Document:

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                                                                   Exhibit 10.18

                            STOCK PURCHASE AGREEMENT

                                  by and among

                       SPECTRUM HEALTHCARE SERVICES, INC.,

          THE BENEFICIAL OWNERS OF SPECTRUM HEALTHCARE SERVICES, INC.,

                               TEAM HEALTH, INC.,

                                       and

                    MADISON DEARBORN CAPITAL PARTNERS, L.P.,
                              AS THE REPRESENTATIVE

                           Dated as of March 29, 2002
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                                TABLE OF CONTENTS

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ARTICLE 1 DEFINITIONS.......................................................................    1

    Section 1.1           Definitions.......................................................    1

ARTICLE 2 PURCHASE AND SALE.................................................................   10

    Section 2.1           Purchase and Sale of Acquired Shares and Prudential Note..........   10
    Section 2.2           Purchase Price Adjustments........................................   10
    Section 2.3           The Closing.......................................................   12
    Section 2.4           Repayment of Indebtedness.........................................   13
    Section 2.5           Intercompany Accounts.............................................   13

ARTICLE 3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.............................   13

    Section 3.1           Organization and Qualification....................................   14
    Section 3.2           Subsidiaries......................................................   14
    Section 3.3           Capitalization....................................................   14
    Section 3.4           Authority of the Company..........................................   15
    Section 3.5           Compliance with Laws..............................................   16
    Section 3.6           Health Care Matters...............................................   16
    Section 3.7           Physician Independent Contractors. ...............................   17
    Section 3.8           Advisory and Other Fees...........................................   18
    Section 3.9           Taxes.............................................................   18
    Section 3.10          Corporate Records.................................................   19
    Section 3.11          Litigation........................................................   19
    Section 3.12          Financial Statements..............................................   19
    Section 3.13          Transactions with Affiliates......................................   20
    Section 3.14          Real Properties...................................................   20
    Section 3.15          Absence of Undisclosed Liabilities. ..............................   21
    Section 3.16          Absence of Certain Developments. .................................   21
    Section 3.17          Assets............................................................   22
    Section 3.18          Proprietary Rights................................................   23
    Section 3.19          Contracts.........................................................   23
    Section 3.20          Insurance.........................................................   25
    Section 3.21          Permits...........................................................   25
    Section 3.22          Employee Benefit Plans............................................   25
    Section 3.23          Employees; Labor Matters..........................................   26
    Section 3.24          Environmental Matters.............................................   27
    Section 3.25          Material Customers................................................   27
    Section 3.26          Employee Relations................................................   28
    Section 3.27          Officers, Directors and Employees. ...............................   29
    Section 3.28          Disclosure........................................................   29
    Section 3.29          Closing Date......................................................   29
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES REGARDING THE SELLERS.............................. 30

    Section 4.1           Existence and Power...............................................   30
    Section 4.2           Organizational Authorization......................................   30
    Section 4.3           Governmental Authorization........................................   30
    Section 4.4           Noncontravention..................................................   30

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BUYER.......................................   31

    Section 5.1           Existence and Power...............................................   31
    Section 5.2           Organizational Authorization......................................   31
    Section 5.3           Governmental Authorization........................................   31
    Section 5.4           Noncontravention..................................................   31
    Section 5.5           Financing.........................................................   31
    Section 5.6           Purchase for Investment...........................................   31
    Section 5.7           Finder's Fees.....................................................   31
    Section 5.8           Solvency..........................................................   32

ARTICLE 6 COVENANTS OF THE COMPANY..........................................................   32

    Section 6.1           Conduct of the Company and its Subsidiaries. .....................   32
    Section 6.2           Confidentiality...................................................   35
    Section 6.3           Access............................................................   35
    Section 6.4           Exclusive Dealing.................................................   35
    Section 6.5           Closing Options and Bonuses.......................................   35

ARTICLE 7 COVENANTS OF THE BUYER............................................................   36

    Section 7.1           Confidentiality...................................................   36
    Section 7.2           Access............................................................   36
    Section 7.3           Director and Officer Liability and Indemnification................   36
    Section 7.4           Employment and Benefit Arrangements...............................   36
    Section 7.5           Regulatory Filings................................................   37
    Section 7.6           Contact with Employees, Customers and Suppliers...................   37
    Section 7.7           Notification......................................................   37
    Section 7.8           D&O Insurance.....................................................   37
    Section 7.9           Financing.........................................................   37

ARTICLE 8 ADDITIONAL COVENANTS OF THE SELLERS AND THE BUYER.................................   38

    Section 8.1           Best Efforts; Further Assurances..................................   38
    Section 8.2           Further Cooperation...............................................   38
    Section 8.3           Public Announcements..............................................   38
    Section 8.4           Transfer Taxes....................................................   38
    Section 8.5           Acknowledgment by the Buyer.......................................   38
    Section 8.6           Employee Benefit Plans............................................   39
    Section 8.7           Disclosure Generally..............................................   41
    Section 8.8           Use of Spectrum Name..............................................   41
    Section 8.9           Prudential Note...................................................   41
    Section 8.10          Fund Dissolution..................................................   41
    Section 8.11          Certain Licenses..................................................   42
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ARTICLE 9 CONDITIONS TO CLOSING.............................................................   42

    Section 9.1           Conditions to the Buyer's Obligations. ...........................   42
    Section 9.2           Conditions to the Sellers' Obligations. ..........................   44

ARTICLE 10 TERMINATION......................................................................   45

    Section 10.1          Termination.......................................................   45
    Section 10.2          Effect of Termination.............................................   46

ARTICLE 11 INDEMNIFICATION AND RELATED MATTERS..............................................   46

    Section 11.1          Survival..........................................................   46
    Section 11.2          Indemnification...................................................   47
    Section 11.3          Certain Tax Matters...............................................   52

ARTICLE 12 NON COMPETE......................................................................   58

    Section 12.1          Noncompetition, Nonsolicitation, and Confidentiality..............   58
    Section 12.2          Nonsolicitation by the Buyer......................................   61
    Section 12.3          Noncompetition and Nonsolicitation of Aramark. ...................   61

ARTICLE 13 MISCELLANEOUS....................................................................   63

    Section 13.1          Notices...........................................................   63
    Section 13.2          Amendments and Waivers............................................   64
    Section 13.3          Construction; Severability........................................   65
    Section 13.4          Expenses..........................................................   65
    Section 13.5          Successors and Assigns............................................   65
    Section 13.6          Governing Law.....................................................   66
    Section 13.7          Jurisdiction......................................................   66
    Section 13.8          Waiver of Jury Trial..............................................   66
    Section 13.9          Counterparts; Third Party Beneficiaries. .........................   66
    Section 13.10         Entire Agreement..................................................   66
</TABLE>

List of Exhibits

Exhibit A  Form of Prudential Note
Exhibit B  Form of Escrow Agreement
Exhibit C  Executed Commitment Letter
Exhibit D  Matters to be Covered in K&E Opinion
Exhibit E  Form of Indemnification Agreement
Exhibit F  Form of Guaranty
Exhibit G  Form of Separation Side Letter
Exhibit H  List of Resigning Officers and Directors
Exhibit I  Matters to be Covered in H3GM Opinion
Exhibit J  Calculation of Target Working Capital
Exhibit K  Reviewed State Tax Returns

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                            STOCK PURCHASE AGREEMENT

         This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of March
29, 2002, by and among Spectrum Healthcare Services, Inc., a Delaware
corporation (the "Company"), each of the Persons set forth on the "Schedule of
Sellers" hereto, each of which is as of the date hereof a beneficial owner of
the Company (each a "Seller" and, collectively, the "Sellers"), Team Health,
Inc., a Tennessee corporation (the "Buyer"), and Madison Dearborn Capital
Partners, L.P., in its capacity as representative of each of the Sellers (the
"Representative"). Unless otherwise provided, capitalized terms used herein are
defined in Article 1 below.

         WHEREAS, upon the terms and subject to the conditions set forth herein,
the Buyer desires to acquire from the Sellers (other than Prudential) and the
Sellers (other than Prudential) desire to sell to the Buyer, all of the then
issued and outstanding shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), and the Buyer desires to acquire from Prudential, and
Prudential desires to sell to the Buyer, the Prudential Note;

         WHEREAS, Spectrum Holdings of Delaware, LLC, a Delaware limited
liability company ("Holdings"), currently owns 9,221,294 shares of Common Stock;
and

         WHEREAS, the Sellers, Holdings and the Company are parties to that
certain Distribution and Repurchase Agreement of even date herewith (the
"Distribution and Repurchase Agreement") pursuant to which, after the date
hereof and prior to the Closing, Holdings will, subject to the terms and
conditions set forth therein, distribute certain of the shares of Common Stock
to the Sellers and following such distributions the Company will, subject to the
terms and conditions set forth therein, repurchase the shares of Common Stock
held by Holdings and one of the Sellers.

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

                                   ARTICLE 1
                                  DEFINITIONS

         SECTION 1.1 DEFINITIONS.

         "Acquired Shares" means all of the issued and outstanding shares of
Common Stock following the distributions and repurchases pursuant to the
Distribution and Repurchase Agreement. For the avoidance of doubt, Acquired
Shares do not include any Repurchased Shares.

         "Affiliate" means (except as otherwise specifically defined herein), as
to any Person, any other Person which, directly or indirectly, controls, or is
controlled by, or is under common control with, such Person. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of management or policies of a
Person,
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whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise.

         "Affiliated Group" means an affiliated group as defined in Section 1504
of the Code (or any analogous combined, consolidated or unitary group defined
under state or local income Tax law).

         "Allocable Portion" means, with respect to the share of any Seller in a
particular amount, that fraction equal to such Seller's Seller Percentage.

         "Cash" means cash, cash equivalents and marketable securities, however
and wherever held (including, without limitation, restricted cash).

         "Closing Cash" means the aggregate balance of all Cash held by or for
the benefit of the Company or any Subsidiary (including, without limitation,
Related Entities) as of the close of business on the day immediately preceding
the Closing Date after giving effect to the elimination of intercompany accounts
as contemplated by Section 2.5; provided however, that if the restricted cash
required to be held by Healthcare Resources Medical Associates, Inc. as of the
close of business on the day immediately preceding the Closing Date exceeds
$50,000, then for purposes of the calculation of Closing Cash hereunder, Closing
Cash will be deemed to not include 50% of the amount by which such restricted
cash exceeds $50,000.

         "Closing Indebtedness" means the balance of all outstanding
Indebtedness as of the close of business on the day immediately preceding the
Closing Date after giving effect to the elimination of intercompany accounts as
contemplated by Section 2.5.

         "Closing Option and Bonus Amount" means an amount of cash, determined
by the Company's Board of Directors in its sole discretion at or prior to the
Closing Date, which will be paid out by the Company to one or more of its and/or
its Affiliates' employees immediately before the consummation of the
transactions contemplated by Section 2.1, which payments may, without
limitation, be in consideration for the cancellation of certain options such
employees have to acquire common units of Holdings.

         "Closing Working Capital" means the net book value of the Working
Capital of the Company as of the close of business on the day immediately
preceding the Closing Date after giving effect to the elimination of
intercompany accounts as contemplated by Section 2.5.

         "Code" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.

         "Employee Benefit Plan" means any employee benefit plan, program,
policy, practices, or other arrangement providing benefits to any current or
former employee, officer or director of the Company or any Subsidiary or any
beneficiary or dependent thereof that is sponsored or maintained by the Company
or any Subsidiary or to which the Company or any Subsidiary contributes or is
obligated to contribute, whether or not written, including without limitation
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
(whether or not such plan is

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subject to ERISA) and any bonus, incentive, deferred compensation, vacation,
sick leave or similar paid time off benefit, stock purchase, stock option,
continuing professional education, severance, employment, change of control or
other material fringe benefit plan, program or agreement. Employee Benefit Plans
include any such plan, program, policy, practice or other arrangement that is
sponsored or maintained by the Company or any Subsidiary covering: persons
providing services to Company or any Subsidiary as a Leased Employee as defined
under Code Section 414(n); persons employed by Company who provide services as
Leased Employees to others; and persons who are independent contractors with
respect to Company or any Subsidiary.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

         "Escrow Agent" means the Person serving as the escrow agent under the
Escrow Agreement.

         "Escrow Agreement" means the Escrow Agreement, by and among the
Sellers, the Buyer and the Representative, to be entered into prior to or in
connection with the Closing, substantially in the form of Exhibit B hereto.

         "Escrow Fund" has the meaning given to such term in the Escrow
Agreement.

         "Estimated Gross Per Share Common Value" means the result of (i) the
sum of (A) all of the outstanding principal and interest amounts owing to the
Company under the Intercompany Note as of the close of business on the day
immediately preceding the Closing Date after giving effect to any transactions
undertaken in connection with the elimination of Intercompany Accounts pursuant
to Section 2.5 and (B) the Estimated Purchase Price, divided by (ii) the
aggregate number of shares of Common Stock issued and outstanding as of
immediately prior to the repurchase transactions contemplated by Section 2 of
the Distribution and Repurchase Agreement (i.e., including all Repurchased
Shares).

         "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

         "Existing Credit Agreement" means that certain Second Amended and
Restated Loan Agreement, dated as of November 17, 2000 (as the same may from
time to time be amended, restated, supplemented or otherwise modified), by and
among the Company, Spectrum Healthcare, Inc., the various lending institutions
party thereto, Fleet National Bank, as administrative agent, Firstar Bank, N.A.,
as documentation agent, Bank of America, N.A., as syndication agent, and Fleet
Securities, Inc., as arranger.

         "GAAP" means United States generally accepted accounting principles,
consistently applied.

         "Guaranty Obligation" means the guaranty described in item 4. on
Schedule 3.13 hereto and each surety bond indemnity agreement described in item
3. on Schedule 3.15 hereto.

         "Indebtedness" means, as of a given time, without duplication, all
amounts owing as of such time under the agreements or instruments, if any,
specified on Schedule 1.1 and all amounts

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owing with respect to the Existing Credit Agreement, including without
limitation, any accrued interest or fees, the net amounts due related to any
interest rate swap or letter of credit obligation (or related to the
cancellation thereof), termination or prepayment fees, and any other fees and
expenses payable under the Existing Credit Agreement or as a result of its
termination; provided that the Prudential Note shall not be deemed to be
Indebtedness as defined herein.

         "Intercompany Note" means the Subordinated Intercompany Promissory Note
in the original principal amount of $25,656,868 issued by Spectrum Healthcare of
Delaware, Inc. to the Company on November 30, 2001.

         "Knowledge" and "aware" and terms of similar import mean, (i) with
respect to an individual, the actual knowledge of such individual after making
reasonable inquiry and exercising reasonable diligence with respect to the
particular matter in question and (ii) with respect to an entity, the actual
knowledge of the executive officers and directors of such Person, in each case
after making reasonable inquiry and exercising reasonable diligence with respect
to the particular matter in question consistent with the standard appropriate
for a Person having or holding the title or office of such executive officer or
director; provided that if the individual or entity is the Company or a Seller,
"knowledge" and "aware" and terms of similar import mean the actual knowledge of
Julian L. Carr, Jr., James Moore, Cathy Vivirito, JoAnn Zintel, Ruth Kim, Mel
Mahoney, George Tracy, Richard Miles and Sally Powers, in each case after making
reasonable inquiry and exercising reasonable diligence with respect to the
particular matter in question consistent with the standard appropriate for an
individual having or holding the title or office of such individual).

         "Loss" means, with respect to any Person, any damage, liability,
demand, claim, action, cost, imposed Tax, penalty, fine or other loss or
expense, whether or not arising out of a third party claim, including all
interest, penalties, reasonable attorneys' fees and expenses against or
affecting such Person; provided that "Loss" shall not include any form of
consequential or punitive damages except consequential or punitive damages
awarded to third parties.

         "Material Adverse Effect" means a material adverse effect which has
occurred or occurs to the business, operations, assets, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole; it
being understood that changes relating to the economy or factors affecting the
industry generally as well as changes arising from or relating to this
transaction, shall be excluded from the definition of "Material Adverse Effect."

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

         "Proprietary Rights" means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice) and any reissues, continuations,
continuations-in-part, revisions, extensions or reexaminations thereof; (ii)
trademarks, service marks, trade dress, logos, trade names and corporate names,
together with all goodwill associated therewith and all translations,
adaptations, derivations and combinations of the foregoing; (iii) copyrights and
copyrightable works, mask works; (iv) registrations, applications and renewals
for any of the foregoing; (v) trade secrets and

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confidential information (including, without limitation, ideas, formulae,
compositions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, financial and accounting data, business and marketing
plans, and customer and supplier lists and related information); (vi) computer
software (including, without limitation, data, databases, proprietary
information systems and documentation); (vii) other proprietary rights; and
(viii) all copies and tangible embodiments of the foregoing (in whatever form or
medium).

         "Prudential" means Prudential Private Equity Investors III, L.P.

         "Prudential Note" means the promissory note issued by the Company,
substantially in the form of Exhibit A hereto.

         "Related Entity" means any professional corporation or similar entity
the day to day business and administrative affairs of which are managed by the
Company or its Subsidiaries (other than any other Related Entities) and that has
entered into a management agreement with the Company or any Subsidiary for such
purpose, each of which are set forth on Schedule 3.2 hereto.

         "Repurchased Holdings Shares" means the number of shares of Common
Stock repurchased by the Company from Holdings pursuant to the Distribution and
Repurchase Agreement.

         "Repurchased Prudential Shares" means the number of shares of Common
Stock repurchased by the Company from Prudential pursuant to the Distribution
and Repurchase Agreement.

         "Repurchased Shares" means the Repurchased Holdings Shares and the
Repurchased Prudential Shares.

         "Seller Percentage" means, with respect to a Seller, (i) the aggregate
number of Acquired Shares sold by such Seller to the Buyer pursuant to this
Agreement (or, in the case of Prudential, the number of Repurchased Prudential
Shares) divided by (ii) the aggregate number of all Acquired Shares sold by all
of the Sellers to the Buyer pursuant to this Agreement plus the number of
Repurchased Prudential Shares; provided that if a determination of the Seller
Percentages is required to be made prior to the Closing, until such time as the
Closing has occurred, the Seller Percentages shall be based on the preceding
definition of Seller Percentage as if the transactions under the Distribution
and Repurchase Agreement and this Agreement were consummated on the date hereof.

         "SHS Executives" means Julian Carr, Jim Moore; Mel Mahoney and Bobbie
Margalski (the "SHS Executives").

         "Significant Seller" means Madison Dearborn Capital Partners, L.P.;
Healthcare Equity Partners, L.P.; Healthcare Equity QP Partners, L.P.;
Prudential Private Equity Investors III, L.P.; the Julian L. Carr, Jr. Revocable
Trust; and ARAMARK Organizational Services, Inc. (successor by merger to ARAMARK
Health & Education Services, Inc.).

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         "Subsidiary" means with respect to a Person, any entity the securities
or other ownership interests of which having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned by such Person and except as otherwise
specifically noted herein, the Company's Subsidiaries shall be deemed to include
the Related Entities.

         "Target Working Capital" means $8,377,591, which was calculated as set
forth on Exhibit J hereto.

         "Tax" means any federal, state, local or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, ad valorem/personal property, stamp,
excise, occupation, sales, use, transfer, value added, alternative minimum,
estimated or other tax, assessment, duty, fee, levy or other governmental
charge, including any interest, penalty or addition thereto, whether disputed or
not.

         "Tax Returns" means any return, report, information return or other
document (including schedules or any related or supporting information) filed or
required to be filed with any Governmental Authority or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of, any laws, regulations or administrative requirements relating
to any Tax.

         "Working Capital" means, as of a given time, (i) the net book value of
the current assets of the Company (excluding Cash and deferred and current tax
assets) as of such time, minus (ii) the net book value of the current
liabilities of the Company (excluding deferred and current tax liabilities such
as accrued income taxes payable and excluding Indebtedness and any accruals for
the net self insured retention under the Company's malpractice insurance
policies ("SIR")) including, without limitation, accrued salary, bonuses,
benefits and other compensation owing to the SHS Executives, as of such time, in
each case determined on a consolidated basis, minus (iii) $125,000, which amount
represents the parties' adjustment for SIR, and minus (iv) without duplication
to any other adjustments, any accrued and unpaid Closing Option and Bonus
Amount; provided, however, that all intercompany accounts to be cancelled as
provided in Section 2.5 shall be excluded from the calculation of Working
Capital. With respect to any calculation of Working Capital, the following
accruals shall not be reduced or increased from the amount thereof at December
31, 2001 except for reductions for actual payment of liabilities or charge off
of accounts receivable or the final determination or settlement of any amount
determined to be payable with respect to such accrual: (i) bad debt reserve on
accounts receivable; and (ii) the accrued liability balances of $500,000 and
$281,136, respectively, included in the account analysis of General Ledger
Account 257000 (Accrued-Other Expenses). With respect to any calculation of
Working Capital, the Discretionary 401(k) and SERP plan accruals shall reflect
an accrual rate not less than fifty percent (50%) of the maximum amounts of
compensation eligible for a matching contribution for the period from January 1,
2002 to the Closing Date. With respect to any calculation of Working Capital,
except as otherwise provided in this definition, no change in accounting
principles will be made from those utilized in preparing the Latest Balance
Sheet including, without limitation, with respect to the nature of accounts,
types of reserves or accruals, and/or methodology and assumptions for
determining the levels of reserves or accruals. For purposes of the preceding
sentence, "changes in accounting principles" includes all changes in accounting
principles, policies, practices, procedures or

                                       6
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methodologies with respect to financial statements, their classification or
their display, as well as all changes in practices, methods, conventions or
assumptions utilized in making accounting estimates.

         Cross-References to Other Defined Terms. Each term listed below is
defined in the Section of this Agreement listed opposite such term:

Term                                                   Section
----                                                   -------

Aramark                                                Section 12.1(a)
Actual Purchase Price                                  Section 2.2(b)
Agreement                                              Preface
Applicable Limitation Date                             Section 11.1
Approvals                                              Section 3.21
Audited Financial Statements                           Section 3.12(a)(ii)
Basket                                                 Section 11.2(b)(ii)
Buyer                                                  Preface
Buyer Comments                                         Section 11.3(b)(i)
Buyer Parties                                          Section 11.2
Buyer's Representatives                                Section 7.1
Buyer Tax Group                                        Section 11.3(a)(i)
Cap                                                    Section 11.2(b)(i)
Clinical Services                                      Section 3.7(b)
Closing                                                Section 2.3
Closing Date                                           Section 2.3
CMS                                                    Section 9.1(i)
Commitment Letter                                      Section 5.5
Common Stock                                           Recitals
Company                                                Preface
Company Proprietary Rights                             Section 3.18
Confidential Information                               Section 12.1(c)
Confidentiality Agreement                              Section 7.1
Covenantors                                            Section 12.1(a)
Customers                                              Section 3.25(b)
Distribution and Repurchase Agreement                  Recitals
Draft Computation                                      Section 2.2(b)
Environmental Requirements                             Section 3.24
Escrow Amount                                          Section 2.3(b)(iii)
Estimated Cash                                         Section 2.2(a)(ii)
Estimated Indebtedness                                 Section 2.2(a)(iii)
Estimated Purchase Price                               Section 2.2(a)
Estimated Working Capital Increase                     Section 2.2(a)(i)
Estimated Working Capital Decrease                     Section 2.2(a)(i)
Financing                                              Section 7.9
Financing Agreements                                   Section 7.9
Firm                                                   Section 2.2(b)
Governmental Authority                                 Section 3.5

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Term                                                   Section
----                                                   -------
Guaranty                                               Section 9.1(j)
Healthcare Facility                                    Section 3.25(a)
Holdings                                               Preface
Company Tax Group                                      Section 11.3(a)(iii)
HSR Act                                                Section 3.4(b)
Indemnification Agreement                              Section 9.1(i)
Indemnified Party                                      Section 11.2(e)(i)
Indemnifying Party                                     Section 11.2(e)(i)
Individual Covenantors                                 Section 12.1(e)
Intercompany Accounts                                  Section 2.5
Joint Defense Proceeding                               Section 11.2(e)(iii)
Latest Balance Sheet                                   Section 3.12(a)(iii)
Laws                                                   Section 3.5
Leased Property                                        Section 3.14(b)
Liens                                                  Section 3.14(a)
Marks                                                  Section 8.8
Material Contracts                                     Section 3.19
Material Customers                                     Section 3.25
Mirror SRP                                             Section 8.6
Noncompete Period                                      Section 12.1(e)
Non-Military Line of Business                          Section 12.1(e)
Objection Notice                                       Section 2.2(b)
Other Material                                         Section 13.10
Physician Contract                                     Section 3.7(a)
Prime Contractor                                       Section 3.25(a)
Purchase Price                                         Section 2.1
Pre-Closing Period                                     Section 11.3(a)(ii)
Pre-Closing Period Returns                             Section 11.3(b)(i)
Real Property                                          Section 3.14(a)
Real Property Lease                                    Section 3.14(b)
Representative                                         Preface
Schedule                                               Article 3
Schedule of Sellers                                    Preface
Schedule Update                                        Section 3.29
Seller                                                 Section 2.1
Seller Comments                                        Section 11.3(b)(iii)
Seller Parties                                         Section 11.2(c)
Seller's Tax Obligation                                Section 11.3(b)
Seller Transaction Expenses                            Section 13.4
Separation Side Letter                                 Section 9.1(k)
SHD                                                    Section 8.11
SHR Audited Financial Statements                       Section 3.12(a)(ii)
SHS Audited Financial Statements                       Section 3.12(a)(i)
Spectrum 401(k) Plan                                   Section 8.6(a)
Stark Act                                              Section 3.6(b)

                                       8
<PAGE>
Term                                                   Section
----                                                   -------
Straddle Period                                        Section 11.3(a)(iv)
Straddle Period Returns                                Section 11.3(b)(ii)
Tax Benefit                                            Section 11.3(b)(vi)
Tax Cap                                                Section 11.3(d)(iii)
Tax Claim                                              Section 11.3(e)
Tax Obligation Statement                               Section 11.3(b)(iii)
Transaction Value                                      Section 2.1
Unaudited Financial Statements                         Section 3.12(a)(iii)
Welfare Benefits Transition Period                     Section 8.6(c)(i)

                           [Intentionally left blank]

                                       9
<PAGE>
                                   ARTICLE 2
                                PURCHASE AND SALE

         SECTION 2.1 PURCHASE AND SALE OF ACQUIRED SHARES AND PRUDENTIAL NOTE.
Following the completion of the distribution and repurchase transactions
contemplated by the Distribution and Repurchase Agreement, upon the terms and
subject to the conditions set forth herein: (a) each Seller other than
Prudential shall sell, assign, transfer and convey to the Buyer, and the Buyer
shall purchase and acquire from each such Seller, all of the Acquired Shares
then held by such Seller at a price per share equal to the Estimated Gross Per
Share Common Value; and (b) Prudential shall sell, assign, transfer and convey
to the Buyer, and the Buyer shall purchase and acquire from Prudential, the
Prudential Note for a purchase price equal to the original principal amount
thereof. Subject to Section 2.2(c), the aggregate purchase price to be paid by
the Buyer to the Sellers for the Prudential Note and the Acquired Shares (the
"Purchase Price") at the Closing shall equal $147 million cash (the "Transaction
Value"), as adjusted pursuant to Section 2.2(a); provided, however, that $10
million of the Purchase Price to be otherwise paid at the Closing shall be
deposited by the Buyer with the Escrow Agent to be held and disbursed in
accordance with the Escrow Agreement. The Purchase Price shall be allocated and
paid to the Sellers pro rata based on each Seller's Seller Percentage.

         SECTION 2.2 PURCHASE PRICE ADJUSTMENTS.

                  (a) Closing Date Adjustments. At the Closing, the Purchase
         Price shall be adjusted dollar-for-dollar as set forth in this Section
         2.2(a). The Purchase Price, as adjusted pursuant to this Section
         2.2(a), is referred to herein as the "Estimated Purchase Price."

                           (i) Working Capital. On or before the Closing Date,
                  the Buyer and the Representative shall jointly in good faith
                  estimate the amount by which Closing Working Capital exceeds
                  Target Working Capital (such excess is referred to herein as
                  an "Estimated Working Capital Increase") or the amount by
                  which Closing Working Capital is less than Target Working
                  Capital (such deficiency is referred to herein as an
                  "Estimated Working Capital Decrease"). At the Closing, if
                  there is an Estimated Working Capital Increase, then the
                  Purchase Price shall be increased by the amount of such
                  excess, or if there is an Estimated Working Capital Decrease,
                  then the Purchase Price shall be decreased by the amount of
                  such deficiency.

                           (ii) Cash. On or before the Closing Date, the Buyer
                  and the Representative shall jointly in good faith estimate
                  the amount of Closing Cash (the "Estimated Cash"). At the
                  Closing, the Purchase Price shall be increased by the amount
                  of Estimated Cash.

                           (iii) Indebtedness. On or before the Closing Date,
                  the Buyer and the Representative shall jointly in good faith
                  estimate the amount of Closing Indebtedness (the "Estimated
                  Indebtedness"). At the Closing, the Purchase Price shall be
                  decreased by the amount of Estimated Indebtedness.

                                       10
<PAGE>
                           (iv) Dispute Resolution. In the event the Buyer and
                  the Representative are unable to agree on the Estimated
                  Working Capital Increase or the Estimated Working Capital
                  Decrease, as the case may be, or the Estimated Cash or the
                  Estimated Indebtedness as provided in Sections 2.2(a)(i)
                  through (iii), each such estimate in dispute shall be the
                  average of the good faith estimate of the Buyer and the good
                  faith estimate of the Representative for such Section
                  2.2(a)(i), (ii) and/or (iii) as the case may be.

                  (b) Post-Closing Determination. Within 90 days after the
         Closing Date, the Buyer and its auditors shall prepare, and deliver to
         the Representative, (i) the Buyer's determinations of Closing Working
         Capital, Closing Cash and Closing Indebtedness, and (ii) the Buyer's
         calculation of the Actual Purchase Price (collectively, the "Draft
         Computation"). The Buyer and its auditors will make available to the
         Representative and its auditors all records and work papers used in
         preparing the Draft Computation. If the Representative disagrees with
         any aspect of the Draft Computation, the Representative may, within 60
         days after receipt of the Draft Computation, deliver a notice (an
         "Objection Notice") to the Buyer setting forth the Representative's
         determination of Closing Working Capital, Closing Cash and/or Closing
         Indebtedness and the Representative's calculation of the Actual
         Purchase Price. The Buyer and the Representative shall use reasonable
         best efforts to resolve any disagreements as to the Draft Computation
         and the Objection Notice, but if they do not obtain a final resolution
         within 60 days after the Buyer has received the Objection Notice, the
         Buyer and the Representative shall jointly retain an independent
         accounting firm of recognized national standing (the "Firm") to resolve
         any remaining disagreements. If the Buyer and the Representative are
         unable to agree on the choice of the Firm, then the Firm shall be a
         "big-five" accounting firm (or a successor) selected by lot (after
         excluding one firm designated by the Buyer and one firm designated by
         the Representative). The Buyer and the Representative shall direct the
         Firm to render a determination within 30 days after its retention and
         the Buyer, the Representative and their respective agents shall
         cooperate with the Firm during its engagement. The Firm may consider
         only those items and amounts in the Draft Computation or Objection
         Notice which the Buyer and the Representative are unable to resolve. In
         resolving any disputed item, the Firm may not assign a value to any
         item greater than the greatest value for such item claimed by either
         party or less than the smallest value for such item claimed by either
         party. The Firm's determination shall be based solely on written
         submissions by the Buyer and the Representative (i.e., not on
         independent review) and on the definitions included herein. The
         determination of the Firm shall be conclusive and binding upon each of
         the parties hereto. The Buyer and the Sellers shall bear the costs and
         expenses of the Firm based on the percentage which the portion of the
         contested amount not awarded to each party bears to the amount actually
         contested by such party.

           The "Actual Purchase Price" means (i) the Transaction Value, plus
(ii) the amount, if any, by which Closing Working Capital exceeds Target Working
Capital, minus (iii) the amount, if any, by which Closing Working Capital is
less than Target Working Capital, plus (iv) the amount of Closing Cash, minus
(v) the amount of Closing Indebtedness, in each case as finally determined
pursuant to this Section 2.2(b); provided that, in the event the Buyer and its
auditors do not deliver the Draft Computation to the Representative within 90
days after the Closing Date,

                                       11
<PAGE>
at the written election of the Representative, the Actual Purchase Price shall
mean an amount equal to the Estimated Purchase Price.

                  (c) Post-Closing Adjustment.

                           (i) Payment by the Buyer. If the Actual Purchase
                  Price is greater than the Estimated Purchase Price, the Buyer
                  shall, within five (5) business days after the final
                  determination of the Actual Purchase Price, pay to the
                  Representative (for the benefit of the Sellers in accordance
                  with their respective Seller Percentages) an amount equal to
                  such difference plus simple interest thereon from the Closing
                  Date to the date of payment at an interest rate equal to 6%
                  per annum. Such payment will be made by wire transfer or
                  delivery of other immediately available funds.

                           (ii) Payment by the Sellers. If the Actual Purchase
                  Price is less than the Estimated Purchase Price, each Seller
                  shall, within five (5) business days after the determination
                  thereof, pay to the Buyer an amount equal to such Seller's
                  Allocable Portion of such difference plus simple interest
                  thereon from the Closing Date to the date of payment at an
                  interest rate equal to 6% per annum. Such payments will be
                  made by wire transfer or delivery of other immediately
                  available funds.

                           (iii) Dispute. If, pursuant to Section 2.2(b) above,
                  there is a dispute as to the final determination of the Actual
                  Purchase Price, the Buyer and the Sellers shall promptly pay
                  to the other, as appropriate, such amounts as are not in
                  dispute, together with interest thereon, pending final
                  determination of such dispute pursuant to Section 2.2(b).

         SECTION 2.3 THE CLOSING.

                  (a) The closing of the transactions contemplated by this
         Agreement (the "Closing") shall take place at the offices of Kirkland &
         Ellis in Chicago, Illinois, at 10:00 A.M. on the third business day
         following full satisfaction or due waiver of all of the closing
         conditions set forth in Article 9 hereof (other than those to be
         satisfied at the Closing) or on such other date as is mutually
         agreeable to the Buyer and the Representative. The date and time of the
         Closing are referred to herein as the "Closing Date."

                  (b) Upon the terms and subject to the conditions set forth in
         this Agreement, the parties hereto shall consummate the following
         transactions on the Closing Date (but only after giving effect to all
         distributions of shares of Common Stock by Holdings to the Sellers and
         all repurchases of shares of Common Stock by the Company from Holdings
         and Prudential, in each case, pursuant to the Distribution and
         Repurchase Agreement):

                           (i) each Seller (other than Prudential) shall deliver
                  to the Buyer one or more stock certificates representing all
                  of the Acquired Shares then held such Seller, if any, duly
                  endorsed for transfer or accompanied by duly executed stock
                  powers or other form of assignment and transfer;

                                       12
<PAGE>
                           (ii) Prudential shall deliver the Prudential Note,
                  accompanied by a duly executed assignment, to the Buyer;

                           (iii) the Buyer shall deliver to the Escrow Agent $10
                  million (the "Escrow Amount") cash by wire transfer of
                  immediately available funds to the account designated by the
                  Escrow Agent;

                           (iv) the Buyer shall deliver to the Representative
                  (for the benefit of the Sellers), by wire transfer of
                  immediately available funds to the account(s) designated by
                  the Representative, cash in an amount equal to the Estimated
                  Purchase Price less the Escrow Amount; and

                           (v) the Buyer, the Company, the Representative and
                  the Sellers shall make such other deliveries as are required
                  by and in accordance with Article 9 hereof.

         SECTION 2.4 REPAYMENT OF INDEBTEDNESS. Immediately after consummation
of the transactions contemplated by Section 2.3(b), the Buyer shall pay on
behalf of the Company, or cause the Company to repay, all of the Indebtedness in
accordance with the terms thereof.

         SECTION 2.5 INTERCOMPANY ACCOUNTS. All balances (other than the
Intercompany Note) between the Company and any of its Subsidiaries due and owing
to or from Holdings or any of its Subsidiaries (other than the Company and its
Subsidiaries) (the "Intercompany Accounts"), shall be canceled as of the close
of business on the day immediately preceding the Closing Date (i.e., after the
day immediately preceding the Closing Date the Company and its Subsidiaries
shall not have any obligation to repay any Intercompany Accounts and the Company
and its Subsidiaries shall no longer have the right to be paid in respect of any
Intercompany Accounts). Notwithstanding anything to the contrary contained
herein, the Sellers may cause the aforementioned settlement of the Intercompany
Accounts to be accomplished by means of transfer, offset, assumption,
cancellation, distribution, dividend, forgiveness, repayment, contribution or
any combination of the foregoing; provided, however, that the settlement of such
Intercompany Accounts shall be appropriately reflected in all Pre-Closing Period
Returns and Straddle Period Returns. This Section 2.5 shall not require the
cancellation of the Intercompany Note and the Intercompany Note shall remain
outstanding at the close of business on the day immediately preceding the
Closing Date and shall be transferred at the Closing to Holdings as provided in
Section 2 of the Distribution and Repurchase Agreement; provided that, for the
avoidance of doubt, any amount outstanding under the Intercompany Note shall be
excluded from the determinations of Working Capital and Indebtedness; provided
further that, at the option of the Sellers, amounts outstanding under the
Intercompany Note as of the close of business on the day immediately preceding
the Closing Date may be increased or decreased in connection with any
settlements undertaken in accordance with the prior sentence.

                                   ARTICLE 3
              REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY

         The Company represents and warrants to the Buyer that each statement
contained in this Article 3 is correct and complete, with the exceptions set
forth in the Schedules accompanying

                                       13
<PAGE>
this Agreement (each a "Schedule" and, collectively, the "Schedules"). The
Schedules shall constitute exceptions to this Article 3 whether or not any
particular representation makes reference to a Schedule. The Schedules have been
arranged for purposes of convenience only, as separately titled Schedules
corresponding to the sections of this Article 3; however, each Schedule shall be
deemed to incorporate by reference all information disclosed in any other
Schedule to the extent such information clearly on its face applies to such
first Schedule. Capitalized terms used in the Schedules and not otherwise
defined therein shall have the meanings ascribed to such terms in this
Agreement.

         SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its organization. The Company and each
Subsidiary has full corporate power and authority to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased and where such business is currently conducted or
proposed to be conducted. The copies of the Company's and each Subsidiary's
certificate of incorporation and by-laws, each as amended to date and each
heretofore made available to the Buyer and/or its agents, are complete and
correct, and no amendments thereto are pending. The Company and each Subsidiary
is duly licensed and qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification to do business necessary,
except where the failure to be so licensed or qualified would not, individually
or in the aggregate, have a Material Adverse Effect.

         SECTION 3.2 SUBSIDIARIES. The Company has no direct or indirect
Subsidiaries other than those listed on Schedule 3.2 hereto. Except as set forth
on Schedule 3.2 hereto, neither the Company nor any Subsidiary owns any
securities issued by any other business organization or Governmental Authority
(other than U.S. Government securities, bank certificates of deposit and money
market accounts acquired as short-term investments in the ordinary course of
business).

         SECTION 3.3 CAPITALIZATION.

                  (a) The total authorized capital stock of the Company consists
         of (i) 20,100,000 shares of Common Stock, of which 9,221,294 shares are
         issued and outstanding as of the date hereof, (ii) 100,000 shares of
         Class A Preferred Stock, $.01 par value per share, of which no shares
         are issued and outstanding as of the date hereof, and (iii) 200,000
         shares of Class B Preferred Stock, $.01 par value per share, of which
         no shares are issued and outstanding as of the date hereof. All of the
         issued and outstanding shares of Common Stock are duly and validly
         issued and outstanding, and are fully paid and non-assessable. On the
         date hereof, all of the issued and outstanding shares of Common Stock
         are owned by Holdings, free and clear of all pledges, liens,
         encumbrances or other claims or charges, except pledges, liens,
         encumbrances or other claims or charges which will be released at or
         prior to the Closing. Other than the Distribution and Repurchase
         Agreement, there are no outstanding subscriptions, options, warrants,
         commitments, preemptive rights, agreements, arrangements or commitments
         of any kind for or relating to the issuance, sale, registration or
         voting of, or outstanding securities convertible into or exchangeable
         for, any shares of capital stock of any class or other equity interests
         of the Company.

                                       14
<PAGE>
                  (b) All of the issued and outstanding shares of capital stock
         of each Subsidiary (other than any Related Entity) are duly and validly
         issued and outstanding, and are fully paid and non-assessable. All of
         the issued and outstanding shares of capital stock of each Subsidiary
         are directly or indirectly owned by the Company, free and clear of all
         pledges, liens, encumbrances or other claims or charges, except
         pledges, liens, encumbrances or other claims or charges which will be
         released at the Closing. There are no outstanding subscriptions,
         options, warrants, commitments, preemptive rights, agreements,
         arrangements or commitments of any kind for or relating to the
         issuance, sale, registration or voting of, or outstanding securities
         convertible into or exchangeable for, any shares of capital stock of
         any class or other equity interests of any Subsidiary.

                  (c) There are no outstanding or authorized stock appreciation,
         phantom stock, or similar rights with respect to the Company or any
         Subsidiary (other than any Related Entity). There are no voting trusts,
         proxies, or any other agreements or understandings with respect to the
         voting of the common stock of the Company or any Subsidiary. Other than
         the Distribution and Repurchase Agreement, neither the Company nor any
         Subsidiary is subject to any obligation (contingent or otherwise) to
         repurchase or otherwise acquire or retire any shares of Common Stock.

         SECTION 3.4 AUTHORITY OF THE COMPANY.

                  (a) The Company has full right, power and authority to enter
         into this Agreement and each agreement, document and instrument to be
         executed and delivered by it pursuant to or as contemplated by this
         Agreement and to carry out the transactions contemplated hereby and
         thereby. The execution and delivery of this Agreement and the
         performance of the Company's obligations hereunder have been duly
         authorized by all necessary corporate action on the part of the
         Company. This Agreement and each agreement, document and instrument to
         be executed and delivered by the Company pursuant to this Agreement
         constitute, or will when executed and delivered constitute, valid and
         binding obligations of the Company, enforceable in accordance with
         their respective terms, subject to applicable bankruptcy, insolvency,
         reorganization, moratorium and similar laws affecting creditors' rights
         generally, and subject, as to enforceability, to general principles of
         equity (regardless of whether enforcement is sought in a proceeding at
         law or in equity).

                  (b) The execution, delivery and performance by the Company of
         this Agreement and all other agreements contemplated hereby to which
         the Company is a party, the repurchase of common stock contemplated by
         the Distribution and Repurchase Agreement and the fulfillment of and
         compliance with the respective terms hereof and thereof by the Company
         do not and will not (i) materially conflict with or result in a
         material breach of the terms, conditions or provisions of, (ii)
         constitute a material default under, (iii) result in the creation of
         any lien, security interest, charge or encumbrance upon the respective
         capital stock or assets of the Company or any of its Subsidiaries
         pursuant to, (iv) result in a material violation of, or (vi) require
         any material authorization, consent, approval, exemption or other
         material action by or material notice or declaration to, or material
         filing with (except for any actions required under the
         Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended (the
         "HSR Act")), any

                                       15
<PAGE>
         court or administrative or governmental body or agency, the charter,
         bylaws or similar organizational documents of the Company or any of its
         Subsidiaries, or any material law, statute, rule or regulation to which
         the Company or any of its Subsidiaries are subject, or any material
         agreement, instrument, order, judgment or decree to which the Company
         or any of its Subsidiaries are subject, except as set forth on Schedule
         3.4 hereto.

         SECTION 3.5 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.5
hereto, (i) the Company and each Subsidiary is in compliance with all applicable
statutes, ordinances, orders, rules and regulations ("Laws") promulgated by any
federal, state, municipal or other governmental authority (a "Governmental
Authority") which apply to the conduct of its business, except where the failure
to do so would not have a Material Adverse Effect, and (ii) during the preceding
three years neither the Company nor any Subsidiary has received written notice
of a material violation or an alleged material violation of any such Law.

         SECTION 3.6 HEALTH CARE MATTERS. Except as set forth on Schedule 3.6:

                  (a) To the Knowledge of the Company, all physicians
         contracting with or employed by the Company or any of its Subsidiaries
         have and are maintaining in good standing their license to practice
         medicine in the state(s) in which they practice medicine and their DEA
         controlled substances registration, except where the failure to have or
         maintain such license or registration in good standing would not have a
         Material Adverse Effect.

                  (b) To the Knowledge of the Company, no person or entity has
         submitted any claim for or on behalf of the Company or any of its
         Subsidiaries that violates any applicable self-referral law, including
         the Federal Ethics in Patient Referrals Act, 42 U.S.C. Section 13955nn
         (known as the "Stark Act"), or any applicable state self-referral law.
         To the Knowledge of the Company, no person or entity has submitted any
         claim for or on behalf of the Company or any of its Subsidiaries for
         payment to any payor source, either governmental or nongovernmental, in
         violation of any false claim or fraud law, including the "False Claim
         Act," 31 U.S.C. Section 3729, or any other applicable federal or state
         false claim or fraud law.

                  (c) To the Knowledge of the Company, no person or entity
         (including without limitation any current or former manager, officer,
         member, partner, independent contractor, or employee of the Company or
         any of its Subsidiaries), nor any agent acting on behalf of or for the
         benefit thereof, has directly or indirectly, (i) knowingly and
         willfully offered or paid or received any remuneration, in cash or in
         kind, to, or made any financial arrangements with, any past or present
         customers, past or present suppliers, contractors or third party payors
         in order to obtain business or payments from such persons other than
         entertainment activities in the ordinary and lawful course of business,
         (ii) knowingly and willfully given or agreed to give, or is aware that
         there has been made or that there is any agreement to make or to
         receive, any gift or gratuitous payment of any kind, nature or
         description (whether in money, property or services) to any customer or
         potential customer, supplier or potential supplier, contractor, third
         party payor other than in connection with promotional or entertainment
         expenses in the ordinary and lawful course of business, (iii) knowingly
         and willfully made or agreed to make, or is aware that

                                       16
<PAGE>
         there has been made or that there is any agreement to make, any
         contribution, payment or gift of funds or property to, or for the
         private use of, any governmental official, employee or agent where
         either the contribution, payment or gift is or was illegal under the
         laws of the United States or under the laws of any state thereof or any
         other jurisdiction (foreign or domestic) under which such payment,
         contribution or gift was made, (iv) knowingly and willfully established
         or maintained any unrecorded fund or asset for any purpose or made any
         false or artificial entries on any of its books or records for any
         reason, (v) knowingly and willfully made, or agreed to make, or is
         aware that there has been made or that there is any agreement to make,
         any payment to any Person with the intention or understanding that any
         part of such payment would be used for any purpose other than that
         described in the documents supporting such payment, or (vi) knowingly
         and willfully paid or offered to pay or accepted or offered to accept
         any remuneration for any referral to or by the Company or any of its
         Subsidiaries in violation of any applicable anti-kickback law,
         including the Federal Anti-Kickback Statute, 42 U.S.C. Section
         1320a-7b(b), or any applicable state anti-kickback law.

                  (d) To the Knowledge of the Company, neither the Company nor
         any of its Subsidiaries (including without limitation any current or
         former manager, officer, member, partner, independent contractor, or
         employee of the Company or its Subsidiaries) has violated, been
         convicted of, charged with, or investigated for a Medicare, Medicaid,
         Champus, TRICARE or state or federal health program or law related
         offense, or violated, been convicted of, charged with, or investigated
         for a violation of federal or state law related to fraud, theft,
         embezzlement breach of fiduciary responsibility, financial misconduct,
         obstruction of an investigation or controlled substances, or has been
         excluded or suspended from participation in Medicare, Medicaid,
         Champus, TRICARE or any federal or state health program or been subject
         to any order or consent decree of, or criminal or civil fine or penalty
         imposed by, any court or governmental agency. To the Knowledge of the
         Company, neither the Company nor any of its Subsidiaries has entered
         into any agreement with (by employment or otherwise) any individual or
         entity that it knows or knew is sanctioned, suspended, debarred,
         excluded or otherwise prohibited from participation in a Federal Health
         Care Program, as defined in 42 U.S.C. Section 1320-7b(f), for the
         provision of items or services for which payment may be made under such
         Federal Health Care Program.

         SECTION 3.7 PHYSICIAN INDEPENDENT CONTRACTORS. Except as set forth on
Schedule 3.7:

                  (a) The Company and/or a Subsidiary has a written contract
         with all physician independent contractors (each a "Physician
         Contract") who currently render services for the Company or any of its
         Subsidiaries.

                  (b) All Physician Contracts are in full force and effect and
         do not require the physician's consent by reason of the transactions
         contemplated herein. The Company, each of its Subsidiaries and, to the
         Company's Knowledge, each physician independent contractor are in
         compliance in all material respects with the provisions thereof and
         have performed in all material respects all obligations required
         thereunder. To the Company's Knowledge, no act or event has occurred
         which, with or without the giving of notice or

                                       17
<PAGE>
         lapse of time or both, would constitute a default thereunder. To the
         Company's Knowledge, (i) each physician while providing clinical
         services (other than any administrative services related thereto)
         ("Clinical Services") to or through the Company or any of its
         Subsidiaries has always provided Clinical Services as an independent
         contractor regarding such Clinical Services for federal employment tax
         purposes, (ii) the Company has never issued a Form W-2 to any such
         physician in respect of such Clinical Services and (iii) the Company
         has annually issued a Form 1099 to each such physician in respect of
         such Clinical Services. During the seven year period prior to the date
         hereof, the Company and its Subsidiaries have not been the subject of
         an audit under Section 530(c) of the Revenue Act of 1978, as amended.

         SECTION 3.8 ADVISORY AND OTHER FEES. Neither Holdings, the Company, nor
any Subsidiary has incurred nor shall any of them become liable for any advisory
fee, broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement, other than an advisory fee payable
to Lehman Brothers, which fee shall be paid as provided in Section 13.4.

         SECTION 3.9 TAXES. Except as set forth on Schedule 3.9 hereto:

                  (a) All United States federal income Tax Returns of or with
         respect to the Company and each Subsidiary required by Law to be filed
         have been timely filed and all other material Tax Returns of or with
         respect to the Company and each Subsidiary required by applicable
         federal, foreign, state, local or other Law to be filed have been
         filed, and all such Tax Returns are true and complete in all material
         respects.

                  (b) The Company and each Subsidiary has timely paid or caused
         to be paid as of the date hereof all Taxes due and payable by them
         whether or not shown on the Tax Returns referred to in Section 3.9(a),
         except as set forth on Schedule 3.9(a) or to the extent such Taxes (i)
         are being contested in good faith by the Company or any Subsidiary and
         (ii) are properly reserved for on the Audited Financial Statements (as
         hereinafter defined) as such reserves are adjusted for the passage of
         time through the Closing Date in accordance with the past custom and
         practice of the Company and its Subsidiaries. The Company and each of
         its Subsidiaries has properly withheld and paid all Taxes required to
         have been withheld and paid in connection with amounts paid or owing to
         any shareholder, employee, creditor, independent contractor, or other
         third party. Neither the Company nor its Subsidiaries has any liability
         for violation of the safe harbor contained in Section 530(c) of the
         Revenue Act of 1978, as amended.

                  (c) No action, suit or proceeding is pending against or with
         respect to the Company's Taxes. There has not been any audit of any Tax
         Return filed by or with respect to the Company or any Subsidiary, no
         audit of any such Tax Return of or including the Company or any
         Subsidiary is in progress, and neither the Company nor any Subsidiary
         has been notified in writing by any taxing authority that any audit is
         contemplated or pending. No extension of time with respect to any date
         on which a Tax Return was or is to be filed by or with respect to the
         Company or any Subsidiary is in force, and no waiver or agreement by or
         with respect to the Company or any Subsidiary is in force for the
         extension of time for the assessment, payment or collection of any

                                       18
<PAGE>
         Taxes. No written claim has been made by any Governmental Authority in
         a jurisdiction where the Company or any Subsidiary does not file Tax
         Returns that the Company or any Subsidiary is or may be subject to
         taxation by that jurisdiction.

                  (d) Neither the Company nor any Subsidiary is a party to, is
         bound by or has any obligation under, any agreement relating to
         allocating or sharing the payment of, or liability for, Taxes or has
         any liability for Taxes of any Person (other than members of the
         affiliated group, within the meaning of Section 1504(a) of the Code,
         filing consolidated federal income tax returns of which the Company is
         the common parent) under Treasury Regulation Section 1.1502-6 (or a
         similar provision of state, local or foreign law), as a transferee or
         successor, by contract or otherwise.

                  (e) The Company and each Subsidiary has made all required
         estimated Tax payments sufficient to avoid any underpayment penalties.
         No closing agreement pursuant to Section 7121 of the Code or any
         similar provision of any state, local or foreign law has been entered
         into by or with respect to the Company or any Subsidiary. No assessment
         of Tax is proposed in writing against the Company or any Subsidiary or
         any of their properties or assets. No consent to the application of
         Section 341(f)(2) of the Code has been made or filed by or with respect
         to the Company or any Subsidiary or with respect to any of their
         properties or assets. Neither the Company nor any Subsidiary has agreed
         to or is required to make any adjustment for any period after the
         Closing Date pursuant to Section 481(a) of the Code by reason of any
         change in any accounting method, there is no application pending with
         any taxing authority requesting permission for any such change in any
         accounting method of the Company or any Subsidiary and the Internal
         Revenue Service has not proposed in writing any such adjustment or
         change in accounting method.

                  (f) The Company and its Subsidiaries have made available to
         the Buyer true, correct and complete copies of all Tax Returns,
         examination reports, and statements of deficiencies assessed against or
         agreed to by the Company or any Subsidiary for the five (5) year period
         ending on the date hereof.

         SECTION 3.10 CORPORATE RECORDS. The corporate record books of the
Company and each Subsidiary completely and accurately record all material
corporate action taken by their respective stockholders and boards of directors
and committees thereof. The copies of the corporate records of the Company and
each Subsidiary, as made available by the Company to the Buyer and/or its
agents, are true and complete copies of the originals of such documents.

         SECTION 3.11 LITIGATION. Except as set forth on Schedule 3.11 hereto,
(a) there are no actions, suits, investigations or other proceedings pending or,
to the Sellers' Knowledge, threatened against the Company or any Subsidiary (or
against any of their respective officers, directors, agents or employees, in
each case in their capacity as officers, directors, agents or employees of the
Company), at law or in equity, or before or by any Governmental Authority and
(b) neither the Company nor any Subsidiary is subject to any outstanding and
unsatisfied judgment, order or decree of any Governmental Authority.

         SECTION 3.12 FINANCIAL STATEMENTS.

                                       19
<PAGE>
                  (a) The Representative has delivered to the Buyer the
         following financial statements, attached as Schedule 3.12 hereto:

                           (i) Audited consolidated balance sheets of the
                  Company as of September 30, 2000 and September 30, 2001 and
                  audited consolidated statements of income, retained earnings
                  and cash flows for the 12-month periods then ended
                  (collectively, the "SHS Audited Financial Statements");

                           (ii) Audited combined balance sheets of Spectrum
                  Healthcare Resources as of September 30, 2000 and September
                  30, 2001, and audited combined statements of operations,
                  changes in owner's net investment, and cash flows for the
                  12-month periods then ended (collectively, the "SHR Audited
                  Financial Statements" and, together with the SHS Audited
                  Financial Statements, the "Audited Financial Statements"); and

                           (iii) Unaudited consolidated balance sheet of the
                  Company and Spectrum Healthcare Resources as of December 31,
                  2001 (the "Latest Balance Sheet") and the related statement of
                  income and cash flows for the three (3) months then ended
                  (collectively, the "Unaudited Financial Statements").

                  (b) The Audited Financial Statements have been prepared in
         accordance with GAAP applied consistently during the periods covered
         thereby, and present fairly in all material respects the financial
         condition of the relevant entities at the dates of said statements and
         the results of their operations and cash flows for the periods covered
         thereby. The Unaudited Financial Statements have been prepared in
         accordance with GAAP applied consistently during the period covered
         thereby, and present fairly in all material respects the financial
         condition of the Company and its Subsidiaries at the date of such
         statements and the results of their operations and cash flows for the
         period covered thereby, except that they do not contain the materials
         and disclosures to be found in notes to financial statements prepared
         in accordance with GAAP nor do they reflect year-end adjustments.

         SECTION 3.13 TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 3.13 hereto and except to the extent reflected in the financial
statements attached as Schedule 3.12 hereto, during the preceding three years
there have been no material transactions, contracts, understandings or
agreements of any kind between the Company or any Subsidiary and any Person
(other than the Company or any of its Subsidiaries) who is an Affiliate of the
Company or any of its Subsidiaries or any of the Sellers or their Affiliates.

