Borrower Security Agreement

                           BORROWER SECURITY AGREEMENT

         THIS BORROWER SECURITY  AGREEMENT (the "Agreement") dated as of January
31, 2000, is executed by PRIME REFRACTIVE MANAGEMENT, L.L.C., a Delaware limited
liability company (the "Borrower"),  for the benefit of BANK OF AMERICA, N.A., a
national  banking  association  ("B of A"), not in its  individual  capacity but
solely as administrative agent for itself and each of the other Lenders (each, a
"Lender" and  collectively,  the "Lenders") as defined in the Loan Agreement (as
hereinafter defined) (in such capacity, together with its successors and assigns
in such capacity, the "Administrative Agent").

                                R E C I T A L S:
                                 - - - - - - - -

         A. Borrower,  B of A, as  administrative  agent,  BankBoston,  N.A., as
documentation  agent,  and the  Lenders  have  entered  into that  certain  Loan
Agreement  dated  January  __,  2000,  (as the  same may be  amended,  restated,
extended,  supplemented  or modified from time to time,  the "Loan  Agreement"),
pursuant to which the Lenders have agreed to make an advancing  term loan to the
Borrower with advances thereunder not to exceed an aggregate principal amount of
Fourteen Million and 00/100 Dollars ($14,000,000.00).

     B. The Agents and the Lenders have conditioned  their obligations under the
Loan  Agreement  upon  the  execution  and  delivery  of this  Agreement  by the
Borrower.

         NOW  THEREFORE,  in  consideration  of the  premises and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

         Section 1.1 Terms Defined in Loan Agreement. Capitalized terms used and
not  otherwise  defined  herein shall have the same meanings as set forth in the
Loan Agreement.

         Section 1.2 Terms Defined in Uniform Commercial Code. Terms used herein
which are  defined  in the  Uniform  Commercial  Code as adopted by the State of
Texas,  unless  otherwise  defined herein or in the Loan  Agreement,  shall have
their  meanings  as set forth in the Uniform  Commercial  Code as adopted by the
State of Texas.

     Section  1.3  Additional  Definitions.  As  used  in  this  Agreement,  the
following terms shall have the following meanings:



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                                        3

                           Borrower Security Agreement

                  "Accounts"  means any  "account,"  as such term is  defined in
Article 9 of the UCC, now owned or hereafter  acquired by the Borrower,  and, in
any event, shall include, without limitation, each of the following, whether now
owned or hereafter  acquired by the Borrower:  (a) all rights of the Borrower to
payment for goods sold or leased or services rendered,  whether or not earned by
performance;  (b) all accounts receivable of the Borrower; (c) all rights of the
Borrower to receive any payment of money or other form of consideration; (d) all
security pledged,  assigned, or granted to or held by the Borrower to secure any
of the foregoing;  (e) all guaranties of, or  indemnifications  with respect to,
any of the foregoing;  and (f) all rights of the Borrower as an unpaid seller of
goods or  services,  including,  but not  limited  to, all rights of stoppage in
transit, replevin, reclamation, and resale.

                  "Chattel  Paper"  means any  "chattel  paper," as such term is
defined  in  Article  9 of the UCC,  now  owned  or  hereafter  acquired  by the
Borrower.

                  "Collateral" has the meaning  specified in Section 2.1 of this
Agreement.

                  "Document"  means any  "document,"  as such term is defined in
Article  9 of the  UCC,  now  owned  or  hereafter  acquired  by  the  Borrower,
including,  without limitation, all documents of title and warehouse receipts of
the Borrower.

                  "Equipment"  means any "equipment," as such term is defined in
Article 9 of the UCC,  now owned or hereafter  acquired by the Borrower  and, in
any  event,  shall  include,  without  limitation,  all  machinery,   equipment,
furnishings,  and fixtures  now owned or hereafter  acquired by the Borrower and
any and all additions,  substitutions, and replacements of any of the foregoing,
wherever located, together with all attachments,  components,  parts, equipment,
and accessories installed thereon or affixed thereto.

                  "General Intangibles" means any "general intangibles," as such
term is defined in Article 9 of the UCC, now owned or hereafter  acquired by the
Borrower  and, in any event,  shall  include,  without  limitation,  each of the
following,  whether now owned or hereafter acquired by the Borrower:  (a) all of
the Borrower's  patents,  patent  applications,  patent  rights,  service marks,
trademarks,  trade names, trade secrets,  intellectual property,  registrations,
goodwill,  copyrights,  franchises,  licenses, permits, proprietary information,
customer  lists,  designs,  and  inventions;  (b) all of the  Borrower's  books,
records, data, plans, manuals, computer software, and computer programs; (c) all
of the  Borrower's  contract  rights;  (d)  all of  the  Borrower's  partnership
interests,  joint venture,  limited liability  company,and  membership interests
(but only to the  extent  not  otherwise  pledged  to the  Administrative  Agent
pursuant  to  a  separate  pledge  or  security  agreement),  deposit  accounts,
investment accounts, and certificates of deposit; (e) all rights of the Borrower
to payment under letters of credit and similar  agreements;  (f) all tax refunds
and tax refund  claims of the  Borrower;  (g) all choses in action and causes of
action of the Borrower  (whether  arising in contract,  tort,  or otherwise  and
whether  or not  currently  in  litigation)  and all  judgments  in favor of the
Borrower;  (h) all  rights  and  claims of the  Borrower  under  warranties  and
indemnities;  and (i) all rights of the Borrower under any insurance, surety, or
similar contract or arrangement.

                  "Instrument"  means any  "instrument," as such term is defined
in Article 9 of the UCC and any note  payable to Borrower or its order  together
with all collateral  securing such note and all agreements and documents related
thereto or arising therefrom, now owned or hereafter acquired by the Borrower.

                  "Inventory"  means any "inventory," as such term is defined in
Article 9 of the UCC, now owned or hereafter  acquired by the Borrower,  and, in
any event, shall include, without limitation, each of the following, whether now
owned or hereafter  acquired by the Borrower:  (a) all goods and other  personal
property  of the  Borrower  that are  held for sale or lease or to be  furnished
under any contract of service; (b) all raw materials, work-in-process,  finished
goods,  inventory,  supplies,  and materials of the Borrower;  (c) all wrapping,
packaging,  advertising,  and shipping materials of the Borrower;  (d) all goods
that have been  returned  to,  repossessed  by, or  stopped  in  transit  by the
Borrower; and (e) all Documents evidencing any of the foregoing.

                  "Investment  Property"  means  "investment  property," as such
term is defined in Section 9.115(a)(6) of the Texas Business and Commerce Code.


<PAGE>


                  "Motor Vehicle" means all cars,  trucks,  vans and other motor
vehicles now owned or hereafter  acquired by the Borrower  which are used by the
Borrower for the transfer of lithotripters  and lithotripsy  related  equipment,
including without limitation,  those motor vehicles listed on Schedule 1 hereto,
and  any and all  attachments,  components,  parts,  equipment  and  accessories
installed thereon or affixed thereto.

                  "Proceeds"  means any  "proceeds,"  as such term is defined in
Article 9 of the UCC and, in any event,  shall  include,  but not be limited to,
(a) any and all  proceeds of any  insurance,  indemnity,  warranty,  or guaranty
payable to the Borrower from time to time with respect to any of the Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable to the
Borrower from time to time in  connection  with any  requisition,  confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral by any
Governmental  Authority  (or any  person  acting  under  color  of  Governmental
Authority),  and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

                  "Securities" means all shares of stock of any Person now owned
or hereafter acquired by the Borrower including, without limitation, each of the
shares listed on Schedule 2 hereto,  and all dividends,  cash,  stock dividends,
instruments and other investment property from time to time received, receivable
by, or otherwise  distributed  to the Borrower for its own account in respect of
or in exchange for any or all of such shares, and the certificates  representing
such shares.

                  "UCC"  means the Uniform  Commercial  Code as in effect in the
State of Texas or, if so required with respect to any  particular  Collateral by
mandatory  provisions of  applicable  law, as in effect in the  jurisdiction  in
which such Collateral is located.

                                   ARTICLE II

                          Security Interest and Pledge

         Section 2.1 Security  Interest and Pledge.  The Borrower hereby pledges
and grants to the Administrative Agent, for the pro rata benefit of the Lenders,
a lien on and  security  interest in all of the  Borrower's  right,  title,  and
interest  in and to the  following,  whether now owned or  hereafter  arising or
acquired and wherever located (collectively, the "Collateral"):

                  (a)      all Accounts;

                  (b)      all Chattel Paper;

                  (c)      all Instruments;

                  (d)      all General Intangibles and all Securities;

                  (e)      all Investment Property;

                  (f)      all Documents;

     (g) all Equipment, including, without limitation, all Motor Vehicles;

                  (h)      all Inventory;


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     (i) all other goods and personal  property of the Borrower whether tangible
or intangible; and

                  (j) all Proceeds and products of any or all of the foregoing.

         Section 2.2  Secured  Indebtedness.  The  Collateral  shall  secure the
following  obligations,   indebtedness,   and  liabilities  (whether  at  stated
maturity, by acceleration or otherwise) (all such obligations, indebtedness, and
liabilities being hereinafter sometimes called the "Secured Indebtedness"):

                  (a)      the Obligations;

                  (b) all  reasonable  costs and  expenses,  including,  without
limitation,  all reasonable attorneys' fees and legal expenses,  incurred by any
of the Agents or any Lender to preserve and maintain the Collateral, collect the
obligations herein described, and enforce this Agreement; and

     (c) all extensions, renewals, and modifications of any of the foregoing.

         Section 2.3 Borrower  Remains Liable.  Notwithstanding  anything to the
contrary  contained  herein,  (a) the  Borrower  shall  remain  liable under the
contracts  and  agreements  included in the  Collateral  to the extent set forth
therein to perform  all of its duties  and  obligations  thereunder  to the same
extent as if this  Agreement  had not been  executed,  (b) the  exercise  by the
Administrative  Agent of any of its  rights  hereunder  shall  not  release  the
Borrower  from  any of  its  duties  or  obligations  under  the  contracts  and
agreements included in the Collateral,  and (c) neither the Administrative Agent
nor any Lender shall have any obligation or liability under any of the contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
the  Administrative  Agent or any  Lender be  obligated  to  perform  any of the
obligations  or  duties  of the  Borrower  thereunder  or to take any  action to
collect or enforce any claim for payment assigned hereunder.

                                   ARTICLE III

                         Representations and Warranties

         To induce the Administrative Agent to enter into this Agreement and the
Agents and the Lenders to enter into the Loan Agreement, the Borrower represents
and warrants to the Administrative Agent that:

         Section 3.1 Title.  The  Borrower  is, and with  respect to  Collateral
acquired  after the date hereof the Borrower  will be, the legal and  beneficial
owner of the Collateral free and clear of any Lien,  security interest,  pledge,
claim or other  encumbrance  (except for Liens  permitted  by Section 9.2 of the
Loan  Agreement  and  liens in  favor  of the  Prime  Administrative  Agent  (as
hereinafter defined)) or, with respect to the Securities, any right or option on
the part of any Person (other than the Lenders) to purchase or otherwise acquire
the Securities or any part thereof,  except for the security  interests  granted
hereunder,  Liens permitted by Section 9.2 of the Loan  Agreement,  and liens in
favor of the Prime Administrative Agent (as hereinafter defined).  The liens and
security  interests  granted  herein are  subject and  subordinate  to the liens
granted in favor of Bank of America,  N.A.,  as  Administrative  Agent under the
Fourth  Amended and  Restated  Loan  Agreement  dated as of the date hereof (the
"Prime Loan  Agreement")  among Prime Medical  Services,  Inc., Bank of America,
N.A., as Administrative Agent (the "Prime  Administrative  Agent"),  BankBoston,
N.A., as Documentation Agent, and the lenders from time to time party thereto.


<PAGE>


         Section 3.2 Accounts.  Unless the Borrower has given the Administrative
Agent written  notice to the contrary,  whenever the security  interest  granted
hereunder  attaches  to an  Account,  the  Borrower  shall  be  deemed  to  have
represented and warranted to the Administrative  Agent as to each and all of its
Accounts  that (a) each Account is genuine and in all respects  what it purports
to be, (b) each Account  represents the legal,  valid, and binding obligation of
the account  Borrower  evidencing  indebtedness  unpaid and owed by such account
Borrower  arising out of the performance of labor or services by the Borrower or
the  sale or lease of goods by the  Borrower,  (c) the  amount  of each  Account
represented as owing is the correct amount  actually and  unconditionally  owing
except for normal trade  discounts  granted in the ordinary  course of business,
and (d) no Account is subject to any offset, counterclaim, or other defense.

         Section 3.3 Rule 144 Securities. With respect to all Collateral that is
Securities  which are subject to Rule 144 under the  Securities  Act of 1933, as
such rule and act are amended at the time in question and any successor in whole
or in part thereto, (a) the Borrower is the beneficial and record owner thereof,
free and clear of any Liens or transfer restrictions (other than restrictions on
the amount thereof which may be sold, and the manner in which sales may be made,
imposed by such Rule 144), (b) the Borrower  acquired such  Securities  directly
from the  issuer  thereof  more than two (2) years  prior to the date  hereof in
transactions  not  involving  any public  offering,  (c) the  Borrower  paid the
purchase  price  therefor  in cash  more  than two (2)  years  prior to the date
hereof,  (d) since such date of  acquisition,  the  Borrower has not had a short
position in, or any put or option to dispose of, any capital stock of any issuer
thereof or Securities  convertible into capital stock of any issuer thereof, (e)
neither the Borrower,  nor any person or entity, the sales of which are required
by Rule 144 to be  aggregated  with  the  sales  of the  Borrower,  has sold any
capital  stock of any  issuer of such  Securities  during  the period of six (6)
months  prior to the date  hereof,  other than sales  pursuant  to an  effective
registration  statement under the Securities Act of 1933, as amended, and (f) to
the Borrower's best  knowledge,  each issuer of such Securities has timely filed
all reports  required  to be filed by it under the  Securities  Exchange  Act of
1934, as amended.

