Document:

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                                                                  EXHIBIT 10.1

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                             NOTE PURCHASE AGREEMENT

                                  BY AND AMONG

                         HORIZON MEDICAL PRODUCTS, INC.,

                         COMVEST VENTURE PARTNERS, L.P.,

                                       AND

               THE ADDITIONAL NOTE PURCHASERS (AS DEFINED HEREIN)

                                  MARCH 1, 2002

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Exhibits and Annex

Annex   1         Additional Purchasers
Exhibit A         Form of Hunt Investments Pledge Agreement and Hunt Pledge
                    Agreement
Exhibit B         Form of Purchaser Senior Subordinated Convertible Note
Exhibit C         Section 2.6 Note Conversion Price
Exhibit D         Terms of Peterson / Hunt Employment Agreement and options
Exhibit E         Form of Securityholders Agreement
Exhibit F         Form of Convertible Bridge Note
Exhibit G         Form of Junior Subordinated Note

Disclosure Schedules

Schedule 4.1      Foreign Qualification
Schedule 4.4(a)   Capital Structure
Schedule 4.4(b)   Capital Stock Obligations
Schedule 4.4(d)   Subsidiary Capital Structure
Schedule 4.5(a)   Financial Statements
Schedule 4.6      Subsidiaries
Schedule 4.7(a)   Litigation
Schedule 4.8      Conflicts
Schedule 4.9      Consents
Schedule 4.10     Indebtedness
Schedule 4.11(a)  Real Property
Schedule 4.12     Taxes
Schedule 4.16     Broker's or Finder's Commissions
Schedule 4.17     Labor Matters
Schedule 4.18     Environmental Matters
Schedule 4.20     Compliance with ERISA
Schedule 4.21     Breaches of Material Contracts
Schedule 4.22     Insurance
Schedule 4.25(a)  Intellectual Property
Schedule 4.25(b)  License Agreement Exceptions; Intellectual Property
                   Infringement
Schedule 4.25(c)  Intellectual Property Registrations; Enforcement
Schedule 4.25(d)  Agreements Assigning Intellectual Property Rights
Schedule 4.25(g)  Product Liability and Warranty Claims
Schedule 4.28     Certain Transactions
Schedule 4.29     Other Names of the Business

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                             NOTE PURCHASE AGREEMENT

         NOTE PURCHASE AGREEMENT (this "Agreement") dated as of March 1, 2002,
by and among Horizon Medical Products, Inc., a Georgia corporation (the
"Company"), ComVest Venture Partners, L.P., a Delaware limited partnership
(together with its successors and assigns, the "Purchaser"), and the Additional
Note Purchasers (as defined below).

                                    RECITALS

         WHEREAS, in order (i) to provide for the repayment of a portion of the
principal amount outstanding under the BofA Note (as defined below) held by the
Purchaser, the Company has proposed to issue and sell (A) to the Purchaser, its
Senior Subordinated Convertible Note in an aggregate principal amount of
$4,400,000 (the "Purchaser Senior Subordinated Convertible Note") and (B) to
Medtronic, Inc., a Minnesota corporation (together with its successors and
assigns, "Medtronic"), its Senior Subordinated Convertible Note in an aggregate
principal amount of $4,000,000 (the "Medtronic Additional Note") and (ii) in the
event that the Company does not obtain a sufficient amount of funds upon its
issuance of the Senior Indebtedness Notes (as defined below) for the purpose of
the Company's making repayment in full of the Remaining BofA Indebtedness (as
defined below) then, in the sole discretion and at the sole election of the
Purchaser, it is proposed that the Company shall issue and sell to further
Additional Note Purchasers, Additional Notes (as defined below) in an aggregate
principal amount not to exceed $6,600,000 (without taking into account the
Medtronic Additional Note), all upon the terms and subject to the conditions
hereinafter set forth;

         WHEREAS, in order (i) to provide such funds to the Company as is
necessary, together with the consummation of the transactions contemplated
hereby (including, if elected by the Purchaser, the issuance of Additional
Notes), to enable the Company to repay in full the Remaining BofA Indebtedness
and (ii) to provide the Company with additional working capital, it is proposed
that the Company issue the Senior Indebtedness Notes at the time of the Closing;

         WHEREAS, in the event that the Company is unable to arrange for the
purchase by a bank or other financial institution for cash of Senior
Indebtedness Notes having an aggregate principal amount of not less than the
entire Remaining BofA Indebtedness, the Purchaser has the option to purchase
pursuant to the Purchaser Senior Secured Notes Purchase Agreement (as defined
below) senior secured notes of the Company ("Purchaser Senior Secured Notes") in
a principal amount equal to the aggregate amount of the Remaining BofA
Indebtedness that is not repaid with the proceeds, if any, from the issuance of
Senior Indebtedness Notes;

         WHEREAS, in order to induce the Purchaser to purchase the Purchaser
Senior Subordinated Convertible Note and as an inducement for Medtronic and the
Additional Parties to purchase the Medtronic Additional Note and the Additional
Notes, respectively, each of the Hunt Parties has agreed to execute and deliver
at the Closing its Hunt Party Pledge Agreement pursuant to which such Hunt Party
shall pledge the Hunt Securities owned by it (as defined below); and

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         WHEREAS, in order to induce Medtronic to purchase the Medtronic
Additional Note, the Company has agreed to enter into a Co-Marketing Agreement
with Medtronic (the "Medtronic Co-Marketing Agreement").

         NOW, THEREFORE, in consideration of the premises and mutual covenants
of the parties hereunder, the Company, the Purchaser and the Additional Note
Purchasers agree as follow:

Section 1.        Definitions.

         Defined Terms. For the purposes of this Agreement, the following terms
shall have the following respective meanings:

         "Acquisition Proposal" shall mean any bona fide proposal or offer from
any Person relating to any direct or indirect acquisition or purchase of 50% or
more of the assets of the Company and the Subsidiaries, taken as a whole, or 50%
or more of the combined voting power of the shares of Company Common Stock, any
tender offer or exchange offer that if consummated would result in any Person
beneficially owning 50% or more of the combined voting power of the shares of
Company Common Stock, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any Subsidiary in which the other party thereto or its stockholders
will own 20% or more of the combined voting power of the parent entity resulting
from any such transaction, other than the transactions contemplated by the
Transaction Documents.

         "Additional Note Purchasers" shall mean Medtronic as the purchaser of
the Medtronic Additional Note and such other Persons (together with its
successors and assigns) who, in the sole discretion of the Purchaser, purchase
Additional Notes and by executing and delivering a counterpart of this Agreement
or by executing and delivering a joinder agreement, in form and substance
reasonably satisfactory to the Company and the Purchaser, become parties to this
Agreement.

         "Additional Notes" shall mean those senior subordinated convertible
notes issued by the Company, in the sole discretion and at the sole election of
the Purchaser, to Additional Parties in an aggregate principal amount not to
exceed $6,600,000 (without taking into account the Medtronic Additional Note or
the Purchaser Senior Subordinated Convertible Note), which shall of like tenor
to, and substantially in the form of the Purchaser Senior Subordinated
Convertible Note and the Medtronic Additional Note, and which, upon their
issuance in shall, except as expressly provided herein, be entitled to all the
benefits of this Agreement equally and proportionately with the Purchaser Senior
Subordinated Convertible Note.

         "Additional Parties" shall mean all Additional Note Purchasers other
than Medtronic.

         "Adjusted BofA Principal Amount" means an amount equal to the
consideration that is paid by the Purchaser for the BofA Note and that consists
of cash and the principal amount of the Junior Subordinated Note; provided that
if the Company shall have assumed all of the Purchaser's obligations under the
Junior Subordinated Notes and BofA shall have released the

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Purchaser from all obligations with respect thereto, then the Adjusted BofA
Principal Amount shall not include the principal amount of the Junior
Subordinated Note.

         "Affiliate" means, as to any Person, any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person. For purposes of this definition, "control" of a Person shall mean the
power, direct or indirect, (a) to vote or direct the voting of 5% or more of the
outstanding shares of Voting Stock of such Person, or (b) to direct or cause the
direction of the management and policies of such Person whether by ownership of
Capital Stock, by contract or otherwise; provided, however, that neither the
Purchaser nor Medtronic nor any Additional Party shall be deemed to be an
Affiliate of the Company by reason of its ownership of any Capital Stock of the
Company.

         "Authorized Officer" means, for any corporation, the President, the
Chief Executive Officer, the Chief Financial Officer or the Treasurer of such
corporation.

         "Bankruptcy Code" means 11 U.S.C. Sec. 101 et seq., as from time to
time hereafter amended, and any successor or similar statute.

         "Blockage Period" shall have the meaning given to such term in Section
5(a) hereof.

         "BofA Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of May 28, 1998, as further amended, between the Company,
BofA Commercial Finance and the agent thereunder.

         "BofA Commercial Finance" means Bank of America, N.A.

         "BofA Loan Documents" means the BofA Credit Agreement, the BofA Note
and all other documents and instruments (including, without limitation, all
security agreements and mortgages) entered into by the Company and its
Subsidiaries in connection therewith.

         "BofA Note" means that certain Revolving Credit Note in the original
principal amount of $50,000,000 issued by the Company to BofA Commercial Finance
pursuant to the BofA Credit Agreement.

         "BofA Restructuring" means that series of transactions occurring on or
prior to the time of the Closing (i) whereby, the amount outstanding under the
BofA Note is reduced to the Adjusted BofA Principal Amount; (ii) whereby, the
warrant to purchase 435,157 shares of the Company's Common Stock issued to BofA
by the Company shall terminate and be of no further force and effect; and (iii)
whereby, the Company shall have assumed all of the Purchaser's obligations under
the Junior Subordinated Notes and BofA shall have released the Purchaser from
all obligations with respect thereto.

         "Business Day" means any day on which commercial banks are not
authorized or required to close in New York City.

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         "Capital Expenditures" means the expenditures of any Person which
should be capitalized on the balance sheet of such Person in accordance with
GAAP (including that portion of Capitalized Lease Obligations which should be
capitalized on a consolidated balance sheet of such Person in accordance with
GAAP) and which are made in connection with the purchase, construction or
improvement of items properly classified on such balance sheet as property,
plant, equipment or other fixed assets or intangibles.

         "Capital Stock" means and includes (a) any and all shares, interests,
participations or other equivalents of or interests, participations or other
equivalents of or interests in (however designated) corporate stock, including
shares of preferred or preference stock, (b) all partnership interests (whether
general or limited) in any Person which is a partnership, (c) all membership
interests or limited liability company interests in any limited liability
company, and (d) all equity or ownership interests in any Person of any other
type.

         "Capitalized Lease" means, as to any Person, a lease of (or other
agreement conveying the right to use) real and/or personal Property to such
Person as lessee, with respect to which the obligations of such Person to pay
rent or other amounts are required to be classified and accounted for as a
capital lease on a balance sheet of such Person in accordance with GAAP
(including Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board).

         "Capitalized Lease Obligation" means, as to any Person, the obligation
of such Person to pay rent or other amounts under a Capitalized Lease and, for
purposes of this Agreement, the amount of such obligation shall be the
capitalized amount thereof, determined in accordance with GAAP.

         "Cash Equivalents" means (a) marketable obligations maturing within six
months after acquisition thereof issued or fully guaranteed by the United States
of America or an instrumentality or agency thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof), (b)
open market commercial paper, maturing within 180 days after acquisition
thereof, which has the highest credit rating of either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (c) certificates of deposit or
bankers acceptances or other obligations maturing within six months after
acquisition thereof issued by a domestic commercial bank which is a member of
the Federal Reserve System and has capital and surplus and undivided profits in
excess of $500,000,000, and (d) other certificates of deposit maturing within
six months after acquisition thereof in respect of deposits fully insured by the
Federal Deposit Insurance Corporation.

         "Casualty" means any actual or constructive loss of any Property of the
Company or any of its Subsidiaries by reason of fire, explosion, theft or other
casualty occurrence.

         "CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.

         "Certified" when used with respect to any financial information of any
Person to be certified by any of its officers, indicates that such information
is to be accompanied by a

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certificate to the effect that such financial information has been prepared in
accordance with GAAP consistently applied, subject in the case of interim
financial information to normal year-end audit adjustments and absence of the
footnotes required by GAAP, and presents fairly, in all material respects, the
information contained therein as at the dates and for the periods covered
thereby.

         "Change of Control" means any transaction or event as a direct or
indirect result of which (A) the acquisition of the Company by another entity by
means of any transaction or series of related transactions with the Company
(including, without limitation, any stock purchase, reorganization, merger or
consolidation but, excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); (B) a sale of all or substantially all of
the assets of the Company; (C) any other transaction which results in the
disposition of 50% or more of the voting power of all classes of capital stock
of the Company unless the Company's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (solely by virtue of securities issued as consideration for
the Company's acquisition or sale or otherwise) hold at least 50.1% of the
voting power of the surviving or acquiring entity; or (D) at any time any Person
(other than the Purchaser or any Additional Note Purchaser) or Section 13(d)
"group" as defined under the Exchange Act is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of greater than 50% of the outstanding shares of Voting Stock of the
Company.

         "Charter of the Company" shall mean the Articles of Restatement and
Amendment to Articles of Incorporation of the Company, as in effect on the date
hereof.

         "Closing" shall have the meaning given to such term in Section 2.4(a)
hereof.

         "Closing Date" has the meaning specified in Section 2.4(a) hereof.

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

         "Common Stock" means the common stock, and any Capital Stock of any
other class or series of the Company hereafter authorized which is not limited
to a fixed sum or percentage of par or stated value in respect to the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Company.

         "Company" has the meaning specified in the first paragraph hereof.

         "Company ESOP" means the Company's 1998 Stock Incentive Plan.

         "Company Notes" means the Purchaser Senior Subordinated Convertible
Note, the Additional Notes, the Medtronic Additional Note, the Senior
Indebtedness Notes and the Junior Subordinated Note.

         "Company Common Stock" means the Common Stock, par value $.001 per
share, of the Company as it exists on the date hereof or as it may be
constituted from time to time.

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         "Company SEC Documents" has the meaning given to such term in Section
4.14 hereof.

         "Consolidated Income Tax Expense" means, for any period, with respect
to any the Company, the amount which, in conformity with GAAP, should be
included as provision for current and deferred income taxes on a consolidated
income statement for such period of the Company and those Persons which are
Subsidiaries of the Company on the date hereof.

         "Consolidated Pre-Tax Net Income" means, for any period, the net income
of the Company and those Persons which are Subsidiaries of the Company on the
date hereof on a consolidated basis for such period taken as a single accounting
period, determined in accordance with GAAP; provided, that, in determining
Consolidated Pre-Tax Net Income, there shall be excluded (i) Consolidated Income
Tax Expense for such period, (ii) any income from any other Person that is not a
Subsidiary of the Company on the date hereof, (iii) any gain from the sale,
exchange, transfer or other disposition of Property by the Company or any of its
Subsidiaries not in the ordinary course of business of the Company or such
Subsidiaries, as the case may be, (iv) the income from any Property of any other
Person that is acquired (whether by way of asset acquisition, merger or other
form of business combination) by the Company or any of its Subsidiaries where
such Property constituted, prior to such acquisition, operating assets of such
Person or any Affiliate of such Person, (v) gains from any insurance policy and
(vi) any other extraordinary or non-recurring gains of the Company or any of its
Subsidiaries.

         "Current Market Price" means with respect to a share of Company Common
Stock the average for the five trading days prior to the date of determination
of Current Market Price of (i) if shares of Company Common Stock are quoted on
the American Stock Exchange or another national securities exchange, the last
reported sales price on the principal exchange on which shares of Company Common
Stock are listed, (ii) if shares of Company Common Stock are not listed on a
national securities exchange, but are quoted on the NASDAQ National Market
System, the closing price of shares of Company Common Stock as quoted on the
NASDAQ National Market System, (iii) if shares of Company Common Stock are not
listed on a national securities exchange or quoted on the NASDAQ National Market
System, but are quoted in the Over-the-Counter Market Summary, the average of
the bid and asked prices of shares of Company Common Stock as quoted in the
Over-the-Counter Market Summary, whichever is applicable, as published in the
Wall Street Journal for the five (5) trading days prior to the date of
determination of Current Market Price. In the absence of such listed or quoted
prices as at the date of determination of Current Market Price, Current Market
Value shall be determined by the mutual agreement of the Company and the
Requisite Noteholders.

         "Default" means any event or condition which, with due notice or lapse
of time or both, would become an Event of Default.

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

         "Environmental Laws" means any and all Federal, state, local, and
foreign Statutes, Orders, permits, authorizations, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to
pollution, the protection of the environment or the

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generation, treatment, storage, handling, processing, use, maintenance,
recycling, transportation, release, destruction or disposal of Hazardous
Materials, including CERCLA, the Resource Conservation and Recovery Act, the
Emergency Planning and Community Right to Know Act, the Safe Drinking Water Act,
the Hazardous Materials Transportation Act, the Clean Air Act, the Clean Water
Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Noise Control
Act, the Occupational Safety and Health Act, the Toxic Substances Control Act,
any so-called "Superfund" or "Superlien" law, and any regulation promulgated
under any of the foregoing, all as now or at any time hereafter may be in
effect.

         "Environmental Matter" means any claim, investigation, litigation or
administrative proceeding, whether pending or threatened, or judgment or Order,
asserted, arising or entered under or pursuant to any Environmental Law, or
relating to any Hazardous Materials, in each case against or pertaining to the
Company, any of its Subsidiaries, the respective operations of such Persons, or
any Properties owned, leased or used by any of such Persons.

         "Equity Proceeds" means cash proceeds (net or underwriting discounts
and commissions and other customary and reasonable fees and costs associated
therewith) from the issuance of any Capital Stock or other equity Securities of,
or the making of any capital contribution to, the Company or any of its
Subsidiaries at any time or from time to time after the Closing Date.

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

         "ERISA Affiliate" means any corporation which is a member of the same
controlled group (within the meaning of Section 414(b) of the Code) of
corporations or other Persons as the Company or which is under common control
(within the meaning of Section 414(c) of the Code) with the Company or any
corporation or other Person which is a member of an affiliated service group
(within the meaning of Section 414(m) of the Code) with the Company or any
corporation or other Person which is required to be aggregated with the Company
pursuant to Section 414(o) of the Code or the regulations promulgated thereunder
or which is considered to be one employer under Section 4001 of ERISA.

         "Event of Default" has the meaning specified in Section 11.1.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar statute then in effect, and a reference to a particular section
thereof shall include a reference to the comparable section, if any, of any such
similar statute.

         "Fair Market Value" means what a willing buyer would pay to a willing
seller in an arm's-length transaction.

         "Financial Statements" has the meaning specified in Section 4.5(a).

         "Financing Conversion Amount" means 1,000,000 of the outstanding
principal amount of the Medtronic Additional Note.

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         "Fully-Diluted Basis" shall mean, as applied to the calculation of the
number of shares of Company Common Stock outstanding at any time of
determination: (i) all shares of Company Common Stock outstanding at the time of
determination, (ii) all shares of Company Common Stock issuable upon the
exercise of any option, warrant or similar right that is outstanding at the time
of determination and that is for the purchase of Company Common Stock and (iii)
all shares of Company Common Stock issuable upon the conversion or exchange of
any security that is outstanding at the time of determination and that is
convertible into or exchangeable for shares of Company Common Stock.

         "GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America, applied on a consistent basis both
as to classification of items and amounts.

         "Governmental Body" means any federal, state, provincial, county, city,
town, village, municipal or other government or governmental department,
commission, council, Board, bureau, agency, authority or instrumentality, of or
within the United States of America or its territories or possessions, or of or
within any other country, or of any international community established by
treaty.

         "Hazardous Material" and "Hazardous Materials" shall mean as follows:

                  (a) any "hazardous substance" as defined in, or for purposes
         of, the Comprehensive Environmental Response, Compensation and
         Liability Act, 42 U.S.C.A.ss.ss.9601 & 9602, as may be amended from
         time to time, or any other so-called "superfund" or "superlien" law and
         any judicial interpretation of any of the foregoing;

                  (b) any "regulated substance" as defined pursuant to 40 C.F.R.
         Part 280;

                  (c) any "pollutant or contaminant" as defined in 42
         U.S.C.A.ss.9601 (33);

                  (d) any "hazardous waste" as defined in, or for purposes of,
         the Resource Conservation and Recovery Act;

                  (e) any "hazardous chemical" as defined in 29 C.F.R. Part
         1910;

                  (f) any "hazardous material" as defined in, or for purposes
         of, the Hazardous Materials Transportation Act; and

                  (g) any other substance, regardless of physical form, or form
         of energy or pathogenic agent that is subject to any other past,
         present or future law or requirement of any Governmental Body
         regulating, relating to, or imposing obligations, liability, or
         standards of conduct concerning the protection of human health, plant
         life, animal life, natural resources, Property or the reasonable
         enjoyment of life or Property from the presence in the environment of
         any solid, liquid, gas, odor, pathogen or form of energy, from whatever
         source.

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         Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains petroleum or any fraction thereof, asbestos, or polychlorinated
biphenyls, or that is flammable, explosive or radioactive.

         "Hunt" means Mr. Marshall Hunt.

         "Hunt Family Investments" means Hunt Family Investments L.L.L.P., a
Georgia limited liability limited partnership.

         "Hunt Investments Pledge Agreement" means the Pledge Agreement of Hunt
Family Investments LLLP substantially in the form of Exhibit A hereto.

         "Hunt Parties" means, collectively, Hunt and Hunt Family Investments.

         "Hunt Party Pledge Agreements" means the Hunt Investments Pledge
Agreement together with the Hunt Pledge Agreement.

         "Hunt Pledge Agreement" means the Pledge Agreement of Hunt
substantially in the form of Exhibit A hereto.

         "Hunt Securities" means those shares of Company Common Stock held of
record or beneficially by Hunt or Hunt Family Investments as of the date hereof
and not subject at such time to a Lien in favor of any Person other than the
Purchaser.

         "Indebtedness" with respect to any Person means, without duplication,
(a) all indebtedness of such Person for borrowed money, (b) any obligation
incurred for all or any part of the purchase price of Property or services,
other than accounts payable and accrued expenses included in current liabilities
in accordance with GAAP and incurred in respect of Property or services
purchased in the ordinary course of business, (c) indebtedness or obligations
evidenced by bonds, notes or similar written instruments, (d) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments, (e) any obligation (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by a Lien on any
Property of such Person, (f) Capitalized Lease Obligations of such Person, (g)
all obligations, contingent or otherwise, of such Person with respect to any
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest rate or expense risks either generally or under specific
contingencies, (h) all obligations, contingent or otherwise, of such Person
under any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person against fluctuations in
currency values, and (i) all guarantees by such Person of obligations of any
other Person of the types described in clauses (a) through (h) of this
definition, inclusive.

         "Insolvency Proceeding" shall have the meaning given to such term in
Section 5A hereof.

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         "Intellectual Property" of any Person means:

                  (a) all trademarks, trade names, trade styles, service marks,
         logos, emblems, prints and labels, all elements of package or trade
         dress of goods, and all general intangibles of like nature, of such
         Person, together with the goodwill of such Person's business connected
         with the use thereof and symbolized thereby, and all applications,
         registrations and recordings thereof, including applications,
         registrations and recordings in the United States Patent and Trademark
         Office or in any similar office or agency of the United States of
         America or in any office of the Secretary of State (or equivalent) of
         any state thereof, or in any similar office or agency of any country or
         political subdivision thereof throughout the world, together with all
         extensions, renewals and corrections thereof and all licenses thereof
         or pertaining thereto, including all License Agreements with respect
         thereto,

                  (b) all letters patent of such Person and applications
         therefor, and all registrations and recordings thereof, including
         applications, registrations and recordings in the United States Patent
         and Trademark Office or in any similar office or agency of the United
         States of America or any state thereof, or in any similar office or
         agency of any country or political subdivision thereof throughout the
         world, together with all re-examinations, reissues, continuations,
         continuations-in-part, divisions, improvements and extensions thereof
         and all licenses and claims for infringement thereof or pertaining
         thereto including all License Agreements with respect thereto, and the
         rights to make, use and sell, and all other rights with respect to, the
         inventions disclosed or claimed therein, all inventions, designs,
         proprietary or technical information, know-how, other data or
         information, software, databases, all embodiments or fixations thereof
         and related documentation, and all other trade secret rights not
         described above,

                  (c) all copyrights of such Person in works of authorship of
         any kind, including, without limitation, published and unpublished
         works, software and any databases or other compilations of information,
         and all applications, registrations and recordings thereof in the
         Office of the United States Register of Copyrights, Library of
         Congress, or in any similar office or agency of any country or
         political subdivision thereof throughout the world, together with all
         extensions, renewals and corrections thereof and all licenses and
         claims for infringement thereof or pertaining thereto, including all
         License Agreements with respect thereto,

                  (d) all confidential and proprietary information, trade
         secrets and know-how, including, without limitation, processes,
         schematics, business methods, formulae, drawings, prototypes, models,
         designs, customer lists and supplier lists together with all licenses
         and claims for infringement thereof or pertaining thereto; and

                  (e) all customer lists and other records of such Person
         relating to the distribution of products bearing any of the items
         described in subparagraphs (a), (b), (c) or (d) of this definition.

         "Internal Revenue Service" means the United States Internal Revenue
Service and any successor or similar agency performing similar functions.

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         "Investment" when used with reference to any investment of any Person
means any investment of such Person so classified under GAAP, and, whether or
not so classified, includes (a) any Indebtedness owed by any other Person to
such Person, (b) any Guarantee or contingent obligation of such Person of
Indebtedness or other obligations of any other Person, and (c) any Capital stock
held by such Person in any other Person; and the amount of any Investment shall
be the original principal or capital amount thereof less all cash returns of
principal or equity thereof (and without adjustment by reason of the financial
condition of such other Person).

         "Junior Indebtedness" shall have the meaning given to such term in
Section 5(a) hereof.

