Exhibit 10.1
                           SECOND AMENDED AND RESTATED

                           REVOLVING CREDIT AGREEMENT

                            Dated as of July 28, 2000

                                      among

                              IONICS, INCORPORATED



                               FLEET NATIONAL BANK

                   and the other lending institutions set forth
                              on Schedule 1 hereto

                                       and

                          FLEET NATIONAL BANK, as Agent



                                       16
<PAGE>



<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
<S>      <C>                                                                                        <C>
1.   DEFINITIONS AND RULES OF INTERPRETATION.........................................................1
     ---------------------------------------

         1.1.   Definitions..........................................................................1
                -----------
         1.2.   Rules of Interpretation..............................................................16
                -----------------------
2.   THE REVOLVING CREDIT FACILITY...................................................................17
     -----------------------------
         2.1.   Commitment to Lend...................................................................17
                ------------------
         2.2.   Commitment Fee.......................................................................17
                --------------
         2.3.   Reduction of Total Commitment........................................................18
                -----------------------------
         2.4.   The Revolving Credit Notes...........................................................18
                --------------------------
         2.5.   Interest on Revolving Credit Loans...................................................18
                ----------------------------------
         2.6.   Requests for Revolving Credit Loans..................................................19
                -----------------------------------
         2.7.   Conversion Options...................................................................19
                ------------------
                  2.7.1.   Conversion to Different Type of Revolving Credit Loan.....................19
                           -----------------------------------------------------
                  2.7.2.   Continuation of Type of Revolving Credit Loan.............................20
                           ---------------------------------------------
                  2.7.3.   LIBOR Rate Loans..........................................................20
                           ----------------
         2.8.   Funds for Revolving Credit Loan......................................................20
                -------------------------------
                  2.8.1.   Funding Procedures........................................................20
                           ------------------
                  2.8.2.   Advances by Agent.........................................................21
                           -----------------
3.   REPAYMENT OF THE REVOLVING CREDIT LOANS.........................................................21
     ---------------------------------------
         3.1.   Maturity.............................................................................21
                --------
         3.2.   Mandatory Repayment of Revolving Credit Loans........................................21
                ---------------------------------------------
                  3.2.1.   General...................................................................21
                           -------
                  3.2.2.   Proceeds..................................................................22
                           --------
         3.3.   Optional Repayments of Revolving Credit Loans........................................22
                ---------------------------------------------
4.   LETTERS OF CREDIT...............................................................................22
     -----------------
         4.1.   Letter of Credit Commitments.........................................................22
                ----------------------------
                  4.1.1.   Commitment to Issue Letters of Credit.....................................22
                           -------------------------------------
                  4.1.2.   Letter of Credit Applications.............................................23
                           -----------------------------
                  4.1.3.   Terms of Letters of Credit................................................23
                           --------------------------
                  4.1.4.   Reimbursement Obligations of Banks........................................23
                           ----------------------------------
                  4.1.5.   Participations of Banks...................................................24
                           -----------------------
         4.2.   Reimbursement Obligation of the Borrower.............................................24
                ----------------------------------------
         4.3.   Letter of Credit Payments............................................................24
                -------------------------
         4.4.   Obligations Absolute.................................................................25
                --------------------
         4.5.   Reliance by Issuer...................................................................25
                ------------------
         4.6.   Letter of Credit Fee.................................................................26


                                       17
<PAGE>



5.   CERTAIN GENERAL PROVISIONS......................................................................26
     --------------------------
         5.1.   Closing Fee..........................................................................26
                -----------
         5.2.   Agent's Fee..........................................................................26
                -----------
         5.3.   Funds for Payments...................................................................27
                ------------------
                  5.3.1.   Payments to Agent.........................................................27
                           -----------------
                  5.3.2.   No Offset, etc............................................................27
                           ---------------
         5.4.   Computations.........................................................................27
                ------------
         5.5.   Inability to Determine LIBOR Rate....................................................27
                ---------------------------------
         5.6.   Illegality...........................................................................28
                ----------
         5.7.   Additional Costs, etc................................................................28
                ---------------------
         5.8.   Capital Adequacy.....................................................................29
                ----------------
         5.9.   Certificate..........................................................................30
                -----------
         5.10.   Indemnity...........................................................................30
                 ---------
         5.11.   Interest After Default; Late Fee....................................................30
                 --------------------------------
                  5.11.1.   Overdue Amounts..........................................................30
                            ---------------
                  5.11.2.   Amounts Not Overdue......................................................31
                            -------------------
                  5.11.3.   Late Fee.................................................................31
                            --------
6.    GUARANTIES.....................................................................................31
     -----------

                                       18
<PAGE>


7.   REPRESENTATIONS AND WARRANTIES..................................................................31
     ------------------------------
         7.1.   Corporate Authority..................................................................31
                -------------------
                  7.1.1.   Incorporation; Good Standing..............................................31
                           ----------------------------
                  7.1.2.   Authorization.............................................................31
                           -------------
                  7.1.3.   Enforceability............................................................32
                           --------------
         7.2.   Governmental Approvals...............................................................32
                ----------------------
         7.3.   Title to Properties; Leases..........................................................32
                ---------------------------
         7.4.   Financial Statements, Projections and Solvency.......................................32
                ----------------------------------------------
                  7.4.1.   Fiscal Year...............................................................32
                           -----------
                  7.4.2.   Financial Statements......................................................32
                           --------------------
                  7.4.3.   Projections...............................................................33
                           -----------
                  7.4.4.   Solvency..................................................................33
                           --------
         7.5.   No Material Changes, etc.............................................................33
                ------------------------
         7.6.   Franchises, Patents, Copyrights, etc.................................................33
                ------------------------------------
         7.7.   Litigation...........................................................................33
                ----------
         7.8.   No Materially Adverse Contracts, etc.................................................34
                ------------------------------------
         7.9.   Compliance with Other Instruments, Laws, etc.........................................34
                --------------------------------------------
         7.10.   Tax Status..........................................................................34
                 ----------
         7.11.   No Event of Default.................................................................34
                 -------------------
         7.12.   Holding Company and Investment Company Acts.........................................34
                 -------------------------------------------
         7.13.   Absence of Financing Statements, etc................................................35
                 ------------------------------------
         7.14.   Certain Transactions................................................................35
                 --------------------
         7.15.   Employee Benefit Plans..............................................................35
                 ----------------------
                  7.15.1.   In General...............................................................35
                            ----------
                  7.15.2.   Terminability of Welfare Plans...........................................35
                            ------------------------------
                  7.15.3.   Guaranteed Pension Plans.................................................35
                            ------------------------
                  7.15.4.   Multiemployer Plans......................................................36
                            -------------------
         7.16.   Use of Proceeds.....................................................................36
                 ---------------
                  7.16.1.   General..................................................................36
                            -------
                  7.16.2.   Regulations U and X......................................................36
                            -------------------
                  7.16.3.   Ineligible Securities....................................................36
                            ---------------------
         7.17.   Environmental Compliance............................................................37
                 ------------------------
         7.18.   Subsidiaries, etc...................................................................38
                 -----------------
         7.19.   Disclosure..........................................................................38
                 ----------

                                       19
<PAGE>


8.   AFFIRMATIVE COVENANTS OF THE BORROWER...........................................................39
     -------------------------------------
         8.1.   Punctual Payment.....................................................................39
                ----------------
         8.2.   Maintenance of Office................................................................39
                ---------------------
         8.3.   Records and Accounts.................................................................39
                --------------------
         8.4.   Financial Statements, Certificates and Information...................................39
                --------------------------------------------------
         8.5.   Notices..............................................................................41
                -------
                  8.5.1.   Defaults..................................................................41
                           --------
                  8.5.2.   Environmental Events......................................................41
                           --------------------
                  8.5.3.   Notification of Certain Claims............................................41
                           ------------------------------
                  8.5.4.   Notice of Litigation and Judgments........................................42
                           ----------------------------------
         8.6.   Corporate Existence; Maintenance of Properties.......................................42
                ----------------------------------------------
         8.7.   Insurance............................................................................42
                ---------
         8.8.   Taxes................................................................................42
                -----
         8.9.   Inspection of Properties and Books, etc..............................................43
                ---------------------------------------
                  8.9.1.   General...................................................................43
                           -------
                  8.9.2.   Communications with Accountants...........................................43
                           -------------------------------
         8.10.   Compliance with Laws, Contracts, Licenses, and Permits..............................43
                 ------------------------------------------------------
         8.11.   Employee Benefit Plans..............................................................44
                 ----------------------
         8.12.   Use of Proceeds.....................................................................44
                 ---------------
         8.13.   New Guarantors.  The................................................................44
                 --------------
         8.14.   Additional Subsidiaries.............................................................44
                 -----------------------
         8.15.   Replacement Instruments.............................................................44
                 -----------------------
         8.16.   Further Assurances..................................................................44
                 ------------------

                                       20
<PAGE>


9.   CERTAIN NEGATIVE COVENANTS OF THE BORROWER......................................................44
     ------------------------------------------
         9.1.   Restrictions on Indebtedness.........................................................45
                ----------------------------
         9.2.   Restrictions on Liens................................................................46
                ---------------------
         9.3.   Restrictions on Investments..........................................................48
                ---------------------------
         9.4.   Restricted Payments..................................................................49
                -------------------
         9.5.   Merger, Consolidation and Disposition of Assets......................................49
                -----------------------------------------------
                  9.5.1.   Mergers and Acquisitions..................................................49
                           ------------------------
                  9.5.2.   Disposition of Assets.....................................................49
                           ---------------------
         9.6.   Sale and Leaseback...................................................................50
                ------------------
         9.7.   Compliance with Environmental Laws...................................................50
                ----------------------------------
         9.8.   Subordinated Debt....................................................................50
                -----------------
         9.9.   Upstream Limitations.................................................................50
                --------------------
         9.10.   Negative Pledges....................................................................50
                 ----------------
         9.11.   Employee Benefit Plans..............................................................51
                 ----------------------
         9.12.   Business Activities.................................................................51
                 -------------------
         9.13.   Fiscal Year.........................................................................51
                 -----------
         9.14.   Transactions with Affiliates........................................................51
                 ----------------------------
         9.15.   Inconsistent Agreements.............................................................52
                 -----------------------
         9.16.   Modification of Documents and Charter Documents.....................................52
                 -----------------------------------------------

10.   FINANCIAL COVENANTS OF THE BORROWER............................................................52
      -----------------------------------
         10.1.   Leverage Ratio......................................................................52
                 --------------
         10.2.   Minimum EBITDA......................................................................52
                 --------------
         10.3.   Minimum Net Worth...................................................................52
                 -----------------
         10.4.   Capital Expenditures................................................................52
                 --------------------

                                       21
<PAGE>

11.   CLOSING CONDITIONS.............................................................................52
      ------------------
         11.1.   Loan Documents......................................................................52
                 --------------
         11.2.   Certified Copies of Charter Documents...............................................53
                 -------------------------------------
         11.3.   Corporate Action....................................................................53
                 ----------------
         11.4.   Incumbency Certificate..............................................................53
                 ----------------------
         11.5.   Information Certificates and UCC Search Results.....................................53
                 -----------------------------------------------
         11.6.   Certificates of Insurance...........................................................53
                 -------------------------
         11.7.   Solvency Certificate................................................................53
                 --------------------
         11.8.   Opinion of Counsel..................................................................53
                 ------------------
         11.9.   Payment of Fees.....................................................................53
                 ---------------
         11.10.   Compliance Certificate.............................................................54
                  ----------------------
12.   CONDITIONS TO ALL BORROWINGS...................................................................54
      ----------------------------
         12.1.   Representations True; No Event of Default...........................................54
                 -----------------------------------------
         12.2.   No Legal Impediment.................................................................54
                 -------------------
         12.3.   Governmental Regulation.............................................................54
                 -----------------------
         12.4.   Proceedings and Documents...........................................................54
                 -------------------------

13.   EVENTS OF DEFAULT; ACCELERATION; ETC...........................................................55
      ------------------------------------
         13.1.   Events of Default and Acceleration..................................................55
                 ----------------------------------
         13.2.   Termination of Commitments..........................................................58
                 --------------------------
         13.3.   Remedies............................................................................58
                 --------
14.   SETOFF.........................................................................................59
      ------

                                       22
<PAGE>

15.   THE AGENT......................................................................................59
      ---------
         15.1.   Authorization.......................................................................59
                 -------------
         15.2.   Employees and Agents................................................................60
                 --------------------
         15.3.   No Liability........................................................................60
                 ------------
         15.4.   No Representations..................................................................60
                 ------------------
                  15.4.1.   General..................................................................61
                            -------
                  15.4.2.   Closing Documentation, etc...............................................61
                            --------------------------
         15.5.   Payments............................................................................61
                 --------
                  15.5.1.   Payments to Agent........................................................61
                            -----------------
                  15.5.2.   Distribution by Agent....................................................62
                            ---------------------
                  15.5.3.   Delinquent Banks.........................................................62
                            ----------------
         15.6.   Holders of Notes....................................................................62
                 ----------------
         15.7.   Indemnity...........................................................................63
                 ---------
         15.8.   Agent as Bank.......................................................................63
                 -------------
         15.9.   Resignation.........................................................................63
                 -----------
         15.10.   Notification of Defaults and Events of Default.....................................63
                  ----------------------------------------------

16.   EXPENSES AND INDEMNIFICATION...................................................................63
      ----------------------------
         16.1.   Expenses............................................................................63
                 --------
         16.2.   Indemnification.....................................................................64
                 ---------------
         16.3.   Survival............................................................................65
                 --------

                                       23
<PAGE>

17.   TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION..................................................65
      ---------------------------------------------
         17.1.   Confidentiality.....................................................................65
                 ---------------
         17.2.   Prior Notification..................................................................66
                 ------------------
         17.3.   Other...............................................................................66
                 -----
18.   SURVIVAL OF COVENANTS, ETC.....................................................................66
      --------------------------
19.   ASSIGNMENT AND PARTICIPATION...................................................................66
      ----------------------------
         19.1.   Conditions to Assignment by Banks...................................................66
                 ---------------------------------
         19.2.   Certain Representations and Warranties; Limitations; Covenants......................67
                 --------------------------------------------------------------
         19.3.   Register............................................................................68
                 --------
         19.4.   New Notes...........................................................................68
                 ---------
         19.5.   Participations......................................................................69
                 --------------
         19.6.   Disclosure..........................................................................69
                 ----------
         19.7.   Assignee or Participant Affiliated with the Borrower................................69
                 ----------------------------------------------------
         19.8.   Miscellaneous Assignment Provisions.................................................70
                 -----------------------------------
         19.9.   Assignment by Borrower..............................................................70
                 ----------------------

20.   NOTICES, ETC...................................................................................70
      ------------
21.   GOVERNING LAW..................................................................................71
      -------------
22.   HEADINGS.......................................................................................71
      --------
23.   COUNTERPARTS...................................................................................71
      ------------
24.   ENTIRE AGREEMENT, ETC..........................................................................72
      ---------------------
25.   WAIVER OF JURY TRIAL...........................................................................72
      --------------------
26.   CONSENTS, AMENDMENTS, WAIVERS, ETC.............................................................72
      ----------------------------------
27.   USURY..........................................................................................73
      -----
28.   SEVERABILITY...................................................................................73
      ------------

                                       24
<PAGE>

29.   TRANSITIONAL ARRANGEMENTS......................................................................73
      -------------------------
         29.1.   Prior Credit Agreement..............................................................73
                 ----------------------
         29.2.   Return and Cancellation of Note.....................................................74
                 -------------------------------
         29.3.   Interest and Fees Under Prior Credit Agreement......................................74
                 ----------------------------------------------

</TABLE>


                                       25
<PAGE>



                         List of Schedules and Exhibits

         SCHEDULES
         ---------
         Schedule 1                         Banks; Commitment
         Schedule 1.1                       Non-Consolidated Subsidiaries
         Schedule 7.3                       Title to Properties; Leases
         Schedule 7.7                       Litigation
         Schedule 7.17                      Environmental Compliance
         Schedule 7.18(a)                   Subsidiaries, etc.
         Schedule 7.18(b)                   Joint Ventures; Partnerships
         Schedule 9.1                       Existing Indebtedness
         Schedule 9.2                       Existing Liens
         Schedule 9.3                       Existing Investments

         EXHIBITS
         --------
         Exhibit A                          Revolving Credit Note
         Exhibit B                          Loan Request
         Exhibit C                          Compliance Certificate
         Exhibit D                          Information Certificate
         Exhibit E                          Assignment and Acceptance
         Exhibit F                          Intercompany Subordination Agreement


                                       26
<PAGE>





                           SECOND AMENDED AND RESTATED
                           REVOLVING CREDIT AGREEMENT

         This SECOND AMENDED AND RESTATED  REVOLVING CREDIT AGREEMENT is made as
of  July  28,  2000May  __,  2000,  by  and  among  IONICS,   INCORPORATED  (the
"Borrower"),  a Massachusetts corporation having its principal place of business
at 65 Grove Street,  Watertown,  MA 02472,  and FLEET  NATIONAL BANK, a national
banking association and the other lending  institutions listed on Schedule 1 and
FLEET NATIONAL BANK as agent for itself and such other lending institutions.

         WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as
of December 31, 1992 (the "Prior Credit Agreement"),  among the Borrower,  Fleet
(at such time known as The First National Bank of Boston) and the Agent (at such
time known as The First National Bank of Boston),  Fleet made  revolving  credit
loans and other extensions of credit to the Borrower; and

         WHEREAS,  the Borrower has requested  among other things,  to amend and
restate the Prior Credit  Agreement on the terms and conditions set forth herein
and Fleet  and the Agent are  willing  to amend  and  restate  the Prior  Credit
Agreement on the terms and conditions set forth herein;

         NOW  THEREFORE,  the  Borrower,  Fleet and the Agent  agree that on the
Closing Date the Prior Credit  Agreement shall hereby be amended and restated in
its entirety and shall remain in full force and effect only as set forth herein.

                   1. DEFINITIONS AND RULES OF INTERPRETATION.

         1.1. Definitions. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:

         Accounts  Receivable.  All  rights  of  the  Borrower  or  any  of  its
Subsidiaries  to payment for goods  sold,  leased or  otherwise  marketed in the
ordinary  course  of  business  and all  rights  of the  Borrower  or any of its
Subsidiaries to payment for services rendered in the ordinary course of business
and all sums of money or other  proceeds  due thereon  pursuant to  transactions
with  account  debtors,  except  for that  portion  of the sum of money or other
proceeds due thereon that relate to sales,  use or property taxes in conjunction
with  such  transactions,  recorded  on  books of  account  in  accordance  with
generally accepted accounting principles.

         Adjustment Date. The first Business Day which is five (5) Business Days
after receipt by the Agent of the most recent Compliance Certificate required to
be delivered by the Borrower pursuant to ss.8.4(c).

         Affiliate.  Any Person that would be  considered  to be an affiliate of
the Borrower  under Rule 144(a) of the Rules and  Regulations  of the Securities
and Exchange  Commission,  as in effect on the date hereof, if the Borrower were
issuing securities.

         Agent.  Fleet National Bank, acting as agent for the Banks.

         Agent's Head Office.  The Agent's office located at 100 Federal Street,
Boston,  Massachusetts  02110,  or at  such  other  location  as the  Agent  may
designate from time to time.

        Agent's  Special  Counsel.  Bingham  Dana LLP or such  other  counsel
as may be approved by the Agent.

         Applicable  Margin.  For each period  commencing on an Adjustment  Date
through the date  immediately  preceding the next  Adjustment Date (each a "Rate
Adjustment  Period"),  the Applicable  Margin shall be the applicable margin set
forth below with  respect to the  Leverage  Ratio as  determined  for the period
ending on the fiscal quarter ended  immediately  preceding the  applicable  Rate
Adjustment Period.

                                       27
<PAGE>



<TABLE>
<CAPTION>

                                             PRIME RATE        LIBOR          LETTER OF        COMMITMENT
   LEVEL            LEVERAGE RATIO             LOANS         RATE LOANS       CREDIT FEE        FEE RATE
   -----            --------------             -----         ----------       ----------        --------
 <S>              <C>  <C>                        <C>             <C>             <C>              <C>

      I          Greater than or equal to

                 2.50:1.00                       0%              1.75%           1.75%            0.375%

     II          Less than 2.50:1.00 but
                 greater than or equal to        0%              1.50%           1.50%            0.375%
                 2.00:1.00

    III          Less than 2.00:1.00 but
                 greater than or equal to
                 1.50:1.00                       0%              1.25%           1.25%            0.250%


     IV          Less than 1.50:1.00 but
                 greater than or equal to
                 1.00:1.00                       0%              1.00%           1.00%            0.250%



      V          Less than 1.00:1.00             0%              1.00%           0.75%            0.150%

</TABLE>

                                       28
<PAGE>


         Notwithstanding  the foregoing,  (a) until the delivery by the Borrower
to the Agent of the Compliance  Certificate pursuant to ss.8.4(c) for the period
ending September 30, 2000, the Applicable  Margin shall be the Applicable Margin
set forth  above in Level III,  and (b) if the  Borrower  fails to  deliver  any
Compliance  Certificate  pursuant  to  ss.8.4(c)  hereof  then,  for the  period
commencing  on the next  Adjustment  Date to occur  subsequent  to such  failure
through  the  date  immediately  following  the date on  which  such  Compliance
Certificate is delivered,  the Applicable Margin shall be the highest Applicable
Margin set forth above.

         Asset  Sale.  Any one of series of  related  transactions  in which any
Person  conveys,   sells,  transfers  or  otherwise  disposes  of,  directly  or
indirectly,  any of its  properties,  business or assets  (including the sale or
issuance of capital  stock of any  Subsidiary  other than to the Borrower or any
Subsidiary) whether owned on the Closing Date or thereafter acquired.

         Assignment and Acceptance.  Seess.19.1.
         -------------------------

         Balance Sheet Date.  December 31, 1999December 31, 1999.
         ------------------

     Banks. Fleet and the other lending institutions listed on Schedule 1 hereto
and any other Person who becomes an assignee of any rights and  obligations of a
Bank pursuant toss.19.

         Borrower.  As defined in the preamble hereto.
         --------

         Business  Day. Any day other than a Saturday or Sunday on which banking
institutions  in Boston,  MA, are open for the  transaction of banking  business
and, in the case of LIBOR Rate Loans, also a day which is a LIBOR Business Day.

         Capital Assets.  Fixed assets, both tangible (such as land,  buildings,
fixtures,  machinery and equipment) and intangible (such as patents, copyrights,
trademarks,  franchises  and good will);  provided that Capital Assets shall not
include any item  customarily  charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally  accepted
accounting principles.

         Capital  Expenditures.  Amounts  paid or  Indebtedness  incurred by the
Borrower or any of its Subsidiaries in connection with (a) the purchase or lease
by the  Borrower  or any of its  Subsidiaries  of Capital  Assets  that would be
required  to be  capitalized  and shown on the  balance  sheet of such Person in
accordance with generally accepted accounting principles or (b) the lease of any
assets by the Borrower or any of its  Subsidiaries as lessee under any Synthetic
Lease to the extent  that such  assets  would have been  Capital  Assets had the
Synthetic Lease been treated for accounting purposes as a Capitalized Lease.

     Capitalization Documents. Collectively, the formation documents (including,
without  limitation,  any  certificate  of  incorporation  and  by-laws)  of the
Borrower and its Subsidiaries.

         Capitalized  Leases.  Leases  under  which the  Borrower  or any of its
Subsidiaries  is the lessee or obligor,  the  discounted  future rental  payment
obligations  under which are required to be  capitalized on the balance sheet of
the  lessee  or  obligor  in  accordance  with  generally  accepted   accounting
principles.

         CERCLA.  Seess.7.17(a).

                                       29
<PAGE>



         Closing Date. The first date on which the conditions set forth in ss.12
have been satisfied and any Revolving  Credit Loans are to be made or any Letter
of Credit is to be issued hereunder.

         Code.  The Internal Revenue Code of 1986.


         Commitment. With respect to each Bank, the amount set forth on Schedule
1 hereto as the amount of such Bank's  commitment to make Revolving Credit Loans
to, and to  participate  in the  issuance,  extension  and renewal of Letters of
Credit for the account of, the Borrower, as the same may be reduced from time to
time; or if such  commitment is terminated  pursuant to the  provisions  hereof,
zero.

         Commitment Fee.  Seess.2.2.


         Commitment  Fee Rate.  The  applicable  rate per annum set forth in the
chart  contained  in the  definition  of  Applicable  Margin  under the  heading
"Commitment Fee Rate".

          Commitment  Percentage.  With respect to each Bank, the percentage set
     forth on  Schedule  1 hereto as such  Bank's  percentage  of the  aggregate
     Commitments of all of the Banks.

         Compliance Certificate. Seess.8.4(c).


         Consolidated  or  consolidated.  With  reference  to any  term  defined
herein,  shall mean that term as applied to the accounts of the Borrower and its
Consolidated  Subsidiaries,  consolidated in accordance with generally  accepted
accounting principles.

         Consolidated  Net Income (or Deficit).  The consolidated net income (or
deficit) of the Borrower and its Subsidiaries,  after deduction of all expenses,
taxes,  and other  proper  charges,  determined  in  accordance  with  generally
accepted accounting  principles,  after eliminating  therefrom all extraordinary
nonrecurring items of income and non-cash loss.

         Consolidated  Net Worth.  The excess of Consolidated  Total Assets over
Consolidated  Total Liabilities less, to the extent otherwise  includable in the
computation of Consolidated Net Worth, any subscriptions receivable.

          Consolidated   Subsidiaries.   Any   Subsidiary   other   than   those
     Subsidiaries listed on Schedule 1.1.

         Consolidated  Total  Assets.  The sum of (a) all assets  ("consolidated
balance  sheet  assets") of the Borrower and its  Subsidiaries  determined  on a
consolidated basis in accordance with generally accepted accounting  principles,
plus  (b)  without  duplication,  all  assets  leased  by  the  Borrower  or any
Subsidiary as lessee under any synthetic  lease referred to in clause (f) of the
definition of the term  "Indebtedness" to the extent that such assets would have
been consolidated  balance sheet assets had the synthetic lease been treated for
accounting  purposes as a Capitalized Lease, plus (c) without  duplication,  all
sold  receivables  referred  to in  clause  (g) of the  definition  of the  term
"Indebtedness"  to the extent that such receivables would have been consolidated
balance sheet assets had they not been sold.

                                       30
<PAGE>


         Consolidated  Total  Interest  Expense.  For any period,  the aggregate
amount of  interest  required  to be paid or  accrued  by the  Borrower  and its
Subsidiaries  during such period on all  Indebtedness  of the  Borrower  and its
Subsidiaries  outstanding  during all or any part of such  period,  whether such
interest  was  or is  required  to  be  reflected  as  an  item  of  expense  or
capitalized,  including  payments  consisting  of  interest  in  respect  of any
Capitalized Lease, or any Synthetic Lease and including  commitment fees, agency
fees,  facility fees,  balance  deficiency  fees and similar fees or expenses in
connection with the borrowing of money.

         Consolidated Total Liabilities. All liabilities of the Borrower and its
Subsidiaries  determined on a  consolidated  basis in accordance  with generally
accepted  accounting  principles  and  classified  as such  on the  consolidated
balance sheet of the Borrower and its Subsidiaries and all other Indebtedness of
the Borrower and its Subsidiaries, whether or not so classified.

          Conversion Request. A notice given by the Borrower to the Agent of the
     Borrower's election to convert or continue a Loan in accordance withss.2.7.

          Credit  Agreement.  This  Revolving  Credit  Agreement,  including the
     Schedules and Exhibits hereto.

         Default.  Seess.13.1.

         Delinquent Bank.  Seess.15.5.3.

         Distribution.  The  declaration  or  payment of any  dividend  on or in
respect of any shares of any class of capital stock of the Borrower,  other than
dividends  payable  solely  in  shares  of  common  stock of the  Borrower;  the
purchase,  redemption, or other retirement of any shares of any class of capital
stock of the  Borrower,  directly  or  indirectly  through a  Subsidiary  of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other  distribution  on or in respect of any shares of any class
of capital stock of the Borrower.

         Dollars  or $.  Dollars  in lawful  currency  of the  United  States of
America.

         Domestic Lending Office.  Initially, the office of each Bank designated
as such in Schedule 1 hereto;  thereafter,  such other  office of such Bank,  if
any,  located within the United States that will be making or maintaining  Prime
Rate Loans.

         Drawdown Date.  The date on which any Revolving  Credit Loan is made or
is to be made,  and the date on which any Revolving  Credit Loan is converted or
continued in accordance with ss.2.7.

                                       31
<PAGE>


         EBITDA:  With respect to any fiscal period,  an amount equal to the sum
of (a)  Consolidated  Net Income of the Borrower and its  Subsidiaries  for such
fiscal period,  plus (b) in each case to the extent  deducted in the calculation
of  such  Person's   Consolidated  Net  Income  and  without  duplication,   (i)
depreciation and amortization for such period,  plus (ii) income tax expense for
such period,  plus (iii)  Consolidated  Total  Interest  Expense paid or accrued
during such period,  plus (iv) other noncash charges for such period, and minus,
to  the  extent  added  in  computing   Consolidated  Net  Income,  and  without
duplication,  all noncash gains (including income tax benefits) for such period,
all as determined in accordance with generally accepted accounting principles.

         Eligible  Assignee.  Any of (a) a  commercial  bank or finance  company
organized  under the laws of the  United  States,  or any State  thereof  or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan  association  or savings bank  organized  under the laws of the
United  States,  or any State thereof or the District of Columbia,  and having a
net worth of at least  $100,000,000,  calculated  in accordance  with  generally
accepted accounting  principles;  (c) a commercial bank organized under the laws
of any  other  country  which  is a  member  of the  Organization  for  Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
bank is acting  through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (d) the central
bank of any country which is a member of the OECD;  and (e) if, but only if, any
Event of Default has  occurred  and is  continuing,  any other  bank,  insurance
company,  commercial  finance  company or other  financial  institution or other
Person approved by the Agent, such approval not to be unreasonably withheld.

         Employee  Benefit Plan. Any employee benefit plan within the meaning of
ss.3(3) of ERISA  maintained  or  contributed  to by the  Borrower  or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.

         Environmental Laws.  Seess.7.17(a).


         EPA.  Seess.7.17(b).

                                       32
<PAGE>



         Equity  Issuance.  The sale or issuance  by the  Borrower or any of its
Subsidiaries  of any of its capital  stock or equity  interests or any warrants,
rights or options to acquire its capital stock or equity interests.

         ERISA.  The Employee Retirement Income Security Act of 1974.
         -----

         ERISA Affiliate.  Any Person which is treated as a single employer with
the Borrower under ss.414 of the Code.

         ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension  Plan  within  the  meaning  of  ss.4043  of ERISA  and the  regulations
promulgated thereunder.

         Eurocurrency  Reserve  Rate.  For any day with  respect to a LIBOR Rate
Loan,  the maximum  rate  (expressed  as a decimal) at which any lender  subject
thereto would be required to maintain  reserves under  Regulation D of the Board
of  Governors  of the  Federal  Reserve  System  (or any  successor  or  similar
regulations  relating  to  such  reserve   requirements)  against  "Eurocurrency
Liabilities"  (as that term is used in Regulation D), if such  liabilities  were
outstanding.  The Eurocurrency  Reserve Rate shall be adjusted  automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.

         Event of Default.  Seess.13.1.


         Fleet.  Fleet National Bank, a national banking association, in its
individual capacity.

         generally  accepted  accounting  principles.  (a) When  used in  ss.10,
whether  directly or indirectly  through  reference to a  capitalized  term used
therein,   means  (i)  principles   that  are  consistent  with  the  principles
promulgated  or  adopted by the  Financial  Accounting  Standards  Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles,  the accounting  practice of
the Borrower  reflected in its  financial  statements  for the year ended on the
Balance Sheet Date, and (b) when used in general,  other than as provided above,
means  principles  that are (i) consistent  with the  principles  promulgated or
adopted by the Financial Accounting Standards Board and its predecessors,  as in
effect from time to time,  and (ii)  consistently  applied  with past  financial
statements of the Borrower  adopting the same principles,  provided that in each
case  referred  to  in  this  definition  of  "generally   accepted   accounting
principles"  a certified  public  accountant  would,  insofar as the use of such
accounting  principles is pertinent,  be in a position to deliver an unqualified
opinion  (other than a  qualification  regarding  changes in generally  accepted
accounting  principles) as to financial statements in which such principles have
been properly applied.

                                       33
<PAGE>


         Guaranteed  Pension Plan. Any employee  pension benefit plan within the
meaning of ss.3(2) of ERISA  maintained or contributed to by the Borrower or any
ERISA  Affiliate the benefits of which are  guaranteed on termination in full or
in part by the PBGC  pursuant to Title IV of ERISA,  other than a  Multiemployer
Plan.

         Guarantors.  Collectively,  each  domestic  Subsidiary  of the Borrower
(other than the  Inactive  Subsidiaries)  existing on the Closing  Date and each
other  Person  which is required  to be or become a guarantor  from time to time
pursuant to ss.8.13 hereof. Each such Person shall be a party to a Guaranty.

         Guaranty. The Guaranty, dated or to be dated on or prior to the Closing
Date (or  such  later  date as is  required  by  ss.8.13  hereof),  made by each
Guarantor in favor of the Banks and the Agent  pursuant to which each  Guarantor
guaranties  to the  Banks  and the  Agent the  payment  and  performance  of the
Obligations and in form and substance satisfactory to the Banks and the Agent.

         Hazardous Substances.  Seess.7.17(b).

          Inactive  Subsidiaries.  Ionics Tampa Bay, Inc., a Florida corporation
     and Springfield Elite Technologies,  Inc., a Massachusetts corporation,  so
     long  as  such  Subsidiaries  do  not  engage  in any  business  activities
     whatsoever.

         Indebtedness. As to any Person and whether recourse is secured by or is
otherwise  available  against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:

                  (a)      every obligation of such Person for money borrowed,

                  (b)  every  obligation  of such  Person  evidenced  by  bonds,
         debentures,  notes or other similar instruments,  including obligations
         incurred in  connection  with the  acquisition  of property,  assets or
         businesses,

                  (c) every reimbursement obligation of such Person with respect
         to letters of credit, bankers' acceptances or similar facilities issued
         for the account of such Person,

                  (d) every  obligation  of such Person issued or assumed as the
         deferred purchase price of property or services  (including  securities
         repurchase  agreements but excluding trade accounts  payable or accrued
         liabilities  arising in the ordinary  course of business  which are not
         overdue or which are being contested in good faith),

                  (e)every obligation of such Person under any Capitalized
         Lease,

          (f) every  obligation  of such  Person  under any lease (a  "Synthetic
     Lease") treated as an operating lease under generally  accepted  accounting
     principles and as a loan or financing for U.S. income tax purposes,



                                       34
<PAGE>


                  (g) all  sales  by such  Person  of (i)  accounts  or  general
         intangibles  for  money  due or to  become  due,  (ii)  chattel  paper,
         instruments  or documents  creating or evidencing a right to payment of
         money or (iii) other receivables (collectively "receivables"),  whether
         pursuant to a purchase facility or otherwise,  other than in connection
         with the disposition of the business operations of such Person relating
         thereto or a disposition  of defaulted  receivables  for collection and
         not as a financing  arrangement,  and together  with any  obligation of
         such  Person  to  pay  any  discount,   interest,   fees,  indemnities,
         penalties, recourse, expenses or other amounts in connection therewith,

                  (h)  every  obligation  of such  Person  (an  "equity  related
         purchase obligation") to purchase,  redeem, retire or otherwise acquire
         for  value  any  shares of  capital  stock of any class  issued by such
         Person,  any  warrants,  options or other  rights to  acquire  any such
         shares,  or any rights measured by the value of such shares,  warrants,
         options or other rights,

                  (i)  every   obligation  of  such  Person  under  any  forward
         contract,  futures contract,  swap, option or other financing agreement
         or arrangement  (including,  without limitation,  caps, floors, collars
         and similar agreements),  the value of which is dependent upon interest
         rates,  currency  exchange  rates,  commodities  or  other  indices  (a
         "derivative contract"),

                  (j) every  obligation in respect of  Indebtedness of any other
         entity  (including  any  partnership  in which such Person is a general
         partner) to the extent that such Person is liable  therefor as a result
         of such Person's  ownership interest in or other relationship with such
         entity,  except  to the  extent  that the  terms  of such  Indebtedness
         provide  that such  Person is not  liable  therefor  and such terms are
         enforceable under applicable law, and

     (k) every obligation, contingent or otherwise, of such Person guaranteeing,
or having the economic effect of guarantying or otherwise  acting as surety for,
any  obligation  of a type  described  in any of clauses  (a)  through  (j) (the
"primary obligation") of another Person (the "primary obligor"),  in any manner,
whether  directly  or  indirectly,   and  including,   without  limitation,  any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase of) any security for the payment of such primary  obligation,  (ii)
to purchase  property,  securities  or services  for the purpose of assuring the
payment of such primary obligation, or (iii) to maintain working capital, equity
capital or other  financial  statement  condition  or  liquidity  of the primary
obligor so as to enable the primary obligor to pay such primary obligation.

                                       35
<PAGE>


The "amount" or "principal  amount" of any  Indebtedness at any time of
determination  represented  by (u) any  Indebtedness,  issued at a price that is
less than the principal amount at maturity  thereof,  shall be the amount of the
liability in respect thereof  determined in accordance  with generally  accepted
accounting  principles,  (v)  any  Capitalized  Lease  shall  be  the  principal
component of the  aggregate  of the rentals  obligation  under such  Capitalized
Lease  payable over the term thereof that is not subject to  termination  by the
lessee,  (w) any sale of receivables shall be the amount of unrecovered  capital
or principal  investment of the purchaser (other than the Borrower or any of its
wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or
interest  earned  on such  investment,  (x) any  Synthetic  Lease  shall  be the
stipulated loss value,  termination  value or other equivalent  amount,  (y) any
derivative  contract  shall be the  maximum  amount of any  termination  or loss
payment required to be paid by such Person if such derivative  contract were, at
the time of determination, to be terminated by reason of any event of default or
early  termination  event  thereunder,  whether  or not such event of default or
early termination event has in fact occurred and (z) any equity related purchase
obligation  shall be the maximum  fixed  redemption  or purchase  price  thereof
inclusive of any accrued and unpaid dividends to be comprised in such redemption
or purchase price.

          Ineligible  Securities.  Securities  which may not be  underwritten or
     dealt in by member banks of the Federal  Reserve System under Section 16 of
     the Banking Act of 1933 (12 U.S.C.ss.24, Seventh), as amended.

          Information Certificates. The Information Certificates,  substantially
     in the form of Exhibit D hereto.

         Interest  Payment Date.  (a) As to any Prime Rate Loan, the last day of
the calendar month with respect to interest  accrued during such calendar month,
including,  without  limitation,  the calendar month which includes the Drawdown
Date of such Prime  Rate  Loan;  and (b) as to any LIBOR Rate Loan in respect of
which the Interest  Period is (i) three (3) months or less, the last day of such
Interest Period and (ii) more than three (3) months,  the date that is three (3)
months from the first day of such Interest Period and, in addition, the last day
of such Interest Period.

         Interest  Period.  With  respect to each  Revolving  Credit  Loan,  (a)
initially, the period commencing on the Drawdown Date of such Loan and ending on
the last day of one of the periods set forth below,  as selected by the Borrower
in a Loan Request or as otherwise required by the terms of this Credit Agreement
(i) for any Prime Rate Loan,  the last day of the calendar  month;  and (ii) for
any LIBOR  Rate  Loan,  1, 2, 3 or 6 months;  and (b)  thereafter,  each  period
commencing on the last day of the next preceding  Interest Period  applicable to
such Revolving  Credit Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request;  provided that
all of the foregoing  provisions relating to Interest Periods are subject to the
following:

                                       36
<PAGE>


                  (i) if any  Interest  Period with respect to a LIBOR Rate Loan
         would  otherwise  end on a day that is not a LIBOR  Business  Day, that
         Interest Period shall be extended to the next succeeding LIBOR Business
         Day unless the result of such extension would be to carry such Interest
         Period into another calendar month, in which event such Interest Period
         shall end on the immediately preceding LIBOR Business Day;

                  (ii) if any Interest  Period with respect to a Prime Rate Loan
         would end on a day that is not a Business  Day,  that  Interest  Period
         shall end on the next succeeding Business Day;

                  (iii) if the Borrower shall fail to give notice as provided in
         ss.2.7,  the Borrower shall be deemed to have requested a conversion of
         the affected  LIBOR Rate Loan to a Prime Rate Loan and the  continuance
         of all Prime Rate Loans as Prime Rate Loans on the last day of the then
         current Interest Period with respect thereto;

                  (iv) any Interest  Period relating to any LIBOR Rate Loan that
         begins on the last LIBOR  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 end on the last LIBOR
         Business Day of a calendar month; and

                  (v) any Interest Period that would otherwise extend beyond the
         Revolving  Credit Loan Maturity Date shall end on the Revolving  Credit
         Loan Maturity Date.

         International Standby Practices.  With respect to any standby Letter of
Credit,  International  Standby  Practices  (ISP98),  International  Chamber  of
Commerce  Publication No. 590, or any successor code of standby letter of credit
practices  among  banks  adopted  by the  Agent in the  ordinary  course  of its
business  as a  standby  letter of  credit  issuer  and in effect at the time of
issuance of such Letter of Credit.

         Investments.   All  expenditures  made  and  all  liabilities  incurred
(contingently  or otherwise) for the acquisition of stock or Indebtedness of, or
for loans,  advances,  capital  contributions or transfers of property to, or in
respect  of  any   guaranties   (or  other   commitments   as  described   under
Indebtedness),  or  obligations  of, any Person.  In  determining  the aggregate
amount of Investments  outstanding at any particular time: (a) the amount of any
Investment  represented  by a  guaranty  shall be  taken  at not  less  than the
principal amount of the obligations guaranteed and still outstanding;  (b) there
shall be  included  as an  Investment  all  interest  accrued  with  respect  to
Indebtedness  constituting an Investment unless and until such interest is paid;
(c) there  shall be  deducted  in  respect  of each such  Investment  any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment,  liquidating dividend or liquidating  distribution);  (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such  Investment,  whether as  dividends,  interest  or  otherwise,  except that
accrued  interest  included  as  provided  in the  foregoing  clause  (b) may be
deducted  when paid;  and (e) there  shall not be  deducted  from the  aggregate
amount of Investments any decrease in the value thereof.

                                       37
<PAGE>

         Letter of Credit.  Seess.4.1.1.

         Letter of Credit Application.  Seess.4.1.1.

         Letter of Credit Fee.  Seess.4.6.

         Letter of Credit Participation.  Seess.4.1.4.


         Leverage Ratio. As of any date of determination, the ratio of (a) Total
Funded  Indebtedness  of the Borrower and its  Subsidiaries  outstanding on such
date to (b) the EBITDA of the Borrower and its  Subsidiaries  for the  Reference
Period ended on such date.