         Section 3.4  Financing  Statements.  No financing  statement,  security
agreement,  or other Lien instrument  covering all or any part of the Collateral
is on file in any public  office,  except as may have been filed in favor of the
Prime Administrative Agent, any lender under the Prime Agreement, Administrative
Agent, or any Lender pursuant to this Agreement. The Borrower has not within the
past five (5) years had a trade name or done business  under any name other than
its legal name set forth at the beginning of this Agreement.

         Section  3.5  Principal  Place  of  Business.  The  principal  place of
business and chief  executive  office of the Borrower,  and the office where the
Borrower keeps its books and records,  is located at the address of the Borrower
shown on the signature pages of this Agreement.

         Section 3.6 Location of Collateral.  All Inventory and Equipment of the
Borrower are located at the places specified on Schedule 3 hereto.  The Borrower
has exclusive possession and control of its Inventory and Equipment. None of the
Inventory or  Equipment  of the Borrower is evidenced by a Document  (including,
without limitation,  a negotiable  document of title). All Instruments,  Chattel
Paper,  Securities and certificates of title of the Borrower have been delivered
to the Prime Administrative Agent, to perfect on its behalf and on behalf of the
Administrative Agent.


<PAGE>


         Section  3.7  Perfection.  Upon the filing of Uniform  Commercial  Code
financing  statements in the jurisdictions listed on Schedule 4 attached hereto,
and upon the  Administrative  Agent's  obtaining  possession  of all  Documents,
Instruments,  Chattel  Paper,  Securities  and  certificates  of  title  of  the
Borrower,   and  upon  the  Administrative  Agent's  obtaining  control  of  all
Investment Property,  the security interest in favor of the Administrative Agent
created  herein will  constitute  a valid and  perfected  Lien upon and security
interest in the Collateral,  subject to no equal or prior Lien,  except in favor
of the Prime  Administrative  Agent and as  permitted by Section 9.2 of the Loan
Agreement.

         Section 3.8 Independent Investigation.  The Borrower has, independently
and  without  reliance  upon any of the Agents or any Lender and based upon such
documents  and  information  as it has deemed  appropriate,  made its own credit
analysis  and  decision to enter into this  Agreement.  There are no  conditions
precedent to the full  effectiveness  of this Agreement that have not been fully
and permanently satisfied.

         Section 3.9  Litigation.  Except as  disclosed  on Schedule  7.5 to the
Prime  Agreement,  there  is  no  litigation,   investigation,  or  governmental
proceeding  threatened  against the Borrower or any of its  properties  which if
adversely  determined  would have a material adverse effect on the Collateral or
the financial condition,  operations,  or business of the Borrower, any Material
Subsidiary or the Companies taken as a whole.

                                   ARTICLE IV

                                    Covenants

         The Borrower  covenants and agrees with the  Administrative  Agent that
until the Secured Indebtedness is paid and performed in full and the Commitments
have terminated:

         Section 4.1  Encumbrances.  Except as  permitted  by Section 9.2 of the
Loan  Agreement  and  liens in  favor of the  Prime  Administrative  Agent,  the
Borrower  shall not create,  permit,  or suffer to exist,  and shall  defend the
Collateral  against,  any Lien,  security interest,  or other encumbrance on the
Collateral,  and shall defend the  Borrower's  rights in the  Collateral and the
Administrative  Agent's security  interest in the Collateral  against the claims
and demands of all Persons.  The Borrower  shall do nothing to impair the rights
of the Administrative Agent in the Collateral.

         Section 4.2 Delivery.  Prior to or concurrently  with the execution and
delivery of this Agreement,  Borrower shall deliver to the Prime  Administrative
Agent to acknowledge the  Administrative  Agent's lien and security  interest in
all  certificates  identified  on  Schedule 2 hereto,  with all  Chattel  Paper,
Instruments and Documents of the Borrower.


<PAGE>


         Section 4.3 Modification of Accounts. The Borrower shall, in accordance
with prudent  business  practices,  endeavor to collect or cause to be collected
from each  account  Borrower  under its  Accounts,  as and when due, any and all
amounts  owing under such  Accounts.  Without the prior  written  consent of the
Administrative  Agent, the Borrower shall not (a) grant any extension of time on
any  Account  for any payment or grant  extensions  of time for  payments on its
Accounts  which  cause the  aggregate  amount of all  payments  extended  by the
Borrower  on its  Accounts  during any  fiscal  year of the  Borrower  to exceed
$150,000.00,  (b) compromise,  compound,  or settle any of the Accounts for less
than  the  full  amount  thereof;  provided,  however,  that  the  Borrower  may
compromise,  compound  or  settle  any  Account  which is an  amount  less  than
$50,000.00,  provided the aggregate  amount  compromised,  compounded or settled
during  any  fiscal  year of the  Borrower  shall not  exceed  $150,000.00,  (c)
release,  in whole or in part,  any Person  liable for  payment of an Account in
excess of $50,000.00,  (d) allow any credit or discount for payment with respect
to any Account in excess of $50,000.00,  other than trade  discounts  granted in
the ordinary course of business; provided, however, that the aggregate amount of
all credits or discounts  granted  during any fiscal year of the Borrower  shall
not exceed $150,000.00,  or (e) release any Lien, security interest, or guaranty
securing any Account in excess of $50,000.00.

         Section 4.4  Disposition  of  Collateral.  The Borrower shall not sell,
lease,  assign (by operation of law or otherwise),  or otherwise  dispose of, or
grant any option with respect to, the Collateral or any part thereof without the
prior written consent of the Administrative  Agent, except the Borrower may sell
Inventory in the ordinary course of business.

         Section 4.5  Distributions.  If the Borrower  shall become  entitled to
receive or shall receive any stock certificate  (including,  without limitation,
any certificate representing a stock dividend or distribution in connection with
any reclassification,  increase, or reduction of capital or issued in connection
with any  reorganization),  option or  rights,  whether  as an  addition  to, in
substitution  of, or an exchange for any  Collateral or otherwise,  the Borrower
agrees to accept the same as the  Administrative  Agent's  agent and to hold the
same in trust for the Administrative  Agent and to deliver the same forthwith to
the Prime Administrative Agent in the exact form received,  with the appropriate
endorsement  of the Borrower when  necessary  and/or  appropriate  undated stock
powers duly executed in blank, to be held by the Prime  Administrative  Agent on
its own behalf and on behalf of  Administrative  Agent as additional  Collateral
for the Secured Indebtedness, subject to the terms hereof. Any sums paid upon or
in respect of the Securities  upon the  liquidation or dissolution of the issuer
thereof shall be paid over to the Prime Administrative Agent to be held by it as
additional  Collateral for the Secured Indebtedness subject to the terms hereof;
and in case any  distribution  of capital  shall be made on or in respect of the
Securities  or any  property  shall be  distributed  upon or with respect to the
Securities  pursuant to any  recapitalization or reclassification of the capital
of the issuer thereof or pursuant to any  reorganization  of the issuer thereof,
the property so distributed shall be delivered to the Prime Administrative Agent
to be held by it, as additional Collateral for the Secured Indebtedness, subject
to the terms hereof.  All sums of money and property so paid or  distributed  in
respect of the Securities that are received by the Borrower shall, until paid or
delivered to the  Administrative  Agent (or the Prime  Administrative  Agent, so
long as it has a prior  lien),  be held by the  Borrower in trust as  additional
security for the Secured Indebtedness.


<PAGE>


         Section 4.6 Further Assurances. At any time and from time to time, upon
the  request  of  the  Administrative  Agent,  and at the  sole  expense  of the
Borrower,  the  Borrower  shall  promptly  execute and deliver all such  further
instruments,  agreements,  and  documents  and take such  further  action as the
Administrative  Agent may reasonably deem necessary or desirable to preserve and
perfect its security interest in the Collateral and carry out the provisions and
purposes of this  Agreement.  Without  limiting the generality of the foregoing,
the Borrower  shall:  (a) execute and deliver to the  Administrative  Agent such
financing  statements as the Administrative Agent may from time to time require;
(b) deliver and pledge to the Administrative  Agent (or the Prime Administrative
Agent,  so  long as it has a  prior  lien)  all  Documents  (including,  without
limitation,  negotiable  documents of title) evidencing  Inventory or Equipment;
(c) deliver and pledge to the Administrative  Agent (or the Prime Administrative
Agent, so long as it has a prior lien) all certificates of title required by the
Loan Agreement, Instruments and Chattel Paper of the Borrower with any necessary
endorsements; and (d) execute and deliver to the Administrative Agent such other
documents,   instruments,   and  agreements  as  the  Administrative  Agent  may
reasonably  require to perfect and maintain  the  validity,  effectiveness,  and
priority of the Loan Documents and the Liens intended to be created thereby. The
Borrower  authorizes the  Administrative  Agent to file one or more financing or
continuation statements,  and amendments thereto, relating to all or any part of
the Collateral  without the signature of the Borrower where  permitted by law. A
carbon,  photographic,  or  other  reproduction  of  this  Agreement  or of  any
financing  statement  covering  the  Collateral  or any  part  thereof  shall be
sufficient as a financing statement and may be filed as a financing statement.

         Section 4.7 Risk of Loss;  Insurance.  The Agents and the Lenders shall
not be responsible for any loss or damage to the Collateral. The Borrower shall,
at its own expense,  maintain  insurance  with  financially  sound and reputable
insurance  companies  in such  amounts  and  covering  such  risks as is usually
carried  by  corporations  engaged  in similar  businesses  and  owning  similar
properties in the same general areas in which the Borrower  operates  consistent
with past  practices  and to the extent  available  on  commercially  reasonable
terms,  provided  that  in  any  event  the  Borrower  will  maintain  workmen's
compensation  insurance,  property  insurance,  comprehensive  general liability
insurance,  professional liability insurance and business interruption insurance
reasonably  satisfactory  to the  Administrative  Agent.  Each insurance  policy
covering  Collateral shall name the  Administrative  Agent as loss payee for the
benefit of the Lenders as its  interest  may appear and shall  provide that such
policy will not be canceled or reduced  without  thirty (30) days prior  written
notice to the Administrative Agent.

         Section  4.8   Inspection   Rights.   The  Borrower  shall  permit  the
Administrative  Agent and each Lender and their  respective  representatives  to
examine, inspect, and audit the Collateral and to examine, inspect, and copy the
Borrower's  books  and  records  at any  reasonable  time  and as  often  as the
Administrative Agent or any such Lender may desire. The Administrative Agent and
each Lender may at any time and from time to time contact account  Borrowers and
other  obligors to verify the  existence,  amounts,  and terms of the Borrower's
Accounts.

         Section 4.9 Corporate Changes.  The Borrower shall not change its name,
identity,  or corporate  structure  in any manner that might make any  financing
statement filed in connection with this Agreement  seriously  misleading  unless
the Borrower  shall have given the  Administrative  Agent thirty (30) days prior
written  notice  thereof  and shall  have  taken all  action  reasonably  deemed
necessary  or  desirable  by the  Administrative  Agent to make  each  financing
statement not seriously misleading.  The Borrower shall not change its principal
place of business, chief executive office, or the place where it keeps its books
and records unless it shall have given the Administrative Agent thirty (30) days
prior written notice thereof and shall have taken all action  reasonably  deemed
necessary  or  desirable  by the  Administrative  Agent  to cause  its  security
interest in the  Collateral to be perfected  with the priority  required by this
Agreement.

         Section 4.10 Books and Records;  Information.  The Borrower  shall keep
accurate and complete  books and records of the  Collateral  and the  Borrower's
business and financial  condition in accordance  with GAAP.  The Borrower  shall
from time to time at the  request  of the  Administrative  Agent  deliver to the
Administrative Agent such information  regarding the Collateral and the Borrower
as  the  Administrative  Agent  may  reasonably  request,   including,   without
limitation,  lists  and  descriptions  of the  Collateral  and  evidence  of the
identity and existence of the Collateral. The Borrower shall mark its records to
reflect the security interest of the Administrative Agent hereunder.

         Section 4.11      Equipment and Inventory.
                           -----------------------

                  (a) The Borrower shall keep the Equipment and Inventory at the
         locations  specified  on  Schedule 3 hereto or,  upon  thirty (30) days
         prior written notice to the Administrative  Agent, at such other places
         within  the  United  States of America  where all  action  required  to
         perfect the  Administrative  Agent's security interest in the Equipment
         and Inventory with the priority  required by this Agreement  shall have
         been taken.


<PAGE>


     (b) The Borrower  shall  maintain the Equipment and Inventory in accordance
with Section 8.3 of the Loan Agreement.

         Section 4.12 Warehouse  Receipts  Non-Negotiable.  The Borrower  agrees
that if any warehouse receipt or receipt in the nature of a warehouse receipt is
issued in respect of any of the Collateral, such warehouse receipt or receipt in
the nature  thereof shall not be  "negotiable"  (as such term is used in Section
7.104 of the Uniform  Commercial Code as in effect in any relevant  jurisdiction
or under relevant law).

         Section 4.13 Taxes and Claims.  The Borrower  shall pay and  discharge,
before the same become  delinquent,  (a) all material  taxes,  assessments,  and
governmental  charges  imposed upon it or upon any of its property,  and (b) all
material  lawful  claims  that,  if unpaid,  might become a Lien upon any of its
property;  provided,  however, that the Borrower shall not be required to pay or
discharge  any such  tax,  assessment,  or  governmental  charge  which is being
contested in good faith by proper  proceedings being diligently  pursued and for
which adequate reserves have been established in accordance with GAAP.

         Section 4.14  Compliance  with Laws.  The Borrower  shall comply in all
material respects with all material applicable laws, rules, regulations, orders,
and decrees of any Governmental Authority or arbitrator.

