Document:

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                                 CREDIT FACILITY

                             AND SECURITY AGREEMENT

                                     between

                             SNPE, INC., as lender,

                                       and

                   DYNAMIC MATERIALS CORPORATION, as borrower

                            dated as of June 14, 2000

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<PAGE>
                                TABLE OF CONTENTS

                                                                            Page

CREDIT FACILITY AND SECURITY AGREEMENT.........................................1

Article I DEFINITIONS..........................................................2
   Section 1.1.   General......................................................2
   Section 1.2.   Defined Terms................................................2

Article II CREDIT FACILITIES..................................................10
   Section 2.1.   Amount and Terms of the Credit Facility.....................10
   Section 2.2.   Loan Evidenced by Note......................................10
   Section 2.3.   Interest Rates..............................................10
   Section 2.4.   Interest Payments...........................................10
   Section 2.5.   Principal Payments..........................................10
   Section 2.6.   Prepayment..................................................11
   Section 2.7.   Fees........................................................11
   Section 2.8.   Computation of Interest and Fees............................11

Article III SECURITY AGREEMENT................................................11
   Section 3.1.   Grant of Security Interest..................................11
   Section 3.2.   Grant of License............................................12
   Section 3.3.   Perfection..................................................12
   Section 3.4.   General Representations as to Collateral....................12
   Section 3.5.   Title to Collateral; Liens; Transfers.......................12
   Section 3.6.   Changes Affecting Perfection................................13
   Section 3.7.   Power of Attorney for Insurance.............................13
   Section 3.8.   Protection of Collateral; Reimbursement.....................13
   Section 3.9.   Inspection; Verification....................................14
   Section 3.10.  Assignments, Records and Schedules of Accounts..............14
   Section 3.11.  Reporting Regarding Inventory...............................15
   Section 3.12.  Other Collateral Reports....................................15

Article IV SPECIFIC REPRESENTATIONS, WARRANTIES AND COVENANTS RELATING
           TO COLLATERAL......................................................15
   Section 4.1.   Disputes and Claims Regarding Accounts......................15
   Section 4.2.   Deposit Accounts............................................15
   Section 4.3.   Compliance with Terms of Accounts; General Intangibles......15
   Section 4.4.   No Waivers, Extensions, Amendments..........................16
   Section 4.5.   Location of Collateral......................................16
   Section 4.6.   Lien Priority...............................................16
   Section 4.7.   Lien Waivers; Landlord, Bailee and Consignee Waivers,
                  Warehouse Receipts..........................................16
   Section 4.8.   Maintenance of Insurance....................................16
   Section 4.9.   Maintenance of Equipment....................................17
   Section 4.10.  Limitations on Dispositions of Inventory and Equipment......17
   Section 4.11.  General Appointment as Attorney-in-Fact.....................17
   Section 4.12.  SNPE Not Liable.............................................18
   Section 4.13.  Authority to Execute Transfers..............................18
   Section 4.14.  Performance by SNPE of the Company's Obligations............18
   Section 4.15.  Costs of Collection.........................................18
   Section 4.16.  Notice to Account Debtors...................................18
   Section 4.17.  Appointment of Attorney-in-Fact.............................19

Article V GENERAL REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............20
   Section 5.1.   Organization; Corporate Power...............................20
   Section 5.2.   Authorization of Loan.......................................20
   Section 5.3.   No Conflict.................................................20
   Section 5.4.   Execution of Loan Documents.................................20
   Section 5.5.   Financial Condition.........................................20
   Section 5.6.   Liabilities; Liens..........................................21
   Section 5.7.   Litigation..................................................21
   Section 5.8.   Payment of Taxes............................................21
   Section 5.9.   Absence of Adverse Agreements...............................21
   Section 5.10.  Regulatory Status...........................................21
   Section 5.11.  Federal Reserve Regulations:  Use of Loan Proceeds..........22
   Section 5.12.  Subsidiaries................................................22
   Section 5.13.  ERISA.......................................................22
   Section 5.14.  Solvency....................................................22
   Section 5.15.  Disclosure Schedule.........................................22
   Section 5.16.  Accuracy of Representations and Warranties..................22
   Section 5.17.  No Investment Company.......................................23
   Section 5.18.  Approval....................................................23
   Section 5.19.  Licenses, Registrations, Compliance with Laws, etc..........23
   Section 5.20.  Copyright...................................................23
   Section 5.21.  Environmental Compliance....................................23
   Section 5.22.  Material Agreements, etc....................................24
   Section 5.23.  Patents, Trademarks and Other Property Rights...............24

Article VI GENERAL REPRESENTATIONS AND WARRANTIES OF SNPE.....................24
   Section 6.1.   Organization; Corporate Power...............................24
   Section 6.2.   Authorization...............................................25
   Section 6.3.   No Conflict.................................................25
   Section 6.4.   Execution of Loan Documents.................................25
   Section 6.5.   Regulatory Status...........................................25

Article VII CONDITIONS TO CLOSING.............................................25
   Section 7.1.   Closing of Loans............................................25
   Section 7.2.   Each Advance................................................25

Article VIII COVENANTS........................................................26
   Section 8.1.   Accounting:  Financial Statements and Other Information.....26
   Section 8.2.   Insurance; Maintenance of Properties........................27
   Section 8.3.   Existence; Business.........................................27
   Section 8.4.   Payment of Taxes............................................27
   Section 8.5.   Litigation; Adverse Changes.................................27
   Section 8.6.   Notice of Default...........................................27
   Section 8.7.   Inspection..................................................27
   Section 8.8.   Environmental Matters.......................................27
   Section 8.9.   Sale of Assets..............................................28
   Section 8.10.  Liens.......................................................28
   Section 8.11.  Indebtedness................................................28
   Section 8.12.  Investments; Loans..........................................29
   Section 8.13.  Guaranties..................................................29
   Section 8.14.  Mergers; Consolidation......................................29
   Section 8.15.  Capital Expenditures........................................29
   Section 8.16.  Subordinated Debt...........................................29
   Section 8.17.  Senior Management...........................................29
   Section 8.18.  Compliance with ERISA.......................................29

Article IX EVENTS OF DEFAULT..................................................30
   Section 9.1.   Principal or Interest.......................................30
   Section 9.2.   Misrepresentation...........................................30
   Section 9.3.   Failure of Performance of this Agreement....................30
   Section 9.4.   Cross-Default...............................................30
   Section 9.5.   Insolvency..................................................31
   Section 9.6.   Failure of Performance Under the Stock Purchase Agreement...31

Article X REMEDIES UPON DEFAULT...............................................31
   Section 10.1.  Optional Acceleration.......................................31
   Section 10.2.  Remedies....................................................31
   Section 10.3.  No Waiver...................................................32

Article XI MISCELLANEOUS......................................................32
   Section 11.1.  Amendments..................................................32
   Section 11.2.  Expenses; Documentary Taxes.................................32
   Section 11.3.  Indemnification.............................................32
   Section 11.4.  Governing Law...............................................33
   Section 11.5.  Extension of Time...........................................33
   Section 11.6.  Notices.....................................................33
   Section 11.7.  Survival of Agreements, Relationship........................33
   Section 11.8.  Severability................................................33
   Section 11.9.  Entire Agreement............................................34
   Section 11.10. JURY TRIAL WAIVER...........................................34

EXHIBIT A     WORKING CAPITAL NOTE............................................36

EXHIBIT B     ASSETS OF THE COMPANY SUBJECT TO PERMITTED LIENS OF
              KEY BANK IN CONNECTION WITH LETTER OF CREDIT....................38

SCHEDULE 4.2  DMC DEPOSIT ACCOUNTS............................................39

<PAGE>

                     CREDIT FACILITY AND SECURITY AGREEMENT

     THIS AGREEMENT is made by and between the Company (as herein  defined),  as
borrower, and SNPE (as herein defined), as lender, as of June 14, 2000.

     WHEREAS, the Company and KeyBank National  Association,  a national banking
association  (the "Bank"),  entered into an Amended and Restated Credit Facility
and Security  Agreement  dated as of November 30, 1998 which, as amended by that
certain  First  Amendment to Amended and Restated  Credit  Facility and Security
Agreement (the "First  Amendment")  dated December 31, 1998 (the First Amendment
and the Amended and Restated  Credit  Facility and Security  Agreement  shall be
hereinafter  collectively  referred to as the "Credit Agreement"),  provided for
loans up to Fourteen Million Dollars ($14,000,000) (the "Loans"),  consisting of
an  Acquisition  Line with a maximum  credit limit of Five Million Seven Hundred
Thousand Dollars  ($5,700,000) (the "Acquisition  Line"), an Accommodation  Line
with a maximum  credit  limit of Two  Million  Three  Hundred  Thousand  Dollars
($2,300,000) (the "Accommodation  Line"), and a Working Capital Credit Line with
a maximum credit limit of Six Million Dollars ($6,000,000) (the "Working Capital
Line").  The Acquisition Line,  Accommodation  Line and Working Capital Line are
secured,  in part, by the Company's eligible accounts  receivable and inventory;
and

     WHEREAS,  on or about  October 15, 1999,  the Bank and the Company  entered
into  a  Deferral  and  Waiver  Agreement,  pursuant  to  which  Lender  agreed,
conditioned  upon certain  undertakings  and covenants of the Company,  to waive
certain financial  covenant  violations and to defer certain principal  payments
under the Loans to December 30, 1999; and

     WHEREAS, on or about December 30, 1999, the Bank and the Company executed a
First Amendment to Deferral and Waiver Agreement (the "First Waiver"), and on or
about March 27, 2000,  the Bank and the Company  executed a Second  Amendment to
Deferral  and Waiver  Agreement  (the "Second  Waiver"),  and on or about May 2,
2000, the Bank and the Company executed a Third Amendment to Deferral and Waiver
Agreement (the "Third  Waiver")  pursuant to which the Bank agreed,  conditioned
upon certain undertakings and covenants of the Company, to further waive certain
financial  covenant  violations and to further defer certain principal  payments
under the Loans to March 30,  2000 with  respect to the First  Waiver and to the
earlier of (i) May 15, 2000 and (ii) the closing of the Stock Purchase Agreement
(as defined  below) with respect to the Second  Waiver and to the earlier of (i)
June 30, 2000 and (ii) the closing of the Stock Purchase  Agreement with respect
to the Third Waiver; and

     WHEREAS,  on or about  January 20,  2000,  the Company  and SNPE,  Inc.,  a
Delaware  corporation  ("SNPE"),  entered into a Stock  Purchase  Agreement (the
"Stock  Purchase  Agreement"),  pursuant to which SNPE will purchase on June 14,
2000,  (i)  approximately  2,100,000  shares  of the  stock of the  Company  for
approximately   Five  Million  Eight  Hundred  Thousand  Dollars   ($5,800,000),
resulting in SNPE having an ownership  interest equal to  approximately  a fifty
and  eight-tenths  percent  (50.8%) in the  Company  and (ii) a One  Million Two
Hundred Thousand Dollar ($1,200,000)  subordinated note convertible into Company
stock (collectively, the "Acquisition");

     WHEREAS,  in  addition  to the Credit  Agreement,  the Company and the Bank
entered  into a  Reimbursement  Agreement  dated as of  September  1,  1998 (the
"Reimbursement  Agreement")  pursuant to which the Bank agreed to issue a letter
of credit in favor of the trustee to secure  payment of certain  Fayette  County
Industrial  Development  Authority  Multi-Mode  Variable Rate Industrial Revenue
Bonds,  Series  1998  (Dynamic  Materials  Corporation  Project),  to permit the
construction  of  certain  facilities  of the  Company  related  to its  Bonding
Division; and

     WHEREAS, the obligations of the Company to the Bank under the Reimbursement
Agreement were  cross-collateralized and cross-defaulted with its obligations to
the Bank under the Credit Agreement; and

     WHEREAS,  the Company has agreed to use the majority of the  proceeds  from
the Acquisition,  together with proceeds from the Loans to be made hereunder, to
repay the  outstanding  loans of the Bank  under the  Credit  Facility,  and has
requested  that SNPE provide to it short-term  financing  pending the entry with
another  commercial  lender into a longer-term  credit  relationship on mutually
agreeable terms; and

     WHEREAS,  the Bank has  agreed to  release  and/or  modify  certain  of the
collateral  securing  the  loans  under  the  Credit  Facility  and to amend the
Reimbursement Agreement;

     NOW THEREFORE,  in consideration of the covenants and agreements  contained
herein, the Company and SNPE hereby mutually agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1. General. Any accounting term used but not specifically defined
herein  shall be construed  in  accordance  with GAAP.  The  definition  of each
agreement,  document,  and  instrument  set forth in Section 1.2 hereof shall be
deemed to mean and include such agreement,  document,  or instrument as amended,
restated, or modified from time to time.

     Section 1.2. Defined Terms. As used in this Agreement:

     "Account"  shall mean (a) any  account  as defined in the UCC,  and (b) any
right to payment for Goods sold or leased or for services  rendered which is not
evidenced by an Instrument or Chattel Paper, whether or not it has been earned.

     "Account  Debtor"  shall  mean the Person  who is  obligated  on an Account
Receivable.

     "Account Receivable" shall mean:

     (a) any account receivable, Account, Chattel Paper, Contract Right, General
Intangible Document, or Instrument owned, acquired, or received by a Person,

     (b) any  other  indebtedness  owed to or  receivable  owned,  acquired,  or
received by a Person of whatever kind and however evidenced, and

     (c) any right,  title,  and  interest in a Person's  Goods which were sold,
leased, or furnished by that Person and gave rise to either (a) or (b) above, or
both of them,  including,  without  limitation  (i) any  rights of  stoppage  in
transit of a Person's  sold,  leased,  or  furnished  Goods,  (ii) any rights to
reclaim a Person's  sold,  leased,  or furnished  Goods,  and (iii) any rights a
Person has in such sold, leased, or furnished Goods that have been returned.

     "Affiliate"  shall  mean,  with  respect to a specified  Person,  any other
Person:  (a) which  directly or  indirectly  through one or more  intermediaries
controls,  or is controlled by, or is under common control with such Person, (b)
which  beneficially  owns or holds with power to vote five percent (5 %) or more
of any class of the voting stock of such Person, (c) five percent or more of the
voting stock of which other Person is beneficially owned or held by such Person,
or (d) who is an officer or director of such Person.

     "Acquisition" shall have the meaning set forth in the recitals hereto.

     "Applicable  Federal Funds Rate" means the Federal Funds Rate calculated as
of the first  Business Day following  each March 31, June 30,  September 30, and
December 31 (each, a "Determination  Date"),  which shall be used in calculating
any interest due under this Agreement until the next Determination Date.

     "Bonding  Division"  means the business unit of the Company  engaged in the
manufacture  of  explosion   bonded  clad  metal  products   primarily  for  the
petrochemical and chemical  processing  industries referred to as the "Explosive
Metal Working Group",  "Explosive  Manufacturing",  "Metal Cladding",  or "Shock
Synthesis" in the  Company's  annual report on form 10-K filed on March 30, 2000
for the period ended December 31, 1999.

     "Borrower" shall mean the Company.

     "Business  Condition"  shall mean the  financial  condition,  business  and
assets of a Person.

     "Business  Day" shall mean a day other than  Saturday,  Sunday or any other
day on which  commercial banks are required or authorized to close by law in the
State of Colorado or the State of New Jersey.

     "Capital Expenditures" shall mean any and all amounts invested, expended or
incurred  by a Person in  respect of the  purchase,  improvement  renovation  or
expansion of any land and  depreciable  or  amortizable  property of such Person
(including  expenditures  required to be capitalized in accordance with GAAP but
excluding  expenditures  relating  to  the  Company's  Pennsylvania   Industrial
Development Revenue Bond Project).

     "Cash  Collateral   Account"  shall  mean  a  commercial   Deposit  Account
designated "cash  collateral  account" and which SNPE may, upon not less than 30
days' written  notice to the Company,  request the Company to establish in favor
of SNPE at a designated  commercial bank, from which account SNPE shall have the
exclusive  right to withdraw funds until all  Obligations  are paid,  performed,
satisfied, enforced, and observed in full.

     "Cash Security" shall mean all cash,  Instruments,  Deposit  Accounts,  and
other cash  equivalents,  whether matured or unmatured,  whether collected or in
the process of  collection,  upon which  Company  presently has or may hereafter
have any claim,  that are  presently or may  hereafter be existing or maintained
with, issued by, drawn upon, or in the possession of Bank.

     "Chattel Paper" shall mean "chattel paper" as defined in the UCC.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time.

     "Collateral" shall have the meaning described in Section 3.1 hereof.

     "Commonly   Controlled  Entity"  shall  mean  a  Person,   whether  or  not
incorporated,  which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Code.

     "Company" shall mean Dynamic Materials Corporation, a Delaware corporation,
with its principal  office located at 551 Aspen Ridge Dr.,  Lafayette,  Colorado
80026, and its successors.

     "Contract  Right" shall mean (a) any contract  right,  and (b) any right to
payment under a contract not yet earned by  performance  and not evidenced by an
Instrument or Chattel Paper.

     "Convertible  Subordinated  Note"  shall  mean  that  certain  note  in the
aggregate   principal  amount  of  One  Million  Two  Hundred  Thousand  Dollars
($1,200,000)  executed  by the  Company  in favor  of  SNPE,  a copy of which is
attached to the Stock Purchase Agreement.

     "Credit Limit" shall mean Three Million and Five Hundred  Thousand  Dollars
($3,500,000), as provided in Section 2.1.

     "Credit Loan" shall mean a revolving  Loan  described in Section  2.1(b) of
this Agreement.

     "Deposit  Account" shall mean (a) any deposit account,  and (b) any demand,
time,  savings,  passbook,  or a similar account maintained with a bank, savings
and loan  association,  credit  union,  or similar  organization,  other than an
account evidenced by a certificate of deposit.

     "Disclosure  Schedules" shall mean the disclosure schedules attached to and
made a part of the Stock Purchase Agreement.

     "Document"  shall  mean  (a) any  document,  (b)  any  document  of  title,
including a bill of lading,  dock warrant,  dock receipt,  warehouse  receipt or
order for the  delivery of Goods,  and any other  document  which in the regular
course of business or financing  is treated as  adequately  evidencing  that the
Person in  possession  of it is entitled to  receive,  hold,  and dispose of the
document  and the Goods it covers,  and (c) any receipt  covering  Goods  stored
under a  statute  requiring  a bond  against  withdrawal  or a  license  for the
issuance of receipts in the nature of warehouse receipts even though issued by a
Person who is the owner of the Goods and is not a warehouseman.

     "Environmental Law" shall mean any federal,  state, or local statute,  law,
ordinance, code, rule, regulation,  order or decree regulating,  relating to, or
imposing liability upon a Person in connection with the use, release or disposal
of any hazardous toxic or dangerous substance, waste or material.

     "Equipment" shall mean "equipment" (as defined in the UCC) and fixtures (as
defined in the UCC) including,  without  limitation,  all machinery,  equipment,
furniture,  furnishings,  fixtures,  and packaging production equipment,  parts,
material  handling,  supplies,  and motor vehicles (titled or untitled) of every
kind and description, now or hereafter owned by the Company.

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

     "Event of Default" shall mean any one or more of the occurrences  described
in ARTICLE IX hereof.

     "Federal  Funds Rate" shall mean for any day,  the rate per annum  (rounded
upwards,  if  necessary,  to the  nearest  1/100th of 1%) equal to the  weighted
average of the rates on overnight federal funds transactions with members of the
Federal  Reserve  System  arranged  by federal  funds  brokers  on such day,  as
published  by the  Federal  Reserve  Bank of New York on the  Business  Day next
succeeding  such  day;  provided  that if such day is not a  Business  Day,  the
Federal Funds Rate for such day shall be such rate on such  transactions  on the
next preceding Business Day as so published on the next succeeding Business Day.

     "GAAP"  shall mean  generally  accepted  accounting  principles  as then in
effect,  which  shall  include  the  official  interpretations  thereof  by  the
Financial Accounting Standards Board, consistently applied.

     "General Intangible" shall mean (a) any "general intangible" (as defined in
the UCC), and (b) any personal property  (including things in action) other than
Goods, Accounts,  Contract Rights, Chattel Paper,  Documents,  Instruments,  and
money.

     "Goods"  shall mean (a) any "goods"  (as  defined in the UCC),  and (b) all
things which are movable at the time the security interest granted to SNPE under
the  Agreement  attaches  or which  are  fixtures  but does not  include  money,
Instruments,   Documents,  Accounts,  Chattel  Paper,  General  Intangibles,  or
Contract Rights.

     "Hazardous  Materials"  shall mean any  substance  or  material  defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance,  or other similar term, by any United States federal,  state
or local environmental statute, regulation or ordinance.

     "Indebtedness"  shall  mean for any  Person  (i) all  obligations  to repay
borrowed money, direct or indirect,  incurred,  assumed, or guaranteed, (ii) all
obligations  for the deferred  purchase price of capital assets  excluding trade
payables, (iii) all obligations under conditional sales or other title retention
agreements,  and (iv)  all  lease  obligations  which  have  been or  should  be
capitalized on the books of such Person.

     "Instrument" shall mean "instruments" (as defined in the UCC).

     "Inventory" shall mean all "inventory" (as defined in the UCC) now owned or
hereafter acquired by the Company,  including,  without  limitation,  all Goods,
merchandise,  work-in-process, raw materials, finished Goods, and inventory held
for lease to other Persons; all other materials, supplies, and tangible personal
property  of any  kind,  nature,  or  description  held for sale or lease or for
display  or  demonstration;  and all  documents  of  title  or  other  Documents
pertaining thereto, and all proceeds of the foregoing.

     "Letter of Credit  Loan" shall mean the loan to Company  from Bank,  in the
original  principal amount of $6,997,135,  subject to reduction upon payments by
the  Company to the Bank,  evidenced  by the  issuance  of a letter of credit to
provide a credit  enhancement  for bond financing and which loan is secured by a
lien on certain assets  relating to the Company's  Bonding  Division  located at
Mount Braddock and Dunbar, Pennsylvania.

     "Lien"  shall  mean  any  mortgage,   security   interest,   lien,  charge,
encumbrance  on,  pledge or  deposit  of,  or  conditional  sale or other  title
retention agreement with respect to any property or asset.

     "Loan"  or  "Loans"  shall  mean any of the loan  advances  to the  Company
extended by SNPE in accordance with ARTICLE II hereof.

     "Loan  Documents"  shall  mean  this  Agreement,  the  Note  and any  other
documents relating thereto.

     "Margin Stock" shall have the meaning given to it under Regulation U of the
Board of Governors of the Federal Reserve System, as amended from time to time.

     "Material  Adverse  Effect" shall mean material  adverse  effect on (i) the
ability of the Company and any  Subsidiaries  taken as a whole to fulfill  their
obligations  under any of the Loan  Documents or (ii) the Business  Condition of
the Company and any Subsidiaries taken as a whole.

     "Material  Agreements"  shall mean any  agreement to which the Company is a
party  which  provides  for the  receipt or  expenditure  by the  Company or any
Subsidiary  of more than  $500,000.00  in any  12-month  period other than sales
orders in the ordinary course of business.

     "Maturity Date" shall mean June 30, 2001.

     "Multiemployer  Plan" shall mean a Plan  described  in ERISA  which  covers
employees of the Company and employees of any other Person, which together would
be treated as a single employer for purposes of ERISA.

     "Note" shall mean the promissory note of the Company in  substantially  the
form of Exhibit A hereto.

     "Obligations"   shall   mean   any  and  all   indebtedness,   obligations,
liabilities,   contracts,   indentures,   agreements,   warranties,   covenants,
guaranties, representations, provisions, terms, and conditions of whatever kind,
now  existing  or  hereafter  arising,  and however  evidenced,  that are now or
hereafter owed, incurred, or executed by Company to, in favor of, or with SNPE.

     "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation  established
pursuant to subtitle A of Title IV or ERISA.

     "Penalty Rate" shall have the meaning assigned to it in Section 2.3(b).