         SECTION 3.14 REAL PROPERTIES.

                  (a) Schedule 3.14 hereto describes all material real
         properties owned of record or beneficially by the Company and each
         Subsidiary (individually, a "Real Property" and collectively, the "Real
         Properties"). Except as set forth on Schedule 3.14 hereto, the Company
         and each Subsidiary has good and marketable title to its Real
         Properties, free and clear of all liens, leases, encumbrances, claims
         under bailment and storage agreements, equities, conditional sales
         contracts, encroachments, conditions, limitations,

                                       20
<PAGE>
         security interests, charges and restrictions (collectively, "Liens"),
         except for (i) Liens, if any, for real property taxes not yet due and
         payable, (ii) Liens identified on Schedule 3.14 hereto and (iii) Liens
         which do not, individually or in the aggregate, materially detract from
         the value, or materially interfere with the present use, of the
         property subject thereto.

                  (b) Schedule 3.14 hereto sets forth each lease or other
         agreement under which the Company or any Subsidiary leases or has
         rights in any material real property (the "Real Property Leases" and,
         each individually, a "Real Property Lease"). True and complete copies
         of the Real Property Leases have been made available to the Buyer
         and/or its agents by the Company. Except as set forth on Schedule 3.14
         hereto, there are no amendments or modifications to any of the Real
         Property Leases. Except as set forth on Schedule 3.14 hereto, the
         Company and each Subsidiary has a valid and subsisting leasehold
         interest in all the real property which is the subject of each of the
         respective Real Property Leases set forth on Schedule 3.14 hereto
         (individually, a "Leased Property" and, collectively, the "Leased
         Properties").

                  (c) None of the Real Properties are subject to any pending
         condemnation or similar proceeding by any Governmental Authority, and,
         to the Knowledge of the Company, no such condemnation is threatened. To
         the Knowledge of the Company, no material permit, license or
         certificate of occupancy pertaining to the ownership or operation of
         any Real Property or pertaining to the leasing or operation of any
         Leased Property, other than those which are transferable with such
         property, is required by any Governmental Authority.

         SECTION 3.15 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 3.15, there are not any material liabilities (whether accrued,
absolute, contingent, unliquidated, or otherwise, whether or not known, whether
due or to become due, and regardless of when asserted) arising out of or
relating to the operation of the Company's business at or before the Closing,
that are required to either be recorded in the consolidated financial statements
of the Company and its Subsidiaries or disclosed in footnotes to such financial
statements in accordance with GAAP except (i) liabilities under contracts or
commitments described on Schedule 3.19 or under contracts and commitments which
are not required to be disclosed thereon (but not material liabilities for
breaches thereof), (ii) liabilities reflected on the Latest Balance Sheet or the
notes thereto, (iii) liabilities which have arisen after the date of the Latest
Balance Sheet or otherwise in accordance with the terms and conditions of this
Agreement (none of which is a liability for breach of contract, breach of
warranty, tort, or infringement or a claim or lawsuit or any environmental
liability), and (iv) liabilities, contracts, commitments or obligations
disclosed elsewhere in this Agreement or the Schedules.

         SECTION 3.16 ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly
contemplated by this Agreement and the agreements contemplated hereby, since the
date of the Latest Balance Sheet, the Company has not:

                  (a) suffered any theft, damage, destruction, or casualty loss
         in excess of $100,000, to its assets, whether or not covered by
         insurance, or suffered any substantial destruction of books and
         records;

                                       21
<PAGE>
                  (b) subjected any portion of its properties or assets to any
         lien other than liens, which individually or in the aggregate, would
         not reasonably be expected to have a Material Adverse Effect;

                  (c) sold, leased, assigned, or transferred (including, without
         limitation, transfers to Holdings or any Affiliate of Holdings) a
         material portion of its tangible assets, or canceled without fair
         consideration any material debts or claims owing to or held by it,
         except in the ordinary course of business of the Company;

                  (d) sold, assigned, licensed, or transferred (including,
         without limitation, transfers to Holdings or any Affiliate of Holdings)
         any material Proprietary Rights owned by, issued to, or licensed to the
         Company or, to the Knowledge of the Company, disclosed any material
         confidential information to (other than pursuant to agreements
         requiring the recipient to maintain the confidentiality of such
         confidential information) any third party in violation of any express
         contractual obligation of confidentiality;

                  (e) suffered any Loss or waived any rights, the suffering or
         waiver of which would result in a Material Adverse Effect;

                  (f) other than in the ordinary course of business of the
         Company, entered into, amended, or terminated any Real Property Leases,
         material personal property lease, contract, agreement, license or
         commitment, or taken any other action or entered into any other
         material transaction that has had or would reasonably be expected to
         have a Material Adverse Effect;

                  (g) except in the ordinary course of business of the Company,
         (i) paid or increased any bonuses, salaries, or other compensation to
         any stockholder, director, officer, or employee (other than any SHS
         Executives) or (ii) entered into any material employment, severance, or
         similar contract or agreement with any director, officer, or employee
         (other than any SHS Executives);

                  (h) except in the ordinary course of business, materially
         increased the payments to or benefits under, any profit sharing, bonus,
         deferred compensation, savings, insurance, pension, retirement, or
         other employee benefit plan for or with any employees of the Company
         (other than any SHS Executives);

                  (i) made any capital expenditures or commitments for capital
         expenditures in excess of $100,000 in the aggregate other than the
         capital expenditures referenced on Schedule 3.16; or

                  (j) made a material change in its accounting methods except as
         required by changes in GAAP since the date of the Latest Balance Sheet.

         SECTION 3.17 ASSETS. Except as set forth on Schedule 3.17 hereto, (a)
the Company and each Subsidiary has good title to all of the items of tangible
personal property reflected on the Latest Balance Sheet, except as sold or
disposed of subsequent to the date thereof in the ordinary course of business
consistent with past practices, and (b) all such tangible personal property is
owned free and clear of all Liens, except for (i) Liens identified on Schedule
3.17 hereto,

                                       22
<PAGE>
(ii) Liens which, individually or in the aggregate, do not materially detract
from the value, or materially interfere with the present use, of the Company's
or any Subsidiary's aggregate tangible personal property and (iii) Liens for
taxes not yet due and payable. The tangible personal property of the Company and
each Subsidiary is in good repair and working order, except as would not,
individually or in the aggregate, have a Material Adverse Effect. Neither
Holdings nor any of its Subsidiaries (except the Company and its Subsidiaries)
owns any properties or assets (whether real, personal, or mixed and whether
tangible or intangible) which are primarily used in or necessary to operate the
business of the Company and its Subsidiaries as currently conducted other than
those properties or assets which will be made available to the Company after the
Closing pursuant to the Transition Services Agreement or which the Company or
any of its Subsidiaries otherwise has a contractual right to use.

         SECTION 3.18 PROPRIETARY RIGHTS.

                  (a) Schedule 3.18 contains a complete and accurate list of:
         (i) all patented and registered Proprietary Rights and all pending
         patent applications and applications for the registration of other
         Proprietary Rights filed by the Company or any Subsidiary; (ii) all
         material trade names, material unregistered trademarks, material
         unregistered service marks, material unregistered copyrights, material
         proprietary information systems and proprietary databases owned by the
         Company or any Subsidiary; and (iii) computer software owned and/or
         used by the Company other than commercially available "off-the-shelf"
         software (collectively, the "Company Proprietary Rights").

                  (b) The Company or a Subsidiary owns and possesses free and
         clear of all liens (except liens, which individually or in the
         aggregate, would not reasonably be expected to have a Material Adverse
         Effect), all right, title, and interest in and to, or has the right to
         use pursuant to a license, the Company Proprietary Rights. Neither
         Company nor any Subsidiary has received any notice of the invalidity,
         infringement, or misappropriation from any third party with respect to
         any such Company Proprietary Rights. The Company has not received any
         written notice that any Proprietary Rights of any third parties have
         been interfered with, infringed upon, or misappropriated by the Company
         or its Subsidiaries. To the Knowledge of the Company, no third party
         has interfered with, infringed upon, misappropriated, or otherwise come
         into conflict with any of the Company Proprietary Rights.

         SECTION 3.19 CONTRACTS. Except for contracts, commitments, plans,
agreements and licenses listed on Schedule 3.19 hereto (true and complete copies
of which have been made available to the Buyer and/or its agents) (the "Material
Contracts"), neither the Company nor any Subsidiary is a party to or subject to:

                  (a) any plan or contract providing for bonuses, pensions,
         options, stock purchases, deferred compensation, retirement payments,
         profit sharing, collective bargaining or the like or any contract or
         agreement with any labor union (other than the plans listed on Schedule
         3.22);

                  (b) any employment contract or contract for services (other
         than for services by independent contractors) which requires the
         payment of more than $150,000 annually

                                       23
<PAGE>
         in total compensation or contracts relating to loans in excess of
         $25,000 in the aggregate to all officers and directors of the Company;

                  (c) any contract or agreement for the purchase of any
         commodity, material or equipment in excess of $200,000 (other than
         purchase orders entered into in the ordinary course of business);

                  (d) any other contracts or agreements creating any obligation
         of the Company or any Subsidiary of $200,000 or more with respect to
         any such contract;

                  (e) guaranty of any obligation in excess of $100,000;

                  (f) agreement for the lease of personal property except for
         any lease or agreement for personal property under which the aggregate
         annual payments do not exceed $100,000;

                  (g) any contract or agreement providing for the purchase of
         all or substantially all of its requirements of a particular product
         from a supplier;

                  (h) any contract or agreement that by its terms does not
         terminate or is not terminable by the Company or any Subsidiary within
         twelve months after the date hereof without payment of a penalty of
         $50,000 or more;

                  (i) any material contract or agreement for the sale or lease
         of any of its services or assets not made in the ordinary course of
         business;

                  (j) any contract containing covenants materially limiting the
         freedom of the Company or any Subsidiary to compete in any line of
         business or with any Person;

                  (k) any contract or agreement for the purchase of any fixed
         asset for a price in excess of $100,000 whether or not such purchase is
         in the ordinary course of business;

                  (l) any other agreement, entered into other than in the
         ordinary course of business, which involves consideration in excess of
         $250,000 annually;

                  (m) any partnership, joint venture or other similar contract
         or agreement; or

                  (n) any material contract or agreement providing for the
         license of patents, trademark registrations, service mark
         registrations, trade names or copyright registrations to or from the
         Company or any Subsidiary.

           All Material Contracts are valid and in full force and effect and
constitute legal, valid and binding obligations of the Company or its Subsidiary
and, to the Knowledge of the Company, the other parties thereto, and are
enforceable against such Company or Subsidiary in accordance with their
respective terms. Neither the Company nor any Subsidiary is in default in
complying with any material provisions thereof, and no condition or event or
facts exist which, with notice, lapse of time or both, would constitute a
default thereof on the part of any Company or Subsidiary which default would,
individually or in the aggregate with other such defaults, have a

                                       24
<PAGE>
Material Adverse Effect. To the Knowledge of the Company, no other party is in
default in complying with any material provisions thereof, and no condition or
event or facts exist which, with notice, lapse of time or both, would constitute
a default thereof on the part of such party, which default would reasonably be
expected to have, individually or in the aggregate with other such defaults, a
Material Adverse Effect.

         SECTION 3.20 INSURANCE. Schedule 3.20 hereto is a complete and correct
list of all policies of insurance or fidelity bonds maintained by the Company
and each Subsidiary. Such policies are in full force and effect and, to the
Knowledge of the Company, neither the Company nor any Subsidiary is in material
default with respect to its obligations under any such policies.

         SECTION 3.21 PERMITS. Except as set forth on Schedule 3.21 hereto, (i)
the Company and each Subsidiary has obtained all material permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") from federal, state or local authorities
necessary for the conduct of its business as presently conducted, (ii) all such
Approvals are valid and in full force and effect, (iii) none of such Approvals
is subject to termination by its terms as a result of the execution of this
Agreement by the Company or any Subsidiary or by the consummation of the
transactions contemplated by this Agreement, and (iv) no further material
Approvals will be required of the Company, any Subsidiary or the Buyer in order
for the Company or any Subsidiary to continue to conduct the business currently
conducted by the Company or such Subsidiary immediately following the Closing.

         SECTION 3.22 EMPLOYEE BENEFIT PLANS. All Employee Benefit Plans
maintained by the Company and each Subsidiary, or to which the Company or any
Subsidiary is obligated to contribute, are listed on Schedule 3.22 hereto and
are payable on the terms described in such Employee Benefit Plans. Except as set
forth on Schedule 3.22 hereto:

                  (a) all such Employee Benefit Plans have been made available
         to the Buyer and/or its agents;

                  (b) all such Employee Benefit Plans have been maintained,
         funded and administered in compliance in all material respects with all
         applicable Laws, including without limitation, ERISA and the Code;

                  (c) no such Employee Benefit Plan, or any trustee or
         administrator thereof nor any employee or any "fiduciary" has, to the
         Knowledge of the Company, engaged in any material breach of fiduciary
         responsibility or any "prohibited transaction" (as such term is defined
         in Section 406 of ERISA or Section 4975 of the Code) to which Section
         406 of ERISA or Section 4975 of the Code applies and which could
         subject any such Employee Benefit Plan or trustee or administration
         thereof, or any party dealing with any such Employee Benefit Plan, to
         the tax or penalty on prohibited transactions imposed by Section 4975
         of the Code;

                  (d) no such Employee Benefit Plan (other than stock option
         plans) holds as an asset any Employer Security or any Employer Real
         Estate as those terms are defined in ERISA Section 407(d)(1) and (2)
         respectively;

                                       25
<PAGE>
                  (e) no Employee Benefit Plan is or has within the last six
         years been subject to the minimum funding requirements of Section 412
         of the Code or Title IV of ERISA;

                  (f) neither the Company nor any Subsidiary has an obligation
         to contribute to any "multiemployer plan" within the meaning of Section
         3(37) of ERISA;

                  (g) neither the Company nor any Subsidiary is a party to, nor
         administers for others, a multiple employer plan subject to Code
         Section 413(c);

                  (h) no suit, action, or other litigation has been brought
         against or with respect to any Employee Benefit Plan listed on Schedule
         3.22;

                  (i) no voluntary or involuntary corrective action, or closing
         agreement, under any PBGC, IRS or DOL Employee Benefit Plan corrective
         program, formal or informal or on an anonymous basis, is pending or
         uncompleted as to any Employee Benefit Plan;

                  (j) each Employee Benefit Plan intended to qualify under
         Section 401 of the Code has received a favorable determination letter
         from the Internal Revenue Service that such Employee Benefit Plan is a
         "qualified plan" under Section 401(a) of the Code, the related trusts
         are exempt from tax under Section 501(a) of the Code, and, to the
         Knowledge of the Company, no facts or circumstances exist that would be
         reasonably likely to jeopardize the qualification of such Employee
         Benefit Plan;

                  (k) accruals for material liabilities relating to Employee
         Benefit Plans, including, without limitation, self-funded medical
         claims, have been accrued on the Company's and each Subsidiary's
         financial statements in accordance with GAAP;

                  (l) neither the Company nor any Subsidiary has liability under
         any Employee Benefit Plan, or otherwise, to provide medical or death
         benefits with respect to current or former employees of the Company or
         any Subsidiary beyond their termination of employment (other than
         coverage mandated by law), and there are no reserve assets, surplus or
         prepaid premiums under any such Employee Benefit Plan;

                  (m) the consummation of the transactions contemplated by this
         Agreement will not (i) reasonably be expected to result in any "excess
         parachute payment" under Section 280G of the Code or (ii) other than
         pursuant to the Employee Benefit Plans listed on Schedule 3.22 or
         pursuant to actions taken by the Buyer, result in any liability to any
         present or former employee or independent contractor, including, but
         not limited to, as a result of the Worker Adjustment Retraining and
         Notification Act; and

                  (n) the consummation of the transactions contemplated hereby,
         either alone or in conjunction with any other event, will not result in
         the acceleration of payment or vesting, or an increase in the amount,
         of any benefit paid or provided under any of the Employee Benefit
         Plans.

         SECTION 3.23 EMPLOYEES; LABOR MATTERS. Neither the Company nor any
Subsidiary is delinquent in any material payments to any of its employees or
independent contractors for any wages, salaries, commissions, bonuses,
severance, termination pay or other direct compensation

                                       26
<PAGE>
for any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth on Schedule 3.23 hereto,
neither the Company nor any Subsidiary has a policy, practice, plan or program
of paying severance pay or any form of severance compensation in connection with
the termination of employment. The Company and each Subsidiary is in material
compliance with all material applicable laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours. Except as set forth on Schedule 3.23 hereto, no material
charges of employment discrimination or unfair labor practices have been brought
against the Company or any Subsidiary, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
existing, pending or, to the Knowledge of the Company, threatened against or
involving, the Company or any Subsidiary, which would, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 3.23
hereto, neither the Company nor any Subsidiary has received written notice of
any impending strikes, slowdowns, concerted interference with normal operations
or union organization activities. Except as set forth on Schedule 3.23 hereto,
there are no material grievances, complaints or charges that have been filed
against the Company or any Subsidiary under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement) that have not been
dismissed. Except as set forth on Schedule 3.23 hereto, no collective bargaining
agreements are in effect or are currently being or are about to be negotiated by
the Company or any Subsidiary. Neither the Company nor any Subsidiary has
received written notice of pending or threatened changes with respect to
(including, without limitation, resignation of) the senior management or key
supervisory personnel of the Company or any Subsidiary.

         SECTION 3.24 ENVIRONMENTAL MATTERS. The Company and its Subsidiaries
have obtained and possess all material permits, licenses and other material
authorizations required under federal, state and local laws and regulations
concerning pollution or protection of the environment, in each case in effect on
or prior to the date hereof, including all such laws and regulations relating to
the emission, discharge, release or threatened release of any petroleum,
pollutants, contaminants or hazardous or toxic materials, substances or wastes
into air, surface water, groundwater or lands ("Environmental Requirements").
Except as set forth on Schedule 3.24 hereto, the Company and each Subsidiary is
in compliance in all material respects with all terms and conditions of such
material permits, licenses and authorizations and are also in compliance in all
material respects with all other Environmental Requirements. Neither the Company
nor any Subsidiary has received written notice of material violations or
material liabilities arising under Environmental Requirements relating to the
Company, its Subsidiaries or their respective facilities.

         SECTION 3.25 MATERIAL CUSTOMERS.

                  (a) Schedule 3.25(a) hereto lists (i) each hospital, hospital
         department, military treatment facility, veterans treatment facility,
         clinic, outpatient clinic, surgery center, or healthcare facility (each
         a "Healthcare Facility") at which the Company and its Subsidiaries
         earned revenue in excess of $500,000 during the twelve months ended
         December 31, 2001, and (ii) each Person that is, as of the date hereof,
         a contractor to the U.S. Department of Defense, the U.S. Department of
         Veterans Affairs, or to any of their affiliates or through their
         programs, and which has a contract with the Company or any of

                                       27
<PAGE>
         its Subsidiaries that provided for annual payments to the Company and
         its Subsidiaries in excess of $500,000 per year, (each a "Prime
         Contractor" and together with the Healthcare Facilities, the "Material
         Customers").

                  (b) Except as set forth on Schedule 3.25(b) hereto, (i) within
         the last twelve months, no Material Customer has threatened in writing
         or, to the Knowledge of the Company, otherwise threatened to cancel or
         otherwise terminate, its relationship with the Company or any
         Subsidiary, (ii) no Material Customer has during the last twelve months
         decreased materially or threatened in writing or, to the Knowledge of
         the Company, otherwise threatened to decrease or limit materially its
         usage or purchase of services of the Company or any Subsidiary, or, to
         the Knowledge of the Company, intends to modify materially its
         relationship with the Company or any Subsidiary or intends to decrease
         or limit materially its usage or purchase of services of the Company or
         any Subsidiary, (iii) to the Knowledge of the Company, the acquisition
         of the Common Stock by the Buyer and the consummation of the
         transactions contemplated herein will not adversely affect the
         relationship of the Company or any Subsidiary with any of its Material
         Customers, (iv) within the last twelve months, none of the Material
         Customers or any other Person that would be required to be set forth on
         Schedule 3.25(a) but for the revenue thresholds described therein (the
         "Customers"), have threatened in writing to cancel or otherwise
         terminate or, to the Knowledge of the Company, intend to cancel or
         otherwise terminate their relationships with the Company or any
         Subsidiary, in each case, the loss of which would have, individually or
         in the aggregate, a Material Adverse Effect, (v) within the last twelve
         months, no Customers have decreased or threatened in writing or, to the
         Knowledge of the Company, otherwise threatened to decrease or limit
         their usage or purchase of services of the Company or any Subsidiary
         or, to the Knowledge of the Company, intend to modify their
         relationships with the Company or any Subsidiary, in each case, to the
         extent of having, individually or in the aggregate, a Material Adverse
         Effect and (vi) to the Knowledge of the Company, the acquisition of the
         Common Stock by the Buyer and the consummation of the transactions
         contemplated herein will not affect the relationships of the Company or
         any Subsidiary with any Customers to the extent of having, individually
         or in the aggregate, a Material Adverse Effect.

         SECTION 3.26 EMPLOYEE RELATIONS.

                  (a) Schedule 3.26(a) hereto lists as of the date hereof the
         number of employees in the aggregate, the number of full-time personnel
         and the number of contract workers of the Company and each Subsidiary.
         Except as set forth on Schedule 3.26(a) hereto, none of the employees
         of the Company or any Subsidiary is represented by a union, and, to the
         Knowledge of the Company, no union organizing efforts have been
         conducted within the last three years or are now being conducted.
         Except as disclosed in Schedule 3.26(a) hereto, neither the Company nor
         any Subsidiary has at any time during the last three years had or, to
         the Knowledge of the Company, is there now threatened, a strike,
         picket, work stoppage, work slowdown or other material labor dispute.

                  (b) Set forth on Schedule 3.26(b) hereto is a list of all
         material actions, suits and proceedings pending between the Company or
         any Subsidiary and any independent contractors, employees, former
         employees or prospective employees of the Company and

                                       28
<PAGE>
         any Subsidiary or involving other labor-related matters. Neither the
         Company nor any Subsidiary has violated in any material respect any
         provision of any Law promulgated by any Governmental Authority
         regarding the terms and conditions of independent contractors,
         employees, former employees or prospective employees or other
         labor-related matters, including, without limitation, Laws relating to
         discrimination, fair labor standards and occupational health and
         safety, wrongful discharge or violation of the personal rights of
         employees, former employees or prospective employees of the Company or
         any Subsidiary.

         SECTION 3.27 OFFICERS, DIRECTORS AND EMPLOYEES. Schedule 3.27 hereto
sets forth: (a) the name and title of each officer and director of the Company
and each Subsidiary; (b) the total compensation of each officer and director of
the Company and each Subsidiary who was an employee of the Company or any
Subsidiary as of December 31, 2001; (c) the name, title and total compensation
for the 12-months ended December 31, 2001 of each individual independent
contractor whose compensation (including bonuses and commissions) exceeded
$125,000; (d) the name, title and total compensation for the 12-months ended
December 31, 2001 of each other individual employee, consultant, agent or other
representative of the Company or any Subsidiary (other than independent
contractors) whose compensation (including bonuses and commissions) exceeded
$125,000; (e) all wage and salary increases, bonuses and increases in any other
direct or indirect compensation received by such individuals since December 31,
2001, except for increases or bonuses in the ordinary course of business
consistent with past practice; (f) any payments or commitments to pay any
severance or termination pay to any current or former individual officer,
director, employee or independent contractor of the Company or any Subsidiary,
except for payments and commitments in the ordinary course of business; (g) any
accrual for, or any commitment or agreement by the Company or any Subsidiary to
pay, such increases, bonuses or pay and (h) any indebtedness not arising in the
ordinary course of business between the Company or any Subsidiary and any
individual employee or independent contractor of the Company or any Subsidiary.
Except as set forth on Schedule 3.19 or Schedule 3.27 hereto, to the Knowledge
of the Company, none of such individuals has indicated that he or she will
cancel or otherwise terminate such individual's relationship with the Company or
any Subsidiary.

         SECTION 3.28 DISCLOSURE. The representations and warranties in this
Article 3 do not contain as of the date hereof any untrue statement of a
material fact or omit as of the date hereof a material fact necessary to make
each such statement not misleading.

         SECTION 3.29 CLOSING DATE. All of the representations and warranties
contained in this Article 3 and in any certificate delivered to the Buyer
pursuant to this Agreement are true and correct on the date of this Agreement
and shall be true and correct on the Closing Date, except to the extent that the
Representative advises the Buyer otherwise in writing before the Closing (each,
a "Schedule Update"). Each Schedule Update delivered to the Buyer shall be
deemed to modify the representations and warranties herein for the purpose of
determining whether or not a representation or warranty has been breached for
purposes of any claims for indemnification, as long as such Schedule Update
discloses facts, events or circumstances which occurred after the date hereof or
which occurred prior to the date hereof but for which the Company had no
Knowledge as of the date hereof. No Schedule Update shall be taken into account
in

                                       29
<PAGE>
determining whether or not the conditions to the Closing set forth herein have
been satisfied unless the Buyer has objected to and not approved such Schedule
Update.

                                   ARTICLE 4
              REPRESENTATIONS AND WARRANTIES REGARDING THE SELLERS

           Each Seller represents and warrants severally, but not jointly, to
Buyer as to himself or itself as follows:

         SECTION 4.1 EXISTENCE AND POWER. If such Person is an entity, such
Person is duly organized, validly existing and in good standing under the laws
of its state of organization.

         SECTION 4.2 ORGANIZATIONAL AUTHORIZATION. If such Person is an entity,
the execution, delivery and performance by such Person of this Agreement and the
consummation of the transactions contemplated hereby are within the
organizational power of such Person and have been duly authorized by all
necessary action on the part of such Person. This Agreement constitutes a valid
and binding agreement of such Person, enforceable against such Person in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally.

         SECTION 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by such Person of this Agreement and the consummation of the
transactions contemplated hereby require no material action by or in respect of,
or material filing with, any governmental body, agency or official other than
compliance with any applicable requirements of the HSR Act and federal and state
securities laws.

         SECTION 4.4 NONCONTRAVENTION. The execution, delivery and performance
by such Person of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) if such Person is an entity, violate
the partnership agreement or certificate of incorporation or bylaws (as
applicable) of such Person, (ii) assuming compliance with the matters referred
to in Section 4.3, violate any applicable material law, rule, regulation,
judgment, injunction, order or decree or (iii) require any material consent or
other material action by any Person under, constitute a material default under,
or give rise to any material right of termination, cancellation or acceleration
of any right or obligation of such Person under any provisions of any material
agreement or other material instrument binding upon such Person. Following the
distributions and repurchases of Common Stock pursuant to the Distribution and
Repurchase Agreement on the Closing Date (i) the Sellers (other than Prudential)
will, in the aggregate, hold of record and beneficially all of the issued and,
as of such time, outstanding shares of Common Stock (excluding for this purpose
any outstanding Repurchased Shares), free and clear of any pledges, liens,
encumbrances or other claims or charges except for pledges, liens, encumbrances
or other claims or charges which will be released at the Closing and (ii)
Prudential will hold the Prudential Note free and clear of any pledges, liens,
encumbrances or other claims or charges except for pledges, liens, encumbrances
or other claims or charges which will be released at the Closing.

                                       30
<PAGE>
                                   ARTICLE 5
                   REPRESENTATIONS AND WARRANTIES OF THE BUYER

         The Buyer represents and warrants to the Sellers that:

         SECTION 5.1 EXISTENCE AND POWER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee.

         SECTION 5.2 ORGANIZATIONAL AUTHORIZATION. The execution, delivery and
performance by the Buyer of this Agreement and the consummation of the
transactions contemplated hereby are within the corporate power of the Buyer and
have been duly authorized by all necessary action on the part of the Buyer and
its board of directors. This Agreement constitutes a valid and binding agreement
of the Buyer, enforceable against the Buyer in accordance with its terms, except
as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.

         SECTION 5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Buyer of this Agreement and the consummation of the
transactions contemplated hereby require no material action by or in respect of,
or material filing with, any governmental body, agency or official other than
compliance with any applicable requirements of the HSR Act.

         SECTION 5.4 NONCONTRAVENTION. The execution, delivery and performance
by the Buyer of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the charter or bylaws of the
Buyer, (ii) assuming compliance with the matters referred to in Section 5.3,
violate any applicable material law, rule, regulation, judgment, injunction,
order or decree or (iii) require any material consent or other material action
by any Person under, constitute a material default under, or give rise to any
material right of termination, cancellation or acceleration of any right or
obligation of the Buyer under any provisions of any material agreement or other
material instrument binding upon the Buyer.

         SECTION 5.5 FINANCING. Attached hereto as Exhibit C is a true, complete
and correct copy of the financing commitment letter (the "Commitment Letter"),
together with all attachments thereto and other documents referenced therein,
issued to the Buyer by Fleet National Bank and Bank of America in order to
consummate the transactions contemplated hereby and to fund the working capital
requirements of the Buyer after the Closing.

         SECTION 5.6 PURCHASE FOR INVESTMENT. The Buyer is purchasing the
Acquired Shares and the Prudential Note for investment for its own account and
not with a view to, or for sale in connection with, any distribution thereof.
The Buyer is an "accredited investor" and has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Acquired Shares and the Prudential
Note and is capable of bearing the economic risks of such investment.

         SECTION 5.7 FINDER'S FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Buyer who might be entitled to any fee or commission upon the
consummation of the transactions contemplated by this Agreement.

                                       31
<PAGE>
         SECTION 5.8 SOLVENCY. Immediately after giving effect to the
transactions contemplated by this Agreement, the Company and each Subsidiary
will be able to pay their respective debts as they become due and will own
property which has a fair saleable value greater than the amounts required to
pay their respective debts (including a reasonable estimate of the amount of all
contingent liabilities). Immediately after giving effect to the transactions
contemplated by this Agreement, the Company and each Subsidiary will have
adequate capital to carry on their respective businesses. No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement with the intent to hinder, delay
or defraud either present or future creditors of the Company and its
Subsidiaries.

                                   ARTICLE 6
                            COVENANTS OF THE COMPANY

         SECTION 6.1 CONDUCT OF THE COMPANY AND ITS SUBSIDIARIES. During the
period from the date of this Agreement and continuing until the Closing, the
Company agrees as to itself and its Subsidiaries that, except (i) as expressly
contemplated or permitted by this Agreement or the Schedules, including, without
limitation, the transactions described in Article 2 and Section 6.5 hereof or in
the Distribution and Repurchase Agreement, (ii) as required by applicable law or
regulation and disclosed with reasonable promptness in writing to the Buyer, or
(iii) to the extent that the Buyer shall otherwise consent in writing, which
consent shall not be unreasonably withheld or delayed:

                  (a) the Company and its Subsidiaries shall carry on their
         respective businesses in the usual, regular and ordinary course in all
         material respects, in substantially the same manner as heretofore
         conducted, and shall use reasonable efforts to preserve intact their
         present lines of business, maintain their rights and franchises and
         preserve their relationships with customers, suppliers and others
         having business dealings with them to the end that their ongoing
         businesses shall not be impaired in any material respect at the
         Closing; provided, however, that no action by the Company or its
         Subsidiaries with respect to matters specifically addressed by any
         other provision of this Section 6.1 shall be deemed a breach of this
         Section 6.1(a), unless such action would constitute a breach of one or
         more of such other provisions;

                  (b) the Company shall not, and shall not permit any of its
         Subsidiaries to, (i) enter into any new line of business or (ii) other
         than the capital expenditures referenced on Schedule 3.16, incur or
         commit to any capital expenditures or any obligations or liabilities in
         connection with capital expenditures, except for (A) capital
         expenditures and obligations or liabilities in connection therewith
         incurred or committed to in the ordinary course of business consistent
         with past practice, and (B) other capital expenditures and obligations
         or liabilities in connection therewith in an amount not to exceed
         $100,000 in the aggregate;

                  (c) the Company shall not, and shall not permit any of its
         Subsidiaries to, and shall not propose to, (i) declare or pay any
         dividends on or make other distributions in respect of any of its
         capital stock (except for dividends by direct or indirect wholly owned
         Subsidiaries), (ii) split, combine or reclassify any of its capital
         stock or issue or

                                       32
<PAGE>
         authorize or propose the issuance of any other securities in respect
         of, in lieu of or in substitution for, shares of its capital stock
         (except for any such transaction by a direct or indirect wholly owned
         Subsidiary that remains a direct or indirect wholly owned Subsidiary
         after consummation of such transaction), or (iii) repurchase, redeem or
         otherwise acquire any shares of its capital stock or any securities
         convertible into or exercisable for any shares of its capital stock
         (except for the Repurchased Shares);

                  (d) the Company shall not, and shall not permit any of its
         Subsidiaries to, issue, deliver or sell, or authorize or propose the
         issuance, delivery or sale of, any shares of its capital stock of any
         class, or any securities convertible into or exercisable for, or any
         rights, warrants or options to acquire, any such shares of its capital
         stock, or enter into any agreement with respect to any of the
         foregoing, other than issuances of capital stock by a direct or
         indirect wholly owned Subsidiary to such Subsidiary's parent or another
         direct or indirect wholly-owned Subsidiary;

                  (e) other than to the extent required to comply with its
         obligations hereunder or required by law, the Company and its
         Subsidiaries shall not amend its certificate of incorporation, by-laws
         or other governing documents;

                  (f) the Company shall not, and shall not permit any of its
         Subsidiaries to, acquire or agree to acquire by merging or
         consolidating with, or by purchasing an equity interest in or a portion
         of the assets of, or by any other manner, any business or any
         corporation, partnership, association or other business organization or
         division thereof or otherwise acquire or agree to acquire or in-license
         any assets or rights (other than the acquisition or in-license of
         assets used in the operations of the business of the Company and its
         Subsidiaries in the ordinary course consistent with past practice);
         provided, however, in the event (A) the Company or any Subsidiary makes
         a bona fide request for the consent of the Buyer for an acquisition
         that would otherwise by precluded by this Section 6.1(f), (B) the Buyer
         does not give such consent and (C) this Agreement is terminated
         pursuant to Section 10.1, the Buyer shall not, directly or indirectly,
         acquire or offer to acquire the business that was the subject of such
         request for a period of one year following such termination;

                  (g) the Company shall not, and shall not permit any of its
         Subsidiaries to, sell, lease, out-license, encumber or otherwise
         dispose of, or agree to sell, lease, out-license, encumber or otherwise
         dispose of, any of its assets for consideration in excess of $100,000
         in the aggregate;

                  (h) the Company shall not, and shall not permit any of its
         Subsidiaries to (i) make any loans, advances or capital contributions
         to, or investments in, any other Person, other than (A) by the Company
         or a direct or indirect wholly owned Subsidiary to or in the Company or
         any other direct or indirect wholly owned Subsidiary, (B) pursuant to
         any contract or other legal obligation of the Company or any Subsidiary
         as in effect as of the date hereof or (C) in an aggregate amount
         outstanding from time to time of less than $50,000 or (ii) create,
         incur, assume or suffer to exist any indebtedness, issuances of debt
         securities, guarantees, loans or advances not in existence as of the
         date of this Agreement except pursuant to the credit facilities,
         indentures (but not in excess of

                                       33
<PAGE>
         amounts authorized for issuance thereunder as of the date of this
         Agreement) and other arrangements in existence on the date of this
         Agreement or trade debt and commercial finance in the ordinary course
         of business consistent with past practice, in each case as such credit
         facilities, indentures and other arrangements and other existing
         indebtedness may be amended, extended, modified, refunded, renewed or
         refinanced after the date of this Agreement which does not increase the
         aggregate principal amount or amounts of the facility, as the case may
         be;

                  (i) other than with respect to the SHS Executives and other
         than as required by an existing contract or agreement as in effect on
         the date hereof, the Company shall not, and shall not permit any of its
         Subsidiaries to, (A) increase the amount of compensation or severance
         pay of any director or executive officer, (B) make any material
         increase in, or commitment to increase materially, any employee
         benefits or (C) adopt or make any commitment to adopt any material new
         Employee Benefit Plan or make any material contribution, other than
         regularly scheduled contributions, to any Employee Benefit Plan;

                  (j) the Company shall not (i) change its fiscal year, (ii)
         make any material Tax election (except in the ordinary course of
         business consistent with past practice or as otherwise required by
         applicable law or regulation) or (iii) except as required by changes in
         GAAP as concurred with by the Company's independent auditors or as
         required by applicable law or regulation, change its methods of
         accounting in effect as of the date of the Latest Balance Sheet, as
         modified by changes set forth on Schedule 3.12;

                  (k) the Company shall not, and shall not permit any of its
         Subsidiaries to, make any contributions to any grantor trust or other
         funding arrangement for any nonqualified deferred compensation that is
         considered "unfunded" for purposes of ERISA;

                  (l) other than in connection with any action expressly
         permitted by any other subsection of this Section 6.1, the Company
         shall not, and shall not permit any of its Subsidiaries to (i) enter
         into or become bound by, or permit any of the assets owned or used by
         it to become bound by, any contract of the type required to be
         disclosed pursuant to Section 3.19 of this Agreement (other than in the
         ordinary course of business), or (ii) amend or prematurely terminate
         (other than in the ordinary course of business), or waive any material
         right or remedy under, any such contract;

                  (m) the Company shall not, and shall not cause or permit any
         Subsidiary to, commence or settle any action, suit, investigation or
         other proceeding (except for (i) protest actions on contract awards,
         (ii) collection or enforcement actions under existing contracts and
         (iii) any other action, suit, investigation or other proceeding not
         required to be set forth on Schedule 3.11); and

                  (n) the Company shall not, and shall not cause or permit any
         Subsidiary to, agree or commit to take any of the actions described in
         subsections (a) through (m) of this Section 6.1.

                                       34
<PAGE>
         SECTION 6.2 CONFIDENTIALITY. After the Closing, the Sellers will and
will cause Holdings to hold, and will use their reasonable efforts to cause
Holdings' officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning the Company and its
Subsidiaries, except to the extent that such information can be shown to have
been (a) previously known on a nonconfidential basis by the Sellers or Holdings,
(b) in the public domain through no fault of the Sellers or Holdings or (c)
later lawfully acquired by the Sellers or Holdings from sources other than those
related to its prior ownership of the Company and its Subsidiaries. The
obligation of the Sellers to cause Holdings to hold any such information in
confidence shall be satisfied if the Sellers cause Holdings to exercise the same
care with respect to such information as Holdings would take to preserve the
confidentiality of its own similar information.

         SECTION 6.3 ACCESS. From the date hereof until the Closing Date, the
Company and each Subsidiary will (a) give the Buyer, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company and its Subsidiaries;
provided that any such access shall be during normal business hours on
reasonable notice and shall not otherwise unreasonably interfere with the
conduct of the business of the Company or any Subsidiary, (b) furnish to the
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating
to the Company or any Subsidiary as such Person may reasonably request and (c)
instruct the employees, counsel and financial advisors of the Company and its
Subsidiaries to cooperate with the Buyer in its investigation of the Company and
its Subsidiaries.

         SECTION 6.4 EXCLUSIVE DEALING. During the period from the date of this
Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 10.1, the Sellers covenant and agree to cause Holdings to
not and the Sellers and the Company covenant and agree to not initiate or engage
in discussions with any Person (other than the Buyer and its permitted assigns)
concerning the purchase of any shares of capital stock of the Company or any
merger, sale of all or substantially all of the assets of the Company or similar
transaction involving the Company.

         SECTION 6.5 CLOSING OPTIONS AND BONUSES. Immediately before the
consummation of the transactions contemplated by Section 2.1, the Company shall
make bonus payments in an aggregate amount equal to the Closing Option and Bonus
Amount (net of applicable withholding) to the persons designated to receive such
payments by the Company's Board of Directors on or prior to the Closing Date,
which payments may, without limitation, be in consideration for the cancellation
of certain options such employees have to acquire common units of Holdings.

                                   ARTICLE 7
                             COVENANTS OF THE BUYER

         SECTION 7.1 CONFIDENTIALITY. Prior to the Closing Date and after any
termination of this Agreement, the Buyer shall hold and shall cause its
Affiliates, officers, directors, employees, accountants, counsel, consultants,
advisors and agents (collectively, the "Buyer's Representatives") to hold, in
confidence, all confidential documents and information concerning

                                       35
<PAGE>
the Company or any Subsidiary furnished to the Buyer or the Buyer's
Representatives in connection with the transactions contemplated by this
Agreement in the manner specified in the Confidentiality Agreement, dated as of
January 15, 2002, between the Buyer and the Company (the "Confidentiality
Agreement").

         SECTION 7.2 ACCESS. From and after the Closing, the Buyer, the Company
and each Subsidiary shall afford promptly to the Representative (on behalf of
the Sellers) and its representatives reasonable access to the books, records
(including accountants' work papers) and employees of the Buyer, the Company and
its Subsidiaries to the extent necessary to permit the Representative to
determine any matter relating to the rights and obligations any Seller hereunder
or to any period ending on or before the Closing Date; provided that any such
access by the Representative shall be during normal business hours on reasonable
notice and shall not otherwise unreasonably interfere with the conduct of the
business of the Buyer, the Company or its Subsidiaries. Unless otherwise
consented to in writing by the Representative, neither the Buyer, the Company
nor any Subsidiary shall, for a period of three years after the Closing Date or,
in the case of tax and billing records, seven years after the Closing Date,
destroy, alter or otherwise dispose of any of the books and records of the
Company and its Subsidiaries for any period prior to the Closing Date without
first offering to surrender to the Representative such books and records or any
portion thereof the Buyer, the Company or any Subsidiary may intend to dispose
of or destroy.

         SECTION 7.3 DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION. For a
period of six years after the Closing Date, the Buyer shall not, and shall not
permit the Company or any Subsidiary to amend, repeal or modify any provision in
the Company's or any Subsidiary's certificate of incorporation or bylaws
relating to the exculpation or indemnification of any current or former officer
or director (unless required by law), it being the intent of the parties that
the officers and directors of the Company and its Subsidiaries shall continue to
be entitled to such exculpation and indemnification to the full extent of the
law. Nothing herein shall be construed to require the Company to indemnify any
Person hereunder for claims of the Buyer against the Sellers.

         SECTION 7.4 EMPLOYMENT AND BENEFIT ARRANGEMENTS. From and after the
Closing Date, the Buyer shall cause the Company and its Subsidiaries to honor
all employment, severance, termination, consulting, retirement and other
compensation and benefit plans, arrangements and agreements to which the Company
or any Subsidiary is a party, as such plans, arrangements and agreements are in
effect on the date hereof. Other than in consultation with and approval by
senior management of the Company, until September 30, 2002, the Buyer shall
continue to employ and shall cause the Company and its Subsidiaries to provide
those employees who are employees of the Company or any Subsidiary as of
immediately prior to the Closing with compensation and benefits that are no less
favorable to such employees than the compensation and benefits of the Company
and its Subsidiaries available to such employees immediately prior to the
Closing. This Section 7.4 shall survive the Closing, is intended to benefit the
Company and the employees of the Company and its Subsidiaries, and shall be
binding on all successors and assigns of the Buyer and the Company.

         SECTION 7.5 REGULATORY FILINGS. The Buyer shall, within five business
days after the date hereof, make or cause to be made all filings and submissions
required of the Buyer under

                                       36
<PAGE>
the HSR Act or any other laws or regulations applicable to the Buyer for the
consummation of the transactions contemplated herein. The Buyer shall be
responsible for all filing fees under the HSR Act and under any such other laws
or regulations applicable to the Buyer.

         SECTION 7.6 CONTACT WITH EMPLOYEES, CUSTOMERS AND SUPPLIERS. Prior to
the Closing, neither the Buyer nor any of the Buyer's representatives shall
contact or otherwise communicate with any employees, customers or suppliers of
the Company or any Subsidiary in connection with or regarding the transactions
contemplated hereby, except to the extent approved in writing by the Company,
which consent will not be unreasonably withheld.

         SECTION 7.7 NOTIFICATION. Prior to the Closing, upon discovery the
Buyer shall promptly inform the Company and the Representative in writing of any
material variances from the Buyer's representations and warranties contained in
Article 5.

         SECTION 7.8 D&O INSURANCE. Prior to the Closing, the Buyer shall obtain
at its sole cost and expense a tail policy or policies for the Company's
directors and officers insurance covering a six year period from Closing and
relating to the operation of the Company and its Subsidiaries through the
Closing (but not relating to the operation of Spectrum Healthcare of Delaware,
Inc. and its Subsidiaries through the Closing).

         SECTION 7.9 FINANCING. The Buyer will use its best efforts to cause the
financing contemplated by the Commitment Letter (the "Financing") to be closed
on terms consistent with the terms and conditions contemplated by the Commitment
Letter. In the event that any portion of the Financing becomes unavailable,
regardless of the reason therefor, the Buyer will use its best efforts to
arrange alternative financing from other reasonably acceptable sources on and
subject to substantially the same terms and conditions as the portion of the
Financing that has become unavailable. The Buyer shall use its best efforts to
(i) satisfy on or before the Closing all requirements of the definitive
agreements pursuant to which the Financing will be obtained (the "Financing
Agreements") which are conditions to closing to be satisfied by the Buyer with
respect to all transactions constituting the Financing and to drawing down the
cash proceeds thereunder; (ii) defend all lawsuits or other legal proceedings
challenging the Financing Agreements or the consummation of the transactions
contemplated thereby; and (iii) lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated thereby. The Buyer shall keep the
Representative apprised of all material developments relating to the Financing.
Any fees to be paid by the Company or any other obligations to be incurred by
the Company in connection with the Financing shall be subject to the occurrence
of the Closing.

                                   ARTICLE 8
                ADDITIONAL COVENANTS OF THE SELLERS AND THE BUYER

         SECTION 8.1 BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms and
conditions of this Agreement, the Buyer and the Sellers shall use their best
efforts to take, or cause to be taken, all actions necessary or desirable to
cause the conditions set forth in Article 9 to be satisfied and the transactions
contemplated by this Agreement to be consummated, in each case as promptly after
the date hereof as practicable. Each of the Sellers, the Company and the Buyer
agree to execute and deliver such other documents, certificates, agreements and
other writings

                                       37
<PAGE>
and to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.

         SECTION 8.2 FURTHER COOPERATION. Each of the Sellers and the Buyer
shall cooperate with the other (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained under any material contracts, in each case in connection with the
consummation of the transactions contemplated by this Agreement, and (ii) in
taking such actions or making any such filings, in furnishing information
required in connection therewith and in seeking timely to obtain any such
actions, consents, approvals or waivers.

         SECTION 8.3 PUBLIC ANNOUNCEMENTS. No press release or other public
announcement related to this Agreement or the transactions contemplated herein
shall be issued or made without the joint approval of the Buyer and the
Representative, unless required by law (in the reasonable opinion of counsel),
in which case the Buyer and the Representative shall have the right to review
such public announcement prior to publication.

         SECTION 8.4 TRANSFER TAXES. All transfer, documentary, sales, use,
stamp, registration, value added and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement shall be
borne and paid 50% by the Buyer and 50% by the Sellers when due, and the Buyer
will file all necessary Tax returns and other documentation with respect to all
such Taxes and fees with the expense of such filings being shared 50% by the
Buyer and 50% by the Sellers, and, if required by applicable law or regulation,
each Seller will execute and deliver, and will cause its Affiliates to join in
the execution and delivery of, any such Tax Returns and other documentation.

         SECTION 8.5 ACKNOWLEDGMENT BY THE BUYER. The Buyer acknowledges that it
has conducted to its satisfaction, an independent investigation and verification
of the financial condition, results of operations, assets, liabilities,
properties and projected operations of the Company and its Subsidiaries and, in
making its determination to proceed with the transactions contemplated by this
Agreement, the Buyer has relied on the results of its own independent
investigation and verification and the representations and warranties of the
Company and the Sellers expressly and specifically set forth in this Agreement.
Such representations and warranties by the Company and the Sellers constitute
the sole and exclusive representations and warranties of the Company, its
Subsidiaries, the Sellers and the Representative (on behalf of the Sellers) to
the Buyer in connection with the transactions contemplated hereby, and the Buyer
understands, acknowledges and agrees that all other representations and
warranties of any kind or nature expressed or implied (including, without
limitation, any relating to the projected financial condition, results of
operations, assets or liabilities of the Company or its Subsidiaries or the
quality, quantity or condition of the assets of the Company or its Subsidiaries)
are specifically disclaimed by the Company, its Subsidiaries, the Sellers and
the Representative (on behalf of the Sellers). Neither the Company, its
Subsidiaries, the Sellers, nor the Representative (on behalf of the Sellers)
make or provide, and the Buyer hereby waives, any warranty or representation,
express or implied, as to the quality, merchantability, fitness for a particular
purpose, conformity to samples, or condition of the Company's assets or any part
thereto.

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<PAGE>
         SECTION 8.6 EMPLOYEE BENEFIT PLANS

                  (a) 401(k) and Supplemental Retirement Plan. Prior to the
         Closing Date, the Sellers shall cause Holdings to cause Spectrum
         Healthcare of Delaware, Inc. to establish a new supplemental retirement
         plan ("Mirror SRP") that is substantially similar to the supplemental
         retirement plan under which the employees of the Company and its
         Subsidiaries currently participate. Prior to the Closing Date, the
         Sellers shall cause Holdings to cause the Spectrum Healthcare Services,
         Inc. Supplemental Retirement Plan's trust to transfer to the Mirror
         SRP's trust, assets (and related liabilities) that are equal to the
         account balances of each employee of Holdings or its Subsidiaries
         (other than the Company and its Subsidiaries). Prior to the Closing
         Date, the Company shall transfer sponsorship of the Spectrum Healthcare
         Services, Inc. 401(k) Retirement Plan (the "Spectrum 401(k) Plan") to
         Spectrum Healthcare of Delaware, Inc. and the Sellers shall cause
         Holdings to cause Spectrum Healthcare of Delaware, Inc. to accept such
         transfer. During the period from the Closing Date until September 30,
         2002, Spectrum Healthcare of Delaware, Inc. shall permit eligible
         employees of the Company and its Subsidiaries to continue to
         participate in the Spectrum 401(k) Plan. The Company shall reimburse
         Spectrum Healthcare of Delaware, Inc. for any reasonable administrative
         costs and employer matching contributions relating to the continued
         participation of current and former employees of the Company and its
         Subsidiaries in the Spectrum 401(k) Plan on and after the Closing Date.
         As soon as reasonably practical after the Closing Date, but in no event
         later than December 31, 2002, Spectrum Healthcare of Delaware, Inc.
         shall cause the Spectrum 401(k) Plan to transfer to a 401(k) plan
         sponsored by Buyer or its Subsidiaries the account balances (and the
         related assets and liabilities) of current and former employees of the
         Company and its Subsidiaries.

                  (b) Pre-Existing Limitations; Deductibles; Service Credit.
         With respect to any Employee Benefit Plans in which any employees of
         the Company and its Subsidiaries participate on or after the Closing,
         the Buyer shall cause the Company and its Subsidiaries to: (i) waive
         all pre-existing conditions, exclusions and waiting periods with
         respect to participation and coverage requirements applicable to such
         employees, except to the extent such pre-existing conditions,
         exclusions or waiting periods applied under the similar plan in effect
         immediately prior to the Closing; (ii) provide each such employee with
         credit for any co-payments and deductibles paid (to the same extent
         such credit was given for the year under the similar plan in effect
         immediately prior to the Closing) in satisfying any applicable
         deductible or out-of-pocket requirements; and (iii) recognize all
         continuous service of the Company's and each Subsidiary's employees
         with the Company or any of its Subsidiaries, as applicable, for all
         purposes (including, without limitation, for purposes of eligibility to
         participate, vesting credit and entitlement to benefits, but excluding
         benefit accrual under a defined benefit pension plan) under any
         Employee Benefit Plan in which such employees may be eligible to
         participate after the Closing; provided that the foregoing shall not
         apply to the extent it would result in a duplication of benefits.

                  (c) Shared Welfare Benefit Coverages.

                                       39
<PAGE>
                           (i) During the period beginning on the Closing Date
                  and ending on the earlier of the date that is 60 days after
                  the Closing Date or the date elected by Spectrum Healthcare of
                  Delaware, Inc. (the "Welfare Benefits Transition Period"),
                  eligible employees of Spectrum Healthcare of Delaware, Inc.
                  and its Subsidiaries (and their covered dependents) shall be
                  permitted to participate under (a) the Cigna Healthcare
                  Administrative Services Agreements, for Cigna Healthcare PPO,
                  Cigna Healthcare Dental Preferred Provider Benefit, Cigna
                  Healthcare Passive PPO, Cigna Healthcare COBRA Administration
                  and FSA (Section 125) Administration Agreement, Connecticut
                  General Life Insurance Prime Rx Plan and Tel-Drug Pharmacy
                  Services Administration Agreement and (b) Connecticut General
                  Life Insurance Company Stop-Loss Insurance Policy (to the
                  extent that such coverages applied to each respective employee
                  workforce immediately prior to the Closing Date). The Company
                  shall not make any changes to the coverages referred to in the
                  preceding sentence during the Welfare Benefits Transition
                  Period, without written consent from an officer of Spectrum
                  Healthcare of Delaware, Inc. Effective as of the date
                  following the Welfare Benefits Transition Period, current and
                  former employees of Spectrum Healthcare of Delaware, Inc. and
                  its Subsidiaries (and their covered dependents) shall cease
                  participating in such coverages and such entities shall adopt
                  replacement welfare benefit coverages for such individuals.

                           (ii) Prior to the Closing Date, the Company shall
                  assign and transfer to Spectrum Healthcare of Delaware, Inc.
                  the United Healthcare Services Administrative Services
                  Agreement for SHS Medical Plan. During the period beginning on
                  the Closing Date and ending on December 31, 2002, eligible
                  employees of the Company and its Subsidiaries (and their
                  covered dependents) shall be permitted to participate under
                  the United Healthcare Services medical coverage (to the extent
                  that such coverage applied to each respective employee
                  workforce immediately prior to the Closing Date). Effective
                  January 1, 2003, current and former employees of the Company
                  and its Subsidiaries (and their covered dependents) shall
                  cease participating in such coverages and such entities shall
                  adopt replacement welfare benefit coverages for such
                  individuals.

                           (iii) Notwithstanding anything to the contrary,
                  Spectrum Healthcare of Delaware, Inc. and its Subsidiaries and
                  the Company and its Subsidiaries shall each be responsible for
                  all respective costs relating to benefit coverages for current
                  and former employees of each respective business for periods
                  before and after the Closing, including, without limitation,
                  the actual cost of claims incurred under self-funded coverages
                  (subject to the limits under applicable stop-loss policies).
                  In addition, the Company and its Subsidiaries and Spectrum
                  Healthcare of Delaware, Inc. and its Subsidiaries shall
                  continue to be liable under the Management, Administrative and
                  Support Services Agreement, dated as of November 30, 2001, as
                  long as applicable transitional services are being provided.

         SECTION 8.7 DISCLOSURE GENERALLY. Information set forth in any Schedule
or incorporated in any Section of this Agreement shall be considered to have
been set forth in each other Schedule to the extent that it is clear on its face
that it applies to such first Schedule. The

                                       40
<PAGE>
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific item in the
Schedules is not intended to imply that such amounts, or higher or lower
amounts, or the items so included or other items, are or are not required to be
disclosed or are within or outside of the ordinary course of business, and
neither party shall use the fact of the setting of such amounts or the fact of
the inclusion of any such item in the Schedules in any dispute or controversy
with any party as to whether any obligation, item or matter not described herein
or included in a Schedule is or is not required to be disclosed (including,
without limitation, whether such amounts are required to be disclosed as
material) or in the ordinary course of business for the purposes of this
Agreement. The information contained in the Schedules is disclosed solely for
the purposes of this Agreement, and no information contained therein shall be
deemed to be an admission by any party hereto to any third party of any matter
whatsoever, including of any violation of law or breach of any agreement.

         SECTION 8.8 USE OF SPECTRUM NAME. At the Closing, the Sellers shall
cause Holdings and its Subsidiaries (other than the Company and its
Subsidiaries) to assign all their right, title and interest in and to the
Spectrum name (or any other confusingly similar variation thereof) to the
Company by executing an assignment in a form mutually agreed upon by the Buyer
and the Representative. In addition, for a period of six (6) months after the
Closing Date and without any payment to the Company, Holdings and its
Subsidiaries shall have the right to continue using the Spectrum name (or any
variations thereof) that is used in connection with the operation of the
businesses of Holdings and its Subsidiaries (collectively the "Marks") in a
manner consistent with the manner in which such Marks are currently used by
Holdings and its Subsidiaries; provided however, nothing in this Section 8.8
shall permit Holdings or its Subsidiaries to take any action in violation of
Article 12.