         LIBOR  Business  Day.  Any day on which  commercial  banks are open for
international business (including dealings in Dollar deposits) in London or such
other  LIBOR  interbank  market  as may be  selected  by the  Agent  in its sole
discretion acting in good faith.

         LIBOR Lending Office.  Initially, the office of each Bank designated as
such in Schedule 1 hereto;  thereafter,  such other office of such Bank, if any,
that shall be making or maintaining LIBOR Rate Loans.

         LIBOR Rate. For any Interest  Period with respect to a LIBOR Rate Loan,
the rate of  interest  equal to (i) the rate  determined  by the  Agent at which
Dollar  deposits  for such  Interest  Period are  offered  based on  information
presented on Telerate Page 3750 as of 11:00 a.m. London time on the second LIBOR
Business Day prior to the first day of such  Interest  Period  divided by (ii) a
number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable.

         LIBOR Rate Loans.  Revolving Credit Loans bearing interest calculated
by reference to the LIBOR Rate.


         Loan Documents.  This Credit  Agreement,  the Notes, the Letter of
Credit  Applications and the Letters of Credit.

         Loan Request.  Seess.2.6.

         Majority Banks. As of any date, the Banks holding at least  sixty-seven
percent (67%) of the outstanding principal amount of the Notes on such date; and
if no such  principal  is  outstanding,  the Banks whose  aggregate  Commitments
constitutes at least sixty-seven percent (67%) of the Total Commitment.

                                       38
<PAGE>

         Maximum  Drawing  Amount.   The  maximum   aggregate  amount  that  the
beneficiaries may at any time draw under outstanding  Letters of Credit, as such
aggregate  amount may be reduced from time to time  pursuant to the terms of the
Letters of Credit.

         Multiemployer  Plan.  Any  multiemployer  plan  within  the  meaning
of ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.

         Net Cash Proceeds. With respect to any Equity Issuances,  the excess of
the gross cash proceeds  received by such Person for such Equity  Issuance after
deduction  of all  reasonable  and  customary  transaction  expenses  (including
without limitation, underwriting discounts and commissions) actually incurred in
connection with such a sale or other issuance.

         Net Cash Sale Proceeds.  The net cash proceeds  received by a Person in
respect  of any Asset  Sale,  less the sum of (a) all  reasonable  out-of-pocket
fees,  commissions and other reasonably and customary expenses actually incurred
in connection with such Asset Sale,  including the amount of income,  franchise,
sales  and  other  applicable  taxes  required  to be  paid by  such  Person  in
connection  with  such  Asset  Sale,  and (b) the  aggregate  amount  of cash so
received by such  Person  which is required to be used to retire (in whole or in
part) any  Indebtedness  (other  than under the Loan  Documents)  of such Person
permitted  by this  Credit  Agreement  that was  secured  by a lien or  security
interest  permitted by this Credit  Agreement having priority over the liens and
security  interests  (if any) of the Agent (for the benefit of the Agent and the
Banks)  with  respect to such  assets  transferred  and which is  required to be
repaid in whole or in part (which repayment,  in the case of any other revolving
credit  arrangement  or multiple  advance  arrangement,  reduces the  commitment
thereunder) in connection with such Asset Sale.

         Obligations.  All  indebtedness,  obligations and liabilities of any of
the  Borrower  and  its  Subsidiaries  to  any  of  the  Banks  and  the  Agent,
individually or  collectively,  existing on the date of this Credit Agreement or
arising  thereafter,   direct  or  indirect,  joint  or  several,   absolute  or
contingent,  matured  or  unmatured,  liquidated  or  unliquidated,  secured  or
unsecured,  arising  by  contract,  operation  of law or  otherwise,  arising or
incurred  under this Credit  Agreement or any of the other Loan  Documents or in
respect of any of the Revolving Credit Loans made or  Reimbursement  Obligations
incurred or any of the Revolving  Credit Notes,  Letters of Credit  Application,
Letters of Credit,  any foreign exchange  contracts between the Borrower and any
Bank, any interest rate protection  arrangements  between Borrower and any Bank,
any other financial accommodations provided by any Bank to the Borrower under or
in any  manner  related  to or  associated  with any of the  foregoing  or other
instruments at any time evidencing any thereof.

                                       39
<PAGE>

         outstanding.  With  respect  to the  Loans,  the  aggregate  unpaid
principal  thereof  as of any date of determination.

         PBGC.  The Pension  Benefit  Guaranty  Corporation  created byss.4002
of ERISA and any successor  entity or entities having similar responsibilities.

         Permitted Acquisitions.  Any acquisition by the Borrower, or any of its
domestic Subsidiaries of a material portion of the assets, a division or line of
business or capital stock of a Person, provided (a) such assets or capital stock
are related to the business of the Borrower or such  Subsidiary,  (b) no Default
or Event of Default exists prior to or immediately after such  acquisition,  (c)
the terms of such acquisition are on an arms length basis, (d) if as a result of
such  acquisition a new domestic  Subsidiary  is acquired or formed,  ss.8.14 is
complied with at the time of consummation of such  acquisition (or  concurrently
therewith),  (e) if the purchase  price for such  acquisition  or the  aggregate
purchase  price for all  acquisitions  made during any fiscal year shall  exceed
$5,000,000  during  such fiscal  year,  the  Borrower  has  demonstrated  to the
reasonable  satisfaction  of the  Agent,  set  forth in a pro  forma  Compliance
Certificate, compliance with ss.10 on a pro forma basis immediately prior to and
after giving effect to any such  acquisition,  the calculation of which shall be
based upon the financial statements delivered for the twelve (12) calendar month
period  immediately  preceding such acquisition,  (f) the board of directors and
(if required by applicable law) the shareholders,  or the equivalent thereof, of
the  business  to be  acquired  has  approved  such  acquisition,  (g)  if  such
acquisition is made by a merger,  the Borrower or the  applicable  Subsidiary as
the case may be, shall be the surviving  entity,  and (h) if the purchase  price
for such acquisition or the aggregate  purchase price for all acquisitions  made
during any fiscal year shall  exceed  $5,000,000  during such fiscal  year,  all
other terms and  conditions  of, and  documentation  for, such  acquisition  are
reasonably satisfactory to the Agent and the Banks.

         Permitted Liens.  Liens, security interests and other encumbrances
permitted by ss.9.2.

         Person. Any individual, corporation, partnership, trust, unincorporated
association,  business,  or  other  legal  entity,  and  any  government  or any
governmental agency or political subdivision thereof.

                                       40
<PAGE>

         Prime Rate.  The higher of (i) the annual  rate of  interest  announced
from time to time by Fleet at its head office in Boston, MA, as its "prime rate"
or "base rate" and (ii)  one-half of one percent  (1/2%) above the Federal Funds
Effective  Rate. For the purposes of this  definition,  "Federal Funds Effective
Rate" shall mean for any day, the rate per annum equal 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 that is a Business Day, the average of the  quotations  for such day on such
transactions  received  by the Agent from  three  funds  brokers  of  recognized
standing selected by the Agent. In addition,  the Prime Rate is a reference rate
and does not  necessarily  represent  the  lowest  or best rate  charged  to any
customer.  Changes in the rate of  interest  resulting  from any  changes in the
"Prime Rate" shall take place immediately without notice or demand of any kind.

         Prime Rate Loans.  Revolving Credit Loans bearing interest calculated
by reference to the Prime Rate.

         Rate Adjustment Period.  See definition of Applicable Margin.

         RCRA.  Seess.7.17(a).

         Real Estate.  All real  property at any time owned or leased (as lessee
 or  sublessee)  by the Borrower or any of its Subsidiaries.

         Record.   The  grid  attached  to  a  Revolving  Credit  Note,  or  the
continuation  of such grid,  or any other  similar  record,  including  computer
records,  maintained  by any Bank with  respect  to any  Revolving  Credit  Loan
referred to in such Revolving Credit Note.

         Reference Bank.  Fleet.

         Reference Period. The  period  of four (4)  consecutive fiscal quarters
of the  Borrower  ending on the relevant date.

         Register.  Seess.19.3.

         Reimbursement  Obligation.  The Borrower's obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in ss.4.2.

         Restricted  Payment.  In relation to the Borrower and its Subsidiaries,
any (a)  Distribution  or (b)  payment  or  prepayment  by the  Borrower  or its
Subsidiaries to the Borrower's or any Subsidiary's shareholders (or other equity
holders) or to any Affiliate of the Borrower or any  Subsidiary or any Affiliate
of the Borrower's or such Subsidiary's shareholders.

         Revolving Credit Loan Maturity Date.  December 31, 2004.

         Revolving Credit Loans.  Revolving  credit loans made or to be made by
the Banks to the Borrower pursuant to ss.2.

         Revolving Credit Notes. See ss.2.4;  provided,  however,  the Revolving
Credit Note issued by the  Borrower to Fleet on the Closing  Date,  shall be the
Sixth Amended and Restated Revolving Credit Note.

                                       41
<PAGE>

         SARA.  Seess.7.17(a).

         Section  20  Subsidiary.  A  Subsidiary  of the  bank  holding  company
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.

         Subordinated Debt. Unsecured Indebtedness of the Borrower or any of its
Subsidiaries  that is expressly  subordinated and made junior to the payment and
performance  in full of the  Obligations,  and  evidenced  as such by a  written
instrument containing subordination provisions in form and substance approved by
the Banks in writing.

         Subsidiary.  Any  corporation,  association,  trust,  or other business
entity  of which  the  designated  parent  shall at any  time  own  directly  or
indirectly  through a Subsidiary or  Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.

         Synthetic Lease.  As defined in paragraph (f) of the definition of
"Indebtedness".

         Total Commitment. The sum of the Commitments of the Banks, as in effect
from time to time.

         Total  Funded  Indebtedness.  At anytime of  determination,  all funded
Indebtedness of the Borrower and its Subsidiaries, including, without limitation
the sum of (a) the aggregate  outstanding  amount of the Revolving Credit Loans,
(b) the Maximum Drawing Amount,  the maximum amount which the beneficiary of any
other  letters of credit  issued for the  account of the  Borrower or any of its
Subsidiaries  may  draw  under  such  letters  of  credit,   (c)  the  aggregate
outstanding  amount of all Subordinated Debt and (c) all other  Indebtedness for
borrowed  money,  purchase  money  Indebtedness  and with respect to Capitalized
Leases and Synthetic  Leases,  determined on a consolidated  basis in accordance
with generally accepted  accounting  principles.  For purposes of clarification,
Total Funded Indebtedness shall not include surety or other performance bonds.

         Type.  As to any Revolving Credit Loan, its nature as a Prime Rate
Loan, or a LIBOR Rate Loan.

         Uniform  Customs.  With  respect to any Letter of Credit,  the  Uniform
Customs and Practice for  Documentary  Credits  (1993  Revision),  International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Agent in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.

         Unpaid Reimbursement  Obligation.  Any Reimbursement  Obligation for
which the Borrower does not reimburse the Agent and the Banks on the date
specified in, and in accordance with, ss.4.2.

         Voting  Stock.  Stock or  similar  interests,  of any class or  classes
(however  designated),  the holders of which are at the time  entitled,  as such
holders,  to vote for the  election of a majority of the  directors  (or persons
performing  similar functions) of the corporation,  association,  trust or other
business entity  involved,  whether or not the right so to vote exists by reason
of the happening of a contingency.

                                       42
<PAGE>

         1.2.  Rules of Interpretation.

                  (a) A reference  to any document or  agreement  shall  include
         such document or agreement as amended,  modified or  supplemented  from
         time to time in accordance  with its terms and the terms of this Credit
         Agreement.

                  (b) The singular includes the plural and the plural includes
                      the singular.

                  (c) A reference to any law includes any amendment or
                      modification to such law.

                  (d) A reference to any Person includes its permitted
                      successors and permitted assigns.

                  (e)  Accounting  terms not otherwise  defined  herein have the
         meanings assigned to them by generally accepted  accounting  principles
         applied on a consistent  basis by the  accounting  entity to which they
         refer.

                  (f) The words "include", "includes" and "including" are not
                      limiting.

                  (g) All terms not specifically  defined herein or by generally
         accepted accounting principles,  which terms are defined in the Uniform
         Commercial Code as in effect in the Commonwealth of Massachusetts, have
         the meanings assigned to them therein, with the term "instrument" being
         that defined under Article 9 of the Uniform Commercial Code.

                  (h) Reference to a particular  "ss." refers to that  section
         of this Credit Agreement unless otherwise indicated.

                  (i) The words  "herein",  "hereof",  "hereunder"  and words of
         like import shall refer to this Credit  Agreement as a whole and not to
         any particular section or subdivision of this Credit Agreement.

                  (j) Unless otherwise expressly  indicated,  in the computation
         of periods of time from a specified date to a later specified date, the
         word "from" means "from and including," the words "to" and "until" each
         mean  "to  but  excluding,"  and  the  word  "through"  means  "to  and
         including."

                  (k) This Credit Agreement and the other Loan Documents may use
         several  different  limitations,  tests or measurements to regulate the
         same or similar matters.  All such limitations,  tests and measurements
         are, however, cumulative and are to be performed in accordance with the
         terms thereof.

                  (l) This Credit Agreement and the other Loan Documents are the
         result of  negotiation  among,  and have been  reviewed  by counsel to,
         among  others,  the  Agent  and the  Borrower  and are the  product  of
         discussions  and  negotiations  among all  parties.  Accordingly,  this
         Credit  Agreement  and the other Loan  Documents are not intended to be
         construed  against  the Agent or any of the Banks  merely on account of
         the  Agent's  or any  Bank's  involvement  in the  preparation  of such
         documents.

                                       43
<PAGE>

                        2. THE REVOLVING CREDIT FACILITY.

         2.1.  Commitment to Lend. Subject to the terms and conditions set forth
in this  Credit  Agreement,  each of the Banks  severally  agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time from
the Closing Date up to but not including the Revolving Credit Loan Maturity Date
upon notice by the Borrower to the Agent given in accordance  with ss.2.6,  such
sums  as  are  requested  by  the  Borrower  up to a  maximum  aggregate  amount
outstanding (after giving effect to all amounts requested) at any one time equal
to such Bank's Commitment minus such Bank's Commitment  Percentage of the sum of
the Maximum Drawing Amount and all Unpaid  Reimbursement  Obligations,  provided
that the sum of the  outstanding  amount of the  Revolving  Credit  Loans (after
giving effect to all amounts  requested) plus the Maximum Drawing Amount and all
Unpaid  Reimbursement  Obligations  shall  not  at any  time  exceed  the  Total
Commitment. The Revolving Credit Loans shall be made pro rata in accordance with
each Bank's  Commitment  Percentage.  Each  request for a Revolving  Credit Loan
hereunder shall  constitute a  representation  and warranty by the Borrower that
the  conditions  set  forth  in ss.11  and  ss.12,  in the  case of the  initial
Revolving Credit Loans to be made on the Closing Date, and ss.12, in the case of
all  other  Revolving  Credit  Loans,  have been  satisfied  on the date of such
request.

         2.2.  Commitment  Fee. The Borrower  agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee (the "Commitment Fee") calculated at the rate of Commitment Fee
Rate per annum on the  average  daily  amount  during each  calendar  quarter or
portion thereof from the date hereof to the Revolving  Credit Loan Maturity Date
by which the Total  Commitment  minus the sum of the Maximum  Drawing Amount and
all Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving
Credit Loans during such calendar  quarter.  The Commitment Fee shall be payable
quarterly  in  arrears  on the  first  day of  each  calendar  quarter  for  the
immediately  preceding  calendar  quarter  commencing  on the  first  such  date
following the date hereof,  with a final  payment on the  Revolving  Credit Loan
Maturity Date or any earlier date on which the Commitments shall terminate.

         2.3.  Reduction  of Total  Commitment.  On March  31,  2001,  the Total
Commitment  shall be  automatically  reduced to $50,000,000  (unless  previously
reduced  to such  amount  pursuant  to the term of this  Credit  Agreement).  In
addition  the  Borrower  shall  have the right at any time and from time to time
upon  three (3)  Business  Days prior  written  notice to the Agent to reduce by
$100,000  or an  integral  multiple  thereof  or  terminate  entirely  the Total
Commitment,  whereupon the Commitments of the Banks shall be reduced pro rata in
accordance with their respective Commitment  Percentages of the amount specified
in such notice or, as the case may be, terminated.  Promptly after receiving any
notice of the Borrower  delivered pursuant to this ss.2.3, the Agent will notify
the  Banks  of the  substance  thereof.  Upon  the  effective  date of any  such
reduction or termination, the Borrower shall pay to the Agent for the respective
accounts of the Banks the full amount of any  Commitment Fee then accrued on the
amount of the reduction.  No reduction or termination of the  Commitments may be
reinstated.

         2.4. The Revolving  Credit Notes.  The Revolving  Credit Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of Exhibit A hereto (each a "Revolving  Credit  Note"),  dated as of the Closing
Date and completed with appropriate insertions.  One Revolving Credit Note shall
be payable to the order of each Bank in a principal  amount equal to such Bank's
Commitment or, if less,  the  outstanding  amount of all Revolving  Credit Loans
made by such Bank,  plus  interest  accrued  thereon,  as set forth  below.  The
Borrower  irrevocably  authorizes  each Bank to make or cause to be made,  at or
about the time of the Drawdown Date of any Revolving  Credit Loan or at the time
of receipt of any payment of principal on such Bank's  Revolving Credit Note, an
appropriate  notation  on such  Bank's  Record  reflecting  the  making  of such
Revolving  Credit Loan or (as the case may be) the receipt of such payment.  The
outstanding amount of the Revolving Credit Loans set forth on such Bank's Record
shall be prima facie  evidence of the principal  amount thereof owing and unpaid
to such Bank, but the failure to record, or any error in so recording,  any such
amount on such Bank's Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due.

                                       44
<PAGE>


         2.5.  Interest on Revolving Credit Loans.  Except as otherwise provided
in ss.5.11,

         (a) Each Prime Rate Loan  shall bear  interest  for the period
         commencing with the Drawdown Date thereof and ending on the last day of
         the Interest Period with respect thereto at the rate per annum equal to
         the Prime Rate plus the Applicable Margin.

         (b) Each LIBOR Rate Loan  shall bear  interest  for the period
         commencing with the Drawdown Date thereof and ending on the last day of
         the Interest Period with respect thereto at the rate per annum equal to
         the LIBOR Rate  determined for such Interest Period plus the Applicable
         Margin.

         (c) The Borrower  promises to pay  interest on each  Revolving
         Credit  Loan in  arrears on each  Interest  Payment  Date with  respect
         thereto.

         2.6.  Requests for Revolving Credit Loans.

                  The  Borrower  shall give to the Agent  written  notice in the
         form of Exhibit B hereto (or telephonic  notice  confirmed in a writing
         in the  form of  Exhibit  B  hereto)  of  each  Revolving  Credit  Loan
         requested  hereunder  (a  "Loan  Request")  no  less  than  (a) one (1)
         Business Day prior to the proposed Drawdown Date of any Prime Rate Loan
         and (b) three (3) LIBOR  Business  Days prior to the proposed  Drawdown
         Date of any LIBOR Rate Loan.  Each such  notice  shall  specify (i) the
         principal  amount of the  Revolving  Credit  Loan  requested,  (ii) the
         proposed  Drawdown  Date of  such  Revolving  Credit  Loan,  (iii)  the
         Interest  Period  for any  LIBOR  Rate  Loan  and (iv) the Type of such
         Revolving  Credit Loan.  Promptly upon receipt of any such notice,  the
         Agent shall notify each of the Banks  thereof.  Each Loan Request shall
         be  irrevocable  and binding on the  Borrower  and shall  obligate  the
         Borrower to accept the Revolving  Credit Loan  requested from the Banks
         on the proposed  Drawdown Date. Each Loan Request shall be in a minimum
         aggregate  amount of $250,000 or a whole multiple of $100,000 in excess
         thereof.

         2.7.  Conversion Options.

                  2.7.1.  Conversion to Different Type of Revolving Credit Loan.
         The  Borrower  may elect from time to time to convert  any  outstanding
         Revolving  Credit  Loan to a  Revolving  Credit  Loan of another  Type,
         provided  that (a) with respect to any such  conversion  of a Revolving
         Credit Loan to a Prime Rate Loan,  the Borrower shall give the Agent at
         least one (1) Business Day prior written notice of such  election;  (b)
         with  respect  to any such  conversion  of a Prime Rate Loan to a LIBOR
         Rate Loan,  the Borrower  shall give the Agent at least three (3) LIBOR
         Business Days prior written notice of such  election;  (c) with respect
         to any such  conversion  of a LIBOR  Rate Loan into a Prime  Rate Loan,
         such  conversion  shall  only be made on the last  day of the  Interest
         Period with respect  thereto;  and (d) no Revolving  Credit Loan may be
         converted  into a LIBOR Rate Loan when any  Default or Event of Default
         has occurred and is continuing. On the date on which such conversion is
         being made each Bank shall take such action as is necessary to transfer
         its  Commitment  Percentage  of  such  Revolving  Credit  Loans  to its
         Domestic  Lending Office or its LIBOR Lending  Office,  as the case may
         be. All or any part of outstanding  Revolving  Credit Loans of any Type
         may be  converted  into a  Revolving  Credit  Loan of  another  Type as
         provided  herein,  provided that any partial  conversion shall be in an
         aggregate  principal  amount of $100,000 or a whole  multiple  thereof.
         Each  Conversion  Request  relating  to the  conversion  of a Revolving
         Credit Loan to a LIBOR Rate Loan shall be irrevocable by the Borrower.

                  2.7.2.  Continuation  of Type of Revolving  Credit  Loan.  Any
         Revolving  Credit  Loan of any Type  may be  continued  as a  Revolving
         Credit Loan of the same Type upon the expiration of an Interest  Period
         with respect  thereto by  compliance  by the  Borrower  with the notice
         provisions contained in ss.2.7.1;  provided that no LIBOR Rate Loan may
         be  continued as such when any Default or Event of Default has occurred
         and is continuing, but shall be automatically converted to a Prime Rate
         Loan on the last day of the  first  Interest  Period  relating  thereto
         ending  during the  continuance  of any  Default or Event of Default of
         which  officers of the Agent  active upon the  Borrower's  account have
         actual  knowledge.  In the event that the Borrower fails to provide any
         such notice with respect to the  continuation of any LIBOR Rate Loan as
         such, then such LIBOR Rate Loan shall be  automatically  converted to a
         Prime Rate Loan on the last day of the first Interest  Period  relating
         thereto.  The  Agent  shall  notify  the Banks  promptly  when any such
         automatic conversion contemplated by this ss.2.7 is scheduled to occur.

                                       45
<PAGE>

                  2.7.3.  LIBOR Rate Loans. Any conversion to or from LIBOR Rate
         Loans shall be in such amounts and be made  pursuant to such  elections
         so that, after giving effect thereto, the aggregate principal amount of
         all LIBOR Rate Loans having the same Interest  Period shall not be less
         than  $250,000 or a whole  multiple of $100,000 in excess  thereof.  No
         more than seven (7) LIBOR Rate Loans having different  Interest Periods
         may be outstanding at any time.

         2.8.  Funds for Revolving Credit Loan.

                  2.8.1.  Funding Procedures.  Not later than 11:00 a.m. (Boston
         time) on the proposed Drawdown Date of any Revolving Credit Loans, each
         of the Banks will make  available  to the Agent,  at the  Agent's  Head
         Office,  in  immediately  available  funds,  the amount of such  Bank's
         Commitment  Percentage of the amount of the requested  Revolving Credit
         Loans. Upon receipt from each Bank of such amount,  and upon receipt of
         the documents  required by ss.ss.11 and 12 and the  satisfaction of the
         other conditions set forth therein, to the extent applicable, the Agent
         will  make  available  to the  Borrower  the  aggregate  amount of such
         Revolving  Credit Loans made  available to the Agent by the Banks.  The
         failure or refusal  of any Bank to make  available  to the Agent at the
         aforesaid  time  and  place on any  Drawdown  Date  the  amount  of its
         Commitment Percentage of the requested Revolving Credit Loans shall not
         relieve any other Bank from its several  obligation  hereunder  to make
         available  to the Agent  the  amount of such  other  Bank's  Commitment
         Percentage of any requested Revolving Credit Loans.

                  2.8.2.  Advances by Agent.  The Agent may,  unless notified to
         the  contrary  by any Bank prior to a Drawdown  Date,  assume that such
         Bank has made  available to the Agent on such  Drawdown Date the amount
         of such Bank's  Commitment  Percentage of the Revolving Credit Loans to
         be made on such Drawdown  Date,  and the Agent may (but it shall not be
         required to), in reliance upon such  assumption,  make available to the
         Borrower a  corresponding  amount.  If any Bank makes  available to the
         Agent such amount on a date after such Drawdown  Date,  such Bank shall
         pay to the Agent on demand an amount  equal to the  product  of (a) the
         average computed for the period referred to in clause (c) below, of the
         weighted  average  interest  rate paid by the Agent for  federal  funds
         acquired by the Agent during each day  included in such  period,  times
         (b) the amount of such Bank's  Commitment  Percentage of such Revolving
         Credit  Loans,  times (c) a  fraction,  the  numerator  of which is the
         number of days that elapse from and including such Drawdown Date to the
         date on which the amount of such Bank's  Commitment  Percentage of such
         Revolving Credit Loans shall become immediately available to the Agent,
         and the denominator of which is 365. A statement of the Agent submitted
         to such Bank with  respect to any amounts  owing  under this  paragraph
         shall be prima facie  evidence of the amount due and owing to the Agent
         by such Bank.  If the amount of such Bank's  Commitment  Percentage  of
         such Revolving  Credit Loans is not made available to the Agent by such
         Bank within three (3) Business Days  following  such Drawdown Date, the
         Agent  shall be entitled  to recover  such amount from the  Borrower on
         demand,  with interest  thereon at the rate per annum applicable to the
         Revolving Credit Loans made on such Drawdown Date.

                                       46
<PAGE>

                   3. REPAYMENT OF THE REVOLVING CREDIT LOANS.

         3.1.  Maturity.  The Borrower  promises to pay on the Revolving  Credit
Loan Maturity  Date,  and there shall become  absolutely  due and payable on the
Revolving  Credit  Loan  Maturity  Date,  all  of  the  Revolving  Credit  Loans
outstanding on such date,  together with any and all accrued and unpaid interest
thereon.

         3.2.  Mandatory Repayment of Revolving Credit Loans.

                  3.2.1.  General.  If at any  time  the sum of the  outstanding
         amount of the Revolving  Credit Loans,  the Maximum  Drawing Amount and
         all Unpaid Reimbursement Obligations exceeds the Total Commitment, then
         the  Borrower  shall  immediately  pay the amount of such excess to the
         Agent for the respective accounts of the Banks for application:  first,
         to any  Unpaid  Reimbursement  Obligations;  second,  to the  Revolving
         Credit Loans;  and third,  to provide to the Agent cash  collateral for
         Reimbursement  Obligations as  contemplated  by ss.4.2(b) and (c). Each
         payment  of any  Unpaid  Reimbursement  Obligations  or  prepayment  of
         Revolving   Credit  Loans  shall  be  allocated  among  the  Banks,  in
         proportion, as nearly as practicable,  to each Reimbursement Obligation
         or (as the case may be) the respective  unpaid principal amount of each
         Bank's   Revolving   Credit  Note,  with   adjustments  to  the  extent
         practicable to equalize any prior payments or repayments not exactly in
         proportion.

                  3.2.2. Proceeds. Concurrently with the receipt by the Borrower
         or any of its  Subsidiaries  of (a) Net Cash Sale  Proceeds  from Asset
         Sales (other than the sale of inventory or the  disposition of obsolete
         assets, in each case in the ordinary course of business consistent with
         past practices) or (b) Net Cash Proceeds from any Equity Issuances, the
         Borrower  shall  pay to the Agent for the  respective  accounts  of the
         Banks an amount  equal to (i) one  hundred  percent  (100%) of such Net
         Cash Sale  Proceeds  from any Asset Sale by the  Borrower or any of its
         domestic  Subsidiaries  in excess of $500,000 in the  aggregate  in any
         fiscal  year and from any Asset Sale by any foreign  Subsidiary  of the
         Borrower in excess of  $5,000,000  in the aggregate in any fiscal year,
         and (ii) seventy-five percent (75%) of such Net Cash Proceeds,  in each
         case,  to be applied  against the  outstanding  amount of the Revolving
         Credit Loans.

         3.3. Optional  Repayments of Revolving Credit Loans. The Borrower shall
have  the  right,  at its  election,  to repay  the  outstanding  amount  of the
Revolving  Credit Loans,  as a whole or in part, at any time without  penalty or
premium,  provided that any full or partial prepayment of the outstanding amount
of any LIBOR Rate Loans pursuant to this ss.3.3 may be made only on the last day
of the Interest Period relating  thereto.  The Borrower shall give the Agent, no
later than 10:00 a.m., Boston time, at least one (1) Business Days prior written
notice of any proposed  prepayment  pursuant to this ss.3.3 of Prime Rate Loans,
and three (3) LIBOR Business Days notice of any proposed  prepayment pursuant to
this ss.3.3 of LIBOR Rate Loans,  in each case  specifying  the proposed date of
prepayment  of Revolving  Credit Loans and the  principal  amount to be prepaid.
Each such  partial  prepayment  of the  Revolving  Credit  Loans  shall be in an
integral multiple of $500,000 or a whole multiple of $100,000 in excess thereof,
shall be accompanied by the payment of accrued interest on the principal prepaid
to the date of prepayment and shall be applied, in the absence of instruction by
the  Borrower,  first to the  principal  of  Prime  Rate  Loans  and then to the
principal of LIBOR Rate Loans. Each partial  prepayment shall be allocated among
the Banks,  in proportion,  as nearly as practicable,  to the respective  unpaid
principal  amount of each Bank's  Revolving Credit Note, with adjustments to the
extent practicable to equalize any prior repayments not exactly in proportion.

                                       47
<PAGE>


                              4. LETTERS OF CREDIT.

         4.1.  Letter of Credit Commitments.

                  4.1.1.  Commitment to Issue Letters of Credit.  Subject to the
         terms and  conditions  hereof and the  execution  and  delivery  by the
         Borrower of a letter of credit  application  on the  Agent's  customary
         form (a  "Letter  of Credit  Application"),  the Agent on behalf of the
         Banks  and in  reliance  upon the  agreement  of the Banks set forth in
         ss.4.1.4 and upon the  representations  and  warranties of the Borrower
         contained herein,  agrees, in its individual capacity, to issue, extend
         and  renew for the  account  of the  Borrower  one or more  standby  or
         documentary letters of credit (individually,  a "Letter of Credit"), in
         such form as may be  requested  from time to time by the  Borrower  and
         agreed to by the Agent; provided, however, that, after giving effect to
         such request,  the sum of (a) the Maximum Drawing Amount on all Letters
         of Credit, (b) all Unpaid Reimbursement Obligations, and (c) the amount
         of all Revolving  Credit Loans  outstanding  shall not exceed the Total
         Commitment.  Notwithstanding  the  foregoing,  the Agent  shall have no
         obligation  to issue any  Letter of Credit  to  support  or secure  any
         Indebtedness  of the Borrower or any of its  Subsidiaries to the extent
         that such Indebtedness was incurred prior to the proposed issuance date
         of such  Letter  of  Credit,  unless  in any  such  case  the  Borrower
         demonstrates  to the  satisfaction  of the  Agent  that (x) such  prior
         incurred  Indebtedness were then fully secured by a prior perfected and
         unavoidable security interest in collateral provided by the Borrower or
         such Subsidiary to the proposed beneficiary of such Letter of Credit or
         (y) such prior incurred  Indebtedness were then secured or supported by
         a letter of credit  issued  for the  account  of the  Borrower  or such
         Subsidiary and the reimbursement obligation with respect to such letter
         of credit  was  fully  secured  by a prior  perfected  and  unavoidable
         security  interest in collateral  provided to the issuer of such letter
         of credit by the Borrower or such Subsidiary.

                  4.1.2.  Letter of Credit  Applications.  Each Letter of Credit
         Application  shall be completed to the reasonable  satisfaction  of the
         Agent.  In the  event  that  any  provision  of any  Letter  of  Credit
         Application  shall be  inconsistent  with any  provision of this Credit
         Agreement,  then the provisions of this Credit  Agreement shall, to the
         extent of any such inconsistency, govern.

                  4.1.3.  Terms of  Letters  of  Credit.  Each  Letter of Credit
         issued,  extended or renewed hereunder shall,  among other things,  (a)
         provide  for the  payment  of sight  drafts for honor  thereunder  when
         presented in accordance with the terms thereof and when  accompanied by
         the documents  described therein,  and (b) have an expiry date no later
         than the date which is fourteen  (14) days (or, if the Letter of Credit
         is  confirmed  by a confirmer  or  otherwise  provides  for one or more
         nominated persons,  forty-five (45) days) prior to the Revolving Credit
         Loan  Maturity  Date.  Each  Letter of Credit so  issued,  extended  or
         renewed  shall be subject to the  Uniform  Customs or, in the case of a
         standby   Letter  of  Credit,   either  the  Uniform   Customs  or  the
         International Standby Practices.

                                       48
<PAGE>


                  4.1.4. Reimbursement Obligations of Banks. Each Bank severally
         agrees  that it shall  be  absolutely  liable,  without  regard  to the
         occurrence  of any  Default or Event of Default or any other  condition
         precedent   whatsoever,   to  the  extent  of  such  Bank's  Commitment
         Percentage,  to  reimburse  the Agent on demand  for the amount of each
         draft paid by the Agent  under each Letter of Credit to the extent that
         such amount is not reimbursed by the Borrower  pursuant to ss.4.2 (such
         agreement  for a  Bank  being  called  herein  the  "Letter  of  Credit
         Participation" of such Bank).

                  4.1.5.  Participations  of Banks.  Each such payment made by a
         Bank shall be treated as the  purchase by such Bank of a  participating
         interest in the Borrower's  Reimbursement Obligation under ss.4.2 in an
         amount equal to such payment.  Each Bank shall share in accordance with
         its  participating  interest in any interest which accrues  pursuant to
         ss.4.2.

         4.2.  Reimbursement  Obligation of the Borrower. In order to induce the
Agent to  issue,  extend  and  renew  each  Letter  of  Credit  and the Banks to
participate  therein,  the  Borrower  hereby  agrees to  reimburse or pay to the
Agent,  for the  account  of the Agent or (as the case may be) the  Banks,  with
respect  to each  Letter of Credit  issued,  extended  or  renewed  by the Agent
hereunder,

                  (a) except as otherwise  expressly  provided in ss.4.2(b)  and
         (c), on each date that any draft  presented under such Letter of Credit
         is honored by the Agent,  or the Agent  otherwise  makes a payment with
         respect thereto, (i) the amount paid by the Agent under or with respect
         to such  Letter of  Credit,  and (ii) the  amount of any  taxes,  fees,
         charges or other costs and expenses whatsoever incurred by the Agent or
         any Bank in  connection  with any payment made by the Agent or any Bank
         under, or with respect to, such Letter of Credit,

                  (b) upon the  reduction  (but not  termination)  of the  Total
         Commitment to an amount less than the Maximum Drawing Amount, an amount
         equal to such  difference,  which amount shall be held by the Agent for
         the  benefit  of the  Banks and the  Agent as cash  collateral  for all
         Reimbursement Obligations, and

                  (c) upon  the  termination  of the  Total  Commitment,  or the
         acceleration  of the  Reimbursement  Obligations  with  respect  to all
         Letters of Credit in accordance with ss.13, an amount equal to the then
         Maximum Drawing Amount on all Letters of Credit,  which amount shall be
         held by the  Agent for the  benefit  of the Banks and the Agent as cash
         collateral for all Reimbursement Obligations.

Each such  payment  shall be made to the  Agent at the  Agent's  Head  Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this ss.4.2 at any time from the date such amounts become due
and payable  (whether as stated in this ss.4.2,  by  acceleration  or otherwise)
until payment in full (whether before or after judgment) shall be payable to the
Agent on demand at the rate  specified  in ss.5.11 for overdue  principal on the
Revolving Credit Loans.

                                       49
<PAGE>


         4.3.  Letter of Credit  Payments.  If any draft shall be  presented  or
other  demand for  payment  shall be made under any Letter of Credit,  the Agent
shall  notify  the  Borrower  of the date and amount of the draft  presented  or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment.  If the Borrower  fails to reimburse the Agent as
provided  in  ss.4.2 on or  before  the date  that  such  draft is paid or other
payment is made by the Agent,  the Agent may at any time  thereafter  notify the
Banks of the amount of any such Unpaid Reimbursement  Obligation.  No later than
3:00 p.m.  (Boston time) on the Business Day next  following the receipt of such
notice, each Bank shall make available to the Agent, at the Agent's Head Office,
in immediately available funds, such Bank's Commitment Percentage of such Unpaid
Reimbursement  Obligation,  together  with an amount equal to the product of (a)
the  average,  computed for the period  referred to in clause (c) below,  of the
weighted  average  interest rate paid by the Agent for federal funds acquired by
the Agent during each day included in such period, times (b) the amount equal to
such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, times
(c) a fraction,  the  numerator  of which is the number of days that elapse from
and including the date the Agent paid the draft presented for honor or otherwise
made  payment to the date on which such  Bank's  Commitment  Percentage  of such
Unpaid Reimbursement obligation shall become immediately available to the Agent,
and the  denominator  of which is 360.  The  responsibility  of the Agent to the
Borrower and the Banks shall be only to determine that the documents  (including
each  draft)  delivered  under  each  Letter of Credit in  connection  with such
presentment  shall be in conformity in all material respects with such Letter of
Credit.

         4.4. Obligations Absolute.  The Borrower's  obligations under this ss.4
shall  be  absolute  and  unconditional  under  any  and all  circumstances  and
irrespective  of the  occurrence  of any  Default  or  Event of  Default  or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the  Borrower  may have or have had  against  the  Agent,  any Bank or any
beneficiary  of a Letter of Credit.  The Borrower  further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrower's  Reimbursement  Obligations  under  ss.4.2  shall not be affected by,
among  other  things,  the  validity  or  genuineness  of  documents  or of  any
endorsements  thereon,  even if such documents should in fact prove to be in any
or all respects  invalid,  fraudulent or forged, or any dispute between or among
the  Borrower,  the  beneficiary  of any  Letter  of  Credit  or  any  financing
institution  or other party to which any Letter of Credit may be  transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such  transferee.  The Agent and the Banks  shall not be
liable for any error, omission, interruption or delay in transmission,  dispatch
or delivery of any message or advice,  however  transmitted,  in connection with
any Letter of Credit absent their gross negligence and willful  misconduct.  The
Borrower  agrees that any action taken or omitted by the Agent or any Bank under
or in  connection  with  each  Letter  of  Credit  and the  related  drafts  and
documents,  if done in good faith,  shall be binding upon the Borrower and shall
not  result  in any  liability  on the  part  of the  Agent  or any  Bank to the
Borrower.

                                       50
<PAGE>


         4.5.  Reliance by Issuer.  To the extent not inconsistent  with ss.4.4,
the Agent  shall be entitled to rely,  and shall be fully  protected  in relying
upon,  any  Letter of  Credit,  draft,  writing,  resolution,  notice,  consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message,  statement,  order or other  document  reasonably  believed by it to be
genuine and correct and to have been signed,  sent or made by the proper  Person
or  Persons  and  upon  advice  and  statements  of legal  counsel,  independent
accountants  and other experts  selected by the Agent.  The Agent shall be fully
justified in failing or refusing to take any action under this Credit  Agreement
unless it shall first have received such advice or  concurrence  of the Majority
Banks as it reasonably deems appropriate or it shall first be indemnified to its
reasonable  satisfaction  by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or  continuing  to take any such
action.  The  Agent  shall in all  cases be fully  protected  in  acting,  or in
refraining from acting, under this Credit Agreement in accordance with a request
of the Majority  Banks (solely with respect to the Borrower,  absent the Agent's
gross negligence and willful misconduct),  and such request and any action taken
or  failure to act  pursuant  thereto  shall be  binding  upon the Banks and all
future  holders  of  the  Revolving  Credit  Notes  or  of a  Letter  of  Credit
Participation.

         4.6.  Letter of Credit Fee. The Borrower shall pay a fee (in each case,
a "Letter of Credit Fee") to the Agent  quarterly in arrears on the first day of
each calendar quarter for the immediately  preceding calendar quarter commencing
on the first such date  following the date hereof (a) in respect of each standby
Letter of Credit an amount equal to the  Applicable  Margin for Letter of Credit
Fees per annum of the face amount of such standby Letter of Credit,  of which an
amount equal to one eighth of one percent (1/8%) per annum of the face amount of
such  standby  Letter of Credit  shall be for the  account  of the  Agent,  as a
fronting  fee,  and the  balance of which  Letter of Credit Fee shall be for the
accounts of the Banks in accordance with their respective Commitment Percentages
and (b) in respect of each  documentary  Letter of Credit an amount equal to the
Applicable Margin for Letter of Credit Fees per annum of the face amount of such
documentary  Letter of  Credit,  of which an amount  equal to one  eighth of one
percent (1/8%) per annum of the face amount of such documentary Letter of Credit
shall be for the  account of the Agent,  as a fronting  fee,  and the balance of
which Letter of Credit Fee shall be for the accounts of the Banks in  accordance
with their  respective  Commitment  Percentages.  In  respect of each  Letter of
Credit, the Borrower shall also pay to the Agent for the Agent's own account, on
the date of issuance or any  extension or renewal of any Letter of Credit and at
such other time or times as such charges are customarily  made by the Agent, the
Agent's customary issuance,  amendment,  negotiation or document examination and
other administrative fees as in effect from time to time.

                                       51
<PAGE>


                         5. CERTAIN GENERAL PROVISIONS.

         5.1. Closing Fee. The Borrower agrees to pay to the Agent a closing fee
in accordance with the terms of the fee letter dated as of the date hereof.

         5.2.  Agent's  Fee.  The  Borrower  shall pay to the Agent  annually in
advance, for the Agent's own account,  commencing on the date on which any other
Bank  (other  than  Fleet)  becomes  a  party  to  this  Agreement  and on  each
anniversary of such date, an Agent's fee in an amount to be mutually agreed upon
by the Agent and the Borrower at such time.

         5.3.  Funds for Payments.

                  5.3.1. Payments to Agent. All payments of principal, interest,
         Reimbursement  Obligations,  Commitment Fees, Letter of Credit Fees and
         any  other  amounts  due  hereunder  or  under  any of the  other  Loan
         Documents  shall  be made on the  due  date  thereof  to the  Agent  in
         Dollars, for the respective accounts of the Banks and the Agent, at the
         Agent's Head Office or at such other place that the Agent may from time
         to  time  designate,  in each  case at or  about  11:00  a.m.  (Boston,
         Massachusetts, time or other local time at the place of payment) and in
         immediately available funds.