         "Junior Subordinated Note" means the Subordinated Promissory Note Due
2004 in the original principal amount of $2,000,000 in the form attached hereto
as Exhibit G issued by the Purchaser to BofA Commercial Finance in connection
with the purchase by the Purchaser of the BofA Note and all of the obligations
under which shall be assumed by the Company in connection with the consummation
of the BofA Restructuring.

         "License Agreement" with respect to any Person means any agreement
entered into by such Person, whether as licensor or licensee, providing for the
license or use of any Intellectual Property and related or similar rights, and
all rights of such Person in connection with any of the foregoing and in
connection with any agreement related thereto, including, without limitation,
nonassertion agreements, settlement agreements and trademark co-existence and
consent agreements.

         "Lien" means any security interest, mortgage, pledge, hypothec, lien,
claim, charge, prior claim, encumbrance, assignment, resolutory right, trust,
conditional sale or title retention agreement, lessor's interest under a
Capitalized Lease or analogous instrument, in, of or on any of a Person's
Property (whether held on the date hereof or hereafter acquired), or any signed
or filed financing statement which names such Person as the debtor, or the
execution of any security agreement or the like authorizing any other Person as
the secured party thereunder to file such a financing statement.

         "Material Adverse Effect" means any change or changes or effect or
effects that individually or in the aggregate are materially adverse to (a) the
business, operations, income, prospects or condition (financial or otherwise) of
the Company or any of its Subsidiaries, (b) the legality, validity or
enforceability of this Agreement, the Senior Subordinated Convertible Note, the
Additional Notes, if any, and the other Transaction Documents, or (c) the
ability of the Company to fulfill its obligations under this Agreement, the
Company Notes, if any, and the other Transaction Documents; provided that the
incurrence of the Indebtedness by the Company pursuant to the Company Notes
issued on the Closing Date shall not by itself constitute a Material Adverse
Effect.

         "Material Contract" means (i) all contracts, agreement or
understandings (whether written or oral, including any supply agreement,
requirements contract, customer agreement, services agreement, lease, License
Agreement, franchise agreement, royalty agreement, distribution agreement,
marketing agreement, advertising agreement, joint venture agreement,

                                       11
<PAGE>

partnership agreement, stockholders agreement, asset purchase agreement, stock
purchase agreement, merger agreement, escrow agreement, tax sharing agreement,
agency agreement, investment banking agreement, fidelity or surety contract,
power of attorney, non-competition agreement, but excluding any purchase orders
which have a face amount of less than $250,000 and which are made or received by
the Company or any Subsidiary of the Company in the ordinary course of its
business) to which the Company or any of its Subsidiaries is a party and which
either (a) has a face amount or otherwise involves aggregate payments or
obligations in excess of $250,000, (b) if terminated is reasonably likely to
cause a Material Adverse Effect or (c) is otherwise material to the business of
the Company and its Subsidiaries taken as a whole.

         "Maturity Date" means the date that occurs on the two year anniversary
of the Closing Date.

         "Medtronic" has the meaning given to such term in the recitals hereto.

         "Medtronic Additional Note" has the meaning given to such term in the
recitals hereto.

         "Multiemployer Plan" means a multiemployer plan as defined in Section
3(37) or Section 4001(a)(3) of ERISA or Section 414 (f) of the Code to which the
Company or any of its Subsidiaries or ERISA Affiliates is making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.

         "Nonmonetary Default" shall have the meaning given to such term in
Section 5(a) hereof.

         "Nonmonetary Default Blockage Notice" shall have the meaning given to
such term in Section 5(a) hereof.

         "Note Documents" means this Agreement, the Purchaser Senior
Subordinated Convertible Note, the Purchaser Convertible Bridge Note, the
Medtronic Additional Note, the Additional Notes, if any, the Securityholders
Agreement, that certain Voting Agreement, dated as of the date hereof, by and
among the Purchaser and certain shareholders of the Company, the Hunt Party
Pledge Agreements and all other agreements, instruments and documents now or
hereafter executed and delivered pursuant to or in connection therewith, as each
of such agreements, instruments and documents may from time to time be amended,
modified or supplemented in accordance with its terms.

         "Notes" means, collectively, the Purchaser Senior Subordinated
Convertible Note, the Medtronic Additional Note and the Additional Notes, if
any, that are issued hereunder.

         "Obligations" mean, collectively, (a) the obligations of the Company to
pay any and all of the unpaid principal of, and interest on (including interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) the Notes, (b) the obligations of the Company to pay any and
all fees, expenses, costs, indemnities and other amounts, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise

                                       12
<PAGE>

under, out of, or in connection with, this Agreement, the Notes, or any Note
Document, and (c) the obligations of the Company to perform, discharge, observe
and comply with any and all covenants, agreements and other obligations required
to be performed, discharged, observed or complied with by the Company pursuant
to this Agreement, the Notes, and the Note Documents.

         "Officer's Certificate" means with respect to any corporation, a
certificate signed by an Authorized Officer of the specified corporation.

         "Operating Lease" means any lease of real or personal Property (other
than any Capitalized Lease) having an original term greater than one year
(including any option to renew or extend such lease, whether or not exercised).

         "Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.

         "Payment Blockage Notice" shall have the meaning given to such term in
Section 5(a) hereof.

         "PBGC" means the Pension Benefit Guaranty Corporation, and any
successor agency or Governmental Body performing similar functions.

         "Pension Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA, excluding any Multiemployer Plans, established,
maintained by or contributed to by the Company or any of its Subsidiaries or
ERISA Affiliates.

         "Permitted Business" means developing, marketing, manufacturing,
selling, distributing and licensing medical device products and products that
are ancillary thereto and medical device products technology and all activities
related thereto.

         "Permitted Lien" means any of the Liens permitted by Section 10.2.

         "Person" means and includes an individual, a partnership, an
association, a joint venture, a corporation, a limited liability company, a
trust, a syndicate, an unincorporated organization and any Governmental Body.

         "Plan" and "Plans" means any employee benefit plan as defined in
Section 3(3) of ERISA, excluding a Multiemployer Plan, established, maintained
or contributed to for the benefit of employees of the Company or its
Subsidiaries or ERISA Affiliates.

         "Property" with respect to any Person, means any interest in any kind
of property or asset, whether real, personal or mixed, movable or immovable,
tangible or intangible, corporeal or incorporeal, of such Person.

         "Purchaser" has the meaning specified in the introductory paragraph of
this Agreement.

                                       13
<PAGE>

         "Purchaser Convertible Bridge Note" shall mean the convertible
promissory note in the form of Exhibit F attached hereto, dated the Closing
Date, and issued by the Company to the Purchaser in an aggregate principal
amount to be mutually agreed upon by the parties.

         "Purchaser Senior Secured Notes" has the meaning given to such term in
the recitals hereto (it being understood that the Purchaser Senior Secured Notes
may be, at the election of the Purchaser, the BofA Note amended to reflect the
BofA Restructuring and further amended so as to have such note evidence term,
not revolving, indebtedness and amended otherwise in the manner called for by
the Purchaser Senior Secured Notes Purchase Agreement).

         "Purchaser Senior Secured Notes Purchase Agreement" means that certain
Purchaser Senior Secured Notes Purchase Agreement between the Company and the
Purchaser which shall be in the form mutually acceptable to the Purchaser and
the Company and which shall govern the Purchaser Senior Secured Notes.

         "Purchaser Senior Subordinated Convertible Note" has the meaning given
to such term in the recitals hereto.

         "Related Documents" means each Security Document and any and all other
agreements to which the Company is a party and which govern the sale and
issuance, respectively, of the Senior Indebtedness Notes, the Purchaser Senior
Secured Notes, if applicable, the Purchaser Senior Secured Notes Purchase
Agreement, if applicable, and the Junior Subordinated Note, together with any
and all such other documents and instruments to which the Company is a party and
which are entered into in connection with any of the foregoing agreements, in
each case as same is in effect on the Closing Date.

         "Remaining BofA Indebtedness" means the Adjusted BofA Principal Amount
which, after giving effect to the issuance of the Notes hereunder, remains
outstanding and unpaid.

         "Reportable Event" means any of the events set forth in Section 4043
(b) of ERISA or the regulations thereunder for which the 30-day notice
requirement is not waived.

         "Requisite Noteholders" means, as of any date that a determination by
Requisite Noteholders is to be made hereunder or under any of the other Note
Documents, Persons holding not less than 51% of the aggregate principal amount
under the Notes outstanding on such date.

         "Restricted Investment" means any Investment other than

                  (a) any Investment in Cash Equivalents, and

                  (b) any Investment existing on the Closing Date after giving
         effect to the Transactions contemplated to occur on the Closing Date,
         and described in Schedule 4.10(a).

                                       14
<PAGE>

         "Restricted Payment" means, with respect to any Person,

                  (a) the declaration or payment of any dividend or other
         distribution on, or the incurrence of any liability to make any other
         payment in respect of, Capital Stock of such Person (other than one
         payable solely in the same class of Capital Stock of such Person),

                  (b) except for the redemption of Capital Stock of the Company
         from former or terminated employees in an aggregate amount not
         exceeding $100,000 after the Closing Date, any payment or distribution
         on account of the purchase, redemption, defeasance (including
         in-substance or legal defeasance) or other retirement by any Person of
         any Capital Stock of such Person, or of any warrant, option or other
         right to acquire such Capital Stock (whether directly or indirectly,
         and including any purchase or other acquisition of such Capital Stock,
         or of any warrant, option or other right to acquire such Capital Stock,
         by any Subsidiary of such person),

                  (c) any other payment or distribution by such Person in
         respect of its Capital Stock, whether directly or indirectly or through
         any Subsidiary of such Person, excluding the declaration and payment of
         cash dividends by a Wholly-owned Subsidiary of the Company on its
         Capital Stock to the Company,

                  (d) any payment or distribution by such Person on account of
         the principal of or prepayment charge, if any, or, interest or other
         amounts, with respect to any Indebtedness of the Company or any of its
         Subsidiaries which is subordinated in right of payment to the prior
         payment of any of the Senior Subordinated Convertible Note or the
         Additional Notes (including any such payment or distribution on account
         of the Indebtedness represented by the Junior Subordinated Notes),
         other than regularly scheduled interest payments on the Junior
         Subordinated Notes to the extent permitted under the Junior
         Subordinated Notes (including the subordination provisions thereof) as
         in effect on the Closing Date, and

                  (e) any management fee, consulting fee, advisory fee,
         investment banking or transaction fee or commission, bonus, salary, or
         similar remuneration paid or payable to any holder of Capital Stock of
         such Person or to any Affiliate of any such holder, excluding
         directors' fees and employee compensation and benefits payable in the
         ordinary course of business and in accordance with past practice.

The amount of any Restricted Payment made in the form of Property shall be
deemed to be the greater of the Fair Market Value or the net book value of such
Property.

         "SEC" means the Securities and Exchange Commission and any successor
agency, authority, commission or Governmental Body.

         "Securities" means any stock, shares, partnership interests, membership
interests, voting trust certificates, certificates of interest or participation
in any profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes or other evidences of indebtedness, or in general any
instruments commonly known as "securities" or rights to subscribe to, purchase
or acquire any of the foregoing (including, without limitation, rights in the
nature of options or

                                       15
<PAGE>

warrants exercisable for any of the foregoing and rights to convert into or make
an exchange for an of the foregoing).

         "Securities Act" means as of any date the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.

         "Security Documents" means, collectively, such security agreements,
pledge agreements, mortgages or other instruments, as in effect on the Closing
Date, which give rise to a consensual Lien on the property or interests in
Property of the Company or its Subsidiaries and which shall have been entered
into by the Company or any of its Subsidiaries on the Closing Date in favor of
those holders of Senior Indebtedness the payment and performance of which are to
be secured in accordance with the terms of those documents that govern such
Senior Indebtedness and that are entered into on the Closing Date.

         "Securityholders Agreement" means that certain Securityholders
Agreement, to be dated as of and entered into on the Closing Date, in the form
attached hereto as Exhibit E, as same may from time to time be amended, modified
or supplemented in accordance with its terms, among the Company, and certain
holders of the Capital Stock of the Company at the time of the Closing.

         "Senior Indebtedness" has the meaning given to such term in Section
5(a) hereof.

         "Senior Indebtedness Notes" means notes sold by the Company to a bank
or other financial institution, other than the Purchaser or Medtronic, and that
evidence Senior Indebtedness.

         "Senior Payment Default" shall have the meaning given to such term in
Section 5(a) hereof.

         "Statute" means any statute, ordinance, code, treaty, directive, law,
rule or regulation of any Governmental Body (including the Federal Criminal or
Civil False Claims Acts, the False Statements Act, the Major Fraud Act, the
Procurement Integrity Act and Section 721 of the Defense Production Act of 1950,
in each case as such Act has been amended).

         "Stepic Settlement Obligation" shall have the meaning given to such
term in Section 6.3 hereof.

         "Stockholder Approval" means the approval of the requisite percentage
of stockholders of the Company necessary in order to amend the Charter of the
Company so as (i) to increase the number of authorized shares of Company Common
Stock from 50,000,000 such shares to 100,000,000 such shares and (ii) to amend
Section 5.2 to eliminate the provisions related to the staggered board of
directors and provide that the term of each board member is one year.

         "Stockholder/AMEX Conversion Approval" means the approval of the
requisite percentage of stockholders of the Company as may be necessary in order
that the conversion of

                                       16
<PAGE>

the Notes as set forth in Sections 2.6, 2.7 and 2.8 hereof be given effect in a
manner that does not contravene any law, rule or regulation applicable to such
conversion, including rules of the American Stock Exchange, Inc.

         "Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding Voting Stock is at
the time directly or indirectly owned or controlled by such Person or by one or
more of any entities directly or indirectly owned or controlled by such Person.

         "Superior Proposal" shall mean any proposal made by a third party (i)
relating to any direct or indirect acquisition or purchase of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, or 50% of the combined voting power of the shares of Company Common
Stock, or any tender offer or exchange offer that if consummated would result in
any Person beneficially owning 50% or more of the combined voting power of the
shares of Company Common Stock and (ii) otherwise on terms which the Board of
Directors of Company determines in its good faith judgment (based upon the
advice of a financial advisor), taking into account the Person making the
proposal and the legal, financial, regulatory and other aspects of the proposal
deemed appropriate by the Board of Directors of the Company, (x) is more
favorable from a financial point of view than the Transactions to the Company's
Shareholders taken as a whole and (y) is reasonably capable of being completed
on a timely basis.

         "Termination Date" means the earlier of (i) the Maturity Date or (ii)
any date on which there shall occur the acceleration of the maturity of the
Notes and other Obligations pursuant to Section 11.1, or by reason of the
passage of time, or otherwise in accordance with this Agreement.

         "Transaction Documents" means the Note Documents and the Related
Documents.

         "Transactions" means the BofA Restructuring and the purchase of the
Notes on the Closing Date as provided herein, and the other transactions
contemplated by the Transaction Documents to occur on or prior to the Closing
Date.

         "U.S. Government" means the federal government of the United States of
America or any department, agency or instrumentality thereof.

         "U.S. Person" means a citizen or resident of the United States of
America, a corporation, partnership or other entity created or organized in or
under any laws of the United States of America or of any State thereof, or any
estate or trust that is subject to federal income taxation regardless of the
source of its income.

         "U.S. Taxes" has the meaning specified in Section 3.4(b).

         "Voting Stock" with respect to any Person shall mean Capital Stock of
such Person of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled

                                       17
<PAGE>

to vote for the election of members of the Board of Directors (or Persons
performing similar functions) of such Person.

         "Wholly-owned Subsidiary" shall mean, with respect to any Person, any
Subsidiary of such Person all of the shares of Capital Stock of which, other
than directors' qualifying shares, are owned, beneficially and of record, by
such Person and/or one or more Wholly-owned Subsidiaries of such Person.

         Section 1.2. Accounting Terms. All accounting terms used in this
Agreement shall be applied on a consolidated basis for the Company and its
Subsidiaries, unless otherwise specifically indicated herein. Any accounting
terms not specifically defined herein shall have the meanings customarily given
them in accordance with GAAP.

         Section 1.3. Rules of Construction. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or subsection. Reference herein to any Section
or subsection refers to such Section or subsection (as the case may be) hereof.
Words in the singular include the plural, and words in the plural include the
singular. The words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation". Each covenant or agreement contained
herein shall be construed (absent express provision to the contrary) as being
independent of each other covenant or agreement contained herein, so that
compliance with any one covenant or agreement shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant or
agreement. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
All references to any instruments or agreements, including references to any of
the Transaction Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof, in each case, made in
accordance with the terms of the Transaction Documents.

         Section 2. Sale and Purchase of the Notes.

         Section 2.1. Authorization.

                  (a) The Company has duly authorized the issue, sale and
delivery of (i) its Purchaser Senior Subordinated Convertible Note, in the
aggregate principal amount of $4,400,000, to be dated the date of issue thereof,
(ii) its Medtronic Additional Note, in the aggregate principal amount of
$4,000,000, to be dated the date of issue thereof and (iii) its Additional
Notes, in the aggregate principal amount of up to $6,600,000, to be dated the
date of issue thereof, each to bear interest from such date on the unpaid
principal amount thereof (calculated on the basis of a 360-day year and actual
days elapsed) at a rate per annum equal to (a) 6% per annum from the date
thereof to and including the date that is the six month anniversary of the
Closing Date and (b) 8% per annum from the date that is the six month
anniversary of the Closing Date until such time as the Purchaser Senior
Subordinated Convertible Note and the Additional Notes, respectively, shall have
been paid in full, such interest to be payable quarterly in arrears on the fifth
day of each month (commencing on the date that is the three month anniversary of
the Closing Date), and at maturity, to bear interest, payable on demand, on any
overdue principal and, to the extent permitted by applicable law, on

                                       18
<PAGE>

any overdue interest, fees and other overdue amounts payable hereunder until the
same shall be paid, at a variable rate per annum equal to the sum of 3.00% plus
the rate that would at the time be applicable under the foregoing provisions to
principal amounts not overdue and, in the case of each of the Purchaser Senior
Subordinated Convertible Note and the Additional Notes, to mature on the
Maturity Date, and to be substantially in the form of Exhibit B hereto;

                  (b) The Company has duly authorized the issuance and sale of
that number of shares of Company Common Stock as shall be issuable upon
conversion of the Notes in accordance herewith.

         Section 2.2. Sale and Purchase of Subordinated Notes. Subject to the
applicable terms and conditions set forth in this Agreement, on the Closing
Date, the Company will (i) issue and sell to the Purchaser, and the Purchaser
will purchase from the Company, the Purchaser Senior Subordinated Convertible
Note as provided in Section 2.4(b) hereof in a principal amount equal to
$4,400,000, against receipt by the Company of evidence of the Purchaser's
reduction of $4,400,000 of the Adjusted BofA Principal Amount, (ii) issue and
sell to Medtronic, and Medtronic will purchase from the Company, the Medtronic
Additional Note as provided in Section 2.4(b) hereof in a principal amount equal
to $4,000,000, against receipt by the Company of evidence of Medtronic's
reduction of the Adjusted BofA Principal Amount equal to $4,000,000 and (iii) if
so elected by the Purchaser, in its sole discretion, and upon written notice to
the Company given on or prior to the Closing Date, the Company shall issue and
sell to the Additional Parties identified by the Purchaser in the aforesaid
written notice to the Company, the Additional Notes in a principal amount as to
each Additional Note Purchaser (not greater than $6,600,000 (without taking into
account the Medtronic Additional Note) in the aggregate for all Additional
Parties taken together) as further specified in such written notice and as set
forth in Annex 1 hereto ("Additional Note Purchaser Principal Amount"), against
receipt by the Company of evidence of such Additional Note Purchaser's reduction
of the Adjusted BofA Principal Amount equal to such Additional Note Purchaser's
Principal Amount; provided, however, that nothing in this Agreement shall
obligate Medtronic to purchase any Additional Notes.

         Section 2.3. Sale and Purchase of Purchaser Senior Secured Notes. In
the event that the Company is unable to arrange for the purchase by a bank or
other financial institution for cash of Senior Indebtedness Notes having an
aggregate principal amount of the Remaining BofA Indebtedness, the Purchaser has
the option to purchase, pursuant to the Purchaser Senior Secured Notes Purchase
Agreement, up to $15,000,000 in principal amount of the Purchaser Senior Secured
Notes.

         Section 2.4. Closing.

                  (a) The closing (the "Closing") of the sale and delivery of
the Purchaser Senior Subordinated Convertible Note, the Medtronic Additional
Note and Additional Notes, if any, shall take place at the offices of King &
Spalding, 191 Peachtree Street, Atlanta, Georgia at 10:00 A.M., local time on
March 15, 2002 or such other date as the parties shall agree (herein called the
"Closing Date").

                  (b) On the Closing Date, the Company will deliver to:

                                       19
<PAGE>

                           (i) the Purchaser, Senior Subordinated Convertible
         Note registered in the name of the Purchaser or its nominee, duly
         executed and dated the Closing Date, in the principal amount of
         $4,400,000,

                           (ii) Medtronic, the Medtronic Additional Note
         registered in the name of Medtronic or its nominee, duly executed and
         dated the Closing Date, in the principal amount of $4,000,000, and

                           (iii) each Additional Party, an Additional Note as
         shall be called for hereby registered in the name of such Additional
         Party or its nominee, duly executed and dated the Closing Date, in the
         principal amount not to exceed in the aggregate $6,600,000.

         Section 2.5. Payments. Each payment by the Company hereunder of the
principal amount of the Notes, interest thereon, fees, costs, expenses,
indemnities and other Obligations due hereunder and under the Notes and other
Note Documents shall be made in Dollars by wire transfer or other immediately
available funds, without deduction (except as provided in Section 3.4(b)),
set-off or counterclaim, to each of the holders of Notes at such office or bank
account as shall be specified by such holder of Notes from time to time by
written notice to the Company, not later than 1:00 P.M. (New York City time) on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). Whenever any payment hereunder, under the Notes or under any of
the other Note Documents shall be stated to be due on a day other than a
Business Day, that payment shall be made on the next succeeding Business Day and
applicable interest shall accrue until the actual date of payment.

         Section 2.6. Conversion.

                  (a) Purchaser and Additional Parties Note Conversion. Subject
to the Company's receipt of the Stockholder/AMEX Conversion Approval, and in
addition to the rights provided for in Section 2.7, each Note, other than the
Medtronic Additional Note, will convert into shares of Company Common Stock in
the manner prescribed by Exhibit C hereto. The price per share of Company Common
Stock at which Notes will be converted, in accordance with Exhibit C hereto, is
herein called the "Section 2.6 Note Conversion Price".

                  (b) Medtronic Note Conversion. Subject to the Company's
receipt of the Stockholder/AMEX Conversion Approval, and in addition to the
rights provided for in Section 2.7, Medtronic may, at its option, convert the
principal amount outstanding under the Medtronic Note into shares of Company
Common Stock at any time and from time to time in the manner prescribed by
Exhibit C hereto.

         Section 2.7. Default Conversion. Subject to the Company's receipt of
the Stockholder/AMEX Conversion Approval, and in addition to the conversion of
Notes as provided in Section 2.6 hereof and Exhibit C hereto, each holder of a
Note may, at such holder's option, convert into shares of Company Common Stock
all or any part of the principal amount outstanding under the Note held by such
holder during any one or more periods during which an Event of Default shall
have occurred and be continuing. The conversion price for conversions

                                       20
<PAGE>

given effect under this Section 2.7 shall be the sum obtained by multiplying (i)
the Current Market Price as of the date that a conversion notice (the "Default
Conversion Notice") is given to the Company in accordance with the terms of the
Note by the holder of such a Note to be converted times (ii) 0.90 (such
conversion price at any time in effect being called the "Default Conversion
Price"). The number of shares of Company Common Stock issuable upon conversion
of each Note in accordance with this Section 2.7 shall be obtained by dividing
the principal amount outstanding under such Note to be converted by the Default
Conversion Price in effect on the date that the Default Conversion Notice is
given by the holder of such Note to be converted to the Company in accordance
with the terms of the Note.

         Section 2.8. Medtronic Conversion upon Equity Financing. The Financing
Conversion Amount shall be converted into equity securities of the Company upon
and simultaneously with a first subsequent financing round of the Company
("Subsequent Financing Round"). The Financing Conversion Amount shall be
converted into securities of the Company of the same class and having the same
rights and privileges pertaining generally to the class of securities issued in
the Subsequent Financing Round (the "New Securities"); the conversion price
hereunder shall be the same price per share as paid by the investors in the
Subsequent Financing Round. The Company shall deliver to Medtronic copies of all
materials, term sheets, proposals and the like provided to or received from
potential investors in the Subsequent Financing Round which describe the
proposed terms of the Subsequent Financing Round and shall in any event provide
Medtronic with at least fifteen (15) days' prior notice of the date and final
terms of the proposed Subsequent Financing Round. Any portion of the principal
amount of the Medtronic Additional Note that is not converted as provided in
this Section 2.8 shall be not be prepaid in accordance with Section 3.

         Section 2.9. Adjustments. The Section 2.6 Note Conversion Price and the
Default Conversion Price shall each be subject to adjustment in certain events
as provided in the Notes and the manner in which the right of conversion of the
Notes may be exercised by the holders thereof shall be governed by the
procedures therefor as provided in the Notes.

         Section 2.10. Interest Rate Limitation. Notwithstanding any provisions
of this Agreement or the Notes, in no event shall the amount of interest paid or
agreed to be paid by the Company exceed an amount computed at the highest rate
of interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if for any reason whatsoever the Purchaser
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law such interest shall be automatically applied to the payment
of principal of the Notes outstanding hereunder (whether or not then due and
payable), without prepayment charge, premium or penalty, and not to the payment
of interest, or shall be refunded to the Company if such principal and all other
obligations of the Company to the Purchaser have been paid in full.

                                       21
<PAGE>

         Section 3. Payments.

         Section 3.1. Prepayment of Notes.