     "Permitted Investment" shall mean the Company's:

     (a) investments  existing on the date hereof as disclosed in the Disclosure
Schedule;

     (b)  extensions  of credit in the nature of Accounts  Receivable,  or notes
receivable  arising from the Company's sale or lease of goods or services in the
ordinary course of business;

     (c) investments consisting of the endorsement of negotiable instruments for
deposit  or  collection  or  similar  transactions  in the  ordinary  course  of
business;

     (d) investments  (excluding debt  obligations)  received in connection with
the bankruptcy or reorganization of the Company's  customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, such customers
or suppliers arising, form transactions in the ordinary course of business;

     (e)  investments  consisting  of (i)  compensation  of  Company  employees,
officers or  directors  so long as the  Company's  Board of  Directors  lawfully
determines that such compensation is in the Company's best interest, (ii) travel
advances,  employee  relocation  loans and  other  employee  loans and  advances
lawfully made in the ordinary course of business,  and (iii) loans lawfully made
to Company's employees, officers or directors relating to the purchase of equity
securities of Company;

     (f) investments in marketable U.S. Treasury and Agency obligations;

     (g) investments in certificates of deposit and bankers'  acceptances issued
or created by any domestic commercial bank;

     (h)  investments in instruments  issued or enhanced by a member bank of the
Federal Reserve System;

     (i) investments in debt  obligations  issued by a corporation,  or state or
municipal  entity rated Bb or better in accordance with a rating system employed
by either Moody's Investor's Service, Inc. or Standard & Poor's Corporation;

     (j) investments that have been approved in writing by SNPE; or

     (k)  investments  of types not  enumerated  in  subparts  (a)  through  (i)
aggregating not in excess of $500,000.

     "Permitted Lien" shall mean the following:

     (a) Liens  existing as of the date of this  Agreement  and disclosed in the
Disclosure Schedule;

     (b) Liens for taxes or  governmental  assessments,  charges,  or levies the
payment of which is not at the time required by any provision of this  Agreement
or any other Loan  Document  unless such Liens are not  delinquent  or are being
contested in good faith by appropriate proceedings;

     (c) Liens that secure the Company's  Indebtedness for the purchase price of
any real or personal  property and that only  encumber  the property  purchased,
improvements or accessions thereto, and proceeds thereof;

     (d) Liens securing capital lease obligations;

     (e) Liens on Equipment leased by the Company pursuant to an operating lease
in the ordinary course of business  (including  proceeds  thereof and accessions
thereto)  incurred  solely  for the  purpose  of  financing  the  lease  of such
Equipment  (including  Liens  arising from UCC  financing  statements  regarding
leases permitted by this provision);

     (f) Easements, reservations, rights-of-way,  restrictions, minor defects or
irregularities  in title and other  similar  Liens  affecting  real property not
interfering in any material respect with the ordinary conduct of the business of
the Company;

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

     (h)  Liens  imposed  by  law,   such  as  Liens  of  landlords,   carriers,
warehousemen,  mechanics,  and  materialmen  arising in the  ordinary  course of
business  for sums not yet due or being  contested  by  appropriate  proceedings
promptly initiated and diligently conducted,  provided the Company has set aside
proper amounts,  determined in accordance with GAAP, for the payment of all such
Liens;

     (i) Liens  incurred or deposits made in the ordinary  course of business in
conjunction with worker's compensation,  unemployment insurance, and other types
of  social  security,  or  to  secure  the  performance  of  tenders,  statutory
obligations,  and surety  and appeal  bonds,  or to secure the  performance  and
return of money bonds and other similar obligations, but excluding Indebtedness;

     (j) Liens in  respect  of  judgments  or awards  with  respect to which the
Company shall,  in good faith, be prosecuting an appeal or proceeding for review
and with respect to which a stay of execution upon such appeal or proceeding for
review shall have been obtained;

     (k) Liens in favor of the Bank pursuant to the Letter of Credit Loan;

     (l) Liens approved in writing by SNPE; and

     (m) Liens incurred in connection  with the extension,  renewal,  refunding,
refinancing,  modification,  amendment or restatement of Indebtedness secured by
Liens of the type  described  in clauses (a),  (c), (d) and (k) above,  provided
that any extension, renewal or replacement Lien shall be limited to the property
encumbered  by the existing Lien and the  principal  amount of the  indebtedness
being extended, renewed or refinanced does not increase.

     "Person" shall mean any natural person,  corporation (which shall be deemed
to include business trust), association, limited liability company, partnership,
joint venture, political entity, or political subdivision thereof.

     "Plan"  shall mean any plan (other than a  Multiemployer  Plan)  defined in
ERISA in which the Company or any  Subsidiary is, or has been at any time during
the preceding two (2) years,  an "employer" or a "substantial  employer" as such
terms are defined in ERISA.

     "Proceeds" means any "proceeds" (as defined in the UCC).

     "Related  Expenses" means any and all reasonable  costs,  liabilities,  and
expenses  (including without limitation,  losses,  damages,  penalties,  claims,
actions,  reasonable  attorney's  fees,  legal expenses,  judgments,  suits, and
disbursements)  incurred by,  imposed  upon,  or asserted  against,  SNPE in any
attempt by SNPE:

     (a)  to  obtain,  preserve,  perfect,  or  enforce  any  security  interest
evidenced by (i) the  Agreement,  or (ii) any other pledge  agreement,  mortgage
deed, deed of trust,  hypothecation  agreement,  guaranty,  security  agreement,
assignment,  or security  instrument executed or given by Company to or in favor
of SNPE;

     (b) to obtain  payment,  performance,  and observance of any and all of the
Obligations;

     (c) to maintain, insure, audit, collect,  preserve,  repossess, and dispose
of any of the Collateral; or

     (d) any such  expenses  incidental  or related to subparts  (a) through (c)
above.

     "Reportable  Event" shall have the meaning assigned to that term in Section
4043 of ERISA for which the  requirement  of 30 days' notice to the PBGC has not
been waived by the PBGC.

     "Single   Employer  Plan"  shall  mean  any  Plan  as  defined  in  Section
4001(a)(15) of ERISA.

     "Subordinated   Debt"  shall  mean   Indebtedness  of  a  Person  which  is
subordinated  (i) to the Obligations,  and (ii) in a manner  satisfactory to the
Bank, to the Company's  obligations under the Letter of Credit Loan,  including,
but not limited to, the Convertible Subordinated Note.

     "Subsidiary"  shall mean any Person of which more than fifty  percent (50%)
of (i) the voting stock entitling the holders thereof to elect a majority of the
Board of Directors,  managers,  or trustees thereof, or (ii) the interest in the
capital  or profits of such  Person,  which at the time is owned or  controlled,
directly or indirectly, by the Company or one or more other Subsidiaries.

     "UCC" shall mean the Uniform  Commercial Code in effect in the State of New
York from time to time.

     The foregoing  definitions shall be applicable to the singulars and plurals
of the foregoing  defined terms. All accounting and financial terms used in this
Section and in this  Agreement and not otherwise  defined shall be determined in
accordance with GAAP consistently applied.

                                   ARTICLE II

                                CREDIT FACILITIES

     Section 2.1. Amount and Terms of the Credit Facility.

     Working  Capital  Line.  SNPE  hereby  agrees,  subject  to the  terms  and
conditions of this  Agreement,  to make  advances  available to the Company from
time to time on and after the date of this  Agreement  through and including the
Maturity  Date,  in an  aggregate  principal  amount  not to exceed  $3,500,000;
provided,  however, that SNPE agrees to increase the maximum amount available to
not more than $4,500,000 subject to (i) receipt of a written request by DMC made
not less  than five  Business  Days  prior to the date on which DMC  anticipates
needing the additional funds, which request shall contain a detailed description
of the use of proceeds  for such  additional  loans,  and (ii) receipt by DMC of
written  approval  of such  increase by SNPE.  Subject to  Sections  2.5 and 2.6
below, until the Maturity Date, the Company may borrow,  repay, and reborrow the
Loans up to the maximum amount thereof.

     Section 2.2.  Loan  Evidenced by Note.  The Loans made  hereunder  shall be
evidenced by the Note,  attached to which shall be attached a ledger  reflecting
the principal  amount of all advances  outstanding and all amounts  repaid.  The
ledger shall be presumptive  evidence of the principal  owing and unpaid on such
Note.

     Section 2.3. Interest Rates.

     (a) The Company shall pay interest on the unpaid  principal  amount of each
Loan made by SNPE  hereunder  from the date of such Loan  until  such  principal
amount shall be paid in full, at the Applicable Federal Funds Rate plus 1.5%.

     (b) Upon the  occurrence  of any Event of Default and so long as such Event
of Default is continuing (excepting therefrom an Event of Default created by the
Company's failure to deliver its financial statements in accordance with Section
8.1 of this  Agreement),  the unpaid  principal amount of the Loans, and accrued
interest  thereon,  or any fees or any and other sum  payable  hereunder,  shall
thereafter  until paid in full bear  interest  at a rate per annum  equal to the
Applicable Federal Funds Rate plus 6% (the "Penalty Rate").

     Section 2.4.  Interest  Payments.  The Company shall pay to SNPE  quarterly
interest  on the unpaid  principal  balance  of the Loans on March 31,  June 30,
September 30 and December 31 of each year (with the first interest payment being
due on September 30,  2000).  On the Maturity  Date,  all amounts of accrued and
unpaid interest shall be immediately due and payable.

     Section 2.5. Principal Payments.

     (a) Commencing October 1, 2000, outstanding Loans shall be repaid by DMC on
demand on not less than 90 days' prior written notice by SNPE.

     (b) On the Maturity  Date, all amounts of principal  outstanding  hereunder
shall be immediately due and payable.

     Section 2.6. Prepayment.

     (c) Voluntary  Prepayment.  The Company may prepay any Loan in whole, or in
part, at any time or times.

     (d) Prepayment Upon Significant  Sale of Assets.  Without notice or demand,
if the Company sells,  leases,  transfers or otherwise  disposes of any plant or
any  manufacturing  facility  or other  assets in any  transaction  or series of
transactions  involving,  in the aggregate,  an amount  exceeding  Three Million
Dollars ($3,000,000) then, at the request of SNPE, the Company shall immediately
prepay  the  Loans in the full  amount  of the  consideration  (whether  cash or
otherwise) received by the Company in respect of such sale.

     Section 2.7.  Fees.  The Company shall pay to SNPE a commitment  fee of Ten
Thousand Dollars ($10,000) upon the execution of this Agreement.

     Section 2.8. Computation of Interest and Fees. Interest on Loans and unpaid
fees, if any,  shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed.

                                   ARTICLE III

                               SECURITY AGREEMENT

     Section 3.1. Grant of Security  Interest.  To secure the prompt payment and
performance of the Obligations, and in addition to any other collateral or Liens
securing  the  Obligations,  the  Company  hereby  grants  to SNPE a  continuing
security  interest in and to and a pledge of all of the tangible and  intangible
personal  property and assets of the Company not required in connection  with or
otherwise  used,  produced by or resulting  from the  operations  of the Bonding
Division,  whether now owned or existing  or  hereafter  acquired or arising and
wheresoever located including,  without limitation (a) all Accounts  Receivable,
(b) all Inventory, (c) all Equipment, (d) all General Intangibles,  (e) all Cash
Security,  (f) all  Instruments,  Documents,  documents  of title,  policies and
certificates of insurance,  securities,  Goods, choses in action, Chattel Paper,
cash or other  property,  to the  extent  owned by the  Company  or in which the
Company  has an  interest,  (g) all  personal  property  or assets  owned by the
Company  which now or hereafter is at any time in the  possession  or control of
SNPE or in transit by mail or  carrier to or from SNPE or in the  possession  of
any Person acting in SNPE's behalf,  without regard to whether SNPE received the
same in pledge,  for  safekeeping,  as agent for collection or  transmission  or
otherwise or whether SNPE had  conditionally  released the same, and any and all
balances,  sums, proceeds and credits of the Company with, and any claims of the
Company  against,  SNPE,  (h) all  accessions  to,  substitutions  for,  and all
replacements,   products  and   Proceeds,   profits  and  rents  of  the  herein
above-referenced  property of the Company  described in this Section  including,
but not limited to, proceeds of insurance  policies insuring such property,  (i)
all books,  records,  and other property  including,  but not limited to, credit
files, programs,  printouts,  computer software (to the extent not disallowed by
any  agreement  between  the Company and third  parties),  programs,  and disks,
magnetic tape and other magnetic media,  and other materials and records) of the
Company pertaining to any such above-referenced property of the Company, (j) all
real property, improvements,  fixtures,  appurtenances,  leasehold interests and
any  other  property  of  similar  kind or  character,  and (k) all  "investment
property"  (as  defined in the UCC) (the  property  identified  in  clauses  (a)
through (k) being referred to as the "Collateral"),  subject, in each case, only
to any prior  Permitted  Lien.  Assets of the Company which shall not constitute
Collateral  under this Agreement,  but which shall be subject to Permitted Liens
of the Bank, are identified on Exhibit B hereto.  Notwithstanding the foregoing,
the  Collateral  shall not include (i) that certain  sublease  (the  "Sublease")
dated July 22, 1996  between the Company and E.I.  duPont de Nemours and Company
("DuPont"),  and (ii)  those  assets  located  on the  property  covered  by the
Sublease or those assets used  directly or  indirectly  in  connection  with the
services  provided by the Company to DuPont (as assigned to  Mypodiamond,  Inc.)
under that certain Tolling/Services Agreement for Industrial Diamonds dated July
22, 1996,  all of which assets are located at the Company's  facility in Dunbar,
Pennsylvania.

     Section 3.2. Grant of License.  Subject to any prior Permitted  Liens,  the
Company hereby grants to SNPE a fully-paid,  royalty-free,  worldwide  right and
license to,  upon the  occurrence  of an Event of  Default,  (a) use, or sell or
otherwise transfer, any and all of the Company's Inventory;  (b) use or sell any
such work-in-process,  raw materials or completed or finished products,  and (c)
accept any and all orders or shipments  of products  ordered by the Company from
manufacturers and use or sell any such products.

     Section  3.3.   Perfection.   The  Company  shall  execute  such  financing
statements  provided for by applicable law, and otherwise take such other action
and execute such assignments or other instruments or documents,  in each case as
SNPE may reasonably  request,  to evidence,  perfect,  or record SNPE's security
interest in the  Collateral or to enable SNPE to exercise and enforce its rights
and remedies under this Agreement  with respect to any  Collateral.  The Company
hereby  authorizes  SNPE to execute  and file any such  financing  statement  or
continuation  statement on the Company's behalf. The parties  acknowledge that a
carbon,  photographic,   or  other  reproduction  of  this  Agreement  shall  be
sufficient as a financing statement to the extent permitted by law.

     Section  3.4.  General  Representations  as  to  Collateral.   The  Company
represents that the Disclosure  Schedule sets forth:  (a) the principal place of
business  of the Company and the office  where its chief  executive  offices and
accounting  offices are located,  (b) the office where Company keeps its records
concerning the Accounts Receivable and General Intangibles,  (c) the location of
the  Company's  registered  office,  (d) each  location  at which is located any
Inventory,  Equipment or other  tangible  Collateral of the Company,  including,
without limitation, the location of any warehouse,  bailee or consignee at which
Collateral is located, and (e) all trade names, assumed names,  fictitious names
and other names used by the Company  during the five (5) years prior to the date
hereof.

     Section 3.5. Title to Collateral;  Liens; Transfers.  The Company has good,
clear and merchantable title to and ownership of the Collateral,  free and clear
of all Liens, except for Permitted Liens. Except as otherwise provided herein or
in any  other  Loan  Document,  and  except as to  Permitted  Liens and sales of
Inventory in the ordinary  course of business,  the Company  shall not encumber,
pledge, mortgage, grant a security interest in, assign, sell, lease or otherwise
dispose of or transfer,  whether by sale,  merger,  consolidation,  liquidation,
dissolution or otherwise, any of the Collateral.

     Section 3.6. Changes Affecting  Perfection.  The Company shall not, without
giving SNPE thirty (30) days prior  notice  thereof:  (a) make any change in any
location  where the  Company's  Equipment or material  amounts of the  Company's
Inventory is  maintained  or locate any of the  Company's  Equipment or material
amounts of the Company's Inventory at any new locations,  (b) make any change in
the location of its chief executive  office,  principal place of business or the
office  where  Company's   records   pertaining  to  its  Accounts  and  General
Intangibles  are kept (c) add any new  places  of  business  or close any of its
existing places of business,  (d) make any change in Company's name or adopt any
trade names,  assumed names or fictitious  names or otherwise add any name under
which the Company does business,  or (e) make any other change (other than sales
of  Inventory  in the  ordinary  course of  business)  which  might  affect  the
perfection or priority of SNPE's Lien in the Collateral.

     Section 3.7.  Power of Attorney for  Insurance.  Upon request of SNPE,  the
Company  shall  promptly  deliver  to SNPE true  copies of all  reports  made to
insurance  companies.  The Company hereby  irrevocably makes,  constitutes,  and
appoints SNPE (and all officers, employees, or agents designated by SNPE) as its
true and lawful  attorney-in-fact  and agent,  with full power of  substitution,
such that SNPE  shall  have the right and  authority,  upon the  occurrence  and
during  the  continuance  of an Event of  Default  which has not been  waived in
writing by SNPE as required by this  Agreement,  to make and adjust claims under
such policies of insurance,  receive and endorse the name of the Company on, any
check,  draft,  instrument  or other item of payment  for the  proceeds  of such
policies of insurance and make all  determinations and decisions with respect to
such  policies of  insurance,  subject,  in each case to any prior rights of the
Bank under its credit  facility and  security  agreement  with the Company.  The
Company hereby ratifies all that said attorneys shall lawfully do or cause to be
done by  virtue  hereof.  This  power of  attorney  is a power  coupled  with an
interest and shall be irrevocable.  Without waiving or releasing any obligation,
Potential Default or Event of Default by the Company under this Agreement,  SNPE
may (but shall not be required to) at any time or times thereafter maintain such
action with respect thereto as SNPE deems advisable.  All sums disbursed by SNPE
in connection therewith  (including,  but not limited to, reasonable  attorneys'
and paralegals' fees and disbursements,  court costs, expenses and other charges
relating  thereto) shall be payable on demand,  and until paid by the Company to
SNPE,  with  interest  thereon  at the  Penalty  Rate,  and shall be  additional
Obligations under this Agreement secured by the Collateral.

     Section  3.8.  Protection  of  Collateral;   Reimbursement.  All  insurance
expenses  and  all  expenses  of  protecting,  storing,  warehousing,  insuring,
handling,  maintaining,  and  shipping  any  Collateral,  any  and  all  excise,
property,  sales,  use, or other taxes imposed by any state,  Federal,  or local
authority  on any of the  Collateral,  or in  respect  of the sale  thereof,  or
otherwise in respect of the  Company's  business  operations  which,  if unpaid,
could result in the imposition of any Lien upon the  Collateral,  shall be borne
and paid by the  Company.  If the  Company  fails to  promptly  pay any  portion
thereof when due,  except as may otherwise be permitted  under this Agreement or
under any of the other Loan Documents,  SNPE, at its option,  may, but shall not
be  required  to, pay the same.  All sums so paid or incurred by SNPE for any of
the foregoing and any and all other sums for which the Company may become liable
under this Agreement and all reasonable costs and expenses (including reasonable
attorneys' fees and paralegals' fees, legal expenses,  and court costs, expenses
and  other  charges  related  thereto)  which  SNPE may  incur in  enforcing  or
protecting  its Liens on or rights and interests in the Collateral or any of its
rights or  remedies  under this  Agreement  or any other  agreement  between the
parties to this  Agreement  or in respect of any of the  transactions  to be had
under this Agreement shall be repayable  within five (5) Business Days of demand
and if not paid within said five (5)  Business  Day period,  which  amount shall
also accrue interest, until paid by the Company to SNPE with interest thereon at
a rate per annum  equal to the Penalty  Rate,  shall be  additional  Obligations
under this Agreement  secured by the Collateral.  Unless  otherwise  provided by
law,  neither SNPE nor any Affiliate of SNPE shall be liable or  responsible  in
any way for the  safekeeping  of any of the Collateral or for any loss or damage
thereto or for any diminution in the value thereof, or for any act or default of
any warehouseman, carrier, forwarding agency, or other Person whomsoever.

     Section 3.9.  Inspection;  Verification.  During regular business hours and
with  prior  notice to the  Company,  SNPE (by any of its  officers,  employees,
agents,  representatives,  or  designees)  shall have the right to  inspect  the
Company's  Collateral  and to inspect  and audit all books,  records,  journals,
orders,  receipts, or other correspondence related thereto (and to make extracts
or copies thereof as SNPE may desire) and to inspect the premises upon which any
of the  Collateral is located for the purpose of verifying the amount,  quality,
quantity,  value,  and  condition  of,  or any other  matter  relating  to,  the
Collateral,   provided,  however,  that  upon  the  occurrence  and  during  the
continuance  of an Event of  Default,  SNPE may  exercise  such access and other
rights at any time SNPE deems such action necessary or desirable. In addition to
inspections as outlined above, SNPE or its designee shall have the right to make
test verifications of the Accounts  Receivable and other Collateral and physical
verifications of the Inventory and other tangible items of the Collateral in any
manner and  through  any  commercially  reasonable  medium  that SNPE  considers
advisable, and the Company agrees to furnish all such assistance and information
as SNPE may require in connection therewith. The Company shall pay the costs for
each of one such inspection and one such  verification in each 12-month  period;
provided,  however,  that if an Event of Default has occurred and is continuing,
the Company shall pay the costs of all such inspections and verifications.

     Section 3.10. Assignments,  Records and Schedules of Accounts. If requested
by SNPE, on or before the thirtieth  (30th)  calendar day of each month from and
after the date of this Agreement, the Company shall deliver to SNPE, in form and
substance  acceptable  to SNPE,  a summary aged trial  balance of the  Company's
Accounts  Receivables  dated as of the last day of the preceding month (and upon
SNPE's  request,  a detailed aged trial balance,  of all then existing  Accounts
Receivable  specifying  the  names,  face value and dates of  invoices  for each
Account Debtor obligated on an Account Receivable so listed). In addition,  upon
SNPE's request,  the Company shall furnish SNPE with copies of proof of delivery
and the original copy, if available,  of all documents  relating to the Accounts
Receivable including, but not limited to, repayment histories and present status
reports,  and such other matters and information  relating to the status of then
existing  Accounts  Receivable as SNPE shall  reasonably  request.  If, upon the
occurrence of an Event of Default,  SNPE so requests,  the Company shall execute
and deliver to SNPE, on forms supplied by SNPE and at such intervals as SNPE may
from time to time  require,  written  assignments  of all of its Accounts  after
shipment of the subject goods,  together with copies of invoices  and/or invoice
registers related thereto.

     Section 3.11.  Reporting  Regarding  Inventory.  If requested by SNPE,  the
Company shall report inventory  figures no later than thirty (30) days after the
end of each month based upon  month-end  balances  reconciled  to the period end
balance   sheet.   The  Company's   Inventory   shall  be  reported  based  upon
reconciliation of the financial  statements to the perpetual inventory system or
a  regular  physical  count as the case may be,  and:  (a) the  values  shown on
reports of Inventory shall be at the lower of cost or market value determined in
accordance  with  the  Company's  usual  cost  accounting  system,  consistently
applied,  and (b) no later than thirty (30) days after the end of each month, or
more frequently,  if SNPE shall so request,  the Company shall submit to SNPE an
inventory  report,  the Company's  perpetual  inventory  records and its general
ledger,  broken  down into such  detail and with such  categories  as SNPE shall
require.

     Section 3.12. Other Collateral  Reports.  If requested by SNPE, the Company
shall  furnish SNPE with,  on or before the  thirtieth  (30th) day of each month
from and after the date of this  Agreement,  a report  listing  the  schedule of
backlog  of orders  being  processed  by the  Company,  and such  other  reports
regarding other Collateral as SNPE from time to time reasonably may request.

