more counterparts
and by different parties hereto in separate counterparts,  each of which when so
executed and delivered  shall be deemed an original,  but all such  counterparts
together shall constitute but one and the same  instrument;  signature pages may
be  detached  from  multiple  separate  counterparts  and  attached  to a single
counterpart  so that all  signature  pages are  physically  attached to the same
document.

                  (h) This Agreement  shall become  effective upon the date (the
"Effective Date") upon which all of the following conditions are satisfied:  (i)
the execution of a counterpart hereof by each of Assignor and Assignee, (ii) the
receipt by  Administrative  Agent of the processing and recordation fee referred
to in subsection  10.1B(i) of the Credit Agreement,  (iii) in the event Assignee
is a  Non-US  Lender  (as  defined  in  subsection  2.7B(iii)(a)  of the  Credit
Agreement),  the  delivery by Assignee  to  Administrative  Agent of such forms,
certificates  or other evidence with respect to United States federal income tax
withholding  matters as Assignee  may be  required to deliver to  Administrative
Agent  pursuant  to  said  subsection  2.7B(iii)(a),  (iv)  the  execution  of a
counterpart hereof by Administrative  Agent as evidence of its acceptance hereof
in accordance with subsection 10.1B(ii) of the Credit Agreement, (v) the receipt
by  Administrative  Agent of originals  or  telefacsimiles  of the  counterparts
described above and authorization of delivery  thereof,  and (v) the recordation
by Administrative Agent in the Register of the pertinent  information  regarding
the assignment  effected hereby in accordance  with subsection  10.1B(ii) of the
Credit Agreement.






                  [Remainder of page intentionally left blank]



                                      XI-4

<PAGE>


                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized, such execution being made as of the Effective Date in
the applicable spaces provided on the Schedule of Terms.




                                      XI-5
<PAGE>


<TABLE>
                                SCHEDULE OF TERMS


1.       Borrower:         Arterial Vascular Engineering, Inc.

2.       Name  and  Date of  Credit  Agreement:  Credit  Agreement  dated  as of
         September 30, 1998 by and among  Borrower,  the financial  institutions
         listed therein as Lenders,  DLJ Capital  Funding,  Inc., as Syndication
         Agent,  Paribas as  Documentation  Agent and Royal  Bank of Canada,  as
         Administrative Agent.
<CAPTION>
3.       Amounts:                                                    Re: Revolving     Re: Tranche      Re: Tranche
                                                                         Loans           A Loans          B Loans  
                                                                     -------------     -----------      -----------
<S>                                                                   <C>              <C>             <C>   
         (a)   Aggregate Commitments of all Lenders:                  $___________     $__________      $__________

         (b)   Assigned Share/Pro Rata Share:                             _______%        _______%         _______%

         (c)   Amount of Assigned Share of Commitments:               $___________     $__________      $__________

         (d)   Amount of Assigned Share of Term Loans:                                 $__________      $__________



4.       Settlement Date:   ____________, _____

5.       Payment Instructions:
         ASSIGNOR:                                               ASSIGNEE:
         _____________________________                           _____________________________ 
         _____________________________                           _____________________________ 
         _____________________________                           _____________________________ 

         Attention: ________________                             Attention: ________________
         Reference: ________________                             Reference: ________________

6.       Notice Addresses:
         ASSIGNOR:                                               ASSIGNEE:
         _____________________________                           _____________________________ 
         _____________________________                           _____________________________ 
         _____________________________                           _____________________________ 
         _____________________________                           _____________________________ 

7.       Signatures:

[NAME OF ASSIGNOR],                                  [NAME OF ASSIGNEE],
as Assignor                                                   as Assignee

By: _____________________                             By: ______________________
Title: __________________                             Title:____________________

Accepted in accordance with subsection
10.1B(ii) of the Credit Agreement

CONSENTED:
[NAME OF ADMINISTRATIVE AGENT],                      [ARTERIAL VASCULAR ENGINEERING,
                                                      INC.
as Administrative Agent


By: _____________________                             By: __________________________
Title: __________________                             Title:________________________]

                                                      [include only if required under section 10.1B of the Credit Agreement]
</TABLE>



                                      XI-6


<PAGE>


DLJ CAPITAL FUNDING, INC.,
as Syndication Agent


By:________________________
Title:_____________________



                                      XI-7
<PAGE>

                                   EXHIBIT XII

                               [FORM OF MORTGAGE]


PREPARED BY,
RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:

O'Melveny & Myers LLP
400 South Hope Street,
Eleventh Floor
Los Angeles, California 90071-2899
Attention: Marc Philip Wane, Esq.
File #218,107-016
======================================= =======================================
                SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE

             DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS

                   AND LEASES AND FIXTURE FILING (CALIFORNIA)

                                   by and from

                 ARTERIAL VASCULAR ENGINEERING, INC., "Grantor"

                                       to

                   Commonwealth Land Title Company, "Trustee"

                               for the benefit of

  Royal Bank of Canada, as agent for certain Agents and Lenders, "Beneficiary"

                         Dated as of September 30, 1998

                             Location:         ________________
                             Municipality:     ________________
                             County:           Sonoma
                             State:            California

      THIS DEED OF TRUST SECURES ONE OR MORE VARIABLE RATE PROMISSORY NOTES
         WHICH VARY ACCORDING TO CHANGES IN THE INTEREST RATE DETERMINED
          IN ACCORDANCE WITH THE CREDIT AGREEMENT (AS DEFINED HEREIN).

          THE SECURED OBLIGATIONS SECURED BY THIS DEED OF TRUST INCLUDE
        REVOLVING CREDIT OBLIGATIONS THAT PERMIT BORROWING, REPAYMENT AND
                                  REBORROWING.


ATTENTION:  COUNTY RECORDER: This Deed of Trust covers goods which are or are to
become  affixed to or fixtures on the land  described in Exhibit A hereto and is
to be filed for record in the  records  where  deeds of trust on real estate are
recorded.  Additionally,  this instrument should be appropriately  indexed,  not
only as a deed of trust, but also as a financing  statement  covering goods that
are or are to become fixtures on the real property described herein. The mailing
addresses of the Grantor (Debtor) and Beneficiary  (Secured Party) are set forth
in the Preamble of this Deed of Trust.



                                     XII-1

<PAGE>


      DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND
                           FIXTURE FILING (CALIFORNIA)

                  THIS DEED OF TRUST,  SECURITY  AGREEMENT,  ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (CALIFORNIA) (this "Deed of Trust") is dated as of
September 30, 1998, by and from ARTERIAL VASCULAR ENGINEERING,  Inc., a Delaware
corporation  ("Grantor"),  whose address is  ______________________________,  to
COMMONWEALTH LAND Title Company, a California corporation  ("Trustee"),  with an
address at ________________, for the benefit of Royal Bank of Canada, a Canadian
chartered  bank under and governed by the provisions of the Bank Act, being S.C.
1991, c.46, as  Administrative  Agent,  for the benefit of the Agents,  Lenders,
Issuing  Lenders and Swing Line Lender  party to the Credit  Agreement  (defined
below)(such  lenders,  together with their  respective  successors  and assigns,
collectively,   the  "Lenders"),  and  any  Interest  Rate  Exchangers  (defined
below)(in such capacity,  "Agent"),  having an address at One Liberty Plaza, 4th
Floor, New York, New York 10006-1404.  (Agent,  together with its successors and
assigns,  "Beneficiary").  The term "Grantor"  shall be synonymous with the term
"Trustor" for purposes of California Law.

                                    ARTICLE 1
                                   DEFINITIONS

Section  1.1. Definitions.  All capitalized terms used herein without definition
         shall have the  respective  meanings  ascribed to them in that  certain
         Credit   Agreement   dated  as  of  September  30,  1998  (as  amended,
         supplemented  or  otherwise  modified  from time to time,  the  "Credit
         Agreement")  among  Grantor,  Beneficiary,  the  Lenders,  DLJ  Capital
         Funding, Inc. as syndication agent, and Paribas as documentation agent.
         As used herein, the following terms shall have the following meanings:

                 (a) "Mortgaged Property":  All of Grantor's interest in (1) the
         fee  interest  in the real  property  described  in  Exhibit A attached
         hereto and  incorporated  herein by this  reference,  together with any
         greater  estate  therein as  hereafter  may be acquired by Grantor (the
         "Land"),  (2) all  improvements  now  owned or  hereafter  acquired  by
         Grantor,  now or at any time situated,  placed or constructed  upon the
         Land (the  "Improvements";  the Land and  Improvements are collectively
         referred to as the "Premises"), (3) all materials, supplies, equipment,
         apparatus  and other items of personal  property now owned or hereafter
         acquired by Grantor and now or hereafter  attached to,  installed in or
         used in connection with any of the Improvements or the Land, and water,
         gas, electrical, telephone, storm and sanitary sewer facilities and all
         other utilities  whether or not situated in easements (the "Fixtures"),
         (4) all leases,  licenses,  concessions,  occupancy agreements or other
         agreements  (written or oral, now or at any time in effect) which grant
         to any Person,  other than  Grantor,  a possessory  interest in, or the
         right to use, all or any part of the Mortgaged Property,  together with
         all related security and other deposits (the "Leases"),  (5) all of the
         rents, revenues,  royalties,  income, proceeds,  profits,  security and
         other types of deposits,  and other benefits paid or payable by parties
         to the Leases  for using,  leasing,  licensing,  possessing,  operating
         from, residing in, selling or otherwise enjoying



                                     XII-2
<PAGE>

         the Mortgaged Property (the "Rents"), (6) all other agreements, such as
         construction contracts,  architects' agreements,  engineers' contracts,
         utility  contracts,  maintenance  agreements,   management  agreements,
         service contracts, listing agreements, guaranties, warranties, permits,
         licenses,  certificates  and  entitlements  in any way  relating to the
         construction,  use,  occupancy,  operation,  maintenance,  enjoyment or
         ownership of the Mortgaged  Property (the "Property  Agreements"),  (7)
         all  rights,  privileges,  tenements,   hereditaments,   rights-of-way,
         easements,  appendages and appurtenances appertaining to the foregoing,
         (8) all property tax refunds (the "Tax  Refunds"),  (9) all accessions,
         replacements  and  substitutions  for  any of  the  foregoing  and  all
         proceeds  thereof  (the  "Proceeds"),   (10)  all  insurance  policies,
         unearned premiums therefor and proceeds from such policies covering any
         of the  above  property  now or  hereafter  acquired  by  Grantor  (the
         "Insurance"),  and (11) all of Grantor's  right,  title and interest in
         and to any awards, damages, remunerations,  reimbursements, settlements
         or  compensation  heretofore  made  or  hereafter  to be  made  by  any
         governmental authority pertaining to the Land,  Improvements,  Fixtures
         or  Personalty  (the  "Condemnation  Awards").  As used in this Deed of
         Trust,  the term  "Mortgaged  Property"  shall  mean all or,  where the
         context  permit or  requires,  any portion of the above or any interest
         therein.

                 (b)   "Secured   Obligations":   means  all   obligations   and
         liabilities of every nature of Grantor to Beneficiary,  Agents, Lenders
         and those  Lenders (in such capacity the  "Interest  Rate  Exchangers")
         that are party to Interest Rate  Agreements  (collectively  the "Lender
         Interest Rate  Agreements")  in accordance with the terms of the Credit
         Agreement  now or  hereafter  existing  under or  arising  out of or in
         connection  with the Credit  Agreement  and the other  Loan  Documents,
         including without  limitation any Tranche A Term Notes,  Tranche B Term
         Notes,  Revolving Notes,  Swing Line Note or Letters of Credit, and all
         extensions  or  renewals  thereof,  whether  for  principal,   interest
         (including  without  limitation  interest that, but for the filing of a
         petition in  bankruptcy  with respect to Grantor,  would accrue on such
         obligations),  reimbursement  of amounts drawn under Letters of Credit,
         fees,  expenses,   indemnities  or  otherwise,   whether  voluntary  or
         involuntary, direct or indirect, absolute or contingent,  liquidated or
         unliquidated,  whether or not jointly owed with others,  and whether or
         not from time to time decreased or  extinguished  and later  increased,
         created or  incurred,  and all or any  portion of such  obligations  or
         liabilities  that  are  paid,  to the  extent  all or any  part of such
         payment is avoided or recovered directly or indirectly from Beneficiary
         or any Lender or Interest Rate  Exchanger as a  preference,  fraudulent
         transfer or otherwise,  and all  obligations of every nature of Grantor
         now or  hereafter  existing  under  this  Deed  of  Trust.  The  Credit
         Agreement  contains a  revolving  credit  facility  which  permits  the
         Grantor to borrow certain principal amounts,  repay all or a portion of
         such principal  amounts,  and then reborrow,  all upon  satisfaction of
         certain  conditions  stated in the  Credit  Agreement.  Subject  to the
         provisions  hereof,  this  Deed  of  Trust  secures  all  advances  and
         re-advances under the revolving credit feature of the Credit Agreement,
         including, without limitation,  funding of participations in Letters of
         Credit pursuant thereto.



                                     XII-3
<PAGE>

                 (c) "UCC": The Uniform Commercial Code of California or, if the
         creation,  perfection and  enforcement of any security  interest herein
         granted is governed by the laws of a state other than California, then,
         as to the matter in question,  the Uniform Commercial Code in effect in
         that state.

                                    ARTICLE 2
                                      GRANT

         Section  2.1.  Grant.  To  secure  the  full  and  timely  payment  and
performance of the Secured Obligations, Grantor GRANTS, BARGAINS, ASSIGNS, SELLS
and  CONVEYS,  to Trustee  the  Mortgaged  Property,  subject,  however,  to the
Permitted  Encumbrances,  TO HAVE AND TO HOLD the Mortgaged Property to Trustee,
IN  TRUST,  WITH  POWER OF SALE,  and  Grantor  does  hereby  bind  itself,  its
successors  and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged
Property unto Trustee.

                                   ARTICLE 3
                    WARRANTIES, REPRESENTATIONS AND COVENANTS

         Grantor warrants, represents and covenants to Beneficiary as follows:

         Section 3.1. Title to Mortgaged  Property and Lien of this  Instrument.
Grantor  owns the  Mortgaged  Property  free and clear of any  liens,  claims or
interests, except the Permitted Encumbrances.  This Deed of Trust creates valid,
enforceable  first priority liens and security  interests  against the Mortgaged
Property.

         Section 3.2. First Lien Status.  Grantor shall preserve and protect the
first lien and security interest status of this Deed of Trust and the other Loan
Documents.   If  any  lien  or  security   interest  other  than  the  Permitted
Encumbrances is asserted against the Mortgaged Property, Grantor shall promptly,
and at its expense,  (a) give Beneficiary a detailed written notice of such lien
or security interest (including origin, amount and other terms), and (b) pay the
underlying  claim  in full or take  such  other  action  so as to cause it to be
released or contest the same in compliance  with the  requirements of the Credit
Agreement  (including  the  requirement  of  providing a bond or other  security
satisfactory to Beneficiary).

         Section 3.3.  Payment and  Performance.  Grantor shall pay when due and
shall perform in full when  required to be perform,  each and all of the Secured
Obligations.

         Section 3.4.  Replacement of Fixtures.  Grantor shall not,  without the
prior written consent of  Beneficiary,  permit any of the Fixtures to be removed
at any time from the Land or  Improvements,  unless the removed  item is removed
temporarily for maintenance and repair or, if removed  permanently,  is obsolete
and is replaced by an article of equal or better suitability and value, owned by
Grantor  subject to the liens and  security  interests of this Deed of Trust and
the other  Loan  Documents,  and free and clear of any  other  lien or  security
interest  except such as may be  permitted  under the Credit  Agreement or first
approved in writing by Beneficiary.



                                     XII-4
<PAGE>

         Section  3.5.  Inspection.  Grantor  shall permit  Beneficiary  and the
Lenders  and  their  respective  agents,  representatives  and  employees,  upon
reasonable prior notice to Grantor, and in compliance with the Subject Lease, to
inspect the  Mortgaged  Property  and all books and  records of Grantor  located
thereon,   and  to  conduct  such  environmental  and  engineering   studies  as
Beneficiary  or the Lenders may  require,  provided  that such  inspections  and
studies  shall  not  materially  interfere  with  the use and  operation  of the
Mortgaged Property.

         Section  3.6.  Other  Covenants.  All of the  covenants  in the  Credit
Agreement are incorporated  herein by reference and,  together with covenants in
this Article 3, shall be covenants running with the land.

         Section 3.7. Condemnation Awards and Insurance Proceeds.

                 (a)  Condemnation  Awards.   Grantor  assigns  all  awards  and
         compensation  to which it is  entitled  for any  condemnation  or other
         taking, or any purchase in lieu thereof,  to Beneficiary and authorizes
         Beneficiary to collect and receive such awards and  compensation and to
         give proper receipts and acquittances therefor, subject to the terms of
         Section 6.4C of the Credit Agreement.

                 (b) Insurance  Proceeds.  Grantor  assigns to  Beneficiary  all
         proceeds of any insurance  policies  insuring against loss or damage to
         the Mortgaged Property.  Notwithstanding such assignment, Grantor shall
         be entitled to collect,  receive and apply such proceeds subject to the
         limitations,  conditions  and terms  specified  in Section  6.4C of the
         Credit Agreement.

                                   ARTICLE 4

                             [Intentionally Omitted]

                                   ARTICLE 5
                             DEFAULT AND FORECLOSURE

         Section 5.1. Remedies. If an Event of Default (as defined in the Credit
Agreement)  or the  occurrence  of an Early  Termination  Date (as  defined in a
Master  Agreement  or an  Interest  Rate Swap  Agreement  or  Interest  Rate and
Currency Exchange Agreement, each of such agreements in the form prepared by the
International Swap and Derivatives Association Inc. or a similar event under any
similar swap agreement)  under any Lender  Interest Rate Agreement  (either such
occurrence  being an  "Event of  Default"  for  purposes  of this Deed of Trust)
exists,  Beneficiary may, at Beneficiary's election and by or through Trustee or
otherwise, exercise any or all of the following rights, remedies and recourses:

                 (a)  Acceleration.   Declare  the  Secured  Obligations  to  be
         immediately  due and  payable,  without  further  notice,  presentment,
         protest, notice of intent to accelerate, notice of acceleration, demand
         or action of any nature whatsoever



                                     XII-5
<PAGE>

         (each of which hereby is expressly  waived by Grantor),  whereupon  the
         same shall become immediately due and payable.

                 (b) Entry on Mortgaged  Property.  Enter the Mortgaged Property
         and take  exclusive  possession  thereof and of all books,  records and
         accounts  relating  thereto or located  thereon.  If Grantor remains in
         possession  of the  Mortgaged  Property  after an Event of Default  and
         without Beneficiary's prior written consent, Beneficiary may invoke any
         legal remedies to dispossess Grantor.

                 (c)  Operation of Mortgaged  Property.  Hold,  lease,  develop,
         manage, operate or otherwise use the Mortgaged Property upon such terms
         and  conditions  as   Beneficiary   may  deem   reasonable   under  the
         circumstances   (making  such  repairs,   alterations,   additions  and
         improvements   and  taking  other  actions,   from  time  to  time,  as
         Beneficiary  deems  necessary  or  desirable),  and apply all Rents and
         other  amounts   collected  by  Trustee  in  connection   therewith  in
         accordance with the provisions of Section 5.7.

                 (d)  Foreclosure  and  Sale.  Institute   proceedings  for  the
         complete  foreclosure of this Deed of Trust,  either by judicial action
         or by power of sale, in which case the  Mortgaged  Property may be sold
         for cash or credit in one or more parcels as Beneficiary may determine.
         With  respect  to any  notices  required  or  permitted  under the UCC,
         Grantor  agrees that fifteen (15) days' prior  written  notice shall be
         deemed  commercially  reasonable.  At any such  sale by  virtue  of any
         judicial  proceedings,  power of sale, or any other legal right, remedy
         or recourse,  the title to and right of possession of any such property
         shall  pass  to  the  purchaser  thereof,  and to  the  fullest  extent
         permitted by law, Grantor shall be completely and irrevocably  divested
         of all  of  its  right,  title,  interest,  claim,  equity,  equity  of
         redemption,  and demand whatsoever,  either at law or in equity, in and
         to the property sold and such sale shall be a perpetual bar both at law
         and in equity against  Grantor,  and against all other Persons claiming
         or to claim the property sold or any part thereof, by, through or under
         Grantor.  Beneficiary  or any of the Lenders may be a purchaser at such
         sale. If Beneficiary is the highest bidder,  Beneficiary may credit the
         portion of the purchase  price that would be distributed to Beneficiary
         against the Secured  Obligations  in lieu of paying cash.  In the event
         this Deed of Trust is foreclosed by judicial  action,  appraisement  of
         the Mortgaged Property is waived.

                 (e)  Receiver.   Make  application  to  a  court  of  competent
         jurisdiction  for,  and  obtain  from such  court as a matter of strict
         right and  without  notice to Grantor or regard to the  adequacy of the
         Mortgaged  Property for the repayment of the Secured  Obligations,  the
         appointment  of a  receiver  of the  Mortgaged  Property,  and  Grantor
         irrevocably consents to such appointment.  Any such receiver shall have
         all the  usual  powers  and  duties  of  receivers  in  similar  cases,
         including the full power to rent,  maintain and  otherwise  operate the
         Mortgaged Property upon such terms as may be approved by the court, and
         shall apply such Rents in  accordance  with the  provisions  of Section
         5.7.



                                     XII-6
<PAGE>

                 (f) Other.  Exercise all other  rights,  remedies and recourses
         granted  under the Loan  Documents or otherwise  available at law or in
         equity.

         Section 5.2. Separate Sales. The Mortgaged  Property may be sold in one
or more  parcels and in such manner and order as Trustee in its sole  discretion
may elect;  the right of sale  arising out of any Event of Default  shall not be
exhausted by any one or more sales.

         Section  5.3.   Remedies   Cumulative,   Concurrent  and  Nonexclusive.
Beneficiary,  the  Lenders  and  Trustee  shall have all  rights,  remedies  and
recourses  granted  in the  Loan  Documents  and  available  at  law  or  equity
(including the UCC), which rights (a) shall be cumulated and concurrent, (b) may
be pursued  separately,  successively or concurrently  against Grantor or others
obligated  under the Loan  Documents,  or against  the  Mortgaged  Property,  or
against any one or more of them,  at the sole  discretion  of  Beneficiary,  the
Lenders  or  Trustee,  as the  case  may be,  (c) may be  exercised  as often as
occasion  therefor  shall arise,  and the exercise or failure to exercise any of
them  shall not be  construed  as a waiver or  release  thereof  or of any other
right,  remedy  or  recourse,  and  (d)  are  intended  to  be,  and  shall  be,
nonexclusive.   No  action  by  Beneficiary,  the  Lenders  or  Trustee  in  the
enforcement  of any rights,  remedies or recourses  under the Loan  Documents or
otherwise at law or equity shall be deemed to cure any Event of Default.

         Section  5.4.  Release of and  Resort to  Collateral.  Beneficiary  may
release, regardless of consideration and without the necessity for any notice to
or consent by the holder of any subordinate lien on the Mortgaged Property,  any
part  of the  Mortgaged  Property  without,  as to  the  remainder,  in any  way
impairing,  affecting,  subordinating or releasing the lien or security interest
created in or  evidenced  by the Loan  Documents  or their status as a first and
prior lien and security interest in and to the Mortgaged  Property.  For payment
of the Secured Obligations, Beneficiary may resort to any other security in such
order and manner as Beneficiary may elect.

         Section 5.5. Waiver of Redemption, Notice and Marshalling of Assets. To
the  fullest  extent   permitted  by  law,   Grantor  hereby   irrevocably   and
unconditionally waives and releases (a) all benefit that might accrue to Grantor
by virtue of any  present or future  statute of  limitations  or law or judicial
decision  exempting the  Mortgaged  Property  from  attachment,  levy or sale on
execution or providing for any stay of execution,  exemption from civil process,
redemption  or extension  of time for  payment,  (b) all notices of any Event of
Default or of any election by Trustee or  Beneficiary  to exercise or the actual
exercise of any right, remedy or recourse provided for under the Loan Documents,
and (c) any  right to a  marshalling  of assets  or a sale in  inverse  order of
alienation.

         Section 5.6. Discontinuance of Proceedings. If Beneficiary, the Lenders
or  Trustee  shall  have  proceeded  to invoke  any  right,  remedy or  recourse
permitted under the Loan Documents and shall  thereafter elect to discontinue or
abandon it for any reason, Beneficiary,  the Lenders or Trustee, as the case may
be, shall have the  unqualified  right to do so and, in such an event,  Grantor,
Beneficiary, the Lenders and Trustee shall be restored to their former positions
with  respect to the Secured  Obligations,  the Loan  Documents,  the  Mortgaged
Property and otherwise, and the rights, remedies, recourses



                                     XII-7
<PAGE>

and powers of  Beneficiary,  the Lenders and  Trustee  shall  continue as if the
right, remedy or recourse had never been invoked,  but no such discontinuance or
abandonment  shall waive any Event of Default  which may then exist or the right
of Beneficiary,  the Lenders or Trustee thereafter to exercise any right, remedy
or recourse under the Loan Documents for such Event of Default.

         Section 5.7. Application of Proceeds.  The proceeds of any sale of, and
the Rents and other  amounts  generated  by the  holding,  leasing,  management,
operation  or  other  use  of  the  Mortgaged  Property,  shall  be  applied  by
Beneficiary or Trustee (or the receiver, if one is appointed) in accordance with
Section 2.4D of the Credit Agreement.

         Section 5.8.  Occupancy  After  Foreclosure.  Any sale of the Mortgaged
Property or any part thereof in accordance  with Section  5.1(d) will divest all
right,  title and  interest of Grantor in and to the property  sold.  Subject to
applicable  law, any  purchaser  at a  foreclosure  sale will receive  immediate
possession  of the property  purchased.  If Grantor  retains  possession of such
property or any part thereof subsequent to such sale, Grantor will be considered
a tenant at  sufferance  of the  purchaser,  and will,  if  Grantor  remains  in
possession after demand to remove, be subject to eviction and removal,  forcible
or otherwise, with or without process of law.

         Section  5.9.   Additional   Advances  and   Disbursements;   Costs  of
Enforcement.

                 (a) If any Event of Default exists, Beneficiary and each of the
         Lenders  shall have the  right,  but not the  obligation,  to cure such
         Event of  Default  in the  name  and on  behalf  of  Grantor.  All sums
         advanced and expenses incurred at any time by Beneficiary or any of the
         Lenders  under this Section 5.9, or otherwise  under this Deed of Trust
         or any of the other  Loan  Documents  or  applicable  law,  shall  bear
         interest  from the date that such sum is advanced or expense  incurred,
         to and  including  the date of  reimbursement,  computed at the rate or
         rates at which  interest is then  computed on the Secured  Obligations,
         and all such sums, together with interest thereon,  shall be secured by
         this Deed of Trust.

                 (b)  Grantor  shall  pay  all  expenses  (including  reasonable
         attorneys'  fees and expenses) of or incidental to the  perfection  and
         enforcement of this Deed of Trust and the other Loan Documents,  or the
         enforcement, compromise or settlement of the Secured Obligations or any
         claim  under this Deed of Trust and the other Loan  Documents,  and for
         the curing thereof, or for defending or asserting the rights and claims
         of Beneficiary in respect thereof, by litigation or otherwise.

         Section 5.10. No Mortgagee in  Possession.  Neither the  enforcement of
any of the remedies under this Article 5, the assignment of the Rents and Leases
under Article 6, the security  interests under Article 7, nor any other remedies
afforded to  Beneficiary  under the Loan  Documents,  at law or in equity  shall
cause Beneficiary, any of the Lenders or Trustee to be deemed or construed to be
a mortgagee in possession of the Mortgaged  Property,  to obligate  Beneficiary,
any of the Lenders or Trustee to lease the  Mortgaged  Property or attempt to do
so, or to take any  action,  incur any  expense,  or



                                     XII-8
<PAGE>

perform or discharge any obligation,  duty or liability  whatsoever under any of
the Leases or otherwise.

                                   ARTICLE 6
                         ASSIGNMENT OF RENTS AND LEASES

         Section  6.1.  Assignment.  In  furtherance  of and in  addition to the
assignment made by Grantor in Section 2.1 of this Deed of Trust,  Grantor hereby
absolutely and unconditionally  assigns, sells, transfers and conveys to Trustee
(for the benefit of Beneficiary) and to Beneficiary all of its right,  title and
interest in and to all Leases,  whether now existing or hereafter  entered into,
and all of its right, title and interest in and to all Rents. This assignment is
an absolute  assignment and not an assignment  for additional  security only. So
long as no Event of Default shall have occurred and be continuing, Grantor shall
have a revocable  license  from Trustee and  Beneficiary  to exercise all rights
extended to the landlord  under the Leases,  including  the right to receive and
collect  all Rents and to hold the  Rents in trust  for use in the  payment  and
performance  of the  Secured  Obligations  and to  otherwise  use the same.  The
foregoing license is granted subject to the conditional limitation that no Event
of Default shall have occurred and be continuing. Upon the occurrence and during
the continuance of an Event of Default,  whether or not legal  proceedings  have
commenced,  and without  regard to waste,  adequacy of security  for the Secured
Obligations   or  solvency  of  Grantor,   the  license   herein  granted  shall
automatically  expire and  terminate,  without  notice by Trustee or Beneficiary
(any such notice being hereby expressly waived by Grantor).

         Section 6.2.  Perfection Upon  Recordation.  Grantor  acknowledges that
Beneficiary  and Trustee have taken all actions  necessary  to obtain,  and that
upon  recordation of this Deed of Trust  Beneficiary  and Trustee shall have, to
the extent permitted under  applicable law, a valid and fully  perfected,  first
priority,  present  assignment  of the Rents  arising  out of the Leases and all
security for such Leases.  Grantor acknowledges and agrees that upon recordation
of this Deed of Trust Trustee's and Beneficiary's interest in the Rents shall be
deemed to be fully perfected,  "choate" and enforced as to Grantor and all third
parties,  including,  without limitation,  any subsequently appointed trustee in
any case  under  Title 11 of the United  States  Code (the  "Bankruptcy  Code"),
without the necessity of  commencing a  foreclosure  action with respect to this
Deed of Trust, making formal demand for the Rents,  obtaining the appointment of
a receiver or taking any other affirmative action.

         Section 6.3. Bankruptcy Provisions.  Without limitation of the absolute
nature  of  the  assignment  of  the  Rents  hereunder,   Grantor,  Trustee  and
Beneficiary  agree  that (a) this Deed of Trust  shall  constitute  a  "security
agreement"  for  purposes  of Section  552(b) of the  Bankruptcy  Code,  (b) the
security  interest  created by this Deed of Trust extends to property of Grantor
acquired before the commencement of a case in bankruptcy and to all amounts paid
as Rents and (c) such security  interest  shall extend to all Rents  acquired by
the estate after the commencement of any case in bankruptcy.

         Section  6.4.  No Merger  of  Estates.  So long as part of the  Secured
Obligations secured hereby remain unpaid and undischarged, the fee and leasehold
estates to the



                                     XII-9
<PAGE>

Mortgaged  Property  shall not merge,  but shall remain  separate and  distinct,
notwithstanding  the union of such estates either in Grantor,  Beneficiary,  any
tenant or any third party by purchase or otherwise.

                                   ARTICLE 7
                               SECURITY AGREEMENT

         Section  7.1.  Security  Interest.  This  Deed of Trust  constitutes  a
"security  agreement" within the meaning of the UCC and other applicable law and
with respect to the Fixtures. To this end, Grantor grants to Beneficiary a first
and  prior  security  interest  in  the  Fixtures  to  secure  the  payment  and
performance of the Secured  Obligations,  and agrees that Beneficiary shall have
all the rights and  remedies of a secured  party  under the UCC with  respect to
such  property.  Any notice of sale,  disposition  or other  intended  action by
Beneficiary  with respect to the Fixtures  sent to Grantor at least fifteen (15)
days prior to any action  under the UCC shall  constitute  reasonable  notice to
Grantor.

         Section 7.2. Fixture Filing.  This Deed of Trust constitutes a "fixture
filing" for the purposes of the UCC against all of the Mortgaged  Property which
is or is to become fixtures. Information concerning the security interest herein
granted may be obtained at the  addresses of Debtor  (Grantor) and Secured Party
(Beneficiary) as set forth in the first paragraph of this Deed of Trust.

                                   ARTICLE 8
                             CONCERNING THE TRUSTEE

         Section 8.1. Certain Rights. At any time, or from time to time, without
liability  therefor and without notice,  upon written request of Beneficiary and
presentation of this Deed of Trust and without affecting any personal  liability
of any person for  payment or  performance  of the  Secured  Obligations  or the
effect of this Deed of Trust upon the remainder of the Mortgaged Party,  Trustee
may (i) reconvey any part of the Mortgaged Property,  (ii) consent in writing to
the making of any map or plat  thereof,  (iii)  join in  granting  any  easement
thereon, or (iv) join in any extension agreement or any agreement  subordinating
the lien or charge hereof. With the approval of Beneficiary,  Trustee shall have
the right to select,  employ and consult with  counsel.  Trustee  shall have the
right to rely on any instrument, document or signature authorizing or supporting
any action taken or proposed to be taken by it hereunder, believed by it in good
faith to be genuine.  Trustee  shall be entitled  to  reimbursement  for actual,
reasonable  expenses  incurred by it in the  performance of its duties.  Grantor
shall,  from time to time,  pay the  compensation  due to Trustee  hereunder and
reimburse Trustee for, and indemnify,  defend and save Trustee harmless against,
all  liability  and  reasonable  expenses  which  may be  incurred  by it in the
performance of its duties,  including those arising from joint,  concurrent,  or
comparative  negligence of Trustee;  however,  Grantor shall not be liable under
such indemnification to the extent such liability or expenses result solely from
Trustee's gross negligence or willful  misconduct.  Grantor's  obligations under
this Section 8.1 shall not be reduced or impaired by principles  of  comparative
or contributory negligence.



                                     XII-10
<PAGE>

         Section 8.2.  Retention of Money. All moneys received by Trustee shall,
until used or applied as herein provided,  be held in trust for the purposes for
which they were  received,  but need not be  segregated  in any manner  from any
other moneys (except to the extent  required by law), and Trustee shall be under
no liability for interest on any moneys received by Trustee hereunder.

         Section 8.3.  Successor  Trustees.  If Trustee or any successor Trustee
shall die,  resign or become  disqualified  from acting in the execution of this
trust, or Beneficiary shall desire to appoint a substitute Trustee,  Beneficiary
shall  have full  power to  appoint  one or more  substitute  Trustees  and,  if
preferred,  several  substitute  Trustees in succession who shall succeed to all
the  estates,  rights,  powers and duties of Trustee.  Such  appointment  may be
executed  by any  authorized  agent  of  Beneficiary  and as so  executed,  such
appointment shall be conclusively presumed to be executed with authority,  valid
and sufficient,  without further proof of any action.  Without limitation of the
foregoing,  Beneficiary may, from time to time, by a written instrument executed
and  acknowledged by Beneficiary,  recorded in the county in which the Mortgaged
Property is located or by otherwise  complying with the provisions of applicable
law,  substitute a successor or successors to any Trustee named herein or acting
hereunder;  and such successor(s) shall, without conveyance from the predecessor
Trustee,  succeed  to all  title,  estate,  rights,  powers  and  duties of such
predecessor.

         Section 8.4. Perfection of Appointment.  Should any deed, conveyance or
instrument of any nature be required  from Grantor by any  successor  Trustee to
more fully and  certainly  vest in and confirm to such  successor  Trustee  such
estates, rights, powers and duties, then, upon request by such Trustee, all such
deeds,  conveyances and instruments  shall be made,  executed,  acknowledged and
delivered and shall be caused to be recorded and/or filed by Grantor.

         Section  8.5.  Trustee  Liability.  In no event or  circumstance  shall
Trustee or any substitute  Trustee  hereunder be personally liable under or as a
result of this Deed of Trust,  either as a result of any action by  Trustee  (or
any  substitute  Trustee)  in the  exercise  of the  powers  hereby  granted  or
otherwise.

                                    ARTICLE 9
                                  MISCELLANEOUS

         Section  9.1.  Notices.  Any notice  required or  permitted to be given
under this Deed of Trust shall be given in  accordance  with Section 10.8 of the
Credit Agreement.

         Section 9.2. Covenants Running with the Land. All obligations contained
in this Deed of Trust are  intended by Grantor,  Beneficiary  and Trustee to be,
and shall be construed as,  covenants  running with the Mortgaged  Property.  As
used herein,  "Grantor" shall refer to the party named in the first paragraph of
this  Deed of Trust and to any  subsequent  owner of all or any  portion  of the
Mortgaged  Property.  All  Persons  who may have or acquire an  interest  in the
Mortgaged Property shall be deemed to have notice of, and be bound by, the terms
of the Credit  Agreement and the other Loan  Documents;



                                     XII-11
<PAGE>

however,  no such party shall be entitled to any rights  thereunder  without the
prior written consent of Beneficiary.

         Section 9.3.  Attorney-in-Fact.  Grantor  hereby  irrevocably  appoints
Beneficiary  and its  successors  and assigns,  as its  attorney-in-fact,  which
agency is coupled with an interest and with full power of  substitution,  (a) to
execute and/or record any notices of completion, cessation of labor or any other
notices that Beneficiary deems appropriate to protect Beneficiary's interest, if
Grantor  shall  fail to do so within  ten (10) days  after  written  request  by
Beneficiary, (b) upon the issuance of a deed pursuant to the foreclosure of this
Deed of Trust or the delivery of a deed in lieu of  foreclosure,  to execute all
instruments of assignment,  conveyance or further  assurance with respect to the
Leases,  Rents, Deposit Accounts,  Property Agreements,  Tax Refunds,  Proceeds,
Insurance and  Condemnation  Awards in favor of the grantee of any such deed and
as may be necessary or desirable for such purpose,  (c) to prepare,  execute and
file or record financing statements,  continuation statements,  applications for
registration  and  like  papers   necessary  to  create,   perfect  or  preserve
Beneficiary's  security  interests  and  rights  in or to any  of the  Mortgaged
Property,  and (d) while any Event of Default exists,  to perform any obligation
of Grantor hereunder, however: (1) Beneficiary shall not under any circumstances
be  obligated to perform any  obligation  of Grantor;  (2) any sums  advanced by
Beneficiary  in such  performance  shall be added to and included in the Secured
Obligations  and shall bear  interest at the rate or rates at which  interest is
then   computed   on  the  Secured   Obligations;   (3)   Beneficiary   as  such
attorney-in-fact  shall  only be  accountable  for such  funds  as are  actually
received by Beneficiary;  and (4) Beneficiary  shall not be liable to Grantor or
any other  person or  entity  for any  failure  to take any  action  which it is
empowered to take under this Section 9.3.

         Section  9.4.  Successors  and  Assigns.  This  Deed of Trust  shall be
binding upon and inure to the benefit of Beneficiary,  the Lenders,  Trustee and
Grantor and their respective successors and assigns.  Grantor shall not, without
the  prior  written  consent  of  Beneficiary,  assign  any  rights,  duties  or
obligations hereunder.

         Section  9.5.  No Waiver.  Any failure by  Beneficiary,  the Lenders or
Trustee to insist upon strict  performance  of any of the terms,  provisions  or
conditions of the Loan Documents shall not be deemed to be a waiver of same, and
Beneficiary,  the Lenders or Trustee  shall have the right at any time to insist
upon strict performance of all of such terms, provisions and conditions.