                  (a) Subject to the provisions of this Section 3.1(a), the
Company at its option may, after giving not less than 30 days' prior written
notice (the "Company Conversion Notice") to the Purchaser and each Additional
Note Purchaser, prepay the unpaid principal balance of the Notes, together with
all accrued but unpaid interest on the principal amount being prepaid to the
date of such prepayment, in whole or in part (in an aggregate amount of not less
than $1,000,000 or any greater amount which is an even multiple of $100,000, or
in an amount equal to the aggregate principal balance of all of the Notes) as
set forth below; provided, however, that no prepayment shall be permitted under
this Section 3.1(a) until such time as the Company shall have obtained the
Stockholder/AMEX Conversion Approval. It is also expressly understood and agreed
by the Company that, notwithstanding anything to the contrary contained herein
or in any other Note Document, each holder of a Note shall have the right to
convert such Note as provided in this Agreement notwithstanding the giving by
the Company of any 30-day notice of prepayment under Section 3.1(a) hereof if
such holder of a Note shall give to the Company the Company Conversion Notice or
the Default Conversion Notice, as the case may be.

                  (b) Not later than the second Business Day after any time that
the Company or any of its Subsidiaries receives Equity Proceeds, the Company
shall, unless waived by written notice given by the Requisite Noteholders,
prepay the Notes in an amount equal to the Equity Proceeds received; provided,
however, the Company shall have no obligation to prepay the Notes under this
Section 3.1(b) if, so long as no Event of Default has occurred and is
continuing, (i) the Equity Proceeds are less than $250,000 and (ii) the Equity
Proceeds were raised pursuant to the payment of exercise prices of options for
shares of Capital Stock of the Company held by any officer, director or employee
of the Company or any of its Subsidiaries. The Company shall give the each
holder of a Note not less than 30 days' prior written notice of a proposed
receipt of Equity Proceeds by the Company or any of its Subsidiaries.

                  (c) The premium to be paid on the principal amount of any
prepayment shall be as follows:

<TABLE>
<CAPTION>
Payment Date                                                 Principal Premiums
------------                                                 ------------------
<S>                                                          <C>
Closing Date through the one year anniversary of the         No Premium-100% of the principal amount of the Note
Closing Date
                                                             5% Premium-105% of the principal amount of the Note
The one year anniversary of the Closing Date through the
15 month anniversary of the Closing Date

the 15 month anniversary of the Closing Date through the 2   10% Premium-110% of the principal amount of the Note
year anniversary of the Closing Date
</TABLE>

                  (d) On the Maturity Date, the unpaid principal balance of the
Notes, to the extent not sooner paid or prepaid hereunder, shall be paid in full
(such amount to be determined

                                       22
<PAGE>

after giving effect to the repayment provisions set forth in clause (a) above),
together with accrued interest and fees thereon and all expenses, indemnities
and other Obligations payable under the terms of the Notes or this Agreement.

                  (e) The Company shall call Notes for prepayment pursuant to
Section 3.1(a) by giving the written notice as called for by Section 3.1(a) to
each holder of such Notes, which notice shall specify (i) the date fixed for
such prepayment, (ii) the principal amount to be prepaid on such date, and (iii)
the amount of accrued interest to be paid or anticipated to be paid on such
date. Notice of prepayment having been so given shall be irrevocable, and the
aggregate principal amount of the Notes so to be prepaid as specified in such
notice, together with interest accrued thereon to such date fixed for
prepayment, shall become due and payable on the specified prepayment date.

         Section 3.2. Application of Principal Payments.

                  (a) Each payment of the principal amount of any Notes shall be
applied to the Notes pro rata in accordance with the respective unpaid principal
amounts of the Notes at the time held by the holders thereof. Notwithstanding
the foregoing provisions of this Section 3.2(a), in the event that a prepayment
is made by the Company of all or any portion of the outstanding principal amount
of the Purchaser Senior Subordinated Convertible Note and the Additional Notes
on or prior to the date that is 30 days after the date hereof, 50% of the
aggregate amount of such prepayment shall be applied to the Purchaser Senior
Subordinated Convertible Note and 50% of the aggregate amount of such prepayment
shall be applied to the Additional Notes, pro rata in accordance with the
respective unpaid principal amounts of the Additional Notes.

                  (b) Upon any payment or prepayment of all or a part of the
Notes pursuant to Section 3.1, such payment shall be accompanied by a payment of
all interest accrued on such principal amount to the date of such payment.

         Section 3.3. Purchase of Notes. The Company will not, nor will it
permit any of its Subsidiaries or Affiliates to, acquire directly or indirectly
by purchase or prepayment or otherwise any of the outstanding Notes except by
way of payment or prepayment in accordance with the provisions of such Notes and
of this Agreement. If the Company or any of its Subsidiaries or Affiliates
acquires any Notes in violation of this Section 3.3 or in any other manner, such
Notes shall thereafter be cancelled and shall not be reissued, no Note shall be
issued in substitution therefor, and such Notes shall not be deemed to be
outstanding for any purpose under this Agreement.

         Section 3.4. Taxes.

                  (a) Except as otherwise required by law, all payments by the
Company under this Agreement or the Notes to any holder of Notes shall be made
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings imposed on or with respect
to such payments, and all liabilities with respect thereto.

                                       23
<PAGE>

                  (b) If the Company shall be required by law to deduct any
taxes, levies, imposts, deductions, charges or withholdings imposed by the
United States of America or any taxing authority thereof ("U.S. Taxes") from or
in respect of any sum payable hereunder to any holder which is not a U.S.
Person, (i) except as provided in subsection (f) below, the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
3.4), such holder receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Company shall make such deductions and
(iii) the Company shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. Upon the
occurrence of any event giving rise to the operation of this Section 3.4(b) with
respect to any holder, such holder shall, if requested by the Company, use
reasonable efforts to designate another office of such holder through which its
Notes are held, with the object of preventing the consequence of the event
giving rise to the operation of this Section 3.4(b); provided that such
designation would not, in the sole opinion of the holder, (y) result in any
material cost, expense or other detriment to such holder, or (z) violate any
Statute or Order to which such holder or the Company is then subject.

                  (c) In addition, except as provided in subsection (f) of this
Section 3.4, the Company agrees to pay any stamp or documentary taxes or any
other similar taxes that arise under the laws of the United States or any
political subdivision thereof from the execution and delivery of this Agreement,
the Notes or any other Note Document (hereinafter referred to as "Other Taxes").
For purposes of this Section 3.4, "Other Taxes" do not include any estate,
inheritance, gift, excise, sales, transfer, wealth or personal property tax or
any similar tax, assessment or other governmental charge.

                  (d) Except as provided in subsection (f) of this Section 3.4,
the Company will indemnify each holder of Notes which is not a U.S. Person for
the full amount of U.S. Taxes, and each holder of Notes (including, U.S.
Persons) for Other Taxes paid by such holder, and any liability (including
penalties, additions to tax, interest and expenses) arising therefrom or with
respect thereto, whether or not such U.S. Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such holder makes written demand therefor (which demand shall identify the
nature and amount of U.S. Taxes or Other Taxes for which indemnification is
being sought and shall include a copy of the relevant portion of any written
assessment from the relevant taxing authority demanding payment of such U.S.
Taxes or Other Taxes).

                  (e) Within 30 days after the date of any payment of U.S. Taxes
or Other Taxes, the Company will furnish to the holders of Notes the original or
a certified copy of any receipt furnished by the relevant taxing authority
evidencing payment thereof.

                  (f) The Company shall have no obligation to pay additional
amounts in respect of U.S. Taxes to any holder of Notes pursuant to subsection
(b) of this Section 3.4, or to indemnify such holder in respect of such U.S.
Taxes pursuant to subsection (d) of this Section 3.4, if such U.S. Taxes are
imposed otherwise than by withholding from a payment on a Note or for any one or
more of the following reasons: (i) the existence of any present or former
connection between the holder and the United States or any political subdivision
or taxing authority thereof or therein, including without limitation the holder
being or having been a

                                       24
<PAGE>

citizen or resident of the United States or treated as a resident thereof or
being or having been engaged in a trade or business or present therein, (ii) the
holder's past or present status as a foreign private foundation or other foreign
tax-exempt organization with respect to the United States, controlled foreign
corporation for United States tax purposes that is related to the Company by
stock ownership, or bank making an extension of credit pursuant to a loan
agreement entered into in the ordinary course of its trade or business, (iii)
the holder's status as a "10-percent shareholder" of the Company within the
meaning of Section 871(h)(3)(B) of the Code, (iv) the interest on a Note issued
by the Company being treated as contingent interest described in Section
871(h)(4) of the Code, or (v) such holder's failure (A) to provide the Company,
immediately prior to the time such Person becomes a holder, with two duly
completed copies of United States Internal Revenue Service Form W-8BEN, W-8ECI,
W-8IMY, or W-8EXP or successor applicable form, as the case may be, certifying
in each case that the holder is entitled to receive payments under this
Agreement or the Notes without deduction or withholding of any United States
federal income taxes and Internal Revenue Service Form W-8BEN, W-8ECI, W-8IMY,
or W-8EXP or W-9 or successor applicable form, as the case may be, to establish
an exemption from United States backup withholding tax, or (B) to provide the
Company, on or before the date that any form previously supplied to the Company
pursuant to this Section 3.4(f) expires or becomes obsolete or immediately
subsequent to the occurrence of any event requiring a change in the form most
recently supplied by it to the Company, two further copies of such Form W-8BEN,
W-8ECI, W-8IMY, or W-8EXP and Form W-9, or successor applicable forms,
certifying that the holder is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
is exempt from United States backup withholding tax unless a change in treaty,
law or regulation or interpretation thereof has occurred prior to the date on
which the delivery of the forms required by this Section 3.4(f)(vii)(B) would
otherwise be due renders any such form inapplicable or prevents the holder from
duly completing and delivering any such form and the holder advises the Company
that it is no longer capable of receiving payments without deduction or
withholding. Each holder agrees that it will designate a different lending
office to receive payments on the Notes if such designation will avoid the need
for, or reduce the amount of, such U.S. Taxes or Other Taxes and will not, in
the sole opinion of such holder, be disadvantageous to such holder.

                  (g) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 3.4
shall survive the payment in full of principal, interest, fees and any other
amounts payable hereunder (other than amounts payable pursuant to this Section
3.4).

         Section 4. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser and the Additional Note Purchasers
that:

         Section 4.1. Corporate Existence and Power. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation and
except as set forth on Schedule 4.1 are duly qualified to do business in each
additional jurisdiction where the failure to so qualify is reasonably likely to
have a Material Adverse Effect. Each of the Company and its Subsidiaries has all
requisite corporate power to own its Properties and to carry on its businesses
as now being conducted and as proposed to be conducted and to execute, deliver
and perform its

                                       25
<PAGE>

obligations under this Agreement, the Notes, and the other Transaction Documents
to which it is a party.

         Section 4.2. Corporate Authority. The execution, delivery and
performance by each of the Company and its Subsidiaries of this Agreement, the
Notes, and the other Transaction Documents to which it is a party are within its
corporate power and have been duly authorized by all necessary corporate action
on the part of its Board of Directors and stockholders, except for the
Stockholder/AMEX Conversion Approval and the Stockholder Approval.

         Section 4.3. Binding Effect. This Agreement, the Notes, and each of the
Other Transaction Documents to which the Company is a party have been duly
executed and delivered by the Company and are the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, except, in each of the foregoing cases, as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws relative to or affecting the enforcement of creditors' rights
generally in effect from time to time and by general principles of equity.

         Section 4.4. Capital Stock.

                  (a) As of the Closing Date (i) prior to giving effect to the
Transactions, the number of issued and outstanding shares of Company Common
Stock is not greater than 14,500,000 and (ii) after giving effect to the
Transactions, the authorized and issued shares of each class of Capital Stock of
the Company are as set forth in Schedule 4.4(a). All of the issued and
outstanding shares of Capital Stock of the Company are validly issued, fully
paid and non-assessable. As of the Closing Date after giving effect to the
Transactions, other than the conversions permitted hereby, there are, except as
set for in Schedule 4.4(a), no securities outstanding that are convertible into
or exchangeable for any shares of Capital Stock of the Company, nor are there
outstanding any rights to subscribe for or purchase, or any options or warrants
for the purchase of, or any agreements (contingent or otherwise) providing for
the issuance of, or any calls, commitments or claims of any character relating
to, any shares of Capital Stock of the Company or any securities convertible
into or exchangeable for any such shares.

                  (b) On the Closing Date, after giving effect to the
Transactions, the Company will not except as set forth on Schedule 4.4(b) be
subject to any obligation (contingent or otherwise) to repurchase, acquire or
retire (i) any of its Capital Stock, (ii) any securities convertible into or
exchangeable for any of its Capital Stock, or (iii) any options, warrants or
other rights to subscribe for, purchase or acquire any of its Capital Stock.

                  (c) The shares of Common Stock issuable upon conversion of the
Notes have been duly and validly reserved for issuance upon such exercise and,
when issued and delivered against payment therefor as provided therein, will be
duly authorized, validly issued, fully paid and non-assessable and subject to no
Liens in respect of the issuance thereof.

                  (d) All of the issued and outstanding shares of Capital Stock
of such Subsidiaries are validly issued, fully paid and non-assessable and owned
of record and beneficially by the Company. Except as set forth in Schedule
4.10(a), the Company has good

                                       26
<PAGE>

title to all of the shares of Capital Stock it owns of such Subsidiaries, free
and clear in each case of any Lien securing indebtedness. Except as set forth in
Schedule 4.4(d), there are no securities outstanding that are convertible into
or exchangeable for any shares of Capital Stock of any Subsidiary of the
Company, nor are there outstanding any rights to subscribe for or purchase, or
any options or warrants for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any shares of Capital Stock of such Subsidiaries or
any securities convertible into or exchangeable for any such shares.

         Section 4.5. Business Operations and Other Information: Financial
Condition.

                  (a) Set forth in Schedule 4.5(a) are true and complete copies
of (i) the audited consolidated balance sheets of the Company as of December 31,
2000, and the related audited consolidated statements of income, shareholders'
equity and cash flows for each of the fiscal years of the Company then ended,
together with the notes thereto and the reports thereon of
PricewaterhouseCoopers LLP and (ii) the unaudited balance sheets of the Company
as of December 31, 2001 and the related unaudited statements of income,
shareholders' equity and cash flows (collectively, the "Financial Statements").
Except as set forth on Schedule 4.5(a), the Financial Statements have been
prepared in accordance with GAAP (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments and absence of
certain of the notes required by GAAP), and present fairly, in all material
respects, the consolidated financial position and related consolidated results
of operations and cash flows of the Company as at each of the dates and for each
of the periods respectively covered thereby.

                  (b) As of the date of each of the balance sheets included in
the Financial Statements, the Company and its Subsidiaries had no Indebtedness
or liability, absolute or contingent, liquidated or unliquidated, except
Indebtedness and liabilities reflected or reserved against on such respective
balance sheets or described in the notes thereto. Since December 31, 2001,
except as set forth in any of the Company SEC Documents, no Material Adverse
Effect has occurred.

         Section 4.6. Subsidiaries. The Company (i) does not have any
Subsidiaries, other than as set forth on Schedule 4.6, and other than as set
forth therein, does not own any shares of Capital Stock of, and does not have
any direct or indirect equity interest in, any other Person, and (ii) has good
title to all of the shares of Capital Stock it owns of each such Subsidiary,
free and clear of any Lien (except Liens created by the Security Documents
related to the BofA Note and the Transaction Documents).

         Section 4.7. Litigation; No Violation of Governmental Orders or Laws.

                  (a) Except as set forth on Schedule 4.7(a), there are no
judicial, administrative, arbitral or other actions, suits or proceedings
pending, or, to the knowledge of the Company after due inquiry, threatened
against or affecting the Company or any of its Subsidiaries, or any Properties
or rights of any of them (i) which, if adversely determined, individually or in
the aggregate is reasonably likely to have a Material Adverse Effect, or (ii)
which seek to enjoin, or otherwise prevent the consummation of, the Transactions
or to recover

                                       27
<PAGE>

any damages or obtain any relief as a result of any of the Transactions in any
court or before any arbitrator of any kind or before or by any Governmental
Body.

                  (b) None of the Company and its Subsidiaries is in default
under or in violation of any Order of any court, arbitrator or Governmental
Body, or of any Statute which default or violation, individually or in the
aggregate together with all other such defaults and violations, has had or is
reasonably likely to have a Material Adverse Effect.

         Section 4.8. No Conflicts with Agreements, Statutes, Orders, Etc.
Neither the execution and delivery by the Company of this Agreement, the
Medtronic Co-Marketing Agreement, the Notes or any of the other Transaction
Documents to which it is a party, nor the offering, issuance or sale of the
Notes nor the fulfillment of or compliance with the terms and provisions hereof
or thereof, will conflict with, or result in a breach or violation of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any Lien on any Properties of the Company pursuant to, the charter
or by-laws of the Company or, except as set forth on Schedule 4.8, any contract,
agreement, mortgage, indenture, lease or instrument to which it is a party or by
which it is bound or to which either of them or any of their assets are subject,
or any Order or Statute to which it or any of its assets are subject, except, in
the case of any such contracts, agreements, mortgages, indentures, leases and
instruments, for such breaches and violations as are not reasonably likely to,
and will not, have a Material Adverse Effect.

         Section 4.9. Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any Governmental Body or any
non-governmental Person (including any creditor or stockholder of the Company,
and also including any consent, approval, authorization, declaration or filing
or the expiration of any waiting period under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976 or Section 721 of the Defense Production Act of 1950,
as amended), is required in connection with the execution, delivery or
performance by the Company of this Agreement, the Notes, or the other
Transaction Documents, or as a condition to the legality, validity or
enforceability of this Agreement, the Notes, or any other Transaction Document
or to the consummation of the Transactions (including the Restructuring), except
for (a) filing of financing statements, and filing of assignments of patents,
trademarks, copyrights and similar items, required in each case in order to
consummate the Transactions (including, without limitation, the BofA
Restructuring), (b) the Stockholder/AMEX Conversion Approval and the Stockholder
Approval, and (c) such consents, approvals, authorizations, declarations,
registrations, filings and other actions as are listed in Schedule 4.9, all of
which listed consents, approvals, authorizations, declarations, registrations,
filings and other actions have been or will on or prior to the Closing Date be
obtained and are or will then be in full force and effect.

         Section 4.10. Outstanding Indebtedness; Investments. Schedule 4.10(a)
sets forth a correct and complete list and brief description as of the Closing
Date of all Indebtedness of the Company greater than $100,000, and all Liens
securing such Indebtedness (excluding any Liens created by the Security
Documents) existing on the Closing Date before giving effect to the
Transactions, indicating which such Indebtedness and Liens will be discharged
and paid in full on the Closing Date (the "Non-Continuing Indebtedness") and
which such Indebtedness and Liens will be continuing after giving effect to the
Transactions (the "Continuing Indebtedness"). On the Closing Date after giving
effect to the Transactions, no default or event of default has occurred and is
continuing with respect to any Continuing Indebtedness.

                                       28
<PAGE>

         Section 4.11.     Assets and Properties.

         (a) Except as set forth on Schedule 4.11(a), as of the Closing Date
after giving effect to the Transactions, the Company does not own any real
Property. Schedule 4.11(a) sets forth a true and complete list, as of the
Closing Date after giving effect to the Transactions, of all leases of real
Property to which the Company thereof is a party, identifying the parties to
each such lease and the Property to which it relates. True and complete copies
of all such leases, together with all amendments, modifications and supplements
thereto to the date of this Agreement, have been delivered to the Purchaser or
its representatives. The Company has good and marketable title to all of its
Properties (other than Properties leased from others), subject to no Lien of any
kind except Permitted Liens.

         (b) The Properties owned by, leased to or used by the Company are in
good operating condition and repair, ordinary wear and tear expected, and are
able to serve the function for which they are currently being used in all
material respects. Other than Liens created by the BofA Restructuring security
documents, neither this Agreement nor any other Transaction Document, nor any of
the Transactions, will materially adversely effect any right, title or interest
of the Company in and to any of the assets or properties owned, leased or used
by the Company.

         Section 4.12. Taxes. Except as set forth on Schedule 4.12, the Company
and each of its Subsidiaries has filed, or on behalf of each of them there have
been filed, all tax returns and informational returns which are required to have
been filed, and there have been paid all taxes shown to be due and payable on
such returns and all other material taxes and assessments payable by any of
them, except to the extent that any such tax liability is being diligently
contested in good faith and the Company has adequately reserved against such tax
liability on its books and financial statements in accordance with GAAP. No
material tax liens have been filed and no material claims are being asserted
with respect to any such taxes as of the date hereof. No material tax assessment
against the Company or any of its Subsidiaries has been proposed, and all of
their respective tax liabilities are adequately provided for on their respective
books and financial statements in accordance with GAAP.

         Section 4.13. Reserved.

         Section 4.14. SEC Documents. The Company has furnished or made
available to the Purchaser a correct and complete copy of its Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (the "Annual Report"), its
most recent Quarterly Report on Form 10-Q and each report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC on or after the date of the Annual Report which are all the documents
(other than preliminary material) that the Company was required to file (or
otherwise did file) with the SEC in accordance with Sections 13, 14 and 15(d) of
the Exchange Act on or after the date of filing with the SEC of the Annual
Report (collectively, the "Company SEC Documents"). As of their respective
filing dates, or in the case of registration statements, their respective
effective dates, none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and each of the
Company SEC Documents complied when filed, or in the case of

                                       29
<PAGE>

registration statements, as of their respective effective dates, in all material
respects with then applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations promulgated by the SEC
thereunder. The financial statements (including the notes thereto) of the
Company included in its most recent Quarterly Report on Form 10-Q conformed in
all material respects with then applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP during the periods involved (except as may have been
indicated in the notes thereto) and fairly present the financial position of the
Company as at the dates thereof and the results of its operations, stockholders'
equity and cash flows for the period then ended.

         Section 4.15. Offering of Securities. The sale and issuance of the
Notes pursuant to this Agreement does not violate the registration requirements
of the Securities Act.

         Section 4.16. Broker's or Finder's Commissions. Except as set forth in
Schedule 4.16, no broker's or finder's fee or commission will be payable by the
Company with respect to the issuance and sale of the Notes or any of the
Transactions. The Company agrees to indemnify the Purchaser and hold it harmless
against any loss, cost, claim or liability (including reasonable attorneys' fees
and disbursements for the investigation and defense of claims) arising out of or
relating to any such actual or alleged fee or commission.

         Section 4.17. Labor Matters. Except as set forth in Schedule 4.17,
during the three years preceding the Closing Date, there has been no strike,
work stoppage, slowdown or other labor dispute or grievance involving the
Company or any Subsidiary thereof or the employees of any of such Persons, nor
to the knowledge of the Company after due inquiry is any such action, dispute or
grievance pending or threatened against the Company or any Subsidiary thereof as
of the Closing Date. Neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement and the Company has no knowledge after
due inquiry of any pending or threatened effort to organize any of their
employees. Except as set forth in Schedule 4.17, there are no pending
retaliatory or wrongful discharge claims or employment discrimination charges or
complaints or administrative or judicial complaints arising therefrom pending
against the Company or any of its Subsidiaries, or against any employees of any
of such Persons, before any Governmental Body, which have had or are reasonably
likely to have a Material Adverse Effect, nor to the knowledge of the Company
after due inquiry are any such charges or complaints threatened against the
Company or any of its Subsidiaries. The Company and its Subsidiaries are in
compliance with all applicable Statutes and Orders relating to the employment of
labor, including any provisions thereof relating to wages, bonuses, collective
bargaining agreements, equal pay, occupational safety and health, equal
employment opportunity and wrongful or retaliatory termination of employment,
except for such noncompliance as in the aggregate is not reasonably likely to,
and will not, result in a Material Adverse Effect.

         Section 4.18. Environmental Matters. Except as set forth in Schedule
4.18:

                  (a) there is no pending Environmental Matter, and after due
inquiry the Company is not aware of any facts that could reasonably be expected
to result in any Environmental Matter that is reasonably likely to have a
Material Adverse Effect. None of the Company or any of its Subsidiaries has
agreed to assume by contract or otherwise any liability of

                                       30
<PAGE>

any other Person for cleanup, compliance, or required Capital Expenditures in
connection with any Environmental Matter;

                  (b) the Properties used, owned, leased, operated, managed or
controlled at any time by each of the Company and its Subsidiaries are free of
contamination from Hazardous Materials, including any contamination of the
associated air, soil, groundwater or surface waters, and are free of any other
potentially harmful chemical or physical conditions that are reasonably likely
to have a Material Adverse Effect;

                  (c) each of the Company and its Subsidiaries is in material
compliance with all applicable Environmental Laws and is not currently in
receipt of any notice of violation of any Environmental Law or of any potential
liability for cleanup of Hazardous Materials. Each of the Company and its
Subsidiaries holds and is in material compliance with all governmental permits,
licenses, and authorizations necessary to operate their businesses that relate
to siting, wetlands, coastal zone management, air emissions, discharges to
surface or ground water, discharges to any sewer or septic system, noise
emissions, solid waste disposal or the generation, use, transportation or other
management of Hazardous Materials. To the best knowledge of the Company after
due inquiry, neither the Company nor any of its Subsidiaries has at any time
generated, manufactured, refined, recycled, discharged, emitted, released,
buried, processed, produced, reclaimed, stored, treated, transported, or
disposed of any Hazardous Materials except in material compliance with all
applicable Statutes and Orders;

                  (d) no real Property used, owned, leased, operated, managed or
controlled by the Company or any of its Subsidiaries is (i) listed or proposed
for listing on the National Priorities List Under CERCLA or (ii) listed in the
Comprehensive Environmental Response, Compensation, Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list maintained by any
Governmental Body;

                  (e) no Properties of the Company or any of its Subsidiaries
are subject to any Lien or claim for Lien in favor of any Person as a result of
any Environmental Matter or response thereto; and

                  (f) neither the Company nor any Subsidiary thereof has any
liabilities, absolute or contingent on the date hereof with respect to Hazardous
Materials, except for such liabilities as are not in the aggregate reasonably
likely to have a Material Adverse Effect.