                                   ARTICLE IV

                      SPECIFIC REPRESENTATIONS, WARRANTIES
                      AND COVENANTS RELATING TO COLLATERAL

     Section 4.1.  Disputes and Claims  Regarding  Accounts.  The Company  shall
notify SNPE  promptly of all  material  disputes and claims and settle or adjust
them at no  expense  to SNPE,  but no  material  discount,  credit or  allowance
outside  the  ordinary  course  of  business  or  material  adverse   extension,
compromise or settlement  shall be granted to any customer or Account  Debtor in
respect of an Account  Receivable  and no returns  of  merchandise  outside  the
ordinary  course of business  shall be accepted by the Company in  settlement or
satisfaction of an Account  Receivable  which  settlement or satisfaction  would
have a Material  Adverse Effect,  without SNPE's consent which consent shall not
be unreasonably withheld.

     Section 4.2. Deposit Accounts.  Other than: (a) the Cash Collateral Account
(if required by SNPE),  and (b) those other  Deposit  Accounts  disclosed on the
Schedule 4.2 attached  hereto and consented to by SNPE,  neither the Company nor
any of its  Subsidiaries  maintains a Deposit  Account or trust  account for the
purpose of collecting and depositing Collections and/or Remittances or otherwise
holding monies of the Company.

     Section 4.3. Compliance with Terms of Accounts;  General  Intangibles.  The
Company will perform and comply in all material respects with all obligations in
respect of Accounts Receivable, Chattel Paper, General Intangibles and under all
other  contracts  and  agreements to which it is a party or by which it is bound
relating  to the  Collateral  where  failure  to so comply  would  result in any
material impairment in the value of the Collateral,  unless the validity thereof
is being contested in good faith by appropriate proceedings and such proceedings
do not  involve  the  material  danger  of the sale,  forfeiture  or loss of the
Collateral  which is the subject of such proceedings or the priority of the lien
in favor of SNPE thereon.

     Section  4.4. No Waivers,  Extensions,  Amendments.  The Company  will not,
without SNPE's prior written  consent,  which consent shall not be  unreasonably
withheld or delayed,  grant any  extension  of the time of payment of any of the
Accounts, Chattel Paper or Instruments,  compromise, compound or settle the same
for less than the full amount  thereof,  release,  wholly or partly,  any person
liable  for the  payment  thereof,  or allow any credit or  discount  whatsoever
thereon, other than in the ordinary course of business;  provided, however, that
no such  written  consent  shall be  required  for the Company to grant any such
extension for or to compromise or settle any of such Accounts,  Chattel Paper or
Instruments if such action is consistent with the Company's  business  practices
in the ordinary course.

     Section 4.5.  Location of  Collateral.  All of the locations of the Company
and its  Subsidiaries  and all locations of the  Collateral are set forth in the
Disclosure  Schedule.  Other  than as  otherwise  set  forth  in the  Disclosure
Schedule,  as amended or supplemented by written notice to SNPE: (a) the Company
does not keep, and shall not keep,  any  Collateral  owned by it on any property
not owned in fee simple by the Company,  and (b) each of the Subsidiaries of the
Company does not keep,  and shall not keep,  any  Collateral  owned by it on any
property not owned in fee simple by the Company  except to the extent  permitted
by this Agreement.

     Section 4.6. Lien Priority.  From and after the date of this Agreement,  by
reason of the filing of financing  statements and termination  statements in all
requisite government offices,  this Agreement and the Loan Documents will create
and constitute a valid and perfected first priority security interest (except as
otherwise  expressly  permitted by this  Agreement  and/or  subject to Permitted
Liens) in and Lien on that portion of the  Collateral  which can be perfected by
such filing or delivery,  which  security  interest will be  enforceable by SNPE
against  the  Company  and all third  parties  as  security  for  payment of all
Obligations.

     Section  4.7.  Lien  Waivers;   Landlord,  Bailee  and  Consignee  Waivers,
Warehouse Receipts.  The Company will not create,  permit or suffer to exist and
will defend the Collateral against and take such other action as is necessary to
remove,  any  Lien,  claim or right,  in or to the  Collateral,  other  than the
Permitted Liens. The Company shall defend the right,  title and interest of SNPE
in  and  to any of the  Company's  rights  to the  Collateral  and in and to the
Proceeds and products thereof against the claims and demands of all Persons.  In
the event any Collateral of the Company comprising  personal property subject to
the  security  interest  or Lien in favor of SNPE is at any time  located on any
real property not owned by the Company,  the Company will obtain and maintain in
effect at all times while any such  Collateral is so located valid and effective
lien waivers, in form and substance reasonably satisfactory to SNPE whereby each
owner, landlord, consignee, bailee and mortgagee having an interest in such real
property shall disclaim any interest in such Collateral, as the case may be, and
shall agree to allow SNPE reasonable  access to such real property in connection
with any enforcement of the security interest granted hereunder.

     Section 4.8.  Maintenance  of  Insurance.  The Company will  maintain  with
financially sound and reputable companies,  insurance policies: (a) insuring the
real property portion of the Collateral,  the Equipment,  the Inventory, and all
equipment subject to any lease,  against loss by fire,  explosion,  theft, flood
(if any such properties are located in a federally designated flood hazard area)
and such other casualties as are usually insured against by companies engaged in
the same or similar  businesses,  and (b)  insuring the Company and SNPE against
liability  for  personal  injury  and  property  damage  relating  to such  real
property,  Equipment,  Inventory and equipment  covered by any equipment  lease,
such  policies  to be in such form and in such  amounts  and  coverage as may be
reasonably  satisfactory to SNPE, with losses payable to the Company and SNPE as
their  respective  interests may appear.  All insurance with respect to the real
property,  Equipment  and  Inventory  shall:  (i) provide that no  cancellation,
reduction  in  amount,  change  in  coverage  or  expiration  thereof,  shall be
effective  until at least thirty (30) days after written  notice to SNPE thereof
and (ii) be satisfactory in all respects to SNPE.

     Section 4.9.  Maintenance of Equipment.  The Company will keep and maintain
each item of Equipment  necessary for the operation of the Company's business in
good operating condition,  ordinary wear and tear excepted, and the Company will
provide all maintenance and service, and all repairs necessary for such purpose.

     Section 4.10.  Limitations on Dispositions of Inventory and Equipment.  The
Company  will not  sell,  transfer,  lease or  otherwise  dispose  of any of the
Inventory or Equipment,  or attempt,  offer or contract to do so, except for (a)
dispositions of Inventory in the ordinary course of business, and (b) so long as
no Event of Default  has  occurred,  the  disposition  of  obsolete  or worn out
Equipment in the ordinary course of business and other dispositions of Equipment
permitted by this Agreement.

     Section 4.11. General Appointment as  Attorney-in-Fact.  The Company hereby
irrevocably constitutes and appoints SNPE and any officer or agent thereof, with
full power of substitution,  as its true and lawful  attorney-in-fact  with full
irrevocable power and authority in the place and stead of the Company and in the
name of the  Company  or in its own  name,  from  time  to  time  following  the
occurrence  of an Event of Default and for such time as such Event of Default is
continuing, in SNPE's reasonable discretion, for the purpose of carrying out the
terms of this Agreement, without notice (except as specifically provided herein)
to or assent  by the  Company,  to take any and all  appropriate  action  and to
execute  any and  all  documents  and  instruments  which  may be  necessary  or
desirable to effect the terms of this Agreement, including, without limiting the
generality of the foregoing,  the power and right, on behalf of the Company,  to
do the  following,  upon notice to the Company:  (a) to pay or discharge  taxes,
liens,  security  interests  or  other  encumbrances  levied  or  placed  on  or
threatened  against  the  Collateral,  to effect any  repairs or any  insurance,
called  for by the  terms  of this  Agreement  and to pay all or any part of the
premiums  therefor and the costs  thereof,  and  otherwise to itself  perform or
comply with,  or otherwise  cause  performance  or compliance  with,  any of the
covenants or other  agreements of the Company  contained in this Agreement which
the Company  has failed to perform or with which the  Company has not  complied,
(b) to commence and prosecute  any suits,  actions or  proceedings  at law or in
equity in any court of component  jurisdiction  to collect the Collateral or any
thereof  and to enforce  any other  right in respect of any  Collateral;  (c) to
defend any suit,  action or proceeding  brought against the Company with respect
to any  Collateral;  (d) to settle,  compromise  or adjust  any suit,  action or
proceeding described above and, in connection therewith, to give such discharges
or releases as the Bank may deem  appropriate;  (e) to sell,  transfer,  pledge,
make any agreement  with respect to or otherwise deal with any of the Collateral
as fully and  completely as though the Bank were the absolute  owner thereof for
all purposes;  and (f) to do, at SNPE's option and the Company's expense, at any
time, or from time to time, all acts and things which SNPE deems  necessary,  to
protect,  preserve or realize upon the Collateral, in order to effect the intent
of this  Agreement,  all as fully  and  effectively  as the  Company  might  do,
subject,  in each case, to any prior rights of holders of Permitted Liens.  This
power of attorney is a power coupled with an interest and shall be irrevocable.

     Section 4.12. SNPE Not Liable.  The powers  conferred on SNPE hereunder are
solely to protect its interests in the  Collateral and shall not impose any duty
upon it to exercise any such powers.  SNPE shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and neither
it nor any of its officers, directors,  employees or agents shall be responsible
to the  Company  for  any  act or  failure  to act,  except  for  its own  gross
negligence or willful misconduct.

     Section 4.13.  Authority to Execute  Transfers.  Without  limitation of any
authorization  granted to SNPE  hereunder,  the Company  also hereby  authorizes
SNPE, upon the occurrence of an Event of Default, to execute, in connection with
the exercise by SNPE of its remedies hereunder, any endorsements, assignments or
other  instruments  of conveyance  or transfer  with respect to the  Collateral,
subject,  in each case,  to any prior rights  granted by the  Company,  with the
consent of SNPE, of holders of Permitted Liens.

     Section  4.14.  Performance  by SNPE of the Company's  Obligations.  If the
Company fails to perform or comply with any of its agreements  contained  herein
and SNPE shall itself  perform or comply,  or  otherwise  cause  performance  or
compliance  with,  such  agreement,  the expenses of SNPE incurred in connection
with such  performance  or compliance  together  with,  interest  thereon at the
interest rate provided for in Section 2.5(b) hereof in effect from time to time,
shall be payable by the Company to SNPE within five (5) Business Days  following
demand.

     Section 4.15.  Costs of Collection.  All reasonable  costs of collection of
the   Company's   Accounts   Receivable,   including   out-of-pocket   expenses,
administrative and record-keeping  costs, and reasonable  attorneys' fees, shall
be the sole responsibility of the Company, whether the same are incurred by SNPE
or the Company,  and SNPE, in its sole  discretion,  may charge the same against
the Company and/or any account  maintained by the Company with SNPE and the same
shall  be  deemed  part  of  the  Obligations  hereunder.   The  Company  hereby
indemnifies  and holds SNPE  harmless  from and  against any loss or damage with
respect  to any  collection  or  remittance  from an  Account  Debtor  which  is
dishonored or returned for any reason.  If any collection or remittance  from an
Account  Debtor is  dishonored or returned  unpaid for any reason,  SNPE, in its
sole discretion, may charge the amount of such dishonored or returned collection
or remittance  directly against the Company and/or any account maintained by the
Company  with  SNPE and such  amount  shall be  deemed  part of the  Obligations
hereunder.  SNPE shall not be liable for any loss or damage  resulting  from any
error, omission, failure or negligence on the part of SNPE under this Agreement,
except  losses or damages  resulting  from SNPE's  gross  negligence  or willful
misconduct  as  determined  by  a  final   judgment  of  a  court  of  competent
jurisdiction.

     Section 4.16. Notice to Account Debtors.  Subject to any rights of any Lien
holder in connection  with its Permitted  Liens,  the Company hereby  authorizes
SNPE, upon the occurrence and during the continuance of an Event of Default,  in
accordance  with the  powers  conferred  upon SNPE  pursuant  to any  applicable
provision of this Agreement,  to: (a) notify any or all Account Debtors that the
Accounts  Receivable  have been assigned to SNPE,  for the benefit of SNPE,  and
that SNPE has a security interest  therein,  and (b) direct such Account Debtors
to make all payments  due from them to the Company upon the Accounts  Receivable
directly to SNPE;  provided,  however,  that SNPE shall not  exercise any of its
rights under this  sentence  unless:  (i) the Company has failed to so notify or
direct any such Account Debtor  following a request from SNPE to the Company for
such  notification  or  direction,  or (ii) SNPE  reasonably  believes  that the
Company has failed to so notify or direct any such  Account  Debtor.  SNPE shall
promptly  furnish the  Company  with a copy of any such  notice  sent.  Any such
notice, in SNPE's sole discretion,  may be sent on the Company's stationery,  in
which event the Company shall co-sign such notice with SNPE.

     Section  4.17.   Appointment  of   Attorney-in-Fact.   The  Company  hereby
irrevocably  appoints SNPE (and all persons designated by SNPE) as the Company's
true and lawful attorney (and agent-in-fact) authorized, upon the occurrence and
during the  continuance  of an Event of Default in the Company's or SNPE's name,
to (i) demand payment of the Accounts  Receivable,  (ii) enforce  payment of the
Accounts  Receivable,  by legal proceedings or otherwise,  (iii) exercise all of
the Company's rights and remedies with respect to the collection of the Accounts
and any other Collateral, (iv) settle, adjust, compromise,  extend, or renew the
Accounts  Receivable,  (v) settle,  adjust,  or compromise any legal proceedings
brought to collect the Accounts Receivable, (vi) if permitted by applicable law,
sell or assign the Accounts Receivable and other Collateral upon such terms, for
such amounts, and at such time or times as SNPE deems advisable, (vii) discharge
and  release  the  Accounts  Receivable  and any other  Collateral,  (viii) take
control,  in any  manner,  of any item of payment or  proceeds  relating  to any
Collateral,  (ix) prepare, file, and sign the Company's name on a proof of claim
in bankruptcy or similar document against any Account Debtor, (x) prepare, file,
and sign the Company's name on any notice of Lien,  assignment,  or satisfaction
of Lien or similar document in connection with the Accounts Receivable,  (xi) do
all  acts and  things  necessary,  in the  Bank's  discretion,  to  fulfill  the
Company's  obligations  under  this  Agreement,  (xii)  endorse  the name of the
Company upon any of the items of payment or proceeds  relating to any Collateral
and  deposit  the same to the  account of SNPE on  account  of the  Obligations,
(xiii)  endorse  the name of the  Company  upon  any  Chattel  Paper,  document,
Instrument,  invoice,  freight  bill,  bill of lading,  or similar  document  or
agreement  relating  to  the  Accounts  Receivable,   Inventory  and  any  other
Collateral,  (xiv) use the Company's stationery and sign the name of the Company
to  verifications  of the  Accounts  Receivable  and notices  thereof to Account
Debtors,  (xv)  use  the  information  recorded  on or  contained  in  any  data
processing equipment and computer hardware and software relating to the Accounts
Receivable, Inventory, and any other Collateral to which the Company has access,
and (xvi) notify post office  authorities  to change the address for delivery of
the Company's mail to an address  designated by SNPE,  receive and open all mail
addressed to the Company,  and, after removing all  collections  and remittances
and other proceeds of Collateral,  forward the mail to the Company.  The Company
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue  hereof.  This power of attorney is a power  coupled with an interest and
shall be irrevocable.

                                    ARTICLE V

              GENERAL REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company  represents  and  warrants to SNPE (which  representations  and
warranties  will survive the delivery of the Note and all  extensions  of credit
under this Agreement) that:

     Section 5.1. Organization; Corporate Power.

     (e) The Company is a corporation duly organized,  validly existing,  and in
good standing under the laws of the jurisdiction in which it is incorporated;

     (f) The Company has the corporate power and authority to own its properties
and assets and to carry on its business as now being conducted;  (g) The Company
is  qualified  to do business in every  jurisdiction  in which the  ownership or
leasing of its property or the doing of business requires such qualification and
the failure of such qualification would have a Material Adverse Effect; and

     (h) The Company has the corporate  power to execute,  deliver,  and perform
its obligations under the Loan Documents and to borrow hereunder.

     Section  5.2.   Authorization  of  Loan.  The  execution,   delivery,   and
performance  of the Loan  Documents  and the  Loans by  Company  have  been duly
authorized by all requisite corporate action and have been reviewed and approved
by the Bank and SNPE.

     Section 5.3. No Conflict.  The execution,  delivery, and performance of the
Loan  Documents  will  not  (a)  violate  any  provision  of any  law,  rule  or
regulation, the Articles of Incorporation of Company, or By-Laws of Company, (b)
violate  any  order  of any  court  or  other  agency  of any  federal  or state
government  or any  provision  of any  material  indenture,  agreement  or other
instrument to which  Company is a party or by which it or any of its  properties
or assets are bound,  (c) conflict  with,  result in a breach of, or  constitute
(with passage of time or delivery of notice,  or both), a default under any such
material  indenture,  agreement,  or  other  instrument,  or (d)  result  in the
creation  or  imposition  of any Lien,  other than a  Permitted  Lien,  or other
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company except in favor of SNPE.

     Section 5.4. Execution of Loan Documents. The Loan Documents have been duly
executed and are valid and binding  obligations of the Company fully enforceable
in accordance with their respective terms.

     Section 5.5. Financial Condition. The following information with respect to
the Company has heretofore been furnished to SNPE:

     (i) Audited annual financial statements of the Company for the period ended
December 31, 1999;

     (j) Unaudited,  internally prepared financial statements of the Company for
the three-month period ending March 31, 2000;

     (k) Unaudited, internally prepared balance sheets and income statements for
the month of April, 2000; and

     (l) Pro  forma  financial  statements  of the  Company  for the year  ended
December  31,  2000,  including  a  consolidated  opening  balance  sheet  and a
consolidated statement of profit and loss of the Company.

     Each of the financial  statements referred to above in this Section 5.5 was
prepared in accordance with GAAP (subject in the case of interim statements,  to
the  absence  of  footnotes  and  normal  year-end  adjustments)  applied  on  a
consistent  basis,  except as stated therein.  Each of the financial  statements
referred to above in this Section 5.5 fairly presents the financial condition or
pro  forma  financial  condition,  as the case  may be,  of the  Company  and is
complete and correct in all material respects and no Material Adverse Effect has
occurred since the date thereof.

     Section 5.6.  Liabilities;  Liens.  The Company has made no investment  in,
advance to, or guarantee of, the obligations of any Person nor are the Company's
assets  and  properties  subject to any  claims,  liabilities,  Liens,  or other
encumbrances,  except as disclosed in the financial statements and related notes
thereto referred to in Section 5.5 hereof.

     Section 5.7. Litigation. There is no action, suit, examination,  review, or
proceeding by or before any governmental  instrumentality  or agency now pending
(including any claims alleging  infringement of intellectual  property rights of
others) or, to the knowledge of the Company,  threatened  against the Company or
against any property or rights of the Company,  which, if adversely  determined,
would materially impair the right of the Company to carry on its business as now
being conducted,  would materially  adversely affect the financial  condition of
the Company,  or would draw into question the legal  existence of the Company or
the  validity  authorization  or  enforceability  of any of the Loan  Documents,
except  for the  litigation,  if any,  described  in the notes to the  financial
statements referred to in Section 5.5 hereof.

     Section  5.8.  Payment  of Taxes.  Except  as set  forth in the  Disclosure
Schedule,  the Company has accurately prepared and timely filed, or caused to be
filed, all Federal,  state, local, and foreign tax returns required to be filed,
and has paid, or caused to be paid,  all taxes as are shown on such returns,  or
on any assessment  received by the Company, to the extent that such taxes become
due,  except as  otherwise  contested  in good faith.  The Company has set aside
proper amounts on its books, determined in accordance with GAAP, for the payment
of all taxes for the years  that have not been  audited  by the  respective  tax
authorities or for taxes being contested by the Company.

     Section 5.9. Absence of Adverse  Agreements.  The Company is not a party to
any  indenture,  loan or credit  agreement  or any lease or other  agreement  or
instrument or subject to any corporate or partnership restriction which would be
reasonably likely to have a Material Adverse Effect.

     Section 5.10. Regulatory Status.  Neither the making nor the performance of
this Agreement,  nor any extension of credit hereunder,  requires the consent or
approval of any governmental  instrumentality or political  subdivision thereof,
any  other  regulatory  or  administrative  agency,  or any  court of  competent
jurisdiction.

     Section  5.11.  Federal  Reserve  Regulations:  Use of Loan  Proceeds.  The
Company is not engaged principally,  or as one of its important  activities,  in
the business of extending  credit for the purpose of  purchasing or carrying any
Margin  Stock.  No part of the  proceeds of the Loans will be used,  directly or
indirectly,  for a purpose  which  violates any law,  rule or  regulation of any
governmental body, including without limitation the provisions of Regulations G,
U, or X of the Board of Governors of the Federal Reserve System, as amended.  No
part of the  proceeds  of the Loans will be used,  directly  or  indirectly,  to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock.

     Section 5.12. Subsidiaries. The Company has no Subsidiaries.

     Section 5.13. ERISA. The Company and any Commonly  Controlled Entity do not
maintain or contribute to any Plan which is not in substantial  compliance  with
ERISA.  Neither  the  Company  nor any  Commonly  Controlled  Entity  maintains,
contributes  to, or is required to make or accrue a  contribution  or has within
any of the six preceding  years  maintained,  contributed to or been required to
make or accrue a contribution  to any Plan subject to regulation  under Title IV
of ERISA,  any Plan that is  subject  to the  minimum  funding  requirements  of
Section 412 of the Code or Section 302 of ERISA, or any Multiemployer Plan.

     Section  5.14.  Solvency.  The Company is not  insolvent  as defined in any
applicable state or federal statute,  nor will the Company be rendered insolvent
by the execution and delivery of this  Agreement or the Note. The Company is not
engaged or about to engage in any business or  transaction  for which the assets
retained by it shall be an unreasonably small capital, taking into consideration
the obligations to SNPE incurred hereunder.  The Company does not intend to, nor
does it believe that it will, incur debts beyond its ability to pay them as they
mature.

     Section 5.15.  Disclosure Schedule.  The Disclosure Schedule accurately and
completely  lists  the  location  of all real  property  owned or  leased by the
Company.  The Company enjoys quiet  possession under all material leases of real
property  to which it is a party as a lessee,  and all of such leases are valid,
subsisting and, in full force and effect.  Except as specified in the Disclosure
Schedule,  none of the real property  occupied by the Company is located  within
any  federal,  state or municipal  flood plain zone.  Except as set forth in the
Disclosure  Schedule,  all of the material properties used in the conduct of the
Company's  business  (i)  are  in  good  repair,  working  order  and  condition
(reasonable  wear and tear  excepted)  and  reasonably  suitable  for use in the
operation  of the  Company's  business;  and (ii)  are  currently  operated  and
maintained,  in all material  respects,  in accordance with the  requirements of
applicable governmental authorities.

     Section  5.16.  Accuracy of  Representations  and  Warranties.  None of the
Company's  representations  or warranties  set forth in this Agreement or in any
document or  certificate  furnished  pursuant to this Agreement or in connection
with the  transactions  contemplated  hereby contains any untrue  statement of a
material fact or omits to state a material fact  necessary to make any statement
of fact contained herein or therein,  in light of the circumstances  under which
it was made not misleading.

     Section  5.17.  No Investment  Company.  The Company is not an  "investment
company" or a Company  "controlled' by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended,  which is required to
register thereunder.

     Section 5.18. Approval. Except as set forth in the Disclosure Schedule, all
approvals  required  of  the  Company  from  all  Persons,  including,   without
limitation, SNPE, Inc. and all governmental authorities with respect to the Loan
Documents have been obtained.

     Section  5.19.  Licenses,  Registrations,  Compliance  with Laws,  etc. The
Disclosure   Schedule   accurately   and   completely   describes  all  permits,
governmental licenses,  registrations and approvals, material to carrying out of
the Company's businesses as presently conducted and required by law or the rules
and regulations of any federal,  foreign  governmental,  state,  county or local
association,  corporation  or  governmental  agency,  body,  instrumentality  or
commission having  jurisdiction  over the Company,  including but not limited to
the United States Environmental  Protection Agency, the United States Department
of Labor, the United States Occupational Safety and Health  Administration,  the
United  States  Equal  Employment  Opportunity  Commission,  the  Federal  Trade
Commission and the United States Department of Justice and analogous and related
state and foreign agencies. All existing material  authorizations,  licenses and
permits are in full force and effect, are duly issued in the name of, or validly
assigned to the Company and the Company has full power and  authority to operate
thereunder. There is no material violation or material failure of compliance or,
to  the  Company's  knowledge,  allegation  of  such  violation  or  failure  of
compliance  on the  part  of the  Company  with  any of the  foregoing  permits,
licenses, registrations, approvals, rules or regulations and there is no action,
proceeding  or  investigation  pending  or  to  the  knowledge  of  the  Company
threatened nor has the Company received any notice of such which might result in
the  termination  or suspension  of any such permit,  license,  registration  or
approval which in any case could have a Material Adverse Effect.