         SECTION 8.9 PRUDENTIAL NOTE. The Company and the Buyer covenant and
agree that, from and after the Closing until the date that is two years
following the Closing Date, (i) the Company shall not pay or offset any
principal outstanding under the Prudential Note and the Buyer shall not accept
any such payment or offset, (ii) the Buyer shall continue to hold the Prudential
Note and shall not sell, assign, contribute to the Company or otherwise
transfer, directly or indirectly, the Prudential Note or any interest therein
and (iii) the terms of the Prudential Note shall not be amended, modified or
waived.

         SECTION 8.10 FUND DISSOLUTION. If any of Madison Dearborn Capital
Partners, L.P., Healthcare Equity Partners, L.P., Healthcare Equity QP Partners,
L.P., and Prudential Private Equity Investors III, L.P. terminates, dissolves or
otherwise ceases to exist prior to five years from the date of Closing, such
fund will make adequate arrangements prior to termination to provide for such
Person's Allocable Portion of any remaining indemnity obligation under Article
11 hereof.

         SECTION 8.11 CERTAIN LICENSES. The parties hereto agree that to the
extent the licenses for the software provided by PeopleSoft referenced on
Schedule 3.19(n) hereto have not been assigned to Spectrum Healthcare of
Delaware, Inc. ("SHD") from the Company and its Subsidiaries prior to the
Closing, the Company shall and the Sellers shall cause Holdings to cause SHD to
enter into an amendment to the Management, Administrative and Support Services
Agreement, dated November 30, 2001, by and among the Company and SHD that will
provide

                                       41
<PAGE>
for SHD to continue to obtain the use and/or benefits of the use of such
software from or through the Company at cost except to the extent not permitted
by any such license until such assignment has taken place.

                                   ARTICLE 9
                              CONDITIONS TO CLOSING

         SECTION 9.1 CONDITIONS TO THE BUYER'S OBLIGATIONS. The obligations of
the Buyer to consummate the transactions contemplated by this Agreement are
subject to the satisfaction (or the Buyer's waiver) of the following conditions
as of the Closing Date:

                  (a) the representations and warranties of the Company and the
         Sellers contained in Article 3 and Article 4 hereof shall have been
         true and correct as of the date of this Agreement and as of the Closing
         Date, except (i) to the extent that the failure of such representations
         and warranties to be true and correct has not caused a Material Adverse
         Effect, (ii) for changes contemplated by this Agreement, and (iii) for
         those representations and warranties that address matters only as of
         the date of this Agreement or any other particular date (in which case
         such representations and warranties shall have been true and correct as
         of such particular date, except to the extent that the failure of such
         representations and warranties to have been true and correct as of such
         particular date has not caused a Material Adverse Effect); it being
         understood that, for purposes of determining the accuracy of such
         representations and warranties, all "Material Adverse Effect"
         qualifications and other qualifications based on the word "material" or
         similar phrases contained in such representations and warranties shall
         be disregarded;

                  (b) The Company and the Sellers shall have performed in all
         material respects all of the covenants and agreements required to be
         performed by them under this Agreement at or prior to the Closing and
         the Company, Holdings and the Sellers shall have performed in all
         material respects all of the covenants and agreements required to be
         performed by them under the Distribution and Repurchase Agreement at or
         prior to the Closing;

                  (c) All consents that are set forth on Schedule 9.1(c) shall
         have been obtained;

                  (d) The applicable waiting periods, if any, under the HSR Act
         shall have expired or been terminated, and all other material
         governmental filings, consents, authorizations and approvals that are
         required for the consummation of the transactions contemplated hereby
         and set forth on Schedule 9.1(d) attached hereto shall have been made
         and obtained;

                  (e) No action or proceeding before any court or government
         body shall be pending wherein an unfavorable judgment, decree or order
         would prevent the performance of this Agreement or the consummation of
         any of the transactions contemplated hereby, declare unlawful the
         transactions contemplated by this Agreement or cause such transactions
         to be rescinded;

                  (f) The Buyer shall have obtained the financing necessary to
         complete the transaction contemplated hereby;

                                       42
<PAGE>
                  (g) Since the date hereof, there shall have been no Material
         Adverse Effect (without limiting the generality of the foregoing, since
         the date hereof, there shall have been no modification or change in the
         Tricare program, of any Medicare or Medicaid law, rule, regulation or
         payment policy, or any rule or policy of any third party payor, or any
         other applicable law or regulation, which has had or could reasonably
         be expected to have, individually or in the aggregate, a Material
         Adverse Effect);

                  (h) The Buyer shall have received an opinion, dated the
         Closing Date, of Kirkland & Ellis, counsel to the Company and the
         Sellers, with respect to the matters set forth on Exhibit D, attached
         hereto, and the lenders providing debt financing in connection with the
         transactions contemplated by this Agreement shall be entitled to rely
         thereon;

                  (i) The Buyer, the Company, Spectrum Healthcare of Delaware,
         Inc. and Correctional Medical Services, Inc. ("CMS") shall have entered
         into an Indemnification Agreement in the form of Exhibit E hereto (the
         "Indemnification Agreement") and the Indemnification Agreement shall be
         in full force and effect as of the Closing;

                  (j) Holdings shall have executed the Guaranty in the form of
         Exhibit F hereto (the "Guaranty") and the Guaranty shall be in full
         force and effect as of the Closing;

                  (k) The Buyer and CMS shall have entered into the letter
         agreement in the form of Exhibit G hereto (the "Separation Side
         Letter") and the Separation Side Letter shall be in full force and
         effect as of the Closing;

                  (l) The Sellers, the Representative and the Escrow Agent shall
         have entered into and delivered to the Buyer the Escrow Agreement;

                  (m) The Buyer shall have received evidence that the Company's
         professional liability insurance provided by Truck Insurance Exchange
         does not or will not as of the Closing contain a quota sharing or
         similar co-payment arrangement to which the Company would be subject;

                  (n) With respect to each Guarantee Obligation, either (A) the
         Company shall be released from or otherwise no be longer liable on such
         Guarantee Obligation or (B) the Company shall be the beneficiary of an
         indemnity or other form of credit protection from a bank, an insurance
         company or another reputable bonding company (such as a letter of
         credit, a surety bond or a cash escrow) for the liability of the
         Company under such Guarantee Obligation in an amount equal to the
         maximum outstanding face amount of such Guarantee Obligation; and

                  (o) The Representative shall have delivered to the Buyer each
         of the following:

                           (i) a certificate of the Company and each Seller,
                  dated the Closing Date, stating that the preconditions
                  specified in Sections 9.1(a) and 9.1(b), as they relate to the
                  Company and its Subsidiaries and each Seller, have been
                  satisfied;

                                       43
<PAGE>
                           (ii) all minute books, stock books, ledgers and
                  registers and corporate seals in its possession relating to
                  the organization, ownership and maintenance of the Company and
                  its Subsidiaries;

                           (iii) certified copies of the charter and bylaws of
                  each of the Company and its Subsidiaries;

                           (iv) a copy of the resolutions of the board of
                  directors of the Company and each Seller which is an entity,
                  approving the transactions contemplated by this Agreement,
                  certified by the Company or such Seller, as the case may be;

                           (v) certificates from appropriate authorities, dated
                  as of or about the Closing Date, as to the good standing and
                  qualification to do business of the Company or its
                  Subsidiaries in each jurisdiction where they are so qualified
                  and each Seller which is an entity in its jurisdiction of
                  organization;

                           (vi) all stock certificates or other instruments
                  evidencing ownership of each of the Company's Subsidiaries;
                  and

                           (vii) copies of the resignations of the officers and
                  directors of the Company and its Subsidiaries set forth on
                  Exhibit H hereto.

         SECTION 9.2 CONDITIONS TO THE SELLERS' OBLIGATIONS. The obligations of
each Seller to consummate the transactions contemplated by this Agreement are
subject to the satisfaction (or the Representative's waiver) of the following
conditions as of the Closing Date:

                  (a) The representations and warranties of the Buyer contained
         in Article 5 hereof shall have been true and correct in all material
         respects as of the date of this Agreement and as of the Closing Date,
         except (i) for changes contemplated by this Agreement, and (ii) for
         those representations and warranties that address matters only as of
         the date of this Agreement or any other particular date (in which case
         such representations and warranties shall have been true and correct in
         all material respects as of such particular date); it being understood
         that, for purposes of determining the accuracy of such representations
         and warranties, all qualifications based on the word "material" or
         similar phrases contained in such representations and warranties shall
         be disregarded;

                  (b) The Buyer shall have performed in all material respects
         all of the covenants and agreements required to be performed by it
         under this Agreement at or prior to the Closing;

                  (c) All consents which are set forth on Schedule 9.1(c)
         attached hereto shall have been obtained;

                  (d) The applicable waiting periods, if any, under the HSR Act
         shall have expired or been terminated, and all other material
         governmental filings, consents, authorizations and approvals that are
         required for the consummation of the transactions

                                       44
<PAGE>
         contemplated hereby and set forth on the Schedule 9.1(d) attached
         hereto shall have been made and obtained;

                  (e) No action or proceeding before any court or government
         body shall be pending wherein an unfavorable judgment, decree or order
         would prevent the performance of this Agreement or the consummation of
         any of the transactions contemplated hereby, declare unlawful the
         transactions contemplated by this Agreement or cause such transactions
         to be rescinded;

                  (f) The Sellers, the Representative, the Buyer and the Escrow
         Agent shall have executed and delivered to the Representative the
         Escrow Agreement;

                  (g) The Sellers and the Representative shall have received an
         opinion, dated the Closing Date, of Harwell, Howard, Hyne, Gabbert &
         Manner, P.C., counsel to the Buyer, with respect to the matters set
         forth on Exhibit I; and

                  (h) The Buyer shall have delivered to the Representative each
         of the following:

                           (i) certified copies of the resolutions duly adopted
                  by the Buyer's board of directors authorizing the execution,
                  delivery and performance of this Agreement; and

                           (ii) a certificate of the Buyer, dated the Closing
                  Date, stating that the preconditions specified in Sections
                  9.2(a) and 9.2(b), as they relate to the Buyer, have been
                  satisfied.

                                   ARTICLE 10
                                   TERMINATION

         SECTION 10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:

                  (a) by the mutual written consent of the Buyer and the
         Representative;

                  (b) by the Buyer, if there has been a material breach by the
         Company or a Significant Seller of any covenant or other agreement
         contained herein which has prevented the satisfaction of any condition
         to the obligations of the Buyer at the Closing and such breach has not
         been waived by the Buyer or cured by the Company or a Significant
         Seller within ten business days after the Representative's receipt of
         written notice thereof from the Buyer;

                  (c) by the Representative, if there has been a material breach
         by the Buyer of any covenant or other agreement contained herein which
         has prevented the satisfaction of any condition to the obligations of
         the Sellers at the Closing and such breach has not been waived by the
         Representative or cured by the Buyer within ten business days after the
         Buyer's receipt of written notice thereof from the Representative
         (provided that the failure

                                       45
<PAGE>
         to deliver the Purchase Price at the Closing as required hereunder
         shall not be subject to cure hereunder unless otherwise agreed to in
         writing by the Representative);

                  (d) by the Buyer, if the transactions contemplated hereby have
         not been consummated on or before May 31, 2002; provided that the Buyer
         shall not be entitled to terminate this Agreement pursuant to this
         Section 10.1(d) if the Buyer's knowing or willful breach of this
         Agreement has prevented the consummation of the transactions
         contemplated hereby; or

                  (e) by the Representative, if the transactions contemplated
         hereby have not been consummated on or before May 31, 2002; provided
         that the Representative shall not be entitled to terminate this
         Agreement pursuant to this Section 10.1(e) if the Company's or the
         Significant Sellers' knowing or willful breach of this Agreement has
         prevented the consummation of the transactions contemplated hereby.

         The party desiring to terminate this Agreement pursuant to clauses (b),
         (c), (d) or (e) of this Section 10.1 shall give written notice of such
         termination to the other parties hereto.

         SECTION 10.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated by either the Buyer or the Representative as provided in Section
10.1, the provisions of this Agreement shall immediately become void and of no
further force and effect (other than Section 7.1 (Confidentiality), Section 7.6
(Contact with Employees, Customers and Suppliers), Section 8.3 (Public
Announcements), this Section 10.2, Section 12.2 (other than clause (b) of such
Section 12.2) (Nonsolicitation by the Buyer) and Article 11, each of which shall
survive the termination of this Agreement), and there shall be no liability on
the part of either the Buyer, the Company, any Significant Sellers, any other
Seller or the Representative to any other party hereto, except for willful or
knowing breaches of this Agreement prior to the time of such termination.

                                   ARTICLE 11
                       INDEMNIFICATION AND RELATED MATTERS

         SECTION 11.1 SURVIVAL. All representations, warranties, covenants, and
agreements set forth in this Agreement or in any writing or certificate
delivered pursuant to this Agreement shall survive the Closing Date and the
consummation of the transactions contemplated hereby. Notwithstanding the
foregoing, no party shall be entitled to recover for any Loss pursuant to
Section 11.2(a), Section 11.2(c), or Section 11.3 unless written notice of a
claim thereof is delivered to the other party before the Applicable Limitation
Date. For purposes of this Agreement, the term "Applicable Limitation Date"
shall mean the date that is eighteen (18) months after the Closing Date;
provided that (A) the Applicable Limitation Date with respect to a breach of the
representations and warranties of the Sellers set forth in Sections 3.6 shall be
the date that is five (5) years after the Closing Date; and (B) the Applicable
Limitation Date with respect to (x) a breach of the representations and
warranties of the Sellers set forth in Section 3.9 and (y) the tax matters set
forth in Section 11.3, shall be the date that is three (3) years after the
Closing Date.

         SECTION 11.2 INDEMNIFICATION.

                                       46
<PAGE>
                  (a) Indemnification by Sellers. Subject to Section 11.2(f),
         each Seller shall, on a several basis, indemnify the Buyer and the
         Company and its Subsidiaries, and each of their respective officers,
         directors, stockholders, employees, agents, representatives,
         affiliates, successors, and permitted assigns (collectively, the "Buyer
         Parties") and hold each of them harmless from and against and pay on
         behalf of or reimburse such Buyer Parties in respect of such Seller's
         Allocable Portion of any Loss that any such Buyer Party may suffer,
         sustain, or become subject to, as a result of:

                           (i) the breach of any representation or warranty
                  (other than any representation or warranties in Section 3.9)
                  made by the Company or any Seller contained in this Agreement
                  or in any certificate delivered by the Company or any Seller
                  with respect thereto in connection with the Closing; or

                           (ii) the breach of any covenant or agreement made by
                  the Company or any Seller contained in this Agreement (other
                  than any breach of Section 11.3(d) hereof, the remedies for
                  which are addressed in Section 11.3(d)).

                  (b) Limitations on Indemnification by each the Seller. The
         indemnification provided for in Section 11.2(a) above is subject to the
         following limitations:

                           (i) With respect to each Seller, the aggregate amount
                  of (x) such Seller's Allocable Portion of the aggregate
                  disbursements to the Buyer Parties from the Escrow Fund in
                  respect of indemnification under Section 11.2 and (y) all
                  payments made by such Seller in satisfaction of claims for
                  indemnification pursuant to Section 11.2, shall not exceed
                  such Seller's Allocable Portion of $10,000,000 (the "Cap");
                  provided that the Cap shall not apply to indemnification
                  claims for breaches of Section 2.2(c), Section 2.3(b), the
                  second sentence of Section 11.3(b)(i), and sentences (D), (F)
                  and (G) of Section 11.3(b)(iii).

                           (ii) The Sellers shall not be liable to indemnify any
                  Buyer Parties pursuant to Section 11.2(a) unless and until the
                  Buyer Parties have collectively suffered Losses by such
                  breaches pursuant to such Section 11.2(a) in excess of a
                  $500,000 aggregate basket (the "Basket") (at which point,
                  subject to the other limitations herein, the Sellers will be
                  liable to the Buyer Parties for all Losses in excess of such
                  Basket); provided that the Basket shall not apply to
                  indemnification claims for breaches of Section 2.2(c), Section
                  2.3(b), the second sentence of Section 11.3(b)(i), and
                  sentences (D), (F) and (G) of Section 11.3(b)(iii).

                           (iii) The Buyer Parties shall take all reasonable
                  steps to mitigate all indemnifiable liabilities and damages
                  upon and after becoming aware of any event which could
                  reasonably be expected to give rise to any liabilities or
                  damages that are indemnifiable hereunder.

                           (iv) Notwithstanding anything to the contrary in this
                  Agreement, the indemnification rights provided in Section
                  11.2(a) and Section 11.3(d) of this Agreement, the Guaranty,
                  and the Indemnification Agreement shall be the sole

                                       47
<PAGE>
                  and exclusive remedy of the Buyer Parties with respect to any
                  dispute arising out of or related to this Agreement or any
                  Loss that any Buyer Party may suffer, sustain or become
                  subject to, as a result of or relating to this Agreement and
                  the transactions contemplated hereby, including, without
                  limitation, any breaches by the Representative, in its
                  capacity as the Representative, hereunder, except for the
                  right to seek specific performance of any of the agreements
                  contained herein.

                           (v) Payments by the Sellers pursuant to Section 11.2
                  and Section 11.3 (including, without limitation, disbursements
                  from the Escrow Fund) shall be limited to the amount of any
                  Loss that remains after deducting therefrom (A) any insurance
                  or other third party recoveries actually received by the
                  person seeking indemnification offsetting the amount of such
                  Loss (net of cost of recovery) and (B) any recoveries actually
                  received by such person or any of its affiliates pursuant to
                  indemnification or otherwise with respect thereto (net of cost
                  of recovery and exclusive of recoveries pursuant to this
                  Agreement or any agreement referenced herein), and (C) any
                  federal Tax benefit actually realized as a reduction of cash
                  Taxes owed by such person attributable to the Loss amounts
                  indemnified against. A Tax benefit will be considered to be
                  realized only at the time and to the extent that it actually
                  reduces the applicable federal tax return's aggregate cash Tax
                  due for the tax period in which such Loss is included in such
                  tax returns. For purposes of this determination, such Loss
                  shall be treated as the last incremental dollars considered in
                  calculating taxable income in such tax returns and the
                  applicable Tax due. Notwithstanding the foregoing, if such
                  amount is carried back to a prior tax period return and
                  results in a refund for such period, then such Loss shall be
                  considered to have been actually realized, and such Tax
                  benefit shall be remitted to Sellers upon receipt by Buyer of
                  such refund. The amount of any such Tax benefits shall be paid
                  by the Buyer to the Representative (on behalf of the Sellers)
                  promptly following the time they are realized, as contemplated
                  herein. The Indemnified Parties shall exercise reasonable best
                  efforts to obtain such proceeds, benefits and recoveries. The
                  Buyer Parties shall seek full recovery under all insurance
                  policies and similar agreements covering any Loss to the same
                  extent as they would if such Loss were not subject to
                  indemnification hereunder. The amount of any insurance
                  recovery or other third party recovery (net of the cost of
                  recovery) made by any Buyer Party with respect to any Loss for
                  which any such Person has been indemnified hereunder shall be
                  paid by the Buyer promptly to the Representative (for the
                  benefit of the Sellers). Any indemnification payment under
                  this Section 11.2 shall be increased by the amount of any
                  federal Tax detriment actually incurred by such person
                  attributable to such payment, with such increase to be made at
                  the time of incurrence of such Tax detriment. A Tax detriment
                  will be considered to be incurred only at the time and to the
                  extent that it actually increases the aggregate Tax liability
                  of such Buyer Party in any tax period where such
                  indemnification payment is treated as taxable income to the
                  Buyer Parties and included in determining the Tax for such
                  period. For purposes of this determination, the
                  indemnification payment shall be treated as the last
                  incremental dollars considered in calculating the applicable
                  Tax. In the event that a Tax detriment as contemplated by the
                  foregoing is incurred by any Buyer Party after

                                       48
<PAGE>
                  indemnification has been made hereunder, then the Sellers
                  shall promptly pay to such Buyer Party an amount equal to the
                  amount of such Tax detriment. Any and all payments by the
                  Sellers pursuant to Section 11.2 and 11.3 shall be treated as
                  adjustments to the aggregate purchase price paid for Tax
                  purposes.

                           (vi) No Buyer Party shall be entitled to be
                  indemnified in respect of any Losses to the extent the Buyer
                  Parties shall have been compensated therefor in connection
                  with the purchase price adjustment in Section 2.2 or pursuant
                  to the Guaranty or the Indemnification Agreement. The Sellers
                  shall not be entitled to any duplicative payments or
                  indemnities.

                           (vii) With respect to any Tax Return for a
                  Pre-Closing Period or Straddle Period, once such Tax Return
                  has been initially filed and the liability as shown on such
                  Tax Return as filed shall have been paid, no Buyer Party shall
                  be entitled to make any claim against any Seller with respect
                  to Taxes arising out of the period covered by or relating to
                  such Pre-Closing Period Return or Straddle Period Return
                  except pursuant to Section 11.3(d)(ii), subject to the
                  limitations on indemnification relating thereto.

         Notwithstanding any implication to the contrary contained in this
         Agreement, so long as any Buyer Party delivers written notice of a
         claim to the Representative no later than the Applicable Limitation
         Date describing in reasonable detail the claim, the amount thereof if
         known (or otherwise a good faith estimate thereof), the basis thereof
         and the facts pertaining thereto, each Seller shall be required to
         indemnify the Buyer Parties for all Losses (subject to the Basket and
         Cap limitations and the other limitations set forth herein, if
         applicable) that the Buyer Parties may incur in respect of the matters
         that are the subject of such claim, regardless of when incurred, to the
         extent such Losses are described in such written notice.

                  (c) Indemnification by the Buyer. The Buyer shall indemnify
         the Sellers and the Representative and their respective officers,
         directors, partners, managers stockholders, employees, agents,
         representatives, affiliates, successors, and permitted assigns
         (collectively, the "Seller Parties") harmless from and against and pay
         on behalf of or reimburse such Seller Parties in respect of any Loss
         that such Seller Party may suffer, sustain, or become subject to, as a
         result of or relating to:

                           (i) the breach of any representation or warranty made
                  by the Buyer contained in this Agreement or in any certificate
                  delivered by the Buyer with respect thereto in connection with
                  the Closing; or

                           (ii) the breach of any covenant or agreement made by
                  the Buyer contained in this Agreement.

                  (d) Limitations on Indemnification by the Buyer. The
         indemnification provided for in Section 11.2(c) above is subject to the
         following limitations:

                           (i) Each Seller shall take all reasonable steps to
                  mitigate all indemnifiable liabilities and damages upon and
                  after becoming aware of any

                                       49
<PAGE>
                  event which could reasonably be expected to give rise to any
                  liabilities or damages that are indemnifiable hereunder.

                           (ii) The aggregate amount of payments made by the
                  Buyer in satisfaction of claims pursuant to Section 11.2(c),
                  shall not exceed $10,000,000; provided that the foregoing
                  limitation shall not apply to indemnification claims for
                  breaches of Section 2.2(c), Section 2.3(b), Section
                  11.3(b)(ii), or Section 11.3(b)(vi).

                           (iii) The Buyer shall not be liable to indemnify any
                  Seller Parties pursuant to Sections 11.2(c) unless and until
                  the Seller Parties have collectively suffered Losses by such
                  breaches pursuant to such Section 11.2(c) in excess of a
                  $500,000 aggregate basket (at which point, subject to the
                  other limitations herein, the Buyer will be liable to the
                  Seller Parties for all Losses in excess of such $500,000);
                  provided that the foregoing limitation shall not apply to
                  indemnification claims for breaches of Section 2.2(c), Section
                  2.3(b), Section 11.3(b)(ii), or Section 11.3(b)(vi).

                           (iv) The indemnification rights provided in Section
                  11.2(c) and Section 11.3(d) of this Agreement shall be the
                  sole and exclusive remedy of the Seller Parties with respect
                  to any dispute arising out of or related to this Agreement or
                  any Loss which any Seller Party may suffer, sustain or become
                  subject to, as a result of or relating to this Agreement and
                  the transactions contemplated hereby, except for the right to
                  seek specific performance of any of the agreements contained
                  herein.

         Notwithstanding any implication to the contrary contained in this
         Agreement, so long as any Seller Party delivers written notice of a
         claim to the Buyer no later than the Applicable Limitation Date
         describing in reasonable detail the claim, the amount thereof if known
         (otherwise a good faith estimate thereof), the basis thereof and the
         facts pertaining thereto, the Buyer shall be required to indemnify the
         Seller Parties for all Losses (subject to the limitations set forth
         herein, if applicable) that the Seller Parties may incur in respect of
         the matters that are the subject of such claim, regardless of when
         incurred, to the extent such Losses are described in such written
         notice.

                  (e) Procedures.

                           (i) If a party hereto seeks indemnification under
                  this Article 11 (including any indemnification for Taxes
                  pursuant to Section 11.3), such party (the "Indemnified
                  Party") shall promptly give written notice to the other party
                  (the "Indemnifying Party") after receiving written notice of
                  any action, lawsuit, proceeding, audit, investigation, or
                  other claim against it (if by a third party) or discovering
                  the liability, obligation, or facts giving rise to such claim
                  for indemnification, describing in detail the claim, the
                  amount thereof (if known and quantifiable), and the basis
                  thereof; provided that no reasonable amount of delay in so
                  notifying the Indemnifying Party shall relieve the
                  Indemnifying Party of its obligations hereunder except to the
                  extent such failure shall have prejudiced the

                                       50
<PAGE>
                  Indemnifying Party or shall not have been made by the
                  Applicable Limitation Date. In that regard, if any action,
                  lawsuit, proceeding, investigation, or other claim shall be
                  brought or asserted by any third party which, if adversely
                  determined, would entitle the Indemnified Party to indemnity
                  pursuant to this Article 11, the Indemnified Party shall
                  promptly notify the Indemnifying Party of the same in writing,
                  specifying in detail the basis of such claim and the facts
                  pertaining thereto and the Indemnifying Party shall be
                  entitled to participate in the defense of such action,
                  lawsuit, proceeding, investigation, or other claim giving rise
                  to the Indemnified Party's claim for indemnification at its
                  expense, and at its option (subject to the exceptions in
                  paragraphs (ii) and (iii) below) shall be entitled to control
                  and appoint lead counsel of such defense with reputable
                  counsel reasonably acceptable to the Indemnified Party;
                  provided that, if the Indemnifying Party does not in
                  connection with the assumption of the control of such defense
                  agree in writing to be fully responsible for all Losses
                  relating to such claims and to provide full indemnification to
                  the Indemnified Party for all Losses relating to such claims,
                  in each case subject to the limitations set forth in this
                  Agreement, the Indemnifying Party shall be responsible for the
                  reasonable fees and expenses of the Indemnified Party's
                  separate counsel, if any, participating in the defense of such
                  claims.

                           (ii) Except as provided in paragraph (iii) below, if
                  the claim for which the Indemnifying Party seeks to assume
                  control (A) involves claims for non-monetary relief (except
                  where non-monetary relief is merely incidental to a primary
                  claim or claims for monetary damages), (B) involves criminal
                  allegations, (C) is one in which the Indemnifying Party is
                  also a party and involves a claim that, upon petition by the
                  Indemnified Party, the appropriate court rules that joint
                  representation would be inappropriate; (D) involves a
                  significant claim or matter that would reasonably be expected
                  to result in a significant disparagement or negative publicity
                  relating to the Indemnified Party or one of its Subsidiaries
                  or Affiliates, or (E) involves a claim that, upon petition by
                  the Indemnified Party, the appropriate court rules that the
                  Indemnifying Party failed or is failing to vigorously
                  prosecute or defend, then the Indemnifying Party shall not
                  have the right to assume control of such defense and shall pay
                  the fees and expenses of counsel retained by the Indemnified
                  Party subject to the limitations set forth herein.

                           (iii) If the claim for which the Indemnifying Party
                  seeks to assume control (A) involves claims for both monetary
                  and non-monetary relief (except where non-monetary relief is
                  merely incidental to a primary claim or claims for monetary
                  damages), or (B) involves both monetary claims and criminal
                  allegations (each, a "Joint Defense Proceeding"), the
                  Indemnifying Party and the Indemnified Party will jointly
                  participate in and control the defense of such Joint Defense
                  Proceeding, and the Indemnifying Party will pay the reasonable
                  fees and expenses of legal counsel jointly retained by the
                  Indemnifying Party and the Indemnified Party in connection
                  with such Joint Defense Proceeding subject to the limitations
                  set forth herein.

                                       51
<PAGE>

            If the Indemnifying Party is permitted to assume and control the
            defense and elects to do so, the Indemnified Party shall have the
            right to employ counsel separate from counsel employed by the
            Indemnifying Party in any such action and to participate in the
            defense thereof, but the fees and expenses of such counsel employed
            by the Indemnified Party shall be at the expense of the Indemnified
            Party unless the employment thereof has been specifically authorized
            by the Indemnifying Party in writing.

            If the Indemnifying Party shall control the defense of any such
            claim, the Indemnifying Party shall obtain the prior written consent
            of the Indemnified Party before entering into any settlement of a
            claim or ceasing to defend such claim, if pursuant to or as a result
            of such settlement or cessation, injunction, or other equitable
            relief will be imposed against the Indemnified Party or any of the
            Indemnified Party's respective Affiliates or if such settlement does
            not expressly unconditionally release the Indemnified Party from all
            liabilities and obligations with respect to such claim.

            If the Indemnified Party shall control the defense of any such
            claim, the Indemnifying Party shall not be bound by any settlement
            or compromise of such claim or any consent to the entry of any
            judgment with respect to such claim without the prior written
            consent of the Indemnifying Party (which shall not be unreasonably
            withheld).

            (f) Payments by and Obligations of each Seller. Any payment required
      under Section 11.2(a) or (at Buyer's option) Section 11.3(d) by a Seller
      shall be made first by a disbursement from the Escrow Fund, in accordance
      with the terms of the Escrow Agreement, until the Escrow Fund has been
      exhausted, and second by each Seller in the amount of such Seller's
      Allocable Portion of such payment, in each case subject to the limitations
      on indemnification set forth in this Article 11.

      SECTION 11.3 CERTAIN TAX MATTERS.(a) Certain Definitions. As used in this
Section 11.3:

                  (i) "Buyer Tax Group" means the Affiliated Group of which the
            Buyer or Team Health Holdings, L.L.C. is the common parent.

                  (ii) "Pre-Closing Period" means any taxable period beginning
            before and ending on or before the Closing Date.

                  (iii) "Company Tax Group" means the Affiliated Group of which
            the Company is the common parent.

                  (iv) "Straddle Period" means any taxable period that includes
            (but does not end on) the Closing Date.

            (b) Return Filing; Refunds; Credits; and Tax Claims.

                  (i) The Representative (on behalf of the Sellers and at their
            sole cost and expense) shall prepare, or cause to be prepared, and
            file, or cause to be filed

                                       52
<PAGE>
            on a timely basis all Tax Returns of or including the Company or any
            of its Subsidiaries for all Pre-Closing Periods (the "Pre-Closing
            Period Returns"). The Sellers shall pay all Taxes shown to be due on
            the Pre-Closing Period Returns. The Representative shall provide the
            Buyer with a copy of (1) the Pre-Closing Period Return that is the
            U.S. federal income tax return of the Company filed after the
            Closing Date at least 30 days prior to the due date thereof or the
            earlier planned filing date (giving effect to any extensions
            thereof) (the "Closing Federal Return"), (2) the Pre-Closing Period
            Returns that are the state tax returns set forth on Exhibit K
            attached hereto filed after the Closing Date at least 15 days prior
            to the due date thereof or earlier planned filing date (giving
            effect to any extensions thereof) (the "Significant State Returns"
            and together with the Closing Federal Return, the "Review Returns")
            and (3) any other Pre-Closing Period Returns filed after the Closing
            Date at least 15 days prior to the due date thereof or earlier
            planned filing date (giving effect to any extensions thereof)
            ("Other Pre-Closing Period Returns"), and shall permit Buyer (at
            Buyer's sole expense) to review and comment on such Pre-Closing
            Period Returns to be filed after the Closing Date ("Buyer
            Comments"). Such Pre-Closing Period Returns (along with reasonable
            supporting documentation requested by Buyer in writing at least 5
            days prior to the date on which such Pre-Closing Period Return is
            required to be delivered to the Buyer; provided that the
            Representative shall give written notice to Buyer of the date of
            delivery in the event that it plans to deliver a Pre-Closing Period
            Return prior to the last day that it can be delivered, and Buyer's
            request shall be required to be made at least 5 days prior to the
            date specified in the Representative's notice) will be sent to the
            Buyer for its review at the place of business of the Buyer
            identified in Section 13.1 hereof. The Buyer shall have a period of
            15 days after receipt of such Pre-Closing Period Return (along with
            the reasonable supporting documentation as requested as described
            above) to provide Buyer Comments. Nothing herein shall preclude
            Buyer from requesting additional reasonable supporting
            documentation, and the Representative shall provide such
            documentation as soon as reasonably practicable; provided that no
            such request shall have the effect of delaying or tolling any period
            of review, negotiation or dispute resolution provided for herein.
            Only with respect to Buyer Comments on the Review Returns, if the
            Representative disagrees with any Buyer Comments, the Buyer and the
            Representative shall consult and negotiate in good faith to try to
            resolve such Buyer Comments on the Review Returns for a period of 5
            days. If the parties are unable to resolve any Buyer Comments on the
            Review Returns prior to end of such period, such dispute shall be
            resolved by the Firm, which shall resolve any issue in dispute as
            promptly as practicable but in no event later than the earlier of
            (A) 10 days after such dispute is submitted to the Firm or (B) the
            due date of such Review Return, provided that the Firm shall resolve
            such dispute in favor of the Sellers unless the Firm determines that
            the Review Return has not been prepared in accordance with the Code
            and regulations thereunder (or any corresponding state law, as
            applicable) and that there is no reasonable basis for the Sellers'
            position under applicable law or regulations. All changes to the
            Review Returns as agreed to by the Representative and the Buyer or
            as determined by the Firm in accordance with the above procedures
            shall be

                                       53
<PAGE>
            reflected in the applicable Review Return and in any other
            Pre-Closing Period Return filed after such agreement or
            determination if and to the extent an identical item as so
            determined is to be reflected in such other Pre-Closing Period
            Return and such treatment is consistent with applicable state law
            and regulations. The determination by the Firm shall be final,
            conclusive and binding on the parties.

                  (ii) The Buyer shall cause the Company (at its sole expense)
            to prepare, or cause to be prepared, and file, or cause to be filed
            on a timely basis, all Tax Returns (other than the Pre-Closing
            Period Returns of the Company and its Subsidiaries), including Tax
            Returns, if any, for the Straddle Period (the "Straddle Period
            Returns"). The Buyer shall cause the Company to pay all Taxes shown
            to be due on the Straddle Period Returns.

                  (iii) (A) The Buyer shall cause the Company to provide to the
            Representative copies of any Straddle Period Returns (along with
            reasonable supporting documentation requested by the Representative
            in writing at least 5 days prior to the date on which such Straddle
            Period Return is required to be delivered to the Representative;
            provided that the Buyer shall give written notice to Representative
            of the date of delivery in the event that it plans to deliver a
            Straddle Period Return prior to the last day that it can be
            delivered, and Representative's request shall be required to be made
            at least 5 days prior to the date specified in the Buyer's notice)
            at least 30 days prior to the due date thereof or earlier planned
            filing date (giving effect to any extensions thereto), accompanied
            by a statement calculating in reasonable detail the amount of Taxes
            shown on such Straddle Period Return for the portion of the related
            Straddle Period that ends on and includes the Closing Date (the "Tax
            Obligation Statement"). (B) The Representative shall have the right
            to review and comment on such Straddle Period Returns and Tax
            Obligation Statement prior to the filing of such Straddle Period
            Returns and the Buyer shall cause the Company to make revisions and
            changes to such Straddle Period Returns as are reasonably requested
            by the Representative ("Seller Comments"), and the Tax Obligation
            Statement shall be recalculated to properly reflect any such changes
            to such Straddle Period Returns. The Representative shall have a
            period of 15 days after receipt of such Straddle Period Returns
            (along with reasonable supporting documentation as requested as
            described above) to provide Seller Comments. Nothing herein shall
            preclude the Representative from requesting additional reasonable
            supporting documentation, and the Buyer shall provide such
            documentation as soon as reasonably practicable; provided that no
            such request shall have the effect of delaying or tolling any period
            of review, negotiation or dispute resolution provided for herein.
            (C) If the Buyer objects to any Seller Comments as not reasonably
            requested or if the Representative disputes any amounts shown as due
            on such Straddle Period Returns or the amount calculated in the Tax
            Obligation Statement, the Representative and the Company shall
            consult and negotiate in good faith to try to resolve such issues.
            (D) If the Representative agrees to the preparation of such Straddle
            Period Return and to the Tax Obligation Statement amount, the
            Sellers shall pay to the Company an amount equal to the Taxes shown
            on the Tax Obligation Statement allocable to the portion of the
            Straddle

                                       54
<PAGE>
            Period ending on and including the Closing Date less any amounts
            paid by or on behalf of the Company or any of its Subsidiaries on or
            before the Closing Date with respect to estimated Taxes thereto, not
            later than three days before the due date (including any extensions
            thereof) for payment of Taxes with respect to such Straddle Period
            Return. (E) If the parties are unable to resolve any dispute prior
            to the date which is 10 days prior to the due date (including any
            extensions thereof) for payment of Taxes with respect to such
            Straddle Period Return, such dispute shall be resolved by the Firm,
            which shall resolve any issue in dispute as promptly as practicable.
            (F) If the Firm is unable to make a determination with respect to
            any disputed issue prior to the due date (including any extensions)
            for the filing of the Straddle Period Return in question, (1) the
            Company shall file, or shall cause to be filed, such Straddle Period
            Return without such determination having been made and (2) the
            Sellers shall pay to the Company, not later than three days before
            the due date (including any extensions thereof), an amount
            determined by the Representative as the proper amount chargeable to
            the Sellers pursuant to this Section 11.3 less any amounts paid by
            or on behalf of the Company or any of its Subsidiaries on or before
            the Closing Date with respect to estimated Taxes thereto. (G) Upon
            delivery to the Representative and the Company by the Firm of its
            final determination, appropriate amendments to such Straddle Period
            Return as required and appropriate payments will be made between the
            Buyer and the Sellers in accordance with the immediately preceding
            sentence in order to reflect the decision of the Firm. (H) The
            determination by the Firm shall be final, conclusive and binding on
            the parties. (I) The amount shown as due on the Pre-Closing Period
            Returns that are not the Review Returns and the amount determined by
            agreement or by the final determination of the Firm to be owed by
            the Sellers for the Review Returns or Straddle Period Return is
            herein referred to as the "Sellers Tax Obligation." Once the Sellers
            Tax Obligation has been determined in accordance with the procedures
            set forth above and paid by the Sellers or by the Sellers to the
            Company, as the case may be, as set forth above, any claim by the
            Buyer Parties for additional amounts owed related to Pre-Closing
            Period Returns or Straddle Period Returns must be made as a claim
            for a breach of the representations and warranties of Section 3.9
            hereof pursuant to Section 11.3(d)(ii) hereof.

                  (iv) The Representative, the Buyer and the Company shall
            reasonably cooperate with the other parties, and shall cause their
            respective Affiliates, officers, employees, agents, auditors and
            representatives reasonably to cooperate, in preparing and filing all
            Tax Returns (including amended returns and claims for refund),
            including maintaining and making available to each other all records
            necessary in connection with Taxes and in resolving all disputes and
            audits with respect to all taxable periods relating to Taxes. The
            Buyer, the Company and the Representative recognize that the
            Representative and its agents will need access, from time to time,
            after the Closing Date, to certain accounting and Tax records and
            information held by the Company and each of its Subsidiaries to the
            extent such records and information pertain to events occurring
            prior to the Closing Date; therefore, the Buyer and the Company
            agree that from and after the Closing Date the Buyer shall

                                       55
<PAGE>
            cause the Company to, and the Company shall, and shall cause each of
            its Subsidiaries to, (A) retain and maintain such records until such
            time as the Representative determines that such retention and
            maintenance is no longer necessary and (B) allow the Representative
            and its agents and representatives (and agents and representatives
            of its Affiliates) to inspect, review and make copies of such
            records as the Representative may deem necessary or appropriate from
            time to time.

                  (v) The Company shall not, and shall cause each of its
            Subsidiaries not to, dispose of or destroy any of the business
            records and files of its Subsidiaries relating to Taxes in existence
            on the Closing Date without first offering to turn over possession
            thereof to the Representative by written notice to the
            Representative at least 30 days prior to the proposed date of such
            disposition or destruction.

                  (vi) Any refunds of Tax or credits against Taxes or similar
            benefit (including any interest or similar benefit) received by
            Buyer Tax Group or the Company and its Subsidiaries (a "Tax
            Benefit") with respect to (A) any Pre-Closing Period or the portion
            of any Straddle Period that ends on and includes the Closing Date or
            (B) Taxes for which the Sellers have indemnified the Company under
            this Agreement, shall be for the account of the Sellers, and Buyer
            shall pay to the Representative (for the benefit of the Sellers)
            within five business days after the Buyer, the Company or any of its
            Subsidiaries receives or becomes entitled to any such Tax Benefit.

            (c) Elections. The Buyer Tax Group and the Company shall not, and
      shall cause the Company and each of its Subsidiaries not to make, amend
      any Tax Return or revoke any Tax election unless required by law if such
      action would adversely affect (i) the liability for Taxes of the Sellers
      or any other Person (other than the Company or any of its Subsidiaries for
      taxable periods beginning after the Closing Date) as to whom or with whom
      the Company has filed a consolidated Tax Return, in each case, with
      respect to any taxable period ending on or before the Closing Date or (ii)
      any Tax refund or Tax credit with respect to any such period.

            (d) Tax Indemnification.

                  (i) The Buyer Tax Group and the Company shall indemnify,
            defend and hold harmless the Sellers, at any time after the Closing
            and prior to the third anniversary of the Closing Date, from and
            against (x) any penalties, additions to Tax or interest to the
            extent resulting from any failure of Buyer and the Company or any of
            its Subsidiaries to provide records or other information regarding
            Taxes with respect to the Company or any of its Subsidiaries in a
            timely manner to the extent that such records or other information
            was delivered to the Buyer or was in the possession of any member of
            the Buyer Tax Group, the Company or its Subsidiaries and (y) any
            liability for Taxes of the Company or any of its Subsidiaries
            acquired by Buyer at the time of acquisition of the Common Stock for
            any taxable period ending after the Closing Date except in the case
            of Straddle Periods, the Buyer's Tax Group and the Company's
            indemnity will cover only that

                                       56
<PAGE>
            portion of any such Taxes that is not attributable to the portion of
            such Straddle Period that ends on the Closing Date.

                  (ii) Except as provided in Section 8.4 hereof, each Seller
            shall indemnify, defend and hold harmless the Buyer Tax Group, at
            any time after the Closing and prior to the third anniversary of the
            Closing Date, from and against (x) such Seller's Allocable Portion
            of any Loss resulting from a breach by the Sellers of the
            representations and warranties in Section 3.9 and (y) such Seller's
            Allocable Portion of any liability for (A) Taxes imposed on the
            Company or any of its Subsidiaries (including any Taxes pursuant to
            Treasury Regulation Section 1.1502-6 or any similar state, local or
            foreign law or regulation with respect to the taxable income of any
            member of Company Tax Group) for any taxable period that ends on or
            before the Closing Date; and (B) any Taxes imposed on the Company or
            any of its Subsidiaries as a successor or transferee, by contract or
            pursuant to any law, rule or regulation, which Taxes relate to any
            event or transaction occurring before the Closing.

                  (iii) With respect to each Seller, the aggregate amount of (x)
            such Seller's Allocable Portion of the aggregate disbursements to
            the Buyer Parties from the Escrow Fund in respect of the
            indemnification provided in this Section 11.3(d) and (y) all
            payments made by such Seller or behalf of such Seller in
            satisfaction of claims for indemnification pursuant to this Section
            11.3(d), shall not exceed such Seller's Allocable Portion of
            $10,000,000 (the "Tax Cap") it being understood and agreed that the
            Tax Cap is separate from and in addition to the Cap).
            Notwithstanding anything to the contrary in this Agreement, the
            indemnification rights provided in Section 11.3(d) of this Agreement
            shall be the sole and exclusive remedy of the Buyer Tax Group and
            the Buyer Parties with respect to any disputes, claims, actions or
            other matters arising out of or related to the matters that are
            indemnified under Section 11.3(d) of this Agreement.

                  (iv) The indemnification provided by each Seller in this
            Section 11.3(d) shall be limited by and subject to the provisions of
            Section 11.2(b)(iii) through (vii).

                  (v) The indemnification provided by the Buyer Tax Group and
            the Company in this Section 11.3(d) to the Sellers is subject to the
            following limitation: the aggregate amount of all payments made by
            the Buyer and the Company in satisfaction of claims for
            indemnification pursuant to Section 11.3(d) shall not exceed
            $10,000,000. For purposes of clarity the parties intend that this
            tax cap is separate from and in addition to the cap for non-tax
            matters referred to in Section 11.2(b)(i).

                  (vi) In determining the responsibility of the Sellers and the
            Buyer Tax Group for Taxes attributable to any Straddle Period, Taxes
            based upon or related to gross or net income or receipts shall be
            apportioned on the basis of an interim closing of the books as of
            the Closing Date, and all other Taxes shall be prorated on a daily
            basis.

                                       57
<PAGE>
            (e) Contests. If a notice of deficiency, proposed adjustment,
      assessment, audit, examination or other administrative or court
      proceeding, suit, dispute or other claim (a "Tax Claim") shall be
      delivered, sent, commenced, or initiated to or against any member of Buyer
      Tax Group, the Company or any of its Subsidiaries by any Taxing authority
      with respect to Taxes that results in or may result in a loss for which
      indemnification may be claimed from the Sellers under this Agreement, the
      Buyer shall promptly notify the Representative in writing of such Tax
      Claim. The Representative shall have the sole right to represent the
      Company's and each of its Subsidiaries' interests and to employ counsel of
      its choice at its expense with respect to any such Tax Claim; and the
      Buyer shall cause the Buyer Tax Group, the Company and each of its
      Subsidiaries to execute any powers of attorney necessary in order to allow
      the Representative to control such contest and to settle any such Tax
      Claim; provided that in the case of any Tax Claim relating to any Tax for
      a Straddle Period Return which Buyer and the Sellers share liability
      pursuant to Section 11.3(b)(iii), the Buyer and the Representative shall
      each be entitled to participate at their own expense in the conduct of
      such Tax Claim to the extent it relates to a Tax for which such party
      bears liability pursuant to Section 11.3(b)(iii). No party may settle or
      otherwise dispose of any Tax Claim for which another party may have
      liability under Section 11.3(b)(iii) without the prior written consent of
      such other party, which consent may not be unreasonably withheld.

                                   ARTICLE 12
                                  NON COMPETE

      SECTION 12.1 NONCOMPETITION, NONSOLICITATION, AND CONFIDENTIALITY. From
and after the Closing Date:

            (a) Noncompetition. In consideration of the purchase by the Buyer of
      the Common Stock and good will of the Company and of the mutual covenants
      provided for herein to each Significant Seller (other than ARAMARK
      Organizational Services, Inc., successor by merger to ARAMARK Health &
      Education Services, Inc. ("Aramark")) and each Individual Covenantor
      (collectively, the "Covenantors"), except as otherwise agreed by the
      Buyer, each Significant Seller (other than Aramark) agrees to not engage
      and agrees to cause Holdings and its Subsidiaries to not engage and each
      Individual Covenantor agrees to not engage (whether as an owner, operator,
      manager, employee, officer, director, consultant, advisor, representative,
      or otherwise) directly or indirectly in the Military Line of Business
      during the Noncompete Period applicable thereto or in the Non-Military
      Line of Business during the Noncompete Period applicable thereto.
      Notwithstanding anything to the contrary herein, the provisions of this
      Section 12.1(a) and the provisions of Section 12.1(b) shall be subject to
      the following limitations: (i) such Sections shall not apply to any
      Affiliates of the Significant Sellers (other than Aramark and Holdings and
      its Subsidiaries and the Individual Covenantors); (ii) if Holdings or its
      Subsidiaries are acquired by a third party, the provisions of such
      Sections shall not apply to such third party (but shall continue to apply
      to the acquired Persons); (iii) ownership of less than 5% of the
      outstanding stock of any publicly traded corporation shall not be deemed
      to be engaging solely by reason thereof in any of its businesses; and (iv)
      no Person shall be deemed to be in breach of such Sections solely as a

                                       58
<PAGE>
      result of owning a direct or indirect interest in a business whose other
      owner engages in the activities prohibited hereunder. The parties hereto
      agree that, if the covenant set forth in this Section 12 is determined to
      be invalid or unenforceable, the parties agree that the court making the
      determination of invalidity or unenforceability shall have the power to
      reduce the scope, duration, or area of the term or provision, to delete
      specific words or phrases, or to replace any invalid or unenforceable term
      or provision with a term or provision that is valid and enforceable and
      that comes closest to expressing the intention of the invalid or
      unenforceable term or provision, and this Agreement shall be enforceable
      as so modified after the expiration of the time within which the judgment
      may be appealed. Notwithstanding anything herein to the contrary, the
      Sellers and their Affiliates and the Holdings and its Subsidiaries may
      continue to engage in or to pursue healthcare business operations in
      military penal facilities and in community hospitals where such business
      is, or is part of, the delivery of correctional healthcare, behavioral or
      substance abuse treatment.

            (b) Nonsolicitation. Except as otherwise agreed by the Buyer and
      except for doctors and nurses that are being engaged to provide clinical
      services by Holdings or its Subsidiaries, each Significant Seller (other
      than Aramark) agrees that it will not and will cause Holdings and its
      Subsidiaries to not and each Individual Covenantor agrees that it will
      not, during the applicable Noncompete Period, directly or indirectly (but
      excluding general advertisements seeking to hire generally) (i) contact,
      approach, or solicit, for the purpose of offering employment to or hiring
      (whether as an employee, consultant, agent, independent contractor, or
      otherwise), or hire any employee or independent contractor of the Company
      or its Subsidiaries as of the date hereof who is offered employment by the
      Buyer or the Company; and (ii) solicit, induce or attempt to induce any
      client, customer, contractor, supplier, licensee or other business
      relation of the Company or any Subsidiary as of the date hereof to cease
      doing business with the Company or such Subsidiary, or in any way
      interfere with the relationship between any such client, customer,
      contractor, supplier, licensee or other business relation and the Company
      or any Subsidiary; provided that nothing in this Article 12 shall prohibit
      the Covenantors or any of their respective Affiliates (other than Aramark)
      or Holdings or its Subsidiaries from taking any action otherwise
      prohibited by this Article 12 with respect to any Person whose employment
      is first terminated by the Buyer, the Company or any of their respective
      Affiliates, as the case may be.

            (c) Confidentiality. Each of the Significant Sellers and Individual
      Covenantors agree that they shall and shall cause Holdings and its
      Subsidiaries to treat and hold as confidential any information concerning
      the business and affairs of the Company that is not already generally
      available to the public (the "Confidential Information"), refrain from
      using any of the Confidential Information except in connection with this
      Agreement, and at any time upon the request of the Buyer deliver promptly
      to the Buyer or destroy, at the request and option of the Buyer, all
      tangible embodiments (and all copies) of the Confidential Information
      which are in its possession or under its control. In the event that any of
      the Covenantors, Aramark or Holdings or its Subsidiaries is requested or
      required (by oral question or request for information or documents in any
      legal proceeding, interrogatory, subpoena, civil investigative demand, or
      similar process) to disclose any Confidential Information, it shall notify
      the Buyer

                                       59
<PAGE>
      promptly of the request or requirement so that the Buyer may seek an
      appropriate protective order or waive compliance with the provisions of
      this Section 12.1(c). If, in the absence of a protective order or the
      receipt of a waiver hereunder, any of the Covenantors, Aramark or Holdings
      or its Subsidiaries is, on the advice of counsel, compelled to disclose
      any Confidential Information to any tribunal or else stand liable for
      contempt, it may disclose the Confidential Information to the tribunal;
      provided that it shall use its best efforts to obtain, at the request and
      expense of the Buyer, an order or other assurance that confidential
      treatment shall be accorded to such portion of the Confidential
      Information required to be disclosed as the Buyer shall designate.
      Notwithstanding the foregoing, the Sellers and their Affiliates and
      Holdings and its Subsidiaries may disclose the Company and its
      Subsidiaries' pre-Closing ownership history and corporate structure, and
      the Company's and its Subsidiaries pre-Closing historical financial
      information, to governmental or other agencies or entities, only to the
      extent necessary to respond to bid solicitations, procurements, or
      contract negotiations in which the Sellers or their Affiliates or Holdings
      or its Subsidiaries participate in pursuit of business not restricted
      pursuant to this Article 12.

            (d) Remedy for Breach. Each Covenantor and Aramark acknowledges and
      agrees that in the event of a breach of any of the provisions of this
      Section 12.1, monetary damages may not constitute a sufficient remedy.
      Consequently, in the event of any such breach, the Company, the Buyer,
      and/or their respective successors or assigns may, in addition to other
      rights and remedies existing in their favor, apply to any court of law or
      equity of competent jurisdiction for specific performance and/or
      injunctive or other relief in order to enforce or prevent any violations
      of the provisions hereof, in each case without the requirement of posting
      a bond or proving actual damages.

            (e) Certain Definitions. As used in this Article 12 and elsewhere in
      this Agreement, the following terms have the following meanings:

            "Individual Covenantors" means Julian L. Carr, Jr., Richard Miles
and James Moore.

            "Military Line of Business" means the line of business as conducted
on the date hereof by the Company and its Subsidiaries and Related Entities
within the United States that directly or indirectly provides services to the
United States military, its contractors, personnel and their dependents.

            "Noncompete Period" means, with respect to the Significant Sellers
(other than the Julian L. Carr, Jr. Revocable Trust and Aramark) and Holdings
and its Subsidiaries and the Military Line of Business, five years; with respect
to the Significant Sellers (other than the Julian L. Carr, Jr. Revocable Trust
and Aramark) and Holdings and its Subsidiaries and the Non-Military Line of
Business, two years; and with respect to the Individual Covenantors and the
Military Line of Business and the Non-Military Line of Business, two years.

            "Non-Military Line of Business" means the lines of business as
conducted on the date hereof by the Company and its Subsidiaries within the
United States, other than the Military Line of Business.

                                       60
<PAGE>
      SECTION 12.2 NONSOLICITATION BY THE BUYER. Except as otherwise agreed by
the Representative and except for doctors and nurses that are being engaged to
provide clinical services by the Buyer or its Subsidiaries, for a period of two
years following the date hereof (but excluding general advertisements seeking to
hire generally), (a) if this Agreement is terminated for any reason pursuant to
Article 10 (other than as a result of a termination pursuant to Section
10.1(b)), the Buyer shall not, directly or indirectly, actively solicit or
induce any employee, agent or contractor of Holdings, the Company or any of
their respective Subsidiaries or related entities to leave such employment and
become an employee, agent or contractor of the Buyer or any of its Affiliates,
or hire any such employee, agent or contractor of Holdings, the Company or any
of their respective Subsidiaries or related entities; and (b) none of the Buyer,
the Company or their respective Subsidiaries shall, directly or indirectly,
actively solicit or induce any employee, agent or contractor of Holdings or any
of its Subsidiaries or related entities to leave such employment or relationship
and become an employee, agent or contractor of the Buyer, the Company or any of
their respective Affiliates, or hire any such employee, agent or contractor of
Holdings or any of its Subsidiaries or related entities; provided that nothing
in this Section 12.2 shall prohibit the Buyer, the Company or any of their
Affiliates from taking any action otherwise prohibited by this Section 12.2 with
respect to any Person whose employment is first terminated by Holdings or any of
its Subsidiaries or related entities, as the case may be.