         Section 4.15 Compliance with  Agreements.  The Borrower shall comply in
all material respects with all agreements, contracts, and instruments binding on
it or affecting its properties or businesses,  except where the failure to do so
would not have a material adverse effect on the business,  condition  (financial
or otherwise), operations or properties of the Borrower, any Material Subsidiary
or the Companies (taken as a whole).

         Section  4.16  Notification.  Except as permitted by Section 9.2 of the
Loan Agreement and Section 9.2 of the Prime Loan  Agreement,  the Borrower shall
promptly notify the  Administrative  Agent of (a) any Lien,  security  interest,
encumbrance,  or claim that has attached to or been made or asserted against any
of the Collateral, (b) any material change in any of the Collateral,  including,
without  limitation,  any material damage to or loss of any material  portion of
the Collateral, (c) the occurrence of any other event that could have a material
adverse effect on the Collateral or the security interest created hereunder, and
(d) the occurrence or existence of any Default.

         Section 4.17  Collection of Accounts.  Except as otherwise  provided in
this Section or in any other Loan Document, the Borrower shall have the right to
collect  and  receive  payments  on  the  Accounts.   In  connection  with  such
collections,   the  Borrower  may  take  (and,  at  the  Administrative  Agent's
direction,  shall take) such actions as the Borrower or the Administrative Agent
may  reasonably  deem  necessary  or  advisable  to  enforce  collection  of the
Accounts.

         Section 4.18 Additional  Securities.  The Borrower shall not consent to
or approve the issuance of any  additional  shares of any class of capital stock
of the issuers of any of the Securities,  or any securities convertible into, or
exchangeable  for, any such shares or any warrants,  options,  rights,  or other
commitments  entitling  any Person to  purchase  or  otherwise  acquire any such
shares.


<PAGE>


         Section 4.19 Provide  Information.  The Borrower shall fully cooperate,
to  the  extent  reasonably  requested  by  the  Administrative  Agent,  in  the
completion  of any  notice,  form,  schedule,  or  other  document  filed by the
Administrative Agent on its own behalf or on behalf of the Borrower,  including,
without limitation,  any required notice or statement of beneficial ownership or
of the  acquisition of beneficial  ownership of the Securities and any notice of
proposed  sale of such  Securities  pursuant to Rule 144 as  promulgated  by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended. Without limiting the generality of the foregoing, the Borrower shall
furnish  to  the  Administrative   Agent  any  and  all  information  which  the
Administrative  Agent may  reasonably  request for  purposes of any such filing,
regarding the Borrower, the Securities, and any issuer of any of the Securities,
and the Borrower shall disclose to the Administrative Agent all material adverse
information  known by the Borrower with respect to the  operations of any issuer
of any of the Securities.

         Section  4.20  Notification  of Changes in  Beneficial  Ownership.  The
Borrower  shall  promptly  notify  the  Administrative  Agent  of  any  sale  of
securities  of any  Subsidiary  of the  Borrower  or by any Person  named on the
Borrower's   Rule  144   questionnaire   and  shall  furnish   promptly  to  the
Administrative  Agent a copy of any Form 144 filed in  respect of any such sale.
In addition,  if the Borrower or any other Person named in the  Borrower's  Rule
144 questionnaire shall file with the SEC a form or other document reporting any
change in the beneficial  ownership of the common stock of any Subsidiary of the
Borrower, the Borrower shall promptly furnish to the Administrative Agent a copy
of such form or document.

         Section 4.21 Restriction on Sales after Default. The Borrower shall not
sell or  suffer  or  permit  any  Person  named  in the  accompanying  Rule  144
questionnaire  to sell  any  shares  of the  same  class  of  securities  as the
Securities at any time after any Event of Default shall have occurred.

         Section  4.22  Fixtures.  For any  Collateral  that is a fixture  or an
accession  which has been  attached  to real  estate or other goods prior to the
perfection of the security interest granted in Section 2.1 hereof,  the Borrower
shall furnish to Administrative  Agent, upon demand, a disclaimer of interest in
each such fixture or accession and a consent in writing to the security interest
of Administrative  Agent therein,  signed by all persons and entities having any
interest  in such  fixture or  accession  by virtue of any  interest in the real
estate or other goods to which such fixture or accession has been attached.

         Section 4.23 Notation on Title  Certificates.  If certificates of title
are issued or outstanding  with respect to any of the  Collateral,  the Borrower
shall cause the security  interest  granted in Section 2.1 hereof to be properly
noted thereon.

                                    ARTICLE V

                       Rights of the Administrative Agent

         Section  5.1  Power  of  Attorney.   The  Borrower  hereby  irrevocably
constitutes  and  appoints  the  Administrative  Agent and any  officer or agent
thereof,   with   full   power  of   substitution,   as  its  true  and   lawful
attorney-in-fact  with full  irrevocable  power and authority in the name of the
Borrower  or in its own name,  to take any and all action and to execute any and
all documents and  instruments  which the  Administrative  Agent at any time and
from time to time deems  reasonably  necessary or desirable  to  accomplish  the
purposes of this  Agreement  if an Event of Default  shall have  occurred and be
continuing,  and, without limiting the generality of the foregoing, the Borrower
hereby  gives  the  Administrative  Agent  the  power and right on behalf of the
Borrower and in its own name to do any of the  following  (subject to the rights
of the Borrower  under  Sections 5.2 and 5.3 hereof),  without  notice to or the
consent of the  Borrower  if an Event of  Default  shall  have  occurred  and be
continuing:


<PAGE>


                  (a) to demand, sue for, collect, or receive in the name of the
         Borrower or in its own name,  any money or property at any time payable
         or  receivable  on account of or in exchange for any of the  Collateral
         and,  in  connection   therewith,   endorse  checks,   notes,   drafts,
         acceptances, money orders, documents of title, or any other instruments
         for the  payment  of  money  under  the  Collateral  or any  policy  of
         insurance;

     (b) to pay or  discharge  taxes,  Liens,  or other  encumbrances  levied or
placed on or threatened against the Collateral;

     (c) to notify post office authorities to change the address for delivery of
mail of the Borrower to an address designated by the Administrative Agent and to
receive,  open. and  subsequently  deliver to the Borrower mail addressed to the
Borrower; and

                  (d) (i) to direct  account  Borrowers  and any  other  parties
         liable for any payment  under any of the  Collateral to make payment of
         any and all  monies due and to become due  thereunder  directly  to the
         Administrative  Agent or as the Administrative Agent shall direct; (ii)
         to receive payment of and receipt for any and all monies,  claims,  and
         other  amounts  due and to  become  due at any  time in  respect  of or
         arising out of any Collateral;  (iii) to sign and endorse any invoices,
         freight  or  express  bills,  bills of  lading,  storage  or  warehouse
         receipts, drafts against Borrowers, assignments, proxies, stock powers,
         verifications,  and  notices  in  connection  with  accounts  and other
         documents  relating to the  Collateral;  (vi) to commence and prosecute
         any suit,  action,  or  proceeding  at law or in equity in any court of
         competent  jurisdiction  to collect the  Collateral or any part thereof
         and to enforce  any other  right in respect of any  Collateral;  (v) to
         defend any suit,  action,  or proceeding  brought  against the Borrower
         with respect to any Collateral;  (vi) to settle,  compromise, or adjust
         any suit,  action,  or  proceeding  described  above and, in connection
         therewith,  to give such  discharges or releases as the  Administrative
         Agent may deem appropriate; (vii) to exchange any of the Collateral for
         other   property  upon  any  merger,   consolidation,   reorganization,
         recapitalization,  or other  readjustment of the issuer thereof and, in
         connection therewith, deposit any of the Collateral with any committee,
         depositary,  transfer agent, registrar, or other designated agency upon
         such terms as the Administrative Agent may determine;  (viii) to add or
         release any guarantor,  indorser,  surety, or other party to any of the
         Collateral;  (ix) to renew,  extend,  or otherwise change the terms and
         conditions of any of the Collateral;  (x) to make, settle,  compromise,
         or  adjust  claims  under  any  insurance  policy  covering  any of the
         Collateral;  (xi) to sell,  transfer,  pledge,  make any agreement with
         respect to or otherwise  deal with any of the  Collateral  as fully and
         completely as though the  Administrative  Agent were the absolute owner
         thereof  for all  purposes,  and to do, at the  Administrative  Agent's
         option and the Borrower's  expense,  at any time, or from time to time,
         all acts and things which the  Administrative  Agent deems necessary to
         protect,   preserve,   or   realize   upon  the   Collateral   and  the
         Administrative   Agent's  security  interest  therein;   and  (xii)  to
         complete, execute and file with the SEC one or more notices of proposed
         sale of securities pursuant to Rule 144.


<PAGE>


         This power of attorney is a power coupled with an interest and shall be
irrevocable.  Neither the Administrative Agent nor any Lender shall be under any
duty  to  exercise  or  withhold  the  exercise  of any of the  rights,  powers,
privileges,  and options expressly or implicitly  granted to the  Administrative
Agent in this Agreement, and shall not be liable for any failure to do so or any
delay in doing so.  Neither  the  Administrative  Agent nor any Lender  shall be
liable for any act or  omission  or for any error of  judgment or any mistake of
fact or law in its  individual  capacity or in its capacity as  attorney-in-fact
except  acts or  omissions  resulting  from  its  gross  negligence  or  willful
misconduct.  This power of attorney is  conferred  on the  Administrative  Agent
solely to protect,  preserve,  and  realize  upon its  security  interest in the
Collateral. Neither the Administrative Agent nor any Lender shall be responsible
for any decline in the value of the Collateral and shall not be required to take
any steps to preserve rights against prior parties or to protect,  preserve,  or
maintain any security interest or Lien given to secure the Collateral.

         Section 5.2 Voting  Rights.  Unless and until an Event of Default shall
have occurred and be continuing,  the Borrower shall be entitled to exercise any
and all voting rights  pertaining to the  Securities or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Loan Agreement.
The  Administrative  Agent shall  execute and deliver to the  Borrower  all such
proxies and other  instruments  as the Borrower may  reasonably  request for the
purpose of  enabling  the  Borrower to exercise  the voting  rights  which it is
entitled to exercise pursuant to this Section.

         Section 5.3 Dividends.  Unless and until an Event of Default shall have
occurred and be continuing, the Borrower shall be entitled to receive and retain
the dividends on the Securities paid in cash out of earned surplus to the extent
and only to the extent that such dividends are permitted by the Loan Agreement.

         Section 5.4 Setoff,  Property Held by the Lenders.  The  Administrative
Agent and each  Lender  shall  have the right to set off and apply  against  the
Secured  Indebtedness,  at any time and without notice to the Borrower,  any and
all deposits (general or special, time or demand, provisional or final) or other
sums at any time  credited  by or owing  from  the  Administrative  Agent or any
Lender to the Borrower  whether or not the Secured  Indebtedness is then due. As
additional security for the Secured Indebtedness, the Borrower hereby grants the
Administrative  Agent  and  each  Lender  a  security  interest  in  all  money,
instruments,  and other  property of the Borrower  now or hereafter  held by the
Administrative Agent or any Lender, including without limitation,  property held
in  safekeeping.  In addition to the  Administrative  Agent's and each  Lender's
right of setoff  and as  further  security  for the  Secured  Indebtedness,  the
Borrower  hereby  grants to each of them a  security  interest  in all  deposits
(general or special,  time or demand,  provisional or final) of the Borrower now
or  hereafter  on deposit  with or held by any of them and all other sums at any
time credited by or owing from the any of them to the  Borrower.  The rights and
remedies of the  Administrative  Agent and each Lender hereunder are in addition
to other rights and remedies  (including,  without  limitation,  other rights of
setoff) which any of them may have.

         Section 5.5  Performance  by the Secured  Party.  If the Borrower shall
fail to perform any  covenant or  agreement  contained  in this  Agreement,  the
Administrative Agent, may, at the direction of the Required Lenders,  perform or
attempt to perform such covenant or agreement on behalf of the Borrower. In such
event, the Borrower shall, at the request of the Administrative  Agent, promptly
pay any amount expended by the Administrative  Agent or any Lender in connection
with such  performance  or attempted  performance to the  Administrative  Agent,
together with  interest  thereon at the Default Rate from and including the date
of such  expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding  the  foregoing,   it  is  expressly  agreed  that  neither  the
Administrative  Agent nor any Lender shall have any liability or  responsibility
for the performance of any obligations of the Borrower under this Agreement.