         Section 9.6. Credit Agreement.  If any conflict or inconsistency exists
between this Deed of Trust and the Credit Agreement,  the Credit Agreement shall
govern.

         Section 9.7. Release or  Reconveyance.  Upon payment and performance in
full of the  Secured  Obligations,  Beneficiary,  at  Grantor's  expense,  shall
release  the  liens  and  security  interests  created  by this Deed of Trust or
reconvey the Mortgaged Property to Grantor.

         Section 9.8.  Waiver of Stay,  Moratorium and Similar  Rights.  Grantor
agrees,  to the full extent that it may  lawfully do so, that it will not at any
time insist upon or



                                     XII-12
<PAGE>

plead  or in  any  way  take  advantage  of any  stay,  marshalling  of  assets,
extension,  redemption or moratorium law now or hereafter in force and effect so
as to prevent or hinder the  enforcement of the provisions of this Deed of Trust
or the Secured  Obligations secured hereby, or any agreement between Grantor and
Beneficiary or any rights or remedies of Beneficiary, the Lenders or Trustee.

         Section  9.9.  Applicable  Law.  The  provisions  of this Deed of Trust
regarding the creation,  perfection  and  enforcement  of the liens and security
interests  herein  granted shall be governed by and construed  under the laws of
the state in which the Mortgaged  Property is located.  All other  provisions of
this  Deed of Trust  shall  be  governed  by the  laws of the  State of New York
(including, without limitation, Section 5-1401 of the General Obligations Law of
the State of New York), without regard to conflicts of laws principles.

         Section 9.10.  Headings.  The Article,  Section and  Subsection  titles
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles,  Sections
or Subsections.

         Section 9.11. Entire  Agreement.  This Deed of Trust and the other Loan
Documents  embody the entire  agreement and  understanding  between  Grantor and
Beneficiary and supersede all prior agreements and  understandings  between such
parties relating to the subject matter hereof and thereof. Accordingly, the Loan
Documents  may not be  contradicted  by  evidence of prior,  contemporaneous  or
subsequent  oral  agreements  of  the  parties.  There  are  no  unwritten  oral
agreements between the parties.

         Section 9.12. Beneficiary as Agent: Successor Agents

                 (a)  Beneficiary  has  been  appointed  to act  as  Beneficiary
         hereunder  by the  Lenders.  Beneficiary  shall  have the right to make
         demands,  to give notices,  to exercise or refrain from  exercising any
         rights,  and to take or refrain  from  taking  any  action  (including,
         without  limitation,  the  release  or  substitution  of the  Mortgaged
         property) in  accordance  with the terms of the Credit  Agreement,  any
         related agency agreement among Agent and the Lenders (collectively,  as
         amended,  supplemented  or otherwise  modified or replaced from time to
         time, the "Agency  Documents") and this Deed of Trust.  Grantor and all
         other persons shall be entitled to rely on releases, waivers, consents,
         approvals, notifications and other acts of Beneficiary, without inquiry
         into the  existence  of required  consents or  approvals of the Lenders
         therefor.

                 (b)  Written  notice of  resignation  by Agent  pursuant to the
         Agency  Documents  shall  also  constitute  notice  of  resignation  as
         Beneficiary under this Deed of Trust.  Removal of Agent pursuant to any
         provision  of the Agency  Documents  shall also  constitute  removal as
         Beneficiary under this Deed of Trust.  Appointment of a successor Agent
         pursuant to the Agency Documents shall also constitute appointment of a
         successor  Beneficiary under this Deed of Trust. Upon the acceptance of
         any  appointment  as  Agent  by a  successor  Agent  under  the  Agency
         Documents,  that successor Agent shall thereupon  succeed to and become



                                     XII-13
<PAGE>

         vested  with all the  rights,  powers,  privileges  and  duties  of the
         resting or removed Agent as the  Beneficiary  under this Deed of Trust,
         and the retiring or removed  Beneficiary  shall promptly (i) assign and
         transfer  to such  successor  Beneficiary  all of its right,  title and
         interest in and to this Deed of Trust and the Mortgaged  Property,  and
         (ii) execute and deliver to such successor Beneficiary such assignments
         and  amendments  and take such other  actions,  as may be  necessary or
         appropriate  in  connection  with  the  assignment  to  such  successor
         Beneficiary  of the liens and  security  interests  created  hereunder,
         whereupon such resting or removed Beneficiary's  resignation or removal
         hereunder as Agent, the provisions of this Deed of Trust and the Agency
         Documents  shall inure to its benefit as to any actions take or omitted
         to be taken by it under this Deed of Trust while it was the Beneficiary
         hereunder.

                                   ARTICLE 10
                              LOCAL LAW PROVISIONS

         Section  10.1.  Inconsistencies.  In the  event of any  inconsistencies
between the terms and conditions of this Article 10 and the other  provisions of
this Deed of Trust,  the terms and  conditions  of this Article 10 shall control
and be binding.

         Section 10.2. Choice of Law.  Supplementing Section 9.9, Grantor agrees
that (1) whether or not deficiency judgments are available under the laws of the
State  of  California  after a  foreclosure  (judicial  or  nonjudicial)  of the
Mortgaged Property,  or any portion thereof, or any other realization thereon by
Beneficiary  or Trustee,  Beneficiary  and Trustee  shall have the right to seek
such  a  deficiency   judgment  against  Grantor  in  other  states  or  foreign
jurisdictions;  (ii) to the  extent  Beneficiary  or Trustee  obtain  deficiency
judgment in any other state or foreign  jurisdiction  then such party shall have
the right to enforce  such  judgment in the State of  California,  as well as in
other states or foreign jurisdictions; (iii) Grantor and Beneficiary will submit
to non-exclusive  jurisdiction and the laying of venue for any suit on this Deed
of Trust in such state;  (iv) without  limiting the generality of the foregoing,
Grantor hereby waives, to the maximum extent permitted by law, any rights it may
have under the California  Code of Civil  procedure  Sections 580b, 580d and 726
with  respect to the  Mortgaged  Property  and  enforcement  or  realization  by
Beneficiary or Trustee of their  respective  rights and remedies under this Deed
of  Trust  or  with  respect  to the  Mortgaged  Property;  and  (v) no  action,
proceeding or judgment initiated,  pursued or obtained by Beneficiary or Trustee
in the State of California  with respect to the Mortgaged  Property or this Deed
of Trust shall be considered a "judgment"  for the purposes of such Section 580d
or an "action" for the purposes of such Section 726.

         Section  10.3.  Waiver of Rights.  Supplementing  Section 9.8,  Grantor
waives,  to the full extent  permitted  by law,  (1) the benefit of all laws now
existing or that may hereafter be enacted providing for any appraisement  before
sale of any portion of the  Mortgaged  Property;  (2) all rights of  redemption,
valuation,  appraisement,  stay of  execution,  notice of  election to mature or
declare due the Secured  Obligations and the right to require  marshaling in the
event of  foreclosure  of the  liens  hereby  created;  and (3) all  rights  and
remedies that Grantor may have or be able to assert by reason of the laws of



                                     XII-14
<PAGE>

the State of  California  pertaining  to the rights and  remedies  of  sureties,
including,  without  limitation,  Sections 2809,  2810,  2819, 2839, 2845, 2849,
2850, 2899 and 3433 of the California Civil Code.

        [The remainder of this page has been intentionally left blank.]



                                     XII-15
<PAGE>


IN WITNESS  WHEREOF,  Grantor  has on the date set forth in the  acknowledgement
hereto,  effective as of the date first above written, caused this instrument to
be duly EXECUTED AND DELIVERED by authority duly given.

                  GRANTOR:       ARTERIAL VASCULAR ENGINEERING, INC.,
                                 a Delaware corporation

                                 By: ___________________________________________
                                 Printed Name:__________________________________
                                 Title:_________________________________________



                                     XII-16
<PAGE>




State of California                 )
                                    ) ss.
County of ______________________    )


On  ____________________,  before me, personally appeared  ____________________,
personally  known to me (or proved to me on the basis of satisfactory  evidence)
to be the  person  whose  name  is  subscribed  to  the  within  instrument  and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her  signature on the  instrument  the person or the entity upon
behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.


[SEAL]
                                                   _____________________________
My Commission expires:                             Notary Public

________________________




                                     XII-17
<PAGE>

                                    EXHIBIT A

                      Legal Description of Premises located
                  at __________, ____________, _______________

                              [See Attached Pages]



                                    XII-A-1
<PAGE>


                                  EXHIBIT XIII

                    [FORM OF CERTIFICATE RE NON-BANK STATUS]


                         CERTIFICATE RE NON-BANK STATUS


                  Reference  is hereby  made to that  certain  Credit  Agreement
dated as of September 30, 1998 (said Credit Agreement, as amended,  supplemented
or otherwise modified to the date hereof,  being the "Credit  Agreement") by and
among Arterial Vascular  Engineering,  Inc., the financial  institutions  listed
therein as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Paribas, as
Documentation Agent, and Royal Bank of Canada, as Administrative Agent. Pursuant
to  subsection  2.7B(iii)  of  the  Credit  Agreement,  the  undersigned  hereby
certifies that it is not a "bank" or other Person described in Section 881(c)(3)
of the Internal Revenue Code of 1986, as amended.




                                            [NAME OF LENDER]

                                            By: ________________________________
                                            Title: _____________________________

                                     XIII-1
<PAGE>

                                   EXHIBIT XIV

                     [FORM OF COLLATERAL ACCOUNT AGREEMENT]

                          COLLATERAL ACCOUNT AGREEMENT



                  This COLLATERAL  ACCOUNT AGREEMENT (this "Agreement") is dated
as of  September  30, 1998 and entered  into by and  between  ARTERIAL  VASCULAR
ENGINEERING, INC., a Delaware corporation ("Pledgor"), and ROYAL BANK OF CANADA,
as Administrative Agent, for the benefit of the Agents,  Issuing Lenders,  Swing
Line Lender and Lenders party to the Credit Agreement  referred to below and any
Interest Rate Exchangers (as hereinafter defined)(in such agent capacity for all
such parties, the "Secured Party" herein).

                             PRELIMINARY STATEMENTS

                  A.  Secured  Party,  Agents and Lenders  have  entered  into a
Credit  Agreement dated as of September 30, 1998 (said Credit  Agreement,  as it
may hereafter be amended,  supplemented or otherwise modified from time to time,
being the  "Credit  Agreement",  the terms  defined  therein  and not  otherwise
defined  herein being used herein as therein  defined) with Pledgor  pursuant to
which Agents have undertaken  certain  obligations and Lenders have made certain
commitments,  subject  to the  terms  and  conditions  set  forth in the  Credit
Agreement, to extend certain credit facilities to Pledgor.

                  B.  Pledgor may from time to time  enter,  or may from time to
time have entered,  into one or more Interest Rate  Agreements  with one or more
Lenders  (collectively,  the "Lender Interest Rate Agreements") (such Lenders in
such capacity, collectively, "Interest Rate Exchangers").

                  C. It is a condition  precedent to the initial  extensions  of
credit by Lenders under the Credit Agreement that Pledgor shall have granted the
security   interests  and  undertaken  the  obligations   contemplated  by  this
Agreement.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce Lenders to make Loans and other  extensions of credit under the Credit
Agreement (including,  without limitation,  the issuance of Letters of Credit or
the  purchase of  participations  therein) and to induce the Agents to undertake
their  obligations  and to induce the Interest Rate Exchangers to enter into the
Lender Interest Rate Agreements,  and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees
with Secured Party as follows:


                                     XIV-1
<PAGE>

                  SECTION 1.  Certain Definitions.  The following terms used  in
this Agreement shall have the following meanings:

                  "Collateral"  means  (i)  the  Collateral  Account,  (ii)  all
amounts  on  deposit  from  time to time in the  Collateral  Account,  (iii) all
interest,  cash,  instruments,  securities  and other property from time to time
received,  receivable or otherwise  distributed in respect of or in exchange for
any or all of the  foregoing,  and (iv) to the extent not covered by clauses (i)
through (iii) above, all proceeds of any or all of the foregoing.

                  "Beneficiaries" means the Agents, Lenders, Issuing Lenders and
Swing Line Lender under the Credit  Agreement and the Interest Rate  Exchangers,
collectively ("Beneficiary" meaning any one of such Beneficiaries).

                  "Collateral  Account"  means the  restricted  deposit  account
established and maintained by Secured Party pursuant to Section 2(a).

                  "Secured Obligations" means all obligations and liabilities of
every nature of Pledgor to any  Beneficiary  now or hereafter  existing under or
arising out of or in  connection  with the Credit  Agreement  and the other Loan
Documents and the Lender Interest Rate Agreements and all extensions or renewals
thereof,  whether  for  principal,  interest  (including,   without  limitation,
interest  that,  but for the filing of a petition in bankruptcy  with respect to
Pledgor, would accrue on such obligations), reimbursement of amounts drawn under
Letters  of Credit,  payments  for early  termination  of Lender  Interest  Rate
Agreements,  fees,  expenses,  indemnities  or otherwise,  whether  voluntary or
involuntary,   direct  or  indirect,  absolute  or  contingent,   liquidated  or
unliquidated,  whether or not jointly owed with others,  and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such  obligations or liabilities that are paid, to the
extent  all or any part of such  payment is avoided  or  recovered  directly  or
indirectly  from Secured Party or any  Beneficiary  as a preference,  fraudulent
transfer or  otherwise,  and all  obligations  of every nature of Pledgor now or
hereafter existing under this Agreement.

                  SECTION 2.  Establishment and Operation of Collateral Account.

                  (a)  Secured  Party is  hereby  authorized  to  establish  and
maintain  at its office at One  Liberty  Plaza,  4th Floor,  New York,  New York
10006-1404, as a blocked account in the name of Secured Party and under the sole
dominion and control of Secured Party, a restricted  deposit account  designated
as "Arterial Vascular Engineering, Inc. Collateral Account".

                  (b) The  Collateral  Account  shall be operated in  accordance
with the terms of this Agreement.

                  (c) All  amounts  at any time held in the  Collateral  Account
shall be beneficially  owned by Pledgor but shall be held in the name of Secured
Party hereunder,  for the benefit of Beneficiaries,  as collateral  security for
the Secured Obligations upon the terms and conditions set forth herein.  Pledgor
shall have no right to  withdraw,  transfer or,  except as  expressly  set forth
herein, otherwise receive any funds deposited into the Collateral Account.

                  (d) Anything contained herein to the contrary notwithstanding,
the  Collateral  Account  shall be subject  to such  applicable  laws,  and such
applicable  regulations of the Board of



                                     XIV-2
<PAGE>

Governors of the Federal Reserve System and of any other appropriate  banking or
governmental authority, as may now or hereafter be in effect.

                  SECTION 3.  Deposits of Cash Collateral.

                  (a) All deposits of funds in the  Collateral  Account shall be
made in U.S. dollars by wire transfer (or, if applicable, by intra-bank transfer
from another  account of Pledgor) of immediately  available  funds, in each case
addressed as follows:

                           Account No.:
                           ABA No.:
                           Reference:
                           Attention:

Pledgor shall,  promptly after  initiating a transfer of Funds to the Collateral
Account,  give notice to Secured Party by telefacsimile of the date,  amount and
method of delivery of such deposit.

                  (b) If an Event of Default has occurred and is continuing and,
in  accordance  with Section 8 of the Credit  Agreement,  upon receipt of notice
from Secured  Party,  Pledgor is required to pay to Secured Party an amount (the
"Aggregate  Available  Amount") equal to the maximum amount that may at any time
be drawn  under  all  Letters  of  Credit  then  outstanding  under  the  Credit
Agreement,  Pledgor  shall  deliver  funds in such an amount for  deposit in the
Collateral Account in accordance with Section 3(a).

                  If for any reason the  aggregate  amount  delivered by Pledgor
for deposit in the  Collateral  Account as aforesaid is less than the  Aggregate
Available  Amount,  the  aggregate  amount  so  delivered  by  Pledgor  shall be
apportioned among all outstanding Letters of Credit for purposes of this Section
3(b) in accordance  with the ratio of the maximum  amount  available for drawing
under each such  Letter of Credit (as to such  Letter of  Credit,  the  "Maximum
Available Amount") to the Aggregate Available Amount. Upon any drawing under any
outstanding  Letter of Credit in respect of which  Pledgor has  deposited in the
Collateral  Account any amounts described above,  Secured Party shall apply such
amounts to reimburse the Issuing  Lender for the amount of such drawing.  In the
event of  cancellation or expiration of any Letter of Credit in respect of which
Pledgor has deposited in the Collateral  Account any amounts described above, or
in the event of any reduction in the Maximum  Available Amount under such Letter
of  Credit,  Secured  Party  shall  apply  the  amount  then on  deposit  in the
Collateral  Account in respect of such  Letter of Credit  (less,  in the case of
such a  reduction,  the  Maximum  Available  Amount  under such Letter of Credit
immediately  after such reduction)  first, to the payment of any amounts payable
to Secured Party pursuant to Section 13, second, to the extent of any excess, to
the  cash  collateralization  pursuant  to the  terms of this  Agreement  of any
outstanding  Letters of Credit in respect of which Pledgor has failed to pay all
or a portion of the amounts described above (such cash  collateralization  to be
apportioned  among all such  Letters of Credit in the manner  described  above),
third,  to the  extent  of any  further  excess,  to the  payment  of any  other
outstanding  Secured Obligations in such order as Secured Party shall elect, and
fourth,  to the extent of any further excess, to the payment to whomsoever shall
be lawfully entitled to receive such funds.

                  SECTION 4. Pledge of Security for Secured Obligations. Pledgor
hereby pledges and assigns to Secured Party,  and hereby grants to Secured Party
a security interest in, all



                                     XIV-3
<PAGE>

of Pledgor's  right,  title and interest in and to the  Collateral as collateral
security  for the prompt  payment or  performance  in full when due,  whether at
stated maturity, by required prepayment,  declaration,  acceleration,  demand or
otherwise  (including  the payment of amounts  that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy  Code, 11
U.S.C. ss.362(a)), of all Secured Obligations.

                  SECTION 5. No Investment of Amounts in the Collateral Account;
Interest on Amounts in the Collateral Account.

                  (a) Cash held by Secured Party in the Collateral Account shall
not be  invested  by Secured  Party but instead  shall be  maintained  as a cash
deposit in the  Collateral  Account  pending  application  thereof as  elsewhere
provided in this Agreement.

                  (b) To the extent permitted under Regulation Q of the Board of
Governors of the Federal Reserve System, any cash held in the Collateral Account
shall bear  interest at the standard rate paid by Secured Party to its customers
for deposits of like amounts and terms.

                  (c) Subject to Secured  Party's  rights under  Section 12, any
interest earned on deposits of cash in the Collateral Account in accordance with
Section 5(b) shall be deposited  directly in, and held in the Collateral Account
and shall constitute Collateral hereunder.

                  SECTION 6. Representations and Warranties.  Pledgor represents
and warrants as follows:

                  (a)  Ownership  of  Collateral.  Pledgor is (or at the time of
transfer thereof to Secured Party will be) the legal and beneficial owner of the
Collateral from time to time  transferred by Pledgor to Secured Party,  free and
clear of any Lien except for the security interest created by this Agreement.

                  (b) Governmental Authorizations. No authorization, approval or
other action by, and no notice to or filing with, any governmental  authority or
regulatory  body is required for either (i) the grant by Pledgor of the security
interest  granted  hereby,  (ii) the execution,  delivery or performance of this
Agreement  by Pledgor,  or (iii) the  perfection  of or the  exercise by Secured
Party of its rights and remedies  hereunder (except as may have been taken by or
at the direction of Pledgor).

                  (c)  Perfection.  The pledge and  assignment of the Collateral
pursuant to this Agreement creates a valid and perfected first priority security
interest in the Collateral in favor of the Secured  Party,  securing the payment
of the Secured Obligations.

                  (d) Other Information.  All information heretofore,  herein or
hereafter  supplied to Secured  Party by or on behalf of Pledgor with respect to
the Collateral is accurate and complete in all respects.

                  SECTION 7. Further  Assurances.  Pledgor agrees that from time
to time, at the expense of Pledgor,  Pledgor will  promptly  execute and deliver
all further instruments and documents,  and take all further action, that may be
necessary or desirable,  or that Secured Party may request,  in order to perfect
and protect any security  interest  granted or purported to be granted hereby or
to enable  Secured  Party to  exercise  and  enforce  its  rights  and  remedies



                                     XIV-4
<PAGE>

hereunder with respect to any Collateral. Without limiting the generality of the
foregoing,  Pledgor will:  (a) execute and file such  financing or  continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable,  or as Secured Party may request, in order to perfect
and preserve the security  interests  granted or purported to be granted  hereby
and  (b) at  Secured  Party's  request,  appear  in and  defend  any  action  or
proceeding  that may affect  Pledgor's  beneficial  title to or Secured  Party's
security interest in all or any part of the Collateral.

                  SECTION 8.  Transfers and other Liens.  Pledgor agrees that it
will not (a) sell,  assign  (by  operation  of law or  otherwise)  or  otherwise
dispose of any of the  Collateral or (b) create or suffer to exist any Lien upon
or with respect to any of the Collateral, except for the security interest under
this Agreement.

                  SECTION 9. Secured Party Appointed  Attorney-in-Fact.  Pledgor
hereby irrevocably  appoints Secured Party as Pledgor's  attorney-in-fact,  with
full  authority  in the place and stead of Pledgor  and in the name of  Pledgor,
Secured Party or otherwise,  from time to time in Secured Party's  discretion to
take any  action and to  execute  any  instrument  that  Secured  Party may deem
necessary or advisable to accomplish the purposes of this  Agreement,  including
without limitation to file one or more financing or continuation statements,  or
amendments  thereto,  relative to all or any part of the Collateral  without the
signature of Pledgor.

                  SECTION 10.  Secured  Party May Perform.  If Pledgor  fails to
perform any agreement  contained  herein,  Secured Party may itself perform,  or
cause performance of, such agreement, and the expenses of Secured Party incurred
in connection therewith shall constitute Secured Obligations hereunder,  payable
by Pledgor under Section 13.

                  SECTION 11. Standard of Care. The powers  conferred on Secured
Party  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the exercise
of reasonable  care in the custody of any  Collateral in its  possession and the
accounting  for moneys  actually  received by it hereunder,  Secured Party shall
have no duty as to any Collateral,  it being understood that Secured Party shall
have no  responsibility  for (a) taking any  necessary  steps  (other than steps
taken in  accordance  with the  standard  of care set  forth  above to  maintain
possession  of the  Collateral)  to preserve  rights  against  any parties  with
respect  to any  Collateral  or (b)  taking  any  necessary  steps to collect or
realize  upon the Secured  Obligations  or any  guaranty  therefor,  or any part
thereof,  or any of the  Collateral.  Secured  Party  shall  be  deemed  to have
exercised  reasonable care in the custody and  preservation of Collateral in its
possession if such Collateral is accorded treatment  substantially equal to that
which Secured Party accords its own property of like kind.

                  SECTION 12.  Remedies.  Subject to the  provisions  of Section
3(b),  Secured Party may exercise in respect of the  Collateral,  in addition to
all other  rights and  remedies  otherwise  available  to it, all the rights and
remedies of a secured party on default under the Uniform  Commercial  Code as in
effect  in any  relevant  jurisdiction  (the  "Code")  (whether  or not the Code
applies to the affected Collateral).



                                     XIV-5
<PAGE>

                  SECTION 13.  Indemnity and Expenses.

                  (a)  Pledgor  agrees  to  indemnify  Secured  Party  and  each
Beneficiary,  from and against any and all claims, losses and liabilities in any
way  relating  to,  growing  out of or  resulting  from this  Agreement  and the
transactions contemplated hereby (including, without limitation,  enforcement of
this Agreement),  except, with respect to such Secured Party or such Beneficiary
to the extent  such  claims,  losses or  liabilities  result  from such  Secured
Party's or such Beneficiary's  gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.

                  (b) Pledgor  shall pay to Secured Party upon demand the amount
of any and all costs and expenses, including the reasonable fees and expenses of
its counsel  (including  the  allocated  costs of in-house  counsel)  and of any
experts and agents,  that  Secured  Party may incur in  connection  with (i) the
administration  of  this  Agreement,  (ii)  the  custody,  preservation,  use or
operation of, or the sale of, collection from, or other realization upon, any of
the  Collateral,  (iii) the  exercise  or  enforcement  of any of the  rights of
Secured  Party  hereunder,  or (iv) the failure by Pledgor to perform or observe
any of the provisions hereof.

                  SECTION 14. Continuing  Security Interest;  Transfer of Loans.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the latest of payment in full of
the Secured Obligations, the cancellation or termination of the Commitments, and
the  cancellation  or  expiration of all  outstanding  Letters of Credit and the
reimbursement of all drawings  thereunder and the payment of agreed fees, (b) be
binding upon Pledgor, its successors and assigns,  and (c) inure,  together with
the rights and remedies of Secured  Party  hereunder,  to the benefit of Secured
Party  and  its  successors,  transferees  and  assigns.  Without  limiting  the
generality  of the  foregoing  clause  (c),  but  subject to the  provisions  of
subsection  10.1 of the Credit  Agreement,  any  Lender may assign or  otherwise
transfer any Loans held by it to any other  Person,  and such other Person shall
thereupon  become  vested with all the  benefits in respect  thereof  granted to
Lenders  herein  or  otherwise.   Upon  the  payment  in  full  of  all  Secured
Obligations,  the  cancellation  or  termination  of  the  Commitments  and  the
cancellation  or  expiration  of all  outstanding  Letters  of  Credit  and  the
reimbursement of all drawings  thereunder,  the security interest granted hereby
shall terminate  automatically  and all rights to the Collateral shall revert to
Pledgor.  Upon any such termination  Secured Party shall, at Pledgor's  expense,
promptly  execute  and  deliver  to Pledgor  such  documents  as  Pledgor  shall
reasonably  request to evidence or effect such  termination and Pledgor shall be
entitled to the prompt  return,  upon its request  and at its  expense,  against
receipt and without  recourse to Secured  Party,  of such of the  Collateral  as
shall not have been otherwise applied pursuant to the terms hereof.

                  SECTION 15.  Secured Party as Agent.

                  (a) Secured  Party has been  appointed to act as Secured Party
hereunder by Agents and Lenders and, by their acceptance of the benefits hereof,
Interest Rate Exchangers.  Secured Party shall be obligated,  and shall have the
right hereunder,  to make demands,  to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without  limitation,  the  release or  substitution  of  Collateral),  solely in
accordance with this Agreement and the Credit Agreement.



                                     XIV-6
<PAGE>

                  (b) Written  notice of  resignation  by  Administrative  Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute  notice
of resignation as Secured Party under this Agreement;  removal of Administrative
Agent pursuant to subsection 9.5 of the Credit  Agreement  shall also constitute
removal as Secured Party under this  Agreement;  and  appointment of a successor
Administrative  Agent pursuant to subsection 9.5 of the Credit  Agreement  shall
also constitute  appointment of a successor  Secured Party under this Agreement.
Upon the acceptance of any appointment as Administrative  Agent under subsection
9.5 of the Credit Agreement by a successor  Administrative Agent, that successor
Administrative  Agent shall thereupon  succeed to and become vested with all the
rights,  powers,  privileges and duties of the retiring or removed Secured Party
under this  Agreement,  and the  retiring  or removed  Secured  Party under this
Agreement  shall promptly (i) transfer to such successor  Secured Party all sums
held by Secured Party  hereunder  (which shall be deposited in a new  Collateral
Account  established and maintained by such successor  Secured Party),  together
with all records and other documents necessary or appropriate in connection with
the  performance  of the  duties  of the  successor  Secured  Party  under  this
Agreement,  and (ii) execute and deliver to such  successor  Secured  Party such
amendments  to  financing  statements,  and take such other  actions,  as may be
necessary or  appropriate  in connection  with the  assignment to such successor
Secured  Party of the  security  interests  created  hereunder,  whereupon  such
retiring  or  removed  Secured  Party  shall be  discharged  from its duties and
obligations under this Agreement.  After any retiring or removed  Administrative
Agent's  resignation or removal  hereunder as Secured  Party,  the provisions of
this Agreement  shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Secured Party hereunder.

                  SECTION  16.  Amendments;  Etc.  No  amendment,  modification,
termination or waiver of any provision of this Agreement,  and no consent to any
departure by Pledgor therefrom,  shall in any event be effective unless the same
shall be in writing  and signed by  Secured  Party and,  in the case of any such
amendment  or  modification,  by Pledgor.  Any such  waiver or consent  shall be
effective only in the specific  instance and for the specific  purpose for which
it was given.

                  SECTION 17. Notices.  Unless otherwise  specifically  provided
herein,  any notice or other  communication  herein  required or permitted to be
given  shall be in  writing  and may be  personally  served,  telexed or sent by
telefacsimile  or United  States mail or courier  service and shall be deemed to
have been given when delivered in person or by courier service,  upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States  mail with  postage  prepaid and  properly  addressed.  For the  purposes
hereof,  the  address  of each  party  hereto  shall be as set forth  under such
party's name on the signature  pages hereof or, as to either  party,  such other
address as shall be  designated by such party in a written  notice  delivered to
the other party hereto.

                  SECTION  18.  Failure  or  Indulgence  Not  Waiver;   Remedies
Cumulative.  No failure or delay on the part of Secured Party in the exercise of
any power,  right or  privilege  hereunder  shall  impair such  power,  right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial  exercise of any such power,  right or privilege
preclude any other or further exercise  thereof or of any other power,  right or
privilege.  All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

                                     XIV-7
<PAGE>

                  SECTION  19.  Severability.   In  case  any  provision  in  or
obligation  under this Agreement shall be invalid,  illegal or  unenforceable in
any  jurisdiction,  the validity,  legality and  enforceability of the remaining
provisions  or  obligations,  or of such  provision or  obligation  in any other
jurisdiction, shall not in any way be affected or impaired thereby.

                  SECTION 20. Headings.  Section and subsection headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute  a part of this  Agreement  for any  other  purpose  or be given  any
substantive effect.

                  SECTION 21.  Governing  Law;  Terms.  THIS  AGREEMENT  AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES  HEREUNDER SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE  PERFECTION OF THE SECURITY
INTEREST  HEREUNDER,  OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform  Commercial Code in the State of New York are
used herein as therein defined.

                  SECTION 22.  Consent to  Jurisdiction  and Service of Process.
ALL JUDICIAL  PROCEEDINGS  BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO
THIS  AGREEMENT  MAY BE  BROUGHT  IN ANY  STATE OR  FEDERAL  COURT OF  COMPETENT
JURISDICTION  IN THE  COUNTY  OF NEW YORK  AND THE  STATE  OF NEW  YORK,  AND BY
EXECUTION  AND  DELIVERY  OF THIS  AGREEMENT  PLEDGOR  ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,  THE NONEXCLUSIVE
JURISDICTION  OF THE  AFORESAID  COURTS  AND  WAIVES  ANY  DEFENSE  OF FORUM NON
CONVENIENS AND IRREVOCABLY  AGREES TO BE BOUND BY ANY JUDGMENT  RENDERED THEREBY
IN CONNECTION  WITH THIS  AGREEMENT.  Pledgor  hereby agrees that service of all
process in any such  proceeding  in any such court may be made by  registered or
certified mail, return receipt requested,  to Pledgor at its address provided in
Section 17, such service being hereby  acknowledged  by Pledgor to be sufficient
for personal jurisdiction in any action against Pledgor in any such court and to
be otherwise  effective and binding  service in every  respect.  Nothing  herein
shall affect the right to serve process in any other manner  permitted by law or
shall limit the right of Secured Party to bring  proceedings  against Pledgor in
the courts of any other jurisdiction.

                  SECTION 23.  Waiver of Jury Trial.  PLEDGOR AND SECURED  PARTY
HEREBY  AGREE TO WAIVE THEIR  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS  AGREEMENT.  The scope of this
waiver is intended to be  all-encompassing  of any and all disputes  that may be
filed in any court and that  relate to the subject  matter of this  transaction,
including  without  limitation  contract  claims,  tort  claims,  breach of duty
claims, and all other common law and statutory claims. Pledgor and

                                      XIV-8
<PAGE>

Secured Party each  acknowledge  that this waiver is a material  inducement  for
Pledgor and Secured  Party to enter into a business  relationship,  that Pledgor
and Secured  Party have  already  relied on this  waiver in  entering  into this
Agreement  and that each will  continue to rely on this waiver in their  related
future  dealings.  Pledgor and Secured Party further  warrant and represent that
each has reviewed this waiver with its legal  counsel,  and that each  knowingly
and voluntarily  waives its jury trial rights following  consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE,  MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY  OR IN  WRITING  (OTHER  THAN BY A  MUTUAL  WRITTEN  WAIVER  SPECIFICALLY
REFERRING TO THIS SECTION 23 AND  EXECUTED BY EACH OF THE PARTIES  HERETO),  AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation,  this Agreement may
be filed as a written consent to a trial by the court.

                  SECTION 24.  Counterparts.  This  Agreement may be executed in
one  or  more   counterparts  and  by  different   parties  hereto  in  separate
counterparts,  each of which when so executed and  delivered  shall be deemed an
original,  but all such  counterparts  together shall constitute but one and the
same  instrument;  signature  pages  may  be  detached  from  multiple  separate
counterparts  and attached to a single  counterpart so that all signature  pages
are physically attached to the same document.


                  [Remainder of page intentionally left blank]

                                     XIV-9

<PAGE>


                  IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first written above.

                                  ARTERIAL VASCULAR ENGINEERING, INC.


                                  By: __________________________________________
                                    Title: 

                                  Notice Address:   ____________________________
                                                    ____________________________
                                                    ____________________________




                                  ROYAL BANK OF CANADA, as Administrative
                                  Agent, as Secured Party


                                  By: __________________________________________
                                    Title: 

                                  Notice Address:   ____________________________
                                                    ____________________________
                                                    ____________________________



                                     XIV-10
<PAGE>


                                   EXHIBIT XV

                       [FORM OF COMPANY PLEDGE AGREEMENT]

                            COMPANY PLEDGE AGREEMENT



                  This COMPANY PLEDGE  AGREEMENT (this  "Agreement") is dated as
of  September  30,  1998  and  entered  into by and  between  ARTERIAL  VASCULAR
ENGINEERING, INC., a Delaware corporation ("Pledgor"), and ROYAL BANK OF CANADA,
as Administrative Agent, for the benefit of the Agents,  Issuing Lenders,  Swing
Line Lender and Lenders party to the Credit Agreement  referred to below and any
Interest Rate Exchangers (as hereinafter defined)(in such agent capacity for all
such parties, the "Secured Party" herein).

                             PRELIMINARY STATEMENTS


                  A. Pledgor is the legal and beneficial owner of (i) the shares
of stock (the "Pledged Shares") described in Part A of Schedule I annexed hereto
and issued by the  corporations  named  therein and (ii) the  indebtedness  (the
"Pledged  Debt")  described  in  Part B of said  Schedule  I and  issued  by the
obligors named therein.

                  B.  Secured  Party,  Agents and Lenders  have  entered  into a
Credit  Agreement dated as of September 30, 1998 (said Credit  Agreement,  as it
may hereafter be amended,  supplemented or otherwise modified from time to time,
being the  "Credit  Agreement",  the terms  defined  therein  and not  otherwise
defined  herein being used herein as therein  defined) with Pledgor  pursuant to
which Agents have undertaken  certain  obligations and Lenders have made certain
commitments,  subject  to the  terms  and  conditions  set  forth in the  Credit
Agreement, to extend certain credit facilities to Pledgor.

                  C.  Pledgor  may  from  time to time  enter  into  one or more
Interest Rate  Agreements  with one or more Lenders  (collectively,  the "Lender
Interest  Rate  Agreements")  (such  Lenders  in  such  capacity,  collectively,
"Interest  Rate  Exchangers")  in  accordance  with  the  terms  of  the  Credit
Agreement,  and it is desired that the  obligations  of Pledgor under the Lender
Interest Rate  Agreements,  including,  without  limitation,  the  obligation of
Pledgor to make payments  thereunder in the event of early termination  thereof,
together  with all  obligations  of Pledgor  under the Credit  Agreement and the
other Loan Documents, be secured hereunder.

                  D. It is a condition  precedent to the initial  extensions  of
credit by Lenders under the Credit Agreement that Pledgor shall have granted the
security   interests  and  undertaken  the  obligations   contemplated  by  this
Agreement.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce Lenders to make Loans and other  extensions of credit under the Credit
Agreement (including,  without limitation,  the issuance of Letters of Credit or
the  purchase of  participations  therein) and to induce the Agents to undertake
their  obligations  and to induce the Interest Rate Exchangers to enter into the
Lender Interest Rate Agreements,  and for other good and valuable consideration,
the



                                      XV-1
<PAGE>

receipt and adequacy of which are hereby  acknowledged,  Pledgor  hereby  agrees
with Secured Party as follows:

                  SECTION 1.  Pledge of  Security.  Pledgor  hereby  pledges and
assigns to Secured Party, and hereby grants to Secured Party a security interest
in, all of  Pledgor's  right,  title and interest in and to the  following  (the
"Pledged Collateral"):

                  (a) the Pledged Shares and the  certificates  representing the
Pledged Shares. any securities  accounts in which the Pledged Shares may be held
and any securities entitlements represented thereby, and any interest of Pledgor
in the entries on the books of any  securities  intermediary  pertaining  to the
Pledged Shares, and all dividends, cash, warrants, rights, instruments and other
property  or  proceeds  from  time to time  received,  receivable  or  otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares;

                  (b) the  Pledged  Debt  and  the  instruments  evidencing  the
Pledged Debt, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Debt;

                  (c) all additional  shares of, and all securities  convertible
into and  warrants,  options and other rights to purchase or otherwise  acquire,
stock of any issuer of the Pledged  Shares from time to time acquired by Pledgor
in any manner (which  shares shall be deemed to be part of the Pledged  Shares),
the  certificates or other  instruments  representing  such  additional  shares,
securities,  warrants, options or other rights, any securities accounts in which
the  Pledged  Shares  may be held and any  securities  entitlements  represented
thereby,  and any  interest  of  Pledgor  in the  entries  on the  books  of any
securities intermediary pertaining to such additional shares, and all dividends,
cash, warrants,  rights, instruments and other property or proceeds from time to
time received,  receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares, securities, warrants, options or other
rights;

                  (d) all  additional  indebtedness  from  time to time  owed to
Pledgor by any obligor on the Pledged Debt and the  instruments  evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;

                  (e) all  shares of, and all  securities  convertible  into and
warrants,  options and other rights to purchase or otherwise  acquire,  stock of
any Person that, after the date of this Agreement,  becomes,  as a result of any
occurrence,  a direct  Subsidiary of Pledgor (which shares shall be deemed to be
part of the Pledged Shares), the certificates or other instruments  representing
such shares,  securities,  warrants, options or other rights and any interest of
Pledgor in the entries on the books of any securities intermediary pertaining to
such shares, and all dividends,  cash, warrants,  rights,  instruments and other
property  or  proceeds  from  time to time  received,  receivable  or  otherwise
distributed  in  respect  of or in  exchange  for  any or all  of  such  shares,
securities, warrants, options or other rights;

                  (f) all indebtedness  from time to time owed to Pledgor by any
Person  that,  after  the date of this  Agreement,  becomes,  as a result of any
occurrence,  a direct or indirect Subsidiary of Pledgor, and all interest, cash,
instruments  and  other  property  or  proceeds  from  time



                                      XV-2
<PAGE>

to time  received,  receivable  or  otherwise  distributed  in  respect of or in
exchange for any or all of such indebtedness; and

                  (g) to the extent  not  covered by  clauses  (a)  through  (f)
above,  all  proceeds of any or all of the  foregoing  Pledged  Collateral.  For
purposes of this Agreement,  the term "proceeds" includes whatever is receivable
or received when Pledged Collateral or proceeds are sold,  exchanged,  collected
or otherwise  disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation,  proceeds of any indemnity or guaranty payable
to Pledgor or Secured Party from time to time with respect to any of the Pledged
Collateral.