                  Section 4.19. Margin Regulations. None of the Company or any
of its Subsidiaries owns or now intends to acquire any "margin stock" as defined
in Regulation U of the Board of Governors of the Federal Reserve System of the
United States. No part of the proceeds from the sale of the Notes will be used,
and no part of the proceeds of any loans repaid with the proceeds from the sale
of the Notes was used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System of the United States, or for the purpose
of buying or carrying or trading in any securities under such circumstances as
to involve any of the Company or of its Subsidiaries in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Neither the Company nor
any of its Subsidiaries or any agent acting on behalf of the Company or any of
its Subsidiaries, has taken or

                                       31
<PAGE>

will take any action which might cause this Agreement, the Notes or the other
Note Documents to violate Regulation U, Regulation X, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act, in each case as in effect now or as the same may hereafter be
in effect.

Section 4.20. Compliance with ERISA. Set forth in Schedule 4.20 is a true and
complete list, as of the date hereof of all bonus, deferred compensation,
incentive compensation, stock purchase, stock option, employment, consulting,
severance or termination pay, hospitalization or other medical, life or other
insurance, or retirement plan, program, agreement or arrangement, and each other
Plan or Multiemployer Plan maintained or contributed to by any Person with
respect to employees of the Company or its ERISA Affiliates (other than a plan,
program, agreement or arrangement sponsored by a Governmental Body). Except as
set forth on Schedule 4.20:

(a) no Pension Plan which is subject to Part 3 of Subtitle B of Title 1 of ERISA
or Section 412 of the Code has or had an accumulated funding deficiency (as such
term is defined in Section 302 of ERISA or Section 412 of the Code), whether or
not waived;

(b) no liability to the PBGC (other than required insurance premiums, of which
all that are required to have been paid on or before the Closing Date have been
paid) has been incurred and is outstanding with respect to any Pension Plan, and
there has not been any Reportable Event, or any other event or condition, which
presents a risk of involuntary termination of any Pension Plan by the PBGC;

(c) neither the Company, any ERISA Affiliate, any Subsidiary of the Company, any
Multiemployer Plan or Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a prohibited transaction (as such term is
defined in Section 4975 of the Code or described in Section 406 of ERISA) that
could subject the Company to any material tax or penalty imposed under said
Section 4975 or Section 502(i) of ERISA;

(d) no liability has been incurred and is outstanding with respect to any
Multiemployer Plan as a result of the complete or partial withdrawal by the
Company or any of its Subsidiaries or ERISA Affiliates from such Multiemployer
Plan under Title IV of ERISA, nor has any of the Company or any of its
Subsidiaries or ERISA Affiliates been notified by any Multiemployer Plan that
such Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Multiemployer
Plan intends to terminate or has been terminated under Section 4041A of ERISA;
no Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has or could reasonably be
expected to have a Material Adverse Effect;

(e) the Company, its Subsidiaries, ERISA Affiliates, and all Plans and
Multiemployer Plans are in compliance in all material respects with all
applicable provisions of ERISA and the Code and with the applicable law and
administrative requirements of any relevant jurisdiction and the regulations and
published interpretations thereunder, including the provisions of ERISA and the
Code requiring continuation coverage under Plans which are group

                                       32
<PAGE>

health plans subject to the Consolidated Omnibus Budget Reconciliation Act of
1985 or similar law;

(f) the actuarial present value of all benefit liabilities (as defined in
Section 4001(a)(16) of ERISA) under each Pension Plan that is subject to Title
IV of ERISA does not exceed the fair market value of the assets allocable to
such liabilities, determined as if such Plan were terminated as of the Closing
Date, and by using such Plan's actuarial assumptions as set forth in the most
recent actuarial report pertaining to such Plan;

(g) no Multiemployer Plan has any unfunded vested benefits within the meaning of
Section 4213(c) of ERISA;

(h) neither the Company, any ERISA Affiliate or any Subsidiary of the Company
has failed to make any contribution or payment to any Pension Plan, or made any
amendment to any Pension Plan, which has resulted or could result in the
imposition of a Lien or the posting of a bond or other security under ERISA or
the Code;

(i) no event has occurred with respect to any Plan or with respect to any other
employee benefit pension plan (as defined in Section 3(2) of ERISA) established
or maintained at any time during the five-year period immediately preceding the
Closing Date for the benefit of employees of the Company, or any of its
Subsidiaries or ERISA Affiliates, which presents a risk of liability of any of
such Persons under Section 4069 of ERISA;

(j) there are no liabilities under the Plans that are employee welfare benefit
plans (as defined in Section 3(1) of ERISA) providing for medical, health or
life insurance benefits that are not fully insured, and no such Plan provides
for continued medical, health or life benefits for employees after they leave
the employment of the Company or any of its Subsidiaries or ERISA Affiliates
(other than any such welfare benefits required to be provided under the
Consolidated Omnibus Budget Reconciliation Act of 1985 or other similar law);

(k) none of the Company, its Subsidiaries, and ERISA Affiliates is a party in
interest (as defined in Section 3(14) of ERISA) with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA), other than the Plans;

(l) none of the Company, its Subsidiaries, and ERISA Affiliates has breached or
violated any of the responsibilities, obligations or duties imposed upon any of
such Persons by the Code or ERISA or any other statute, regulation, or
governmental order which breach or violation has given rise, or is reasonably
likely to give rise in the future to, any material liability or obligation of
the Company or its Subsidiaries to pay money;

(m) there are no actions, suits or claims, pending, asserted or, to the best
knowledge of the Company, threatened against any Plan, the Company, an ERISA
Affiliate, a Subsidiary of the Company, or any Person for which the Company may
be directly or indirectly liable through indemnification arrangement or
otherwise, other than routine claims for benefits;

(n) all required reports and descriptions of the Plans of the Company or its
Subsidiaries or ERISA Affiliates (including but not limited to Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions) have been timely
filed and

                                       33
<PAGE>

distributed, and any notices required by ERISA or the Code or the law of any
other applicable jurisdiction or any ruling or regulation of any administrative
agency of any applicable jurisdiction with respect to such Plans, including but
not limited to any notices required by Section 204(h) or Section 606 of ERISA or
Section 4980B of the Code, have been appropriately given. With respect to the
Plans of any such Subsidiaries or ERISA Affiliates, any notices required by
Section 204(h) or Section 606 of ERISA or Section 4980B of the Code have been
appropriately given; and

(o) no proceeding has been instituted or is reasonably expected to be instituted
under Section 515 of ERISA to collect delinquent contributions to a Plan.

Section 4.21. Material Contracts. The Company has furnished or made available to
the Purchaser or its representatives true and complete copies of each of the
Company's Material Contracts, with all amendments, modifications and supplements
thereto the date hereof. Each of such Material Contracts is valid, subsisting
and in full force and effect and no Material Contract (and no present or future
interest of the Company or any Subsidiary, in whole or in part, in, to or under
any such Material Contract) is currently assigned, pledged, hypothecated or
otherwise transferred to any Person. Except as set forth on Schedule 4.21,
neither the Company nor any of its Subsidiaries is in breach or violation of any
of the terms, conditions or provisions of any of such Material Contracts which
could result in termination of any such Material Contract. To the knowledge of
the Company no third party to any of the Material Contracts is in breach or
violation of any of the terms, conditions or provisions thereof, except for such
breaches that, individually or in the aggregate, are not reasonably likely to
result in a Material Adverse Effect.

Section 4.22. Insurance. Schedule 4.22 sets forth a true and complete list and
brief descriptions of all policies of workers compensation, general liability,
fire, property, casualty, marine, business interruption, errors and omissions,
flood, earthquake and other insurance carried by the Company and its
Subsidiaries, true and complete copies of which policies have previously been
delivered to the Purchaser. Such policies are in full force and effect, and none
of the Company and its Subsidiaries has received notice of cancellation with
respect to any such policy. All premiums due and payable with respect to such
policies have been or will then have been paid in respect of the coverage
periods specified in Schedule 4.22.

Section 4.23. Possession of Franchises, Licenses, Etc. The Company and its
Subsidiaries possess all franchises, security clearance, certificates, licenses,
permits, registrations, and other authorizations from Governmental Bodies, free
from burdensome restrictions, that are necessary for the ownership, maintenance
and operation of its Properties and assets, and for the conduct of its
businesses as now conducted, and none of the Company and their Subsidiaries is
in violation of any thereof in any material respect, except where the failure to
possess such franchises, security clearances, certificates, licenses, permits,
registrations and other authorizations, free from burdensome restrictions, or
the violation thereof are not, individually or in the aggregate, reasonably
likely to, and will not, result in a Material Adverse Effect.

Section 4.24. Use of Proceeds. The proceeds of the issuance and sale of the
Additional Notes, if any, and the Senior Indebtedness Notes will be used to
finance a portion of the repayment of principal amount outstanding under the
BofA Note and any proceeds of the

                                       34
<PAGE>

issuance and sale of Senior Indebtedness Notes that is not used as aforesaid
will be used to provide working capital to the Company.

Section 4.25.     Intellectual Property.

(a) Set forth in Schedule 4.25(a) is an accurate and complete list of all
foreign and domestic (i) patents, trademarks and copyrights owned by the Company
and its Subsidiaries, and applications for any thereof, and all (ii) License
Agreements with respect to Intellectual Property used in the business of the
Company and its Subsidiaries, specifying with respect to each such item the
owner thereof, the registration or application number thereof, the jurisdiction
by or in which such item has been issued or registered or in which an
application therefor has been filed, if any, the date of such issuance,
registration or application, and the expiration date thereof, other than (x)
Intellectual Property which is not material to the Company's business or
operations and (y) "off the shelf" software obtained for less than $5,000
individually which is subject to shrink wrap licenses.

(b) Except as set forth in Schedule 4.25(b), the Company and its Subsidiaries
own and have good title to, or are party to enforceable License Agreements
permitting the Company and its Subsidiaries the use of, all items of
Intellectual Property used by the Company, free from Liens and restrictions that
materially adversely affect their businesses as now conducted and material
additional costs, which are necessary for the present and planned future conduct
of their businesses. Except as set forth in Schedule 4.25(b), and except for
such matters as in the aggregate are not reasonably likely to, and will not,
result in a Material Adverse Effect, (i) to the best knowledge of the Company,
none of the present or contemplated products or operations of the Company or any
of its Subsidiaries, or the use by the Company or any of its Subsidiaries of any
of such Intellectual Property, infringes or otherwise violates, or will then
infringe or otherwise violate, any Intellectual Property owned by any other
Person, and (ii) there is no pending or, to the best knowledge of the Company,
threatened claim, demand, litigation, investigation, arbitration or other
proceeding against or affecting the Company or any of its Subsidiaries
contesting the right of any of them to manufacture, distribute or sell any such
product or to engage in any such operation, or to use any of such Intellectual
Property.

(c) Except as set forth on such Schedule, all registrations for patents,
trademarks and copyrights identified on Schedule 4.25(c) are valid and in force
and the Company has made all filings and paid all fees in connection therewith
on a timely basis, except with respect to copyrights and nonmaterial patents,
and all foreign and domestic applications to register any unregistered
Intellectual Property so identified are pending and in good standing, and are
all, to the Company's knowledge, without challenge of any kind. The registered
Intellectual Property owned by the Company or any of its Subsidiaries is valid
and enforceable in all material respects. The Company or any of its
Subsidiaries, as the case may be, has the sole and exclusive right to bring
actions for infringement or unauthorized use of the Intellectual Property and
software that is listed on Schedule 4.25(c) owned by the Company or such
Subsidiary, as the case may be, and, except as set forth on such Schedule, there
is, to the Company's knowledge, no valid basis for any such action. Correct and
complete copies of registrations for all registered Intellectual Property
identified on Schedule 4.25(c) (together with any subsequent correspondence with
the United States Copyright office or the United States

                                       35
<PAGE>

Patent and Trademark Office, as applicable, or filings relating to the
foregoing) have been delivered or made available by the Company to the Purchaser
or their counsel.

(d) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any of the Company's or its Subsidiaries' products at any stage of their
development (the "Company Components") were written, developed and created
solely and exclusively by employees of the Company or its Subsidiaries without
the assistance of any third party or were created by third parties who assigned
ownership of their rights to the Company or its Subsidiaries pursuant to valid
and enforceable agreements previously provided to counsel for the Purchaser and
listed on the Schedule 4.25(d). Each of the Company and its Subsidiaries has at
all times used its best efforts to protect and confidentiality of all of its
other confidential and proprietary information and that of third parties that is
or has been in its possession.

(e) No employee of the Company or any of its Subsidiaries is in violation of any
term of any employment contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with the
Company or such Subsidiary or, to the Company's best knowledge, any other party,
because of the nature of the business conducted by the Company or such
Subsidiary to the date hereof.

(f) Each Person that is currently an employee of the Company or any of its
Subsidiaries that will hold in excess of 100,000 shares of Common Stock upon
consummation of the Transactions and that has or had access to confidential
information of the Company has executed and delivered to the Company a
confidentiality and non-disclosure agreement in the form previously provided to
counsel for the Purchaser. Such confidentiality and non-disclosure agreements
constitute valid and binding obligations of the Company or such Subsidiary, and
to the Company's best knowledge, such Person, enforceable in accordance with
their respective terms against the Company or such Subsidiary and, to the
Company's best knowledge, against such Person. To the Company's best knowledge,
neither the execution and delivery of any such agreement, nor the carrying on of
the Company's or any of its Subsidiaries business by any such Person as an
employee or independent contractor, as the case may be, has or will conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such persons is obligated, except for such conflicts or breaches that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect.

(g) Except as set forth on Schedule 4.25(g), no product liability or warranty
claim in excess of $25,000 has been asserted or overtly threatened against the
Company or any of its Subsidiaries nor, to the best knowledge of the Company, is
there a valid basis for any such claim.

Section 4.26. Status under Certain Laws. Neither the Company nor any of its
Subsidiaries is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

                                       36
<PAGE>

Neither the Company nor any of its Subsidiaries is subject to regulation as a
"common carrier" or "contract carrier" or any similar classification by the
Interstate Commerce Commission or under the laws of any state, or is subject to
regulation under any other Statute which limits its ability to incur
Indebtedness.

Section 4.27. Foreign Assets Control Regulations. Neither the Company nor any of
its Subsidiaries nor, to the best of the Company's knowledge after due inquiry,
any Affiliate of the Company, is by reason of being a "national" of a
"designated foreign country" or a "specially designated national" within the
meaning of the Regulations of the Office of Foreign Assets Control, United
States Treasury Department (31 C.F.R., Subtitle B, Chapter V), or for any other
reason, in violation of, any United States Federal Statute or Presidential
Executive Order concerning trade or other relations with any foreign country or
any citizen or national thereof or the ownership or operation of any Property.

Section 4.28. Certain Transactions. Except for the Indebtedness represented by
the Junior Subordinated Notes or as set forth on Schedule 4.28 hereto and with
respect to salaries and related employee compensation and expense reimbursement,
none of the Company and its Subsidiaries is indebted, directly or indirectly, to
any of their respective officers, directors or shareholders or to any of the
respective spouses or children of any of such Persons in any amount whatsoever;
and, except as set forth on Schedule 4.28, none of such officers, directors or
shareholders, or any member of their immediate families, is indebted to the
Company or its Subsidiaries in any amount whatsoever. Except as set forth on
Schedule 4.28 (or, as to Material Contracts or relationships arising subsequent
to the date of this Agreement which are permitted under this Agreement, as
otherwise promptly disclosed to the Purchaser in writing), no officer, director
or shareholder of the Company or any of its Subsidiaries, or any member of their
immediate families, is, directly or indirectly, interested in any Material
Contract with the Company or any of its Subsidiaries.

Section 4.29. Other Names. The business conducted by the Company and its
Subsidiaries has not been conducted under any corporate, trade or fictitious
name other than those names listed on Schedule 4.29 (or, after the Closing Date,
in compliance with the applicable provisions of Section 10.16).

Section 4.30. Ranking of Notes and other Obligations. The Obligations of the
Company pursuant to the Note Documents to which it is a party constitute senior
subordinated Indebtedness of the Company, rank junior in right of payment only
to the Senior Indebtedness, rank equally in right of payment to the Purchaser
Bridge Note, the Junior Subordinated Note and the Stepic Settlement Obligation
and senior in right of payment to any and all other Indebtedness of the Company.

Section 4A. Representations of the Purchaser and the Additional Note Purchasers.

(a) Each of the Purchaser and the Additional Note Purchasers hereby represents,
severally and not jointly, that it is purchasing its respective Note for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof, except in compliance with applicable
provisions of the Securities Act. Purchaser and each Additional Note Purchaser
represents, severally and not jointly, that it is an

                                       37
<PAGE>

"accredited investor" within the meaning of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act.

                  (b) Authorization. Each of the Purchaser and the Additional
Note Purchasers hereby represents, severally and not jointly, that all action on
its part necessary for the authorization, execution, and delivery by it and
performance by it of all its obligations under the Transaction Documents to
which it is a party has been (or will be) taken prior to the Closing, and the
Transaction Documents to which it is a party, when executed and delivered by
such party, will constitute its valid and binding obligation, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally, and except that the availability
of the remedy of specific performance or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.

Section 5.        Subordination.

(a) Anything contained in this Agreement to the contrary notwithstanding, the
indebtedness evidenced by the Notes and all other Junior Indebtedness shall be
subordinate and junior, to the extent set forth in the following clauses (i),
(ii), (iii), (iv) and (v) of this Section 5(a) to all Senior Indebtedness of the
Company. The term "Senior Indebtedness" shall mean the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all reasonable fees, reimbursement and indemnity
obligations, and all other obligations arising in connection with, the Purchaser
Senior Secured Note and all other Indebtedness, if any, which is incurred by the
Company on the Closing Date pursuant to a Related Document, the proceeds of
which are used, together with the proceeds of the Purchaser Senior Secured
Notes, to repay the BofA Notes and which by its terms is ranked senior to the
Notes (it being understood and agreed that Senior Indebtedness shall include
amendments, modifications, supplements, renewals, extensions, refundings,
replacements, and replacements of the Purchaser Senior Secured Notes, any such
other Indebtedness and the Related Documents governing the incurrence of same.
The term "Junior Indebtedness" shall mean the principal of, premium, if any, and
interest on the Notes on, and all fees, reimbursement and indemnity obligations,
and all other obligations arising in connection with the Notes, under this
Agreement or any of the other Note Documents (it being understood and agreed
that Junior Indebtedness shall include amendments, modifications, supplements,
renewals, extensions, refundings, replacements, and replacements of the Notes,
this Agreement or any other Note Document). Anything contained in this Agreement
to the contrary notwithstanding, all other Indebtedness of the Company shall be
subordinate and junior to all of the indebtedness evidenced by the Notes, the
Junior Subordinated Note, the Stepic Settlement Obligation, the Purchaser Bridge
Note and all other Junior Indebtedness.

(i)      In the event of any insolvency, bankruptcy, liquidation, reorganization
         or other similar proceedings, or any receivership proceedings in
         connection therewith, relative to the Company or its creditors or its
         property, and in the event of any proceedings for voluntary
         liquidation, dissolution or other winding up of the Company, whether or
         not involving insolvency or bankruptcy proceedings, then all Senior
         Indebtedness shall first be paid in full in cash before any payment,
         whether on account of principal, interest or otherwise, and all
         obligations under to provide any

                                       38
<PAGE>

         financial accommodations under any Related Document governing the
         incurrence of Senior Indebtedness, before any payment shall is made,
         directly or indirectly, on account of the Junior Indebtedness.

(ii)     In any of the proceedings referred to in paragraph (i) above, any
         payment or distribution of any kind or character, whether in cash,
         property, stock or obligations which may be payable or deliverable in
         respect of the Junior Indebtedness shall be paid or delivered directly
         to the holders of Senior Indebtedness for application in payment
         thereof, unless and until all Senior Indebtedness shall have been paid
         in full in cash and all obligations to provide financial accommodations
         under any Related Document governing the incurrence of Senior
         Indebtedness have terminated.

(iii)    Subject to the receipt by the holders of the Notes of a written notice
         from the holders of Senior Indebtedness that there has occurred a
         Senior Payment Default or any Senior Indebtedness obligation has
         matured, whether by lapse of time, acceleration (unless waived), or
         otherwise (any such notice, a "Payment Blockage Notice"), no payment
         shall be made, directly or indirectly, on account of the Junior
         Indebtedness (i) upon maturity of any Senior Indebtedness obligation,
         whether by lapse of time, acceleration (unless waived), or otherwise,
         unless and until all principal thereof and interest thereon and all
         other obligations in respect thereof shall first be paid in full in
         cash and all obligations to provide financial accommodations under any
         Related Document governing the incurrence Senior Indebtedness have
         terminated, or (ii) upon the happening of any default in payment of any
         principal of, premium, if any, or interest on or any other amounts
         payable in respect of Senior Indebtedness when the same becomes due and
         payable whether at maturity or at a date fixed for prepayment or by
         declaration or otherwise (a "Senior Payment Default"), unless and until
         such Senior Payment Default shall have been cured or waived or
         otherwise shall have ceased to exist.

(iv)     Subject to the receipt by the holders of the Notes of a written notice
         from the holders of the Senior Indebtedness of the occurrence of a
         Nonmonetary Default (any such notice, a "Nonmonetary Default Blockage
         Notice") (it being understood and agreed that if a Nonmonetary Default
         shall have resulted from the acceleration of the Notes, other than an
         acceleration by Medtronic following an Event of Default specified in
         Section 11.1(a) with respect to the Medtronic Co-Marketing Agreement, a
         Nonmonetary Default Blockage Notice shall, without any action being
         required on the part of the holders of Senior Indebtedness, be deemed
         automatically to have been given on and as of the date of such
         acceleration), no payment shall be made, directly or indirectly, on
         account of the Junior Indebtedness if there shall have occurred an
         event of default with respect to any Senior Indebtedness which permits
         one or more holders of such Senior Indebtedness to declare such Senior
         Indebtedness due and payable prior to the date on which it is otherwise
         due and payable (a "Nonmonetary Default").

(v)      (a) From and after the date upon which any proceeding of the kind
         referred to in clause (i) of this Section 5(a) shall have occurred and
         be continuing, (b) from and after the date on which the holders of the
         Notes shall have received a Payment Blockage Notice and until such time
         that the Senior Payment Default referred to in such Payment Default
         Blockage Notice shall have been cured or waived or otherwise shall

                                       39
<PAGE>

         have ceased to exist or (c) from and after the date on which the
         holders of the Notes shall have received a Nonmonetary Default Blockage
         Notice (x) the holders of the Notes will not accept from the Company
         any payment of any kind of or on account of all or any part of the
         Junior Indebtedness and (z) the holders of the Notes may not take,
         demand, receive, sue for, accelerate or commence any remedial
         proceedings with respect to any amount payable under or in respect of
         the Junior Indebtedness, unless and until all such Senior Indebtedness
         shall have been paid in full in cash and all obligations to provide
         financial accommodations under a Related Document governing the
         incurrence of Senior Indebtedness have terminated; provided, however,
         that if such Nonmonetary Default shall have occurred and be continuing
         for a period (a "Blockage Period") commencing on the date of receipt of
         the Nonmonetary Blockage Notice identifying such Nonmonetary Default
         and ending 179 days thereafter (it being understood that not more than
         one Blockage Period may be commenced with respect to the Notes during
         any period of 360 consecutive days), and during such Blockage Period
         (A) such Nonmonetary Default shall not have been cured or waived, (B)
         the holders of such Senior Indebtedness shall not have made a demand
         for payment and commenced an action, suit or other proceeding against
         the Company and (C) none of the events described in clause (i) of this
         Section 5(a) shall have occurred, then (to the extent not otherwise
         prohibited by clauses (i), (ii) or (iii) of this Section 5(a)) the
         Company may, not less than 10 days after receipt by the holders of such
         Senior Indebtedness of written notice to such effect from the holders
         of the Notes, make, and the holders of the Notes may accept from the
         Company, all past due and current payments of any kind of or on account
         of the Junior Indebtedness, and such holders may demand, receive,
         retain, sue for or otherwise seek enforcement or collection of all
         amounts payable on account of principal of or interest on the Notes or
         otherwise under or in respect of Junior Indebtedness.

(b) Subject to the payment in full in cash of all Senior Indebtedness as
aforesaid and the termination of all obligations to provide financial
accommodations under the Related Documents governing the incurrence of Senior
Indebtedness, the holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of any kind
or character, whether in cash, property, stock or obligations, which may be
payable or deliverable to the holders of Senior Indebtedness, until the
principal of, and interest on, and all other payments under or in respect of
Junior Indebtedness shall be paid in full in cash, and, as between the Company,
its creditors other than the holders of Senior Indebtedness, and the holders of
the Notes, no such payment or distribution made to the holders of Senior
Indebtedness by virtue of this Section 5 which otherwise would have been made to
the holder of the Notes shall be deemed a payment by the Company on account of
the Senior Indebtedness, it being understood that the provisions of this Section
5 are and are intended solely for the purposes of defining the relative rights
of the holders of the Notes, on the one hand, and the holder of the Senior
Indebtedness, on the other hand. Subject to the rights, if any, under this
Section 5 of holders of Senior Indebtedness to receive cash, property, stock or
obligations otherwise payable or deliverable to the holders of the Notes,
nothing herein shall either impair, as between the Company and the holder of the
Notes, the obligation of the Company, which is unconditional and absolute, to
pay to the holder thereof the principal thereof and interest thereon, and all
other amounts payable under or in respect of Junior Indebtedness, in accordance
with the terms of this Agreement, the Notes and the other Note Documents (except
as otherwise specified therein) or limit the holders of the Notes from
exercising all remedies otherwise permitted by

                                       40
<PAGE>

applicable law, under this Agreement, the Notes and the other Note Documents,
whether upon default hereunder or thereunder or otherwise.

(c) If any payment or distribution of any character or any security, whether in
cash, securities or other property, shall be received by any holders of the
Notes in contravention of any of the terms hereof or before all the Senior
Indebtedness obligations have been paid in full in cash and all obligations to
provide financial accommodations under the Related Documents governing the
incurrence of Senior Indebtedness have terminated, such payment or distribution
or security shall be received in trust for the benefit of, and shall be paid
over or delivered and transferred to, the holders of the Senior Indebtedness at
the time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all such Senior Indebtedness in full in
cash. In the event of the failure of any such holder to endorse or assign any
such payment, distribution or security, each holder of any Senior Indebtedness
is hereby irrevocably authorized to endorse or assign the name.