                  5.3.2. No Offset,  etc. All payments by the Borrower hereunder
         and  under  any of the  other  Loan  Documents  shall  be made  without
         recoupment,  setoff or  counterclaim  and free and clear of and without
         deduction  for any  taxes,  levies,  imposts,  duties,  charges,  fees,
         deductions, withholdings,  compulsory loans, restrictions or conditions
         of any nature now or hereafter imposed or levied by any jurisdiction or
         any political  subdivision thereof or taxing or other authority therein
         unless the  Borrower  is  compelled  by law to make such  deduction  or
         withholding.  If any such  obligation is imposed upon the Borrower with
         respect to any amount payable by it hereunder or under any of the other
         Loan Documents,  the Borrower will pay to the Agent, for the account of
         the Banks or (as the case may be) the Agent,  on the date on which such
         amount is due and payable  hereunder or under such other Loan Document,
         such  additional  amount in Dollars as shall be necessary to enable the
         Banks or the Agent to receive  the same net  amount  which the Banks or
         the Agent would have  received on such due date had no such  obligation
         been imposed upon the Borrower.  The Borrower will deliver  promptly to
         the Agent  certificates  or other valid vouchers for all taxes or other
         charges  deducted  from or paid with  respect to  payments  made by the
         Borrower hereunder or under such other Loan Document.

         5.4. Computations. All computations of interest on the Prime Rate Loans
and of  Commitment  Fees,  Letter of Credit  Fees or other  fees  shall,  unless
otherwise expressly provided herein, be based on a 365-day year and paid for the
actual number of days elapsed,  and all  computations  of interest on LIBOR Rate
Loans  shall be based on a 360-day  year and paid for the actual  number of days
elapsed.  Except as otherwise  provided in the  definition of the term "Interest
Period" with respect to LIBOR Rate Loans,  whenever a payment hereunder or under
any of the other Loan Documents becomes due on a day that is not a Business Day,
the due date for such payment shall be extended to the next succeeding  Business
Day, and interest shall accrue during such extension.  The outstanding amount of
the  Revolving  Credit Loans as reflected on the Records from time to time shall
be considered  prima facie evidence  thereof and binding on the Borrower  unless
within ten (10) Business Days after receipt of any notice by the Agent or any of
the Banks of such  outstanding  amount,  the Agent or such Bank shall notify the
Borrower to the contrary.

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<PAGE>


         5.5.  Inability to  Determine  LIBOR Rate.  In the event,  prior to the
commencement  of any Interest  Period relating to any LIBOR Rate Loan, the Agent
shall  determine  that  adequate  and  reasonable   methods  do  not  exist  for
ascertaining the LIBOR Rate that would otherwise  determine the rate of interest
to be  applicable to any LIBOR Rate Loan during any Interest  Period,  the Agent
shall forthwith give notice of such determination (which shall be conclusive and
binding on the Borrower  and the Banks) to the  Borrower and the Banks.  In such
event (a) any Loan  Request or  Conversion  Request  with  respect to LIBOR Rate
Loans shall be  automatically  withdrawn and shall be deemed a request for Prime
Rate Loans, (b) each LIBOR Rate Loan will automatically,  on the last day of the
then current Interest Period relating thereto, become a Prime Rate Loan, and (c)
the  obligations of the Banks to make LIBOR Rate Loans shall be suspended  until
the Agent  determines that the  circumstances  giving rise to such suspension no
longer exist, whereupon the Agent shall so notify the Borrower and the Banks.

         5.6.  Illegality.  Notwithstanding  any other provisions herein, if any
present or future law, regulation,  treaty or directive or in the interpretation
or  application  thereof shall make it unlawful for any Bank to make or maintain
LIBOR Rate Loans, such Bank shall forthwith give notice of such circumstances to
the Borrower and the other Banks and thereupon  (a) the  commitment of such Bank
to make LIBOR Rate  Loans or convert  Loans of another  Type to LIBOR Rate Loans
shall  forthwith be suspended  and (b) such Bank's  Revolving  Credit Loans then
outstanding  as LIBOR Rate Loans,  if any, shall be converted  automatically  to
Prime  Rate Loans on the last day of each  Interest  Period  applicable  to such
LIBOR Rate Loans or within such  earlier  period as may be required by law.  The
Borrower  hereby agrees  promptly to pay the Agent for the account of such Bank,
upon demand by such Bank, any additional  amounts  necessary to compensate  such
Bank for any costs  incurred by such Bank in making any conversion in accordance
with this ss.5.6, including any interest or fees payable by such Bank to lenders
of funds  obtained  by it in order to make or  maintain  its  LIBOR  Rate  Loans
hereunder.

         5.7.  Additional  Costs,  etc. If any present or future applicable law,
which  expression,  as used herein,  includes  statutes,  rules and  regulations
thereunder  and  interpretations  thereof  by  any  competent  court  or by  any
governmental   or  other   regulatory   body  or  official   charged   with  the
administration  or  the   interpretation   thereof  and  requests,   directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise  issued to any bank by any central bank or other  fiscal,  monetary or
other authority (whether or not having the force of law), shall:

                  (a)  subject any Bank or the Agent to any tax,  levy,  impost,
         duty, charge,  fee, deduction or withholding of any nature with respect
         to this  Credit  Agreement,  the other Loan  Documents,  any Letters of
         Credit,  such Bank's  Commitment or the  Revolving  Credit Loans (other
         than taxes based upon or measured by the income or profits of such Bank
         or the Agent), or

                  (b)  materially  change  the  basis of  taxation  (except  for
         changes in taxes on income or  profits)  of payments to any Bank of the
         principal of or the interest on any Revolving Credit Loans or any other
         amounts payable to any Bank or the Agent under this Credit Agreement or
         any of the other Loan Documents, or

                                       53
<PAGE>

                  (c) impose or increase or render applicable (other than to the
         extent  specifically  provided for elsewhere in this Credit  Agreement)
         any special deposit, reserve,  assessment,  liquidity, capital adequacy
         or other similar requirements  (whether or not having the force of law)
         against  assets held by, or deposits in or for the account of, or loans
         by, or letters of credit issued by, or  commitments of an office of any
         Bank, or

                  (d)  impose on any Bank or the Agent any other  conditions  or
         requirements  with  respect to this  Credit  Agreement,  the other Loan
         Documents,  any Letters of Credit,  the Revolving  Credit  Loans,  such
         Bank's  Commitment,  or any  class  of  loans,  letters  of  credit  or
         commitments  of which any of the Revolving  Credit Loans or such Bank's
         Commitment forms a part, and the result of any of the foregoing is

                           (i) to  increase  the  cost to any  Bank  of  making,
                  funding,  issuing,  renewing,  extending or maintaining any of
                  the  Revolving  Credit Loans or such Bank's  Commitment or any
                  Letter of Credit, or

                           (ii) to reduce  the  amount of  principal,  interest,
                  Reimbursement  Obligation or other amount payable to such Bank
                  or the Agent  hereunder on account of such Bank's  Commitment,
                  any Letter of Credit or any of the Revolving Credit Loans, or

                           (iii) to  require  such Bank or the Agent to make any
                  payment or to forego any interest or Reimbursement  Obligation
                  or other sum payable hereunder, the amount of which payment or
                  foregone interest or Reimbursement  Obligation or other sum is
                  calculated  by  reference  to the  gross  amount  of  any  sum
                  receivable  or deemed  received by such Bank or the Agent from
                  the Borrower hereunder,

then, and in each such case,  the Borrower will,  within thirty (30) days of any
demand made by such Bank or (as the case may be) the Agent,  pay to such Bank or
the Agent such additional  amounts as will be sufficient to compensate such Bank
or the Agent for such additional cost,  reduction,  payment or foregone interest
or Reimbursement Obligation or other sum.

         5.8. Capital  Adequacy.  If after the date hereof any Bank or the Agent
determines  that (a) the  adoption of or change in any law,  governmental  rule,
regulation,  policy,  guideline or directive (whether or not having the force of
law) regarding  capital  requirements for banks or bank holding companies or any
change in the  interpretation or application  thereof by a court or governmental
authority with appropriate  jurisdiction,  or (b) compliance by such Bank or the
Agent  or any  corporation  controlling  such  Bank or the  Agent  with any law,
governmental rule,  regulation,  policy,  guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy,  has the
effect of  reducing  the return on such Bank's or the  Agent's  commitment  with
respect to any  Revolving  Credit Loans to a level below that which such Bank or
the Agent  could  have  achieved  but for such  adoption,  change or  compliance
(taking into  consideration  such Bank's or the Agent's then  existing  policies
with respect to capital  adequacy and assuming full utilization of such entity's
capital) by any amount  deemed by such Bank or (as the case may be) the Agent to
be  material,  then such Bank or the Agent may notify the Borrower of such fact.
To the extent that the amount of such  reduction in the return on capital is not
reflected in the Prime Rate, the Borrower and such Bank shall thereafter attempt
to  negotiate  in good  faith,  within  thirty (30) days of the day on which the
Borrower  receives  such  notice,  an  adjustment  payable  hereunder  that will
adequately compensate such Bank in light of these circumstances. If the Borrower
and such Bank are unable to agree to such adjustment  within thirty (30) days of
the date on which the Borrower receives such notice, then commencing on the date
of such notice (but not earlier than the  effective  date of any such  increased
capital  requirement),  the fees payable  hereunder  shall increase by an amount
that  will,  in  such  Bank's   reasonable   determination,   provide   adequate
compensation.  Each Bank shall allocate such cost increases  among its customers
in good faith and on an equitable basis.

                                       54
<PAGE>

         5.9.  Certificate.  A certificate  setting forth any additional amounts
payable  pursuant to  ss.ss.5.7 or 5.8 and a brief  explanation  of such amounts
which  are due,  submitted  by any Bank or the Agent to the  Borrower,  shall be
conclusive, absent manifest error, that such amounts are due and owing.

         5.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any LIBOR Rate  Loans as and when due and  payable,  including  any such loss or
expense  arising from  interest or fees payable by such Bank to lenders of funds
obtained  by it in order to maintain  its LIBOR Rate  Loans,  (b) default by the
Borrower in making a borrowing or conversion after the Borrower has given (or is
deemed to have given) a Loan Request or a Conversion Request relating thereto in
accordance  with  ss.2.6 or ss.2.7 or (c) the  making of any  payment of a LIBOR
Rate Loan or the making of any conversion of any such Revolving Credit Loan to a
Prime  Rate  Loan on a day that is not the last day of the  applicable  Interest
Period with respect thereto,  including interest or fees payable by such Bank to
lenders of funds obtained by it in order to maintain any such  Revolving  Credit
Loans.

         5.11.  Interest After Default; Late Fee.

                  5.11.1. Overdue Amounts.  Overdue principal and (to the extent
         permitted by applicable law) interest on the Revolving Credit Loans and
         all other overdue amounts  payable  hereunder or under any of the other
         Loan Documents  shall bear interest  compounded  monthly and payable on
         demand  at a rate  per  annum  equal to four  percent  (4%)  above  the
         interest rate otherwise applicable to such Revolving Credit Loans until
         such amount shall be paid in full (after as well as before judgment).

                  5.11.2.  Amounts Not  Overdue.  During the  continuance  of an
         Event of  Default  the  principal  of the  Revolving  Credit  Loans not
         overdue  shall,  until such Event of Default has been cured or remedied
         or such Event of Default has been waived by the Majority Banks pursuant
         to ss.26,  bear interest at a rate per annum equal to four percent (4%)
         above the interest rate otherwise  applicable to such Revolving  Credit
         Loans pursuant to ss.2.5.

                  5.11.3.  Late  Fee.  If the  entire  amount  of  any  required
         principal  and/or  interest  is not paid in full  within  ten (10) days
         after  the same is due,  the  Borrower  shall  pay to the Agent for the
         account  of the  Banks a late  fee  equal to five  percent  (5%) of the
         required payment.

                                 6. GUARANTIES.

         The Obligations  shall also be guaranteed  pursuant to the terms of the
Guaranty.

                       7. REPRESENTATIONS AND WARRANTIES.

         The  Borrower  represents  and  warrants  to the Banks and the Agent as
follows:

         7.1.  Corporate Authority.

                  7.1.1. Incorporation;  Good Standing. Each of the Borrower and
         the Guarantors (a) is a corporation  duly organized,  validly  existing
         and in good standing under the laws of its state of incorporation,  (b)
         has all requisite  corporate  power to own its property and conduct its
         business as now conducted and as presently contemplated,  and (c) is in
         good  standing as a foreign  corporation  and is duly  authorized to do
         business in each  jurisdiction  where such  qualification  is necessary
         except where a failure to be so  qualified  would not have a materially
         adverse  effect on the business,  assets or financial  condition of the
         Borrower and the Guarantors, taken as a whole.

                                       55
<PAGE>

                  7.1.2. Authorization.  The execution, delivery and performance
         of this  Credit  Agreement  and the other Loan  Documents  to which the
         Borrower  or any of the  Guarantors  is or is to become a party and the
         transactions  contemplated  hereby  and  thereby  (a)  are  within  the
         corporate  authority of such Person,  (b) have been duly  authorized by
         all necessary corporate proceedings,  (c) to the best of the Borrower's
         knowledge,   do  not   conflict   with  or  result  in  any  breach  or
         contravention of any provision of law,  statute,  rule or regulation to
         which the Borrower or any of the Guarantors is subject or any judgment,
         order, writ,  injunction,  license or permit applicable to the Borrower
         or any of the  Guarantors and (d) do not conflict with any provision of
         the corporate  charter or bylaws of, or, in any material  respect,  any
         agreement or other instrument  binding upon, the Borrower or any of the
         Guarantors.

                  7.1.3.  Enforceability.  The  execution  and  delivery of this
         Credit  Agreement and the other Loan Documents to which the Borrower or
         any of the  Guarantors  is or is to become a party will result in valid
         and legally binding  obligations of such Person enforceable  against it
         in  accordance  with the  respective  terms and  provisions  hereof and
         thereof, except as enforceability is limited by bankruptcy, insolvency,
         reorganization,  moratorium  or other  laws  relating  to or  affecting
         generally the enforcement of creditors' rights and except to the extent
         that  availability of the remedy of specific  performance or injunctive
         relief is  subject  to the  discretion  of the court  before  which any
         proceeding therefor may be brought.

         7.2. Governmental Approvals. The execution, delivery and performance by
the Borrower and any of the  Guarantors  of this Credit  Agreement and the other
Loan Documents to which the Borrower or any of the Guarantors is or is to become
a party and the transactions  contemplated hereby and thereby do not require the
approval or consent of, or filing  with,  any  governmental  agency or authority
other than those already obtained.

         7.3. Title to Properties;  Leases.  Except as indicated on Schedule 7.3
hereto,  the Borrower and its  Consolidated  Subsidiaries  own all of the assets
reflected in the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries  as at the Balance  Sheet Date or acquired  since that date (except
property  and assets sold or  otherwise  disposed of in the  ordinary  course of
business  since  that  date),  subject  to no rights of  others,  including  any
mortgages,  leases,  conditional sales agreements,  title retention  agreements,
liens or other encumbrances except Permitted Liens.

         7.4.  Financial Statements, Projections and Solvency.

                  7.4.1.  Fiscal Year. The Borrower and each of its Subsidiaries
         has a fiscal year which is the twelve  months  ending on December 31 of
         each calendar year.

                  7.4.2. Financial Statements.  There has been furnished to each
         of the  Banks a  consolidated  balance  sheet of the  Borrower  and its
         Subsidiaries as at the Balance Sheet Date, and a consolidated statement
         of income of the Borrower and its Subsidiaries for the fiscal year then
         ended,  certified  by  PricewaterhouseCoopers   LLP  and  an  unaudited
         consolidated balance sheet of the Borrower and its Subsidiaries, and an
         unaudited  consolidated  statement  of income of the  Borrower  and its
         Subsidiaries  for the  calendar  quarter  ended  March 31,  2000.  Such
         balance   sheets  and  statements  of  income  have  been  prepared  in
         accordance  with generally  accepted  accounting  principles and fairly
         present  the  financial  condition  of the  Borrower as at the close of
         business  on the date  thereof and the  results of  operations  for the
         fiscal  year then ended.  There are no  contingent  liabilities  of the
         Borrower or any of its Subsidiaries as of such date involving  material
         amounts,  known  to  the  officers  of the  Borrower,  which  were  not
         disclosed in such balance sheet and the notes related thereto.

                                       56
<PAGE>


                  7.4.3.  Projections.  The projections of the annual  operating
         budgets of the Borrower and its  Subsidiaries on a consolidated  basis,
         balance  sheets  and cash flow  statements  for the 2000  fiscal  year,
         copies of which have been delivered to each Bank, disclose all material
         assumptions made with respect to general economic, financial and market
         conditions used in formulating  such  projections.  To the knowledge of
         the  Borrower  or  any  of  its  Subsidiaries,   no  facts  exist  that
         (individually  or in the aggregate) would result in any material change
         in any of such  projections.  The projections are based upon reasonable
         estimates  and  assumptions,  have  been  prepared  on the basis of the
         assumptions stated therein and reflect the reasonable  estimates of the
         Borrower and its  Subsidiaries  of the results of operations  and other
         information projected therein.

                  7.4.4.  Solvency.  The  Borrower  and its  Subsidiaries,  on a
         consolidated  and  consolidating  basis,  both before and after  giving
         effect to the  transactions  contemplated by this Credit  Agreement and
         the other Loan Documents (a) are solvent; (b) have assets having a fair
         value in excess of their  liabilities;  (c) have  assets  having a fair
         value in excess of the  amount  required  to pay their  liabilities  on
         existing debts as such debts become due and payable,  and (d) have, and
         expect to continue to have,  access to adequate capital for the conduct
         of their  business and the ability to pay their debts from time to time
         incurred in  connection  with the  operation of their  business as such
         debts mature.

         7.5. No Material  Changes,  etc. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial  condition or business of
the Borrower and its  Subsidiaries as shown on or reflected in the  consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the  consolidated  statement of income for the fiscal year then ended,  other
than changes in the ordinary course of business that have not had any materially
adverse  effect  either  individually  or in the  aggregate  on the  business or
financial  condition  of the  Borrower  or any of its  Subsidiaries.  Since  the
Balance Sheet Date, the Borrower has not made any Distribution.

         7.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its
Subsidiaries possesses all franchises,  patents,  copyrights,  trademarks, trade
names,  licenses and permits,  and rights in respect of the foregoing,  adequate
for the conduct of its business  substantially  as now  conducted  without known
conflict with any rights of others.

         7.7. Litigation.  Except as set forth in Schedule 7.7 hereto, there are
no  actions,  suits,  proceedings  or  investigations  of any  kind  pending  or
threatened  against the  Borrower or any of its  Subsidiaries  before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either  in any  case  or in  the  aggregate,  materially  adversely  affect  the
properties,  assets,  financial  condition  or business of the  Borrower and its
Subsidiaries   or   materially   impair  the  right  of  the  Borrower  and  its
Subsidiaries,  considered as a whole, to carry on business  substantially as now
conducted by them, or result in any substantial liability not adequately covered
by  insurance,  or  for  which  adequate  reserves  are  not  maintained  on the
consolidated  balance  sheet  of the  Borrower  and its  Subsidiaries,  or which
question  the  validity  of  this  Credit  Agreement  or any of the  other  Loan
Documents, or any action taken or to be taken pursuant hereto or thereto.

         7.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any
of its  Subsidiaries  is  subject  to any  charter,  corporate  or  other  legal
restriction,  or any judgment,  decree, order, rule or regulation that has or is
expected  in the future to have a  materially  adverse  effect on the  business,
assets  or  financial  condition  of the  Borrower  or any of its  Subsidiaries.
Neither the Borrower nor any of its  Subsidiaries  is a party to any contract or
agreement that has or is expected,  in the judgment of the Borrower's  officers,
to have any  materially  adverse  effect on the business of the Borrower and its
Subsidiaries, taken as a whole.

                                       57
<PAGE>

         7.9. Compliance with Other Instruments, Laws, etc. Neither the Borrower
nor any of its  Subsidiaries  is in  violation  of any  provision of its charter
documents,  bylaws, or any agreement or instrument to which it may be subject or
by  which  it or any of  its  properties  may be  bound  or any  decree,  order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner  that  could  result in the  imposition  of  substantial  penalties  or
materially and adversely affect the financial condition,  properties or business
of the Borrower and any of its Subsidiaries, taken as a whole.

         7.10.  Tax Status.  The  Borrower and the  Guarantors  (a) have made or
filed all  federal  and state  income  and all other tax  returns,  reports  and
declarations  required  by any  jurisdiction  to which any of them is subject or
have  obtained  a lawful  extension  for the  making  or  filing of any such tax
returns, reports or declarations, (b) have paid all taxes and other governmental
assessments  and charges shown or determined to be due on such returns,  reports
and declarations,  except those being contested in good faith and by appropriate
proceedings and (c) have set aside on their books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns,  reports  or  declarations  apply.  There  are no  unpaid  taxes in any
material amount claimed to be due by the taxing  authority of any  jurisdiction,
and the officers of the Borrower know of no basis for any such claim.

         7.11.  No Event of Default.  No Default or Event of Default has
occurred and is continuing.

         7.12. Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company", as such terms are
defined  in  the  Public  Utility  Holding  Company  Act of  1935;  nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.

         7.13.  Absence of  Financing  Statements,  etc.  Except with respect to
Permitted Liens, there is no financing  statement,  security agreement,  chattel
mortgage,  real estate  mortgage or other  document  filed or recorded  with any
filing records,  registry or other public office, that purports to cover, affect
or give notice of any present or possible  future lien on, or security  interest
in, any assets or property of the  Borrower  or any of its  Subsidiaries  or any
rights relating thereto.

         7.14.  Certain  Transactions.  Except  for  arm's  length  transactions
pursuant to which the Borrower or any of its Subsidiaries  makes payments in the
ordinary  course of business upon terms no less  favorable  than the Borrower or
such  Subsidiary  could  obtain  from  third  parties,  none  of  the  officers,
directors,  or employees of the Borrower or any of its Subsidiaries is presently
a party to any transaction with the Borrower or any of its  Subsidiaries  (other
than for services as employees, officers and directors), including any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Borrower, any corporation,  partnership,  trust or other entity
in which any officer,  director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.

                                       58
<PAGE>

         7.15.  Employee Benefit Plans.

                  7.15.1.  In  General.  Each  Employee  Benefit  Plan  and each
         Guaranteed  Pension Plan has been maintained and operated in compliance
         in all  material  respects  with the  provisions  of ERISA and,  to the
         extent  applicable,   the  Code,  including  but  not  limited  to  the
         provisions  thereunder  respecting  prohibited   transactions  and  the
         bonding  of  fiduciaries  and  other  persons  handling  plan  funds as
         required by ss.412 of ERISA.  The Borrower has heretofore  delivered to
         the Agent the most recently  completed  annual report,  Form 5500, with
         all  required  attachments,  and  actuarial  statement  required  to be
         submitted  under  ss.103(d) of ERISA,  with respect to each  Guaranteed
         Pension Plan.

                  7.15.2.  Terminability  of Welfare Plans. No Employee  Benefit
         Plan,  which is an employee  welfare benefit plan within the meaning of
         ss.3(1) or ss.3(2)(B) of ERISA, provides benefit coverage subsequent to
         termination  of  employment,  except as  required by Title I, Part 6 of
         ERISA  or  the  applicable  state  insurance  laws.  The  Borrower  may
         terminate each such Plan at any time (or at any time  subsequent to the
         expiration of any applicable bargaining agreement) in the discretion of
         the  Borrower  without  liability  to any Person  other than for claims
         arising prior to termination.

                  7.15.3.  Guaranteed Pension Plans. Each contribution  required
         to be made to a Guaranteed Pension Plan, whether required to be made to
         avoid the incurrence of an accumulated funding  deficiency,  the notice
         or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely
         made. No waiver of an  accumulated  funding  deficiency or extension of
         amortization  periods has been received with respect to any  Guaranteed
         Pension  Plan,  and neither the  Borrower  nor any ERISA  Affiliate  is
         obligated to or has posted  security in connection with an amendment to
         a Guaranteed  Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29)
         of the Code.  No liability to the PBGC (other than  required  insurance
         premiums,  all of  which  have  been  paid)  has been  incurred  by the
         Borrower or any ERISA Affiliate with respect to any Guaranteed  Pension
         Plan and there has not been any ERISA  Reportable  Event (other than an
         ERISA  Reportable Event as to which the requirement of thirty (30) days
         notice has been waived), or any other event or condition which presents
         a material risk of termination  of any  Guaranteed  Pension Plan by the
         PBGC.  Based on the latest  valuation of each  Guaranteed  Pension Plan
         (which in each case  occurred  within twelve months of the date of this
         representation),  and on the actuarial methods and assumptions employed
         for that  valuation,  the  aggregate  benefit  liabilities  of all such
         Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did not
         exceed the aggregate value of the assets of all such Guaranteed Pension
         Plans, disregarding for this purpose the benefit liabilities and assets
         of any  Guaranteed  Pension  Plan with  assets  in  excess  of  benefit
         liabilities, by more than $100,000.

                  7.15.4.  Multiemployer  Plans.  Neither the  Borrower  nor any
         ERISA  Affiliate  has  incurred  any  material   liability   (including
         secondary  liability)  to  any  Multiemployer  Plan  as a  result  of a
         complete  or  partial  withdrawal  from such  Multiemployer  Plan under
         ss.4201  of ERISA  or as a  result  of a sale of  assets  described  in
         ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been
         notified that any Multiemployer  Plan is in reorganization or insolvent
         under and  within  the  meaning of ss.4241 or ss.4245 of ERISA or is at
         risk of  entering  reorganization  or becoming  insolvent,  or that any
         Multiemployer  Plan intends to terminate or has been  terminated  under
         ss.4041A of ERISA.

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<PAGE>

         7.16.  Use of Proceeds.

                  7.16.1.  General.  The proceeds of the Revolving  Credit Loans
         shall be used to refinance existing Indebtedness,  for working capital,
         and general  corporate  purposes.  The Borrower will obtain  Letters of
         Credit solely for working capital and other corporate purposes.

                  7.16.2.  Regulations  U and X.  No  portion  of any  Revolving
         Credit Loan is to be used, and no portion of any Letter of Credit is to
         be  obtained,  for the purpose of  purchasing  or carrying  any "margin
         security" or "margin stock" as such terms are used in Regulations U and
         X of the Board of Governors of the Federal  Reserve  System,  12 C.F.R.
         Parts 221 and 224.

                  7.16.3.  Ineligible Securities.  No portion of the proceeds of
         any Revolving  Credit Loans is to be used, and no portion of any Letter
         of Credit is to be obtained,  for the purpose of knowingly  purchasing,
         or  providing   credit   support  for  the  purchase  of,   during  the
         underwriting or placement period or within thirty (30) days thereafter,
         any Ineligible Securities underwritten or privately placed by a Section
         20 Subsidiary.

         7.17. Environmental Compliance. To the best of the Borrower's knowledge
(which for the purposes of this  ss.7.17,  shall not require the Borrower or any
of its Subsidiaries to make any further investigation of the condition or useage
of any of the Real Estate or  operations  thereon  unless the Borrower or any of
its Subsidiaries  becomes aware of or is notified of an environmental  condition
which could reasonably be expected to require further investigation):

                  (a) none of the Borrower,  its Subsidiaries or any operator of
         the Real Estate or any operations  thereon is in violation,  or alleged
         violation,  of any  judgment,  decree,  order,  law,  license,  rule or
         regulation  pertaining  to  environmental  matters,  including  without
         limitation,  those arising under the Resource Conservation and Recovery
         Act ("RCRA"), the Comprehensive  Environmental  Response,  Compensation
         and  Liability  Act  of  1980  as  amended  ("CERCLA"),  the  Superfund
         Amendments and Reauthorization Act of 1986 ("SARA"),  the Federal Clean
         Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
         or any state or local statute,  regulation,  ordinance, order or decree
         relating   to   health,   safety   or  the   environment   (hereinafter
         "Environmental  Laws"),  which violation would have a material  adverse
         effect  on  the  environment  or  the  business,  assets  or  financial
         condition of the Borrower or any of its Subsidiaries;

                  (b)  neither  the  Borrower  nor any of its  Subsidiaries  has
         received  written  notice  from  any  third  party  including,  without
         limitation,  any federal,  state or local governmental  authority,  (i)
         that  any  one  of  them  has  been  identified  by the  United  States
         Environmental  Protection  Agency ("EPA") as a potentially  responsible
         party  under  CERCLA  with  respect  to a site  listed on the  National
         Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous
         waste, as defined by 42 U.S.C. ss.6903(5),  any hazardous substances as
         defined by 42 U.S.C.  ss.9601(14),  any  pollutant  or  contaminant  as
         defined  by 42  U.S.C.  ss.9601(33)  and any toxic  substances,  oil or
         hazardous  materials or other chemicals or substances  regulated by any
         Environmental  Laws ("Hazardous  Substances") which any one of them has
         generated,  transported  or  disposed  of has been found at any site at
         which a  federal,  state  or local  agency  or other  third  party  has
         conducted or has ordered  that any Borrower or any of its  Subsidiaries
         conduct a  remedial  investigation,  removal or other  response  action
         pursuant  to any  Environmental  Law; or (iii) that it is or shall be a
         named party to any claim, action, cause of action,  complaint, or legal
         or  administrative  proceeding (in each case,  contingent or otherwise)
         arising out of any third party's incurrence of costs, expenses,  losses
         or damages of any kind  whatsoever  in  connection  with the release of
         Hazardous Substances;

                                       60
<PAGE>

                  (c) except as set forth on Schedule 7.17 attached hereto:  (i)
         no portion of the Real  Estate has been used by the  Borrrower,  any of
         its  Subsidiaries  or operators of their  properties  for the handling,
         processing,  storage or  disposal  of  Hazardous  Substances  except in
         accordance with applicable  Environmental Laws; and no underground tank
         or other  underground  storage  receptacle for Hazardous  Substances is
         located on any  portion of the Real  Estate;  (ii) in the course of any
         activities conducted by the Borrower,  its Subsidiaries or operators of
         its  properties,  no Hazardous  Substances  have been  generated or are
         being used on the Real  Estate  except in  accordance  with  applicable
         Environmental Laws; (iii) there have been no releases by the Borrrower,
         any of its Subsidiaries or operators of their properties (i.e. any past
         or present releasing,  spilling,  leaking, pumping, pouring,  emitting,
         emptying,  discharging,  injecting,  escaping, disposing or dumping) or
         threatened releases of Hazardous  Substances on, upon, into or from the
         properties of the Borrower or its  Subsidiaries,  which  releases would
         have a material  adverse  effect on the value of any of the Real Estate
         or  adjacent  properties  or the  environment;  (iv) to the best of the
         Borrower's  knowledge,  there have been no releases on,  upon,  from or
         into any real property in the vicinity of any of the Real Estate which,
         through soil or groundwater contamination,  may have come to be located
         on, and which would have a material adverse effect on the value of, the
         Real Estate;  and (v) in addition,  any Hazardous  Substances that have
         been generated on any of the Real Estate have been transported  offsite
         only by carriers  having an  identification  number  issued by the EPA,
         treated  or  disposed  of  only by  treatment  or  disposal  facilities
         maintaining  valid permits as required under  applicable  Environmental
         Laws, which  transporters and facilities have been and are, to the best
         of the Borrower's knowledge,  operating in compliance with such permits
         and applicable Environmental Laws; and

                  (d) none of the  Borrower and its  Subsidiaries  or any of the
         Real Estate is subject to any  applicable  environmental  law requiring
         the  performance  of  Hazardous  Substances  site  assessments,  or the
         removal or remediation of Hazardous Substances, or the giving of notice
         to any  governmental  agency  or the  recording  or  delivery  to other
         Persons of an environmental  disclosure document or statement by virtue
         of the transactions set forth herein and contemplated  hereby,  or as a
         condition to the effectiveness of any other  transactions  contemplated
         hereby.

         7.18.  Subsidiaries,  etc. Schedule 7.18(a) sets forth the Subsidiaries
of the Borrower.  Except as set forth on Schedule  7.18(b)  hereto,  neither the
Borrower nor any  Subsidiary  of the Borrower is engaged in any joint venture or
partnership with any other Person.

         7.19.  Disclosure.  None of this Credit  Agreement  or any of the other
Loan  Documents  contains any untrue  statement  of a material  fact or omits to
state a material fact (known to the Borrower or any of its  Subsidiaries  in the
case  of  any  document  or  information  not  furnished  by it or  any  of  its
Subsidiaries)  necessary in order to make the  statements  herein or therein not
misleading.  There is no fact known to the  Borrower or any of its  Subsidiaries
which materially  adversely affects, or which is reasonably likely in the future
to materially  adversely affect, the business,  assets,  financial  condition or
prospects  of the  Borrower  or any of its  Subsidiaries,  exclusive  of effects
resulting  from  changes in general  economic  conditions,  legal  standards  or
regulatory conditions.

                    8. AFFIRMATIVE COVENANTS OF THE BORROWER.

         The Borrower covenants and agrees that, so long as any Revolving Credit
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note
is outstanding or any Bank has any obligation to make any Revolving Credit Loans
or the Agent has any obligation to issue, extend or renew any Letters of Credit:

                                       61
<PAGE>

         8.1.  Punctual  Payment.  The Borrower will duly and  punctually pay or
cause to be paid the principal and interest on the Revolving  Credit Loans,  all
Reimbursement  Obligations,  the Letter of Credit Fees, the Commitment Fees, the
Agent's fee and all other amounts  provided for in this Credit Agreement and the
other Loan  Documents  to which the  Borrower  or any of its  Subsidiaries  is a
party,  all in accordance with the terms of this Credit Agreement and such other
Loan Documents.

         8.2.  Maintenance  of Office.  The  Borrower  will  maintain  its chief
executive  office in Watertown,  MA, or at such other place in the United States
of America as the Borrower  shall  designate  upon written  notice to the Agent,
where notices,  presentations  and demands to or upon the Borrower in respect of
the Loan Documents to which the Borrower is a party may be given or made.

         8.3.  Records and Accounts.  The Borrower will (a) keep, and cause each
of its  Subsidiaries to keep, true and accurate  records and books of account in
which full,  true and correct  entries will be made in accordance with generally
accepted accounting principles,  (b) maintain adequate accounts and reserves for
all taxes (including income taxes),  depreciation,  depletion,  obsolescence and
amortization  of  its  properties  and  the  properties  of  its   Subsidiaries,
contingencies,   and   other   reserves,   and   (c)   at   all   times   engage
PricewaterhouseCoopers  LLP or other  independent  certified public  accountants
reasonably  satisfactory  to the  Agent  as  the  independent  certified  public
accountants of the Borrower and its  Subsidiaries  and will not permit more than
thirty  (30)  days to  elapse  between  the  cessation  of such  firm's  (or any
successor firm's) engagement as the independent  certified public accountants of
the Borrower and its  Subsidiaries  and the  appointment  in such  capacity of a
successor firm as shall be satisfactory to the Agent.

         8.4.  Financial  Statements,  Certificates  and  Information.  The
Borrower  will  deliver to each of the Banks:

                  (a) as soon as  practicable,  but in any event not later  than
         one ninety (90) days after the end of each fiscal year of the Borrower,
         the consolidated balance sheet of the Borrower and its Subsidiaries and
         the  consolidating  balance sheet of the Borrower and its Subsidiaries,
         each as at the end of such year, and the related consolidated statement
         of income and  consolidated  statement  of cash flow and  consolidating
         statement of income and  consolidating  statement of cash flow for such
         year,  each  setting  forth in  comparative  form the  figures  for the
         previous  fiscal  year  and all  such  consolidated  and  consolidating
         statements to be in  reasonable  detail,  prepared in  accordance  with
         generally  accepted  accounting  principles,  and  certified,   without
         qualification  and  without  an  expression  of  uncertainty  as to the
         ability of the Borrower or any of its Subsidiaries to continue as going
         concerns,  by  PricewaterhouseCoopers   LLP  or  by  other  independent
         certified public accountants satisfactory to the Agent, together with a
         written  statement  from such  accountants to the effect that they have
         read a  copy  of  this  Credit  Agreement,  and  that,  in  making  the
         examination  necessary  to said  certification,  they have  obtained no
         knowledge of any Default or Event of Default,  or, if such  accountants
         shall have obtained  knowledge of any then existing Default or Event of
         Default they shall disclose in such statement any such Default or Event
         of Default;  provided that such accountants  shall not be liable to the
         Banks  for  failure  to obtain  knowledge  of any  Default  or Event of
         Default;

                  (b) as soon as  practicable,  but in any event not later  than
         (i)  forty-five  (45) days  after  the end of each of the  first  three
         fiscal  quarters  of each fiscal  year of the  Borrower,  copies of the
         unaudited   consolidated   balance   sheet  of  the  Borrower  and  its
         Subsidiaries  and the  unaudited  consolidating  balance  sheet  of the
         Borrower and its Subsidiaries,  each as at the end of such quarter, and
         the related consolidated statement of income and consolidated statement
         of cash flow and  consolidating  statement of income and  consolidating
         statement  of cash flow for the portion of the  Borrower's  fiscal year
         then  elapsed,  and (ii)  sixty  (60) days  after the end of the fourth
         fiscal  quarter  of each  fiscal  year of the  Borrower,  copies of the
         unaudited   consolidated   balance   sheet  of  the  Borrower  and  its
         Subsidiaries  and the  unaudited  consolidating  balance  sheet  of the
         Borrower and its Subsidiaries,  each as at the end of such quarter, and
         the related consolidated and consolidating  statement of income for the
         portion of the Borrower's  fiscal year then elapsed,  all in reasonable
         detail and prepared in accordance  with generally  accepted  accounting
         principles, together with a certification by the principal financial or
         accounting  officer of the Borrower that the  information  contained in
         such financial statements fairly presents the financial position of the
         Borrower and its  Subsidiaries on the date thereof (subject to year-end
         adjustments);

                                       62
<PAGE>


                  (c)   simultaneously   with  the  delivery  of  the  financial
         statements  referred to in  subsections  (a) and (b) above, a statement
         certified  by the  principal  financial  or  accounting  officer of the
         Borrower  in  substantially  the form of Exhibit C hereto  and  setting
         forth in reasonable detail computations  evidencing compliance with the
         covenants  contained in ss.10 and (if  applicable)  reconciliations  to
         reflect changes in generally accepted  accounting  principles since the
         Balance Sheet Date;

                  (d)  contemporaneously  with the  filing or  mailing  thereof,
         copies of all material of a financial  nature filed with the Securities
         and Exchange Commission or sent to the stockholders of the Borrower;

                  (e) as soon as  practicable,  but in any event not later  than
         sixty  (60) days  after the end of each  fiscal  year,  the  Borrower's
         annual budget for then current fiscal year;

                  (f) from time to time upon the request of the Agent,  copies
         of any accountants'  management letter that may have been issued;

                  (g) from time to time upon the request of the Agent, a backlog
         breakdown by  Subsidiary as of the end of any fiscal period;

                  (h) from time to time upon  request of the Agent,  projections
         of  the  Borrower  and  its  Subsidiaries  updating  those  projections
         delivered to the Banks and  referred to in ss.7.4.3 or, if  applicable,
         updating any later such projections  delivered in response to a request
         pursuant to this ss.8.4(h); and

                  (i)  from  time  to  time  such  other   financial   data  and
         information (including accountants' management letters) as the Agent or
         any Bank may reasonably request.

         8.5.  Notices.

                  8.5.1.  Defaults.  The Borrower will promptly notify the Agent
         in  writing  of the  occurrence  of any  Default or Event of Default of
         which it has knowledge. If any Person shall give any notice or take any
         other  action  in  respect  of  a  claimed  default   (whether  or  not
         constituting  an Event of Default)  under this Credit  Agreement or any
         other note, evidence of indebtedness,  indenture or other obligation to
         which or with respect to which the Borrower or any of its  Subsidiaries
         is a party or  obligor,  whether  as  principal,  guarantor,  surety or
         otherwise,  the Borrower shall forthwith give written notice thereof to
         the  Agent,  describing  the  notice  or action  and the  nature of the
         claimed default.

                  8.5.2.  Environmental  Events. The Borrower will promptly give
         notice to the Agent (a) of any violation of any  Environmental Law that
         the  Borrower  or any of its  Subsidiaries  reports  in  writing  or is
         reportable  by such Person in writing (or for which any written  report
         supplemental to any oral report is made) to any federal, state or local
         environmental  agency  and (b)  upon  becoming  aware  thereof,  of any
         inquiry, proceeding, investigation, or other action, including a notice
         from any agency of potential  environmental  liability, of any federal,
         state or local environmental agency or board, that has the potential to
         materially  affect the assets,  liabilities,  financial  conditions  or
         operations of the Borrower or any of its Subsidiaries.

                  8.5.3.  Notification  of Certain  Claims.  The Borrower  will,
         immediately upon becoming aware thereof, notify the Agent in writing of
         any  setoff,  claims  (including,  with  respect  to the  Real  Estate,
         environmental  claims),  withholdings  or other  defenses  to which any
         material  portion  of  the  Borrower's  assets  or  the  assets  of its
         Subsidiaries, are subject.

                  8.5.4. Notice of Litigation and Judgments.  The Borrower will,
         and will cause each of its Subsidiaries to, give notice to the Agent in
         writing within fifteen (15) days of becoming aware of any litigation or
         proceedings  threatened  in  writing  or  any  pending  litigation  and
         proceedings  affecting  the Borrower or any of its  Subsidiaries  or to
         which the  Borrower  or any of its  Subsidiaries  is or becomes a party
         involving  an  uninsured  claim  against  the  Borrower  or  any of its
         Subsidiaries  that could  reasonably  be expected to have a  materially
         adverse effect on the Borrower and its Subsidiaries,  taken as a whole,
         and stating the nature and status of such  litigation  or  proceedings.
         The Borrower  will,  and will cause each of its  Subsidiaries  to, give
         notice to the Agent, in writing, in form and detail satisfactory to the
         Agent,  within ten (10) days of any judgment not covered by  insurance,
         final or otherwise,  against the Borrower or any of its Subsidiaries in
         an amount in excess of $500,000.

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<PAGE>

         8.6. Corporate Existence;  Maintenance of Properties. The Borrower will
do or cause to be done all things  necessary  to preserve and keep in full force
and effect its  corporate  existence,  rights  and  franchises  and those of its
Subsidiaries  and will not, and will not cause or permit any of its Subsidiaries
to, convert to a limited  liability  company unless the Borrower has provided at
least thirty (30) days prior  written  notice  thereof to the Agent and executed
and delivered all such  documents and  instruments  as the Agent may  reasonable
request in light of such  conversion on or prior to the  effective  date of such
conversion.  It  (a)  will  cause  all  of  its  properties  and  those  of  its
Subsidiaries  used or useful in the conduct of its  business or the  business of
its Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary  equipment,  (b) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the  judgment of the  Borrower  may be  necessary so that the business
carried on in connection therewith may be properly and advantageously  conducted
at all times, and (c) will, and will cause each of its Subsidiaries to, continue
to engage  primarily  in the  businesses  now  conducted  by them and in related
businesses; provided that nothing in this ss.8.6 shall prevent the Borrower from
discontinuing  the operation and  maintenance of any of its properties or any of
those of its  Subsidiaries  if such  discontinuance  is, in the  judgment of the
Borrower,  desirable in the conduct of its or their  business and that do not in
the aggregate  materially  adversely affect the business of the Borrower and its
Subsidiaries on a consolidated basis.