      SECTION 12.3 NONCOMPETITION AND NONSOLICITATION OF ARAMARK. From and after
the Closing Date:

            (a) Noncompetition. In consideration of the purchase by the Buyer of
      the Common Stock and good will of the Company and of the mutual covenants
      provided for herein to Aramark, during the period beginning on the Closing
      Date and ending on the third anniversary of the Closing Date (the "Aramark
      Noncompete Period"), except as otherwise agreed by the Buyer, Aramark
      agrees to not engage (whether as an owner, operator, manager, employee,
      officer, director, consultant, advisor, representative, or otherwise)
      directly or indirectly in any line of business as conducted by the Company
      and its Subsidiaries on the date hereof within the United States, defined
      solely for purposes of defining Aramark's obligations under this Section
      12.3(a) as (i) the provision of a full range of management and staffing
      clinical health services in multiple clinical areas to health care
      facilities, including those of physicians in many specialties, nurses,
      clinical care specialty technicians and administrative support personnel
      primarily related to clinical care to patients; (ii) the provision of
      management services including recruiting, scheduling, credentialing,
      employee relations, and personnel administration, the primary purpose of
      which is directed to the provision of clinical care to patients; (iii) the
      provision of certain financial analyses to facilities to ascertain the
      cost-benefit of its services and those of other contractors with its
      clients, the primary purpose of which is directed to the provision of
      clinical care to patients; and (iv) the operation of a healthcare billing
      function that provides billing to patients and payors, the primary purpose
      of which is directed to the provision of clinical care of patients;
      provided, that for purposes of the covenants contained in this Section
      12.3(a), in the case of existing lines of business of the Company and its
      Subsidiaries and related entities other than the military lines of
      business, the Aramark Noncompete Period shall end on the date that is two
      (2) years after the Closing Date; provided further that the provisions of
      this Section 12.3(a) shall not apply to any Affiliates of Aramark (other
      than Holdings and its Subsidiaries and the

                                       61
<PAGE>
      Covenantors); provided further that if Aramark is acquired by a third
      party, the provisions of this Section 12.3 shall not apply to such third
      party (but shall continue to apply to Aramark); provided further that
      ownership of less than 5% of the outstanding stock of any publicly traded
      corporation shall not be deemed to be engaging solely by reason thereof in
      any of its businesses; provided further that Aramark shall not be deemed
      to be in breach of this Section 12.3(a) solely as a result of owning a
      direct or indirect interest in a business whose other owner engages in the
      activities prohibited hereunder; provided further that Aramark shall not
      be deemed to be in breach of this Section 12.3(a) as a result of the
      involuntary acquisition of a competitive business as a result of Aramark's
      status as a creditor in a bankruptcy or insolvency proceeding; provided
      further that Aramark shall not be deemed to be in breach of this Section
      12.3(a) as a result of the acquisition of a competitive business provided
      that the segment of the acquired business that is in competition does not
      generate gross revenues in excess of 30% of the total revenues of the
      acquired business; provided, further, that Aramark shall not be deemed to
      be in breach of this Section 12.3(a) as a result of providing the
      following services, to the extent that such services do not primarily
      relate to the provision of clinical care to patients: food service,
      housekeeping, servicing of clinical equipment, other facility services
      (including, without limitation, maintenance), patient transportation,
      HVAC, dietary consultation, and other services engaged in by Aramark as of
      the date hereof. The Parties hereto agree that, if the covenant set forth
      in this Section 12 is determined to be invalid or unenforceable, the
      Parties agree that the court making the determination of invalidity or
      unenforceability shall have the power to reduce the scope, duration, or
      area of the term or provision, to delete specific words or phrases, or to
      replace any invalid or unenforceable term or provision with a term or
      provision that is valid and enforceable and that comes closest to
      expressing the intention of the invalid or unenforceable term or
      provision, and this Agreement shall be enforceable as so modified after
      the expiration of the time within which the judgment may be appealed.

            (b) Nonsolicitation. Except as otherwise agreed by the Buyer,
      Aramark agrees that it will not, during the applicable Aramark Noncompete
      Period, directly or indirectly (but excluding general advertisements
      seeking to hire generally) (i) contact, approach, or solicit, for the
      purpose of offering employment to (whether as an employee, consultant,
      agent, independent contractor, or otherwise) or hire the following: Toni
      Quehnle, Joe Vocks, Neil Patterson, Dr. Jaime Arroyo, Cathy Vivirito,
      George Tracey, JoAnn Zintell, Dr. Richard Takao and Dr. James Boehlke; or
      (ii) solicit, induce or attempt to induce any client, customer,
      contractor, supplier, licensee or other business relation of the Company
      or any Subsidiary as of the date hereof to cease doing business with the
      Company or such Subsidiary.

                                   ARTICLE 13
                                  MISCELLANEOUS

      SECTION 13.1 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,

            if to the Company (after the Closing) or to the Buyer, then to:

                                       62
<PAGE>
                  Team Health, Inc.
                  1900 Winston Road
                  Knoxville, TN 37919
                  Attention: Lynn Massingale, M.D.
                  Fax: 865-539-8030

                  with a copy to:

                  Harwell Howard Hyne Gabbert & Manner, P.C.
                  1800 AmSouth Center
                  315 Deaderick Street
                  Nashville, TN 37238
                  Attention:   Mark Manner
                  Fax: 615-251-1056

            or, if to the Company (before the Closing), then to:

                  Spectrum Holdings of Delaware, LLC
                  12647 Olive Blvd.
                  P.O. Box 419052
                  St. Louis, Missouri 63141-9052
                  Attention: Chief Executive Officer
                  Fax: (314) 919-8801

                  with a copy to:

                  Kirkland & Ellis
                  200 East Randolph Drive
                  Chicago, Illinois 60601
                  Attention:  Sanford E. Perl
                  Fax: (312) 861-2200

            or, if to the Representative, then to:

                  Madison Dearborn Capital Partners, L.P.
                  Three First National Plaza, Suite 3800
                  Chicago, Illinois 60602
                  Attention: Timothy Sullivan
                  Fax: (312) 895-1001

                  with a copy to:

                  Kirkland & Ellis
                  200 East Randolph Drive
                  Chicago, Illinois 60601
                  Attention:  Sanford E. Perl
                  Fax: (312) 861-2200

                                       63
<PAGE>
      or, if to a Seller, then to the address for such Seller set forth next to
such Seller's name on the Schedule of Sellers,

                  with a copy to:

                  Kirkland & Ellis
                  200 East Randolph Drive
                  Chicago, Illinois 60601
                  Attention:  Sanford E. Perl
                  Fax: (312) 861-2200

      All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received on a
business day in the place of receipt prior to 5:00 p.m. in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.

      SECTION 13.2 AMENDMENTS AND WAIVERS.

            (a) Except as otherwise provided herein, any provision of this
      Agreement may be amended or waived if, but only if, such amendment or
      waiver is in writing and is signed by the Buyer, the Company, the
      Representative and the Sellers whose aggregate Seller Percentages exceed
      fifty percent (50%) of all of the Seller Percentages.

            (b) No failure or delay by any party in exercising any right, power
      or privilege hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise thereof preclude any other or further exercise
      thereof or the exercise of any other right, power or privilege.

            (c) Notwithstanding anything to the contrary herein, in the event
      that between the date hereof and the Closing Date any Person who is not
      already a signatory to this Agreement and listed on the Schedule of
      Sellers hereto is intended to acquire any Acquired Shares pursuant to the
      Distribution and Repurchase Agreement or otherwise (each, a "New Seller"),
      the Company will not permit such New Seller to acquire such Acquired
      Shares unless such New Seller first agrees to be bound by this Agreement
      and executes and delivers to the Company a counterpart of this Agreement,
      in which case such New Seller shall be deemed to be a Seller for purposes
      of this Agreement and the Schedule of Sellers shall be updated
      accordingly.

      SECTION 13.3 CONSTRUCTION; SEVERABILITY. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any Person. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof. In the
event a subject matter is addressed in more than one representation and warranty
in Article 3, the Buyer shall be entitled to rely only on the most specific
representation and warranty addressing such subject matter. Whenever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law or regulation, but if any provision of

                                       64
<PAGE>
this Agreement is held to be prohibited by or invalid under applicable law or
regulation, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

      SECTION 13.4 EXPENSES. Except as otherwise provided herein, each party
shall pay all of its own fees, costs and expenses (including, without
limitation, fees, costs and expenses of legal counsel, investment bankers,
brokers or other representatives and consultants and appraisal fees, costs and
expenses) incurred in connection with the negotiation of this Agreement and the
other agreements contemplated hereby, the performance of its obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby; provided that the Buyer shall pay any and all expenses
relating to surveys, title insurance, filings under the HSR Act and any other
filings and consents required in connection with the transactions contemplated
by this Agreement. Notwithstanding the foregoing, to the extent the
Representative requests prior to the Closing that the Company pay at or after
the Closing any fees, costs or expenses for which a Seller is liable pursuant to
this Section 13.4 ("Seller Transaction Expenses"), then such Seller Transaction
Expenses shall be paid by the Company when due and there shall be a downward
adjustment to the Closing Working Capital and any estimates thereof equal to the
amount of such Seller Transaction Expenses to be paid by the Company at or after
the Closing and, for the avoidance of doubt, any Tax deductions taken in periods
after the Closing Date for the Seller Transactions Expenses that are paid after
the Closing Date shall be for the benefit of the Company.

      SECTION 13.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that the Buyer may
transfer or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to purchase all or a portion of the Acquired Shares, but
no such transfer or assignment will relieve the Buyer of its obligations
hereunder.

      SECTION 13.6 GOVERNING LAW. All issues and questions concerning the
construction, validity, interpretation and enforceability of this Agreement and
the exhibits and schedules hereto shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.

      SECTION 13.7 JURISDICTION. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby shall be brought in the United States
District Court for the Northern District of Illinois or any Illinois State court
sitting in Chicago, Illinois, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts herefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient form. Process in any such suit, action or
proceeding may be

                                       65
<PAGE>
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court.

      SECTION 13.8 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

      SECTION 13.9 COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto. Holdings
shall be an intended third party beneficiary of this Agreement and shall have
the right to enforce this Agreement in its own name. Except as otherwise
specifically set forth herein, no provision of this Agreement is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.

      SECTION 13.10 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein (including the Confidentiality Agreement) contain the complete
agreement between the parties hereto and supersede any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way. The representations
and warranties made by the Company in this Agreement (as qualified by the
Schedules) supersede, replace and nullify in every respect the data set forth in
any other document, material or statement, whether written or oral, made
available to the Buyer (the "Other Material"), and the Buyer shall be deemed to
have not relied on any data contained in the Other Material for any purpose
whatsoever, including, without limitation, as a promise, projection, guaranty,
representation, warranty or covenant.

                                    * * * * *

                                       66
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.

COMPANY:                           SPECTRUM HEALTHCARE SERVICES, INC.
                                   By:      _______________________________
                                   Name:    _______________________________
                                   Title:   _______________________________

SELLERS:                           MADISON DEARBORN CAPITAL
                                   PARTNERS, L.P.

                                   By:      Madison Dearborn Partners, L.P.
                                   Its:     General Partner

                                   By:      Madison Dearborn Partners, Inc.
                                   Its:     General Partner

                                   By:      _______________________________
                                   Its:     _______________________________

                                   ALLEN & COMPANY INCORPORATED

                                   By:      _______________________________
                                   Its:     _______________________________

                                   ARAMARK ORGANIZATIONAL SERVICES, INC.,
                                   SUCCESSOR BY MERGER TO ARAMARK HEALTH &
                                   EDUCATION SERVICES, INC.

                                   By:      _______________________________

                                   Its:     _______________________________

                                   HEALTHCARE EQUITY PARTNERS, L.P.

                                   By:      Beecken, Petty & Company, L.L.C.
                                   Its:     General Partner

                                   By:      _______________________________

                                   Its:     _______________________________

                                       67
<PAGE>
                                   HEALTHCARE EQUITY QP PARTNERS, L.P.

                                   By:      _______________________________
                                   Its:     _______________________________

                                   By:      _______________________________
                                   Its:     _______________________________

                                   LATOUR PARTNERSHIP, L.P.

                                   By:      _______________________________
                                   Its:     _______________________________

                                   By:      _______________________________

                                   Its:     _______________________________

                                   NORTHWESTERN UNIVERSITY

                                   By:      _______________________________

                                   Its:     _______________________________

                                   PRUDENTIAL PRIVATE EQUITY
                                   INVESTORS III, L.P.

                                   By:      Prudential Equity Investors, Inc.
                                   Its:     General Partner

                                   By:      Cornerstone Equity Investors, L.L.C.
                                   Its:     Investment Advisor

                                   By:      _______________________________

                                   Its:     _______________________________

                                       68
<PAGE>
                                   JULIAN L. CARR, JR., AND EILEEN M. CARR,
                                   TRUSTEES OF THE JULIAN L. CARR, JR.
                                   REVOCABLE TRUST U/T/A DATED
                                   JANUARY 15, 1993

                                   By:      _______________________________

                                   Its:     _______________________________

                                   _______________________________
                                   ERAN ASHANY

                                   _______________________________
                                   JOHN T. CROTTY

                                   _______________________________
                                   RUTH E. KIM

                                   _______________________________
                                   MELVIN M. MAHONEY AND PAULA
                                   MAHONEY, AS JOINT TENANTS WITH
                                   RIGHTS OF SURVIVORSHIP

                                   RICHARD H. MILES, AS TRUSTEE U/I RICHARD
                                   H. MILES DATED AUGUST 15, 1994

                                   By:      _______________________________

                                   Its:     _______________________________

                                   JAMES W. MOORE REVOCABLE TRUST DATED
                                   AUGUST 24, 1992, JAMES W. MOORE AND
                                   JANE E. MOORE, TRUSTEES

                                   By:      _______________________________

                                   Its:     _______________________________

                                       69
<PAGE>
                                   JANE E. MOORE REVOCABLE TRUST DATED
                                   AUGUST 24, 1992, JANE E. MOORE AND JAMES
                                   W. MOORE, TRUSTEES

                                   By:      _______________________________

                                   Its:     _______________________________

                                   _______________________________
                                   WALTER T. O'HARA

                                   _______________________________
                                   MICHAEL G. PFEIFFER

                                   _______________________________
                                   SALLY A. POWERS

                                   _______________________________
                                   DAVID L. SHUMAN

                                   _______________________________
                                   MICHAEL A. SHUMAN

                                   _______________________________
                                   STANLEY S. SHUMAN

                                   _______________________________
                                   GEORGE S. TRACY AND AMY E. TRACY, AS
                                   JOINT TENANTS WITH RIGHTS OF
                                   SURVIVORSHIP

                                       70
<PAGE>
                                   _______________________________
                                   LOUIS C. TRIPOLI

                                   _______________________________
                                   CATHY L. VIVIRITO AND PHILIP A. VIVIRITO,
                                   AS JOINT TENANTS WITH RIGHTS OF
                                   SURVIVORSHIP

BUYER:                             TEAM HEALTH, INC.
                                   By:      ____________________________________
                                   Name:    ____________________________________
                                   Title:   ____________________________________

                                   Its:     _______________________________

Each of the Individual Covenantors set forth below hereby (i) agrees to be bound
by and subject to such Individual Covenantor's obligations under Article 12 of
the Agreement and (ii) guarantees the full and prompt performance of the trust,
if any, which is a Seller under the Agreement and the name of which includes the
name of such Individual Covenantor, under the Agreement and the other agreements
contemplated by the Agreement.

                                   _______________________________
                                   JULIAN L. CARR, JR.

                                   _______________________________
                                   RICHARD H. MILES

                                   _______________________________
                                   JAMES MOORE

Each of the individuals set forth below hereby guarantees the full and prompt
performance of the trust, which is a Seller under the Agreement and the name of
which includes the name of such individual, under the Agreement and the other
agreements contemplated by the Agreement.

                                       71
<PAGE>
                                   _______________________________
                                   CATHY L. VIVIRITO

                                   _______________________________
                                   GEORGE S. TRACY

                                   _______________________________
                                   MELVIN M. MAHONEY

                                       72
<PAGE>
                               SCHEDULE OF SELLERS

<TABLE>
<CAPTION>
               NAME OF SELLER                                      SELLER ADDRESS
               --------------                                      --------------
<S>                                                    <C>
ARAMARK ORGANIZATIONAL SERVICES, INC.                  ARAMARK Tower
                                                       1101 Market Street
                                                       Philadelphia, PA  19107
                                                       ATTN:  BARBARA AUSTELL

MADISON DEARBORN CAPITAL PARTNERS, L.P.                Three First National Plaza
                                                       Suite 3800
                                                       Chicago, IL  60602
                                                       ATTN:  TIM SULLIVAN

HEALTHCARE EQUITY PARTNERS, L.P.                       200 West Madison Street
                                                       Suite 1910
                                                       Chicago, IL  60606
                                                       ATTN:  KEN O'KEEFE

HEALTHCARE EQUITY QP PARTNERS, L.P.                    200 West Madison Street
                                                       Suite 1910
                                                       Chicago, IL  60606
                                                       ATTN:  KEN O'KEEFE

PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.          717 5th Avenue, Suite 1100
                                                       New York, NY  10022
                                                       ATTN:  DANA O'BRIEN

ALLEN & COMPANY INCORPORATED                           711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN:  KIM WIELAND

STANLEY S. SHUMAN                                      C/o Allen &Company Incorporated
                                                       711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN: KIM WIELAND

DAVID L. SHUMAN                                        C/o Allen &Company Incorporated
                                                       711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN: KIM WIELAND
</TABLE>

                                       73
<PAGE>
<TABLE>
<CAPTION>
               NAME OF SELLER                                      SELLER ADDRESS
               --------------                                      --------------
<S>                                                    <C>
MICHAEL A. SHUMAN                                      c/o Allen &Company Incorporated
                                                       711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN:  KIM WIELAND

ERAN ASHANY                                            c/o Allen &Company Incorporated
                                                       711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN:  KIM WIELAND

WALTER T. O'HARA                                       c/o Allen &Company Incorporated
                                                       711 Fifth Avenue
                                                       9th Floor
                                                       New York, NY  10022
                                                       ATTN:  KIM WIELAND

NORTHWESTERN UNIVERSITY                                633 Clark Street
                                                       Evanston, IL  60208.1122
                                                       ATTN:  DAVID WAGNER

JULIAN L. CARR JR. AND EILEEN M. CARR, TRUSTEES OF     c/o Spectrum Holdings of Delaware, LLC
THE JULIAN L. CARR, JR. REVOCABLE TRUST U/T/A DATED    12647 Olive Blvd.
JANUARY 15, 1993                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

LATOUR PARTNERSHIP, L.P.                               c/o Spectrum Holdings of Delaware, LLC
                                                       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052
                                                       ATTN:  JULIAN L. CARR, JR.
</TABLE>

                                       74
<PAGE>
<TABLE>
<CAPTION>
               NAME OF SELLER                                      SELLER ADDRESS
               --------------                                      --------------
<S>                                                    <C>
RICHARD H. MILES, AS TRUSTEE U/I RICHARD H. MILES      c/o Spectrum Holdings of Delaware, LLC
DATED AUGUST 15, 1994                                  12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

JAMES W. MOORE REVOCABLE TRUST DATED AUGUST 24,        c/o Spectrum Holdings of Delaware, LLC
1992, JAMES W. MOORE AND JANE E. MOORE, TRUSTEES       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

JANE E. MOORE REVOCABLE TRUST DATED AUGUST 24, 1992,   c/o Spectrum Holdings of Delaware, LLC
JANE E. MOORE AND JAMES W. MOORE, TRUSTEES             12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

MICHAEL G. PFEIFFER                                    c/o Spectrum Holdings of Delaware, LLC
                                                       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

CATHY L. VIVIRITO AND PHILIP A. VIVIRITO, AS JOINT     c/o Spectrum Holdings of Delaware, LLC
TENANTS WITH RIGHTS OF SURVIVORSHIP                    12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

SALLY A. POWERS                                        c/o Spectrum Holdings of Delaware, LLC
                                                       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

RUTH E. KIM                                            c/o Spectrum Holdings of Delaware, LLC
                                                       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052
</TABLE>

                                       75
<PAGE>
<TABLE>
<CAPTION>
               NAME OF SELLER                                      SELLER ADDRESS
               --------------                                      --------------
<S>                                                    <C>
LOUIS C. TRIPOLI                                       c/o Spectrum Holdings of Delaware, LLC
                                                       12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

GEORGE S. TRACY AND AMY E. TRACY, AS JOINT TENANTS     190 Haversham Drive
WITH RIGHTS OF SURVIVORSHIP                            Colorado Springs, CO  80906

MELVIN M. MAHONEY AND PAULA MAHONEY, AS JOINT          c/o Spectrum Holdings of Delaware, LLC
TENANTS WITH RIGHTS OF SURVIVORSHIP                    12647 Olive Blvd.
                                                       P. O. Box 419052
                                                       St. Louis, MO  63141.9052

JOHN T. CROTTY                                         Crobern, Inc.
                                                       709 Mountain Road
                                                       Lake Bluff, IL  60044
</TABLE>

                                       76<PAGE>

                                                                    EXHIBIT 10.1

                                   $60,000,000

                          POSTPETITION CREDIT AGREEMENT

                           DATED AS OF APRIL 26, 2002

                                      AMONG

                           SPECIAL METALS CORPORATION
                               A-1 WIRE TECH, INC.
                    SPECIAL METALS DOMESTIC SALES CORPORATION
            INCO ALLOYS INTERNATIONAL, INC. (D/B/A HUNTINGTON ALLOYS)
                                  AS BORROWERS

             THE BANKS AND FINANCIAL INSTITUTIONS FROM TIME TO TIME
                             PARTY HERETO AS LENDERS

                                       AND

                        CREDIT LYONNAIS NEW YORK BRANCH,
                      AS AGENT, ISSUING BANK, AND A LENDER
<PAGE>
                          POSTPETITION CREDIT AGREEMENT

This Postpetition Credit Agreement, dated as of April 26, 2002, among the
financial institutions from time to time parties hereto (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), CREDIT LYONNAIS NEW YORK BRANCH, as a Lender, as Issuing Bank with
respect to the Letters of Credit, and as agent for the Lenders and the Issuing
Bank hereunder, SPECIAL METALS CORPORATION, a Delaware corporation, in its
capacity as a debtor and a debtor in possession on behalf of the estate created
upon the commencement of the Bankruptcy Cases ("SMC"), A-1 WIRE TECH, INC., an
Illinois corporation, in its capacity as a debtor and a debtor in possession on
behalf of the estate created upon the commencement of the Bankruptcy Cases
("Wire"), SPECIAL METALS DOMESTIC SALES CORPORATION, a Delaware corporation, in
its capacity as a debtor and a debtor in possession on behalf of the estate
created upon the commencement of the Bankruptcy Cases ("Sales"), and INCO ALLOYS
INTERNATIONAL, INC. (d/b/a Huntington Alloys), a Delaware corporation, in its
capacity as a debtor and a debtor in possession on behalf of the estate created
upon the commencement of the Bankruptcy Cases ("Alloys," and together with SMC,
Wire and Sales, each a "Borrower" and collectively, the "Borrowers").

                              W I T N E S S E T H:

WHEREAS, the Borrowers, each of which is a debtor and debtor in possession in a
case pending under Chapter 11 of the Bankruptcy Code (the cases of the Borrowers
each, a "Bankruptcy Case" and, collectively the "Bankruptcy Cases"), have
requested the Lenders to make available to the Borrowers a revolving credit
facility for loans and letters of credit in an amount not to exceed $60,000,000,
and which extensions of credit the Borrowers will use solely for the purposes
permitted hereunder;

WHEREAS, the Lenders have agreed to make available to the Borrowers such a
revolving credit facility upon the terms and conditions set forth in this
Agreement.

WHEREAS, on the Petition Date, the Borrowers filed voluntary petitions with the
Bankruptcy Court initiating the Bankruptcy Cases;

WHEREAS, the Borrowers have continued in possession of their respective assets
and in the management of their respective businesses as debtors in possession
pursuant to Sections 1107 and 1108 of the Bankruptcy Code; and

WHEREAS, to provide security for the repayment of the loans and letters of
credit made available pursuant hereto and payment of the other obligations of
the Borrowers under the Loan Documents, the Borrowers have agreed to provide the
Agent and the Lenders (upon and after the entry of the Interim Order) with
respect to the obligations of the Borrowers hereunder and under the other Loan
Documents, an allowed superpriority administrative expense claim in each of the
Bankruptcy Cases pursuant to Section 364(c)(1) of the Bankruptcy Code having
priority over all administrative expenses of the kind specified in, or arising
or ordered under, any sections of the Bankruptcy Code, including without
limitation, Sections 503(b), 105, 326, 328, 330, 331, 506(c), 507(a), 507(b),
546(c), 726 or 1112 of the Bankruptcy Code (subject only to the Carve-Out) and
liens and security interests with priority under Section 364(c)(2) and Section
364(d)(1) of the Bankruptcy Code, all as set forth herein and in the Interim
Order and the Final Order.

                                       1
<PAGE>
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth in this Agreement, and for good and valuable consideration, the receipt of
which is hereby acknowledged, the Lenders, the Agent, and the Borrowers hereby
agree as follows.

            SECTION 1. DEFINITIONS

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

            "ADEQUATE PROTECTION OBLIGATIONS": all Prepetition Indebtedness
            granted adequate protection pursuant to the Orders

            "AFFILIATE": with respect to any Person, any other Person which,
            directly or indirectly, is in control of, is controlled by, or is
            under common control with, such Person, (including, but not limited
            to, all directors and officers of such Person). For purposes of this
            definition, "control" of a Person means the power, directly or
            indirectly, either to (a) vote 5% or more of the securities having
            ordinary voting power for the election of directors or other
            governing body of such Person or (b) direct or cause the direction
            of the management and policies of such Person, through the ownership
            of Voting Stock or other ownership interests, by contract or
            otherwise.

            "AGENT": Credit Lyonnais New York Branch, together with its
            affiliates, as the arranger of the Revolving Credit Commitments and
            as the agent for itself, the Lenders and the Issuing Bank under this
            Agreement and the other Loan Documents or its successor appointed
            pursuant to subsection 11.9.

            "AGREEMENT": this Postpetition Credit Agreement, including the
            schedules and exhibits hereto, as amended, supplemented, amended and
            restated or otherwise modified from time to time.

            "ALLOYS": as defined in the first paragraph of this Agreement.

            "APPLICABLE MARGIN": a rate of 2.00% per annum.

            "ASSET SALE": any sale or other disposition (including any sale and
            leaseback of assets, and any mortgage or lease of real property)
            (other than a mortgage in favor of the Agent or a Permitted Asset
            Sale) subsequent to the Closing Date of any property of the
            Borrowers or any of their Subsidiaries.

            "ASSIGNEE": as defined in subsection 12.6(c).

            "ASSIGNMENT AND ACCEPTANCE": as defined in subsection 12.6(c).

                                       2
<PAGE>
            "BANK ACCOUNT ORDER": means that certain order of the Bankruptcy
            Court dated March 28, 2002 granting the Borrowers' motion to (A)
            approve cash management system, certain intercompany transactions
            with and transfers to nondebtors, use of existing bank accounts and
            business forms and (B) to give superpriority status to all
            postpetition intercompany claims.

            "BANKRUPTCY CASE(S)": as defined in the recitals to this Agreement.

            "BANKRUPTCY CODE": means Title 11 of the United States Code (11
            U.S.C.ss. 101 et seq.), as amended.

            "BANKRUPTCY COURT": means the United States Bankruptcy Court for the
            Eastern District of Kentucky, or any other court having jurisdiction
            over the Bankruptcy Cases from time to time.

            "BASE RATE": for any day, a rate per annum (rounded upwards, if
            necessary, to the next 1/16 of 1%) equal to the greater of (a) the
            Prime Rate in effect on such day or (b) the Federal Funds Rate in
            effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate"
            shall mean the rate of interest per annum publicly announced from
            time to time by Credit Lyonnais New York Branch as its prime rate in
            effect at its principal office in New York City (the Prime Rate is
            not intended to be the lowest rate of interest charged by Credit
            Lyonnais New York Branch in connection with extensions of credit to
            debtors); and "Federal Funds Rate" shall mean, for any day, the
            weighted average of the per annum rates on overnight federal funds
            transactions with members of the Federal Reserve System arranged by
            federal funds brokers, as published on the next succeeding Business
            Day by the Federal Reserve Bank of New York, or, if such rates are
            not so published for any day which is a Business Day, the average of
            the quotations for the day of such transactions received by the
            Agent from three federal funds brokers of recognized standing
            selected by it. Any change in the Base Rate due to a change in the
            Prime Rate or the Federal Funds Rate shall be effective as of the
            opening of business on the effective day of such change in the Prime
            Rate or the Federal Funds Rate.

            "BOARD OF GOVERNORS": the Board of Governors of the Federal Reserve
            System or any successor to the functions and powers thereof.

            "BORROWER": as defined in the first paragraph of this Agreement.

            "BORROWER REPRESENTATIVE": SMC.

            "BORROWERS": as defined in the first paragraph of this Agreement.

            "BORROWING DATE": any Business Day specified in a notice delivered
            pursuant to subsection 3.3 or 4.1 as a date on which the Borrower
            Representative requests the

                                       3
<PAGE>
            Lenders to make Revolving Credit Loans hereunder or the Issuing Bank
            to issue a Letter of Credit hereunder.

            "BUDGET": as defined in subsection 6.1(c).

            "BUSINESS": as defined in subsection 6.16.

            "BUSINESS DAY": a day other than a Saturday, Sunday or other day on
            which commercial banks in New York City are authorized or required
            by law to close.

            "CAPITAL EXPENDITURES": with respect to any Person for any period,
            the sum of (a) all expenditures of such Person in respect of the
            purchase or other acquisition of fixed or capital assets (excluding
            any such asset acquired in connection with normal replacement and
            maintenance programs properly charged to current operations) that
            are paid or due and payable in cash during such period and (b) all
            Financing Lease expenses of such Person that are paid or (without
            duplication) due and payable in cash during such period.

            "CAPITAL STOCK": any and all shares, interests, participations or
            other equivalents (however designated) of capital stock of a
            corporation, regardless of type, class, preference or designation,
            any and all equivalent ownership interests in a Person other than a
            corporation, including membership interests, partnership interests
            or other equity interests, and any and all warrants, options,
            purchase rights, conversion or exchange rights, voting rights, calls
            or claims of any character with respect thereto.

            "CARVE-OUT": as defined in subsection 2.5(d).

            "CASH COLLATERAL ORDER": that certain Order Authorizing Debtors in
            Possession to use Cash Collateral Pursuant to Sections 361 and 363
            of the Bankruptcy Code, and Providing Adequate Protection, issued by
            the Bankruptcy Court on April 15, 2002.

            "CASH EQUIVALENTS": any of the following in which the Agent holds a
            duly perfected first priority security interest: (a) securities
            issued or directly and fully guaranteed or insured by the United
            States Government or any agency or instrumentality thereof having
            maturities of not more than one year from the date of acquisition,
            (b) time deposits and certificates of deposit, having maturities of
            not more than one year from the date of acquisition, of any Lender
            or of any domestic commercial bank the long-term debt of which is
            rated at the date of acquisition thereof at least "A" or the
            equivalent thereof by Standard & Poor's Corporation or "A-2" or the
            equivalent thereof by Moody's Investors Service, Inc. and having
            capital and surplus in excess of $500,000,000, (c) repurchase
            obligations with a term of not more than seven days for underlying
            securities of the types described in clauses (a) and (b) entered
            into with any bank meeting the qualifications specified in clause
            (b) above and (d) commercial paper rated at the date of acquisition
            thereof at least "A-2" or the equivalent thereof by Standard &
            Poor's Corporation or "P-2" or the equivalent thereof by Moody's
            Investors Service, Inc. and in either case maturing within 270 days
            after the date of acquisition.

                                       4
<PAGE>
            "CASUALTY LOSS": with respect to any asset owned or used by the
            Borrowers or any of their Subsidiaries: (a) any damage to or loss or
            destruction of such asset; or (b) any actual condemnation or taking,
            by exercise of the power of eminent domain or otherwise.

            "CERCLA": the Comprehensive Environmental Response, Compensation,
            and Liability Act of 1980, as the same may be amended from time to
            time, 42 U.S.C.ss. 9601 et seq.

            "CHANGE OF CONTROL": one or more of the following events: (a) in any
            three-year period, a majority of the members of the Board of
            Directors of SMC elected during such three-year period shall have
            been elected against the recommendation of the management of SMC or
            the Board of Directors in office immediately prior to such election;
            (b) any Person other than SIMA and its Affiliates (each, a
            "Designated Person") or Persons acting in concert with them shall,
            except as provided in clause (c) below, acquire (whether by merger,
            consolidation, sale, assignment, lease, transfer or otherwise, in
            one transaction or any series of related transactions) or otherwise
            beneficially own a majority of the Voting Stock of SMC; (c) upon
            consummation of a consolidation or merger of a Person with a
            Designated Person in which the holders of the Voting Stock of SMC
            immediately prior to such consolidation or merger would not own
            Voting Stock representing at least a majority of the outstanding
            Voting Stock of such Designated Person or its ultimate parent upon
            consummation of such consolidation or merger; or (d) upon the sale,
            transfer or assignment (it being understood that the pledge of, or
            the granting of a security interest in, assets of SMC or its
            Subsidiaries shall not be deemed a sale, transfer or assignment
            hereunder) of all or substantially all of the assets of SMC to any
            Person in a single transaction or series of related transactions;
            provided, however, that a sale, transfer or assignment of all or
            substantially all of the assets of SMC to the Principal Shareholders
            or to any entity the holders of at least a majority of the Voting
            Stock of which (or of such entity's ultimate parent) were holders of
            Voting Stock of SMC immediately prior to such sale, transfer or
            assignment shall not constitute a "change of control" hereunder; or
            (e) at such time as the Principal Shareholders fail to beneficially
            own, in the aggregate, at least 30% of the voting power of the
            outstanding Voting Stock of SMC.

            "CLOSING DATE": the first date on which all of the conditions set
            forth in Section 7.1 shall have been satisfied or waived and the
            Agent shall have so notified the Borrower's Representative.

            "CODE": the Internal Revenue Code of 1986, as amended from time to
            time, and any successor statute.

            "COLLATERAL": all assets of the Loan Parties, whether now owned or
            existing or hereafter acquired or arising and regardless of where
            located, including, without limitation, the following property and
            assets of the Loan Parties: all accounts; all inventory; all
            contract rights; all chattel paper; all documents; all instruments;
            all supporting obligations; all general intangibles; all equipment;
            all investment property; all money, cash, Cash Equivalents,
            securities and other property of any kind of the Loan Parties held
            directly or indirectly by the Agent or any Lender; all of the
            Borrowers' deposit accounts, credits, and balances with and other
            claims against the Agent or any Lender or any of their Affiliates or
            any other financial institution with which the Borrowers maintain
            deposits; all causes

                                       5
<PAGE>
            of action and all monies and other property of any kind received
            therefrom, and all monies and other property of any kind recovered
            by any Borrower; all real estate; all policies of insurance, the
            cash surrender value of all policies of insurance and all rights
            under each policy of insurance; all books, records and other
            property related to or referring to any of the foregoing, including
            books, records, account ledgers, data processing records, computer
            software and other property and general intangibles at any time
            evidencing or relating to any of the foregoing; and all accessions
            to, substitutions for and replacements, products and proceeds of any
            of the foregoing, including, but not limited to, proceeds of any
            insurance policies, claims against third parties, and condemnation
            or requisition payments with respect to all or any of the foregoing.
            Notwithstanding the foregoing, "Collateral" shall not include (i)
            any equity interest greater than 65% in a Foreign Subsidiary where
            Section 956 of the Code applies to the pledge of two-thirds or more
            of such Foreign Subsidiary's Capital Stock or (ii) any avoidance
            claim arising under Sections 544, 546, 547, 548, 549, 550 or 553 of
            the Bankruptcy Code. Terms used in this paragraph that are defined
            in the UCC shall have the meaning ascribed thereto in the UCC.

            "COLLATERAL ACCOUNT": as defined in subsection 8.13.

            "COMMITMENT LETTER": that certain Commitment Letter, dated April 12,
            2002, between Special Metals Corporation and Credit Lyonnais, New
            York Branch.

            "COMMONLY CONTROLLED ENTITY": an entity, whether or not
            incorporated, which is under common control with a Borrower within
            the meaning of Section 4001 of ERISA or is part of a group which
            includes a Borrower and which is treated as a single employer under
            Section 414 of the Code.

            "CONSOLIDATED ASSET COVERAGE RATIO": with respect to any Person at
            any date of determination, the ratio of (a) the amount that is the
            sum of (i) the net book value of accounts receivable, plus (ii) the
            net book value of inventory, plus (iii) the book value of owned
            land, real property, equipment, leasehold improvements and other
            fixed assets, net of depreciation, plus (iv) cash on hand to (b) the
            amount that is the sum of (i) all outstanding Obligations plus the
            Prepetition Indebtedness, all of the foregoing as determined on a
            consolidated basis with respect to such Person and its Domestic
            Subsidiaries in accordance with GAAP.

            "CONSOLIDATED EBITDA": with respect to any Person for any period,
            the sum of (a) Consolidated Net Income plus (b) to the extent
            deducted in computing such Consolidated Net Income, the sum of (i)
            Consolidated Income Tax Expense, (ii) Consolidated Interest Expense,
            (iii) depreciation and amortization expense, (iv) noncash charges
            which will not result in a cash payment and (v) any loss which did
            not result in a cash payment, minus, (c) to the extent added in
            computing such Consolidated Net Income, the sum of (x) any interest
            income, (y) all noncash income and (z) any gain which did not result
            from a cash payment, and plus losses or minus gains incurred by a
            Person which are either unusual in nature or infrequent in
            occurrence, all as determined on a consolidated basis with respect
            to such Person and its Subsidiaries in accordance with GAAP.

                                       6
<PAGE>
            "CONSOLIDATED INCOME TAX EXPENSE": with respect to any Person for
            any period, income taxes (and other taxes of a similar nature or
            imposed in lieu thereof) paid in cash by such Person and its
            consolidated Subsidiaries.

            "CONSOLIDATED INTEREST EXPENSE": with respect to any Person for any
            period, interest and fees paid or (without duplication) due and
            payable (whether or not paid) in cash by such Person and its
            consolidated Subsidiaries during such period in respect of Total
            Debt, all determined on a consolidated basis in accordance with
            GAAP.

            "CONSOLIDATED NET CASH FLOW": with respect to SMC at any date of
            determination, an amount reflecting the actual cash balance at the
            beginning of the applicable period of determination plus an amount
            reflecting actual cash receipts during the applicable period of
            determination minus an amount reflecting actual cash disbursements
            during the applicable period of determination, all determined with
            respect to SMC and its Domestic Subsidiaries on a consolidated basis
            and in a manner consistent with the calculation of "Ending Cash" as
            set forth in the "13-Week Cash Forecast through June 28, 2002"
            included as a component of the Budget. For the avoidance of doubt,
            cash balances receipts, and disbursements of any Person that is not
            a Borrower on the Closing Date shall not be included in any
            calculation of Consolidated Net Cash Flow.

            "CONSOLIDATED NET INCOME": with respect to any Person for any period
            the net income or loss of such Person and its Subsidiaries on a
            consolidated basis for such period taken as a single accounting
            period determined in conformity with GAAP (provided that there shall
            be excluded (a) the income or loss of any Person in which any other
            Person (other than SMC or any of its Subsidiaries) has an interest,
            except to the extent of the amount of dividends or other
            distributions actually paid to SMC or any of its Subsidiaries or the
            amount of any capital calls or contributions or other fundings of
            losses actually required from SMC or any of its Subsidiaries during
            such period; (b) the income of any of SMC's Subsidiaries to the
            extent that the declaration or payment of dividends or other
            distributions by that Subsidiary is not at the time permitted by
            operation of the terms of its charter or other governing documents,
            or any agreement, instrument, judgment, decree, order, or
            Requirements of Law applicable to such Subsidiary except to the
            extent of dividends or other distributions actually paid to SMC or
            any Wholly-Owned Subsidiary that is not subject to the restrictions
            described in this clause (b); and (c) the net income or loss of any
            Person accrued prior to the date on which it becomes a Subsidiary or
            is merged into or consolidated with such Person or any of its
            Subsidiaries or the date such Person's assets are acquired by SMC or
            any of its Subsidiaries).

            "CONSOLIDATED REVENUE": with respect to any Person at any date of
            determination, the net sales of such Person and its Subsidiaries,
            all determined on a consolidated basis in accordance with GAAP and
            in a manner consistent with the calculation of net sales as set
            forth in the Statement of Operations of SMC as set forth in SMC's
            audited financial statements dated December 31, 2001; provided that
            the amount of sales by such Person and its Subsidiaries to Persons
            that are Affiliates of such Person and/or a Subsidiary thereof shall
            not exceed, for purposes of the above determination, ten percent of
            the amount of total net sales of SMC and its Subsidiaries during the
            applicable period ending on the date of determination.

                                       7
<PAGE>
            "DEEMED DIP LOANS": as defined in the Interim Order and the Final
            Order.

            "DEFAULT": any of the events specified in Section 10, whether or not
            any requirement for the giving of notice, the lapse of time, or
            both, has been satisfied.

            "DIP LOAN AVAILABILITY": shall mean for any period, the total amount
            set forth opposite such period below:

<TABLE>
<CAPTION>
                        REVOLVING CREDIT
PERIOD                  LOAN AVAILABILITY         LETTER OF CREDIT AVAILABILITY     TOTAL AVAILABILITY
------                  -----------------         -----------------------------     ------------------
<S>                     <C>                       <C>                               <C>
Closing Date -          $18,000,000               $10,000,000                       $28,000,000
May 12, 2002
</TABLE>

<TABLE>
<CAPTION>
                        REVOLVING CREDIT
PERIOD                  LOAN AVAILABILITY         LETTER OF CREDIT AVAILABILITY     TOTAL AVAILABILITY
------                  -----------------         -----------------------------     ------------------
<S>                     <C>                       <C>                               <C>
May 13, 2002 -          $24,924,000               $10,000,000 (or,                  $34,924,000 (or, subject
May 31, 2002                                      subject to subsection             to subsection 4.1(a),
                                                  4.1(a), $20,000,000)              $44,924,000)

June 1, 2002 -          $27,645,000               $10,000,000 (or,                  $37,645,000 (or, subject
June 30, 2002                                     subject to subsection             to subsection 4.1(a),
                                                  4.1(a), $20,000,000)              $47,645,000)

July 1, 2002 -          $29,457,000               $10,000,000 (or,                  $39,457,000 (or, subject
July 31, 2002                                     subject to subsection             to subsection 4.1(a),
                                                  4.1(a), $20,000,000)              $49,457,000)

August 1, 2002          $60,000,000               $10,000,000 (or,                  $60,000,000
and thereafter                                    subject to subsection
                                                  4.1(a), $20,000,000)
</TABLE>

            "DIP OBLIGATIONS": as defined in the Interim Order.

            "DOLLARS" and "$": dollars in lawful currency of the United States
            of America.

            "DOMESTIC SUBSIDIARY": any Subsidiary of SMC which is incorporated
            in any state or other jurisdiction of the United States of America.

            "EFFECTIVE DATE": the date of this Agreement.

            "ENVIRONMENTAL CLAIMS": any and all administrative, regulatory or
            judicial actions, suits, demands, demand letters, directives,
            claims, Liens, notices of noncompliance or violation, investigations
            or proceedings relating in any way to any Environmental Law or any
            permit issued, or any approval given, under any such Environmental
            Law (hereafter, "Claims"), including, without limitation, (a) any
            and all Claims by governmental or regulatory authorities for
            enforcement, cleanup, removal, response, remedial or other actions
            or damages pursuant to any applicable Environmental Law, (b) any and
            all Claims

                                       8
<PAGE>
            by any third party seeking damages, contribution, indemnification,
            cost recovery, compensation or injunctive relief in connection with
            alleged injury or threat of injury to health, safety or the
            environment due to the presence of Materials of Environmental
            Concern, (c) any fact, circumstance, condition or occurrence forming
            the basis of any violation, or alleged violation, of any
            Environmental Law and (d) any alleged injury or threat of injury to
            health, safety or the environment due to the presence of Materials
            of Environmental Concern.

            "ENVIRONMENTAL LAWS": any and all foreign, federal, state, local or
            municipal laws, rules, orders, regulations, statutes, ordinances,
            codes or decrees of any Governmental Authority or other Requirements
            of Law (including common law) regulating, relating to or imposing
            liability or standards of conduct concerning Materials of
            Environmental Concern or protection of human health or the
            environment, as now or may at any time hereafter be in effect.

            "ERISA": the Employee Retirement Income Security Act of 1974, as
            amended from time to time.

            "ESTATES": each of the estates created upon the commencement of the
            Bankruptcy Cases.

            "EURO": the lawful currency of the European Union.

            "EVENT OF DEFAULT": any of the events specified in Section 10,
            provided that any requirement for the giving of notice, the lapse of
            time, or both has been satisfied.

            "EXCLUDED ACCOUNT": as defined in subsection 6.22.

            "EXISTING CREDIT AGREEMENT": the Credit Agreement dated as of
            October 28, 1998 among SMC, certain lenders, and Credit Lyonnais New
            York Branch as issuing bank and agent, as amended.

            "EXISTING LETTERS OF CREDIT": as defined in subsection 4.1(b).

            "FDIC": the Federal Deposit Insurance Corporation or any successor
            to the functions and powers thereof.

            "FEDERAL FUNDS RATE": as defined in the definition of "Base Rate."

            "FINAL ORDER": as defined in subsection 7.2(e).

            "FINANCING LEASE": any lease of property, real or personal, the
            obligations of the lessee in respect of which are required in
            accordance with GAAP to be capitalized on a balance sheet of the
            lessee.

                                       9
<PAGE>
            "FIRST DAY ORDERS": those orders of the Bankruptcy Court, in form
            and substance satisfactory to the Agent, which are entered in
            response or relating to applications or motions made or filed by the
            Borrowers on the Petition Date.

            "FOREIGN INTERCOMPANY RECEIVABLES": with respect to any Person at
            any date of determination, the aggregate amount owed to such Person
            and its Subsidiaries by all Foreign Subsidiaries of SMC due to
            accumulated intercompany receivables, whether or not represented by
            a note or any other instrument evidencing such obligation.

            "FOREIGN SUBSIDIARY": any Subsidiary of SMC which is not a Domestic
            Subsidiary.

            "FRENCH SUBSIDIARIES": Special Metals Services S.A., a societe
            anonyme organized under the laws of the Republic of France, and
            Rescal, S.A., a societe anonyme organized under the laws of the
            Republic of France.

            "GAAP": generally accepted accounting principles in the United
            States of America in effect on the Closing Date.

            "GOVERNMENTAL AUTHORITY": any supranational, national, foreign,
            federal, state or other court or governmental agency, authority,
            instrumentality or regulatory body.

            "GUARANTEE": any guarantee by any Loan Party of the Obligations,
            including the Subsidiaries' Guarantee.

            "GUARANTEE OBLIGATION": as to any Person (the "guaranteeing
            person"), any obligation of (a) the guaranteeing person or (b)
            another Person (including, without limitation, any bank under any
            letter of credit) to induce the creation of which the guaranteeing
            person has issued a reimbursement, counter indemnity or similar
            obligation, in either case guaranteeing or in effect guaranteeing
            any Indebtedness, leases, dividends or other obligations (the
            "primary obligations") of any other third Person (the "primary
            obligor") in any manner, whether directly or indirectly, including,
            without limitation, any obligation of the guaranteeing person,
            whether or not contingent, (i) to purchase any such primary
            obligation or any property constituting direct or indirect security
            therefor, (ii) to advance or supply funds (1) for the purchase or
            payment of any such primary obligation or (2) to maintain working
            capital or equity capital of the primary obligor or otherwise to
            maintain the net worth or solvency of the primary obligor, (iii) to
            purchase property, securities or services primarily for the purpose
            of assuring the owner of any such primary obligation of the ability
            of the primary obligor to make payment of such primary obligation or
            (iv) otherwise to assure or hold harmless the owner of any such
            primary obligation against loss in respect thereof; provided,
            however, that the term Guarantee Obligation shall not include (A)
            endorsements of instruments for deposit or collection in the
            ordinary course of business; (B) customary and reasonable indemnity
            obligations of the Borrowers and

                                       10
<PAGE>
            their Subsidiaries under any agreement or document pursuant to which
            a Borrower or a Subsidiary thereof may indemnify a party to any such
            agreement or document (which Party is not an Affiliate of a Borrower
            or Subsidiary) with respect to losses incurred by such party as a
            result of the failure of a representation or warranty of such
            Borrower or such Subsidiary to be true or as a result of an event
            occurring after the effective date of such agreement or document or
            to indemnify such party as a result of the negligence or other
            culpable conduct of such Borrower or its Subsidiary, as the case may
            be; (C) customary "comfort letters" which do not require a Person to
            make payments or to maintain working capital, equity capital, net
            worth or solvency of the primary obligor; or (D) product warranties
            incurred in the ordinary course of business. The amount of any
            Guarantee Obligation of any guaranteeing person shall be deemed to
            be the lower of (i) an amount equal to the stated or determinable
            amount of the primary obligation in respect of which such Guarantee
            Obligation is made and (ii) the maximum amount for which such
            guaranteeing person may be liable pursuant to the terms of the
            instrument embodying such Guarantee Obligation, unless such primary
            obligation and the maximum amount for which such guaranteeing person
            may liable are not stated or determinable, in which case the amount
            of such Guarantee Obligation shall be such guaranteeing person's
            maximum reasonably anticipated liability in respect thereof.

            "HEDGING AGREEMENT": any interest rate protection agreement,
            interest rate future, interest rate option, interest rate swap, cap
            or collar agreement or other interest rate hedge arrangement,
            currency swap agreement, foreign exchange agreement or other
            agreement or arrangement with respect to foreign exchange or any
            foreign currency, or forward contracts for the purchase of
            commodities, selected by the Borrowers and, with respect to interest
            rate Hedging Agreements, with a counterparty acceptable to the
            Agent, to or under which a Borrower or any Subsidiary thereof is a
            party or a beneficiary on the date hereof or becomes a party or a
            beneficiary after the date hereof.

            "INDEBTEDNESS": of any Person at any date, without duplication, (a)
            all indebtedness of such Person for borrowed money or for the
            deferred purchase price of property or services (other than
            unsecured current liabilities not the result of the borrowing of
            money or the obtaining of credit or the leasing of property for
            accounts payable and expense accruals incurred or assumed in the
            ordinary course of business for current purposes and not represented
            by a note or other evidence of indebtedness and payable in
            accordance with customary practices), (b) any other indebtedness of
            such Person which is evidenced by a note, bond, debenture or similar
            instrument, (c) the principal component of all obligations of such
            Person under Financing Leases, (d) all liabilities secured by (or
            for which the holder has an existing right, contingent or otherwise
            to be secured by) any Lien on any property owned by such Person even
            though such Person has not assumed or otherwise become liable for
            the payment thereof and (e) the net obligations of such Person under
            all Hedging Agreements to the extent required to be recognized as a
            liability under GAAP. Indebtedness of a Person shall include any
            Indebtedness of a partnership in which such Person is a general
            partner, unless such partnership Indebtedness is without recourse to
            such general partner.

                                       11
<PAGE>
            "INSOLVENCY": with respect to any Multiemployer Plan, the condition
            that such Plan is insolvent within the meaning of Section 4245 of
            ERISA.

            "INSOLVENT": pertaining to a condition of Insolvency.

            "INTELLECTUAL PROPERTY": with respect to any Person, such Person's
            intellectual property, including United States and foreign patents,
            patent applications, registered and common law trademarks, trademark
            applications, service names, service marks, service mark
            applications, logos, trade names, trade secrets, proprietary
            technology, research records, technical knowledge and processes,
            inventions (whether or not patentable and whether or not reduced to
            practice), invention disclosures and improvements thereto, know-how,
            formal or informal licensing arrangements, technical specifications,
            computer software, registered and unregistered copyrights, copyright
            applications, and all embodiments of the foregoing and all rights
            with respect thereto, together with the goodwill of the business
            symbolized by or connected with any of the foregoing.

            "INTERCOMPANY NOTE": a promissory note executed by a Subsidiary of
            SMC in favor of SMC or any Domestic Subsidiary in form and substance
            satisfactory to the Agent and pledged to the Agent for the benefit
            of the Lenders as provided in this Agreement and the Security
            Documents.

            "INTERIM ORDER": as defined in subsection 7.1(s).

            "INVESTMENT": as defined in subsection 9.8.

            "ISSUING BANK": Credit Lyonnais New York Branch or any Lender which,
            with the approval of the Agent, may at any time issue or be
            requested to issue a Letter of Credit for the account of a Borrower;
            provided, that at the time of such issuance or request, as the case
            may be, such additional Lender shall have a credit rating of at
            least "BBB" by Standard & Poor's Corporation or "Baa" by Moody's
            Investors Services, Inc. If there is more than one Issuing Bank, all
            references to "the Issuing Bank" shall be deemed to refer to each
            Issuing Bank or all Issuing Banks, as the context requires.

            "ITALIAN SUBSIDIARY": Special Metals Services SpA, a corporation
            organized under the laws of the Republic of Italy.

            "LENDERS": as defined in the first paragraph of this Agreement. When
            used with reference to the Security Documents and the Collateral,
            the term "Lender" includes the Agent, the Issuing Bank, the
            beneficiaries of any indemnification obligation undertaken by any
            Loan Party under any Loan Document, and the successors and assigns
            of any of the foregoing.

            "LETTER OF CREDIT": a letter of credit issued by, and subject to
            terms and conditions acceptable to, the Issuing Bank on behalf of a
            Borrower pursuant to Section 4, which letter of credit shall have an
            expiration date no later than the earlier of (a) one year after its
            date of issuance or (b) 30 days prior to the Revolver Termination
            Date.

                                       12
<PAGE>
            "LETTER OF CREDIT REIMBURSEMENT OBLIGATION": any obligation of any
            Borrower to reimburse the Issuing Bank for any amount drawn under
            any Letter of Credit, as provided in subsection 4.3.

            "LETTER OF CREDIT REQUEST": as defined in subsection 4.1.

            "LETTER OF CREDIT SUBLIMIT": as defined in subsection 4.1.

            "LETTERS OF CREDIT OUTSTANDING": any time, the sum of (a) the
            aggregate stated amount of all outstanding Letters of Credit plus
            (without duplication) (b) the aggregate amount of all drawings made
            under any Letter of Credit for which the Issuing Bank has not
            received reimbursement from the Borrowers by means of a borrowing of
            Revolving Credit Loans pursuant to Section 3 or otherwise.

            "LIEN": with respect to any asset, (a) any mortgage, deed of trust,
            lien, pledge, encumbrance, hypothecation, preference, charge or
            security interest in or on such asset, (b) the interest of a vendor
            or a lessor under any conditional sale agreement, Financing Lease or
            title retention agreement relating to such asset and (c) in
            addition, in the case of securities, any purchase option, call or
            similar right of a third party with respect to such securities.

            "LOAN": any Revolving Credit Loan made by any Lender pursuant to
            this Agreement.

            "LOAN DOCUMENTS": this Agreement, the Notes, the Letters of Credit,
            the Letter of Credit Requests (including the related reimbursement
            agreements), the Security Documents, the Guarantees, any agreement
            between a Loan Party and the Agent with respect to the payment of
            fees, the Interim Order, the Final Order and each other document,
            agreement, instrument or certificate delivered pursuant to the terms
            hereof or thereof, as the same may be amended, supplemented, amended
            and restated or otherwise modified from time to time.

            "LOAN PARTIES": the Borrowers and each Subsidiary of a Borrower
            which is a party to a Loan Document, and any other Person which
            guarantees all or any portion of the Obligations and/or grants a
            Lien on any of its assets to secure payment and/or performance of
            the Obligations.

            "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
            business, operations, assets, liabilities, property, performance or
            condition (financial or otherwise) or prospects of SMC or any
            Material Subsidiary or SMC and its Subsidiaries, taken as a whole,
            or (b) the validity or enforceability of this Agreement, any Note or
            any of the other Loan Documents or (c) the rights or remedies of the
            Agent, the Issuing Bank or the Lenders hereunder or thereunder.

            "MATERIAL SUBSIDIARY": any Subsidiary whose assets, as of the end of
            the most recent fiscal quarter, were at least 10% of the total
            assets of SMC and its Subsidiaries, taken as a whole, determined in
            accordance with GAAP.

                                       13
<PAGE>
            "MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
            (including crude oil or any fraction thereof) or petroleum products
            or any hazardous or toxic substances, materials or wastes, defined
            or regulated as such in or under any Environmental Law, including,
            without limitation, asbestos, polychlorinated biphenyls,
            urea-formaldehyde insulation, lead-based paint, radiation,
            radioactive materials and electromagnetic fields.

            "MORTGAGE": each mortgage or deed of trust executed or to be
            executed and delivered by any Loan Party, covering any interest in
            real property located in the United States of any of the Borrowers
            for which the Agent requests a mortgage or deed of trust, in each
            case as the same may be amended, supplemented, amended and restated
            or otherwise modified from time to time.