     Section 5.20. Copyright. The Company has not violated any of the provisions
of the Copyright  Revision Act of 1976, 17 U.S.C. ss. 101, et seq. Except as set
forth on the  Disclosure  Schedule,  the Company has not filed any  registration
statements,  notices and statements of account with the United States  Copyright
Office.  The  Disclosure  Schedule  accurately  and  completely  sets  forth all
registered  copyrights  held  by the  Company  and  contains  exceptions  to the
representations  contained in this Section 5.20.  To the Company's  knowledge no
inquiries regarding any such filings have been received by the Copyright Office.

     Section 5.21.  Environmental  Compliance.  Except as expressly set forth in
the  Disclosure  Schedule  or as would  not  reasonably  be  expected  to have a
Material  Adverse  Effect,  neither  the  Company,  nor,  to  the  knowledge  of
management of the Company, any other Person has:

     (m) ever caused,  permitted, or suffered to exist any Hazardous Material to
be spilled, placed, held, located or disposed of on, under, or about, any of the
premises owned or leased by the Company (the  "Premises"),  or from the Premises
into the  atmosphere,  any body of water,  any  wetlands,  or on any other  real
property, nor does any Hazardous Material exist on, under or about the Premises,
or in respect of Hazardous Material used or disposed of in compliance with law;

     (n)  ever  used  (whether  by the  Company  or by any  other  Person)  as a
treatment  storage or disposal  (whether  permanent or  temporary)  site for any
Hazardous Waste as defined in 42  U.S.C.A.ss.6901,  et seq. (the Resource -- ---
Recovery and Conservation Act); and

     (o) any knowledge of any notice of  violation,  lien or other notice issued
by any governmental  agency with respect to the  environmental  condition of the
Premises or any other property occupied by the Company.

The  Company  is in  compliance  with  all  Environmental  Laws  and  all  other
applicable  federal,  state and  local  health  and  safety  laws,  regulations,
ordinances or rules,  except to the extent that any  noncompliance  will not, in
the aggregate, have a Materially Adverse Effect on the Company or the ability of
the Company to fulfill its obligations under this Agreement or the Notes.

     Section 5.22. Material Agreements,  etc. The Disclosure Schedule accurately
and  completely  lists all Material  Agreements,  all of which are  presently in
effect. All of the Material  Agreements are legally valid,  binding,  and to the
Company's  knowledge,  in fall force and effect and neither the Company  nor, to
the  Company's  knowledge,  any other  parties  thereto are in material  default
thereunder.

     Section 5.23. Patents, Trademarks and Other Property Rights. The Disclosure
Schedule contains a complete and accurate schedule of all registered trademarks,
registered  copyrights  and patents of the  Company,  and  pending  applications
therefor,  and all other  intellectual  property  in which the  Company  has any
rights other than  "off-the-shelf"  software which is generally available to the
general public at retail.  Except as set forth in the Disclosure  Schedule,  the
Company  owns,  possesses,  or has licenses to use all the patents,  trademarks,
service marks, trade names,  copyrights and  nongovernmental  licenses,  and all
rights with respect to the foregoing,  necessary for the conduct of its business
as now conducted,  without,  to the Company's  knowledge,  any conflict with the
rights others with respect thereto.

                                   ARTICLE VI

                 GENERAL REPRESENTATIONS AND WARRANTIES OF SNPE

     SNPE represents and warrants to the Company that:

     Section 6.1. Organization; Corporate Power.

     (p) SNPE is a corporation  duly organized,  validly  existing,  and in good
standing under the laws of the jurisdiction in which it is incorporated;

     (q) SNPE has the corporate  power and authority to own its  properties  and
assets and to carry on its business as now being conducted;

     (r) SNPE is  qualified  to do business in every  jurisdiction  in which the
ownership  or leasing of its  property  or the doing of business  requires  such
qualification  and the  failure  of such  qualification  would  have a  Material
Adverse Effect; and

     (s) SNPE has the  corporate  power to  execute,  deliver,  and  perform its
obligations under the this Agreement.

     Section 6.2.  Authorization.  The execution,  delivery,  and performance of
this  Agreement and the other Loan  Documents and the making of the Loans to the
Company have been duly authorized by all requisite corporate action of SNPE.

     Section 6.3. No Conflict. The execution,  delivery, and performance of this
Agreement  and Loan  Documents by SNPE will not (a) violate any provision of any
law, rule or regulation,  the Certificate of  Incorporation  or By-Laws of SNPE,
(b)  violate  any order of any court or other  agency  of any  federal  or state
government  or any  provision  of any  material  indenture,  agreement  or other
instrument  to which SNPE is a party or by which it or any of its  properties or
assets are bound or, (c)  conflict  with,  result in a breach of, or  constitute
(with passage of time or delivery of notice,  or both), a default under any such
material indenture, agreement, or other instrument.

     Section 6.4. Execution of Loan Documents. This Agreement and the other Loan
Documents have been duly executed and are valid and binding  obligations of SNPE
fully enforceable in accordance with their respective terms.

     Section 6.5.  Regulatory Status.  Neither the making nor the performance of
this Agreement,  nor any extension of credit hereunder,  requires the consent or
approval of any governmental  instrumentality or political  subdivision thereof,
any  other  regulatory  or  administrative  agency,  or any  court of  competent
jurisdiction.

                                   ARTICLE VII

                              CONDITIONS TO CLOSING

     Section 7.1.  Closing of Loans.  The  obligation  of SNPE to make the Loans
shall be subject to satisfaction of the following  conditions,  unless waived in
writing  by SNPE:  (a) all legal  matters  and Loan  Documents  incident  to the
transactions  contemplated hereby shall be reasonably satisfactory,  in form and
substance,  to SNPE's counsel;  (b) SNPE shall have received (i) certificates by
an authorized  officer of Company,  upon which SNPE may conclusively  rely until
superseded  by  similar  certificates  delivered  to  SNPE,  certifying  (A) all
requisite action taken in connection with the transactions  contemplated hereby,
and (B) the names,  signatures,  and authority of Company's  authorized  signers
executing  the  Loan  Documents,  and  (ii)  such  other  documents  as SNPE may
reasonably  require to be executed by, or  delivered  on behalf of Company;  (c)
SNPE shall have  received  the Note,  with all blanks  appropriately  completed,
executed by an authorized signer of Company;  (d) the Company shall have paid to
SNPE  the fee  then  due and  payable  in  accordance  with  ARTICLE  II of this
Agreement; and (e) SNPE shall have received documentation  identifying assets of
the Company  which are pledged to the Bank to support the Credit  Agreement  and
the Loans hereunder.

     Section 7.2. Each Advance.  The obligation of SNPE to make each  subsequent
advance  hereunder shall be subject to satisfaction of the following  additional
conditions  that at the date of making such  advance,  and after  giving  effect
thereto: (a) no Event of Default shall have occurred and be then continuing, (b)
each  representation and warranty set forth in this Agreement and in each of the
other Loan Documents is true and correct as if then made, and (c) no event shall
have  occurred  or failed to occur which has or is  reasonably  likely to have a
Material Adverse Effect.

                                  ARTICLE VIII

                                    COVENANTS

     As long as credit is  available  hereunder  or until all  principal  of and
interest on the Note have been paid in full:

     Section 8.1. Accounting:  Financial  Statements and Other Information.  The
Company  will  maintain  a  standard  system  of  accounting,   established  and
administered  in  accordance  with GAAP  consistently  followed  throughout  the
periods  involved,  and will set aside on its books  for each  fiscal  month the
proper amounts or accruals for  depreciation,  obsolescence,  amortization,  bad
debts, current and deferred taxes,  prepaid expenses,  and for other purposes as
shall be required by GAAP. The Company will deliver to SNPE:

     (t) As soon as  practicable  after the end of each  calendar  month in each
year and in any event within thirty (30) days  thereafter,  a  consolidated  and
consolidating  balance  sheet of the  Company as of the end of such  month,  and
statements of income, changes in financial position, and shareholders' equity of
the Company for such month,  certified as complete and correct by the  principal
financial  officer of the Company,  subject to changes  resulting  from year-end
adjustments,

     (u) As soon as  practicable  after the end of each fiscal year,  and in any
event within  ninety (90) days  thereafter,  a  consolidated  and  consolidating
balance  sheet of the  Company as of the end of such  year,  and  statements  of
income,  changes in financial position,  and shareholders' equity of the Company
for such year,  setting forth in each case in  comparative  form the figures for
the previous  fiscal year, all in reasonable  detail and accompanied by a report
and an  unqualified  opinion of  independent  certified  public  accountants  of
recognized  standing,  selected by the Company and  satisfactory to SNPE,  which
report and opinion  shall be  prepared in  accordance  with  generally  accepted
auditing standards,  together with a certificate by such accountants (i) briefly
setting  forth the scope of their  examination  (which shall include a review of
the relevant  provisions of this  Agreement  and stating that in their  judgment
such examination is sufficient to enable them to give the certificate,  and (ii)
stating  whether their  examination has disclosed the existence of any condition
or event which  constitutes  an Event of Default under this  Agreement,  and, if
their examination has disclosed such a condition or event, specifying the nature
and period of existence thereof;

     (v) promptly after the filing thereof,  copies of the state and federal tax
returns of the Company and all schedules thereto;

     (w) promptly upon their distribution,  copies of all financial  statements,
reports  and  proxy  statements  which  the  Company  shall  have  sent  to  its
stockholders,  and promptly after the sending or filing  thereof,  copies of all
regular and periodic  reports which the Company  shall file with the  Securities
and Exchange Commission or any national securities exchange; and

     (x) With  reasonable  promptness,  such other data and  information as from
time to time may be reasonably requested by SNPE.

     Section  8.2.  Insurance;  Maintenance  of  Properties.  The  Company  will
maintain with financially sound and reputable insurers,  insurance with coverage
and limits as may be required by law or as may be  reasonably  required by SNPE.
The Company will, upon request from time to time,  furnish to SNPE a schedule of
all insurance carried by it, setting forth in detail the amount and type of such
insurance.  The  Company  will  maintain  in good  repair,  working  order,  and
condition, all properties used or useful in the business of the Company.

     Section  8.3.  Existence;  Business.  The Company will cause to be done all
things necessary to preserve and keep in full force and effect its existence and
rights,  to conduct its business in a prudent manner,  to maintain in full force
and effect,  and renew from time to time,  its  franchises,  permits,  licenses,
patents, and trademarks that are necessary to operate its business.  The Company
will comply in all material  respects with all valid laws and regulations now in
effect  or  hereafter  promulgated  by  any  properly  constituted  governmental
authority having jurisdiction;  provided, however, that the Company shall not be
required to comply with any law or  regulation  which it is  contesting  in good
faith by  appropriate  proceedings  as long as either  the effect of such law or
regulation is stayed pending the resolution of such proceedings or the effect of
not complying  with such law or regulation is not to jeopardize  any  franchise,
license,  permit  patent,  or  trademark  necessary  to  conduct  the  Company's
business.

     Section 8.4. Payment of Taxes. The Company will pay all taxes, assessments,
and other governmental charges levied upon any of its properties or assets or in
respect of its franchises,  business,  income, or profits before the same become
delinquent,  except that no such taxes,  assessments,  or other  charges need be
paid if  contested by the Company in good faith and by  appropriate  proceedings
promptly  initiated  and  diligently  conducted and if the Company has set aside
proper amounts,  determined in accordance with GAAP, for the payment of all such
taxes, changes, and assessments.

     Section 8.5. Litigation;  Adverse Changes. The Company will promptly notify
SNPE in writing of (a) any future event which,  if it had existed on the date of
this Agreement would have required  qualification of any of the  representations
and warranties  set forth in this Agreement or any of the other Loan  Documents,
and (b) any Material Adverse Effect.

     Section 8.6.  Notice of Default.  The Company will promptly  notify SNPE of
any Event of Default  hereunder  and any  demands  made upon the  Company by any
Person for the  acceleration and immediate  payment of any Indebtedness  owed to
such Person.

     Section 8.7. Inspection.  The Company will make available for inspection by
duly authorized  representatives of SNPE, or its designated agent, the Company's
books,  records,  and properties  when  reasonably  requested to do so, and will
furnish  SNPE such  information  regarding  its business  affairs and  financial
condition within a reasonable time after written request therefor.

     Section 8.8. Environmental Matters. The Company:

     (y) Shall comply with all Environmental Laws, and

     (z) Shall  deliver  promptly to SNPE (i) copies of any  documents  received
from the United States  Environmental  Protection Agency or any state, county or
municipal  environmental  or health  agency,  and (ii)  copies of any  documents
submitted by Company to the United States Environmental Protection Agency or any
state,  county or  municipal  environmental  or  health  agency  concerning  its
operations.

     Section 8.9. Sale of Assets.  The Company will not, directly or indirectly,
sell,  lease,  transfer,  or otherwise dispose of any plant or any manufacturing
facility or other assets (i) without receipt of full and adequate  consideration
therefor, or (ii) involving amounts in the aggregate exceeding $3,000,000 in any
transaction or series of transactions  without making the prepayment required by
Section 2.6(b) hereof, if so required by SNPE.

     Section 8.10. Liens. The Company will not, directly or indirectly,  create,
incur, assume, or permit to exist any Lien with respect to any property or asset
of the Company now owned or hereafter acquired other than Permitted Liens.

     Section 8.11.  Indebtedness.  The Company will not, directly or indirectly,
create,  incur, or assume Indebtedness,  or otherwise become liable with respect
to, any Indebtedness other than:

     (aa) Indebtedness now or hereafter payable,  directly or indirectly, by the
Company to SNPE or any Affiliate of SNPE;

     (bb) Indebtedness now or hereafter payable,  directly or indirectly, by the
Company to the Bank in connection with the Letter of Credit Loan;

     (cc) Subordinated Debt of the Company;

     (dd) To the extent permitted by this Agreement,  Indebtedness for the lease
or purchase price of any real or personal  property,  which is secured only by a
Permitted Lien;

     (ee)  Unsecured  Indebtedness  and  deferred  liabilities  incurred  in the
ordinary course of business;

     (ff) Indebtedness for taxes,  assessments,  governmental charges, liens, or
similar claims to the extent not yet due and payable;

     (gg) Indebtedness of the Company existing as of the date of this Agreement,
which is expressly disclosed on the Disclosure Schedule;

     (hh) Other  Indebtedness  of the  Company not covered  under  subparts  (a)
through  (f) of this  Section  8.11  not  exceeding  $100,000  in the  aggregate
outstanding at any time; and

     (ii)  Extensions,   renewals,  refundings,   refinancings,   modifications,
amendments and  restatements of any of the items listed in items (b) through (h)
above,  provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon the Company.

     Section 8.12.  Investments;  Loans. Except for Permitted  Investments,  the
Company will not,  directly or indirectly,  (a) purchase or otherwise acquire or
own any stock or other securities of any other Person,  or (b) make or permit to
be  outstanding  any loan or advance  (other than trade advances in the ordinary
course of business) or enter into any  arrangement to provide funds or credit to
any other Person.

     Section  8.13.  Guaranties.  The Company  will not  guarantee,  directly or
indirectly, or otherwise become surety (including, without limitation, liability
by way of agreement,  contingent or otherwise, to purchase, to provide funds for
payment,  to supply funds to, or otherwise invest in, any Person,  or enter into
any  working  capital  maintenance  or  similar  agreement)  in  respect  of any
obligation or Indebtedness of any other Person, except guaranties by endorsement
of negotiable  instruments for deposit,  collection,  or similar transactions in
the ordinary course of business.

     Section 8.14.  Mergers;  Consolidation.  The Company will not merge into or
consolidate  with any other  Person or permit any other  Person to merge into or
consolidate with it, or sell all or substantially all of its assets; except that
the Company may permit any other Person to merge into or consolidate  with it if
(i) the Company shall be the  corporation  which survives such merger or results
from  such  consolidation,  (ii)  immediately  after  the  consummation  of  the
transaction,  and after giving effect thereto, the Company would be permitted by
the provisions of this ARTICLE VIII to incur additional Indebtedness,  and (iii)
before and  immediately  after the  consummation of the  transaction,  and after
giving effect thereto,  no Event of Default, or event which with notice or lapse
of time or both would become an Event of Default, exists or would exist.

     Section  8.15.  Capital  Expenditures.  The Company  will not make  Capital
Expenditures in an aggregate  amount in excess of $ 1,000,000 in any fiscal year
without thirty (30) days' prior written notification to SNPE.

     Section 8.16. Subordinated Debt. The Company will not make any payment upon
any outstanding  Subordinated  Debt, except in such manner and amounts as may be
expressly authorized in any subordination  agreement presently or hereafter held
by SNPE or as expressly set forth in the Convertible Subordinated Note.

     Section  8.17.  Senior  Management.   The  Company  will  not  replace  its
President, Chief Executive Officer or Chief Financial Officer without sixty (60)
days' prior written  notice to SNPE and will not accept the  resignation  of its
President,  Chief Executive Officer or Chief Financial Officer without providing
written notice to SNPE, which notice will be given to SNPE as soon as reasonably
possible  after the Company has knowledge of the same, but in no event more than
three (3) days following the date that the Company obtains such knowledge.

     Section 8.18.  Compliance  with ERISA.  With respect to the Company and any
Commonly Controlled Entity, the Company will not permit the occurrence of any of
the  following  events to the  extent  that any such  events  would  result in a
Material  Adverse  Effect on the Company,  (a) withdraw from or cease to have an
obligation  to  contribute  to,  any  Multiemployer  Plan,  (b)  engage  in  any
"prohibited  transaction" (as defined in Section 4975 of the Code) involving any
Plan,  (c) except for any deficiency  caused by a waiver of the minimum  funding
requirement  under Section 412 of the Code, as described above,  incur or suffer
to exist any material  "accumulated  funding  deficiency" (as defined in Section
302 of ERISA  and  Section  412 of the  Code)  of the  Company  or any  Commonly
Controlled  Entity,  whether or not waived,  involving any Single Employer Plan,
(d)  incur or  suffer  to exist any  Reportable  Event or the  appointment  of a
trustee or  institution  of  proceedings  for  appointment  of a trustee for any
Single Employer Plan if, in the case of a Reportable Event, such event continues
unremedied for ten (10) days after notice of such  Reportable  Event pursuant to
Sections 4043(a),  (c) or (d) of ERISA is given, if in the reasonable opinion of
SNPE any of the foregoing is likely to result in a Material Adverse Effect,  (e)
allow or suffer to exist any event or condition,  which presents a material risk
of  incurring a material  liability  of the Company or any  Commonly  Controlled
Entity to PBGC by reason of  termination of any such Plan or (f) cause or permit
any Plan maintained by the Company and/or any Commonly  Controlled  Entity to be
out of compliance with ERISA.

                                   ARTICLE IX

                                EVENTS OF DEFAULT

     The occurrence of any one or more of the following  events shall constitute
an Event of Default under this Agreement:

     Section  9.1.  Principal  or  Interest.  If the  Company  fails  to pay any
installment  of principal of or interest on the Note, or any other sums of money
when due and  payable  under  this  Agreement  and such  failure  continues  for
forty-eight (48) hours; or

     Section 9.2.  Misrepresentation.  If any  representation  or warranty  made
herein by Company or in any written statement, certificate, report, or financial
statement  at any time  furnished  by, or on behalf of,  Company  in  connection
herewith, is incorrect or misleading in any material respect when made; or

     Section 9.3. Failure of Performance of this Agreement.  Except as otherwise
provided  herein,  if the Company  fails to perform or observe  any  covenant or
agreement  contained in this Agreement or any of the other Loan  Documents,  and
such failure  remains  unremedied for thirty (30) calendar days after SNPE shall
have given written notice thereof to the Company; or

     Section  9.4.   Cross-Default.   If  the  Company  (a)  fails  to  pay  any
Indebtedness or any other sums of money when due and payable under the Letter of
Credit Loan or under any other transaction or document  evidencing  Indebtedness
of the Company,  and such failure continues for forty-eight (48) hours,  whether
at maturity, by acceleration, or otherwise, (b) fails to pay any indebtedness or
any  other  sums of  money  when due and  payable  hereunder  and  such  failure
continues for forty-eight (48) hours, whether at maturity,  by acceleration,  or
otherwise,  or (c) fails to perform any term, covenant, or agreement on its part
to be  performed  under  any  agreement  or  instrument  (other  than  the  Loan
Documents) evidencing, securing, or relating to the Letter of Credit Loan or any
other transaction or document evidencing  Indebtedness of the Company,  and such
failure  remains  unremedied for thirty (30) calendar days after SNPE shall have
given  written  notice  thereof  to the  Company,  or is  otherwise  in  default
thereunder; or

     Section 9.5.  Insolvency.  If the Company shall discontinue business or (a)
is  adjudicated  a  bankrupt  or  insolvent   under  any  law  of  any  existing
jurisdiction,  domestic or foreign,  or ceases,  is unable, or admits in writing
its  inability to pay its debts  generally  as they  mature,  or makes a general
assignment  for the benefit of  creditors,  (b) applies for, or consents to, the
appointment  of any  receiver,  trustee,  or similar  officer  for it or for any
substantial part of its property,  or any such,  receiver,  trustee,  or similar
officer is appointed without the application or consent of the Company, and such
appointment continues thereafter  undischarged for a period of thirty (30) days,
(c) institutes,  or consents to the  institution of any bankruptcy,  insolvency,
reorganization,  arrangement, readjustment or debt, dissolution, liquidation, or
similar  proceeding  relating to it under the laws of any jurisdiction,  (d) any
such  proceeding  is  instituted  against the  Company  and  remains  thereafter
undismissed for a period of thirty (30) days, or (e) any judgment, writ, warrant
of  attachment or execution,  or similar  process is issued or levied  against a
substantial  part of the  property  of the  Company or any  Subsidiary  and such
judgment,  writ, or similar process is not effectively stayed within thirty (30)
days after its issue or levy; or

     Section 9.6. Failure of Performance Under the Stock Purchase Agreement.  If
the Company  fails to perform or observe any covenant or agreement  contained in
the Stock Purchase Agreement or the Acquisition does not close on or before June
14, 2000.

                                    ARTICLE X

                              REMEDIES UPON DEFAULT

     Section 10.1. Optional  Acceleration.  In the event that one or more of the
Events of  Default  set forth in  Sections  8.1  through  8.6 above  occurs  and
continues and is not waived by SNPE,  then,  in any such event,  and at any time
thereafter,  SNPE may, at its option,  terminate its commitment to make any Loan
and declare the unpaid  principal of, and all accrued  interest on the Note, and
all other  indebtedness of Company to SNPE forthwith due and payable,  whereupon
the same will  forthwith  become due and payable  without  presentment,  demand,
protest,  or other notice of any kind,  all of which  Company  hereby  expressly
waives,   anything   contained   herein   or  in  the   Note  to  the   contrary
notwithstanding.