         8.7.  Insurance.  The  Borrower  will,  and  will  cause  each  of  its
Subsidiaries  to,  maintain  with  financially  sound  and  reputable   insurers
insurance with respect to its properties  and business  against such  casualties
and  contingencies  as shall be in  accordance  with the  general  practices  of
businesses  engaged in similar  activities  in similar  geographic  areas and in
amounts,  containing  such terms,  in such forms and for such  periods as may be
reasonable and prudent.

         8.8. Taxes.  The Borrower will, and will cause each of its Subsidiaries
to, duly pay and discharge, or cause to be paid and discharged,  before the same
shall become  overdue,  all taxes,  assessments and other  governmental  charges
imposed  upon it and its real  properties,  sales  and  activities,  or any part
thereof,  or upon the  income or  profits  therefrom,  as well as all claims for
labor,  materials,  or  supplies  that if unpaid  might by law  become a lien or
charge upon any of its property; provided that any such tax, assessment, charge,
levy or claim need not be paid if the validity or amount thereof shall currently
be contested  in good faith by  appropriate  proceedings  and if the Borrower or
such Subsidiary shall have set aside on its books adequate reserves with respect
thereto;  and provided  further that the  Borrower  and each  Subsidiary  of the
Borrower  will  pay all such  taxes,  assessments,  charges,  levies  or  claims
forthwith  upon the  commencement  of proceedings to foreclose any lien that may
have attached as security therefor.

         8.9.  Inspection of Properties and Books, etc.

                  8.9.1.  General.  The Borrower shall permit the Banks, through
         the Agent or any of the Banks'  other  designated  representatives,  to
         visit and inspect any of the  properties  of the Borrower or any of its
         Subsidiaries,  to examine the books of account of the  Borrower and its
         Subsidiaries (and to make copies thereof and extracts  therefrom),  and
         to discuss the  affairs,  finances and accounts of the Borrower and its
         Subsidiaries  with,  and to be advised as to the same by, its and their
         officers,  all at such  reasonable  times and intervals as the Agent or
         any Bank may reasonably request.

                  8.9.2.   Communications   with   Accountants.   The   Borrower
         authorizes the Agent and, if  accompanied by the Agent,  the Banks and,
         so  long  as no  Default  or  Event  of  Default  has  occurred  and is
         continuing,  upon at least ten (10) days  prior  written  notice to the
         Borrower,  to  communicate  directly  with the  Borrower's  independent
         certified  public   accountants  and  authorizes  such  accountants  to
         disclose  to the Agent and the Banks any and all  financial  statements
         and other supporting financial documents and schedules including copies
         of any  management  letter  with  respect  to the  business,  financial
         condition and other affairs of the Borrower or any of its Subsidiaries;
         provided,  however, prior to the occurrence of an Event of Default such
         communications  shall be limited to conversations with such accountants
         and receipt by the Agent and the Banks of all financial  statements and
         copies of all  management  letters.  At the  request of the Agent,  the
         Borrower  shall  deliver  a  letter   addressed  to  such   accountants
         instructing them to comply with the provisions of this ss.8.9.2.

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<PAGE>


         8.10.  Compliance  with Laws,  Contracts,  Licenses,  and Permits.  The
Borrower  will, and will cause each of its  Subsidiaries  to, comply with (a) in
all material respects, the applicable laws and regulations wherever its business
is  conducted,  including  all  Environmental  Laws,  (b) the  provisions of its
charter documents and by-laws, (c) in all material respects,  all agreements and
instruments  by which it or any of its  properties  may be bound  and (d) in all
material  respects,  all  applicable  decrees,  orders,  and  judgments.  If any
authorization,  consent, approval, permit or license from any officer, agency or
instrumentality  of any government  shall become  necessary or required in order
that the Borrower or any of its  Subsidiaries may fulfill any of its obligations
hereunder  or any of the other  Loan  Documents  to which the  Borrower  or such
Subsidiary  is a party,  the Borrower  will,  or (as the case may be) will cause
such Subsidiary to,  immediately  take or cause to be taken all reasonable steps
within  the  power  of  the   Borrower  or  such   Subsidiary   to  obtain  such
authorization,  consent,  approval,  permit or license and furnish the Agent and
the Banks with evidence thereof.

         8.11.  Employee  Benefit Plans. The Borrower will (a) promptly upon the
request of the Agent  furnish to the Agent a copy of the most  recent  actuarial
statement  required to be submitted  under ss.103(d) of ERISA and Annual Report,
Form 5500, with all required attachments,  in respect of each Guaranteed Pension
Plan and (b) promptly upon receipt or dispatch, furnish to the Agent any notice,
report or demand sent or received in respect of a Guaranteed  Pension Plan under
ss.ss.302,  4041,  4042,  4043, 4063, 4066 and 4068 of ERISA, or in respect of a
Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA.

         8.12.  Use of  Proceeds.  The  Borrower  will use the  proceeds  of the
Revolving Credit Loans solely to refinance existing Indebtedness and for working
capital,  and general  corporate  purposes.  The Borrower will obtain Letters of
Credit solely for working capital purposes and other corporate purposes.

         8.13. New Guarantors.  The Borrower will cause each Subsidiary created,
acquired or  otherwise  existing,  on or after the Closing  Date to  immediately
become a Guarantor and shall cause such Subsidiary to execute and deliver to the
Agent, for the benefit of the Agent and the Banks, a Guaranty.

         8.14. Additional Subsidiaries. If, after the Closing Date, the Borrower
or any of its Subsidiaries  creates or acquires,  either directly or indirectly,
any  Subsidiary,  it will  immediately  notify  the  Agent of such  creation  or
acquisition,  as the case may be, and provide the Agent with an updated Schedule
7.18(a) and take all other actions required by ss.8.13 hereof.

         8.15.  Replacement  Instruments.  Upon  receipt  of  an  affidavit  and
statement  of  indemnification  of an officer of the Agent or any Bank as to the
loss, theft, destruction or mutilation of any Revolving Credit Note, and, in the
case of any such loss,  theft,  destruction or mutilation,  upon cancellation of
such  Revolving  Credit Note,  the  Borrower  shall issue,  in lieu  thereof,  a
replacement  Revolving  Credit  Note in the same  principal  amount  thereof and
otherwise of like tenor.

         8.16. Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably  request to
carry out to their  satisfaction  the  transactions  contemplated by this Credit
Agreement and the other Loan Documents.

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<PAGE>


                 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.

         The Borrower covenants and agrees that, so long as any Revolving Credit
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note
is outstanding or any Bank has any obligation to make any Revolving Credit Loans
or the  Agent has any  obligations  to issue,  extend  or renew any  Letters  of
Credit:

         9.1. Restrictions on Indebtedness.  The Borrower will not, and will not
permit any of its Subsidiaries  to, create,  incur,  assume,  guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:

                  (a) Indebtedness to the Banks and the Agent arising under
 any of the Loan Documents;

                  (b) endorsements  for  collection,  deposit or  negotiation
 and  warranties of products or services, in each case incurred in the ordinary
 course of business;

                  (c) Subordinated Debt;

                  (d) Purchase money  Indebtedness  incurred in connection  with
         the acquisition  after the date hereof of any real or personal property
         by the  Borrower  or  such  Subsidiary,  provided  that  the  aggregate
         principal  amount  at  any  one  time  outstanding   shall  not  exceed
         $5,000,000;

                  (e) Indebtedness  existing on the date  hereof and listed and
 described  on  Schedule 9.1 hereto and any renewals, extensions or refinancings
 thereof;

                  (f) Indebtedness of any Guarantor to or of the Borrower to any
         Guarantor so long as such Guarantor remains a Guarantor hereunder,  has
         otherwise  complied with the provisions of ss.8.13 hereof and remains a
         Subsidiary of the Borrower;

                  (g) Indebtedness of the Borrower or any Guarantor  incurred in
         connection  with the  guaranty of the  obligations  of any other Person
         other than a  Subsidiary  of the  Borrower or any of its  Subsidiaries,
         provided   that  the   aggregate   principal   amount,   including  all
         Indebtedness  of the  Borrower  and its  Subsidiaries  of the same type
         listed on Schedule  9.1, at any one time  outstanding  shall not exceed
         $20,000,000;

                  (h)  Indebtedness  of the  Borrower  or any  Guarantor  to any
         foreign  Subsidiary so long as such Indebtedness is subordinated to the
         prior  payment  in full of the  Obligations  pursuant  to  terms of the
         Intercompany  Subordination  Agreement  substantially  in the  form  of
         Exhibit F hereto;

                  (i)  Indebtedness  arising  from the  Borrower's  financing of
         consumer credit sales of its water  softeners and related  products not
         exceeding in the aggregate at any one time  outstanding,  the lesser of
         $2,000,000  and  seventy-five  percent (75%) of the total unpaid amount
         due on customers' notes given in such sales transactions;

                  (j)  Indebtedness  arising  from the  Borrower's  financing
         (whether by sale or by lease) of its water coolers;

                  (k)  other  Indebtedness  (including  Indebtedness  listed  on
         Schedule 9.1 other than such  Indebtedness  included in subsection  (g)
         above and otherwise without  duplication) of the Borrower or any of its
         Consolidated Subsidiaries owed to any other Person not exceeding in the
         aggregate principal amount at any one time outstanding $60,000,000;



                                       66
<PAGE>


                  (l) Indebtedness in respect of surety and other performance
         bonds;

                  (m)  Indebtedness  incurred in connection with the guaranty of
         obligations  under project financing  arrangements  entered into by the
         Borrower  or any of its  Subsidiaries  so  long  as  such  guaranty  is
         non-recourse to the Borrower and its Subsidiaries; and

                  (n)  Indebtedness  incurred  after  the  Closing  Date  on  an
         unsecured,  subordinated  basis  in  connection  with  a  private  debt
         offering,  the terms and  conditions  of which shall in all respects be
         reasonably satisfactory to the Banks.

         9.2.  Restrictions on Liens. The Borrower will not, and will not permit
any of its  Subsidiaries  to,  (a)  create or incur or suffer to be  created  or
incurred  or  to  exist  any  lien,  encumbrance,   mortgage,   pledge,  charge,
restriction or other  security  interest of any kind upon any of its property or
assets of any  character  whether now owned or hereafter  acquired,  or upon the
income or profits therefrom;  (b) transfer any of such property or assets or the
income or  profits  therefrom  for the  purpose  of  subjecting  the same to the
payment of  Indebtedness  or performance of any other  obligation in priority to
payment of its general  creditors;  (c)  acquire,  or agree or have an option to
acquire,  any property or assets upon  conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period  of more than  thirty  (30) days  after  the same  shall  have been
incurred any  Indebtedness or claim or demand against it that if unpaid might by
law or upon  bankruptcy  or  insolvency,  or  otherwise,  be given any  priority
whatsoever over its general  creditors;  (e) sell,  assign,  pledge or otherwise
transfer any  "receivables"  as defined in clause (g) of the  definition  of the
term  "Indebtedness,"  with or without recourse;  or (f) enter into or permit to
exist any  arrangement or agreement,  enforceable  under  applicable  law, which
directly or indirectly  prohibits the Borrower or any of its  Subsidiaries  from
creating  or  incurring  any  lien,  encumbrance,   mortgage,   pledge,  charge,
restriction or other security  interest other than in favor of the Agent for the
benefit  of the Banks and the Agent  under  the Loan  Documents  and other  than
customary anti-assignment  provisions in leases and licensing agreements entered
into by the Borrower or such  Subsidiary in the ordinary course of its business,
provided  that the  Borrower or any of its  Subsidiaries  may create or incur or
suffer to be created or incurred or to exist:

                  (i) liens in favor of the  Borrower  on all or part of the
          assets  of  Subsidiaries  of the Borrower securing Indebtedness owing
          by Subsidiaries of the Borrower to the Borrower;

                  (ii) liens to secure taxes,  assessments and other  government
         charges in respect of obligations not overdue or liens to secure claims
         for labor, material or supplies in respect of obligations not overdue;

                  (iii)  deposits  or pledges  made in  connection  with,  or to
         secure payment of, workmen's compensation,  unemployment insurance, old
         age pensions or other social security obligations;

                  (iv) liens on  properties  in respect of  judgments  or awards
         that have been in force for less than the applicable  period for taking
         an appeal so long as execution is not levied  thereunder  or in respect
         of which  the  Borrower  or such  Subsidiary  shall at the time in good
         faith be prosecuting an appeal or proceedings for review and in respect
         of which a stay of  execution  shall have been  obtained  pending  such
         appeal or review;

                                       67
<PAGE>

                  (v)   liens   of   carriers,   warehousemen,   mechanics   and
         materialmen,  and other like liens on properties in existence less than
         120 days from the date of  creation  thereof in respect of  obligations
         not overdue;

                  (vi)  encumbrances  on Real Estate  consisting  of  easements,
         rights of way,  zoning  restrictions,  restrictions  on the use of real
         property  and  defects  and   irregularities   in  the  title  thereto,
         landlord's  or lessor's  liens under  leases to which the Borrower or a
         Subsidiary  of the  Borrower  is a  party,  and  other  minor  liens or
         encumbrances  none of which in the opinion of the  Borrower  interferes
         materially  with  the  use of the  property  affected  in the  ordinary
         conduct of the  business of the Borrower  and its  Subsidiaries,  which
         defects  do not  individually  or in the  aggregate  have a  materially
         adverse effect on the business of the Borrower  individually  or of the
         Borrower and its Subsidiaries on a consolidated basis;

                  (vii) liens existing on the date hereof and listed on Schedule
         9.2 hereto;

                  (viii) purchase money security  interests in or purchase money
         mortgages on real or personal  property  acquired after the date hereof
         to secure purchase money  Indebtedness of the type and amount permitted
         by  ss.9.1(d),  incurred in  connection  with the  acquisition  of such
         property,  which security interests or mortgages cover only the real or
         personal property so acquired;

                   (ix)  liens to  secure  Indebtedness  of the type and  amount
         permitted by ss.9.1(d), provided that the aggregate principal amount of
         Indebtedness  secured by such lien shall not exceed the purchase  price
         of the property so acquired;

                  (x) notes  receivable  arising  from the  financing  of water
         softener sales described in ss.9.1(j), which may be pledged as
         collateral;

                  (xi) liens  securing  Indebtedness  permitted byss.9.1(m);
         provided  that such liens shall at all times be limited to the assets
         of the related project;

                  (xii) liens on the real property or other assets of any Person
         acquired by the Borrower,  provided that the aggregate principal amount
         of  Indebtedness  secured by such liens shall not exceed  $5,000,000 at
         any one time outstanding;

                  (xiii) liens  securing the same real  property or other assets
         described in  subsections  (xi) and (xii) above in connection  with the
         renewal, extension or replacement of the underlying Indebtedness; and

                  (xiv) liens in favor of the Agent for the benefit of the Banks
         and the Agent under the Loan Documents.

         9.3.  Restrictions on Investments.  The Borrower will not, and will not
permit  any of its  Subsidiaries  to,  make or  permit  to  exist  or to  remain
outstanding any Investment except:

                  (a) Investments in marketable direct or guaranteed obligations
         of the United  States of America or any OECD country that mature within
         one (1) year from the date of purchase by the Borrower;

                  (b) Investments in demand  deposits,  certificates of deposit,
         bankers  acceptances  and time  deposits of United  States banks having
         total assets in excess of  $1,000,000,000  or banks organized under the
         laws  of  any  OECD   country   having   total   assets  in  excess  of
         $10,000,000,000;

                                       68
<PAGE>

                  (c)  Investments  in securities  commonly known as "commercial
         paper" issued by a corporation organized and existing under the laws of
         the United  States of America or any state  thereof or any OECD country
         that at the time of purchase  have been rated and the ratings for which
         are not less than "P 1" if rated by Moody's  Investors  Service,  Inc.,
         and not less than "A 1" if rated by Standard and Poor's Rating Group;

                  (d)  Investments existing on the date hereof and listed on
         Schedule 9.3 hereto;


                  (e)  Investments  with respect to Indebtedness  permitted by
         ss.9.1(f) so long as such entities remain Subsidiaries of the Borrower
         and remain a Guarantor hereunder;

                  (f) Investments with respect to Indebtedness permitted by
         ss.ss.9.1(g) and (h);

                  (g)  Investments  consisting of the Guaranty or Investments by
         the  Borrower in any  Guarantor,  so long as such  Guarantor  remains a
         Guarantor  hereunder  and a Subsidiary of the Borrower and the Borrower
         and the Guarantor  shall have otherwise  complied with the provision of
         ss.6 hereof;

                  (h) Investments  consisting of loans and advances to employees
         for moving,  entertainment,  travel and other  similar  expenses in the
         ordinary  course of business not to exceed $400,000 in the aggregate at
         any time outstanding;

                  (i) Investments  made after the Closing Date in joint ventures
         and  partnerships   (other  than   Subsidiaries)   and  other  minority
         investments  in any Person,  provided that the aggregate  amount of all
         such Investments made in any fiscal year shall not exceed $20,000,000;

                  (j)  Investments  made after the  Closing  Date in any foreign
         Subsidiary of the Borrower by the Borrower or any  Guarantor,  provided
         that the aggregate principal amount of all such Investments made in any
         fiscal shall not exceed $10,000,000; and

                  (k)  Investments  made solely from cash flow generated by the
         operations of Ionics  Iberica, S.A. in Persons doing business outside
         of the United States.

          9.4. Restricted Payments. Neither the Borrower nor any Subsidiary will
     make any Restricted Payment, provided, however, notwithstanding anything to
     the contrary  contained in this Credit Agreement,  so long as no Default or
     Event of Default has occurred and is  continuing or would exist as a result
     thereof,  any  Subsidiary  of the  Borrower  shall  be  permitted  to  make
     Restricted Payments to the Borrower or a Guarantor.

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         9.5.  Merger, Consolidation and Disposition of Assets.

                  9.5.1.  Mergers and  Acquisitions.  The Borrower will not, and
         will  not  permit  any of its  Subsidiaries  to,  become a party to any
         merger or consolidation, or agree to or effect any asset acquisition or
         stock acquisition (other than the acquisition of assets in the ordinary
         course of  business  consistent  with past  practices)  except  (a) the
         merger  or  consolidation  of one or  more of the  Subsidiaries  of the
         Borrower with and into the Borrower, (b) the merger or consolidation of
         two or more domestic  Subsidiaries  of the Borrower,  (c) the merger or
         consolidation of two or more foreign Subsidiaries of the Borrower,  (d)
         Permitted  Acquisitions by the Borrower or any domestic  Subsidiary and
         (e) subject to the  provisions  of  ss.9.3(k),  acquisitions  by Ionics
         Iberica, S.A.

                  9.5.2.  Disposition of Assets. The Borrower will not, and will
         not permit any of its Subsidiaries to, become a party to or agree to or
         effect any disposition of assets,  other than (a) the sale of inventory
         and the  disposition of obsolete  assets,  in each case in the ordinary
         course of business consistent with past practices,  (b) the disposition
         of the stock of or other equity  interests in foreign  Subsidiaries  of
         the Borrower the aggregate  fair market value of which shall not exceed
         $1,000,000 per single  transaction or $5,000,000 in any fiscal year and
         (c)  the   disposition   of  other  assets  of  the  Borrower  and  its
         Subsidiaries  (including  assets  which are no longer  necessary to the
         business of the Borrower or any of its Subsidiaries) the aggregate fair
         market value of which shall not exceed $1,000,000 in any fiscal year.

         9.6. Sale and Leaseback. The Borrower will not, and will not permit any
of its  Subsidiaries  to, enter into any  arrangement,  directly or  indirectly,
whereby the Borrower or any  Subsidiary  of the Borrower  shall sell or transfer
any property  owned by it in order then or  thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use  for  substantially  the  same  purpose  as the  property  being  sold or
transferred other than sale and leaseback arrangements, so long as the aggregate
net book value of all property  sold or  transferred  pursuant  thereto does not
exceed $3,000,000 in any fiscal year.

         9.7.  Compliance  with  Environmental  Laws. The Borrower will not, and
will not permit any of its  Subsidiaries  to, (a) use any of the Real  Estate or
any  portion  thereof  for the  handling,  processing,  storage or  disposal  of
Hazardous  Substances,  (b)  cause or permit  to be  located  on any of the Real
Estate  any  underground  tank  or  other  underground  storage  receptacle  for
Hazardous  Substances,  (c) generate any Hazardous Substances on any of the Real
Estate,  (d) conduct  any  activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring,  emitting,  emptying,   discharging,   injecting,  escaping,  leaching,
disposing or dumping) or threatened release of Hazardous  Substances on, upon or
into the Real Estate or (e) otherwise conduct any activity at any Real Estate or
use any Real  Estate,  in each  case,  in any  manner  that  would  violate  any
Environmental  Law or bring such Real Estate in violation  of any  Environmental
Law.

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         9.8.  Subordinated Debt. The Borrower will not, and will not permit any
of its Subsidiaries  to, amend,  supplement or otherwise modify the terms of any
of the Subordinated Debt or prepay, redeem or repurchase any of the Subordinated
Debt.

         9.9. Upstream  Limitations.  The Borrower will not, and will not permit
any of its  Subsidiaries  to, enter into any agreement,  contract or arrangement
(other than the Credit  Agreement and the other Loan Documents)  restricting the
ability of any Subsidiary to pay or make dividends or  distributions  in cash or
kind to the Borrower,  to make loans,  advances or other  payments of whatsoever
nature to the Borrower,  or to make transfer or distributions of all or any part
of its assets to the Borrower.

         9.10. Negative Pledges.  Neither the Borrower nor any of the Guarantors
will enter into any  agreement  (other than this Credit  Agreement and the other
Loan  Document)  prohibiting  the  creation or  assumption  of any lien upon its
properties, revenues or assets or those of any of its Subsidiaries,  whether now
owned  or  hereafter   acquired  to  secure  any  of  the  Obligations  (or  any
refinancings  thereof) other than agreements  with Persons  prohibiting any such
lien on assets in which  such  Person  has a prior  security  interest  which is
permitted by ss.9.2.

         9.11.  Employee Benefit Plans.  Neither the Borrower nor any ERISA
Affiliate will

          (a) engage in any "prohibited transaction" within the meaning ofss.406
     of ERISA  orss.4975 of the Code which could result in a material  liability
     for the Borrower or any of its Subsidiaries; or

                  (b)  permit   any   Guaranteed   Pension   Plan  to  incur  an
         "accumulated funding deficiency",  as such term is defined in ss.302 of
         ERISA, whether or not such deficiency is or may be waived; or

                  (c) fail to  contribute to any  Guaranteed  Pension Plan to an
         extent  which,  or terminate  any  Guaranteed  Pension Plan in a manner
         which,  could result in the  imposition of a lien or encumbrance on the
         assets of the Borrower or any of its Subsidiaries pursuant to ss.302(f)
         or ss.4068 of ERISA; or

          (d) amend any Guaranteed  Pension Plan in circumstances  requiring the
     posting of security pursuant toss.307 of ERISA orss.401(a)(29) of the Code;
     or
                  (e)  permit  or take any  action  which  would  result  in the
         aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of
         all  Guaranteed  Pension  Plans  exceeding  the value of the  aggregate
         assets  of such  Plans,  disregarding  for  this  purpose  the  benefit
         liabilities  and  assets  of any such  Plan  with  assets  in excess of
         benefit liabilities, by more than the amount set forth in ss.7.15.3.

         9.12. Business  Activities.  The Borrower will not, and will not permit
any of its  Subsidiaries  to,  engage  directly or indirectly  (whether  through
Subsidiaries  or  otherwise) in any type of business  other than the  businesses
conducted by them on the Closing Date and in related businesses.

                                       71
<PAGE>


         9.13. Fiscal Year. The Borrower will not, and will not permit any of it
Subsidiaries  to,  change the date of the end of its  fiscal  year from that set
forth in ss.7.4.1.

         9.14. Transactions with Affiliates. The Borrower will not, and will not
permit any of its  Subsidiaries to, engage in any transaction with any Affiliate
(other than for services as employees,  officers and  directors),  including any
contract,  agreement  or  other  arrangement  providing  for the  furnishing  of
services to or by, providing for rental of real or personal property to or from,
or  otherwise  requiring  payments  to or from any  such  Affiliate  or,  to the
knowledge of the Borrower, any corporation,  partnership,  trust or other entity
in  which  any such  Affiliate  has a  substantial  interest  or is an  officer,
director,  trustee or partner, on terms more favorable to such Person than would
have  been  obtainable  on an  arm's-length  basis  in the  ordinary  course  of
business.

         9.15.  Inconsistent  Agreements.  The  Borrower  will not, and will not
permit any of its  Subsidiaries  to,  enter into any  agreement  containing  any
provision which would be violated or breached by the performance by the Borrower
or any of its  Subsidiaries of their respective  obligations  hereunder or under
any of the Loan Documents.

         9.16.  Modification  of Documents and Charter  Documents.  The Borrower
will not, nor will it permit any of its  Subsidiaries to, consent to or agree to
any amendment,  supplement or other modification to the Capitalization Documents
without the prior written consent of the Agent unless such amendment, supplement
or modification would not have any material adverse effect on the Agent's or the
Bank's  rights  under  the  Loan  Documents  or  the  Borrower's  or  any of its
Subsidiaries' obligations under the Loan Documents.

                    10. FINANCIAL COVENANTS OF THE BORROWER.

         The Borrower covenants and agrees that, so long as any Revolving Credit
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note
is outstanding or any Bank has any obligation to make any Revolving Credit Loans
or the Agent has any obligation to issue, extend or renew any Letters of Credit:

         10.1.  Leverage  Ratio.  The  Borrower  will not,  as of the end of any
fiscal  quarter,  permit the  Leverage  Ratio for such fiscal  quarter to exceed
3.00:1.00.

         10.2.  Minimum  EBITDA.  The  Borrower  will not,  as of the end of any
Reference  Period,  permit  the  consolidated  EBITDA  of the  Borrower  and its
Subsidiaries for such Reference Period to be less than $50,000,000.

         10.3. Minimum Net Worth. The Borrower will not permit  Consolidated Net
Worth at any  time to be less  than  the sum of (a)  $300,000,000  plus (b) on a
cumulative  basis, 50% of positive  Consolidated Net Income for each fiscal year
beginning with the fiscal year ended December 31, 2000 plus (c) 100% of Net Cash
Proceeds received by the Borrower.

         10.4. Capital  Expenditures.  The Borrower will not make, or permit any
Consolidated  Subsidiary to make,  Capital  Expenditures in any fiscal year that
exceed, in the aggregate, $60,000,000 for such fiscal year.

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<PAGE>

                             11. CLOSING CONDITIONS.

         The obligations of the Banks to make the initial Revolving Credit Loans
and the Term Loan and of the Agent to issue any initial  Letters of Credit shall
be subject to the satisfaction of the following conditions precedent:

         11.1. Loan  Documents.  Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.

         11.2.  Certified Copies of Charter  Documents.  Each of the Banks shall
have  received from the Borrower and each of its domestic  Subsidiaries  a copy,
certified by a duly authorized officer of such Person to be true and complete on
the Closing Date, of each of (a) its charter or other incorporation documents as
in effect on such date of  certification,  and (b) its  by-laws  as in effect on
such date.

         11.3.  Corporate  Action.  All corporate action necessary for the valid
execution,  delivery and  performance by the Borrower and each of the Guarantors
of this Credit  Agreement  and the other Loan  Documents to which it is or is to
become a party shall have been duly and effectively  taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.

         11.4.  Incumbency  Certificate.  Each of the Banks shall have  received
from the Borrower and each Guarantor an incumbency certificate,  dated as of the
Closing  Date,  signed by a duly  authorized  officer  of the  Borrower  or such
Guarantor,  and  giving  the name  and  bearing  a  specimen  signature  of each
individual  who shall be  authorized:  (a) to sign, in the name and on behalf of
each of the Borrower or such Guarantor,  each of the Loan Documents to which the
Borrower or such  Guarantor  is or is to become a party;  (b) in the case of the
Borrower, to make Loan Requests and Conversion Requests and to apply for Letters
of Credit;  and (c) to give notices and to take other action on its behalf under
the Loan Documents.

         11.5. Information  Certificates and UCC Search Results. The Agent shall
have  received  from the  Borrower  and each  Guarantor  a  completed  and fully
executed Information Certificate and the results of UCC searches,  indicating no
liens  other  than   Permitted   Liens  and  otherwise  in  form  and  substance
satisfactory to the Agent.

         11.6.  Certificates  of  Insurance.  The Agent  shall  have  received a
certificate of insurance from an  independent  insurance  broker dated as of the
Closing Date,  identifying insurers,  types of insurance,  insurance limits, and
policy terms, and otherwise describing the insurance obtained.

         11.7.  Solvency  Certificate.  Each of the Banks shall have received an
officer's  certificate  of the  Borrower  dated as of the Closing Date as to the
solvency of the Borrower and its Subsidiaries  following the consummation of the
transactions  contemplated herein and in form and substance  satisfactory to the
Banks.

         11.8.  Opinion of  Counsel.  Each of the Banks and the Agent shall have
received a favorable legal opinion  addressed to the Banks and the Agent,  dated
as of the Closing Date, in form and substance  satisfactory to the Banks and the
Agent,  from  Hutchins,  Wheeler and  Dittmar,  counsel to the  Borrower and its
Subsidiaries.

         11.9. Payment of Fees. The Borrower shall have paid to the Banks or the
Agent, as appropriate, the closing fee pursuant to ss.5.1.

         11.10.  Compliance  Certificate.   The  Agent  shall  have  received  a
certificate of compliance  with respect to the financial  covenants set forth in
the Prior Credit  Agreement  for the period  ended March 31,  2000,  in form and
substance satisfactory to the Agent.

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<PAGE>

                        12. CONDITIONS TO ALL BORROWINGS.

         The  obligations  of the  Banks  to make  any  Revolving  Credit  Loan,
including the Revolving Credit Loan, and of the Agent to issue,  extend or renew
any Letter of Credit,  in each case whether on or after the Closing Date,  shall
also be subject to the satisfaction of the following conditions precedent:

         12.1.   Representations   True;  No  Event  of  Default.  Each  of  the
representations  and  warranties  of any of the  Borrower  and its  Subsidiaries
contained in this Credit Agreement,  the other Loan Documents or in any document
or instrument  delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which  they were made and shall  also be true
at and as of the  time  of the  making  of  such  Revolving  Credit  Loan or the
issuance, extension or renewal of such Letter of Credit, with the same effect as
if made at and as of that time (except to the extent of changes  resulting  from
transactions  contemplated  or permitted by this Credit  Agreement and the other
Loan  Documents  and changes  occurring in the ordinary  course of business that
singly or in the aggregate are not  materially  adverse,  and to the extent that
such  representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.

         12.2. No Legal Impediment.  No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal  for such Bank to make such  Revolving  Credit
Loan or to participate  in the issuance,  extension or renewal of such Letter of
Credit or in the  reasonable  opinion of the Agent would make it illegal for the
Agent to issue, extend or renew such Letter of Credit.

         12.3.  Governmental  Regulation.  Each Bank  shall have  received  such
statements in substance and form  reasonably  satisfactory  to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the  Comptroller  of the  Currency or the Board of  Governors  of the Federal
Reserve System.

         12.4. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents  incident  thereto shall be satisfactory in substance and in
form to the  Banks and to the Agent and the  Agent's  Special  Counsel,  and the
Banks,  the Agent and such counsel shall have received all  information and such
counterpart  originals or  certified  or other  copies of such  documents as the
Agent may reasonably request.

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<PAGE>

                    13. EVENTS OF DEFAULT; ACCELERATION; ETC.

         13.1.  Events of  Default  and  Acceleration.  If any of the  following
events  ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:

                  (a)  the  Borrower  shall  fail to pay  any  principal  of the
         Revolving  Credit Loans or any  Reimbursement  Obligation when the same
         shall become due and payable, whether at the stated date of maturity or
         any  accelerated  date of  maturity  or at any  other  date  fixed  for
         payment;

                  (b) the Borrower or any of its Subsidiaries  shall fail to pay
         any interest on the Revolving  Credit Loans,  the  Commitment  Fee, any
         Letter of Credit Fee, the Agent's  fee, or other sums due  hereunder or
         under any of the other Loan  Documents,  when the same shall become due
         and payable,  whether at the stated date of maturity or any accelerated
         date of maturity or at any other date fixed for payment;

                  (c)  the  Borrower  shall  fail  to  comply  with  any  of its
         covenants contained in ss.ss.8.1,  8.4, 8.5, the first sentence of 8.6,
         8.7-8.10, 8.12-8.15, 8.18, 9 or 10;

                  (d) the  Borrower  or any of its  Subsidiaries  shall  fail to
         perform any term,  covenant or agreement  contained herein or in any of
         the other Loan Documents (other than those specified  elsewhere in this
         ss.13.1) for thirty (30) days after written  notice of such failure has
         been given to the Borrower by the Agent;

                  (e) any  representation  or warranty of the Borrower or any of
         its  Subsidiaries  in this  Credit  Agreement  or any of the other Loan
         Documents or in any other document or instrument  delivered pursuant to
         or in connection  with this Credit  Agreement  shall prove to have been
         false in any material respect upon the date when made or deemed to have
         been made or repeated;

                  (f) the Borrower or any of its Subsidiaries  shall fail to pay
         at maturity,  or within any applicable  period of grace, any obligation
         for borrowed money or credit  received or in respect of any Capitalized
         Leases or Synthetic Leases in excess of $500,000, or fail to observe or
         perform any  material  term,  covenant or  agreement  contained  in any
         agreement by which it is bound,  evidencing or securing  borrowed money
         or credit received or in respect of any Capitalized Leases or Synthetic
         Leases for such period of time as would permit  (assuming the giving of
         appropriate notice if required) the holder or holders thereof or of any
         obligations  issued thereunder to accelerate the maturity  thereof,  or
         any such  holder or  holders  shall  rescind  or shall  have a right to
         rescind the purchase of any such obligations;

                  (g) the  Borrower  or any of its  Subsidiaries  shall  make an
         assignment  for the  benefit  of  creditors,  or admit in  writing  its
         inability to pay or  generally  fail to pay its debts as they mature or
         become due, or shall petition or apply for the appointment of a trustee
         or other  custodian,  liquidator  or receiver of the Borrower or any of
         its  Subsidiaries  or of any  substantial  part  of the  assets  of the
         Borrower or any of its Subsidiaries or shall commence any case or other
         proceeding  relating to the Borrower or any of its  Subsidiaries  under
         any bankruptcy,  reorganization,  arrangement, insolvency, readjustment
         of debt, dissolution or liquidation or similar law of any jurisdiction,
         now or hereafter in effect, or shall take any action to authorize or in
         furtherance  of any of  the  foregoing,  or if  any  such  petition  or
         application  shall be filed or any such case or other  proceeding shall
         be commenced  against the Borrower or any of its  Subsidiaries  and the
         Borrower  or  any of  its  Subsidiaries  shall  indicate  its  approval
         thereof,  consent thereto or  acquiescence  therein or such petition or
         application  shall not have been dismissed within  forty-five (45) days
         following the filing thereof;

                  (h) a decree or order is entered  appointing any such trustee,
         custodian,  liquidator or receiver or adjudicating  the Borrower or any
         of its Subsidiaries  bankrupt or insolvent,  or approving a petition in
         any such case or other  proceeding,  or a decree or order for relief is
         entered in respect of the Borrower or any Subsidiary of the Borrower in
         an involuntary  case under federal  bankruptcy laws as now or hereafter
         constituted;

                  (i) there shall remain in force, undischarged, unsatisfied and
         unstayed,  for more than thirty days,  whether or not consecutive,  any
         final judgment  against the Borrower or any of its  Subsidiaries  that,
         with other  outstanding  final  judgments,  undischarged,  against  the
         Borrower  or  any  of  its   Subsidiaries   exceeds  in  the  aggregate
         $1,000,000;

                                       75
<PAGE>

                  (j) the  holders of all or any part of the  Subordinated  Debt
         shall  accelerate  the maturity of all or any part of the  Subordinated
         Debt or the Subordinated Debt shall be prepaid, redeemed or repurchased
         in whole or in part;

                  (k)  if  any  of  the  Loan  Documents   shall  be  cancelled,
         terminated,  revoked  or  rescinded,  in each  case  otherwise  than in
         accordance  with the terms  thereof or with the express  prior  written
         agreement, consent or approval of the Banks, or any action at law, suit
         or in equity or other legal proceeding to cancel, revoke or rescind any
         of the  Loan  Documents  shall  be  commenced  by or on  behalf  of the
         Borrower  or any of its  Subsidiaries  party  thereto  or any of  their
         respective  stockholders,  or any  court or any other  governmental  or
         regulatory  authority or agency of competent  jurisdiction shall make a
         determination that, or issue a judgment, order, decree or ruling to the
         effect that, any one or more of the Loan Documents is illegal,  invalid
         or unenforceable in accordance with the terms thereof;

                  (l) the Borrower or any ERISA  Affiliate  incurs any liability
         to the PBGC or a Guaranteed  Pension Plan pursuant to Title IV of ERISA
         in an aggregate amount exceeding $500,000, or the Borrower or any ERISA
         Affiliate  is  assessed  withdrawal  liability  pursuant to Title IV of
         ERISA by a  Multiemployer  Plan  requiring  aggregate  annual  payments
         exceeding  $500,000,  or any of the following  occurs with respect to a
         Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to
         make a required  installment  or other  payment  (within the meaning of
         ss.302(f)(1)  of  ERISA),  provided  that the Agent  determines  in its
         reasonable  discretion  that such event (A) could be expected to result
         in liability of the Borrower or any of its  Subsidiaries to the PBGC or
         such Guaranteed  Pension Plan in an aggregate amount exceeding $500,000
         and (B) could constitute grounds for the termination of such Guaranteed
         Pension Plan by the PBGC, for the appointment by the appropriate United
         States  District  Court of a  trustee  to  administer  such  Guaranteed
         Pension  Plan  or  for  the  imposition  of a lien  in  favor  of  such
         Guaranteed  Pension  Plan; or (ii) the  appointment  by a United States
         District Court of a trustee to administer such Guaranteed Pension Plan;
         or (iii) the  institution  by the PBGC of proceedings to terminate such
         Guaranteed Pension Plan;

                  (m) the Borrower or any of its Subsidiaries shall be enjoined,
         restrained  or in any way  prevented  by the  order of any court or any
         administrative  or regulatory  agency from conducting any material part
         of its business  and such order shall  continue in effect for more than
         thirty (30) days;

                  (n) there shall occur any material  damage to, or loss,  theft
         or destruction of, a material  portion of the assets of the Borrower or
         any  of  its  Subsidiaries,  whether  or not  insured,  or any  strike,
         lockout,  labor dispute,  embargo,  condemnation,  act of God or public
         enemy, or other casualty,  which in any such case causes, for more than
         fifteen (15) consecutive days, the cessation or substantial curtailment
         of revenue producing  activities at any facility of the Borrower or any
         of its  Subsidiaries  if such event or  circumstance  is not covered by
         business  interruption  insurance  and would  have a  material  adverse
         effect on the business or  financial  condition of the Borrower or such
         Subsidiary;

                  (o) there shall occur the loss,  suspension or revocation  of,
         or  failure  to renew,  any  license  or permit  now held or  hereafter
         acquired  by the  Borrower  or any of its  Subsidiaries  if such  loss,
         suspension,  revocation  or  failure  to renew  would  have a  material
         adverse  effect on the business or financial  condition of the Borrower
         and its Subsidiaries;

                  (p) the Borrower or any of its Subsidiaries  shall be indicted
         for a state or federal  crime,  or any civil or criminal  action  shall
         otherwise  have  been  brought  against  the  Borrower  or  any  of its
         Subsidiaries, a punishment for which in any such case could include the
         forfeiture  of any assets of the Borrower or such  Subsidiary  included
         having a fair market value in excess of $1,000,000; or

                  (q) the Borrower  shall at any time,  legally or  beneficially
         own less than (i) 100% of the shares (on a fully diluted  basis) of the
         common  stock  and  other  equity  interests  of each  of its  domestic
         Subsidiaries  or (ii) the  percentage  of  shares  (on a fully  diluted
         basis) of the common  stock and other  equity  interests of each of its
         foreign  Subsidiaries  which it legally or beneficially owned as of the
         Closing Date except as otherwise permitted by ss.9.5.2(b);

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<PAGE>


     (r) any person or group of persons  (within the meaning of Section 13 or 14
of the  Securities  Exchange  Act of  1934,  as  amended)  shall  have  acquired
beneficial  ownership  (within  the  meaning  of Rule 13d-3  promulgated  by the
Securities  and Exchange  Commission  under said Act) of twenty percent (20%) or
more of the outstanding  shares of common stock of the Borrower;  or, during any
period of twelve consecutive calendar months,  individuals who were directors of
the  Borrower  on the first  day of such  period  shall  cease to  constitute  a
majority of the board of directors of the Borrower; then, and in any such event,
so long as the same may be  continuing,  the Agent may,  and upon the request of
the  Majority  Banks  shall,  by notice in writing to the  Borrower  declare all
amounts owing with respect to this Credit Agreement,  the Revolving Credit Notes
and the other Loan Documents and all  Reimbursement  Obligations to be, and they
shall  thereupon   forthwith   become,   immediately  due  and  payable  without
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
hereby expressly waived by the Borrower; provided that in the event of any Event
of Default  specified  in  ss.ss.13.1(g),  13.1(h) or 13.1(j),  all such amounts
shall  become  immediately  due  and  payable   automatically  and  without  any
requirement of notice from the Agent or any Bank.

         13.2.  Termination of Commitments.  If any one or more of the Events of
Default  specified in  ss.13.1(g),  ss.13.1(h)  or ss.13.1(j)  shall occur,  any
unused portion of the credit hereunder shall forthwith terminate and each of the
Banks  shall be relieved of all further  obligations  to make  Revolving  Credit
Loans to the Borrower and the Agent shall be relieved of all further obligations
to issue, extend or renew Letters of Credit. If any other Event of Default shall
have  occurred  and be  continuing,  the Agent may and,  upon the request of the
Majority Banks,  shall, by notice to the Borrower,  terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion of
the credit hereunder shall terminate  immediately and each of the Banks shall be
relieved  of all  further  obligations  to make  Loans  and the  Agent  shall be
relieved of all further obligations to issue, extend or renew Letters of Credit.
No termination of the credit  hereunder shall relieve the Borrower or any of its
Subsidiaries of any of the Obligations.