                  SECTION 2. Security for  Obligations.  This  Agreement and the
pledges hereunder secure, and the Pledged Collateral is collateral security for,
the prompt payment or performance in full when due,  whether at stated maturity,
by  required  prepayment,   declaration,   acceleration,   demand  or  otherwise
(including the payment of amounts that would become due but for the operation of
the  automatic  stay under  Section  362(a) of the  Bankruptcy  Code,  11 U.S.C.
ss.362(a)), of all obligations and liabilities of every nature of Pledgor to the
Agents,  Lenders and Interest Rate Exchangers now or hereafter existing under or
arising out of or in  connection  with the Credit  Agreement  and the other Loan
Documents and the Lender Interest Rate Agreements and all extensions or renewals
thereof, whether for principal,  interest (including without limitation interest
that,  but for the filing of a petition in  bankruptcy  with respect to Pledgor,
would accrue on such obligations),  reimbursement of amounts drawn under Letters
of Credit,  payments for early  termination of Lender Interest Rate  Agreements,
fees,  expenses,  indemnities or otherwise,  whether  voluntary or  involuntary,
direct or indirect, absolute or contingent, liquidated or unliquidated,  whether
or not jointly owed with others,  and whether or not from time to time decreased
or extinguished and later increased, created or incurred, and all or any portion
of such  obligations or liabilities that are paid, to the extent all or any part
of such  payment is avoided or  recovered  directly or  indirectly  from Secured
Party  or  any  Agent,  Lender  or  Interest  Rate  Exchanger  as a  preference,
fraudulent transfer or otherwise, and all obligations of every nature of Pledgor
now or hereafter  existing under this Agreement (all such obligations of Pledgor
being the "Secured Obligations").

                  SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of  Secured  Party  pursuant  hereto and shall be in
suitable form for transfer by delivery or, as  applicable,  shall be accompanied
by Pledgor's  endorsement,  where  necessary,  or duly executed  instruments  of
transfer or  assignment  in blank,  all in form and  substance  satisfactory  to
Secured Party.  Upon the  occurrence  and during the  continuance of an Event of
Default  (as  defined in the Credit  Agreement)  or the  occurrence  of an Early
Termination  Date (as defined in a Master  Agreement  or an  Interest  Rate Swap
Agreement  or  Interest  Rate  and  Currency  Exchange  Agreement,  each of such
agreements  in the form  prepared  by the  International  Swap  and  Derivatives
Association  Inc. or a similar event under any similar swap agreement) under any
Lender  Interest  Rate  Agreement  (either  such  occurrence  being an "Event of
Default" for purposes of this  Agreement),  Secured  Party shall have the right,
without notice to Pledgor,  to transfer to or to register in the name of Secured
Party or any of its nominees any or all of the Pledged Collateral,  subject only
to the revocable  rights  specified in Section 7(a). In addition,  Secured Party
shall  have the  right  at any  time to  exchange  certificates  or  instruments
representing or evidencing Pledged Collateral for certificates or instruments of
smaller or larger denominations.



                                      XV-3
<PAGE>

                  SECTION 4.  Representations and Warranties. Pledgor represents
and warrants as follows:

                  (a) Due Authorization,  etc. of Pledged Collateral. All of the
Pledged  Shares have been duly  authorized and validly issued and are fully paid
and  non-assessable.   All  of  the  Pledged  Debt  has  been  duly  authorized,
authenticated  or issued,  and  delivered  and is the legal,  valid and  binding
obligation of the issuers thereof and is not in default.

                  (b)  Description  of Pledged  Collateral.  The Pledged  Shares
constitute  all of the issued  and  outstanding  shares of stock of each  issuer
thereof  which is a Domestic  Subsidiary  and 65% of the issued and  outstanding
shares of stock of each issuer thereof which is a Foreign Subsidiary,  and there
are no  outstanding  warrants,  options or other  rights to  purchase,  or other
agreements  outstanding  with  respect to, or property  that is now or hereafter
convertible  into, or that requires the issuance or sale of, any Pledged Shares.
The Pledged  Debt  constitutes  all of the issued and  outstanding  intercompany
indebtedness  evidenced by a promissory  note of the respective  issuers thereof
owing to Pledgor.

                  (c)  Ownership  of Pledged  Collateral.  Pledgor is the legal,
record and beneficial owner of the Pledged Collateral free and clear of any Lien
except for the security interest created by this Agreement.

                  SECTION  5.  Transfers  and Other  Liens;  Additional  Pledged
Collateral; etc. Pledgor shall:

                  (a)  not,   except  as  expressly   permitted  by  the  Credit
Agreement,  (i) sell,  assign (by  operation of law or  otherwise)  or otherwise
dispose of, or grant any option with respect to, any of the Pledged  Collateral,
(ii)  create or suffer  to exist  any Lien  upon or with  respect  to any of the
Pledged  Collateral,  except for the security interest under this Agreement,  or
(iii) permit any issuer of Pledged Shares to merge or consolidate unless all the
outstanding  capital  stock of the surviving or resulting  corporation  is, upon
such merger or consolidation, pledged hereunder and no cash, securities or other
property  is  distributed  in  respect  of the  outstanding  shares of any other
constituent corporation;  provided that in the event Pledgor makes an Asset Sale
permitted by the Credit  Agreement and the assets subject to such Asset Sale are
Pledged Shares, upon appropriate notice, Secured Party shall release the Pledged
Shares that are the subject of such Asset Sale to Pledgor  free and clear of the
lien  and  security   interest  under  this  Agreement   concurrently  with  the
consummation  of  such  Asset  Sale;  provided,  further  that,  as a  condition
precedent  to  such  release,   Secured  Party  shall  have  received   evidence
satisfactory  to it that  arrangements  satisfactory  to it have  been  made for
delivery to Secured  Party of the Net Asset Sale  Proceeds of such Asset Sale to
the extent required under subsection 2.4B(iii) of the Credit Agreement;

                  (b) (i) cause each  issuer of Pledged  Shares not to issue any
stock or other  securities  in  addition to or in  substitution  for the Pledged
Shares  issued  by such  issuer,  except  to  Pledgor,  (ii)  pledge  hereunder,
immediately upon its acquisition  (directly or indirectly)  thereof, any and all
additional  shares of stock or other securities of each issuer of Pledged Shares
such that all of the shares of stock or other securities of each issuer which is
a Domestic Subsidiary and 65% of the shares of stock or other securities of each
issuer which is a Foreign Subsidiary shall be pledged to Secured Party hereunder
after giving effect to such acquisition, and (iii) pledge hereunder, immediately
upon its  acquisition  (directly or indirectly)  thereof,  any and all shares of



                                      XV-4
<PAGE>

stock of any Person that, after the date of this Agreement, becomes, as a result
of any occurrence, a direct Domestic Subsidiary of Pledgor and 65% of the shares
of stock of any Person that,  after the date of this  Agreement,  becomes,  as a
result of any occurrence, a direct Foreign Subsidiary of Pledgor;

                  (c) (i) pledge hereunder, immediately upon their issuance, any
and all instruments or other evidences of additional  indebtedness  from time to
time owed to  Pledgor  by any  obligor  on the  Pledged  Debt,  and (ii)  pledge
hereunder,  immediately  upon their  issuance,  any and all instruments or other
evidences of  indebtedness  from time to time owed to Pledgor by any Person that
after  the date of this  Agreement  becomes,  as a result of any  occurrence,  a
direct or indirect Subsidiary of Pledgor;

                  (d)  promptly  notify  Secured  Party  of any  event  of which
Pledgor becomes aware causing a loss or depreciation in the value of the Pledged
Collateral that would reasonably be expected to have a Material Adverse Effect;

                  (e)  promptly  deliver to Secured  Party all  written  notices
received by it with respect to the Pledged Collateral; and

                  (f)  pay  promptly  when  due  all  taxes,   assessments   and
governmental charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being contested in good
faith;  provided  that Pledgor  shall in any event pay such taxes,  assessments,
charges,  levies or claims  not  later  than five days  prior to the date of any
proposed  sale under any  judgement,  writ or warrant of  attachment  entered or
filed  against  Pledgor  or any of the  Pledged  Collateral  as a result  of the
failure to make such payment.

                  SECTION 6.  Further Assurances; Pledge Amendments.

                  (a) Pledgor  agrees that from time to time,  at the expense of
Pledgor,  Pledgor will promptly execute and deliver all further  instruments and
documents,  and take all further action, that may be necessary or desirable,  or
that Secured Party may reasonably  request,  in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies  hereunder with respect to
any Pledged  Collateral.  Without  limiting  the  generality  of the  foregoing,
Pledgor  will:  (i) take all such  further  action  and  execute  and file  such
financing or  continuation  statements,  or amendments  thereto,  and such other
instruments  or notices,  as may be necessary or desirable,  or as Secured Party
may request,  in order to perfect and preserve the security interests granted or
purported to be granted hereby (including,  without  limitation,  giving Secured
Party  control (as defined in section  8-106 of the Uniform  Commercial  Code as
currently  in  effect in the State of New York  (the  "UCC"))  over any  Pledged
Collateral that is investment  property or  uncertificated  securities  (each as
defined in the UCC) in order to perfect Secured Party's interest in such Pledged
Collateral in accordance  with the UCC) and (ii) at Secured  Party's  reasonable
request,  appear in and  defend  any action or  proceeding  that may  materially
impair  Pledgor's  title to or Secured Party's  security  interest in all or any
part of the Pledged Collateral.

                  (b) Pledgor  further  agrees that it will,  upon obtaining any
additional shares of stock or other securities  required to be pledged hereunder
as  provided  in Section  5(b) or (c),  promptly  (and in any event  within five
Business  Days)  deliver to Secured Party a Pledge



                                      XV-5
<PAGE>

Amendment,  duly executed by Pledgor,  in substantially  the form of Schedule II
annexed  hereto (a "Pledge  Amendment"),  in respect of the  additional  Pledged
Shares or Pledged Debt to be pledged pursuant to this Agreement.  Pledgor hereby
authorizes  Secured Party to attach each Pledge  Amendment to this Agreement and
agrees that all Pledged  Shares or Pledged  Debt listed on any Pledge  Amendment
delivered  to Secured  Party  shall for all  purposes  hereunder  be  considered
Pledged  Collateral;  provided  that the  failure of Pledgor to execute a Pledge
Amendment with respect to any additional  Pledged Shares or Pledged Debt pledged
pursuant to this  Agreement  shall not impair the  security  interest of Secured
Party therein or otherwise  adversely  affect the rights and remedies of Secured
Party hereunder with respect thereto.

                  SECTION 7.  Voting Rights; Dividends; Etc.

                  (a) So long as no Event of Default  shall have occurred and be
         continuing:

                           (i) Pledgor shall be entitled to exercise any and all
                  voting and other consensual  rights  pertaining to the Pledged
                  Collateral   or  any  part   thereof   for  any   purpose  not
                  inconsistent  with the terms of this  Agreement  or the Credit
                  Agreement or any other Loan Document;  provided, however, that
                  Pledgor shall not exercise or refrain from exercising any such
                  right if Secured  Party shall have  notified  Pledgor that, in
                  Secured  Party's  judgment,  such action would have a material
                  adverse  effect on the value of the Pledged  Collateral or any
                  part thereof; and provided,  further,  that Pledgor shall give
                  Secured  Party at least  five  Business  Days'  prior  written
                  notice of the manner in which it intends to  exercise,  or the
                  reasons for refraining from exercising,  any such right. It is
                  understood, however, that neither (A) the voting by Pledgor of
                  any Pledged Shares for or Pledgor's consent to the election of
                  directors at a regularly  scheduled annual or other meeting of
                  stockholders or with respect to incidental matters at any such
                  meeting nor (B) Pledgor's consent to or approval of any action
                  otherwise  permitted  under  this  Agreement  and  the  Credit
                  Agreement  or  any  other  Loan   Document   shall  be  deemed
                  inconsistent  with the terms of this  Agreement  or the Credit
                  Agreement within the meaning of this Section  7(a)(i),  and no
                  notice of any such voting or consent  need be given to Secured
                  Party;

                           (ii) Pledgor shall be entitled to receive and retain,
                  and to utilize free and clear of the security interest granted
                  under this Agreement,  any and all dividends and interest paid
                  in respect of the Pledged Collateral;  provided, however, that
                  any and all

                           (A) dividends and interest paid or payable other than
                 in cash in  respect  of,  and  instruments  and other  property
                 received, receivable or otherwise distributed in respect of, or
                 in exchange for, any Pledged Collateral,

                           (B) dividends and other distributions paid or payable
                 in cash in respect of any Pledged Collateral in connection with
                 a partial or total  liquidation or dissolution or in connection
                 with   a   reduction   of   capital,    capital    surplus   or
                 paid-in-surplus, and



                                      XV-6
<PAGE>

                           (C) cash paid,  payable or otherwise  distributed  in
                 respect of principal or in redemption of or in exchange for any
                 Pledged Collateral,

         shall be, and shall forthwith be delivered to Secured Party to hold as,
         Pledged  Collateral and shall,  if received by Pledgor,  be received in
         trust for the benefit of Secured  Party,  be segregated  from the other
         property  or funds of Pledgor  and be  forthwith  delivered  to Secured
         Party as Pledged  Collateral in the same form as so received  (with all
         necessary indorsements); and

                           (iii)  Secured  Party  shall  promptly   execute  and
                  deliver (or cause to be executed and delivered) to Pledgor all
                  such proxies, dividend payment orders and other instruments as
                  Pledgor  may  from  time to time  reasonably  request  for the
                  purpose of enabling  Pledgor to exercise  the voting and other
                  consensual rights which it is entitled to exercise pursuant to
                  paragraph (i) above and to receive the dividends, principal or
                  interest payments which it is authorized to receive and retain
                  pursuant to paragraph (ii) above.

                  (b)  Upon the occurrence and during  the  continuation  of  an
 Event of Default:

                           (i)  upon  written   notice  from  Secured  Party  to
                  Pledgor,  all  rights of Pledgor  to  exercise  the voting and
                  other  consensual  rights which it would otherwise be entitled
                  to exercise  pursuant to Section 7(a)(i) shall cease,  and all
                  such rights shall  thereupon  become  vested in Secured  Party
                  which shall  thereupon  have the sole right to  exercise  such
                  voting and other consensual rights;

                           (ii) all rights of Pledgor to receive  the  dividends
                  and interest  payments which it would  otherwise be authorized
                  to receive  and retain  pursuant  to  Section  7(a)(ii)  shall
                  cease,  and all such rights shall  thereupon  become vested in
                  Secured  Party  who  shall  thereupon  have the sole  right to
                  receive  and hold as Pledged  Collateral  such  dividends  and
                  interest payments; and

                           (iii) all dividends,  principal and interest payments
                  which are received by Pledgor  contrary to the  provisions  of
                  paragraph (ii) of this Section 7(b) shall be received in trust
                  for the benefit of Secured  Party,  shall be  segregated  from
                  other  funds of Pledgor  and shall  forthwith  be paid over to
                  Secured  Party as  Pledged  Collateral  in the same form as so
                  received (with any necessary indorsements).

                  (c) In order to permit  Secured  Party to exercise  the voting
and other  consensual  rights  which it may be entitled to exercise  pursuant to
Section  7(b)(i) and to receive all dividends and other  distributions  which it
may be entitled to receive under Section  7(a)(ii) or Section 7(b)(ii) or (iii),
(i) Pledgor  shall  promptly  execute  and deliver (or cause to be executed  and
delivered) to Secured Party all such proxies,  dividend payment orders and other
instruments as Secured Party may from time to time  reasonably  request and (ii)
without  limiting the effect of the immediately  preceding  clause (i),  Pledgor
hereby grants to Secured Party an  irrevocable  proxy to vote the Pledged Shares
and to exercise all other  rights,  powers,  privileges  and remedies to which a
holder of the Pledged Shares would be entitled  (including,  without limitation,
giving or withholding written consents of shareholders, calling special meetings
of shareholders  and voting at such  meetings),  which proxy shall be effective,
automatically and without the necessity of any



                                      XV-7
<PAGE>

action  (including any transfer of any Pledged Shares on the record books of the
issuer thereof) by any other Person  (including the issuer of the Pledged Shares
or any officer or agent thereof) or any consent of Pledgor,  upon the occurrence
of an Event of Default and which proxy shall only  terminate  upon the waiver or
cure of such Event of Default under the Credit  Agreement or the payment in full
of the Secured Obligations.

                  SECTION 8. Secured Party Appointed  Attorney-in-Fact.  Pledgor
hereby irrevocably  appoints Secured Party as Pledgor's  attorney-in-fact,  with
full  authority  in the place and stead of Pledgor  and in the name of  Pledgor,
Secured Party or otherwise,  from time to time in Secured Party's  discretion to
take any  action and to  execute  any  instrument  that  Secured  Party may deem
necessary or advisable to accomplish the purposes of this  Agreement,  including
without limitation:

                  (a) to file one or more financing or continuation  statements,
or  amendments  thereto,  relative to all or any part of the Pledged  Collateral
without the signature of Pledgor;

                  (b) to ask,  demand,  collect,  sue  for,  recover,  compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Pledged Collateral;

                  (c) to  receive,  endorse and  collect  any  instruments  made
payable to Pledgor  representing any dividend,  principal or interest payment or
other  distribution in respect of the Pledged Collateral or any part thereof and
to give full discharge for the same; and

                  (d) to file any  claims or take any  action or  institute  any
proceedings  that  Secured  Party  may  deem  necessary  or  desirable  for  the
collection  of any of the Pledged  Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Pledged Collateral.

                  Notwithstanding  anything to the  contrary in this  Section 8,
Secured Party's authority as Pledgor's  attorney-in-fact  under subsections (b),
(c) and (d) shall be  exercisable  only  after the  occurrence  and  during  the
continuance of an Event of Default.

                  SECTION 9.  Secured  Party May  Perform.  If Pledgor  fails to
perform any agreement  contained  herein,  Secured Party may itself perform,  or
cause performance of, such agreement, and the expenses of Secured Party incurred
in connection  therewith  shall be payable by Pledgor in accordance with Section
10.2 of the Credit Agreement.

                  SECTION 10. Standard of Care. The powers  conferred on Secured
Party hereunder are solely to protect its interest in the Pledged Collateral and
shall not impose any duty upon it to exercise  any such  powers.  Except for the
exercise of  reasonable  care in the custody of any  Pledged  Collateral  in its
possession  and the  accounting  for moneys  actually  received by it hereunder,
Secured  Party  shall  have no  duty  as to any  Pledged  Collateral,  it  being
understood that Secured Party shall have no responsibility  for (a) ascertaining
or taking  action with  respect to calls,  conversions,  exchanges,  maturities,
tenders or other  matters  relating  to any Pledged  Collateral,  whether or not
Secured Party has or is deemed to have knowledge of such matters, (b) taking any
necessary  steps (other than steps taken in accordance with the standard of care
set forth above to maintain  possession of the Pledged  Collateral)  to preserve
rights  against any parties with respect to any Pledged  Collateral,  (c) taking
any necessary  steps to collect or realize upon the



                                      XV-8
<PAGE>

Secured Obligations or any guaranty therefor, or any part thereof, or any of the
Pledged  Collateral,  or (d)  initiating  any  action  to  protect  the  Pledged
Collateral  against the possibility of a decline in market value.  Secured Party
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation of Pledged  Collateral in its possession if such Pledged Collateral
is accorded  treatment  substantially  equal to that which Secured Party accords
its own property consisting of negotiable securities.

                  SECTION 11.  Remedies.

                  (a) If  any  Event  of  Default  shall  have  occurred  and be
continuing,  Secured Party may exercise in respect of the Pledged Collateral, in
addition  to all other  rights and  remedies  provided  for herein or  otherwise
available to it, all the rights and remedies of a secured party on default under
the  Uniform  Commercial  Code as in effect in any  relevant  jurisdiction  (the
"Code")  (whether or not the Code applies to the affected  Pledged  Collateral),
and Secured  Party may also in its sole  discretion,  without  notice  except as
specified below, sell the Pledged  Collateral or any part thereof in one or more
parcels at public or private sale,  at any exchange or broker's  board or at any
of Secured  Party's  offices  or  elsewhere,  for cash,  on credit or for future
delivery,  at such time or times and at such price or prices and upon such other
terms as Secured Party may deem  commercially  reasonable,  irrespective  of the
impact of any such sales on the market price of the Pledged Collateral.  Secured
Party or any Lender or Interest  Rate  Exchanger  may be the purchaser of any or
all of the Pledged  Collateral at any such sale and Secured Party,  as agent for
and representative of Agents,  Lenders,  Issuing Lenders,  Swing Line Lender and
Interest  Rate  Exchangers  (but not any Agent or  Agents,  Lender  or  Lenders,
Issuing Lender or Issuing Lenders,  Swing Line Lender or Interest Rate Exchanger
or Interest Rate  Exchangers in its or their  respective  individual  capacities
unless Requisite Obligees (as defined in Section 14(a)) shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase  price for all or any portion of the Pledged  Collateral
sold at any such public sale, to use and apply any of the Secured Obligations as
a credit on account of the purchase price for any Pledged  Collateral payable by
Secured  Party at such  sale.  Each  purchaser  at any such sale  shall hold the
property  sold  absolutely  free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by applicable law) all rights
of redemption,  stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter  enacted.
Pledgor  agrees that,  to the extent notice of sale shall be required by law, at
least ten days'  notice to Pledgor  of the time and place of any public  sale or
the time after which any private sale is to be made shall constitute  reasonable
notification.  Secured  Party shall not be obligated to make any sale of Pledged
Collateral  regardless  of notice of sale having been given.  Secured  Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor,  and such sale may, without further notice, be made at
the time and place to which it was so adjourned,  provided,  however,  that if a
sale is postponed for more than 60 days,  Secured Party shall re-notice  Pledgor
of any subsequent sale of the affected Pledged Collateral in accordance with the
second-preceding  sentence  hereof.  Pledgor  hereby  waives any claims  against
Secured  Party to the  extent  arising  by  reason of the fact that the price at
which any Pledged  Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale,  even if Secured
Party  accepts  the  first  offer  received  and does  not  offer  such  Pledged
Collateral to more than one offeree, provided,  however, that the price at which
any  Pledged  Collateral  shall be sold at any public or  private  sale shall be
commercially reasonable. If the proceeds of any sale or other disposition of the
Pledged Collateral are insufficient to pay all the Secured Obligations,  Pledgor



                                      XV-9
<PAGE>

shall be liable for the  deficiency  and the fees of any  attorneys  employed by
Secured Party to collect such deficiency.

                  (b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state  securities  laws,  Secured
Party  may be  compelled,  with  respect  to any  sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged  Collateral  under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree,  among other things, to acquire the
Pledged Collateral for their own account,  for investment and not with a view to
the distribution or resale thereof.  Pledgor  acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including, without limitation, a public
offering made pursuant to a registration  statement  under the  Securities  Act)
and, notwithstanding such circumstances, Pledgor agrees that Secured Party shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Pledged  Collateral for the period of time necessary to permit the issuer
thereof to register it for a form of public sale  requiring  registration  under
the Securities  Act or under  applicable  state  securities  laws,  even if such
issuer  would,  or  should,  agree to so  register  it,  and any  assessment  of
commercial  reasonableness  in  connection  with a private  sale shall take into
account  Pledgor's  agreement  that  private  sales are an  acceptable  means to
Secured Party's realization of the value of the Pledged Collateral.

                  (c) If Secured Party  determines to exercise its right to sell
any or all of the Pledged  Collateral,  upon written request,  Pledgor shall and
shall cause each issuer of any Pledged  Shares to be sold hereunder from time to
time to furnish  to  Secured  Party all such  information  as Secured  Party may
request  in order to  determine  the  number  of shares  and  other  instruments
included in the Pledged  Collateral which may be sold by Secured Party in exempt
transactions  under the  Securities  Act and the rules  and  regulations  of the
Securities and Exchange Commission thereunder, as the same are from time to time
in effect.

                  SECTION 12. Application of Proceeds.  All proceeds received by
Secured Party in respect of any sale of,  collection from, or other  realization
upon all or any part of the Pledged  Collateral  shall be applied as provided in
subsection 2.4D of the Credit Agreement.

                  SECTION 13. Continuing  Security Interest;  Transfer of Loans.
This  Agreement  shall  create a  continuing  security  interest  in the Pledged
Collateral  and shall (a) remain in full force and effect  until the  payment in
full  of  all  Secured  Obligations,  the  cancellation  or  termination  of the
Commitments and the  cancellation  or expiration of all  outstanding  Letters of
Credit, (b) be binding upon Pledgor,  its successors and assigns, and (c) inure,
together with the rights and remedies of Secured Party hereunder, to the benefit
of Secured Party and its successors,  transferees and assigns.  Without limiting
the  generality  of the foregoing  clause (c), but subject to the  provisions of
subsection  10.1 of the Credit  Agreement,  any  Lender may assign or  otherwise
transfer any Loans held by it to any other  Person,  and such other Person shall
thereupon  become  vested with all the  benefits in respect  thereof  granted to
Lenders  herein  or  otherwise.   Upon  the  payment  in  full  of  all  Secured
Obligations,  the  cancellation  or  termination  of  the  Commitments  and  the
cancellation  or expiration of all outstanding  Letters of Credit,  the security
interest  granted  hereby shall  automatically  terminate  and all rights to the
Pledged  Collateral shall revert to Pledgor.  Upon any such termination  Secured
Party will, at Pledgor's expense,  execute and deliver to Pledgor such documents
as Pledgor shall reasonably



                                     XV-10
<PAGE>

request to evidence or effect such termination, and Pledgor shall be entitled to
the prompt  return,  upon its request and at its  expense,  against  receipt and
without  recourse to Secured Party,  of such of the Pledged  Collateral as shall
not have been sold or otherwise applied pursuant to the terms hereof.

                  SECTION 14.  Secured Party as Agent.

                  (a) Secured  Party has been  appointed to act as Secured Party
by Agents,  Lenders and, by their  acceptance of the benefits  hereof,  Interest
Rate  Exchangers.  Secured  Party shall be  obligated,  and shall have the right
hereunder,  to make  demands,  to give  notices,  to  exercise  or refrain  from
exercising any rights, and to take or refrain from taking any action (including,
without limitation,  the release or substitution of Pledged Collateral),  solely
in  accordance  with this  Agreement  and the Credit  Agreement;  provided  that
Secured Party shall exercise, or refrain from exercising,  any remedies provided
for in Section 11 in accordance with the  instructions of (i) Requisite  Lenders
or (ii) after payment in full of all Obligations  under the Credit Agreement and
the other Loan Documents and subject to payment of agreed fees, the holders of a
majority  of the  aggregate  notional  amount  (or,  with  respect to any Lender
Interest Rate Agreement that has been  terminated in accordance  with its terms,
the amount then due and payable  (exclusive of expenses and similar payments but
including any early  termination  payments then due) under such Lender  Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable,  such holders being referred to herein as "Requisite  Obligees").
In furtherance of the foregoing  provisions of this Section 14(a), each Interest
Rate Exchanger,  by its acceptance of the benefits hereof,  agrees that it shall
have no  right  individually  to  realize  upon  any of the  Pledged  Collateral
hereunder,  it being  understood and agreed by such Interest Rate Exchanger that
all rights and remedies  hereunder may be exercised  solely by Secured Party for
the benefit of Agents,  Lenders and Interest Rate  Exchangers in accordance with
the terms of this Section 14(a).

                  (b) Written  notice of  resignation  by  Administrative  Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute  notice
of resignation as Secured Party under this Agreement;  removal of Administrative
Agent pursuant to subsection 9.5 of the Credit  Agreement  shall also constitute
removal as Secured Party under this  Agreement;  and  appointment of a successor
Administrative  Agent pursuant to subsection 9.5 of the Credit  Agreement  shall
also constitute  appointment of a successor  Secured Party under this Agreement.
Upon the acceptance of any appointment as Administrative  Agent under subsection
9.5 of the Credit Agreement by a successor  Administrative Agent, that successor
Administrative  Agent shall thereupon  succeed to and become vested with all the
rights,  powers,  privileges and duties of the retiring or removed Secured Party
under this  Agreement,  and the  retiring  or removed  Secured  Party under this
Agreement shall promptly (i) transfer to such successor  Secured Party all sums,
securities  and other items of  Collateral  held  hereunder,  together  with all
records and other  documents  necessary or  appropriate  in connection  with the
performance of the duties of the successor  Secured Party under this  Agreement,
and (ii) execute and deliver to such successor  Secured Party such amendments to
financing  statements,  and take such  other  actions,  as may be  necessary  or
appropriate in connection with the assignment to such successor Secured Party of
the security  interests  created  hereunder,  whereupon such retiring or removed
Secured Party shall be  discharged  from its duties and  obligations  under this
Agreement.  After any retiring or removed  Administrative Agent's resignation or
removal hereunder as Secured Party, the provisions of this



                                     XV-11
<PAGE>

Agreement  shall inure to its  benefit as to any actions  taken or omitted to be
taken by it under this Agreement while it was Secured Party hereunder.

                  SECTION  15.  Amendments;  Etc.  No  amendment,  modification,
termination or waiver of any provision of this Agreement,  and no consent to any
departure by Pledgor therefrom,  shall in any event be effective unless the same
shall be in writing  and signed by  Secured  Party and,  in the case of any such
amendment  or  modification,  by Pledgor.  Any such  waiver or consent  shall be
effective only in the specific  instance and for the specific  purpose for which
it was given.

                  SECTION 16. Notices.  Any notice or other communication herein
required or  permitted  to be given  shall be in writing  and may be  personally
served,  telexed  or sent by  telefacsimile  or United  States  mail or  courier
service  and shall be deemed to have been given when  delivered  in person or by
courier service,  upon receipt of telefacsimile or telex, or three Business Days
after  depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall be as
provided in subsection 10.8 of the Credit Agreement.

                  SECTION  17.  Severability.   In  case  any  provision  in  or
obligation  under this Agreement shall be invalid,  illegal or  unenforceable in
any  jurisdiction,  the validity,  legality and  enforceability of the remaining
provisions  or  obligations,  or of such  provision or  obligation  in any other
jurisdiction, shall not in any way be affected or impaired thereby.

                  SECTION 18. Headings.  Section and subsection headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute  a part of this  Agreement  for any  other  purpose  or be given  any
substantive effect.

                  SECTION 19.  Governing  Law;  Terms.  THIS  AGREEMENT  AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES  HEREUNDER SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE  PERFECTION OF THE SECURITY
INTEREST HEREUNDER,  OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform  Commercial Code in the State of New York are
used herein as therein defined.

                  SECTION 20.  Counterparts.  This  Agreement may be executed in
one  or  more   counterparts  and  by  different   parties  hereto  in  separate
counterparts,  each of which when so executed and  delivered  shall be deemed an
original,  but all such  counterparts  together shall constitute but one and the
same  instrument;  signature  pages  may  be  detached  from  multiple  separate
counterparts  and attached to a single  counterpart so that all signature  pages
are physically attached to the same document.

                  [Remainder of page intentionally left blank]




                                     XV-12
<PAGE>


                  IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first written above.

                                         ARTERIAL VASCULAR ENGINEERING, INC.
                                 
                                 
                                 
                                         By: ___________________________________
                                           Title:
                                 
                                 
                                 
                                         ROYAL BANK OF CANADA, as Administrative
                                         Agent, as Secured Party
                                 
                                 
                                 
                                         By: ___________________________________
                                           Title:
                                 
                                 



                                     XV-13
<PAGE>

                                   SCHEDULE I


                  Attached to and forming a part of the Pledge  Agreement  dated
as of September 30, 1998 between Arterial Vascular Engineering, Inc. as Pledgor,
and Royal Bank of Canada, as Administrative Agent, as Secured Party.




                                     Part A

                     Class of      Stock Certi-          Par           Number of
Stock Issuer          Stock        ficate Nos.           Value           Shares 
------------          -----        -----------           -----           ------ 




                                     Part B

Debt Issuer                           Amount of Indebtedness





                                     XV-14
<PAGE>




                                   SCHEDULE II


                                PLEDGE AMENDMENT


                  This Pledge Amendment, dated ____________,  ____, is delivered
pursuant  to  Section  6(b) of the  Pledge  Agreement  referred  to  below.  The
undersigned  hereby  agrees  that this Pledge  Amendment  may be attached to the
Pledge  Agreement  dated as of September 30, 1998,  between the  undersigned and
Royal Bank of Canada,  as  Administrative  Agent,  as Secured Party (the "Pledge
Agreement,"  capitalized  terms  defined  therein  being used  herein as therein
defined),  and that the [Pledged  Shares]  [Pledged  Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged  Shares] [Pledged Debt] and
shall  become  part of the  Pledged  Collateral  and shall  secure  all  Secured
Obligations.

                                      ARTERIAL VASCULAR ENGINEERING, INC.


                                      By: ___________________________
                                     Title:





                   Class of         Stock Certi-          Par          Number of
Stock Issuer        Stock           ficate Nos.           Value          Shares 
------------        -----           -----------           -----          ------ 








Debt Issuer                          Amount of Indebtedness




                                     XV-15
<PAGE>


                                   EXHIBIT XVI

                          [FORM OF SECURITY AGREEMENT]

                               SECURITY AGREEMENT


                  This  SECURITY  AGREEMENT  (this  "Agreement")  is dated as of
September  30,  1998  and  entered  into  by  and  between   ARTERIAL   VASCULAR
ENGINEERING,  INC. , a Delaware corporation ("Company"), each of THE UNDERSIGNED
DIRECT  AND  INDIRECT   SUBSIDIARIES  of  Company  (each  of  such   undersigned
Subsidiaries   being  a  "Subsidiary   Grantor"  and  collectively   "Subsidiary
Grantors",  and each of Company and  Subsidiary  Grantors  being a "Grantor" and
collectively "Grantors";  provided that after the Closing Date, "Grantors" shall
include any  Additional  Grantors (as  hereinafter  defined))  and ROYAL BANK OF
CANADA,  as  Administrative  Agent, for the benefit of Agents,  Issuing Lenders,
Swing Line Lender and Lenders  party to the Credit  Agreement  referred to below
and any Interest Rate Exchangers (as hereinafter defined)(in such agent capacity
for all such parties, the "Secured Party" herein).

                             PRELIMINARY STATEMENTS

                  A.  Secured  Party,  Agents and Lenders  have  entered  into a
Credit  Agreement dated as of September 30, 1998 (said Credit  Agreement,  as it
may hereafter be amended,  supplemented or otherwise modified from time to time,
being the  "Credit  Agreement",  the terms  defined  therein  and not  otherwise
defined  herein being used herein as therein  defined) with Company  pursuant to
which Agents have undertaken  certain  obligations and Lenders have made certain
commitments,  subject  to the  terms  and  conditions  set  forth in the  Credit
Agreement, to extend certain credit facilities to Company.

                  B.  Company may from time to time  enter,  or may from time to
time have entered,  into one or more Interest Rate  Agreements  with one or more
Lenders  (collectively,  the "Lender Interest Rate Agreements") (such Lenders in
such capacity, collectively,  "Interest Rate Exchangers") in accordance with the
terms of the Credit Agreement, and it is desired that the obligations of Company
under the Lender Interest Rate Agreements,  including,  without limitation,  the
obligation  of  Company  to make  payments  thereunder  in the  event  of  early
termination   thereof   (all  such   obligations   being  the   "Interest   Rate
Obligations"),  together  with all  obligations  of  Company  under  the  Credit
Agreement and the other Loan Documents, be secured hereunder.

                  C.  Subsidiary  Grantors  have  executed  and  delivered  that
certain  Subsidiary  Guaranty  dated as of September  30, 1998 (said  Subsidiary
Guaranty,  as it may hereafter be amended,  restated,  supplemented or otherwise
modified from time to time, being the "Subsidiary Guaranty") in favor of Secured
Party for the  benefit  of  Lenders,  Issuing  Lenders,  Swing  Line  Lender and
Interest  Rate  Exchangers,  pursuant  to  which  each  Subsidiary  Grantor  has
guaranteed the prompt  payment and  performance  when due of all  obligations of
Company  under the Credit  Agreement  and all  obligations  of Company under the
Lender Interest Rate Agreements,  including,  without limitation, the obligation
of  Company  to make  payments  thereunder  in the  event of  early  termination
thereof.