                                   ARTICLE VI

                                     Default

         Section  6.1 Rights  and  Remedies.  If an Event of Default  shall have
occurred and be continuing,  the  Administrative  Agent shall have the following
rights and remedies:


<PAGE>


                  (a) In addition to all other  rights and  remedies  granted to
         the  Administrative  Agent  in  this  Agreement  or in any  other  Loan
         Document or by applicable law, the Administrative  Agent shall have all
         of the rights and remedies of a secured party under the UCC (whether or
         not the UCC applies to the affected  Collateral).  Without limiting the
         generality of the foregoing,  the Administrative  Agent may (i) without
         demand or notice to the Borrower,  collect, receive, or take possession
         of the  Collateral  or any  part  thereof  and  for  that  purpose  the
         Administrative   Agent  may  enter  upon  any  premises  on  which  the
         Collateral is located and remove the Collateral  therefrom or render it
         inoperable,  and/or  (ii)  sell,  lease,  or  otherwise  dispose of the
         Collateral,  or any part  thereof,  in one or more parcels at public or
         private  sale  or  sales,  at the  Administrative  Agent's  offices  or
         elsewhere,  for cash, on credit or for future  delivery,  and upon such
         other  terms  as  the   Administrative   Agent  may  deem  commercially
         reasonable. The Administrative Agent shall have the right at any public
         sale or sales,  and, to the extent  permitted by applicable law, at any
         private sale or sales,  to bid and become a purchaser of the Collateral
         or any part  thereof free of any right or equity of  redemption  on the
         part of the  Borrower,  which right or equity of  redemption  is hereby
         expressly waived and released by the Borrower.  Upon the request of the
         Administrative  Agent,  the Borrower  shall assemble the Collateral and
         make it available to the  Administrative  Agent at any place designated
         by the  Administrative  Agent  that  is  reasonably  convenient  to the
         Borrower and the  Administrative  Agent.  The Borrower  agrees that the
         Administrative  Agent shall not be obligated to give more than five (5)
         days written  notice of the time and place of any public sale or of the
         time after which any  private  sale may take place and that such notice
         shall constitute  reasonable notice of such matters. The Administrative
         Agent shall not be obligated to make any sale of Collateral if it shall
         determine  not to do so,  regardless of the fact that notice of sale of
         Collateral may have been given. The  Administrative  Agent may, without
         notice or publication,  adjourn any public or private sale or cause the
         same to be adjourned from time to time by  announcement at the time and
         place fixed for sale, and such sale may,  without  further  notice,  be
         made at the time and  place to  which  the same was so  adjourned.  The
         Borrower  shall  be  liable  for all  expenses  of  retaking,  holding,
         preparing  for  sale,  or the  like,  and all  attorneys'  fees,  legal
         expenses,   and  all  other   costs  and   expenses   incurred  by  the
         Administrative Agent or any Lender in connection with the collection of
         the Secured  Indebtedness  and the  enforcement  of the  Administrative
         Agent's and the  Lender's  rights  under this  Agreement.  The Borrower
         shall remain  liable for any  deficiency if the Proceeds of any sale or
         other disposition of the Collateral are insufficient to pay the Secured
         Indebtedness  in full.  The  Administrative  Agent and the  Lenders may
         apply the Collateral against the Secured Indebtedness in such order and
         manner as the  Administrative  Agent and the  Lenders  may  elect.  The
         Borrower waives all rights of marshaling,  valuation,  and appraisal in
         respect of the Collateral.

                  (b)  The  Administrative  Agent  may  cause  any or all of the
         Collateral  held  by  it  to  be  transferred  into  the  name  of  the
         Administrative Agent or the name or names of the Administrative Agent's
         nominee or nominees.

                  (c) The  Administrative  Agent  may  exercise  or  cause to be
         exercised  all voting,  consensual  and other  powers of  ownership  in
         respect  of the  Collateral  and  the  Borrower  shall  deliver  to the
         Administrative   Agent,  if  requested  by  the  Administrative  Agent,
         irrevocable proxies with respect to the Securities in form satisfactory
         to the Administrative Agent.

                  (d) The Administrative  Agent may collect or receive all money
         or  property  at any time  payable  or  receivable  on account of or in
         exchange for any of the Collateral, but shall be under no obligation to
         do so.


<PAGE>


                  (e) On any sale of the Collateral, the Administrative Agent is
         hereby  authorized to comply with any  limitation or  restriction  with
         which  compliance  is  necessary,  in the  view  of the  Administrative
         Agent's  counsel,  in order to avoid any violation of applicable law or
         in order to obtain any required approval of the purchaser or purchasers
         by any applicable Governmental Authority.

                  (f) The Borrower agrees that, because of the Securities Act of
         1933,  as  amended,  or any other  laws or  regulations,  and for other
         reasons,   there  may  be  legal  and/or   practical   restrictions  or
         limitations  affecting  the  Administrative  Agent in any  attempts  to
         dispose of certain  portions of the Securities and for the  enforcement
         of their rights. For these reasons,  the Administrative Agent is hereby
         authorized by the Borrower, but not obligated,  upon the occurrence and
         during the continuation of an Event of Default, to sell all or any part
         of the Securities at private sale,  subject to investment  letter or in
         any other  manner  which will not require the  Securities,  or any part
         thereof,  to be  registered in accordance  with the  Securities  Act of
         1933, as amended, or the rules and regulations  promulgated thereunder,
         or any other laws or regulations, at a reasonable price at such private
         sale or other  distribution in the manner mentioned above. The Borrower
         understands  that  the  Administrative  Agent  may  in  its  discretion
         approach a limited number of potential purchasers and that a sale under
         such  circumstances may yield a lower price for the Securities,  or any
         part or party  thereof,  than would  otherwise  be  obtainable  if such
         collateral  were  either  afforded  to a  larger  number  or  potential
         purchasers,  or  registered  or sold in the open  market.  The Borrower
         agrees  that such  private  sale shall be deemed to have been made in a
         commercially  reasonable manner, and that the Administrative  Agent has
         no  obligation  to delay  sale of any  Securities  to permit the issuer
         thereof to register it for public sale under any applicable  federal or
         state  securities  laws. The  Administrative  Agent is  authorized,  in
         connection with any such sale (a) to restrict the  prospective  bidders
         on or  purchasers  of any of the  Securities  to a  limited  number  of
         sophisticated  investors  who will  represent  and agree  that they are
         purchasing  for their own account for investment and not with a view to
         the  distribution  or sale of any of such  Securities and (b) to impose
         such other  limitations or conditions in connection  with any such sale
         as the  Administrative  Agent  reasonably  deems  necessary in order to
         comply with applicable  law. The Borrower  covenants and agrees that it
         will execute and deliver such  documents  and take such other action as
         the  Administrative  Agent reasonably deems necessary in order that any
         such sale may be made in compliance  with applicable law. Upon any such
         sale the Administrative  Agent shall have the right to deliver,  assign
         and transfer to the  purchaser  thereof the  Securities  so sold.  Each
         purchaser  at  any  such  sale  shall  hold  the   Securities  so  sold
         absolutely,  free from any claim or right of the Borrower of whatsoever
         kind, including any equity or right of redemption of the Borrower.  The
         Borrower,   to  the  extent   permitted  by  applicable   law,   hereby
         specifically  waives all rights of redemption,  stay or appraisal which
         it has or may have under any law now existing or hereafter enacted.


<PAGE>


                                   ARTICLE VII

                                  Miscellaneous

         Section 7.1  Indemnification.  The Borrower  hereby agrees to indemnify
each  Agent,  each  Lender  and each  Affiliate  thereof  and  their  respective
officers,  directors,   employees,   attorneys,  and  agents  (collectively  the
"Indemnified Parties") from, and hold each of them harmless against, any and all
losses,  liabilities,  claims,  damages,  penalties,  judgments,  disbursements,
costs, and expenses (including  reasonable attorneys' fees) to which any of them
may become subject which directly or indirectly  arise from or relate to (a) the
negotiation, execution, delivery, performance, administration, or enforcement of
this  Agreement  or any  other  Loan  Document,  (b)  any  of  the  transactions
contemplated by this Agreement or any other Loan Document, (c) any breach by the
Borrower of any representation, warranty, covenant, or other agreement contained
in  this  Agreement  or any  other  Loan  Document,  or (d)  any  investigation,
litigation, or other proceeding,  including,  without limitation, any threatened
investigation, litigation, or other proceeding relating to any of the foregoing,
INCLUDING,  WITHOUT  LIMITATION,  THOSE  ARISING  FROM THE SOLE OR  CONTRIBUTORY
NEGLIGENCE OF ANY INDEMNIFIED PARTY.

         Section 7.2 No Waiver;  Cumulative Remedies.  No failure on the part of
any Agent or the Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right,  power,  or privilege  under this  Agreement
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any right,  power,  or  privilege  under this  Agreement  preclude  any other or
further  exercise  thereof  or  the  exercise  of any  other  right,  power,  or
privilege. The rights and remedies provided for in this Agreement are cumulative
and not exclusive of any rights and remedies provided by law.

         Section 7.3  Successors and Assigns.  This  Agreement  shall be binding
upon and inure to the benefit of the Borrower, the Agents, the Lenders and their
respective  heirs,  successors,  and  assigns,  except that the Borrower may not
assign any of its rights or obligations  under this Agreement  without the prior
written consent of the Administrative Agent.

         Section 7.4 Amendment;  Entire Agreement.  THIS AGREEMENT  EMBODIES THE
FINAL,  ENTIRE  AGREEMENT  AMONG THE PARTIES  HERETO AND  SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS,  AGREEMENTS,  REPRESENTATIONS,  AND  UNDERSTANDINGS,  WHETHER
WRITTEN  OR  ORAL,  RELATING  TO  THE  SUBJECT  MATTER  HEREOF  AND  MAY  NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES  HERETO.  THERE ARE NO ORAL  AGREEMENTS
AMONG THE PARTIES  HERETO.  The  provisions of this  Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.

         Section 7.5 Notices. All notices and other communications  provided for
in this Agreement shall be given or made in accordance with Section 13.11 of the
Loan Agreement to the intended  recipient at the "Address for Notices" specified
below its name on the signature pages hereof,  or, as to any party at such other
address  as shall be  designated  by such  party in a notice to the other  party
given in accordance with this Section.

         Section 7.6  Governing  Law.  THIS  AGREEMENT  SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS AND THE  APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.


<PAGE>


     Section 7.7 Headings. The headings, captions, and arrangements used in this
Agreement are for convenience  only and shall not affect the  interpretation  of
this Agreement.

         Section  7.8   Survival  of   Representations   and   Warranties.   All
representations  and  warranties  made in this  Agreement or in any  certificate
delivered  pursuant  hereto  shall  survive the  execution  and delivery of this
Agreement,  and no  investigation  by any Agent or any Lender  shall  affect the
representations  and  warranties or the right of any Agent or any Lender to rely
upon them.

         Section 7.9 Waiver of Bond. In the event the Administrative Agent seeks
to take  possession  of any or all of the  Collateral by judicial  process,  the
Borrower hereby irrevocably waives any bonds and any surety or security relating
thereto  that  may  be  required  by  applicable  law  as an  incident  to  such
possession,  and waives any demand for possession  prior to the  commencement of
any such suit or action.

         Section 7.10  Severability.  Any provision of this  Agreement  which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining   provisions  of  this  Agreement,   and  any  such
prohibition  or  unenforceability  in any  jurisdiction  shall not invalidate or
render unenforceable such provision in any other jurisdiction.

         Section 7.11 Construction.  The Borrower and the  Administrative  Agent
acknowledge  that each of them has had the  benefit of legal  counsel of its own
choice and has been afforded an  opportunity  to review this  Agreement with its
legal counsel.

     Section  7.12  Obligations  Absolute.   All  rights  and  remedies  of  the
Administrative  Agent hereunder,  and all obligations of the Borrower hereunder,
shall be absolute and unconditional irrespective of:

     (a) any lack of validity or  enforceability of the Loan Agreement or any of
the other Loan Documents or any other agreement or instrument relating to any of
the foregoing;

                   (b) any change in the time,  manner,  or place of payment of,
         or in any other term of, all or any of the Secured Indebtedness, any or
         all of the  Obligations,  or any  other  amendment  or waiver of or any
         consent to any  departure  from the Loan  Agreement or any of the other
         Loan Documents;

     (c) any exchange,  release,  or  nonperfection  of any  Collateral,  or any
release  or  amendment  or  waiver  of or  consent  to any  departure  from  any
guarantee, for all or any of the Secured Indebtedness; or

                   (d) any other circumstance (other than payment in full of the
         Secured   Indebtedness)  that  might  otherwise  constitute  a  defense
         available to, or a discharge of, the Borrower.


<PAGE>


         Section 7.13 Termination. If all of the Secured Indebtedness shall have
been paid and  performed  in full and the  Commitments  shall  have  expired  or
terminated,  the  Administrative  Agent shall,  upon the written  request of the
Borrower and in accordance  with  applicable  provisions of the Loan  Agreement,
promptly execute and deliver to the Borrower a proper  instrument or instruments
acknowledging  the release and termination of the security  interests created by
this Agreement as the Borrower may reasonably  deem necessary or desirable,  and
shall duly assign and deliver to the Borrower  (without recourse and without any
representation  or warranty)  such of the Collateral as may be in the possession
of the  Administrative  Agent  and has not  previously  been  sold or  otherwise
applied pursuant to this Agreement.

                     REMAINDER OF PAGE INTENTIONALLY BLANK.
                            SIGNATURE PAGE TO FOLLOW.


<PAGE>



                           Borrower Security Agreement

         IN WITNESS WHEREOF, the Borrower has duly executed this Agreement as of
the day and year first written above.

                                       BORROWER:
                                       --------

                                       PRIME REFRACTIVE MANAGEMENT, L.L.C.,
                                       a Delaware limited liability company



                                                     By: /s/ Teena E. Belcik
                                                        Teena E. Belcik

                                                        Treasurer

                                                     Address for Notices:

                                               1301 Capital of Texas Highway
                                               Suite C-300
                                               Austin, Texas 78746
                                               Attn: Treasurer
                                               Fax Number:  (512) 328-8510
                                               Telephone Number:  (512) 314-4554


<PAGE>





                                       21

                           Borrower Security Agreement

                                   SCHEDULE 1

                                 MOTOR VEHICLES

None


<PAGE>


                                   SCHEDULE 2

                                   SECURITIES

                                  Pledged Stock

None

                   Pledged Limited Liability Company Interests

         Prime Refractive, L.L.C., a Delaware limited liabilty company
                            - 60% membership interest


<PAGE>


                                   SCHEDULE 3

                             LOCATION OF COLLATERAL

                       Location of Equipment and Inventory

1301 Capital of Texas Highway
Suite C-300

Austin, Travis County, Texas 78746-6550


<PAGE>


                                   SCHEDULE 4

                            JURISDICTIONS FOR FILING

               Jurisdictions for Filing UCC-1 Financing Statements

Texas


<PAGE>


                          BORROWER'S SECURITY AGREEMENT

                           BORROWER SECURITY AGREEMENT

     THIS BORROWER SECURITY AGREEMENT (the "Agreement") dated as of January
31, 2000, is executed by PRIME MEDICAL  SERVICES,  INC., a Delaware  corporation
(the  "Debtor"),  for the benefit of BANK OF AMERICA,  N.A., a national  banking
association  ("B  of  A"),  not  in  its  individual   capacity  but  solely  as
administrative  agent for itself and each of the other Lenders (each, a "Lender"
and  collectively,   the  "Lenders")  as  defined  in  the  Loan  Agreement  (as
hereinafter defined) (in such capacity, together with its successors and assigns
in such capacity, the "Administrative Agent").