            "MORTGAGED PROPERTIES": all of the interests in real estate in which
            Liens are purported to be granted to the Agent pursuant to this
            Agreement, the Interim Order, the Final Order, or any Mortgage.

            "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as
            defined in Section 3(37) or 4001(a)(3) of ERISA.

            "NASDAQ": National Association of Securities Dealers Automatic
            Quotation System.

            "NET PROCEEDS": (a) 100% of the cash proceeds of any Asset Sale by
            the Borrowers or any of their Subsidiaries (including any cash
            payments received by way of deferred payment of principal pursuant
            to a note or installment receivable or purchase price adjustment
            receivable or otherwise, but only as and when received) of such
            Asset Sale net of (i) reasonable attorneys' fees, accountants' fees,
            investment banking fees, survey costs, title insurance premiums, and
            related search and recording charges, transfer taxes, deed or
            mortgage recording taxes, required debt payments secured by Liens on
            such assets (other than pursuant hereto), other customary expenses
            and brokerage, consultant and other customary fees actually incurred
            in connection therewith and (ii) taxes paid or payable as a result
            thereof; (b) 100% of Qualifying Insurance Proceeds; (c) 100% of all
            Pension Plan Reversion Proceeds; (d) 100% of the cash proceeds of
            any issuance of equity securities of a Borrower after the Closing
            Date, net of reasonable attorneys' and accounting fees, investment
            banking or underwriting fees or discounts and other customary
            expenses actually incurred in connection therewith; and (e) 100% of
            the cash proceeds of any issuance of debt securities by a Borrower
            or any of its Subsidiaries after the Closing Date (other than
            Indebtedness permitted by subsection 9.2), net of reasonable
            attorneys' fees and other customary expenses actually incurred in
            connection therewith.

            "NEW SUBSIDIARY": each Subsidiary of a Borrower organized, formed or
            acquired after the Closing Date.

            "NONEXCLUDED TAXES": as defined in subsection 5.6(a).

            "NOTES": the collective reference to the Revolving Credit Notes.

            "OBLIGATIONS": means all direct or indirect debts, liabilities and
            obligations of any Person (including the Estates) of any and every
            type and description at any time arising under or

                                       14
<PAGE>
            in connection with this Agreement or any other Loan Document, to the
            Agent, the Issuing Bank, Credit Lyonnais, any Lender (including in
            its capacity as a counterparty to an interest rate Hedging
            Agreement), or any other Person entitled to indemnification pursuant
            to the Credit Agreement or any other Loan Document, in each case
            whether now outstanding or hereafter created or incurred, whether or
            not the right to payment in respect of any such debts, liabilities
            or obligations is reduced to judgment, liquidated, unliquidated,
            fixed, contingent, matured, unmatured, disputed, undisputed, legal,
            equitable, secured or unsecured and whether or not such claim is
            discharged, stayed or otherwise affected by any bankruptcy case or
            insolvency, reorganization, receivership, dissolution or liquidation
            proceeding, and shall include (a) all liabilities of such Person for
            principal of and interest on any and all Revolving Credit Loans at
            any time outstanding under this Agreement, (b) all liabilities of
            such Person in respect of Letters of Credit at any time issued
            pursuant to this Agreement (including Letter of Credit Reimbursement
            Obligations), (c) all liabilities of such Person under the Loan
            Documents for any fees, costs, taxes, expenses, indemnification and
            other amounts payable thereunder, (d) all liabilities of such Person
            under any interest rate Hedging Agreement entered into with any
            Lender or any of its Affiliates, and (e) all other liabilities of
            such Person under or in respect of any of the Loan Documents or any
            of the transactions contemplated thereby.

            "ORDER": any order of the Bankruptcy Court in the Bankruptcy Cases.

            "OTHER TAXES": as defined in subsection 5.6(a).

            "PARTICIPANT": as defined in subsection 12.6(b).

            "PBGC": the Pension Benefit Guaranty Corporation established
            pursuant to Subtitle A of Title IV of ERISA.

            "PENSION PLAN REVERSION PROCEEDS": the amount of the cash and the
            fair market value of any and all other property received (directly
            or indirectly) by a Borrower or any Commonly Controlled Entity after
            the Closing Date from the termination of any stock, bonus, pension
            or profit-sharing plan (or trust thereunder) which was treated by a
            Borrower or such Commonly Controlled Entity as a plan qualified
            under Code Section 401(a) which shall not have been applied by the
            Borrower or such Commonly Controlled Entity to payment of (a) taxes,
            if any, imposed with respect to the receipt of such cash or other
            property or (b) the payment of reasonable costs and expenses
            (including legal, actuarial and accounting fees) actually incurred
            in obtaining such cash or other proceeds.

            "PERMITTED ASSET SALE": an Asset Sale permitted by subsections
            9.6(a), (b), or (c), or an Asset Sale permitted by subsection
            9.6(d), (e), or (f), but only to the extent the aggregate amount of
            Asset Sales permitted by subsections 9.6(d), (e), or (f) is less
            than $250,000.

            "PERMITTED LIENS": as defined in subsection 9.3.

            "PERSON": an individual, partnership, corporation, limited liability
            company, business trust, joint stock company, trust, unincorporated
            association, joint venture, Governmental Authority or other entity
            of whatever nature.

                                       15
<PAGE>
            "PETITION DATE": means March 27, 2002.

            "PLAN": at a particular time, any employee benefit plan which is
            covered by ERISA and in respect of which a Borrower or a Commonly
            Controlled Entity is (or, if such plan were terminated at such time,
            would under Section 4069 of ERISA be deemed to be) an "employer" as
            defined in Section 3(5) of ERISA.

            "POSTPETITION": the period including and after the Petition Date.

            "PREPETITION": the period prior to the Petition Date.

            "PREPETITION INDEBTEDNESS": all Obligations (as defined in the
            Existing Credit Agreement) outstanding under the Existing Credit
            Agreement.

            "PRINCIPAL SHAREHOLDERS": SIMA, LWH Holdings S.A. and their
            Affiliates.

            "PRO RATA REVOLVING SHARE": with respect to any Revolving Credit
            Lender at any time, that percentage equal to the Revolving Credit
            Commitment Percentage of such Revolving Credit Lender at such time.

            "QUALIFYING INSURANCE PROCEEDS": any insurance proceeds payable to a
            Borrower or any of its Subsidiaries after the Closing Date on
            account of a Casualty Loss which shall not have been applied by the
            Borrower or such Subsidiary to the payment of the cost of repair or
            replacement of the property subject to such Casualty Loss within six
            months of the date such insurance proceeds are actually received by
            the Borrower or such Subsidiary, or committed to such repair or
            replacement which has commenced within such six months and has been
            completed within the next six months minus reasonable costs and
            expenses (including legal and accounting fees) actually incurred by
            the Borrower or its Subsidiaries in recovering such proceeds.

            "REGISTER": as defined in subsection 12.6(d).

            "REGULATION U": Regulation U of the Board of Governors as in effect
            from time to time.

            "REORGANIZATION": with respect to any Multiemployer Plan, the
            condition that such plan is in reorganization within the meaning of
            Section 4241 of ERISA,

            "REPORTABLE EVENT": any of the events set forth in Section 4043(b)
            of ERISA, other than those events as to which the 30-day notice
            period is waived pursuant to PBGC Reg.ss.4043.

            "REQUIRED LENDERS": at any time, Revolving Credit Lenders the
            Revolving Credit Commitment Percentages of which aggregate in excess
            of 65%.

                                       16
<PAGE>
            "REQUIREMENT OF LAW": as to any Person, the certificate of
            incorporation and bylaws or other organizational or governing
            documents of such Person, and any law, treaty, rule or regulation or
            determination of an arbitrator or a court or other Governmental
            Authority, in each case applicable to or binding upon such Person or
            any of its property or to which such Person or any of its property
            is subject.

            "RESPONSIBLE OFFICER": with respect to a Borrower or any Subsidiary,
            any one of the chairman of the board, the chief executive officer,
            the president and any vice president of the Borrower or such
            Subsidiary or, with respect to financial matters, the chief
            financial officer or treasurer of the Borrower or such Subsidiary.

            "RESTRICTED PAYMENT": as defined in subsection 9.7.

            "REVOLVER TERMINATION DATE": the earliest to occur of (a) April 30,
            2003, (b) the effective date of a plan of reorganization under any
            of the Bankruptcy Cases, (c) without limiting the Agent's or
            Lenders' rights hereunder, the date on which a sale of all or
            substantially all of the assets of the Borrowers is consummated; and
            (d) the date on which any of the Bankruptcy Cases is converted to a
            case under Chapter 7 of the Bankruptcy Code.

            "REVOLVING CREDIT COMMITMENT": with respect to each Revolving Credit
            Lender, the amount set forth opposite such Revolving Credit Lender's
            name on Schedule I under the heading "Revolving Credit Commitment"
            or in the applicable Assignment and Acceptance, as such amount may
            be reduced from time to time pursuant to this Agreement;
            collectively, as to all the Revolving Credit Lenders, the "Revolving
            Credit Commitments".

            "REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Revolving Credit
            Lender at any time, the percentage of such Revolving Credit Lender's
            Revolving Credit Commitment of the aggregate outstanding Revolving
            Credit Commitments of all the Revolving Credit Lenders or if the
            Revolving Credit Commitments have been terminated, the percentage
            which the sum of its outstanding Revolving Credit Loans plus its
            proportionate share of the Letters of Credit Outstanding constitutes
            of the aggregate outstanding Revolving Credit Loans and Letters of
            Credit Outstanding of all Revolving Credit Lenders.

            "REVOLVING CREDIT COMMITMENT PERIOD": the period from and including
            the Effective Date to but not including the Revolver Termination
            Date or such earlier date on which the Revolving Credit Commitments
            shall terminate as provided herein.

            "REVOLVING CREDIT LENDER": any Lender with an unused Revolving
            Credit Commitment hereunder and/or any Revolving Credit Loan
            outstanding hereunder or participation in any Letter of Credit
            Outstanding; collectively, the "Revolving Credit Lenders".

            "REVOLVING CREDIT LOANS": as defined in subsection 3.1.

            "REVOLVING CREDIT NOTE": as defined in subsection 3.4(e).

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<PAGE>
            "SALES": as defined in the first paragraph of this Agreement.

            "SEC": the United States Securities and Exchange Commission or any
            successor thereto.

            "SECURITY DOCUMENTS": all security documents hereafter delivered to
            the Agent from time to time granting or purporting to grant or
            perfect a Lien on any asset or property of any Person to secure the
            Obligations of the Borrowers and/or any other Loan Party hereunder
            and/or under any of the other Loan Documents or to secure any
            guarantee of any such obligations and liabilities, including any
            pledge agreements, control agreements or other documents or
            instruments.

            "SIMA": Societe Industrielle de Materiaux Avances, a societe anonyme
            organized under the laws of the Republic of France.

            "SINGAPORE INTERCOMPANY RECEIVABLES": with respect to any Person at
            any date of determination, the aggregate amount owed to such Person
            and its Subsidiaries by Special Metals Pacific Pte. Ltd., a company
            organized under the laws of the Republic of Singapore, due to
            accumulated intercompany receivables, indebtedness, or otherwise,
            whether or not represented by a note or any other instrument
            evidencing such obligation.

            "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
            ERISA, but which is not a Multiemployer Plan.

            "STERLING" and "(POUND)": pounds sterling in lawful currency of the
            United Kingdom.

            "SUBSIDIARY": as to any Person, a corporation, partnership or other
            entity of which shares of Capital Stock having ordinary voting power
            (excluding Capital Stock having such power only as a result of the
            occurrence of a contingency) to elect a majority of the board of
            directors or other managers of such corporation, partnership or
            other entity are at the time owned, or the management of which is
            otherwise controlled, directly or indirectly through one or more
            intermediaries, or both, by such Person. Unless otherwise qualified,
            all references to a "Subsidiary" or to "Subsidiaries" in this
            Agreement shall refer to a Subsidiary or Subsidiaries of SMC.

            "SUBSIDIARIES' GUARANTEE": the Guarantee executed or to be executed
            and delivered by each Domestic Subsidiary of the Borrower
            substantially in the form of Exhibit E, in each case as the same may
            be amended, supplemented, amended and restated or otherwise modified
            from time to time.

            "TOTAL DEBT": with respect to any Person at any time, all
            Indebtedness of such Person and its Subsidiaries as determined on a
            consolidated basis in accordance with GAAP, including (without
            duplication), if such Person is SMC, the aggregate principal amount
            of all outstanding Revolving Credit Loans.

                                       18
<PAGE>
            "TRANSFEREE": as defined in subsection 12.6(f).

            "UCC": the Uniform Commercial Code as in effect in the State of New
            York on the Closing Date.

            "UK SUBSIDIARY": Special Metals Wiggin Limited, a limited company
            incorporated under the laws of England and Wales.

            "UNITED KINGDOM": the United Kingdom of Great Britain and Northern
            Ireland.

            "UNUSED REVOLVING CREDIT COMMITMENT": as to any Revolving Credit
            Lender at any time, an amount equal to the excess, if any, of (a)
            the amount of such Revolving Credit Lender's Revolving Credit
            Commitment at such time over (b)(i) the aggregate principal amount
            of all Revolving Credit Loans made by such Lender then outstanding
            plus (ii) such Lender's Pro Rata Revolving Share of Letters of
            Credit Outstanding at such time.

            "WIRE": as defined in the first paragraph of this Agreement.

            "VOTING STOCK": as to any Person, the Capital Stock of such Person
            normally entitled to vote in the election of directors or other
            governing body of such Person, and securities convertible into such
            Capital Stock.

            "WHOLLY OWNED SUBSIDIARY": a Subsidiary of SMC of which SMC owns,
            directly or indirectly, all of the Capital Stock, exclusive of
            Capital Stock of a Foreign Subsidiary required to be owned by
            residents of the jurisdiction in which such Foreign Subsidiary is
            organized or located and commonly referred to as "director's
            qualifying shares."

            1.2   OTHER DEFINITIONAL PROVISIONS.

            (a)   Unless otherwise specified therein, all terms defined in this
                  Agreement shall have the defined meanings when used in any
                  Loan Document or any certificate or other document made or
                  delivered pursuant hereto.

            (b)   As used herein and in any Loan Document and any certificate or
                  other document made or delivered pursuant hereto, accounting
                  terms relating to the Borrower and its Subsidiaries not
                  defined in subsection 1.1 and accounting terms partly defined
                  in subsection 1.1, to the extent not defined, shall have the
                  respective meanings given to them under GAAP.

            (c)   The words "hereof," "herein" and "hereunder" and words of
                  similar import when used in this Agreement shall refer to this
                  Agreement as a whole and not to any particular provision of
                  this Agreement, and Section, subsection, Schedule and Exhibit
                  references in this Agreement are to this Agreement unless
                  otherwise specified. The terms "including" "include" and
                  "includes" when used in this Agreement or any other Loan
                  Document shall be deemed to mean "including

                                       19
<PAGE>
                  without limitation," and the word "will" shall be construed to
                  have the meaning and effect as "shall."

            (d)   The meanings given to terms defined herein shall be equally
                  applicable to both the singular and plural forms of such
                  terms.

            (e)   Sections and subsections headings in this Agreement are
                  included for convenience of reference only and shall not
                  constitute a part of this Agreement for any other purpose or
                  in any way affect the meaning or construction of any provision
                  of this Agreement.

            (f)   Unless otherwise specified herein or the context otherwise
                  requires, all references to (i) any Requirement of Law defined
                  or referred to herein shall be deemed to refer to such
                  Requirement of Law or any successor Requirement of Law, as the
                  same may have been or may be amended or supplemented from time
                  to time and (ii) to any document, instrument or agreement
                  defined or referred to herein shall be deemed to refer to such
                  document, instrument or agreement (and in the case of any Note
                  or other instrument, any instrument issued in substitution
                  therefor), as the same may have been or may be amended,
                  supplemented, amended and restated, waived or otherwise
                  modified from time to time (subject, however, to any
                  restrictions on amendments or other modifications herein).

            SECTION 2. FEES; PRIORITY

            2.1   UNDERWRITING FEE; FACILITY FEE. On the Effective Date, the
                  Borrowers shall pay to the Agent (a) an underwriting fee,
                  equal to one percent of the total aggregate Revolving Credit
                  Commitments, which fee the Agent shall distribute to the
                  Lenders party to this Agreement on the Effective Date for the
                  account of such Lenders in accordance with their respective
                  Pro Rata Revolving Share on such date, and (b) a facility fee,
                  equal to one percent of the total aggregate Revolving Credit
                  Commitments, which fee the Agent shall hold in escrow and
                  distribute to the Lenders party to this Agreement as of the
                  closing of the syndication period as determined by the Agent
                  in its sole discretion, for the account of such Lenders in
                  accordance with their respective Pro Rata Revolving Share on
                  such date. The Borrowers understand and agree that the fees
                  described above shall be paid as described above and are
                  nonrefundable in any circumstance, including a failure of the
                  Lenders party to this Agreement on the Effective Date to
                  further syndicate the Revolving Credit Commitments.

            2.2   UNUSED COMMITMENT FEE. The Borrowers shall pay to the Agent
                  for the account of each Revolving Credit Lender during the
                  Revolving Credit Commitment Period a commitment fee, payable
                  monthly in arrears on the last day of each calendar month and
                  on the Revolver Termination Date or such earlier date as the
                  Revolving Credit Commitments shall terminate as provided
                  herein, commencing on the first of such days to occur after
                  the Effective Date, such fee to

                                       20
<PAGE>
                  be computed at the rate of 0.75% per annum on (a) the average
                  daily amount of the Unused Revolving Credit Commitment of such
                  Revolving Credit Lender during the period for which payment is
                  made, when the DIP Loan Availability for such period is
                  $60,000,000; and (b) the average daily amount of the excess,
                  if any, of (i) the amount of such Lender's Pro Rata Revolving
                  Share of the DIP Loan Availability during the period for which
                  payment is made over (ii) (A) the aggregate principal amount
                  of all Revolving Credit Loans made by such Lender and
                  outstanding during the period for which payment is made plus
                  (B) such Lender's Pro Rata Revolving Share of Letters of
                  Credit Outstanding during the period for which payment is
                  made, when the DIP Loan Availability for such period is less
                  than $60,000,000.

            2.3   LETTER OF CREDIT FEE. The Borrowers shall pay to the Agent a
                  nonrefundable letter of credit fee, to be distributed by the
                  Agent to each Revolving Credit Lender according to its Pro
                  Rata Revolving Share, equal to the L/C Rate (as defined below)
                  on the daily amount of outstanding issued Letters of Credit,
                  payable monthly in arrears on the last day of each calendar
                  month and on the Revolver Termination Date or such earlier
                  date as the Revolving Credit Commitments shall terminate as
                  provided herein. With respect to each Letter of Credit, the
                  Borrowers also agree to pay to the Issuing Bank, solely for
                  the account of the Issuing Bank, (a) a nonrefundable issuing
                  fee of 0.25% per annum on the face amount of such Letter of
                  Credit for the term of such Letter of Credit, payable (i) in
                  advance on the date of issuance thereof for the three-month
                  period following the date of issuance and (ii) monthly in
                  arrears thereafter, and (b) the Issuing Bank's customary
                  administrative fee. "L/C Rate", as used above, means an
                  interest rate per annum equal to 3.50%.

            2.4   AGENT'S FEE. The Borrowers shall pay to the Agent for its own
                  account a nonrefundable agency fee equal to $15,000 per month,
                  payable in advance on the first day of each calendar month
                  until the Revolving Credit Commitments have expired or been
                  terminated and all Obligations of all Loan Parties have been
                  paid in full in cash. In addition to the foregoing, the
                  Borrowers shall reimburse the Agent for all of the Agent's
                  out-of-pocket expenses incurred in the performance of its
                  obligations under this Agreement, within 10 days of receiving
                  the Agent's invoice therefor.

            2.5   PRIORITY AND LIENS.

            (a)   The Obligations shall be secured by Liens under Sections
                  364(c)(2) and (d)(1) of the Bankruptcy Code, senior to all
                  other Liens (subject to subsection 2.5(d)), regardless of when
                  the Liens were obtained and regardless of their previous

                                       21
<PAGE>
                  priority, in all of the Collateral. The Obligations shall be
                  senior to the DIP Obligations to the Lenders (as defined in
                  the Interim Order) in connection with the Deemed DIP Loans.

            (b)   As to all Collateral, each of the Borrowers, subject to the
                  Carve-Out, hereby assigns and conveys as security, grants a
                  security interest in, hypothecates, mortgages, pledges and
                  sets over unto the Agent, for the benefit of the Agent and the
                  Lenders, all of the right, title and interest of such Borrower
                  in all of such Collateral. Each of the Borrowers acknowledges
                  that, pursuant to the Orders, the Liens granted in favor of
                  the Agent, for the benefit of the Agent and the Lenders, in
                  all of the Collateral shall be perfected without the
                  recordation of any Uniform Commercial Code financing
                  statements, notices of Lien, Mortgages, or other instruments
                  of mortgage or assignment. Each Borrower further agrees that
                  if requested by the Agent, or required by the Loan Documents,
                  the Borrowers shall enter into separate security agreements,
                  pledge agreements and fee and leasehold mortgages with respect
                  to such Collateral on terms satisfactory to the Agent.

            (c)   The Obligations shall have the status in the Bankruptcy Cases
                  of superpriority administrative expenses under Section
                  364(c)(1) of the Bankruptcy Code. Subject to the Carve-Out,
                  such administrative claims shall have priority over all other
                  claims, costs and expenses of the kinds specified in, or
                  ordered pursuant to, Sections 105, 326, 328, 330, 331, 503(b),
                  506(c), 507(a), 507(b), 546(c), 726 or 1112 or any other
                  provision of the Bankruptcy Code and shall at all times be
                  senior to the rights of any Borrower, any Borrower's estate,
                  and any successor trustee or estate representative in the
                  Bankruptcy Cases or any subsequent proceeding or case under
                  the Bankruptcy Code.

            (d)   The Liens on the Collateral under Sections 364(c)(2) and
                  (d)(1) of the Bankruptcy Code, for the benefit of Agent and
                  Lenders, and the superpriority administrative claim under
                  Section 364(c)(1) of the Bankruptcy Code afforded the
                  Obligations, shall be subject to the following: (i)(A) the
                  unpaid fees due and payable to the Clerk of the Court and the
                  U.S. Trustee pursuant to 28 U.S.C.ss. 1930, and (B) allowed,
                  unpaid claims for fees and expenses incurred by professionals
                  retained pursuant to an order of the Bankruptcy Court prior to
                  the occurrence of an Event of Default (as defined in the
                  Commitment Letter) not to exceed $1,000,000 in the aggregate
                  (the "Carve-Out"), other than fees and expenses incurred,
                  directly or indirectly, in respect of, relating to or arising
                  from the investigation, initiation or prosecution of any
                  action for preferences, fraudulent conveyances, subordination
                  or claims or causes of action against the Agent (as defined in
                  the Interim Order) or Lenders (as defined in the Interim
                  Order) with respect to the Prepetition Indebtedness or the DIP
                  Obligations, and (ii) existing validly perfected liens that
                  were Permitted Liens (as defined in the Existing Credit
                  Agreement but not including Permitted Liens under subsection
                  9.3(h) thereof) under the Existing Credit Agreement; provided,
                  that any payments actually made to such professionals under
                  Sections 330, 331 and 503 of the Bankruptcy Code in respect of
                  fees and expenses incurred or accrued (x) prior to the
                  occurrence of an Event of Default, shall not reduce the
                  Carve-Out and (y) from and after the occurrence of an Event of
                  Default, shall reduce Dollar-for-Dollar the Carve-Out;
                  provided,

                                       22
<PAGE>
                  further, that in no event shall any of the Carve-Out (A) be
                  utilized to prosecute or cause to be prosecuted any such
                  claims, causes of action, actions or proceedings against any
                  Agent or Lender, (B) be paid from amounts on deposit in the
                  Collateral Account or (C) include any fees or expenses arising
                  after the conversion of a Bankruptcy Case under Chapter 11 of
                  the Bankruptcy Code to a case under Chapter 7 of the
                  Bankruptcy Code.

            (e)   Notwithstanding the foregoing, the Borrowers shall be
                  permitted to pay, as the same may become due and payable (i)
                  administrative expenses of the kind specified in Section
                  503(b) of the Bankruptcy Code incurred in the ordinary course
                  of their businesses, (ii) subject to the provisions of the
                  Interim Order, the Final Order, and this subsection 2.5 and
                  provided that no Event of Default has occurred and is
                  continuing, compensation and reimbursement of expenses to
                  professionals allowed by the Bankruptcy Court and payable
                  under Sections 330 and 331 of the Bankruptcy Code, and (iii)
                  any other Prepetition or Postpetition expenses of the
                  Borrowers, including adequate protection payments, to the
                  extent approved by the Bankruptcy Court and not otherwise
                  prohibited by the terms of this Agreement or the other Loan
                  Documents. Except for the Carve-Out, no costs or expenses of
                  administration shall be imposed against Agent and Lenders or
                  the Collateral under Sections 105, 506(c) or 552 of the
                  Bankruptcy Code, or otherwise.

      SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS

            3.1   REVOLVING CREDIT COMMITMENTS. Subject to the terms and
                  conditions hereof, each Revolving Credit Lender severally (and
                  not jointly) agrees to make revolving credit loans ("Revolving
                  Credit Loans") to the Borrowers from time to time during the
                  Revolving Credit Commitment Period in an aggregate principal
                  amount at any one time outstanding which, when added to its
                  Pro Rata Revolving Share of Letters of Credit Outstanding,
                  does not exceed the lesser of (a) the amount of such Revolving
                  Credit Lender's Revolving Credit Commitment and (b) the amount
                  of such Revolving Credit Lender's Pro Rata Revolving Share of
                  the DIP Loan Availability. Subject to the foregoing and to the
                  satisfaction of all conditions for borrowing, during the
                  Revolving Credit Commitment Period, the Borrowers may use the
                  Revolving Credit Commitments within the limits set forth
                  herein and in the Interim Order and the Final Order by
                  borrowing and prepaying the Revolving Credit Loans in whole or
                  in part, and reborrowing, all in accordance with the terms and
                  conditions hereof.

            3.2   JOINT AND SEVERAL LIABILITY. Notwithstanding any other
                  provision of this Agreement to the contrary, each Borrower
                  acknowledges and agrees that:

            (a)   all Obligations (including without limitation the Borrowers'
                  Obligations in respect of the Revolving Credit Loans and in
                  respect of any Letter of Credit) shall be the primary and
                  joint and several obligations (and not the obligation of a
                  surety) of each Borrower, regardless of whether any Borrower
                  actually receives Revolving Credit Loans, Letters of Credit,
                  other extensions of credit hereunder or the benefit

                                       23
<PAGE>
            thereof or the amounts of such Revolving Credit Loans or Letters of
            Credit or other extensions of credit received or the manner in which
            the Agent and/or any Lender accounts for such Revolving Credit
            Loans, Letters of Credit or other extensions of credit on its books
            and records; and

            (b)   a separate action or actions may be brought and prosecuted
                  against each Borrower whether or not any action is brought
                  against any other Borrower and whether or not any other
                  Borrower is joined in any such action or actions.

            3.3   PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrowers may
                  borrow under the Revolving Credit Commitments during the
                  Revolving Credit Commitment Period on any Business Day;
                  provided that the Borrower Representative shall give the Agent
                  irrevocable notice (which notice must be received by the Agent
                  prior to 12:00 noon New York City time, one Business Day prior
                  to the requested Borrowing Date), specifying the amount to be
                  borrowed and the requested Borrowing Date. Each borrowing
                  under the Revolving Credit Commitments shall be in an amount
                  equal to $100,000 or a whole multiple thereof. Upon receipt of
                  any such notice from the Borrower Representative, the Agent
                  shall promptly notify each Revolving Credit Lender thereof.
                  Each Revolving Credit Lender will make the amount of its pro
                  rata share of each borrowing available to the Agent for the
                  account of the Borrowers at the office of the Agent specified
                  in subsection 12.2 prior to 11:00 A.M., New York City time, on
                  the Borrowing Date requested by the Borrower Representative
                  and in funds immediately available to the Agent. Such
                  borrowing will then be made available by 1:00 P.M., New York
                  City time, to the Borrowers by the Agent crediting (subject to
                  subsection 8.13) the account of the Borrowers on the books of
                  such office or such other account as specified by the Borrower
                  Representative with the aggregate of the amounts made
                  available to the Agent by the Revolving Credit Lenders and in
                  like funds as received by the Agent.

            3.4   REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT.

            (a)   Each Borrower hereby unconditionally promises to pay to the
                  Agent for the account of each Revolving Credit Lender the
                  then-unpaid principal amount of each Revolving Credit Loan
                  made by such Lender on the Revolver Termination Date (or such
                  earlier date on which the Revolving Credit Loans become due
                  and payable pursuant to this Agreement). Each Borrower hereby
                  further agrees to pay interest on the unpaid principal amount
                  of the Revolving Credit Loans from time to time outstanding
                  from the date of borrowing thereof until payment in full
                  thereof at the rates per annum, and on the dates, set forth in
                  subsection 5.2.

            (b)   Each Revolving Credit Lender shall maintain in accordance with
                  its usual practice an account or accounts evidencing
                  indebtedness of the Borrowers to such Revolving Credit Lender
                  resulting from each Revolving Credit Loan made by such
                  Revolving Credit Lender from time to time, including the
                  amounts of principal and interest payable and paid to such
                  Revolving Credit Lender from time to time under this
                  Agreement.

                                       24
<PAGE>
            (c)   The Agent shall maintain the Register pursuant to subsection
                  12.6(d), and a subaccount therein for each Revolving Credit
                  Lender, in which shall be recorded (i) the amount of each
                  Revolving Credit Loan made hereunder, (ii) the amount of any
                  principal or interest due and payable or to become due and
                  payable from the Borrowers to each Revolving Credit Lender
                  hereunder and (iii) both the amount of any sum received by the
                  Agent hereunder from the Borrowers and each Revolving Credit
                  Lender's share thereof, if any.

            (d)   The entries made in the Register and the accounts of each
                  Revolving Credit Lender maintained by the Agent pursuant to
                  subsection 3.4(c) shall, to the extent permitted by applicable
                  law, be prima facie evidence of the existence and amounts of
                  the obligations of the Borrowers therein recorded; provided,
                  however, that the failure of any Revolving Credit Lender or
                  the Agent to maintain any such account or the Register, or any
                  error therein, shall not in any manner affect the obligation
                  of the Borrowers to repay (with applicable interest) the
                  Revolving Credit Loans made to the Borrowers by such Revolving
                  Credit Lender in accordance with the terms of this Agreement.

            (e)   The Borrowers agree that at the closing on the Closing Date,
                  the Borrowers will execute and deliver to each Revolving
                  Credit Lender a promissory note of the Borrowers evidencing
                  the Revolving Credit Loans made by such Revolving Credit
                  Lender, substantially in the form of Exhibit H (a "Revolving
                  Credit Note"), dated the Closing Date and payable to the order
                  of such Revolving Credit Lender and in a principal amount
                  equal to the amount of the Revolving Credit Commitment of such
                  Revolving Credit Lender. Each Revolving Credit Lender is
                  hereby authorized to record the date and amount of each
                  Revolving Credit Loan made by such Revolving Credit Lender and
                  the date and amount of each payment or prepayment of principal
                  thereof, on the schedule annexed to and constituting a part of
                  its Revolving Credit Note; provided, however, that the failure
                  to make any such recordation (or any error therein) shall not
                  in any manner affect the obligation of the Borrowers to repay
                  (with applicable interest) the Revolving Credit Loans made to
                  the Borrowers in accordance with the term of this Agreement.

            3.5   TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. The
                  Borrowers shall have the right, upon not less than five
                  Business Days' prior written notice from the Borrower
                  Representative to the Agent, which notice shall be
                  irrevocable, to terminate the Revolving Credit Commitments or,
                  from time to time, to reduce the amount of the Revolving
                  Credit Commitments. Any such reduction shall be in a minimum
                  amount equal to $1,000,000 or an integral multiple thereof or,
                  if less, the entire remaining balance of the Revolving Credit
                  Commitments and shall reduce permanently the Revolving Credit
                  Commitments then in effect; provided, that no such termination
                  or reduction shall be permitted if, after giving effect
                  thereto and to any prepayments of the Revolving Credit Loans
                  made on the effective date thereof, the aggregate principal
                  amount of the Revolving Credit Loans plus the aggregate
                  Letters of Credit Outstanding would exceed the

                                       25
<PAGE>
                  Revolving Credit Commitments then in effect. All reductions
                  shall be made ratably among all Revolving Credit Lenders in
                  accordance with their respective Revolving Credit Commitments.

            3.6   USE OF PROCEEDS OF REVOLVING CREDIT LOANS.

            (a)   The proceeds of the Revolving Credit Loans shall be used by
                  the Borrowers for working capital and general corporate
                  purposes in the ordinary course of the Borrowers' and their
                  Subsidiaries' business and consistent with the Budget.

            (b)   For the avoidance of doubt, no portion of the proceeds of the
                  Revolving Credit Loans shall be used, directly or indirectly:
                  (i) to finance or make any payment not permitted under this
                  Agreement, (ii) to pay any fees or similar amounts payable to
                  any Person who has proposed or may propose to purchase
                  interests in any Borrower or who otherwise has proposed or may
                  propose to invest in any Borrower (including so-called
                  "break-up fees," "topping fees," "exit fees," "success fees"
                  and similar amounts), (iii) to make any distribution under a
                  plan of reorganization in any Bankruptcy Case, (iv) except as
                  otherwise expressly provided in the Interim Order or the Final
                  Order, to finance in any way any adversary action, suit,
                  arbitration, proceeding, application, motion or other
                  litigation of any type relating to or in connection with the
                  Existing Credit Agreement or any of the loan documents or
                  instruments entered into in connection therewith, including,
                  without limitation, any challenges to the obligations under
                  the Existing Credit Agreement or the validity, perfection,
                  priority or enforceability of any Lien securing such claims or
                  any payment made thereunder; (v) except as otherwise expressly
                  provided in the Interim Order or the Final Order, to finance
                  in any way any action, suit, arbitration, proceeding,
                  application, motion or other litigation of any type adverse to
                  the interests of the Agent and the Lenders or their rights and
                  remedies under this Agreement and the other Loan Documents;
                  (vi) to make any payment in settlement of any claim, action or
                  proceeding, before any court, arbitrator or other governmental
                  body without the prior written consent of Agent; or (vii) to
                  reduce, terminate, or otherwise be applied to any Prepetition
                  Indebtedness of any Borrower or any other Loan Party without
                  the prior written consent of Agent.

            SECTION 4. LETTERS OF CREDIT

            4.1   ISSUANCE.

            (a)   Subject to the terms and conditions hereof, the Issuing Bank
                  on behalf of the Revolving Credit Lenders agrees to issue on
                  any Business Day any Letter of Credit (or amendments thereof)
                  requested by the Borrower Representative during the period
                  from the Closing Date until the date 60 days prior to the
                  Revolver Termination Date; provided, however, that the Issuing
                  Bank shall have no obligation to issue any such Letter of
                  Credit (or amendments thereof) (i) to the extent that the
                  issuance thereof would cause the aggregate amount of all
                  Letters of

                                       26
<PAGE>
                  Credit Outstanding, when added to all Revolving Credit Loans
                  outstanding, to exceed the lesser of (a) the aggregate amount
                  of the Revolving Credit Commitments and (b) the applicable DIP
                  Loan Availability, or (ii) such issuance would cause the
                  aggregate amount outstanding at any time of all Letters of
                  Credit Outstanding to exceed $10,000,000 (such amount, the
                  "Letter of Credit Sublimit"); provided, that the Letter of
                  Credit Sublimit may be increased to $20,000,000 with the
                  consent of the Required Lenders and each Issuing Lender (such
                  consent to be granted in such parties' sole discretion) upon
                  the request of the Borrower Representative; provided, further,
                  that the Borrowers shall provide to the Lenders any and all
                  documents, agreements, and other information, financial and
                  otherwise, requested by the Lenders in order to evaluate such
                  request of the Borrower's Representative. Each Letter of
                  Credit shall be issued pursuant to a request, given not later
                  than 12:00 noon, New York City time, on the fourth Business
                  Day prior to the date of any proposed issuance, by the
                  Borrower Representative to the Agent, which shall give to the
                  Issuing Bank and each Revolving Credit Lender prompt notice
                  thereof by telecopy, telex or cable. Such request by the
                  Borrower Representative for the issuance of a Letter of Credit
                  (or amendments thereof) shall be made by telephone, telecopy,
                  telex or cable, confirmed immediately in writing if by
                  telephone, in substantially the form of Exhibit I, together
                  with a signed letter of credit application (including the
                  related reimbursement agreement) on the Issuing Bank's
                  then-standard form (or other form acceptable to the Issuing
                  Bank and appropriate, in the sole opinion of the Issuing Bank,
                  in the circumstances) (a "Letter of Credit Request") duly
                  executed by the Borrower Representative and may be cancelled
                  by notice thereof prior to issuance of such Letter of Credit
                  by telephone, telecopy, telex or cable, confirmed immediately
                  in writing if by telephone, to the Issuing Bank and the Agent.
                  Within the limits of the DIP Loan Availability and each
                  Revolving Credit Lender's Unused Revolving Credit Commitment
                  and the other restrictions set forth herein, the Borrowers'
                  ability to request the issuance of Letters of Credit shall be
                  fully revolving.

            (b)   All letters of credit issued under the Existing Credit
                  Agreement and outstanding on the Closing Date (the "Existing
                  Letters of Credit") shall, upon request of the Borrowers and
                  consent of the Agent in its sole discretion, automatically be
                  deemed Letters of Credit under this Agreement, and subject to
                  the terms hereof for all purposes.

            4.2   PARTICIPATION BY REVOLVING CREDIT LENDERS. Immediately upon
                  issuance or amendment by the Issuing Bank of any Letter of
                  Credit in accordance with the procedures set forth in this
                  Section 4, each Revolving Credit Lender shall be deemed to
                  have irrevocably and unconditionally purchased and received
                  from the Issuing Bank, without recourse or warranty, an
                  undivided interest and participation to the extent of such
                  Revolving Credit Lender's Pro Rata Revolving Share of such
                  Letter of Credit (including, without limitation, all
                  Obligations of the Borrowers with respect thereto, other than
                  amounts owing to the Issuing Bank under subsection 2.3, and
                  any security therefor or guaranty pertaining thereto).

                                       27
<PAGE>
            4.3   DRAWINGS. In the event that any drawing shall be made under a
                  Letter of Credit, by demand or claim (including, without
                  limitation, any draft), the Issuing Bank shall notify the
                  Borrower Representative via telephone, telecopy or telex of
                  such drawing and the Borrowers shall (whether or not the
                  Issuing Bank has notified the Borrower Representative of such
                  drawing, and on a joint and several and primary basis, as more
                  fully provided in subsection 3.2) reimburse the Issuing Bank
                  in immediately available funds for any amount paid or to be
                  paid by the Issuing Bank under such Letter of Credit on the
                  date of such payment. In the event that any drawing under a
                  Letter of Credit is not reimbursed by the Borrowers on the
                  date of payment by the Issuing Bank, the Borrowers shall be
                  deemed to have requested a borrowing of Revolving Credit Loans
                  in an aggregate amount equal to such unreimbursed payment. The
                  Revolving Credit Lenders shall make the requested Revolving
                  Credit Loans as of the date of such payment by the Issuing
                  Bank, and the proceeds of such Revolving Credit Loans shall
                  automatically be applied to repay the Issuing Bank for such
                  drawing in full. In the event that any drawing under a Letter
                  of Credit is not reimbursed by the Borrowers on the date of
                  payment by the Issuing Bank and such Revolving Credit Loans
                  are not made hereunder for any reason, an Event of Default
                  specified in subsection 10.1(a) shall have occurred and the
                  Issuing Bank shall promptly notify the Agent thereof, and the
                  Agent shall promptly notify each Lender. Immediately upon
                  receipt of such notice, the Revolving Credit Lenders will pay
                  to the Issuing Bank the amount of their respective
                  participations in the Letter of Credit. In the event that any
                  Revolving Credit Lender fails timely to make the Revolving
                  Credit Loan or pay the amount of its participation as required
                  by this subsection 4.3, interest shall accrue thereon at the
                  Federal Funds Rate for the first three Business Days following
                  the date of payment by the Issuing Bank and the Federal Funds
                  Rate plus 1% for the period thereafter to the date of payment
                  thereof by such Revolving Credit Lender. The Issuing Bank
                  shall distribute to each Revolving Credit Lender which has
                  paid all amounts payable by it under this subsection 4.3 with
                  respect to any Letter of Credit such Revolving Credit Lender's
                  Pro Rata Revolving Share of all payments received by the
                  Issuing Bank in reimbursement of drawings honored by the
                  Issuing Bank under such Letter of Credit when such payments
                  are received.

            4.4   OBLIGATIONS ABSOLUTE. The obligations of the Borrowers and the
                  Revolving Credit Lenders under subsection 4.3 shall be
                  absolute, unconditional and irrevocable, and shall be
                  performed strictly in accordance with the terms hereof, under
                  all circumstances whatsoever, including, without limitation,
                  the circumstances listed below:

            (a)   any lack of validity or enforceability of this Agreement, any
                  of the other Loan Documents, any Letter of Credit, any
                  drawings thereunder or any related contract;

            (b)   any amendment or waiver of or any consent to any departure
                  from all or any of this Agreement or any of the other Loan
                  Documents;

            (c)   the existence of any claim, set-off, defense or other right
                  which any Borrower at any time may have against the Issuing
                  Bank, the Agent, any of the Lenders, any beneficiary or
                  transferee of any Letter of Credit, or any other Person,
                  whether in

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<PAGE>
                  connection with this Agreement, the other Loan Documents, any
                  Letter of Credit or any unrelated transactions;

            (d)   any statement or any other document presented under any Letter
                  of Credit that proves to be forged, fraudulent or invalid or
                  insufficient in any respect or any statement therein that
                  proves to be untrue or inaccurate in any respect whatsoever;

            (e)   payment by the Issuing Bank under any Letter of Credit against
                  presentation of a draft or certificate or other document that
                  does not comply with the terms of such Letter of Credit; or

            (f)   any other circumstances or happening whatsoever whether or not
                  similar to any of the foregoing;

                  provided, however, that neither the Borrowers nor the
                  Revolving Credit Lenders shall have any obligation to the
                  Issuing Bank pursuant to subsection 4.3 if, but for the
                  willful misconduct or gross negligence of the Issuing Bank (as
                  determined in a final, nonappealable judgment by a court of
                  competent jurisdiction), the obligations for which the Issuing
                  Bank seeks reimbursement or payment would not have arisen.

            4.5   OTHER LENDERS. Any action taken or omitted to be taken by the
                  Issuing Bank under or in connection with any Letter of Credit,
                  if taken or omitted in the absence of gross negligence or
                  willful misconduct, shall not put the Issuing Bank under any
                  resulting liability to any Revolving Credit Lender or relieve
                  any Revolving Credit Lender of its obligations hereunder to
                  the Issuing Bank. In determining whether to pay under any
                  Letter of Credit, the Issuing Bank shall have no obligation to
                  the Revolving Credit Lenders other than to confirm that any
                  documents required to be delivered under such Letter of Credit
                  appear to have been delivered and that they appear to comply
                  on their face with the requirements of such Letter of Credit.

            4.6   INDEMNIFICATION. The Borrowers shall jointly and severally
                  indemnify and hold harmless the Issuing Bank from and against
                  any and all claims, damages, losses, liabilities, reasonable
                  costs and expenses of any kind whatsoever, including
                  reasonable fees and expenses of attorneys and paralegals that
                  the Issuing Bank may incur (or that may be claimed against the
                  Issuing Bank by any Person), together with all reasonable
                  costs and expenses resulting from the compromise or defense of
                  any claims or liabilities hereinafter described, by reason of
                  or in connection with (a) the execution and delivery or
                  transfer of, or payment or failure to pay under, any Letter of
                  Credit, (b) any suit, action or proceeding brought by any
                  person to require or prevent payment under any Letter of
                  Credit, or (c) any breach by any Borrower of any warranty,
                  covenant, term or condition in, or the occurrence of any
                  default under, any of the Loan Documents (to the extent
                  related to Letters of Credit), any Letter of Credit or any
                  related contract, together with all reasonable expenses
                  resulting from the compromise or defense of any claims or
                  liabilities arising as a result of any such breach or default
                  and defense against any legal action commenced to challenge
                  the validity of any of such documents; provided, however, that
                  the Borrowers shall not be required to indemnify the

                                       29
<PAGE>
                  Issuing Bank for any claims, damages, losses, liabilities,
                  costs or expenses to the extent, but only to the extent,
                  caused by (i) the gross negligence or willful misconduct (as
                  determined in a final, nonappealable judgment in a court of
                  competent jurisdiction) of the Issuing Bank in determining
                  whether a draft, certificate or other documents presented
                  under any Letter of Credit complied with the terms of such
                  Letter of Credit, or (ii) the Issuing Bank's willful failure
                  to pay under any Letter of Credit after the presentation to it
                  by the beneficiary thereof of a draft, certificate or other
                  document strictly complying with the terms and conditions of
                  such Letter of Credit. Nothing in this subsection 4.6 is
                  intended to limit or modify in any way the reimbursement
                  obligations of the Borrowers set forth in subsection 4.3. In
                  case any action or proceeding is brought against the Issuing
                  Bank in respect of which indemnity may be sought under this
                  Agreement, the Issuing Bank shall promptly give notice of any
                  such action or proceeding to the Borrower Representative and
                  may require the Borrowers, upon such notice, to assume the
                  defense of the action or proceeding; provided that failure of
                  the Issuing Bank to give such notice shall not relieve the
                  Borrowers of any of their obligations under this subsection
                  4.6. Upon receipt of such notice from the Issuing Bank
                  requesting that the Borrowers assume such defense, the
                  Borrowers shall resist and defend such action or proceeding at
                  the Borrowers' sole cost and expense. The obligations of the
                  Borrowers under this subsection 4.6 shall survive the
                  termination of the Letters of Credit and this Agreement.

            4.7   LIABILITY OF THE ISSUING BANK. The Borrowers assume all risks
                  of the acts or omissions of the users of any Letter of Credit
                  and all risks of the misuse of any Letter of Credit. Neither
                  the Issuing Bank, nor any of its officers, directors,
                  employees or agents shall be liable or responsible for: (a)
                  the use which may be made of any Letter of Credit or for any
                  acts or omissions of any Person and any transferee in
                  connection therewith; (b) the validity, sufficiency or
                  genuineness of documents, or of any endorsement or
                  endorsements thereon, even if such documents should in fact
                  prove to be in any or all respects invalid, insufficient,
                  fraudulent or forged; (c) payment against presentation of
                  documents which do not comply with the terms of the applicable
                  Letter of Credit, including failure of any documents to bear
                  any reference or adequate reference to such Letter of Credit;
                  or (d) any other circumstances whatsoever in making or failing
                  to make payment under any Letter of Credit, except only that
                  the Borrowers shall have a claim against the Issuing Bank, and
                  the Issuing Bank shall be liable to the Borrowers to the
                  extent, but only to the extent, of damages suffered by the
                  Borrowers which were caused by (i) the Issuing Bank's gross
                  negligence or willful misconduct (as determined in a final,
                  nonappealable judgment by a court of competent jurisdiction)
                  in determining whether documents presented under any Letter of
                  Credit comply with the terms of such Letter of Credit (it
                  being understood that any such noncompliance in any immaterial
                  respect shall not be deemed gross negligence or willful
                  misconduct of the Issuing Bank) or (ii) the Issuing Bank's
                  willful failure to pay under any Letter of Credit after the
                  presentation to it by the beneficiary thereof of a draft,
                  certificate or other document strictly complying with the
                  terms and conditions of such Letter of Credit. In furtherance
                  and not in limitation of the foregoing, the Issuing Bank may
                  accept documents that appear on

                                       30
<PAGE>
                  their face to be in order, without responsibility for further
                  investigation, regardless of any notice or information to the
                  contrary unless the Issuing Bank shall have been ordered not
                  to accept such documents by a court of competent jurisdiction.

            SECTION 5. GENERAL PROVISIONS APPLICABLE TO COMMITMENTS AND LOANS

            5.1   PREPAYMENTS.

            (a)   The Borrowers may at any time and from time to time, upon at
                  least one Business Day's irrevocable written notice to the
                  Agent, prepay the Revolving Credit Loans, in whole or in part,
                  without premium or penalty, which notices shall specify the
                  date and amount of prepayment. Upon receipt of any such notice
                  from the Borrower Representative, the Agent shall promptly
                  notify each affected Lender. If any such notice is given, the
                  amount specified in such notice shall be due and payable on
                  the date specified therein, together with any amounts payable
                  pursuant to subsection 5.7, if any. Such partial prepayments
                  shall be in an aggregate principal amount of $100,000 or a
                  whole multiple thereof.

            (b)   All Net Proceeds shall be deposited in the Collateral Account
                  and applied toward the prepayment of the Revolving Credit
                  Loans in the order specified below, and shall permanently
                  reduce the Revolving Credit Commitments; provided that the
                  first $30,000,000 of Net Proceeds from Asset Sales shall not
                  be required to be so applied if such Net Proceeds are used to
                  repay Prepetition Indebtedness consistent with the Interim
                  Order or Final Order. All amounts used to prepay Revolving
                  Credit Loans pursuant to this subsection 5.l(b) shall be
                  applied as follows:

            FIRST, to the prepayment in full of all outstanding Revolving Credit
            Loans ratably among the Revolving Credit Lenders, and

            SECOND, to the Collateral Account maintained with the Agent in
            respect of the Letters of Credit Outstanding for the purpose of
            cash-collateralizing such Letters of Credit Outstanding.

            (c)   The Borrowers shall immediately make a mandatory prepayment as
                  specified in subsection 5.1(b) in the amount equal to the
                  positive excess (if any), on any date, of: (i) the aggregate
                  principal amount of Revolving Credit Loans outstanding on such
                  date plus the amount of Letters of Credit Outstanding on such
                  date minus (ii) the lesser of (1) the aggregate Revolving
                  Credit Commitments on such date and (2) the DIP Loan
                  Availability on such date.

            (d)   The Borrowers shall immediately make any prepayment required
                  by any Order, in the order specified in subsection 5.1(b)
                  unless otherwise provided in such Order.

                                       31
<PAGE>
            5.2   INTEREST RATES AND PAYMENT DATES.

            (a)   Subject to the provisions of subsection 5.2(b), each Revolving
                  Credit Loan and Letter of Credit Reimbursement Obligation (if
                  not reimbursed by the Borrowers on the date of payment by the
                  Issuing Bank or if not refunded through a borrowing of
                  Revolving Credit Loans, in either case as provided in
                  subsection 4.3) shall bear interest at a rate per annum equal
                  to the Base Rate plus the Applicable Margin.

            (b)   If an Event of Default has occurred and is continuing, the
                  Revolving Credit Loans and each Letter of Credit Reimbursement
                  Obligation (if not reimbursed by the Borrowers on the date of
                  payment by the Issuing Bank or if not refunded through a
                  borrowing of Revolving Credit Loans, in either case as
                  provided in subsection 4.3) shall bear interest at a rate per
                  annum which is 2.50% over the rate otherwise applicable
                  thereto.

            (c)   Interest shall be payable by the Borrowers in arrears on the
                  last day of each calendar month without notice or invoice from
                  the Agent; provided that interest accruing pursuant to
                  paragraph (b) of this subsection shall be payable from time to
                  time on demand.

            5.3   COMPUTATION OF INTEREST AND FEES.

            (a)   Commitment fees, Letter of Credit fees and interest shall be
                  calculated on the basis of a 360-day year for the actual days
                  elapsed. Any change in the interest rate on a Revolving Credit
                  Loan or Letter of Credit Reimbursement Obligation resulting
                  from a change in the Base Rate shall become effective as of
                  the opening of business on the day on which such change
                  becomes effective. The Agent shall as soon as practicable
                  notify the Borrower Representative and the affected Lenders of
                  the effective date and the amount of each such change in
                  interest rate.

            (b)   Each determination of an interest rate by the Agent pursuant
                  to any provision of this Agreement shall be conclusive and
                  binding on the Borrowers and the affected Lenders in the
                  absence of manifest error.

            5.4   PRO RATA TREATMENT AND PAYMENTS.

            (a)   All payments (including prepayments) to be made by the
                  Borrowers hereunder, whether on account of principal,
                  interest, fees or otherwise, shall be made without set-off or
                  counterclaim and shall be made prior to 12:00 Noon, New York
                  City time, on the due date thereof to the Agent, for the
                  account of the Revolving Credit Lenders, the Issuing Bank or
                  the Agent, as the case may be, at the Agent's office specified
                  in subsection 12.2, in Dollars and in immediately available
                  funds. Payments received by the Agent after such time shall be
                  deemed to have been received on the next Business Day. The
                  Agent shall distribute such payments to the Lenders entitled
                  to receive the same promptly upon receipt in like funds as
                  received. If any payment hereunder becomes due and payable on
                  a day other than a Business Day, such payment shall be
                  extended to the next succeeding Business

                                       32
<PAGE>
                  Day, and, with respect to payments of principal, interest
                  thereon shall be payable at the then-applicable rate during
                  such extension.

            (b)   Unless the Agent shall have been notified in writing by any
                  Revolving Credit Lender prior to a Borrowing Date for
                  Revolving Credit Loans that such Lender will not make the
                  amount that would constitute its share of such borrowing on
                  such Borrowing Date available to the Agent, the Agent may
                  assume that such Lender is making such amount available to the
                  Agent, and the Agent may, in reliance upon such assumption,
                  make available to the Borrowers a corresponding amount. If
                  such amount is not made available to the Agent by the required
                  time on the Borrowing Date therefor, such Lender shall pay to
                  the Agent, on demand, such amount with interest thereon at a
                  rate equal to the daily average Federal Funds Rate for the
                  period until such Lender makes such amount immediately
                  available to the Agent. A certificate of the Agent submitted
                  to any Lender with respect to any amounts owing under this
                  subsection shall be conclusive in the absence of manifest
                  error. If such Lender's share of such borrowing is not made
                  available to the Agent by such Lender within three Business
                  Days of such Borrowing Date, the Agent shall also be entitled
                  to recover such amount with interest thereon at the rate per
                  annum applicable to Revolving Credit Loans hereunder, on
                  demand, from the Borrowers, without prejudice to any rights of
                  the Borrowers against the Lender which has failed to make its
                  share of any borrowing available to the Agent.

            (c)   Each borrowing by the Borrower of Revolving Credit Loans shall
                  be made ratably from the Revolving Credit Lenders in
                  accordance with their respective Revolving Credit Commitment
                  Percentages.

            5.5   REQUIREMENTS OF LAW.

            (a)   If after the date of this Agreement the adoption of or any
                  change in applicable law or regulation or in the
                  interpretation or administration thereof by any Governmental
                  Authority charged with the administration or interpretation
                  thereof (whether or not having the force of law):

            (i)   shall change the basis of taxation of payments to any Lender
                  in respect of the principal of or interest on such Lender's
                  Revolving Credit Loans or issuance of any Letter of Credit or
                  participation in Letters of Credit Outstanding or any fees or
                  other amounts payable hereunder (other than taxes imposed on
                  or measured by the overall net income of such Lender by the
                  jurisdiction in which such Lender has its principal office (or
                  lending office) or by any political subdivision or taxing
                  authority therein);

            (ii)  shall impose, modify or hold applicable any reserve, special
                  deposit, compulsory loan or other similar requirement against
                  assets of, deposits with or for the account of, or other
                  extensions of credit by, any office of such Lender; or

            (iii) shall impose on such Lender any other condition affecting this
                  Agreement or such Lender's Revolving Credit Loans or issuance
                  of any Letter of Credit or

                                       33
<PAGE>
                  participation in Letters of Credit Outstanding;

and the result of any of the foregoing is to increase the cost to such Lender by
an amount which such Lender deems to be material of making Revolving Credit
Loans or issuing Letters of Credit or participations in Letters of Credit
Outstanding or to reduce any amount receivable hereunder in respect thereof by
an amount deemed by such Lender to be material, then, in any such case, the
Borrowers shall pay to such Lender within two Business Days after demand, any
additional amounts necessary to compensate such Lender for such increased cost
incurred or reduction suffered. If any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly notify the
Borrower Representative, with a copy to the Agent, of the event by reason of
which it has become so entitled. This covenant shall survive the termination of
this Agreement and the payment of the Revolving Credit Loans and all other
amounts payable hereunder.