                                     XVI-1
<PAGE>

                  D. It is a condition  precedent to the initial  extensions  of
credit by Lenders under the Credit  Agreement  that Grantors  shall have granted
the security  interests and  undertaken  the  obligations  contemplated  by this
Agreement.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce Lenders to make Loans and other  extensions of credit under the Credit
Agreement (including,  without limitation,  the issuance of Letters of Credit or
the  purchase of  participations  therein) and to induce the Agents to undertake
their obligations and Interest Rate Exchangers to enter into the Lender Interest
Rate Agreements, and for other good and valuable consideration,  the receipt and
adequacy  of which are hereby  acknowledged,  each  Grantor  hereby  agrees with
Secured Party as follows:

                  SECTION 1. Grant of Security.  Each Grantor  hereby assigns to
Secured Party, and hereby grants to Secured Party a security interest in, all of
such Grantor's right,  title and interest in and to the following,  in each case
whether now or hereafter  existing or in which such Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "Collateral"):

                  (a) all  equipment in all of its forms,  all parts thereof and
all accessions  thereto (any and all such equipment,  parts and accessions being
the "Equipment");

                  (b) all  inventory  in all of its  forms  (including,  but not
limited  to,  (i) all  goods  held by such  Grantor  for  sale or lease or to be
furnished  under  contracts of service or so leased or  furnished,  (ii) all raw
materials,  work in process,  finished goods,  and materials used or consumed in
the manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production  of such  inventory or otherwise  used or consumed in such  Grantor's
business,  (iii) all goods in which such  Grantor  has an  interest in mass or a
joint or other  interest  or right  of any  kind and (iv) all  goods  which  are
returned to or  repossessed  by such  Grantor,  and all  accessions  thereto and
products  thereof  (all  such  inventory,  accessions  and  products  being  the
"Inventory")  and  all  negotiable   documents  of  title  (including,   without
limitation, warehouse receipts, dock receipts and bills of lading) issued by any
Person  covering any Inventory  (any such  negotiable  document of title being a
"Negotiable Document of Title");

                  (c) all accounts,  contract rights, chattel paper,  documents,
instruments,  general  intangibles  and other rights and obligations of any kind
owned by or owing to such  Grantor and all rights in, to and under all  security
agreements,  leases and other  contracts  securing or otherwise  relating to any
such accounts, contract rights, chattel paper, documents,  instruments,  general
intangibles or other  obligations  (any and all such accounts,  contract rights,
chattel paper, documents, instruments, general intangibles and other obligations
being the "Accounts", and any and all such security agreements, leases and other
contracts being the "Related Contracts");

                  (d) the agreements to which any Grantor is party, as each such
agreement may be amended, restated, supplemented or otherwise modified from time
to time (said  agreements,  as so amended,  restated,  supplemented or otherwise
modified,  being referred to herein individually as an "Assigned  Agreement" and
collectively as the "Assigned Agreements"),  including,  without limitation, (i)
all  rights of such  Grantor  to  receive  moneys  due or to become due under or
pursuant to the Assigned Agreements,  (ii) all rights of such Grantor to receive
proceeds of any insurance,  indemnity,  warranty or guaranty with respect to the
Assigned Agreements, (iii) all



                                     XVI-2
<PAGE>

claims of such Grantor for damages arising out of any breach of or default under
the  Assigned  Agreements,  and (iv) all rights of such  Grantor  to  terminate,
amend,  supplement,  modify or  exercise  rights or options  under the  Assigned
Agreements,  to  perform  thereunder  and to compel  performance  and  otherwise
exercise all remedies thereunder;

                  (e) all deposit accounts,  including,  without limitation, the
deposit  accounts  listed on Schedule 1(e) annexed  hereto and all other deposit
accounts maintained with Secured Party;

                  (f) the "Intellectual Property Collateral", which term means:

                  (i) all right,  title and interest  (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  in and to  all  trademarks,  service  marks,  designs,  logos,
                  indicia,  tradenames,  trade dress,  corporate names,  company
                  names, business names, fictitious business names, trade styles
                  and/or   other  source   and/or   business   identifiers   and
                  applications  pertaining  thereto,  owned by such Grantor,  or
                  hereafter  adopted  and  used,  in  its  business  (including,
                  without limitation,  the trademarks specifically identified in
                  Schedule  1(f)(i),  as the same may be amended pursuant hereto
                  from  time to  time)  (collectively,  the  "Trademarks"),  all
                  registrations  that  have been or may  hereafter  be issued or
                  applied for thereon in the United States and any state thereof
                  (including,   without   limitation,   the   registrations  and
                  applications  specifically  identified in Schedule 1(f)(i), as
                  the same may be  amended  pursuant  hereto  from time to time)
                  (the  "Trademark  Registrations"),  all  common  law and other
                  rights (but in no event any of the  obligations) in and to the
                  Trademarks  in the United  States and any state  thereof  (the
                  "Trademark  Rights"),  and  all  goodwill  of  such  Grantor's
                  business symbolized by the Trademarks and associated therewith
                  (the "Associated Goodwill"):

                  (ii) all right, title and interest  (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  in and to all patents and patent  applications  and rights and
                  interests  in  patents  and  patent   applications  under  any
                  domestic or foreign law that are  presently,  or in the future
                  may be,  owned or held by such  Grantor  and all  patents  and
                  patent  applications and right, title and interests in patents
                  and  patent  applications  under  any  domestic  law  that are
                  presently,  or in the future may be,  owned by such Grantor in
                  whole or in part (including,  without limitation,  the patents
                  and patent  applications  listed in Schedule 1(f)(ii),  as the
                  same may be amended  pursuant  hereto from time to time),  all
                  rights (but not obligations) corresponding thereto (including,
                  without  limitation,  the  right  (but  not  the  obligation),
                  exercisable   only  upon  the   occurrence   and   during  the
                  continuation of an Event of Default,  to sue for past, present
                  and future infringements in the name of such Grantor or in the
                  name  of  Secured  Party  or  Lenders),   and  all  re-issues,
                  divisions,    continuations,    renewals,    extensions    and
                  continuations-in-part  thereof  (all  of the  foregoing  being
                  collectively   referred  to  as  the   "Patents");   it  being
                  understood  that the  rights  and  interests  included  in the
                  Intellectual Property Collateral hereby shall include, without
                  limitation,  all rights and interests pursuant to licensing or
                  other contracts in favor of such Grantor  pertaining to patent



                                     XVI-3
<PAGE>

                  applications  and patents  presently or in the future owned or
                  used by third  parties but, in the case of third parties which
                  are  not  Affiliates  of  such  Grantor,  only  to the  extent
                  permitted by such licensing or other  contracts and, if not so
                  permitted, only with the consent of such third parties; and

                  (iii) all right, title and interest (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  under copyright in various  published and unpublished works of
                  authorship including,  without limitation,  computer programs,
                  computer data bases, other computer software,  layouts,  trade
                  dress,  drawings,  designs,  writings,  and formulas  owned by
                  Grantor (including,  without  limitation,  the works listed on
                  Schedule 1(f)(iii), as the same may be amended pursuant hereto
                  from  time to  time)  (collectively,  the  "Copyrights"),  all
                  copyright   registrations   issued   to   such   Grantor   and
                  applications for copyright  registration that have been or may
                  hereafter  be issued or applied  for thereon by Grantor in the
                  United  States  and  any  state  thereof  (including,  without
                  limitation, the registrations listed on Schedule 1(f)(iii), as
                  the same may be  amended  pursuant  hereto  from time to time)
                  (collectively, the "Copyright Registrations"),  all common law
                  and other rights in and to the Copyrights in the United States
                  and any state thereof,  including all copyright  licenses (but
                  with respect to such  copyright  licenses,  only to the extent
                  permitted  by such  licensing  arrangements)  (the  "Copyright
                  Rights"),   including,   without   limitation,   each  of  the
                  Copyrights,  rights,  titles  and  interests  in  and  to  the
                  Copyrights  and  works  protectable  by  copyright,  which are
                  presently,  or in the future may be, owned, created (as a work
                  for hire for the benefit of such Grantor), authored (as a work
                  for hire for the benefit of such Grantor), or acquired by such
                  Grantor,  in whole or in part,  and all Copyright  Rights with
                  respect  thereto  and all  Copyright  Registrations  therefor,
                  heretofore  or  hereafter  granted  or  applied  for,  and all
                  renewals  and  extensions   thereof,   throughout  the  world,
                  including all proceeds thereof (such as, by way of example and
                  not  by   limitation,   license   royalties  and  proceeds  of
                  infringement  suits),  the right (but not the  obligation)  to
                  renew and extend such  Copyright  Registrations  and Copyright
                  Rights and to register works  protectable by copyright and the
                  right (but not the  obligation)  to sue for past,  present and
                  future infringements of the Copyrights and Copyright Rights;

                  (iv)  all  information  used or  useful  or  arising  from the
                  business including all goodwill,  trade secrets,  trade secret
                  rights,  know-how,  customer  lists,  processes of production,
                  ideas,   confidential   business   information,    techniques,
                  processes, formulas, and all other proprietary information;

                  (g) to the extent not included in any other  paragraph of this
Section 1, all other general intangibles  (including,  without  limitation,  tax
refunds, rights to payment or performance,  choses in action and judgments taken
on any rights or claims included in the Collateral);

                  (h) all plant fixtures,  business  fixtures and other fixtures
and storage  and office  facilities,  and all  accessions  thereto and  products
thereof;

                  (i) all books, records,  ledger cards, files,  correspondence,
computer programs, tapes, disks and related data processing software that at any
time evidence or contain  information



                                     XVI-4
<PAGE>

relating to any of the  Collateral or are otherwise  necessary or helpful in the
collection thereof or realization thereupon; and

                  (j)  all  investment  property  (as  defined  in  the  Uniform
Commercial  Code as currently in effect in the State of New York (the "UCC")) of
Grantor, and any securities accounts (as defined in the UCC) held in the name of
Grantor and any security entitlements (as defined in the UCC) held therein;

                  (k) all proceeds,  products,  rents and profits of or from any
and all of the foregoing  Collateral and, to the extent not otherwise  included,
all payments  under  insurance  (whether or not Secured  Party is the loss payee
thereof), or any indemnity,  warranty or guaranty,  payable by reason of loss or
damage to or otherwise  with  respect to any of the  foregoing  Collateral.  For
purposes of this Agreement,  the term "proceeds" includes whatever is receivable
or received  when  Collateral  or proceeds  are sold,  exchanged,  collected  or
otherwise disposed of, whether such disposition is voluntary or involuntary.

                  Notwithstanding  the  foregoing  provisions of this Section 1,
the grant of a security interest as provided herein shall not extend to, and the
term "Collateral" shall not include:  (i) any accounts,  contracts,  licenses or
other general  intangibles  of Grantor,  or any permits,  instruments or chattel
paper of Grantor, if and to the extent such account, contract,  license, general
intangible,  permit,  instruments  or chattel  paper  contains  restrictions  on
assignments and the creation of Liens, or under which such an assignment or Lien
would cause a default to occur under such account,  contract,  license,  general
intangible,  permit,  instrument or chattel paper (other than to the extent that
any such term would be rendered  ineffective pursuant to Section 9-318(4) of the
Uniform Commercial Code of any relevant jurisdiction or any other applicable law
(including  the  Bankruptcy  Code) or  principles  of  equity),  provided,  that
immediately  upon  the  ineffectiveness,   lapse  or  termination  of  any  such
provision,  the Collateral  shall  include,  and such Grantor shall be deemed to
have granted a security  interest  in, all such rights and  interests as if such
provision had never been in effect;  (ii) motor vehicles or other vehicles owned
or leased by Grantor;  (iii) the lease of real  property by Grantor as lessee or
sublessee not required to be subject to a Mortgage  under the Credit  Agreement;
or (iv)  copyrights,  Trademarks,  Patents  and  similar  Intellectual  Property
interests  held under the laws of  countries  other  than the  United  States of
America other than as set forth on the Exhibit hereto  (collectively,  "Security
Agreements Excluded Collateral").

                  SECTION 2. Security for  Obligations.  This  Agreement and the
security interest granted hereunder secure, and the Collateral  assigned by each
Grantor is collateral  security for, the prompt  payment or  performance in full
when due,  whether at stated  maturity,  by  required  prepayment,  declaration,
acceleration, demand or otherwise (including, without limitation, the payment of
amounts that would become due but for the operation of the automatic  stay under
Section  362(a) of the  Bankruptcy  Code, 11 U.S.C.  ss.362(a)),  of all Secured
Obligations with respect to such Grantor. "Secured Obligations" means:

                  (a) with respect to Company,  all  obligations and liabilities
         of every nature of Company to any Agent, Lender,  Issuing Lender, Swing
         Line Lender or Interest Rate Exchanger now or hereafter  existing under
         or arising out of or in  connection  with the Credit  Agreement and the
         other Loan Documents and any Lender Interest Rate Agreement, and



                                     XVI-5
<PAGE>

                  (b) with  respect to each  Subsidiary  Grantor and  Additional
         Grantor,  all  obligations  and  liabilities  of every  nature  of such
         Grantors  now or  hereafter  existing  under  or  arising  out of or in
         connection with the Subsidiary Guaranty;

in each case  together  with all  extensions  or renewals  thereof,  whether for
principal, interest (including,  without limitation,  interest that, but for the
filing of a petition in bankruptcy with respect to Company or any Grantor, would
accrue on such obligations, whether or not a claim is allowed against Company or
such  Grantor  for  such  interest  in  the  related   bankruptcy   proceeding),
reimbursement  of amounts  drawn  under  Letters of Credit,  payments  for early
termination of Lender Interest Rate Agreements,  fees, expenses,  indemnities or
otherwise,  whether  voluntary or involuntary,  direct or indirect,  absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and  whether  or not from  time to time  decreased  or  extinguished  and  later
increased,  created or incurred,  and all or any portion of such  obligations or
liabilities  that are paid,  to the  extent  all or any part of such  payment is
avoided or recovered  directly or indirectly from Secured Party or any Lender or
Interest Rate  Exchanger as a preference,  fraudulent  transfer or otherwise and
all obligations of every nature of Grantors now or hereafter existing under this
Agreement.

                  SECTION 3. Grantors Remain Liable.  Anything  contained herein
to the contrary notwithstanding,  (a) each Grantor shall remain liable under any
contracts and  agreements  included in the  Collateral,  to the extent set forth
therein,  to perform all of its duties and  obligations  thereunder  to the same
extent as if this Agreement had not been  executed,  (b) the exercise by Secured
Party of any of its rights  hereunder  shall not release any Grantor from any of
its duties or  obligations  under the contracts and  agreements  included in the
Collateral,  and (c) Secured  Party shall not have any  obligation  or liability
under any contracts and agreements  included in the Collateral by reason of this
Agreement,  nor  shall  Secured  Party  be  obligated  to  perform  any  of  the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

                  SECTION  4.  Representations  and  Warranties.   Each  Grantor
represents and warrants as follows:

                  (a) Ownership of Collateral.  Except as expressly permitted by
the Credit  Agreement and for the security  interest  created by this Agreement,
such  Grantor  owns the  Collateral  in which it  purports  to grant a  security
interest free and clear of any Lien. Except as expressly permitted by the Credit
Agreement and such as may have been filed in favor of Secured Party  relating to
this Agreement,  no effective financing statement or other instrument similar in
effect  covering all or any part of the  Collateral  is on file in any filing or
recording office.

                  (b) Locations of Equipment and Inventory. All of the Equipment
and  Inventory  is, as of the date  hereof,  located at the places  specified in
Schedule 4(b) annexed hereto.

                  (c) Negotiable  Documents of Title. No Negotiable Documents of
Title are  outstanding  with  respect  to any of the  Inventory  (other  than in
respect of (i) Inventory  with an aggregate  value not in excess of $________ or
(ii) Inventory  which, in the ordinary course of business,  is in transit either
(A) from a supplier  to any  Grantor,  (B) between the  locations  specified  in
Schedule 4(b) hereto, or (C) to customers of any Grantor).



                                     XVI-6
<PAGE>

                  (d) Office Locations.  The chief executive office, or, if such
Grantor has no chief executive office, its principal place of business,  and the
office where Grantor keeps its records  regarding the Accounts and all originals
of all chattel  paper that  evidence  Accounts  are,  and have been for the four
month period preceding the date hereof, (or if such grantor was formed in last 4
months,  since such Grantor was formed)  located at the  locations  set forth on
Schedule 4(d) annexed hereto.

                  (e) Names. No Grantor has in the past done, and no Grantor now
does,  business  under any other name  (including  any  trade-name or fictitious
business name) except the names listed in Schedule 4(e) annexed hereto.

                  (f) Delivery  of  Certain  Collateral.  All   notes  and other
instruments (excluding checks) included in the Collateral have been delivered to
Secured Party duly endorsed and  accompanied  by duly  executed  instruments  of
transfer or assignment in blank.

                  (g) Intellectual Property Collateral.

                  (i) A true and complete  list of all  Trademark  Registrations
                  and Trademark  applications owned, held (whether pursuant to a
                  license or otherwise) or used by such Grantor,  in whole or in
                  part, is set forth in Schedule 1(f)(i);

                  (ii) a true  and  complete  list of all  Patents  owned,  held
                  (whether  pursuant to a license or  otherwise) or used by such
                  Grantor,  in  whole  or in  part,  is set  forth  in  Schedule
                  1(f)(ii);

                  (iii) a true and complete list of all Copyright  Registrations
                  and  applications  for Copyright  Registrations  held (whether
                  pursuant to a license or otherwise) by such Grantor,  in whole
                  or in part, is set forth in Schedule 1(f)(iii);

                  (iv) after  reasonable  inquiry,  such Grantor is not aware of
                  any pending or threatened claim by any third party that any of
                  the Intellectual  Property  Collateral  owned, held or used by
                  such Grantor is invalid or unenforceable; and

                  (v) no effective  security interest or other Lien covering all
                  or any part of the Intellectual Property Collateral is on file
                  in the United States Patent and Trademark Office or the United
                  States Copyright Office.

                  (h)  Perfection.  The  security  interests  in the  Collateral
granted to Secured  Party for the ratable  benefit of the  Lenders and  Interest
Rate Exchangers hereunder constitute valid security interests in the Collateral,
securing  the  payment  of the  Secured  Obligations.  Upon  the  filing  of UCC
financing  statements naming the applicable Grantor as "debtor",  naming Secured
Party as "secured party" and describing the Collateral in the filing offices set
forth on  Schedule  4(h)  annexed  hereto,  and in the case of the  Intellectual
Property  Collateral,  in addition,  the filing of a Grant of Trademark Security
Interest,  substantially in the form of Exhibit I and a Grant of Patent Security
Interest, substantially in the form of Exhibit II, with the United States Patent
and Trademark Office and the filing of a Grant of Copyright  Security  Interest,
substantially  in the form of  Exhibit  III,  with the United  States  Copyright
Office,  the security  interests in the Collateral  granted to Secured Party for
the ratable  benefit of the Lenders and Interest  Rate  Exchangers  will, to the
extent a security  interest in the  Collateral  may be  perfected  by filing UCC



                                     XVI-7
<PAGE>

financing  statements and, in the case of the Intellectual  Property Collateral,
in addition to the filing of such UCC Financing  Statements,  by the filing of a
Grant of Trademark  Security Interest and Grant of Patent Security Interest with
the United States Patent and Trademark Office and a Grant of Copyright  Security
Interest with the United States Copyright Office,  constitute perfected security
interests therein prior to all other Liens (except for Permitted  Encumbrances),
and all filings and other actions  necessary or desirable to perfect and protect
such security interest have been duly made or taken.

                  SECTION 5.  Further Assurances.

                  (a) Each Grantor agrees that from time to time, at the expense
of  Grantors,  such  Grantor  will  promptly  execute  and  deliver  all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security  interest  granted or purported to be granted  hereby or to
enable  Secured Party to exercise and enforce its rights and remedies  hereunder
with  respect  to  any  Collateral.  Without  limiting  the  generality  of  the
foregoing,  each Grantor will: (i) mark conspicuously each item of chattel paper
included  in the  Accounts,  and at the  request of Secured  Party,  each of its
records  pertaining  to the  Collateral,  with a legend,  in form and  substance
satisfactory to Secured Party, indicating that such Collateral is subject to the
security interest granted hereby, (ii) at the request of Secured Party,  deliver
and pledge to Secured Party hereunder all promissory notes and other instruments
(including  checks) and all original  counterparts of chattel paper constituting
Collateral,  duly  endorsed and  accompanied  by duly  executed  instruments  of
transfer or assignment, all in form and substance satisfactory to Secured Party,
(iii)  take all such  further  action and  execute  and file such  financing  or
continuation  statements,  or amendments thereto,  and such other instruments or
notices,  as may be necessary or desirable,  or as Secured Party may request, in
order to perfect and preserve the security  interests granted or purported to be
granted hereby (including,  without limitation, giving Secured Party control (as
defined in section 8-106 of the Uniform  Commercial  Code as currently in effect
in the  State of New York  (the  "UCC"))  over any  Pledged  Collateral  that is
investment property or uncertificated securities (each as defined in the UCC) in
order  to  perfect  Secured  Party's  interest  in such  Pledged  Collateral  in
accordance  with the UCC), (iv) promptly after the acquisition by Grantor of any
item of Equipment  constituting  Collateral which is covered by a certificate of
title under a statute of any jurisdiction under the law of which indication of a
security  interest on such  certificate is required as a condition of perfection
thereof,  execute  and  file  with the  registrar  of  motor  vehicles  or other
appropriate  authority in such  jurisdiction  an  application  or other document
requesting  the notation or other  indication of the security  interest  created
hereunder on such certificate of title, (v) at any reasonable time during normal
business  hours of such  Grantor,  upon no fewer  than two  Business  Days prior
request by Secured Party,  exhibit the Collateral to and allow inspection of the
Collateral by Secured Party, or persons designated by Secured Party, and (vi) at
Secured  Party's  reasonable  request,  appear  in  and  defend  any  action  or
proceeding  that may materially  impair  Grantor's  title to or Secured  Party's
security interest in all or any part of the Collateral.

                  (b) Without  limiting the  generality of the foregoing  clause
(a) and except with respect to any Security  Agreement Excluded  Collateral,  if
any Grantor  shall  hereafter  obtain  rights to any new  Intellectual  Property
Collateral  or  become  entitled  to  the  benefit  of  (i)  any  Patent  or any
improvement  or  renewal  of any  Patent;  or (ii) any  Copyright  Registration,
application  for   Registration  or  renewals  or  extension  of  any  Copyright
Registration; or (iii) any



                                     XVI-8
<PAGE>

Trademark Registration or application for a Trademark Registration , then in any
such case, the provisions of this Agreement shall  automatically  apply thereto.
Each  Grantor  shall  promptly  notify  Secured  Party in  writing of any of the
foregoing rights acquired by such Grantor after the date hereof.  Promptly after
the filing of an application for any (1) Trademark Registration;  (2) Patent; or
(3)  Copyright  Registration,  each Grantor shall execute and deliver to Secured
Party and  record in all  places  where this  Agreement  is  recorded a Security
Agreement Supplement, substantially in the form of Exhibit IV, pursuant to which
such Grantor shall grant to Secured  Party a security  interest to the extent of
its interest in such Intellectual Property Collateral.

                  (c) Each Grantor hereby  authorizes  Secured Party to file one
or more financing or continuation statements,  and amendments thereto,  relative
to all or any part of the Collateral without the signature of any Grantor.  Each
Grantor  agrees  that a  carbon,  photographic  or  other  reproduction  of this
Agreement or of a financing statement signed by such Grantor shall be sufficient
as a financing  statement  and may be filed as a financing  statement in any and
all jurisdictions.

                  (d) Each Grantor  hereby  authorizes  Secured  Party to modify
this Agreement without obtaining such Grantor's approval of or signature to such
modification  by  amending  Schedules  1(f)(i),   1(f)(ii),  and  1(f)(iii),  as
applicable, to include reference to any right, title or interest in any existing
Intellectual   Property  Collateral  or  any  Intellectual  Property  Collateral
acquired or developed by any Grantor after the execution hereof or to delete any
reference  to  any  right,  title  or  interest  in  any  Intellectual  Property
Collateral  in which any  Grantor no longer  has or claims  any right,  title or
interest.

                  (e) Each Grantor  will  furnish to Secured  Party from time to
time statements and schedules further  identifying and describing the Collateral
and such other  reports in connection  with the  Collateral as Secured Party may
reasonably request, all in reasonable detail.

                  SECTION 6. Certain Covenants of Grantors. Each Grantor shall:

                  (a) not use or permit any Collateral to be used  unlawfully or
in violation  of any  provision of this  Agreement  or any  applicable  statute,
regulation or ordinance or any policy of insurance covering the Collateral;

                  (b) notify Secured Party of any change in such Grantor's name,
identity or corporate structure within 15 days of such change;

                  (c) give Secured Party five days' prior written  notice of any
change in such  Grantor's  chief place of business,  chief  executive  office or
residence  or the office  where such  Grantor  keeps its records  regarding  the
Accounts and all originals of all chattel paper that evidence Accounts;

                  (d) if Secured  Party gives  value to enable  such  Grantor to
acquire  rights  in or the  use of any  Collateral,  use  such  value  for  such
purposes; and

                  (e) pay  promptly  when  due all  property  and  other  taxes,
assessments  and  governmental  charges or levies  imposed upon,  and all claims
(including claims for labor,  materials and supplies)  against,  the Collateral,
except to the extent the  validity  thereof is being  contested  in good  faith;
provided  that such  Grantor  shall in any event  pay such  taxes,  assessments,



                                     XVI-9
<PAGE>

charges,  levies or claims  not  later  than five days  prior to the date of any
proposed  sale under any  judgement,  writ or warrant of  attachment  entered or
filed  against such Grantor or any of the  Collateral as a result of the failure
to make such payment.

                  SECTION 7. Special  Covenants  With  Respect to Equipment  and
Inventory. Each Grantor shall:

                  (a) keep the Equipment and Inventory  owned by such Grantor in
the jurisdictions  therefor specified on Schedule 4(b) annexed hereto or in such
other  jurisdictions  which such Grantor  shall have  disclosed to Secured Party
within 15 days of the  removal of such  Collateral  to such other  jurisdiction;
provided  that all action on the part of such  Grantor  that may be necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security  interest granted or purported to be granted hereby,  or to
enable Secured Party to exercise and enforce its rights and remedies  hereunder,
with respect to such  Equipment and  Inventory  shall have been taken or can and
will promptly be taken (including any actions required to continue perfection of
an existing security interest in such Collateral in such new jurisdiction);

                  (b) cause the Equipment owned by such Grantor to be maintained
and  preserved  in the same  condition,  repair and  working  order as when new,
ordinary wear and tear  excepted,  and in accordance  with such  Grantor's  past
practices,   and  shall  forthwith  make  or  cause  to  be  made  all  repairs,
replacements  and other  improvements in connection  therewith that, in the good
faith  determination  of such  Grantor,  are necessary or desirable to such end.
Each Grantor shall promptly furnish to Secured Party a statement  respecting any
material loss or damage to any of the Equipment owned by such Grantor;

                  (c) keep correct and accurate  records of the Inventory  owned
by such  Grantor,  itemizing  and  describing  the kind,  type and  quantity  of
Inventory,  such Grantor's cost therefor and (where applicable) the current list
prices for the Inventory;

                  (d) if any  Inventory  is in  possession  or control of any of
such  Grantor's  agents or  processors,  if the aggregate book value of all such
Inventory exceeds  $1,000,000,  and in any event upon the occurrence of an Event
of Default (as defined in the Credit  Agreement)  or the  occurrence of an Early
Termination  Date (as defined in a Master  Agreement  or an  Interest  Rate Swap
Agreement  or  Interest  Rate  and  Currency  Exchange  Agreement,  each of such
Agreements  in the form  prepared  by the  International  Swap  and  Derivatives
Association  Inc. or a similar event under any similar swap agreement) under any
Lender  Interest  Rate  Agreement  (either  such  occurrence  being an "Event of
Default" for purposes of this  Agreement),  instruct  such agent or processor to
hold all such  Inventory  for the  account of Secured  Party and  subject to the
instructions of Secured Party; and

                  (e) promptly upon the issuance and delivery to such Grantor of
any  Negotiable  Document  of  Title  (other  than  any one or  more  Negotiable
Documents of Title covering (i) Inventory with an aggregate  value not in excess
of $1,000,000 or (ii) Inventory which, in the ordinary course of business, is in
transit  either (A) from a supplier to such  Grantor,  (B) between the locations
specified in Schedule 4(b) hereto, or (C) to customers of such Grantor), deliver
such Negotiable Document of Title to Secured Party.



                                     XVI-10
<PAGE>

                  SECTION 8. Insurance.  Each Grantor shall, at its own expense,
maintain  insurance  with respect to the  Equipment  and Inventory in accordance
with the terms of the Credit Agreement.

                  SECTION 9.  Special  Covenants  with  respect to Accounts  and
Related Contracts.

                  (a) Each  Grantor  shall keep its chief place of business  and
chief executive office and the office where it keeps its records  concerning the
Accounts and Related  Contracts,  and all  originals  of all chattel  paper that
evidence Accounts,  in the jurisdictions  therefor specified in Section 4 or, in
such other  jurisdictions  which such  Grantor  shall have  disclosed to Secured
Party within 15 days of the removal to such other  jurisdiction;  provided  that
all action on the part of such Grantor that may be  necessary or  desirable,  or
that Secured Party may reasonably  request,  in order to perfect and protect any
security  interest  granted  or  purported  to be granted  hereby,  or to enable
Secured  Party to exercise and enforce its rights and remedies  hereunder,  with
respect to such Accounts and Related  Contracts shall have been taken or can and
will promptly be taken (including any actions required to continue perfection of
an existing security interest in such Collateral in such new jurisdiction). Each
Grantor  will hold and preserve  such records and chattel  paper and will permit
representatives  of Secured Party at any time during normal  business hours upon
no fewer than two  Business  Days'  prior  written  notice to  inspect  and make
abstracts from such records and chattel paper, and each Grantor agrees to render
to Secured Party,  at such  Grantor's cost and expense,  such clerical and other
assistance as may be reasonably requested with regard thereto. Promptly upon the
request of Secured  Party,  each Grantor shall deliver to Secured Party complete
and correct copies of each Related Contract.

                  (b) Each  Grantor  shall,  at its own  expense,  maintain  (i)
complete records of each Account,  including  records of all payments  received,
credits granted and merchandise  returned,  and (ii) all documentation  relating
thereto.

                  (c) Except as otherwise  provided in this subsection (c), each
Grantor  shall  continue to collect,  at its own expense,  all amounts due or to
become  due to such  Grantor  under  the  Accounts  and  Related  Contracts.  In
connection with such collections, each Grantor may take (and from the occurrence
and  continuation of an Event of Default,  at Secured Party's  direction,  shall
take) such action as may be  necessary or  advisable  to enforce  collection  of
amounts due or to become due under the Accounts; provided, however, that Secured
Party  shall  have the right at any time,  upon the  occurrence  and  during the
continuation  of an Event of Default or a  Potential  Event of Default  and upon
written  notice to such Grantor of its intention to do so, to notify the account
debtors or obligors  under any Accounts of the  assignment  of such  Accounts to
Secured Party and to direct such account  debtors or obligors to make payment of
all amounts due or to become due to such Grantor thereunder  directly to Secured
Party,  to notify each Person  maintaining a lockbox or similar  arrangement  to
which account  debtors or obligors under any Accounts have been directed to make
payment  to remit all  amounts  representing  collections  on  checks  and other
payment  items from time to time sent to or  deposited  in such lockbox or other
arrangement  directly to Secured  Party and, upon such  notification  and at the
expense of Grantors,  to enforce  collection of any such Accounts and to adjust,
settle or compromise  the amount or payment  thereof,  in the same manner and to
the same extent as such Grantor  might have done.  After receipt by such Grantor
of the notice from  Secured  Party  referred to in the proviso to the  preceding
sentence,  (i) all amounts and proceeds (including checks and other instruments)



                                     XVI-11
<PAGE>

received by such Grantor in respect of the  Accounts  and the Related  Contracts
shall be received in trust for the benefit of Secured Party hereunder,  shall be
segregated  from other funds of such Grantor and shall be forthwith paid over or
delivered to Secured  Party in the same form as so received  (with any necessary
endorsement)  to be held as cash  Collateral  and applied as provided by Section
18, and (ii) such Grantor shall not adjust,  settle or compromise  the amount or
payment of any  Account,  or  release  wholly or partly  any  account  debtor or
obligor thereof, or allow any credit or discount thereon.

                  SECTION 10.  Special  Provisions  With Respect to the Assigned
Agreements.

                  (a)      Each Grantor shall at its expense:

                  (i) perform and observe all material  terms and  provisions of
         the Assigned Agreements to be performed or observed by it, maintain the
         Assigned  Agreements  in full force and effect,  enforce  the  Assigned
         Agreements in accordance with their terms,  and take all such action to
         such end as may be from time to time  reasonably  requested  by Secured
         Party; and

                  (ii) furnish to Secured Party,  promptly upon receipt thereof,
         copies of all notices, requests and other documents received by Grantor
         under or pursuant to the Assigned Agreements, and from time to time (A)
         furnish to Secured  Party such  information  and reports  regarding the
         Assigned  Agreements  as Secured Party may  reasonably  request and (B)
         upon  request of Secured  Party  make to the other  parties  under such
         Assigned  Agreements  such  demands and requests  for  information  and
         reports or for action as Grantor is entitled to make under the Assigned
         Agreements.

                  (b) From and after the occurrence  and during the  continuance
of an Event of Default, no Grantor shall:

                  (i) cancel or  terminate  any of the  Assigned  Agreements  or
         consent to or accept any cancellation or termination thereof;

                  (ii) amend or otherwise modify the Assigned Agreements or give
         any consent, waiver or approval thereunder;

                  (iii)  waive  any  default  under or  breach  of the  Assigned
         Agreements;

                  (iv) consent to or permit or accept any  prepayment of amounts
         to become  due under or in  connection  with the  Assigned  Agreements,
         except as expressly provided therein; or

                  (v) take any other  action  in  connection  with the  Assigned
         Agreements,

in each case to the extent that such action would materially impair the value of
the  interest  or rights of such  Grantor  thereunder  or that would  materially
impair the interest or rights of Secured Party.

                  SECTION 11. Deposit  Accounts.  Upon the occurrence and during
the continuation of an Event of Default, Secured Party may exercise dominion and
control  over,  and



                                     XVI-12
<PAGE>

refuse to permit further withdrawals (whether of money, securities,  instruments
or other  property)  from any deposit  accounts  maintained  with Secured  Party
constituting part of the Collateral.

                  SECTION   12.   Special   Provisions   With   Respect  to  the
Intellectual Property Collateral.

                  (a)      Each Grantor shall:

                  (i)  diligently   keep  reasonable   records   respecting  the
                  Intellectual  Property  Collateral  and at all  times  keep at
                  least  one  complete  set  of  its  records   concerning  such
                  Collateral at its chief executive office or principal place of
                  business;

                  (ii)  hereafter  use  best  efforts  so as not to  permit  the
                  inclusion  in any  contract  to which it  hereafter  becomes a
                  party of any  provision  that could or might in any way impair
                  or prevent  the  creation  of a security  interest  in, or the
                  assignment  of, such  Grantor's  rights and  interests  in any
                  property  included within the definitions of any  Intellectual
                  Property Collateral acquired under such contracts;

                  (iii) take any and all reasonable steps to protect the secrecy
                  of all trade  secrets  relating to the  products  and services
                  sold or delivered under or in connection with the Intellectual
                  Property  Collateral,  including,  without  limitation,  where
                  appropriate  entering  into  confidentiality  agreements  with
                  employees  and  labeling  and  restricting  access  to  secret
                  information and documents;

                  (iv) use proper statutory notice in connection with its use of
                  any of the Intellectual
                  Property Collateral;

                  (v) use a commercially  appropriate standard of quality (which
                  may be consistent  with such Grantor's past  practices) in the
                  manufacture,  sale and delivery of products and services  sold
                  or delivered under or in connection with the Trademarks; and

                  (vi)  furnish  to  Secured  Party from time to time at Secured
                  Party's  reasonable  request  statements and schedules further
                  identifying   and   describing   any   Intellectual   Property
                  Collateral  and such  other  reports in  connection  with such
                  Collateral, all in reasonable detail.

                  (b) Except as  otherwise  provided  in this  Section  12, each
Grantor  shall  continue to collect,  at its own expense,  all amounts due or to
become due to such Grantor in respect of the Intellectual Property Collateral or
any portion thereof. In connection with such collections,  each Grantor may take
(and, from and after the occurrence and during the  continuation of and Event of
Default at Secured Party's reasonable direction,  shall take) such action as may
be  reasonably  necessary or advisable to enforce  collection  of such  amounts;
provided,  Secured Party shall have the right at any time,  upon the  occurrence
and during the  continuation  of an Event of Default and upon written  notice to
such Grantor of its  intention to do so, to notify the obligors  with respect to
any such amounts of the existence of the security interest created hereby and to
direct such  obligors to make  payment of all such  amounts  directly to Secured
Party,  and,  upon such  notification  and at the  expense of such  Grantor,  to
enforce



                                     XVI-13
<PAGE>

collection of any such amounts and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as such Grantor might
have done.  After  receipt  by any  Grantor of the  notice  from  Secured  Party
referred to in the proviso to the preceding sentence and during the continuation
of any Event of  Default,  (i) all amounts and  proceeds  (including  checks and
other  instruments)  received by each  Grantor in respect of amounts due to such
Grantor  in respect  of the  Intellectual  Property  Collateral  or any  portion
thereof shall be received in trust for the benefit of Secured  Party  hereunder,
shall be segregated from other funds of such Grantor and shall be forthwith paid
over or  delivered  to Secured  Party in the same form as so received  (with any
necessary  endorsement) to be held as cash Collateral and applied as provided by
Section 19, and (ii) such Grantor  shall not adjust,  settle or  compromise  the
amount or payment of any such  amount or  release  wholly or partly any  obligor
with respect thereto or allow any credit or discount thereon.

                  (c) Each  Grantor  shall  have the  duty  diligently,  through
counsel reasonably acceptable to Secured Party, to prosecute,  file and/or make,
unless and until such Grantor, in its commercially reasonable judgment,  decides
otherwise,  (i) any  application  relating to any of the  Intellectual  Property
Collateral  owned,  held or used by such  Grantor and  identified  on  Schedules
1(f)(i), 1(f)(ii) or 1(f)(iii), as applicable, that is pending as of the date of
this  Agreement,  (ii) any  Copyright  Registration  on any  existing  or future
unregistered  but  copyrightable  works (except for works of nominal  commercial
value or with  respect to which such Grantor has  determined  in the exercise of
its commercially reasonable judgment that it shall not seek registration), (iii)
application  on any future  patentable  but  unpatented  innovation or invention
comprising  Intellectual Property Collateral,  and (iv) any Trademark opposition
and  cancellation  proceedings,  renew  Trademark  Registrations  and  Copyright
Registrations  and do any and all acts  which  are  necessary  or  desirable  to
preserve and maintain all rights in all Intellectual  Property  Collateral.  Any
expenses  incurred in  connection  therewith  shall be borne solely by Grantors.
Subject to the  foregoing,  each Grantor  shall give Secured Party prior written
notice of any abandonment of any Intellectual Property Collateral or any pending
patent application or any Patent.

                  (d) Except as provided  herein,  each  Grantor  shall have the
right to commence and prosecute in its own name, as real party in interest,  for
its own benefit and at its own expense, such suits, proceedings or other actions
for  infringement,  unfair  competition,  dilution,  misappropriation  or  other
damage, or reexamination or reissue  proceedings as are necessary to protect the
Intellectual Property Collateral. Secured Party shall provide, at such Grantor's
expense,  all reasonable and necessary  cooperation in connection  with any such
suit, proceeding or action including, without limitation, joining as a necessary
party. Each Grantor shall promptly, following its becoming aware thereof, notify
Secured Party of the  institution  of, or of any adverse  determination  in, any
proceeding (whether in the United States Patent and Trademark Office, the United
States  Copyright  Office or any  federal,  state,  local or  foreign  court) or
regarding  such  Grantor's   ownership,   right  to  use,  or  interest  in  any
Intellectual  Property  Collateral.  Each Grantor shall provide to Secured Party
any information with respect thereto requested by Secured Party.

                  (e) In  addition  to,  and not by way of  limitation  of,  the
granting of a security interest in the Collateral pursuant hereto, each Grantor,
effective  upon  the  occurrence  and  during  the  continuation  of an Event of
Default, hereby assigns, transfers and conveys to Secured Party the nonexclusive
right and  license to use all  trademarks,  tradenames,  copyrights,  patents or
technical processes  (including,  without limitation,  the Intellectual Property
Collateral)  owned or used by such Grantor that relate to the Collateral and any
other   collateral   granted  by  such  Grantor



                                     XVI-14
<PAGE>

as security for the Secured  Obligations,  together with any goodwill associated
therewith, all to the extent necessary to enable Secured Party to realize on the
Collateral in  accordance  with this  Agreement and to enable any  transferee or
assignee of the Collateral to enjoy the benefits of the  Collateral.  This right
shall inure to the benefit of all successors, assigns and transferees of Secured
Party  and  its  successors,  assigns  and  transferees,  whether  by  voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure  or  otherwise.  Such right and  license  shall be  granted  free of
charge, without requirement that any monetary payment whatsoever be made to such
Grantor.  In  addition,  each  Grantor  hereby  grants to Secured  Party and its
employees,  representatives and agents the right to visit such Grantor's and any
of its  Affiliate's or  subcontractor's  plants,  facilities and other places of
business  that are  utilized in  connection  with the  manufacture,  production,
inspection, storage or sale of products and services sold or delivered under any
of the  Intellectual  Property  Collateral (or which were so utilized during the
prior six month  period),  and to  inspect  the  quality  control  and all other
records relating thereto upon reasonable  advance written notice to such Grantor
and at reasonable  dates and times during normal  business hours and as often as
may be reasonably requested.  If and to the extent that any Grantor is permitted
to license the Intellectual  Property  Collateral,  Secured Party shall promptly
enter into a  non-disturbance  agreement or other similar  arrangement,  at such
Grantor's  request  and  expense,  with such  Grantor  and any  licensee  of any
Intellectual  Property  Collateral  permitted  hereunder  in form and  substance
reasonably  satisfactory  to Secured  Party  pursuant to which (i) Secured Party
shall agree not to disturb or interfere  with such  licensee's  rights under its
license  agreement  with such Grantor so long as such licensee is not in default
thereunder,  and  (ii)  such  licensee  shall  acknowledge  and  agree  that the
Intellectual  Property  Collateral  licensed  to it is subject  to the  security
interest  created  in  favor  of  Secured  Party  and the  other  terms  of this
Agreement.