                                R E C I T A L S:
                                - - - - - - - -

         A. The Debtor, B of A, as administrative  agent,  BankBoston,  N.A., as
documentation  agent,  and the Lenders have  entered  into that  certain  Fourth
Amended and Restated Loan Agreement  dated January __, 2000, (as the same may be
amended,  restated,  extended,  supplemented  or modified from time to time, the
"Loan Agreement"), pursuant to which the Lenders have agreed to make a revolving
loan to the  Borrower  with  advances  thereunder  not to  exceed  an  aggregate
principal amount of Eighty-Six  Million and 00/100 Dollars  ($86,000,000.00)  at
any one time outstanding.

     B. The Agents and the Lenders have conditioned  their obligations under the
Loan Agreement upon the execution and delivery of this Agreement by the Debtor.

         NOW  THEREFORE,  in  consideration  of the  premises and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

         Section 1.1 Terms Defined in Loan Agreement. Capitalized terms used and
not  otherwise  defined  herein shall have the same meanings as set forth in the
Loan Agreement.

         Section 1.2 Terms Defined in Uniform Commercial Code. Terms used herein
which are  defined  in the  Uniform  Commercial  Code as adopted by the State of
Texas,  unless  otherwise  defined herein or in the Loan  Agreement,  shall have
their  meanings  as set forth in the Uniform  Commercial  Code as adopted by the
State of Texas.

     Section  1.3  Additional  Definitions.  As  used  in  this  Agreement,  the
following terms shall have the following meanings:



<PAGE>





                                       16

                          BORROWER'S SECURITY AGREEMENT

                  "Accounts"  means any  "account,"  as such term is  defined in
Article 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in any
event, shall include,  without  limitation,  each of the following,  whether now
owned or  hereafter  acquired  by the  Debtor:  (a) all  rights of the Debtor to
payment for goods sold or leased or services rendered,  whether or not earned by
performance;  (b) all accounts  receivable of the Debtor;  (c) all rights of the
Debtor to receive any payment of money or other form of  consideration;  (d) all
security pledged, assigned, or granted to or held by the Debtor to secure any of
the foregoing;  (e) all guaranties of, or indemnifications  with respect to, any
of the foregoing;  and (f) all rights of the Debtor as an unpaid seller of goods
or services,  including,  but not limited to, all rights of stoppage in transit,
replevin, reclamation, and resale.

                  "Chattel  Paper"  means any  "chattel  paper," as such term is
defined in Article 9 of the UCC, now owned or hereafter acquired by the Debtor.

                  "Collateral" has the meaning  specified in Section 2.1 of this
Agreement.

                  "Document"  means any  "document,"  as such term is defined in
Article 9 of the UCC, now owned or hereafter acquired by the Debtor,  including,
without limitation, all documents of title and warehouse receipts of the Debtor.

                  "Equipment"  means any "equipment," as such term is defined in
Article 9 of the UCC, now owned or hereafter  acquired by the Debtor and, in any
event, shall include, without limitation, all machinery, equipment, furnishings,
and  fixtures  now owned or  hereafter  acquired  by the  Debtor and any and all
additions,  substitutions,  and  replacements of any of the foregoing,  wherever
located,  together  with all  attachments,  components,  parts,  equipment,  and
accessories installed thereon or affixed thereto.

                  "General Intangibles" means any "general intangibles," as such
term is defined in Article 9 of the UCC, now owned or hereafter  acquired by the
Debtor  and,  in any  event,  shall  include,  without  limitation,  each of the
following, whether now owned or hereafter acquired by the Debtor: (a) all of the
Debtor's patents, patent applications, patent rights, service marks, trademarks,
trade names,  trade secrets,  intellectual  property,  registrations,  goodwill,
copyrights  (including without limitation,  those copyrights listed on Item A of
Schedule 1 attached hereto), franchises, licenses (including without limitation,
those  copyright  licenses  listed on Item B of  Schedule  1  attached  hereto),
permits,  proprietary information,  customer lists, designs, and inventions; (b)
all of the Debtor's books, records, data, plans, manuals, computer software, and
computer  programs;  (c) all of the Debtor's contract rights,  including without
limitation,  (i) all of the Debtor's  right,  title and interest in that certain
Stock  Purchase  Agreement  dated as of April 26, 1996,  executed by and between
Lithotripters,  Inc., the Debtor, and the sellers named therein;  (d) all of the
Debtor's partnership  interests,  joint venture,  limited liability  company,and
membership  interests  (but only to the  extent  not  otherwise  pledged  to the
Administrative  Agent  pursuant  to a separate  pledge or  security  agreement),
deposit  accounts,  investment  accounts,  and certificates of deposit;  (e) all
rights of the Debtor to payment under letters of credit and similar  agreements;
(f) all tax  refunds  and tax  refund  claims of the  Debtor;  (g) all choses in
action and causes of action of the Debtor (whether arising in contract, tort, or
otherwise and whether or not currently in litigation) and all judgments in favor
of the  Debtor;  (h) all rights and claims of the Debtor  under  warranties  and
indemnities;  and (i) all rights of the Debtor under any insurance,  surety,  or
similar contract or arrangement.

                  "Instrument"  means any  "instrument," as such term is defined
in  Article 9 of the UCC and any note  payable  to Debtor or its order  together
with all collateral  securing such note and all agreements and documents related
thereto or arising therefrom, now owned or hereafter acquired by the Debtor.


<PAGE>


                  "Inventory"  means any "inventory," as such term is defined in
Article 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in any
event, shall include,  without  limitation,  each of the following,  whether now
owned or  hereafter  acquired  by the Debtor:  (a) all goods and other  personal
property of the Debtor that are held for sale or lease or to be furnished  under
any contract of service; (b) all raw materials, work-in-process, finished goods,
inventory,  supplies, and materials of the Debtor; (c) all wrapping,  packaging,
advertising,  and shipping materials of the Debtor; (d) all goods that have been
returned to,  repossessed  by, or stopped in transit by the Debtor;  and (e) all
Documents evidencing any of the foregoing.

                  "Investment  Property"  means  "investment  property," as such
term is defined in Section 9.115(a)(6) of the Texas Business and Commerce Code.

                  "Motor Vehicle" means all cars,  trucks,  vans and other motor
vehicles  now owned or  hereafter  acquired by the Debtor  which are used by the
Debtor for the transfer of  lithotripters  and  lithotripsy  related  equipment,
including without limitation,  those motor vehicles listed on Schedule 2 hereto,
and  any and all  attachments,  components,  parts,  equipment  and  accessories
installed thereon or affixed thereto.

                  "Proceeds"  means any  "proceeds,"  as such term is defined in
Article 9 of the UCC and, in any event,  shall  include,  but not be limited to,
(a) any and all  proceeds of any  insurance,  indemnity,  warranty,  or guaranty
payable to the Debtor from time to time with  respect to any of the  Collateral,
(b) any and all payments (in any form whatsoever) made or due and payable to the
Debtor  from  time to time in  connection  with any  requisition,  confiscation,
condemnation, seizure, or forfeiture of all or any part of the Collateral by any
Governmental  Authority  (or any  person  acting  under  color  of  Governmental
Authority),  and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

                  "Securities" means all shares of stock of any Person now owned
or hereafter acquired by the Debtor including,  without limitation,  each of the
shares listed on Schedule 3 hereto,  and all dividends,  cash,  stock dividends,
instruments and other investment property from time to time received, receivable
by, or otherwise  distributed to the Debtor for its own account in respect of or
in exchange for any or all of such  shares,  and the  certificates  representing
such shares.

                  "UCC"  means the Uniform  Commercial  Code as in effect in the
State of Texas or, if so required with respect to any  particular  Collateral by
mandatory  provisions of  applicable  law, as in effect in the  jurisdiction  in
which such Collateral is located.

                                   ARTICLE II

                          Security Interest and Pledge

         Section 2.1 Security Interest and Pledge. The Debtor hereby pledges and
grants to the  Administrative  Agent, for the pro rata benefit of the Lenders, a
lien on and security interest in all of the Debtor's right,  title, and interest
in and to the following,  whether now owned or hereafter arising or acquired and
wherever located (collectively, the "Collateral"):

                  (a)      all Accounts;

                  (b)      all Chattel Paper;

                  (c)      all Instruments;

                  (d)      all General Intangibles and all Securities;

                  (e)      all Investment Property;


<PAGE>


                  (f)      all Documents;

                    (g) all Equipment,  including, without limitation, all Motor
               Vehicles;

                  (h) all Inventory;

                    (i) all other  goods and  personal  property  of the  Debtor
               whether tangible or intangible; and

                    (j)  all  Proceeds  and  products  of  any  or  all  of  the
               foregoing.

         Section 2.2  Secured  Indebtedness.  The  Collateral  shall  secure the
following  obligations,   indebtedness,   and  liabilities  (whether  at  stated
maturity, by acceleration or otherwise) (all such obligations, indebtedness, and
liabilities being hereinafter sometimes called the "Secured Indebtedness"):

                  (a)      the Obligations;

                  (b) all  reasonable  costs and  expenses,  including,  without
limitation,  all reasonable attorneys' fees and legal expenses,  incurred by any
of the Agents or any Lender to preserve and maintain the Collateral, collect the
obligations herein described, and enforce this Agreement; and

     (c) all extensions, renewals, and modifications of any of the foregoing.

         Section  2.3 Debtor  Remains  Liable.  Notwithstanding  anything to the
contrary  contained  herein,  (a) the  Debtor  shall  remain  liable  under  the
contracts  and  agreements  included in the  Collateral  to the extent set forth
therein to perform  all of its duties  and  obligations  thereunder  to the same
extent as if this  Agreement  had not been  executed,  (b) the  exercise  by the
Administrative Agent of any of its rights hereunder shall not release the Debtor
from any of its  duties  or  obligations  under  the  contracts  and  agreements
included in the  Collateral,  and (c) neither the  Administrative  Agent nor any
Lender shall have any  obligation  or liability  under any of the  contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Administrative  Agent  or  any  Lender  be  obligated  to  perform  any  of  the
obligations or duties of the Debtor  thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

                                   ARTICLE III

                         Representations and Warranties

         To induce the Administrative Agent to enter into this Agreement and the
Agents and the Lenders to enter into the Loan Agreement,  the Debtor  represents
and warrants to the Administrative Agent that:


<PAGE>


         Section  3.1  Title.  The Debtor  is,  and with  respect to  Collateral
acquired  after the date  hereof  the Debtor  will be, the legal and  beneficial
owner of the Collateral free and clear of any Lien,  security interest,  pledge,
claim or other  encumbrance  (except for Liens  permitted  by Section 9.2 of the
Loan  Agreement and liens in favor of the  Refractive  Administrative  Agent (as
hereinafter defined)) or, with respect to the Securities, any right or option on
the part of any Person (other than the Lenders) to purchase or otherwise acquire
the Securities or any part thereof,  except for the security  interests  granted
hereunder,  Liens permitted by Section 9.2 of the Loan  Agreement,  and liens in
favor of the Prime  Administrative  Agent (as hereinafter  defined).  Debtor has
granted  subordinate liens and security  interests in the Collateral in favor of
Bank of America, N.A., as Administrative Agent under the Loan Agreement dated as
of the date hereof (the  "Refractive  Loan  Agreement")  among Prime  Refractive
Management, L.L.C., a Delaware limited liability company, Bank of America, N.A.,
as Administrative  Agent (the "Refractive  Administrative  Agent"),  BankBoston,
N.A., as  Documentation  Agent,  and the lenders from time to time party thereto
("Refractive Lenders").

         Section 3.2  Accounts.  Unless the Debtor has given the  Administrative
Agent written  notice to the contrary,  whenever the security  interest  granted
hereunder attaches to an Account, the Debtor shall be deemed to have represented
and  warranted  to the  Administrative  Agent as to each and all of its Accounts
that (a) each Account is genuine and in all respects what it purports to be, (b)
each Account represents the legal,  valid, and binding obligation of the account
debtor  evidencing  indebtedness  unpaid and owed by such account debtor arising
out of the  performance  of labor or services by the Debtor or the sale or lease
of goods by the Debtor,  (c) the amount of each Account  represented as owing is
the correct amount  actually and  unconditionally  owing except for normal trade
discounts  granted in the  ordinary  course of  business,  and (d) no Account is
subject to any offset, counterclaim, or other defense.

         Section 3.3 Rule 144 Securities. With respect to all Collateral that is
Securities  which are subject to Rule 144 under the  Securities  Act of 1933, as
such rule and act are amended at the time in question and any successor in whole
or in part thereto,  (a) the Debtor is the  beneficial and record owner thereof,
free and clear of any Liens or transfer restrictions (other than restrictions on
the amount thereof which may be sold, and the manner in which sales may be made,
imposed by such Rule 144), (b) the Debtor acquired such Securities directly from
the  issuer  thereof  more  than  two (2)  years  prior to the  date  hereof  in
transactions not involving any public offering, (c) the Debtor paid the purchase
price  therefor  in cash more than two (2) years prior to the date  hereof,  (d)
since such date of  acquisition,  the Debtor has not had a short position in, or
any put or option to dispose  of,  any  capital  stock of any issuer  thereof or
Securities convertible into capital stock of any issuer thereof, (e) neither the
Debtor, nor any person or entity, the sales of which are required by Rule 144 to
be  aggregated  with the sales of the Debtor,  has sold any capital stock of any
issuer of such Securities  during the period of six (6) months prior to the date
hereof, other than sales pursuant to an effective  registration  statement under
the Securities Act of 1933, as amended,  and (f) to the Debtor's best knowledge,
each issuer of such Securities has timely filed all reports required to be filed
by it under the Securities Exchange Act of 1934, as amended.