     Section 10.2. Remedies.  Subject to the prior rights of the Bank in respect
of  Collateral  subject  to  Permitted  Liens,  SNPE  shall  have the rights and
remedies of a secured party under the Uniform Commercial Code in addition to the
rights and remedies of a secured party provided  elsewhere  within the Agreement
or in any other writing executed by the Company.  Subject to any prior rights of
the Bank in respect of the Collateral,  SNPE may require the Company to assemble
the Collateral and make it available to SNPE at a reasonably convenient place to
be designated by SNPE. Unless the Collateral is perishable, threatens to decline
speedily in value, or is of a type customarily sold on a recognized market, SNPE
will give the Company reasonable notice of the time and place of any public sale
of the  Collateral or of the time after which any private sale or other intended
disposition thereof is to be made. The requirement of reasonable notice shall be
met if such notice is mailed (deposited for delivery,  postage prepaid,  by U.S.
mail) to either, at SNPE's option (i) the principal office of the Company as set
forth in this  Agreement (or as modified by any change therein which the Company
has supplied in writing to SNPE),  or (ii) the  Company's  address at which SNPE
customarily  communicates  with the  Company,  at least ten (10) days before the
time of the  public  sale or the time  after  which  any  private  sale or other
intended  disposition thereof is to be made. At any such public or private sale,
SNPE may purchase the Collateral.  After deduction for SNPE's Related  Expenses,
the  residue  of any  such  sale  or  other  disposition  shall  be  applied  in
satisfaction  of the  Obligations  in such  order  of  preference  as  SNPE  may
determine.  Any excess,  to the extent  permitted  by law,  shall be paid to the
Company, and the Company shall remain liable for any deficiency.

     Section 10.3. No Waiver. The remedies in this ARTICLE X are in addition to,
not in limitation of, any other right, power,  privilege,  or remedy,  either in
law, in equity, or otherwise, to which SNPE may be entitled. No failure or delay
on the part of SNPE in exercising any right,  power, or remedy will operate as a
waiver thereof,  nor will any single or partial  exercise  thereof  preclude any
other or further exercise thereof or the exercise of any other right hereunder.

                                   ARTICLE XI

                                  MISCELLANEOUS

     Section 11.1. Amendments. No waiver of any provision of this Agreement, the
Note,  or consent to departure  therefrom,  is  effective  unless in writing and
signed by SNPE. No such consent or waiver extends beyond the particular case and
purpose involved. No amendment to this Agreement is effective unless in writing,
and signed by the Company and SNPE.

     Section  11.2.  Expenses;  Documentary  Taxes.  If requested  by SNPE,  the
Company shall pay (a) all  out-of-pocket  expenses of SNPE,  including  fees and
disbursements  of special counsel for SNPE in connection with the preparation of
this Agreement,  any waiver or consent  hereunder or any amendment hereof or any
Event  of  Default  hereunder,  and  (b) if an  Event  of  Default  occurs,  all
out-of-pocket   expenses   incurred  by  SNPE  including   reasonable  fees  and
disbursements  of  counsel,  in  connection  with  such  Event  of  Default  and
collection and other enforcement  proceedings  resulting therefrom.  The Company
shall reimburse SNPE for its payment of all transfer taxes,  documentary  taxes,
assessments,  or charges  made by any  governmental  authority  by reason of the
execution and delivery of this Agreement or the Notes.

     Section 11.3.  Indemnification.  The Company shall  indemnify and hold SNPE
harmless against any and all liabilities,  losses,  damages, costs, and expenses
of  any  kind   (including,   without   limitation,   the  reasonable  fees  and
disbursements of counsel in connection with any investigative, administrative or
judicial  proceeding,  whether or not SNPE shall be designated a party  thereto)
which may be incurred by SNPE  relating to or arising out of this  Agreement  or
any actual or proposed use of proceeds of any Loan hereunder; provided, however,
that  SNPE  shall  have  no  right  to be  indemnified  hereunder  for  its  own
negligence,  bad  faith  or  willful  misconduct  as  determined  by a court  of
competent jurisdiction.

     Section 11.4.  Governing  Law. This Agreement and the Note will be governed
by and construed in accordance  with the laws of the State of New York,  without
regard to  principles  of conflict of laws.  The several  captions to  different
Sections  of this  Agreement  are  inserted  for  convenience  only and shall be
ignored in interpreting the provisions hereof.

     Section 11.5.  Extension of Time.  Whenever any payment  hereunder or under
the Note becomes due on a date on which SNPE is not open for the  transaction of
business,  such payment will be due on the next succeeding Business Day and such
extension of time will be included in computing interest in connection with such
payment.

     Section  11.6.   Notices.   All  written   notices,   requests,   or  other
communications herein provided for must be addressed:

         to the Company, as follows:

                  Dynamic Materials Corporation
                  551 Aspen Ridge Dr.
                  Lafayette, Colorado 80026
                  Attn:  Richard A. Santa, Vice President of Finance
                         and Chief Financial Officer
                  Facsimile:  (303) 604-3938

         to SNPE as follows:

                  SNPE, Inc.
                  101 College Road East
                  Princeton, New Jersey 08540
                  Attention:  Bernard Fontana, President
                  Facsimile:  (609) 987-2767

or at such other  address as either party may designate to the other in writing.
Such communication will be effective (i) if by facsimile, when such facsimile is
transmitted  and the appropriate  confirmation of delivery is received,  (ii) if
given by mail, 96 hours after such  communication  is deposited in the U.S. mail
certified mail return receipt requested,  or (iii) if given by other means, when
delivered at the address specified in this Section 11.6.

     Section  11.7.  Survival  of  Agreements,   Relationship.  All  agreements,
representations,  and warrants made in this Agreement will survive the making of
the extension of credit hereunder, and will bind and inure to the benefit of the
Company  and SNPE,  and  their  respective  successors  and  assigns;  provided,
however, that no subsequent holder of the Note shall by reason of acquiring that
Note,  as the case may be,  become  obligated to make any Loan  hereunder and no
successor  to or assignee of the Company  may borrow  hereunder  without  SNPE's
written consent.

     Section 11.8. Severability. If any provision of this Agreement or the Note,
or any action taken hereunder or thereunder,  or any application thereof, is for
any reason held to be illegal or invalid,  such  illegality or invalidity  shall
not affect any other provision of this Agreement or the Note, all of which shall
be construed and enforced  without  reference to such illegal or invalid portion
and shall be  deemed  to be  effective  or taken in the  manner  and to the full
extent permitted by law.

     Section 11.9.  Entire  Agreement.  This Agreement,  the Note, and any other
Loan  Document  integrate  all the  terms  and  conditions  mentioned  herein or
incidental  hereto and supersede all oral  representations  and negotiations and
prior writings with respect to the subject matter hereof

     Section 11.10. JURY TRIAL WAIVER. THE COMPANY AND SNPE EACH WAIVE ANY RIGHT
TO HAVE A JURY  PARTICIPATE  IN  RESOLVING  ANY  DISPUTE,  WHETHER  SOUNDING  IN
CONTRACT,  TORT OR  OTHERWISE,  BETWEEN SNPE AND THE COMPANY  ARISING OUT OF, IN
CONNECTION  WITH,  RELATED TO, OR  INCIDENTAL  TO THE  RELATIONSHIP  ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER  INSTRUMENT,
DOCUMENT  OR  AGREEMENT  EXECUTED OR  DELIVERED  IN  CONNECTION  HEREWITH OR THE
TRANSACTIONS RELATED THERETO.

<PAGE>

     IN WITNESS WHEREOF, the Company and SNPE have each caused this Agreement to
be  executed  by their duly  authorized  officers  as of the date first  written
above.

                                   DYNAMIC MATERIALS CORPORATION,
                                   as Borrower

                                   By: /s/ R. A. Santa
                                      -----------------------------------
                                   Title: VP Finance and CFO

                                   SNPE, INC.,
                                   as Lender

                                   By: /s/ Bernard Fontana
                                      -----------------------------------
                                   Title: President

<PAGE>

                                  SCHEDULE 4.2

                              DMC Deposit Accounts

<TABLE>
<CAPTION>
        Bank               Account             Account #               Division             Authorized Signers
<S>                 <C>                 <C>                    <C>                     <C>

  KeyBank            Lock Box             0010995760            Corp/Bonding/AMK        Not Applicable
  KeyBank            Controlled           000440997600083       Corp/Bonding/AMK        Joe Allwein, Rick Santa &
                     Disbursement                                                       Don Rittenhouse
  KeyBank            Operating            000060080004496       Corp/Bonding/AMK        Joe Allwein, Rick Santa &
                                                                                        Don Rittenhouse

  KeyBank            Payroll              000060080004504       Corp/Bonding/PMP/AMK    Joe Allwein, Rick Santa &
                                                                                        Don Rittenhouse

  KeyBank            Spin Forge           000060450020676       Spin Forge              Joe Allwein*, Rick Santa,
                     Disbursement                                                       Don Rittenhouse & Dennis
                                                                                        Strum*
  KeyBank            PMP Disbursement     000760450004501       PMP                     Joe Allwein, Rick Santa,
                                                                                        Don Rittenhouse, Randy
                                                                                        Orr* & Angela Hisam*

  Wells Fargo        Payroll              122101191             Spin Forge              Rick Santa
  Savings Bank of    Business Checking**  9500192751            AMK                     Bob Sanborn, Richard
  Manchester                                                                            Haislip

</TABLE>

* These signers have a limit of $2,000 per check
** This account is maintained at approximately $5,000

<PAGE>

                                    EXHIBIT A

                              WORKING CAPITAL NOTE

$3,500,000.00                                                       June _, 2000

     For value received,  DYNAMIC MATERIALS CORPORATION,  a Delaware corporation
(the  "Company"),  promises  to pay to the  order  of  SNPE,  INC.,  a  Delaware
corporation ("SNPE"), its successor and assigns, at its main office, on the date
or dates and in the manner  specified in Article II of the Credit  Agreement (as
defined below), the aggregate principal amount of the advances outstanding under
the  Credit  Agreement,  as shown on any ledger or other  record of SNPE,  which
shall be  rebuttably  presumptive  evidence of the  principal  amount  owing and
unpaid on this Note.

     The  Company  promises  to pay to the order of SNPE  interest on the unpaid
principal  amount of each Loan evidenced by this Note from the date of such Loan
until such principal amount is paid in full at such interest rate(s) and at such
times as are specified in Article II of the Credit Agreement.

     This Note is the Note  referred to in, and is entitled to the  benefits of,
the Credit Facility and Security Agreement  ("Credit  Agreement") by and between
SNPE and the Company dated June __, 2000,  as the same may be hereafter  amended
from time to time.  This Note may be declared  forthwith  due and payable in the
manner and with the effect  provided  in the Credit  Agreement,  which  contains
provisions  for  acceleration  of the maturity  hereof upon the happening of any
Event of Default and also for prepayment on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified.

     Each defined term used in this Note shall have the meaning ascribed thereto
in Section 1.2 of the Credit Agreement.

     The Company expressly waives presentment,  demand,  protest,  and notice of
dishonor.

                                       DYNAMIC MATERIALS CORPORATION

                                       By:__________________________

                                       Title:_______________________

<PAGE>

<TABLE>
<CAPTION>
                           LEDGER FOR PROMISSORY NOTE

--------------------- ------------------ -------------------------------------- ------------------- ------------------
                                    Payments

--------------------- ------------------ -------------------------------------- ------------------- ------------------
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
                                                                                      Unpaid             Name of
                                                                                    Principal            Person
                          Amount of                                                 Balance of           Making
        Date                Loan             Principal           Interest              Note             Notation
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S>                  <C>                <C>                 <C>                <C>                 <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>

<PAGE>

                                    EXHIBIT B
                       FORM AMENDED COLLATERAL DESCRIPTION

     All of Debtor's right, title and interest in the Collateral (as hereinafter
defined)  located on or used in connection  with the real property  described on
Exhibit  A  attached  hereto  and  made a part  hereof  for  all  purposes  (the
"Property"),  or otherwise used in connection  with or arising from the business
and operations of the Bonding Division,  whether now owned or hereafter acquired
or  received  by the  Debtor,  or in which the Debtor now has or  hereafter  may
acquire any right, title or interest:

     DEFINITIONS

     "Account,"   "Chattel  Paper,"   "Consumer   Goods,"   "Deposit   Account,"
"Document," "Farm Products," "General  Intangible,"  "Goods,"  "Instrument," and
"Proceeds,"  have the  meanings as set forth in the Uniform  Commercial  Code in
effect  in the State of  Colorado,  including  any  amendments  thereof  and any
substitutions  therefor,  which definitions are hereby incorporated by reference
as though fully rewritten herein.  "Investment  Property," "Securities Account,"
"Securities  Intermediary" and "Financial Assets" have the meanings as set forth
in the Uniform Commercial Code in effect in the State of Colorado, including any
amendments thereof and any substitutions therefor,  which definitions are hereby
incorporated by reference as though fully rewritten herein.

     "Account Control  Agreement" means an Account Control  Agreement as defined
in Subsection 7(a) of the Security Agreement.

     "Account   Debtor"  means  the  Person  who  is  obligated  on  an  Account
Receivable.

     "Accounts Receivable" means:

     (a) any account  receivable,  Account,  Chattel Paper,  General Intangible,
Document, or Instrument owned, acquired or received by a Person,

     (b)  any  other  indebtedness  owed to or  receivable  owned,  acquired  or
received by a Person of whatever kind and however evidenced, and

     (c) any right,  title and  interest  in a Person's  Goods  which were sold,
leased or furnished by that Person and gave rise to either (a) or (b) above,  or
both of them. This includes, without limitation,

         (1) any rights of stoppage in transit  of a  Person's  sold,  leased or
furnished Goods,

         (2) any rights to reclaim  a Person's sold,  leased or furnished Goods,
and

         (3) any rights  a Person has  in such sold,  leased or  furnished Goods
that have been returned to or repossessed by that Person.

                                       B-1
<PAGE>

     "Accounts Receivable Collection Account" means a commercial Deposit Account
which may be  maintained  by Company with Bank in the name of the Bank,  without
liability by Bank to pay interest  thereon,  from which  account Bank shall have
the exclusive right to withdraw funds until all Obligations are paid,  performed
and observed in full.

     "Bank" means KEYBANK NATIONAL ASSOCIATION,  a national banking association,
whose  principal  office is  located at 3300 East First  Avenue,  Second  Floor,
Denver, Colorado 80206, Attention: H. Daniel Willetts.

     "Bonding  Division"  means the business  unit of the Debtor  engaged in the
manufacture  of  explosion   bonded  clad  metal  products   primarily  for  the
petrochemical and chemical  processing  industries referred to as the "Explosive
Metal Working Group",  "Explosive  Manufacturing",  "Metal Cladding",  or "Shock
Synthesis"  in the Debtor's  annual  report on form 10-K filed on March 30, 2000
for the period ended December 31, 1999.

     "Collateral" means:

     (a) all of Company's  Accounts  Receivable,  whether now owned or hereafter
acquired or received by Company;

     (b) all of Company's Inventory,  whether now owned or hereafter acquired by
Company;

     (c) all of Company's Equipment,  whether now owned or hereafter acquired by
Company, including,  without limitation, the property of the Debtor set forth on
Exhibit B attached hereto;

     (d) all of Company's  General  Intangibles and other personal  property and
rights,  whether now owned or hereafter  acquired by Company,  including but not
limited to trademarks,  tradenames,  patents, copyrights, tax refunds, choses in
action and contract rights;

     (e)  all of  Company's  Investment  Collateral,  each  Securities  Account,
including without  limitation the account named in the Account Control Agreement
and all Financial Assets of the Company; and

     (f) all of the Proceeds,  products, profits and rents of Company's Accounts
Receivable,  Inventory, Equipment, Investment Collateral and General Intangibles
and all books and records,  including  computer software used in connection with
any of the Collateral.

     Notwithstanding  the  foregoing,  the  Collateral  shall not  include  that
certain sublease (the "Sublease")  dated July 22, 1996,  between the Company and
E. I. duPont de Nemours  ("DuPont")  and those  assets  located on the  property
covered by the Sublease used directly in connection  with the services  provided
by the  Company to DuPont  under that  certain  Tolling/Services  Agreement  for
Industrial Diamonds dated July 22, 1996 (as assigned from DuPont to Mypodiamond,
Inc.),  all of which  assets are  located at the  Company's  facility in Dunbar,
Pennsylvania.

                                       B-2
<PAGE>

     "Company" means DYNAMIC  MATERIALS  CORPORATION,  an organized and existing
company under the laws of the State of Delaware.

     "Company's Location" means the location of:

     (a)  Company's  place of  business,  if  there  is only  one such  place of
business, or

     (b) if there is more than one place of  business,  the place (1) from which
Company manages the main part of its business operations,  and (2) where Persons
dealing with Company would normally look for credit information.

     "Equipment" means:

     (a) any equipment and fixtures,  including without  limitation,  machinery,
office furniture and furnishings,  tools,  dies, jigs and any warranty and other
claims against the vendor or supplier of such equipment,

     (b) all  Goods  that are used or bought  for use  primarily  in a  Person's
business,

     (c) all Goods that are not Consumer Goods, Farm Products, or Inventory, and

     (d) all  substitutes  or  replacements  for,  and all  parts,  accessories,
additions, attachments, or accessions to the foregoing.

     "Event of Default"  means the  occurrence of any of the events set forth in
Section 8 of the Security Agreement.

     "General  Intangibles"  means all general  intangibles  as set forth in the
Uniform Commercial Code in effect in the State of Colorado, whether now existing
or hereafter arising, including, without limitation, all contract rights, rights
of the Company with respect to pledges made to the Company by third parties, all
trademarks,  copyrights,  patents and other intellectual  property rights as set
forth on Exhibit C attached hereto.

     "Inventory" means:

     (a) any inventory,

     (b) all Goods that are raw materials,

     (c) all Goods that are work in process,

     (d) all Goods that are materials used or consumed in the ordinary course of
a Person's business,

                                       B-3
<PAGE>

     (e) all Goods that are in the ordinary course of a Person's business,  held
for sale or lease or furnished or to be  furnished  under  contracts of service,
and

     (f)  all  substitutes  and  replacements   for,  and  parts,   accessories,
additions, attachments, or accessions to (a) to (e) above.

     "Investment  Collateral"  means,  in connection with the Bonds and the Bond
Documents,  as defined in the Reimbursement  Agreement described in the Security
Agreement (i) any free credit balance or other money, now or hereafter  credited
to, or owing from any Securities Intermediary to the Company, (ii) any commodity
contracts, securities (certificated or uncertificated),  Instruments, Documents,
Financial  Assets or other Investment  Property  distributed from any Securities
Account now or in the  future,  (iii) all the  proceeds  of the sale,  exchange,
redemption or exercise of any of the foregoing,  including,  but not limited to,
any  dividend,  interest  payment or other  distribution  of cash or property in
respect of any of the foregoing,  (iv) any rights incidental to the ownership of
any of the foregoing,  such as voting,  conversion and  registration  rights and
rights of recovery for violation of applicable securities laws and (v) all books
and records relating to any of the foregoing.

     "Obligations"  means any of the following  obligations,  whether  direct or
indirect,  absolute or contingent,  secured or unsecured,  matured or unmatured,
originally contracted with Bank or another Person, and now or hereafter owing to
or acquired in any manner partially or totally by Bank or in which Bank may have
acquired a  participation,  contracted  by Company alone or jointly or severally
with another Person:

     (a)  any  and  all  indebtedness,   obligations,   liabilities,  contracts,
indentures,  agreements,  warranties,  covenants,  guaranties,  representations,
provisions,  terms,  and  conditions of whatever kind, now existing or hereafter
arising,  and however evidenced,  that are now or hereafter owed,  incurred,  or
executed by Company to, in favor of, or with Bank and are set forth or contained
in, referred to, evidenced by, or executed with reference to, the  Reimbursement
Agreement  or the  Security  Agreement,  and  including  any  partial  or  total
extension,   restatement,   renewal,  amendment,  and  substitution  thereof  or
therefor;

     (b) any and all  claims  of  whatever  kind of Bank  against  Company,  now
existing or hereafter arising, including, without limitation, any arising out of
or in any way connected  with  warranties  made by Company to Bank in connection
with any Instrument deposited with or purchased by Bank;

     (c) any and all of Bank's Related Expenses.

     "Organization"  and "Person"  means,  as  applicable,  any natural  person,
corporation  (which shall be deemed to include a business  trust),  association,
limited  liability  company,  partnership,  joint venture,  political entity, or
political subdivision thereof.

     "Reimbursement  Agreement"  means the  Reimbursement  Agreement dated as of
September 1, 1998, as amended by that certain First  Amendment to  Reimbursement
Agreement dated June 14,

                                       B-4
<PAGE>

2000,  executed by and  between  the  Company  and Bank,  pursuant to which Bank
executed and delivered to Trustee (as defined in the Reimbursement Agreement) an
Irrevocable  Transferable  Letter of Credit in the original  aggregate amount of
Six Million Nine Hundred  Ninety-Seven  Thousand One Hundred Thirty-Five Dollars
($6,997,135.00),   and  including  any  partial  or  total  amendment,  renewal,
restatement, extension, or substitution thereof or therefor.

     "Related  Expenses"  means any and all  costs,  liabilities,  and  expenses
(including,  without limitation,  losses, damages,  penalties,  claims, actions,
reasonable attorney's fees, legal expenses, judgments, suits, and disbursements)
incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

     (a)  to  obtain,  preserve,  perfect,  or  enforce  the  security  interest
evidenced by (i) the  Security  Agreement,  or (ii) any other pledge  agreement,
mortgage  deed,   hypothecation   agreement,   guaranty,   security   agreement,
assignment,  or security  instrument executed or given by Company to or in favor
of Bank,

     (b) to obtain  payment,  performance,  and observance of any and all of the
Obligations,

     (c) to maintain,  insure, collect,  preserve, or upon any Event of Default,
repossess and dispose of any of the Collateral, or

     (d)  incidental  or related to (a)  through (c) above,  including,  without
limitation,  interest  thereupon  from the date incurred,  imposed,  or asserted
until paid at the rate payable pursuant to the Reimbursement  Agreement,  but in
no event greater than the highest rate permitted by law.

     "Security  Agreement"  means the Amended and  Restated  Security  Agreement
dated as of June 14, 2000 between Company and Bank, and including any partial or
total amendment, renewal, restatement, extension, or substitution of or for such
agreement.

                                       B-5FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT

     THIS FIRST AMENDMENT TO REIMBURSEMENT  AGREEMENT (this "First  Amendment"),
executed  this  14th day of June,  2000,  is by and  between  DYNAMIC  MATERIALS
CORPORATION,   a  Delaware   corporation   ("Borrower")   and  KEYBANK  NATIONAL
ASSOCIATION, a national banking association ("Bank").

                                R E C I T A L S:

     A. On  September  1, 1998,  the  Borrower  and the Bank  entered  into that
certain  Reimbursement  Agreement (the  "Agreement")  pursuant to which the Bank
agreed to issue a letter of credit in favor of the Trustee (defined  therein) in
an amount not to exceed  $6,997,135.00  to secure  payment  of  certain  Fayette
County  Industrial  Development  Authority  Multi-Mode  Variable Rate Industrial
Development Revenue Bonds, Series 1998 (Dynamic Materials  Corporation  Project)
in the aggregate principal amount of $6,850,000 (the "Bonds").

     B. In addition to the Agreement, the Borrower and the Bank entered into the
Credit Facility  Agreements (as defined in the Reimbursement  Agreement),  which
Credit  Facility  Agreements  were amended by that certain  Amended and Restated
Credit  Facility and Security  Agreement dated as of November 30, 1998 which, as
amended by that certain First  Amendment to Amended and Restated Credit Facility
and Security Agreement (the "First Amendment") dated December 31, 1998, provided
for loans up to Fourteen  Million Dollars  ($14,000,000)  (the "Credit  Facility
Loans").   The   obligations   of  Borrower   pursuant  to  the   Agreement  are
cross-collateralized  and  cross-defaulted  with  the  obligations  of  Borrower
pursuant to the Credit Facility Loans.

     C. On or about  January 20, 2000,  the Borrower and SNPE,  Inc., a Delaware
corporation  ("SNPE"),  entered  into a Stock  Purchase  Agreement  (the  "Stock
Purchase  Agreement"),  pursuant to which SNPE will  purchase (i)  approximately
2,100,000  shares of the stock of the Company  for  approximately  Five  Million
Eight Hundred  Thousand Dollars  ($5,800,000),  resulting in SNPE having a fifty
and eight-tenths  percent (50.8%)  ownership  interest in the Company and (ii) a
One  Million  Two  Hundred  Thousand  Dollar   ($1,200,000)   subordinated  note
convertible into Company stock (collectively, the "Acquisition").