(d) The rights under these subordination provisions of the holders of any Senior
Indebtedness as against any holders of the Notes shall remain in full force and
effect without regard to, and shall not be impaired or affected by:

(i)      any act or failure to act on the part of the Company; or

(ii)     subject to the limitation contained in the definition of Senior
         Indebtedness, any extension or indulgence in respect of any payment or
         prepayment of any Senior Indebtedness or any part thereof or in respect
         of any other amount payable to any holder of any Senior Indebtedness;
         or

(iii)    (ii) subject to the limitation contained in the definition of Senior
         Indebtedness, any amendment, modification or waiver of, or addition or
         supplement to, or deletion from, or compromise, release, consent or
         other action in respect of, any of the terms of any Senior Indebtedness
         or any other agreement which may be made relating to any Senior
         Indebtedness; or

(iv)     any exercise or non-exercise by the holder of any Senior Indebtedness
         of any right, power, privilege or remedy under or in respect of such
         Senior Indebtedness or these subordination provisions or any waiver of
         any such right, power, privilege or remedy or of any default in respect
         of such Senior Indebtedness or these subordination provisions or any
         receipt by the holder of any Senior Indebtedness of any security, or
         any failure by such holder to perfect a security interest in, or any
         release by such holder of, any security for the payment of such Senior
         Indebtedness; or

(v)      any merger or consolidation of the Company or any of its Subsidiaries
         into or with any other person, or any sale, lease or transfer of any or
         all of the assets of the Company or any of its Subsidiaries to any
         other person; or

                                       41
<PAGE>

(vi)     except for the giving of a Payment Blockage Notice or a Nonmonetary
         Default Blockage Notice, as the case may be, the absence of any notice
         to, or knowledge by, any holder of any claim hereunder of the existence
         or occurrence of any of the matters or events set forth in the
         foregoing clauses (i) through (v); or

         (vii)    any other circumstance.

(e) Except for the giving of a Payment Blockage Notice or a Nonmonetary Default
Blockage Notice, as the case may be, the holders of the Notes unconditionally
waive (i) notice of any of the matters referred to in Section 5(e); (ii) all
notices which may be required, whether by statute, rule of law or otherwise, to
preserve intact any rights of any holder of any Senior Indebtedness, including,
without limitation, any demand, presentment and protest, proof of notice of
nonpayment under any Senior Indebtedness or any Related Document governing the
incurrence of same, and notice of any failure on the part of the Company to
perform and comply with any covenant, agreement, term or condition of any Senior
Indebtedness, (iii) any right to the enforcement, assertion or exercise by any
holder of any Senior Indebtedness of any right, power, privilege or remedy
conferred in such Senior Indebtedness or otherwise, (iv) any requirements of
diligence on the part of any holder of any of the Senior Indebtedness, (v) any
requirement on the part of any holder of any Senior Indebtedness to mitigate
damages resulting from any default under such Senior Indebtedness and (vi) any
notice of any sale, transfer or other disposition of any Senior Indebtedness by
any holder thereof.

(f) The obligations of the holders of Notes under these subordination provisions
shall continue to be effective, or be reinstated, as the case may be, if at any
time any payment in respect of any Senior Indebtedness, or any other payment to
any holder of any Senior Indebtedness in its capacity as such, is rescinded or
must otherwise be restored or returned by the holder of such Senior Indebtedness
upon the occurrence of any proceeding referred to in paragraph 5(a) or upon or
as a result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Company or any substantial part of its
property or otherwise, all as though such payment had not been made.

(g) Notwithstanding anything to the contrary herein, the Company shall not at
any time offer (and the holder of the Notes shall not at any time accept) (i)
any pledge of collateral or (ii) any guaranty by any Subsidiary of the Company,
in each case with respect to the obligations of the Company under the Notes or
otherwise under or in respect of the Junior Indebtedness.

         Section 5A. Junior Indebtedness Voting Rights. At any meeting of
creditors of the Company or in the event of any case or proceeding, voluntary or
involuntary, for the distribution, division or application of all or part of the
assets of the Company or the proceeds thereof, whether such case or proceeding
be for the liquidation, dissolution or winding up of the Company or its
business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Company for relief under any bankruptcy or reorganization law or any other law
relating to the relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension of marshaling of assets or otherwise (an
"Insolvency Proceeding"), the holders of Junior Indebtedness shall retain the
right to vote and otherwise act with respect to the Junior

                                       42
<PAGE>

Indebtedness (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), provided that, absent fraud or misrepresentation by
the holders of Senior Indebtedness with respect to the Senior Indebtedness or
conduct on the part of the holders of Senior Indebtedness which would be
sufficient to support a claim of equitable subordination with respect to Senior
Indebtedness under ss.510(c)(1) of the Bankruptcy Code, the holders of Junior
Indebtedness shall not vote with respect to any such plan or take any other
action in any way so as to contest (i) the validity of any Senior Indebtedness
or any collateral therefor or guaranties thereof, (ii) the relative rights and
duties of any holders of any Senior Indebtedness established in any instruments
or agreements creating or evidencing any of the Senior Indebtedness with respect
to any of such collateral or guaranties or (iii) the obligations and agreements
of the holders of Junior Indebtedness set forth in this Section 5.

Section 6. Company Closing Conditions. Each of the Purchaser's, Medtronic's and
the Additional Parties' obligation to purchase and pay for the Notes to be
purchased by it hereunder on the Closing Date shall be subject to the
satisfaction, on or before the Closing Date, of the following conditions:

Section 6.1. Proceedings Satisfactory. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated to occur on the
Closing Date and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Purchaser and its counsel, and the Purchaser and
its counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request, including:

(a) certificates dated as of a recent date prior to the Closing Date as to the
good standing and payment of taxes of the Company in each jurisdiction where any
of such Persons is organized or is authorized to do business as a foreign
corporation;

(b) certified copies of the Charter of the Company;

(c) certified copies of the by-laws (or other comparable constituting document)
of the Company, with all amendments thereto to the Closing Date;

(d) certified copies of resolutions of the Board of Directors of the Company
authorizing (i) the execution, delivery and performance of this Agreement, the
Notes, and the other Note Documents to which the Company is a party, as
applicable and (ii) opting out of the Fair Price Provisions and Business
Combination Provisions of the Georgia Business Corporations Code; and

(e) certificates as to the incumbency and signatures of each of the officers of
the Company who shall execute this Agreement or any Note, or other Transaction
Document on behalf of such respective party.

                                       43
<PAGE>

Section 6.2. Peterson/Hunt Employment Agreement and Options. The Company shall
have entered into employment agreements with Marshall Hunt and William Peterson
and the Company shall have issued options to purchase shares of Company Common
Stock to Marshall Hunt and William Peterson all pursuant to the terms set forth
on Exhibit D hereto.

Section 6.3. Stepic Settlement. The Company shall have reached a settlement (the
"Stepic Settlement Obligation")with respect to the dispute between the Company
and certain of the former shareholders of Stepic Corporation reasonably
satisfactory to the Purchaser.

Section 6.4. Co-Marketing Agreement. Medtronic and the Company shall have
entered into the Medtronic Co-Marketing Agreement containing such terms and
conditions as are reasonably satisfactory to the parties thereto.

Section 6.5. Opinion of the Company's Counsel. The Purchaser and each Additional
Note Purchaser shall have received from King & Spalding, counsel for the Company
in connection with the Transactions, a favorable legal opinion dated the Closing
Date and addressed to the Purchaser and each Additional Note Purchaser, covering
such matters as the Purchaser or Medtronic may reasonably request, including,
but not limited to, the Medtronic Co-Marketing Agreement.

Section 6.6. Opinion of Company's Special Intellectual Property Counsel. The
Purchaser and each Additional Note Purchaser shall have received from the
Company's special intellectual property counsel, a favorable legal opinion dated
the Closing Date and addressed to the Purchaser and each Additional Note
Purchaser, covering such intellectual property matters (including, without
limitation, as to patent matters) as the Purchaser or Medtronic may reasonably
request.

Section 6.7. Representation and Warranties True, Etc.; Certificates. The
representations and warranties of the Company contained in Section 4 and
elsewhere in this Agreement and of the Company shall be true in all materials
respects on and as of the Closing Date with the same effect as if such
representations and warranties had been made on and as of the Closing date after
giving effect to the Transactions. The Company shall have performed in all
material respects all agreements on its part required to be performed under this
Agreement on or prior to the Closing Date, and there shall exist no Default or
Event of Default on the Closing Date after giving effect to the Transactions.
The Company shall have delivered to the Purchaser an Officer's Certificate,
dated the Closing Date, to the effect of the matters stated in the foregoing
sentences of this Section 6.7.

Section 6.8. Absence of Material Adverse Effect, Etc. Since the date hereof, no
Material Adverse Effect shall have occurred.

Section 6.9. Consents and Approvals. Except for the Stockholder/AMEX Conversion
Approval and the Stockholder Approval, all necessary consents, waivers,
approvals and authorizations of, and declarations, registrations and filings
with, Governmental Bodies and non-governmental Persons required in order to
issue and sell the Notes as contemplated hereby and to consummate the
Transactions contemplated hereby and by the other Transaction Documents shall
have been obtained or made and shall be in full force and effect.

                                       44
<PAGE>

Section 6.10. Absence of Litigation, Orders, Etc. Except as disclosed on
Schedule 4.7(a) attached hereto, there shall not be pending or, to the knowledge
of the Company after due inquiry, threatened, any action, suit, proceeding,
governmental investigation or arbitration against or affecting any of the
Company or its Subsidiaries or its Property (and, as to any action, suit,
proceeding, governmental investigation or arbitration so disclosed, there shall
not have occurred since the date of this Agreement any development) which seeks
to enjoin or restrain any of the Transactions (including the BofA Restructuring)
or which the Purchaser reasonably believe is likely to have a Material Adverse
Effect. No Order of any court, arbitrator or Governmental Body shall be in
effect which purports to enjoin or restrain any of the Transactions (including
the Restructuring) or which the Purchaser reasonably believe to constitute a
Material Adverse Effect.

Section 6.11. Related Documents; Consummation of Transactions. All of the terms,
conditions and provisions of each of the Related Documents (including, without
limitation, the terms governing the subordination of the Junior Subordinated
Note) shall be satisfactory to the Purchaser, its counsel, each Additional Note
Purchaser, if any, and its respective counsel in all respects in form and
substance and no term, condition or provision thereof as set forth in the
certified copies of the Related Documents delivered by the Company in accordance
with the next sentence of this Section 6.11 shall have been supplemented,
amended, modified or waived without the Purchaser's and such Additional Note
Purchaser's prior written consent. Each of the Transaction Documents shall have
been duly executed and delivered by the respective parties thereto and shall be
in full force and effect. The Purchaser and each Additional Note Purchaser, if
any, shall have received a copy of each of the Related Documents (including all
amendments, modifications and supplements thereto to and including the Closing
Date), certified by a duly authorized officer of the Company as true, correct
and complete. All conditions to the consummation of the transactions
contemplated by each of the Related Documents shall have been satisfied (or
waived with the written approval of the Purchaser) and such transactions shall
have been consummated (or will be consummated simultaneously with the purchase
of Notes hereunder) in accordance with the terms of the applicable certified
copy of the Related Document delivered by the Company in accordance with the
foregoing provisions of this Section 6.11. The Purchaser and each Additional
Note Purchaser, if any, shall have received such certificates and other evidence
with respect to the foregoing, as it shall request.

Section 6.12. Fees. The reasonable fees and expenses incurred by Brown Raysman
Millstein, Felder Steiner LLP and any local or special counsel to the Purchaser
and each Additional Note Purchaser, if any, in connection with the preparation
of this Agreement, the Notes and the other Note Documents, and in connection
with the other Transactions contemplated hereby, shall be paid by the Company on
the Closing Date.

Section 6.13. Due Diligence. The Purchaser shall have completed its due
diligence and be satisfied, in its sole discretion, with the results thereof.

Section 6.14. No Default or Event of Default. On the date of the purchase of the
Notes hereunder, both immediately before and immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing or
would result from such purchase.

                                       45
<PAGE>

Section 6.15. Legal Prohibitions. The execution and delivery of each of the
Transaction Documents by the Company, and the performance by the Company of each
of its obligations thereunder, shall not violate any Order of any court,
arbitrator or Governmental Body or any Statute at the time applicable to the
Purchaser.

Section 6.16. Other Requirements. The Purchaser shall have received, in form and
substance reasonably satisfactory to them, all certificates, orders,
authorizations, consents, affidavits, schedules, instruments, and other
documents which are provided for hereunder, or which any Purchaser, may at any
time reasonably request after reasonable notice.

Section 6.17. Disclosure Schedules. The Purchaser shall have received, not later
than 5 days after the date hereof, each of the Schedules called for by Section 4
hereof and shall be entirely satisfied in its sole discretion with all of the
disclosures set forth therein.

Section 6.18. Board of Directors. The Purchaser shall have received resolutions
from the Board of Directors or the shareholders of the Company, as applicable,
appointing the following people to the Board of Directors of the Company
immediately after the Closing:

         Marshall Hunt, William Peterson, Robert Simmons (Purchaser independent
         appointment), Gordon Tunstall, H. Ross Arnold, III, Robert Tucker
         (Purchaser independent appointment) and Lee Provo (Purchaser
         appointment).

         Section 6A. Purchaser's, Medtronic's and the Additional Parties'
Closing Conditions. The Company's obligation to sell the Notes on the Closing
Date shall be subject to the satisfaction, on or before the Closing Date, of the
following conditions:

                  (a) receiving evidence satisfactory to the Company that the
BofA Restructuring shall have been consummated.

                  (b) Peterson/Hunt Employment Agreements. The employment
agreement entered into between the Company and Marshall Hunt in effect on the
date hereof and the employment agreement entered into between the Company and
William Peterson in effect on the date hereof shall each have been amended as
provided for in Exhibit D of this Agreement.

                  (c) Representation and Warranties True, Etc.; Certificates.
The representations and warranties of the Purchaser, Medtronic and Additional
Parities contained in Section 4A and elsewhere in this Agreement shall be true
in all materials respects on and as of the Closing Date with the same effect as
if such representations and warranties had been made on and as of the Closing
date after giving effect to the Transactions. The Purchaser, Medtronic and the
Additional Parties shall have performed in all material respects all agreements
on its part required to be performed under this Agreement on or prior to the
Closing Date.

                  (d) Legal Prohibitions. The execution and delivery of each of
the Transaction Documents by the Purchaser, Medtronic or any Additional Party,
and the performance by each of the Purchaser, Medtronic and each Additional
Party of each of its obligations thereunder, shall not violate any Order of any
court, arbitrator or Governmental Body or any statute at the time applicable to
the Company. No Governmental Body shall have enacted, issued, promulgated,

                                       46
<PAGE>

enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making illegal, materially restricting or
in any way preventing or prohibiting the Transactions.

Section  7. Financial Statements and Information. The Company will furnish to
the Purchaser, until all of the Obligations have been indefeasibly paid in full
and no Notes are outstanding and the Termination Date has occurred:

(a) as soon as available and in any event within 30 days after the end of each
month, copies of the consolidated and consolidating balance sheets of the
Company as of the end of such month and the related consolidated and
consolidating statements of income for such month and for the portion of the
fiscal year ended with the last day of such month, and stating in comparative
form the corresponding figures from the prior year, all Certified by the Chief
Financial Officer of the Company;

(b) as soon as available and in any event within 45 days after the end of each
quarterly accounting period (other than the fourth quarterly accounting period)
in each fiscal year of the Company,

(i)      copies of the consolidated and consolidating balance sheets of the
         Company, in each case as of the end of such accounting period, together
         with, in each case, the related consolidated and consolidating
         statements of income, shareholders' equity and cash flows for such
         accounting period and for the portion of the fiscal year ended with the
         last day of such accounting period, all in reasonable detail and
         stating in comparative form (i) the consolidated and consolidating
         figures as of the end of and for the corresponding date and period in
         the previous fiscal year and (ii) the corresponding figures from the
         consolidated budget of the Company and its Subsidiaries for such
         period, all Certified by the Chief Financial Officer of the Company,
         and

(ii)     a written statement of the Chief Financial Officer of the Company
         setting forth computations in reasonable detail showing whether or not
         as at the end of such fiscal quarter there existed any Default or Event
         of Default resulting from a breach or violation of Section 10.1;

(c) as soon as available and in any event within 90 days after the end of each
fiscal year of the Company,

(i)      copies of the audited consolidated and unaudited consolidating balance
         sheets of the Company, in each case as of the end of such fiscal year,
         together with, in each case, the related audited consolidated and
         unaudited consolidating statements of income, shareholders' equity and
         cash flows for such fiscal year, and the notes thereto, all in
         reasonable detail and stating in comparative form (i) the respective
         audited consolidated and unaudited consolidating figures as of the end
         of and for the previous fiscal year or part thereof and (ii) the
         corresponding figures from the consolidated budget of the Company for
         such fiscal year, (x) in the case of each of such audited consolidated
         financial statements, accompanied by a report thereon of
         PricewaterhouseCoopers LLP, or other independent public accountants of
         recognized

                                       47
<PAGE>

         national standing selected by the Company and acceptable to the
         Purchaser (the "Accountants"), which report shall be unqualified as to
         going concern and scope of audit and shall state that such consolidated
         financial statements present fairly, in all material respects, the
         consolidated financial position of the Company and its Subsidiaries as
         at the end of such fiscal year and the consolidated results of
         operations and cash flows for such fiscal year in conformity with GAAP
         and that the examination by the Accountants in connection with such
         consolidated financial statements has been made in accordance with
         generally accepted auditing standards, and (y) in the case of such
         unaudited consolidating financial statements, Certified by the Chief
         Financial Officer of the Company; and

(ii)     a written statement of the Accountants (x) setting forth computations
         in reasonable detail showing whether or not as at the end of such
         fiscal year there existed any Default or Event of Default resulting
         from a breach or violation of Section 10.1, and (y) stating that in
         making the examination necessary for their report on such financial
         statements they obtained no knowledge of any default by the Company in
         the fulfillment of any of the terms, covenants, provisions or
         conditions of this Agreement or any of the other Note Documents, or if
         such Accountants shall have obtained knowledge of any such default,
         specifying the nature and status thereof;

(d) concurrently with the financial statements furnished pursuant to subsections
(b) and (c) of this Section 7, an Officer's Certificate of the Company stating
that, based upon such examination or investigation and review of this Agreement
as in the opinion of the signer is necessary to enable the signer to express an
informed opinion with respect thereto, no Default or Event of Default exists or
has existed during such period or, if such a Default or Event of Default shall
exist or have existed, the nature and period of existence thereof and what
action the Company has taken, is taking or proposes to take with respect
thereto;

(e) concurrently with the financial statements furnished pursuant to subsections
(b) and (c) of this Section 7, a brief management discussion and analysis of the
financial condition and results of operations of the Company and its
Subsidiaries, as of the end of and for the period covered by such financial
statements (including a comparison thereof with the financial condition and
results of operations of the Company and its Subsidiaries as of the end of and
for the comparable period in the prior fiscal year and the corresponding figures
from the consolidated budget of the Company and its Subsidiaries for such
period), and describing any significant events relating to the Company or its
Subsidiaries occurring during such period, together with copies of any financial
statements or budget information and any projections and any management
discussion and analysis of the financial condition and results of operations of
the Company and its Subsidiaries provided by the Company during such period;

(f) promptly after the same are available and in any event within 10 days
thereof, copies of all such proxy statements, financial statements, notices and
reports as the Company shall send or make available generally to their security
holders, and copies of all regular and periodic reports and of all registration
statements which the Company or any of its Subsidiaries may file with the SEC or
with any securities exchange;

                                       48
<PAGE>

(g) promptly after the receipt thereof by the Company or any of its
Subsidiaries, and in any event within 10 days thereof, copies of any management
letters and any reports as to material inadequacies in accounting controls
(including reports as to the absence of any such inadequacies) submitted to any
such corporation by the Accountants in connection with any audit of such
corporation made by the Accountants;

(h) promptly (and in any event within 5 days) after becoming aware of (1) the
existence of any Default or Event of Default on the part of the Company, an
Officer's Certificate of the Company specifying the nature and period of
existence thereof and what action the Company is taking or proposes to take with
respect thereto; or (2) any Indebtedness of the Company or any of its
Subsidiaries being declared due and payable before its expressed maturity, or
any holder of such Indebtedness having the right to declare such Indebtedness
due and payable before its expressed maturity, because of the occurrence of any
default (or any event which, with notice and/or the lapse of time, shall
constitute any such default) under such Indebtedness, an Officer's Certificate
of the Company describing the nature and status of such matters and what action
the Company or such Subsidiary is taking or proposes to take with respect
thereto;

         The Company will keep at its principal executive office a true copy of
this Agreement, and cause the same to be available for inspection at said office
during normal business hours by any holder of Notes or by any prospective
purchaser of Notes designated in writing by the holder thereof.

Section 8. Inspection of Properties and Books. The Purchaser and each Additional
Note Purchaser, if any, until all of the obligations have been indefeasibly paid
in full and no Notes are outstanding and the Termination Date has occurred,
shall have the right to visit and inspect any of the Properties of the Company,
to examine their books of account and records, to make copies and extracts
therefrom at their expense, and to discuss their affairs, finances and accounts
with, and to be advised as to the same by, their officers and employees and
their independent public accountants (whose reasonable fees and expenses shall
be paid by the Company, and by this provision the Company authorizes the
Accountants to discuss its affairs, finances and accounts, and agrees to make
such Accountants available to the Purchaser and each Additional Note Purchaser,
if any, for such discussions, whether or not any of such officers or employees
is present, it being understood that nothing contained in this Section 8 is
intended to confer any right to exclude any such officers or employees from such
discussions), during the Company's normal business hours with reasonable
frequency and (except upon the occurrence and during the continuance of the
Event of Default) upon reasonable prior notice to the Company. The Company
agrees to pay all reasonable out-of-pocket expenses incurred by the Purchaser
and each Additional Note Purchaser, if any in connection with such Person's
exercise of their rights under this Section 8, but only at any time when a
Default or Event or Default shall have occurred and be continuing. The Purchaser
and each Additional Note Purchaser, if any, through their respective
representatives, shall be entitled to meet with the senior management of the
Company at least once during each fiscal quarter of the Company to discuss the
Company's, financial statements, business, assets, operations and prospects.

                                       49
<PAGE>

Section 9. Affirmative Covenants. The Company covenants and agrees that, until
all of the Obligations have been indefeasibly paid in full and no Notes are
outstanding and the Termination Date has occurred, the Company shall comply with
the following provisions set forth in this Section 9:

Section 9.1. Payment of Principal and Interest. The Company will duly and
punctually pay the principal of, and interest on the Notes, and will timely pay
and perform all of its other Obligations, in accordance with the terms of such
Notes, this Agreement and the other Note Documents. The Company will comply with
all of the covenants, agreements and conditions contained in this Agreement and
the other Note Documents.

Section 9.2. Payment of Taxes and Claims. The Company will, and will cause each
of its Subsidiaries to, pay before they become delinquent:

(a) all taxes, assessments and governmental charges or levies imposed upon the
Company or any of its Subsidiaries (or any other Subsidiaries of the Company
which are part of any affiliated group, within the meaning of Section 1504 (a)
(1) of the code, with the Company or any of its Subsidiaries) or their income or
profits or upon their Property, real, personal or mixed, or upon any part
thereof;

(b) all claims for labor, materials and supplies which, if unpaid, would result
in the creation of a Lien upon Property of the Company or any of its
Subsidiaries; and

(c) all claims, assessments, or levies required to be paid by the Company or any
of its Subsidiaries or any agreement, contract, Statute or Order governing or
relating to any thereof;

provided, that the taxes, assessments, claims, charges and levies described in
Section 9.2(a) and (b) need not be paid while being diligently contested in good
faith and by appropriate proceedings so long as (i) adequate book reserves have
been established with respect thereto in accordance with GAAP and (ii) neither
the Company's nor any such Subsidiary's title to and right to use its Property
is materially adversely affected by such non-payment. The Company will timely
file, and will cause its subsidiaries to file, all tax returns required to be
filed in connection with the payment of taxes required by this Section 9.2. If
an Event of Default shall have occurred and be continuing and any such contested
items shall have resulted in a Lien or claim upon any of the Company's or any of
its Subsidiaries' Property, the Purchaser may, at their election (but shall not
be obligated to), (a) procure the release and discharge of any such Lien or
claim and any judgment or decree thereon, without inquiring into or
investigating the amount, validity or enforceability of such Lien or claim and
(b) effect any settlement or compromise of the same, and any amounts expended by
the Purchaser in connection therewith including premiums paid or security
furnished in connection with the issuance of any surety company bonds, shall be
reimbursed by the Company within five Business Days of demand therefor by the
Purchaser.