         Section 3.4  Financing  Statements.  No financing  statement,  security
agreement,  or other Lien instrument  covering all or any part of the Collateral
is on file in any public  office,  except as may have been filed in favor of the
Refractive  Administrative  Agent,  any lender under the  Refractive  Agreement,
Administrative  Agent, or any Lender pursuant to this Agreement.  The Debtor has
not within the past five (5) years had a trade name or done  business  under any
name other than its legal name set forth at the beginning of this Agreement.

         Section  3.5  Principal  Place  of  Business.  The  principal  place of
business  and chief  executive  office of the Debtor,  and the office  where the
Debtor  keeps its books and  records,  is located  at the  address of the Debtor
shown on the signature pages of this Agreement.


<PAGE>


         Section 3.6 Location of Collateral.  All Inventory and Equipment of the
Debtor are located at the places specified on Schedule 4 hereto.  The Debtor has
exclusive  possession  and control of its Inventory and  Equipment.  None of the
Inventory or  Equipment  of the Debtor is  evidenced  by a Document  (including,
without limitation,  a negotiable  document of title). All Instruments,  Chattel
Paper, Securities and certificates of title of the Debtor have been delivered to
the Administrative Agent.

         Section  3.7  Perfection.  Upon the filing of Uniform  Commercial  Code
financing  statements in the jurisdictions listed on Schedule 5 attached hereto,
and upon the  Administrative  Agent's  obtaining  possession  of all  Documents,
Instruments,  Chattel Paper, Securities and certificates of title of the Debtor,
and  upon  the  Administrative  Agent's  obtaining  control  of  all  Investment
Property,  the security  interest in favor of the  Administrative  Agent created
herein will constitute a valid and perfected Lien upon and security  interest in
the  Collateral,  subject  to no equal or prior  Lien,  except as  permitted  by
Section 9.2 of the Loan Agreement.

                                   ARTICLE IV

                                    Covenants

         The Debtor  covenants  and agrees  with the  Administrative  Agent that
until the Secured Indebtedness is paid and performed in full and the Commitments
have terminated:

         Section 4.1  Encumbrances.  Except as  permitted  by Section 9.2 of the
Loan Agreement,  the Debtor shall not create,  permit,  or suffer to exist,  and
shall defend the  Collateral  against,  any Lien,  security  interest,  or other
encumbrance  on the  Collateral,  and shall  defend the  Debtor's  rights in the
Collateral and the  Administrative  Agent's security  interest in the Collateral
against the claims and demands of all  Persons.  The Debtor  shall do nothing to
impair the rights of the Administrative Agent in the Collateral.

         Section 4.2 Delivery.  Prior to or concurrently  with the execution and
delivery of this Agreement,  Debtor shall deliver to the Administrative Agent to
acknowledge all certificates  identified on Schedule 4 hereto,  with all Chattel
Paper, Instruments and Documents of the Debtor.

         Section 4.3  Modification of Accounts.  The Debtor shall, in accordance
with prudent  business  practices,  endeavor to collect or cause to be collected
from each  account  debtor  under  its  Accounts,  as and when due,  any and all
amounts  owing under such  Accounts.  Without the prior  written  consent of the
Administrative  Agent,  the Debtor shall not (a) grant any  extension of time on
any  Account  for any payment or grant  extensions  of time for  payments on its
Accounts which cause the aggregate amount of all payments extended by the Debtor
on its Accounts during any fiscal year of the Debtor to exceed $150,000.00,  (b)
compromise,  compound,  or  settle  any of the  Accounts  for less than the full
amount thereof; provided,  however, that the Debtor may compromise,  compound or
settle  any  Account  which is an amount  less  than  $50,000.00,  provided  the
aggregate  amount  compromised,  compounded or settled during any fiscal year of
the Debtor shall not exceed  $150,000.00,  (c) release, in whole or in part, any
Person liable for payment of an Account in excess of  $50,000.00,  (d) allow any
credit  or  discount  for  payment  with  respect  to any  Account  in excess of
$50,000.00,  other  than  trade  discounts  granted  in the  ordinary  course of
business;  provided,  however,  that the  aggregate  amount  of all  credits  or
discounts  granted  during  any  fiscal  year of the  Debtor  shall  not  exceed
$150,000.00,  or (e) release any Lien,  security interest,  or guaranty securing
any Account in excess of $50,000.00.


<PAGE>


         Section  4.4  Disposition  of  Collateral.  The Debtor  shall not sell,
lease,  assign (by operation of law or otherwise),  or otherwise  dispose of, or
grant any option with respect to, the Collateral or any part thereof without the
prior written consent of the  Administrative  Agent,  except the Debtor may sell
Inventory in the ordinary course of business.

         Section  4.5  Distributions.  If the Debtor  shall  become  entitled to
receive or shall receive any stock certificate  (including,  without limitation,
any certificate representing a stock dividend or distribution in connection with
any reclassification,  increase, or reduction of capital or issued in connection
with any  reorganization),  option or  rights,  whether  as an  addition  to, in
substitution  of, or an exchange for any  Collateral  or  otherwise,  the Debtor
agrees to accept the same as the  Administrative  Agent's  agent and to hold the
same in trust for the Administrative  Agent and to deliver the same forthwith to
the  Administrative  Agent in the  exact  form  received,  with the  appropriate
endorsement of the Debtor when necessary and/or appropriate undated stock powers
duly executed in blank, to be held by the Administrative Agent on its own behalf
and on behalf of Refractive  Administrative  Agent as additional  Collateral for
the Secured Indebtedness,  subject to the terms hereof. Any sums paid upon or in
respect of the  Securities  upon the  liquidation  or  dissolution of the issuer
thereof  shall  be paid  over to the  Administrative  Agent  to be held by it as
additional  Collateral for the Secured Indebtedness subject to the terms hereof;
and in case any  distribution  of capital  shall be made on or in respect of the
Securities  or any  property  shall be  distributed  upon or with respect to the
Securities  pursuant to any  recapitalization or reclassification of the capital
of the issuer thereof or pursuant to any  reorganization  of the issuer thereof,
the property so distributed shall be delivered to the Administrative Agent to be
held by it, as additional  Collateral for the Secured  Indebtedness,  subject to
the terms  hereof.  All sums of money and  property  so paid or  distributed  in
respect of the Securities  that are received by the Debtor shall,  until paid or
delivered  to the  Administrative  Agent,  be held by the  Debtor  in  trust  as
additional security for the Secured Indebtedness.

         Section 4.6 Further Assurances. At any time and from time to time, upon
the request of the Administrative  Agent, and at the sole expense of the Debtor,
the Debtor  shall  promptly  execute and deliver all such  further  instruments,
agreements,  and  documents and take such further  action as the  Administrative
Agent may  reasonably  deem  necessary  or desirable to preserve and perfect its
security interest in the Collateral and carry out the provisions and purposes of
this  Agreement.  Without  limiting the generality of the foregoing,  the Debtor
shall:  (a)  execute  and  deliver to the  Administrative  Agent such  financing
statements  as the  Administrative  Agent  may from  time to time  require;  (b)
deliver and pledge to the Administrative Agent all Documents (including, without
limitation,  negotiable  documents of title) evidencing  Inventory or Equipment;
(c) deliver and pledge to the  Administrative  Agent all  certificates  of title
required by the Loan Agreement, Instruments and Chattel Paper of the Debtor with
any necessary  endorsements;  and (d) execute and deliver to the  Administrative
Agent such other documents,  instruments,  and agreements as the  Administrative
Agent  may   reasonably   require  to  perfect  and   maintain   the   validity,
effectiveness,  and priority of the Loan  Documents and the Liens intended to be
created thereby.  The Debtor authorizes the Administrative  Agent to file one or
more financing or continuation statements,  and amendments thereto,  relating to
all or any part of the  Collateral  without the  signature  of the Debtor  where
permitted  by  law.  A  carbon,  photographic,  or  other  reproduction  of this
Agreement or of any  financing  statement  covering the  Collateral  or any part
thereof  shall be  sufficient  as a  financing  statement  and may be filed as a
financing statement.


<PAGE>


         Section 4.7 Risk of Loss;  Insurance.  The Agents and the Lenders shall
not be responsible for any loss or damage to the  Collateral.  The Debtor shall,
at its own expense,  maintain  insurance  with  financially  sound and reputable
insurance  companies  in such  amounts  and  covering  such  risks as is usually
carried  by  corporations  engaged  in similar  businesses  and  owning  similar
properties  in the same general  areas in which the Debtor  operates  consistent
with past  practices  and to the extent  available  on  commercially  reasonable
terms,   provided  that  in  any  event  the  Debtor  will  maintain   workmen's
compensation  insurance,  property  insurance,  comprehensive  general liability
insurance,  professional liability insurance and business interruption insurance
reasonably  satisfactory  to the  Administrative  Agent.  Each insurance  policy
covering  Collateral shall name the  Administrative  Agent as loss payee for the
benefit of the Lenders as its  interest  may appear and shall  provide that such
policy will not be canceled or reduced  without  thirty (30) days prior  written
notice to the Administrative Agent.

         Section  4.8   Inspection   Rights.   The  Debtor   shall   permit  the
Administrative  Agent and each Lender and their  respective  representatives  to
examine, inspect, and audit the Collateral and to examine, inspect, and copy the
Debtor's  books  and  records  at  any  reasonable  time  and  as  often  as the
Administrative Agent or any such Lender may desire. The Administrative Agent and
each Lender may at any time and from time to time  contact  account  debtors and
other  obligors  to verify the  existence,  amounts,  and terms of the  Debtor's
Accounts.

         Section 4.9  Corporate  Changes.  The Debtor shall not change its name,
identity,  or corporate  structure  in any manner that might make any  financing
statement filed in connection with this Agreement  seriously  misleading  unless
the Debtor  shall have given the  Administrative  Agent  thirty  (30) days prior
written  notice  thereof  and shall  have  taken all  action  reasonably  deemed
necessary  or  desirable  by the  Administrative  Agent to make  each  financing
statement  not seriously  misleading.  The Debtor shall not change its principal
place of business, chief executive office, or the place where it keeps its books
and records unless it shall have given the Administrative Agent thirty (30) days
prior written notice thereof and shall have taken all action  reasonably  deemed
necessary  or  desirable  by the  Administrative  Agent  to cause  its  security
interest in the  Collateral to be perfected  with the priority  required by this
Agreement.

         Section  4.10 Books and  Records;  Information.  The Debtor  shall keep
accurate  and  complete  books and records of the  Collateral  and the  Debtor's
business and financial  condition in accordance with GAAP. The Debtor shall from
time  to  time  at  the  request  of the  Administrative  Agent  deliver  to the
Administrative Agent such information regarding the Collateral and the Debtor as
the Administrative Agent may reasonably request, including,  without limitation,
lists and  descriptions  of the  Collateral  and  evidence of the  identity  and
existence  of the  Collateral.  The Debtor shall mark its records to reflect the
security interest of the Administrative Agent hereunder.

         Section 4.11      Equipment and Inventory.
                           -----------------------

                  (a) The Debtor shall keep the  Equipment  and Inventory at the
         locations  specified  on  Schedule 5 hereto or,  upon  thirty (30) days
         prior written notice to the Administrative  Agent, at such other places
         within  the  United  States of America  where all  action  required  to
         perfect the  Administrative  Agent's security interest in the Equipment
         and Inventory with the priority  required by this Agreement  shall have
         been taken.

               (b) The Debtor shall  maintain  the  Equipment  and  Inventory in
          accordance with Section 8.3 of the Loan Agreement.

         Section 4.12 Warehouse Receipts Non-Negotiable.  The Debtor agrees that
if any  warehouse  receipt or receipt  in the nature of a  warehouse  receipt is
issued in respect of any of the Collateral, such warehouse receipt or receipt in
the nature  thereof shall not be  "negotiable"  (as such term is used in Section
7.104 of the Uniform  Commercial Code as in effect in any relevant  jurisdiction
or under relevant law).


<PAGE>


         Section  4.13 Taxes and  Claims.  The Debtor  shall pay and  discharge,
before the same become  delinquent,  (a) all material  taxes,  assessments,  and
governmental  charges  imposed upon it or upon any of its property,  and (b) all
material  lawful  claims  that,  if unpaid,  might become a Lien upon any of its
property;  provided,  however,  that the Debtor  shall not be required to pay or
discharge  any such  tax,  assessment,  or  governmental  charge  which is being
contested in good faith by proper  proceedings being diligently  pursued and for
which adequate reserves have been established in accordance with GAAP.

         Section  4.14  Compliance  with Laws.  The Debtor  shall  comply in all
material respects with all material applicable laws, rules, regulations, orders,
and decrees of any Governmental Authority or arbitrator.

         Section 4.15 Compliance with Agreements. The Debtor shall comply in all
material respects with all agreements,  contracts, and instruments binding on it
or affecting  its  properties or  businesses,  except where the failure to do so
would not have a material adverse effect on the business,  condition  (financial
or otherwise), operations or properties of the Borrower, any Material Subsidiary
or the Companies (taken as a whole).

         Section  4.16  Notification.  Except as permitted by Section 9.2 of the
Loan Agreement, the Debtor shall promptly notify the Administrative Agent of (a)
any Lien, security interest,  encumbrance, or claim that has attached to or been
made or asserted  against any of the Collateral,  (b) any material change in any
of the Collateral, including, without limitation, any material damage to or loss
of any material portion of the Collateral, (c) the occurrence of any other event
that could have a material  adverse  effect on the  Collateral  or the  security
interest created hereunder, and (d) the occurrence or existence of any Default.

         Section 4.17  Collection of Accounts.  Except as otherwise  provided in
this Section or in any other Loan  Document,  the Debtor shall have the right to
collect  and  receive  payments  on  the  Accounts.   In  connection  with  such
collections,  the Debtor may take (and, at the Administrative Agent's direction,
shall  take)  such  actions  as the  Debtor  or  the  Administrative  Agent  may
reasonably deem necessary or advisable to enforce collection of the Accounts.