     D. The Borrower  has agreed to use the  majority of the  proceeds  from the
Acquisition,  together  with such other loan proceeds in an amount not to exceed
$3,500,000  from SNPE to the  Borrower  (the "SNPE  Intercompany  Debt"),  which
amount may be increased to not more than  $4,500,000 upon the written request of
Borrower to SNPE and subject to the terms and conditions set forth in the Credit
Facility and Security  Agreement  evidencing the SNPE Intercompany Debt dated as
of the date hereof,  to pay in full the Credit  Facility Loans and in connection
therewith,  the  Bank  has  agreed  to  release  and/or  modify  certain  of the
collateral  securing such Credit  Facility  Loans,  provided that certain of the
covenants  and  conditions  set forth in the Agreement are modified as set forth
herein.

                                        1
<PAGE>

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

     1. REIMBURSEMENT  AGREEMENT  AMENDMENT.  The Agreement is hereby amended as
follows:

     (i)  A. The following  definitions  shall be  added to  Section  1.1 of the
Agreement:

          "Bank  Collateral"  shall mean that  certain  collateral  described in
          Exhibit B of the First Amendment to Reimbursement Agreement.

          "Convertible  Subordinated  Note" shall mean that  certain note in the
          aggregate principal amount of One Million Two Hundred Thousand Dollars
          ($1,200,000)  executed  by the  Borrower  in favor of SNPE,  a copy of
          which is attached to the Stock Purchase Agreement.

          "Net Worth" shall mean the total  assets of the Borrower  less (i) the
          Borrower's  Total  Indebtedness  (exclusive  of the  then  outstanding
          principal balance of the Convertible  Subordinated  Note) and (ii) any
          and all stock or other  securities  of any other  Person  acquired  or
          owned  by the  Borrower  subsequent  to the date  hereof  which is not
          otherwise required by GAAP to be consolidated in Borrower's  financial
          statements  and any and all  loans  to or the  providing  of  funds or
          credit to any other  Person or any  account  receivables  (other  than
          trade or other  receivables  in the ordinary  course of business) from
          any other Person subsequent to the date hereof which are not otherwise
          required  by  GAAP  to  be   consolidated   in  Borrower's   financial
          statements.

          "Security  Agreement"  shall mean the  Amended and  Restated  Security
          Agreement  between the Borrower and the Bank  attached as Exhibit C of
          the First Amendment to Reimbursement Agreement.

          "Subordinated  Debt"  shall  mean  Indebtedness  of a Person  which is
          subordinated,   in  a  manner   satisfactory   to  the  Bank,  to  all
          Indebtedness  owing to the Bank,  including,  but not  limited to, the
          Convertible  Subordinated Note, and to all other indebtedness which is
          pari passu therewith or senior thereto.

          "Tangible  Net Worth" shall mean the total assets of the Borrower less
          (i)  the  Borrower's  Total   Indebtedness   (exclusive  of  the  then
          outstanding  principal balance of the Convertible  Subordinated Note),
          (ii) the Borrower's aggregate amount of all intangible assets and

                                        2
<PAGE>

          (iii)  any and all  stock  or other  securities  of any  other  Person
          acquired or owned by the Borrower  subsequent to the date hereof which
          is not  otherwise  required by GAAP to be  consolidated  in Borrower's
          financial  statements  and any and all  loans to or the  providing  of
          funds or credit to any other Person or any account  receivables (other
          than trade or other  receivables  in the ordinary  course of business)
          from any other  Person  subsequent  to the date  hereof  which are not
          otherwise required by GAAP to be consolidated in Borrower's  financial
          statements.

          B. The definition  of  "Credit  Facility  Agreements"  shall be  of no
further effect in connection with the Reimbursement Agreement.

          C. The following subsection (m)  shall be added  to the  definition of
"Permitted Liens":

          (m)  Liens  granted  in  favor  of  SNPE as of the  date of the  First
          Amendment to Reimbursement Agreement which do not encumber any portion
          of any of the Bank Collateral.

     (ii) Section 2.5 of the Agreement  shall be deleted in its entirety and the
parties  acknowledge  and  agree  that the  Letter  of  Credit  shall  expire on
September 22, 2001, without further extension.

     (iii)  The  fifteen  (15) day  period  set forth in  Section  6.1(a) of the
Agreement shall be replaced with thirty (30) days.

     (iv) The  reference to an  "unqualified  opinion" in Section  6.1(b) of the
Agreement shall be modified to an "opinion".

     (v)  Sections  6.1(c)  and (d) of the  Agreement  shall be deleted in their
entirety and replaced with the following:

               (c) promptly  after the filing  thereof,  copies of the state and
          federal tax returns of the Borrower and all schedules thereto;

               (d) promptly  upon their  distribution,  copies of all  financial
          statements, reports and proxy statements which the Borrower shall have
          sent to its  stockholders,  and  promptly  after the sending or filing
          thereof, copies of all regular and periodic reports which the Borrower
          shall file with the Securities and Exchange Commission or any national
          securities exchange;

                                        3
<PAGE>

               (e) As soon as  practicable,  and in any event within thirty (30)
          days of the end of each calendar  month in each year, a certificate by
          the Borrower and all relevant facts in reasonable  detail to evidence,
          and  the  computations  as to,  whether  or  not  the  Borrower  is in
          compliance  with the financial  covenants set forth in Sections  6.15,
          6.18, 6.19 and 6.30 hereof; and

               (f) With reasonable  promptness,  such other data and information
          as from time to time may be reasonably requested by the Bank.

     (vi) Section  6.8(b) of the Agreement  shall be deleted in its entirety and
replaced with the following:

               (b) Shall deliver promptly to the Bank copies of any documents of
          a  material  nature,  excluding  such  documents  transmitted  in  the
          ordinary course of Borrower's  business,  which are: (i) received from
          the United States Environmental Protection Agency or any state, county
          or  municipal  environment  or health  agency,  and (ii)  submitted by
          Borrower or any of its Subsidiaries to the United States Environmental
          Protection  Agency or any state,  county or municipal  environment  or
          health agency concerning its operations.

     (vii)  Section 6.9 of the  Agreement  shall be deleted in its  entirety and
replaced with the following:

          Sale of Assets.  The Borrower will not,  directly or indirectly  sell,
          lease,   transfer,   or   otherwise   dispose  of  any  plant  or  any
          manufacturing  facility or other assets which are included in the Bank
          Collateral  (as defined in  Paragraph 2 below) (i) without  receipt of
          full and adequate  consideration  therefor,  or (ii) involving amounts
          exceeding $150,000 in any single  transaction.  The Borrower will not,
          directly or indirectly sell, lease,  transfer, or otherwise dispose of
          any plant or any manufacturing  facility or other assets which are not
          included in the Bank  Collateral and which involve  amounts  exceeding
          $500,000 in any single  transaction  without  fifteen (15) days' prior
          written  notification  to the Bank. Any and all proceeds from any sale
          or other disposition of assets which constitute Bank Collateral (which
          assets involve amounts  exceeding  $150,000 in any single  transaction
          and are not replaced  with assets of equal or greater  value) shall be
          applied, as directed by the Bank, in connection with the reimbursement
          of any and all  payments  made by the Bank  pursuant  to the Letter of
          Credit or the further  securing of any outstanding  amounts then owing
          to the Bank pursuant to the Reimbursement Agreement.

                                        4
<PAGE>

     (viii)  Section 6.10 of the Agreement  shall be deleted and replaced in its
entirety with the following:

          Liens. The Borrower will not, directly or indirectly,  create,  incur,
          assume,  or permit to exist any Lien with  respect to any  property or
          asset of the  Borrower  (now  owned or  hereafter  acquired)  which is
          included  in the Bank  Collateral,  other than  Permitted  Liens.  The
          Borrower will not, directly or indirectly,  create,  incur, assume, or
          permit to exist any Lien with  respect to any property or asset of the
          Borrower  (now owned or hereafter  acquired)  which is not included in
          the Bank Collateral,  other than Permitted Liens, without fifteen (15)
          days' prior written notification to the Bank.

     (ix)  Sections  6.11(c) and 6.11(g) of the  Agreement  shall be deleted and
replaced in their entirety with the following:

               (c)  Indebtedness  which is secured  only by a Permitted  Lien or
          which is secured  only by property  which is not  included in the Bank
          Collateral and then, in such event, Borrower shall only be required to
          provide the Bank with fifteen (15) days' prior written notification of
          such Indebtedness; and

               (g) Other Indebtedness of the Borrower not covered under subparts
          (a) through (f) of this  Section  6.11 not  exceeding  $100,000 in the
          aggregate outstanding at any time; and

     (x) Section  6.12 of the  Agreement  shall be deleted  and  replaced in its
entirety with following:

          Investments;  Loans.  Except for Permitted  Investments,  the Borrower
          will not, directly or indirectly, (a) purchase or otherwise acquire or
          own any stock or other securities of any other Person,  or (b) make or
          permit  to be  outstanding  any  loan or  advance  (other  than  trade
          advances  in the  ordinary  course  of  business)  or  enter  into any
          arrangement  to provide funds or credit,  to any other Person  without
          fifteen (15) days' prior written notification to the Bank.

     (xi)  Section  6.13 of the  Agreement  shall be deleted and replaced in its
entirety with the following:

          Guaranties.  The Borrower will not guarantee,  directly or indirectly,
          or otherwise become surety (including,  without limitation,  liability
          by way of agreement,  contingent or otherwise, to purchase, to provide
          funds for payment, to supply funds to, or otherwise invest in, any

                                        5
<PAGE>

          Person,  or enter  into any  working  capital  maintenance  or similar
          agreement) in respect of any obligation or  Indebtedness  of any other
          Person, except guaranties by endorsement of negotiable instruments for
          deposit, collection, or similar transactions in the ordinary course of
          business, without fifteen (15) days' prior written notification to the
          Bank; provided, however, that any such guaranties shall be included in
          the calculation of Indebtedness of the Borrower in connection with any
          financial  covenants  of the  Borrower  set forth in Section 6 of this
          Agreement.

     (xii)  Section 6.15 of the  Agreement  shall be deleted and replaced in its
entirety with the following:

          Current  Ratio.  On the last day of each month during the term of this
          Agreement  (commencing  June 30, 2000), the Borrower will have a ratio
          of Current Assets to Current Liabilities that is not less than 1.85 to
          1.00. For purposes of calculating  the Current Ratio set forth herein,
          the SNPE Intercompany Debt will not be included as a Current Liability
          of Borrower.

     (xiii) Section 6.16 of the Agreement shall be deleted in its entirety.

     (xiv)  Section 6.17 of the  Agreement  shall be deleted in its entirety and
replaced with the following:

          Subordinated  Debt.  The  Borrower  will not make any payment upon any
          outstanding  Subordinated  Debt,  except in such manner and amounts as
          may be expressly  authorized in any subordination  agreement presently
          or  hereafter  held  by the  Bank or as  expressly  set  forth  in the
          Convertible Subordinated Note.

     (xv)  Section  6.18 of the  Agreement  shall be deleted and replaced in its
entirety with the following:

          Ratio of Total  Indebtedness  to  Tangible  Net  Worth.  The  ratio of
          Borrower's  Total  Indebtedness  to Tangible Net Worth, as measured on
          the last day of each  month  (commencing  June 30,  2000),  shall  not
          exceed a ratio of 3.0 to 1.00.

     (xvi) A new Section 6.30 shall be added to the Agreement as follows:

          Section  6.30.  Minimum  Net Worth.  Borrower's  Net Worth at any time
          during the term of this Agreement shall not be less than  $12,500,000,
          as measured on the last day of each month.

                                        6
<PAGE>

     (xvii) A new Section 7.1(j) shall be added as an Event of Default under the
Agreement as follows:

          (j) If Borrower  fails to perform or observe any covenant or agreement
          contained in the Stock Purchase  Agreement or the Acquisition does not
          close on or before June 30, 2000.

     (xviii)  The Bank's  address for notices as set forth in Section 9.6 of the
Agreement shall be modified as follows:

           KeyBank National Association
           International Division
           700 Fifth Avenue, 53rd Floor
           Mailstop:WA 31-01-5360
           Seattle, WA 98104
           Fax Number: 206-684-6238

           and a copy to:

           H. Daniel Willetts
           KeyBank National Association
           3300 East First Avenue, Second Floor
           Denver, Colorado 80206
           Fax Number: 303-316-2310

     2.  CONDITIONS.  The  amendments  set forth in  Paragraph  1 shall be of no
effect unless and until the following conditions have been satisfied:

     (i) On the closing date of the  Acquisition,  the Bank shall have  received
from Borrower,  by wire transfer to an account directed by the Bank, funds in an
amount sufficient to satisfy the entire  outstanding  indebtedness  owing to the
Bank in connection  with the Credit  Facility Loans (the "Payoff  Amount").  The
Bank shall also have  received  the  written  opinion of legal  counsel  for the
Borrower, dated the date of this Agreement, in form satisfactory to the Bank and
covering such matters as the Bank may reasonably require.

     (ii) Within  twenty (20) days  following  the Bank's  receipt of the Payoff
Amount, the Bank and/or the Borrower, as applicable, will execute the following:
(1) UCC financing  statements  amending the collateral  description set forth in
the existing UCC-1 financing  statements  filed by Borrower in favor of the Bank
in the state and county offices  referenced in Exhibit A attached  hereto to the
collateral  description  set  forth in  Exhibit B  attached  hereto  (the  "Bank
Collateral")  and (2) the Amended and  Restated  Security  Agreement in the form
attached   hereto  as  Exhibit  C.  Such  UCC  amendments   referenced  in  this
subparagraph  (ii)  shall  be  filed  and /or  recorded  by  Borrower  with  the
appropriate county clerk and  recorder/secretary of state offices, at Borrower's
sole cost and expense.

                                        7
<PAGE>

     (iii) The Bank shall have received  evidence  satisfactory  to the Bank (1)
that the  execution,  delivery  and  performance  of the  documents  and actions
contemplated  by this First Amendment have been duly authorized by all requisite
corporate action of the Borrower, (2) that the Acquisition has closed and/or the
proceeds of the SNPE  Intercompany  Debt have been funded and  delivered  to the
Borrower and (3) as to such other matters as the Bank may reasonably require.

     3. DOCUMENT RATIFICATION.  Subject to the amendments set forth in Paragraph
1, all of the terms and  conditions  contained  in the  Agreement  shall  remain
unmodified and in full force and effect.

     4. RELEASE.  Except as specifically set forth herein, the execution of this
First  Amendment  by the Bank does not and shall not  constitute a waiver of any
rights or remedies to which the Bank is entitled pursuant to the Agreement,  nor
shall the same  constitute  a waiver of any  default  now  existing or which may
occur in the future with respect to the  Agreement.  The Borrower  hereby agrees
that the Bank has fully  performed  its  obligations  pursuant to the  Agreement
through the date hereof and hereby waives, releases and relinquishes any and all
known  claims  whatsoever  that it may have against the Bank with respect to the
Agreement through the date hereof.

     5. REPRESENTATIONS,  WARRANTIES AND COVENANTS OF THE BORROWER. The Borrower
represents, warrants and covenants to the Bank:

     (a) No default or event of default under the Agreement as modified  herein,
nor any event,  that,  with the giving of notice or the passage of time or both,
would be a default or an event of default under the Agreement as modified herein
has occurred and is continuing.

     (b) There has been no material adverse change in the financial condition of
the Borrower or any other person whose financial statement has been delivered to
the Bank in  connection  with the  Agreement  from  the  most  recent  financial
statement received by the Bank.

     (c) Each and all  representations  and  warranties  of the  Borrower in the
Agreement are accurate on the date hereof, except for those items which the Bank
has been  notified  of in writing or  provided  by the  Borrower  as of the date
hereof.

     (d) The Borrower has no known claims, counterclaims,  defenses, or set-offs
with respect to the Agreement as modified herein.

     (e) The  Agreement  as  modified  herein is the legal,  valid,  and binding
obligation of the Borrower,  enforceable against the Borrower in accordance with
its terms.

     (f) The  Borrower  shall  execute,  deliver,  and  provide to the Bank such
additional agreements,  documents, and instruments as may be reasonably required
by the Bank to effectuate  the intent of this Agreement and shall pay all of the
Bank's  fees  and  expenses  relating  to  this  Agreement,  including,  without
limitation,  any  recording  and  filing  fees and the Bank's  reasonable  legal
expenses incurred in connection with this Agreement.

                                        8
<PAGE>

     6.  CONTROLLING LAW. The terms and provisions of this First Amendment shall
be  construed  in  accordance  with and  governed  by the  laws of the  State of
Colorado.

     7. BINDING EFFECT.  This First Amendment shall be binding upon and inure to
the benefit of the parties hereto, their successors and assigns.

     8. CAPTIONS.  The paragraph captions utilized herein are in no way intended
to interpret or limit the terms and conditions hereof, rather, they are intended
for purposes of convenience only.

     9.  COUNTERPARTS.  This First  Amendment  may be  executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an  original,  and all of which shall be taken to be one and the
same  instrument,  for the same effect as if all  parties  hereto had signed the
same signature  page. Any signature page of this First Amendment may be detached
from any counterpart of this First Amendment  without impairing the legal effect
of any  signatures  thereon and may be attached to another  counterpart  of this
First  Amendment  identical in form hereto but having attached to it one or more
additional signature pages.

     10. DEFINED TERMS. Capitalized terms not defined herein shall have the same
meaning as set forth in the Agreement.

     IN WITNESS  WHEREOF,  the parties hereto have executed this First Amendment
as of the day and year first above written.

                                      BANK:

                                      KEY BANK NATIONAL ASSOCIATION

                                      By:      /s/ H. Daniel Willetts
                                               ---------------------------------
                                      Name:    H. Daniel Willetts
                                      Title:   Vice President

                                      BORROWER:

                                      DYNAMIC MATERIALS CORPORATION

                                      By:      /s/ Richard A. Santa
                                               ---------------------------------
                                      Name:    Richard A. Santa
                                      Title:   VP Finance and Chief Financial
                                               Officer

                                        9
<PAGE>

                                    EXHIBIT A
                               UCC FILING OFFICES

1.   Colorado Secretary of State

2.   Colorado County Filings:
     Arapahoe
     Boulder

3.   California Secretary of State

4.   California County Filings:
     Los Angeles

5.   Connecticut Secretary of State

6.   Connecticut County Filings:
     South Windsor

7.   Pennsylvania Secretary of Commonwealth

8.   Pennsylvania County Filings:
     Fayette County

                                       A-1
<PAGE>

                                    EXHIBIT B
                       FORM AMENDED COLLATERAL DESCRIPTION

     All of Debtor's right, title and interest in the Collateral (as hereinafter
defined)  located on or used in connection  with the real property  described on
Exhibit  A  attached  hereto  and  made a part  hereof  for  all  purposes  (the
"Property"),  or otherwise used in connection  with or arising from the business
and operations of the Bonding Division,  whether now owned or hereafter acquired
or  received  by the  Debtor,  or in which the Debtor now has or  hereafter  may
acquire any right, title or interest:

     DEFINITIONS

     "Account,"   "Chattel  Paper,"   "Consumer   Goods,"   "Deposit   Account,"
"Document," "Farm Products," "General  Intangible,"  "Goods,"  "Instrument," and
"Proceeds,"  have the  meanings as set forth in the Uniform  Commercial  Code in
effect  in the State of  Colorado,  including  any  amendments  thereof  and any
substitutions  therefor,  which definitions are hereby incorporated by reference
as though fully rewritten herein.  "Investment  Property," "Securities Account,"
"Securities  Intermediary" and "Financial Assets" have the meanings as set forth
in the Uniform Commercial Code in effect in the State of Colorado, including any
amendments thereof and any substitutions therefor,  which definitions are hereby
incorporated by reference as though fully rewritten herein.

     "Account Control  Agreement" means an Account Control  Agreement as defined
in Subsection 7(a) of the Security Agreement.

     "Account   Debtor"  means  the  Person  who  is  obligated  on  an  Account
Receivable.

     "Accounts Receivable" means:

     (a) any account  receivable,  Account,  Chattel Paper,  General Intangible,
Document, or Instrument owned, acquired or received by a Person,

     (b)  any  other  indebtedness  owed to or  receivable  owned,  acquired  or
received by a Person of whatever kind and however evidenced, and

     (c) any right,  title and  interest  in a Person's  Goods  which were sold,
leased or furnished by that Person and gave rise to either (a) or (b) above,  or
both of them. This includes, without limitation,

         (1) any rights of stoppage in transit  of a  Person's  sold,  leased or
furnished Goods,

         (2) any rights to reclaim  a Person's sold,  leased or furnished Goods,
and

         (3) any rights  a Person has  in such sold,  leased or  furnished Goods
that have been returned to or repossessed by that Person.

                                       B-1
<PAGE>

     "Accounts Receivable Collection Account" means a commercial Deposit Account
which may be  maintained  by Company with Bank in the name of the Bank,  without
liability by Bank to pay interest  thereon,  from which  account Bank shall have
the exclusive right to withdraw funds until all Obligations are paid,  performed
and observed in full.

     "Bank" means KEYBANK NATIONAL ASSOCIATION,  a national banking association,
whose  principal  office is  located at 3300 East First  Avenue,  Second  Floor,
Denver, Colorado 80206, Attention: H. Daniel Willetts.

     "Bonding  Division"  means the business  unit of the Debtor  engaged in the
manufacture  of  explosion   bonded  clad  metal  products   primarily  for  the
petrochemical and chemical  processing  industries referred to as the "Explosive
Metal Working Group",  "Explosive  Manufacturing",  "Metal Cladding",  or "Shock
Synthesis"  in the Debtor's  annual  report on form 10-K filed on March 30, 2000
for the period ended December 31, 1999.

     "Collateral" means:

     (a) all of Company's  Accounts  Receivable,  whether now owned or hereafter
acquired or received by Company;

     (b) all of Company's Inventory,  whether now owned or hereafter acquired by
Company;

     (c) all of Company's Equipment,  whether now owned or hereafter acquired by
Company, including,  without limitation, the property of the Debtor set forth on
Exhibit B attached hereto;

     (d) all of Company's  General  Intangibles and other personal  property and
rights,  whether now owned or hereafter  acquired by Company,  including but not
limited to trademarks,  tradenames,  patents, copyrights, tax refunds, choses in
action and contract rights;

     (e)  all of  Company's  Investment  Collateral,  each  Securities  Account,
including without  limitation the account named in the Account Control Agreement
and all Financial Assets of the Company; and

     (f) all of the Proceeds,  products, profits and rents of Company's Accounts
Receivable,  Inventory, Equipment, Investment Collateral and General Intangibles
and all books and records,  including  computer software used in connection with
any of the Collateral.

     Notwithstanding  the  foregoing,  the  Collateral  shall not  include  that
certain sublease (the "Sublease")  dated July 22, 1996,  between the Company and
E. I. duPont de Nemours  ("DuPont")  and those  assets  located on the  property
covered by the Sublease used directly in connection  with the services  provided
by the  Company to DuPont  under that  certain  Tolling/Services  Agreement  for
Industrial Diamonds dated July 22, 1996 (as assigned from DuPont to Mypodiamond,
Inc.),  all of which  assets are  located at the  Company's  facility in Dunbar,
Pennsylvania.

                                       B-2
<PAGE>

     "Company" means DYNAMIC  MATERIALS  CORPORATION,  an organized and existing
company under the laws of the State of Delaware.

     "Company's Location" means the location of:

     (a)  Company's  place of  business,  if  there  is only  one such  place of
business, or

     (b) if there is more than one place of  business,  the place (1) from which
Company manages the main part of its business operations,  and (2) where Persons
dealing with Company would normally look for credit information.

     "Equipment" means:

     (a) any equipment and fixtures,  including without  limitation,  machinery,
office furniture and furnishings,  tools,  dies, jigs and any warranty and other
claims against the vendor or supplier of such equipment,

     (b) all  Goods  that are used or bought  for use  primarily  in a  Person's
business,

     (c) all Goods that are not Consumer Goods, Farm Products, or Inventory, and

     (d) all  substitutes  or  replacements  for,  and all  parts,  accessories,
additions, attachments, or accessions to the foregoing.

     "Event of Default"  means the  occurrence of any of the events set forth in
Section 8 of the Security Agreement.