Section 9.3. Maintenance of Properties, Records and Corporate Existence. The
Company will, and will cause each of its Subsidiaries to:

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(a) maintain their respective Properties in good condition, reasonable wear and
tear excepted, and make all necessary renewals, repairs, replacements,
additions, betterments, and improvements thereto;

(b) keep books of records and accounts in which full and correct entries will be
made of all their respective business transactions and will reflect in their
financial statements adequate accruals and appropriations to reserves, all in
accordance with GAAP at the time in effect and consistently applied;

(c) maintain the same fiscal year during and after the current fiscal year
ending;

(d) do or cause to be done all things necessary to preserve and keep in full
force and effect their respective corporate existence, rights, powers and
franchises including any necessary qualification or licensing in any foreign
jurisdiction;

(e) comply with all applicable Statutes, Orders, franchises, authorizations,
licenses and permits of, and all applicable restrictions imposed by, any
Governmental Body, in respect of the conduct of its business and the ownership
of its Properties (including all Environmental Laws and all applicable Statutes,
Orders, franchises, authorizations, licenses and permits relating to fair labor
standards, equal employment opportunities and occupational health and safety),
except for such matters as in the aggregate are not reasonably likely to, and
will not, have a Material Adverse Effect; and

(f) If the Company or any of its Subsidiaries receives notice or becomes aware
of any Environmental Matter or contamination with Hazardous Materials that
relates to any of them or their respective Properties, then the Company shall
promptly provide written notice thereof to the Purchaser and, upon written
request from the Purchaser, shall provide the Purchaser with such reports,
certificates, engineering studies or other written material or data as the
Purchaser may reasonably request so as to satisfy the Purchaser that the Company
and its Subsidiaries are in compliance with their obligations under this
subsection (f) and subsection (e) of this Section 9.3. The Purchaser shall also
have the right, at any time and from time to time after receipt of notice or
knowledge of any such Environmental Matter or contamination, to require the
Company at its expense to employ a qualified environmental consultant reasonably
acceptable to the Purchaser to conduct an environmental review, audit,
assessment or report with respect thereto concerning the Company's and its
Subsidiaries' operations and Property. The Company agree to cooperate fully with
such consultant in connection with any such review, audit, assessment or report,
including by providing such access to the Company's and its Subsidiaries' books,
records, Properties, employees and agents and by furnishing such written and
oral information as such consultant may reasonably request in connection with
any such review, audit, assessment or report.

Section 9.4.      Insurance.

(a) The Company will, and will cause each of its Subsidiaries to, carry and
maintain in full force and effect at all times, with financially sound and
reputable insurance companies or associations rated AA (Class 12) or better by
AM Best Company (or, as to

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<PAGE>

workers' compensation or similar insurance, in an
insurance fund or by self-insurance authorized by the jurisdiction in which its
operations are carried on): (i) insurance against loss or damage to the tangible
real and personal Property of the Company and its Subsidiaries by fire, theft,
explosion, spoilage, flood and other perils covered by a "special form"
insurance policy and all other hazards and risks ordinarily insured against by
other owners or users of such Property in similar businesses, (ii) all workers'
compensation or similar insurance as may be required under the laws of any
jurisdiction, (iii) public liability insurance against claims for personal
injury, death or property damage suffered upon, in or about any premises
occupied by any of them or occurring as a result of the ownership, maintenance
or operation by any of them of any automobile, truck or other vehicle or as a
result of the use of products manufactured, constructed or sold by any of them,
or services rendered by any of them, (iv) business interruption insurance
covering risk of loss as a result of the cessation of any substantial part of
the business conducted by any of them, and (v) insurance against such other
risks as are usually insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated.

(b) Insurance specified in clause (a) (i) of this Section 9.4 shall (i) be
maintained in such form and amounts and having such coverage as may be
reasonably satisfactory to the Purchaser and each Additional Note Purchaser, if
any, and in any event in an amount not less than the full insurable value of the
Property covered thereby, (ii) provide that no cancellation, material reduction
in amount or material change in coverage thereof shall be effective until at
least 30 days after receipt by the Purchaser or any Additional Note Purchaser of
written notice thereof.

(c) Insurance specified in clauses (a) (iii), (a) (iv) and (a) (v) of this
Section 9.4 shall be maintained in such amounts (and with co-insurance,
deductibles and self-insured retention, if any) as such insurance is usually
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. All such insurance shall name the Purchaser
and each Additional Note Purchaser, if any, as additional insured, as their
interests may appear.

Section 9.5. ERISA. The Company will, and will cause each of its ERISA
Affiliates, to comply in all material respects with the applicable provisions of
ERISA and the Code with respect to each Plan and furnish to the Purchaser and
each Additional Note Purchaser (i) within 10 days after the Company knows or has
reason to know that any "reportable event" (as defined in Section 4043(b) of
ERISA) has occurred with respect to a Pension Plan which is subject to Title IV
of ERISA, a statement setting forth details as to such reportable event and the
action proposed to be taken with respect thereto, (ii) promptly, but in no event
later than 3 days, after receipt thereof, a copy of any notice that the Company
or any ERISA Affiliate may receive from the PBGC relating to the intention of
the PBGC to terminate any Pension Plan or to appoint a trustee to administer any
Plan, (iii) promptly, but in no event later than 5 days, after filing with any
affected party (as such term is defined in Section 4001 of ERISA) of a notice of
intent to terminate a Pension Plan which is subject to Title IV of ERISA, a copy
of such notice and a statement setting forth the details of such termination,
including the amount of liability, if any, of the Company or any ERISA Affiliate
under Title IV of ERISA, (iv) within 10 days after the adoption of an amendment
to a Pension Plan if, after giving effect to such amendment, the Pension Plan is
a plan described in Section 4021(b) of ERISA, a statement setting forth the

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details thereof, (v) within 30 days after withdrawal from a Pension Plan during
a plan year for which the Company or any ERISA Affiliate could be subject to
liability under Section 4063 or 4064 of ERISA, a statement setting forth the
details thereof, including the amount of such liability, (vi) within 30 days
after cessation of operations by the Company or any ERISA Affiliate at a
facility under the circumstances described in Section 4062(e) of ERISA and with
respect to a plan which is subject to Title IV of ERISA, a statement setting
forth the details thereof, including the amount of liability of the Company or
the ERISA Affiliate under Title IV of ERISA, (vii) within 5 days after adoption
of an amendment to a Pension Plan which would require security to be given to
the Pension Plan pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, a statement setting forth the details thereof, including the amount of
such security, (viii) within 5 days after failure by the Company or any ERISA
Affiliate to make payment to a Pension Plan which would give rise to a Lien in
favor of the Plan under Section 302(f) of ERISA, a statement setting forth the
details thereof, including the amount of such Lien, (ix) within 10 days after
the due date for filing with the PBGC pursuant to Section 412(n) of the Code of
a notice of failure to make a required installment or other payment with respect
to a Pension Plan, a statement setting forth details as to such failure and the
action proposed to be taken with respect thereto and (x) promptly, but in any
event within 30 days, after receipt thereof by the Company or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice
concerning the imposition of withdrawal liability or the termination or
reorganization of a Multiemployer Plan.

Section 9.6.      Intellectual Property.

(a) Consistent with past practice, the Company and each of its Subsidiaries
shall appropriately mark all products produced by it in order to preserve its
Intellectual Property.

(b) The Company and each of its Subsidiaries shall preserve its rights under all
material License Agreements except to the extent that any such License Agreement
expires or otherwise is terminated without any default or breach by the Company
and, in the case of License Agreements in which the Company is the licensee, the
Company chooses to replace the licensed Intellectual Property with another
product of similar functionality.

(c) The Company and its Subsidiaries will not indemnify or assume the material
liabilities of any third parties for intellectual property infringement except
in the ordinary course of business consistent with past practice.

(d) Except with respect to immaterial Intellectual Property, the Company and
each of its Subsidiaries shall timely make filings and payments with the
appropriate foreign and domestic offices and agencies required to maintain in
subsistence registered Intellectual Property owned by it in a manner consistent
with past practice and will not take any action which is reasonably likely to
result in, or omit to take any action to avoid, the termination, invalidation or
abandonment of any such Intellectual Property.

(e) The Company and its Subsidiaries shall comply with applicable rules and
regulations of any Governmental Body with respect to its Intellectual Property
in a manner consistent with past practice.

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<PAGE>

(f) The Company and its Subsidiaries shall promptly register Intellectual
Property developed by it, to the extent that such Intellectual Property is
registerable and in a manner consistent with past practice.

(g) Consistent with its past practice, the Company and each of its Subsidiaries
shall obtain confidentiality and assignment agreements from all employees and
contractors who or which develop or have access to Intellectual Property of the
Company or any of its Subsidiaries.

Section 9.7. Further Actions. Promptly following the Purchaser's and each
Additional Note Purchaser's request, the Company will from time to time execute,
acknowledge, notarize, deliver, record, register and file any and all further
agreements, instruments and documents (including the substantial equivalents of
any of the foregoing in any foreign jurisdiction), and take all further actions
(including the payment of all filing, recording, registration, notary and other
fees and charges which may be incurred in connection with any of the foregoing),
which may in any such case be required under applicable law, or which the
Purchaser or any Additional Note Purchaser otherwise may reasonably request, in
order to effectuate the transactions contemplated by this Agreement and the
other Note Documents.

Section 10. Negative and Maintenance Covenants. The Company covenants and agrees
that, until all of the Obligations have been indefeasibly paid in full and no
Notes are outstanding and the Termination Date has occurred, the Company shall
comply with the following provisions set forth in this Section 10:

Section 10.1. Restrictions on Indebtedness. The Company will not, and will not
permit any of its Subsidiaries to, incur, create, assume, guarantee or in any
way become liable for, or permit to exist, Indebtedness other than:

(a) Indebtedness incurred pursuant to this Agreement, the Notes, and the other
Note Documents;

(b) Indebtedness of the Company and its Subsidiaries arising under the Related
Documents or existing on the Closing Date and described on Schedule 4.10(a) (in
each case after giving effect to the Transactions, but excluding in any event
the Non-continuing Indebtedness);

(c) Indebtedness of the Company to any Wholly-owned Subsidiary of the Company or
Indebtedness of any Wholly-owned Subsidiary of the Company to another
Wholly-owned Subsidiary of the Company;

(d) Indebtedness consisting of Liens permitted by subsections (a) through (e),
inclusive, of Section 10.2;

(e) Indebtedness secured by Liens permitted by Section 10.2(h), provided that
(i) the aggregate outstanding principal amount of Indebtedness incurred pursuant
to this subsection (e) shall not at any time exceed $100,000, and (ii) the
aggregate principal amount of Indebtedness incurred in any fiscal year of the
Company pursuant to this subsection (e) shall not exceed $500,000.

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<PAGE>

Section 10.2. Restrictions on Liens. The Company will not, and will not permit
any of its Subsidiaries to, directly on indirectly, create, assume or suffer to
exist any Lien upon any of their respective Properties whether now owned or
hereafter acquired, except for:

(a) Liens for taxes, assessments or governmental charges or claims the payment
of which is not at the time required by Section 9.2;

(b) statutory Liens of landlords, if any, Liens of carriers, warehousemen,
mechanics, materialmen, if any, and other Liens imposed by law incurred in the
ordinary course of business, in each cash for sums the payment of which is not
at the time required by Section 9.2;

(c) Liens (other than any Lien imposed by ERISA, and other than any Lien
securing an obligation for the payment of borrowed money) incurred or deposits
made in the ordinary course of business in connection with obligations not due
or delinquent with respect to workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar obligations;
provided, that no such Lien shall be permitted to the extent it encumbers any
real Property of the Company or its Subsidiaries;

(d) any attachment or judgment Lien (including judgment or appeal bonds) which
shall, within 45 days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or which shall have been discharged within 30
days after the expiration of any such stay or which is being diligently
contested in good faith so long as a reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefore; provided that
such Liens shall not in any event exceed $250,000 in the aggregate at any time
outstanding;

(e) zoning restrictions, easements, licenses, reservations, restrictions on the
use of real Property or minor irregularities incident thereto (and, with respect
to leasehold interests, Liens and other encumbrances that are incurred, created,
assumed or permitted to exist on or with respect to the leased Property and
arise by, through or under or are asserted by a landlord or owner of the leased
Property, with or without consent of the lessee) which (i) in the case of any
such Lien encumbering real Property of the Company or its Subsidiaries which is
not also encumbered by a Security Document, were not incurred in connection with
the borrowing of money and which do not in the aggregate materially detract from
the value of the Property of the Company or any of its Subsidiaries, as the case
may be, or impair the use of such Property for the purposes for which such
Property is hold by the Company or any such Subsidiary, or (ii) in the case of
any such Lien encumbering real Property which is also encumbered by a Mortgage,
constitute Permitted Exceptions (as defined in such Mortgage);

(f) Liens not evidenced by a Uniform Commercial Code financing statement which
the U.S. Government may have as a matter of law under (A) an applicable
title-vesting clause provided for under applicable federal regulations in a
Government Contract with the Company which encumber (i) property acquired with
funds from the U.S. Government for use in performance of such Contract, and (ii)
the Company's raw materials, work in process and

                                       55
<PAGE>

finished goods allocable to the Company's performance under such Government
Contract, and (B) the "data rights" and "patent rights" provisions provided for
under applicable federal regulations in a Government Contract with the Company
which encumber Intellectual Property developed by the Company in the performance
of, or delivered under, such Government Contract (any such Liens shall have
priority over the Collateral Agent's security interest in such Collateral
pursuant to the Note Documents to the extent that under applicable law such
Liens would have priority over a Lien perfected by the filing of a Uniform
Commercial Code financing statement (herein "U.S. Government Prior Liens"));

(g) Liens (including Liens created pursuant to Capitalized Leases) existing on
the Closing Date and described in Schedule 4.10(a) hereto and Liens arising out
of the Security Documents related to the Transaction Documents (in each case
after giving effect to the Transactions contemplated to occur on the Closing
Date);

(h) Liens (including Liens created pursuant to Capitalized Leases) in respect of
personal Property acquired by the Company or any of its Subsidiaries after the
Closing Date, which Liens exist or are created at the time of acquisition of
such Property or within six months thereafter, to secure Indebtedness permitted
by Section 10.1(e) which is assumed or incurred to finance all or any part of
the purchase price of acquisition of such Property, but any such Lien shall
cover only the Property so acquired and any improvements thereto, and may not
exceed the lesser of (x) 100% of the Fair Market Value of such Property or (y)
the purchase price of such acquisition.

Section 10.3. Consolidation, Merger or Disposition of Assets; Acquisitions. The
Company will not, and will not permit any of its Subsidiaries to, enter into any
transaction of merger, amalgamation or consolidation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, license, transfer or otherwise dispose of, in one transaction or a series
of transactions, all or any part of the business or Property (tangible or
intangible, including any Intellectual Property or License Agreement) of the
Company or any such Subsidiary, whether now owned or hereafter acquired, or
acquire by purchase or otherwise any of the outstanding Capital Stock of, or all
or any substantial part of the business, operating assets and Property of, any
Person, except that (i) the Company and its Subsidiaries may in the ordinary
course of business sell Inventory owned by them, (ii) any Wholly-owned
Subsidiary of the Company may merge or consolidate with or into, or be dissolved
or liquidated into, the Company or any other Wholly-owned Subsidiary of the
Company so long as in any merger or consolidation involving the Company, the
Company shall be the surviving or continuing corporation, (iii) any Wholly-owned
Subsidiary of the Company may sell, lease or otherwise dispose of all or any
part of its assets to the Company or to any other Wholly-owned Subsidiary of the
Company, (iv) the Company and its Subsidiaries may sell or otherwise dispose of
Property having a net book value at the time of such sale of disposition of not
more than $100,000, provided that the aggregate net book value of all Property
sold or disposed of pursuant to this clause (iv) shall not exceed $500,000, (v)
asset acquisitions by the Company or any of its Subsidiaries, for cash
consideration of not more than $250,000 in the aggregate after the Closing Date
so long as no Indebtedness or other liabilities (other than trade payables
arising in the ordinary course of business) are assumed or incurred by the
Company or any of its Subsidiaries in connection with such acquisition.

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<PAGE>

Section 10.4. Sale or Discount of Receivables. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, sell with
recourse, or discount or otherwise sell for less than the face value thereof,
any of their respective Accounts or notes receivable.

Section 10.5. Conduct of Business. The Company will not, and will not permit any
of its Subsidiaries to, engage in any business other than the Permitted
Business.

Section 10.6. Transactions with Affiliates. Except in the case of transactions
between or among the Company and its Wholly-owned Subsidiaries, the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any Property or the rendering of any service), with any
Affiliate of the Company or such Subsidiary unless such transaction is otherwise
not prohibited under this Agreement, is in the ordinary course of the Company's
or such Subsidiary's business, is on fair and reasonable terms that are not less
favorable to the Company or such Subsidiary, as the case may be, than those that
would be obtainable at the time in an arms' length transaction with a Person who
is not such an Affiliate and such transaction has been approved by the
disinterested directors of the Company.

Section 10.7. Certain Contracts. The Company will not, and will not permit any
of its Subsidiaries to, enter into or be a party to:

(a) any contract providing for the making of loans, advances or capital
contributions to any Person other than the Company or a Wholly-owned Subsidiary
of the Company, or for the purchase of any Property from any Person, in each
case primarily in order to enable such Person to maintain working capital, net
worth or any other balance sheet condition or to pay debts, dividends or
expenses, or

(b) any contract for the purchase of materials, supplies or other Property or
services if such contract (or any related document) requires that payment for
such materials, supplies or other Property or services shall be made regardless
of whether or not delivery of such materials, supplies or other Property or
services is ever made or tendered, or

(c) any contract to rent or lease (as lessee) any real or personal Property if
such contract (or any related document) provides that the obligation to make
payments thereunder is absolute and unconditional under conditions not
customarily found in commercial leases then in general use or requires that the
lessee purchase or otherwise acquire securities or obligations of the lessor
(provided, that this subsection (c) shall not be construed to prevent the
Company or any of its Subsidiaries from being a party to or complying with any
provision of any lease to which any of them is a party on the date hereof), or

(d) any contract for the sale or use of materials, supplies or other Property,
or the rendering of services, if such contract (or any related document)
requires that payment for such materials, supplies or other Property, or the use
thereof, or payment for such services, shall be subordinated to any Indebtedness
(of the purchaser or user of such materials, supplies or other Property or the
Person entitled to the benefit of such services) owed or to be owed to any
Person, or

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(e) except as permitted by Section 10.1, and except for Investments which are
not Restricted Investments, any other contract which, in economic effect, is
substantially equivalent to a guarantee.

Section 10.8. Limitation on Dividend Restrictions Affecting Subsidiaries. Except
pursuant to this Agreement, the Company will not permit any of its Subsidiaries
directly or indirectly to create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction which by its terms restricts
the ability of any such Subsidiary to (a) pay dividends or make any other
distributions on such Subsidiary's Capital Stock, (b) pay any Indebtedness owed
to the Company or any other Subsidiary of the Company, (c) make any loans or
advances to the Company or any other Subsidiary of the Company or (d) transfer
any of its Property or assets to the Company or any other Subsidiary of the
Company.

Section 10.9. No Amendment of Charter, By-Laws. The Company will not effect any
amendment to or modification of its charter documents or by-laws, to effect any
amendment to or modification of their charter documents or by-laws, except such
amendments contemplated by each of the Stockholder/AMEX Conversion Approval and
the Stockholder Approval and in each case with the prior written consent of the
Requisite Noteholders.

Section 10.10. Acquisition of Margin Securities. The Company will not, and will
not permit any of its Subsidiaries to, own, purchase or acquire (or enter into
any contract to purchase or acquire) any "margin security" as defined by any
regulation of the Board of Governors of the United States Federal Reserve System
as now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, the Purchaser
shall have received an opinion of counsel satisfactory to the Purchaser to the
effect that such purchase or acquisition will not cause this Agreement or the
Notes to be in violation of Regulation T or Regulation U or any other regulation
of such Board then in effect.

Section 11.       Events of Default; Remedies.

Section 11.1. Events of Default. If any of the following events (herein called
"Events of Default") shall have occurred and be continuing (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or by
operation of law or otherwise and such Event of Default shall be deemed to be
continuing until waived by the appropriate Purchaser in accordance with the
terms hereof):

(a) The Company shall breach or fail to comply with any of its obligations under
the Securityholders Agreement, under the Medtronic Co-Marketing Agreement or
under the Junior Subordinated Note, in each case after giving effect to any
applicable cure periods;

(b) the Company shall default in the due and punctual payment or prepayment of
all or any part of the principal of any Note when and as the same shall become
due and payable, whether at stated maturity, by acceleration, by notice of
prepayment or otherwise;

(c) the Company shall default in the due and punctual payment or prepayment of
any interest or fees on any Note or any other Obligations (other than principal
of any Note) when and as such interest, fees or other Obligations, shall become
due and payable, and such default shall continue for a period of five days;

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<PAGE>

(d) the Company shall default in the performance or observance of any of the
covenants, agreements or conditions contained in Section 9 or Section 10 of this
Agreement;

(e) the Company shall default in the performance or observance of any of the
covenants, agreements or conditions contained in this Agreement, or the Company
shall default in the performance or observance of any of the covenants,
agreements or conditions contained in any of the other Related Documents, and
such default shall continue for a period of 15 days;

(f) the Company shall fail to pay any principal of, premium or interest on or
any other amount payable in respect of Indebtedness that is outstanding in a
principal amount of at least $250,000 in any one instance or $500,000 in the
aggregate in the case of all such instances taken together (excluding
Indebtedness represented by the Notes) when the same becomes due and payable
(whether at scheduled maturity, or by required prepayment, acceleration, demand
or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Indebtedness; or (ii) any other event shall occur or condition shall exist under
any agreement or instrument relating to any such Indebtedness and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to permit the
acceleration of the maturity of such Indebtedness (whether or not such
acceleration occurs); or (iii) any such Indebtedness shall be declared to be due
and payable or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Indebtedness shall be required to be made, in
each prior to the stated maturity thereof;

(g) the Company shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its Property, (ii) be generally unable to pay
its debts as such debts become due, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code or the foreign equivalent thereof, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code or
the foreign equivalent thereof, (vii) admit in writing its inability to pay its
debts generally as such debts become due, (viii) take any action under the laws
of its jurisdiction of organization analogous to any of the foregoing, or (ix)
take any requisite action for the purpose of effecting any of the foregoing;

(h) a proceeding or case shall be commenced, without the application or consent
of the Company in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, winding up of the Company or
composition or readjustment of the Indebtedness of any of them, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Company or of all or any substantial part of the assets of any of them, or (iii)
similar relief in respect of the Company under any law providing for the relief
of debtors, and such proceeding or case shall continue undismissed, or unstayed
and in effect, for a period of 45 days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy code, against the Company; or action
under the laws of the jurisdiction or organization of any of the Company
analogous to any of the foregoing shall be taken with respect to any of the
Company and shall continue undismissed, or unstayed and in effect, for a period
of 45 days;

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(i) final judgment for the payment of money shall be rendered by a court of
competent jurisdiction against the Company, and the Company, as the case may be,
shall not discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof, within 45 days, or such longer
period during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal, and
such judgment together with all other such judgments shall exceed $250,000 in
any one instance or $500,000 in the aggregate in the case of all instances taken
together;

(j) any representation, warranty or statement made by or on behalf of the
Company or any officer of the company in this Agreement, or any representation,
warranty or statement made by or on behalf of the Company or any officer of the
Company in any of the Transaction Documents or in any financial statement,
Officer's Certificate of other instrument or document now or hereafter delivered
pursuant to or in connection with any provision of this Agreement or the
Transaction Documents, shall prove to be false or incorrect in any material
respect or breached in any material respect on the date as of which made;

(k) any event or condition described in Section 4.20 or a covenant described in
Section 9.5 shall occur or exist and, as a result of such event, condition or
breach of covenant, together with all other such events or conditions or
breaches of covenants, the Company, or any ERISA Affiliate shall incur, or in
the opinion of the Purchaser is reasonably likely to incur, a liability of any
kind under ERISA or otherwise that, in the opinion of the Purchaser, could have
a Material Adverse Effect;

(l)      any Change of Control shall occur; or

(m) the Company shall have failed to obtain the Stockholder/AMEX Conversion
Approval and Stockholder Approval within one hundred and five (105) days from
the Closing Date;

then (i) upon the occurrence of any Event of Default described in subsection
(g), the unpaid principal amount of all Notes, together with the interest
accrued thereon and all fees, costs, expenses, indemnities and other Obligations
payable hereunder or under the other Note Documents shall automatically become
immediately due and payable, and all automatically become immediately due and
payable, without presentment, demand, notice, declaration, protest or other
requirements of any kind, all of which are hereby expressly waived, or (ii) upon
the occurrence of any other Event of Default, the Requisite Noteholders may, by
written notice to the Company, declare the unpaid principal amount of all Notes
to be, and the same shall forthwith become, immediately due and payable,
together with the interest accrued thereon and all fees, costs, expenses,
indemnities and other Obligations payable hereunder or under the other Note
Documents, all without presentment, demand, notice, protest or other
requirements of any kind, all of which are hereby expressly waived. In addition
to any rights to the Requisite Noteholders, upon the occurrence of an Event of
Default described in Section 11.1(a) to the extent related to the Medtronic
Co-Marketing Agreement, Section 11.1(b) or (c) to the extent related to the
Medtronic Additional Note, or Section 11.1(m), Medtronic may, by written notice
to the Company and the Requisite Noteholders, declare the unpaid principal
amount of the Medtronic Note to be, and the same shall forthwith become,
immediately due and payable,

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<PAGE>

together with the interest accrued thereon and all fees, costs, expenses,
indemnities payable hereunder or under the other Note Documents with respect to
the Medtronic Note, all without presentment, demand, notice, protest or other
requirements of any kind, all of which are hereby expressly waived.
Notwithstanding the foregoing, an Event of Default as a result of a breach of
Sections 9.2, 9.3 (except for 9.3(d)), 9.4, and 9.5 hereof shall not be
considered to have occurred under clause (ii) of this paragraph unless the
Company fails to cure such event with 10 calendar days after receipt of notice
of such default or, in the case of a non-monetary default that cannot be
reasonably cured with 10 calendar days, the Company fails to both commence a
commercially reasonable cure of such event promptly upon receipt of the default
notice and diligently pursue such cure to completion.

Section 11.2. Suits for Enforcement; Remedies Against Collateral. If any Event
of Default shall have occurred and be continuing, the Purchaser and each
Additional Note Purchaser, if any, may, proceed to protect and enforce the
rights of the holders of the Notes, either by suit in equity or by action at
law, or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in aid of the exercise of any power granted in
this Agreement, and may proceed to enforce the payment of all sums due upon such
respective Notes, and such further amounts as shall be sufficient to cover the
costs and expenses of collection (including reasonable counsel fees and
disbursements), or to enforce any other legal or equitable right of the holder
of the Notes.