         13.3. Remedies.  In case any one or more of the Events of Default shall
have  occurred  and be  continuing,  and  whether  or not the Banks  shall  have
accelerated the maturity of the Revolving Credit Loans pursuant to ss.13.1, each
Bank,  if owed any amount  with  respect to the  Revolving  Credit  Loans or the
Reimbursement  Obligations,  may, with the consent of the Majority Banks but not
otherwise,  proceed to protect and enforce its rights by suit in equity,  action
at law or other appropriate proceeding,  whether for the specific performance of
any covenant or agreement  contained in this Credit Agreement and the other Loan
Documents or any instrument  pursuant to which the  Obligations to such Bank are
evidenced,  including  as permitted by  applicable  law the  obtaining of the ex
parte  appointment of a receiver,  and, if such amount shall have become due, by
declaration  or otherwise,  proceed to enforce the payment  thereof or any other
legal or equitable right of such Bank. No remedy herein  conferred upon any Bank
or the Agent or the holder of any  Revolving  Credit  Note or  purchaser  of any
Letter of Credit  Participation  is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative  and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.

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                                   14. SETOFF.

         Regardless of the adequacy of any collateral, during the continuance of
any Event of Default,  any deposits or other sums credited by or due from any of
the Banks to the Borrower and any  securities or other  property of the Borrower
in the possession of such Bank may be applied to or set off by such Bank against
the  payment  of  Obligations  and any and all  other  liabilities,  direct,  or
indirect,  absolute  or  contingent,  due or to  become  due,  now  existing  or
hereafter  arising,  of the Borrower to such Bank. Each of the Banks agrees with
each  other  Bank  that  (a) if an  amount  to be set  off is to be  applied  to
Indebtedness of the Borrower to such Bank, other than Indebtedness  evidenced by
the  Revolving  Credit  Notes  held by such Bank or  constituting  Reimbursement
Obligations  owed to such Bank,  such  amount  shall be applied  ratably to such
other  Indebtedness  and to the  Indebtedness  evidenced  by all such  Revolving
Credit Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank,  and (b) if such Bank shall  receive  from the  Borrower,  whether by
voluntary payment, exercise of the right of setoff, counterclaim,  cross action,
enforcement  of the claim  evidenced by the  Revolving  Credit Notes held by, or
constituting Reimbursement Obligations owed to, such Bank by proceedings against
the  Borrower  at  law  or  in  equity  or  by  proof  thereof  in   bankruptcy,
reorganization,  liquidation, receivership or similar proceedings, or otherwise,
and shall retain and apply to the payment of the Revolving  Credit Note or Notes
held by, or Reimbursement Obligations owed to, such Bank any amount in excess of
its ratable portion of the payments received by all of the Banks with respect to
the Revolving Credit Notes held by, and  Reimbursement  Obligations owed to, all
of the Banks,  such Bank will make such  disposition and  arrangements  with the
other Banks with  respect to such  excess,  either by way of  distribution,  pro
tanto  assignment  of claims,  subrogation  or otherwise as shall result in each
Bank  receiving  in  respect  of  the  Revolving  Credit  Notes  held  by  it or
Reimbursement  Obligations owed it, its proportionate payment as contemplated by
this Credit  Agreement;  provided that if all or any part of such excess payment
is thereafter  recovered from such Bank, such disposition and arrangements shall
be rescinded and the amount restored to the extent of such recovery, but without
interest.

                                 15. THE AGENT.

         15.1.  Authorization.

                  (a) The Agent is  authorized  to take such action on behalf of
         each of the Banks and to exercise all such powers as are  hereunder and
         under  any of the  other  Loan  Documents  and  any  related  documents
         delegated  to the Agent,  together  with such powers as are  reasonably
         incident  thereto,  provided  that no  duties or  responsibilities  not
         expressly  assumed  herein or  therein  shall be  implied  to have been
         assumed by the Agent.

                  (b) The  relationship  between the Agent and each of the Banks
         is that of an  independent  contractor.  The use of the term "Agent" is
         for convenience only and is used to describe,  as a form of convention,
         the independent contractual  relationship between the Agent and each of
         the Banks.  Nothing  contained in this Credit  Agreement  nor the other
         Loan Documents  shall be construed to create an agency,  trust or other
         fiduciary relationship between the Agent and any of the Banks.

                  (c) As an  independent  contractor  empowered  by the Banks to
         exercise certain rights and perform certain duties and responsibilities
         hereunder and under the other Loan Documents, the Agent is nevertheless
         a  "representative"  of the Banks, as that term is defined in Article 1
         of the Uniform Commercial Code, for purposes of actions for the benefit
         of the Banks and the Agent with respect to all collateral security,  if
         any, and guaranties  contemplated by the Loan  Documents.  Such actions
         include the designation of the Agent as "secured party", "mortgagee" or
         the  like  on  all  financing   statements  and  other   documents  and
         instruments, whether recorded or otherwise, relating to the attachment,
         perfection,   priority  or  enforcement  of  any  security   interests,
         mortgages or deeds of trust in collateral  security  intended to secure
         the  payment  or  performance  of any of the  Obligations,  all for the
         benefit of the Banks and the Agent.

         15.2.  Employees  and  Agents.  The Agent may  exercise  its powers and
execute  its duties by or through  employees  or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents.  The
Agent  may  utilize  the  services  of such  Persons  as the  Agent  in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.

         15.3.  No  Liability.  Neither  the Agent nor any of its  shareholders,
directors,  officers or employees nor any other Person  assisting  them in their
duties  nor any  agent or  employee  thereof,  shall be liable  for any  waiver,
consent or approval given or any action taken,  or omitted to be taken,  in good
faith by it or them  hereunder or under any of the other Loan  Documents,  or in
connection herewith or therewith,  or be responsible for the consequences of any
oversight or error of judgment  whatsoever,  except that the Agent or such other
Person,  as the  case  may be,  may be  liable  for  losses  due to its  willful
misconduct or gross negligence.

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         15.4.  No Representations.

                  15.4.1.  General.  The Agent shall not be responsible  for the
         execution or validity or enforceability  of this Credit Agreement,  the
         Revolving  Credit Notes,  the Letters of Credit,  any of the other Loan
         Documents or any  instrument at any time  constituting,  or intended to
         constitute,  collateral security for the Revolving Credit Notes, or for
         the  value  of  any  such  collateral  security  or for  the  validity,
         enforceability or collectability of any such amounts owing with respect
         to the  Revolving  Credit  Notes,  or for any  recitals or  statements,
         warranties or  representations  made herein or in any of the other Loan
         Documents or in any certificate or instrument hereafter furnished to it
         by or on behalf of the Borrower or any of its Subsidiaries, or be bound
         to ascertain or inquire as to the  performance  or observance of any of
         the  terms,  conditions,  covenants  or  agreements  herein  or in  any
         instrument  at  any  time  constituting,  or  intended  to  constitute,
         collateral security for the Revolving Credit Notes or to inspect any of
         the  properties,  books  or  records  of  the  Borrower  or  any of its
         Subsidiaries.  The Agent  shall not be bound to  ascertain  whether any
         notice,  consent,  waiver or request delivered to it by the Borrower or
         any holder of any of the  Revolving  Credit  Notes shall have been duly
         authorized or is true,  accurate and  complete.  The Agent has not made
         nor does it now make any  representations  or  warranties,  express  or
         implied, nor does it assume any liability to the Banks, with respect to
         the credit worthiness or financial conditions of the Borrower or any of
         its Subsidiaries. Each Bank acknowledges that it has, independently and
         without  reliance upon the Agent or any other Bank, and based upon such
         information  and documents as it has deemed  appropriate,  made its own
         credit analysis and decision to enter into this Credit Agreement.

                  15.4.2.   Closing   Documentation,   etc.   For   purposes  of
         determining  compliance  with the conditions  set forth in ss.11,  each
         Bank that has executed  this Credit  Agreement  shall be deemed to have
         consented  to,  approved or  accepted,  or to be satisfied  with,  each
         document and matter  either sent,  or made  available,  by the Agent to
         such  Bank  for  consent,  approval,  acceptance  or  satisfaction,  or
         required  thereunder to be consented to or approved by or acceptable or
         satisfactory  to such Bank,  unless an officer of the Agent active upon
         the Borrower's  account shall have received notice from such Bank prior
         to the Closing Date specifying such Bank's  objection  thereto and such
         objection  shall not have been withdrawn by notice to the Agent to such
         effect on or prior to the Closing Date.

         15.5.  Payments.

                  15.5.1.  Payments to Agent.  A payment by the  Borrower to the
         Agent  hereunder  or under  any of the  other  Loan  Documents  for the
         account of any Bank shall  constitute a payment to such Bank. The Agent
         agrees  promptly to  distribute to each Bank such Bank's pro rata share
         of payments  received by the Agent for the account of the Banks  except
         as  otherwise  expressly  provided  herein or in any of the other  Loan
         Documents.

                  15.5.2.  Distribution by Agent. If in the opinion of the Agent
         the  distribution  of  any  amount  received  by  it in  such  capacity
         hereunder,  under the Revolving  Credit Notes or under any of the other
         Loan  Documents  might  involve it in  liability,  it may refrain  from
         making  distribution  until its right to make  distribution  shall have
         been  adjudicated by a court of competent  jurisdiction.  If a court of
         competent  jurisdiction  shall  adjudge  that any amount  received  and
         distributed by the Agent is to be repaid,  each Person to whom any such
         distribution  shall have been made shall  either repay to the Agent its
         proportionate share of the amount so adjudged to be repaid or shall pay
         over the same in such manner and to such Persons as shall be determined
         by such court.

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<PAGE>


                  15.5.3.  Delinquent  Banks.  Notwithstanding  anything  to the
         contrary  contained  in this Credit  Agreement or any of the other Loan
         Documents,  any Bank that fails (a) to make  available to the Agent its
         pro rata share of any  Revolving  Credit Loan or to purchase any Letter
         of Credit  Participation  or (b) to comply with the provisions of ss.14
         with respect to making  dispositions  and  arrangements  with the other
         Banks,  where such  Bank's  share of any payment  received,  whether by
         setoff  or  otherwise,  is in  excess  of its pro  rata  share  of such
         payments due and payable to all of the Banks, in each case as, when and
         to the full extent required by the provisions of this Credit Agreement,
         shall be deemed delinquent (a "Delinquent  Bank") and shall be deemed a
         Delinquent  Bank until such time as such  delinquency  is satisfied.  A
         Delinquent  Bank shall be deemed to have  assigned any and all payments
         due  to it  from  the  Borrower,  whether  on  account  of  outstanding
         Revolving Credit Loans,  Unpaid  Reimbursement  Obligations,  interest,
         fees or otherwise, to the remaining nondelinquent Banks for application
         to,  and  reduction  of,  their  respective  pro  rata  shares  of  all
         outstanding   Revolving   Credit   Loans   and   Unpaid   Reimbursement
         Obligations.  The  Delinquent  Bank  hereby  authorizes  the  Agent  to
         distribute  such payments to the  nondelinquent  Banks in proportion to
         their  respective pro rata shares of all outstanding  Revolving  Credit
         Loans and Unpaid Reimbursement  Obligations. A Delinquent Bank shall be
         deemed to have satisfied in full a delinquency when and if, as a result
         of application of the assigned  payments to all  outstanding  Revolving
         Credit Loans and Unpaid Reimbursement  Obligations of the nondelinquent
         Banks,  the  Banks'  respective  pro  rata  shares  of all  outstanding
         Revolving  Credit  Loans  and  Unpaid  Reimbursement  Obligations  have
         returned to those in effect  immediately  prior to such delinquency and
         without giving effect to the nonpayment causing such delinquency.

         15.6.  Holders of Notes.  The Agent may deem and treat the payee of any
Revolving Credit Note or the purchaser of any Letter of Credit  Participation as
the absolute owner or purchaser  thereof for all purposes  hereof until it shall
have been  furnished  in  writing  with a  different  name by such payee or by a
subsequent holder, assignee or transferee.

         15.7.  Indemnity.  The Banks ratably agree hereby to indemnify and hold
harmless  the Agent and its  affiliates  from and  against  any and all  claims,
actions and suits (whether  groundless or otherwise),  losses,  damages,  costs,
expenses  (including  any expenses for which the Agent or such affiliate has not
been reimbursed by the Borrower as required by ss.16),  and liabilities of every
nature and  character  arising out of or related to this Credit  Agreement,  the
Revolving  Credit Notes, or any of the other Loan Documents or the  transactions
contemplated  or  evidenced  hereby or  thereby,  or the Agent's  actions  taken
hereunder  or  thereunder,  except to the  extent  that any of the same shall be
directly caused by the Agent's willful misconduct or gross negligence.

         15.8. Agent as Bank. In its individual  capacity,  Fleet shall have the
same  obligations  and the same rights,  powers and privileges in respect to its
Commitment  and the Revolving  Credit Loans made by it, and as the holder of any
of the  Revolving  Credit  Notes and as the  purchaser  of any  Letter of Credit
Participations, as it would have were it not also the Agent.

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<PAGE>


         15.9.  Resignation.  The Agent may  resign at any time by giving  sixty
(60) days prior written notice  thereof to the Banks and the Borrower.  Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent.  Unless  a  Default  or Event  of  Default  shall  have  occurred  and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor  Agent shall have been so  appointed  by the Majority  Banks and
shall have accepted such appointment  within thirty (30) days after the retiring
Agent's giving of notice of resignation,  then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial  institution
having a rating  of not  less  than A or its  equivalent  by  Standard  & Poor's
Corporation.  Upon the  acceptance of any  appointment  as Agent  hereunder by a
successor  Agent,  such successor  Agent shall  thereupon  succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the  retiring  Agent  shall be  discharged  from its duties and  obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents  shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.

         15.10. Notification of Defaults and Events of Default. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly  notify the Agent  thereof.  The Agent hereby agrees that upon
receipt of any notice  under this  ss.15.10 it shall  promptly  notify the other
Banks of the existence of such Default or Event of Default.

                        16. EXPENSES AND INDEMNIFICATION.

         16.1. Expenses.  The Borrower agrees to pay (a) the reasonable costs of
producing and reproducing  this Credit  Agreement,  the other Loan Documents and
the other agreements and instruments  mentioned herein, (b) any taxes (including
any interest and  penalties in respect  thereto)  payable by the Agent or any of
the Banks  (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the  transactions  contemplated by this Credit Agreement (the
Borrower  hereby  agreeing  to  indemnify  the Agent and each Bank with  respect
thereto),  (c) the reasonable  fees,  expenses and  disbursements of the Agent's
Special  Counsel or any local counsel to the Agent  incurred in connection  with
the  preparation,  syndication,  administration  or  interpretation  of the Loan
Documents and other instruments  mentioned herein,  each closing hereunder,  any
amendments,  modifications,  approvals, consents or waivers hereto or hereunder,
or the  cancellation of any Loan Document upon payment in full in cash of all of
the Obligations or pursuant to any terms of such Loan Document for providing for
such cancellation,  (d) the fees, expenses and disbursements of the Agent or any
of its affiliates incurred by the Agent or such affiliate in connection with any
commercial finance examination or the preparation,  syndication,  administration
or interpretation of the Loan Documents and other instruments  mentioned herein,
including all title insurance  premiums and surveyor,  engineering and appraisal
charges,  if  applicable,  (e) any  fees,  costs,  expenses  and  bank  charges,
including  bank  charges  for  returned   checks,   incurred  by  the  Agent  in
establishing,  maintaining or handling  agency  accounts,  lock box accounts and
other accounts;  (f) all reasonable  out-of-pocket  expenses  (including without
limitation  reasonable  attorneys'  fees  and  costs,  which  attorneys  may  be
employees  of any Bank or the  Agent,  and  reasonable  consulting,  accounting,
appraisal,  investment  banking  and  similar  professional  fees  and  charges)
incurred by any Bank or the Agent in connection  with (i) the  enforcement of or
preservation  of rights under any of the Loan Documents  against the Borrower or
any of its Subsidiaries or the administration  thereof after the occurrence of a
Default  or Event of  Default  and (ii) any  litigation,  proceeding  or dispute
whether arising hereunder or otherwise,  in any way related to any Bank's or the
Agent's  relationship  with the Borrower or any of its  Subsidiaries and (g) all
reasonable fees, expenses and disbursements of any Bank or the Agent incurred in
connection with UCC and  intellectual  property  searches,  UCC and intellectual
property filings or mortgage recordings.

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<PAGE>

         16.2.  Indemnification.  The  Borrower  agrees  to  indemnify  and hold
harmless the Agent,  its  affiliates  and the Banks from and against any and all
claims, actions and suits whether groundless or otherwise,  and from and against
any and all  liabilities,  losses,  damages  and  expenses  of every  nature and
character  arising  out of  this  Credit  Agreement  or any  of the  other  Loan
Documents or the transactions contemplated hereby including, without limitation,
(a) any actual or proposed use by the Borrower or any of its Subsidiaries of the
proceeds  of any of the  Revolving  Credit  Loans or Letters of Credit,  (b) the
reversal or withdrawal of any provisional  credits granted by the Agent upon the
transfer  of funds from lock box,  bank agency or  concentration  accounts or in
connection  with the  provisional  honoring  of checks or other  items,  (c) any
actual or alleged infringement of any patent, copyright, trademark, service mark
or similar  right of the  Borrower or any of its  Subsidiaries  comprised in the
Collateral,  (d)  the  Borrower  or any of its  Subsidiaries  entering  into  or
performing this Credit  Agreement or any of the other Loan Documents or (e) with
respect to the Borrower and its Subsidiaries and their respective properties and
assets, the violation of any Environmental Law, the presence,  disposal, escape,
seepage, leakage, spillage,  discharge,  emission, release or threatened release
of any Hazardous  Substances or any action,  suit,  proceeding or  investigation
brought or threatened with respect to any Hazardous Substances  (including,  but
not limited to, claims with respect to wrongful death, personal injury or damage
to property),  in each case including,  without limitation,  the reasonable fees
and disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding except to
the extent that any of the foregoing are directly caused by the gross negligence
or willful misconduct of the otherwise indemnified party. In litigation,  or the
preparation  therefor,  the  Banks and the  Agent  and its  affiliates  shall be
entitled  to  select  their  own  counsel  and,  in  addition  to the  foregoing
indemnity,  the Borrower agrees to pay promptly the reasonable fees and expenses
of such  counsel.  If, and to the extent that the  obligations  of the  Borrower
under this ss.16.2 are unenforceable for any reason,  the Borrower hereby agrees
to  make  the  maximum  contribution  to the  payment  in  satisfaction  of such
obligations which is permissible under applicable law.

         16.3.  Survival.  The  covenants  contained in this ss.16 shall survive
payment or satisfaction in full of all other Obligations.

               17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.

         17.1.  Confidentiality.  Each of the  Banks and the  Agent  agrees,  on
behalf of itself and each of its affiliates,  directors, officers, employees and
representatives,   to  use  reasonable  precautions  to  keep  confidential,  in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices,  any
non-public information supplied to it by the Borrower or any of its Subsidiaries
pursuant to this Credit  Agreement  that is  identified  by such Person as being
confidential  at the time  the  same is  delivered  to the  Banks or the  Agent,
provided that nothing herein shall limit the disclosure of any such  information
(a) after  such  information  shall have  become  public  other  than  through a
violation of this ss.17, (b) to the extent required by statute, rule, regulation
or judicial  process,  (c) to counsel for any of the Banks or the Agent,  (d) to
bank examiners or any other regulatory  authority having  jurisdiction  over any
Bank or the Agent, or to auditors or accountants,  (e) to the Agent, any Bank or
any affiliate of the foregoing,  (f) in connection  with any litigation to which
any one or more of the  Banks,  the Agent or any  affiliate  of the Agent or any
Bank is a party,  or in connection  with the  enforcement  of rights or remedies
hereunder or under any other Loan Document,  (g) to a Subsidiary or affiliate of
such Bank or (h) to any  assignee or  participant  (or  prospective  assignee or
participant)  so long as such assignee or participant  agrees to be bound by the
provisions of ss.19.6.  Moreover, each of the Agent, the Banks and any affiliate
of the Agent or any Bank is hereby expressly  permitted by the Borrower to refer
to any of the Borrower and its  Subsidiaries in connection with any advertising,
promotion or marketing undertaken by the Agent, such Bank or such affiliate and,
for such purpose,  the Agent,  such Bank or such affiliate may utilize any trade
name,  trademark,  logo or other distinctive symbol associated with the Borrower
or any of its Subsidiaries or any of their businesses.

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         17.2. Prior Notification.  Unless specifically prohibited by applicable
law or court order,  each of the Banks and the Agent shall,  prior to disclosure
thereof,  notify  the  Borrower  of any  request  for  disclosure  of  any  such
non-public  information by any  governmental  agency or  representative  thereof
(other than any such request in connection  with an examination of the financial
condition  of such  Bank by such  governmental  agency)  or  pursuant  to  legal
process.

         17.3.  Other.  In no event shall any Bank or the Agent be  obligated or
required to return any materials furnished to it or any affiliate thereof by the
Borrower or any of its  Subsidiaries.  The  obligations  of each Bank under this
ss.17  shall  supersede  and  replace  the  obligations  of such Bank  under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the  Borrower  prior to the date  hereof and shall be  binding  upon any
assignee of, or purchaser  of any  participation  in, any interest in any of the
Revolving Credit Loans or Reimbursement Obligations from any Bank.

                         18. SURVIVAL OF COVENANTS, ETC.

         All covenants, agreements,  representations and warranties made herein,
in the  Revolving  Credit  Notes,  in any of the other Loan  Documents or in any
documents  or other  papers  delivered by or on behalf of the Borrower or any of
its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the
Banks and the Agent,  notwithstanding any investigation  heretofore or hereafter
made by any of them,  and shall  survive  the  making by the Banks of any of the
Revolving Credit Loans and the issuance,  extension or renewal of any Letters of
Credit, as herein  contemplated,  and shall continue in full force and effect so
long as any Letter of Credit or any amount due under this  Credit  Agreement  or
the Notes or any of the other Loan Documents remains outstanding or any Bank has
any  obligation  to  make  any  Revolving  Credit  Loans  or the  Agent  has any
obligation to issue,  extend or renew any Letter of Credit, and for such further
time as may be  otherwise  expressly  specified  in this Credit  Agreement.  All
statements  contained in any certificate or other paper delivered to any Bank or
the Agent at any time by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto or in connection with the transactions contemplated hereby shall
constitute  representations  and  warranties by the Borrower or such  Subsidiary
hereunder.

                        19. ASSIGNMENT AND PARTICIPATION.

         19.1.  Conditions to Assignment  by Banks.  Except as provided  herein,
each Bank may assign to one or more  Eligible  Assignees all or a portion of its
interests,  rights and obligations under this Credit Agreement (including all or
a portion of its  Commitment  Percentage  and Commitment and the same portion of
the Revolving  Credit Loans at the time owing to it, the Revolving  Credit Notes
held by it and its participating interest in the risk relating to any Letters of
Credit);  provided that (a) the Agent shall have given its prior written consent
to such assignment,  (b) each such assignment shall be of a constant,  and not a
varying,  percentage of all the assigning  Bank's rights and  obligations  under
this Credit Agreement, (c) each assignment shall be in an amount that is a whole
multiple of $5,000,000  (or such smaller  amount which  represents the assigning
Bank's entire  Commitment) and (d) the parties to such assignment  shall execute
and  deliver  to the  Agent,  for  recording  in the  Register  (as  hereinafter
defined),  an Assignment and Acceptance,  substantially in the form of Exhibit E
hereto (an "Assignment and Acceptance"), together with any Notes subject to such
assignment.  Upon such execution,  delivery,  acceptance and recording, from and
after the effective date  specified in each  Assignment  and  Acceptance,  which
effective  date shall be at least  five (5)  Business  Days after the  execution
thereof,  (i) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Bank  hereunder,  and (ii) the assigning Bank shall,  to the extent  provided in
such assignment and upon payment to the Agent of the  registration  fee referred
to in ss.19.3, be released from its obligations under this Credit Agreement.

         19.2. Certain Representations and Warranties;  Limitations;  Covenants.
By executing and  delivering an Assignment  and  Acceptance,  the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:

                  (a) other than the  representation and warranty that it is the
         legal and beneficial  owner of the interest being assigned thereby free
         and  clear  of  any  adverse   claim,   the  assigning  Bank  makes  no
         representation  or  warranty,   express  or  implied,  and  assumes  no
         responsibility   with  respect  to  any   statements,   warranties   or
         representations  made in or in connection with this Credit Agreement or
         the  execution,   legality,  validity,   enforceability,   genuineness,
         sufficiency or value of this Credit Agreement, the other Loan Documents
         or any other  instrument or document  furnished  pursuant hereto or the
         attachment,   perfection  or  priority  of  any  security  interest  or
         mortgage, if any;

                                       83
<PAGE>

                  (b) the assigning Bank makes no representation or warranty and
         assumes no  responsibility  with respect to the financial  condition of
         the Borrower  and its  Subsidiaries  or any other  Person  primarily or
         secondarily  liable  in  respect  of  any of  the  Obligations,  or the
         performance or observance by the Borrower and its  Subsidiaries  or any
         other Person  primarily or secondarily  liable in respect of any of the
         Obligations of any of their  obligations under this Credit Agreement or
         any of the other Loan  Documents  or any other  instrument  or document
         furnished pursuant hereto or thereto;

                  (c) such assignee confirms that it has received a copy of this
         Credit  Agreement,  together  with copies of the most recent  financial
         statements  referred  to in ss.7.4 and ss.8.4 and such other  documents
         and  information  as it has deemed  appropriate  to make its own credit
         analysis and decision to enter into such Assignment and Acceptance;

                  (d) such assignee  will,  independently  and without  reliance
         upon the assigning  Bank, the Agent or any other Bank and based on such
         documents and  information  as it shall deem  appropriate  at the time,
         continue  to make its own  credit  decisions  in taking  or not  taking
         action under this Credit Agreement;

                  (e  such assignee represents and warrants that it is an
         Eligible Assignee;

                  (f) such assignee  appoints and  authorizes  the Agent to take
         such  action as agent on its behalf and to exercise  such powers  under
         this Credit  Agreement and the other Loan Documents as are delegated to
         the Agent by the terms hereof or thereof,  together with such powers as
         are reasonably incidental thereto;

                  (g) such  assignee  agrees that it will perform in  accordance
         with  their  terms  all of the  obligations  that by the  terms of this
         Credit Agreement are required to be performed by it as a Bank;

                  (h) such assignee  represents and warrants that it is legally
         authorized to enter into such Assignment and Acceptance; and

                  (i) such assignee  acknowledges  that it has made arrangements
         with the assigning Bank  satisfactory  to such assignee with respect to
         its pro rata share of Letter of Credit  Fees in respect of  outstanding
         Letters of Credit.

         19.3. Register.  The Agent shall maintain a copy of each Assignment and
Acceptance  delivered to it and a register or similar list (the  "Register") for
the  recordation  of the names  and  addresses  of the Banks and the  Commitment
Percentage of, and principal  amount of the Revolving  Credit Loans owing to and
Letter of Credit  Participations  purchased by, the Banks from time to time. The
entries in the Register shall be conclusive,  in the absence of manifest  error,
and the  Borrower,  the Agent and the Banks may treat each Person  whose name is
recorded in the  Register as a Bank  hereunder  for all  purposes of this Credit
Agreement.  The Register  shall be available for  inspection by the Borrower and
the Banks at any  reasonable  time and from time to time upon  reasonable  prior
notice.  Upon each such  recordation,  the  assigning  Bank agrees to pay to the
Agent a registration fee in the sum of $3,500.

                                       84
<PAGE>


         19.4.  New Notes.  Upon its  receipt of an  Assignment  and  Acceptance
executed by the parties to such assignment,  together with each Revolving Credit
Note  subject to such  assignment,  the Agent  shall (a) record the  information
contained  therein in the Register,  and (b) give prompt  notice  thereof to the
Borrower and the Banks (other than the assigning Bank). Within five (5) Business
Days after  receipt of such notice,  the  Borrower,  at its own  expense,  shall
execute and deliver to the Agent,  in exchange  for each  surrendered  Revolving
Credit Note, a new Revolving Credit Note to the order of such Eligible  Assignee
in an amount equal to the amount assumed by such Eligible  Assignee  pursuant to
such  Assignment  and  Acceptance  and, if the assigning  Bank has retained some
portion of its obligations  hereunder,  a new Revolving Credit Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Revolving Credit Notes shall provide that they are replacements for the
surrendered  Revolving Credit Notes,  shall be in an aggregate  principal amount
equal to the aggregate  principal  amount of the  surrendered  Revolving  Credit
Notes,  shall be dated the effective date of such  Assignment and Acceptance and
shall otherwise be in  substantially  the form of the assigned  Revolving Credit
Notes.  Within  five (5) days of  issuance  of any new  Revolving  Credit  Notes
pursuant to this  ss.19.4,  the  Borrower  shall  deliver an opinion of counsel,
addressed  to the  Banks  and the  Agent,  relating  to the  due  authorization,
execution  and delivery of such new  Revolving  Credit  Notes and the  legality,
validity and binding effect thereof,  in form and substance  satisfactory to the
Banks. The surrendered Revolving Credit Notes shall be cancelled and returned to
the Borrower.

         19.5. Participations.  Each Bank may sell participations to one or more
banks  or  other  entities  in  all or a  portion  of  such  Bank's  rights  and
obligations  under this Credit Agreement and the other Loan Documents;  provided
that (a) any such sale or  participation  shall not affect the rights and duties
of the selling Bank hereunder to the Borrower and (b) the only rights granted to
the  participant  pursuant to such  participation  arrangements  with respect to
waivers,  amendments or  modifications of the Loan Documents shall be the rights
to approve waivers,  amendments or modifications that would reduce the principal
of or the  interest  rate on any  Revolving  Credit  Loans,  extend  the term or
increase  the  amount  of the  Commitment  of such  Bank as it  relates  to such
participant,  reduce the amount of any Commitment  Fees or Letter of Credit Fees
to which such participant is entitled or extend any regularly  scheduled payment
date for principal or interest.

         19.6.  Disclosure.  The Borrower agrees that in addition to disclosures
made in accordance  with standard and customary  banking  practices any Bank may
disclose  information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants  and potential  assignees or  participants  hereunder;
provided  that  such  assignees  or  participants  or  potential   assignees  or
participants shall agree (a) to treat in confidence such information unless such
information  otherwise  becomes  public  knowledge,  (b)  not to  disclose  such
information to a third party, except as required by law or legal process and (c)
not to make use of such  information for purposes of  transactions  unrelated to
such contemplated  assignment or participation.  For purposes of this ss.19.6 an
assignee or  participant  or  potential  assignee or  participant  may include a
counterparty  with whom such Bank has entered  into or  potentially  might enter
into a derivative contract referenced to credit or other risks or events arising
under this Credit Agreement or any other Loan Document.

                                       85
<PAGE>


         19.7.  Assignee or  Participant  Affiliated  with the Borrower.  If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no  right  to vote as a Bank  hereunder  or  under  any of the  other  Loan
Documents  for  purposes  of  granting  consents  or waivers or for  purposes of
agreeing to amendments or other  modifications  to any of the Loan  Documents or
for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and
the  determination  of the Majority  Banks shall for all purposes of this Credit
Agreement and the other Loan  Documents be made without  regard to such assignee
Bank's  interest  in  any  of  the  Revolving   Credit  Loans  or  Reimbursement
Obligations.  If any Bank sells a participating interest in any of the Revolving
Credit Loans or Reimbursement Obligations to a participant, and such participant
is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such  participation.  A transferor Bank
shall have no right to vote as a Bank  hereunder  or under any of the other Loan
Documents  for  purposes  of  granting  consents  or waivers or for  purposes of
agreeing to  amendments  or  modifications  to any of the Loan  Documents or for
purposes of making  requests to the Agent  pursuant to ss.13.1 or ss.13.2 to the
extent that such  participation  is  beneficially  owned by the  Borrower or any
Affiliate of the Borrower, and the determination of the Majority Banks shall for
all  purposes  of this Credit  Agreement  and the other Loan  Documents  be made
without regard to the interest of such transferor  Bank in the Revolving  Credit
Loans or Reimbursement Obligations to the extent of such participation.

         19.8.  Miscellaneous  Assignment  Provisions.  Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.16 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not  incorporated  under the laws of the  United  States of America or any state
thereof,  it shall,  prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan  Documents for its account,  deliver to
the Borrower and the Agent  certification  as to its exemption from deduction or
withholding  of any United States federal  income taxes.  Anything  contained in
this ss.19 to the contrary notwithstanding,  any Bank may at any time pledge all
or any portion of its interest and rights under this Credit Agreement (including
all or any portion of its Revolving  Credit Notes) to any of the twelve  Federal
Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341.
No such pledge or the  enforcement  thereof  shall release the pledgor Bank from
its obligations hereunder or under any of the other Loan Documents.

         19.9. Assignment by Borrower. The Borrower shall not assign or transfer
any of its rights or  obligations  under any of the Loan  Documents  without the
prior written consent of each of the Banks.

                                       86
<PAGE>


                                20. NOTICES, ETC.

         Except as otherwise  expressly  provided in this Credit Agreement,  all
notices and other  communications  made or required to be given pursuant to this
Credit  Agreement  or the  Revolving  Credit  Notes  or  any  Letter  of  Credit
Applications  shall be in  writing  and shall be  delivered  in hand,  mailed by
United States registered or certified first class mail, postage prepaid, sent by
overnight  courier,  or sent by  telegraph,  telecopy,  facsimile  or telex  and
confirmed by delivery via courier or postal service, addressed as follows:

                  (a) if to the  Borrower,  at 65 Grove  Street,  Watertown,  MA
         02472,  Attention:  Robert J.  Halliday,  Executive  Vice President and
         Chief  Financial  Officer,  or at such other  address for notice as the
         Borrower  shall last have furnished in writing to the Person giving the
         notice;

          (b) if to the Agent,  at 100  Federal  Street,  Boston,  Massachusetts
     02110, USA, Attention:  John C. Dunne,  Director, or such other address for
     notice as the Agent  shall  last have  furnished  in  writing to the Person
     giving the notice; and

                  (c) if to any  Bank,  at such  Bank's  address  set  forth  on
         Schedule 1 hereto,  or such other address for notice as such Bank shall
         have last furnished in writing to the Person giving the notice.

         Any such  notice or demand  shall be deemed to have been duly  given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed,  at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified  first-class mail,  postage prepaid,  on
the third Business Day following the mailing thereof.

                               21. GOVERNING LAW.

         THIS CREDIT  AGREEMENT AND, EXCEPT AS OTHERWISE  SPECIFICALLY  PROVIDED
THEREIN,  EACH OF THE OTHER LOAN  DOCUMENTS ARE CONTRACTS  UNDER THE LAWS OF THE
COMMONWEALTH  OF  MASSACHUSETTS  AND  SHALL FOR ALL  PURPOSES  BE  CONSTRUED  IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID  COMMONWEALTH OF  MASSACHUSETTS
(EXCLUDING  THE LAWS  APPLICABLE  TO CONFLICTS  OR CHOICE OF LAW).  THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT  AGREEMENT OR ANY OF THE
OTHER  LOAN  DOCUMENTS  MAY BE  BROUGHT  IN THE  COURTS OF THE  COMMONWEALTH  OF
MASSACHUSETTS  OR  ANY  FEDERAL  COURT  SITTING  THEREIN  AND  CONSENTS  TO  THE
NONEXCLUSIVE  JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE  BORROWER BY MAIL AT THE  ADDRESS  SPECIFIED  IN ss.20.  THE
BORROWER  HEREBY WAIVES ANY OBJECTION  THAT IT MAY NOW OR HEREAFTER  HAVE TO THE
VENUE OF ANY SUCH  SUIT OR ANY SUCH  COURT OR THAT SUCH  SUIT IS  BROUGHT  IN AN
INCONVENIENT COURT.

                                  22. HEADINGS.

         The captions in this Credit  Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.

                                23. COUNTERPARTS.

         This  Credit  Agreement  and any  amendment  hereof may be  executed in
several counterparts and by each party on a separate counterpart,  each of which
when  executed and  delivered  shall be an original,  and all of which  together
shall  constitute one instrument.  In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart  signed by
the party against whom enforcement is sought.

                                       87
<PAGE>

                           24. ENTIRE AGREEMENT, ETC.

         The Loan  Documents  and any other  documents  executed  in  connection
herewith or  therewith  express  the entire  understanding  of the parties  with
respect to the transactions  contemplated hereby.  Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated,  except as
provided in ss.27.

                            25. WAIVER OF JURY TRIAL.

         Each of Borrower,  the Agent and the Banks hereby waives its right to a
jury trial with  respect to any action or claim  arising  out of any  dispute in
connection with this Credit Agreement,  the Revolving Credit Notes or any of the
other Loan Documents,  any rights or obligations  hereunder or thereunder or the
performance  of such rights and  obligations.  Except as  prohibited by law, the
Borrower  hereby  waives  any  right  it may have to  claim  or  recover  in any
litigation  referred  to in  the  preceding  sentence  any  special,  exemplary,
punitive or consequential  damages or any damages other than, or in addition to,
actual  damages.  The Borrower (a) certifies  that no  representative,  agent or
attorney of any Bank or the Agent has represented,  expressly or otherwise, that
such Bank or the Agent  would not, in the event of  litigation,  seek to enforce
the  foregoing  waivers and (b)  acknowledges  that the Agent and the Banks have
been induced to enter into this Credit  Agreement,  and the other Loan Documents
to which it is a party by, among other  things,  the waivers and  certifications
contained herein.

                     26. CONSENTS, AMENDMENTS, WAIVERS, ETC.

         Any consent or approval  required or permitted by this Credit Agreement
to be given by the Banks may be given,  and any term of this  Credit  Agreement,
the other Loan  Documents or any other  instrument  related  hereto or mentioned
herein may be amended,  and the performance or observance by the Borrower or any
of its  Subsidiaries  of any terms of this  Credit  Agreement,  the  other  Loan
Documents or such other instrument or the continuance of any Default or Event of
Default may be waived (either  generally or in a particular  instance and either
retroactively or prospectively)  with, but only with, the written consent of the
Borrower and the written  consent of the  Majority  Banks.  Notwithstanding  the
foregoing,  the rate of  interest  on the  Revolving  Credit  Notes  (other than
interest accruing pursuant to ss.5.11 following the effective date of any waiver
by the Majority  Banks of the Default or Event of Default  relating  thereto) or
the amount of the  Commitment  Fee or Letter of Credit Fees may not be decreased
without the written  consent of each Bank  affected  thereby;  the amount of the
Commitments may not be increased without the written consent of the Borrower and
of each Bank affected  thereby;  the Revolving Credit Loan Maturity Date may not
be postponed  without the written  consent of each Bank affected  thereby;  this
ss.26 and the  definition  of  Majority  Banks may not be  amended,  without the
written  consent of all of the Banks;  and the amount of the  Agent's Fee or any
Letter of Credit  Fees  payable  for the  Agent's  account  and ss.15 may not be
amended  without the written  consent of the Agent. No waiver shall extend to or
affect  any  obligation  not  expressly  waived or impair  any right  consequent
thereon.  No course of dealing or delay or  omission on the part of the Agent or
any Bank in exercising  any right shall operate as a waiver thereof or otherwise
be prejudicial  thereto.  No notice to or demand upon the Borrower shall entitle
the  Borrower  to  other  or  further  notice  or  demand  in  similar  or other
circumstances.

                                   27. USURY.

         All  agreements  between the  Borrower  and the Agent and the Banks are
hereby expressly limited so that in no contingency or event whatsoever,  whether
by reason of  acceleration  of the  maturity of the  Revolving  Credit  Notes or
otherwise,  shall the amount  paid or agreed to be paid to the Agent or any Bank
for the use or the forbearance of the Indebtedness  represented by any Revolving
Credit Note exceed the maximum permissible under applicable law. In this regard,
it is expressly agreed that it is the intent of the Borrower,  the Agent and the
Banks, in the execution,  delivery and acceptance of the Revolving Credit Notes,
to  contract  in  strict  compliance  with  the  laws  of  the  Commonwealth  of
Massachusetts.   If,  under  any   circumstances   whatsoever,   performance  or
fulfillment of any provision of any of the Revolving  Credit Notes or any of the
other Loan  Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable law, then
the obligation so to be performed or fulfilled shall be reduced automatically to
the limits of such validity, and if under any circumstances whatsoever the Agent
or any Banks  should ever  receive as interest an amount  which would exceed the
highest  lawful rate,  such amount which would be  excessive  interest  shall be
applied to the  reduction of the  principal  balance  evidenced by the Revolving
Credit Notes and not to the payment of interest.  The  provisions  of this ss.27
shall  control  every other  provision of this Credit  Agreement and each of the
Revolving Credit Notes.

                                       88
<PAGE>


                                28. SEVERABILITY.

         The  provisions  of this Credit  Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction,  then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction,  and shall
not in any manner affect such clause or provision in any other jurisdiction,  or
any other clause or provision of this Credit Agreement in any jurisdiction.

                          29. TRANSITIONAL ARRANGEMENTS

         29.1. Prior Credit Agreement.  Except as provided in this ss.29, on the
Closing Date, this Credit Agreement shall amend and restate, and shall supersede
the Prior Credit  Agreement.  On the Closing Date, the rights and obligations of
the parties  under the Prior Credit  Agreement  shall be subsumed  within and be
governed by this Credit  Agreement  and the Revolving  Credit Note.  Each of the
"Loans" (as such term is used in the Prior Credit  Agreement)  advanced by Fleet
and outstanding  under the Prior Credit Agreement on the Closing Date including,
without limitation, any outstanding LIBOR Rate Loans shall, for purposes of this
Credit Agreement,  be Revolving Credit Loans advanced hereunder and shall remain
outstanding  and shall not be deemed to be repaid  and each  "Letter  of Credit"
issued by Fleet for the account of the  Borrower  prior to the Closing  Date and
outstanding on the Closing Date shall, for purposes of this Credit Agreement, be
a Letter of Credit issued hereunder.

         29.2.   Return  and   Cancellation  of  Note.  As  soon  as  reasonably
practicable  after Fleet's receipt of its Revolving Credit Note hereunder on the
Closing Date, Fleet will promptly return to the Borrower,  marked "Substituted",
any note held by Fleet  pursuant to the Prior Credit  Agreement.  Nothing herein
shall be deemed to be an acknowledgment by Fleet that the obligations  evidenced
by such note have been paid.

         29.3.  Interest and Fees Under Prior Credit  Agreement.  All  interest,
fees  and  expenses  due and  owing  under or in  respect  of the  Prior  Credit
Agreement  as of the Closing  Date shall be paid on such date and all  interest,
fees and expenses  accruing under or in respect of the Prior Credit Agreement as
of the  Closing  (and not then due) shall  continue  to accrue  under the Credit
Agreement as if incurred  thereunder  and shall be paid on the date(s) when such
like payments under the Credit Agreement would next become due after the Closing
Date.