         Section 4.18 Additional Securities.  The Debtor shall not consent to or
approve the issuance of any  additional  shares of any class of capital stock of
the issuers of any of the  Securities,  or any securities  convertible  into, or
exchangeable  for, any such shares or any warrants,  options,  rights,  or other
commitments  entitling  any Person to  purchase  or  otherwise  acquire any such
shares.

         Section 4.19 Provide Information.  The Debtor shall fully cooperate, to
the extent reasonably  requested by the Administrative  Agent, in the completion
of any notice,  form,  schedule,  or other document filed by the  Administrative
Agent  on its  own  behalf  or on  behalf  of  the  Debtor,  including,  without
limitation,  any required notice or statement of beneficial  ownership or of the
acquisition of beneficial ownership of the Securities and any notice of proposed
sale of such  Securities  pursuant to Rule 144 as  promulgated by the Securities
and  Exchange  Commission  (the  "SEC")  under the  Securities  Act of 1933,  as
amended.  Without  limiting the  generality of the  foregoing,  the Debtor shall
furnish  to  the  Administrative   Agent  any  and  all  information  which  the
Administrative  Agent may  reasonably  request for  purposes of any such filing,
regarding the Debtor,  the Securities,  and any issuer of any of the Securities,
and the Debtor shall disclose to the  Administrative  Agent all material adverse
information  known by the Debtor with respect to the operations of any issuer of
any of the Securities.


<PAGE>


         Section  4.20  Notification  of Changes in  Beneficial  Ownership.  The
Debtor shall promptly notify the Administrative  Agent of any sale of securities
of any  Subsidiary of the Debtor or by any Person named on the Debtor's Rule 144
questionnaire and shall furnish promptly to the  Administrative  Agent a copy of
any Form 144 filed in respect of any such sale.  In  addition,  if the Debtor or
any other Person named in the Debtor's  Rule 144  questionnaire  shall file with
the  SEC a form  or  other  document  reporting  any  change  in the  beneficial
ownership of the common stock of any Subsidiary of the Debtor,  the Debtor shall
promptly furnish to the Administrative Agent a copy of such form or document.

         Section 4.21  Restriction on Sales after Default.  The Debtor shall not
sell or  suffer  or  permit  any  Person  named  in the  accompanying  Rule  144
questionnaire  to sell  any  shares  of the  same  class  of  securities  as the
Securities at any time after any Event of Default shall have occurred.

         Section  4.22  Fixtures.  For any  Collateral  that is a fixture  or an
accession  which has been  attached  to real  estate or other goods prior to the
perfection of the security  interest  granted in Section 2.1 hereof,  the Debtor
shall furnish to Administrative  Agent, upon demand, a disclaimer of interest in
each such fixture or accession and a consent in writing to the security interest
of Administrative  Agent therein,  signed by all persons and entities having any
interest  in such  fixture or  accession  by virtue of any  interest in the real
estate or other goods to which such fixture or accession has been attached.

         Section 4.23 Notation on Title  Certificates.  If certificates of title
are issued or  outstanding  with  respect to any of the  Collateral,  the Debtor
shall cause the security  interest  granted in Section 2.1 hereof to be properly
noted thereon.

                                    ARTICLE V

                       Rights of the Administrative Agent

         Section  5.1  Power  of  Attorney.   The  Debtor   hereby   irrevocably
constitutes  and  appoints  the  Administrative  Agent and any  officer or agent
thereof,   with   full   power  of   substitution,   as  its  true  and   lawful
attorney-in-fact  with full  irrevocable  power and authority in the name of the
Debtor or in its own name, to take any and all action and to execute any and all
documents and instruments  which the  Administrative  Agent at any time and from
time to time deems reasonably  necessary or desirable to accomplish the purposes
of this  Agreement if an Event of Default shall have occurred and be continuing,
and, without  limiting the generality of the foregoing,  the Debtor hereby gives
the Administrative  Agent the power and right on behalf of the Debtor and in its
own name to do any of the  following  (subject to the rights of the Debtor under
Sections 5.2 and 5.3 hereof),  without notice to or the consent of the Debtor if
an Event of Default shall have occurred and be continuing:

                  (a) to demand, sue for, collect, or receive in the name of the
         Debtor or in its own name, any money or property at any time payable or
         receivable on account of or in exchange for any of the Collateral  and,
         in connection therewith,  endorse checks,  notes, drafts,  acceptances,
         money  orders,  documents of title,  or any other  instruments  for the
         payment of money under the Collateral or any policy of insurance;

               (b) to pay or  discharge  taxes,  Liens,  or  other  encumbrances
          levied or placed on or threatened against the Collateral;

               (c) to notify post office  authorities  to change the address for
          delivery  of  mail  of the  Debtor  to an  address  designated  by the
          Administrative Agent and to receive, open. and subsequently deliver to
          the Debtor mail addressed to the Debtor; and


<PAGE>


                  (d) (i) to direct account debtors and any other parties liable
         for any payment under any of the  Collateral to make payment of any and
         all  monies  due  and  to  become  due   thereunder   directly  to  the
         Administrative  Agent or as the Administrative Agent shall direct; (ii)
         to receive payment of and receipt for any and all monies,  claims,  and
         other  amounts  due and to  become  due at any  time in  respect  of or
         arising out of any Collateral;  (iii) to sign and endorse any invoices,
         freight  or  express  bills,  bills of  lading,  storage  or  warehouse
         receipts, drafts against debtors,  assignments,  proxies, stock powers,
         verifications,  and  notices  in  connection  with  accounts  and other
         documents  relating to the  Collateral;  (vi) to commence and prosecute
         any suit,  action,  or  proceeding  at law or in equity in any court of
         competent  jurisdiction  to collect the  Collateral or any part thereof
         and to enforce  any other  right in respect of any  Collateral;  (v) to
         defend any suit,  action, or proceeding brought against the Debtor with
         respect to any Collateral;  (vi) to settle,  compromise,  or adjust any
         suit,  action,  or  proceeding   described  above  and,  in  connection
         therewith,  to give such  discharges or releases as the  Administrative
         Agent may deem appropriate; (vii) to exchange any of the Collateral for
         other   property  upon  any  merger,   consolidation,   reorganization,
         recapitalization,  or other  readjustment of the issuer thereof and, in
         connection therewith, deposit any of the Collateral with any committee,
         depositary,  transfer agent, registrar, or other designated agency upon
         such terms as the Administrative Agent may determine;  (viii) to add or
         release any guarantor,  indorser,  surety, or other party to any of the
         Collateral;  (ix) to renew,  extend,  or otherwise change the terms and
         conditions of any of the Collateral;  (x) to make, settle,  compromise,
         or  adjust  claims  under  any  insurance  policy  covering  any of the
         Collateral;  (xi) to sell,  transfer,  pledge,  make any agreement with
         respect to or otherwise  deal with any of the  Collateral  as fully and
         completely as though the  Administrative  Agent were the absolute owner
         thereof  for all  purposes,  and to do, at the  Administrative  Agent's
         option and the Debtor's expense, at any time, or from time to time, all
         acts and things  which the  Administrative  Agent  deems  necessary  to
         protect,   preserve,   or   realize   upon  the   Collateral   and  the
         Administrative   Agent's  security  interest  therein;   and  (xii)  to
         complete, execute and file with the SEC one or more notices of proposed
         sale of securities pursuant to Rule 144.

         This power of attorney is a power coupled with an interest and shall be
irrevocable.  Neither the Administrative Agent nor any Lender shall be under any
duty  to  exercise  or  withhold  the  exercise  of any of the  rights,  powers,
privileges,  and options expressly or implicitly  granted to the  Administrative
Agent in this Agreement, and shall not be liable for any failure to do so or any
delay in doing so.  Neither  the  Administrative  Agent nor any Lender  shall be
liable for any act or  omission  or for any error of  judgment or any mistake of
fact or law in its  individual  capacity or in its capacity as  attorney-in-fact
except  acts or  omissions  resulting  from  its  gross  negligence  or  willful
misconduct.  This power of attorney is  conferred  on the  Administrative  Agent
solely to protect,  preserve,  and  realize  upon its  security  interest in the
Collateral. Neither the Administrative Agent nor any Lender shall be responsible
for any decline in the value of the Collateral and shall not be required to take
any steps to preserve rights against prior parties or to protect,  preserve,  or
maintain any security interest or Lien given to secure the Collateral.

         Section 5.2 Voting  Rights.  Unless and until an Event of Default shall
have  occurred and be  continuing,  the Debtor shall be entitled to exercise any
and all voting rights  pertaining to the  Securities or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Loan Agreement.
The  Administrative  Agent  shall  execute  and  deliver  to the Debtor all such
proxies  and other  instruments  as the Debtor may  reasonably  request  for the
purpose  of  enabling  the Debtor to  exercise  the  voting  rights  which it is
entitled to exercise pursuant to this Section.


<PAGE>


         Section 5.3 Dividends.  Unless and until an Event of Default shall have
occurred and be  continuing,  the Debtor shall be entitled to receive and retain
the dividends on the Securities paid in cash out of earned surplus to the extent
and only to the extent that such dividends are permitted by the Loan Agreement.

         Section 5.4 Setoff,  Property Held by the Lenders.  The  Administrative
Agent and each  Lender  shall  have the right to set off and apply  against  the
Secured Indebtedness,  at any time and without notice to the Debtor, any and all
deposits  (general or special,  time or demand,  provisional  or final) or other
sums at any time  credited  by or owing  from  the  Administrative  Agent or any
Lender to the Debtor  whether or not the  Secured  Indebtedness  is then due. As
additional security for the Secured  Indebtedness,  the Debtor hereby grants the
Administrative  Agent  and  each  Lender  a  security  interest  in  all  money,
instruments,  and other  property  of the  Debtor now or  hereafter  held by the
Administrative Agent or any Lender, including without limitation,  property held
in  safekeeping.  In addition to the  Administrative  Agent's and each  Lender's
right of setoff and as further security for the Secured Indebtedness, the Debtor
hereby  grants to each of them a security  interest in all deposits  (general or
special, time or demand, provisional or final) of the Debtor now or hereafter on
deposit  with or held by any of them and all other sums at any time  credited by
or owing from the any of them to the  Debtor.  The rights  and  remedies  of the
Administrative  Agent and each Lender  hereunder are in addition to other rights
and remedies (including,  without limitation,  other rights of setoff) which any
of them may have.

         Section 5.5  Performance by the Secured Party. If the Debtor shall fail
to  perform  any  covenant  or  agreement  contained  in  this  Agreement,   the
Administrative Agent, may, at the direction of the Required Lenders,  perform or
attempt to perform such  covenant or agreement on behalf of the Debtor.  In such
event, the Debtor shall, at the request of the  Administrative  Agent,  promptly
pay any amount expended by the Administrative  Agent or any Lender in connection
with such  performance  or attempted  performance to the  Administrative  Agent,
together with  interest  thereon at the Default Rate from and including the date
of such  expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding  the  foregoing,   it  is  expressly  agreed  that  neither  the
Administrative  Agent nor any Lender shall have any liability or  responsibility
for the performance of any obligations of the Debtor under this Agreement.

                                   ARTICLE VI

                                     Default

         Section  6.1 Rights  and  Remedies.  If an Event of Default  shall have
occurred and be continuing,  the  Administrative  Agent shall have the following
rights and remedies:


<PAGE>


                  (a) In addition to all other  rights and  remedies  granted to
         the  Administrative  Agent  in  this  Agreement  or in any  other  Loan
         Document or by applicable law, the Administrative  Agent shall have all
         of the rights and remedies of a secured party under the UCC (whether or
         not the UCC applies to the affected  Collateral).  Without limiting the
         generality of the foregoing,  the Administrative  Agent may (i) without
         demand or notice to the Debtor, collect, receive, or take possession of
         the   Collateral   or  any  part  thereof  and  for  that  purpose  the
         Administrative   Agent  may  enter  upon  any  premises  on  which  the
         Collateral is located and remove the Collateral  therefrom or render it
         inoperable,  and/or  (ii)  sell,  lease,  or  otherwise  dispose of the
         Collateral,  or any part  thereof,  in one or more parcels at public or
         private  sale  or  sales,  at the  Administrative  Agent's  offices  or
         elsewhere,  for cash, on credit or for future  delivery,  and upon such
         other  terms  as  the   Administrative   Agent  may  deem  commercially
         reasonable. The Administrative Agent shall have the right at any public
         sale or sales,  and, to the extent  permitted by applicable law, at any
         private sale or sales,  to bid and become a purchaser of the Collateral
         or any part  thereof free of any right or equity of  redemption  on the
         part of the  Debtor,  which  right or  equity of  redemption  is hereby
         expressly  waived and  released by the Debtor.  Upon the request of the
         Administrative Agent, the Debtor shall assemble the Collateral and make
         it available to the Administrative Agent at any place designated by the
         Administrative  Agent that is  reasonably  convenient to the Debtor and
         the  Administrative  Agent.  The Debtor agrees that the  Administrative
         Agent shall not be  obligated  to give more than five (5) days  written
         notice of the time and place of any  public  sale or of the time  after
         which  any  private  sale may take  place and that  such  notice  shall
         constitute  reasonable notice of such matters. The Administrative Agent
         shall  not be  obligated  to make  any sale of  Collateral  if it shall
         determine  not to do so,  regardless of the fact that notice of sale of
         Collateral may have been given. The  Administrative  Agent may, without
         notice or publication,  adjourn any public or private sale or cause the
         same to be adjourned from time to time by  announcement at the time and
         place fixed for sale, and such sale may,  without  further  notice,  be
         made at the time and  place to  which  the same was so  adjourned.  The
         Debtor shall be liable for all expenses of retaking, holding, preparing
         for sale, or the like, and all attorneys' fees, legal expenses, and all
         other costs and expenses  incurred by the  Administrative  Agent or any
         Lender in connection  with the  collection of the Secured  Indebtedness
         and the  enforcement  of the  Administrative  Agent's and the  Lender's
         rights under this  Agreement.  The Debtor  shall remain  liable for any
         deficiency  if the  Proceeds  of any sale or other  disposition  of the
         Collateral are  insufficient  to pay the Secured  Indebtedness in full.
         The  Administrative  Agent and the  Lenders  may  apply the  Collateral
         against  the  Secured  Indebtedness  in such  order  and  manner as the
         Administrative  Agent and the Lenders may elect.  The Debtor waives all
         rights of  marshaling,  valuation,  and  appraisal  in  respect  of the
         Collateral.