                  SECTION 13.  Transfers and Other Liens.  No Grantor shall:

                  (a)  sell,  assign  (by  operation  of  law or  otherwise)  or
otherwise  dispose of any of the  Collateral,  except as permitted by the Credit
Agreement; or

                  (b) except for the security interest created by this Agreement
and  Permitted  Encumbrances,  create  or  suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other obligations
of any Person.

                  SECTION 14.  Secured Party  Appointed  Attorney-in-Fact.  Each
Grantor   hereby   irrevocably   appoints   Secured  Party  as  such   Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of Grantor, Secured Party or otherwise, from time to time in Secured
Party's discretion to take any action and to execute any instrument that Secured
Party may deem  necessary  or  advisable  to  accomplish  the  purposes  of this
Agreement, including without limitation:

                  (a) to obtain and adjust  insurance  required to be maintained
by such Grantor or paid to Secured Party pursuant to Section 8;

                  (b) to ask for, demand,  collect, sue for, recover,  compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;



                                     XVI-15
<PAGE>

                  (c) to  receive,  endorse  and  collect  any  drafts  or other
instruments,  documents and chattel paper in connection with clauses (a) and (b)
above;

                  (d) to file any  claims or take any  action or  institute  any
proceedings  that  Secured  Party  may  deem  necessary  or  desirable  for  the
collection  of any of the  Collateral  or  otherwise  to  enforce  the rights of
Secured Party with respect to any of the Collateral;

                  (e) to pay or  discharge  taxes or  Liens  (other  than  Liens
permitted under this Agreement or the Credit Agreement) levied or placed upon or
threatened  against the  Collateral,  the  legality or validity  thereof and the
amounts necessary to discharge the same to be determined by Secured Party in its
sole discretion,  any such payments made by Secured Party to become  obligations
of such Grantor to Secured Party, due and payable immediately without demand;

                  (f) to sign and  endorse  any  invoices,  freight  or  express
bills, bills of lading,  storage or warehouse receipts,  drafts against debtors,
assignments,  verifications  and notices in  connection  with Accounts and other
documents relating to the Collateral; and

                  (g) generally to sell,  transfer,  pledge,  make any agreement
with  respect  to or  otherwise  deal  with any of the  Collateral  as fully and
completely  as though  Secured  Party were the  absolute  owner  thereof for all
purposes,  and to do, at Secured  Party's option and Grantors'  expense,  at any
time or from  time to  time,  all acts  and  things  that  Secured  Party  deems
necessary  to  protect,  preserve  or realize  upon the  Collateral  and Secured
Party's  security  interest  therein  in  order to  effect  the  intent  of this
Agreement, all as fully and effectively as such Grantor might do.

                  Notwithstanding  anything to the  contrary in this Section 14,
Secured  Party's  authority as Pledgor's  attorney-in-fact  shall be exercisable
only after the  occurrence  and during the  continuance  of an Event of Default,
except with respect to any actions  necessary  or  advisable to perfect  Secured
Party's security interest in the Collateral.

                  SECTION 15. Secured Party May Perform. If any Grantor fails to
perform any agreement  contained  herein,  Secured Party may itself perform,  or
cause performance of, such agreement, and the expenses of Secured Party incurred
in connection therewith shall be payable by such Grantor under Section 20(b).

                  SECTION 16. Standard of Care. The powers  conferred on Secured
Party  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the exercise
of reasonable  care in the custody of any  Collateral in its  possession and the
accounting  for moneys  actually  received by it hereunder,  Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary  steps to
preserve  rights  against  prior  parties or any other rights  pertaining to any
Collateral.  Secured Party shall be deemed to have exercised  reasonable care in
the custody and  preservation of Collateral in its possession if such Collateral
is accorded  treatment  substantially  equal to that which Secured Party accords
its own property.

                  SECTION  17.  Remedies.  If any Event of  Default  shall  have
occurred  and be  continuing,  Secured  Party may  exercise  in  respect  of the
Collateral,  in addition to all other rights and remedies provided for herein or
otherwise  available  to it, all the rights and  remedies of a secured  party on
default  under  the  Uniform  Commercial  Code  as in  effect  in  any  relevant



                                     XVI-16
<PAGE>

jurisdiction  (the  "Code")  (whether  or not the Code  applies to the  affected
Collateral),  and also may (a) require each Grantor to, and each Grantor  hereby
agrees that it will at its expense and upon request of Secured Party  forthwith,
assemble all or part of the  Collateral as directed by Secured Party and make it
available to Secured  Party at a place to be designated by Secured Party that is
reasonably  convenient  to both parties,  (b) enter onto the property  where any
Collateral  is located  and take  possession  thereof  with or without  judicial
process, (c) prior to the disposition of the Collateral,  store, process, repair
or  recondition   the  Collateral  or  otherwise   prepare  the  Collateral  for
disposition  in any manner to the extent  Secured Party deems  appropriate,  (d)
take  possession  of any  Grantor's  premises or place  custodians  in exclusive
control  thereof,  remain  on such  premises  and use the  same  and any of such
Grantor's  equipment for the purpose of completing  any work in process,  taking
any actions  described in the preceding  clause (c) and  collecting  any Secured
Obligation,  and  (e)  without  notice  except  as  specified  below,  sell  the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured  Party's  offices  or  elsewhere,  for cash,  on credit or for
future delivery, at such time or times and at such price or prices and upon such
other  terms as are  commercially  reasonable.  Secured  Party or any  Lender or
Interest Rate  Exchanger may be the purchaser of any or all of the Collateral at
any such sale and  Secured  Party,  as agent for and  representative  of Agents,
Lenders,  Issuing  Lenders,  Swing Line Lender and Interest Rate Exchangers (but
not any Agent or Agents,  Lender or Lenders,  Issuing Lender or Issuing Lenders,
Swing Line Lender or Interest Rate Exchanger or Interest Rate  Exchangers in its
or their respective  individual capacities unless Requisite Obligees (as defined
in Section 22(a)) shall otherwise agree in writing),  shall be entitled, for the
purpose of bidding and making  settlement  or payment of the purchase  price for
all or any portion of the  Collateral  sold at any such public sale,  to use and
apply any of the  Secured  Obligations  as a credit on account  of the  purchase
price for any Collateral  payable by Secured Party at such sale.  Each purchaser
at any such sale shall hold the property sold  absolutely free from any claim or
right on the part of any Grantor,  and each Grantor hereby waives (to the extent
permitted by applicable  law) all rights of  redemption,  stay and/or  appraisal
which it now has or may at any time in the future  have under any rule of law or
statute now existing or hereafter  enacted.  Each  Grantor  agrees that,  to the
extent  notice of sale shall be required  by law,  at least ten days'  notice to
such  Grantor of the time and place of any public  sale or the time after  which
any private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given.  Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice,  be made at the time and place to which it was
so adjourned,  provided,  however,  that if a sale is postponed for more than 60
days,  Secured  Party  shall  re-notice  Pledgor of any  subsequent  sale of the
affected  Pledged  Collateral in accordance with the  second-preceding  sentence
hereof.  Each Grantor  hereby  waives any claims  against  Secured  Party to the
extent  arising by reason of the fact that the price at which any Collateral may
have been sold at such a private  sale was less than the price  which might have
been  obtained at a public sale,  even if Secured  Party accepts the first offer
received and does not offer such Collateral to more than one offeree,  provided,
however,  that the price at which any Collateral  shall be sold at any public or
private sale shall be  commercially  reasonable.  If the proceeds of any sale or
other  disposition  of the Collateral  are  insufficient  to pay all the Secured
Obligations,  Grantors shall be jointly and severally  liable for the deficiency
and the  fees of any  attorneys  employed  by  Secured  Party  to  collect  such
deficiency.

                  SECTION 18.  Additional  Remedies  for  Intellectual  Property
Collateral.



                                     XVI-17
<PAGE>

                  (a) Anything contained herein to the contrary notwithstanding,
upon the  occurrence  and during the  continuation  of an Event of Default,  (i)
Secured  Party shall have the right (but not the  obligation)  to bring suit, in
the name of any Grantor, Secured Party or otherwise, to enforce any Intellectual
Property  Collateral,  in which  event such  Grantor  shall,  at the  request of
Secured  Party,  do any and all lawful acts and  execute  any and all  documents
required by Secured  Party in aid of such  enforcement  and such  Grantor  shall
promptly,  upon demand,  reimburse  and  indemnify  Secured Party as provided in
Sections  10.2 and 10.3 of the  Credit  Agreement  and  Section  20  hereof,  as
applicable,  in  connection  with the exercise of its rights under this Section,
and, to the extent that  Secured  Party shall elect not to bring suit to enforce
any Intellectual  Property Collateral as provided in this Section,  each Grantor
agrees to use all reasonable measures,  whether by action,  suit,  proceeding or
otherwise,  to prevent  the  infringement  of any of the  Intellectual  Property
Collateral  by  others  and for  that  purpose  agrees  to use its  commercially
reasonable  judgement in maintaining any action,  suit or proceeding against any
Person so infringing  reasonably  necessary to prevent such  infringement;  (ii)
upon written demand from Secured  Party,  each Grantor shall execute and deliver
to Secured Party an  assignment  or  assignments  of the  Intellectual  Property
Collateral and such other documents as are necessary or appropriate to carry out
the intent and purposes of this  Agreement;  (iii) each Grantor agrees that such
an  assignment   and/or  recording  shall  be  applied  to  reduce  the  Secured
Obligations  outstanding  only to the extent that Secured  Party (or any Lender)
receives cash proceeds in respect of the sale of, or other realization upon, the
Intellectual  Property  Collateral;  and (iv)  within five  Business  Days after
written notice from Secured Party,  each Grantor shall make available to Secured
Party, to the extent within such Grantor's  power and authority,  such personnel
in such  Grantor's  employ on the date of such Event of Default as Secured Party
may reasonably designate,  by name, title or job responsibility,  to permit such
Grantor to continue,  directly or indirectly, to produce, advertise and sell the
products and services  sold or delivered by such Grantor  under or in connection
with the Trademarks,  Trademark Registrations and Trademark Rights, such persons
to be available to perform their prior  functions on Secured  Party's behalf and
to be  compensated  by Secured  Party at such  Grantor's  expense on a per diem,
pro-rata basis  consistent with the salary and benefit  structure  applicable to
each as of the date of such Event of Default.

                  (b) If (i) an Event of Default  shall have  occurred  and,  by
reason of cure,  waiver,  modification,  amendment  or  otherwise,  no longer be
continuing,  (ii)  no  other  Event  of  Default  shall  have  occurred  and  be
continuing,  (iii) an  assignment  to  Secured  Party of any  rights,  title and
interests  in  and to the  Intellectual  Property  Collateral  shall  have  been
previously  made,  and (iv)  the  Secured  Obligations  shall  not  have  become
immediately due and payable,  upon the written  request of any Grantor,  Secured
Party shall promptly execute and deliver to such Grantor such assignments as may
be necessary to reassign to such Grantor any such rights, title and interests as
may have been assigned to Secured Party as aforesaid, subject to any disposition
thereof that may have been made by Secured Party; provided,  after giving effect
to such reassignment, Secured Party's security interest granted pursuant hereto,
as well as all other rights and  remedies of Secured  Party  granted  hereunder,
shall continue to be in full force and effect; and provided further, the rights,
title and  interests  so  reassigned  shall be free and clear of all Liens other
than Liens (if any) encumbering  such rights,  title and interest at the time of
their assignment to Secured Party and Permitted Encumbrances.

                  SECTION  19.  Application  of  Proceeds.  Except as  expressly
provided elsewhere in this Agreement,  all proceeds received by Secured Party in
respect of any sale of,  collection



                                     XVI-18
<PAGE>

from,  or other  realization  upon all or any  part of the  Collateral  shall be
applied as provided in subsection 2.4D of the Credit Agreement.

                  SECTION 20.  Indemnity and Expenses.

                  (a) Grantors jointly and severally agree to indemnify  Secured
Party, each Lender and each Interest Rate Exchanger from and against any and all
claims,  losses  and  liabilities  in any way  relating  to,  growing  out of or
resulting  from  this  Agreement  and  the  transactions   contemplated   hereby
(including,  without limitation,  enforcement of this Agreement),  except to the
extent such claims,  losses or liabilities result solely from Secured Party's or
such  Lender's  or  Interest  Rate  Exchanger's   gross  negligence  or  willful
misconduct as finally determined by a court of competent jurisdiction.

                  (b)  Grantors  jointly and  severally  agree to pay to Secured
Party upon demand the amount of any and all costs and  expenses,  including  the
reasonable fees and expenses of its counsel and of any experts and agents,  that
Secured  Party  may  incur in  connection  with (i) the  administration  of this
Agreement, (ii) the custody,  preservation, use or operation of, or the sale of,
collection  from, or other  realization  upon, any of the Collateral,  (iii) the
exercise or enforcement of any of the rights of Secured Party hereunder, or (iv)
the failure by any Grantor to perform or observe any of the provisions hereof.

                  (c) The  obligations  of  Grantors  in this  Section  20 shall
survive the  termination of this Agreement and the discharge of Grantors'  other
obligations  under this  Agreement,  the Lender  Interest Rate  Agreements,  the
Credit Agreement and the other Loan Documents.

                  SECTION 21. Continuing  Security Interest;  Transfer of Loans.
This Agreement shall create a continuing security interest in the Collateral and
shall (a)  remain in full  force and  effect  until the  payment  in full of the
Secured Obligations,  the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding  Letters of Credit, (b) be binding
upon Grantors,  their respective successors and assigns, and (c) inure, together
with the rights and  remedies  of Secured  Party  hereunder,  to the  benefit of
Secured Party and its successors,  transferees and assigns. Without limiting the
generality  of the  foregoing  clause  (c),  but  subject to the  provisions  of
subsection  10.1 of the Credit  Agreement,  any  Lender may assign or  otherwise
transfer any Loans held by it to any other  Person,  and such other Person shall
thereupon  become  vested with all the  benefits in respect  thereof  granted to
Lenders  herein  or  otherwise.   Upon  the  payment  in  full  of  all  Secured
Obligations,  the  cancellation  or  termination  of  the  Commitments  and  the
cancellation  or expiration of all outstanding  Letters of Credit,  the security
interest  granted hereby shall terminate and all rights to the Collateral  shall
revert to the applicable Grantor.  Upon any such termination Secured Party will,
at Grantors' expense, execute and deliver to Grantors such documents as Grantors
shall  reasonably  request to evidence or effect such  termination,  and Grantor
shall be entitled to the return,  promptly  upon its request and at its expense,
of such Collateral  which shall  previously have been delivered to Secured Party
as shall not have been sold or otherwise applied pursuant to the terms hereof.

                  SECTION 22.  Secured Party as Agent.

                  (a) Secured  Party has been  appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits  hereof,  Interest
Rate  Exchangers.  Secured  Party



                                     XVI-19
<PAGE>

shall be obligated, and shall have the right hereunder, to make demands, to give
notices,  to  exercise or refrain  from  exercising  any rights,  and to take or
refrain from taking any action (including,  without  limitation,  the release or
substitution  of  Collateral),  solely in accordance with this Agreement and the
Credit  Agreement;  provided that Secured Party shall exercise,  or refrain from
exercising,  any  remedies  provided  for in Section 17 in  accordance  with the
instructions  of (i)  Requisite  Lenders  or (ii)  after  payment in full of all
Obligations  under the Credit Agreement and the other Loan Documents and subject
to the  payment of agreed  fees,  the  holders of a  majority  of the  aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been  terminated in accordance  with its terms,  the amount then due and payable
(exclusive of expenses and similar payments but including any early  termination
payments then due) under such Lender Interest Rate  Agreement)  under all Lender
Interest Rate  Agreements  (Requisite  Lenders or, if  applicable,  such holders
being  referred  to herein  as  "Requisite  Obligees").  In  furtherance  of the
foregoing provisions of this Section 22(a), each Interest Rate Exchanger, by its
acceptance  of  the  benefits  hereof,  agrees  that  it  shall  have  no  right
individually  to  realize  upon  any  of  the  Collateral  hereunder,  it  being
understood  and  agreed by such  Interest  Rate  Exchanger  that all  rights and
remedies  hereunder may be exercised  solely by Secured Party for the benefit of
Lenders  and  Interest  Rate  Exchangers  in  accordance  with the terms of this
Section 22(a).

                  (b) Written  notice of  resignation  by  Administrative  Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute  notice
of resignation as Secured Party under this Agreement;  removal of Administrative
Agent pursuant to subsection 9.5 of the Credit  Agreement  shall also constitute
removal as Secured Party under this  Agreement;  and  appointment of a successor
Administrative  Agent pursuant to subsection 9.5 of the Credit  Agreement  shall
also constitute  appointment of a successor  Secured Party under this Agreement.
Upon the acceptance of any appointment as Administrative  Agent under subsection
9.5 of the Credit Agreement by a successor  Administrative Agent, that successor
Administrative  Agent shall thereupon  succeed to and become vested with all the
rights,  powers,  privileges and duties of the retiring or removed Secured Party
under this  Agreement,  and the  retiring  or removed  Secured  Party under this
Agreement shall promptly (i) transfer to such successor  Secured Party all sums,
securities  and other items of  Collateral  held  hereunder,  together  with all
records and other  documents  necessary or  appropriate  in connection  with the
performance of the duties of the successor  Secured Party under this  Agreement,
and (ii) execute and deliver to such successor  Secured Party such amendments to
financing  statements,  and take such  other  actions,  as may be  necessary  or
appropriate in connection with the assignment to such successor Secured Party of
the security  interests  created  hereunder,  whereupon such retiring or removed
Secured Party shall be  discharged  from its duties and  obligations  under this
Agreement.  After any retiring or removed  Administrative Agent's resignation or
removal hereunder as Secured Party, the provisions of this Agreement shall inure
to its benefit as to any  actions  taken or omitted to be taken by it under this
Agreement while it was Secured Party hereunder.

                  SECTION  23.  Additional  Grantors.   The  initial  Subsidiary
Grantors  hereunder  shall  be  such  of  the  Subsidiaries  of  Company  as are
signatories hereto on the date hereof.  From time to time subsequent to the date
hereof,  additional  Subsidiaries  of  Company  may  become  parties  hereto  as
additional   Grantors   (each  an   "Additional   Grantor"),   by  executing  an
acknowledgement to this Agreement substantially in the form of Exhibit V annexed
hereto.  Upon delivery of any such  acknowledgement to Administrative  Agent and
Secured  Party,  notice  of  which is  hereby  waived  by  Grantors,  each  such
Additional Grantor shall be a Grantor and shall be



                                     XVI-20
<PAGE>

as fully a party hereto as if such Additional Grantor were an original signatory
hereto.  Each Grantor  expressly agrees that its obligations  arising  hereunder
shall not be  affected  or  diminished  by the  addition or release of any other
Grantor hereunder,  nor by any election of Administrative Agent not to cause any
Subsidiary of Company to become an Additional Grantor hereunder.  This Agreement
shall be fully  effective  as to any Grantor  that is or becomes a party  hereto
regardless  of whether any other Person  becomes or fails to become or ceases to
be a Grantor hereunder.

                  SECTION  24.  Amendments;  Etc.  No  amendment,  modification,
termination or waiver of any provision of this Agreement,  and no consent to any
departure by any Grantor  therefrom,  shall in any event be effective unless the
same shall be in writing  and  signed by Secured  Party and,  in the case of any
such amendment or modification,  by Grantors; provided that any amendment hereto
pursuant  to Section 23 shall be  effective  upon  execution  by any  Additional
Grantor,  and Grantors  hereby waive any  requirement of notice of or consent to
any such  amendment.  Any such waiver or consent shall be effective  only in the
specific instance and for the specific purpose for which it was given.

                  SECTION 25. Notices.  Any notice or other communication herein
required or  permitted  to be given  shall be in writing  and may be  personally
served,  telexed  or sent by  telefacsimile  or United  States  mail or  courier
service  and shall be deemed to have been given when  delivered  in person or by
courier service,  upon receipt of telefacsimile or telex, or three Business Days
after  depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall be as
provided in subsection  10.8 of the Credit  Agreement or as set forth under such
party's name on the  signature  pages  hereof or such other  address as shall be
designated  by such party in a written  notice  delivered  to the other  parties
hereto.

                  SECTION  26.  Failure  or  Indulgence  Not  Waiver;   Remedies
Cumulative.  No failure or delay on the part of Secured Party in the exercise of
any power,  right or  privilege  hereunder  shall  impair such  power,  right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial  exercise of any such power,  right or privilege
preclude any other or further exercise  thereof or of any other power,  right or
privilege.  All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

                  SECTION  27.  Severability.   In  case  any  provision  in  or
obligation  under this Agreement shall be invalid,  illegal or  unenforceable in
any  jurisdiction,  the validity,  legality and  enforceability of the remaining
provisions  or  obligations,  or of such  provision or  obligation  in any other
jurisdiction, shall not in any way be affected or impaired thereby.

                  SECTION 28. Headings.  Section and subsection headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute  a part of this  Agreement  for any  other  purpose  or be given  any
substantive effect.

                  SECTION 29.  Governing  Law;  Terms.  THIS  AGREEMENT  AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES  HEREUNDER SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW



                                     XVI-21
<PAGE>

OF THE STATE OF NEW  YORK),  WITHOUT  REGARD TO  CONFLICTS  OF LAWS  PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE  PERFECTION OF THE SECURITY
INTEREST  HEREUNDER,  OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform  Commercial Code in the State of New York are
used  herein  as  therein  defined.  The  rules  of  construction  set  forth in
subsection  1.3 of the Credit  Agreement  shall be applicable to this  Agreement
mutatis mutandis.

                  SECTION 30.  Consent to  Jurisdiction  and Service of Process.
ALL JUDICIAL  PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR RELATING
TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER,  MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT  JURISDICTION IN THE STATE AND COUNTY OF NEW YORK. BY
EXECUTING  AND  DELIVERING  THIS  AGREEMENT,  EACH  GRANTOR,  FOR  ITSELF AND IN
CONNECTION   WITH  ITS  PROPERTIES,   IRREVOCABLY  (I)  ACCEPTS   GENERALLY  AND
UNCONDITIONALLY  THE NONEXCLUSIVE  JURISDICTION  AND VENUE OF SUCH COURTS;  (II)
WAIVES ANY DEFENSE OF FORUM NON  CONVENIENS;  (III)  AGREES THAT  SERVICE OF ALL
PROCESS IN ANY SUCH  PROCEEDING  IN ANY SUCH COURT MAY BE MADE BY  REGISTERED OR
CERTIFIED  MAIL,  RETURN  RECEIPT  REQUESTED,  TO SUCH  GRANTOR  AT ITS  ADDRESS
PROVIDED IN ACCORDANCE  WITH SECTION 25; (IV) AGREES THAT SERVICE AS PROVIDED IN
CLAUSE  (III) ABOVE IS  SUFFICIENT  TO CONFER  PERSONAL  JURISDICTION  OVER SUCH
GRANTOR IN ANY SUCH  PROCEEDING  IN ANY SUCH COURT,  AND  OTHERWISE  CONSTITUTES
EFFECTIVE AND BINDING  SERVICE IN EVERY  RESPECT;  (V) AGREES THAT SECURED PARTY
RETAINS THE RIGHT TO SERVE  PROCESS IN ANY OTHER  MANNER  PERMITTED BY LAW OR TO
BRING PROCEEDINGS  AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION;
AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 30 RELATING TO  JURISDICTION
AND VENUE SHALL BE BINDING AND  ENFORCEABLE  TO THE FULLEST  EXTENT  PERMISSIBLE
UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

                  SECTION 31.  Waiver of Jury Trial.  GRANTORS AND SECURED PARTY
HEREBY  AGREE TO WAIVE THEIR  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS  AGREEMENT.  The scope of this
waiver is intended to be  all-encompassing  of any and all disputes  that may be
filed in any court and that  relate to the subject  matter of this  transaction,
including  without  limitation  contract  claims,  tort  claims,  breach of duty
claims, and all other common law and statutory claims.  Each Grantor and Secured
Party  acknowledge  that this waiver is a material  inducement  for Grantors and
Secured Party to enter into a business  relationship,  that Grantors and Secured
Party have already  relied on this waiver in entering  into this  Agreement  and
that each will continue to rely on this waiver in their related future dealings.
Each  Grantor and Secured  Party  further  warrant and  represent  that each has
reviewed  this  waiver  with its  legal  counsel,  and that each  knowingly  and
voluntarily  waives  its jury trial  rights  following  consultation  with legal
counsel. THIS WAIVER IS IRREVOCABLE,  MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY  OR IN  WRITING  (OTHER  THAN BY A



                                     XVI-22
<PAGE>

MUTUAL WRITTEN WAIVER SPECIFICALLY  REFERRING TO THIS SECTION 32 AND EXECUTED BY
EACH OF THE  PARTIES  HERETO),  AND THIS WAIVER  SHALL  APPLY TO ANY  SUBSEQUENT
AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR MODIFICATIONS  TO THIS AGREEMENT.  In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.

                  SECTION 32.  Counterparts.  This  Agreement may be executed in
one  or  more   counterparts  and  by  different   parties  hereto  in  separate
counterparts,  each of which when so executed and  delivered  shall be deemed an
original,  but all such  counterparts  together shall constitute but one and the
same  instrument;  signature  pages  may  be  detached  from  multiple  separate
counterparts  and attached to a single  counterpart so that all signature  pages
are physically attached to the same document.

                  [Remainder of page intentionally left blank]



                                     XVI-23
<PAGE>

                  IN WITNESS WHEREOF, Grantor and Secured Party have caused this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first written above.

                                        ARTERIAL VASCULAR ENGINEERING, INC.


                                        By: ____________________________
                                          Name: _______________________
                                          Title: _____________________


                                        Each of the entities listed on  Schedule
                                        A annexed hereto


                                        By: ____________________________
                                             on behalf of each of  the  entities
                                             listed on Schedule A annexed hereto

                                             Name: _______________________
                                             Title: ____________________





                                     XVI-24
<PAGE>




                                         ROYAL BANK OF CANADA, as Administrative
                                         Agent, as Secured Party



                                         By:______________________________
                                          Name:___________________________
                                          Title:__________________________




                                     XVI-25
<PAGE>


                                   Schedule A



Name                               Notice Address for each Subsidiary Grantor



                                     XVI-26
<PAGE>




                               SCHEDULE 1(f)(i) TO
                               SECURITY AGREEMENT

U.S. Trademarks:

                                Trademark       Registration       Registration
       Registered Owner        Description         Number              Date
       ----------------        -----------         ------              ----





                                     XVI-27
<PAGE>




                              SCHEDULE 1(f)(ii) TO
                               SECURITY AGREEMENT


U.S. Patents Issued:

         Patent No.        Issue Date        Invention          Inventor
         ----------        ----------        ---------          --------





U.S. Patents Pending:

      Applicant's          Date         Application
          Name             Filed          Number         Invention      Inventor
          ----             -----          ------         ---------      --------




                                     XVI-28
<PAGE>


                              SCHEDULE 1(f)(iii) TO
                               SECURITY AGREEMENT


U.S. Copyrights:

Title         Registration No.       Date of Issue      Registered Owner
-----         ----------------       -------------      ----------------



Pending U.S. Copyright Registrations & Applications:

Title    Reference No.     Date of Application       Copyright Claimant 
-----    -------------     -------------------       ------------------ 




                                     XVI-29
<PAGE>


                                  SCHEDULE 4(b)
                                       TO
                               SECURITY AGREEMENT

                      Locations of Equipment and Inventory

Name of Grantor                      Locations of Equipment and Inventory
---------------                      ------------------------------------



                                     XVI-30
<PAGE>

                                  SCHEDULE 4(d)
                                       TO
                               SECURITY AGREEMENT

                                Office Locations


Name of Grantor                                              Office Locations
---------------                                              ----------------




                                     XVI-31
<PAGE>

                                  SCHEDULE 4(e)
                                       TO
                               SECURITY AGREEMENT

                                   Other Names

Name of Grantor                                             Other Names
---------------                                             -----------





                                     XVI-32
<PAGE>

                                  SCHEDULE 4(h)
                                       TO
                               SECURITY AGREEMENT

                                 Filing Offices
                                 --------------




                                     XVI-33
<PAGE>




                                                                    EXHIBIT I TO
                                                              SECURITY AGREEMENT

                 [FORM OF GRANT OF TRADEMARK SECURITY INTEREST]

                      GRANT OF TRADEMARK SECURITY INTEREST


         WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns
and uses in its  business,  and will in the  future  adopt  and so use,  various
intangible assets, including the Trademark Collateral (as defined below); and

         WHEREAS,   Arterial  Vascular   Engineering,   a  Delaware  corporation
("Company"),  has entered into a Credit Agreement dated as of September 30, 1998
(said Credit  Agreement,  as it may heretofore have been and as it may hereafter
be amended,  supplemented  or otherwise  modified  from time to time,  being the
"Credit Agreement") with the financial institutions named therein (collectively,
together  with  their  respective  successors  and  assigns  party to the Credit
Agreement  from time to time,  the  "Lenders"),  DLJ Capital  Funding,  Inc., as
Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada, as
Administrative  Agent (in such  capacity,  "Secured  Party"),  pursuant to which
Lenders have made certain  commitments,  subject to the terms and conditions set
forth in the Credit  Agreement,  to extend certain credit facilities to Company;
and

         WHEREAS,  Company may from time to time enter, or may from time to time
have  entered,  into one or more  Interest Rate  Agreements  (collectively,  the
"Lender Interest Rate  Agreements")  with one or more Lenders (in such capacity,
collectively, "Lender Counterparties"); and

         [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and
delivered that certain Subsidiary  Guaranty dated as of September 30, 1998 (said
Subsidiary Guaranty,  as it may hereafter be amended,  supplemented or otherwise
modified from time to time,  being the "Guaranty") in favor of Secured Party for
the benefit of Lenders and any Lender Counterparties,  pursuant to which Grantor
has guaranteed the prompt payment and performance when due of all obligations of
Company  under  the  Credit  Agreement  and the  other  Loan  Documents  and all
obligations  of Company  under the Lender  Interest Rate  Agreements,  including
without limitation the obligation of Company to make payments  thereunder in the
event of early termination thereof; and]

         WHEREAS,  pursuant  to the terms of a  Security  Agreement  dated as of
September 30, 1998 (as amended,  supplemented or otherwise modified from time to
time,  the "Security  Agreement"),  among  Grantor,  Secured Party and the other
grantors named therein, Grantor has agreed to create in favor of Secured Party a
secured and  protected  interest  in, and  Secured  Party has agreed to become a
secured creditor with respect to, the Trademark Collateral;

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
adequacy of which are hereby  acknowledged,  subject to the terms and conditions
of the Security  Agreement,  Grantor  hereby  grants to Secured Party a security
interest in all of Grantor's right,  title and interest in and to the following,
in each case  whether now or hereafter  existing or in which

                                     XVI-34

<PAGE>

Grantor now has or  hereafter  acquires an interest and wherever the same may be
located (the "Trademark Collateral"):

                  (iv) all right, title and interest  (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  in and to  all  trademarks,  service  marks,  designs,  logos,
                  indicia,  tradenames,  trade dress,  corporate names,  company
                  names, business names, fictitious business names, trade styles
                  and/or   other  source   and/or   business   identifiers   and
                  applications  pertaining  thereto,  owned by such Grantor,  or
                  hereafter  adopted  and  used,  in  its  business  (including,
                  without limitation,  the trademarks specifically identified in
                  Schedule   A)   (collectively,    the    "Trademarks"),    all
                  registrations  that  have been or may  hereafter  be issued or
                  applied for thereon in the United States and any state thereof
                  (including,   without   limitation,   the   registrations  and
                  applications  specifically  identified  in  Schedule  A)  (the
                  "Trademark  Registrations"),  all common law and other  rights
                  (but  in no  event  any  of  the  obligations)  in  and to the
                  Trademarks  in the United  States and any state  thereof  (the
                  "Trademark  Rights"),  and  all  goodwill  of  such  Grantor's
                  business symbolized by the Trademarks and associated therewith
                  (the "Associated Goodwill"); and

                  (v) all proceeds,  products,  rents and profits of or from any
                  and all of the  foregoing  Trademark  Collateral  and,  to the
                  extent not otherwise  included,  all payments under  insurance
                  (whether or not Secured Party is the loss payee  thereof),  or
                  any indemnity, warranty or guaranty, payable by reason of loss
                  or damage to or otherwise with respect to any of the foregoing
                  Trademark Collateral.  For purposes of this Grant of Trademark
                  Security  Interest,  the term "proceeds"  includes whatever is
                  receivable or received when  Trademark  Collateral or proceeds
                  are sold,  exchanged,  collected  or  otherwise  disposed  of,
                  whether such disposition is voluntary or involuntary.

          Notwithstanding anything herein to the contrary, in no event shall the
Trademark  Collateral include, and Grantor shall be not deemed to have granted a
security  interest  in, any of  Grantor's  rights or  interests  in any license,
contract  or  agreement  to which  Grantor  is a party or any of its  rights  or
interests  thereunder to the extent,  but only to the extent,  that such a grant
would,  under the terms of such  license,  contract or agreement  or  otherwise,
result in a breach of the terms of, or  constitute a default  under any license,
contract or agreement to which Grantor is a party;  provided,  that  immediately
upon the  ineffectiveness,  lapse or  termination  of any  such  provision,  the
Trademark  Collateral shall include, and Grantor shall be deemed to have granted
a security  interest in, all such rights and interests as if such  provision had
never been in effect.

          Grantor does hereby further acknowledge and affirm that the rights and
remedies of Secured Party with respect to the security interest in the Trademark
Collateral  granted  hereby are more fully set forth in the Security  Agreement,
the terms and  provisions of which are  incorporated  by reference  herein as if
fully set forth herein.

                                     XVI-35

<PAGE>


         IN WITNESS WHEREOF, Grantor has caused this Grant of Trademark Security
Interest  to be duly  executed  and  delivered  by its  officer  thereunto  duly
authorized as of the 30th day of September, 1998.

                                             [NAME OF GRANTOR]


                                             By:_____________________________
                                               Name:_________________________
                                               Title:__________________________

                                     XVI-36

<PAGE>


                                   SCHEDULE A
                                       TO
                      GRANT OF TRADEMARK SECURITY INTEREST

                         United States                                          
                           Trademark            Registration        Registration
Registered Owner          Description              Number               Date
----------------          -----------              ------               ----

                                     XVI-37

<PAGE>


                                                                   EXHIBIT II TO
                                                              SECURITY AGREEMENT

                   [FORM OF GRANT OF PATENT SECURITY INTEREST]

                        GRANT OF PATENT SECURITY INTEREST


         WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns
and uses in its  business,  and will in the  future  adopt  and so use,  various
intangible assets, including the Patent Collateral (as defined below); and

         WHEREAS,   Arterial  Vascular   Engineering,   a  Delaware  corporation
("Company"),  has entered into a Credit Agreement dated as of September 30, 1998
(said Credit  Agreement,  as it may heretofore have been and as it may hereafter
be amended,  supplemented  or otherwise  modified  from time to time,  being the
"Credit Agreement") with the financial institutions named therein (collectively,
together  with  their  respective  successors  and  assigns  party to the Credit
Agreement  from time to time,  the  "Lenders"),  DLJ Capital  Funding,  Inc., as
Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada, as
Administrative  Agent (in such  capacity,  "Secured  Party") and as  syndication
agent and  arranger,  pursuant to which  Lenders have made certain  commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company; and

         WHEREAS,  Company may from time to time enter, or may from time to time
have  entered,  into one or more  Interest Rate  Agreements  (collectively,  the
"Lender Interest Rate  Agreements")  with one or more Lenders (in such capacity,
collectively, "Lender Counterparties"); and

         [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and
delivered that certain Subsidiary  Guaranty dated as of September 30, 1998 (said
Subsidiary Guaranty,  as it may hereafter be amended,  supplemented or otherwise
modified from time to time,  being the "Guaranty") in favor of Secured Party for
the benefit of Lenders and any Lender Counterparties,  pursuant to which Grantor
has guaranteed the prompt payment and performance when due of all obligations of
Company  under  the  Credit  Agreement  and the  other  Loan  Documents  and all
obligations  of Company  under the Lender  Interest Rate  Agreements,  including
without limitation the obligation of Company to make payments  thereunder in the
event of early termination thereof; and]

         WHEREAS,  pursuant  to the terms of a  Security  Agreement  dated as of
September 30, 1998 (as amended,  supplemented or otherwise modified from time to
time,  the "Security  Agreement"),  among  Grantor,  Secured Party and the other
grantors named therein, Grantor has agreed to create in favor of Secured Party a
secured and  protected  interest  in, and  Secured  Party has agreed to become a
secured creditor with respect to, the Patent Collateral;

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
adequacy of which are hereby  acknowledged,  subject to the terms and conditions
of the Security  Agreement,  Grantor  hereby  grants to Secured Party a security
interest in all of Grantor's right,  title and interest in and to the following,
in each case  whether now or hereafter  existing or in which

                                     XVI-38

<PAGE>

Grantor now has or  hereafter  acquires an interest and wherever the same may be
located (the "Patent Collateral"):

                  (vi) all right, title and interest  (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  in and to all patents and patent  applications  and rights and
                  interests  in  patents  and  patent   applications  under  any
                  domestic  law that are  presently,  or in the  future  may be,
                  owned  or held by such  Grantor  and all  patents  and  patent
                  applications  and rights,  title and  interests in patents and
                  patent applications under any domestic law that are presently,
                  or in the future may be,  owned by such Grantor in whole or in
                  part (including,  without  limitation,  the patents and patent
                  applications  listed  in  Schedule  A),  all  rights  (but not
                  obligations)  corresponding  thereto to sue for past,  present
                  and  future   infringements  and  all  re-issues,   divisions,
                  continuations,  renewals, extensions and continuations-in-part
                  thereof (all of the foregoing being  collectively  referred to
                  as the "Patents"); and

                  (vii) all proceeds, products, rents and profits of or from any
                  and all of the foregoing Patent  Collateral and, to the extent
                  not otherwise included,  all payments under insurance (whether
                  or not  Secured  Party  is the  loss  payee  thereof),  or any
                  indemnity,  warranty or guaranty, payable by reason of loss or
                  damage to or otherwise  with  respect to any of the  foregoing
                  Patent  Collateral.  For  purposes  of this  Grant  of  Patent
                  Security  Interest,  the term "proceeds"  includes whatever is
                  receivable or received when Patent  Collateral or proceeds are
                  sold,  exchanged,  collected or otherwise disposed of, whether
                  such disposition is voluntary or involuntary.