     "General  Intangibles"  means all general  intangibles  as set forth in the
Uniform Commercial Code in effect in the State of Colorado, whether now existing
or hereafter arising, including, without limitation, all contract rights, rights
of the Company with respect to pledges made to the Company by third parties, all
trademarks,  copyrights,  patents and other intellectual  property rights as set
forth on Exhibit C attached hereto.

     "Inventory" means:

     (a) any inventory,

     (b) all Goods that are raw materials,

     (c) all Goods that are work in process,

     (d) all Goods that are materials used or consumed in the ordinary course of
a Person's business,

                                       B-3
<PAGE>

     (e) all Goods that are in the ordinary course of a Person's business,  held
for sale or lease or furnished or to be  furnished  under  contracts of service,
and

     (f)  all  substitutes  and  replacements   for,  and  parts,   accessories,
additions, attachments, or accessions to (a) to (e) above.

     "Investment  Collateral"  means,  in connection with the Bonds and the Bond
Documents,  as defined in the Reimbursement  Agreement described in the Security
Agreement (i) any free credit balance or other money, now or hereafter  credited
to, or owing from any Securities Intermediary to the Company, (ii) any commodity
contracts, securities (certificated or uncertificated),  Instruments, Documents,
Financial  Assets or other Investment  Property  distributed from any Securities
Account now or in the  future,  (iii) all the  proceeds  of the sale,  exchange,
redemption or exercise of any of the foregoing,  including,  but not limited to,
any  dividend,  interest  payment or other  distribution  of cash or property in
respect of any of the foregoing,  (iv) any rights incidental to the ownership of
any of the foregoing,  such as voting,  conversion and  registration  rights and
rights of recovery for violation of applicable securities laws and (v) all books
and records relating to any of the foregoing.

     "Obligations"  means any of the following  obligations,  whether  direct or
indirect,  absolute or contingent,  secured or unsecured,  matured or unmatured,
originally contracted with Bank or another Person, and now or hereafter owing to
or acquired in any manner partially or totally by Bank or in which Bank may have
acquired a  participation,  contracted  by Company alone or jointly or severally
with another Person:

     (a)  any  and  all  indebtedness,   obligations,   liabilities,  contracts,
indentures,  agreements,  warranties,  covenants,  guaranties,  representations,
provisions,  terms,  and  conditions of whatever kind, now existing or hereafter
arising,  and however evidenced,  that are now or hereafter owed,  incurred,  or
executed by Company to, in favor of, or with Bank and are set forth or contained
in, referred to, evidenced by, or executed with reference to, the  Reimbursement
Agreement  or the  Security  Agreement,  and  including  any  partial  or  total
extension,   restatement,   renewal,  amendment,  and  substitution  thereof  or
therefor;

     (b) any and all  claims  of  whatever  kind of Bank  against  Company,  now
existing or hereafter arising, including, without limitation, any arising out of
or in any way connected  with  warranties  made by Company to Bank in connection
with any Instrument deposited with or purchased by Bank;

     (c) any and all of Bank's Related Expenses.

     "Organization"  and "Person"  means,  as  applicable,  any natural  person,
corporation  (which shall be deemed to include a business  trust),  association,
limited  liability  company,  partnership,  joint venture,  political entity, or
political subdivision thereof.

     "Reimbursement  Agreement"  means the  Reimbursement  Agreement dated as of
September 1, 1998, as amended by that certain First  Amendment to  Reimbursement
Agreement dated June 14,

                                       B-4
<PAGE>

2000,  executed by and  between  the  Company  and Bank,  pursuant to which Bank
executed and delivered to Trustee (as defined in the Reimbursement Agreement) an
Irrevocable  Transferable  Letter of Credit in the original  aggregate amount of
Six Million Nine Hundred  Ninety-Seven  Thousand One Hundred Thirty-Five Dollars
($6,997,135.00),   and  including  any  partial  or  total  amendment,  renewal,
restatement, extension, or substitution thereof or therefor.

     "Related  Expenses"  means any and all  costs,  liabilities,  and  expenses
(including,  without limitation,  losses, damages,  penalties,  claims, actions,
reasonable attorney's fees, legal expenses, judgments, suits, and disbursements)
incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

     (a)  to  obtain,  preserve,  perfect,  or  enforce  the  security  interest
evidenced by (i) the  Security  Agreement,  or (ii) any other pledge  agreement,
mortgage  deed,   hypothecation   agreement,   guaranty,   security   agreement,
assignment,  or security  instrument executed or given by Company to or in favor
of Bank,

     (b) to obtain  payment,  performance,  and observance of any and all of the
Obligations,

     (c) to maintain,  insure, collect,  preserve, or upon any Event of Default,
repossess and dispose of any of the Collateral, or

     (d)  incidental  or related to (a)  through (c) above,  including,  without
limitation,  interest  thereupon  from the date incurred,  imposed,  or asserted
until paid at the rate payable pursuant to the Reimbursement  Agreement,  but in
no event greater than the highest rate permitted by law.

     "Security  Agreement"  means the Amended and  Restated  Security  Agreement
dated as of June 14, 2000 between Company and Bank, and including any partial or
total amendment, renewal, restatement, extension, or substitution of or for such
agreement.

                                       B-5
<PAGE>

                                    EXHIBIT C
                     AMENDED AND RESTATED SECURITY AGREEMENT

     THIS AMENDED AND RESTATED  SECURITY  AGREEMENT AMENDS AND REPLACES,  IN ITS
ENTIRETY,  THAT CERTAIN  SECURITY  AGREEMENT DATED SEPTEMBER 1, 1998 BETWEEN THE
COMPANY AND THE BANK.

     As of this 14th day of June, 2000, Company and Bank (as herein defined), in
consideration of the premises and the covenants and agreements contained herein,
hereby mutually agree as follows:

1.   DEFINITIONS

     "Account,"   "Chattel  Paper,"   "Consumer   Goods,"   "Deposit   Account,"
"Document," "Farm Products," "General  Intangible,"  "Goods,"  "Instrument," and
"Proceeds,"  have the  meanings as set forth in the Uniform  Commercial  Code in
effect  in the State of  Colorado,  including  any  amendments  thereof  and any
substitutions  therefor,  which definitions are hereby incorporated by reference
as though fully rewritten herein.  "Investment  Property," "Securities Account,"
"Securities  Intermediary" and "Financial Assets" have the meanings as set forth
in the Uniform Commercial Code in effect in the State of Colorado, including any
amendments thereof and any substitutions therefor,  which definitions are hereby
incorporated by reference as though fully rewritten herein.

     "Account Control  Agreement" means an Account Control  Agreement as defined
in Subsection 7(a).

     "Account   Debtor"  means  the  Person  who  is  obligated  on  an  Account
Receivable.

     "Accounts Receivable" means:

          (a)  any  account   receivable,   Account,   Chattel  Paper,   General
               Intangible,  Document,  or Instrument owned, acquired or received
               by a Person,

          (b)  any other  indebtedness owed to or receivable owned,  acquired or
               received by a Person of whatever kind and however evidenced, and

          (c)  any right,  title and  interest  in a Person's  Goods  which were
               sold,  leased or furnished by that Person and gave rise to either
               (a) or (b)  above,  or  both  of  them.  This  includes,  without
               limitation,

               (1)  any rights of stoppage in transit of a Person's sold, leased
                    or furnished Goods,

               (2)  any rights to reclaim a Person's  sold,  leased or furnished
                    Goods, and

                                       C-1
<PAGE>

               (3)  any rights a Person has in such  sold,  leased or  furnished
                    Goods  that have been  returned  to or  repossessed  by that
                    Person.

     "Accounts Receivable Collection Account" means a commercial Deposit Account
which may be  maintained  by Company with Bank in the name of the Bank,  without
liability by Bank to pay interest  thereon,  from which  account Bank shall have
the exclusive right to withdraw funds until all Obligations are paid,  performed
and observed in full.

     "Bank" means KEYBANK NATIONAL ASSOCIATION,  a national banking association,
whose  principal  office is  located at 3300 East First  Avenue,  Second  Floor,
Denver, Colorado 80206, Attention: H. Daniel Willetts.

     "Bonding  Division"  means the business  unit of the Debtor  engaged in the
manufacture  of  explosion   bonded  clad  metal  products   primarily  for  the
petrochemical and chemical  processing  industries referred to as the "Explosive
Metal Working Group",  "Explosive  Manufacturing",  "Metal Cladding",  or "Shock
Synthesis"  in the Debtor's  annual  report on form 10-K filed on March 30, 2000
for the period ended December 31, 1999.

     "Collateral" means:

          (a)  all of  Company's  Accounts  Receivable,  whether  now  owned  or
               hereafter acquired or received by Company;

          (b)  all of  Company's  Inventory,  whether  now  owned  or  hereafter
               acquired by Company;

          (c)  all of  Company's  Equipment,  whether  now  owned  or  hereafter
               acquired by Company, including,  without limitation, the property
               of the Debtor set forth on Exhibit B attached hereto;

          (d)  all of Company's General  Intangibles and other personal property
               and rights,  whether now owned or hereafter  acquired by Company,
               including  but not limited to  trademarks,  tradenames,  patents,
               copyrights, tax refunds, choses in action and contract rights;

          (e)  all of Company's Investment Collateral,  each Securities Account,
               including  without  limitation  the account  named in the Account
               Control Agreement and all Financial Assets of the Company; and

          (f)  all of the  Proceeds,  products,  profits and rents of  Company's
               Accounts Receivable,  Inventory, Equipment, Investment Collateral
               and  General  Intangibles  and all books and  records,  including
               computer software used in connection with any of the Collateral.

                                       C-2
<PAGE>

          (g)  Notwithstanding  the foregoing,  the Collateral shall not include
               that  certain  sublease  (the  "Sublease")  dated July 22,  1996,
               between the Company  and E. I. duPont de Nemours  ("DuPont")  and
               those assets located on the property covered by the Sublease used
               directly in connection with the services  provided by the Company
               to DuPont  under  that  certain  Tolling/Services  Agreement  for
               Industrial  Diamonds dated July 22, 1996 (as assigned from DuPont
               to  Mypodiamond,  Inc.),  all of which  assets are located at the
               Company's facility in Dunbar, Pennsylvania.

     "Company" means DYNAMIC  MATERIALS  CORPORATION,  an organized and existing
company under the laws of the State of Delaware.

     "Company's Location" means the location of:

          (a)  Company's  place of business,  if there is only one such place of
               business, or

          (b)  if there is more than one place of  business,  the place (1) from
               which Company  manages the main part of its business  operations,
               and (2) where Persons  dealing with Company  would  normally look
               for credit information.

     "Equipment" means:

          (a)  any  equipment  and  fixtures,   including  without   limitation,
               machinery,  office furniture and furnishings,  tools,  dies, jigs
               and any warranty and other claims  against the vendor or supplier
               of such equipment,

          (b)  all Goods that are used or bought for use primarily in a Person's
               business,

          (c)  all  Goods  that  are  not  Consumer  Goods,  Farm  Products,  or
               Inventory, and

          (d)  all substitutes or replacements for, and all parts,  accessories,
               additions, attachments, or accessions to the foregoing.

     "Event of Default"  means the  occurrence of any of the events set forth in
Section 8 of the Security Agreement.

     "General  Intangibles"  means all general  intangibles  as set forth in the
Uniform Commercial Code in effect in the State of Colorado, whether now existing
or hereafter arising, including, without limitation, all contract rights, rights
of the Company with respect to pledges made to the Company by third parties, all
trademarks,  copyrights,  patents and other intellectual  property rights as set
forth on Exhibit D attached hereto.

     "Inventory" means:

                                       C-3
<PAGE>

          (a)  any inventory,

          (b)  all Goods that are raw materials,

          (c)  all Goods that are work in process,

          (d)  all Goods that are  materials  used or consumed  in the  ordinary
               course of a Person's business,

          (e)  all Goods that are in the ordinary course of a Person's business,
               held  for sale or lease or  furnished  or to be  furnished  under
               contracts of service, and

          (f)  all substitutes  and  replacements  for, and parts,  accessories,
               additions, attachments, or accessions to (a) to (e) above.

     "Investment  Collateral"  means,  in connection with the Bonds and the Bond
Documents,  as defined in the Reimbursement Agreement described in this Security
Agreement (i) any free credit balance or other money, now or hereafter  credited
to, or owing from any Securities Intermediary to the Company, (ii) any commodity
contracts, securities (certificated or uncertificated),  Instruments, Documents,
Financial  Assets or other Investment  Property  distributed from any Securities
Account now or in the  future,  (iii) all the  proceeds  of the sale,  exchange,
redemption or exercise of any of the foregoing,  including,  but not limited to,
any  dividend,  interest  payment or other  distribution  of cash or property in
respect of any of the foregoing,  (iv) any rights incidental to the ownership of
any of the foregoing,  such as voting,  conversion and  registration  rights and
rights of recovery for violation of applicable securities laws and (v) all books
and records relating to any of the foregoing.

     "Obligations"  means any of the following  obligations,  whether  direct or
indirect,  absolute or contingent,  secured or unsecured,  matured or unmatured,
originally contracted with Bank or another Person, and now or hereafter owing to
or acquired in any manner partially or totally by Bank or in which Bank may have
acquired a  participation,  contracted  by Company alone or jointly or severally
with another Person:

          (a)  any and all indebtedness,  obligations,  liabilities,  contracts,
               indentures,   agreements,   warranties,   covenants,  guaranties,
               representations,  provisions,  terms,  and conditions of whatever
               kind, now existing or hereafter  arising,  and however evidenced,
               that are now or hereafter owed, incurred,  or executed by Company
               to, in favor of, or with Bank and are set forth or contained  in,
               referred to,  evidenced  by, or executed  with  reference to, the
               Reimbursement Agreement or the Security Agreement,  and including
               any partial or total extension,  restatement, renewal, amendment,
               and substitution thereof or therefor;

          (b)  any and all claims of whatever kind of Bank against Company,  now
               existing or hereafter arising, including, without limitation, any
               arising out of or in any

                                       C-4
<PAGE>

               way  connected  with  warranties  made  by  Company  to  Bank  in
               connection  with any  Instrument  deposited  with or purchased by
               Bank;

          (c)  any and all of Bank's Related Expenses.

     "Organization"  and "Person"  means,  as  applicable,  any natural  person,
corporation  (which shall be deemed to include a business  trust),  association,
limited  liability  company,  partnership,  joint venture,  political entity, or
political subdivision thereof.

     "Reimbursement  Agreement"  means the  Reimbursement  Agreement dated as of
September 1, 1998, as amended by that certain First  Amendment to  Reimbursement
Agreement  dated June 14,  2000,  executed  by and between the Company and Bank,
pursuant  to which Bank  executed  and  delivered  to Trustee (as defined in the
Reimbursement  Agreement) an  Irrevocable  Transferable  Letter of Credit in the
original aggregate amount of Six Million Nine Hundred Ninety-Seven  Thousand One
Hundred Thirty-Five Dollars ($6,997,135.00),  and including any partial or total
amendment, renewal, restatement, extension, or substitution thereof or therefor.

     "Related  Expenses"  means any and all  costs,  liabilities,  and  expenses
(including,  without limitation,  losses, damages,  penalties,  claims, actions,
reasonable attorney's fees, legal expenses, judgments, suits, and disbursements)
incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

          (a)  to obtain,  preserve,  perfect,  or enforce the security interest
               evidenced by (i) the Security Agreement, or (ii) any other pledge
               agreement,  mortgage  deed,  hypothecation  agreement,  guaranty,
               security agreement,  assignment,  or security instrument executed
               or given by Company to or in favor of Bank,

          (b)  to obtain payment,  performance, and observance of any and all of
               the Obligations,

          (c)  to  maintain,  insure,  collect,  preserve,  or upon any Event of
               Default, repossess and dispose of any of the Collateral, or

          (d)  incidental  or  related  to (a)  through  (c)  above,  including,
               without  limitation,  interest  thereupon from the date incurred,
               imposed,  or asserted until paid at the rate payable  pursuant to
               the  Reimbursement  Agreement,  but in no event  greater than the
               highest rate permitted by law.

     "Security  Agreement"  means this agreement  between  Company and Bank, and
including any partial or total amendment,  renewal,  restatement,  extension, or
substitution of or for such agreement.

                                       C-5
<PAGE>

2.   SECURITY INTEREST IN COLLATERAL

     In  consideration  of and as security  for the full and  complete  payment,
performance, and observance of all Obligations, Company does hereby (a) grant to
Bank a security  interest in the  Collateral,  located on or used in  connection
with the real  property  described on Exhibit A attached  hereto and made a part
hereof for all purposes (the "Property") or otherwise used in connection with or
arising from the business and  operations of the Bonding  Division,  whether now
owned or  hereafter  acquired or received by the Debtor,  or in which the Debtor
now has or hereafter may acquire any right,  title or interest and (b) assign to
Bank all of its right, title, and interest (including,  without limitation,  all
rights to payment)  arising  under or with respect to all of Company's  Accounts
Receivable,  whether now owned or hereafter acquired or received by Company, but
not  including  any duty,  obligation,  or  liability  of Company  with  respect
thereto.

3.   WARRANTIES

     Company  represents  and  warrants  to  Bank  (which   representations  and
warranties shall survive the execution of the Reimbursement Agreement) that:

          (a)  The  execution,  delivery,  and  performance  hereof  are  within
               Company's  corporate powers,  have been duly authorized,  and are
               not in contravention of law or the terms of Company's Certificate
               of  Incorporation  or Code of  Regulations  or of any  indenture,
               agreement,  or  undertaking to which Company is party or by which
               it is or may be bound;

          (b)  Except for any security  interest  granted to or in favor of Bank
               and those set forth on Exhibit C attached hereto, Company is, and
               as to  Collateral  to be acquired  after the date hereof will be,
               the  owner  of  the  Collateral   free  from  any  claim,   lien,
               encumbrance, or security interest of any type, and Company agrees
               that it will defend, at its sole expense,  the Collateral against
               all claims and  demands of all Persons at any time  claiming  the
               same or any interest therein;

          (c)  Subject  to  any  limitation   stated  herein  or  in  connection
               herewith, all information furnished to Bank concerning Company or
               the  Collateral,  is or will be at the time such  information  is
               furnished,  accurate  and correct in all  material  respects  and
               complete  insofar as is  necessary to give Bank true and accurate
               knowledge of the subject matter;

          (d)  Company is the lawful owner of and has full and unqualified right
               to transfer a security interest in all of the Collateral to Bank.
               Such  Collateral  is not and will not, so long as Company has any
               Obligations  to Bank,  be  subject  to any  financing  statement,
               encumbrance, claim, lien, or security interest of any type except
               any  granted  to  or  in  favor  of  Bank  and  except  Permitted
               Encumbrances as set forth on Exhibit C;

                                       C-6
<PAGE>

          (e)  Company's Location is 551 Aspen Ridge Drive, Lafayette, Colorado,
               80026.

4.   COVENANTS

     Company undertakes, covenants, and agrees that, until the full and complete
payment, performance, and observance of all Obligations, Company:

          (a)  shall promptly provide Bank with prior written notification of:

               (1)  any change in any  location  where  Company's  Inventory  or
                    Equipment  is  maintained,   and  any  new  locations  where
                    Company's Inventory or Equipment is to be maintained,

               (2)  the  location of any new places of business  for the Bonding
                    Division  and the changing or closing of any of its existing
                    places of business for the Bonding Division,

               (3)  any change in Company's name,

               (4)  any change in Company's Location,

               (5)  any material  encumbrance upon or claim asserted against any
                    of the Collateral, and

               (6)  the occurrence of any event known to the Company, other than
                    changes in general market conditions  adequately reported in
                    the general news media,  that would have a material  adverse
                    effect upon the  aggregate  value of the  Collateral or upon
                    the security interest of the Bank;

          (b)  shall at all reasonable  times and upon  reasonable  notice allow
               Bank  by or  through  any of  its  officers,  agents,  employees,
               attorneys, or accountants to:

               (1)  examine, inspect, and make extracts from Company's books and
                    other records,

               (2)  examine  and  inspect  Company's   Inventory  and  Equipment
                    wherever located, and

               (3)  arrange for  verification of Company's  Accounts  Receivable
                    and to  specifically  identify those Accounts  Receivable of
                    the  Company  attributable  to the Bonding  Division,  under
                    reasonable  procedures,  directly with Account Debtors or by
                    other methods;

                                       C-7
<PAGE>

          (c)  shall promptly furnish to Bank upon request:

               (1)  additional  information  and statements  with respect to the
                    Collateral,

               (2)  information relating to the Company's  Instruments,  Chattel
                    Paper,  Documents,  and any other  writings  relating  to or
                    evidencing   any  of  the  Company's   Accounts   Receivable
                    (including,   without  limitation,   computer  printouts  or
                    typewritten  reports  listing the current mailing address of
                    all present Account Debtors), and

               (3)  any  other  writings  and  information  Bank may  reasonably
                    request;

          (d)  shall upon request of Bank promptly take such action and promptly
               make, execute, and deliver all such additional and further items,
               deeds,   assurances,   and   instruments  as  Bank  may  require,
               including,  without limitation,  financing  statements,  so as to
               completely vest in and ensure to Bank its rights hereunder and in
               and to the Collateral;

          (e)  if any of Company's  Accounts  Receivable  arise out of contracts
               with or orders from the United States or any of its  departments,
               agencies,  or  instrumentalities,  shall promptly  notify Bank in
               writing of same and shall  execute any writing or take any action
               required  by Bank with  reference  to the Federal  Assignment  of
               Claims Act;

          (f)  hereby  authorizes Bank or Bank's  designated  agent (but without
               obligation by Bank to do so) to incur Related  Expenses  (whether
               prior to,  upon,  or  subsequent  to any Event of  Default),  and
               Company shall promptly repay,  reimburse,  and indemnify Bank for
               any and all Related Expenses;

          (g)  cause the Securities  Intermediary to send to the Bank a complete
               and accurate  copy of every  statement,  confirmation,  notice or
               other  communication  concerning the Securities  Account that the
               Securities Intermediary sends to the Company;

          (h)  shall  not  grant   any   consensual   or  permit  to  exist  any
               non-consensual mortgage, encumbrance, security interest, or other
               lien upon any  Collateral  except  any  granted to or in favor of
               Bank and except Permitted Encumbrances;

          (i)  shall not sell, lease,  transfer,  assign,  encumber or otherwise
               dispose  of  any of the  Collateral  or  withdraw  any  money  or
               property  from  any  Securities  Account,   except  as  otherwise
               expressly permitted herein;

                                       C-8
<PAGE>

          (j)  shall  neither  attempt to modify nor  attempt to  terminate  the
               Account  Control  Agreement  or the customer  agreement  with any
               Securities  Intermediary  under which any Securities  Account was
               established;

          (k)  shall  not  permit  material  uninsured  loss,  damage,  theft or
               destruction  of the  Collateral,  nor permit  levy,  seizure,  or
               attachment  to, of, or upon any of the  Collateral or any attempt
               to accomplish the foregoing; and

          (l)  shall  not use any  Collateral  in  violation  of any  applicable
               statute, ordinance, or regulation.