Section 11.3. Remedies Cumulative. No remedy conferred in this Agreement or in
the other Note Documents upon the Purchaser or any Additional Note Purchaser,
the holder of any Note is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
otherwise.

Section 11.4. Remedies Not Waived. No course of dealing between the Company, the
Purchaser, any Additional Note Purchaser or any other holder of any Note, and no
delay or failure in exercising any rights hereunder or under such Note or the
Note Documents in respect thereof, shall operate as a waiver of any of the
rights of the Purchaser or of the holder of any Note.

Section 12.       Notes.

Section 12.1. Registration; Exchange; and Transfer of Notes. The Company will
keep at its principal executive office a register, in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company will provide for the registration and
transfer of Notes. Whenever any Note or Notes shall be surrendered either at the
principal executive office of the Company, or at the place of payment named in
the Note, for transfer or exchange, accompanied (if so required by the Company)
by a written instrument of transfer in form reasonably satisfactory to the
Company duly executed by the holder thereof or by such holder's attorney duly
authorized in writing, the Company will execute and deliver in exchange therefor
a new Note or Notes of the same class in such denominations as may be requested
by such holder, of like tenor and in the same aggregate unpaid principal amount
as the aggregate unpaid principal amount of the Note or Notes so surrendered.
Any Note issued in exchange for any other Note or upon transfer thereof shall
carry the rights to unpaid interest and

                                       61
<PAGE>

interest to accrue which were carried by the Note so exchanged or transferred,
and neither gain nor loss of interest shall result from any such transfer or
exchange. Any transfer tax or governmental charge relating to such transaction
shall be paid by the holder requesting the exchange. The Company and any of its
agents may treat the Person in whose name any Note is registered as the sole and
exclusive record and beneficial holder and owner of such Note for the purpose of
receiving payment of the principal of, and interest and other amounts on, such
Note and for all other purposes whatsoever, whether or not such Note be overdue.

Section 12.2. Lost, Stolen, Damaged and Destroyed Notes. At the request of any
holder of any Note, the Company will issue and deliver at its expense, in
replacement of any Note or Notes lost, stolen, damaged or destroyed, upon
surrender thereof, if mutilated, a new Note or Notes in the same aggregate
unpaid principal amount, and otherwise of the same tenor, as the Note or Notes
so lost, stolen, damaged or destroyed, duly executed by the Company. The Company
may condition the replacement of a Note or Notes reported by the holder thereof
as lost, stolen, damaged or destroyed, upon the receipt from such holder of an
indemnity and/or security reasonably satisfactory to the Company; provided that
if such holder shall be the Purchaser, its nominee, any Additional Note
Purchaser or such Additional Note Purchaser's nominee, the unsecured agreement
of indemnity of such Person shall be sufficient for purposes of this Section
12.2.

Section 13.       Agent.

Section 13.1. Purchaser as Agent. The Additional Parties may appoint and
authorize the Purchaser to take action on their behalf, individually and
collectively, and to exercise such powers and discretion under this Agreement
and the other Note Documents as may be delegated to the Purchaser by the terms
hereof or thereof. If and to the extent the Purchaser acts as agent for the
benefit of the Additional Parties as aforesaid, it shall take any such action at
the direction of the Requisite Noteholders.

Section 13.2. Section 13 Indemnification. Each Additional Party severally will
indemnify the Purchaser (to the extent not promptly reimbursed by the Company
and without limiting the Company's obligations to do so) from and against such
Additional Party's ratable share of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Purchaser in any way relating to or arising out of
the Purchaser's acting on behalf of and as agent for the Additional Parties as
above contemplated under this Agreement or any of the Note Documents or any
action taken or omitted by the Purchaser under this Agreement or any other Note
Document; provided that no Additional Party shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the Purchaser's
gross negligence or willful misconduct. For purposes of this Section 13.2, the
Additional Parties' aggregate respective ratable shares of any amount shall be
determined, at any time, according to the respective aggregate principal amounts
of the Notes held by them. The Company shall promptly reimburse each Additional
Party for any amounts paid by it under the provisions of this Section 13.2.

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<PAGE>

Section 14. Acquisition Proposals. The Company shall not, directly or indirectly
through another Person, (a) solicit, initiate or encourage (including by way of
furnishing information) or otherwise take any action to facilitate, the making
of any proposal that constitutes an Acquisition Proposal or (b) participate in
any discussions or negotiations regarding, any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal; provided, however,
notwithstanding any other provision in this Agreement or the Transaction
Documents, at any time prior to the Closing Date, the Board of Directors of the
Company, in order to comply with the terms of its agreements with BofA
Commercial Finance may (i) furnish information with respect to the Company to
any Person making an Acquisition Proposal pursuant to a customary
confidentiality agreement and (ii) participate in discussions or negotiations
regarding such Acquisition Proposal. The Company shall provide immediate oral
and written notice to the Purchaser of (a) the receipt of any such Acquisition
Proposal or any inquiry which could reasonably be expected to lead to any
Acquisition Proposal, (b) the material terms and conditions of such Acquisition
Proposal or inquiry, and (c) the identity of such Person or entity making any
such Acquisition Proposal or inquiry. The Company shall continue to keep the
Purchaser informed of the status and details of any such Acquisition Proposal or
inquiry, as well as any related discussions or negotiations permitted under this
Section 14.

Section 15.       Termination; Effect of Termination.

Section 15.1. Termination. This Agreement may be terminated at any time prior to
the Closing:

(a) By mutual written consent by the Company and the Requisite Noteholders;

(b) By either of the Company or the Purchaser if any court of competent
jurisdiction or other Governmental Body shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the Transactions and such order, decree, ruling or other action
shall have become final and nonappealable; provided however, that the party
terminating this Agreement pursuant to this Section 15.1(b) shall have used all
commercially reasonable efforts to have such order, decree, ruling or action
vacated;

(c) By either of the Company or the Purchaser if the Closing shall not have
occurred on or before March 31, 2002; provided, however, that the right to
terminate this Agreement under this Section 15.1(c) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the primary cause of, or resulted in, the failure of the Closing not occurring
on or before such date;

(d) By the Company if, prior to the Closing, in response to a Superior Proposal,
the Board of Directors of the Company, in exercise of its fiduciary duties,
reasonably determines in good faith, based upon the written advice of
independent outside legal counsel, that the Board of Directors of the Company is
required to do so in order to comply with its fiduciary duties to the Company
Stockholders under applicable law;

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<PAGE>

(e) By the Purchaser or Medtronic, if (i) any of the conditions set forth in
Section 6 shall fail to be satisfied and the Purchaser and Medtronic shall not
have waived such failure or (ii) any of the representations or warranties of the
Company shall at any time on or after the date hereof be untrue in any material
respect (unless such representation or warranty by its terms applies to a
specific date, in which case such representation or warranty shall have been
untrue at such date) or the Company shall at any time on or after the date
hereof breach in any material respect any of its covenants or obligations
hereunder.

(f) By the Company, if (i) any of the conditions set forth in Section 6A shall
fail to be satisfied and the Company shall not have waived such failure or (ii)
any of the representations or warranties of the Purchaser or the Additional Note
Purchasers shall at any time on or after the date hereof be untrue in any
material respect (unless such representation or warranty by its terms applies to
a specific date, in which case such representation or warranty shall have been
untrue at such date) or the Purchaser or any Additional Note Purchaser shall at
any time on or after the date hereof breach in any material respect any of its
covenants or obligations hereunder.

Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 15.1 shall not be available to any
party that (i) is in material breach of its obligations hereunder or (ii) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.

Section 15.2.     Effect of Termination.

(a) In the event of the termination of this Agreement pursuant to Section 15.1
hereof, this Agreement shall forthwith be terminated and have no further effect
except as specifically provided herein and in Sections 13.2, 16.2, 16.7 and
16.15(e) and, except as provided in this Section 15.2, there shall be no
liability on the part of any party hereto, provided that nothing herein shall
relieve any party from liability for any willful breach hereof.

(b) If (i) the Company exercises its right to terminate this Agreement under
Section 15.1(d) or (ii) the Purchaser exercises its right to terminate this
Agreement under Section 15.1(e)(ii) and within six months after such
termination, the Company shall enter into any agreement relating to or
consummate an Acquisition Proposal with a Person other than the Purchaser or any
Additional Note Purchaser, then, the Company shall (A) pay to the Purchaser a
termination fee of $1,000,000, (B) pay to Medtronic a termination fee of
$150,000, and (C) issue to the Purchaser options to purchase Company Common
Stock up to $4,400,000 at an exercise price of $.45 per share payable in
same-day funds, as liquidated damages and not as a penalty to reimburse the
Purchaser for its time, expense and lost opportunity costs of pursuing the
Transaction, upon entering into any agreement relating to such Superior
Proposal.

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<PAGE>

Section 16.       Miscellaneous.

Section 16.1.     Amendment and Waiver.

(a) No amendment or waiver of any provision of this Agreement, the Notes or
(except as otherwise expressly provided therein) any other Note Document, or any
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Requisite
Noteholders, except that any amendment, waiver or consent that materially
affects Medtronic shall not be effective unless the same shall be in writing and
signed by Medtronic in addition to the Requisite Noteholders.

(b) Notwithstanding the provisions of subsection (a) of this Section 16.1,
without the specific prior written consent of the holders of all of the Notes,
no amendment, waiver or consent referred to in such subsection (a) shall:

(i)      extend the time for payment of all or any portion of the principal of
         or interest on, or fees payable with respect to, any of the Notes;
         except that, with the prior written consent of the Requisite
         Noteholders, the time for payment of all or any portion of the
         principal of the Notes may be extended for not more than two
         consecutive periods of not longer than 365 days each, or

(ii)     modify any provision of this Section 16.1(b).

(c) Any such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Neither any failure nor any delay on the
part of the Purchaser or any Additional Note Purchaser in exercising any right,
power or privilege hereunder or under the Notes or any of the other Note
Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. Except as otherwise provided herein or
in the Notes or any other Note Document, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in the same, similar or other circumstances.

Section 16.2. Expenses. The Company agrees, whether or not the transactions
hereby contemplated shall be consummated, to pay and save the Purchaser, each of
its Affiliates and each Additional Note Purchaser, if any, harmless against any
and all liability for the payment of all reasonable out-of-pocket expenses, up
to an aggregate equal to the sum of (a) $500,000 plus (b) the amount of advances
paid to or on behalf of the Company to enable the Company to satisfy certain of
its obligations, arising in connection with the preparation, negotiation,
execution and delivery of this Agreement, the Notes, the other Note Documents
and the other instruments and documents hereby and thereby contemplated and the
closing of the transactions contemplated hereby, all such expenses incurred with
respect to the enforcement of any provision of any such agreement or instrument,
all expenses incurred in connection with the copying and compilation of such
agreements and instruments and all stamp and other similar taxes (together in
each case with interest and penalties, if any, to the extent permitted by
applicable law) which may be payable in respect of the execution and delivery of
such agreement or instruments, all fees, taxes and other charges incurred in
connection with the filing or

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<PAGE>

recording of any Lien, tax and judgment searches, including appraisal, survey
and other title costs, the reasonable fees and disbursements of Brown Raysman
Millstein Felder & Steiner LLP and of any special, local or foreign counsel to
the Purchaser, in connection with the preparation of such agreements and
instruments and the transactions hereby and thereby contemplated, and the fees
and disbursements of the Accountants. The Purchaser agrees that any retainer fee
previously paid by the Company to the Purchaser shall be applied as credit
against the Company's obligations pursuant to this Section 16.2. The Company
also agrees to pay all reasonable expenses incurred by the Purchaser and each
Additional Note Purchaser, if any (including reasonable counsel fees and
disbursements) in connection with any amendment or requested amendment of, or
waiver or consent or requested waiver or consent under or with respect to, this
Agreement, the Notes or any of the other Note Documents, whether or not the same
shall become effective, and all reasonable expenses incurred by the Purchaser
each Additional Note Purchaser, if any (including reasonable counsel fees and
disbursements) following the occurrence and during the continuance of any
Default or Event of Default or incident to the negotiation of any workout,
restructuring or similar arrangement relating to the Company or its
Subsidiaries. The obligations of the Company under this Section 16.2 shall
survive the payment or prepayment in full or transfer of any Note the
enforcement of any provision hereof or thereof, any such amendments, waivers or
consents, any such Default or Event of Default, and any such workout,
restructuring or similar arrangement.

Section 16.3. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by or on behalf of any party
to this Agreement or otherwise in connection herewith, shall (i) survive the
execution and delivery of this Agreement and the delivery of the Notes to the
Purchaser and shall continue in effect, until all of the Obligations have been
indefeasibly paid in full and no Notes are outstanding and the Termination Date
has occurred and thereafter as provided in Sections 13.2, 16.2, 16.7 and
16.15(e), and (ii) be deemed to be material and to have been relied upon by each
Purchaser, regardless of any investigation made by the Purchaser or any
Additional Note Purchaser or on its behalf.

Section 16.4.     Successors and Assigns.

(a) This Agreement shall be binding upon and inure to the benefit of the
Company, the Purchaser, each Additional Note Purchaser, if any, and their
respective successors and assigns; provided, however, that the Company shall not
have the right to assign its rights hereunder or any interest herein or to
delegate any of its duties hereunder without the prior written consent of all
the Requisite Noteholders.

(b) The Requisite Noteholders may at their option and expense and upon written
notice to the Company designate a Person to act as an administrative agent on
their behalf for the purposes of this Agreement, the Notes and the other Note
Documents, and in such connection may direct that any or all notices, and other
documents or information to be sent or given to or by the Purchaser or any
Additional Note Purchaser under this Agreement or the other Note Documents shall
be given to or by such administrative agent on behalf of all Purchaser and each
Additional Note Purchaser, if any, and may further direct that, upon the written
direction of the Requisite Noteholders, such administrative agent may take any
action on behalf of the holders of Notes that the Purchaser or any Additional
Note Purchaser would be entitled to take under the provisions of this Agreement,
the Notes or the other Note Documents. Such Requisite

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<PAGE>

Noteholders may enter into such agency agreement or other instrument as they may
deem necessary or appropriate to carry out the provisions of this subsection
(b).

Section 16.5.     Assignments by Purchaser.

(a) Each the Purchaser and the Additional Note Purchasers may assign to one or
more Persons all or a portion of its rights and obligations under this Agreement
and the Notes.

(b) Upon any assignment of Notes, and the execution and delivery of a form of
instrument of assignment and acceptance, reasonably acceptable to the Company,
by the assigning holder of a Note, the assignee thereof and the Company.

(i)      the assignee thereunder shall be a party hereto and, to the extent that
         rights and obligations hereunder or under any other Note Document have
         been assigned to it pursuant to such instrument of assignment and
         acceptance, shall have the rights and benefits of a older of Notes; and
(ii)     the assignor thereunder shall, to the extent that rights and
         obligations hereunder have been assigned by it pursuant to such
         instrument of assignment and acceptance, relinquish its rights and be
         released from its obligations under this Agreement and under each other
         Note Document (and, in the case of such an instrument of assignment and
         acceptance covering all or the remaining portion of an assigning Note
         holders rights and obligations under this Agreement, such assigning
         holder of a Note shall cease to be a party hereto; provided that the
         obligations of the Company to such assigning holder of a Note under
         Sections 16.2 and 16.7 with respect to events occurring or obligations
         arising before such assignment shall survive such assignment).

Section 16.6. Notices. All notices hereunder shall be in writing and shall be
conclusively deemed to have been received and shall be effective (a) on the day
on which delivered if delivered personally or transmitted by telex or telegram
or telecopier, or (b) one Business Day after the date on which the same is
delivered to a nationally recognized overnight courier service, and shall be
addressed:

(i)      in the case of the Company, to:

                           Horizon Medical Products, Inc.
                           Seven North Parkway Square
                           4200 Northside Parkway
                           Atlanta, Georgia  30327
                           Attention: President
                           Telecopy No.: (404) 233-0171

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<PAGE>

                           with a copy to:

                           King & Spalding
                           191 Peachtree St.
                           Atlanta, Georgia  30303
                           Attention: Jon R. Harris, Jr., Esq.
                           Telecopy No. (404) 572-5100; and

(ii)     in the case of the Purchaser or any Additional Party to:

                           ComVest Venture Partners, L.P.
                           830 Third Avenue
                           New York, NY  10022
                           Attention: Carl G. Kleidman, Esq.
                           Telecopy No.: (212) 829-5839

                           with a copy to:

                           Brown Raysman Millstein Felder & Steiner LLP
                           900 Third Avenue
                           New York, NY 10022
                           Attention:  Stuart Bressman, Esq.
                           Telecopy No.:  (212) 895-2900

(iii)    in the case of Medtronic, to:

                           Medtronic, Inc.
                           710 Medtronic Parkway
                           Minneapolis, MN 55432-5604
                           Attention:  Todd N. Sheldon
                           Telecopy No.: (763) 505-2980

                           with a copy to:

                           Sullivan & Cromwell
                           1701 Pennsylvania Avenue, N.W.
                           Suite 700
                           Washington, D.C. 20006
                           Attention:  Robert Risoleo
                           Telecopy No.: (202) 956-7651

or at such other address and/or telecopy number and/or to the attention of such
other Person as any of such Persons shall have advised the others by notice in
the manner herein specified.

Section 16.7. Indemnification. In consideration of the execution and delivery of
this Agreement (or any joinder agreement with respect thereto, as the case may
be) by the Purchaser and each Additional Note Purchaser, if any, the Company
hereby agrees to defend, indemnify,

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<PAGE>

exonerate and hold harmless the Purchaser, each Additional Note Purchaser, if
any, and any other holder of Notes and any Person designated as an
administrative agent for the holders of Notes pursuant to Section 14.4(b), and
each of their respective officers, directors, stockholders, affiliates,
trustees, employees and agents, and each other Person, if any, controlling any
the Purchaser or any of its Affiliates (herein collectively called the
"Indemnitees") from and against any and all actions, causes of action, suits,
losses, liabilities and damages, and expenses in connection therewith, including
reasonable counsel fees and disbursements incurred in the investigation and
defense of claims and actions (herein collectively called the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result of, or
arising out of or relating to:

(i)      the execution, delivery and performance of the Related Documents and
         the consummation of the BofA Restructuring contemplated thereby or any
         other transaction contemplated by the Related Documents,

(ii)     the execution, delivery, performance or enforcement of this Agreement,
         the Notes, any other Note Document or any instrument or document
         contemplated hereby or thereby by any of the Indemnitees or other
         parties hereto or thereto, or the breach of any representation,
         warranty, covenant or other obligation by the Company or any Subsidiary
         thereof in this Agreement, the Notes, any other Note Document or any
         instrument or document contemplated hereby or thereby, or the
         consummation of the Transactions contemplated hereby or thereby or any
         other transaction contemplated hereby or thereby, or the use of the
         proceeds of the Notes, or

(iii)    any claim, litigation, investigation or proceeding relating to any of
         the foregoing, whether or not any Indemnitee is a party thereto, or any
         act, event or transaction related or attendant to any of the foregoing
         or contemplated thereby, or any action or inaction by any Indemnitee
         under or in connection therewith, or

(iv)     any Environmental Matter, any Environmental Law or the actual or
         alleged existence or release of any Hazardous Material,

except for any such Indemnified Liabilities that are finally judicially
determined to have resulted from the respective Indemnitee's gross negligence,
bad faith or willful misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law and which
takes into account the relative benefit to and fault of the parties and all
other equitable considerations. The obligations of the Company under this
Section 14.7 shall be in addition to any liability that the Company may
otherwise have and shall survive the payment or prepayment in full or transfer
of any Note.

Section 16.8. Specific Performance. Each of the parties to this Agreement
acknowledges and agrees that the Purchaser would be damaged irreparably in the
event any of the provisions of the Company under this Agreement are not
performed in accordance with their specific terms or otherwise breached.
Accordingly, each of the parties hereto agrees that the Purchaser shall be
entitled to enforce specifically this Agreement and the terms and provisions

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<PAGE>

hereof in any competent court having jurisdiction over the parties, in addition
to any other remedy to which it may be entitled, at law or in equity.

Section 16.9. Public Announcements. The Company agrees that neither it nor any
of its Subsidiaries will issue any press release or make any other public
announcement, statement or filing with regard to this Agreement, the Notes or
the other Note Documents or the transactions hereby or thereby contemplated
without the prior approval of the Purchaser, which approval shall not be
unreasonably withheld and shall in no event be withheld in any case where such
press release, public announcement, statement or filing is required by
applicable law (including applicable rules and regulations of the SEC).

Section 16.10. No Fiduciary Relationship. The relationship between the Purchaser
and each Additional Note Purchaser, if any, on the one hand, and the Company and
its Subsidiaries, on the other hand, is solely that of creditor and debtor, and
neither the Purchaser nor any Additional Note Purchaser, shall be deemed to have
any fiduciary or other special relationship with the Company or any of its
Subsidiaries. No provision of this Agreement, the Notes or any of the other Note
Documents shall be construed to create a fiduciary duty on the part of the
Purchaser or any Additional Note Purchaser, any other holder of Notes or any
trustee or agent therefore in favor of the Company, any of its Subsidiaries or
Affiliates, or their respective director, officers, employees, agents,
stockholders or creditors.

Section 16.11. Integration and Severability. This Agreement, the Notes and the
other Note Documents (including the schedules and exhibits thereto) embody the
entire agreement and understanding among the Purchaser, each Additional Note
Purchaser, the Company and its Subsidiaries, and supersede all prior agreements
and understandings relating to the subject matter hereof, including without
limitation, any term sheet or any confidentiality agreement entered between the
Purchaser and the Company. In case any one or more of the provisions contained
in this Agreement, the Notes or any other Note Document, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.

Section 16.12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.

Section 16.13. Further Assurances. Subject to the terms and conditions of this
Agreement, each party hereto will use its commercially reasonable efforts to (i)
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable and not in contravention of applicable
laws to consummate the transactions contemplated by this Agreement and the
Related Agreements to which it is a party as soon as practicable after the date
hereof and (ii) obtain and maintain all approvals, consents, waivers,
registrations, permits, authorizations, clearances and other confirmations
required to be obtained from any third party and/or any Governmental Body that
are necessary, proper or advisable to consummate the transactions contemplated
hereby.

                                       70
<PAGE>

Section 16.14. Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the state of New York.

Section 16.15. Submission to Jurisdiction: Waiver of Service and Venue; Waiver
of Jury Trial.

(a) The Company consents and agrees to the jurisdiction of any state or federal
court sitting in the county of New York, state of New York, and waives any
objection based on venue or forum non conveniens with respect to any action
instituted therein, and agrees that, except with the written consent of the
Requisite Noteholders, any dispute concerning the relationship between the
Purchasers and any Additional Note Purchasers, on the one hand, and the Company,
on the other hand, or the conduct of any party in connection with this Agreement
or otherwise, shall be heard only in the courts described above.

(b) The Company hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by hand delivery to
the Company at its address set forth below. In addition, the Purchaser and each
Additional Note Purchaser, if any, agree to promptly forward by registered mail
any process so served upon said agent to the company at its address set forth
above in Section 14.6. The Company hereby consents to service of process as
aforesaid.

(c) Nothing in this Section 14.14 shall affect the right of the Purchaser or any
Additional Note Purchaser to serve legal process in any other manner permitted
by law or affect the right of the Purchaser or any Additional Note Purchaser to
bring any action or proceeding against the Company or its property in the courts
of any other jurisdiction.

(d) Waiver of Right to Trial by Jury. EACH OF THE COMPANY, THE PURCHASER AND
EACH ADDITIONAL NOTE PURCHASER, IF ANY, HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE. THE COMPANY, THE PURCHASER AND EACH ADDITIONAL NOTE PURCHASER, IF
ANY, HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

(e) Confidentiality. The Purchaser and each of the Additional Note Purchasers,
if any, agrees to keep any information delivered or made available by the
Company

                                       71
<PAGE>

or any of its Subsidiaries pursuant to the Note Documents confidential from
anyone other than persons employed or retained by the Purchaser and any
Additional Note Purchaser who are engaged in evaluating, approving, structuring
or administering the credit facility contemplated hereby, provided that nothing
herein shall prevent the Purchaser or any Additional Note Purchaser from
disclosing such information (a) to any other holder of a Note, (b) to any other
Person if reasonably incidental to the administration of the note facility
contemplated hereby, (c) upon the order of any court or administrative agency,
(d) upon the request or demand of any regulatory agency or authority, (e) which
had been publicly disclosed other than as a result of a disclosure by the
Purchaser or any Additional Note Purchaser prohibited by this Agreement, (f) in
connection with any litigation to which the Purchaser or any Additional Note
Purchaser or any of their respective Affiliates may be a party, (g) to the
extent necessary in connection with the exercise of any remedy under any Note
Document, (h) to legal counsel and independent auditors of Purchaser or any
Additional Note Purchaser, and (i) subject to provisions substantially similar
to those contained in this Section, to any actual or proposed assignee of a
Purchaser or any Additional Note Purchaser.

                  [Remainder of page intentionally left blank]

                                       72
<PAGE>

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

         COMPANY

         HORIZON MEDICAL PRODUCTS, INC.

         By: /s/ William E. Peterson, Jr.
             __________________________________
         Name:   William E. Peterson, Jr.
         Its:    President

         PURCHASER

         COMVEST VENTURE PARTNERS

         By: /s/ Travis L. Provow
             ___________________________________
         Name:   Travis L. Provow
         Its:    President and Managing Director

         ADDITIONAL NOTE PURCHASERS

         MEDTRONIC, INC.