         Notwithstanding  anything herein to the contrary, in no event shall the
Patent  Collateral  include,  and Grantor  shall be not deemed to have granted a
security  interest  in, any of  Grantor's  rights or  interests  in any license,
contract  or  agreement  to which  Grantor  is a party or any of its  rights  or
interests  thereunder to the extent,  but only to the extent,  that such a grant
would,  under the terms of such  license,  contract or agreement  or  otherwise,
result in a breach of the terms of, or  constitute a default  under any license,
contract or agreement to which Grantor is a party;  provided,  that  immediately
upon the ineffectiveness, lapse or termination of any such provision, the Patent
Collateral shall include, and Grantor shall be deemed to have granted a security
interest in, all such rights and  interests as if such  provision had never been
in effect.

         Grantor does hereby further  acknowledge and affirm that the rights and
remedies of Secured  Party with respect to the  security  interest in the Patent
Collateral  granted  hereby are more fully set forth in the Security  Agreement,
the terms and  provisions of which are  incorporated  by reference  herein as if
fully set forth herein.

             [The remainder of this page intentionally left blank.]

                                     XVI-39

<PAGE>


         IN WITNESS  WHEREOF,  Grantor has caused this Grant of Patent  Security
Interest  to be duly  executed  and  delivered  by its  officer  thereunto  duly
authorized as of the 30th day of September, 1998.

                                            [NAME OF GRANTOR]


                                            By:_____________________________
                                              Name:__________________________
                                              Title:___________________________

                                     XVI-40

<PAGE>


                                   SCHEDULE A
                                       TO
                        GRANT OF PATENT SECURITY INTEREST


Patents Issued:

         Patent No.            Issue Date           Invention           Inventor
         ----------            ----------           ---------           --------




Patents Pending:

      Applicant's        Date        Application                               
          Name           Filed         Number         Invention         Inventor
          ----           -----         ------         ---------         --------


                                     XVI-41

<PAGE>


                                                                  EXHIBIT III TO
                                                              SECURITY AGREEMENT

                 [FORM OF GRANT OF COPYRIGHT SECURITY INTEREST]

                      GRANT OF COPYRIGHT SECURITY INTEREST


         WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns
and uses in its  business,  and will in the  future  adopt  and so use,  various
intangible assets, including the Copyright Collateral (as defined below); and

         WHEREAS,   Arterial  Vascular   Engineering,   a  Delaware  corporation
("Company"),  has entered into a Credit Agreement dated as of September 30, 1998
(said Credit  Agreement,  as it may heretofore have been and as it may hereafter
be amended,  supplemented  or otherwise  modified  from time to time,  being the
"Credit Agreement") with the financial institutions named therein (collectively,
together  with  their  respective  successors  and  assigns  party to the Credit
Agreement  from time to time,  the  "Lenders"),  DLJ Capital  Funding,  Inc., as
Syndication Agent, Paribas, as Documentation Agent, and Royal Bank of Canada, as
Administrative  Agent (in such  capacity,  "Secured  Party") and as  syndication
agent and  arranger,  pursuant to which  Lenders have made certain  commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company; and

         WHEREAS,  Company may from time to time enter, or may from time to time
have  entered,  into one or more  Interest Rate  Agreements  (collectively,  the
"Lender Interest Rate  Agreements")  with one or more Lenders (in such capacity,
collectively, "Lender Counterparties"); and

         [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and
delivered that certain Subsidiary  Guaranty dated as of September 30, 1998 (said
Subsidiary Guaranty,  as it may hereafter be amended,  supplemented or otherwise
modified from time to time,  being the "Guaranty") in favor of Secured Party for
the benefit of Lenders and any Lender Counterparties,  pursuant to which Grantor
has guaranteed the prompt payment and performance when due of all obligations of
Company  under  the  Credit  Agreement  and the  other  Loan  Documents  and all
obligations  of Company  under the Lender  Interest Rate  Agreements,  including
without limitation the obligation of Company to make payments  thereunder in the
event of early termination thereof; and]

         WHEREAS,  pursuant  to the terms of a  Security  Agreement  dated as of
September 30, 1998 (as amended,  supplemented or otherwise modified from time to
time,  the "Security  Agreement"),  among  Grantor,  Secured Party and the other
grantors named therein, Grantor has agreed to create in favor of Secured Party a
secured and  protected  interest  in, and  Secured  Party has agreed to become a
secured creditor with respect to, the Copyright Collateral;

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
adequacy of which are hereby  acknowledged,  subject to the terms and conditions
of the Security  Agreement,  Grantor  hereby  grants to Secured Party a security
interest in all of Grantor's right,  title and interest in and to the following,
in each case  whether now or hereafter  existing or in which

                                     XVI-42

<PAGE>

Grantor now has or  hereafter  acquires an interest and wherever the same may be
located (the "Copyright Collateral"):

                  (i) all right,  title and interest  (including rights acquired
                  pursuant  to a license  or  otherwise  but only to the  extent
                  permitted by agreements  governing  such license or other use)
                  under copyright in various  published and unpublished works of
                  authorship including,  without limitation,  computer programs,
                  computer data bases,  other computer software  layouts,  trade
                  dress, drawings,  designs,  writings, and formulas (including,
                  without  limitation,  the works  listed on  Schedule A, as the
                  same  may be  amended  pursuant  hereto  from  time  to  time)
                  (collectively,  the "Copyrights"), all copyright registrations
                  issued to Grantor and applications for copyright  registration
                  that have been or may  hereafter  be  issued  or  applied  for
                  thereon in the United States and any state thereof (including,
                  without limitation, the registrations listed on Schedule A, as
                  the same may be  amended  pursuant  hereto  from time to time)
                  (collectively, the "Copyright Registrations"),  all common law
                  and other rights in and to the Copyrights in the United States
                  and any state thereof  including  all copyright  licenses (but
                  with respect to such  copyright  licenses,  only to the extent
                  permitted  by such  licensing  arrangements)  (the  "Copyright
                  Rights"),   including,   without   limitation,   each  of  the
                  Copyrights,  rights,  titles  and  interests  in  and  to  the
                  Copyrights  and  works  protectable  by  copyright,  which are
                  presently,  or in the future may be, owned, created (as a work
                  for hire for the benefit of Grantor),  authored (as a work for
                  hire for the benefit of Grantor),  or acquired by Grantor,  in
                  whole  or in  part,  and all  Copyright  Rights  with  respect
                  thereto and all Copyright Registrations  therefor,  heretofore
                  or  hereafter  granted or applied  for,  and all  renewals and
                  extensions  thereof,   throughout  the  world,  including  all
                  proceeds  thereof  (such  as,  by way of  example  and  not by
                  limitation,  license  royalties  and proceeds of  infringement
                  suits), the right (but not the obligation) to renew and extend
                  such  Copyright  Registrations  and  Copyright  Rights  and to
                  register works protectable by copyright and the right (but not
                  the  obligation)  to sue in the name of such Grantor or in the
                  name of Secured Party or Lenders for past,  present and future
                  infringements of the Copyrights and Copyright Rights; and

                  (ii) all proceeds,  products, rents and profits of or from any
                  and all of the  foregoing  Copyright  Collateral  and,  to the
                  extent not otherwise  included,  all payments under  insurance
                  (whether or not Secured Party is the loss payee  thereof),  or
                  any indemnity, warranty or guaranty, payable by reason of loss
                  or damage to or otherwise with respect to any of the foregoing
                  Copyright Collateral.  For purposes of this Grant of Copyright
                  Security  Interest,  the term "proceeds"  includes whatever is
                  receivable or received when  Copyright  Collateral or proceeds
                  are sold,  exchanged,  collected  or  otherwise  disposed  of,
                  whether such disposition is voluntary or involuntary.

                                     XVI-43

<PAGE>

         Notwithstanding  anything herein to the contrary, in no event shall the
Copyright  Collateral include, and Grantor shall be not deemed to have granted a
security  interest  in, any of  Grantor's  rights or  interests  in any license,
contract  or  agreement  to which  Grantor  is a party or any of its  rights  or
interests  thereunder to the extent,  but only to the extent,  that such a grant
would,  under the terms of such  license,  contract or agreement  or  otherwise,
result in a breach of the terms of, or  constitute a default  under any license,
contract or agreement to which Grantor is a party;  provided,  that  immediately
upon the  ineffectiveness,  lapse or  termination  of any  such  provision,  the
Copyright  Collateral shall include, and Grantor shall be deemed to have granted
a security  interest in, all such rights and interests as if such  provision had
never been in effect.

         Grantor does hereby further  acknowledge and affirm that the rights and
remedies of Secured Party with respect to the security interest in the Copyright
Collateral  granted  hereby are more fully set forth in the Security  Agreement,
the terms and  provisions of which are  incorporated  by reference  herein as if
fully set forth herein.

             [The remainder of this page intentionally left blank.]

                                     XVI-44

<PAGE>


         IN WITNESS WHEREOF, Grantor has caused this Grant of Copyright Security
Interest  to be duly  executed  and  delivered  by its  officer  thereunto  duly
authorized as of the 30th day of September, 1998.

                                            [NAME OF GRANTOR]


                                            By:_____________________________
                                              Name:_________________________
                                              Title:__________________________

                                     XVI-45

<PAGE>


                                   SCHEDULE A
                                       TO
                      GRANT OF COPYRIGHT SECURITY INTEREST


U.S. Copyrights:

Title         Registration No.      Date of Issue        Registered Owner
-----         ----------------      -------------        ----------------



Pending U.S. Copyright Registrations & Applications:

Title    Reference No.     Date of Application       Copyright Claimant 
-----    -------------     -------------------       ------------------

                                     XVI-46

<PAGE>


                                                                   EXHIBIT IV TO
                                                              SECURITY AGREEMENT

                          SECURITY AGREEMENT SUPPLEMENT

         This  SECURITY  AGREEMENT  SUPPLEMENT,  dated  ____________,  ____,  is
delivered pursuant to the Security Agreement, dated as of September 30, 1998 (as
it may be from time to time  amended,  modified or  supplemented,  the "Security
Agreement"), among Arterial Vascular Engineering, Inc., the other Grantors named
therein,  and Royal Bank of Canada,  as Secured  Party.  Capitalized  terms used
herein not otherwise  defined herein shall have the meanings ascribed thereto in
the Security Agreement.

         Subject to the terms and conditions of the Security Agreement,  Grantor
hereby  grants to Secured Party a security  interest in all of Grantor's  right,
title and  interest in and to the  Intellectual  Property  Collateral  listed on
Supplemental Schedule [1(f)(i)] [1(f)(ii)]  [1(f)(iii)] attached hereto, in each
case whether now or hereafter  existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located. All such Intellectual
Property  Collateral  shall be deemed to be part of the Collateral and hereafter
subject to each of the terms and conditions of the Security Agreement.

         IN WITNESS  WHEREOF,  Grantor  has caused  this  Supplement  to be duly
executed and delivered by its duly authorized officer as of ______________.

                                              [GRANTOR]


                                              By:_____________________________
                                                Name:_________________________
                                                Title:__________________________

                                     XVI-47

<PAGE>


                                                                    EXHIBIT V TO
                                                              SECURITY AGREEMENT

                            [FORM OF ACKNOWLEDGEMENT]

         This  ACKNOWLEDGEMENT,  dated _______,  ____, is delivered  pursuant to
Section 23 of the Security  Agreement  referred to below. The undersigned hereby
agrees that this  Acknowledgement  may be attached  to the  Security  Agreement,
dated as of September 30, 1998 (as it may be from time to time amended, modified
or supplemented,  the "Security  Agreement";  capitalized  terms used herein not
otherwise  defined  herein  shall have the  meanings  ascribed  therein),  among
Arterial Vascular Engineering, Inc., the other Grantors named therein, and Royal
Bank of  Canada,  as  Secured  Party,  that the  undersigned  by  executing  and
delivering  this  Acknowledgement  hereby  becomes a Grantor  under the Security
Agreement in accordance with Section 24 thereof and agrees to be bound by all of
the terms thereof, and that the Patents,  Trademarks,  Trademark  Registrations,
Copyrights and Copyright  Registrations  described on this Acknowledgement shall
be deemed to be part of the and shall  become part of the  Collateral  and shall
secure all Secured Obligations.

                                            [NAME OF ADDITIONAL GRANTOR]


                                            By:_____________________________
                                              Name:_________________________
                                              Title:__________________________

                                     XVI-48

<PAGE>


U.S. Trademarks:


                             Trademark         Registration       Registration
   Registered Owner         Description           Number              Date
   ----------------         -----------           ------              ----

                                     XVI-49

<PAGE>



U.S. Patents Issued:

         Patent No.          Issue Date           Invention             Inventor
         ----------          ----------           ---------             --------




U.S. Patents Pending:

      Applicant's        Date         Application
          Name           Filed          Number          Invention       Inventor
          ----           -----          ------          ---------       --------

                                     XVI-50

<PAGE>



U.S. Copyrights:

Copyright         Registration No.        Date of Issue         Registered Owner
---------         ----------------        -------------         ----------------




Pending U.S. Copyrights:

Copyright       Reference No.       Date of Application       Copyright Claimant
---------       -------------       -------------------       ------------------

                                     XVI-51

<PAGE>


                                  EXHIBIT XVII

                          [FORM OF SUBSIDIARY GUARANTY]

                               SUBSIDIARY GUARANTY


                  This  SUBSIDIARY  GUARANTY is entered into as of September 30,
1998 by THE UNDERSIGNED (each a "Guarantor" and  collectively,  "Guarantors") in
favor of and for the benefit of ROYAL BANK OF CANADA, as  Administrative  Agent,
for the benefit of Agents,  Issuing Lenders, Swing Line Lender and Lenders party
to the Credit  Agreement  referred to below and any Interest Rate Exchangers (as
hereinafter  defined),  and,  subject to subsection 3.14, for the benefit of the
other Beneficiaries (as hereinafter defined)(in such agent capacity for all such
parties, the "Guaranteed Party" herein).

                                    RECITALS

                  A. ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation
("Company"),  has  entered  into  that  certain  Credit  Agreement  dated  as of
September  30, 1998 with  Guaranteed  Party,  Agents,  and Lenders  (said Credit
Agreement,  as it may hereafter be amended,  supplemented or otherwise  modified
from time to time,  being the  "Credit  Agreement";  capitalized  terms  defined
therein and not otherwise defined herein being used herein as therein defined).

                  B.  Company may from time to time  enter,  or may from time to
time have entered, into one or more Interest Rate Agreements (collectively,  the
"Lender  Interest  Rate  Agreements")  with  or one or  more  Lenders  (in  such
capacity, collectively, "Interest Rate Exchangers") in accordance with the terms
of the Credit Agreement, and it is desired that the obligations of Company under
the  Lender  Interest  Rate  Agreements,   including,  without  limitation,  the
obligation  of  Company  to make  payments  thereunder  in the  event  of  early
termination   thereof   (all  such   obligations   being  the   "Interest   Rate
Obligations"),  together  with all  obligations  of  Company  under  the  Credit
Agreement and the other Loan Documents, be guaranteed hereunder.

                  C. A portion of the  proceeds  of the Loans may be advanced by
Company  to  Guarantors  and thus the  Guaranteed  Obligations  (as  hereinafter
defined)  are being  incurred  for and will inure to the  benefit of  Guarantors
(which benefits are hereby acknowledged).

                  D. It is a  condition  precedent  to the making of the initial
Loans  under the Credit  Agreement  that  Company's  obligations  thereunder  be
guaranteed by Guarantors.

                  E. Guarantors are willing  irrevocably and  unconditionally to
guaranty such obligations of Company.

                  NOW,  THEREFORE,  based upon the  foregoing and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged,  and in order to induce Lenders and Guaranteed Party to enter into
the Credit Agreement and to make Loans and other extensions of credit thereunder
and to induce  the Agents to  undertake  their  obligations  and  Interest  Rate
Exchangers to enter into the Lender Interest Rate Agreements,  Guarantors hereby
agree as follows:

                                     XVII-1

<PAGE>

SECTION 1.  DEFINITIONS

                  1.1  Certain  Defined  Terms.  As used in this  Guaranty,  the
following terms shall have the following  meanings unless the context  otherwise
requires:

                           "Beneficiaries"   means  Guaranteed  Party,   Agents,
                  Lenders,  Issuing Lenders,  Swing Line Lender and any Interest
                  Rate Exchangers.

                           "Guaranteed  Obligations" has the meaning assigned to
                  that term in subsection 2.1.

                           "Guaranty" means this Subsidiary Guaranty dated as of
                  September  30,  1998,  as it may be amended,  supplemented  or
                  otherwise modified from time to time.

                           "payment in full", "paid in full" or any similar term
                  means   payment  in  full  of  the   Guaranteed   Obligations,
                  including, without limitation, all principal, interest, costs,
                  fees and expenses (including,  without limitation,  reasonable
                  legal fees and expenses) of  Beneficiaries  as required  under
                  the Loan Documents and the Lender Interest Rate Agreements.

         1.2      Interpretation.

                           (a) References to "Sections" and "subsections"  shall
                  be to Sections and subsections, respectively, of this Guaranty
                  unless otherwise specifically provided.

                           (b) In the  event of any  conflict  or  inconsistency
                  between the terms,  conditions and provisions of this Guaranty
                  and  the  terms,  conditions  and  provisions  of  the  Credit
                  Agreement,  the  terms,  conditions  and  provisions  of  this
                  Guaranty shall prevail.

SECTION 2.  THE GUARANTY

                  2.1  Guaranty of the  Guaranteed  Obligations.  Subject to the
provisions  of  subsection  2.2(a),  Guarantors  jointly  and  severally  hereby
irrevocably and unconditionally  guaranty, as primary obligors and not merely as
sureties,  the due and punctual  payment in full of all  Guaranteed  Obligations
when the same  shall  become  due,  whether  at  stated  maturity,  by  required
prepayment,  declaration,  acceleration,  demand or otherwise (including amounts
that would become due but for the operation of the automatic  stay under Section
362(a) of the  Bankruptcy  Code, 11 U.S.C.  ss.  362(a)).  The term  "Guaranteed
Obligations" is used herein in its most comprehensive sense and includes:

                           (a) any and all  Obligations of Company to Guaranteed
                  Party, Agents,  Issuing Lenders, Swing Line Lender and Lenders
                  and any and all Interest Rate Obligations, in each case now or
                  hereafter  made,  incurred  or  created,  whether  absolute or
                  contingent,  liquidated  or  unliquidated,  whether due or not
                  due,  and  however  arising  under or in  connection  with the
                  Credit  Agreement and the other Loan  Documents and the Lender
                  Interest  Rate  Agreements,   including  those  arising  under
                  successive  borrowing  transactions under the Credit Agreement
                  which shall 

                                     XVII-2

<PAGE>

                  either  continue  the  Obligations  of Company or from time to
                  time renew them after they have been  satisfied  and including
                  interest which, but for the filing of a petition in bankruptcy
                  with respect to Company,  would have accrued on any Guaranteed
                  Obligations, whether or not a claim is allowed against Company
                  for such interest in the related bankruptcy proceeding; and

                          (b) those expenses set forth in subsection 2.8 hereof.

                  2.2   Limitation  on  Amount   Guaranteed;   Contribution   by
Guarantors.   (a)  Anything   contained   in  this   Guaranty  to  the  contrary
notwithstanding,  if any  Fraudulent  Transfer Law (as  hereinafter  defined) is
determined  by a  court  of  competent  jurisdiction  to be  applicable  to  the
obligations  of any Guarantor  under this  Guaranty,  such  obligations  of such
Guarantor  hereunder shall be limited to a maximum aggregate amount equal to the
largest  amount  that  would not  render its  obligations  hereunder  subject to
avoidance as a fraudulent  transfer or conveyance  under Section 548 of Title 11
of the United States Code or any applicable  provisions of comparable  state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving effect
to all other  liabilities of such Guarantor,  contingent or otherwise,  that are
relevant under the Fraudulent  Transfer Laws (specifically  excluding,  however,
any liabilities of such Guarantor (x) in respect of intercompany indebtedness to
Company or other  affiliates  of Company  to the extent  that such  indebtedness
would be  discharged  in an amount  equal to the amount  paid by such  Guarantor
hereunder  and (y) under any  guaranty  of  Permitted  Subordinated  Debt  which
guaranty contains a limitation as to maximum amount similar to that set forth in
this  subsection  2.2(a),  pursuant  to which the  liability  of such  Guarantor
hereunder is included in the liabilities  taken into account in determining such
maximum  amount) and after giving  effect as assets to the value (as  determined
under the applicable  provisions of the Fraudulent  Transfer Laws) of any rights
to subrogation, reimbursement, indemnification or contribution of such Guarantor
pursuant to applicable law or pursuant to the terms of any agreement (including,
without limitation, any such right of contribution under subsection 2.2(b).

                  (b) Guarantors under this Guaranty together desire to allocate
among themselves in a fair and equitable manner their obligations  arising under
this Guaranty.  Accordingly, in the event any payment or distribution is made on
any date by any  Guarantor  under this  Guaranty  (a "Funding  Guarantor")  that
exceeds  its Fair  Share  (as  defined  below)  as of such  date,  that  Funding
Guarantor shall be entitled to a contribution  from each of the other Guarantors
in the amount of such other  Guarantor's Fair Share Shortfall (as defined below)
as of such date,  with the result  that all such  contributions  will cause each
Guarantor's  Aggregate Payments (as defined below) to equal its Fair Share as of
such date.  "Fair  Share"  means,  with respect to a Guarantor as of any date of
determination,  an  amount  equal to (i) the ratio of (x) the  Adjusted  Maximum
Amount (as defined below) with respect to such Guarantor to (y) the aggregate of
the Adjusted  Maximum Amounts with respect to all Guarantors  multiplied by (ii)
the aggregate  amount paid or  distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations  guaranteed.  "Fair
Share  Shortfall"  means,  with  respect  to a  Guarantor  as  of  any  date  of
determination,  the excess, if any, of the Fair Share of such Guarantor over the
Aggregate  Payments of such Guarantor.  "Adjusted  Maximum  Amount" means,  with
respect to a Guarantor as of any date of  determination,  the maximum  aggregate
amount of the obligations of such Guarantor under this Guaranty determined as of
such date in  accordance  with  subsection  2.2(a);  provided  that,  solely for
purposes of  calculating  the  "Adjusted  Maximum  Amount"  with  respect to any
Guarantor for purposes of this subsection  2.2(b),  any assets or liabilities of
such

                                     XVII-3
<PAGE>


Guarantor  arising  by virtue of any  rights to  subrogation,  reimbursement  or
indemnification or any rights to or obligations of contribution  hereunder shall
not be  considered  as  assets  or  liabilities  of such  Guarantor.  "Aggregate
Payments" means, with respect to a Guarantor as of any date of determination, an
amount equal to (i) the aggregate amount of all payments and distributions  made
on or before such date by such Guarantor in respect of this Guaranty (including,
without  limitation,  in  respect  of this  subsection  2.2(b))  minus  (ii) the
aggregate  amount  of all  payments  received  on or  before  such  date by such
Guarantor  from the other  Guarantors  as  contributions  under this  subsection
2.2(b). The amounts payable as contributions hereunder shall be determined as of
the date on which the related  payment or distribution is made by the applicable
Funding  Guarantor.  The allocation among Guarantors of their obligations as set
forth in this  subsection  2.2(b) shall not be construed in any way to limit the
liability of any  Guarantor  hereunder to  Guaranteed  Party,  Agents,  Lenders,
Interest Rate Exchangers or other Beneficiaries.

                  2.3 Payment by Guarantors; Application of Payments. Subject to
the  provisions of subsection  2.2(a),  Guarantors  hereby jointly and severally
agree,  in furtherance of the foregoing and not in limitation of any other right
which any  Beneficiary  may have at law or in equity  against any  Guarantor  by
virtue  hereof,  that upon the  failure of Company to pay any of the  Guaranteed
Obligations  when and as the same shall become due,  whether at stated maturity,
by  required  prepayment,   declaration,   acceleration,   demand  or  otherwise
(including  amounts that would become due but for the operation of the automatic
stay  under  Section  362(a) of the  Bankruptcy  Code,  11 U.S.C.  ss.  362(a)),
Guarantors  will upon demand pay, or cause to be paid,  in cash,  to  Guaranteed
Party for the ratable  benefit of  Beneficiaries,  an amount equal to the sum of
the unpaid principal amount of all Guaranteed Obligations then due as aforesaid,
accrued and unpaid interest on such Guaranteed Obligations  (including,  without
limitation,  interest which, but for the filing of a petition in bankruptcy with
respect to Company, would have accrued on such Guaranteed  Obligations,  whether
or not a claim is allowed  against  Company  for such  interest  in the  related
bankruptcy  proceeding)  and  all  other  Guaranteed  Obligations  then  owed to
Beneficiaries  as aforesaid.  All such payments  shall be applied  promptly from
time to time by Guaranteed  Party as provided in  subsection  2.4D of the Credit
Agreement.

                  2.4 Liability of Guarantors  Absolute.  Each Guarantor  agrees
that its  obligations  hereunder  are  irrevocable,  absolute,  independent  and
unconditional and shall not be affected by any circumstance  which constitutes a
legal or equitable discharge of a guarantor or surety other than payment in full
of the  Guaranteed  Obligations.  In  furtherance  of the  foregoing and without
limiting the generality thereof, each Guarantor agrees as follows:

                           (a) This  Guaranty is a guaranty of payment  when due
                  and not of collectibility.

                           (b)  Guaranteed  Party may enforce this Guaranty upon
                  the  occurrence  of an  Event  of  Default  under  the  Credit
                  Agreement or the occurrence of an Early  Termination  Date (as
                  defined  in a  Master  Agreement  or  an  Interest  Rate  Swap
                  Agreement or Interest  Rate and Currency  Exchange  Agreement;
                  each  of  such   agreements   in  the  form  prepared  by  the
                  International  Swap  and  Derivatives  Association  Inc.  or a
                  similar  event under any  similar  swap  agreement)  under any
                  Lender Interest Rate Agreement  (either such occurrence  being
                  an  "Event  of  Default"  for   purposes  of  this   Guaranty)
                  notwithstanding  the existence of any

                                     XVII-4

<PAGE>

                  dispute between  Company and any  Beneficiary  with respect to
                  the existence of such Event of Default.

                           (c) The  obligations of each Guarantor  hereunder are
                  independent  of the  obligations  of  Company  under  the Loan
                  Documents  or the  Lender  Interest  Rate  Agreements  and the
                  obligations  of  any  other  guarantor  (including  any  other
                  Guarantor)  of the  obligations  of  Company  under  the  Loan
                  Documents  or  the  Lender  Interest  Rate  Agreements,  and a
                  separate  action or  actions  may be  brought  and  prosecuted
                  against  such  Guarantor  whether or not any action is brought
                  against Company or any of such other guarantors and whether or
                  not Company is joined in any such action or actions.

                           (d) Payment by any  Guarantor  of a portion,  but not
                  all,  of the  Guaranteed  Obligations  shall in no way  limit,
                  affect,  modify or abridge any  Guarantor's  liability for any
                  portion of the Guaranteed Obligations which has not been paid.
                  Without   limiting  the  generality  of  the   foregoing,   if
                  Guaranteed  Party is awarded a judgment in any suit brought to
                  enforce  any  Guarantor's  covenant  to pay a  portion  of the
                  Guaranteed  Obligations,  such judgment shall not be deemed to
                  release such Guarantor from its covenant to pay the portion of
                  the  Guaranteed  Obligations  that is not the  subject of such
                  suit,  and such  judgment  shall  not,  except  to the  extent
                  satisfied by such Guarantor,  limit, affect, modify or abridge
                  any other  Guarantor's  liability  hereunder in respect of the
                  Guaranteed Obligations.

                           (e) Any  Beneficiary,  upon  such  terms  as it deems
                  appropriate,  without  notice or demand and without  affecting
                  the validity or enforceability of this Guaranty or giving rise
                  to  any  reduction,   limitation,   impairment,  discharge  or
                  termination of any Guarantor's liability hereunder,  from time
                  to time may (i) renew, extend,  accelerate,  increase the rate
                  of interest on, or otherwise change the time, place, manner or
                  terms of payment of the Guaranteed  Obligations,  (ii) settle,
                  compromise,  release  or  discharge,  or accept or refuse  any
                  offer of performance  with respect to, or  substitutions  for,
                  the Guaranteed  Obligations or any agreement  relating thereto
                  and/or  subordinate  the payment of the same to the payment of
                  any  other   obligations;   (iii)  request  and  accept  other
                  guaranties  of the  Guaranteed  Obligations  and take and hold
                  security  for the payment of this  Guaranty or the  Guaranteed
                  Obligations;  (iv) release, surrender,  exchange,  substitute,
                  compromise,  settle,  rescind,  waive,  alter,  subordinate or
                  modify,  with  or  without  consideration,  any  security  for
                  payment of the Guaranteed Obligations, any other guaranties of
                  the  Guaranteed  Obligations,  or any other  obligation of any
                  Person  (including  any other  Guarantor)  with respect to the
                  Guaranteed Obligations; (v) enforce and apply any security now
                  or hereafter held by or for the benefit of such Beneficiary in
                  respect of this  Guaranty or the  Guaranteed  Obligations  and
                  direct the order or manner of sale  thereof,  or exercise  any
                  other right or remedy that such  Beneficiary  may have against
                  any such  security,  in each  case as is  consistent  with the
                  Credit  Agreement  or  the  applicable  Lender  Interest  Rate
                  Agreement and any  applicable  security  agreement,  including
                  foreclosure  on any  such  security  pursuant  to one or  more
                  judicial or nonjudicial sales,  whether or not every aspect of
                  any such sale is commercially reasonable, and even though such
                  action   operates  to  impair  or  extinguish   any  right  of
                  reimbursement  or  subrogation

                                     XVII-5

<PAGE>

                  or other right or remedy of any Guarantor  against  Company or
                  any security for the Guaranteed Obligations; and (vi) exercise
                  any other rights  available to it under the Loan  Documents or
                  the Lender Interest Rate Agreements.

                           (f) This Guaranty and the  obligations  of Guarantors
                  hereunder  shall be valid  and  enforceable  and  shall not be
                  subject to any reduction, limitation, impairment, discharge or
                  termination  for any reason (other than payment in full of the
                  Guaranteed Obligations),  including,  without limitation,  the
                  occurrence  of any  of  the  following,  whether  or  not  any
                  Guarantor  shall have had notice or  knowledge of any of them:
                  (i) any failure or omission to assert or enforce or  agreement
                  or  election  not  to  assert  or  enforce,  or  the  stay  or
                  enjoining,   by  order  of  court,  by  operation  of  law  or
                  otherwise,  of the  exercise or  enforcement  of, any claim or
                  demand or any right,  power or remedy  (whether  arising under
                  the Loan Documents or the Lender Interest Rate Agreements,  at
                  law, in equity or  otherwise)  with respect to the  Guaranteed
                  Obligations or any agreement relating thereto, or with respect
                  to any other  guaranty of or  security  for the payment of the
                  Guaranteed Obligations; (ii) any rescission, waiver, amendment
                  or  modification  of, or any consent to departure from, any of
                  the  terms  or  provisions  (including,   without  limitation,
                  provisions  relating  to  events  of  default)  of the  Credit
                  Agreement,  any of the other Loan Documents, any of the Lender
                  Interest  Rate  Agreements  or  any  agreement  or  instrument
                  executed  pursuant  thereto,  or  of  any  other  guaranty  or
                  security for the Guaranteed Obligations,  in each case whether
                  or not in accordance with the terms of the Credit Agreement or
                  such Loan Document, such Lender Interest Rate Agreement or any
                  agreement  relating to such other guaranty or security;  (iii)
                  the Guaranteed Obligations, or any agreement relating thereto,
                  at  any  time   being   found  to  be   illegal,   invalid  or
                  unenforceable in any respect; (iv) the application of payments
                  received  from  any  source  (other  than  payments   received
                  pursuant  to the other  Loan  Documents  or any of the  Lender
                  Interest Rate  Agreements or from the proceeds of any security
                  for the  Guaranteed  Obligations,  except to the  extent  such
                  security also serves as collateral for indebtedness other than
                  the  Guaranteed  Obligations)  to the payment of  indebtedness
                  other  than  the  Guaranteed  Obligations,   even  though  any
                  Beneficiary  might have  elected to apply such  payment to any
                  part   or  all  of  the   Guaranteed   Obligations;   (v)  any
                  Beneficiary's   consent  to  the  change,   reorganization  or
                  termination of the corporate structure or existence of Company
                  or  any  of  its   Subsidiaries   and  to  any   corresponding
                  restructuring of the Guaranteed Obligations;  (vi) any failure
                  to perfect or continue  perfection  of a security  interest in
                  any   collateral   which   secures   any  of  the   Guaranteed
                  Obligations;  (vii) any  defenses,  set-offs or  counterclaims
                  which Company may allege or assert against any  Beneficiary in
                  respect  of the  Guaranteed  Obligations,  including  but  not
                  limited  to  failure  of  consideration,  breach of  warranty,
                  payment, statute of frauds, statute of limitations, accord and
                  satisfaction  and usury;  and (viii) any other act or thing or
                  omission,  or delay to do any other act or thing, which may or
                  might  in any  manner  or to any  extent  vary the risk of any
                  Guarantor   as  an  obligor  in  respect  of  the   Guaranteed
                  Obligations.

                                     XVII-6

<PAGE>

                  2.5 Waivers by Guarantors.  Each Guarantor hereby waives,  for
the benefit of Beneficiaries:

                           (a)  any  right  to  require  any  Beneficiary,  as a
                  condition of payment or performance by such Guarantor,  to (i)
                  proceed against  Company,  any other guarantor  (including any
                  other  Guarantor) of the  Guaranteed  Obligations or any other
                  Person, (ii) proceed against or exhaust any security held from
                  Company,  any such other guarantor or any other Person,  (iii)
                  proceed  against or have  resort to any balance of any deposit
                  account or credit on the books of any  Beneficiary in favor of
                  Company or any other  Person,  or (iv) pursue any other remedy
                  in the power of any Beneficiary whatsoever;

                           (b) any defense  arising by reason of the incapacity,
                  lack of  authority  or any  disability  or  other  defense  of
                  Company including, without limitation, any defense based on or
                  arising out of the lack of validity or the unenforceability of
                  the  Guaranteed  Obligations  or any  agreement or  instrument
                  relating  thereto  or  by  reason  of  the  cessation  of  the
                  liability of Company from any cause other than payment in full
                  of the Guaranteed Obligations;

                           (c) any defense based upon any statute or rule of law
                  which provides that the obligation of a surety must be neither
                  larger in amount nor in other  respects more  burdensome  than
                  that of the principal;

                           (d) any defense based upon any  Beneficiary's  errors
                  or  omissions  in  the   administration   of  the   Guaranteed
                  Obligations, except behavior which amounts to gross negligence
                  or bad faith;

                           (e)  (i)  any   principles   or  provisions  of  law,
                  statutory or otherwise, which are or might be in conflict with
                  the  terms  of  this  Guaranty  and  any  legal  or  equitable
                  discharge of such Guarantor's obligations hereunder,  (ii) the
                  benefit  of  any  statute  of   limitations   affecting   such
                  Guarantor's  liability  hereunder or the  enforcement  hereof,
                  (iii) any rights to set-offs,  recoupments and  counterclaims,
                  and (iv)  promptness,  diligence and any requirement  that any
                  Beneficiary  protect,  secure,  perfect or insure any security
                  interest or lien or any property subject thereto;

                           (f) notices, demands, presentments, protests, notices
                  of protest,  notices of dishonor  and notices of any action or
                  inaction,  including  acceptance of this Guaranty,  notices of
                  default under the Credit  Agreement,  the Lender Interest Rate
                  Agreements  or any agreement or  instrument  related  thereto,
                  notices  of any  renewal,  extension  or  modification  of the
                  Guaranteed  Obligations  or  any  agreement  related  thereto,
                  notices of any  extension  of credit to Company and notices of
                  any of the matters referred to in subsection 2.4 and any right
                  to consent to any thereof; and

                           (g) any defenses or benefits that may be derived from
                  or afforded by law which limit the  liability  of or exonerate
                  guarantors  or sureties,  or which may conflict with the terms
                  of this Guaranty.

                                     XVII-7

<PAGE>

                  2.6 Certain California Law Waivers. As used in this subsection
2.6, any reference to "the  principal"  includes  Company,  and any reference to
"the creditor" includes each Beneficiary. In accordance with Section 2856 of the
California Civil Code:

         (a)  each  Guarantor  agrees  (i)  to  waive  any  and  all  rights  of
         subrogation and reimbursement against Company or against any collateral
         or security  granted by Company for any of the  Guaranteed  Obligations
         and (ii) to withhold the exercise of any and all rights of contribution
         against any other  guarantor of any of the Guaranteed  Obligations  and
         against any collateral or security  granted by any such other guarantor
         for any of the Guaranteed  Obligations until the Guaranteed Obligations
         shall have been paid in full and the Commitments  shall have terminated
         and all Letters of Credit shall have expired or been  cancelled and any
         drawings  thereunder shall have been reimbursed,  all as more fully set
         forth in subsection 2.7;

         (b)  each  Guarantor  waives  any and all  other  rights  and  defenses
         available  to such  Guarantor  by  reason  of  Sections  2787 to  2855,
         inclusive,  2899  and  3433 of the  California  Civil  Code,  including
         without  limitation  any and all rights or defenses such  Guarantor may
         have by reason of protection  afforded to the principal with respect to
         any of the Guaranteed Obligations, of to any other guarantor (including
         any other Guarantor) of any of the Guaranteed  Obligations with respect
         to any of such guarantor's  obligations  under its guaranty,  in either
         case  pursuant  to the  antideficiency  or other  laws of the  State of
         California limiting or discharging the principal's indebtedness or such
         guarantor's  obligations,  including without  limitation  Section 580a,
         580b, 580d, or 726 of the California Code of Civil Procedure; and

         (c) each  Guarantor  waives all rights and  defenses  arising out of an
         election  of  remedies by the  creditor,  even though that  election of
         remedies,  such as a nonjudicial  foreclosure  with respect to security
         for any Guaranteed Obligation, has destroyed such Guarantor's rights of
         subrogation and reimbursement against the principal by the operation of
         Section  580d of the Code of Civil  Procedure  or  otherwise;  and even
         though that election of remedies by the creditor,  such as  nonjudicial
         foreclosure  with  respect to security for an  obligation  of any other
         guarantor  (including  any other  Guarantor)  of any of the  Guaranteed
         Obligations,  has destroyed  such  Guarantor's  rights of  contribution
         against such other guarantor.

No  other  provision  of this  Guaranty  shall  be  construed  as  limiting  the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed  and enforced in  accordance  with,  the internal laws of the
State  of New  York,  without  regard  to  conflicts  of laws  principles.  This
subsection 2.6 is included solely out of an abundance of caution,  and shall not
be construed to mean that any of the  above-referenced  provisions of California
law  are in any way  applicable  to this  Guaranty  or to any of the  Guaranteed
Obligations.