                                       89
<PAGE>





         IN WITNESS  WHEREOF,  the  undersigned  have duly  executed this Credit
Agreement as a sealed instrument as of the date first set forth above.

                               IONICS, INCORPORATED

                               By: /s/Robert J. Halliday
                               -----------------------------------------------
                               Robert J. Halliday, Executive Vice President and
                               Chief Financial Officer


                               FLEET NATIONAL BANK, individually and as Agent

                               By: /s/John C. Dunne
                               ------------------------------------------------
                               John C. Dunne, Senior Vice President



                                       90
<PAGE>



                                   SCHEDULE 1

                                 Bank Commitment

                  Bank                                  Commitment

               Fleet National Bank                 $70,000,000 through 3/30/01
               100 Federal Street

               Boston, Massachusetts  02110        $50,000,000 as of 3/31/01
               Attn: John C. Dunne,  Senior Vice
               President


                 Percentage:                             100%








                                       91
<PAGE>



                               FLEET NATIONAL BANK

                               100 FEDERAL STREET

                                BOSTON, MA 02110

                                  July 28, 2000

Ionics, Incorporated
65 Grove Street
Watertown, MA 02472

         Re:______Fee Letter

Ladies and Gentlemen:

         Reference is hereby made to the Second  Amended and Restated  Revolving
Credit  Agreement dated as of July 28, 2000, (as amended and in effect from time
to time, the "Credit Agreement"),  among Ionics,  Incorporated,  a Massachusetts
corporation   (the   "Company"),   Fleet  National  Bank,  a  national   banking
association,  as agent (hereinafter,  in such capacity,  the "Agent") for itself
and the other  banking  institutions  which are or may  become  parties  thereto
(hereinafter,  collectively,  the "Banks"),  and the Banks. Terms defined in the
Credit  Agreement  and  used  without  definition  herein  shall  have  the same
respective meanings herein as in the Credit Agreement.

         Pursuant to ss.5.1 of the Credit  Agreement,  and as a condition to the
effectiveness  of the Credit  Agreement,  the  Borrower has agreed to pay to the
Agent for its own account a closing fee of $210,000  which shall be fully earned
as of the date hereof (i)  $80,000 of which  shall be paid on the Closing  Date,
and (ii)  the  remaining  $130,000  of which  shall be paid on March  31,  2001;
provided,  however,  that if between  the  Closing  Date and March 31,  2001,  a
private placement is arranged by Fleet which reduces the Commitment by an amount
equal to or greater than $20,000,000, the remaining $130,000 fee will be waived.

         This  letter  agreement  is subject to the  confidentiality  provisions
contained in the Credit Agreement.

         This  letter  agreement  is the Fee  Letter  referred  to in the Credit
Agreement.  This letter agreement may be executed in any number of counterparts,
which shall  together  constitute  but one and the same  agreement.  THIS LETTER
AGREEMENT  SHALL FOR ALL  PURPOSES BE GOVERNED BY, AND  CONSTRUED IN  ACCORDANCE
WITH,  THE  INTERNAL  LAWS OF THE  COMMONWEALTH  OF  MASSACHUSETTS.  This letter
agreement  shall  take  effect  as a  sealed  instrument  as of the  date  first
hereinabove  written.  This  letter  agreement  shall be binding on the  parties
hereto and their respective successors and assigns.

         Please  indicate  your  agreement  with the  foregoing  by signing this
letter agreement where indicated below and returning it with the arrangement fee
to John C. Dunne,  Senior  Vice  President,  Fleet  National  Bank,  100 Federal
Street,  Boston,  Massachusetts  02110.  This letter supersedes all of our prior
letters and  communications  to you regarding the subject matter of this letter,
if any.

                                            Very truly yours,

                                            FLEET NATIONAL BANK,


                                            By: /s/John C. Dunne
                                            -----------------------------------
                                            John C. Dunne, Senior Vice President


ACKNOWLEDGED AND AGREED TO:

Ionics, Incorporated,
   as Borrower

By: /s/Robert J. Halliday
    -----------------------------------
    Title: Executive Vice President



                                       92
<PAGE>



EXHIBIT A

                SIXTH AMENDED AND RESTATED REVOLVING CREDIT NOTE

$70,000,000                                                        July 28, 2000


         FOR  VALUE  RECEIVED,   the  undersigned   IONICS,   INCORPORATED  (the
"Borrower"),  hereby  promises  to pay to the order of FLEET  NATIONAL  BANK,  a
national  banking  association  (the  "Bank") at the Agent's  head office at 100
Federal Street, Boston, Massachusetts, 02110.

                  (a) prior to or on December 31, 2004, the principal  amount of
         Seventy Million Dollars ($70,000,000) or, if less, the aggregate unpaid
         principal  amount of the Revolving Credit Loans advanced by the Bank to
         the  Borrower  pursuant  to the  Second  Amended  and  Restated  Credit
         Agreement,  dated as of July 28,  2000 (as  amended  and in effect from
         time to time, the "Credit Agreement"), among the Borrower, the Bank and
         the other parties thereto;

                  (b) the  principal  outstanding  hereunder  from time to time
         at the times  provided  in the Credit Agreement; and

                  (c) interest on the principal balance hereof from time to time
         outstanding  from the Closing Date under the Credit  Agreement  through
         and  including  the  maturity  date hereof at the times and at the rate
         provided in the Credit Agreement.

         This Note is an amendment and  restatement in its entirety of the Fifth
Amended  and  Restated  Loan  Note  issued  by the  Borrower  to the Bank in the
original  principal  amount of  $45,000,000,  dated  June 6, 2000 (the  "Amended
Note").  The Note is issued in  substitution  for,  and not in  payment  of, the
Amended Note.

         This  Note  evidences  borrowings  under  and has  been  issued  by the
Borrower in accordance with the terms of the Credit Agreement.  The Bank and any
holder hereof is entitled to the benefits of the Credit  Agreement and the other
Loan  Documents,  and may  enforce  the  agreements  of the  Borrower  contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise  available in respect  thereof,  all in accordance with the
respective  terms  thereof.  All  capitalized  terms  used in this  Note and not
otherwise  defined  herein shall have the same meanings  herein as in the Credit
Agreement.

         The  Borrower  irrevocably  authorizes  the Bank to make or cause to be
made,  at or about the time of the  drawdown  date of any Loan or at the time of
receipt of any payment of principal of this Note, an appropriate notation on the
grid  attached  to this Note,  or the  continuation  of such grid,  or any other
similar record,  including computer records,  reflecting the making of such Loan
or (as the case may be) the receipt of such payment.  The outstanding  amount of
the  Revolving  Credit Loans set forth on the grid attached to this Note, or the
continuation  of such grid,  or any other  similar  record,  including  computer
records, maintained by the Bank with respect to any Revolving Credit Loans shall
be prima facie evidence of the principal  amount thereof owing and unpaid to the
Bank, but the failure to record,  or any error in so recording,  any such amount
on any such grid,  continuation  or other  record  shall not limit or  otherwise
affect the obligation of the Borrower hereunder or under the Credit Agreement to
make payments of principal of and interest on this Note when due.

         The Borrower has the right in certain  circumstances and the obligation
under certain other  circumstances  to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.

                                       93
<PAGE>


         If any one or more of the Events of  Default  shall  occur,  the entire
unpaid  principal  amount of this Note and all of the  unpaid  interest  accrued
thereon  may become or be  declared  due and  payable in the manner and with the
effect provided in the Credit Agreement.

         No delay or  omission  on the part of the Bank or any holder  hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one  occasion be deemed a bar or waiver of the same or any other right on
any further occasion.

         The  Borrower  and every  endorser  and  guarantor  of this Note or the
obligation  represented hereby waives presentment,  demand,  notice, protest and
all other  demands  and notices in  connection  with the  delivery,  acceptance,
performance,  default or  enforcement of this Note, and assents to any extension
or  postponement  of the  time  of  payment  or  any  other  indulgence,  to any
substitution,  exchange or release of collateral  and to the addition or release
of any other party or person primarily or secondarily liable.

         THIS NOTE AND THE  OBLIGATIONS OF THE BORROWER  HEREUNDER SHALL FOR ALL
PURPOSES  BE  GOVERNED  BY AND  CONSTRUED  IN  ACCORDANCE  WITH  THE  LAW OF THE
COMMONWEALTH  OF  MASSACHUSETTS  (EXCLUDING THE LAWS  APPLICABLE TO CONFLICTS OR
CHOICE OF LAW).  THE BORROWER  AGREES THAT ANY SUIT FOR THE  ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE  COMMONWEALTH OF  MASSACHUSETTS  OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE  NONEXCLUSIVE  JURISDICTION
OF SUCH  COURT AND THE  SERVICE  OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.* OF THE CREDIT  AGREEMENT.  THE
BORROWER  HEREBY WAIVES ANY OBJECTION  THAT IT MAY NOW OR HEREAFTER  HAVE TO THE
VENUE OF ANY SUCH  SUIT OR ANY SUCH  COURT OR THAT SUCH  SUIT IS  BROUGHT  IN AN
INCONVENIENT COURT.

         This Note shall be deemed to take effect as a sealed  instrument  under
the laws of the Commonwealth of Massachusetts

         IN WITNESS  WHEREOF,  the undersigned has caused this Note to be signed
in its corporate name and its corporate seal to be impressed thereon by its duly
authorized officer as of the day and year first above written.

[Corporate Seal]

                                   IONICS, INCORPORATED

                                   By: _______________________________________
                                       Robert J. Halliday, Executive Vice
                                       President and Chief Financial Officer



                                       94
<PAGE>


<TABLE>
<CAPTION>


                                               Amount of             Balance of
                          Amount             Principal Paid            Principal            Notation
       Date               of Loan              or Prepaid               Unpaid              Made By:
<S>                 <C>                  <C>                      <C>                  <C>
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</TABLE>




                                       95
<PAGE>



                                                                      EXHIBIT B

                              Form of Loan Request

                                  [insert date]

Fleet National Bank, as Agent
100 Federal Street
Boston, Massachusetts  02110

Re:      Loan Request

Ladies and Gentlemen:

         Reference  is hereby made to that certain  Second  Amended and Restated
Revolving  Credit  Agreement,  dated  as of July  28,  2000  (as the same may be
amended and in effect from time to time, the "Credit Agreement"),  among Ionics,
Incorporated (the "Borrower"),  the lending institutions which are or may become
parties  thereto  from  time to time  (collectively,  the  "Banks"),  and  Fleet
National.,  as agent (the  "Agent") for the Banks.  Capitalized  terms which are
used herein  without  definition  and which are defined in the Credit  Agreement
shall have the same meanings herein as in the Credit Agreement.

         Pursuant to ss.2.6 of the Credit  Agreement,  we hereby  request that a
Revolving  Credit Loan consisting of [a Prime Rate Loan in the principal  amount
of $__________, or a LIBOR Rate Loan in the principal amount of $__________ with
an Interest  Period of _________]  be made on  __________  __, __. We understand
that this request is  irrevocable  and binding on us and  obligates us to accept
the requested Revolving Credit Loan on such date.

         We hereby certify (a) that the aggregate  outstanding  principal amount
of the Revolving Credit Loans on today's date is $_______,  (b) that we will use
the  proceeds of the  requested  Revolving  Credit Loan in  accordance  with the
provisions of the Credit  Agreement,  (c) that each of the  representations  and
warranties  contained in the Credit  Agreement or in any document or  instrument
delivered  pursuant to or in connection  therewith was true as of the date as of
which it was made and is true at and as of the date hereof (except to the extent
of changes resulting from  transactions  contemplated or permitted by the Credit
Agreement and changes  occurring in the ordinary  course of business that singly
or in the  aggregate do not have a material  adverse  effect,  and to the extent
that such  representations  and warranties related expressly to an earlier date)
and (d) that no Default or Event of Default has occurred and is continuing.

                                       Very truly yours,

                                       IONICS, INCORPORATED

                                       By:
                                       Title:



                                       96
<PAGE>



                                                                      EXHIBIT C

                                     FORM OF
                             COMPLIANCE CERTIFICATE

                                  _______, 200_

Fleet National Bank, as Agent
  for the Banks
100 Federal Street
Boston, Massachusetts 02110, USA
Attention:  John C. Dunne, Director

Ladies and Gentlemen:

        Reference  is hereby made to that  certain  Second  Amended and Restated
Revolving Credit Agreement,  dated as of July 28, 2000 (as amended and in effect
from time to time, the "Credit  Agreement"),  by and among IONICS,  INCORPORATED
(the "Borrower"),  FLEET NATIONAL BANK and the other lending institutions listed
on Schedule 1 thereto  (collectively,  the "Banks"),  and FLEET NATIONAL BANK as
agent for the Banks (in such capacity, the "Agent"). Capitalized terms which are
used herein and not otherwise  defined shall have the same meanings  assigned to
such terms in the Credit Agreement.

        Pursuant to ss.9.4(c) of the Credit Agreement,  the principal  financial
or accounting  officer of the Borrower hereby  certifies to you as follows:  (a)
the  information  furnished  in the  calculations  attached  hereto was true and
correct as of the last day of the fiscal [quarter/year] ended ______________, 20
; (b) as of the date of this  certificate,  there  exists no Default or Event of
Default , or if there is a Default or an Event of Default, such Default or Event
of  Default  is listed on an  Exhibit  attached  hereto;  and (c) the  financial
statements  delivered  herewith  were  prepared  in  accordance  with  generally
accepted accounting  principles applied on a basis consistent with prior periods
except as disclosed therein.

        IN WITNESS  WHEREOF,  the  undersigned  officer has duly  executed  this
Compliance Certificate as of the date first written above.

                                    IONICS, INCORPORATED

                                    By:____________________________________
                                    Name:
                                    Title:



                                       97
<PAGE>


<TABLE>
<CAPTION>


                        Compliance Certificate Worksheet

                              IONICS, INCORPORATED

                        As of

1.       Leverage Ratio (ss.10.1)
<S>                                                                                       <C>
         (a)      Total Funded Indebtedness as of the fiscal quarter then ended

                  (i)      Indebtedness for borrowed money    (including all              $__________
                  Subordinated Debt)
                  (ii)     purchase money Indebtedness                                    $__________
                  (iii)    Indebtedness in respect of Capitalized Leases and              $__________
                           Synthetic Leases

                  (iv)     Indebtedness in respect of Letters of Credit                   $__________
                  (v)      Indebtedness in respect of other letters of credit             $__________
                  (vi)     Total Funded Indebtedness (sum of Items 1(a)(i)                $__________
                           through 1(a)(v))
         (b)      EBITDA for the prior twelve (12) calendar months ending as
                  of the last day of the fiscal quarter then ended
                  (i)      Consolidated Net Income (or Deficit)                           $__________
                  (ii)     depreciation                                                   $__________
                  (iii)    amortization                                                   $__________

                  (iv)     income tax expense                                             $__________

                  (v)      Consolidated Total Interest Expense                            $__________

                  (vi)     other non-cash charges                                         $__________

                  (vii)    non-cash gains                                                 $__________
                  (viii)   Consolidated EBITDA (Item 1(b)(i) plus the sum of              $__________
                                                             ----
                           Items 1(b)(ii) through 1(b)(vi)) minus Item

                           1(b)(vii)

         (c)      Ratio of Item 1(a)(vi) to Item 1(b)(viii)                               ____     :1.00
         (d)      Maximum Leverage Ratio                                                  3.00     :1.00
         (e)      Compliance
                                                                                             yes/no

2.       Minimum EBITDA (ss.10.2)

         (a)      See Item 1(b)(viii)                                                     $__________

         (b)      Minimum EBITDA                                                          $50,000,000

         (c)      Compliance

                                                                                             yes/no

3.       Consolidated Net Worth (ss.10.3)

         (a)      Consolidated Net Worth as of fiscal quarter then ended
                  (i)      Consolidated Total Assets                                      $__________
                  (ii)     Consolidated Total Liabilities                                 $__________
                  (iii)    subscriptions receivable                                       $__________
                  (iv)     Consolidated Net Worth:  Item 3(a)(i) minus Items              $__________
                                                                 -----
                           3(a)(ii) minus Item 3(a)(iii)
                                    -----
         (b)      Minimum Required Consolidated Net Worth
                  (i)      $300,000,000                                                   $__________

                  (ii)     (positive) Consolidated Net Income (beginning with             $__________
                           FY 2000)

                  (iii)    Item 3(b)(ii) x 50%                                            $__________

                  (iv)     Net Cash Proceeds (100%)                                       $__________
                  (v)      Item 3(b)(i) plus Item (3)(b)(iii) plus Item                   $__________
                                        ----                  ----
                           (3)(b)(iv)

         (c)      Compliance (Item 3(a)(iv) greater than or equal      to Item
         3(b)(v))                                                                          yes/no
4.       Capital Expenditures (ss.10.4) for fiscal year 200
         --------------------

         (a)      Capital Expenditures                                                    $__________

         (b)      Maximum Capital Expenditures                                            $60,000,000

         (c)      Compliance

                                                                                           yes/no

</TABLE>


                                       98
<PAGE>



                                                                      EXHIBIT D

                         FORM OF INFORMATION CERTIFICATE

         The undersigned, the _______________ of IONICS,  INCORPORATED/[DOMESTIC
SUBSIDIARY],  a Massachusetts/  __________  corporation (the "Company"),  hereby
certifies,  with reference to a certain  Second  Amended and Restated  Revolving
Credit Agreement,  dated as of July 28, 2000May ___, 2000 (terms defined in such
Credit  Agreement having the same meanings herein as specified  therein),  among
the [Company/Ionics,  Incorporated], FLEET NATIONAL BANK, as agent (the "Agent")
for itself and other lending  institutions  party to the Credit  Agreement  (the
"Banks") and the Banks, to the Agent as follows:

                                   30. Names.

         (a) The  exact   corporate   name  of  the  Company  as  that  name
appears on its [Articles of Organization/Certificate of Incorporation] is as
follows:

         (b) The following is a list of all other names  (including  trade names
or  similar  appellations)  used  by the  Company,  or  any  other  business  or
organization to which the Company became the successor by merger, consolidation,
acquisition,   change  in  form,  nature  or  jurisdiction  of  organization  or
otherwise, now or at any time during the past five years:

                         31. Other Identifying Factors.

         (a)  The following is the type of organization of the Company:



         (b)  The following is the jurisdiction of the Company's organization



         (c) The following is the  information  required  above in this ss.2 for
any other business or  organization to which the Company became the successor by
merger,  consolidation,  acquisition,  change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five years:

                           32. Chief Executive Office.

         (a) The chief executive office of the Company is located at the
following address:

   Address                        County                              State



         (b) The  principal  mailing  address of the  Company  is the  following
address, if different from the chief executive office address:


  Mailing Address                 County                              State


                          33. Other Current Locations.

         (a) The  following  are all other  locations  in the  United  States of
America in which the  Company  maintains  any books or records or carries on its
business or at which any of its significant assets are located:


  Address                         County                              State

                              34. Prior Locations.

         (a)  Set  forth  below  is the  information  required  by  ss.3  and by
subparagraph  (a) of ss.4 with  respect to each  location  or place of  business
previously maintained by the Company at any time during the past five years in a
state in which the  Company  has  previously  maintained  a location or place of
business at any time during the past four months:


  Address                          County                             State

         IN WITNESS WHEREOF, we have hereunto signed this Certificate on
July ___, 2000.
                                           IONICS, INCORPORATED
                                           /DOMESTIC SUBSIDIARY
                                          By: ________________________________
                                          Name:
                                          Title:



                                       99
<PAGE>



                                                                      EXHIBIT E

                            ASSIGNMENT AND ACCEPTANCE

                          Dated as of __________, 20__

         Reference is made to the Second  Amended and Resated  Revolving  Credit
Agreement,  dated as of July  28,  2000 (as  from  time to time  amended  and in
effect,  the  "Credit  Agreement"),  by  and  among  IONICS,   INCORPORATED,   a
Massachusetts corporation (the "Borrower"), the banking institutions referred to
therein  as Banks  (collectively,  the  "Banks"),  and FLEET  NATIONAL  BANK,  a
national banking association,  as agent (in such capacity,  the "Agent") for the
Banks.  Capitalized  terms used herein and not otherwise  defined shall have the
meanings assigned to such terms in the Credit Agreement.

         ________________ (the "Assignor") and _______________ (the "Assignee")
hereby agree as follows:

35.  Assignment.  Subject to the terms and  conditions  of this  Assignment  and
Acceptance,  the  Assignor  hereby  sells and assigns to the  Assignee,  and the
Assignee  hereby  purchases  and assumes  without  recourse to the  Assignor,  a
$__________ interest in and to the rights, benefits, indemnities and obligations
of the Assignor under the Credit  Agreement equal to _____.00% in respect of the
Total  Commitment  immediately  prior  to the  Effective  Date  (as  hereinafter
defined).

36.  Assignor's  Representations.  The Assignor (i) represents and warrants that
(A) it is legally  authorized to enter into this Assignment and Acceptance,  (B)
as of the date hereof, its Commitment is $__________,  its Commitment Percentage
is  _____.00%,  the  aggregate  outstanding  principal  balance of its Revolving
Credit  Loans  equals  $__________,  and the  aggregate  amount of its Letter of
Credit  Participations  equals  $__________ (in each case after giving effect to
the assignment contemplated hereby but without giving effect to any contemplated
assignments  which have not yet become  effective),  and (C)  immediately  after
giving  effect to all  assignments  which  have not yet  become  effective,  the
Assignor's  Commitment  Percentage  will be  sufficient  to give  effect to this
Assignment and Acceptance,  (ii) makes no representation or warranty, express or
implied,   and  assumes  no  responsibility  with  respect  to  any  statements,
warranties or representations made in or in connection with the Credit Agreement
or any of the  other  Loan  Documents  or  the  execution,  legality,  validity,
enforceability,  genuineness,  sufficiency or value of the Credit Agreement, the
other Loan  Documents or any other  instrument  or document  furnished  pursuant
thereto or the  attachment,  perfection or priority of any security  interest or
mortgage,  other than that it is the legal and beneficial  owner of the interest
being assigned by it hereunder free and clear of any claim or encumbrance; (iii)
makes no representation  or warranty and assumes no responsibility  with respect
to the  financial  condition of the Borrower or any of its  Subsidiaries  or any
other  Person  primarily  or  secondarily  liable  in  respect  of  any  of  the
Obligations,  or the  performance  or  observance  by the Borrower or any of its
Subsidiaries or any other Person  primarily or secondarily  liable in respect of
any of the Obligations of any of its obligations  under the Credit  Agreement or
any of the other Loan Documents or any other instrument or document delivered or
executed  pursuant  thereto;  and (iv) attaches hereto the Revolving Credit Note
delivered to it under the Credit Agreement.

                                      100
<PAGE>

         The  Assignor  requests  that  the  Borrower  exchange  the  Assignor's
Revolving Credit Note for new Revolving Credit Notes payable to the Assignor and
the Assignee as follows:


Notes Payable to                      Amount of Revolving
the Order of:                            Credit Note

Assignor                              $__________
Assignee                              $__________


37.  Assignee's  Representations.  The Assignee (i) represents and warrants that
(A) it is duly  and  legally  authorized  to  enter  into  this  Assignment  and
Acceptance,  (B) the execution,  delivery and performance of this Assignment and
Acceptance  do not  conflict  with any  provision  of law or of the  charter  or
by-laws of the Assignee,  or of any agreement  binding on the Assignee,  (C) all
acts,  conditions  and  things  required  to be done and  performed  and to have
occurred prior to the execution, delivery and performance of this Assignment and
Acceptance,  and to render the same the legal,  valid and binding  obligation of
the Assignee,  enforceable  against it in accordance  with its terms,  have been
done and  performed  and have  occurred  in due and strict  compliance  with all
applicable  laws;  (ii)  confirms  that it has  received  a copy  of the  Credit
Agreement,  together  with  copies  of  the  most  recent  financial  statements
delivered pursuant to ss.8.4 thereof and such other documents and information as
it has deemed  appropriate to make its own credit analysis and decision to enter
into this  Assignment and Acceptance;  (iii) agrees that it will,  independently
and without reliance upon the Assignor, the Agent or any other Bank and based on
such  documents  and  information  as it shall  deem  appropriate  at the  time,
continue to make its own credit  decisions in taking or not taking  action under
the Credit  Agreement;  (iv)  represents  and  warrants  that it is an  Eligible
Assignee;  (v) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under the Credit  Agreement and the other
Loan Documents as are delegated to the Agent by the terms thereof, together with
such  powers as are  reasonably  incidental  thereto;  (vi)  agrees that it will
perform in accordance with their terms all the obligations which by the terms of
the Credit  Agreement  are required to be  performed by it as a Bank;  and (vii)
acknowledges that it has made arrangements with the Assignor satisfactory to the
Assignee  with respect to its pro rata share of Letter of Credit Fees in respect
of outstanding Letters of Credit.

38.  Effective Date. The effective date for this Assignment and Acceptance shall
be   ______________________________   (the  "Effective  Date").   Following  the
execution of this  Assignment  and  Acceptance[  and the consent of the Borrower
hereto having been obtained],  each party hereto shall deliver its duly executed
counterpart hereof to the Agent for acceptance by the Agent and recording in the
Register by the Agent.  Schedule 1 to the Credit  Agreement  shall  thereupon be
replaced as of the Effective Date by the Schedule 1 annexed hereto.

39. Rights Under Credit Agreement.  Upon such acceptance and recording, from and
after  the  Effective  Date,  (i) the  Assignee  shall be a party to the  Credit
Agreement and, to the extent provided in this  Assignment and  Acceptance,  have
the rights and  obligations of a Bank  thereunder,  and (ii) the Assignor shall,
with respect to that portion of its interest under the Credit Agreement assigned
hereunder,  relinquish its rights and be released from its obligations under the
Credit Agreement;  provided,  however, that the Assignor shall retain its rights
to be indemnified  pursuant to ss.16 of the Credit Agreement with respect to any
claims or actions arising prior to the Effective Date.

                                      101
<PAGE>


40.  Payments.  Upon such  acceptance of this  Assignment  and Acceptance by the
Agent and such  recording,  from and after the Effective  Date,  the Agent shall
make all  payments  in  respect  of the rights  and  interests  assigned  hereby
(including  payments  of  principal,  interest,  fees and other  amounts) to the
Assignee.  The Assignor and the Assignee shall make any appropriate  adjustments
in payments for periods prior to the Effective Date by the Agent or with respect
to the making of this assignment directly between themselves.

41.  Governing Law. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE EFFECT AS
A SEALED  INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN  ACCORDANCE  WITH,  THE
LAWS OF THE  COMMONWEALTH  OF  MASSACHUSETTS  (WITHOUT  REFERENCE TO CONFLICT OF
LAWS).

42.  Counterparts.  This Assignment and Acceptance may be executed in any number
of counterparts which shall together constitute but one and the same agreement.

         IN  WITNESS  WHEREOF,  intending  to be  legally  bound,  each  of  the
undersigned  has caused this  Assignment  and  Acceptance  to be executed on its
behalf by its  officer  thereunto  duly  authorized,  as of the date first above
written.

                                   [ASSIGNOR]

                                   By:_________________________________________
                                   Title:

                                   [ASSIGNEE]

                                   By:_________________________________________
                                   Title:
CONSENTED TO:

FLEET NATIONAL BANK, as Agent

By:________________________________________
Title:

[IONICS, INCORPORATED.]

By:________________________________________
Title:



                                      102
<PAGE>



                                                                      EXHIBIT F

                                  INTERCOMPANY

                             SUBORDINATION AGREEMENT

         INTERCOMPANY  SUBORDINATION AGREEMENT,  dated as of ______ __, 2000, by
and among IONICS,  INCORPORATED,  a Massachusetts  corporation (the "Borrower"),
and ________________, a company organized under the laws of the ________________
and such other  Persons which may become  parties  hereto by executing a joinder
agreement in form and substance  reasonably  satisfactory  to the Agent (each, a
"Company" and collectively,  the "Companies"), and FLEET NATIONAL BANK, as agent
(hereinafter,  in such  capacity,  the  "Agent")  for itself  and other  lending
institutions  (hereinafter,  collectively,  the "Banks") which are or may become
parties to the Second Amended and Restated Revolving Credit Agreement,  dated as
of July 28,  2000 (as  amended  and in  effect  from time to time,  the  "Credit
Agreement"), by and among the Borrower, the Agent and the Banks.

         WHEREAS,  pursuant to the Credit Agreement the Banks have agreed,  upon
the terms and subject to the  conditions  contained  therein,  to make loans and
otherwise to extend credit to the Borrower;

         WHEREAS,  the Borrower is the direct owner of all of the capital  stock
of Ionics U.K.;

         WHEREAS,  the financial  success of each Company is dependent in whole
or in part on the financial success of the Borrower;

         WHEREAS,  each  Company  expects  to  receive  substantial  direct  and
indirect  benefits as a result of the loans and extensions of credit made to the
Borrower pursuant to the Credit Agreement;

         WHEREAS,  it is a condition precedent to the Banks' making of the loans
and otherwise  extending credit to the Borrower pursuant to the Credit Agreement
that each Company enter into this Agreement with the Agent; and

         WHEREAS,  in order to  induce  the Banks to make  loans  and  otherwise
extend credit to the Borrower pursuant to the Credit Agreement, each Company has
agreed to enter into this Agreement with the Agent;

         NOW,  THEREFORE,   in  consideration  of  the  foregoing,   the  mutual
agreements  herein  contained  and other good and  valuable  consideration,  the
receipt and  adequacy  of which are hereby  acknowledged,  the  parties  hereto,
intending to be legally bound, hereby agree as follows:

         1.  Definitions.  Terms  not  otherwise  defined  herein  have the same
respective  meanings  given to them in the Credit  Agreement.  In addition,  the
following terms shall have the following meanings:

         Senior Debt. All principal, interest, fees, costs, enforcement expenses
(including  reasonable  legal  fees and  disbursements),  collateral  protection
expenses and other  reimbursement or indemnity  obligations created or evidenced
by the  Credit  Agreement  or any of the  other  Loan  Documents  and any  other
Obligations.  Senior Debt shall  expressly  include any and all  interest at the
rate  determined  in the Credit  Agreement  accruing  or out of pocket  costs or
expenses incurred after the date of any filing by or against the Borrower of any
petition under the Federal  Bankruptcy Code or any other bankruptcy,  insolvency
or  reorganization  act  regardless  of whether the Agent's or any Bank's  claim
therefor is allowed or allowable in the case or proceeding relating thereto.

         Subordinated Debt. All Indebtedness of any Company (a "Debtor Company")
to any other Company or to any subsidiary of such other Company (a "Subordinated
Company"), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter  arising,  and interest and premium,  if any,  thereon and
other amounts payable in respect thereof,  including  without  limitation,  that
which is evidenced by an intercompany note in form and substance satisfactory to
the  Agent  (the  "Intercompany  Note(s)");  provided  however  that debt of any
foreign  Subsidiary  of the  Borrower,  which  is  owed to the  Borrower  or any
domestic Subsidiary, shall be excluded from the definition of Subordinated Debt.

                                      103
<PAGE>


         Subordinated Documents.  Collectively,  the Intercompany Notes, if any,
and any and all other documents or instruments evidencing or further guarantying
or securing  directly or indirectly any of the  Subordinated  Debt,  whether now
existing or hereafter created.

         2.  General.  The  Subordinated  Debt  and  any  and  all  Subordinated
Documents  shall be and  hereby  are  subordinated  and the  payment  thereof is
deferred  until the full and final  payment in cash of the Senior Debt,  whether
now or  hereafter  incurred  or owed by a Debtor  Company.  Notwithstanding  the
immediately  preceding sentence,  each Debtor Company shall be permitted to pay,
and each  Subordinated  Company  shall be permitted to receive,  any payments of
interest or principal on the  Subordinated  Debt,  provided  that at the time of
such payment, or after giving effect thereto, no Default or Event of Default has
occurred  and is  continuing  under the Credit  Agreement  or would  occur after
giving effect thereto,  and provided  further that even if a Default or an Event
of Default has occurred  and is  continuing  or would occur after giving  effect
thereto, each Debtor Company shall be permitted to pay to the Borrower,  and the
Borrower shall be permitted to receive from such Debtor Company, any payments of
interest or principal on the Subordinated Debt owing to the Borrower.

         3. Enforcement.  No Subordinated  Company will take or omit to take any
action or assert any claim with  respect to the  Subordinated  Debt or otherwise
which is inconsistent  with the provisions of this Agreement.  Without  limiting
the  foregoing,  no  Subordinated  Company will  assert,  collect or enforce the
Subordinated Debt or any part thereof or take any action to foreclose or realize
upon  the  Subordinated  Debt  or  any  part  thereof  or  enforce  any  of  the
Subordinated Documents except (a) in each such case as necessary,  so long as no
Default or Event of Default has occurred and is then continuing under the Credit
Agreement  or would  occur  after  giving  effect  thereto,  to collect any sums
expressly  permitted to be paid by a Debtor Company  pursuant to ss.2, or (b) to
the extent (but only to such extent) that the commencement of a legal action may
be required to toll the running of any applicable  statute of limitation.  Until
the Senior Debt has been finally paid in full in cash, no  Subordinated  Company
shall   exercise   any  right  of   subrogation,   reimbursement,   restitution,
contribution or indemnity  whatsoever from any assets of any Debtor Company,  or
any  guarantor of or provider of collateral  security for the Senior Debt.  Each
Subordinated  Company  further  waives  any  and  all  rights  with  respect  to
marshalling.

         4. Payments Held in Trust. Each Subordinated Company will hold in trust
and  immediately  pay over to the  Agent  for the  account  of the Banks and the
Agent, in the same form of payment received, with appropriate endorsements,  for
application  to the Senior Debt any cash amount that any Debtor  Company pays to
the Subordinated Company with respect to the Subordinated Debt, or as collateral
for the Senior Debt any other assets of any Debtor Company that the Subordinated
Company may receive with respect to the  Subordinated  Debt, in each case except
with respect to payments expressly permitted pursuant to ss.2.

         5.  Defense  to   Enforcement.   If  any   Subordinated   Company,   in
contravention  of the terms of this  Agreement,  shall  commence,  prosecute  or
participate in any suit, action or proceeding  against any Debtor Company,  then
such  Debtor  Company  may  interpose  as a defense  or plea the  making of this
Agreement, and the Agent or any Bank may intervene and interpose such defense or
plea in its  name or in the name of such  Debtor  Company.  If any  Subordinated
Company,  in  contravention  of the terms of this  Agreement,  shall  attempt to
collect  any  of the  Subordinated  Debt  or  enforce  any  of the  Subordinated
Documents,  then the Agent,  any Bank or such Debtor  Company  may, by virtue of
this  Agreement,  restrain the  enforcement  thereof in the name of the Agent or
such Bank or in the name of such Debtor Company. If the Subordinated Company, in
contravention  of the terms of this Agreement,  obtains any cash or other assets
of any Debtor  Company  as a result of any  administrative,  legal or  equitable
actions, or otherwise, the Subordinated Company agrees forthwith to pay, deliver
and  assign to the  Agent,  for the  account  of the Banks and the  Agent,  with
appropriate  endorsements,  any such cash for application to the Senior Debt and
any such other assets as collateral for the Senior Debt.

                                      104
<PAGE>

                            6.  Bankruptcy, etc.

                  6.1. Payments relating to Subordinated Debt. At any meeting of
creditors  of any  Debtor  Company  or in the  event of any case or  proceeding,
voluntary or involuntary,  for the distribution,  division or application of all
or part of the assets of any Debtor  Company or the  proceeds  thereof,  whether
such case or proceeding be for the liquidation, dissolution or winding up of any
Debtor Company or its business, a receivership, insolvency or bankruptcy case or
proceeding,  an  assignment  for the benefit of creditors or a proceeding  by or
against any Debtor Company for relief under the federal  Bankruptcy  Code or any
other bankruptcy,  reorganization or insolvency law or any other law relating to
the  relief  of   debtors,   readjustment   of   indebtedness,   reorganization,
arrangement, composition or extension or marshalling of assets or otherwise, the
Agent  is  hereby  irrevocably  authorized  at any such  meeting  or in any such
proceeding  to receive or collect for the benefit of the Banks and the Agent any
cash or other assets of any Debtor  Company  distributed,  divided or applied by
way of  dividend  or  payment,  or  any  securities  issued  on  account  of any
Subordinated  Debt,  and  apply  such cash to or to hold  such  other  assets or
securities  as collateral  for the Senior Debt,  and to apply to the Senior Debt
any cash proceeds of any  realization  upon such other assets or securities that
the Agent in its discretion elects to effect, until all of the Senior Debt shall
have been paid in full in cash, rendering to the applicable Subordinated Company
any surplus to which such Subordinated Company is then entitled.

                  6.2.  Subordinated  Debt Voting Rights. At any such meeting of
creditors  or in the event of any such  case or  proceeding,  each  Subordinated
Company  shall  retain the right to vote and  otherwise  act with respect to the
Subordinated Debt (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), provided that no Subordinated Company shall vote with
respect  to any such plan or take any other  action in any way so as to  contest
(i) the  validity of any Senior Debt or any  collateral  therefor or  guaranties
thereof,  (ii) the relative  rights and duties of any holders of any Senior Debt
established in any  instruments or agreements  creating or evidencing any of the
Senior Debt with respect to any of such  collateral  or guaranties or (iii) such
Subordinated Company's obligations and agreements set forth in this Agreement.

         7. Security.  Each Subordinated  Company hereby acknowledges and agrees
that the Subordinated Debt is unsecured.

                  7.1.  Further  Assurances.  Each  Subordinated  Company hereby
agrees,  upon request of the Agent at any time and from time to time, to execute
such other documents or instruments as may be reasonably  requested by the Agent
further to evidence of public  record or  otherwise  the senior  priority of the
Senior Debt as contemplated hereby.

                  7.2.  Books and Records.  Each  Subordinated  Company  further
agrees to  maintain  on its books and records  such  notations  as the Agent may
reasonably  request  to reflect  the  subordination  contemplated  hereby and to
perfect or preserve the rights of the Agent hereunder.  A copy of this Agreement
may be filed as a financing  statement in any Uniform  Commercial Code recording
office.

         8. Banks' Freedom of Dealing.  Each Subordinated  Company agrees,  with
respect to the Senior Debt and any and all  collateral  therefor  or  guaranties
thereof,  that any Debtor Company and the Banks may agree to increase the amount
of the Senior Debt or otherwise  modify the terms of any of the Senior Debt, and
the Banks may grant extensions of the time of payment or performance to and make
compromises,  including  releases of collateral or guaranties,  and  settlements
with any Debtor  Company or other  persons,  in each case without the consent of
any  Subordinated  Company,  or a  Debtor  Company  and  without  affecting  the
agreements of the Subordinated  Company,  or a Debtor Company  contained in this
Agreement;  provided,  however,  that  nothing  contained  in  this  ss.8  shall
constitute  a waiver  of a Debtor  Company  itself  to  agree  or  consent  to a
settlement or compromise of a claim which the Agent or any Bank may have against
such Debtor Company, as applicable.

                                      105
<PAGE>

         9.  Modification  or Sale of the  Subordinated  Debt.  No  Subordinated
Company will at any time while this  Agreement  is in effect,  modify any of the
terms  of any of the  Subordinated  Debt  or any of the  Subordinated  Documents
unless such  modification  would  diminish and of the rights and remedies of the
Agent  hereunder;  nor will any  Subordinated  Company sell,  transfer,  pledge,
assign,  hypothecate or otherwise dispose of any or all of the Subordinated Debt
to any person other than a person who agrees in a writing,  satisfactory in form
and  substance  to the  Agent,  to become a party  hereto  and to succeed to the
rights  and to  bound by all of the  obligations  of such  Subordinated  Company
hereunder. In the case of any such disposition by any Subordinated Company, such
Subordinated  Company  will notify the Agent at least ten (10) days prior to the
date of any of such intended disposition.

         10.  Obligations  Absolute.  Nothing  contained in this Agreement shall
impair,  as between either a Debtor Company and any  Subordinated  Company,  the
obligation of a Debtor  Company to pay to the  Subordinated  Company all amounts
payable in respect of the  Subordinated  Debt as and when the same shall  become
due  and  payable  in  accordance  with  the  terms  thereof,  or  prevent  such
Subordinated  Company (except as expressly  otherwise  provided in ss.3 or ss.6)
from  exercising  all  rights,   powers  and  remedies  otherwise  permitted  by
Subordinated  Documents and by  applicable  law upon a default in the payment of
the Subordinated Debt or under any Subordinated Document, all, however,  subject
to the rights of the Agent and the Banks as set forth in this Agreement.

         11. Termination of Subordination. This Agreement shall continue in full
force  and  effect,  and the  obligations  and  agreements  of the  Subordinated
Companies,  and the  Debtor  Companies  hereunder  shall  continue  to be  fully
operative,  until all of the Senior Debt shall have been paid and  satisfied  in
full in cash and such  full  payment  and  satisfaction  shall be final  and not
avoidable.  To the extent that a Debtor  Company or any guarantor of or provider
of  collateral  for the Senior Debt makes any payment on the Senior Debt that is
subsequently invalidated, declared to be fraudulent or preferential or set aside
or is required to be repaid to a trustee,  receiver or any other party under any
bankruptcy,  insolvency or reorganization  act, state or federal law, common law
or equitable  cause (such  payment  being  hereinafter  referred to as a "Voided
Payment"), then to the extent of such Voided Payment, that portion of the Senior
Debt that had been previously  satisfied by such Voided Payment shall be revived
and  continue in full force and effect as if such Voided  Payment had never been
made.  In the event  that a Voided  Payment is  recovered  from the Agent or any
Bank,  an Event of Default  shall be deemed to have existed and to be continuing
under the Credit  Agreement  from the date of the Agent's or such Bank's initial
receipt of such Voided  Payment until the full amount of such Voided  Payment is
restored to the Agent or such Bank.  During any continuance of any such Event of
Default,  this  Agreement  shall be in full force and effect with respect to the
Subordinated  Debt. To the extent that a  Subordinated  Company has received any
payments  with respect to the  Subordinated  Debt  subsequent to the date of the
Agent's or any Bank's  initial  receipt of such Voided Payment and such payments
have not been  invalidated,  declared to be  fraudulent or  preferential  or set
aside or are  required to be repaid to a trustee,  receiver,  or any other party
under any bankruptcy act, state or federal law,  common law or equitable  cause,
such  Subordinated  Company  shall be obligated  and hereby agrees that any such
payment so made or received  shall be deemed to have been  received in trust for
the benefit of the Agent or Bank, and such Subordinated Company hereby agrees to
pay to the Agent for the benefit of the Agent or (as the case may be) such Bank,
upon demand,  the full amount so received by such  Subordinated  Company  during
such  period of time to the  extent  necessary  fully to restore to the Agent or
such Bank the amount of such Voided Payment.  Upon the payment and  satisfaction
in full in cash of all of the Senior Debt,  which payment shall be final and not
avoidable,  this Agreement will  automatically  terminate without any additional
action by any party hereto.