            (b)   If any Lender shall have determined that the adoption after
                  the date hereof of any law, rule, regulation or guideline
                  regarding capital adequacy, or any change in any of the
                  foregoing or in the interpretation or administration of any of
                  the foregoing by any Governmental Authority, central bank or
                  comparable agency charged with the interpretation or
                  administration thereof, or compliance by any Lender or any
                  Lender's holding company with any request or directive
                  regarding capital adequacy (whether or not having the force of
                  law) of any such Governmental Authority, central bank or
                  comparable agency, has or would have the effect of increasing
                  the amount or cost of capital required to be maintained by
                  such Lender or such holding company or reducing the rate of
                  return on such Lender's or such holding company's capital as a
                  consequence of its obligations hereunder to a level below that
                  which such Lender or such holding company could have achieved
                  but for such adoption, change or compliance (taking into
                  consideration such Lender's or such holding company's policies
                  with respect to capital adequacy) by an amount deemed by such
                  Lender to be material, then from time to time the Borrowers
                  shall pay to such Lender such additional amount or amounts as
                  will compensate such Lender for any such reduction suffered.
                  This covenant shall survive the termination of this Agreement
                  and the payment of the Revolving Credit Loans and all other
                  amounts payable hereunder.

            (c)   A certificate of each Lender setting forth such amount or
                  amounts as shall be necessary to compensate such Lender or its
                  holding company as specified in subsection 5.5(a) or (b)
                  above, as the case may be, shall be delivered to the Borrower
                  Representative (with a copy to the Agent) and shall be
                  conclusive absent manifest error. The Borrowers shall pay each
                  Lender the amount shown as due on any such certificate
                  delivered by it within 10 Business Days after its receipt of
                  the same.

            5.6   TAXES.

            (a)   All payments made by the Borrowers under this Agreement and
                  the Notes shall be made free and clear of, and without
                  deduction or withholding for or on account of, any present or
                  future taxes, levies, imposts, duties, charges, fees,
                  deductions or withholdings, now or hereafter imposed, levied,
                  collected, withheld or assessed by any Governmental Authority,
                  excluding (i) net income taxes, franchise taxes, or

                                       34
<PAGE>
                  any other taxes imposed on or measured by the net income or
                  profits of the Agent or the applicable Lender, in each case by
                  the jurisdiction under the laws of which the Agent or such
                  Lender is organized or any political subdivision thereof or by
                  the jurisdiction in which the applicable lending or issuing
                  office of the Agent or such Lender is located or any political
                  subdivision thereof and (ii) U.S. withholding taxes payable
                  with respect to payments hereunder under laws (including any
                  treaty, ruling, determination or regulation) in effect on the
                  date hereof, but not any increase in U.S. withholding tax
                  resulting from any subsequent change in such laws occurring
                  (x) after the date hereof in the case of the Agent and any
                  Lender as of the date of this Agreement, and (y) in the case
                  of any other Lender, the date of Assignment and Acceptance
                  pursuant to which it became a Lender (all such nonexcluded
                  taxes, levies, imposts, duties, charges, fees, deductions and
                  withholdings the "Nonexcluded Taxes"). In addition, the
                  Borrowers agree to pay to the relevant Governmental Authority
                  in accordance with applicable law any current or future stamp
                  or documentary taxes or any other excise or property taxes,
                  charges or similar levies that arise from any payment made
                  hereunder or from the execution, delivery or registration of,
                  or otherwise with respect to, this Agreement ("Other Taxes").
                  If any Nonexcluded Taxes or Other Taxes are required by law to
                  be withheld from any amounts payable to the Agent or any
                  Lender hereunder (including with respect to Letters of Credit)
                  or under the Notes, the amounts so payable to the Agent or
                  such Lender shall be increased to the extent necessary to
                  yield to the Agent or such Lender interest or any such other
                  amounts payable hereunder at the rates or in the amounts
                  specified in this Agreement and the Notes. Whenever any
                  Nonexcluded Taxes or Other Taxes are payable by the Borrowers,
                  upon receipt thereof the Borrower Representative shall send to
                  the Agent for its own account or for the account of such
                  Lender, as the case may be, a certified copy of any original
                  official receipt received by the Borrower showing payment
                  thereof. The Borrowers shall indemnify the Agent and the
                  Lenders for the full amount of Nonexcluded Taxes, Other Taxes
                  and any taxes imposed by any jurisdiction on amounts payable
                  under this subsection 5.6(a) that are paid by such Lender or
                  Agent, (including penalties, incremental taxes, interest and
                  expenses arising therefrom or with respect thereto), whether
                  or not such Nonexcluded Taxes or Other Taxes were correctly or
                  legally imposed. If the Borrowers determine in good faith that
                  a reasonable basis exists for contesting any Nonexcluded Taxes
                  or Other Taxes, such Lender or the Agent shall cooperate with
                  the Borrower Representative in challenging such Nonexcluded
                  Taxes or Other Taxes at the Borrowers' expense if requested by
                  the Borrower Representative (it being understood and agreed
                  that the Agent or such Lender shall have no obligation to
                  contest or responsibility for contesting such Nonexcluded
                  Taxes or Other Taxes). If any Lender receives a refund in
                  respect of any Nonexcluded Taxes or Other Taxes for which such
                  Lender has received payment from the Borrowers hereunder, such
                  Lender shall, within 30 days of receipt by such Lender, repay
                  such refund to the Borrower Representative, provided that the
                  Borrowers, upon the request of such Lender, agree to return
                  such refund (plus any penalties, interest or other charges) to
                  the Lender in the event such Lender is required to repay such
                  refund. The agreements in this subsection shall survive the
                  termination of this Agreement and the payment of the Revolving
                  Credit Loans and all other amounts payable hereunder.

                                       35
<PAGE>
            (b)   Each Lender that is not incorporated under the laws of the
                  United States of America or a state thereof shall:

            (i)   in the case of each Lender:

            (1)   on or before the date of the first payment to such Lender
                  pursuant to this Agreement following the Closing Date or on or
                  before the effective date of the Assignment and Acceptance,
                  deliver to the Borrower Representative and the Agent two duly
                  completed copies of United States Internal Revenue Service
                  Form W-8BEN (establishing application of a treaty) or W-8ECI,
                  or successor applicable form, as the case may be;

            (2)   deliver to the Borrower Representative and the Agent two
                  further copies of any such form or certification on or before
                  the date that any such form or certification expires or
                  becomes obsolete and promptly upon the occurrence of any event
                  requiring a change in the most recent form previously
                  delivered by it to the Borrower Representative; and

            (3)   obtain such extensions of time for filing and complete such
                  forms or certifications as may reasonably be requested by the
                  Borrower Representative or the Agent; or

            (ii)  in the case of a Lender that is not a "bank" under Section
                  881(c)(3)(A) of the Code:

            (1)   deliver to the Borrower Representative and the Agent (A) a
                  statement under penalties of perjury that such Lender (x) is
                  not a "bank" under Section 881(c)(3)(A) of the Code, is not
                  subject to regulatory or other legal requirements as a bank in
                  any jurisdiction, and has not been treated as a bank for
                  purposes of any tax, securities law or other filing or
                  submission made to any Governmental Authority, any application
                  made to a rating agency or qualification for any exemption
                  from tax, securities law or other legal requirements, (y) is
                  not a 10-percent shareholder within the meaning of Section
                  881(c)(3)(B) of the Code and (z) is not a controlled foreign
                  corporation receiving interest from a related person within
                  the meaning of Section 881(c)(3)(C) of the Code and (B) an
                  Internal Revenue Service Form W-8BEN (regarding the Lender's
                  foreign status);

            (2)   deliver to the Borrower Representative and the Agent a further
                  copy of said Form W-8BEN, or any successor applicable form or
                  other manner of certification on or before the date that any
                  such Form W-8BEN expires or becomes obsolete or after the
                  occurrence of any event requiring a change in the most recent
                  form previously delivered by such Lender; and

            (3)   obtain such extensions of time for filing and complete such
                  forms or certifications as may be reasonably requested by the
                  Borrower Representative or the Agent;

unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders any

                                       36
<PAGE>
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender so advises the
Borrower Representative and the Agent. Each Person that shall become a
Participant pursuant to subsection 12.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection to the Lender from which the related
participation shall have been purchased.

            5.7   INDEMNITY. The Borrowers agree to indemnify each Lender and to
                  hold each Lender harmless from any loss or expense which such
                  Lender may sustain or incur as a consequence of default by a
                  Borrower for any reason in making any payment when due,
                  including after the Borrower Representative has given a notice
                  of prepayment in accordance with the provisions of this
                  Agreement. Such loss or expense may include any loss,
                  including loss of anticipated profits, costs or expenses
                  incurred by reason of the liquidation or reemployment of
                  deposits or other funds in order to fund or maintain such
                  Revolving Credit Loans. This covenant shall survive the
                  termination of this Agreement and the payment of the Revolving
                  Credit Loans and all other amounts payable hereunder.

            5.8   CHANGE OF LENDING OFFICE. Each Lender agrees that it will use
                  all reasonable efforts (so long as such designation would not
                  be adverse to it, as determined in its sole judgment) to
                  designate a lending office or a different lending office if
                  the making of such a designation would reduce or obviate the
                  need for the Borrowers to make payments under subsection 5.5
                  or 5.6(a).

            SECTION 6. REPRESENTATIONS AND WARRANTIES

            To induce the Agent, the Issuing Bank and the Lenders to enter into
            this Agreement, to make the Revolving Credit Loans and to issue
            Letters of Credit, each of the Borrowers hereby represents and
            warrants to the Agent, the Issuing Bank and each Lender that:

            6.1   FINANCIAL CONDITION.

                  The audited consolidated balance sheets of SMC and its
                  consolidated Subsidiaries, as of December 31, 2001 and
                  December 31, 2000 and the related audited consolidated
                  statements of income, shareholders' equity and cash flows for
                  the two years then ended, copies of which have heretofore been
                  furnished to the Agent, have been certified by Ernst & Young
                  LLP and present fairly the consolidated financial condition of
                  SMC and its consolidated Subsidiaries as at such dates and the
                  consolidated results of their operations and their cash flows
                  for the two years then ended in conformity with GAAP.

                  Neither SMC nor any of its consolidated Subsidiaries has, on
                  the Closing Date, any material Guarantee Obligation,
                  contingent liability or liability for taxes, or any long-term
                  Financing Lease or unusual forward or long-term commitment,
                  including, without limitation, any Hedging Agreement required
                  to be reflected on a balance sheet (or in the notes thereto)
                  prepared in accordance with GAAP, which is not (i) reflected
                  in the financial statements relating to the year ended
                  December 31, 2001 described in subclause 6.1(a) above (or in
                  the notes thereto) or (ii) disclosed on Schedule 6.1(b).
                  Except as set forth on Schedule 6.1(b), during the period from
                  December 31, 2001 to and including the date hereof there has
                  been no sale, transfer or other disposition by the Borrowers
                  or any of the Subsidiaries of any material part of their
                  business or property and no purchase or other acquisition of
                  any business or property (including any Capital Stock of any
                  other

                                       37
<PAGE>
                  Person) material in relation to the consolidated financial
                  condition of the Borrowers and the consolidated Subsidiaries
                  at December 31, 2001.

                  The Borrower Representative has delivered to each Lender the
                  budget dated April 6, 2002, including projected income
                  statements, cash flow statements and balance sheets, for the
                  months ending April 2002 through March 2003, all as attached
                  hereto as Exhibit P (the "Budget"). The Budget was prepared by
                  the Borrowers in good faith and on the basis of the best
                  information available at that time and on the assumptions
                  stated therein, which assumptions the Borrowers believe to be
                  reasonable.

            6.2   NO CHANGE. Since December 31, 2001 (a) there has been no
                  material adverse change, or any development involving a
                  prospective material adverse change, in the business,
                  operations, properties, assets, liabilities, performance or
                  condition (financial or otherwise) or prospects of any
                  Borrower or any of its Material Subsidiaries (other than the
                  filing of the Bankruptcy Cases, the defaults referenced in
                  subsection 6.7, and as shown in the Budget), and (b) no
                  dividends or other distributions have been declared, paid or
                  made upon the Capital Stock of the Borrowers nor has any of
                  the Capital Stock of the Borrowers been redeemed, retired,
                  purchased or otherwise acquired for value by the Borrowers or
                  any of the Subsidiaries except as permitted by subsection 9.7.

            6.3   CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Borrower and
                  Subsidiary (a) is duly organized, validly existing and (where
                  applicable) in good standing under the laws of the
                  jurisdiction of its organization, (b) has the corporate power
                  and authority and all licenses, permits and other approvals of
                  any Governmental Authority to own and operate its property, to
                  lease the property it operates as lessee and to conduct the
                  business in which it is currently engaged, (c) is duly
                  qualified as a foreign corporation and (where applicable) in
                  good standing under the laws of each jurisdiction where its
                  ownership, lease or operation of property or the conduct of
                  its business requires such qualification except where the
                  failure to so qualify or be in good standing could not,
                  individually or in the aggregate, have a Material Adverse
                  Effect and (d) is in compliance with all Requirements of Law
                  except to the extent that the failure to comply therewith
                  could not, individually or in the aggregate, have a Material
                  Adverse Effect.

            6.4   CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
                  Borrower and Subsidiary has the corporate power and authority
                  to make, deliver and perform the Loan Documents to which it is
                  a party, in the case of the Borrower, to borrow hereunder and
                  to enter into Letter of Credit Requests, and has taken all
                  necessary corporate action to authorize the borrowings on the
                  terms and conditions of this Agreement and any Notes and to
                  authorize the execution, delivery and performance of the Loan
                  Documents to which it is a party. As of the date of the
                  Interim Order, no consent, approval or authorization of,
                  filing with, notice to or other act by any Governmental
                  Authority or any other Person is required in connection with
                  the Revolving Credit Loans and Letters of Credit and all other
                  related transactions, other than such orders, consents,
                  approvals and authorizations of, and all notices and all
                  written assumptions of obligations to,

                                       38
<PAGE>
                  Governmental Authorities and any other Persons which have been
                  heretofore obtained, made or given and are in full force and
                  effect, and complete and correct copies of which have
                  heretofore been furnished to the Agent. This Agreement has
                  been, and each other Loan Document to which any Borrower or
                  Subsidiary is or will be a party will be, duly executed and
                  delivered on behalf of such Person that is a party thereto.
                  This Agreement constitutes, and each other Loan Document to
                  which any Borrower or any Subsidiary is or will be a party
                  when executed and delivered will constitute, a legal, valid
                  and binding obligation of each such Person enforceable against
                  it in accordance with its terms, and in the case of the
                  Borrowers, also constitutes (or will constitute, as
                  applicable) a legal, valid and binding obligation enforceable
                  against the Estates.

            6.5   NO LEGAL BAR. The execution, delivery and performance of the
                  Loan Documents to which any Borrower or Subsidiary is a party,
                  the borrowings hereunder and the use of the proceeds thereof,
                  will not violate any Requirement of Law or result in a
                  material violation of any indenture, agreement or other
                  instrument to which any Borrower or Subsidiary is a party or
                  by which it or any of its property is bound and will not
                  result in, or require, the creation or imposition of any Lien
                  (except in favor of the Agent) on any of their respective
                  properties or revenues pursuant to any such Requirement of Law
                  or any such indenture, agreement or other instrument.

            6.6   NO MATERIAL LITIGATION. Except as set forth on Schedule 6.6,
                  no litigation, investigation or proceeding of or before any
                  arbitrator or Governmental Authority is pending or, to the
                  knowledge of any Loan Party, threatened by or against any
                  Borrower or Subsidiary or against any of their respective
                  properties or revenues (a) with respect to any of the Loan
                  Documents or the making of Revolving Credit Loans and issuing
                  of Letters of Credit and all other related transactions
                  contemplated hereby or thereby or (b) which could reasonably
                  be expected to have a Material Adverse Effect.

            6.7   NO DEFAULT. Except as caused solely by the filing of the
                  Bankruptcy Cases, the failure to make the principal repayments
                  due as of March 31, 2002 with respect to the Prepetition
                  Indebtedness, the qualified opinion of Ernst & Young LLP with
                  respect to the consolidated financial statements of SMC and
                  its consolidated Subsidiaries as of December 31, 2000 and
                  2001, the failure to comply with subsection 9.1(f) of the
                  Existing Credit Agreement for the five fiscal quarters ending
                  March 31, 2002, and the delisting of SMC's common stock from
                  the NASDAQ, no Borrower or Subsidiary is in default under or
                  with respect to any indenture, agreement or other instrument
                  to which such Person is a party or by which it or any of its
                  property is bound in any respect which could reasonably be
                  expected to have a Material Adverse Effect except for any such
                  indenture, agreement or other instrument related to
                  Indebtedness that will be satisfied and from which the
                  relevant Person will be released on the Closing Date. No
                  Default or Event of Default has occurred and is continuing.

            6.8   OWNERSHIP OF PROPERTY; LIENS. Each Borrower and Subsidiary has
                  good record and marketable title in fee simple to, or a valid
                  leasehold interest in, all its real

                                       39
<PAGE>
                  property, and good title to, or a valid leasehold interest in,
                  all its other material property except for such minor defects
                  in title and other matters disclosed in any title insurance
                  policies delivered to the Agent pursuant to this Agreement
                  that do not affect the ability to use such property in the
                  conduct of its business, and none of such property is subject
                  to any Lien except Permitted Liens.

            6.9   INTELLECTUAL PROPERTY. Each Borrower and Subsidiary owns, or
                  is licensed to use, all Intellectual Property necessary for
                  the conduct of its business as currently conducted except for
                  that Intellectual Property, the failure to own or license
                  could not reasonably be expected to have a Material Adverse
                  Effect. Schedule 6.9 sets forth all interests of the Borrower
                  and its Subsidiaries in all material Intellectual Property
                  existing as of the Closing Date and the registration
                  information for all such Intellectual Property. To the best of
                  the Borrowers' knowledge, except as set forth on Schedule 6.6,
                  no claim has been asserted or is pending by any Person
                  challenging or questioning the use of any such material
                  Intellectual Property by any Borrower and Subsidiary or the
                  validity or effectiveness of any such Intellectual Property
                  except for such claims which even if successful could not
                  reasonably be expected to have a Material Adverse Effect, nor
                  do the Borrowers know of any valid basis for any such claim.
                  To the best knowledge of the Borrowers, the use of such
                  Intellectual Property by the Borrowers and the Subsidiaries
                  does not infringe on the rights of any Person, except for such
                  claims and infringements that, in the aggregate, could not
                  reasonably be expected to have a Material Adverse Effect.

            6.10  NO BURDENSOME RESTRICTIONS. After giving effect to the making
                  of any Revolving Credit Loan or issuing of any Letter of
                  Credit contemplated hereunder and all other related
                  transactions, no indenture, agreement or other instrument to
                  which any Borrower or Subsidiary is a party or by which it or
                  any of its property is bound could reasonably be expected to
                  have a Material Adverse Effect.

            6.11  TAXES. Except as set forth on Schedule 6.11, each Borrower and
                  Subsidiary has filed or caused to be filed all material
                  foreign, federal, state and local tax returns which, to the
                  knowledge of the Borrowers, are required to be filed, taking
                  into account all applicable extensions, and has paid all taxes
                  shown to be due and payable on said returns or on any
                  assessments made against it or any of its property and all
                  other material taxes, fees or other charges imposed on it or
                  any of its property by any Governmental Authority (other than
                  any such taxes or assessments the amount or validity of which
                  are currently being contested in good faith by appropriate
                  proceedings and with respect to which reserves in conformity
                  with GAAP have been provided on the books of such Person). No
                  tax Lien has been filed against any Borrower or Subsidiary
                  and, to the knowledge of the Borrower, except as set forth on
                  Schedule 6.11, no claim is being asserted with respect to any
                  taxes, fees, or other charges.

            6.12  FEDERAL REGULATIONS. No part of the proceeds of any Revolving
                  Credit Loan or Letter of Credit will be used for "purchasing"
                  or "carrying" any "margin stock" within the respective
                  meanings of each of the quoted terms under Regulation U as

                                       40
<PAGE>
                  now and from time to time hereafter in effect. Neither the
                  making of any Revolving Credit Loan or issuing of any Letter
                  of Credit nor the use of the proceeds thereof will violate or
                  be inconsistent with the provisions of Regulation T, U or X of
                  the Board of Governors. If requested by any Lender or the
                  Agent, the Borrowers will furnish to the Agent and each Lender
                  a statement to the foregoing effect in conformity with the
                  requirements of FR Form U-1 referred to in said Regulation U.

            6.12  ERISA. Except for the events described in subsection 6.7,
                  neither a Reportable Event nor an "accumulated funding
                  deficiency" (within the meaning of Section 412 of the Code or
                  Section 302 of ERISA and whether or not waived) has occurred
                  during the five-year period prior to the date on which this
                  representation is made or deemed made with respect to any Plan
                  that remains outstanding in any respect and that could
                  reasonably be expected to have a Material Adverse Effect, and
                  each Plan has complied in all material respects with the
                  applicable provisions of ERISA and the Code. No termination of
                  a Single Employer Plan has occurred, and no Lien in favor of
                  the PBGC or a Plan has arisen, during such five-year period
                  that has resulted in any material liability. Except as set
                  forth on Schedule 6.13, the present value of all accrued
                  benefits under each Single Employer Plan (based on those
                  assumptions used to fund such Plans) did not, as of the last
                  annual valuation date prior to the date on which this
                  representation is made or deemed made, exceed the value of the
                  assets of such Plan allocable to such accrued benefits.
                  Neither any Borrower nor any Commonly Controlled Entity has
                  had a complete or partial withdrawal from any Multiemployer
                  Plan, and neither any Borrower nor any Commonly Controlled
                  Entity would become subject to any liability under ERISA if
                  such Borrower or Commonly Controlled Entity were to withdraw
                  completely from all Multiemployer Plans as of the valuation
                  date most closely preceding the date on which this
                  representation is made or deemed made and no such
                  Multiemployer Plan is in Reorganization or Insolvent, except
                  in each instance where such liability, reorganization or
                  insolvency could not reasonably be expected to have a Material
                  Adverse Effect. Except as set forth on Schedule 6.13, the
                  present value (determined using actuarial and other
                  assumptions which are reasonable in respect of the benefits
                  provided and the employees participating) of the liability of
                  a Borrower for post retirement benefits to be provided to its
                  current and former employees under Plans which are welfare
                  benefit plans (as defined in Section 3(l) of ERISA) does not,
                  in the aggregate, exceed the assets under all such Plans
                  allocable to such benefits by an amount which could reasonably
                  be expected to have a Material Adverse Effect. Each Commonly
                  Controlled Entity that has liability for postretirement
                  benefits has adopted Financial Accounting Standard No. 106.
                  All benefit plans or arrangements covering non-U.S. employees
                  comply in all material respects with applicable Requirements
                  of Law. Each benefit plan or arrangement covering non-U.S.
                  employees, including expatriate employees, has been funded, if
                  required by local law, in accordance with reasonable actuarial
                  assumptions and methods in the relevant jurisdiction, to
                  provide all benefits accrued thereunder by reference to
                  service completed prior to the date hereof. Each benefit plan
                  or arrangement covering non-U.S. employees has received all
                  applicable approvals or certifications of appropriate
                  Governmental Authorities,

                                       41
<PAGE>
                  and no events or circumstances have occurred, to the best
                  knowledge of Borrowers, which are likely to prejudice such
                  approval or certification.

            6.14  INVESTMENT COMPANY ACT; OTHER REGULATIONS. None of the
                  Borrowers is an "investment company," or a company
                  "controlled" by an "investment company," within the meaning of
                  the Investment Company Act of 1940 as amended. No Borrower is
                  subject to regulation under any Requirement of Law which
                  limits its ability to incur Indebtedness.

            6.15  CAPITAL STOCK; SUBSIDIARIES; INVESTMENTS.

            (a)   The authorized, issued and outstanding shares of Capital Stock
                  of the Borrowers are as set forth on Schedule 6.15. All such
                  outstanding shares have been duly authorized, are validly
                  issued and outstanding and are fully paid and nonassessable.
                  To the best of the Borrower's knowledge, there are no
                  outstanding options or other rights pertaining to the Capital
                  Stock of the Borrowers, other than as set forth on Schedule
                  6.15. Except as set forth on Schedule 6.15, the Borrower has
                  no obligation to repurchase or redeem any shares of its
                  Capital Stock.

            (b)   The Persons listed on Schedule 6.15 constitute all the
                  Subsidiaries of the Borrowers and all other Persons
                  constituting Investments by the Borrowers and its Subsidiaries
                  in Capital Stock at the date hereof. Such Schedule identifies
                  the state or country of organization of each such Subsidiary
                  or Investment and the percentage ownership of such Subsidiary
                  or Investment directly or indirectly owned by the Borrowers
                  and the ownership chain for such Subsidiary or Investment, and
                  the number of authorized and outstanding shares of Capital
                  Stock. Except as set forth on Schedule 6.15, there are no
                  preemptive rights with respect to the Capital Stock of such
                  Subsidiaries or Investments and no options, warrants or other
                  rights to acquire the Capital Stock of any such Subsidiary or
                  Investment, and no securities convertible into such Capital
                  Stock.

            (c)   Controlled Products Group International, Inc., a Delaware
                  corporation, and a Subsidiary of SMC, has no material
                  Indebtedness or other liability to any Person.

            6.16  ENVIRONMENTAL MATTERS.

            (a)   Except as disclosed on Schedule 6.16, no real estate currently
                  or formerly owned or leased by any Borrower or Subsidiary
                  contains, nor, to the best of the Borrowers' knowledge, has
                  previously contained, any Materials of Environmental Concern
                  in amounts or concentrations which could reasonably be
                  expected to give rise to a material liability under any
                  Environmental Law.

            (b)   Except as disclosed in Schedule 6.16, all real estate
                  currently or formerly owned or leased by the Borrowers and
                  their Subsidiaries and all operations thereon are in material
                  compliance with all applicable Environmental Laws, and there
                  is no contamination at, under or about such real estate or
                  violation of any Environmental Law with respect to such real
                  estate or the business operated by the Borrowers or any of
                  their Subsidiaries (the "Business") which could reasonably be
                  expected to have a Material Adverse Effect or interfere with
                  the continued operation of such real estate.

            (c)   Except as disclosed in Schedule 6.16, there are no existing
                  or, to the knowledge of the Borrowers, threatened
                  Environmental Claims against any Borrower or any Subsidiary,

                                       42
<PAGE>
                  and no Borrower or Subsidiary has received any notice of
                  violation, alleged violation, noncompliance, liability or
                  potential liability regarding environmental matters or
                  compliance with Environmental Laws with regard to any of the
                  real estate currently or formerly owned, leased or operated by
                  a Borrower or any Subsidiary or the Business, which in either
                  case could reasonably be expected to have a Material Adverse
                  Effect.

            (d)   Except as disclosed in Schedule 6.16, Materials of
                  Environmental Concern have not been transported or disposed
                  of, from the real estate currently or formerly owned, leased
                  or operated by any Borrower or Subsidiary, by any Borrower or
                  Subsidiary in violation of, or in a manner or to a location
                  which could give rise to material liability under, any
                  Environmental Law, nor have any Materials of Environmental
                  Concern been generated, treated, released, stored or disposed
                  of at, on or under any of such real estate in violation of, or
                  in a manner that could reasonably be expected to give rise to
                  liability under, any applicable Environmental Law which could
                  reasonably be expected to have a Material Adverse Effect.

            (e)   Except as disclosed in Schedule 6.16, no judicial proceeding
                  or governmental or administrative action is pending or, to the
                  knowledge of the Borrowers, threatened, under any
                  Environmental Law to which any Borrower or Subsidiary is or
                  will be named as a party with respect to any real estate
                  currently or formerly owned, leased or operated by a Borrower
                  or any Subsidiary or the Business which could reasonably be
                  expected to have a Material Adverse Effect, nor are there any
                  consent decrees or other decrees, consent orders,
                  administrative orders or other orders, or other administrative
                  or judicial requirements outstanding under any Environmental
                  Law with respect to such real estate or the Business which
                  could reasonably be expected to have a Material Adverse
                  Effect.

            6.17  REGULATION H. No real property owned by a Borrower or
                  Subsidiary is located in an area that has been identified by
                  the Secretary of Housing and Urban Development as an area
                  having special flood hazards and in which flood insurance has
                  been made available under the National Flood Insurance Act of
                  1968, except for the real property located in Huntington, West
                  Virginia as to which the Borrower has obtained and maintains
                  such flood insurance.

            6.18  ACCURACY OF INFORMATION. All factual information furnished by
                  or on behalf of the Borrowers or Subsidiaries in writing to
                  the Agent or any Lender on or prior to the Closing Date in
                  connection with this Agreement, the other Loan Documents and
                  the making of Revolving Credit Loans and issuing of Letters of
                  Credit and all other related transactions is, and all other
                  factual information hereafter furnished by or on behalf of the
                  Borrowers or Subsidiaries in writing to the Agent or any
                  Lender will be, true and accurate in all material respects on
                  the date as of which such information is dated or furnished
                  and not incomplete by omitting to state any material fact
                  necessary to make such information not misleading.

            6.19  INSURANCE. Schedule 6.19 lists all insurance maintained by the
                  Loan Parties as of the Closing Date.

                                       43
<PAGE>
            6.20  LABOR RELATIONS. None of the Borrowers nor any Subsidiary is
                  engaged in any unfair labor practice that could reasonably be
                  expected to have a Material Adverse Effect and, except as set
                  forth on Schedule 6.20, there is (a) no unfair labor practice
                  complaint pending against any Borrower or Subsidiary or, to
                  the best knowledge of the Borrowers, threatened against any of
                  them, before the National Labor Relations Board or any other
                  Governmental Authority, and no material grievance or
                  arbitration proceeding arising out of or under any collective
                  bargaining agreement is so pending against a Borrower or any
                  Subsidiary or, to the best knowledge of the Borrowers,
                  threatened against any of them, (b) no strike, labor dispute,
                  slow down or stoppage pending against a Borrower or any
                  Subsidiary or, to the best knowledge of the Borrowers,
                  threatened against a Borrower or any Subsidiary and (c) no
                  Borrower or Subsidiary is subject to a collective bargaining
                  agreement and, to the best knowledge of the Borrowers, no
                  union representation proceeding is pending with respect to the
                  employees of a Borrower or any Subsidiary, except (with
                  respect to any matter specified in clause (a), (b) or (c)
                  above, either individually or in the aggregate) such as could
                  not reasonably be expected to have a Material Adverse Effect.

            6.21  INDEBTEDNESS. Schedule 6.21 sets forth a true and complete
                  list of all Indebtedness (excluding the Revolving Credit Loans
                  and the Letters of Credit Outstanding) of the Borrower and its
                  respective Subsidiaries as of the Closing Date and which is to
                  remain outstanding after giving effect to the Revolving Credit
                  Loans to be made and Letters of Credit to be issued hereunder
                  and all other related transactions, in each case showing the
                  aggregate principal amount thereof and the name of the
                  respective Borrower and any other entity which directly or
                  indirectly guaranteed such debt.

            6.22  BANK ACCOUNTS. Schedule 6.22 sets forth a true and complete
                  list of all accounts of whatever nature maintained with a bank
                  or other financial institution by any Borrower or Subsidiary,
                  including setting forth separately those maintained for petty
                  cash and similar purposes with a bank or other financial
                  institution that is not a Lender hereunder (each such account,
                  an "Excluded Account").

            SECTION 7. CONDITIONS PRECEDENT

            7.1   CONDITIONS TO INITIAL LOANS. The agreement of each Lender to
                  make the initial Revolving Credit Loans requested to be made
                  by it and of the Issuing Bank to issue the initial Letters of
                  Credit requested to be issued hereunder are subject to the
                  satisfaction, prior to the making of any such Revolving Credit
                  Loan or issuance of any such Letter of Credit, of the
                  following conditions precedent:

            (a)   Loan Documents. The Agent shall have received (i) this
                  Agreement, executed and delivered by one or more duly
                  authorized officers of each of the Borrowers, with a
                  counterpart for each Lender, (ii) for the account of each
                  Revolving Credit Lender, a Revolving Credit Note conforming to
                  the requirements hereof and executed by one or more duly
                  authorized officers of each Borrower, and (iii) the Security
                  Documents, if any, each executed and delivered by one or more
                  duly authorized officers of each Loan Party thereto, with a

                                       44
<PAGE>
                  counterpart for the Agent and a counterpart or a conformed
                  copy for each Lender. In the event that any Letters of Credit
                  are to be issued on the Closing Date, the Agent shall have
                  received a Letter of Credit Request from the Borrower
                  Representative with respect to each such Letter of Credit as
                  provided in subsection 4.1.

            (b)   Closing Certificate. The Agent shall have received, with a
                  counterpart for each Lender, a certificate of each Borrower,
                  dated the Closing Date, substantially in the form of Exhibit
                  J, with appropriate insertions and attachments, executed by a
                  Responsible Officer of such Borrower.

            (c)   Corporate Proceedings of the Borrowers. The Agent shall have
                  received, with a counterpart for each Lender, a copy of the
                  resolutions, in form and substance reasonably satisfactory to
                  the Agent, of the Board of Directors of each Borrower
                  authorizing (i) the execution, delivery and performance of
                  this Agreement and the other Loan Documents to which it is a
                  party, (ii) the borrowings contemplated hereunder, and (iii)
                  the granting by it of the Liens created pursuant to this
                  Agreement, certified by the Secretary or an Assistant
                  Secretary of such Borrower as of the Closing Date, which
                  certificate shall be in form and substance reasonably
                  satisfactory to the Agent and shall state that the resolutions
                  thereby certified have not been amended, modified, revoked or
                  rescinded.

            (d)   Borrower Incumbency Certificates. The Agent shall have
                  received, with a counterpart for each Lender, a certificate of
                  each Borrower, dated the Closing Date, as to the incumbency
                  and signature of the officers of such Borrower executing any
                  Loan Document, reasonably satisfactory in form and substance
                  to the Agent, executed by a Responsible Officer and the
                  Secretary or any Assistant Secretary of such Borrower.

            (e)   [Reserved].

            (f)   [Reserved].

            (g)   Corporate Documents. The Agent shall have received, with a
                  copy for each Lender, such documents as the Agent or any
                  Lender may reasonably request relating to the organization,
                  existence and good standing of SMC and its Domestic
                  Subsidiaries and any material Foreign Subsidiary whose Capital
                  Stock is pledged pursuant to any Security Document, including
                  true and complete copies of the certificate of incorporation
                  and bylaws (or other governing documents) of the Borrower and
                  each of such Subsidiaries, certified as of the Closing Date as
                  complete and correct copies thereof by an officer of such
                  Person, and all such documents shall be satisfactory to the
                  Agent and the Lenders.

            (h)   Borrower Financial Statements. The Lenders shall have received
                  copies of the audited consolidated financial statements of SMC
                  for the fiscal years ended

                                       45
<PAGE>
                  December 31, 2001 and December 31, 2000 which financial
                  statements shall have been prepared in accordance with GAAP.

            (i)   Corporate and Capital Structure. The corporate, legal and
                  capital structure of the Borrowers and Subsidiaries after
                  giving effect to the making of Revolving Credit Loans and
                  issuing of Letters of Credit hereunder and all other related
                  transactions shall be satisfactory to the Agent and the
                  Lenders.

            (j)   Consents, Approvals, etc. The Agent shall have received, with
                  a copy for each Lender, a certificate of a Responsible Officer
                  of each Borrower attaching a true and correct copy of each
                  governmental and third-party approval (including, without
                  limitation, any consents required to pledge the Capital Stock
                  of the Subsidiaries and Investments of the Borrowers and
                  Subsidiaries pledged pursuant to this Agreement or the
                  Security Documents, each in form and substance satisfactory to
                  the Agent) necessary in connection with the transactions
                  contemplated by the Loan Documents or certifying that true and
                  correct copies of all such approvals have been delivered by
                  the Borrower Representative to the Agent, with a copy for each
                  of the Lenders, and that such approvals have not been
                  rescinded, amended or modified in any manner; provided that
                  the foregoing shall not apply as of the Closing Date with
                  respect to the consents of the board of directors of each of
                  Inco Alloys Foreign Sales Corporation, a company organized
                  under the laws of Barbados, Special Metals Pacific Pte. Ltd.,
                  a company organized under the laws of the Republic of
                  Singapore, and Huntington Alloys Canada Ltd., a company
                  organized under the laws of Canada, each of which consents
                  shall be obtained by the date that is 30 days after the
                  Closing Date. Each such approval shall have been obtained, be
                  in full force and effect and no action shall have been taken
                  or threatened by any competent authority, and no Requirement
                  of Law shall (in the judgment of the Agent) be applicable,
                  which would restrain, prevent or otherwise impose materially
                  adverse conditions on the transactions contemplated by the
                  Loan Documents. The Revolving Credit Loans shall be in
                  compliance with Regulations T, U and X of the Board of
                  Governors.

            (k)   Fees and Expenses. The Agent shall have received reasonably
                  satisfactory evidence that the fees and expenses to be
                  incurred by the Borrowers and Subsidiaries in connection with
                  the execution and delivery of this Agreement and the other
                  Loan Documents, and the making of Revolving Credit Loans and
                  issuing of Letters of Credit hereunder and all other related
                  transactions, will not exceed an aggregate amount reasonably
                  acceptable to the Agent.

            (l)   Lien Searches. The Agent shall have received the results of a
                  recent search by a Person satisfactory to the Agent of the
                  UCC, judgment and tax lien filings (or equivalent searches
                  with respect to material Foreign Subsidiaries) which may have

                                       46
<PAGE>
                  been filed with respect to personal property of the Borrower
                  and such Subsidiaries, and the results of such search shall
                  reveal no Liens on any of the assets of the Borrower or its
                  Subsidiaries except for Permitted Liens and Liens to be
                  released on the Closing Date.

            (m)   Insurance. The Agent shall have received evidence in form and
                  substance reasonably satisfactory to it of all insurance
                  coverage as required by this Agreement and the other Loan
                  Documents.

            (n)   Legal Opinions. The Agent shall have received, with a
                  counterpart for each Lender, the executed legal opinion of (i)
                  Bond, Schoeneck & King, LLP, New York counsel to the Borrowers
                  and the other Loan Parties, substantially in the form of
                  Exhibit L-1, and covering such other matters as the Agent may
                  request and (ii) McGuireWoods LLP, special bankruptcy counsel
                  to the Borrowers and the other Loan Parties, substantially in
                  the form of Exhibit L-2, and covering such other matters as
                  the Agent may request.

            (o)   Agent's Fees and Expenses. The Agent shall have received all
                  fees, expenses and other consideration required to be paid or
                  delivered on or prior to the Closing Date under any Loan
                  Document, and all fees and expenses of counsel to the Agent,
                  including any local or foreign counsel.

            (p)   No Material Adverse Change. There shall have occurred no
                  material adverse change, and no development involving a
                  prospective material adverse change, (i) in the business,
                  condition (financial or otherwise), operations, performance,
                  properties or prospects of any Borrower or Material Subsidiary
                  (other than as set forth in subsection 6.2(a)) or (ii) in the
                  loan syndication or financial or capital market conditions
                  generally, and all information provided to the Agent and the
                  Lenders by or on behalf of the Borrowers with respect to the
                  making of Revolving Credit Loans and issuing of Letters of
                  Credit hereunder and all other related transactions, and the
                  business, condition (financial or otherwise), operations,
                  performance, and properties of the Borrowers and Subsidiaries,
                  shall be true and correct in all material respects.

            (q)   No Litigation. There shall exist no action, suit,
                  investigation, litigation or proceeding pending or threatened
                  in any court or before any arbitrator or Governmental
                  Authority that (i) would reasonably be likely to have a
                  Material Adverse Effect or (ii) purports to materially affect
                  the making of Revolving Credit Loans and issuing of Letters of
                  Credit hereunder and all other related transactions or the
                  rights and remedies of the Agent and the Lenders.

            (r)   ERISA; Retiree Benefits. The Lenders shall be satisfied that
                  the Borrowers and their Subsidiaries will be able to meet
                  their respective obligations under all employee and retiree
                  welfare benefit plans, that such plans are in all material
                  respects funded in accordance with the minimum statutory
                  requirements under ERISA or other applicable Requirements of
                  Law (subject to Schedule 6.13), that no material Reportable
                  Event has occurred as to any such plan (except for the events
                  described in subsection 6.7) and that no termination of, or
                  withdrawal

                                       47
<PAGE>
                  from, any such employee benefit plan has occurred or is
                  contemplated that could result in a material liability of any
                  Borrower or Subsidiary.

            (s)   Interim Order. The Agent shall have received a signed copy of
                  the interim order (the "Interim Order") of the Bankruptcy
                  Court in the form of Exhibit O authorizing and approving the
                  making of Revolving Credit Loans and issuance of Letters of
                  Credit contemplated hereby and the Loan Documents and the
                  granting of the superpriority claim status and liens as
                  described in subsection 2.5 and the Interim Order. The Interim
                  Order (i) shall be in form and substance satisfactory to the
                  Agent, (ii) shall be certified by the Clerk of the Bankruptcy
                  Court as having been duly entered, (iii) shall have authorized
                  extensions of credit by the Lenders in amounts up to
                  $18,000,000 of Revolving Credit Loans and $10,000,000 of
                  Letters of Credit, (iv) shall approve the payment by the
                  Borrowers of all of the fees set forth in subsections 2.1,
                  2.2, 2.3, and 2.4, and (v) shall be in full force and effect
                  and shall not have been vacated, reversed, modified, amended
                  or stayed.

            (t)   Audit. The Agent and the Lenders shall have had an
                  opportunity, if they so choose, to examine the books of
                  account and other records and files of the Borrowers and to
                  make copies thereof, and to conduct a prefunding audit which
                  shall include, without limitation, verification of inventory
                  and accounts, and the results of such examination and audit
                  shall have been satisfactory to the Agent and the Lenders in
                  all respects.

            (u)   Proceedings and Documentation. All proceedings taken in
                  connection with the execution of this Agreement, the Revolving
                  Credit Notes (if any), all other Loan Documents and all
                  documents and papers relating thereto shall be satisfactory in
                  form, scope, and substance to the Agent and the Lenders.

            (v)   Bankruptcy Matters. The Bankruptcy Cases shall have been
                  commenced by the Borrowers, and the Borrowers shall each be a
                  debtor and debtor in possession. All First Day Orders and all
                  other Orders entered in the Bankruptcy Cases shall be in form
                  and substance reasonably satisfactory to the Agent.

            (w)   Dissolution of Subsidiary. The Agent shall have received
                  evidence in form and substance reasonably satisfactory to it
                  of the dissolution of Controlled Products Group International,
                  Inc., a Delaware corporation.

            7.2   CONDITIONS TO EACH LOAN. The agreement of each Lender to make
                  any Revolving Credit Loan requested to be made by it on any
                  date (including, without limitation, its initial Revolving
                  Credit Loan, but excluding at all times Revolving Credit Loans
                  made pursuant to subsection 4.3), and of the Issuing Bank to
                  issue any Letter of Credit, is subject to (i) the making of
                  such Revolving Credit Loan complying in all respects with the
                  margin regulations of the Board of Governors and (ii) the
                  satisfaction of the following conditions precedent:

            (a)   Representations and Warranties. Each of the representations
                  and warranties made by the Borrowers or their Subsidiaries in
                  or pursuant to the Loan Documents shall be true and correct in
                  all material respects on and as of such date immediately prior

                                       48
<PAGE>
                  to, and after giving effect to the Revolving Credit Loan or
                  Letter of Credit as if made on and as of such date (except
                  that any such representation or warranty that is expressly
                  stated as being made only as of a specified earlier date shall
                  be true and correct in all material respects as of such
                  earlier date).

            (b)   No Default. No Default or Event of Default shall have occurred
                  and be continuing on such date or after giving effect to the
                  Revolving Credit Loans requested to be made on such date or to
                  the issuance of the Letter of Credit to be issued on such
                  date.

            (c)   Additional Matters. The Agent shall have received a timely
                  notice of borrowing or request for a Letter of Credit.

            (d)   Bankruptcy Cases. None of the Bankruptcy Cases shall have been
                  dismissed or converted to Chapter 7 of the Bankruptcy Code, no
                  Person shall have filed an application for an order dismissing
                  any Borrower's Bankruptcy Case or converting any Borrower's
                  Bankruptcy Case to a case under Chapter 7 of the Bankruptcy
                  Code, and no trustee under Chapter 7 or Chapter 11 of the
                  Bankruptcy Code or responsible officer or examiner with powers
                  beyond the duty to investigate and report, as set forth in
                  Section 1106(a)(3) and (4) of the Bankruptcy Code shall have
                  been appointed in any of the Bankruptcy Cases. No application
                  shall have been filed by any Borrower for the approval of any
                  other superpriority administrative claim in any Bankruptcy
                  Case which is pari passu with or senior to the claims of the
                  Agent and/or any Lender against the Borrowers (and, other than
                  the Carve-Out, no such claim or lien has arisen) and neither
                  the Interim Order nor the Final Order, as applicable, shall
                  have been stayed, modified, amended, reversed, rescinded or
                  vacated.

            (e)   Final Order. If such Revolving Credit Loan is to be made or
                  such Letter of Credit is to be issued prior to the time at
                  which the Bankruptcy Court shall have entered a final order
                  (the "Final Order") in form and substance satisfactory to the
                  Agent in its sole discretion, certified by the Clerk of the
                  Bankruptcy Court as having been duly entered, the Interim
                  Order shall be in full force and effect and shall not have
                  been vacated, reversed, modified, amended or stayed, and if
                  such Revolving Credit Loan is to be made or such Letter of
                  Credit is to be issued after May 13, 2002, the Final Order
                  shall be in full force and effect and shall not have been
                  vacated, reversed, modified, amended or stayed.

            (f)   Additional Lien Searches. If, after giving effect to such
                  Revolving Credit Loan or such Letter of Credit, the aggregate
                  outstanding principal amount of all Revolving Credit Loans
                  plus the aggregate outstanding undrawn amount of all Letters
                  of Credit shall exceed $40,000,000 and if the Agent shall so
                  request, the Borrowers shall have delivered to the Agent the
                  results of any Lien searches of the type requested by the
                  Agent, in all applicable jurisdictions, against the Borrowers
                  (in each case dated as of a date reasonably satisfactory to
                  the Agent), which searches shall reflect the absence of Liens
                  on assets of the Borrowers, other than Liens (a) which are
                  Permitted Liens, (b) which are otherwise reasonably
                  satisfactory to

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<PAGE>
                  the Agent or (c) for which termination statements and releases
                  reasonably satisfactory to the Agent have been tendered.

                  Each borrowing by the Borrowers hereunder and each issuance of
                  a Letter of Credit shall constitute a representation and
                  warranty by each Borrower as of the date of such Revolving
                  Credit Loan or Letter of Credit that the conditions contained
                  in this subsection 7.2 have been satisfied. Each Lender agrees
                  to make Revolving Credit Loans in the circumstances
                  contemplated by subsection 4.3 whether or not the conditions
                  contained in this subsection 7.2 have been satisfied.

            SECTION 8. AFFIRMATIVE COVENANTS

            The Borrowers hereby agree that, from and after the date of this
Agreement, so long as the Revolving Credit Commitments remain in effect, any
Letter of Credit remains outstanding, any Revolving Credit Loan remains
outstanding and unpaid or any other amount is owing to any Lender, the Issuing
Bank or the Agent hereunder unless the Required Lenders (and the Issuing Bank,
if any Letter of Credit shall be outstanding) shall have otherwise consented in
writing, the Borrowers shall and (where applicable) shall cause each of their
Subsidiaries to:

            8.1   FINANCIAL STATEMENTS. Furnish to the Agent, with a copy for
                  each Lender:

            (a)   as soon as available, but in any event within 90 days after
                  the end of each fiscal year of SMC, (i) a copy of the
                  consolidated and consolidating balance sheet of SMC and its
                  consolidated Subsidiaries as at the end of such year, (ii) a
                  copy of the consolidated balance sheet of SMC and its Domestic
                  Subsidiaries as at the end of such year and (iii) the related
                  consolidated and consolidating statements of income and
                  retained earnings and of cash flows for such year, setting
                  forth in each case in comparative form the figures for the
                  previous year, certified by Ernst & Young LLP or other
                  independent certified public accountants of nationally
                  recognized standing acceptable to the Agent as presenting
                  fairly, in all material respects the consolidated financial
                  condition of SMC and its Subsidiaries for such years;

            (b)   as soon as available, but in any event not later than 45 days
                  after the end of each of the first three quarterly periods of
                  each fiscal year of SMC, (i) the unaudited consolidated and
                  consolidating balance sheet of SMC and its consolidated
                  Subsidiaries as at the end of such quarter, (ii) the unaudited
                  consolidated balance sheet of SMC and its Domestic
                  Subsidiaries as at the end of such quarter and (iii) the
                  related unaudited consolidated and consolidating statements of
                  income and retained earnings and of cash flows of SMC and its
                  consolidated Subsidiaries for such quarter and the portion of
                  the fiscal year through the end of such quarter, setting forth
                  in each case in comparative form the figures for the previous
                  year, certified by a Responsible Officer as fairly presenting
                  the financial condition and results of operations of SMC and
                  its consolidated Subsidiaries (subject to normal year-end
                  audit adjustments and the absence of certain notes); and

                                       50
<PAGE>
            (c)   as soon as available, but in any event not later than 30 days
                  after the end of each fiscal month of SMC, (i) the unaudited
                  consolidated and consolidating balance sheet of SMC and its
                  consolidated Subsidiaries as at the end of such month, (ii)
                  the unaudited consolidated balance sheet of SMC and its
                  Domestic Subsidiaries as at the end of such month and (iii)
                  the related unaudited consolidated and consolidating
                  statements of income and retained earnings and of cash flows
                  of SMC and its consolidated Subsidiaries for such month
                  (including a listing by item and amount of the five largest
                  components of SG&A expenses reflected therein), setting forth
                  in each case in comparative form the figures in the
                  projections set forth in the Budget, together with a variance
                  report containing explanations for all material variances from
                  such projections, certified by a Responsible Officer of SMC as
                  fairly presenting the financial condition and results of
                  operations of SMC and its consolidated Subsidiaries (subject
                  to normal year-end audit adjustments and the absence of
                  certain notes).

            All such financial statements shall be prepared in accordance with
            generally accepted accounting principles (subject, in the case of
            interim financial statements, to normal year-end audit adjustments
            and the absence of certain notes) applied consistently throughout
            the periods reflected therein and with prior periods (except as
            approved by such accountants or officer, as the case may be, and
            disclosed therein). Notwithstanding the foregoing, so long as SMC is
            required to file periodic and other reports with the SEC under the
            Securities Exchange Act of 1934, as amended, (x) it may satisfy the
            requirements of subsection 8.1(b) by delivering to the Lenders
            within two Business Days after the filing thereof with the SEC but
            in any event no later than 45 days after the end of each of the
            first three quarterly periods of each fiscal year of SMC, SMC's
            Quarterly Report on Form 10-Q for such quarter and (y) it may
            satisfy the requirement of subsection 8.1(a) by delivering to the
            Lenders within two Business Days after the filing thereof with the
            SEC but in any event no later than 90 days after the end of each
            fiscal year of SMC, SMC's Annual Report on Form 10-K for such fiscal
            year, and SMC's annual report to shareholders, when available.

            8.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Agent, with a
copy for each Lender:

            (a)   concurrently with the delivery of the financial statements
                  referred to in subsection 8.1(a), a written statement of the
                  independent certified public accountants reporting on such
                  financial statements (unless such accountants are prohibited
                  by law or the Financial Accounting Standards Board (or any
                  successor) from providing such statement) to the effect that
                  in the course of the audit upon which their certification of
                  such financial statements was based (but without any special
                  or additional audit procedures for the purpose) they obtained
                  knowledge of no condition or event relating to the financial
                  covenants set forth in subsection 9.1 which constitutes a
                  Default or an Event of Default or, if such accountants shall
                  have obtained in the course of such audit knowledge of any
                  Default or Event of Default, disclosing in such written
                  statement the nature and period of existence thereof, it being
                  understood that such accountants shall be under no liability,
                  directly or indirectly, to the Lenders for failure to obtain
                  knowledge of any such condition or event;

            (b)   concurrently with the delivery of the financial statements
                  referred to in subsections 8.1(a) and 8.1(b), a certificate of
                  a Responsible Officer of SMC certifying that, to the best of
                  such officer's knowledge, each of the Borrowers and their
                  Subsidiaries during such period has observed or performed all
                  of its covenants and other agreements, and

                                       51
<PAGE>
                  satisfied every condition contained in this Agreement and the
                  other Loan Documents to which it is a party to be observed,
                  performed or satisfied by it, and that such officer has no
                  knowledge of any Default or Event of Default except as
                  specified in such certificate;

            (c)   concurrently with the delivery of the financial statements
                  referred to in subsections 8.1(a), 8.1(b) and 8.1(c), a
                  certificate of a Responsible Officer of SMC, substantially in
                  the form of Exhibit M hereto (the "Compliance Certificate"),
                  showing in detail satisfactory to the Agent (including, where
                  applicable, differences in the application of generally
                  accepted accounting principles used in such financial
                  statements and the application of GAAP) compliance by the
                  Borrowers with the covenants contained in subsections 9.1,
                  9.2, 9.6, 9.7, 9.8 and 9.9 hereof and a computation of the
                  amount of the Borrowers' and Subsidiaries' Capital
                  Expenditures made during such period and during the portion of
                  the fiscal year through the end of the period covered by such
                  Compliance Certificate;

            (d)   not later than 90 days after the end of each fiscal year of
                  SMC, subject to the provisions of subsection 12.16, a copy of
                  the projections by SMC of the budget of the Borrowers and
                  their Subsidiaries for the current fiscal year, which shall
                  included projected quarterly income statements, cash flow
                  statements and balance sheets, such projections to be
                  accompanied by a certificate of a Responsible Officer of SMC
                  to the effect that such projections have been prepared in good
                  faith and based upon reasonable assumptions and that such
                  officer has no reason to believe they are incorrect or
                  misleading in any material respect;

            (e)   within two Business Days after the same are sent, copies of
                  all financial statements and other financial information,
                  proxy materials and other information and reports (including
                  reports on Form 8K) which SMC or any other Borrower files with
                  the SEC or any securities exchange on which SMC's or any
                  Borrower's common stock is traded or delivers to its
                  stockholders or to holders of its Indebtedness (or any
                  trustee, agent or other representative therefor);

            (f)   immediately upon receipt of the same, copies of all pleadings,
                  proceedings, or other documents in connection with the
                  Bankruptcy Cases or any other proceedings in any other court
                  exercising jurisdiction over the Debtors;

            (g)   promptly after the receipt thereof by any Borrower or
                  Subsidiary, subject to the provisions of subsection 12.16, a
                  copy of any "management letter" received by any such Person
                  from its certified public accountants and the management's
                  responses thereto;

            (h)   promptly upon, and in any event within ten Business Days
                  after, an officer of any Borrower or Subsidiary obtains
                  knowledge thereof, notice of one or more of the following
                  environmental matters, unless such officer reasonably
                  concludes that such environmental matters would not,
                  individually or when aggregated with all other such
                  environmental matters, have a Material Adverse Effect:

            (i)   any pending or threatened Environmental Claim against any
                  Borrower or Subsidiary or any real property owned or operated,
                  or formerly owned or operated, by any Borrower or Subsidiary;

            (ii)  any condition or occurrence on or arising from any real
                  property currently or formerly owned or operated by any
                  Borrower or Subsidiary that (a) results in noncompliance by
                  any Borrower or Subsidiary with any applicable Environmental
                  Law or (b) could

                                       52
<PAGE>
                  reasonably be expected to form the basis of an Environmental
                  Claim against any Borrower or Subsidiary or any such real
                  property;

            (iii) any condition or occurrence on any real property currently or
                  formerly owned or operated by any Borrower or Subsidiary that
                  could reasonably be expected to cause such real property to be
                  subject to any restrictions on the ownership, occupancy, use
                  or transferability by any Borrower or Subsidiary of such real
                  property under any Environmental Laws; and

            (iv)  the taking of any removal or remedial action in response to
                  the actual or alleged presence of any Material of
                  Environmental Concern on any real property currently or
                  formerly owned or operated by any Borrower or Subsidiary as
                  required by any Environmental Law or any Governmental
                  Authority except the removal of any Material of Environmental
                  Concern in the ordinary course of business; provided that in
                  any event the Borrower Representative shall deliver to each
                  Lender all material notices received by it or any of its
                  Subsidiaries from any Governmental Authority under, or
                  pursuant to, CERCLA;

            All such notices shall describe in reasonable detail the nature of
            the claim, investigation, condition, occurrence or removal or
            remedial action and the applicable Borrower's or Subsidiary's
            response thereto. In addition, the Borrower Representative will
            provide the Lenders with copies of all material communications with
            any Governmental Authority relating to Environmental Laws, all
            communications with any Person (other than its attorneys) relating
            to any Environmental Claim of which notice is required to be given
            pursuant to this subsection 8.2(h), and such detailed reports (not
            subject to attorney-client or attorney work product privileges) of
            any such Environmental Claim as may reasonably be requested by any
            Lender;

            (i)   the following monthly reports and certificates, in form and
                  detail reasonably satisfactory to the Agent:

            (i)   as soon as practical, but in no event later than 30 days after
                  the end of each calendar month, a report detailing Capital
                  Expenditures made by the Borrowers and their Subsidiaries
                  during the period from April 1, 2002 through the end of such
                  calendar month;

            (ii)  as soon as practical, but in no event later than 30 days after
                  the end of each calendar month, a liquid assets report,
                  including (A) an aging report as to the accounts receivable of
                  the Borrowers and their Subsidiaries, including supporting
                  detail as to the ten largest account debtors, (B) an inventory
                  report setting forth by location and book value the raw
                  materials, work-in-process and finished goods inventories of
                  the Borrowers and their Subsidiaries, and (C) an aging report
                  as to the accounts payable of the Borrowers and their
                  Subsidiaries;

            (iii) as soon as practical, but in no event later than 30 days after
                  the end of each calendar month, a customer sales order backlog
                  report for the Borrowers and their Subsidiaries;

            (iv)  as soon as practical, but in no event later than 30 days after
                  the end of each calendar month, a report detailing the amount
                  of Singapore Intercompany Receivables and Foreign Intercompany
                  Receivables as of the last day of the immediately preceding

                                       53
<PAGE>
                  month;

            (v)   as soon as practical, but in no event later than the 30th day
                  of each calendar month, a certificate of a Responsible Officer
                  of SMC demonstrating in reasonable detail compliance with each
                  of the covenants set forth in subsections 9.1(a), (b), (c),
                  (e) and (f) hereof as of the last day of the immediately prior
                  month;

            (vi)  as soon as practical, but in no event later than the 30th day
                  of each calendar month, a certificate of a Responsible Officer
                  of SMC demonstrating in reasonable detail compliance with the
                  covenant set forth in subsection 9.1(c) hereof as of the 15th
                  day of such month; and

            (vii) as soon as practical, but in no event later than the 30th day
                  of each January, April, July, and October, a certificate of a
                  Responsible Officer of SMC demonstrating in reasonable detail
                  compliance with the covenant set forth in subsection 9.1(d)
                  hereof as of the last day of the immediately prior calendar
                  quarter;

            (j)   the following weekly reports and certificates, in form and
                  detail reasonably satisfactory to the Agent:

            (i)   as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a 14-week rolling
                  forecast of Consolidated Net Cash Flow for SMC and its
                  Domestic Subsidiaries in the form set forth in the Budget (but
                  showing (A) actual results for the week immediately prior to
                  the week during which such forecast is delivered and (B)
                  current projections for the 13 weeks subsequent to such prior
                  week), together with a variance report containing explanations
                  for all material variances from projections and prior
                  forecasts; provided that the foregoing shall be provided to
                  the Agent or its designee in draft form no later than 6:00
                  p.m. New York City time on Thursday of each week;

            (ii)  as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a comparison of (A)
                  actual results and performance of the Borrowers for the week
                  immediately prior to the week during which such comparison is
                  delivered to (B) the projections set forth in the Budget for
                  the Borrowers for such prior week, together with a variance
                  report containing explanations for all material variances from
                  such projections; provided that the foregoing shall be
                  provided to the Agent or its designee in draft form no later
                  than 6:00 p.m. New York City time on Thursday of each week;

            (iii) as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a comparison of (A)
                  actual results and performance of the Borrowers from the
                  Petition Date through the end of the week immediately prior to
                  the week during which such comparison is delivered to (B) the
                  projections set forth in the Budget for the Borrowers for such
                  period, together with a variance report containing
                  explanations for all material variations from such
                  projections; provided that the foregoing shall be provided to
                  the Agent or its designee in draft form no later than 6:00
                  p.m. New York City time on Thursday of each week;

            (iv)  as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a report on the
                  status of trade credit for the Borrowers;

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<PAGE>
            (v)   as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a sales flash
                  report outlining sales results by location for the Borrowers;
                  and

            (vi)  as soon as practical, but in no event later than 12:00 p.m.
                  New York City time on Friday of each week, a flash report
                  outlining significant issues (including material Asset Sales)
                  for the Borrowers from the prior week to the extent not set
                  forth in another report required to be delivered by the
                  Borrowers pursuant to this subsection 8.2; provided that if
                  there are no such issues to report, the Borrowers shall
                  deliver to the Agent a certificate of a Responsible Officer of
                  SMC so stating as of the date and time set forth above;

            (k)   not later than the fifth Business Day after the end of any
                  calendar month in which a change occurred with respect to the
                  bank accounts maintained by the Borrowers, an updated copy of
                  Schedule 6.22, current as of the last day of the immediately
                  preceding month;

            (l)   as soon as practical, and in any event within a reasonable
                  time after request therefore by Agent, copies of each of the
                  reports prepared for the Borrowers by Hilco or such other
                  appraiser as shall be acceptable to Agent, with respect to the
                  valuation of the Borrowers' and the Subsidiaries' property,
                  plant and equipment and inventory;

            (m)   and promptly, such additional financial and other information
                  which is in the Borrowers' or the Subsidiaries' possession as
                  any Lender may from time to time reasonably request through
                  the Agent.