                  (b)  The  Administrative  Agent  may  cause  any or all of the
         Collateral  held  by  it  to  be  transferred  into  the  name  of  the
         Administrative Agent or the name or names of the Administrative Agent's
         nominee or nominees.

                  (c) The  Administrative  Agent  may  exercise  or  cause to be
         exercised  all voting,  consensual  and other  powers of  ownership  in
         respect  of  the  Collateral  and  the  Debtor  shall  deliver  to  the
         Administrative   Agent,  if  requested  by  the  Administrative  Agent,
         irrevocable proxies with respect to the Securities in form satisfactory
         to the Administrative Agent.

                  (d) The Administrative  Agent may collect or receive all money
         or  property  at any time  payable  or  receivable  on account of or in
         exchange for any of the Collateral, but shall be under no obligation to
         do so.

                  (e) On any sale of the Collateral, the Administrative Agent is
         hereby  authorized to comply with any  limitation or  restriction  with
         which  compliance  is  necessary,  in the  view  of the  Administrative
         Agent's  counsel,  in order to avoid any violation of applicable law or
         in order to obtain any required approval of the purchaser or purchasers
         by any applicable Governmental Authority.


<PAGE>


                  (f) The Debtor agrees that,  because of the  Securities Act of
         1933,  as  amended,  or any other  laws or  regulations,  and for other
         reasons,   there  may  be  legal  and/or   practical   restrictions  or
         limitations  affecting  the  Administrative  Agent in any  attempts  to
         dispose of certain  portions of the Securities and for the  enforcement
         of their rights. For these reasons,  the Administrative Agent is hereby
         authorized by the Debtor,  but not  obligated,  upon the occurrence and
         during the continuation of an Event of Default, to sell all or any part
         of the Securities at private sale,  subject to investment  letter or in
         any other  manner  which will not require the  Securities,  or any part
         thereof,  to be  registered in accordance  with the  Securities  Act of
         1933, as amended, or the rules and regulations  promulgated thereunder,
         or any other laws or regulations, at a reasonable price at such private
         sale or other  distribution in the manner  mentioned  above. The Debtor
         understands  that  the  Administrative  Agent  may  in  its  discretion
         approach a limited number of potential purchasers and that a sale under
         such  circumstances may yield a lower price for the Securities,  or any
         part or party  thereof,  than would  otherwise  be  obtainable  if such
         collateral  were  either  afforded  to a  larger  number  or  potential
         purchasers, or registered or sold in the open market. The Debtor agrees
         that  such  private  sale  shall  be  deemed  to  have  been  made in a
         commercially  reasonable manner, and that the Administrative  Agent has
         no  obligation  to delay  sale of any  Securities  to permit the issuer
         thereof to register it for public sale under any applicable  federal or
         state  securities  laws. The  Administrative  Agent is  authorized,  in
         connection with any such sale (a) to restrict the  prospective  bidders
         on or  purchasers  of any of the  Securities  to a  limited  number  of
         sophisticated  investors  who will  represent  and agree  that they are
         purchasing  for their own account for investment and not with a view to
         the  distribution  or sale of any of such  Securities and (b) to impose
         such other  limitations or conditions in connection  with any such sale
         as the  Administrative  Agent  reasonably  deems  necessary in order to
         comply with  applicable  law. The Debtor  covenants  and agrees that it
         will execute and deliver such  documents  and take such other action as
         the  Administrative  Agent reasonably deems necessary in order that any
         such sale may be made in compliance  with applicable law. Upon any such
         sale the Administrative  Agent shall have the right to deliver,  assign
         and transfer to the  purchaser  thereof the  Securities  so sold.  Each
         purchaser  at  any  such  sale  shall  hold  the   Securities  so  sold
         absolutely,  free from any claim or right of the  Debtor of  whatsoever
         kind,  including any equity or right of  redemption of the Debtor.  The
         Debtor, to the extent permitted by applicable law, hereby  specifically
         waives all rights of redemption,  stay or appraisal which it has or may
         have under any law now existing or hereafter enacted.

                                   ARTICLE VII

                                  Miscellaneous

         Section 7.1 Indemnification. The Debtor hereby agrees to indemnify each
Agent,  each Lender and each Affiliate  thereof and their  respective  officers,
directors,  employees,  attorneys,  and agents  (collectively  the  "Indemnified
Parties")  from,  and hold each of them  harmless  against,  any and all losses,
liabilities,  claims, damages, penalties, judgments,  disbursements,  costs, and
expenses (including  reasonable attorneys' fees) to which any of them may become
subject  which  directly  or  indirectly   arise  from  or  relate  to  (a)  the
negotiation, execution, delivery, performance, administration, or enforcement of
this  Agreement  or any  other  Loan  Document,  (b)  any  of  the  transactions
contemplated by this Agreement or any other Loan Document, (c) any breach by the
Debtor of any representation,  warranty,  covenant, or other agreement contained
in  this  Agreement  or any  other  Loan  Document,  or (d)  any  investigation,
litigation, or other proceeding,  including,  without limitation, any threatened
investigation, litigation, or other proceeding relating to any of the foregoing,
INCLUDING,  WITHOUT  LIMITATION,  THOSE  ARISING  FROM THE SOLE OR  CONTRIBUTORY
NEGLIGENCE OF ANY INDEMNIFIED PARTY.

         Section 7.2 No Waiver;  Cumulative Remedies.  No failure on the part of
any Agent or the Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right,  power,  or privilege  under this  Agreement
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any right,  power,  or  privilege  under this  Agreement  preclude  any other or
further  exercise  thereof  or  the  exercise  of any  other  right,  power,  or
privilege. The rights and remedies provided for in this Agreement are cumulative
and not exclusive of any rights and remedies provided by law.


<PAGE>


         Section 7.3  Successors and Assigns.  This  Agreement  shall be binding
upon and inure to the benefit of the Debtor,  the Agents,  the Lenders and their
respective heirs, successors, and assigns, except that the Debtor may not assign
any of its rights or obligations  under this Agreement without the prior written
consent of the Administrative Agent.

         Section 7.4 Amendment;  Entire Agreement.  THIS AGREEMENT  EMBODIES THE
FINAL,  ENTIRE  AGREEMENT  AMONG THE PARTIES  HERETO AND  SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS,  AGREEMENTS,  REPRESENTATIONS,  AND  UNDERSTANDINGS,  WHETHER
WRITTEN  OR  ORAL,  RELATING  TO  THE  SUBJECT  MATTER  HEREOF  AND  MAY  NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES  HERETO.  THERE ARE NO ORAL  AGREEMENTS
AMONG THE PARTIES  HERETO.  The  provisions of this  Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.

         Section 7.5 Notices. All notices and other communications  provided for
in this Agreement shall be given or made in accordance with Section 13.11 of the
Loan Agreement to the intended  recipient at the "Address for Notices" specified
below its name on the signature pages hereof,  or, as to any party at such other
address  as shall be  designated  by such  party in a notice to the other  party
given in accordance with this Section.

         Section 7.6  Governing  Law.  THIS  AGREEMENT  SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS AND THE  APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.

     Section 7.7 Headings. The headings, captions, and arrangements used in this
Agreement are for convenience  only and shall not affect the  interpretation  of
this Agreement.

         Section  7.8   Survival  of   Representations   and   Warranties.   All
representations  and  warranties  made in this  Agreement or in any  certificate
delivered  pursuant  hereto  shall  survive the  execution  and delivery of this
Agreement,  and no  investigation  by any Agent or any Lender  shall  affect the
representations  and  warranties or the right of any Agent or any Lender to rely
upon them.

         Section 7.9 Waiver of Bond. In the event the Administrative Agent seeks
to take  possession  of any or all of the  Collateral by judicial  process,  the
Debtor hereby  irrevocably  waives any bonds and any surety or security relating
thereto  that  may  be  required  by  applicable  law  as an  incident  to  such
possession,  and waives any demand for possession  prior to the  commencement of
any such suit or action.

         Section 7.10  Severability.  Any provision of this  Agreement  which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining   provisions  of  this  Agreement,   and  any  such
prohibition  or  unenforceability  in any  jurisdiction  shall not invalidate or
render unenforceable such provision in any other jurisdiction.

         Section  7.11  Construction.  The Debtor and the  Administrative  Agent
acknowledge  that each of them has had the  benefit of legal  counsel of its own
choice and has been afforded an  opportunity  to review this  Agreement with its
legal counsel.


<PAGE>


     Section  7.12  Obligations  Absolute.   All  rights  and  remedies  of  the
Administrative  Agent  hereunder,  and all obligations of the Debtor  hereunder,
shall be absolute and unconditional irrespective of:

               (a) any lack of validity or  enforceability of the Loan Agreement
          or any  of  the  other  Loan  Documents  or  any  other  agreement  or
          instrument relating to any of the foregoing;

                   (b) any change in the time,  manner,  or place of payment of,
         or in any other term of, all or any of the Secured Indebtedness, any or
         all of the  Obligations,  or any  other  amendment  or waiver of or any
         consent to any  departure  from the Loan  Agreement or any of the other
         Loan Documents;

               (c) any exchange, release, or nonperfection of any Collateral, or
          any release or amendment or waiver of or consent to any departure from
          any guarantee, for all or any of the Secured Indebtedness; or

                   (d) any other circumstance (other than payment in full of the
         Secured   Indebtedness)  that  might  otherwise  constitute  a  defense
         available to, or a discharge of, the Debtor.

         Section 7.13 Renewal.  Debtor acknowledges that this Agreement has been
given  in  amendment,   renewal,   restatement  and   confirmation  of  Debtor's
obligations,  covenants,  and  agreements  contained in the  Guarantor  Security
Agreement previously executed by Debtor in favor of Administrative Agent and the
Lenders, dated April 26, 1996, as amended,  confirmed,  and renewed from time to
time (the "Previous Agreement"). Debtor further confirms and agrees that neither
the  execution  of the  Loan  Agreement  or any  other  Loan  Document,  nor the
consummation of the transactions  described therein, shall in any way affect the
liens under the Previous  Agreement,  and the  obligations,  liens, and security
interests  evidenced by the Previous Agreement continue in full force and effect
as modified, amended, and restated by the terms contained herein.

         Section 7.14 Termination. If all of the Secured Indebtedness shall have
been paid and  performed  in full and the  Commitments  shall  have  expired  or
terminated,  the  Administrative  Agent shall,  upon the written  request of the
Debtor and in  accordance  with  applicable  provisions  of the Loan  Agreement,
promptly  execute and deliver to the Debtor a proper  instrument or  instruments
acknowledging  the release and termination of the security  interests created by
this  Agreement as the Debtor may reasonably  deem  necessary or desirable,  and
shall duly assign and deliver to the Debtor  (without  recourse  and without any
representation  or warranty)  such of the Collateral as may be in the possession
of the  Administrative  Agent  and has not  previously  been  sold or  otherwise
applied pursuant to this Agreement.

                     REMAINDER OF PAGE INTENTIONALLY BLANK.

                            SIGNATURE PAGE TO FOLLOW.


<PAGE>



                          BORROWER'S SECURITY AGREEMENT

         IN WITNESS  WHEREOF,  the Debtor has duly executed this Agreement as of
the day and year first written above.

                                     DEBTOR:

                                               PRIME MEDICAL SERVICES, INC.,
                                                 a Delaware corporation

                                               By: /s/ Teena E. Belcik
                                                          Teena E. Belcik
                                                          Treasurer

                                               Address for Notices:

                                               1301 Capital of Texas Highway
                                               Suite C-300
                                               Austin, Texas 78746
                                               Attn: Treasurer
                                               Fax Number:  (512) 328-8510
                                               Telephone Number:  (512) 314-4554








<PAGE>





                                       22

                          BORROWER'S SECURITY AGREEMENT

                                   SCHEDULE 1

Item A

         Intellectual Property
                           None

Item B

         Copyrights
                  None


<PAGE>


                                   SCHEDULE 2

                                 MOTOR VEHICLES

None.


<PAGE>


                                   SCHEDULE 3

                                   SECURITIES

                             SHARES OF SUBSIDIARIES

                                  Pledged Stock

Prime Medical Operating, Inc., a Delaware         - 1,000 shares of common stock
         corporation
Ohio Litho, Inc., a Delaware corporation          - 1,000 shares of common stock
R.R. Litho, Inc., a Delaware corporation          - 1,000 shares of common stock
Lithotripters, Inc., a North Carolina corporation -40,000 shares of common stock
FastStart, Inc., a North Carolina corporation     -10,000 shares of common stock
National Lithotripters Association, Inc., a North

         Carolina corporation                         100 shares of common stock
Prostatherapies, Inc., a Delaware corporation         100 shares of common stock
MedTech Investments, Inc., a North Carolina
         corporation                                5,375 shares of common stock


                           SHARES OF NON-SUBSIDIARIES

                                  Pledged Stock

American Physicians Service Group, Inc.           -50,000 shares of Common Stock




<PAGE>


                                   SCHEDULE 4

                             LOCATION OF COLLATERAL

                       Location of Equipment and Inventory

1301 Capital of Texas Highway
Suite C-300

Austin, Travis County, Texas 78746-6550


<PAGE>


                                   SCHEDULE 5

                            JURISDICTIONS FOR FILING

               Jurisdictions for Filing UCC-1 Financing Statements

Texas