                                      106
<PAGE>


13. Notices. All notices and other communications  called for hereunder shall be
made in writing and, unless otherwise  specifically  provided  herein,  shall be
deemed to have been duly made or given when  delivered  by hand or mailed  first
class,  postage prepaid,  or, in the case of telegraphic or telexed notice, when
transmitted,  answer back received,  addressed as follows:  if to a Subordinated
Company or a Debtor Company, at c/o the Borrower,  at the address for notices to
the Borrower set forth in ss.21 of the Credit Agreement, and if to the Agent, at
the address for notices to the Agent set forth in ss.21 of the Credit Agreement,
or at such address as either party may designate in writing to the other.

         14.  Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS  (EXCLUDING THE
LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW) AND SHALL BE A SEALED  INSTRUMENT
UNDER SUCH LAWS.

         15. Waiver of Jury Trial. EACH OF THE SUBORDINATED  COMPANIES,  AND THE
DEBTOR  COMPANIES  HEREBY  WAIVES ITS RIGHT TO A JURY TRIAL WITH  RESPECT TO ANY
ACTION OR CLAIM  ARISING OUT OF,  UNDER OR IN  CONNECTION  WITH ANY DISPUTE WITH
RESPECT  TO  THIS  AGREEMENT,   ANY  RIGHTS  OR  OBLIGATIONS  HEREUNDER  OR  THE
PERFORMANCE OF SUCH RIGHTS AND  OBLIGATIONS OR ANY COURSE OF CONDUCT,  COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. Except
as prohibited by law, each of the Subordinated  Companies and each of the Debtor
Companies  hereby  waives any right which it may have to claim or recover in any
litigation  referred  to in  the  preceding  sentence  any  special,  exemplary,
punitive or consequential  damages or any damages other than, or in addition to,
actual damages. Each of the Subordinated  Companies and the Debtor Companies (a)
certifies  that neither the Agent or any Bank nor any  representative,  agent or
attorney of the Agent or any Bank has represented,  expressly or otherwise, that
either  the Agent or any Bank  would not,  in the event of  litigation,  seek to
enforce the foregoing waivers and (ii)  acknowledges  that, in entering into the
Credit  Agreement and the other Loan Documents to which the Agent or any Bank is
a party,  the Agent and the Banks are  relying  upon,  among other  things,  the
waivers and certifications contained in this ss.15.

         16.   Miscellaneous.   This   Agreement  may  be  executed  in  several
counterparts and by each party on a separate counterpart,  each of which when so
executed and delivered  shall be an original,  and all of which  together  shall
constitute one instrument.  In proving this Agreement, it shall not be necessary
to  produce or account  for more than one such  counterpart  signed by the party
against which enforcement is sought. The Agent,  acting upon the instructions of
the  requisite  Banks,  may,  in its sole and  absolute  discretion,  waive  any
provisions  of this  Agreement  benefiting  the Agent and the  Banks;  provided,
however,  that such waiver shall be  effective  only if in writing and signed by
the Agent and shall be limited to the specific provision or provisions expressly
so waived.  This  Agreement  shall be binding upon the successors and assigns of
any Subordinated Company and each of the Debtor Companies and shall inure to the
benefit  of the Agent and the  Banks,  the  Agent's  and the  Banks'  respective
successors and assigns.  Upon receipt of an affidavit of an officer of the Agent
or any of the Banks as to the loss,  theft,  destruction  or  mutilation of this
Agreement,  any Intercompany Note or any other security document which is not of
public  record,  and,  in the  case of any  such  loss,  theft,  destruction  or
mutilation,  upon cancellation of this Agreement, any Intercompany Note or other
security  document,  the Company receiving such notice will issue or cause to be
issued,  in lieu thereof,  a  replacement  Intercompany  Note or other  security
document in the same principal  amount thereof and otherwise of like tenor.  The
Agent hereby  agrees to indemnify,  defend and hold  harmless such Company,  its
successors and assigns,  from and against any and all cost, expense  (including,
without  limitation,  reasonable  attorneys'  fees),  loss,  liability or damage
incurred  as  a  result  of  the  Agent's   failure  to  deliver  such  original
Intercompany Note, properly endorsed, to such Compan

                      [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




                                      107
<PAGE>


         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
a contract under seal as of the date first above written.

                                      FLEET NATIONAL BANK, as Agent

                                      By: ____________________________________
                                      Name:
                                      Title:

                                      IONICS, INCORPORATED

                                      By: ____________________________________
                                      Name:
                                      Title:

                                      By: ____________________________________
                                      Name:
                                      Title:

                                      108
<PAGE>


Exhibit 10.2

                             SHAREHOLDERS' AGREEMENT

                                      among

             Ionics, Incorporated, executed in trust for an affiliate

                                       and

             The Desalination Company of Trinidad and Tobago Limited

                                       and

                  Hafeez Karamath Engineering Services Limited

                                   12 May 2000



                                      109
<PAGE>



                                TABLE OF CONTENTS

                             PRELIMINARY STATEMENTS

                                    CLAUSE I

                                   DEFINITIONS

1.1      Definitions
1.2      Additional Definitions
1.3      Terms Generally

                                    CLAUSE I

                      FORMATION AND BUSINESS OF THE COMPANY

2.1      Effective Date and Capitalization Date
2.2      Interim Period
2.3      Authorizations by the Company
2.4      Project Business
2.5      Independent Organization
2.6      Exercise of Voting Rights


                                   CLAUSE III

                             INITIAL CAPITALIZATION

3.1      Conditions Precedent
3.2      Initial Capital Structure
3.3      Purchase of Shares and Shareholder Capital Contributions
3.4      Capitalization Date
3.5      Additional Capital Contributions
3.6      Default in Making Capital Contributions

                                    CLAUSE IV

                            MANAGEMENT OF THE COMPANY

4.1      Shareholders
4.2      Board
4.3      Election of Officers
4.4      Deadlock

                                      110
<PAGE>


                                    CLAUSE V

                      FINANCIAL CONSIDERATIONS; STRUCTURE;

                              RECORDKEEPING; AUDITS

5.1      Distributions
5.2      Investment Structure
5.3      Reports and Plans
5.4      Maintaining Records and Books
5.5      Year-End Statements
5.6      Quarterly Statements
5.7      Special Audits
5.8      Accountants' Reports

                                    CLAUSE VI

                           TRANSFER OF COMPANY SHARES

6.1      Transfer Restriction
6.2      Transfers to Affiliates
6.3      Right of First Refusal
6.4      Buy-Sell Mechanics for Triggering Events
6.5      Encumbrances
6.6      Legend on Share Certificates

                                   CLAUSE VII

                                   TERMINATION

7.1      Reasons
7.2      Satisfaction of Obligations

                                   CLAUSE VIII

                         REPRESENTATIONS AND WARRANTIES

8.1            Shareholder and Company Representations
                  Existence
                  Capacity
                  Binding Effect
                  Finders Fee
                  Governmental Approvals
                  No Default
                  No Litigation or Arbitration
                  Company Liabilities
                  Ethical Business Practices
                  Commercial Transaction
8.2.     Karamath Representations

                                      111
<PAGE>


                                    CLAUSE IX

                            CONFIDENTIAL INFORMATION

9.1            Scope of Duty
9.2            Survival
9.3            Publicity


                                    CLAUSE X

                               DISPUTE RESOLUTION

10.1           Mediation
10.2           Arbitration

                                    CLAUSE XI

                                  MISCELLANEOUS

11.1     Notices
11.2     Expenses
11.3     Assignment; Continuing Obligations
11.4     No Rights Given to Third Parties
11.5     Amendments and Waivers
11.6     Severability
11.7     Headings
11.8     Joint Preparation
11.9     Governing Law
11.10    Merger
11.11    Project Finance
11.12    Execution in Counterparts


                                    Annexures

Annex 1  Articles of Incorporation
Annex 2  By Laws of the Company
Annex 3  Ionics/Carillion EPC Term Sheet
Annex 4  Water Supply Agreement
Annex 5  Karamath Loan Term Sheet



                                      112
<PAGE>





                             Shareholders' Agreement

This Agreement is dated as of 12 May, 2000 among:

Hafeez Karamath  Engineering  Services Limited, a corporation duly organized and
existing under the laws of Trinidad,  West Indies,  with its principal  place of
business at 56 Cyrus  Trace,  El Socorro  Extension,  San Juan,  Trinidad,  W.I.
("Karamath"); and

Ionics, Incorporated, a corporation organized and existing under the laws of the
Commonwealth  of  Massachusetts,  U.S.A.  ("Ionics"),  executed  in trust for an
affiliate   of  Ionics  to  be  organized   by  Ionics   ("Ionics   Desalination
Investments")  and which  will  assume  all  rights  and  obligations  of Ionics
hereunder, as if it were the original name party hereto in full substitution for
Ionics.

Desalination Company of Trinidad and Tobago Limited, a limited liability company
duly  organized and existing under the laws of Trinidad,  West Indies,  with its
principal place of business at 56 Cyrus Trace, El Socorro  Extension,  San Juan,
Trinidad (the "Company").

                             PRELIMINARY STATEMENTS

WHEREAS, The Water and Sewer Authority of Trinidad and Tobago ("WASA") solicited
and obtained proposals from prospective  contractors to build, own and operate a
seawater  reverse osmosis  desalination  plant with a capacity of  approximately
109,090 cubic meters per day to provide  desalinated water for use by industrial
clients in the Point Lisas area of Trinidad (the "Project"); and

WHEREAS, Karamath has devoted considerable time and resources to the development
of the Project and with the  participation  and assistance of Ionics submitted a
proposal to WASA;

WHEREAS,  WASA  awarded the Project to the Joint  Venture  Team of Karamath  and
Ionics Incorporated by notice of acceptance dated August 13, 1999; and

WHEREAS, the Company entered into an agreement, dated August 25, 1999, with WASA
for the  construction,  ownership and operation of the Project,  and the sale of
the output of the Project to WASA (the "Water Supply Agreement"); and

WHEREAS, Karamath and Ionics (the "Shareholders")  previously executed a Teaming
Agreement  dated July 14, 1998,  and an Interim  Joint Venture  Agreement  dated
September  16, 1999,  and are  executing  this  Agreement  and the other Venture
Agreements to provide for the structure,  ownership and operation of the Company
and to arrange  construction,  operation and maintenance of the Project over the
term of the Water Supply Agreement; and

WHEREAS,  Karamath  is the owner of and in control of the entire  capital of the
Company and has decided to cause the Company to sell and issue  ordinary  shares
to Ionics  representing  forty  percent  (40%) of the total  outstanding  equity
interest in the Company on the terms and conditions of this Agreement; and

WHEREAS,  Karamath and Ionics wish to set forth the terms of their  relationship
with respect to the  ownership,  financing,  construction  and  operation of the
Project;

                                      113
<PAGE>

NOW, THEREFORE, the Shareholders agree as follows:

                                    CLAUSE I

                                   DEFINITIONS

1.1. Definitions.  As used in this Agreement, the following terms shall have the
     following meanings:

"Affiliate"  means,  a  body  corporate,   limited  liability  company,  limited
partnership  or other legal entity which is a subsidiary  of another or both are
subsidiaries  of the same body  corporate or each of them is  controlled  by the
same  person.  For this  purpose,  "control"  or  "controlled"  has the  meaning
described in Section 4 of the  Companies  Act of 1995,  as in effect on the date
this Agreement is executed.

"Applicable   Law"   means  all  laws,   rules,   regulations   and   Government
authorizations  that  currently  are  applicable  to  the  building,  ownership,
operation  and  maintenance  of the Project  including,  but not limited to, the
constitution of the Republic or any statute, regulation, rule, order, ordinance,
license or subordinate  legislation  enacted,  issued or made by the Parliament,
the  Government or any judicial  authority of the Republic or any  international
treaty having the force of law in the Republic.

"Articles of  Incorporation"  means the Articles of Incorporation of the Company
attached as Annex 1 to this Agreement.

"Board" means the Board of Directors of the Company.

"Business Day" means any day of the year other than Saturday, Sunday or a day on
which  banks in  Trinidad  or the United  States are  authorized  or required to
close.  If any  action  is to be taken  by a  particular  calendar  day and that
calendar day is not a Business Day, then the action shall be deferred  until the
next Business Day.

"Business  Plan" means the business  plan for the Company  approved by the Board
pursuant to Clause 5.3(c).

"By Laws" means the bylaws of the Company attached as Annex 2 to this Agreement.

"Capital Investment Program" means the annual capital investment program for the
Company as approved by the Board pursuant to Clause 5.3(e).

"Capitalization  Date"  means  the date on which  the  Company  issues to Ionics
ordinary shares representing forty percent (40%) of the total outstanding equity
interests in the  Company,  which date shall not be more than three months after
the satisfaction of the conditions precedent set forth in Clause 3.1.

"Companies  Act" means the Companies Act of 1955 of the Republic of Trinidad and
Tobago, West Indies.

"Confidential  Information"  means all  confidential or proprietary  information
provided to a Shareholder or any of its  Representatives  as defined in Clause 9
by or on behalf of either Shareholder or any of its  Representatives  (including
any confidential information furnished in connection with the tender process for
the Project).

"Construction  Budget" means the initial budget for  engineering,  procuring the
equipment for and constructing  the Facility,  as approved by the Board pursuant
to Clause 5.3(a).

"Contractual   Structure"  means  the  contractual   relationships  between  the
Shareholders  and the Company  pursuant to this  Agreement and the other Venture
Agreements.

"Credit Agreement" means the non-recourse  construction,  bridge (if applicable)
and  permanent  loans for the Project to be entered  between the Company and the
Lender(s).

                                      114
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"Day"  shall mean a period of  twenty-four  consecutive  hours from 12:00  a.m.,
Trinidad local time.

"Desalcott  Operating  Budget" means the budget for administering the Company as
approved by the Board pursuant to Clause 5.3(b).

"Entity"  means  any  corporation,   partnership,   limited  liability  company,
association,  trust  or  any  other  organization,  including  a  government  or
political subdivision or an agency or instrumentality thereof.

"EPC Agreement" has the meaning set forth in Section 3.1(a).

"Facility"  means the desalination  installation  and appurtenant  buildings and
equipment proposed to be constructed, owned and operated by the Company at Point
Lisas as that  facility  is more  fully  described  in the  Project  Description
described in the Water Supply Agreement.

"Governmental  Action"  means  the  imposition  of any  executive,  legislative,
administrative or judicial decree,  law, regulation or order which requires that
Ionics reduce its shareholding, impairs the return of the joint venture, has the
effect of making  Trinidadian  taxes not creditable for United States income tax
purposes,  effectively  excludes  Ionics  from  or  materially  reduces  Ionics'
permitted  level of  participation  in the management or control of the Company,
Facility or Project,  or reduces the value or restricts  the  convertibility  or
repatriation of funds from the Republic.

"Interim Period" has the meaning set forth in Clause 2.2 below.

"Ionics Constructors" has the meaning set forth in Clause 3.1(a) below.

"Lenders"  means any financial  institution  or  multilateral  agency  providing
bridge,  construction or permanent financing to the Company on a project finance
basis.

"O & M Agreement" has the meaning set forth in Clause 3.1(b) below.

"Operation  &  Maintenance  Budget" has the  meaning set forth in Clause  5.3(d)
below.

"Project" means the formation of the Company  pursuant to this Agreement and the
execution of and performance of the obligations under each Venture Agreement.

"Republic" means the Republic of Trinidad and Tobago.

"Shareholder" or "Shareholders" means either or both of Karamath and Ionics.

"Transfer" means sell, assign,  lease, pledge,  mortgage or otherwise convey any
interest in property.

"U.S.  Dollars"  and the symbol  "US$" mean  lawful  currency  in dollars of the
United States of America.

                                      115
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"Venture Agreement" or "Venture  Agreements" means each or all of the following,
as the case may be:

(1)      this Agreement;
(2)      the Articles of Incorporation of the Company;
(3)      By Laws of the Company;
(4)      EPC Agreement;
(5)      O & M Agreement;
(6)      Water Supply Agreement;
(7)      Credit Agreement;
(8)      each other agreement which the Shareholders designate in writing as a
         Venture Agreement;

Clause 1.2        Additional Definitions

(a)      The following terms are defined elsewhere in this Agreement:

Defined Term                                                Clause Defined in

Auditors                                                    Clause 5.5

Capitalization Date                                         Clause 2.1

Contribution Loan                                           Clause 3.6

Non-Paid Contribution                                       Clause 3.6

Non-Contributing Shareholder                                Clause 3.6

Effective Date                                              Clause 2.1

Representatives                                             Clause 9.1

Selling Shareholder                                         Clause 6.3(a)

Transfer Notice                                             Clause 6.3(a)

Triggering Event                                            Clause 6.4(a)

Valuation Firm                                              Clauses 6.3(b)


                                      116
<PAGE>


(b)      The following terms are defined elsewhere in the Venture Agreements:

Defined Term                                             Clause Defined in

Project Description                                      Water Supply Agreement

WASA                                                     Water Supply Agreement

Water Supply Agreement                                   Water Supply Agreement



1.3      Terms Generally.

(a)  The  definitions  in Clauses 1.1 and 1.2 apply equally to both the singular
     and plural forms of the terms defined.
(b)  The word  "include"  shall be deemed to be followed by the phrase  "without
     limitation."
(c)  All  references to Clauses and Annexes refer to this  Agreement  unless the
     context requires otherwise.
(d)  The headings of the Clauses are for  convenience  of reference  and are not
     intended to affect the interpretation of this Agreement.
(e)  Unless the context requires otherwise any reference to a Venture Agreement,
     other  instrument,  statute or  regulation is to it as amended from time to
     time.
                                    CLAUSE II

                      FORMATION AND BUSINESS OF THE COMPANY

2.1 Effective Date and Capitalization Date. This Agreement will become effective
upon  the  date  of its  execution  by the  Shareholders  and the  Company  (the
"Effective Date"). The Capitalization  Date shall occur upon the (i) purchase by
Karamath  from and the sale and  issuance  by the  Company  to  Karamath  of two
hundred (200) ordinary shares in the Company,  representing  forty percent (40%)
of the issued and  outstanding  ordinary  shares  (which  together  with the one
hundred (100) ordinary shares  currently  owned by Karamath,  will give Karamath
sixty percent (60%) of the total issued and outstanding  ordinary  shares),  and
(ii)  purchase by Ionics from and the sale and issuance by the Company to Ionics
of two hundred (200) ordinary shares in the Company,  representing forty percent
(40%) of the issued and outstanding  ordinary shares,  each of which is to occur
within ten Days after the last of the conditions  precedent identified in Clause
3.1 is  satisfied,  which  shall be not more than  three  months  Days after the
Effective Date. If the  Capitalization  Date is not achieved within three months
after the Effective Date, then either  Shareholder may terminate this Agreement,
provided that if the parties are  diligently  pursuing the  satisfaction  of the
conditions  precedent at the end of the three month period and it appears likely
that the conditions  precedent can be satisfied within a reasonable  period, the
parties  will  negotiate in good faith an extension of the three month period to
permit the  satisfaction  of the conditions  precedent and the occurrence of the
Capitalization  Date.  In the  event of  termination  under  this  Clause,  each
Shareholder shall be responsible for and bear all internal and third party costs
and  expenses  incurred  by  it  in  connection  with  this  Agreement  and  the
transactions contemplated hereby.

2.2 Interim  Period.  The  parties  acknowledge  that during the interim  period
between the  Effective  Date and  Capitalization  Date (the  "Interim  Period"),
Ionics  will not yet own  shares in the  Company,  pending  satisfaction  of the
conditions  precedent set forth Clause 3.1 below.  The parties  agree,  however,
that in  anticipation of the purchase by Ionics of shares in the Company and the
issuance  of  those  shares  by  the  Company  to  Ionics,  certain  rights  and
obligations   will  apply   among  the  parties   during  the   Interim   Period
notwithstanding  Ionics' lack of capacity as a shareholder in the Company, which
rights and obligations are as follows.

(a)      Information.  The Company  and  Karamath  agree that the  Company  will
         provide  Ionics all reports and  information  to which a Shareholder is
         entitled  under  Clauses 5.3 through 5.8 and Ionics will be entitled to
         all rights  given to a  Shareholder  therein to inspect and examine the
         Company's books and records.

(b)      Consent by Ionics.  All actions  requiring the unanimous consent of the
         Shareholders  pursuant  to Clause  4.2(h)  below  must be  approved  by
         Ionics, such approval not to be unreasonably withheld.

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<PAGE>


(c)      Operations. Karamath will cause the Company to operate in such a manner
         so as to minimize its  operating  costs and  commitments  so that there
         will be no material adverse change to the Company's financial condition
         or prospects during the Interim Period.

2.3      Authorizations  by the Company.  The Company has been  established as a
         private  company  limited by shares in the  Republic.  The Company will
         take all steps to effect  resolutions  of the Board and approval of all
         documents  evidencing all necessary  corporate or other  organizational
         action authorizing the Company to execute this Agreement,  each Venture
         Agreement  and  each  other  agreement  to  which  it is or  will  be a
         Shareholder.

2.4      Project Business.
         ----------------

         (a)  Single Purpose.   Subject to modification  by the Shareholders
         pursuant to Section 4.2(h), the sole business of the Company is the
         ownership, financing, construction and operation of the Project.

         (b)  Interpretation.  In the case of any conflict  between the terms of
         this Agreement and those of the Articles of  Incorporation,  By Laws or
         any other Venture Agreement, the terms of this Agreement shall control.

2.5      Independent  Organization.  The  Company  shall be  operated by its own
         management as an  independent  legal and economic  Entity.  None of the
         provisions  of  this   Agreement   shall  be  deemed  to  constitute  a
         partnership  or  any  kind  of  fiduciary   relationship   between  the
         Shareholders.  Neither of the Shareholders  shall have the authority to
         bind the other in any way. Any agreement  entered into by a Shareholder
         that violates any provision of this  Agreement or is otherwise  outside
         the scope of this Agreement  shall not be binding on the Company or the
         other Shareholder; only the Shareholder entering into such an agreement
         shall be subject to any liability  arising from it. The relationship of
         the  Shareholders  to the  Company  shall be that of  shareholders.  No
         Shareholder  shall act as an agent  for or on  behalf  of the  Company,
         except as might be provided  expressly in any other  written  agreement
         between  the  Company  and that  Shareholder.  Each  Shareholder  shall
         conduct its affairs  with regard to other  Shareholders  so as to avoid
         the appearance or creation of any other or greater  relationship  among
         the Shareholders and the Company.  It is the intent of the Shareholders
         to  limit  their  joint  operations  expressly  as  specified  in  this
         Agreement.  This Agreement has no relation to any operations  conducted
         by either Shareholder individually or as a joint shareholder or partner
         with others.

2.6      Exercise of Voting  Rights.  Each  Shareholder  agrees to exercise  all
         voting rights and powers of control  available to it in relation to the
         Company  to give  full  effect  to the  terms  and  provisions  of this
         Agreement.  The  Shareholders  shall take any other action  required by
         them to implement the terms and provisions of this Agreement,  and will
         cause the  Articles  of  Incorporation  and  By-laws of the  company to
         reflect  the terms and  conditions  of this  Agreement  as  required by
         Applicable law to give full effect to this Agreement.

                                      118
<PAGE>


                                   CLAUSE III

                                 CAPITALIZATION

3.1  Conditions  Precedent.  The  obligation of Ionics to purchase forty percent
     (40%) of the  ordinary  shares of common stock of the Company from the
     Company  is  subject  to the prior fulfillment of the following conditions
     precedent:
(a)  EPC Agreement.  The Company,  Carillion (Caribbean) Ltd.  ("Carillion") and
     Ionics  Constructors  Trinidad,  Ltd., ("Ionics  Constructors")  shall have
     executed one or more agreements providing for the engineering, construction
     and  procurement  of the  Plant  and  defining  their  relative  scopes  of
     responsibility  and compensation in respect  thereof,  in a form reasonably
     acceptable to Ionics (these one or more  agreements  are referred to as the
     "EPC  Agreement").  A term sheet  setting forth the agreed on basis for the
     essential  terms of these  agreements  is  attached as Annex 3. The Company
     will use its best  efforts to include  provisions  in the Credit  Agreement
     permitting  direct  disbursements  to  Ionics  Constructors  and  Carillion
     pursuant to the payment provisions of the EPC Agreement.

(b)  O&M Agreement.  The Company and Ionics, on its own behalf or on behalf of a
     subsidiary  to be  designated,  shall have entered  into an  agreement  for
     providing  operation and maintenance for the Plant  substantially  based on
     the  financial  and other  terms  referenced  in  paragraph 9 of the letter
     agreement  executed on May 10, 2000 among the Shareholders and the Company.
     The Company will use its best efforts to include  provisions  in the Credit
     Agreements  which  collectively  will authorize  disbursements  directly to
     Ionics pursuant to the payment provisions of the above described agreement.

(c)  Water Supply Agreement.  The Water Supply Agreement as set forth in Annex 4
     as it may have been amended with the consent of the Shareholders)  shall be
     in full force and effect,  and those changes  reflected in the letter dated
     May 5, 2000, from the Overseas Private Investment Corporation to WASA shall
     have been  substantially  incorporated  into the Water Supply  Agreement or
     agreed to by WASA on a binding commitment basis.

(d)  Bridge or Construction  Project Financing.  Republic Bank will have entered
     into a loan agreement  with the Company to provide  bridge or  construction
     financing to the Company in the amount of at least  US$60,000,000  on terms
     and conditions  acceptable to Ionics,  provided that Ionics agrees that the
     loan  agreement  may be  conditioned  on Ionics  posting  security  for its
     funding of the required equity contributions under this Agreement.

(e)  Shareholder Loan Documentation.  The terms and conditions of the "Note" (as
     defined in Section  3.4(d) below) and the pledge  agreements  providing for
     security  for  payment  of  the  Note  will  have  been  agreed  to by  the
     Shareholders and executed in a form acceptable to Ionics.

(f)  Other  Venture  Agreements.  The  Company and the  Shareholders  shall have
     executed each of the other Venture Agreements.

                                      119
<PAGE>

(g)  No Material  Adverse  Change.  Ionics will be satisfied,  in its reasonable
     discretion, that there has been no material adverse change in the financial
     condition or prospects of the Company occurring during the Interim Period.

(h)  Annexes. The Shareholders shall complete all Annexes to this Agreement.

3.2      Initial Capital  Structure.  The capital structure of the Company shall
         be composed of one class of ordinary shares of common stock  consisting
         of five hundred (500) shares, of which Karamath will hold three hundred
         (200)  shares and Ionics  will hold two hundred  (200)  shares upon the
         Capitalization Date. Each ordinary share shall have the same rights and
         obligations  including  rights with  respect to voting,  the receipt of
         dividends and other distributions and additional capital contributions.
         Subject to the provisions of the Companies Act and this Agreement,  the
         Company  will have the power to  increase  or reduce  share  capital or
         redeem or purchase shares.

3.3.1Purchase  of  Shares  and  Shareholder   Capital   Contributions.   At  the
     Capitalization  Date,  the Company  will issue and sell to each of Karamath
     and Ionics two hundred (200) of the ordinary  shares of common stock of the
     Company,  constituting  in each  case  forty  percent  (40%)  of the  total
     ordinary  shares of common  stock of the Company,  for a purchase  price of
     US$10,000,000  for each block of two hundred (200) shares,  which  ordinary
     shares will be issued to  Karamath  and Ionics free and clear of any liens,
     encumbrances, claims or agreements other than this Agreement. In respect of
     the purchase price to be paid by Karamath for its two hundred (200) shares,
     Ionics will cause an additional US$10,000,000 to be contributed directly to
     the capital of the  Company,  which will be effected as a loan by Ionics to
     Karamath in  accordance  with the terms of the Note and secured by a pledge
     of  Karamath's  shares in the Company and will reflect  Karamath's  capital
     contribution  for the two  hundred  (200)  shares  issued by the Company to
     Karamath on the Capitalization Date.

3.4  Capitalization Date. On the Capitalization Date each of the following shall
     occur:


(a)  Each  other  Venture  Agreement  shall  be or  have  been  executed  by the
     respective Shareholders and the Company as applicable.

(b)  The Company shall deliver to Ionics two hundred  (200)  ordinary  shares of
     common stock in the Company,  representing forty percent (40%) of the total
     outstanding ordinary shares of common stock in the Company, upon payment to
     the  Company by Ionics of  US$10,000,000.  The  Company  shall  deliver the
     number  of  shares  specified  in  Clause  3.2 as  subscribed  for by  each
     Shareholder.

(c)  The Company will deliver to Karamath two hundred (200)  ordinary  shares of
     common stock of the Company,  representing forty percent (40%) of the total
     outstanding ordinary shares of common stock in the Company, and Ionics will
     pay to the  Company an  additional  US$10,000,000,  reflecting  the capital
     contribution  by Karamath for the two hundred (200) ordinary  shares issued
     to it on the Capitalization Date, which payment to the Company by Ionics on
     behalf of Karamath  will be effected as a loan from Ionics to Karamath (the
     "Loan").

(d)  Karamath  will enter into a promissory  note (the "Note") for  repayment of
     the Loan with interest at the  six-month  U.S.$ London  Inter-Bank  Offered
     Rate  (LIBOR),  as published by the Wall Street  Journal from time to time,
     re-set  semi-annually,  plus two  percentage  points  (2%) by  Karamath  to
     Ionics,  to be paid out of the dividends and other  distributions  from the
     Company to Karamath. The Note will provide for payments on a mortgage style
     amortization  schedule  and  shall  be based on the  terms  and  conditions
     contained in the Term Sheet attached as Annex 5. The Company,  Karamath and
     Ionics will also enter into a pledge  agreement  pursuant to which Karamath
     will grant to Ionics a perfected security interest (subordinate only to the
     security  interest that may be granted to Republic Bank and to the Overseas
     Private  Investment  Corporation  or any other  permanent  project  finance
     Lender to secure its loan to the Company) in the three hundred (300) shares
     owned by it in the Company as security for the  repayment of the Loan,  and
     which pledge  agreement will provide that until the Loan is repaid in full,
     all dividends and other  distributions  to which  Karamath is entitled from
     the  Company,  up to the  amount  of all  accrued  interest  and  principal
     amortization  currently due on the Note as of the date of any such dividend
     or other distribution, will be paid by the Company directly to Ionics to be
     applied against accrued interest and principal owed on the Loan.

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<PAGE>

3.5      Additional  Capital  Contributions.  Prior  to the  time at  which  the
         Company is able to obtain permanent  financing to satisfy the bridge or
         construction  loan to the Company,  the  Shareholders  may be required,
         either by the bridge or  construction  Lenders or to enable the Company
         to meet its obligations, to advance additional money to the Company. In
         either such case, the Shareholders  agree that they will provide to the
         Company their  pro-rata  share (based on the  percentage of shares each
         Shareholder has in the Company) of the funds required by the Company in
         the form of either an  additional  capital  contribution  or a loan, as
         agreed to by the Shareholders.

3.6      Default in Making Capital Contributions.

(a)  Contribution   Loan.   If   either   Shareholder   (the   "Non-Contributing
     Shareholder")  fails to make a loan or capital  contribution as provided in
     Clause 3.5 above (the  "Non-Paid  Contribution")  at the time  required  or
     agreed to by the Shareholders  (the  "Contribution  Date"),  then the other
     Shareholder  (the  "Contributing  Shareholder")  at any time up to ten Days
     following  the time  specified  for the loan or  contribution  may elect to
     advance  to the  Company  an  amount  equal  to all or any  portion  of the
     Non-Paid  Contribution  (a  "Contribution  Loan") and the  amount  that the
     Contributing  Shareholder  had  agreed  to fund  as  part of its  initially
     required loan or contribution shall also be treated as a Contribution Loan.
     The election by the  Contributing  Shareholder to make a Contribution  Loan
     must  be  made  by  written  notice   delivered  to  the   Non-Contributing
     Shareholder.  The  Contribution  Loan shall be made  within ten Days of the
     notice.

(b)  Interest.  The Company shall pay interest on the unpaid principal amount of
     each  Contribution Loan at a rate per annum equal to the rate applicable on
     the bridge or construction  financing obtained by the Company,  as adjusted
     from time to time, payable on the last day of each calendar quarter.

(c)  Repayment.  Each Contribution Loan will be repaid on the second anniversary
     thereof,  unless the Contribution Loan is converted into shares pursuant to
     Clause 3.6(d).

(d)  Conversion  of  Contribution   Loans  into  Shares.   Upon  notice  to  the
     Non-Contributing  Shareholder  and the Board  delivered  during  the period
     within 30 Days before the repayment date for any Contribution  Loan(s), the
     Contributing  Shareholder may elect to convert the unpaid  principal amount
     and all  accrued  interest  of the  Contribution  Loans into  shares on the
     repayment  date unless  during this 30 day period the Company  pays in full
     all Contribution Loans held by the Contributing Shareholder.  If at the end
     of the 30 day  period  the  Company  has not paid in full all  Contribution
     Loans held by the Contributing  Shareholder,  the Company will issue to the
     Shareholder  making the  Contribution  Loan(s) and electing to convert into
     shares the principal  amount and all accrued  interest of the  Contribution
     Loan(s)  a  certificate   representing   the  number  of  shares  that  the
     Contributing  Shareholder  would have received on the Contribution  Date if
     the full principal amount and accrued  interest on the  Contribution  Loans
     would  have been  contributed  as  capital  in  exchange  for shares in the
     Company on the  Contribution  Date. The  Shareholders  agree that they will
     vote their shares in the Company and cause the Directors elected by them to
     vote as Board  members as  required to  implement  the  provisions  of this
     Section 3.6 and Section 3.5 above.

                                      121
<PAGE>

                                    CLAUSE IV

                            MANAGEMENT OF THE COMPANY

4.1      Shareholders.

(a)  Vote. Each Share shall have one vote on all matters presented for a vote of
     the shareholders.

(b)  Quorum  and  Attendance.  The  representation  in person or by proxy of the
     holders  of all  outstanding  shares  shall  constitute  a  quorum  for the
     transaction of business at any shareholders' meeting.

(c)  Action.  Action  of the  shareholders  at any  meeting  shall  require  the
     affirmative vote of all of the shares represented at the meeting.

4.2      Board.

(a)  Composition.  The Board shall have general  supervision of the business and
     operations of the Company as set forth in the Articles of Incorporation and
     By Laws. It shall be composed of no fewer than two (2) and no more than six
     (6) directors who shall be selected in the manner prescribed below.  Except
     as provided in Clause  4.2(i) below,  each of Ionics and Karamath  shall be
     entitled to nominate and elect an equal number of the members of the Board.
     A  director  shall  serve  until  replaced  except in the event of  earlier
     resignation or removal in accordance with this  Agreement,  the Articles of
     Incorporation or the By Laws.

(b)  Alternate Directors.  The Shareholders may nominate alternate directors for
     each of the Board seats for which it is entitled to nominate the  director.
     In the absence of the director for whom the  alternate  holds a proxy,  the
     alternate may exercise all of the rights of a director of the Company.

(c)  Voting Agreement.  Each Shareholder  agrees to vote for the nominees of the
     other Shareholder and elect all such nominees at the annual general meeting
     and all extraordinary general meetings of shareholders.

(d)  Removal. Except for vacancies as described in Clause 4.2(e) and as provided
     in Clause  4.2(i),  any  director  may be removed from office only upon the
     initiative of the Shareholder which originally  nominated the director.  In
     that  event the other  Shareholder  agrees to vote for the  removal  of the
     director, and to vote in favor of the replacement director nominated by the
     shareholder proposing the removal.

(e)  Vacancies.  If  there is a  vacancy  on the  Board  arising  out of  death,
     disability,  removal,  resignation  or  otherwise,  the  Shareholder  which
     originally nominated the director vacating his or her office shall nominate
     a  new  director  to  the  Board.  The  Shareholders  agree  to  elect  all
     replacement  nominees  to the Board at the  first  Board  meeting  after an
     individual is nominated.

(f)  Quorum  and  Attendance.  The  presence  in person of at least  four of the
     directors  (unless the full number of directors then constituting the Board
     is  fewer,  in which  event a quorum  shall  be the  full  Board)  shall be
     required  to  constitute  a quorum for the  transaction  of business by the
     Board. The Bylaws of the Company will provide that Board members may attend
     and vote at Board meetings by telephone,  which will be considered presence
     in person at the meeting for purposes of this Section 4.1(b).

(g)  Voting Requirements. Board action will require the consent of a majority of
     all the Directors,  except that unanimous consent of all the Directors will
     be required on the matters referred to in Clause 4.2(h) below. The Chairman
     of the Board of  Directors  shall have one vote,  except that on matters in
     which there is a tie vote and which do not require unanimity,  the Chairman
     shall have the casting vote.

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(h)  Unanimity. The following matters or actions must be approved unanimously by
     the Board:

(i)  A merger or consolidation of the Company or the sale, transfer,  assignment
     or other  disposition of 25 per cent of the book value of the assets of the
     Company;

(ii) A material  change in the  corporate  purpose or  business of the
     Company;


(iii) The making of any advance or loan to a Shareholder  or Affiliate
     of a  Shareholder  or the entry into or  modification  of any  agreement or
     transaction with a Shareholder or Affiliate of a Shareholder;


(iv) An amendment of the Articles of Incorporation or By Laws;


(v) An election to terminate,  liquidate, dissolve or wind up the
          Company;


(vi) The  commencing  of or permitting to occur of a proceeding in bankruptcy by
     or against  the Company or the making of an  assignment  for the benefit of
     creditors or any other arrangement to restructure the Company's obligations
     under  applicable  bankruptcy  laws.

(vii)The  execution  or  modification  of any other  material  agreement  of the
     Company  outside the ordinary  course of business or not in accordance with
     the Capital Investment Program or Business Plan.

(viii) Approval of and any variations in the Construction Budget,  Operation and
     Maintenance Budget, Capital Investment Program,  Desalcott Operating Budget
     and Business  Plan  pursuant to Clause 5.3 below,  as well as the making of
     any expenditures not approved as within the Construction Budget,  Desalcott
     Operating Budget,  Operation and Maintenance  Budget or Capital  Investment
     Program.

(ix) The issuance by the Company of any additional shares in the Company, unless
     first offered for purchase by the Shareholders on a pro-rata basis.

(x)  Approval of the terms and  conditions on which the  permanent  financing or
     additional bridge financing will be obtained by the Company.

(i)  Termination of Right to Elect Directors.  If either  Shareholder  ceases to
     own at least thirty percent (30%) of the outstanding ordinary shares in the
     Company,  such Shareholder will thereafter lose the rights granted to it in
     this Clause 4.2 to elect  directors  (but  retaining all rights  granted to
     shareholders generally under the Companies Act, including the right to vote
     for the election of directors generally).

4.3      Election of Officers.

         (a)      Subject to  sub-Clauses  4.3(b) below,  the Board of Directors
                  shall  appoint  the  officers  of the  Company.  The  Managing
                  Director shall have overall  responsibility for the day-to-day
                  operations and management of the Company. All salaries, wages,
                  bonuses, allowances, travelling and accommodation expenses and
                  other benefits to which the Company's officers may be entitled
                  and all necessary  employer's  pension and national  insurance
                  contributions shall be paid by the Company.

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         (b)      The Board members appointed by Karamath will have the right to
                  appoint the Chairman of the Board of  Directors,  the Managing
                  Director and Chief Financial Officer, and the initial Chairman
                  of the Board of  Directors  so  appointed  will be Mr.  Hafeez
                  Karamath.  The  Shareholders  further  agree that the  initial
                  Secretary shall be Mr. Andre LeBlanc, attorney-at-law.

4.4      Deadlock. If the Board fails to reach agreement on any matter before it
         after  deliberating  upon  the  matter  during  two  consecutive  Board
         meetings, upon notice to the other directors any director may refer the
         matter to the Shareholders for resolution.  The director's notice shall
         be  accompanied by a statement  setting out the director's  position on
         the matter in dispute and the director's  recommendation for resolution
         of the dispute.  The other  directors  each may  distribute a statement
         setting out that director's  position on the matter in dispute and that
         director's  recommendation for resolution of the dispute.  If a dispute
         is referred to the Shareholders,  within 30 Business Days from the date
         of the  director's  notice they shall  confer in good faith with a view
         toward resolving the matter by mutual  agreement.  If the matter is not
         resolved by the  Shareholders  by mutual  agreement  within 60 Business
         Days from the date of the  notice,  the  failure to resolve  the matter
         shall constitute a Triggering Event subject to the mechanisms set forth
         in Clause 6.4 below.

                                    CLAUSE V

                      FINANCIAL CONSIDERATIONS; STRUCTURE;

                              RECORDKEEPING; AUDITS

5.1      Distributions.  The Company will make  annually  the maximum  available
         distribution  of  dividends  after  debt  service,  the  payment of all
         operating  expenses and  establishment  of prudent and legally required
         reserves.

5.2      Investment  Structure.  The Shareholders agree to work together in good
         faith to determine the appropriate  form of holding  company  structure
         for the investment taking into  consideration,  among other things, the
         domicile  of  each  Shareholder  and  any tax  liabilities  or  burdens
         affecting them. It is agreed that Ionics' United States tax liabilities
         shall be taken into account.

5.3      Reports and Plans.  The Board shall cause the management of the Company
         to  submit  to the  Board for  approval  forty-five  Days  prior to the
         commencement  of each  fiscal  year,  and shall  deliver to each of the
         Shareholders within thirty days after the end of each fiscal year, each
         of the following:

         (a)      During the  construction  phase of the Project a  construction
                  budget reflecting the funds needed to complete construction of
                  the  Project  for the  succeeding  fiscal  year.  The  initial
                  construction budget and each subsequent construction budget as
                  approved by the Board will be the Construction Budget.

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         (b)      During the operations phase of the Project a budget reflecting
                  the funds needed for the administration of the Company for the
                  succeeding  fiscal year. The initial budget so established and
                  each such  subsequent  budget as approved by the Board will be
                  the Desalcott Operating Budget.

         (c)      An operations  and  maintenance  budget  reflecting  the funds
                  needed for the operation and  maintenance of the Plant for the
                  succeeding  fiscal year. The initial operation and maintenance
                  budget and each subsequent operation and maintenance budget as
                  approved by the Board will be the  Operation  and  Maintenance
                  Budget.

         (d)      A business  plan  ("Business  Plan")  reflecting  the proposed
                  operations  of the Company  which plan shall be prepared on an
                  annual basis for the five succeeding years.

         (e)      A capital  investment program ("Capital  Investment  Program")
                  reflecting  the proposed  capital  investments  of the Company
                  which  program  shall be prepared  on an annual  basis for the
                  five succeeding years.