            Notwithstanding anything to the contrary herein, each of the
            financial statements and reports required to be delivered pursuant
            to this subsection 8.2 shall be complete and correct in all material
            respects and shall be prepared in reasonable detail and in
            accordance with generally accepted accounting principles.

            8.3   PAYMENT OF TAXES AND OTHER OBLIGATIONS. Pay, discharge or
                  otherwise satisfy at or before maturity or before they become
                  delinquent, as the case may be, all of their taxes and other
                  obligations of whatever nature, except where the amount or
                  validity thereof is currently being contested in good faith by
                  appropriate proceedings and reserves in conformity with
                  generally accepted accounting principles with respect thereto
                  have been provided on the books of the applicable Borrowers or
                  Subsidiaries.

            8.4   CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
                  engage in business of the same general type as conducted by
                  the Borrowers and their Subsidiaries on the date hereof, and
                  preserve, renew and keep in full force and effect their
                  corporate existence and take all reasonable action to maintain
                  all rights, privileges and franchises necessary or desirable
                  in the normal conduct of their business except as otherwise
                  permitted pursuant to subsection 9.5; comply with all
                  Requirements of Law and any indenture, agreement or other
                  instrument to which the Borrowers or any of their Subsidiaries
                  is a party or by which they are (or any of their property is)
                  bound except where such noncompliance could not have a
                  Material Adverse Effect.

                                       55
<PAGE>
            8.5   MAINTENANCE OF PROPERTY; INSURANCE. Keep all property and
                  assets including, without limitation, all Collateral useful
                  and necessary in their business in good working order and
                  condition, normal wear and tear excepted; maintain with
                  financially sound and reputable insurance companies insurance
                  with respect to their property and assets (including all
                  Collateral) in at least such amounts and against at least such
                  risks (but including in any event public liability, product
                  liability and business interruption) as are usually insured
                  against in the same general area by companies engaged in the
                  same or a similar business; deliver to the Agent and the
                  Lenders a report of a reputable insurance broker with respect
                  to such insurance no later than 30 days after the Closing
                  Date, and furnish to each Lender such supplemental reports
                  with respect thereto as such Lender may from time to time
                  reasonably request, all of which shall be in form and
                  substance satisfactory to the Agent or the applicable Lender.
                  All such insurance shall provide that no cancellations,
                  material reduction in amount or material change in coverage
                  thereof shall be effective until at least 30 days after
                  receipt by the Agent of written notice thereof, and shall name
                  the Agent as an additional insured and loss payee on all
                  casualty insurance with respect to any Collateral and as an
                  additional insured on all business interruption insurance
                  (including, with respect to the casualty insurance for any
                  real property, a standard noncontributory mortgagee clause or
                  endorsement naming the Agent (and/or such other party as may
                  be designated by the Agent) as the party to which all payments
                  made by such insurance company shall be paid) and the Agent
                  and the Lenders as additional insureds on all commercial
                  general liability insurance.

            8.6   INSPECTION OF PROPERTY, BOOKS AND RECORDS; DISCUSSIONS. Keep
                  proper books of records and account in conformity with
                  generally accepted accounting principles and applicable
                  regulatory standards; and permit representatives of any Lender
                  to visit and inspect any of their properties and examine and
                  make copies of or abstracts from any of their books and
                  records at any reasonable time upon reasonable prior notice
                  and as often as may be reasonably required and to discuss the
                  business, operations, properties and financial and other
                  condition of the Borrowers and their Subsidiaries with
                  officers of the Borrowers and their Subsidiaries and with
                  their independent certified public accountants.

            8.7   NOTICES. Promptly give written notice to the Agent and each
                  Lender of:

            (a)   the occurrence of any Default or Event of Default;

            (b)   any (i) default or event of default under any indenture,
                  agreement or other instrument to which any Borrower or any
                  Subsidiary is a party or by which it or any of its property is
                  bound which is material to any Borrower or to any Material
                  Subsidiary or to the Borrowers and their Subsidiaries taken as
                  a whole, or (ii) litigation, investigation or proceeding which
                  may exist at any time between the any Borrower or any of the
                  Subsidiaries and any Governmental Authority, which in either
                  case of clauses (i) or (ii) of this paragraph (b), if not
                  cured or if adversely determined, as the case may be, could
                  reasonably be expected to have a Material Adverse Effect;

            (c)   any litigation or other proceeding affecting any Borrower or
                  any Subsidiary in which the amount involved is $500,000 or
                  more and not covered by insurance or in which

                                       56
<PAGE>
                  injunctive or similar relief is sought or which could
                  reasonably be expected to have a Material Adverse Effect;

            (d)   the following events, as soon as possible and in any event
                  within 30 days after an officer of any Borrower knows thereof:
                  (i) the occurrence or expected occurrence of any Reportable
                  Event with respect to any Plan, a failure to make any required
                  contribution to a Plan, the creation of any lien (within the
                  meaning of Section 4068 of ERISA) in favor of the PBGC or a
                  Plan or any withdrawal from, or the termination,
                  Reorganization or Insolvency of, any Multiemployer Plan, (ii)
                  the institution of proceedings or the taking of any other
                  action by the PBGC or any Borrower or any Commonly Controlled
                  Entity or any Multiemployer Plan with respect to the
                  withdrawal from, or the terminating, Reorganization or
                  Insolvency of, any Plan or (iii) analogous events (if any)
                  under any foreign Requirement of Law, in each case which could
                  result in a liability of the Borrowers or any of their
                  Subsidiaries greater than $500,000;

            (e)   any development or event which in the reasonable judgment of
                  any Borrower has had or could reasonably be expected to have a
                  Material Adverse Effect;

            (f)   any Environmental Claim asserted by any Governmental Authority
                  or third party or any discovery by any Borrower or Subsidiary
                  of any occurrence or condition with respect to any Material of
                  Environmental Concern that is reasonably likely to involve
                  remediation costs or liability greater than $250,000;

            (g)   any Casualty Loss with respect to any material portion of the
                  Collateral;

            (h)   the filing of each motion, application or similar filing
                  relating to one or more of the Bankruptcy Cases and promptly
                  upon the entry of each order, decree or judgment relating to
                  one or more of the Bankruptcy Cases, the Borrowers shall
                  provide the Agent and its counsel with a copy of each such
                  motion, application, filing, order, decree or judgment; and

            (i)   the occurrence of any transaction described in subsection
                  9.6(e) or 9.6(f).

            Each notice pursuant to the foregoing paragraphs of this subsection
            shall be accompanied by a statement of a Responsible Officer of SMC
            setting forth details of the occurrence referred to therein and
            stating what action the relevant Borrower or Subsidiary proposes to
            take with respect thereto.

            8.8   ENVIRONMENTAL LAW.

            (a)   Comply in all material respects with, and use reasonable
                  efforts to ensure compliance in all material respects by all
                  tenants and subtenants, if any, with, all applicable
                  Environmental Laws and obtain and comply in all material
                  respects with and maintain, and ensure that all tenants and
                  subtenants, if any, obtain and comply in all material respects
                  with and maintain, any and all material licenses, approvals,
                  notifications, registrations or permits required by applicable
                  Environmental Laws.

            (b)   Conduct and complete all investigations, studies, sampling and
                  testing, and all remedial, removal and other actions required
                  under Environmental Laws (the "Remedial Work") and diligently
                  comply in all material respects with all lawful orders and
                  directives of all Governmental Authorities regarding
                  Environmental Laws except to the extent that the

                                       57
<PAGE>
                  same are being contested in good faith and with due diligence
                  by appropriate proceedings and the pendency of such
                  proceedings could not reasonably be expected to have a
                  Material Adverse Effect and reserves in conformity with
                  generally accepted accounting principles with respect thereto
                  have been provided on the books of the relevant Borrower or
                  Subsidiary, as the case may be.

            (c)   If such Borrower or Subsidiary does not within a reasonable
                  period of time (and in any event within such period as
                  required by any Requirement of Law) commence and diligently
                  prosecute to completion the Remedial Work, and is not
                  contesting the need to perform Remedial Work as provided in
                  subsection 8.8(b) above, the Agent may with the consent of the
                  Required Lenders (but shall not be obligated to), upon 30
                  days' prior written notice to the Borrower of its intention to
                  do so, cause such Remedial Work to be performed. The Borrower
                  shall pay or reimburse the Agent on demand for all expenses
                  (including attorneys' fees and disbursements), reasonably
                  relating to or incurred by the Agent in connection with
                  monitoring, reviewing or performing any Remedial Work.

            8.9   MAINTENANCE OF LIENS.

            (a)   Each Borrower shall, and shall cause its Loan Party to, at its
                  expense, perform all steps requested by the Agent at any time
                  to perfect, maintain, protect, and enforce the Lenders' and
                  Agent's Liens, including, without limitation: (i) executing,
                  delivering and/or filing and recording of mortgage(s),
                  copyright security agreements and patent and trademark
                  agreements and executing and filing financing or continuation
                  statements, and amendments thereof, all in form and substance
                  reasonably satisfactory to the Agent; (ii) delivering to the
                  Agent the originals of all instruments, documents, and chattel
                  paper, and all other Collateral of which the Agent determines
                  it should have physical possession in order to perfect and
                  protect the Agent's security interest therein, duly pledged,
                  endorsed or assigned to the Agent without restriction; (iii)
                  delivering to the Agent warehouse receipts covering any
                  portion of the Collateral located in warehouses and for which
                  warehouse receipts are issued and certificates of title
                  covering any portion of the Collateral for which certificates
                  of title have been issued; (iv) when an Event of Default has
                  occurred and is continuing, transferring inventory to
                  warehouses or other locations designated by the Agent; (v)
                  placing notations on such Borrower's books of account to
                  disclose the Agent's security interest; (vi) obtaining control
                  agreements from securities intermediaries with respect to
                  financial assets in the possession of securities
                  intermediaries; (vii) assigning and delivering to the Agent
                  all supporting obligations, including letters of credit on
                  which any Borrower is named beneficiary with the written
                  consent of the issuer thereof; and (viii) taking such other
                  steps as are deemed necessary or desirable by the Agent to
                  maintain and protect such Liens. To the extent permitted by
                  applicable law, the Agent may file, without any Borrower's
                  signature, one or more financing statements or any Order
                  disclosing the Liens. The Borrowers agree that a carbon,
                  photographic, photostatic, or other reproduction of this
                  Agreement or of a financing statement is sufficient as a
                  financing statement. Terms used in this subsection 8.9 that
                  are defined in the UCC shall have the meaning ascribed thereto
                  in the UCC.

            (b)   Upon request by the Agent, each Borrower shall, and shall
                  cause each Loan Party to, (i) deliver to the Agent the
                  certificates representing the shares of Capital Stock pledged

                                       58
<PAGE>
                  pursuant to this Agreement and each of the Security Documents,
                  together with an undated stock power for each such certificate
                  executed in blank by a duly authorized officer of the pledgor
                  thereof (or, in the case of the Foreign Subsidiaries, the
                  applicable action required to perfect the Agent's pledge),
                  (ii) deliver to the Agent all instruments required to be
                  pledged pursuant to this Agreement and the Security Documents,
                  together with an undated endorsement for each such instrument
                  executed in blank by a duly authorized officer of the pledgor
                  thereof, (iii) deliver to the Agent in respect of each parcel
                  of real property owned by a Borrower or Domestic Subsidiary a
                  title policy in form and substance satisfactory to the Agent
                  and/or a certified ALTA/ACSM survey prepared by a registered
                  independent surveyor and in form and substance satisfactory to
                  the Agent and the company issuing the title insurance policy
                  for such parcel, (iv) deliver to the Agent a policy of flood
                  insurance which covers any parcel of improved real property
                  owned by a Borrower or Domestic Subsidiary and located in a
                  flood plain having a term ending not earlier than the Revolver
                  Termination Date together with a confirmation that the
                  Borrowers have received the notice required pursuant to
                  Section 208(e)(3) of Regulation H of the Board of Governors,
                  (v) deliver to the Agent, with a copy for each Lender copies
                  of the results of all Phase I environmental audits of such of
                  the properties and operations of the Borrowers and its
                  Subsidiaries as the Agent shall specify (for purposes of this
                  clause, the "Reports"), from an environmental consulting firm
                  satisfactory to the Agent, such Reports to be in form and
                  substance reasonably satisfactory to the Agent.

            (c)   The Borrower Representative shall promptly give the Agent
                  written notice of any change (i) in any Loan Party's corporate
                  name or in any trade name used to identify it in the conduct
                  of its business or in the ownership of its properties, (ii) in
                  the location of any Loan Party's chief executive office, its
                  principal place of business, any office in which it maintains
                  books or records relating to Collateral or any office or
                  facility at which Collateral is located (including the
                  establishment of any such new office or facility), (iii) in
                  any Loan Party's identity or corporate structure, (iv)
                  resulting in any tangible Collateral being located in any
                  jurisdiction in which a financing statement must be, but has
                  not been, filed in order to perfect the Lenders' and Agent's
                  Liens (disregarding the effect of any Order for purposes of
                  this clause (iv)), (v) in respect of any newly acquired
                  Intellectual Property or applications therefor in the United
                  States owned by or licensed to any Loan Party, or (vi) in any
                  Loan Party's federal taxpayer identification number. The
                  Borrowers will not effect or permit any change, and will cause
                  their Subsidiaries not to effect or permit any change,
                  referred to in the preceding sentence unless all filings have
                  been made under the UCC or otherwise that are required in
                  order for the Agent to continue at all times following such
                  change to have a valid, legal and perfected security interest
                  in all the Collateral.

            (d)   For the avoidance of doubt, no failure by the Agent or Lenders
                  to request and/or file any agreement or document or to take
                  any other action that it is or they are, as applicable,
                  entitled to request and/or file or take under this subsection
                  8.9 or otherwise under this Agreement shall be deemed to
                  impair in any way the validity and priority of the Liens
                  granted hereunder and/or under the Interim Order and the Final
                  Order.

            8.10  PLEDGE OF AFTER-ACQUIRED PROPERTY. If at any time following
                  the Closing Date the Borrowers or any of their Domestic
                  Subsidiaries shall acquire at any time property of any nature
                  whatsoever which is required by the terms hereof or of the
                  applicable Security Document, or the Interim Order or the
                  Final Order, to be and

                                       59
<PAGE>
                  is not otherwise subject to the Lien created hereby or by each
                  Security Document, as soon as possible and in no event later
                  than 30 days after the relevant acquisition date grant to the
                  Agent for the ratable benefit of the Lenders a first priority
                  Lien on such property as collateral security for the
                  Obligations pursuant to documentation reasonably satisfactory
                  in form and substance to the Agent. The Borrowers, at their
                  own expense, shall execute, acknowledge and deliver, or cause
                  the execution, acknowledgment and delivery of, and thereafter
                  register, file or record in an appropriate governmental
                  office, any document or instrument (including legal opinions,
                  title insurance, consents and corporate documents) and take
                  all such actions requested by the Agent to ensure the
                  creation, priority and perfection of such Lien, as described
                  in subsection 8.9.

            8.11  FOREIGN SUBSIDIARIES SECURITY. If, following a change in the
                  relevant sections of the Code or the regulations, rules,
                  rulings, notices or other official pronouncements issued or
                  promulgated thereunder, counsel for the Borrowers reasonably
                  acceptable to the Agent and the Required Lenders does not
                  within 30 days after a request from the Agent or the Required
                  Lenders deliver evidence, in form and substance reasonably
                  satisfactory to the Agent and the Required Lenders, with
                  respect to any Foreign Subsidiary which has not already had
                  all of its stock pledged pursuant to the applicable pledge
                  Agreement that Section 956 of the Code does not apply to the
                  pledge of more than 66 2/3% of the Capital Stock and no other
                  materially adverse consequences would result, under applicable
                  tax laws from a pledge of such Capital Stock, then that
                  portion of such Foreign Subsidiary's outstanding Capital Stock
                  not theretofore pledged pursuant to such pledge agreement
                  shall be pledged to the Agent for the benefit of the Lenders
                  pursuant to a pledge agreement in form and substance
                  reasonably satisfactory to the Agent and the Required Lenders,
                  to the extent that the entering into such pledge agreement is
                  permitted by the laws of the respective foreign jurisdiction,
                  and with all other related documents to be delivered pursuant
                  to this subsection 8.11 to be in form and substance reasonably
                  satisfactory to the Agent and the Required Lenders.

            8.12  COLLATERAL ACCOUNT. In the event that any Borrower or any
                  Subsidiary (a) receives any insurance proceeds on account of
                  Casualty Losses in excess of $500,000 in the aggregate in any
                  fiscal year (provided that such first $500,000 shall be used
                  solely to repair or replace, or to commence the repair or
                  replacement of, the asset subject to such Casualty Loss within
                  six months of the date received or be deposited in the
                  Collateral Account (as defined below) and provided further
                  that such first $500,000 shall be paid to the Agent if an
                  Event of Default shall have occurred and be continuing), or
                  (b) is required to deposit cash in a cash collateral account
                  on account of the Letters of Credit as contemplated herein,
                  all such proceeds and payments shall promptly be deposited the
                  Collateral Account. The amounts deposited into the Collateral
                  Account pursuant to clause (a) shall be released to the
                  Borrowers upon receipt by the Agent of a certificate from the
                  Borrower Representative that such amounts under clause (a)
                  shall be used immediately upon receipt to repair or replace
                  property subject to a Casualty Loss or to reimburse the
                  Borrower for losses, costs and expenses sustained or incurred

                                       60
<PAGE>
                  by the Borrower or one of its Subsidiaries. Any Qualifying
                  Insurance Proceeds in the Collateral Account shall be applied
                  in accordance with subsection 5.1(b).

            8.13  BANK ACCOUNTS. All cash and Cash Equivalents of the Borrowers
                  (including Cash Collateral as defined in the Cash Collateral
                  Order) and proceeds of Revolving Credit Loans (together with
                  any other amounts required by this Agreement or any Order to
                  be deposited in the Collateral Account) shall be deposited and
                  maintained in only such accounts as are permitted by the Cash
                  Collateral Order and the Bank Account Order (such accounts,
                  collectively, the "Collateral Account"), and applied in
                  accordance with the Interim Order, the Final Order, and the
                  Cash Collateral Order. The Borrowers and their Subsidiaries
                  shall, at their expense, at the request of the Agent enter
                  into controlled account agreements pursuant to which all
                  remittances and payments received by any Borrower or its
                  Subsidiaries shall be deposited into concentration accounts
                  under the sole dominion and control of the Agent for the
                  benefit of the Lenders.

            8.14  LANDLORDS' AGREEMENTS; MORTGAGEE AGREEMENTS; BAILEE LETTERS
                  AND REAL ESTATE PURCHASES.

            (a)   If requested by the Agent, each Loan Party shall use
                  commercially reasonable efforts to obtain a landlord's
                  agreement, mortgagee agreement or bailee letter, as
                  applicable, from the lessor of each leased property, the
                  mortgagee of owned property or the bailee with respect to any
                  warehouse or processing or conversion facility or other
                  location where Collateral is stored or located, which
                  agreement or letter shall contain a waiver or subordination of
                  all Liens or claims that such landlord, mortgagee or bailee
                  may assert against the Collateral at that location, and shall
                  otherwise be reasonably satisfactory in form and substance to
                  the Agent.

            (b)   After the Closing Date, no real property or warehouse space
                  (other than temporary parking space for trailers and
                  immaterial office space) shall be leased by any Loan Party and
                  no inventory shall be shipped to a processor or converter
                  under arrangements established after the Closing Date without
                  the prior written consent of Agent or, if requested by Agent,
                  until a satisfactory landlord agreement or bailee letter, as
                  appropriate, shall first have been obtained with respect to
                  such location. The Agent, in its discretion, shall determine
                  whether to waive the above requirements that a landlord's
                  agreement be obtained with respect to any Loan Party's leased
                  real properties.

            (c)   Each Loan Party shall timely and fully pay and perform its
                  obligations under all leases and other agreements with respect
                  to each leased location or public warehouse where any
                  Collateral is or may be located.

            (d)   To the extent otherwise permitted hereunder, if any Loan Party
                  proposes to acquire a fee ownership interest in real property
                  after the Closing Date, it shall contemporaneously therewith
                  provide to the Agent a Mortgage granting the Agent a
                  first-priority Lien on such real property, together with an
                  environmental audit, mortgage title insurance commitment, real
                  property survey, local counsel opinion, and, if required by
                  the Agent, supplemental casualty insurance and flood
                  insurance, and such other documents, instruments or agreements
                  reasonably requested by the Agent, in each case, in form and
                  substance reasonably satisfactory to the Agent. The Agent, in
                  its discretion, shall

                                       61
<PAGE>
                  determine whether to waive any or all of the requirements set
                  forth in the immediately preceding sentence with respect to
                  any fee ownership interest in real estate acquired by any Loan
                  Party after the Closing Date.

            8.15  BUSINESS PLAN. By August 1, 2002, the Borrowers shall provide
                  to the Agent a strategic overview and three-year business plan
                  (the "Business Plan") that describes in reasonable detail the
                  strategic, operational and financial status, goals and
                  projections for the Loan Parties and their businesses and
                  operations, taken as a whole (including, by way of example and
                  without limitation, information on capacity rationalization,
                  asset divestitures, planned Capital Expenditures, research
                  requirements, and personnel issues). In addition, the
                  Borrowers will provide the Agent with a certificate from a
                  "Big Five" accounting firm to the effect that the assumptions
                  in the Business Plan are reasonable and fair in light to the
                  conditions then known and that the methodologies used in the
                  Business Plan are correct. The Borrower will, and will cause
                  such accounting firm to, present the Business Plan to the
                  Agent and Lenders at a mutually agreed time and location.

            8.16  BANKRUPTCY PROCEEDINGS.

            (a)   The Borrowers shall use their best efforts to obtain the
                  approval of the Bankruptcy Court of this Agreement and the
                  other Loan Documents and shall deliver or cause to be
                  delivered to the Agent and the Agent's counsel all pleadings,
                  motions and other documents filed on behalf of all of the Loan
                  Parties with the Bankruptcy Court.

            (b)   The Borrowers shall provide to the Agent a detailed term sheet
                  outlining their proposal for a plan of reorganization no later
                  than August 1, 2002. The Borrowers shall provide to the Agent
                  a proposed disclosure statement in the Bankruptcy Cases and a
                  plan of reorganization no later than September 15, 2002. The
                  Borrowers shall file the final disclosure statement and plan
                  of reorganization with the Bankruptcy Court no later than
                  November 1, 2002.

            (c)   The Borrowers shall use their best efforts to ensure that the
                  following occurs: (i) an order approving the adequacy of such
                  disclosure statement and otherwise finding such disclosure
                  statement in compliance with 11 U.S.C. ss. 1125 shall be
                  entered in the Bankruptcy Cases on or before January 1, 2003,
                  (ii) an order of the Bankruptcy Court shall be entered on or
                  before April 1, 2003 confirming the plan of reorganization and
                  (iii) the plan of reorganization shall become effective on or
                  before April 30, 2003.

            (d)   The Borrowers shall retain and continue to employ a
                  restructuring manager or crisis manager acceptable to the
                  Lenders.

            SECTION 9. NEGATIVE COVENANTS

            Each Borrower hereby agrees that, from and after the Closing Date,
            so long as the Revolving Credit Commitments remain in effect, any
            Letter of Credit remains outstanding, any Revolving Credit Loan
            remains outstanding and unpaid or any other amount is owing to any
            Lender, the Issuing Bank or the Agent hereunder, unless the Required
            Lenders, and the Issuing Bank if any Letter of Credit is
            outstanding, shall have

                                       62
<PAGE>
            otherwise consented in writing such Borrower shall not, and shall
            not permit any of its Subsidiaries to, directly or indirectly:

            9.1   FINANCIAL CONDITION COVENANTS.

            (a)   Revenue Maintenance. (i) Permit Consolidated Revenue of SMC
                  for each period beginning on April 1, 2002 and ending on each
                  of the dates specified below to be less than the amount set
                  forth opposite such date below:

<TABLE>
<CAPTION>
                          PERIOD ENDING           CONSOLIDATED REVENUE
                          -------------           --------------------
<S>                                               <C>
                         April 30, 2002                 48,057,000
                           May 31, 2002                 97,218,000
                          June 30, 2002                143,068,000
                          July 31, 2002                189,877,000
                        August 31, 2002                232,150,000
                     September 30, 2002                282,500,000
                       October 31, 2002                334,780,000
                      November 30, 2002                385,432,000
                      December 31, 2002                435,130,000
                       January 31, 2003                485,332,000
                      February 28, 2003                535,534,000
                         March 31, 2003                585,735,000
</TABLE>

                  (ii) As of the last day of each month ending after March 31,
                  2003, permit Consolidated Revenue for the last twelve months
                  then ended to be less than $585,735,000.

            (b)   EBITDA Maintenance. (i) Permit Consolidated EBITDA of SMC for
                  each period beginning on April 1, 2002 and ending on each of
                  the dates specified below to be less than the amount set forth
                  opposite such date below:

<TABLE>
<CAPTION>
                          PERIOD ENDING            CONSOLIDATED EBITDA
                          -------------            -------------------
<S>                                                <C>
                         April 30, 2002                  (652,000)
                           May 31, 2002                   356,000
                          June 30, 2002                 1,186,000
                          July 31, 2002                 2,364,000
                        August 31, 2002                 3,448,000
                     September 30, 2002                 6,383,000
                       October 31, 2002                10,243,000
                      November 30, 2002                14,038,000
                      December 31, 2002                19,044,000
                       January 31, 2003                22,900,000
                      February 28, 2003                26,756,000
                         March 31, 2003                30,612,000
</TABLE>

                  (ii) As of the last day of each month ending after March 31,
                  2003, permit Consolidated EBITDA for the last twelve months
                  then ended to be less than

                                       63
<PAGE>
                  $30,612,000.

            (c)   Asset Coverage. Permit the Consolidated Asset Coverage Ratio
                  of SMC on the last day of each calendar month to be less than
                  1.55:1.00.

            (d)   Capital Expenditures. Make (by way of the acquisition of
                  securities of a Person or otherwise) Capital Expenditures (i)
                  during any period set forth below that, in the aggregate for
                  SMC and its Domestic Subsidiaries, exceed the amount set forth
                  opposite such period below:

<TABLE>
<CAPTION>
                                            PERIOD        CAPITAL EXPENDITURES
                                            ------        --------------------
<S>                                                       <C>
                     April 1, 2002 - June 30, 2002              3,648,000
                April 1, 2002 - September 30, 2002              7,360,000
                 April 1, 2002 - December 31, 2002             11,953,000
                    April 1, 2002 - March 31, 2003             16,546,000
</TABLE>

                  or (ii) that are otherwise not consistent with the Budget or
                  not in the ordinary course of business; or

            (e)   Net Cash Flow. (i) Permit the Consolidated Net Cash Flow of
                  SMC for each period beginning on April 1, 2002 and ending on
                  each of the dates specified below to be less than the amount
                  set forth opposite such date below:

<TABLE>
<CAPTION>
                          PERIOD ENDING        CONSOLIDATED NET CASH FLOW
                          -------------        --------------------------
<S>                                            <C>
                         April 30, 2002               (16,469,000)
                           May 31, 2002               (19,924,000)
                          June 30, 2002               (22,645,000)
                          July 31, 2002               (24,457,000)
                        August 31, 2002               (23,392,000)
                     September 30, 2002               (24,917,000)
                       October 31, 2002               (25,161,000)
                      November 30, 2002               (24,703,000)
                      December 31, 2002               (25,610,000)
                       January 31, 2003               (26,576,000)
                      February 28, 2003               (26,305,000)
                         March 31, 2003               (23,636,000)
</TABLE>

            (f)   Receivables. Permit (i) the aggregate amount of Singapore
                  Intercompany Receivables incurred after the Petition Date to
                  exceed $15,500,000 at the last day of any calendar month, or
                  (ii) the aggregate amount of Foreign Intercompany Receivables
                  incurred after the Petition Date to exceed $27,500,000 at the
                  last day of any calendar month.

            9.2   LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
                  exist any Indebtedness, except:

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            (a)   the Obligations;

            (b)   Indebtedness (i) of a Borrower to any Subsidiary and (ii) of
                  any Wholly-Owned Subsidiary that is a Borrower to SMC;
                  provided that any such Indebtedness referred to in clause (i)
                  of this subsection 9.2(b) shall be expressly subordinated to
                  the Obligations on terms and conditions reasonably
                  satisfactory to the Agent; provided further that each Borrower
                  which is a borrower under clause (ii) of this subsection
                  9.2(b) shall have executed a note in favor of SMC evidencing
                  such Indebtedness and such note shall have been pledged to the
                  Agent (for the ratable benefit of the Lenders) pursuant to
                  this Agreement or an applicable Security Document.

            (c)   Indebtedness under currency and commodity Hedging Agreements
                  entered into the ordinary course of business to hedge currency
                  fluctuations and commodity prices (and not for speculation);

            (d)   Indebtedness of the UK Subsidiary to one or more lenders
                  located in the United Kingdom under the credit facilities
                  described on Schedule 6.21 entered into for working capital
                  purposes in the ordinary course of business; provided that the
                  aggregate amount of such Indebtedness may not at any time (i)
                  exceed for the UK Subsidiary 14,500,000, (ii) be secured by
                  any assets (real, personal or mixed) of the UK Subsidiary
                  other than any current assets or of any other Person, or (iii)
                  be supported by any Guarantee Obligation of any Borrower or
                  any Subsidiary;

            (e)   Indebtedness of the Italian Subsidiary to one or more lenders
                  located in the Republic of Italy under the credit facilities
                  described on Schedule 6.21 entered into for working capital
                  purposes in the ordinary course of business; provided that the
                  aggregate amount of such Indebtedness may not at any time (i)
                  exceed for the Italian Subsidiary 5,200,000 Euros, (ii) be
                  secured by any assets (real, personal or mixed) of the Italian
                  Subsidiary other than any current assets or of any other
                  Person, or (iii) be supported by any Guarantee Obligation of
                  any Borrower or any Subsidiary (other than the UK Subsidiary);

            (f)   Indebtedness of the French Subsidiaries to one or more lenders
                  located in the Republic of France under the credit facilities
                  described on Schedule 6.21 entered into for working capital
                  purposes in the ordinary course of business; provided that the
                  aggregate amount of such Indebtedness may not at any time (i)
                  exceed for the French Subsidiaries 4,320,000 Euros, (ii) be
                  secured by any assets (real, personal or mixed) of either
                  French Subsidiary other than any current assets or of any
                  other Person, or (iii) be supported by any Guarantee
                  Obligation of any Borrower or any Subsidiary; and

            (g)   Indebtedness existing as of the date hereof described on
                  Schedule 6.21, and the Deemed DIP Loans, but excluding any
                  refinancing of such Indebtedness;

            9.3   LIMITATION ON LIENS. Create, incur, assume or suffer to exist
                  any Lien upon any of its property, assets or revenues, whether
                  now owned or hereafter acquired, except for the following
                  (collectively, the "Permitted Liens"):

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            (a)   Liens imposed by law for taxes not yet due or which are being
                  contested in good faith by appropriate proceedings, provided
                  that adequate reserves with respect thereto are maintained on
                  its books or the books of its Subsidiaries, as the case may
                  be, in conformity with generally accepted accounting
                  principles;

            (b)   carriers', warehousemen's, mechanics', materialmen's,
                  repairmen's, lessors', landlords' or other like Liens arising
                  in the ordinary course of business which are not overdue for a
                  period of more than 30 days or which are being contested in
                  good faith by appropriate proceedings;

            (c)   pledges or deposits in connection with workers' compensation,
                  unemployment insurance and other social security legislation
                  and deposits securing liability to insurance carriers under
                  insurance or self-insurance arrangements;

            (d)   deposits to secure the performance of bids, trade contracts
                  (other than for borrowed money), leases, statutory
                  obligations, surety and appeal bonds, performance bonds and
                  other obligations of a like nature, in each case incurred in
                  the ordinary course of business;

            (e)   easements, rights-of-way, restrictions and other similar
                  encumbrances incurred in the ordinary course of business
                  which, in the aggregate, are not substantial in amount and
                  which do not in any case materially detract from the value of
                  the property subject thereto or materially interfere with the
                  ordinary conduct of the business of such Borrower or its
                  Subsidiaries;

            (f)   Liens created pursuant to the Loan Documents, subsection 2.5
                  and the Orders, including, without limitation, Liens securing
                  the Deemed DIP Loans;

            (g)   Liens existing on the Closing Date set forth on Schedule 9.3
                  securing Indebtedness permitted by subsection 9.2(e), and
                  covering only the assets set forth on Schedule 9.3, provided
                  (i) that each such Lien is not enforceable against any other
                  property or asset, (ii) that each such Lien secures only those
                  obligations that it secures on the Closing Date, (iii) that no
                  such Lien is amended after the Closing Date to cover any
                  additional property or to secure additional Indebtedness, and
                  (iv) that each such Lien shall at all times be junior to the
                  Liens securing the Obligations hereunder (except as provided
                  in subsection 2.5);

            (h)   Liens permitted by subsection 9.2(d)(ii), 9.2(e)(ii), and
                  9.2(f)(ii).

            9.4   LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
                  suffer to exist any Guarantee Obligation except, the
                  Obligations and those Guarantee Obligations in existence on
                  the Closing Date that are listed on Schedule 6.1(b).

            9.5   LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
                  consolidation or amalgamation, or liquidate, wind up or
                  dissolve itself or any of its Subsidiaries (or

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                  suffer any liquidation or dissolution), or convey, sell,
                  lease, assign, transfer or otherwise dispose of, all or
                  substantially all of its property, business or assets, except:

            (a)   any Wholly Owned Subsidiary of SMC may be merged or
                  consolidated with or into SMC (provided that SMC shall be the
                  continuing or surviving corporation) or with or into any
                  Wholly Owned Subsidiary of SMC that is also a Borrower
                  (provided that such Wholly Owned Subsidiary shall be the
                  continuing or surviving corporation); provided that in each
                  case, after giving effect to such merger or consolidation, (i)
                  the continuing or surviving Person's net worth shall not be
                  less than that of either of the Persons so consolidated or
                  merged immediately prior to such merger or consolidation and
                  (ii) no Default or Event of Default exists; and

            (b)   any Subsidiary may sell, lease, transfer or otherwise dispose
                  of any or all of its assets (upon voluntary liquidation or
                  otherwise) to the Borrower or any other Wholly Owned Domestic
                  Subsidiary of SMC that is a Borrower.

            9.6   LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
                  transfer or otherwise dispose of any of its property, business
                  or assets (including, without limitation, receivables and
                  leasehold interests), whether now owned or hereafter acquired,
                  or, in the case of any Subsidiary, issue or sell any shares of
                  such Subsidiary's Capital Stock to any Person other than the
                  Borrowers, except:

            (a)   the sale of inventory in the ordinary course of business;

            (b)   the sale or discount without recourse of accounts receivable
                  arising in the ordinary course of business in connection with
                  the compromise or collection thereof in the ordinary course of
                  business and on commercially reasonable terms, provided that
                  such accounts receivable sold or discounted in such manner
                  shall not exceed $10,000,000 (on a presale or prediscount
                  basis) in any fiscal quarter of the Borrower;

            (c)   as permitted by subsection 9.5;

            (d)   sales of equipment and other property, including leasehold
                  interests, in the ordinary

            (e)   the sale, transfer or other disposition of any asset in the
                  ordinary course of business which is obsolete for its intended
                  use or is otherwise no longer used or useful in the business
                  of the Borrower or any of its Subsidiaries, provided that such
                  sales, transfers or other dispositions shall not exceed
                  $250,000 individually or $1,000,000 in the aggregate for all
                  Borrowers during the term of this Agreement; and

            (f)   leases or subleases of excess space in any facility of the
                  Borrower or any of its Subsidiaries entered into in the
                  ordinary course of business for space which is not material in
                  area or nature to such facility, provided that the payments
                  under such leases or subleases shall not exceed $250,000
                  individually or $1,000,000 in the aggregate for all Borrowers
                  during the term of this Agreement.

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            9.7   RESTRICTED PAYMENTS. Declare or pay any dividend (other than
                  dividends payable by any Subsidiary to the Borrower, directly
                  or indirectly) on, or make any payment on account of, or set
                  apart assets for a sinking or other analogous fund for, the
                  purchase, redemption, defeasance, retirement or other
                  acquisition of, any shares of any class of Capital Stock or
                  any warrants or options to purchase any such Capital Stock,
                  whether now or hereafter outstanding, or make any other
                  distribution in respect thereof, either directly or
                  indirectly, whether in cash or property or in obligations of
                  the Borrower or any of its Subsidiaries (each, a "Restricted
                  Payment").

            9.8   LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any
                  advance, loan, extension of credit or capital contribution to,
                  or purchase or acquire any Capital Stock, bonds, notes,
                  debentures or other securities of or any assets constituting a
                  business unit of, or make any other investment in, any Person
                  (collectively, "Investments"), except:

            (a)   extensions of trade credit and accounts receivable generated
                  in the ordinary course of business;

            (b)   Investments in Cash Equivalents in which the Agent has a duly
                  perfected first priority Lien; and

            (c)   Subject to subsection 9.17, Investments by SMC in the
                  Borrowers and Investments by the Borrowers in SMC and in other
                  Wholly-Owned Domestic Subsidiaries which are Borrowers;
                  provided that no Investment may be made by the Borrowers and
                  their Domestic Subsidiaries in any Foreign Subsidiary.

            9.9   LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
                  INSTRUMENTS AND CAPITAL STOCK.

            (a)   Make any optional payment or prepayment or any purchase or
                  redemption of any Indebtedness for borrowed money (other than
                  the Revolving Credit Loans and the repayment of working
                  capital lines and overdraft facilities permitted under
                  subsection 9.2(d)) or (b) amend, modify or change, or consent
                  or agree to any amendment, modification or change to any of
                  the terms of any such Indebtedness for borrowed money (other
                  than any such amendment, modification or change which would
                  extend the maturity or reduce the amount of any payment of
                  principal thereof or which would reduce the rate or extend the
                  date for payment of interest thereon) or (c) amend the
                  Certificate of Incorporation (or other governing document) of
                  the Borrower or any Material Subsidiary thereof.

            9.10  LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
                  transaction, including, without limitation, any purchase,
                  sale, lease or exchange of property or the rendering of any
                  service, with any Affiliate unless such transaction is (a)
                  otherwise permitted under this Agreement, (b) in the ordinary
                  course of the Borrower's or such Subsidiary's business and (c)
                  upon fair and reasonable terms no less favorable to the
                  Borrower or such Subsidiary, as the case may be, than it would
                  obtain in a comparable arm's-length transaction with a Person
                  which is not an Affiliate, provided that the foregoing
                  restriction shall not apply to (i) the

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                  indemnification of directors of the Borrower and its
                  Subsidiaries in accordance with customary practice or (ii) the
                  granting of extended payment terms to Subsidiaries or
                  Affiliates of the Borrower in the ordinary course of business.

            9.11  LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
                  with any Person providing for the leasing by the Borrower or
                  such Subsidiary of real or personal property which has been or
                  is to be sold or transferred by the Borrower or such
                  Subsidiary to such Person or to any other Person to whom funds
                  have been or are to be advanced by such Person on the security
                  of such property or rental obligations of the Borrower or such
                  Subsidiary.

            9.12  LIMITATION ON CHANGES IN FISCAL YEAR AND ACCOUNTING POLICIES.
                  Permit the fiscal year of the Borrower to end on a day other
                  than December 31, or change its accounting policies or
                  reporting practices from those of the Borrower in effect on
                  the Closing Date, except to the extent such change is required
                  by generally accepted accounting principles.

            9.13  LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any
                  Person any agreement after the Closing Date, other than (a)
                  this Agreement, (b) operating leases with respect to any
                  leased asset, (c) purchase money mortgages or Financing Leases
                  permitted by this Agreement (in the case of clauses (b) and
                  (c), any prohibition or limitation shall only be effective
                  against the assets financed thereby), which prohibits or
                  limits the ability of the Borrower or any of its Subsidiaries
                  to create, incur, assume or suffer to exist any Lien upon any
                  of its property, assets or revenues, whether now owned or
                  hereafter acquired or of any of the Subsidiaries to declare or
                  pay dividends or to make loans or other advances to the
                  Borrower, directly or indirectly.

            9.14  LIMITATION ON LINES OF BUSINESS. Enter into any business
                  either directly or through any Subsidiary, except for those
                  businesses in which the Borrower and its Subsidiaries are
                  engaged on the date of this Agreement, the manufacture and
                  sale of engineered ceramic materials and composites and other
                  similar businesses which are directly related thereto.

            9.15  LIMITATION ON NEW BANK ACCOUNTS. Open any new bank account,
                  except bank accounts in the United States that are Excluded
                  Accounts, provided that any such new Excluded Account shall
                  not cause the aggregate average monthly balance of all
                  Excluded Accounts maintained by the Borrowers and their
                  Subsidiaries to exceed $100,000 for any month during the term
                  of this Agreement.

            9.16  LIMITATION ON ISSUANCE OF CAPITAL STOCK. Issue or grant any
                  Capital Stock, or permit any direct or indirect Subsidiary of
                  the Borrower to issue or grant any Capital Stock of such
                  Subsidiary, to any Person, other than a Borrower, and with
                  respect to Foreign Subsidiaries, other than as required by
                  applicable Requirements of Law.

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            9.17  NEW SUBSIDIARIES. Organize, create, acquire or permit to exist
                  any New Subsidiary other than those New Subsidiaries which are
                  Wholly Owned Subsidiaries and become Borrowers hereunder (and
                  have granted or caused to be granted a lien on all of their
                  assets and Capital Stock to the Agent to secure the
                  Obligations), in each case pursuant to documentation
                  acceptable to the Agent.

            9.18  ORDERS. Make or permit to be made any change, amendment or
                  modification, or any application or motion for any change,
                  amendment or modification, to either the Interim Order or the
                  Final Order or to any First Day Order without the prior
                  written consent of the Required Lenders.

            SECTION 10. EVENTS OF DEFAULT

            10.1  EVENTS OF DEFAULT. The occurrence and continuance of any of
                  the following events shall be an "Event of Default" hereunder:

            (a)   Any Borrower shall fail to pay any principal of any Revolving
                  Credit Loan when due; or any Borrower shall fail (i) to
                  reimburse any drawing on any Letter of Credit when due or (ii)
                  to provide any or all of the cash collateral required to be
                  deposited with the Issuing Bank pursuant to a Letter of Credit
                  Request strictly in accordance with the terms thereof; or any
                  Borrower shall fail to pay any interest on any Revolving
                  Credit Loan or Letter of Credit Reimbursement Obligation, or
                  any fee or other amount payable hereunder within three days
                  after any such interest, fees or other amount becomes due; or

            (b)   Any representation or warranty made or deemed made by or on
                  behalf of any Borrower or any Subsidiary herein or in any
                  other Loan Document or which is contained in any certificate,
                  document or financial or other written statement furnished by
                  it pursuant to the Loan Documents shall prove to have been
                  false or misleading in any material respect on or as of the
                  date made or deemed made; or

            (c)   any Borrower or any Subsidiary shall default in the observance
                  or performance of any agreement contained in subsections 8.1,
                  8.2(b), (c) or (i), 8.7(a) or (h), 8.9, 8.10, 8.11, 8.12,
                  8.13, 8.14 or 8.16 or Section 9, or any material agreement
                  contained in any Security Document; or

            (d)   any Borrower or any other Loan Party shall default in the
                  observance or performance of any other agreement contained in
                  this Agreement or any other Loan Document (other than as
                  provided in paragraphs (a) through (c) of this Section), and
                  such default shall continue unremedied for a period of 10 days
                  after notice thereof from the Agent or any Lender to the
                  Borrower Representative; or

            (e)   (i) Any Borrower or any Material Subsidiary (other than
                  Controlled Products Group International, Inc., a Delaware
                  corporation) shall file a certificate of dissolution under
                  applicable state law or shall be liquidated, dissolved or
                  wound-up or shall commence any action or proceeding for
                  dissolution, winding-up or liquidation, or shall take any
                  corporate action in furtherance thereof, (ii) any Material
                  Subsidiary (other than the Borrowers that are party to the
                  Bankruptcy Cases) shall become insolvent, admit in writing its
                  inability to pay its debts, or make an assignment for the
                  benefit of creditors, or (iii) insolvency, bankruptcy or

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                  receivership proceedings shall be commenced by or against any
                  Material Subsidiary (other than the Borrowers that are party
                  to the Bankruptcy Cases); or

            (f)   (i) Any "accumulated funding deficiency" (as defined in
                  Section 302 of ERISA), whether or not waived, shall exist with
                  respect to any Plan or any Lien in favor of the PBGC or a Plan
                  shall arise on the assets of a Borrower or any Commonly
                  Controlled Entity, (ii) any Person shall engage in any
                  "prohibited transaction" (as defined in Section 406 of ERISA
                  or Section 4975 of the Code) involving any Plan, (iii) a
                  Reportable Event (except for the events described in
                  subsection 6.7) shall occur with respect to, or proceedings
                  shall commence to have a trustee appointed, or a trustee shall
                  be appointed, to administer or to terminate, any Single
                  Employer Plan, (iv) any Single Employer Plan shall terminate
                  for purposes of Title IV of ERISA, (v) a Borrower or any
                  Commonly Controlled Entity shall, or in the reasonable opinion
                  of the Required Lenders is likely to, incur any liability in
                  connection with a withdrawal from, or the Insolvency or
                  Reorganization of, a Multiemployer Plan or (vi) any other
                  similar event or condition shall occur or exist with respect
                  to any foreign employee benefit plan, program or arrangement;
                  and in each case in clauses (ii) through (vi) above, such
                  event or condition, together with all other such events or
                  conditions, if any, could reasonably be expected to have a
                  Material Adverse Effect; or

            (g)   One or more judgments or decrees shall be entered against a
                  Borrower or any Subsidiary involving in the aggregate a
                  liability (to the extent not paid or covered by insurance) of
                  $500,000 or more, and all such judgments or decrees shall not
                  have been satisfied, vacated, discharged, stayed or bonded
                  pending appeal within 30 days from the entry thereof; or

            (h)   Except in connection with an Asset Sale permitted under
                  subsection 9.6, any Lien created under this Agreement shall
                  cease to be enforceable and of the same effect and priority
                  purported to be created hereunder; or

            (i)   A Change of Control shall have occurred; or

            (j)   all or any material part of the property of the Borrowers,
                  taken as a whole, shall be nationalized, expropriated or
                  condemned, seized or otherwise appropriated, or custody or
                  control of such property or of any Borrower shall be assumed
                  by any Governmental Authority or any court of competent
                  jurisdiction at the instance of any Governmental Authority,
                  except where contested in good faith by proper proceedings
                  diligently pursued where a stay of enforcement is in effect;
                  or

            (k)   Any Loan Document shall be terminated, revoked, declared void,
                  invalid or unenforceable, or challenged by any Borrower or
                  other Loan Party; or

            (l)   any loss, theft, damage or destruction of any item or items of
                  Collateral or other property of any Borrower occurs, or any
                  judicial, administrative, arbitral or similar action is
                  commenced against any Borrower, that would reasonably be
                  expected to cause a Material Adverse Effect and is not
                  adequately covered by insurance; or

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            (m)   for any reason any Loan Document ceases to be in full force
                  and effect or any Lien with respect to any material portion of
                  the Collateral intended to be secured thereby ceases to be, or
                  is not, valid, perfected and prior to all other Liens (other
                  than Permitted Liens) or is terminated (other than as
                  permitted hereby), revoked or declared void; or

            (n)   either of Leo G. Thompson or T. Grant John shall fail to hold
                  the positions of Chairman of the Board and President of SMC,
                  respectively; or

            (o)   (i) any of the Bankruptcy Cases shall be dismissed or
                  converted to a case under Chapter 7 of the Bankruptcy Code, or
                  any Borrower shall file an application for an order dismissing
                  any of the Bankruptcy Cases or converting any of the
                  Bankruptcy Cases to a case under Chapter 7 of the Bankruptcy
                  Code; or (ii) an application shall be filed by any Borrower
                  for the approval of any other superpriority administrative
                  claim or lien in any Bankruptcy Case (other than the
                  Carve-Out) which is pari passu with or senior to the claims or
                  liens of the Agent and/or any Lender against the Borrowers, or
                  there shall arise any such pari passu or senior superpriority
                  administrative claim or lien (other than the Carve-Out); or
                  (iii) an application shall be filed by any Borrower for the
                  approval of any other superpriority administrative claim or
                  lien in any Bankruptcy Case (other than the Carve-Out or
                  pursuant to clause (ii) above) which is pari passu with or
                  senior to the claims or liens with respect to Adequate
                  Protection Orders or the Deemed DIP Loans, or there shall
                  arise any such pari passu or senior superpriority
                  administrative claim or lien (other than the Carve-Out or
                  pursuant to clause (ii) above); or

            (p)   the Bankruptcy Court shall enter an order or orders that are
                  not vacated, reversed, rescinded or stayed pending appeal
                  granting relief from the automatic stay applicable under
                  Section 362 of the Bankruptcy Code to the holder or holders of
                  any security interest to permit foreclosure (or the granting
                  of a deed in lieu of foreclosure or the like) in any assets of
                  any Borrower with a value equal to or in excess of $500,000;
                  or an order shall be entered by the Bankruptcy Court granting
                  relief from the automatic stay applicable under Section 362 of
                  the Bankruptcy Code to permit the creation, perfection or
                  enforcement of any judgment, lien, levy or attachment based on
                  any judgment, whether or not such judgment arises from or
                  gives rise to a prepetition or postpetition claim with a value
                  equal to or in excess of $1,000,000; or an order shall be
                  entered by the Bankruptcy Court that is not stayed pending
                  appeal otherwise granting relief from the automatic stay to
                  any creditor of any Borrower (other than the Agent and the
                  Lenders in their capacities as such) with respect to any claim
                  with a value equal to or in excess of $1,000,000; provided,
                  however, that it shall not be an Event of Default if relief
                  from the automatic stay is lifted solely for the purpose of
                  (i) allowing such creditor to determine the liquidated amount
                  of its claim against any Borrower; or (ii) seeking payment
                  from a source other than any Borrower or any of their assets;
                  or

            (q)   any Borrower shall propose a plan of reorganization in any of
                  the Bankruptcy Cases that does not include a provision for
                  termination of the Revolving Credit Commitments and
                  indefeasible payment in full in cash of all Obligations of the
                  Borrowers hereunder and under the other Loan Documents
                  (including the cancellation and return of all Letters of
                  Credit or the delivery of cash collateral with respect to such
                  Letters of Credit in an amount equal to the aggregate undrawn
                  amount of such Letters of Credit) on or before the effective
                  date of such plan of reorganization; or

            (r)   an order by the Bankruptcy Court shall be entered, or any
                  Borrower shall file an application for an order, dismissing
                  any of the Bankruptcy Cases, which order does not

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                  require a provision for termination of the Revolving Credit
                  Commitments and indefeasible payment in full in cash of all
                  Obligations of the Borrowers hereunder and under the other
                  Loan Documents (including the cancellation and return of all
                  Letters of Credit or the delivery of cash collateral with
                  respect to such Letters of Credit) prior to any such
                  dismissal; or

            (s)   an order by the Bankruptcy Court shall be entered in or with
                  respect to any of the Bankruptcy Cases or any Borrower shall
                  file an application for an order with respect to any
                  Bankruptcy Case, (i) to revoke, reverse, stay, rescind,
                  modify, vacate, supplement or amend the Interim Order or the
                  Final Order, (ii) to permit any administrative expense or any
                  claim (now existing or hereafter arising, of any kind or
                  nature whatsoever) to have an administrative priority as to
                  any Borrower equal or superior to the priority of the claims
                  of the Agent and the Lenders in respect of the Obligations
                  (other than the Carve-Out), or (iii) to grant or permit the
                  grant of a Lien on the property of any Borrower (other than
                  Permitted Liens); or

            (t)   an application for any of the orders described in any or all
                  of subsections 10(o), (p), (q), (r), (s) or (v) shall be made
                  by a Person other than any Borrower and such application is
                  not contested by the applicable Borrower in good faith and the
                  relief requested is granted in an order that is not vacated,
                  reversed, rescinded or stayed pending appeal; or

            (u)   the Interim Order shall cease to be in full force and effect
                  and the Final Order shall not have been entered prior to such
                  cessation, or (ii) the Final Order shall not have been entered
                  by the Bankruptcy Court on or before May 13, 2002, or (iii)
                  from and after the date of entry thereof, the Final Order
                  shall cease to be in full force and effect, or (iv) any
                  Borrower shall fail to comply with the terms of the Interim
                  Order or the Final Order in any material respect, or (v) the
                  Interim Order or the Final Order shall be amended,
                  supplemented, stayed, reversed, vacated or otherwise modified
                  (or any Borrower shall apply for authority to do so); or

            (v)   the Bankruptcy Court shall enter an order appointing a trustee
                  in any of the Bankruptcy Cases or appointing a responsible
                  officer or an examiner with powers beyond the duty to
                  investigate and report, as set forth in Section 1106(a)(3) and
                  (4) of the Bankruptcy Code, in any of the Bankruptcy Cases; or

            (w)   the Borrowers shall fail, by the date that is ten Business
                  Days after the Closing Date, to have filed any necessary
                  document or taken any other necessary step to cause the
                  dissolution of Controlled Products Group International, Inc.,
                  a Delaware corporation.