                  2.7 Guarantors' Rights of Subrogation, Contribution, Etc. Each
Guarantor  hereby waives any claim,  right or remedy,  direct or indirect,  that
such  Guarantor  now has or may  hereafter  have  against  Company or any of its
assets in connection  with this Guaranty or the performance by such Guarantor of
its  obligations  hereunder,  in each case whether  such claim,  right or remedy
arises in equity, under contract, by statute,  under common law or otherwise and

                                     XVII-8

<PAGE>

including,  without limitation,  (a) any right of subrogation,  reimbursement or
indemnification  that  such  Guarantor  now has or may  hereafter  have  against
Company,  (b) any right to enforce,  or to participate  in, any claim,  right or
remedy that any Beneficiary now has or may hereafter have against  Company,  and
(c) any benefit of, and any right to participate  in, any collateral or security
now or hereafter  held by any  Beneficiary.  In addition,  until the  Guaranteed
Obligations  shall have been indefeasibly paid in full and the Commitments shall
have  terminated  and all Letters of Credit shall have expired or been cancelled
and any drawings  thereunder  shall have been  reimbursed,  each Guarantor shall
withhold  exercise of any right of contribution  such Guarantor may have against
any  other  guarantor   (including  any  other   Guarantor)  of  the  Guaranteed
Obligations  (including,  without  limitation,  any such right of contribution).
Each  Guarantor  further  agrees that,  to the extent the waiver or agreement to
withhold   the   exercise   of  its   rights  of   subrogation,   reimbursement,
indemnification  and  contribution  as set  forth  herein is found by a court of
competent  jurisdiction  to be void or voidable  for any  reason,  any rights of
subrogation,  reimbursement or  indemnification  such Guarantor may have against
Company or against any  collateral or security,  and any rights of  contribution
such  Guarantor may have against any such other  guarantor,  shall be junior and
subordinate  to any rights any  Beneficiary  may have  against  Company,  to all
right,  title and interest any  Beneficiary  may have in any such  collateral or
security,  and  to any  right  any  Beneficiary  may  have  against  such  other
guarantor.  If any amount shall be paid to any  Guarantor on account of any such
subrogation,  reimbursement,  indemnification or contribution rights at any time
when all Guaranteed  Obligations  shall not have been paid in full,  such amount
shall be held in trust for Guaranteed Party on behalf of Beneficiaries and shall
forthwith be paid over to Guaranteed  Party for the benefit of  Beneficiaries to
be credited and applied against the Guaranteed  Obligations,  whether matured or
unmatured, in accordance with the terms hereof.

                  2.8  Subordination of Other  Obligations.  Any indebtedness of
Company now or hereafter held by any Guarantor is hereby  subordinated  in right
of payment to the Guaranteed  Obligations,  and any such indebtedness of Company
to such  Guarantor  collected  or received by such  Guarantor  after an Event of
Default has occurred  and is  continuing  shall be held in trust for  Guaranteed
Party on behalf of Beneficiaries  and shall forthwith be paid over to Guaranteed
Party for the benefit of  Beneficiaries  to be credited and applied  against the
Guaranteed  Obligations  but  without  affecting,  impairing  or limiting in any
manner  the  liability  of such  Guarantor  under  any other  provision  of this
Guaranty.

                  2.9 Expenses.  Guarantors  jointly and severally agree to pay,
or cause to be paid,  on  demand,  and to save  Beneficiaries  harmless  against
liability for, any and all costs and expenses  (including fees and disbursements
of counsel and allocated costs of internal  counsel) incurred or expended by any
Beneficiary in connection  with the enforcement of or preservation of any rights
under this Guaranty.

                  2.10  Continuing  Guaranty.  This  Guaranty  is  a  continuing
guaranty  and shall  remain in effect  until all of the  Guaranteed  Obligations
shall have been paid in full and the  Commitments  shall have terminated and all
Letters  of  Credit  shall  have  expired  or been  cancelled  and any  drawings
thereunder shall have been reimbursed.  Each Guarantor hereby irrevocably waives
any right to revoke this Guaranty as to future  transactions  giving rise to any
Guaranteed Obligations.

                                     XVII-9

<PAGE>

                  2.11  Authority of Guarantors or Company.  It is not necessary
for any  Beneficiary  to inquire into the capacity or powers of any Guarantor or
Company or the officers,  directors or any agents acting or purporting to act on
behalf of any of them.

                  2.12 Financial Condition of Company.  Any Loans may be granted
to  Company  or  continued  from  time to time,  and any  Lender  Interest  Rate
Agreements may be entered into from time to time, in each case without notice to
or  authorization  from  any  Guarantor  regardless  of the  financial  or other
condition  of Company at the time of any such  grant or  continuation  or at the
time such Lender Interest Rate Agreement is entered into, as the case may be. No
Beneficiary  shall have any obligation to disclose or discuss with any Guarantor
its assessment,  or any Guarantor's  assessment,  of the financial  condition of
Company. Each Guarantor has adequate means to obtain information from Company on
a continuing basis concerning the financial condition of Company and its ability
to perform its obligations under the Loan Documents and the Lender Interest Rate
Agreements,  and each Guarantor assumes the responsibility for being and keeping
informed of the financial condition of Company and of all circumstances  bearing
upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby
waives and  relinquishes any duty on the part of any Beneficiary to disclose any
matter,  fact or thing  relating to the  business,  operations  or conditions of
Company now known or hereafter known by any Beneficiary.

                  2.13 Rights Cumulative.  The rights, powers and remedies given
to Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights,  powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents,  any of the
Lender Interest Rate  Agreements or any agreement  between any Guarantor and any
Beneficiary  or   Beneficiaries  or  between  Company  and  any  Beneficiary  or
Beneficiaries.  Any  forbearance  or failure to  exercise,  and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right,  power or remedy or be  construed  to be a waiver  thereof,  nor
shall it preclude the further exercise of any such right, power or remedy.

                  2.14  Bankruptcy;  Post-Petition  Interest;  Reinstatement  of
Guaranty.  (a) So long as any  Guaranteed  Obligations  remain  outstanding,  no
Guarantor  shall,  without the prior written consent of Guaranteed  Party acting
pursuant to the  instructions  of Requisite  Obligees (as defined in  subsection
3.12),  commence or join with any other  Person in  commencing  any  bankruptcy,
reorganization or insolvency  proceedings of or against Company. The obligations
of  Guarantors  under this  Guaranty  shall not be reduced,  limited,  impaired,
discharged,  deferred,  suspended or terminated by any proceeding,  voluntary or
involuntary, involving the bankruptcy, insolvency, receivership, reorganization,
liquidation  or  arrangement of Company or by any defense which Company may have
by reason of the order,  decree or decision of any court or administrative  body
resulting from any such proceeding.

                  (b) Each Guarantor  acknowledges  and agrees that any interest
on  any  portion  of  the  Guaranteed   Obligations   which  accrues  after  the
commencement of any proceeding  referred to in clause (a) above (or, if interest
on any portion of the  Guaranteed  Obligations  ceases to accrue by operation of
law by reason of the  commencement  of said  proceeding,  such interest as would
have accrued on such portion of the Guaranteed  Obligations if said  proceedings
had not been commenced) shall be included in the Guaranteed  Obligations because
it is  the  intention  of  Guarantors  and  Beneficiaries  that  the  Guaranteed
Obligations which are guaranteed by

                                    XVII-10

<PAGE>

Guarantors  pursuant to this Guaranty should be determined without regard to any
rule of law or order which may relieve Company of any portion of such Guaranteed
Obligations.  Guarantors will permit any trustee in bankruptcy, receiver, debtor
in  possession,  assignee for the benefit of creditors or similar  person to pay
Guaranteed Party, or allow the claim of Guaranteed Party in respect of, any such
interest accruing after the date on which such proceeding is commenced.

                  (c) In the event  that all or any  portion  of the  Guaranteed
Obligations are paid by Company,  the obligations of Guarantors  hereunder shall
continue and remain in full force and effect or be  reinstated,  as the case may
be,  in the  event  that all or any part of such  payment(s)  are  rescinded  or
recovered   directly  or  indirectly  from  any  Beneficiary  as  a  preference,
fraudulent  transfer or otherwise,  and any such payments which are so rescinded
or recovered shall constitute Guaranteed Obligations for all purposes under this
Guaranty.

                  2.15  Notice  of  Events.  As  soon as any  Guarantor  obtains
knowledge thereof,  such Guarantor shall give Guaranteed Party written notice of
any  condition or event which has resulted in (a) a material  adverse  change in
the  financial  condition  of any  Guarantor  or  Company  or (b) a breach of or
noncompliance  with any term,  condition or covenant  contained herein or in the
Credit Agreement, any other Loan Document, any Lender Interest Rate Agreement or
any other document delivered pursuant hereto or thereto.

                  2.16 Set Off. In addition to any other rights any  Beneficiary
may have  under law or in  equity,  if any  amount  shall at any time be due and
owing by any Guarantor to any Beneficiary under this Guaranty,  such Beneficiary
is authorized at any time or from time to time,  without notice (any such notice
being hereby expressly  waived),  to set off and to appropriate and to apply any
and all deposits (general or special,  including but not limited to indebtedness
evidenced by  certificates  of deposit,  whether  matured or unmatured)  and any
other  indebtedness  of such  Beneficiary  owing to such Guarantor and any other
property of such Guarantor  held by any  Beneficiary to or for the credit or the
account of such Guarantor  against and on account of the Guaranteed  Obligations
and liabilities of such Guarantor to any Beneficiary under this Guaranty.

                  2.17  Discharge of Guaranty Upon Sale of Guarantor.  If all of
the stock of any  Guarantor  or any of its  successors  in  interest  under this
Guaranty  shall  be sold or  otherwise  disposed  of  (including  by  merger  or
consolidation)  in an Asset Sale not  prohibited by subsection 7.7 of the Credit
Agreement or otherwise  consented to by Requisite Lenders,  the Guaranty of such
Guarantor or such  successor in interest,  as the case may be,  hereunder  shall
automatically  be  discharged  and  released  without any further  action by any
Beneficiary  or any other  Person  effective  as of the time of such Asset Sale;
provided  that,  as  a  condition  precedent  to  such  discharge  and  release,
Guaranteed  Party  shall  have  received   evidence   satisfactory  to  it  that
arrangements  satisfactory to it have been made for delivery to Guaranteed Party
of the  applicable  Net  Asset  Sale  Proceeds  to  the  extent  required  under
subsection 2.4B(iii) of the Credit Agreement.

SECTION 3. MISCELLANEOUS

                  3.1 Survival of Warranties.  All  agreements,  representations
and  warranties  made herein shall  survive the  execution  and delivery of this
Guaranty and the other Loan  Documents and the Lender  Interest Rate  Agreements
and any increase in the Commitments under the Credit Agreement.

                                    XVII-11

<PAGE>

                  3.2 Notices.  Any communications  between Guaranteed Party and
any  Guarantor  and any notices or requests  provided  herein to be given may be
given by mailing the same, postage prepaid, or by telex,  facsimile transmission
or cable to each such party at its address set forth in the Credit Agreement, on
the signature  pages hereof or to such other addresses as each such party may in
writing hereafter indicate.  Any notice, request or demand to or upon Guaranteed
Party or any Guarantor shall not be effective until received.

                  3.3 Severability. In case any provision in or obligation under
this Guaranty shall be invalid,  illegal or unenforceable  in any  jurisdiction,
the  validity,  legality  and  enforceability  of the  remaining  provisions  or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

                  3.4  Amendments  and  Waivers.  No  amendment,   modification,
termination or waiver of any provision of this  Guaranty,  and no consent to any
departure by any Guarantor  therefrom,  shall in any event be effective  without
the  written  concurrence  of  Guaranteed  Party  and,  in the  case of any such
amendment or  modification,  each  Guarantor  against whom  enforcement  of such
amendment  or  modification  is  sought.  Any such  waiver or  consent  shall be
effective only in the specific  instance and for the specific  purpose for which
it was given.

                  3.5 Headings. Section and subsection headings in this Guaranty
are included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.

                  3.6   Applicable   Law.  THIS  GUARANTY  AND  THE  RIGHTS  AND
OBLIGATIONS OF GUARANTORS AND BENEFICIARIES  HEREUNDER SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED  AND ENFORCED IN  ACCORDANCE  WITH,  THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING,  WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL
OBLIGATIONS  LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.

                  3.7  Successors  and  Assigns.  This  Guaranty is a continuing
guaranty and shall be binding upon each Guarantor and its respective  successors
and assigns. This Guaranty shall inure to the benefit of Beneficiaries and their
respective  successors and assigns.  No Guarantor  shall assign this Guaranty or
any of the rights or obligations of such Guarantor  hereunder  without the prior
written consent of all Lenders.  Any Beneficiary may, without notice or consent,
assign  its  interest  in this  Guaranty  in  whole or in part.  The  terms  and
provisions  of this  Guaranty  shall inure to the benefit of any  transferee  or
assignee of any Loan, and in the event of such transfer or assignment the rights
and privileges herein conferred upon such Beneficiary shall automatically extend
to and be vested in such  transferee  or assignee,  all subject to the terms and
conditions hereof.

                  3.8  Consent  to  Jurisdiction  and  Service of  Process.  ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO
THIS  GUARANTY,  OR ANY  OBLIGATIONS  HEREUNDER,  MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT  JURISDICTION IN THE STATE AND COUNTY OF NEW YORK. BY
EXECUTING AND  DELIVERING  THIS  AGREEMENT,  EACH  GUARANTOR,  FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, IRREVOCABLY

                                    XVII-12

<PAGE>

                           (I)  ACCEPTS   GENERALLY  AND   UNCONDITIONALLY   THE
                  NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

                           (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

                           (III)  AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
                  PROCEEDING  IN ANY SUCH  COURT  MAY BE MADE BY  REGISTERED  OR
                  CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT
                  ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 3.2;

                           (IV) AGREES THAT  SERVICE AS PROVIDED IN CLAUSE (III)
                  ABOVE IS SUFFICIENT TO CONFER PERSONAL  JURISDICTION OVER SUCH
                  GUARANTOR  IN ANY  SUCH  PROCEEDING  IN ANY  SUCH  COURT,  AND
                  OTHERWISE  CONSTITUTES  EFFECTIVE AND BINDING SERVICE IN EVERY
                  RESPECT;

                           (V)  AGREES  THAT  BENEFICIARIES  RETAIN THE RIGHT TO
                  SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
                  PROCEEDINGS  AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER
                  JURISDICTION; AND

                           (VI) AGREES THAT THE  PROVISIONS  OF THIS  SUBSECTION
                  3.8  RELATING TO  JURISDICTION  AND VENUE SHALL BE BINDING AND
                  ENFORCEABLE TO THE FULLEST EXTENT  PERMISSIBLE  UNDER NEW YORK
                  GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

                  3.9  Waiver  of Trial  by Jury.  EACH  GUARANTOR  AND,  BY ITS
ACCEPTANCE OF THE BENEFITS HEREOF,  EACH BENEFICIARY  HEREBY AGREES TO WAIVE ITS
RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING  OUT OF THIS  GUARANTY.  The scope of this  waiver is intended to be all
encompassing  of any and all  disputes  that may be filed in any  court and that
relate to the subject matter of this transaction, including, without limitation,
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims.  Each Guarantor and, by its acceptance of the benefits hereof,
each  Beneficiary,  each  (i)  acknowledges  that  this  waiver  is  a  material
inducement  for  such  Guarantor  and  Beneficiaries  to enter  into a  business
relationship,  that such Guarantor and Beneficiaries have already relied on this
waiver in entering into this Guaranty or accepting the benefits thereof,  as the
case may be, and that each will continue to rely on this waiver in their related
future dealings and (ii) further  warrants and represents that each has reviewed
this waiver with its legal  counsel,  and that each  knowingly  and  voluntarily
waives its jury trial rights  following  consultation  with legal counsel.  THIS
WAIVER IS  IRREVOCABLE,  MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING (OTHER THAN BY A MUTUAL WRITTEN  WAIVER  SPECIFICALLY  REFERRING TO THIS
SUBSECTION 3.9 AND EXECUTED BY GUARANTEED  PARTY AND EACH  GUARANTOR),  AND THIS
WAIVER  SHALL  APPLY TO ANY  SUBSEQUENT  AMENDMENTS,  RENEWALS,  SUPPLEMENTS  OR
MODIFICATIONS TO THIS

                                    XVII-13
<PAGE>

GUARANTY.  In the event of  litigation,  this Guaranty may be filed as a written
consent to a trial by the court.

                  3.10 No Other Writing.  This writing is intended by Guarantors
and  Beneficiaries as the final expression of this Guaranty and is also intended
as a complete  and  exclusive  statement  of the terms of their  agreement  with
respect  to the  matters  covered  hereby.  No  course  of  dealing,  course  of
performance or trade usage, and no parole evidence of any nature,  shall be used
to supplement or modify any terms of this Guaranty.
There are no conditions to the full effectiveness of this Guaranty.

                  3.11  Further  Assurances.  At any time or from  time to time,
upon the request of Guaranteed Party,  Guarantors shall execute and deliver such
further  documents  and do such other acts and  things as  Guaranteed  Party may
reasonably request in order to effect fully the purposes of this Guaranty.


                  3.12 Additional  Guarantors.  The initial Guarantors hereunder
shall be such of the  Subsidiaries of Company as are  signatories  hereto on the
date  hereof.  From  time to time  subsequent  to the  date  hereof,  additional
Subsidiaries  of Company may become  parties  hereto,  as additional  Guarantors
(each an "Additional  Guarantor"),  by executing a counterpart of this Guaranty.
Upon delivery of any such counterpart to Administrative  Agent,  notice of which
is  hereby  waived by  Guarantors,  each such  Additional  Guarantor  shall be a
Guarantor and shall be as fully a party hereto as if such  Additional  Guarantor
were an original  signatory  hereof.  Each Guarantor  expressly  agrees that its
obligations  arising  hereunder  shall  not be  affected  or  diminished  by the
addition or release of any other  Guarantor  hereunder,  nor by any  election of
Administrative  Agent  not to cause  any  Subsidiary  of  Company  to  become an
Additional Guarantor hereunder. This Guaranty shall be fully effective as to any
Guarantor  that is or becomes a party  hereto  regardless  of whether  any other
Person becomes or fails to become or ceases to be a Guarantor hereunder.

                  3.13  Counterparts;   Effectiveness.   This  Guaranty  may  be
executed in any number of  counterparts  and by the different  parties hereto in
separate  counterparts,  each of which when so executed and  delivered  shall be
deemed to be an original for all purposes;  but all such  counterparts  together
shall  constitute  but one and the same  instrument.  This Guaranty shall become
effective as to each  Guarantor  upon the execution of a  counterpart  hereof by
such Guarantor  (whether or not a counterpart hereof shall have been executed by
any other  Guarantor)  and receipt by Guaranteed  Party of written or telephonic
notification of such execution and authorization of delivery thereof.

         3.14     Guaranteed Party as Agent.

                  (a)  Guaranteed  Party has been appointed to act as Guaranteed
Party hereunder by Lenders.  Guaranteed Party shall be obligated, and shall have
the right hereunder,  to make demands,  to give notices,  to exercise or refrain
from  exercising  any  rights,  and to take or refrain  from  taking any action,
solely in accordance with this Guaranty and the Credit Agreement;  provided that
Guaranteed  Party shall  exercise,  or refrain  from  exercising,  any  remedies
hereunder in accordance with the  instructions of (i) Requisite  Lenders or (ii)
after  payment in full of all  Obligations  under the Credit  Agreement  and the
other Loan Documents and subject to the

                                    XVII-14

<PAGE>

payment of agreed  fees,  the  holders of a majority of the  aggregate  notional
amount (or,  with respect to any Lender  Interest Rate  Agreement  that has been
terminated  in  accordance  with its  terms,  the  amount  then due and  payable
(exclusive of expenses and similar payments but including any early  termination
payments then due) under such Lender Interest Rate  Agreement)  under all Lender
Interest Rate  Agreements  (Requisite  Lenders or, if  applicable,  such holders
being  referred  to herein  as  "Requisite  Obligees").  In  furtherance  of the
foregoing  provisions of this subsection 3.14, each Interest Rate Exchanger,  by
its  acceptance  of the  benefits  hereof,  agrees  that it shall  have no right
individually  to enforce this Guaranty,  it being  understood and agreed by such
Interest Rate Exchanger that all rights and remedies  hereunder may be exercised
solely by Guaranteed  Party for the benefit of  Beneficiaries in accordance with
the terms of this subsection 3.14.

                  (b) Written  notice of  resignation  by  Administrative  Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute  notice
of   resignation   as  Guaranteed   Party  under  this   Guaranty;   removal  of
Administrative  Agent pursuant to subsection 9.5 of the Credit  Agreement  shall
also constitute removal as Guaranteed Party under this Guaranty; and appointment
of a successor  Administrative  Agent  pursuant to subsection  9.5 of the Credit
Agreement  shall also  constitute  appointment of a successor  Guaranteed  Party
under this Guaranty.  Upon the acceptance of any  appointment as  Administrative
Agent under subsection 9.5 of the Credit Agreement by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights,  powers,  privileges  and duties of the  retiring or
removed  Guaranteed  Party  under this  Guaranty,  and the  retiring  or removed
Guaranteed  Party  under this  Guaranty  shall  promptly  (i)  transfer  to such
successor  Guaranteed  Party all sums held hereunder,  together with all records
and other documents  necessary or appropriate in connection with the performance
of the duties of the successor  Guaranteed  Party under this Guaranty,  and (ii)
take such other actions as may be necessary or  appropriate  in connection  with
the  assignment  to  such  successor  Guaranteed  Party  of the  rights  created
hereunder,  whereupon  such  retiring  or  removed  Guaranteed  Party  shall  be
discharged  from its  duties and  obligations  under  this  Guaranty.  After any
retiring or removed  Administrative  Agent's resignation or removal hereunder as
Guaranteed  Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this  Guaranty  while it
was Guaranteed Party hereunder.


                  [Remainder of page intentionally left blank]

                                    XVII-15

<PAGE>


                  IN WITNESS  WHEREOF,  each of the  undersigned  Guarantors has
caused this Guaranty to be duly executed and delivered by its officer  thereunto
duly authorized as of the date first written above.

                                                  [NAME OF GUARANTOR]

                                                  By____________________________

                                                  Title_________________________

                                                  Address:______________________

                                                          ______________________

                                                          ______________________

                                                          ______________________


                                                  [NAME OF GUARANTOR]

                                                  By____________________________

                                                  Title_________________________

                                                  Address:______________________

                                                          ______________________

                                                          ______________________

                                                          ______________________



                                    XVII-16

<PAGE>


                  IN WITNESS WHEREOF,  the undersigned  Additional Guarantor has
caused this Guaranty to be duly executed and delivered by its officer  thereunto
duly authorized as of ______________,______ .

                                       _________________________________________
                                       (Name of Additional Guarantor)

                                                  By____________________________

                                                  Title_________________________

                                                  Address:______________________

                                                          ______________________

                                                          ______________________

                                                          ______________________


                                    XVII-17

<PAGE>


                                  EXHIBIT XVIII

                      [FORM OF SUBSIDIARY PLEDGE AGREEMENT]

                           SUBSIDIARY PLEDGE AGREEMENT


                  This SUBSIDIARY  PLEDGE AGREEMENT (this  "Agreement") is dated
as of September 30, 1998 and entered into by and between [INSERT NAME OF PLEDGOR
IN CAPS], a corporation ("Pledgor"), and ROYAL BANK OF CANADA, as Administrative
Agent, for the benefit of Agents, Issuing Lenders, Swing Line Lender and Lenders
party to the Credit Agreement referred to below and any Interest Rate Exchangers
(as  hereinafter  defined)(in  such agent  capacity  for all such  parties,  the
"Secured Party" herein).

                             PRELIMINARY STATEMENTS

                  A. Pledgor is the legal and beneficial owner of (i) the shares
of stock (the "Pledged Shares") described in Part A of Schedule I annexed hereto
and issued by the  corporations  named  therein and (ii) the  indebtedness  (the
"Pledged  Debt")  described  in  Part B of said  Schedule  I and  issued  by the
obligors named therein.

                  B.  Secured  Party,  Agents and Lenders  have  entered  into a
Credit  Agreement dated as of September 30, 1998 (said Credit  Agreement,  as it
may hereafter be amended,  supplemented or otherwise modified from time to time,
being the  "Credit  Agreement",  the terms  defined  therein  and not  otherwise
defined  herein being used herein as therein  defined)  with  Arterial  Vascular
Engineering, Inc., a Delaware corporation ("Company"),  pursuant to which Agents
have undertaken certain  obligations and Lenders have made certain  commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company.

                  C.  Company may from time to time  enter,  or may from time to
time have entered,  into one or more Interest Rate  Agreements  with one or more
Lenders  (collectively,  the "Lender Interest Rate Agreement")  (such Lenders in
such capacity, collectively, "Interest Rate Exchangers").

                  D. Pledgor has executed and delivered that certain  Subsidiary
Guaranty  dated as of September 30, 1998 (said  Subsidiary  Guaranty,  as it may
hereafter  be amended,  supplemented  or otherwise  modified  from time to time,
being the  "Guaranty")  in favor of Secured  Party for the  benefit of  Lenders,
Issuing Lenders, Swing Line Lender and any Interest Rate Exchangers, pursuant to
which Pledgor has guaranteed the prompt payment and performance  when due of all
obligations of Company under the Credit Agreement and all obligations of Company
under the Lender  Interest Rate  Agreements,  including  without  limitation the
obligation  of  Company  to make  payments  thereunder  in the  event  of  early
termination thereof.

                  E. It is a condition  precedent to the initial  extensions  of
credit by Lenders under the Credit Agreement that Pledgor shall have granted the
security   interests  and  undertaken  the  obligations   contemplated  by  this
Agreement.

                                    XVIII-1

<PAGE>

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce Lenders to make Loans and other  extensions of credit under the Credit
Agreement (including,  without limitation,  the issuance of Letters of Credit or
the  purchase of  participation  therein)  and to induce the Agents to undertake
their  obligations  and to induce the Interest Rate Exchangers to enter into the
Lender Interest Rate Agreements,  and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees
with Secured Party as follows:

                  SECTION 1.  Pledge of  Security.  Pledgor  hereby  pledges and
assigns to Secured Party, and hereby grants to Secured Party a security interest
in, all of  Pledgor's  right,  title and interest in and to the  following  (the
"Pledged Collateral"):

                  (a) the Pledged Shares and the  certificates  representing the
Pledged Shares , any securities accounts in which the Pledged Shares may be held
and any securities entitlements represented thereby, and any interest of Pledgor
in the entries on the books of any  securities  intermediary  pertaining  to the
Pledged Shares, and all dividends, cash, warrants, rights, instruments and other
property  or  proceeds  from  time to time  received,  receivable  or  otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares;

                  (b) the  Pledged  Debt  and  the  instruments  evidencing  the
Pledged Debt, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Debt;

                  (c) all additional  shares of, and all securities  convertible
into and  warrants,  options and other rights to purchase or otherwise  acquire,
stock of any issuer of the Pledged  Shares from time to time acquired by Pledgor
in any manner (which  shares shall be deemed to be part of the Pledged  Shares),
the  certificates or other  instruments  representing  such  additional  shares,
securities,  warrants, options or other rights, any securities accounts in which
the  Pledged  Shares  may be held and any  securities  entitlements  represented
thereby,  and any  interest  of  Pledgor  in the  entries  on the  books  of any
securities intermediary pertaining to such additional shares, and all dividends,
cash, warrants,  rights, instruments and other property or proceeds from time to
time received,  receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares, securities, warrants, options or other
rights;

                  (d) all  additional  indebtedness  from  time to time  owed to
Pledgor by any obligor on the Pledged Debt and the  instruments  evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;

                  (e) all  shares of, and all  securities  convertible  into and
warrants,  options and other rights to purchase or otherwise  acquire,  stock of
any Person that, after the date of this Agreement,  becomes,  as a result of any
occurrence,  a direct  Subsidiary of Pledgor (which shares shall be deemed to be
part of the Pledged Shares), the certificates or other instruments  representing
such shares,  securities,  warrants, options or other rights and any interest of
Pledgor in the entries on the books of any securities intermediary pertaining to
such shares, and all dividends,  cash, warrants,  rights,  instruments and other
property  or  proceeds  from  time to time

                                    XVIII-2

<PAGE>

received,  receivable or otherwise  distributed in respect of or in exchange for
any or all of such shares, securities, warrants, options or other rights;

                  (f) all indebtedness  from time to time owed to Pledgor by any
Person  that,  after  the date of this  Agreement,  becomes,  as a result of any
occurrence,  a direct or indirect Subsidiary of Pledgor, and all interest, cash,
instruments  and  other  property  or  proceeds  from  time  to  time  received,
receivable or otherwise  distributed in respect of or in exchange for any or all
of such indebtedness; and

                  (g) to the extent  not  covered by  clauses  (a)  through  (f)
above,  all  proceeds of any or all of the  foregoing  Pledged  Collateral.  For
purposes of this Agreement,  the term "proceeds" includes whatever is receivable
or received when Pledged Collateral or proceeds are sold,  exchanged,  collected
or otherwise  disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation,  proceeds of any indemnity or guaranty payable
to Pledgor or Secured Party from time to time with respect to any of the Pledged
Collateral.

                  SECTION 2. Security for  Obligations.  This  Agreement and the
pledges hereunder secure, and the Pledged Collateral is collateral security for,
the prompt payment or performance in full when due,  whether at stated maturity,
by  required  prepayment,   declaration,   acceleration,   demand  or  otherwise
(including the payment of amounts that would become due but for the operation of
the  automatic  stay under  Section  362(a) of the  Bankruptcy  Code,  11 U.S.C.
ss.362(a)), of all obligations and liabilities of every nature of Pledgor to the
Agents, Lenders, Issuing Lenders, Swing Line Lender and Interest Rate Exchangers
now or  hereafter  existing  under or arising out of or in  connection  with the
Guaranty and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim  is  allowed  against  Company  for  such  interest  in the  related
bankruptcy proceeding),  reimbursement of amounts drawn under Letters of Credit,
payments  for  early  termination  of Lender  Interest  Rate  Agreements,  fees,
expenses, indemnities or otherwise, whether voluntary or involuntary,  direct or
indirect,  absolute or contingent,  liquidated or  unliquidated,  whether or not
jointly  owed with  others,  and whether or not from time to time  decreased  or
extinguished and later increased, created or incurred, and all or any portion of
such  obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered  directly or indirectly  from Secured Party
or any Agent,  Lender,  Issuing  Lender,  Swing  Line  Lender or  Interest  Rate
Exchanger as a preference, fraudulent transfer or otherwise, and all obligations
of every nature of Pledgor now or hereafter  existing  under this Agreement (all
such obligations of Pledgor being the "Secured Obligations").

                  SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of  Secured  Party  pursuant  hereto and shall be in
suitable form for transfer by delivery or, as  applicable,  shall be accompanied
by Pledgor's  endorsement,  where  necessary,  or duly executed  instruments  of
transfer or  assignment  in blank,  all in form and  substance  satisfactory  to
Secured Party.  Upon the occurrence and during the  continuation  of an Event of
Default  (as  defined in the Credit  Agreement)  or the  occurrence  of an Early
Termination  Date (as defined in a Master  Agreement  or an  Interest  Rate Swap
Agreement  or  Interest  Rate  and  Currency  Exchange  Agreement,  each of such
agreements  in the form  prepared  by the  International  Swap  and

                                    XVIII-3

<PAGE>

Derivatives  Association  Inc.  or  a  similar  event  under  any  similar  swap
agreement)  under any Lender  Interest Rate  Agreement  (either such  occurrence
being an "Event of Default" for purposes of this Agreement), Secured Party shall
have the right,  without notice to Pledgor, to transfer to or to register in the
name  of  Secured  Party  or  any  of its  nominees  any  or all of the  Pledged
Collateral,  subject only to the revocable  rights specified in Section 7(a). In
addition,   Secured  Party  shall  have  the  right  at  any  time  to  exchange
certificates or instruments  representing or evidencing  Pledged  Collateral for
certificates or instruments of smaller or larger denominations.

                  SECTION 4. Representations and Warranties.  Pledgor represents
and warrants as follows:

                  (a) Due Authorization,  etc. of Pledged Collateral. All of the
Pledged  Shares have been duly  authorized and validly issued and are fully paid
and  non-assessable.   All  of  the  Pledged  Debt  has  been  duly  authorized,
authenticated  or issued,  and  delivered  and is the legal,  valid and  binding
obligation of the issuers thereof and is not in default.

                  (b)  Description  of Pledged  Collateral.  The Pledged  Shares
constitute  all of the issued  and  outstanding  shares of stock of each  issuer
thereof  which is a Domestic  Subsidiary  and 65% of the issued and  outstanding
shares of stock of each issuer thereof that is a Foreign  Subsidiary,  and there
are no  outstanding  warrants,  options or other  rights to  purchase,  or other
agreements  outstanding  with  respect to, or property  that is now or hereafter
convertible  into, or that requires the issuance or sale of, any Pledged Shares.
The Pledged  Debt  constitutes  all of the issued and  outstanding  intercompany
indebtedness  evidenced by a promissory  note of the respective  issuers thereof
owing to Pledgor.

                  (c)  Ownership  of Pledged  Collateral.  Pledgor is the legal,
record and beneficial owner of the Pledged Collateral free and clear of any Lien
except for the security interest created by this Agreement.

                  SECTION  5.  Transfers  and Other  Liens;  Additional  Pledged
Collateral; etc. Pledgor shall:

                  (a)  not,   except  as  expressly   permitted  by  the  Credit
Agreement,  (i) sell,  assign (by  operation of law or  otherwise)  or otherwise
dispose of, or grant any option with respect to, any of the Pledged  Collateral,
(ii)  create or suffer  to exist  any Lien  upon or with  respect  to any of the
Pledged  Collateral,  except for the security interest under this Agreement,  or
(iii) permit any issuer of Pledged Shares to merge or consolidate unless all the
outstanding  capital  stock of the surviving or resulting  corporation  is, upon
such merger or consolidation, pledged hereunder and no cash, securities or other
property  is  distributed  in  respect  of the  outstanding  shares of any other
constituent corporation;  provided that in the event Pledgor makes an Asset Sale
permitted by the Credit  Agreement and the assets subject to such Asset Sale are
Pledged Shares,  upon appropriate notice Secured Party shall release the Pledged
Shares that are the subject of such Asset Sale to Pledgor  free and clear of the
lien  and  security   interest  under  this  Agreement   concurrently  with  the
consummation  of  such  Asset  Sale;  provided,  further  that,  as a  condition
precedent  to  such  release,   Secured  Party  shall  have  received   evidence
satisfactory  to it that  arrangements  satisfactory  to it

                                    XVIII-4

<PAGE>

have been made for delivery to Secured  Party of the Net Asset Sale  Proceeds of
such Asset Sale to the extent required under subsection  2.4B(iii) of the Credit
Agreement;

                  (b) (i) cause each  issuer of Pledged  Shares not to issue any
stock or other  securities  in  addition to or in  substitution  for the Pledged
Shares  issued  by such  issuer,  except  to  Pledgor,  (ii)  pledge  hereunder,
immediately upon its acquisition  (directly or indirectly)  thereof, any and all
additional  shares of stock or other securities of each issuer of Pledged Shares
such that all of the shares of stock or other securities of each issuer which is
a Domestic Subsidiary and 65% of the shares of stock or other securities of each
issuer which is a Foreign Subsidiary shall be pledged to Secured Party hereunder
after giving effect to such acquisition, and (iii) pledge hereunder, immediately
upon its  acquisition  (directly or indirectly)  thereof,  any and all shares of
stock of any Person that, after the date of this Agreement, becomes, as a result
of any occurrence,  a direct  Domestic  Subsidiary of Pledgor and 65% of any and
all  shares  of stock of any  Person  that,  after  the date of this  Agreement,
becomes, as a result of any occurrence, a direct Foreign Subsidiary of Pledgor;

                  (c) (i) pledge hereunder, immediately upon their issuance, any
and all instruments or other evidences of additional  indebtedness  from time to
time owed to  Pledgor  by any  obligor  on the  Pledged  Debt,  and (ii)  pledge
hereunder,  immediately  upon their  issuance,  any and all instruments or other
evidences of  indebtedness  from time to time owed to Pledgor by any Person that
after  the date of this  Agreement  becomes,  as a result of any  occurrence,  a
direct or indirect Subsidiary of Pledgor;

                  (d)  promptly  notify  Secured  Party  of any  event  of which
Pledgor becomes aware causing a loss or depreciation in the value of the Pledged
Collateral that would reasonably be expected to have a Material Adverse Effect;

                  (e)  promptly  deliver to Secured  Party all  written  notices
received by it with respect to the Pledged Collateral; and

                  (f)  pay  promptly  when  due  all  taxes,   assessments   and
governmental charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being contested in good
faith;  provided  that Pledgor  shall in any event pay such taxes,  assessments,
charges,  levies or claims  not  later  than five days  prior to the date of any
proposed  sale under any  judgement,  writ or warrant of  attachment  entered or
filed  against  Pledgor  or any of the  Pledged  Collateral  as a result  of the
failure to make such payment.

                  SECTION 6.  Further Assurances; Pledge Amendments.

                  (a) Pledgor  agrees that from time to time,  at the expense of
Pledgor,  Pledgor will promptly execute and deliver all further  instruments and
documents,  and take all further action, that may be necessary or desirable,  or
that Secured Party may reasonably  request,  in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies  hereunder with respect to
any Pledged  Collateral.  Without  limiting  the  generality  of the  foregoing,
Pledgor  will:  (i) take all such  further  action  and  execute  and file  such
financing or  continuation  statements,  or amendments  thereto,  and such other
instruments  or notices,  as may be necessary or desirable,  or as Secured Party
may request,  in order to perfect and preserve the security interests granted or
purported to

                                    XVIII-5

<PAGE>

be granted hereby (including,  without limitation,  giving Secured Party control
(as defined in section  8-106 of the Uniform  Commercial  Code as  currently  in
effect in the State of New York (the "UCC")) over any Pledged Collateral that is
investment property or uncertificated securities (each as defined in the UCC) in
order  to  perfect  Secured  Party's  interest  in such  Pledged  Collateral  in
accordance with the UCC) and (ii) at Secured Party's reasonable request,  appear
in and defend any action or  proceeding  that may  materially  impair  Pledgor's
title to or Secured Party's security  interest in all or any part of the Pledged
Collateral.

                  (b) Pledgor  further  agrees that it will,  upon obtaining any
additional shares of stock or other securities  required to be pledged hereunder
as  provided  in Section  5(b) or (c),  promptly  (and in any event  within five
Business  Days)  deliver to Secured Party a Pledge  Amendment,  duly executed by
Pledgor,  in  substantially  the form of Schedule  II annexed  hereto (a "Pledge
Amendment"),  in respect of the additional  Pledged Shares or Pledged Debt to be
pledged pursuant to this Agreement.  Pledgor hereby authorizes  Secured Party to
attach  each  Pledge  Amendment  to this  Agreement  and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Secured Party
shall for all purposes hereunder be considered Pledged Collateral; provided that
the  failure  of  Pledgor  to  execute a Pledge  Amendment  with  respect to any
additional  Pledged  Shares or Pledged Debt pledged  pursuant to this  Agreement
shall not impair the  security  interest of Secured  Party  therein or otherwise
adversely affect the rights and remedies of Secured Party hereunder with respect
thereto.

                  SECTION 7.  Voting Rights; Dividends; Etc.