5.4      Maintaining  Records and Books. The Company shall maintain complete and
         accurate   records  and  books  of  account   utilizing   International
         Accounting  Standards  ("IAS"),  unless the Credit  Agreement  requires
         maintenance  of records and books of account  utilizing  another set of
         accounting  standards,  in which case the accounting standards required
         by  the  Credit  Agreement  will  be  substituted  for  IAS  and be the
         accounting  standards  pursuant  to which the  Company  will adhere for
         purposes of this Agreement. These records and books of account shall be
         maintained  by the  Company  at its  principal  business  office.  Each
         Shareholder may examine and make copies of any books and records at any
         reasonable time during normal  business hours.  These records and books
         together with the  accounting  controls  shall be sufficient to provide
         reasonable assurance that:

          (a)  transactions  are  executed  in  accordance  with the  general or
          specific authorization of the Board where necessary;

          (b)  transactions  are recorded so as to permit the preparation of the
          Company's financial  statements in accordance with IAS and to maintain
          accountability for its assets; and

          (c) compliance with the U.S. Foreign Corrupt  Practices Act,  Trinidad
          anti-corruption  laws and any treaty or  multilateral  anti-corruption
          regimes may be verified.

5.5      Year-End Statements.  The Auditors shall conduct an annual audit of the
         Company's  accounting  books and  records at the expense of the Company
         within 120 Days after the end of each fiscal year.  The Auditors  shall
         be independent public accountants of recognized  international standing
         as selected by the Board.  The Board shall  instruct the  management to
         deliver to the Auditors the  information  required for the annual audit
         not later than thirty Days after the end of the  relevant  fiscal year.
         In addition,  the Board shall cause the Auditors to prepare and deliver
         to the  Shareholders:  (a) the  reports  described  in  Clauses  5.4(a)
         through (c) inclusive; (b) upon reasonable request by a Shareholder any
         other  report  which it  requires;  and (c) any report  required by the
         Lender(s)  under the Credit  Agreement.  The  provisions of this Clause
         shall  be  amended,  without  the need for any  further  action  by the
         Shareholders,  to be consistent with any reporting  requirements  under
         the Credit Agreement.

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5.6      Quarterly Statements. Within 60 Days after the end of each of the first
         three fiscal  quarters of each fiscal year,  the Auditors shall prepare
         quarterly  financial  statements  which present  fairly in all material
         respects  the  financial  condition  and results of  operations  of the
         Company,  subject to normal year-end audit  adjustments and the absence
         of  footnotes,   in  accordance  with  IAS  consistently  applied.  The
         provisions  of this Clause  shall be amended,  without the need for any
         further action by the Shareholders, to be consistent with any reporting
         requirements under the Credit Agreement.

5.7      Special  Audits.  Either  Shareholder may designate its own independent
         auditors (in addition to the  Auditors)  for the purpose of  conducting
         audits  of the  records  and  books of the  Company  on  behalf  of the
         Shareholder,  including an  independent  audit to verify the sharing of
         costs or the sharing of savings  occurring  pursuant  to any  agreement
         between  the  Company  and  any  Shareholder,  or an  Affiliate  of any
         Shareholder.  The Shareholder causing the inspection by the independent
         auditor will be responsible  for the fees and costs of the  independent
         auditor  conducting  the  special  audit,  unless  the  results  of the
         independent audit show a material  discrepancy in the financial records
         of the Company, in which case the fees and costs will be borne and paid
         by the Company.  Reasonable  access to the records and books of account
         of the  Company  will be  afforded  to the  independent  auditors.  Any
         special  audits shall not be conducted at any time or in such manner as
         would be  reasonably  likely  to  interfere  with the  business  of the
         Company or the annual audit by the Auditors. The results of any special
         audit  shall be  furnished  to the  Board  and the  other  Shareholders
         promptly upon completion.

5.8      Accountant's Reports. The Board shall instruct management to deliver to
         each Shareholder  promptly upon receipt all other reports  submitted to
         the Company by Auditors in  connection  with each annual,  quarterly or
         special  audit of the books of the  Company  including  any  management
         letter commenting on the Company's internal controls.


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                                    CLAUSE VI

                           TRANSFER OF COMPANY SHARES

          6.1 Transfer  Restriction.  No  Shareholder  shall Transfer any shares
          owned by it in the  Company,  except as  expressly  permitted  by this
          Agreement.

          6.2      Transfers to Affiliates.

(a)  Upon Thirty Days, advance notice in writing either Shareholder may Transfer
     all,  but  not  less  than  all,  of the  shares  held  by it to any of its
     Affiliates.  However,  (i) the Affiliate  must agree in writing to bound by
     all of the provisions of this  Agreement;  (ii) the Affiliate must agree in
     writing to  re-Transfer  all such shares to the original  Shareholder if at
     any time the Affiliate  should cease to be an Affiliate of the Shareholder;
     and  (iii)  the  Affiliate  must  not  be  in   receivership,   bankruptcy,
     insolvency, dissolution, liquidation or any similar proceeding.

(b)  If either Shareholder has made a Transfer of Company shares to an Affiliate
     and  the  transferee   ceases  to  be  an  Affiliate  of  the  transferring
     Shareholder,  then the  transferor  shall be  required  to  re-acquire  all
     transferred  shares no later than sixty Days after the transferee ceases to
     be an Affiliate of the transferring Shareholder. If the transferor does not
     choose to make a re-Transfer,  then the  Transferor  shall cause another of
     its Affiliates  immediately  to acquire all of the shares.  In either case,
     the transferor or Affiliate  re-acquiring the shares will agree to be bound
     by the  continued  applicability  of this  Agreement.  Until all shares are
     re-Transferred  to  the  Shareholder  or  Transferred  to  another  of  its
     Affiliates,   the  Company   shall   withhold   payment  of  any  dividend,
     distribution or repayment of capital to the Shareholder and its transferees
     and the  presence,  consent  or vote of  shares of the  Shareholder  or any
     members of the Board of  Directors  nominated  by the  Shareholder  and its
     transferees  shall  not be  required  for any  action  by the  Board or the
     Shareholders.

6.3      Right of First Refusal.

(a)  Transfer Notice. If either Shareholder (the "Selling Shareholder ") desires
     to make any other  Transfer of any or all of its shares to any Entity which
     is not an  Affiliate of the Selling  Shareholder,  that  Shareholder  first
     shall  offer to sell the  shares  to the  other  Shareholder.  The  Selling
     Shareholder  shall deliver to the other Shareholder a notice (the "Transfer
     Notice") of its intention to Transfer its shares. The Transfer Notice shall
     identify  the  number of  shares  to be  transferred,  the  name(s)  of the
     proposed  third  party  purchaser(s),  the price per  share,  the method of
     payment of the purchase price, the date or dates of payment, the conditions
     to which the offer is subject,  the scheduled date of  consummation  of the
     proposed sale, and all other terms and conditions of the  transaction.  The
     Transfer  Notice shall be  accompanied  by a copy of the written offer from
     the third party.

(b)  Cash  Equivalent  Pricing.  If all or any  portion  of the  price per share
     consists  of  property  or  other  non-cash   consideration   (including  a
     promissory note or other deferred  payment),  the then-current  fair market
     value of that property or other non-cash  consideration shall be determined
     conclusively by an internationally recognized independent public accounting
     firm agreed upon by the  Shareholders,  or such other valuation firm agreed
     upon by the Shareholders (the "Valuation  Firm"). The cost of retaining the
     Valuation Firm shall be borne by the Selling  Shareholder.  The decision of
     the Valuation Firm shall be final and binding on the Shareholders and shall
     be enforceable as an award under Clause 10.2 for resolution of disputes.

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(c)  Option  Period;  Reply Notice.  For a period of 90 Business Days  following
     delivery of the  Transfer  Notice or decision of the  Valuation  Firm,  the
     other Shareholder  shall have the option to purchase the shares.  The other
     Shareholder  shall deliver a notice within that time period stating whether
     it elects to purchase the shares.  The failure of the other  Shareholder to
     deliver such notice within the 90 Business Day period shall be deemed to be
     notice of its intention not to purchase the shares.

(d)  Purchase by Shareholder;  Purchase by Transferee.  If the other Shareholder
     elects to purchase  the  shares,  it: (i) must  purchase  all of the shares
     identified in the Transfer  Notice and (ii) may include the cash equivalent
     value of any property or other non-cash  consideration  comprising  part of
     the purchase price. If the other  Shareholder does not exercise its option,
     then for a period of thirty Business Days the Selling  Shareholder shall be
     free to Transfer its shares to the proposed  transferee  identified  in the
     Transfer Notice at the price and on the terms and conditions specified.  If
     the Transfer to the  transferee  is not effected  within  thirty Days,  the
     Selling  Shareholder  must again  follow the  procedures  set forth in this
     Clause in order to Transfer the shares.

(e)  Transferee Acknowledgement.  The transferee must agree in writing to accede
     to this Agreement and assume all of the  obligations of a Shareholder as if
     it were an original, named Shareholder and provide an address and facsimile
     number for the purposes of notice under Clause 11.1.

(f)  Obligations under Note. Karamath agrees that it may not Transfer the shares
     owned by it unless prior to or simultaneously  with the Transfer all of its
     obligations under the Loan have been or are satisfied.

(g)  Closing on  Transfer.  The closing on the sale of the Offered  shares for a
     purchase by the other  Shareholders  shall take place  within ten  Business
     Days after  expiration of the time periods  recited in Clause 6.3(d) at the
     offices of the Company at 10:00 A.M.  Trinidad  time or at such other place
     and time as  agreed  to by the  Shareholders.  The  Board  nominees  of the
     selling Shareholder shall resign effective on that date.

6.4      Buy-Sell Mechanics for Triggering Events.

         (a) If a Triggering  Event  described in the succeeding  paragraphs (1)
         through (4) of this Clause  6.4(a) shall occur and be  continuing,  the
         shares of the Company  shall be subject to the buy-sell  mechanics  set
         forth in Clause 6.4(b):

(1)  Either  Shareholder is in material  breach of any of the provisions of this
     Agreement  and the breach  continues  for thirty (30) days after  notice in
     writing from the other Shareholder demanding cure (or if a longer period is
     reasonably  required  for cure,  the  breaching  Shareholder  has not begun
     during such thirty (30) day period  diligently to cure such breach and does
     not thereafter  diligently complete such cure), or Karamath is in breach of
     the Note or of the pledge agreement providing for security for the Note, or
     if there is an attempted foreclosure by the Lenders on Karamath's shares at
     any time before the Loan is completely satisfied.

(2)  A court of  competent  jurisdiction  enters an order  appointing a trustee,
     receiver or equivalent for either  Shareholder or any  substantial  part of
     its property, approves a petition effecting an arrangement in bankruptcy, a
     reorganization  pursuant to a bankruptcy act, or other judicial  alteration
     of the rights of creditors or comparable legal  proceeding,  or adjudicates
     Shareholder as bankrupt, insolvent or equivalent status;

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(3)  A  Shareholder  files a petition or consents to any other action  seeking a
     judicial decree, makes an assignment for the benefit of creditors or admits
     in writing its inability to pay its debts generally as they become due; or

(4)  A deadlock exists between the Shareholders as described in Clause 4.4.

(b) The buy-sell mechanics are as follows:

     (1)  In the case of a Triggering  Event described in paragraphs (1) through
          (4) of Clause  6.4(a),  the  non-breaching  Shareholder in the case of
          paragraph (1), the  Shareholder  not subject to an order,  petition or
          adjudication in the case of paragraph (2), the non-filing  Shareholder
          in the case of paragraph  (3), and either  Shareholder  in the case of
          paragraph  (4) (in each case,  the  "Offeror")  will make to the other
          Shareholder  (the "Offeree") a written offer in the alternative (i) to
          sell all (but not less than all) of the shares  held by the Offeror to
          the  Offeree  or (ii) to  purchase  all (but not less than all) of the
          shares  held by the  Offeree.  The offer  shall  specify the per share
          purchase  or sales  prices and the  purchase  or sales  price shall be
          payable  in cash  (except  that  Ionics  may bid  any  amount  owed by
          Karamath  to it under the Note and Loan and apply it to the payment of
          the purchase price,  and such bid amount will be deemed a cash payment
          for purposes of this Clause 6.4).

     (2)  The offer shall be  irrevocable  for a period of  forty-five  Business
          Days  from the date  made.  In the  absence  of a  notice  in  writing
          declining the offer before the expiration of the forty-five Day period
          the Offeree shall be deemed to have accepted the offer to purchase all
          of its shares or to buy all of the shares offered by the Offeror.

     (3)  Within the  forty-five  Day  period  rather  than  accept the offer to
          purchase  or sell its shares to or from the  Offeror,  the Offeree may
          counteroffer to purchase or sell its shares at a higher per share cash
          price. This offer shall be irrevocable for a period of thirty Business
          Days from the date made.

     (4)  Within the thirty-Day  period rather than accept the offer to purchase
          or sell its shares the  recipient of the  counteroffer  (the  original
          Offeror)  may itself  offer a further  counterproposal  to purchase or
          sell its shares at a higher per share cash price.  This offer shall be
          irrevocable for a period of ten Business Days from the date made.

     (5)  Subject to the right of a Shareholder  to decline any offer as set out
          in Clause 6.4 (b)(2) this process shall  continue  until there as been
          no further  offer by either  Shareholder  for a period of ten Days. At
          that time the last offer will be deemed to have been accepted.

     (6)  The sale of shares shall take place within thirty  Business Days after
          the date of  acceptance  of the last  offer  made  pursuant  to Clause
          6.4(b) at the offices of the Company at 10:00 A.M. Trinidad time or at
          such other place and time as agreed by the Shareholders.

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     (7)  If a Triggering  Event  ceases to exist after a written  offer is made
          pursuant to Clause 6.4(a),  but prior to the completion of any sale of
          shares  pursuant to this Clause,  the  provisions of this Clause shall
          cease to apply and unless  otherwise agreed by the  Shareholders,  all
          offers and acceptance made will be considered null and void.

6.5      Encumbrances.  Neither  Shareholder shall create or permit to exist any
         security interest, lien, claim, pledge, option, right of first refusal,
         agreement, limitation on the voting rights, charge or other encumbrance
         of any nature  whatsoever  in  respect  of the  shares of the  Company,
         except  for a pledge of the  shares to  secure  non-recourse  financing
         under the Credit  Agreement to  construct  and operate the Facility and
         the pledge by  Karamath  of its shares to Ionics to secure the Loan and
         the pledge by the  Shareholders  of their  shares to secure the bridge,
         construction and/or permanent financing.

6.6      Legend on Share Certificates.  The certificates  evidencing the shares
         shall  bear  a  legend  as  follows:

          The shares  evidenced by this  certificate  are subject to, and may be
          sold,  assigned,  pledged or otherwise  transferred only in compliance
          with,  the  provisions  of  a  Shareholders'  Agreement  dated  as  of
          __________  2000  among  Ionics,  Incorporated  (ITF an  affiliate  of
          Ionics,  Incorporated),  Hafeez Karamath  Engineering Services Limited
          and The Desalination Company of Trinidad and Tobago Limited. A copy of
          that Agreement is on file at the principal office of the Company.  Any
          sale,  assignment,  pledge  or  other  transfer  of  these  shares  in
          contravention of that Agreement is void.

                                   CLAUSE VII

                                   TERMINATION

7.1      Reasons.    This Agreement shall terminate on the earliest to occur of:

(a) a written agreement of the Shareholders to terminate this Agreement;
(b) the dissolution,  insolvency or bankruptcy of the Company in accordance with
    the laws of the Republic;
(c) all of the shares of the Company being transferred
    to one Shareholder;  or
(d) the failure to satisfy the conditions  precedent set
    forth in Clause 3.1 by the Capitalization Date.

7.2      Satisfaction  of  Obligations.  Upon  termination  of the Water  Supply
         Agreement or a termination of this Agreement in accordance  with Clause
         7.1(a) above,  the Board shall proceed to cause the  liquidation of the
         Company.  On  dissolution  of the Company,  to the extent  permitted by
         Applicable   Law,  the  assets  of  the  Company   shall  be  sold  and
         distributed,  first,  to the  creditors of the Company which do not own
         shares,  ratably in accordance with their claims as creditors;  second,
         to the Shareholders to this Agreement who are creditors of the Company,
         ratably in accordance  with their claims as creditors;  and,  third, to
         the  Shareholders to this  Agreement,  ratably in accordance with their
         ownership of shares of the Company at the time of dissolution.

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                                   CLAUSE VIII

                         REPRESENTATIONS AND WARRANTIES.

8.1  Shareholder  and Company  Representations  and  Warranties.  Each
     Shareholder and the Company represent and warrant to each other that as to
     itself the following are true and binding.

     (a)  Existence.  It is incorporated  and validly  existing under the law of
          its jurisdiction of  incorporation.  It has full power and legal right
          to execute and deliver this Agreement and to perform the provisions of
          this Agreement.

     (b)  Capacity.  The  execution,  delivery  and  performance  by it of  this
          Agreement have been authorized by all necessary  corporate  action and
          do not (a)  contravene its Articles of  Incorporation,  By Laws or any
          other organizational  document,  (b) contravene law or any contractual
          restriction   binding   on  it  or  (c)   require   any   governmental
          authorization which has not been obtained.

     (c)  Binding  Effect.  This  Agreement  is its  legal,  valid  and  binding
          obligation, enforceable against it in accordance with its terms except
          as   may   be   limited   by   applicable   bankruptcy,    insolvency,
          reorganization,  moratorium or other similar laws affecting creditors'
          rights generally and with regard to equitable  remedies subject to the
          discretion of the court or arbitration  panel before which proceedings
          to obtain such remedies may be pending.

     (d)  Finders Fee. No broker or finder is entitled to any fee or  commission
          in connection with the transactions contemplated by this Agreement.

     (e)  Governmental  Approvals.  Each Shareholder  possesses all Governmental
          Approvals  required to own its shares in the  Company,  to execute and
          deliver this  Agreement  and any Venture  Agreements  to which it is a
          party, and to perform its obligations.

     (f)  No Default.  It is not in default  under any term or  condition of any
          instrument  evidencing,  creating or securing any  indebtedness of the
          Shareholder.  There  has  been  no  default  in any  obligation  to be
          performed by it under any other  agreement to which the Shareholder is
          a party or by which it or its  properties are bound which would have a
          material adverse affect upon the Shareholder's  ability to perform any
          of its obligations under this Agreement or any Venture Agreement.

     (g)  No  Litigation or  Arbitration.  There is no  litigation,  proceeding,
          investigation  or  arbitration  before  or any  court,  administrative
          agency  or  governmental  body  pending  or to  the  knowledge  of the
          Shareholder affecting the Shareholder,  its properties,  its business,
          or the  transactions  contemplated  in this  Agreement and the Venture
          Agreements  which  would  have a  material  adverse  affect  upon  the
          Shareholder's  ability to perform its obligations under this Agreement
          or  any  Venture  Agreement  to  which  it is a  party.  There  are no
          judgments, orders, writs, injunctions, decrees or awards affecting the
          Shareholder or its properties or business, which would have a material
          adverse  affect upon the  Shareholder's  ability to perform any of its
          obligations  under this Agreement or any Venture Agreement to which it
          is a party.

     (h)  Company  Liabilities.  As of the  Execution  Date  Ionics will have no
          liabilities for any  obligations of the Company  existing prior to the
          Execution Date.

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<PAGE>


     (i)  Ethical  Business  Practices.  In  connection  with the  Project  each
          Shareholder  and its  Affiliates,  officers,  directors,  agents,  and
          employees will comply strictly with all requirements of Applicable Law
          and the highest ethical standards.  Certain laws of the United States,
          including the U.S.  Foreign  Corrupt  Practices Act of 1977  ("FCPA"),
          prohibit unethical business practices including the giving or offering
          to give  any  payment  or other  thing  of  value  to (i) any  foreign
          government   official   (including   employees   of   government-owned
          corporations or public  international  organizations),  (ii) a foreign
          political party or party official,  or (iii) any candidate for foreign
          political office. Similarly,  certain laws of the Republic,  including
          Articles 138 and 139 of the Constitution of Trinidad and Tobago,  1976
          and the Integrity in Public Life Act,  discourage  unethical  business
          practices,  by  requiring  financial  disclosure  by persons in public
          life.  Karamath  acknowledges that Ionics is subject to the provisions
          of the  FCPA,  and that  actions  taken by  Karamath  or the  Company,
          directly or indirectly through officers, agents, directors,  employees
          or  affiliates,  could  result in  liability  or  penalties to Ionics.
          Accordingly,  the  Shareholders  and the Company  each  represent  and
          warrant  that in  connection  with the Project they have not taken and
          will not take any  action  proscribed  by any law  regulating  ethical
          business  practices  including:  (a) by  not  directly  or  indirectly
          making,  promising to make, or authorizing any payment of money or the
          giving of anything of value to a government or party official,  or any
          foreign  political party or official  thereof,  or any third person or
          Entity  that in turn  will  make a payment  to a  government  or party
          official,  or undertaking  other actions which would violate the FCPA;
          and (b) by not making  any  payment  which  would be  reportable  as a
          payment to a government  official or public  person  under  Applicable
          Law.
     (j)  Commercial  Transactions.  Each party is executing  this Agreement and
          the other  Venture  Agreements  to which it is a party as a commercial
          transaction. To the extent that any Shareholder has or may acquire any
          immunity  from  jurisdiction  of any court or arbitral  forum from any
          legal process with respect to itself or its property, each Shareholder
          irrevocably   waives  all  claims  of   immunity  in  respect  of  its
          obligations under this Agreement.  Each Shareholder  affirms that this
          waiver  is  intended  to  have  the  fullest  scope   permitted  under
          Applicable Law and is intended to be irrevocable for all purposes.

8.2      Karamath Representations and Warranties.    Karamath represents and
         warrants as follows:


         (a)      Shares.  That prior to the sale of ordinary  shares to Ionics,
                  Karamath   is  and  has  at  all   times   from  the  date  of
                  incorporation   of  the  Company  been  the   Company's   sole
                  shareholder.

         (b)      No  Previous  Business.  Other  than  entering  into the Water
                  Supply  Agreement or as disclosed in writing to Ionics,  prior
                  to the  execution of this  Agreement and the sale and transfer
                  of  shares by the  Company  to  Ionics,  the  Company  has not
                  engaged in any business  activities,  incurred any obligations
                  or  liabilities,  entered  into  any  contracts,  employed  or
                  retained as a consultant any person, or acquired any assets.

                                      132
<PAGE>


                                    CLAUSE IX

                            CONFIDENTIAL INFORMATION

9.1      Scope of Duty.  The  parties  will share  with each other all  relevant
         information, data and records available with respect to the Project and
         the  Company.  Each  Shareholder  and the Company  shall hold and shall
         cause its Affiliates and subsidiaries  and their  respective  officers,
         directors, employees, agents, auditors and financial and legal advisors
         (the  "Representatives")  to hold in strict confidence all Confidential
         Information.  Each  Shareholder and the Company shall not use and shall
         cause its Representatives not to use any Confidential Information other
         than in connection with the business of the Company.  Each  Shareholder
         and the Company shall not disclose and shall cause its  Representatives
         not to disclose  any  Confidential  Information  to any other person or
         entity, except:

     (a)  to  the  extent  the  information  was  known  when  received  by  the
          Shareholder or the Company and was not received by the  Shareholder or
          the Company  directly or indirectly from the other  Shareholder or its
          Representatives or the Company;

     (b)  as it is or as it becomes public information or otherwise available to
          the public through no act or fault of the Shareholder or the Company;

     (c)  to the extent it is received by a  Shareholder  or the Company  from a
          third party who, to the Shareholder's or Company's best knowledge, did
          not receive the Confidential  Information  directly or indirectly from
          the other Shareholder or the Company;

     (d)  to the extent any duty as to  confidentiality  is waived in writing by
          the other Shareholder (or both Shareholders in the case of disclosures
          by the Company);

     (e)  as may be required by court order,  law or governmental  authority (in
          which case, if legally  permissible,  the  disclosing  Shareholder  or
          Company must first provide the other Shareholder (or both Shareholders
          in the case of disclosures by the Company) with as much advance notice
          of the intended  disclosure as  reasonably  possible and seek to limit
          the disclosure as much as legally permissible); or

     (f)  to a  Shareholder's  or to the  Company's  auditors,  consultants  and
          financial  and legal  advisors,  who shall be  advised of and agree to
          uphold this confidentiality obligation.

9.2      Survival.  The provisions of this Clause 9 shall survive termination of
         this  Agreement  for a period  equal to the  greater of (i) one year or
         (ii) such longer period during which the confidentiality  provisions of
         the EPC Agreement.  In the event of termination each Shareholder  shall
         return and shall use its best efforts to cause its  Representatives  to
         return to the other  Shareholder  or the Company all documents (and all
         reproductions   made  of  such  documents)   received  from  the  other
         Shareholder,   its   Representatives   or  the  Company   that  include
         Confidential Information not within the exceptions.

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<PAGE>


9.3      Publicity.  No public statements shall be issued by either  Shareholder
         or the  Company  relating  to the  Company or the terms of the  Venture
         Agreements without prior approval of all of the non-disclosing parties.
         However,  nothing  shall  prevent a  Shareholder  or the  Company  from
         supplying  information or making statements  relating to the Company or
         the Venture Agreements as may be required by any governmental authority
         or to satisfy its legal  obligations.  Each  Shareholder or the Company
         shall furnish prior written notice of any such  disclosure to the other
         parties.

                                    CLAUSE X

                               DISPUTE RESOLUTION

10.1     Mediation.  In the event of a dispute  (including  any  alleged  breach
         giving  rise to a dispute)  between  the  Shareholders,  as a mandatory
         pre-condition   to  arbitration,   they  will  enter  into  non-binding
         mediation  in  Miami,   Florida,   U.S.A.,   under  the  Rules  of  the
         International  Chamber of Commerce  ("ICC")  with a person  trained and
         experienced in the mediation process.  The mediation shall be conducted
         and  concluded  within  sixty  Days of the  written  request  by either
         Shareholder. In the event the dispute is not resolved by mediation, the
         Shareholders will enter into binding arbitration under the Rules of the
         International Chamber of Commerce as set forth below.

10.2     Arbitration

     (a)  Jurisdiction.  All disputes  (including any alleged breach giving rise
          to a  dispute)  arising in  connection  with this  Agreement  shall be
          finally  settled under the Rules of Arbitration  of the  International
          Chamber  of  Commerce  by an  arbitral  tribunal  of one member if the
          amount in dispute is less than US$1,000,000,  and three arbitrators if
          the amount in dispute is US$1,000,000,  or more.  Notwithstanding  the
          preceding  sentence the final and binding authority for disputes under
          Clause 6.3(b) shall be the Valuation Firm.

     (b)  Appointment.  If one arbitrator is to be appointed,  the  Shareholders
          shall agree  jointly on that  appointment.  If no agreement is reached
          within Thirty Days, the appointment  shall be made by the ICC from its
          panel of  arbitrators  in the Caribbean and the eastern United States.
          If three  arbitrators  are to be  appointed,  each  Shareholder  shall
          nominate  one  arbitrator.  If a  Shareholder  fails  to  nominate  an
          arbitrator  within  Thirty  Days  from  the date  when the  claimant's
          request for arbitration was communicated to the other Shareholder, the
          appointment  shall be made by the ICC from its panel of arbitrators in
          the Caribbean and the eastern  United States.  The two  arbitrators so
          appointed  shall agree upon the third  arbitrator who shall act as the
          chairperson of the arbitration  tribunal.  If the two arbitrators fail
          to  nominate a  chairperson  within  thirty  Days from the date of the
          second of the two  appointments,  the chairperson shall be selected by
          ICC from its panel of  arbitrators  in the  Caribbean  and the eastern
          United States.

     (c)  Language. The language of the arbitration shall be English.

     (d)  Place. The place of the arbitration shall be Miami, Florida, USA.

     (e)  Appeal. The Shareholders and the Company agree to exclude all right of
          appeal to any court on the merits of the dispute.

     (f)  Enforcement.  Judgment on the award or decision by the Valuation Firm,
          as the case may be, may be entered  in any court  having  jurisdiction
          over the award or either of the  Shareholders,  the  Company  or their
          assets.

     (g)  Choice  of Law.  The  arbitrator(s)  shall  apply  Canadian  (Ontario)
          substantive  law  in  accordance  with  the  Shareholders'  intent  as
          expressed in Clause  11.9.  Any dispute  relating to this  arbitration
          agreement shall be governed by the arbitration law of Florida,  U.S.A.
          The arbitral panel shall not decide in amiable composition.

     (h)  Interim Relief and Award. The  Shareholders  shall be entitled to seek
          interim measures of protection in the form of pre-award  attachment of
          assets  or  injunctive   relief.   The  award  may  grant  any  relief
          appropriate  under the  Applicable  Law including  declaratory  relief
          and/or  specific  performance.  As part of their  award  the panel may
          award  attorneys  fees and costs to the  prevailing  Shareholder.  Any
          award of money  damages shall bear interest from thirty Days after the
          award at the lesser of fifteen  percent (15%) per annum or the maximum
          rate under  Applicable Law. If the prevailing  Shareholder is required
          to retain  counsel to enforce  the  arbitral  award,  the  Shareholder
          against  which  the  award  is made  shall  reimburse  the  prevailing
          Shareholder for all reasonable attorney fees and expenses incurred for
          the services,  together with interest at the lesser of fifteen percent
          (15%)  per  annum  or the  maximum  rate  under  Applicable  Law.

     (i)  Consolidation.  In the event that disputes  arise under this Agreement
          and  any  other   related   agreements   which  also  are  subject  to
          arbitration,  including any agreement  between either  Shareholder and
          any Affiliate of either Shareholder, these disputes may be resolved in
          a  consolidated  arbitral  proceeding.  Any  applicable  consolidation
          provisions  of law shall apply,  notwithstanding  the reference to the
          governing law provisions in Clause 10.2(g).

     (j)  Effect.  The Shareholders  rights and obligations shall remain in full
          force  and  effect  pending  the  outcome  of any  dispute  resolution
          procedure.

     (k)  Limitation on Damages. Neither Shareholder will be liable to the other
          or to  the  Company  for  incidental,  consequential  (including  lost
          profits), exemplary or punitive damages, under, arising out of, due to
          or in connection with this Agreement or the transactions  contemplated
          herein.

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<PAGE>


                                    CLAUSE XI
                                  MISCELLANEOUS

11.1     Notices.

         (a)      Addresses   All   notices  and  other   communications   to  a
                  Shareholder   under  this  Agreement  and  the  other  Venture
                  Agreements  shall be in writing sent by  overnight  courier or
                  facsimile  to  the  address  and  to  the   attention  of  the
                  Shareholder's representative as follows:

                  (1) if to Ionics, to:
                             Ionics, Incorporated
                             65 Grove Street
                             Watertown, MA 02472 USA
                             Telephone: (617) 926-2510 X450
                             Fax: (617) 926-9277

                  (2) if Karamath, to:
                             Hafeez Karamath Engineering Services Ltd.
                             Cyrus Trace, El Socorro Ext.
                             San Juan, Trinidad, W.I.
                             Telephone: (868) 674-0686
                             Fax: (868) 675-2679

                  (3) if to the Company, to:
                             Desalination Company of Trinidad and Tobago Ltd.
                             Cyrus Trace, El Socorro Ext.
                             San Juan, Trinidad, W.I.
                             Telephone: (868) 674-0686
                             Fax: (868) 675-2679

                The air courier and facsimile  numbers for  notifications may be
                changed by a written notice given to the other Shareholder prior
                to the effective date of the change.  Each  Shareholder will use
                reasonable  efforts to arrange to transmit all  documentation by
                electronic, paperless means.

         (b)    Effectiveness. Any notice or communication delivered pursuant to
                Clause  11.3(a)  shall be deemed to have been given on  receipt.
                Communication  by e-mail or facsimile  will be deemed  effective
                only if a message  confirming  receipt  of the notice is sent to
                the originating Shareholder by e-mail or facsimile.

11.2     Expenses

     (a)  All costs,  legal fees and other expenses incurred by each Shareholder
          in connection with the preparation,  execution and enforcement of this
          Agreement  and  each  other  Venture  Agreement  shall  be paid by the
          Shareholder  which  incurs the costs,  legal fees and other  expenses,
          except  with  regard  to an  award  of costs  and  attorney  fees to a
          prevailing Shareholder as described in Clause 10.2(h).

     (b)  All costs,  legal fees and other  expenses  incurred in the formation,
          dissolution  or  liquidation  of the  Company  shall  be  paid  by the
          Company.

     (c)  The  provisions of this Clause 11.2 shall survive the  termination  of
          this Agreement.

11.3     Assignment;  Continuing  Obligations.  This Agreement shall be binding
         upon and inure to the benefit of the Shareholders and their respective
         permitted successors and assigns.

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<PAGE>

11.4     No Rights Given to Third Parties.  Nothing expressed or implied in this
         Agreement  is intended to confer any rights under this  Agreement  upon
         any third person or Entity other than the Shareholders.

11.5     Amendments and Waivers. This Agreement may be amended or modified,  and
         compliance  with the terms of this  Agreement  may be  waived,  only by
         means of a written instrument signed by all Shareholders.  No waiver by
         any Shareholder of any breach of this Agreement shall be construed as a
         waiver of any other breach of this Agreement.

11.6     Severability.  Any  provision  of  this  Agreement  which  is  void  or
         unenforceable  in any  jurisdiction  shall be  ineffective  only to the
         extent of such  prohibition or  unenforceability  in that  jurisdiction
         without  affecting the validity or  enforceability of that or any other
         provision in any other  jurisdiction.  If an arbitration panel or court
         of competent jurisdiction declares that any provision of this Agreement
         is void or  unenforceable,  then that  provision  shall be severed from
         this Agreement; this Agreement then shall be construed as if it did not
         contain the severed  provision and otherwise shall remain in full force
         and effect.

11.7     Headings.  The  headings in this  Agreement  are for  convenience  of
         reference  and shall not affect the interpretation of this Agreement.

11.8     Joint  Preparation. This  Agreement was prepared and negotiated by both
         Shareholders with the advice of counsel to the extent deemed necessary
         by each  Shareholder.  It was not prepared by either Shareholder to the
         exclusion of the other. Accordingly, it should not be construed against
         either Shareholder by reason of its preparation.

11.9     Governing  Law.  This  Agreement  shall be governed by and construed in
         accordance with the substantive laws of Canada (Ontario), without
         regard its conflict of laws rules.

11.10    Merger. This Agreement (including the attached exhibits)  constitutes a
         complete  statement of the terms and  conditions  of the  understanding
         between the Shareholders relating to the Project concept as provided in
         this Clause 12.10. It supersedes all prior negotiations, understandings
         and agreements, whether oral or written, between the Shareholders.

11.11    Expenses.   The  Shareholders   have  incurred  or  may  incur  certain
         development  costs in  connection  with the Project.  The  Shareholders
         agree that these costs will be treated as follows:

     A.   Costs  Incurred  Prior to May 10, 2000.  The  Shareholders  agree that
          development  costs  incurred  by them  prior to May 10,  2000  will be
          divided into the following three categories and treated as follows:

     1.   Costs jointly agreed to by the Shareholders, such as for financing and
          legal  fees in  connection  with  financing,  shall  be  borne  by the
          Shareholders  on the basis of their  agreed on share  percentages  for
          ownership  of the  Company,  and the  Shareholders  agree to "true up"
          these  expenses  at  the   Capitalization   Date,  such  that  if  one
          Shareholder has paid more than its pro-rata share of these costs,  the
          other Shareholder  having a deficit balance will pay the amount of the
          deficit to the other Shareholder on such date.

     2.   Costs  incurred by a Shareholder  to perform the EPC Contract shall be
          considered  acceptable costs under the EPC Contract and re-paid by the
          Company to the  Shareholder  in  accordance  with the terms of the EPC
          Contract, as revised.

     3.   Other  development  costs  will  be  borne  by the  Shareholder  which
          incurred such cost.

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<PAGE>

     B.   Costs Incurred After May 9, 2000. The Shareholders  agree that the
          incurring  and  re-payment of any costs  incurred by a Shareholder  on
          behalf of or for the Company after May 9, 2000 will be based on mutual
          agreement of the  Shareholders  prior to the time that the expenditure
          is incurred.

11.12    Project Finance.  With the prior written  agreement of the Shareholders
         and  without  the  necessity  of  formally   amending  this   Agreement
         additional or different terms may be incorporated in this Agreement, as
         are required by the Lender(s) to the Project.

11.13    Execution in Counterparts. This Agreement may be executed in any number
         of  counterparts,  each of which shall be deemed to be an original  and
         all  of  which  taken  together  shall  constitute  one  and  the  same
         instrument.  Delivery of an executed counterpart of a signature page of
         this  Agreement  by  facsimile  shall be  effective  as  delivery  of a
         manually executed counterpart of this Agreement.

IN WITNESS WHEREOF,  the Shareholders and the Company have caused this Agreement
to be executed and delivered as of the date first written above.

[SIGNATURES ON NEXT PAGE]



                                      137
<PAGE>





                        Ionics, Incorporated, in trust for an affiliate
                        By:    /s/John P. Bergeron
                               --------------------------
                        Name:  John P. Bergeron
                        Title: Vice President and Treasurer


                        Hafeez Karamath Engineering Services Limited
                        By:    /s/Hafeez Karamath
                               -------------------------
                        Name:  Hafeez Karamath
                        Title: Managing Director


                        The Desalination Company of Trinidad and Tobago Limited
                        By:    /s/Hafeez Karamath
                               -------------------------
                        Name:  Hafeez Karamath
                        Title: Chairman


                                      138
<PAGE>

                      AMENDMENT TO SHAREHOLDERS' AGREEMENT

This Amendment (the  "Amendment")  to Agreement is entered into this 16th day of
June 2000 by and among Ionics,  Incorporated,  a corporation  duly organized and
existing under the laws of the Commonwealth of  Massachusetts,  United States of
America,  executed  in  trust  for  an  affiliate  ("Ionics"),  Hafeez  Karamath
Engineering  Services  Limited,  a corporation duly organized and existing under
the laws of the  Republic  of  Trinidad  and  Tobago,  Ltd.,  ("Karamath"),  and
Desalination  Company of Trinidad  and Tobago Ltd, a limited  liability  Company
duly  organized  and  existing  under  the  laws of  Trinidad  and  Tobago  (the
"Company").

WHEREAS, Ionics, Karamath and the Company entered into a Shareholders' Agreement
dated May 12, 2000 to provide for the  purchase  and  ownership of shares in the
Company and other matters related thereto (the "Shareholders' Agreement"); and

WHEREAS,  the Parties  have agreed to amend the  Shareholders'  Agreement in the
manner  set forth  herein in order to  provide  such  additional  assurances  to
potential Lenders.

NOW, THEREFORE,  in consideration of the mutual promises and covenants contained
herein  and in the  Shareholders'  Agreement  and for  other  good and  valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Ionics, Karamath and the Company agree as follows:

          1. This Amendment is executed in connection  with, and is deemed to be
          a part of, the  Shareholders'  Agreement.  Upon the  execution of this
          Agreement, this Amendment shall thereafter automatically become a part
          of the  Shareholders  Agreement.  Wherever the terms of this Amendment
          and the terms of the  Shareholders'  Agreement  are in  conflict,  the
          terms  of  this  Amendment  shall  govern  and  control.  The  initial
          capitalized  terms  used  herein,  unless  otherwise  defined  in this
          Agreement,   shall  have  the   meanings   ascribed  to  them  in  the
          Shareholders'  Agreement.  The  definition  of "Plant" is added in the
          Shareholders'   Agreement   to  be  the   seawater   reverse   osmosis
          desalination  plant with a capacity  of  approximately  109,090  cubic
          metres  per day to  provide  desalinated  water for use by  industrial
          clients in the Point Lisas area of Trinidad.

          2. Section 11.13 of the Shareholders'  Agreement is amended to read as
          11.14. A new section,  11.13, is added to provide that if prior to the
          time that the Company is able to obtain permanent financing to satisfy
          the bridge or construction loan to the Company, (i), the Company needs
          funds  over  and  above  the   capital   contributions   made  by  the
          Shareholders  and the bridge or  construction  loan funds available to
          the  Company  under the terms of the  bridge or  construction  loan in
          order to meet the Company's  obligations  under the EPC Agreement,  as
          amended,  and (ii) the  Shareholders  of Desalcott  are unable to fund
          their  pro-rata share (based on percentages of shares they have in the
          Company)  of  the  additionally   required  funds,  Ionics  will  make
          available to the Company the full amount of the additionally  required
          funds,  up to a maximum  amount of US  $10,000,000.00  (Ten Million US
          Dollars) in the form of a  commercial  loan to the  Company.  The loan
          will be  repayable  in US  Dollars  and will be  documented  by a loan
          agreement  and  promissory  note  incorporating  customary  terms  and
          conditions.  Interest on the unpaid principal amount of the loan shall
          be  at  a  rate  equal  to  the  rate  applicable  on  the  bridge  or
          construction  financing  obtained  by the  Company.  Amounts  due  and
          payable under the commercial  loan will be paid free and clear and net
          of all withholdings and taxes,  other than Ionics'  obligations to pay
          US income taxes with respect to interest on the  commercial  loan, and
          all costs including  reasonable legal fees and  documentary,  stamp or
          other taxes incurred or payable in connection with the commercial loan
          will be for the account of the  Company.  Fifty  percent of  available
          cash from the  Company's  cash flows after  servicing  other debts and
          obligations  will be used  each  year to  service  the  principal  and
          interest  due  on  the  commercial  loan,  until  the  loan  is  fully
          extinguished.  Such payment would take priority over any  distribution
          to the  Shareholders.

                                      139
<PAGE>


          3. The Shareholders' Agreement is amended to provide that if permanent
          financing  for the Company is closed before the third  anniversary  of
          the commercial  loan,  the commercial  loan will be due and payable on
          the date of permanent  loan funding  provided that such permanent loan
          funding is adequate to repay the outstanding balance of the commercial
          loan. Such a payment is subordinated to the repayment of the bridge or
          construction loan.

          4. The  Parties  acknowledge  and  agree  that this  Amendment  may be
          executed in multiple counterparts,  and transmitted via telecopy, each
          such counterpart  (whether transmitted via telecopy or otherwise) when
          executed,  shall  constitute  an  integral  part of one  and the  same
          Agreement between the Parties.

          5. Except as expressly  modified by this Amendment,  the provisions of
          the Shareholders' Agreement are hereby ratified and confirmed.

IN WITNESS WHEREOF, the Parties have affixed their signatures,  effective on the
date first written above.

IONICS INCORPORATED, in trust for an affiliate

By:          /s/ John P. Bergeron
             ----------------------------
Name:        John P. Bergeron
Title:       Vice President and Treasurer

HAFEEZ KARAMATH ENGINEERING SERVICES LTD.

By:          /s/ Hafeez Karamath
             ----------------------------
Name:        Hafeez Karamath
Title:       Managing Director

DESALINATION COMPANY OF TRINIDAD AND TOBAGO LTD.

By:          /s/ Hafeez Karamath
             ----------------------------
Name:        Hafeez Karamath
Title:       Chairman


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<PAGE>