            10.2  REMEDIES.

            (a)   If a Default or an Event of Default shall have occurred and be
                  continuing, the Agent may, in its discretion, and shall, at
                  the direction of the Required Lenders, without further order
                  of or application to the Bankruptcy Court as permitted by the
                  Interim Order or the Final Order, do one or more of the
                  following at any time or times and in any order, without
                  notice to or demand on any Borrower: (i) restrict the amount
                  of or refuse to make Revolving Credit Loans; (ii) restrict or
                  refuse to provide Letters of Credit, or (iii) change the rates
                  of interest applicable to Revolving Credit Loans and Letters
                  of Credit made hereunder. If an Event of Default shall have
                  occurred and be continuing, the Agent may, in its discretion,
                  and shall, at the direction of the Required Lenders, do one or
                  more of the

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                  following, in addition to the actions described in the
                  preceding sentence, at any time or times and in any order,
                  without notice to or demand on any Borrower: (A) terminate the
                  Revolving Credit Commitments and this Agreement; (B) declare
                  any or all Obligations to be immediately due and payable;
                  provided, however, that upon the occurrence of any Event of
                  Default described in subsections 10.1(o), (p), (q), (r), (s),
                  (u), or (v), the Revolving Credit Commitments shall
                  automatically and immediately expire and all Obligations shall
                  automatically become immediately due and payable without
                  notice or demand of any kind; (C) require the Borrowers to
                  cash-collateralize all outstanding Letters of Credit; and (D)
                  pursue its other rights and remedies under the Loan Documents
                  and applicable law.

            (b)   If an Event of Default shall have occurred and be continuing,
                  subject only to any notice requirements set forth in the
                  Interim Order or the Final Order as the case may be, all stays
                  and injunctions, including the automatic stay pursuant to
                  Section 362 of the Bankruptcy Code, shall be vacated and
                  terminated to the extent necessary to permit the Agent and the
                  Lenders full exercise of all of their rights and remedies,
                  including, without limitation, all of their rights and
                  remedies with respect to the Borrowers' property under all
                  applicable bankruptcy and nonbankruptcy law.

            (c)   Except as otherwise provided for in this Agreement or under
                  applicable law, each Borrower waives for all purposes of the
                  Loan Documents (including for purposes of this Section 10):
                  presentment, demand and protest and notice of presentment,
                  dishonor, intent to accelerate, acceleration, protest, default
                  or nonpayment. Each Borrower hereby further waives, for the
                  benefit of the Agent and the Lenders: (i) any right to require
                  Agent or the Lenders, as a condition of payment or performance
                  by such Borrower, to (A) proceed against any other Borrower or
                  any other Person, (B) proceed against or exhaust any security
                  held from any other Borrower or any other Person, (C) proceed
                  against or have resort to any balance of any deposit account
                  or credit on the books of any Lender in favor of any Borrower,
                  or any other Person, or (D) pursue any other remedy in the
                  power of Agent or any Lender whatsoever; (ii) any rights to
                  set-offs, recoupments and counterclaims, and any requirement
                  that the Agent or any Lender protect, secure, perfect or
                  insure any security interest or lien or any property subject
                  thereto; and (iii) any defenses or benefits that may be
                  derived from or afforded by law which limit the liability of
                  or exonerate guarantors or sureties, or which may conflict
                  with the terms hereof.

            (d)   Until all Obligations shall have been indefeasibly paid in
                  full and the Revolving Credit Commitments shall have
                  terminated and all Letters of Credit shall have expired or
                  been cancelled, each Borrower hereby waives any claim, right
                  or remedy, direct or indirect, that such Borrower now has or
                  may hereafter have against any other Borrower whether such
                  claim, right or remedy arises in equity, under contract, by
                  statute, under common law or otherwise and including, without
                  limitation, (i) any right of subrogation, reimbursement or
                  indemnification that such Borrower now has or may hereafter
                  have against any other Borrower with respect to any
                  Obligations, (ii) any right to enforce, or to participate in,
                  any claim, right or remedy that the Agent or the Lenders now
                  have or may hereafter have against any other Borrower and
                  (iii) any benefit of, and any right to participate in, any
                  Collateral or security now or hereafter held by Agent or any
                  Lender. In addition, until all Obligations shall have been
                  indefeasibly paid in full and the Revolving Credit Commitments
                  shall have terminated and all Letters of Credit shall have
                  expired or been cancelled, each Borrower shall withhold
                  exercise of

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                  any right of contribution such Borrower may have against any
                  other Borrower of any Obligations. Each Borrower further
                  agrees that, to the extent the waiver or agreement to withhold
                  the exercise of its rights of subrogation, reimbursement,
                  indemnification and contribution as set forth herein is found
                  by a court of competent jurisdiction to be void or voidable
                  for any reason, any rights of subrogation, reimbursement or
                  indemnification such Borrower may have against any other
                  Borrower or against any Collateral or security, and any rights
                  of contribution such Borrower may have against any such other
                  Borrower, shall be junior and subordinate to any rights the
                  Agent or any Lender may have against any Borrower, to all
                  right, title and interest the Agent or any Lender may have in
                  any such Collateral or security, and to any right the Agent or
                  any Lender may have against such other Borrower. If any amount
                  shall be paid to any Borrower on account of any such
                  subrogation, reimbursement, indemnification or contribution
                  rights at any time when all Obligations shall not have been
                  finally and indefeasibly paid in full, such amount shall be
                  held in trust for the Agent on behalf of the Lenders and shall
                  forthwith be paid over to Agent for the benefit of the Lenders
                  as their interest may appear to be credited and applied
                  against the respective Obligations, whether matured or
                  unmatured, in accordance with the terms hereof.

            10.3  REMEDIES WITH RESPECT TO COLLATERAL; APPLICATION OF PROCEEDS.

            (a)   Upon the occurrence and during the continuance of an Event of
                  Default, to the extent any such action is not inconsistent
                  with the Orders and any mandatory requirements of applicable
                  law, the Agent, in addition to any rights now or hereafter
                  existing under applicable law, and without application to or
                  order of the Bankruptcy Court, shall have all rights as a
                  secured creditor under the Uniform Commercial Code in all
                  relevant jurisdictions and may:

            (i)   personally, or by agents or attorneys, immediately retake
                  possession of the Collateral (including all cash) or any part
                  thereof, from any Loan Party or any other Person who then has
                  possession of any part thereof with or without notice or
                  process of law (but subject to any Requirements of Law), and
                  for that purpose may enter upon any Loan Party's premises
                  where any of the Collateral is located and remove the same and
                  use in connection with such removal any and all services,
                  supplies, aids and other facilities of the Loan Parties;

            (ii)  instruct the obligor or obligors on any agreements, instrument
                  or other obligation constituting the Collateral to make any
                  payment required by the terms of such instrument or agreement
                  directly to the Collateral Account;

            (iii) withdraw all monies, securities and instruments in the
                  Collateral Account for application to the Obligations;

            (iv)  sell, assign or otherwise liquidate, or direct any Loan Party
                  to sell, assign or otherwise liquidate, any or all of the
                  Collateral or any part thereof, and take possession of the
                  proceeds of any such sale or liquidation;

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            (v)   take possession of the Collateral or any part thereof, by
                  directing any Loan Party in writing to deliver the same to the
                  Agent at any place or places designated by the Agent, in which
                  event such Loan Party shall at its own expense forthwith cause
                  the same to be moved to the place or places so designated by
                  the Agent and there delivered to the Agent, store and keep any
                  Collateral so delivered to the Agent at such place or places
                  pending further action by the Agent, and while the Collateral
                  shall be so stored and kept, provide such guards and
                  maintenance services as shall be necessary to protect the same
                  and to preserve and maintain them in good condition; it being
                  understood that each Loan Party's obligation so to deliver the
                  Collateral is of the essence of this Agreement and that,
                  accordingly, upon application to the Bankruptcy Court, the
                  Agent shall be entitled to a decree requiring specific
                  performance by such Loan Party of such obligation.

            (b)   Upon the occurrence and during the continuance of an Event of
                  Default, and to the extent not inconsistent with the Orders,
                  without application to or order of the Bankruptcy Court, any
                  Collateral repossessed by the Agent under or pursuant to
                  Section 10 or the Orders or otherwise, and any other
                  Collateral whether or not so repossessed by the Agent, may be
                  sold, assigned, leased or otherwise disposed of under one or
                  more contracts or as an entirety, and without the necessity of
                  gathering at the place of sale the property to be sold, and in
                  general in such manner, at such time or times, at such place
                  or places and on such terms as the Agent may, in compliance
                  with any Requirements of Law, determine to be commercially
                  reasonable. Any of the Collateral may be sold, leased or
                  otherwise disposed of, in the condition in which the same
                  existed when taken by the Agent or after any overhaul or
                  repair which the Agent shall determine to be commercially
                  reasonable. Any such disposition which shall be a private sale
                  or other private proceeding permitted by applicable
                  Requirements of Law shall be made upon not less than 10 days'
                  written notice to the Loan Parties specifying the time at
                  which such disposition is to be made and the intended sale
                  price or other consideration therefor, and shall be subject,
                  for the 10 days after the giving of such notice, to the right
                  of the Loan Parties or any nominee thereof to acquire the
                  Collateral involved at a price or for such other consideration
                  at least equal to the intended sale price or other
                  consideration so specified. Any such disposition which shall
                  be a public sale permitted by applicable Requirements of Law
                  shall be made upon not less than 10 days' written notice to
                  the Loan Parties specifying the time and place of such sale
                  and, in the absence of applicable Requirement of Law, shall be
                  by public auction (which may, at the Agent's option, be
                  subject to reserve), after publication of notice of such
                  auction not less than 10 days prior thereto in two newspapers
                  in general circulation in Syracuse, New York and Huntington,
                  West Virginia. To the extent permitted by any such Requirement
                  of Law, the Agent on behalf of the Lenders may bid for and
                  become the purchaser of the Collateral or any item thereof,
                  offered for sale in accordance with this Section 10.3 without
                  accountability to the Loan Parties or the holders of
                  Prepetition Indebtedness (except to the extent of surplus
                  money received). If, under mandatory Requirements of Law, the
                  Agent shall be required to make disposition of the Collateral
                  within a period of time which does not permit the giving of
                  notice to the Loan Parties as hereinabove specified, the Agent
                  need give the Loan Parties only such notice of disposition as
                  shall be reasonably practicable.

            (c)   Notwithstanding anything to the contrary contained in this
                  Agreement or any other Loan Document, (i) if the Agent takes
                  action under this subsection 10.3, any payment by the Loan
                  Parties on account of principal of and interest on the
                  Revolving Credit Loans and Letter of Credit Reimbursement
                  Obligations and any proceeds arising out of any realization
                  (including after foreclosure) upon the Collateral shall be
                  applied, subject to the Carve-Out, as follows: first, to the

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                  payment in full of all costs and expenses (including without
                  limitation, reasonable attorneys' fees and disbursements) paid
                  or incurred by the Agent or any of the Lenders in connection
                  with any such realization upon the Collateral, second, as a
                  permanent reduction of the Revolving Credit Commitments, pro
                  rata to the payment in full of the Revolving Credit Loans
                  (including any accrued and unpaid interest thereon, and any
                  fees and other Obligations in respect thereof), third, as a
                  permanent reduction of the Revolving Credit Commitments, to
                  the payment in full of all Obligations constituting
                  unreimbursed drawings under any Letter of Credit, fourth, as a
                  permanent reduction of the Revolving Credit Commitments, to
                  cash collateralize all outstanding Letters of Credit, fifth,
                  to the payment in full of the Deemed DIP Loans, sixth, to the
                  payment in full of the Adequate Protection Obligations, and
                  seventh, to the payment in full of the Prepetition
                  Indebtedness and (ii) any payments or distributions of any
                  kind or character, whether in cash, property or securities,
                  made by the Loan Parties or otherwise in a manner inconsistent
                  with this Section 10.3 shall be held in trust and paid over or
                  delivered to the Agent so that the priorities and requirements
                  set forth in this subsection are satisfied.

            (d)   It is understood that the Loan Parties shall remain jointly
                  and severally liable to the extent of any deficiency between
                  the amount of the proceeds of the Collateral and the amount of
                  the Obligations.

            SECTION 11. THE AGENT

            11.1  APPOINTMENT. Each Lender and the Issuing Bank hereby
                  irrevocably designates and appoints Credit Lyonnais New York
                  Branch as the Agent of such Lender and the Issuing Bank under
                  this Agreement and the other Loan Documents, and each such
                  Lender and the Issuing Bank irrevocably authorizes Credit
                  Lyonnais New York Branch, as the Agent for such Lender and the
                  Issuing Bank, to take such action on its behalf under the
                  provisions of this Agreement and the other Loan Documents and
                  to exercise such powers and perform such duties as are
                  expressly delegated to the Agent by the terms of this
                  Agreement and the other Loan Documents, together with such
                  other powers as are reasonably incidental thereto.
                  Notwithstanding any provision to the contrary elsewhere in
                  this Agreement, the Agent shall not have any duties or
                  responsibilities, except those expressly set forth herein, or
                  any fiduciary relationship with any Lender or the Issuing
                  Bank, and no implied covenants, functions, responsibilities,
                  duties, obligations or liabilities shall be read into this
                  Agreement or any other Loan Document or otherwise exist
                  against the Agent.

            11.2  DELEGATION OF DUTIES. The Agent may execute any of its duties
                  under this Agreement and the other Loan Documents by or
                  through agents or attorneys-in-fact and shall be entitled to
                  advice of counsel concerning all matters pertaining to such
                  duties. The Agent shall not be responsible for the negligence
                  or misconduct of any agents or attorneys-in-fact selected by
                  it with reasonable care.

            11.3  EXCULPATORY PROVISIONS. Neither the Agent nor any of its
                  officers, directors, employees, agents, attorneys-in-fact or
                  Affiliates shall be (i) liable for any action lawfully taken
                  or omitted to be taken by it or such Person under or in
                  connection

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                  with this Agreement or any other Loan Document (except for its
                  or such Person's own gross negligence or willful misconduct)
                  or (ii) responsible in any manner to any of the Lenders and
                  the Issuing Bank for, or have any duty to ascertain or inquire
                  as to, any recitals, statements, representations or warranties
                  made by any Borrower or any of the Subsidiaries or any officer
                  thereof contained in this Agreement or any other Loan Document
                  or in any certificate, report, statement or other document
                  referred to or provided for in, or received by the Agent under
                  or in connection with, this Agreement or any other Loan
                  Document or for the value, validity, effectiveness,
                  genuineness, enforceability or sufficiency of this Agreement
                  or any other Loan Document or the creation, enforceability,
                  perfection or priority of any Lien or for any failure of any
                  Borrower or any of its Subsidiaries to perform its obligations
                  hereunder or thereunder. The Agent shall not be under any
                  obligation to any Lender and the Issuing Bank to ascertain or
                  to inquire as to the observance or performance of any of the
                  agreements contained in, or conditions of, this Agreement or
                  any other Loan Document, or to inspect the properties, books
                  or records of any Borrower or any of its Subsidiaries, or,
                  except as expressly set forth in any Loan Document, to
                  disclose (and shall not be liable for any failure to disclose)
                  any information relating to a Borrower or any of its
                  Subsidiaries or Affiliates that is communicated to the Agent
                  or any of its Affiliates in any capacity.

            11.4  RELIANCE BY AGENT. The Agent shall be entitled to rely, and
                  shall be fully protected in relying, upon any Note, writing,
                  resolution, notice, consent, certificate, affidavit, letter,
                  telecopy, telex or teletype message, statement, order or other
                  document or conversation believed by it to be genuine and
                  correct and to have been signed, sent or made by the proper
                  Person or Persons and upon advice and statements of legal
                  counsel (including, without limitation, counsel to the
                  Borrowers), independent accountants and other experts selected
                  by the Agent. The Agent shall treat the payee of any Note as
                  the owner thereof for all purposes unless the assignment or
                  transfer shall have been recorded in the Register. The Agent
                  shall be fully justified in failing or refusing to take any
                  action under this Agreement or any other Loan Document unless
                  it shall first receive such advice or concurrence of the
                  Required Lenders as it deems appropriate or it shall first be
                  indemnified to its satisfaction by the Lenders against any and
                  all liability and expense which may be incurred by it by
                  reason of taking or continuing to take any such action. The
                  Agent shall in all cases be fully protected in acting, or in
                  refraining from acting, under this Agreement and the other
                  Loan Documents in accordance with a request of the Required
                  Lenders, and such request and any action taken or failure to
                  act pursuant thereto shall be binding upon all the Lenders and
                  the Issuing Bank and all future holders of the Notes.

            11.5  NOTICE OF DEFAULT. The Agent shall not be deemed to have
                  knowledge or notice of the occurrence of any Default or Event
                  of Default hereunder unless the Agent has received notice from
                  a Lender or the Borrower Representative referring to this
                  Agreement, describing such Default or Event of Default and
                  stating that such notice is a "notice of default". In the
                  event that the Agent receives such a notice, the Agent shall
                  promptly give notice thereof to the Lenders and the Issuing
                  Bank.

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                  The Agent shall take such action with respect to such Default
                  or Event of Default as shall be reasonably directed by the
                  Required Lenders; provided that unless and until the Agent
                  shall have received such directions, the Agent may (but shall
                  not be obligated to) take such action, or refrain from taking
                  such action, with respect to such Default or Event of Default
                  as it shall deem advisable in the best interests of the
                  Lenders and the Issuing Bank.

            11.6  NONRELIANCE ON AGENT AND OTHER LENDERS. Each Lender and the
                  Issuing Bank expressly acknowledges that neither the Agent nor
                  any of its officers, directors, employees, agents,
                  attorneys-in-fact or Affiliates has made any representations
                  or warranties to it and that no act by the Agent hereinafter
                  taken, including any review of the affairs of the Borrowers
                  and/or any of their Subsidiaries, shall be deemed to
                  constitute any representation or warranty by the Agent to any
                  Lender and the Issuing Bank. Each Lender and the Issuing Bank
                  represents to the Agent that it has, independently and without
                  reliance upon the Agent or any other Lender, and based on such
                  documents and information as it has deemed appropriate, made
                  its own appraisal of and investigation into the business,
                  operations, property, financial and other condition and
                  creditworthiness of the Borrowers and their Subsidiaries and
                  made its own decision to make its Revolving Credit Loans
                  hereunder and enter into this Agreement. Each Lender and the
                  Issuing Bank also represents that it will, independently and
                  without reliance upon the Agent or any other Lender, and based
                  on such documents and information as it shall deem appropriate
                  at the time, continue to make its own credit analysis,
                  appraisals and decisions in taking or not taking action under
                  this Agreement and the other Loan Documents, and to make such
                  investigation as it deems necessary to inform itself as to the
                  business, operations, property, financial and other condition
                  and creditworthiness of the Borrowers and their Subsidiaries.
                  Except for notices, reports and other documents expressly
                  required to be furnished to the Lenders or the Issuing Bank by
                  the Agent hereunder, the Agent shall not have any duty or
                  responsibility to provide any Lender or the Issuing Bank with
                  any credit or other information concerning the business,
                  operations, property, condition (financial or otherwise),
                  prospects or creditworthiness of the Borrowers and their
                  Subsidiaries which may come into the possession of the Agent
                  or any of its officers, directors, employees, agents,
                  attorneys-in-fact or Affiliates.

            11.7  INDEMNIFICATION. The Lenders agree to indemnify the Agent in
                  its capacity as such (to the extent not reimbursed by the
                  Borrowers and without limiting the obligation of the Borrowers
                  to do so to the extent required by the terms of any Loan
                  Document), ratably according to their respective Revolving
                  Credit Commitment Percentages in effect on the date on which
                  indemnification is sought under this subsection (or, if
                  indemnification is sought after the date upon which the
                  Revolving Credit Commitments shall have terminated and the
                  Revolving Credit Loans shall have been paid in full, ratably
                  in accordance with their Revolving Credit Commitment
                  Percentages immediately prior to such date), from and against
                  any and all liabilities, obligations, losses, damages,
                  penalties, actions, judgments, suits, costs, expenses or
                  disbursements of any kind whatsoever which may at any time
                  (including, without limitation, at any time following the
                  payment of the Notes) be imposed on, incurred by or asserted
                  against the Agent in any way

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                  relating to or arising out of this Agreement, any of the other
                  Loan Documents or any documents contemplated by or referred to
                  herein or therein or the transactions contemplated hereby or
                  thereby or any action taken or omitted by the Agent under or
                  in connection with any of the foregoing; provided that no
                  Lender shall be liable for the payment of any portion of such
                  liabilities, obligations, losses, damages, penalties, actions,
                  judgments, suits, costs, expenses or disbursements resulting
                  solely from the Agent's gross negligence or willful misconduct
                  (as determined in a final, nonappealable judgment by a court
                  of competent jurisdiction). The agreements in this subsection
                  shall survive the payment of the Notes and all other amounts
                  payable hereunder.

            11.8  AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates
                  may make loans to, accept deposits from and generally engage
                  in any kind of business with the Borrowers and their
                  Subsidiaries and Affiliates as though the Agent were not the
                  Agent hereunder and under the other Loan Documents. With
                  respect to its Revolving Credit Loans made or renewed by it,
                  the Agent shall have the same rights and powers under this
                  Agreement and the other Loan Documents as any Lender and may
                  exercise the same as though it were not the Agent, and the
                  terms "Lender" and "Lenders" shall include the Agent in its
                  individual capacity.

            11.9  SUCCESSOR AGENT. The Agent may resign as Agent upon 30 days'
                  written notice to the Lenders and the Borrower's
                  Representative. If the Agent shall resign as Agent under this
                  Agreement and the other Loan Documents, then the Required
                  Lenders shall appoint from among the Lenders a successor agent
                  for the Lenders, with the consent of the Borrower
                  Representative (which consent will not be unreasonably
                  withheld or delayed) whereupon such successor agent shall
                  succeed to the rights, powers and duties of the Agent, and the
                  term "Agent" shall mean such successor agent effective upon
                  such appointment and approval, and the former Agent's rights,
                  powers and duties as Agent shall be terminated, without any
                  other or further act or deed on the part of such former Agent
                  or any of the parties to this Agreement or any holders of the
                  Notes. If no successor shall have been appointed by the
                  Required Lenders and shall have accepted such appointment
                  within 30 days after the retiring Agent's notice hereunder,
                  then the retiring Agent may, on behalf of the Lenders, appoint
                  a successor Agent, which shall be a bank with an office in New
                  York City or an Affiliate of such bank. After any retiring
                  Agent's resignation as Agent, the provisions of this
                  subsection shall inure to its benefit as to any actions taken
                  or omitted to be taken by it while it was Agent under this
                  Agreement and the other Loan Documents.

            11.10 CONCERNING THE COLLATERAL.

            (a)   The Agent, the Issuing Bank and each of the Lenders authorizes
                  and directs the Agent to enter into the Security Documents for
                  its benefit and the benefit of the Lenders and the Issuing
                  Bank and to perform all obligations of the Agent thereunder,
                  including (without limitation) obligations to release
                  Collateral. Each holder of any Obligations agrees that any
                  action taken by the Required Lenders (or, where required by
                  the express terms of this Agreement, a greater or lesser
                  proportion of the Lenders) in accordance with the provisions
                  of this Agreement or the Security Documents, and the exercise
                  by the Required Lenders (or, where so required, such greater
                  or lesser proportion) of the powers

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                  set forth herein or therein, together with such other powers
                  as are reasonably incidental thereto, shall be authorized and
                  binding upon all of the holders of Obligations.

            (b)   Each Lender hereby agrees that it will, upon request of the
                  Borrower Representative or the Agent, confirm the Agent's
                  authority to release, or direct the Agent to release, any Lien
                  held by the Agent:

            (i)   against all of the Collateral, upon payment in full of the
                  Obligations and expiration or termination of the obligations
                  of the Lenders under this Agreement;

            (ii)  against any part of the Collateral sold or disposed of by a
                  Borrower or any Subsidiary, if such sale or disposition is
                  permitted by and is made in accordance with this Agreement;
                  and against any Collateral which the Agent is required to
                  release pursuant to the Security Documents or applicable law.

            (c)   The Agent shall not be accountable or liable for any release
                  of Collateral which (i) the Agent in good faith believes is
                  required under the Security Documents or any other Loan
                  Document, or (ii) results from any failure to give, or delay
                  in giving, any notice of termination of any rights of the
                  Borrowers pursuant to the Security Documents or any other Loan
                  Document.

            SECTION 12. MISCELLANEOUS

            12.1  AMENDMENTS AND WAIVERS. Neither this Agreement, any Note or
                  any other Loan Document, nor any terms hereof or thereof may
                  be amended, supplemented or modified except in accordance with
                  the provisions of this subsection. The Required Lenders may
                  or, with the written consent of the Required Lenders, the
                  Agent may, from time to time, (a) enter into with the
                  Borrowers or any applicable Loan Party written amendments,
                  supplements or modifications hereto and to the other Loan
                  Documents for the purpose of adding any provisions to this
                  Agreement or the other Loan Documents or changing in any
                  manner the rights of the Lenders or of the Borrowers or any
                  applicable Loan Party hereunder or thereunder or otherwise
                  amending the terms of this Agreement or any other Loan
                  Document or (b) waive, on such terms and conditions as the
                  Required Lenders or the Agent, as the case may be, may specify
                  in such instrument, any of the requirements of this Agreement
                  or the other Loan Documents or any Default or Event of Default
                  and its consequences; provided, however, that no such waiver
                  and no such amendment, supplement or modification shall (i)
                  reduce the amount or extend the scheduled date of maturity of
                  any Revolving Credit Loan or of any installment thereof, or
                  extend any Letter of Credit beyond the Revolver Termination
                  Date, or reduce the stated rate of any interest or fee payable
                  hereunder or extend the scheduled date of any payment thereof
                  or increase the aggregate amount or extend the expiration date
                  of any Lender's Revolving Credit Commitments, in each case
                  without the consent of each Lender affected thereby, (ii)
                  amend, modify or waive any provision of subsection 3.4, 3.5 or
                  12.1 or reduce the percentage specified in the definition of
                  Required Lenders, or consent to the assignment or transfer by
                  the Borrowers of any of their rights and obligations under
                  this Agreement and the other Loan Documents or release all or
                  any substantial portion of the Collateral (except as otherwise
                  provided in any Loan Document) or release any Borrower

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                  from its obligations under any this Agreement or modify the
                  terms of any Loan Document to change the ratable sharing of
                  Collateral among the Lenders, in each case without the written
                  consent of all the Lenders and the Issuing Bank, (iii) amend,
                  modify or waive any provision of Section 3 or the order of
                  application of prepayments in subsection 5.1 without the prior
                  written consent of the Required Lenders or reduce the
                  percentage in the definition of Required Lenders without the
                  consent of all the Revolving Credit Lenders, (vi) amend,
                  modify or waive any provision of Section 4 without the prior
                  written consent of both the Issuing Bank and the Required
                  Lenders or (iv) amend, modify or waive any provision of
                  Section 11 without the written consent of the then Agent
                  (provided that the rights of any prior Agent or Agents shall
                  not be adversely affected thereby). Any such waiver and any
                  such amendment, supplement or modification shall apply equally
                  to each of the Lenders and the Issuing Bank, and shall be
                  binding upon the Borrowers, or any applicable Loan Party, the
                  Lenders, the Issuing Bank and the Agent. In the case of any
                  waiver, the Borrowers, or any applicable Loan Party, the
                  Lenders, the Issuing Bank and the Agent shall be restored to
                  their former position and rights hereunder and under the
                  outstanding Notes and any other Loan Documents, and any
                  Default or Event of Default waived shall be deemed to be cured
                  and not continuing; but no such waiver shall extend to any
                  subsequent or other Default or Event of Default, or impair any
                  right consequent thereon.

            12.2  NOTICES. All notices, requests and demands to or upon the
                  respective parties hereto to be effective shall be in writing
                  (including by telecopy), and, unless otherwise expressly
                  provided herein, shall be deemed to have been duly given or
                  made when delivered by hand, one Business Day after being
                  deposited with an overnight courier, or five Business Days
                  after being deposited in the mail, postage prepaid, or, in the
                  case of telecopy notice, when received, addressed as follows
                  in the case of the Borrowers and the Agent, and as set forth
                  in Schedule I in the case of the other parties hereto, or to
                  such other address as may be hereafter notified by the
                  respective parties hereto and any future holders of the Notes:

            The Borrowers:   Special Metals Corporation
                             3200 Riverside Drive
                             Huntington, West Virginia 25705-1771
                             Attention: Chief Financial Officer
                             Telecopy: (304) 526-5300
                             Telephone: (304) 526-5526

                             with a copy to:

                             Special Metals Corporation
                             4317 Middle Settlement Road
                             New Hartford, NY 13413
                             Attention: General Counsel
                             Telecopy: (315) 798-6803
                             Telephone: (315) 798-2023

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            The Agent:       Credit Lyonnais New York Branch
                             1301 Avenue of the Americas
                             New York, New York 10019-6022
                             Attention: Asset Recovery (John-Charles van Essche)
                             Telecopy: (212) 261-3259
                             Telephone: (212) 261-7746

                             with a copy to:

                             Latham & Watkins
                             885 Third Avenue, Suite 1000
                             New York, New York 10022
                             Attention: Robert Rosenberg, Esq.
                             Telecopy: 212-751-4864
                             Telephone: 212-906-1200

                  provided that any notice, request or demand to or upon the
                  Agent or the Lenders pursuant to subsections 3.3, 3.4, 4.1,
                  4.5, 5.1, or 5.4 shall not be effective until received.

            12.3  NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
                  delay in exercising, on the part of the Agent or any Lender,
                  any right, remedy, power or privilege hereunder or under the
                  other Loan Documents shall operate as a waiver thereof; nor
                  shall any single or partial exercise of any right, remedy,
                  power or privilege hereunder preclude any other or further
                  exercise thereof or the exercise of any other right, remedy,
                  power or privilege. The rights, remedies, powers and
                  privileges herein provided are cumulative and not exclusive of
                  any rights, remedies, powers and privileges provided by law.

            12.4  SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
                  representations and warranties made hereunder, in the other
                  Loan Documents and in any document, certificate or statement
                  delivered pursuant hereto or in connection herewith shall
                  survive the execution and delivery of this Agreement and the
                  making of the Revolving Credit Loans and issuing of Letters of
                  Credit hereunder.

            12.5  PAYMENT OF EXPENSES AND TAXES; INDEMNITY. The Borrowers agree
                  (a) to pay or reimburse the Agent for all its out-of-pocket
                  costs and expenses incurred in connection with the preparation
                  and execution of, and any amendment, supplement, modification
                  or waiver to, this Agreement and the other Loan Documents and
                  any other documents prepared in connection herewith or
                  therewith, including, without limitation, the fees and
                  disbursements of Latham & Watkins, special counsel to the
                  Agent, as well as local and foreign counsel to the Agent, (b)
                  to pay or reimburse each Lender, the Issuing Bank and the
                  Agent for all its costs and expenses incurred in connection
                  with the enforcement or preservation of any rights under this
                  Agreement or the other Loan Documents or the making of

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                  Revolving Credit Loans and issuing of Letters of Credit
                  hereunder and all other related transactions (including during
                  any workout or restructuring of the Revolving Credit Loans or
                  during the pendency of any bankruptcy, insolvency or similar
                  proceeding), including, without limitation, the fees and
                  disbursements of counsel to the Agent and to each Lender and
                  any advisors, appraisers, consultants or other professionals
                  engaged by them or such counsel, including Zolfo Cooper LLC,
                  and (without duplication) allocated costs of in-house counsel,
                  and (c) to pay, indemnify, and hold each Lender, the Issuing
                  Bank and the Agent harmless from, any and all recording and
                  filing fees and any and all liabilities with respect to, or
                  resulting from any delay in paying, documentary stamp, excise
                  and other taxes, if any, which may be payable or determined to
                  be payable by reason of the execution and delivery of this
                  Agreement and the other Loan Documents and any such other
                  documents, or any amendment, supplement or modification of, or
                  any waiver or consent under or in respect thereof and (d) to
                  indemnify, and hold each Lender, the Issuing Bank and the
                  Agent and their respective affiliates, officers, directors,
                  employees, agents and advisors (each, an "Indemnified Party")
                  harmless from and against any and all other liabilities,
                  obligations, losses, damages, penalties, actions, judgments,
                  suits, costs, expenses or disbursements of any kind or nature
                  whatsoever (including legal fees and other charges) with
                  respect to the execution, delivery, performance and
                  consummation of this Agreement, the other Loan Documents and
                  any such other documents, including, without limitation, any
                  of the foregoing relating to, or arising out of (i) the
                  preparation for a defense of, or participation in, any
                  investigation, litigation, proceeding or other action related
                  to or arising out of the Loan Documents or any other such
                  documents, or the making of Revolving Credit Loans and issuing
                  of Letters of Credit hereunder and all other related
                  transactions (whether or not such Indemnified Party is a party
                  to such proceeding or other action and whether any such
                  investigation, litigation or proceeding or other action is
                  brought by a Borrower, its stockholders or creditors, by an
                  Indemnified Party or by any other Person) or (ii) the
                  violation of, noncompliance with or liability under, any
                  Environmental Law applicable to any Borrower, any of its
                  Subsidiaries or any of the real property that is part of the
                  Collateral (all the foregoing in this clause (d),
                  collectively, the "indemnified liabilities"), provided, that
                  the Borrowers shall have no obligation hereunder to an
                  Indemnified Party with respect to indemnified liabilities
                  arising solely from the gross negligence or willful misconduct
                  of such Indemnified Party (as determined in a final
                  nonappealable judgment by a court of competent jurisdiction).
                  A certificate as to any amounts payable pursuant to this
                  subsection 12.5 submitted to the Borrower Representative by
                  the Agent, any Lender or an Indemnified Party shall be
                  conclusive in the absence of manifest error. The Borrowers
                  further agree that no Indemnified Party shall have any
                  liability (whether direct or indirect, in contract or tort or
                  otherwise) to the Borrowers or any of their Affiliates,
                  security holders or creditors except to the extent such
                  liability is found in a final nonappealable judgment by a
                  court of competent jurisdiction to have resulted from such
                  Indemnified Party's gross negligence or willful misconduct or
                  the Indemnified Party's breach of its obligations under the
                  Loan Documents. The agreements in this subsection shall
                  survive repayment of the Revolving Credit Loans and all other
                  amounts payable hereunder.

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            12.6  SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.

            (a)   This Agreement shall be binding upon and inure to the benefit
                  of the Borrowers, the Lenders, the Issuing Bank, the Agent and
                  their respective successors and assigns, except that no
                  Borrower may assign or transfer any of its rights or
                  obligations under this Agreement without the prior written
                  consent of each Lender and the Issuing Bank.

            (b)   Any Lender may, in the ordinary course of its business and in
                  accordance with applicable law, at any time sell to one or
                  more banks or other entities ("Participants") participating
                  interests in any Revolving Credit Loan owing to such Lender,
                  any Revolving Credit Commitment of such Lender or any other
                  interest of such Lender hereunder and under the other Loan
                  Documents (which participations may be on a non-pro rata
                  basis) with the consent of the Agent but without the consent
                  of the Borrowers. In the event of any such sale by a Lender of
                  a participating interest to a Participant, such Lender's
                  obligations under this Agreement to the other parties to this
                  Agreement shall remain unchanged, such Lender shall remain
                  solely responsible to the other parties for the performance
                  thereof, such Lender shall remain the holder of any such
                  Revolving Credit Loan for all purposes under this Agreement
                  and the other Loan Documents, and the Borrowers, the Agent and
                  the Lenders shall continue to deal solely and directly with
                  such Lender in connection with such Lender's rights and
                  obligations under this Agreement and the other Loan Documents.
                  The Borrowers also agree that each Participant shall be
                  entitled to the benefits of subsections 5.5, 5.6 and 5.7 with
                  respect to its participation in the Revolving Credit
                  Commitments and the Revolving Credit Loans outstanding from
                  time to time as if it was a Lender; provided that no
                  Participant shall be entitled to any greater payment under
                  such subsections than the applicable Lender would have been
                  entitled to receive with respect to the interest sold. The
                  Borrowers agree that if any Obligations are due and unpaid, or
                  shall have been declared or shall have become due and payable
                  upon the occurrence and during the continuance of an Event of
                  Default, each Participant shall be deemed to have the right of
                  set-off in respect of its participating interest in amounts
                  owing under this Agreement and any Note to the same extent as
                  if the amount of its participating interest were owing
                  directly to it as a Lender under this Agreement or any Note;
                  provided that such right of set-off shall be subject to the
                  obligations of such Participant to share with the Lenders, and
                  the Lenders agree to share with such Participant, as provided
                  in subsection 12.7. Each Lender agrees that any agreement
                  between such Lender and any such Participant in respect of
                  such participating interest shall not restrict such Lender's
                  right to agree to any amendment, supplement, waiver or
                  modification to this Agreement or any other Loan Document,
                  except where the result of any of the foregoing would be to
                  extend the final maturity of any Revolving Credit Loan in
                  which the Participant has an interest or reduce the rate or
                  extend the time of payment of interest thereon or reduce the
                  principal amount thereof or release all or substantially all
                  of the Collateral (except as expressly provided in the Loan
                  Documents).

            (c)   Any Lender may, in the ordinary course of its business and in
                  accordance with applicable law, at any time and from time to
                  time assign to any existing Lender or any Affiliate thereof
                  or, with the consent of the Agent (which consent shall not be
                  unreasonably

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                  withheld or delayed), to another Person (an "Assignee") all or
                  any part of its rights and obligations under this Agreement
                  and the other Loan Documents (which assignments may be on a
                  non-pro rata basis) pursuant to an Assignment and Acceptance,
                  substantially in the form of Exhibit N (an "Assignment and
                  Acceptance"), executed by such Assignee, such assigning Lender
                  (and, in the case of an Assignee that is not then a Lender or
                  an affiliate thereof, by the Agent) and delivered to the Agent
                  for its acceptance and recording in the Register, provided
                  that, in the case of any such assignment to an additional
                  Assignee, the sum of the aggregate principal amount of the
                  Revolving Credit Loans and the aggregate amount of the unused
                  Revolving Credit Commitments being assigned and, if such
                  assignment is of less than all of the rights and obligations
                  of the assigning Lender, the sum of the aggregate principal
                  amount of the Revolving Credit Loans and the aggregate amount
                  of the unused Revolving Credit Commitments remaining with the
                  assigning Lender are each not less than $1,000,000.
                  Assignments may be made on a non pro rata basis of a Lender's
                  Revolving Credit Commitment and Revolving Credit Loans. Upon
                  such execution, delivery, acceptance and recording, from and
                  after the effective date determined pursuant to such
                  Assignment and Acceptance, (x) the Assignee thereunder shall
                  be a party hereto and, to the extent of the interest assigned
                  to it in such Assignment and Acceptance, have the rights and
                  obligations of a Lender hereunder with a Revolving Credit
                  Commitment as set forth therein, and (y) the assigning Lender
                  thereunder shall, to the extent of the interest assigned to it
                  in such Assignment and Acceptance, be released from its
                  obligations under this Agreement (and, in the case of an
                  Assignment and Acceptance covering all or the remaining
                  portion of an assigning Lender's rights and obligations under
                  this Agreement, such assigning Lender shall cease to be a
                  party hereto), (but shall continue to be entitled to the
                  benefits of subsections 5.5, 5.6, 5.7 and 12.5).
                  Notwithstanding any provision of paragraph (e) of this
                  subsection, unless requested by the Assignee and/or the
                  assigning Lender, Notes shall not be required to be executed
                  and delivered by the Borrowers, for any assignment which
                  occurs at any time when any of the events described in
                  subsection 10(f) shall have occurred and be continuing.

            (d)   The Agent, on behalf of the Borrowers, shall maintain at the
                  address of the Agent referred to in subsection 12.2 a copy of
                  each Assignment and Acceptance delivered to it and a register
                  (the "Register") for the recordation of the names and
                  addresses of the Lenders and the Revolving Credit Commitments
                  of, and principal amounts of the Revolving Credit Loans owing
                  to, each Lender from time to time. The entries in the Register
                  shall be conclusive, in the absence of manifest error, and the
                  Borrowers, the Agent and the Lenders shall treat each Person
                  whose name is recorded in the Register as the owner of a
                  Revolving Credit Loan or other obligation hereunder as the
                  owner thereof for all purposes of this Agreement and the other
                  Loan Documents, notwithstanding any notice to the contrary.
                  Any assignment of any Revolving Credit Loan or other
                  obligation hereunder shall be effective only upon appropriate
                  entries with respect thereto being made in the Register. The
                  Register shall be available for inspection by the Borrowers or
                  any Lender at any reasonable time and from time to time upon
                  reasonable prior notice.

            (e)   Upon its receipt of an Assignment and Acceptance executed by
                  an assigning Lender and an Assignee (and, in the case of an
                  Assignee that is not then a Lender or an Affiliate thereof, by
                  the Agent) together with payment by the Assignee or the
                  assigning Lender to the Agent of a registration and processing
                  fee of $5,000, the Agent shall (i) promptly accept such
                  Assignment and Acceptance and (ii) on the effective date
                  determined

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                  pursuant thereto record the information contained therein in
                  the Register and give notice of such acceptance and
                  recordation to the Lenders and the Borrower Representative.

            (f)   Subject to the provisions of subsection 12.16, the Borrowers
                  authorize each Lender to disclose to any Participant or
                  Assignee (each, a "Transferee") and any prospective Transferee
                  any and all financial information in such Lender's possession
                  concerning the Borrowers, their Subsidiaries and its
                  Affiliates which has been delivered to such Lender by or on
                  behalf of the Borrowers pursuant to this Agreement or which
                  has been delivered to such Lender by or on behalf of the
                  Borrowers in connection with such Lender's credit evaluation
                  of the Borrowers, their Subsidiaries and their Affiliates
                  prior to becoming a party to this Agreement.

            (g)   For avoidance of doubt, the parties to this Agreement
                  acknowledge that the provisions of this subsection concerning
                  assignments of Revolving Credit Loans and Notes relate only to
                  absolute assignments and that such provisions do not prohibit
                  assignments creating security interests, including, without
                  limitation, any pledge or assignment by a Lender of any
                  Revolving Credit Loan or Note to any Federal Reserve Bank or
                  any other Person in accordance with applicable law, provided
                  that no such assignment shall release a Lender from any of its
                  obligations hereunder.

            12.7  ADJUSTMENTS; SET-OFF.

            (a)   If any Lender (a "Benefited Lender") shall at any time receive
                  any payment of all or part of its Revolving Credit Loans, or
                  interest thereon, or receive any collateral in respect thereof
                  (whether voluntarily or involuntarily, by set-off, pursuant to
                  events or proceedings of the nature referred to in subsection
                  10(f), or otherwise), in a greater proportion than any such
                  payment to or collateral received by any other Lender, if any,
                  in respect of such other Lender's Revolving Credit Loans, or
                  interest thereon, such Benefited Lender shall purchase for
                  cash from the other Lenders a participating interest in such
                  portion of each such other Lender's Revolving Credit Loan, or
                  shall provide such other Lenders with the benefits of any such
                  collateral, or the proceeds thereof, as shall be necessary to
                  cause such Benefited Lender to share the excess payment or
                  benefits of such collateral or proceeds ratably with each of
                  the Lenders; provided, however, that if all or any portion of
                  such excess payment or benefits is thereafter recovered from
                  such Benefited Lender, such purchase shall be rescinded, and
                  the purchase price and benefits returned, to the extent of
                  such recovery, but without interest. The provisions of this
                  subsection 12.7(a) shall not be construed to apply to any
                  payment made by the Borrowers pursuant to and in accordance
                  with the express terms of this Agreement or any payment
                  obtained by a Lender as consideration for the assignment of or
                  sale of a participation in any of its Revolving Credit Loans
                  to any assignee or participant, other than to the Borrowers or
                  any of their Subsidiaries or Affiliate thereof (as to which
                  the provisions of this subsection 12.7(a) shall apply). The
                  Borrowers agree that each Lender so purchasing a portion of
                  another Lender's Revolving Credit Loan may exercise all rights
                  of payment (including, without limitation, rights of set-off)
                  with respect to such portion as fully as if such Lender were
                  the direct holder of such portion.

            (b)   In addition to any rights and remedies of the Lenders provided
                  by law, each Lender shall have the right, without prior notice
                  to the Borrowers, any such notice

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                  being expressly waived by the Borrowers to the extent
                  permitted by applicable law, upon any amount becoming due and
                  payable by the Borrowers hereunder (whether at the stated
                  maturity, by acceleration or otherwise after the occurrence of
                  an Event of Default) to set off and appropriate and apply
                  against such amount any and all deposits (general or special,
                  time or demand, provisional or final), in any currency, and
                  any other credits, indebtedness or claims, in any currency, in
                  each case whether direct or indirect, absolute or contingent,
                  matured or unmatured, at any time held or owing by such Lender
                  or any branch or agency thereof to or for the credit or the
                  account of the Borrowers. Each Lender agrees promptly to
                  notify the Borrower Representative and the Agent after any
                  such set-off and application made by such Lender, provided
                  that the failure to give such notice shall not affect the
                  validity of such set-off and application.

            12.8  COUNTERPARTS. This Agreement may be executed by one or more of
                  the parties to this Agreement on any number of separate
                  counterparts (including by telecopy), and all of said
                  counterparts taken together shall be deemed to constitute one
                  and the same instrument. A set of the copies of this Agreement
                  signed by all the parties shall be lodged with the Borrower
                  Representative and the Agent.

            12.9  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 hereof, and any such prohibition or
                  unenforceability in any jurisdiction shall not invalidate or
                  render unenforceable such provision in any other jurisdiction.

            12.10 INTEGRATION. This Agreement and the other Loan Documents
                  represent the agreement of the Borrowers and the Subsidiaries,
                  the Agent, the Issuing Bank and the Lenders with respect to
                  the subject matter hereof, and there are no promises,
                  undertakings, representations or warranties of any party
                  hereto relative to the subject matter hereof not expressly set
                  forth or referred to herein or in the other Loan Documents.
                  Any previous agreement with respect to the subject matter
                  hereof is superseded by this Agreement and the other Loan
                  Documents.

            12.11 GOVERNING LAW. THIS AGREEMENT AND THE REVOLVING CREDIT LOANS
                  AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
                  AGREEMENT AND THE REVOLVING CREDIT LOANS SHALL BE GOVERNED BY,
                  AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL
                  LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
                  CONFLICT OF LAWS PROVISIONS THEREOF THAT WOULD DIRECT THE
                  APPLICATION OF THE LAW OF ANOTHER JURISDICTION, ALL TO THE
                  EXTENT NOT PREEMPTED BY THE FEDERAL BANKRUPTCY LAWS OF THE
                  UNITED

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                  STATES; PROVIDED, THAT THE LENDERS AND AGENTS SHALL RETAIN ALL
                  RIGHTS ARISING UNDER FEDERAL LAW.

            12.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Borrower hereby
                  irrevocably and unconditionally:

            (a)   submits for itself and its property in any legal action or
                  proceeding relating to this Agreement and the other Loan
                  Documents to which it is a party, or for recognition and
                  enforcement of any judgment in respect thereof, to the
                  jurisdiction of the Bankruptcy Court, or, if a Bankruptcy Case
                  is dismissed or a Borrower is no longer subject to the
                  jurisdiction of the Bankruptcy Court, to the nonexclusive
                  general jurisdiction of the courts of the State of New York,
                  the courts of the United States of America for the Southern
                  District of New York, and appellate courts from any thereof
                  (but in such case only to the extent of such dismissal or with
                  respect to such Borrower);

            (b)   consents that any such action or proceeding may be brought in
                  such courts and waives any objection that it may now or
                  hereafter have to the venue of any such action or proceeding
                  in any such court or that such action or proceeding was
                  brought in an inconvenient court and agrees not to plead or
                  claim the same;

            (c)   agrees that service of process in any such action or
                  proceeding may be effected by mailing a copy thereof by
                  registered or certified mail (or any substantially similar
                  form of mail), postage prepaid, to it at its address set forth
                  in subsection 12.2 or at such other address of which the Agent
                  shall have been notified pursuant thereto;

            (d)   agrees that nothing herein shall affect the right to effect
                  service of process in any other manner permitted by law or
                  shall limit the right to sue in any other jurisdiction; and

            (e)   waives, to the maximum extent not prohibited by law, any right
                  it may have to claim or recover in any legal action or
                  proceeding referred to in this subsection any special,
                  exemplary, punitive or consequential damages.

            12.13 ACKNOWLEDGMENTS. Each Borrower hereby acknowledges that:

            (a)   it has been advised by counsel in the negotiation, execution
                  and delivery of this Agreement and the other Loan Documents;

            (b)   neither the Agent nor the Issuing Bank nor any Lender has any
                  fiduciary relationship with or duty to it arising out of or in
                  connection with this Agreement or any of the other Loan
                  Documents, and the relationship between Agent, Issuing Bank
                  and Lenders, on one hand, and it, on the other hand, in
                  connection herewith or therewith is solely that of debtor and
                  creditor; and

            (c)   no joint venture is created hereby or by the other Loan
                  Documents or otherwise exists by virtue of the transactions
                  contemplated hereby among the Lenders (including the Issuing
                  Bank) or among it and the Lenders (including the Issuing
                  Bank).

            12.14 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT, THE
                  ISSUING BANK AND THE LENDERS HEREBY IRREVOCABLY AND
                  UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
                  OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS

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                  AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
                  CONTEMPLATED HEREBY OR THEREBY AND FOR ANY COUNTERCLAIM
                  THEREIN. The scope of this waiver is intended to be
                  all-encompassing of any and all disputes that may be filed in
                  any court and that relate to the subject matter of this
                  transaction, including without limitation contract claims,
                  tort claims, breach of duty claims, and all other common law
                  and statutory claims. Each of the parties to this Agreement
                  acknowledges that this waiver is a material inducement for
                  each of the parties to this Agreement to enter into a business
                  relationship, that each of the parties to this Agreement have
                  already relied on this waiver in entering into this Agreement
                  and that each will continue to rely on this waiver in their
                  related future dealings. Each party hereto further warrants
                  and represents that it has reviewed this waiver with its legal
                  counsel and that it knowingly and voluntarily waives its jury
                  trial rights following consultation with legal counsel. THIS
                  WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
                  EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
                  ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
                  MODIFICATIONS TO THIS AGREEMENT. In the event of litigation,
                  this Agreement may be filed as a written consent to a trial by
                  the court.

            12.15 INTEREST RATE LIMITATION. Notwithstanding anything herein or
                  in the Notes to the contrary, if at any time the applicable
                  interest rate, together with all fees and charges which are
                  treated as interest under applicable law (collectively, the
                  "Charges"), as provided for herein or in any other document
                  executed in connection herewith, or otherwise contracted for,
                  charged, received, taken or reserved by any Lender, shall
                  exceed the maximum lawful rate (the "Maximum Rate") which may
                  be contracted for, charged, taken, received or reserved by
                  such Lender in accordance with applicable law, the rate of
                  interest payable under the Note held by such Lender, together
                  with all Charges payable to such Lender, shall be limited to
                  the Maximum Rate.

            12.16 CONFIDENTIALITY. The Lenders shall hold in confidence all
                  nonpublic information obtained pursuant to the requirements of
                  this Agreement or furnished at the request of a Lender which
                  has been identified as such in writing by the Borrowers,
                  provided that any Lender may make disclosure (i) reasonably
                  required by any Transferee or prospective Transferee pursuant
                  to subsection 12.6 (subject to the execution by such
                  Transferee or prospective Transferee of a confidentiality
                  letter of the same scope as this subsection 12.16) or (ii) as
                  required or requested by any governmental agency or
                  representative thereof or required by law, rule or regulation
                  or (iii) pursuant to legal process or (iv) to its employees,
                  directors, agents, attorneys, accountants and other
                  professional advisors; provided, further, that in no event
                  shall any Lender be obligated or required to return any
                  materials furnished by the Borrowers.

            12.17 APPOINTMENT OF BORROWER REPRESENTATIVE. The Borrowers hereby
                  designate the Borrower Representative as their representative
                  and agent on their behalf for the purposes of issuing notices
                  hereunder, giving instructions with respect to the
                  disbursement of proceeds of the Revolving Credit Loans, and
                  requesting Letters of

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                  Credit, and each Borrower hereby appoints the Borrower
                  Representative as its representative and agent on its behalf
                  for the purposes of giving and receiving all other notices and
                  consents hereunder or under any of the other Loan Documents
                  and taking all other actions (including in respect of
                  compliance with covenants) on behalf of any Borrower under the
                  Loan Documents. The Borrower Representative hereby accepts
                  such appointment. The Agent and each Lender may regard any
                  notice or other communication pursuant to any Loan Document
                  from the Borrower Representative signed by any authorized
                  officer thereof as a notice or communication from all the
                  Borrowers, and may give any notice or communication required
                  or permitted to be given to the Borrowers hereunder to the
                  Borrower Representative. The Borrowers agree that each notice,
                  election, representation and warranty, covenant, agreement and
                  undertaking made on their behalf by the Borrower
                  Representative shall be deemed for all purposes to have been
                  made by each Borrower and shall be binding upon and
                  enforceable against each Borrower to the same extent as if
                  same had been made directly by each Borrower.

                            [Signature pages follow]

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

                            SPECIAL METALS CORPORATION,
                            a Delaware corporation, as debtor and debtor in
                            possession on behalf of the estate created upon the
                            commencement of the Bankruptcy Cases

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            A-1 WIRE TECH, INC.,
                            an Illinois corporation, as debtor and debtor in
                            possession on behalf of the estate created upon the
                            commencement of the Bankruptcy Cases

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            SPECIAL METALS DOMESTIC SALES
                            CORPORATION,

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                            a Delaware corporation, as debtor and debtor in
                            possession on behalf of the estate created upon the
                            commencement of the Bankruptcy Cases

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            INCO ALLOYS INTERNATIONAL, INC.
                            (D/B/A HUNTINGTON ALLOYS),

                            a Delaware corporation, as debtor and debtor in
                            possession on behalf of the estate created upon the
                            commencement of the Bankruptcy Cases

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            CREDIT LYONNAIS NEW YORK BRANCH,
                              as Agent, as a Lender and as Issuing Bank

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            MANUFACTURERS AND TRADERS TRUST COMPANY,
                              as Lender

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            THE BANK OF NOVA SCOTIA,
                              as Lender

                                       92
<PAGE>
                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                            GENERAL ELECTRIC CAPITAL CORPORATION,
                              as Lender

                            By: ______________________________________________
                                Name:_________________________________________
                                Title:________________________________________

                                       93

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