                           (a)  So  long  as no  Event  of  Default  shall  have
                  occurred and be continuing:

                           (i) Pledgor shall be entitled to exercise any and all
                  voting and other consensual  rights  pertaining to the Pledged
                  Collateral   or  any  part   thereof   for  any   purpose  not
                  inconsistent  with the terms of this  Agreement  or the Credit
                  Agreement or any other Loan Document;  provided, however, that
                  Pledgor shall not exercise or refrain from exercising any such
                  right if Secured  Party shall have  notified  Pledgor that, in
                  Secured  Party's  judgment,  such action would have a material
                  adverse  effect on the value of the Pledged  Collateral or any
                  part thereof; and provided,  further,  that Pledgor shall give
                  Secured  Party at least  five  Business  Days'  prior  written
                  notice of the manner in which it intends to  exercise,  or the
                  reasons for refraining from exercising,  any such right. It is
                  understood, however, that neither (A) the voting by Pledgor of
                  any Pledged Shares for or Pledgor's consent to the election of
                  directors at a regularly  scheduled annual or other meeting of
                  stockholders or with respect to incidental matters at any such
                  meeting nor (B) Pledgor's consent to or approval of any action
                  otherwise  permitted  under  this  Agreement  and  the  Credit
                  Agreement  or  any  other  Loan   Document   shall  be  deemed
                  inconsistent  with the terms of this  Agreement  or the Credit
                  Agreement within the meaning of this Section  7(a)(i),  and no
                  notice of any such voting or consent  need be given to Secured
                  Party;

                           (ii) Pledgor shall be entitled to receive and retain,
                  and to utilize free and clear of the security interest granted
                  under this Agreement,  any and all dividends and

                                    XVIII-6

<PAGE>

                  interest paid in respect of the Pledged Collateral;  provided,
                  however, that any and all

                           (A) dividends and interest paid or payable other than
                 in cash in  respect  of,  and  instruments  and other  property
                 received, receivable or otherwise distributed in respect of, or
                 in exchange for, any Pledged Collateral,

                           (B) dividends and other distributions paid or payable
                 in cash in respect of any Pledged Collateral in connection with
                 a partial or total  liquidation or dissolution or in connection
                 with   a   reduction   of   capital,    capital    surplus   or
                 paid-in-surplus, and

                           (C) cash paid,  payable or otherwise  distributed  in
                 respect of principal or in redemption of or in exchange for any
                 Pledged Collateral,

         shall be, and shall forthwith be delivered to Secured Party to hold as,
         Pledged  Collateral and shall,  if received by Pledgor,  be received in
         trust for the benefit of Secured  Party,  be segregated  from the other
         property  or funds of Pledgor  and be  forthwith  delivered  to Secured
         Party as Pledged  Collateral in the same form as so received  (with all
         necessary indorsements); and

                           (iii)  Secured  Party  shall  promptly   execute  and
                  deliver (or cause to be executed and delivered) to Pledgor all
                  such proxies, dividend payment orders and other instruments as
                  Pledgor  may  from  time to time  reasonably  request  for the
                  purpose of enabling  Pledgor to exercise  the voting and other
                  consensual rights which it is entitled to exercise pursuant to
                  paragraph (i) above and to receive the dividends, principal or
                  interest payments which it is authorized to receive and retain
                  pursuant to paragraph (ii) above.

                  (b) Upon the  occurrence  and  during the  continuation  of an
Event of Default:

                           (i)  upon  written   notice  from  Secured  Party  to
                  Pledgor,  all  rights of Pledgor  to  exercise  the voting and
                  other  consensual  rights which it would otherwise be entitled
                  to exercise  pursuant to Section 7(a)(i) shall cease,  and all
                  such rights shall  thereupon  become  vested in Secured  Party
                  which shall  thereupon  have the sole right to  exercise  such
                  voting and other consensual rights;

                           (ii) all rights of Pledgor to receive  the  dividends
                  and interest  payments which it would  otherwise be authorized
                  to receive  and retain  pursuant  to  Section  7(a)(ii)  shall
                  cease,  and all such rights shall  thereupon  become vested in
                  Secured  Party  who  shall  thereupon  have the sole  right to
                  receive  and hold as Pledged  Collateral  such  dividends  and
                  interest payments; and

                           (iii) all dividends,  principal and interest payments
                  which are received by Pledgor  contrary to the  provisions  of
                  paragraph (ii) of this Section 7(b) shall be received in trust
                  for the benefit of Secured  Party,  shall be  segregated  from
                  other  funds of Pledgor  and shall  forthwith  be paid over to
                  Secured  Party as  Pledged  Collateral  in the same form as so
                  received (with any necessary indorsements).

                                    XVIII-7

<PAGE>

                  (c) In order to permit  Secured  Party to exercise  the voting
and other  consensual  rights  which it may be entitled to exercise  pursuant to
Section  7(b)(i) and to receive all dividends and other  distributions  which it
may be entitled to receive under Section  7(a)(ii) or Section 7(b)(ii) or (iii),
(i) Pledgor  shall  promptly  execute  and deliver (or cause to be executed  and
delivered) to Secured Party all such proxies,  dividend payment orders and other
instruments as Secured Party may from time to time  reasonably  request and (ii)
without  limiting the effect of the immediately  preceding  clause (i),  Pledgor
hereby grants to Secured Party an  irrevocable  proxy to vote the Pledged Shares
and to exercise all other  rights,  powers,  privileges  and remedies to which a
holder of the Pledged Shares would be entitled  (including,  without limitation,
giving or withholding written consents of shareholders, calling special meetings
of shareholders  and voting at such  meetings),  which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any  Pledged  Shares on the  record  books of the issuer  thereof)  by any other
Person  (including  the  issuer of the  Pledged  Shares or any  officer or agent
thereof) or any consent of Pledgor,  upon the  occurrence of an Event of Default
and which  proxy shall only  terminate  upon the waiver or cure of such Event of
Default in  accordance  with the Credit  Agreement or the payment in full of the
Secured Obligations.

                  SECTION 8. Secured Party Appointed  Attorney-in-Fact.  Pledgor
hereby irrevocably  appoints Secured Party as Pledgor's  attorney-in-fact,  with
full  authority  in the place and stead of Pledgor  and in the name of  Pledgor,
Secured Party or otherwise,  from time to time in Secured Party's  discretion to
take any  action and to  execute  any  instrument  that  Secured  Party may deem
necessary or advisable to accomplish the purposes of this Agreement,  including,
without limitation:

                  (a) to file one or more financing or continuation  statements,
or  amendments  thereto,  relative to all or any part of the Pledged  Collateral
without the signature of Pledgor;

                  (b) to ask,  demand,  collect,  sue  for,  recover,  compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Pledged Collateral;

                  (c) to  receive,  endorse and  collect  any  instruments  made
payable to Pledgor  representing any dividend,  principal or interest payment or
other  distribution in respect of the Pledged Collateral or any part thereof and
to give full discharge for the same; and

                  (d) to file any  claims or take any  action or  institute  any
proceedings  that  Secured  Party  may  deem  necessary  or  desirable  for  the
collection  of any of the Pledged  Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Pledged Collateral.

                  Notwithstanding  anything to the  contrary in this  Section 8,
Secured Party's authority as Pledgor's  attorney-in-fact  under subsections (b),
(c) and (d) above shall be exercisable  only after the occurrence and during the
continuance of an Event of Default.

                  SECTION 9.  Secured  Party May  Perform.  If Pledgor  fails to
perform any agreement  contained  herein,  Secured Party may itself perform,  or
cause performance of, such agreement, and the expenses of Secured Party incurred
in  connection  therewith  shall be payable by Pledgor under Section 10.2 of the
Credit Agreement.

                                    XVIII-8

<PAGE>

                  SECTION 10. Standard of Care. The powers  conferred on Secured
Party hereunder are solely to protect its interest in the Pledged Collateral and
shall not impose any duty upon it to exercise  any such  powers.  Except for the
exercise of  reasonable  care in the custody of any  Pledged  Collateral  in its
possession  and the  accounting  for moneys  actually  received by it hereunder,
Secured  Party  shall  have no  duty  as to any  Pledged  Collateral,  it  being
understood that Secured Party shall have no responsibility  for (a) ascertaining
or taking  action with  respect to calls,  conversions,  exchanges,  maturities,
tenders or other  matters  relating  to any Pledged  Collateral,  whether or not
Secured Party has or is deemed to have knowledge of such matters, (b) taking any
necessary  steps (other than steps taken in accordance with the standard of care
set forth above to maintain  possession of the Pledged  Collateral)  to preserve
rights  against any parties with respect to any Pledged  Collateral,  (c) taking
any necessary  steps to collect or realize upon the Secured  Obligations  or any
guaranty therefor, or any part thereof, or any of the Pledged Collateral, or (d)
initiating any action to protect the Pledged  Collateral against the possibility
of a decline in market value.  Secured  Party shall be deemed to have  exercised
reasonable  care in the custody and  preservation  of Pledged  Collateral in its
possession if such Pledged Collateral is accorded treatment  substantially equal
to that which Secured  Party  accords its own property  consisting of negotiable
securities.

                  SECTION 11.  Remedies.

                  (a) If  any  Event  of  Default  shall  have  occurred  and be
continuing,  Secured Party may exercise in respect of the Pledged Collateral, in
addition  to all other  rights and  remedies  provided  for herein or  otherwise
available to it, all the rights and remedies of a secured party on default under
the  Uniform  Commercial  Code as in effect in any  relevant  jurisdiction  (the
"Code")  (whether or not the Code applies to the affected  Pledged  Collateral),
and Secured  Party may also in its sole  discretion,  without  notice  except as
specified below, sell the Pledged  Collateral or any part thereof in one or more
parcels at public or private sale,  at any exchange or broker's  board or at any
of Secured  Party's  offices  or  elsewhere,  for cash,  on credit or for future
delivery,  at such time or times and at such price or prices and upon such other
terms as Secured Party may deem  commercially  reasonable,  irrespective  of the
impact of any such sales on the market price of the Pledged Collateral.  Secured
Party or any Lender or Interest  Rate  Exchanger  may be the purchaser of any or
all of the Pledged  Collateral at any such sale and Secured Party,  as agent for
and representative of Agents,  Lenders,  Issuing Lenders,  Swing Line Lender and
Interest  Rate  Exchangers  (but not any Agent or  Agents,  Lender  or  Lenders,
Issuing Lender or Issuing Lenders,  Swing Line Lender or Interest Rate Exchanger
or Interest Rate  Exchangers in its or their  respective  individual  capacities
unless Requisite Obligees (as defined in Section 16(a)) shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase  price for all or any portion of the Pledged  Collateral
sold at any such public sale, to use and apply any of the Secured Obligations as
a credit on account of the purchase price for any Pledged  Collateral payable by
Secured  Party at such  sale.  Each  purchaser  at any such sale  shall hold the
property  sold  absolutely  free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by applicable law) all rights
of redemption,  stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter  enacted.
Pledgor  agrees that,  to the extent notice of sale shall be required by law, at
least ten days'  notice to Pledgor  of the time and place of any public  sale or
the time after which any private sale is to be made shall constitute  reasonable
notification.  Secured  Party shall not be obligated to make any sale of Pledged
Collateral

                                    XVIII-9

<PAGE>

regardless  of notice of sale having been given.  Secured  Party may adjourn any
public or private sale from time to time by  announcement  at the time and place
fixed therefor,  and such sale may, without further notice,  be made at the time
and place to which it was so  adjourned,  provided,  however,  that if a sale is
postponed for more than 60 days,  Secured Party shall  re-notice  Pledgor of any
subsequent  sale of the  affected  Pledged  Collateral  in  accordance  with the
second-preceding  sentence  hereof.  Pledgor  hereby  waives any claims  against
Secured  Party to the  extent  arising  by  reason of the fact that the price at
which any Pledged  Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale,  even if Secured
Party  accepts  the  first  offer  received  and does  not  offer  such  Pledged
Collateral to more than one offeree, provided,  however, that the price at which
any  Pledged  Collateral  shall be sold at any public or  private  sale shall be
commercially reasonable. If the proceeds of any sale or other disposition of the
Pledged Collateral are insufficient to pay all the Secured Obligations,  Pledgor
shall be liable for the  deficiency  and the fees of any  attorneys  employed by
Secured Party to collect such deficiency.

                  (b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state  securities  laws,  Secured
Party  may be  compelled,  with  respect  to any  sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged  Collateral  under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree,  among other things, to acquire the
Pledged Collateral for their own account,  for investment and not with a view to
the distribution or resale thereof.  Pledgor  acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including, without limitation, a public
offering made pursuant to a registration  statement  under the  Securities  Act)
and, notwithstanding such circumstances, Pledgor agrees that Secured Party shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Pledged  Collateral for the period of time necessary to permit the issuer
thereof to register it for a form of public sale  requiring  registration  under
the Securities  Act or under  applicable  state  securities  laws,  even if such
issuer  would,  or  should,  agree to so  register  it,  and any  assessment  of
commercial  reasonableness  in  connection  with a private  sale shall take into
account  Pledgor's  agreement  that  private  sales are an  acceptable  means to
Secured Party's realization of the value of the Pledged Collateral.

                  (c) If Secured Party  determines to exercise its right to sell
any or all of the Pledged  Collateral,  upon written request,  Pledgor shall and
shall cause each issuer of any Pledged  Shares to be sold hereunder from time to
time to furnish  to  Secured  Party all such  information  as Secured  Party may
request  in order to  determine  the  number  of shares  and  other  instruments
included in the Pledged  Collateral which may be sold by Secured Party in exempt
transactions  under the  Securities  Act and the rules  and  regulations  of the
Securities and Exchange Commission thereunder, as the same are from time to time
in effect.

                  SECTION 12. Application of Proceeds.  All proceeds received by
Secured Party in respect of any sale of,  collection from, or other  realization
upon all or any part of the Pledged  Collateral  shall be applied as provided in
subsection 2.4D of the Credit Agreement.

                                    XVIII-10

<PAGE>

                  SECTION 13.  Indemnity and Expenses.

                  (a) Pledgor agrees to indemnify Secured Party, each Lender and
each Interest  Rate  Exchanger  from and against any and all claims,  losses and
liabilities  in any way  relating  to,  growing  out of or  resulting  from this
Agreement  and  the  transactions   contemplated   hereby  (including,   without
limitation,  enforcement of this  Agreement),  except to the extent such claims,
losses or  liabilities  result  solely from Secured  Party's or such Lender's or
Interest Rate  Exchanger's  gross  negligence  or willful  misconduct as finally
determined by a court of competent jurisdiction.

                  (b) Pledgor  shall pay to Secured Party upon demand the amount
of any and all costs and expenses, including the reasonable fees and expenses of
its  counsel and of any experts  and  agents,  that  Secured  Party may incur in
connection with (i) the  administration  of this Agreement,  (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the  Pledged  Collateral,  (iii) the  exercise or  enforcement  of any of the
rights of Secured Party hereunder,  or (iv) the failure by Pledgor to perform or
observe any of the provisions hereof.

                  SECTION 14. Continuing  Security Interest;  Transfer of Loans.
This  Agreement  shall  create a  continuing  security  interest  in the Pledged
Collateral  and shall (a) remain in full force and effect  until the  payment in
full  of  all  Secured  Obligations,  the  cancellation  or  termination  of the
Commitments and the  cancellation  or expiration of all  outstanding  Letters of
Credit, (b) be binding upon Pledgor,  its successors and assigns, and (c) inure,
together with the rights and remedies of Secured Party hereunder, to the benefit
of Secured Party and its successors,  transferees and assigns.  Without limiting
the  generality  of the foregoing  clause (c), but subject to the  provisions of
subsection  10.1 of the Credit  Agreement,  any  Lender may assign or  otherwise
transfer any Loans held by it to any other  Person,  and such other Person shall
thereupon  become  vested with all the  benefits in respect  thereof  granted to
Lenders  herein  or  otherwise.   Upon  the  payment  in  full  of  all  Secured
Obligations,  the  cancellation  or  termination  of  the  Commitments  and  the
cancellation  or expiration of all outstanding  Letters of Credit,  the security
interest  granted  hereby shall  automatically  terminate  and all rights to the
Pledged  Collateral shall revert to Pledgor.  Upon any such termination  Secured
Party will, at Pledgor's expense,  execute and deliver to Pledgor such documents
as Pledgor shall  reasonably  request to evidence or effect such termination and
Pledgor  shall be  entitled  to the prompt  return,  upon its request and at its
expense,  against receipt and without  recourse to Secured Party, of such of the
Pledged  Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof.

                  SECTION 15.  Secured Party as Agent.

                  (a) Secured Party has been appointed to act as  Administrative
Agent by Agents,  Lenders  and,  by their  acceptance  of the  benefits  hereof,
Interest Rate Exchangers.  Secured Party shall be obligated,  and shall have the
right hereunder,  to make demands,  to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation,  the release or substitution of Pledged Collateral),  solely
in  accordance  with this  Agreement  and the Credit  Agreement;  provided  that
Secured Party shall exercise, or refrain from exercising,  any remedies provided
for in Section 11 in accordance with

                                    XVIII-11
<PAGE>

the  instructions of (i) Requisite  Lenders or (ii) after payment in full of all
Obligations  under the Credit Agreement and the other Loan Documents and subject
to the  payment of agreed  fees,  the  holders of a  majority  of the  aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been  terminated in accordance  with its terms,  the amount then due and payable
(exclusive of expenses and similar payments but including any early  termination
payments then due) under such Lender Interest Rate  Agreement)  under all Lender
Interest Rate  Agreements  (Requisite  Lenders or, if  applicable,  such holders
being  referred  to herein  as  "Requisite  Obligees").  In  furtherance  of the
foregoing provisions of this Section 15(a), each Interest Rate Exchanger, by its
acceptance  of  the  benefits  hereof,  agrees  that  it  shall  have  no  right
individually to realize upon any of the Pledged Collateral  hereunder,  it being
understood  and  agreed by such  Interest  Rate  Exchanger  that all  rights and
remedies  hereunder may be exercised  solely by Secured Party for the benefit of
Agents,  Lenders and Interest Rate  Exchangers  in accordance  with the terms of
this Section 15(a).

                  (b) Written  notice of  resignation  by  Administrative  Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute  notice
of resignation as Secured Party under this Agreement;  removal of Administrative
Agent pursuant to subsection 9.5 of the Credit  Agreement  shall also constitute
removal as Secured Party under this  Agreement;  and  appointment of a successor
Administrative  Agent pursuant to subsection 9.5 of the Credit  Agreement  shall
also constitute  appointment of a successor  Secured Party under this Agreement.
Upon the acceptance of any appointment as Administrative  Agent under subsection
9.5 of the Credit Agreement by a successor  Administrative Agent, that successor
Administrative  Agent shall thereupon  succeed to and become vested with all the
rights,  powers,  privileges and duties of the retiring or removed Secured Party
under this  Agreement,  and the  retiring  or removed  Secured  Party under this
Agreement shall promptly (i) transfer to such successor  Secured Party all sums,
securities  and other items of  Collateral  held  hereunder,  together  with all
records and other  documents  necessary or  appropriate  in connection  with the
performance of the duties of the successor  Secured Party under this  Agreement,
and (ii) execute and deliver to such successor  Secured Party such amendments to
financing  statements,  and take such  other  actions,  as may be  necessary  or
appropriate in connection with the assignment to such successor Secured Party of
the security  interests  created  hereunder,  whereupon such retiring or removed
Secured Party shall be  discharged  from its duties and  obligations  under this
Agreement.  After any retiring or removed  Administrative Agent's resignation or
removal hereunder as Secured Party, the provisions of this Agreement shall inure
to its benefit as to any  actions  taken or omitted to be taken by it under this
Agreement while it was Secured Party hereunder.

                  SECTION  16.  Amendments;  Etc.  No  amendment,  modification,
termination or waiver of any provision of this Agreement,  and no consent to any
departure by Pledgor therefrom,  shall in any event be effective unless the same
shall be in writing  and signed by  Secured  Party and,  in the case of any such
amendment  or  modification,  by Pledgor.  Any such  waiver or consent  shall be
effective only in the specific  instance and for the specific  purpose for which
it was given.

                  SECTION 17. Notices.  Any notice or other communication herein
required or  permitted  to be given  shall be in writing  and may be  personally
served,  telexed  or sent by  telefacsimile  or United  States  mail or  courier
service  and shall be deemed to have been given when  delivered  in person or by
courier service,  upon receipt of telefacsimile or telex, or three Business Days
after  depositing it in the United States mail with postage prepaid and properly

                                    XVIII-12

<PAGE>

addressed. For the purposes hereof, the address of each party hereto shall be as
set forth under such party's name on the signature pages hereof or, as to either
party,  such  other  address as shall be  designated  by such party in a written
notice delivered to the other party hereto.

                  SECTION  18.  Failure  or  Indulgence  Not  Waiver;   Remedies
Cumulative.  No failure or delay on the part of Secured Party in the exercise of
any power,  right or  privilege  hereunder  shall  impair such  power,  right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial  exercise of any such power,  right or privilege
preclude any other or further exercise  thereof or of any other power,  right or
privilege.  All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

                  SECTION  19.  Severability.   In  case  any  provision  in  or
obligation  under this Agreement shall be invalid,  illegal or  unenforceable in
any  jurisdiction,  the validity,  legality and  enforceability of the remaining
provisions  or  obligations,  or of such  provision or  obligation  in any other
jurisdiction, shall not in any way be affected or impaired thereby.

                  SECTION 20. Headings.  Section and subsection headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute  a part of this  Agreement  for any  other  purpose  or be given  any
substantive effect.

                  SECTION 21.  Governing  Law;  Terms.  THIS  AGREEMENT  AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES  HEREUNDER SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK),  WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE  PERFECTION OF THE SECURITY
INTEREST HEREUNDER,  OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform  Commercial Code in the State of New York are
used herein as therein defined.

                  SECTION 22.  Consent to  Jurisdiction  and Service of Process.
ALL JUDICIAL  PROCEEDINGS  BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO
THIS  AGREEMENT,  OR ANY OBLIGATIONS  HEREUNDER,  MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT  JURISDICTION IN THE STATE AND COUNTY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT,  PLEDGOR,  FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY

                           (I)  ACCEPTS   GENERALLY  AND   UNCONDITIONALLY   THE
                  NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;

                           (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

                                    XVIII-13

<PAGE>

                           (III)  AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
                  PROCEEDING  IN ANY SUCH  COURT  MAY BE MADE BY  REGISTERED  OR
                  CERTIFIED MAIL,  RETURN RECEIPT  REQUESTED,  TO PLEDGOR AT ITS
                  ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 17;

                           (IV) AGREES THAT  SERVICE AS PROVIDED IN CLAUSE (III)
                  ABOVE IS  SUFFICIENT  TO  CONFER  PERSONAL  JURISDICTION  OVER
                  PLEDGOR  IN  ANY  SUCH  PROCEEDING  IN  ANY  SUCH  COURT,  AND
                  OTHERWISE  CONSTITUTES  EFFECTIVE AND BINDING SERVICE IN EVERY
                  RESPECT;

                           (V) AGREES THAT  SECURED  PARTY  RETAINS THE RIGHT TO
                  SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
                  PROCEEDINGS  AGAINST  PLEDGOR  IN  THE  COURTS  OF  ANY  OTHER
                  JURISDICTION; AND

                           (VI) AGREES THAT THE  PROVISIONS  OF THIS  SECTION 22
                  RELATING  TO  JURISDICTION  AND  VENUE  SHALL BE  BINDING  AND
                  ENFORCEABLE TO THE FULLEST EXTENT  PERMISSIBLE  UNDER NEW YORK
                  GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

                  SECTION 23.  Waiver of Jury Trial.  PLEDGOR AND SECURED  PARTY
HEREBY  AGREE TO WAIVE THEIR  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS  AGREEMENT.  The scope of this
waiver is intended to be  all-encompassing  of any and all disputes  that may be
filed in any court and that  relate to the subject  matter of this  transaction,
including,  without  limitation,  contract claims,  tort claims,  breach of duty
claims, and all other common law and statutory claims. Pledgor and Secured Party
each  acknowledge  that this  waiver is a material  inducement  for  Pledgor and
Secured  Party to enter into a business  relationship,  that Pledgor and Secured
Party have already  relied on this waiver in entering  into this  Agreement  and
that each will continue to rely on this waiver in their related future dealings.
Pledgor and Secured Party further  warrant and represent  that each has reviewed
this waiver with its legal  counsel,  and that each  knowingly  and  voluntarily
waives its jury trial rights  following  consultation  with legal counsel.  THIS
WAIVER IS  IRREVOCABLE,  MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING (OTHER THAN BY A MUTUAL WRITTEN  WAIVER  SPECIFICALLY  REFERRING TO THIS
SECTION 23 AND  EXECUTED BY EACH OF THE PARTIES  HERETO),  AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT  AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR MODIFICATIONS TO
THIS  AGREEMENT.  In the event of  litigation,  this Agreement may be filed as a
written consent to a trial by the court.

                  SECTION 24.  Counterparts.  This  Agreement may be executed in
one  or  more   counterparts  and  by  different   parties  hereto  in  separate
counterparts,  each of which when so executed and  delivered  shall be deemed an
original,  but all such  counterparts  together shall constitute but one and the
same  instrument;  signature  pages  may  be  detached  from  multiple

                                    XVIII-14

<PAGE>

separate counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document.

                  [Remainder of page intentionally left blank]

                                    XVIII-15

<PAGE>


                  IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement  to be duly  executed  and  delivered  by  their  respective  officers
thereunto duly authorized as of the date first written above.

                                          [NAME OF PLEDGOR]



                                          By: _______________________

                                           Title:

                                          Notice Address: 
                                                           _____________________
                                                           _____________________
                                                           _____________________



                                        ROYAL BANK OF CANADA, as Administrative
                                        Agent, as Secured Party



                                        By: _______________________

                                         Title:

                                        Notice Address: 
                                                         _____________________
                                                         _____________________
                                                         _____________________

                                    XVIII-16

<PAGE>


                                   SCHEDULE I


                  Attached  to and  forming  a part  of  the  Subsidiary  Pledge
Agreement  dated as of September 30, 1998 between  _______________,  as Pledgor,
and Royal Bank of Canada, as Administrative Agent, as Secured Party.




                                 Part A

                  Class of       Stock Certi-         Par          Number of
Stock Issuer       Stock         ficate Nos.          Value          Shares
------------       -----         -----------          -----          ------



                                 Part B

Debt Issuer                      Amount of Indebtedness
-----------                      ----------------------

                                    XVIII-17

<PAGE>

                                   SCHEDULE II


                                PLEDGE AMENDMENT


                  This Subsidiary Pledge Amendment,  dated ____________,  _____,
is  delivered  pursuant  to  Section  6(b) of the  Subsidiary  Pledge  Agreement
referred to below.  The undersigned  hereby agrees that this  Subsidiary  Pledge
Amendment  may be  attached  to the  Subsidiary  Pledge  Agreement  dated  as of
September  30,  1998,  between  the  undersigned  and Royal Bank of  Canada,  as
Administrative  Agent,  as Secured  Party (the "Pledge  Agreement,"  capitalized
terms  defined  therein  being  used  herein as therein  defined),  and that the
[Pledged  Shares] [Pledged Debt] listed on this Pledge Amendment shall be deemed
to be part of the [Pledged  Shares]  [Pledged Debt] and shall become part of the
Pledged Collateral and shall secure all Secured Obligations.

                                         [NAME OF PLEDGOR]



                                          By: _______________________

                                           Title:



                  Class of       Stock Certi-         Par          Number of
Stock Issuer       Stock         ficate Nos.          Value          Shares
------------       -----         -----------          -----          ------



Debt Issuer                      Amount of Indebtedness
-----------                      ----------------------

                                    XVIII-18

<PAGE>

                                   EXHIBIT XIX

                         FINANCIAL CONDITION CERTIFICATE


                  This FINANCIAL CONDITION  CERTIFICATE (this  "Certificate") is
delivered in connection with that certain Credit Agreement dated as of September
30, 1998 (the "Credit  Agreement") by and among Arterial  Vascular  Engineering,
Inc., a Delaware corporation ("Company"), the financial institutions referred to
therein as Lenders ("Lenders"), DLJ Capital Funding, Inc., as Syndication Agent,
Paribas,  as Documentation  Agent, and Royal Bank of Canada,  as  Administrative
Agent ("Administrative Agent"). Capitalized terms used herein without definition
have the same meanings as in the Credit Agreement.

                  A. I am, and at all  pertinent  times  mentioned  herein  have
been, the duly qualified and acting chief financial officer of Company.  In such
I have  participated  actively in the management of its financial affairs and am
familiar with its financial  statements and those of its  Subsidiaries.  I have,
together  with  other  officers  of  Company,  acted on  behalf  of  Company  in
connection with the  negotiation of the Credit  Agreement and I am familiar with
the terms and conditions thereof.

                  B. I have carefully reviewed the contents of this Certificate,
and I have  conferred with counsel for Company for the purpose of discussing the
meaning of its contents.

                  C. In connection  with preparing for the  consummation  of the
transactions and financings  contemplated by the Credit Agreement (the "Proposed
Transactions"),  I have participated in the preparation of, and I have reviewed,
pro  forma  projections  of net  income  and  cash  flows  for  Company  and its
Subsidiaries  for the fiscal years of Company  ending June 30, 1999 through June
30, 2005,  inclusive  (the  "Projected  Financial  Statements").  The  Projected
Financial  Statements,  attached  hereto  as  Exhibit  A,  give  effect  to  the
consummation of the Proposed  Transactions  and assume that the debt obligations
of  Company  will be paid  from the cash flow  generated  by the  operations  of
Company and its Subsidiaries and other cash resources.  The Projected  Financial
Statements were prepared on the basis of information available at June 30, 1998.
I know of no facts  that have  occurred  since  such date that  would lead me to
believe that the Projected  Financial  Statements are inaccurate in any material
respect.  The  Projected  Financial  Statements do not reflect (i) any potential
changes  in  interest  rates  from  those  assumed  in the  Projected  Financial
Statements,  (ii) any potential  material,  adverse changes in general  business
conditions, or (iii) any potential changes in income tax laws.

                  D. I have also  participated in the preparation of, and I have
reviewed, a pro forma summary balance sheet of Company and its Subsidiaries (the
"Fair Value Summary  Balance  Sheet") as of June 30, 1998,  giving effect to the
Proposed  Transactions.  The Fair Value Summary Balance Sheet is attached hereto
as Exhibit B and has been  prepared as described in paragraphs F and G below and
not in accordance with GAAP.

                  E.  In  connection  with  the  preparation  of  the  Projected
Financial  Statements,  I have made such  investigations and inquiries as I have
deemed  necessary  and  prudent  therefor  and,  specifically,  have  relied  on
historical  information  with respect to revenues,  expenses and other

                                     XIX-1
<PAGE>

relevant  items  supplied  by the  supervisory  personnel  of  Company  and  its
Subsidiaries  directly  responsible  for the various  operations  involved.  The
assumptions upon which the Projected  Financial  Statements are based are stated
therein.  Although any  assumptions  and any  projections  by necessity  involve
uncertainties and approximations,  I believe, based on my discussions with other
members of management,  that the  assumptions  on which the Projected  Financial
Statements are based are reasonable based upon the facts and circumstances known
to me at the time such assumptions were made. Based thereon,  I believe that the
projections for Company and its Subsidiaries, taken as a whole, reflected in the
Projected  Financial   Statements  provide  reasonable   estimations  of  future
performance,  subject,  as stated above, to the uncertainties and approximations
inherent in any projections.

                  F. The Fair Value Summary Balance Sheet has been prepared in a
manner which I believe reflects a conservative estimate of the fair value of the
assets of Company and its Subsidiaries on a consolidated  basis and the probable
liability on all of their debts,  contingent or otherwise.  For purposes of this
Certificate,  I  understand  "fair value" of any assets to mean the amount which
may be realized  within a reasonable  time,  either  through  collection of such
assets or through  sale of such  assets at the  regular  market  value  thereof,
conceiving  of the latter as the amount which could be obtained for the property
in question  within such period by a capable and  diligent  businessman  from an
interested buyer who is willing to purchase under ordinary  selling  conditions.
The  specific  methodology  used  by  management  for  valuing  Company  and its
Subsidiaries is set forth in paragraph G below.

                  G. For purposes of constructing the Fair Value Summary Balance
Sheet, I have utilized the following procedures:

                  With respect to the asset  values  reflected in the Fair Value
Summary  Balance  Sheet  (including  the asset values used to calculate the fair
value of the stock of each of Company's  Subsidiaries),  I have included the net
working  capital  of Company  and each of its  Subsidiaries,  calculated  as the
difference between the current assets and current liabilities  reported in their
June 30, 1998 financial statements,  and I have relied on a discounted cash flow
methodology   utilizing  standard  corporate  finance  modeling   techniques  as
described further in Exhibit C hereto.

                  With  respect  to  liabilities  reflected  in the  Fair  Value
Summary Balance Sheet (including liabilities used to calculate the fair value of
the  stock  of  each  of  Company's  Subsidiaries),  I have  included  long-term
liabilities  reported by Company and each of its  Subsidiaries in their June 30,
1998  financial  statements  and debts to be  incurred or assumed by Company and
each  of  its   Subsidiaries   under  the  Credit  Agreement  and  the  Proposed
Transactions.  In addition,  with  respect to  contingent  liabilities  (such as
litigation,  guaranties  and pension plan  liabilities),  I have  consulted with
legal, financial and other personnel of Company and each of its Subsidiaries and
have reflected as liabilities our best judgment as to the maximum  exposure that
can  reasonably  be expected to result  therefrom  in light of all the facts and
circumstances  existing at this time,  recognizing  that any such  estimation is
inherently subject to uncertainties.

                  Based  on  the   foregoing,   I  have  reached  the  following
conclusions:

         1. Company is not now, nor will the incurrence of the Obligations under
         the  Credit  Agreement  and the  incurrence  of the  other  obligations
         contemplated by the Proposed

                                     XIX-2

<PAGE>

         Transactions render Company "insolvent" as defined in this paragraph 1.
         The  recipients  of this  Certificate  and I have agreed that,  in this
         context,  "insolvent"  means that the  present  fair value of assets is
         less  than  the  amount  that  will be  required  to pay  the  probable
         liability on existing  debts as they become  absolute  and matured.  We
         have also agreed that the term "debts"  includes  any legal  liability,
         whether  matured or unmatured,  liquidated or  unliquidated,  absolute,
         fixed or contingent.  My conclusion expressed above is supported by the
         Fair Value  Summary  Balance  Sheet.  Valuation of Company on the basis
         thereof  would  reflect  the  net  value  of  Company  as   $__________
         representing  the difference  between asset values of  $__________  and
         liabilities of $__________.

         2. By the incurrence of the Obligations  under the Credit Agreement and
         the incurrence of the other  obligations  contemplated  by the Proposed
         Transactions, Company will not incur debts beyond its ability to pay as
         such debts mature.  I have based my conclusion in part on the Projected
         Financial Statements, which demonstrate that Company will have positive
         cash flow after paying all of its  scheduled  anticipated  indebtedness
         (including  scheduled  payments under the Credit  Agreement,  the other
         obligations   contemplated  by  the  Proposed  Transactions  and  other
         permitted  indebtedness).  I have  concluded  that the  realization  of
         current assets in the ordinary course of business will be sufficient to
         pay recurring current debt and short-term and long-term debt service as
         such debts  mature,  and that the cash flow  (including  earnings  plus
         non-cash  charges to earnings  [and the  disposition  of surplus  fixed
         assets held for sale]) will be sufficient to provide cash  necessary to
         repay the Loans and other Obligations  under the Credit Agreement,  the
         other obligations  contemplated by the Proposed  Transactions and other
         long-term indebtedness as such debt matures.

         3. The incurrence of the Obligations under the Credit Agreement and the
         incurrence  of the  other  obligations  contemplated  by  the  Proposed
         Transactions  will not leave  Company  with  property  remaining in its
         hands  constituting  "unreasonably  small  capital."  In reaching  this
         conclusion, I understand that "unreasonably small capital" depends upon
         the nature of the particular business or businesses  conducted or to be
         conducted,  and I have  reached  my  conclusion  based on the needs and
         anticipated   needs  for  capital  of  the   businesses   conducted  or
         anticipated to be conducted by Company and its Subsidiaries in light of
         the Projected Financial Statements and available credit capacity.

         4. To the best of my  knowledge,  Company has not  executed  the Credit
         Agreement or any documents  mentioned therein,  or made any transfer or
         incurred  any  obligations  thereunder,  with actual  intent to hinder,
         delay or defraud either present or future creditors.

                                     XIX-3

<PAGE>

                  I  understand  that  Lenders  are  relying  on this  Financial
Condition  Certificate  in  connection  with the  extension of credit to Company
pursuant to the Credit Agreement.

                  I represent the foregoing information to be, to the best of my
knowledge and belief and based on the assumptions set forth herein, accurate and
complete in all material  respects and execute this  Certificate this 1st day of
October, 1998.

                                              ARTERIAL VASCULAR ENGINEERING,
                                              INC.


                                              By: _____________________________
                                              Name: __________________________
                                              Title:  _________________________

                                     XIX-4

<PAGE>

                                   EXHIBIT XX

                [FORM OF PRICING LEVEL DETERMINATION CERTIFICATE


                  This   PRICING   LEVEL    DETERMINATION    CERTIFICATE   (this
"Certificate")  is delivered in connection  with that certain  Credit  Agreement
dated as of  September  30, 1998 (as in effect on the date  hereof,  the "Credit
Agreement")  by and  among  Arterial  Vascular  Engineering,  Inc.,  a  Delaware
corporation  ("Company"),  the  financial  institutions  referred  to therein as
Lenders ("Lenders"),  DLJ Capital Funding,  Inc., as Syndication Agent, Paribas,
as  Documentation  Agent,  and Royal Bank of  Canada,  as  Administrative  Agent
("Administrative Agent").  Capitalized terms used herein without definition have
the same meanings as in the Credit Agreement.

                  A. I am, and [at all pertinent times mentioned  herein] [since
_________,  19__] have been,  the duly  qualified  and acting  [chief  financial
officer, principal accounting officer, controller or treasurer] of Company.

                  B.  The most  recent  ratings  of the  Loans  received  by the
Company  are  _________  from  Moody's on [date] and  ___________  from S & P on
[date].

                  I represent the foregoing information to be, to the best of my
knowledge and belief,  true and correct and execute this  Certificate  this ____
day of _________, ____.

                                              ARTERIAL VASCULAR
                                              ENGINEERING, INC.


                                              By: _____________________________
                                              Name: __________________________
                                              Title:  _________________________

                                      XX-1

<PAGE>


<TABLE>
                                  SCHEDULE 2.1

                    LENDERS' COMMITMENTS AND PRO RATA SHARES

<CAPTION>
              Revolving Loan   Pro Rata Share     Tranche A      Pro Rata Share   Tranche B     Pro Rata Share
Lender        Commitment       (re: Rev. Loans)   Term Loan      (re: Tranche A)  Term Loan     (re: Tranche B
------        ----------       ----------------   Commitment     Term Loans)      Commitment    Term Loans)
                                                  ----------     -----------      ----------    -----------
<S>           <C>                       <C>       <C>                  <C>        <C>                 <C> 
              $                            %      $                       %       $                      %


-------------                                                                     -------------
TOTAL         $                         100%      $                    100%       $                   100%
</TABLE>

                                  Schedule 2.1

<PAGE>


<TABLE>
                                  SCHEDULE 5.1

                             SUBSIDIARIES OF COMPANY



<CAPTION>
                                                                                               Ownership
                                    Jurisdiction of        Direct                              by (Each)
Entity                              Incorporation          Parent(s)                           Direct Parent
------------------------------      ------------------     -------------------------------     -------------------
<S>                                 <C>                                                                       <C>
AVE Manufacturing, Inc.             California                                                                %

Proprietary Extrusion
Technologies, Inc.                  California

                                  Schedule 2.1
</TABLE>