5.   COLLECTIONS AND RECEIPT OF PROCEEDS

          (a)  Upon the  occurrence  and during the  continuance of any Event of
               Default,  after written notification thereof to Company, Bank, or
               Bank's  designated  agent,  shall  have the  right  and power (as
               Company's  hereby  constituted  and appointed  attorney-in-fact),
               which,  being coupled with an interest,  shall remain irrevocable
               until all Obligations are fully and completely  paid,  performed,
               and observed, at any time to:

               (1)  notify  the  Account  Debtors  on any  or  all of  Company's
                    Accounts  Receivable of the Bank's security  interest in and
                    assignment  of those  Accounts  Receivable  upon  which  the
                    respective  Account Debtors are liable,  and to request from
                    such Account  Debtors,  in Bank's name or in Company's name,
                    information  concerning the Accounts  Receivable and amounts
                    owing thereon,

               (2)  notify  purchasers  of any or all of Company's  Inventory of
                    Bank's security interest  therein,  and to request from such
                    Persons,  at any time, in Bank's name or in Company's  name,
                    information  concerning  Company's Inventory and the amounts
                    owing thereon by such purchasers,

               (3)  notify  and  require  the  Account  Debtors on any or all of
                    Company's  Accounts  Receivable  to make  payment  upon such
                    Accounts Receivable directly to Bank,

               (4)  notify and require purchasers of Company's Inventory to make
                    payment of their indebtedness directly to Bank,

               (5)  receive,  retain,  acquire, take, endorse,  assign, deliver,
                    accept,  and deposit,  in Bank's name or Company's name, any
                    and  all of  Company's  cash,  Instruments,  Chattel  Paper,
                    Documents,  Proceeds  of  Accounts  Receivable,  Proceeds of
                    Inventory, collections of

                                       C-9
<PAGE>

                    Accounts Receivable,  and any other writings relating to any
                    of  the  Collateral  theretofore   collected,   received  or
                    retained  by Company  pursuant to  Subsection  5(b) below or
                    thereafter collected, received, or retained by Company,

               (6)  require Company to open and maintain an Accounts  Receivable
                    Collection Account,

               (7)  cause all remittances  representing  all collections and all
                    Proceeds of Company's  Accounts  Receivable and Inventory to
                    be mailed to a lock box as  designated by the Bank, to which
                    Bank shall have access for the  processing  of such items in
                    accordance  with the  provisions,  terms,  and conditions of
                    Bank's customary lock box agreement, and

               (8)  take such  other  action  with  respect to any or all of the
                    Collateral,  in such manner and at such  times,  as Bank may
                    deem   advisable,   including,   without   limitation,   the
                    following:   collection,  legal  proceedings,   compromises,
                    settlements,    adjustments,   extensions,    postponements,
                    exchanges, releases, and sales.

               Bank may,  in its sole  discretion,  at any time and from time to
               time,  apply all or any portion of the  collected  balance in the
               Accounts  Receivable  Collections  Account (allowing two (2) days
               for collection and clearance of  remittances) as a credit against
               Company's  outstanding  obligations.  If any remittance  shall be
               dishonored,  or if, upon final  payment,  any claim with  respect
               thereto  shall  be  made  against  Bank  on  its   warranties  of
               collection,  Bank may charge the amount of such item  against the
               Accounts  Receivable  Collections  Account  or any other  Deposit
               Account  maintained  by  Company  with Bank,  and,  in any event,
               retain same and Company's interest therein as additional security
               for the  Obligations.  Bank may, in its sole  discretion,  at any
               time  and from  time to time,  release  funds  from the  Accounts
               Receivable  Collections  Account to Company for use in  Company's
               business.  The  balance in the  Accounts  Receivable  Collections
               Account  may be  withdrawn  by Company  upon  termination  of the
               Security Agreement in accordance with Subsection 12(d).

          (b)  With respect to  Company's  Instruments,  Documents,  and Chattel
               Paper,  upon the  occurrence  and during the  continuance  of any
               Event of Default,  after written request from Bank, Company shall
               immediately  deliver  or  cause  to be  delivered  to Bank all of
               Company's    Instruments,    Chattel   Paper,    and   Documents,
               appropriately  endorsed either,  at Bank's option,  (i) to Bank's
               order,  without limitation or qualification,  or (ii) for deposit
               in the Accounts Receivable  Collection  Account.  Bank, or Bank's
               designated agent, is hereby  constituted and appointed  Company's
               attorney-in-fact  with  authority and power to so endorse any and
               all Instruments, Documents, and Chattel Paper

                                      C-10
<PAGE>

               upon Company's failure to do so. Such authority and power,  being
               coupled  with an  interest,  shall be (i)  irrevocable  until all
               Obligations  are paid,  performed,  and  observed  in full,  (ii)
               exercisable  by Bank at any time and  without  any  request  upon
               Company by Bank to so endorse,  and (iii)  exercisable  in Bank's
               name  or  Company's  name.  Company  hereby  waives  presentment,
               demand, notice of dishonor,  protest,  notice of protest, and any
               and all other similar notices with respect thereto, regardless of
               the form of any endorsement  thereof.  Bank shall not be bound or
               obligated  to take any  action  to  preserve  any  rights  in the
               foregoing against any prior parties thereto.

          (c)  Except as otherwise provided in Subsections 5(a) or 5(b), Company
               is  authorized  (1) to collect and enforce,  by all lawful means,
               all of  Company's  Accounts  Receivable,  and (2) to receive  and
               retain,  by all lawful means, and use any and all Proceeds of all
               of  Company's  Accounts  Receivable  and  Inventory.  The  lawful
               collection  and   enforcement   of  all  of  Company's   Accounts
               Receivable and the lawful receipt and retention by Company of all
               Proceeds of all of Company's  Accounts  Receivable  and Inventory
               shall be as Bank's agent.

6.   INSURANCE AND USE OF INVENTORY AND EQUIPMENT

          (a)  Until any Event of Default:

               (1)  Company may retain  possession  of and use its Equipment and
                    Inventory  in any lawful  manner not  inconsistent  with any
                    applicable terms, conditions, and provisions of:

                    (i)  the Security Agreement,

                    (ii) the Reimbursement Agreement, and

                    (iii) any insurance policy thereon.

               (2)  Company  may sell or lease  its  Inventory  in the  ordinary
                    course of business;  provided, however, that a sale or lease
                    in the  ordinary  course  of  business  does not  include  a
                    transfer in partial or total  satisfaction of a debt, except
                    for transfers in  satisfaction  of partial or total purchase
                    money  prepayments  by a buyer  in the  ordinary  course  of
                    Company's business.

               (3)  Company may use and consume any raw  materials  or supplies,
                    the use and  consumption  of which are necessary in order to
                    carry on Company's business.

                                      C-11
<PAGE>

               (4)  When the Company determines in good faith that any Equipment
                    shall   have   become   inadequate,    obsolete,   worn-out,
                    unsuitable,  undesirable or unnecessary or should  otherwise
                    be replaced, the Company may remove such Equipment, provided
                    that the Company, in connection therewith:

                    (i)  may  remove,   without  substitution  or  payment,  and
                         without the Bank's prior written consent, Equipment not
                         in excess of $150,000 annually in the aggregate; or

                    (ii) may substitute and install other Equipment having equal
                         or  greater  value  (but  not   necessarily   the  same
                         function) in the operation of the Company's business.

          (b)  Company shall obtain,  and at all times maintain,  insurance upon
               its  Inventory  and  Equipment  in  such  form,  written  by such
               companies,  in such  amounts,  for such period,  and against such
               risks as may be reasonably  acceptable to Bank,  with  provisions
               reasonably  satisfactory  to  Bank  for  payment  of  all  losses
               thereunder  to Bank and  Company  as their  interests  may appear
               (loss payable  endorsement in favor of Bank), and, if required by
               Bank,  Company  will  deposit the  policies  with Bank.  Any such
               policies  of  insurance  shall  provide for no less than ten (10)
               days prior written cancellation notice to Bank. Any sums received
               by Bank in payment of  insurance  losses,  returns,  or  unearned
               premiums  under the  policies  may,  at the  option  of Bank,  be
               applied upon any  Obligation  whether or not the same is then due
               and  payable,  or may be  delivered to Company for the purpose of
               replacing,  repairing,  or restoring  its Inventory or Equipment;
               provided  that  if (i) no  Event  of  Default  exists  under  the
               Reimbursement  Agreement or any of the other Credit Documents (as
               defined in the Reimbursement  Agreement),  (ii) the total cost of
               repairing, replacing or restoring such Inventory and/or Equipment
               does not  exceed  one-  third of the  appraised  value of all the
               Company's  Inventory  and  Equipment,  and (iii) the  Company has
               provided to the Bank's reasonable satisfaction evidence that such
               replacement,  repair or restoration can be accomplished at a cost
               not greater than the insurance  proceeds plus other funds readily
               available  to the  Company,  the Bank  shall  make the  insurance
               proceeds after deduction of the Bank's cost of collection of such
               insurance   proceeds,   available   to  the   Company   for  such
               replacement,  repair or  restoration.  Company  hereby assigns to
               Bank  any  return  or  unearned  premium  which  may be due  upon
               cancellation  of any such policies for any reason and directs the
               insurers to pay Bank any amount so due.  Subject to the existence
               of the  circumstances  described  in  the  proviso  in the  third
               sentence of this Section 6(b), Bank, or Bank's  designated agent,
               is hereby  constituted and appointed  Company's  attorney-in-fact
               (either  in the name of  Company  or in the name of the  Bank) to
               make adjustments of all insurance losses, sign all

                                      C-12
<PAGE>

               applications,  receipts, releases, and other papers necessary for
               the  collection  of any such  loss,  and any  return of  unearned
               premium, execute proof of loss, make settlements, and endorse and
               collect  all   Instruments   payable  to  Company  or  issued  in
               connection   therewith.   Notwithstanding   any  action  by  Bank
               hereunder,  any and all  risk of  loss  or  damage  to  Company's
               Inventory and Equipment to the extent of any and all deficiencies
               in the effective  insurance  coverage thereof is hereby expressly
               assumed by Company.

7.   INVESTMENT COLLATERAL

          (a)  Prior to acquiring any Investment  Collateral,  the Company shall
               have   executed   and   delivered   and  caused  the   Securities
               Intermediary  to  execute  and  deliver  to the  Bank an  Account
               Control  Agreement  in a form  satisfactory  to the  Bank for the
               purpose of perfecting  the security  interest of the Bank granted
               by the Company herein.

          (b)  If no Event of Default has occurred,  the Company may make trades
               in the  Securities  Account and exercise any voting or consensual
               rights  that it may have as to any of the  Investment  Collateral
               for any purpose which is not inconsistent  with this Agreement or
               the  Reimbursement   Agreement.  If  any  Event  of  Default  has
               occurred,  (i) the  Company  shall  cease  making  trades  in the
               Securities  Account,  (ii) the Bank may  exercise  all  voting or
               consensual rights as to any of the Investment  Collateral,  (iii)
               the  Company  shall  deliver  to  the  Bank  all  notices,  proxy
               statements,   proxies  and  other   information  and  instruments
               relating to the  exercise of such rights  received by the Company
               from the issuers of any Investment  Collateral  promptly upon the
               receipt thereof and (iv) the Company shall, at the request of the
               Bank,  execute  and  deliver  to the  Bank any  proxies  or other
               instruments  which  are,  in  the  sole  judgment  of  the  Bank,
               necessary  for the  Bank to  validly  exercise  such  voting  and
               consensual rights.

          (c)  The  Company  acknowledges  that it has made or will make its own
               arrangements for keeping informed of changes or potential changes
               affecting the Investment Collateral  (including,  but not limited
               to,  conversions,   subscriptions,   exchanges,  reorganizations,
               dividends, tender offers, mergers, consolidations and shareholder
               meetings). The Company agrees that the Bank has no responsibility
               to inform the Company of such  matters or to take any action with
               respect thereto even if any of the Investment Collateral has been
               registered in the name of the Bank or its agent or nominee.

          (d)  All items of income,  gain,  expense and loss  recognized  in the
               Securities  Account  shall be  reported to the  Internal  Revenue
               Service and all state and local taxing authorities under the name
               and taxpayer identification number of the Company.

                                      C-13
<PAGE>

8.   EVENTS OF DEFAULT

     Upon the occurrence of any one or more of the following  Events of Default,
any and all  Obligations  shall, at the option of Bank and  notwithstanding  any
period of time  permitted or allowed by any writing  evidencing  an  Obligation,
become  immediately  due  and  payable  without  notice,  demand,   protest,  or
presentment, all of which are hereby expressly waived by Company:

          (a)  Subject to any  applicable  grace  period,  the  occurrence of an
               Event of Default under the terms of the Reimbursement Agreement;

          (b)  Failure  of  Company  to  perform  or  observe  any  covenant  or
               agreement  contained in this  Security  Agreement and any Account
               Control  Agreement and any such failure continues for thirty (30)
               days following  notice of such failure by the Bank to the Company
               or any  representation  or  warranty  made  herein by  Company is
               incorrect or misleading in any material respect when made.

          (c)  Failure of Company to promptly pay, perform, or observe when due,
               whether upon demand, at maturity, by acceleration,  or otherwise,
               any of the other Obligations.

9.   RIGHTS AND REMEDIES UPON EVENT OF DEFAULT

          (a)  Upon the occurrence of any such Event of Default and at all times
               thereafter,  Bank shall have the rights and remedies of a secured
               party under the Uniform Commercial Code in effect in the State of
               Colorado  in  addition  to  the  rights  and  remedies   provided
               elsewhere  within the Security  Agreement or in any other writing
               executed by Company.  Bank may  require  Company to assemble  the
               Collateral  and  make  it  available  to  Bank  at  a  reasonably
               convenient place to be designated by Bank.  Unless the Collateral
               is perishable, threatens to decline speedily in value, or is of a
               type  customarily  sold on a  recognized  market,  Bank will give
               Company  reasonable  notice of the time and  place of any  public
               sale of the  Collateral  or of the time after  which any  private
               sale or other  intended  disposition  thereof is to be made.  The
               requirement  of reasonable  notice shall be met if such notice is
               mailed in accordance with Section 12(b) hereof, at least ten (10)
               days  before the time of the public  sale or the time after which
               any private sale or other intended  disposition  thereof is to be
               made. At any such public or private  sale,  Bank may purchase the
               Collateral.  After  deduction for Bank's  Related  Expenses,  the
               residue of any such sale shall be applied in  satisfaction of the
               Obligations  in such order of preference  as Bank may  determine.
               Any  excess,  to the extent  permitted  by law,  shall be paid to
               Company, and Company shall remain liable for any deficiency.

                                      C-14
<PAGE>

          (b)  If any of the  Investment  Collateral  is sold on  credit  or for
               future  delivery,  it need not be  retained by the Bank until the
               purchase  price is paid and the Bank shall incur no  liability if
               the  purchaser  fails  to  take  up or  pay  for  the  Investment
               Collateral.   In  the  case  of  such  failure,   the  Investment
               Collateral may be sold again.

          (c)  The Company  shall  execute and deliver to the  purchasers of any
               Investment   Collateral  all   instruments  and  other  documents
               necessary or proper to sell,  convey and  transfer  title to such
               Investment  Collateral and, if approval of any sale of Investment
               Collateral by any governmental  body or officer is required,  the
               Company shall prepare or cooperate  fully in the  preparation  of
               and cause to be filed with such  governmental body or officer all
               necessary or property applications,  reports and forms and do all
               other  things  necessary or proper to  expeditiously  obtain such
               approval.

10.  APPOINTMENT OF BANK AS AGENT

     The Company  hereby  appoints and  constitutes  Bank,  its  successors  and
assigns, as its agent and  attorney-in-fact  for the purpose of carrying out the
provisions of this  Agreement and taking any action or executing any  instrument
that Bank  considers  necessary or convenient  for such  purpose,  including the
power to endorse and deliver checks, notes and other instruments for the payment
of money in the name of and on behalf of Company,  to endorse and deliver in the
name of and on behalf of the  Company  securities  certificates  and execute and
deliver in the name of and on behalf of the Company  instructions to the issuers
of  uncertificated  securities,  and to  execute  and file in the name of and on
behalf of the Company  financing  statements  (which may be  photocopies of this
Agreement) and continuations and amendments to financing statements in the State
of Colorado or elsewhere  and Forms 4, 5, 144 and Schedules 13D and 13G with the
United States  Securities and Exchange  Commission.  This appointment is coupled
with an interest and is irrevocable  and will not be affected by the dissolution
or  bankruptcy  of the Company nor by the lapse of time. If the Company fails to
perform any act required by this Agreement, the Bank may perform such act in the
name  of and on  behalf  of the  Company  and at  its  expense  which  shall  be
chargeable to Company as provided herein and in the Reimbursement Agreement. The
Company  hereby  consents  and agrees  that the  issuers of or  obligors  of the
Investment  Collateral or any registrar or transfer  agent or trustee for any of
the Investment  Collateral shall be entitled to accept the provisions  hereof as
conclusive evidence of the rights of the Bank to effect any transfer pursuant to
this Agreement and the authority granted to the Bank herein, notwithstanding any
other notice or direction to the contrary  heretofore or hereafter  given by the
Company,  or any other  person,  to any of such issuers,  obligors,  registrars,
transfer agents, or trustees.

11.  IMPACT OF REGULATION

     The Company  acknowledges  that compliance with the Securities Act of 1933,
as amended,  and the rules and  regulations  thereunder  and any relevant  state
securities laws and other applicable

                                      C-15
<PAGE>

laws may impose limitations on the right of Bank to sell or otherwise dispose of
securities included in the Investment  Collateral.  For this reason, the Company
hereby  authorizes  the Bank to sell any  securities  included in the Investment
Collateral  in such manner and to such persons as would,  in the judgment of the
Bank,  help to ensure that the transfer of such  securities will be given prompt
and effective approval by any relevant  regulatory  authorities will not require
any of the  securities  to be  registered  or  qualified  under  any  applicable
securities  laws.  The  Company  understands  that a sale  under  the  foregoing
circumstances  may  yield  a  substantially  lower  price  for  such  Investment
Collateral  than would  otherwise be obtainable if the same were  registered and
sold in the open market,  and the Company agrees that the Bank shall not be held
responsible for selling any of the Investment  Collateral at an inadequate price
even if the Bank  accepts  the  first  offer  received  or if only one  possible
purchaser  appears  or bids  at any  such  sale.  If the  Bank  shall  sell  any
securities  included in the  Investment  Collateral at such sale, the Bank shall
have the right to rely upon the advice and opinion of any qualified appraiser or
investment banker as to the commercially reasonable price obtainable on the sale
thereof but shall not be obligated to obtain such advice or opinion. The Company
hereby assigns to the Bank any registration rights or similar rights the Company
may have from time to time with respect to any of the Investment Collateral.

12.  GENERAL

          (a)  If any provisions of this Security Agreement, or any action taken
               hereunder,  or any application thereof, is for any reason held to
               be illegal or invalid,  such  illegality or invalidity  shall not
               affect any other  provision of this Security  Agreement,  each of
               which shall be construed and enforced  without  reference to such
               illegal or invalid  portion and shall be.  deemed to be effective
               or taken in the manner and to the full extent permitted by law.

          (b)  Bank  shall  not be deemed to have  waived  any of Bank's  rights
               hereunder or under any other writing  executed by Company  unless
               such  waiver  be in  writing  and  signed  by  Bank.  No delay or
               omission on part of Bank in exercising any right shall operate as
               a waiver of such  right or any other  right.  A waiver on any one
               occasion  shall  not be  construed  as a bar to or  waiver of any
               right or remedy on any future  occasion.  All  Bank's  rights and
               remedies,  whether evidenced hereby or by any other writing shall
               be cumulative  and may be exercised  singularly or  concurrently.
               Any written  demands,  written  requests,  or written  notices to
               Company  that  Bank may  elect to give  shall be  effective  when
               deposited  for  delivery,  postage  prepaid,  by U.S.  mail,  and
               addressed either, at Bank's option, to (1) Company's Location set
               forth in Subsection 3(e) of this Security  Agreement (as modified
               by any change  therein  which  Company has supplied in writing to
               Bank)  or  (2)  Company's   address  at  which  Bank  customarily
               communicates with Company. If at any time or times, by assignment
               or otherwise,  Bank transfers any of the  Obligations or any part
               of the  Collateral to another  person,  such transfer shall carry
               with it Bank's  powers  and  rights  under  this  Agreement  with
               respect to the  obligation or Collateral so  transferred  and the
               transferee shall have said powers and

                                      C-16
<PAGE>

               rights,  whether or not they are specifically  referred to in the
               transfer.  To the  extent  that  Bank  retains  any  other of the
               Obligations or any part of the Collateral,  Bank will continue to
               have the rights and powers herein set forth with respect thereto.

          (c)  The laws of the State of Colorado,  without  regard to principles
               of  conflict  of laws,  shall  govern  the  construction  of this
               Security Agreement (including,  without limitation, any terms not
               specifically  defined in this Security  Agreement  that may be so
               specifically  defined  pursuant  to the  Reimbursement  Agreement
               inclusive,   and   including  any   amendments   thereof  or  any
               substitution  therefor)  and the rights and duties of the parties
               hereto.  Company  agrees that Bank may make a  photocopy  of this
               Security  Agreement in the  ordinary  course of business and such
               photocopy  may be used in place of the  original of the  Security
               Agreement.  A carbon,  photographic or other reproduction of this
               Security  Agreement  may be used as a financing  statement.  This
               Security Agreement shall be binding upon and inure to the benefit
               of Company and Bank and their respective  successors and assigns.
               The rights and powers herein given to the Bank are in addition to
               those  otherwise  created or existing in the same  Collateral  by
               virtue of other agreements or writings.

          (d)  The term of this Security  Agreement shall commence with the date
               hereof and shall continue  until  terminated by either Company or
               Bank.  Company may terminate  this  Security  Agreement by giving
               Bank not less than thirty (30) days prior written  notice thereof
               and by paying,  performing,  and observing all of the Obligations
               in full on or before such termination date.

          (e)  In the Security Agreement, unless the context otherwise requires,
               words in the singular  number include the plural and words in the
               plural number include the singular.

          (f)  Company  hereby  releases  Bank from and agrees to indemnify  and
               hold harmless Bank, and its officers,  agents,  and employees for
               any and all claims of  Company or any other  Person for damage or
               loss caused by any act or acts hereunder or in furtherance hereof
               whether by omission  or  commission,  and whether  based upon any
               error  of  judgment  or  mistake  of law or  fact  (except  gross
               negligence  or willful  misconduct)  on the part of Bank,  or its
               officers, agents, and employees.

          (g)  Bank is hereby  authorized to fill in all blank spaces herein, to
               correct  patent  errors  herein,   to  complete  or  correct  the
               description  of  the   Collateral,   and  to  date  the  Security
               Agreement.

                                      C-17
<PAGE>

     COMPANY,  TO THE EXTENT  PERMITTED BY LAW,  VOLUNTARILY  AND  INTENTIONALLY
WAIVES ANY AND ALL RIGHTS TO HAVE A JURY  PARTICIPATE  IN RESOLVING ANY DISPUTE,
WHETHER  SOUNDING IN  CONTRACT,  TORT,  OR  OTHERWISE,  BETWEEN BANK AND COMPANY
ARISING  OUR  OF,  IN  CONNECTION  WITH,  RELATING  TO,  OR  INCIDENTAL  TO  THE
RELATIONSHIP  ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE SECURITY AGREEMENT
OR ANY NOTE OR OTHER INSTRUMENT,  DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION THEREWITH OR TO TRANSACTIONS  RELATED THERETO.  THIS WAIVER SHALL NOT
IN ANY WAY  AFFECT,  WAIVE,  LIMIT,  AMEND OR MODIFY  BANK'S  ABILITY  TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION  CONTAINED
IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED BY
COMPANY TO BANK.  COMPANY HEREBY  CERTIFIES THAT NO  REPRESENTATIVE  OR AGENT OF
BANK NOR BANK'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD
NOT, IN THE EVENT OF SUCH  LITIGATION,  SEEK TO ENFORCE  THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.  COMPANY  ACKNOWLEDGES THAT BANK HAS BEEN INDUCED TO ENTER
INTO AND ACCEPT THIS SECURITY AGREEMENT,  BY, INTER ALIA, THE PROVISIONS OF THIS
PARAGRAPH.

     IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Amended and
Restated  Security  Agreement  to be  executed  on the day and year first  above
written.

          COMPANY:                  DYNAMIC MATERIALS CORPORATION

                                    By:      ___________________________________
                                    Name:    ___________________________________
                                    Title:   ___________________________________

          BANK:                     KEYBANK NATIONAL ASSOCIATION

                                    By:      ___________________________________
                                    Name:    ___________________________________
                                    Title:   ___________________________________

                                      C-18
<PAGE>

                                    EXHIBIT A

                              PROPERTY DESCRIPTION

                                    Attached

                                      C-19
<PAGE>

                                    EXHIBIT B

                                 COLLATERAL LIST

                                    Attached

                                      C-20
<PAGE>

                                    EXHIBIT C

                             PERMITTED ENCUMBRANCES

     The Permitted  Encumbrances are as defined in the  Reimbursement  Agreement
described in this Security Agreement.

                                      C-21
<PAGE>

                                    EXHIBIT D

                              INTELLECTUAL PROPERTY

                                    Attached

                                      C-22

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