         By: /s/ Michael D. Ellwein
             ________________________________________________
         Name:   Michael D. Ellwein
         Its:    Vice President and Chief Development Officer

<PAGE>
                                    ANNEX 1

<Table>
<Caption>
NO.       NAME                                            AMOUNT
---       ----                                            ------
<S>       <C>                                          <C>
1         Krumwiede, Craig                                40,000
2         RMC Capital                                    800,000
3         Tahoe Partners                                 500,000
4         Reichenbaum, Mark                              300,000
5         SJ Warner Charitable Remainder Trust            45,000
6         Winfield Capital Corporation                   250,000
7         Siam Partners II                               500,000
8         Prince, Scott                                  100,000
9         Priddy, Robert                                 805,000
10        Porter Partners                                200,000
11        Och, Daniel                                    250,000
12        Misher, Joan                                    50,000
13        Levine, Douglas                                100,000
14        Safier, Jacob                                  100,000
15        Highview Ventures LLC                          100,000
16        Harvard Investments                            260,000
17        Harvard Developments                           100,000
18        Fountainhead Holdings, Ltd.                    100,000
19        Flynn Corporation                              250,000
20        Cramer, Gerald                                 100,000
21        Chazen, David                                  100,000
22        Chased Congregation                            200,000
23        Carol Hill Trust                               450,000
24        Ben Joseph Partners                             50,000
25        E&M Real Property Trust                        500,000
26        Dolphin Offshore Partners, LP                  350,000
                                                       ---------
                                                       6,600,000
</Table>
<PAGE>
                                                                      EXHIBIT C

<TABLE>
<CAPTION>
          NOTE                                   APPLICABLE PERIOD                    MAXIMUM CONVERSION AMOUNT DURING
                                                                                              APPLICABLE PERIOD

<S>                                      <C>                                        <C>
Purchaser Senior Subordinated            Closing Date through two year              (i) 1.25% of the Outstanding Balance
Convertible Note                         anniversary of the Closing Date            plus (ii) 0.6% of the amount of
$4,400,000 principal amount plus                                                    principal repaid under the
accrued and unpaid interest thereon                                                 Additional Notes on or prior to
(such principal and interest from                                                   April 16, 2002, in each case
time to time outstanding being the                                                  exercisable at $0.01 per share
"Outstanding Balance")

                                         One year anniversary of the                An additional 0.25% of the
                                         Closing Date through two year              Outstanding Balance
                                         anniversary of the Closing Date

Medtronic Convertible Note               Closing Date through two year              1.5% of $4,000,000 exercisable at
$4,000,000                               anniversary of the Closing Date            $0.01 per share

                                         One year anniversary of Closing Date       An additional 0.3% of $4,000,000
                                         through two year anniversary of            exercisable at $0.01 per share if
                                         Closing Date                               the Purchaser Senior Subordinated
                                                                                    Convertible Note and the Additional
                                                                                    Notes have not been repaid in full.

Additional Notes                         One year anniversary of the Closing        (i) 1.25% of the Additional Notes
Up to $6,600,000 principal amount plus   Date through two year anniversary          Outstanding Balance plus 0.6% of the
accrued and unpaid interest thereon      of the Closing Date                        amount of principal repaid under the
(such principal and interest from time                                              Purchaser Senior Subordinated
to time outstanding being the                                                       Convertible Note on or prior to
"Additional Notes Outstanding                                                       April 16, 2002, in each case
Balance")                                                                           exercisable at $0.01 per share

                                         One year anniversary of the Closing        An additional 0.25% of the
                                         Date through two year anniversary          Additional Notes Outstanding Balance
                                         of the Closing Date
</TABLE>

         The intent of this Exhibit is to provide that the maximum aggregate
number of shares of Company Common Stock, the Medtronic Additional Note, the
Purchaser Senior Subordinated Convertible Note and the Additional Notes (the
"Notes") can be converted into is 27,000,000. If the principal amount of the
Additional Notes, together with interest thereon is paid in full on or before
30 days following the Closing Date, then the maximum aggregate number of shares
of Common Stock the Notes can be converted into is 22,500,000. If the principal
amount of all Notes together with all interest thereon is paid on or before the
date that is the second anniversary of the Closing Date, then the maximum
aggregate number of shares of Common Stock the Notes can be converted into is
19,500,000. If there is any inconsistency between the chart set forth above and
this paragraph, the interpretation of this paragraph shall control.<PAGE>
================================================================================

                                RIGHTS AGREEMENT

                                     between

                                   CREE, INC.

                                       and

                    AMERICAN STOCK TRANSFER & TRUST COMPANY,
                                 as Rights Agent

                            Dated as of May 30, 2002

================================================================================
<PAGE>

                                TABLE OF CONTENTS
<TABLE>

<S>        <C>                                                                                                   <C>
Section 1.  Certain Definitions...................................................................................1
Section 2.  Appointment of Rights Agent...........................................................................5
Section 3.  Issuance of Rights Certificates.......................................................................6
Section 4.  Form of Rights Certificates...........................................................................7
Section 5.  Countersignature and Registration.....................................................................8
Section 6.  Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated,
                  Destroyed, Lost or Stolen Rights Certificates...................................................8
Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.........................................9
Section 8.  Cancellation and Destruction of Rights Certificates..................................................10
Section 9.  Reservation and Availability of Capital Stock; Registration of Securities............................11
Section 10. Capital Stock Record Date............................................................................12
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights..........................12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares...........................................19
Section 13. Consolidation, Merger, or Sale or Transfer of Assets or Earning Power................................19
Section 14. Fractional Rights and Fractional Shares..............................................................22
Section 15. Rights of Action.....................................................................................23
Section 16. Agreement of Rights Holders..........................................................................23
Section 17. Rights Certificate Holder Not Deemed a Shareholder...................................................24
Section 18. Concerning the Rights Agent..........................................................................24
Section 19. Merger or Consolidation or Change of Name of Rights Agent............................................25
Section 20. Duties of Rights Agent...............................................................................25
Section 21. Change of Rights Agent...............................................................................27
Section 22. Issuance of New Rights Certificates..................................................................28
Section 23. Redemption and Termination...........................................................................29
Section 24. Exchange.............................................................................................29
Section 25. Notice of Certain Events.............................................................................30
Section 26. Notices..............................................................................................31
Section 27. Supplements and Amendments...........................................................................32
Section 28. Successors...........................................................................................32
Section 29. Determinations and Actions by the Board of Directors, etc............................................32
Section 30. Benefits of this Agreement...........................................................................33
Section 31. Severability.........................................................................................33
Section 32. Governing Law........................................................................................33
Section 33. Counterparts.........................................................................................33
Section 34. Descriptive Headings.................................................................................33

EXHIBIT A - Articles of Amendment...............................................................................A-1
EXHIBIT B - Form of Rights Certificate..........................................................................B-1
EXHIBIT C - Summary of Rights to Purchase Preferred Stock.......................................................C-1

</TABLE>

                                       i

<PAGE>

                                RIGHTS AGREEMENT

         RIGHTS AGREEMENT, dated as of May 30, 2002 (this "AGREEMENT"), between
CREE, INC., a North Carolina corporation (the "COMPANY"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, a New York State banking corporation (the "RIGHTS
AGENT").

                              W I T N E S S E T H:

         WHEREAS, on May 29, 2002 (the "RIGHTS DIVIDEND DECLARATION DATE"), the
Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as such term is hereinafter defined) for each share
of common stock, $.00125 par value per share of the Company (the "COMMON
STOCK"), outstanding at the Close of Business on June 10, 2002 (the "RECORD
DATE"), and has authorized the issuance of one Right (as such number may be
hereinafter adjusted pursuant to the provisions of Section 11(p) hereof) for
each share of Common Stock of the Company issued between the Record Date and the
Distribution Date (as such term is hereinafter defined) and as otherwise
provided herein, each Right initially representing the right to purchase one
one-thousandth (1/1,000) of a share of Preferred Stock (as such term is
hereinafter defined), upon the terms and subject to the conditions hereinafter
set forth (each a "RIGHT" and collectively the "RIGHTS");

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

         Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:

                  (a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of fifteen percent (15%) or more of the shares of Common Stock then outstanding,
but shall not include (i) the Company, (ii) any Subsidiary (as such term is
hereinafter defined) of the Company, or (iii) any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 15% or more of the Common Stock of
the Company then outstanding; provided, however, that if a Person shall become
the Beneficial Owner of 15% or more of the shares of Common Stock of the Company
then outstanding by reason of such an acquisition by the Company and shall,
after such acquisition, become the Beneficial Owner of any additional shares of
Common Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.

                                       1
<PAGE>

                  (b) "Adjustment Shares" shall have the meaning specified in
Section 11(a)(ii) hereof.

                  (c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.

                  (d) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:

                           (i) which such Person or any of such Person's
                  Affiliates or Associates, directly or indirectly, has the
                  right or obligation to acquire (whether such right is
                  exercisable immediately or only after the passage of time)
                  pursuant to any agreement, arrangement or understanding
                  (whether or not in writing) or upon the exercise of conversion
                  rights, exchange rights, rights, warrants or options, or
                  otherwise; provided, however, that a Person shall not be
                  deemed the "Beneficial Owner" of, or to "beneficially own,"
                  (A) securities tendered pursuant to a tender or exchange offer
                  made by such Person or any of such Person's Affiliates or
                  Associates until such tendered securities are accepted for
                  purchase or exchange, or (B) at any time prior to the
                  occurrence of a Triggering Event, securities issuable upon
                  exercise of the Rights, or (C) from and after the occurrence
                  of a Triggering Event, securities issuable upon exercise of
                  Rights which were acquired by such Person or any of such
                  Person's Affiliates or Associates prior to the Distribution
                  Date or pursuant to Section 3(a) or Section 22 hereof (the
                  "ORIGINAL RIGHTS") or pursuant to Section 11(i) hereof in
                  connection with an adjustment made with respect to any
                  Original Rights;

                           (ii) which such Person or any of such Person's
                  Affiliates or Associates, directly or indirectly, has the
                  right to vote or dispose of or has "beneficial ownership" of
                  (as determined pursuant to Rule 13d-3 of the General Rules and
                  Regulations under the Exchange Act and any successor provision
                  thereof), including pursuant to any agreement, arrangement or
                  understanding, whether or not in writing; provided, however,
                  that a Person shall not be deemed the "Beneficial Owner" of,
                  or to "beneficially own," any security under this subparagraph
                  (ii) as a result of an agreement, arrangement or understanding
                  to vote such security if such agreement, arrangement or
                  understanding: (A) arises solely from a revocable proxy given
                  in response to a public proxy or consent solicitation made
                  pursuant to, and in accordance with, the applicable provisions
                  of the General Rules and Regulations under the Exchange Act,
                  and (B) is not reportable by such Person on Schedule 13D under
                  the Exchange Act (or comparable or successor form or report);
                  or

                           (iii) which are beneficially owned, directly or
                  indirectly, by any other Person (or any Affiliate or Associate
                  thereof) with which such Person (or any of such Person's
                  Affiliates or Associates) has any agreement, arrangement or
                  understanding (whether or not in writing), but excluding
                  customary agreements with and between underwriters and selling
                  group members with respect to a bona fide public offering of
                  securities until the expiration of forty (40) days after the
                  date of such acquisition, for the purpose of acquiring,
                  holding, voting (except pursuant to a revocable proxy as
                  described in the proviso to subparagraph (ii) of this
                  paragraph (d)) or disposing of any voting securities of the
                  Company.

                                       2
<PAGE>

                  (e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of North Carolina are
authorized or obligated by law or executive order to close.

                  (f) "Close of Business" on any given date shall mean 5:00
P.M., North Carolina time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., North Carolina time, on the next
succeeding Business Day.

                  (g) "Closing Price" shall mean for each day the last sale
price or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the securities in
question are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the securities in question are listed or admitted to trading or, if the
securities in question are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the
securities in question are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors of the Company and making a market in the
securities in question. If on any such date no market maker is making a market
in the securities in question, the fair value of such securities on such date as
determined in good faith by the Board of Directors of the Company shall be used.

                  (h) "Common Stock" shall mean the common stock, $.00125 par
value per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock of
such Person with the greatest voting power, or the equity securities or other
equity interest having power to control or direct the management, of such
Person.

                  (i) "common stock equivalents" shall have the meaning
specified in Section 11(a)(iii) hereof.

                  (j) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (ii) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board of
Directors is recommended or approved by a majority of the Continuing Directors.

                  (k) "current market price" shall have the meaning specified in
Section 11(d) hereof.

                                       3
<PAGE>

                  (l) "Current Value" shall have the meaning specified in
Section 11(a)(iii) hereof.

                  (m) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth Business Day after the Stock Acquisition Date
(or, if the tenth Business Day after the Stock Acquisition Date occurs before
the Record Date, the Close of Business on the Record Date), or (ii) the Close of
Business on the tenth Business Day (or such later day as may be determined by
the Company's Board of Directors) after the date of the commencement of, or the
first public announcement of the intent to commence (as determined pursuant to
Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act in
effect on the date of this Agreement), a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan), if upon consummation thereof, such Person would be an
Acquiring Person (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights), in either instance other
than pursuant to a Qualified Offer.

                  (n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.

                  (o) "Expiration Date" shall mean the earliest of (i) the Close
of Business on the tenth anniversary of the Record Date (the "FINAL EXPIRATION
DATE"), (ii) the time at which the Rights are redeemed as provided in Section 23
hereof, or (iii) the time at which the Rights are exchanged pursuant to Section
24 hereof.

                  (p) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, joint venture, association, trust, or
other entity, and shall include any successor (by merger or otherwise) of such
entity.

                  (q) "Preferred Stock" shall mean shares of Series A Preferred
Stock, $.01 par value per share, of the Company having the rights and
preferences set forth in the form of the Articles of Amendment attached to this
Agreement as EXHIBIT A, and to the extent necessary to permit the full exercise
of the then outstanding Rights, any other series of preferred stock of the
Company designated by the Board of Directors of the Company for such purposes
containing terms substantially similar to the Series A Preferred Stock.

                  (r) "Preferred Stock Fraction" shall mean one one-thousandth
(1/1,000) of a share of Preferred Stock.

                  (s) "Principal Party" shall have the meaning specified in
Section 13(b) hereof.

                  (t) "Purchase Price" shall have the meaning specified in
Section 4(a) hereof and Section 7(b) hereof, as modified by Section 11(a)(ii)
and Section 13(a) hereof.

                  (u) "Qualified Offer" shall have the meaning specified in
Section 11(a)(ii) hereof.

                  (v) "Record Date" shall have the meaning specified in the
first Whereas clause hereof.

                                       4
<PAGE>

                  (w) "Redemption Price" shall have the meaning specified in
Section 23(a) hereof.

                  (x) "Rights Certificate" shall have the meaning specified in
Section 3(a) hereof.

                  (y) "Section 11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii) hereof.

                  (z) "Section 11(a)(ii) Trigger Date" shall have the meaning
specified in Section 11(a)(iii).

                  (aa) "Section 13 Event" shall mean any event described in
clause (x), (y) or (z) of Section 13(a) hereof.

                  (bb) "Securities Act" shall have the meaning specified in
Section 9(c) hereof.

                  (cc) "Spread" shall have the meaning specified in Section
11(a)(iii) hereof.

                  (dd) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed or amended pursuant to Section 13(d) under
the Exchange Act) by the Company or an Acquiring Person, that an Acquiring
Person has become such, other than pursuant to a Qualified Offer.

                  (ee) "Subsidiary" shall mean, with reference to any Person,
any corporation or other entity of which securities or other ownership interests
having ordinary voting power, in the absence of contingencies, to elect at least
a majority of the directors or other persons performing similar functions, is
beneficially owned, directly or indirectly, by such Person, or otherwise
controlled by such Person.

                  (ff) "Substitution Period" shall have the meaning specified in
Section 11(a)(iii) hereof.

                  (gg) "Summary of Rights" shall have the meaning specified in
Section 3(b) hereof.

                  (hh) "Trading Day" shall mean a day on which the principal
national securities exchange on which the securities in question are listed or
admitted to trading is open for the transaction of business or, if such
securities are not listed or admitted to trading on any national securities
exchange, a Business Day.

                  (ii) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.

         Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions

                                       5
<PAGE>

hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-rights agents as it may deem necessary or
desirable.

          Section 3. ISSUANCE OF RIGHTS CERTIFICATES. (a) Until the Distribution
Date, (x) the Rights will be evidenced by the certificates for the Common Stock
registered in the names of the holders of the Common Stock (which certificates
for Common Stock shall be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable with and only
with the transfer of the underlying shares of Common Stock (including a transfer
to the Company). As soon as practicable after the Distribution Date, the Rights
Agent will send by first-class, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more rights
certificates, in substantially the form of EXHIBIT B hereto (each a "RIGHTS
CERTIFICATE" and, collectively, the "RIGHTS CERTIFICATES"), evidencing one Right
for each share of Common Stock so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.

         (b) The Company will make available a copy of a Summary of Rights, in
substantially the form attached hereto as EXHIBIT C (the "SUMMARY OF RIGHTS"),
to any holder of Rights who may so request from time to time. With respect to
certificates for the Common Stock outstanding as of the Record Date or issued
subsequent to the Record Date, until the Distribution Date, the Rights will be
evidenced by such certificates for the Common Stock and the registered holders
of the Common Stock shall also be the registered holders of the associated
Rights. Until the earlier of the Distribution Date or the Expiration Date, the
transfer of any certificates representing shares of Common Stock in respect of
which Rights have been issued shall also constitute the transfer of the Rights
associated with such shares of Common Stock.

         (c) Subject to Section 22 hereof, Rights shall be issued in respect of
all shares of Common Stock which are outstanding on the Record Date and which
are issued after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights and shall (as soon as
practicable following the Record Date) bear the following legend:

                  This certificate also evidences and entitles the holder hereof
                  to certain Rights as set forth in the Rights Agreement between
                  Cree, Inc. (the "Company") and American Stock Transfer & Trust
                  Company, dated as of May 30, 2002 (as it may be amended,
                  modified or supplemented from time to time, the "Rights
                  Agreement"), the terms of which are hereby incorporated herein
                  by reference. Under certain circumstances, as set forth in the
                  Rights Agreement, such Rights will be evidenced by separate
                  certificates and will no longer be evidenced by this
                  certificate. The Company will mail to the holder of this
                  certificate a copy of the Rights Agreement, as in effect on

                                       6
<PAGE>

                  the date of mailing, without charge promptly after receipt of
                  a written request therefor. Under certain circumstances set
                  forth in the Rights Agreement, Rights issued to, or held by,
                  any person who is, was or becomes an Acquiring Person or any
                  Affiliate or Associate thereof (as such terms are defined in
                  the Rights Agreement), whether currently held by or on behalf
                  of such person or by any subsequent holder of such Rights,
                  shall become null and void.

With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and the registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.

         Section 4. FORM OF RIGHTS CERTIFICATES. (a) The Rights Certificates
(and the forms of election to purchase and of assignment to be printed on the
reverse thereof) shall each be substantially in the form set forth in EXHIBIT B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date and on
their face shall entitle the holders thereof to purchase such number of
Preferred Stock Fractions as shall be set forth therein at the exercise price
therefor set forth therein (such exercise price per Preferred Stock Fraction,
the "PURCHASE PRICE"), but the amount and type of securities purchasable upon
the exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.

                  (b) Any Rights Certificate issued pursuant to Section 3(a),
Section 11(i) or Section 22 hereof that represents Rights beneficially owned by:
(i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
plan, agreement, arrangement or understanding (whether or not in writing)
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, agreement, arrangement or
understanding (whether or not in writing) which has as a primary purpose or
effect the avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:

                  The Rights represented by this Rights Certificate are or were
                  beneficially owned by a Person who was or became an Acquiring
                  Person or an Affiliate or Associate of an Acquiring Person (as
                  such terms are defined in the Rights Agreement). Accordingly,
                  this Rights Certificate and the Rights represented hereby
                  shall become null and void in the circumstances specified in
                  Section 7(e) of the Rights Agreement.

                                       7
<PAGE>

The provisions of Section 7(e) of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Rights Certificates.

         Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Rights
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof, and shall be attested by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company.
The Rights Certificates shall be countersigned by the Rights Agent, either
manually or by facsimile signature, and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before counter-signature by the Rights Agent and issuance and delivery
by the Company, such Rights Certificates, nevertheless, may be countersigned by
the Rights Agent, and issued and delivered by the Company with the same force
and effect as though the person who signed such Rights Certificates had not
ceased to be such officer of the Company; and any Rights Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of the Company
to sign such Rights Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.

                  (b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices designated as the
appropriate place for the surrender of the Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the certificate number of each of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.

         Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate or
Certificates (other than Rights Certificates representing Rights that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of Preferred Stock Fractions (or,
following a Triggering Event, Common Stock, other securities, cash or other
assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitles such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer, split up, combination or
exchange of any such surrendered Rights Certificate until the registered holder
thereof shall have completed and signed the form of assignment and related
certificate set forth on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company

                                       8
<PAGE>

shall reasonably request. Thereupon, the Rights Agent shall, subject to Section
4(b), Section 7(e), Section 14 and Section 24 hereof, countersign and deliver to
the Person entitled thereto a Rights Certificate or Rights Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.

                  (b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.

         Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
related certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price for the total
number of the Preferred Stock Fractions (or other securities, cash or other
assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the Expiration Date.

                  (b) The Purchase Price for each Preferred Stock Fraction
pursuant to the exercise of a Right shall initially be One Hundred Ten Dollars
($110.00), and shall be subject to adjustment from time to time as provided in
Section 11(a)(ii) and Section 13(a) hereof and shall be payable in lawful money
of the United States of America in accordance with paragraph (c) below.

                  (c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
contained therein duly executed, accompanied by payment with respect to each
Right so exercised, of the Purchase Price per Preferred Stock Fraction (or other
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of Preferred Stock Fractions to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or
(B) if the Company shall have elected to deposit the total number of shares of
Preferred Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent depositary receipts representing
such number of Preferred Stock Fractions as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of

                                       9
<PAGE>

such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder and (iv) after receipt
thereof, deliver such cash, if any, to or upon the order of the registered
holder of such Rights Certificate. The payment of the Purchase Price (as such
amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in
cash or by certified bank check or bank draft payable to the order of the
Company. In the event that the Company is obligated to issue other securities
(including Common Stock) of the Company, pay cash and/or distribute other
property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require, prior to the occurrence of a Triggering
Event, that upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.

                  (d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.

                  (e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by: (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any plan, agreement, arrangement or understanding
(whether or not in writing) regarding the transferred Rights or (B) a transfer
which a majority of the Continuing Directors of the Company has determined is
part of any plan, agreement, arrangement or understanding (whether or not in
writing) which has as a primary purpose or effect the avoidance of this Section
7(e), shall become null and void without any further action and no holder of
such Rights shall thereupon have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise from and
after such occurrence. The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) and Section 4(b) hereof are complied
with, but shall have no liability to any holder of Rights Certificates or any
other Person as a result of its failure to make any determinations with respect
to an Acquiring Person or its Affiliates, Associates or transferees hereunder.

                  (f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.

         Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,

                                       10
<PAGE>

or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company,
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.

         Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK; REGISTRATION
OF SECURITIES. (a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities) the
number of shares of Preferred Stock (and, following the occurrence of a
Triggering Event, Common Stock and/or other securities) that, as provided in
this Agreement, will be sufficient to permit the exercise in full of all
outstanding Rights.

                  (b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange or national securities association, the Company
shall use its best efforts to cause, from and after such time as the Rights
become exercisable, all shares reserved for such issuance to be listed on such
national securities exchange or association upon official notice of issuance
upon such exercise; provided, however, that the Company shall have no obligation
hereunder to list the shares of Preferred Stock on any national securities
exchange or association.

                  (c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof), or, if required by law, the Distribution Date, a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with respect to the securities purchasable upon exercise of
the Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities, and
(B) the Expiration Date. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various States in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the

                                       11
<PAGE>

contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction has not been obtained, the exercise
thereof is not permitted under applicable law or a registration statement has
not been declared effective.

                  (d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Stock Fractions
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) delivered upon exercise of the Rights shall, at the time of delivery
of the certificates for such shares (subject to payment of the Purchase Price),
be duly and validly authorized and issued and fully paid and nonassessable.

                  (e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of Preferred Stock Fractions
(or Common Stock and/or other securities, as the case may be) upon the exercise
of Rights. The Company shall not, however, be required to pay any transfer tax
which may be payable in respect of any transfer or delivery of Rights
Certificates to a Person other than, or the issuance or delivery of a number of
Preferred Stock Fractions (or Common Stock and/or other securities, as the case
may be) in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for transfer or exercise, or
to issue or deliver any certificates for a number of Preferred Stock Fractions
(or Common Stock and/or other securities, as the case may be) in a name other
than that of the registered holder upon the exercise of any Rights until such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.

         Section 10. CAPITAL STOCK RECORD DATE. Each Person in whose name any
certificate for a number of Preferred Stock Fractions (or Common Stock and/or
other securities, as the case may be) is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of such
Preferred Stock Fractions (or Common Stock and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and all applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Stock Fraction (or Common Stock and/or other securities, as
the case may be) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
Fraction (or Common Stock and/or other securities, as the case may be) transfer
books of the Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Rights Certificate shall not be entitled to any rights
of a shareholder of the Company with respect to shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.

         Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right, and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

                           (a) (i) In the event the Company shall at any time
                  after the date of this Agreement (A) declare a dividend on the
                  Preferred Stock payable in shares of Preferred Stock, (B)
                  subdivide the outstanding Preferred Stock, (C) combine the

                                       12
<PAGE>

                  outstanding Preferred Stock into a smaller number of shares,
                  or (D) issue any shares of its capital stock in a
                  reclassification of the Preferred Stock (including any such
                  reclassification in connection with a consolidation or merger
                  in which the Company is the continuing or surviving
                  corporation), except as otherwise provided in this Section
                  11(a) and Section 7(e) hereof, the Purchase Price in effect at
                  the time of the record date for such dividend or of the
                  effective date of such subdivision, combination or
                  reclassification, and the number and kind of shares of
                  Preferred Stock or capital stock, as the case may be, issuable
                  on such date, shall be proportionately adjusted so that the
                  holder of any Right exercised after such time shall be
                  entitled to receive, upon payment of the Purchase Price then
                  in effect, the aggregate number and kind of shares of
                  Preferred Stock or capital stock, as the case may be, which,
                  if such Right had been exercised immediately prior to such
                  date and at a time when the Preferred Stock transfer books of
                  the Company were open, such holder would have owned upon such
                  exercise and been entitled to receive by virtue of such
                  dividend, subdivision, combination or reclassification. If an
                  event occurs which would require an adjustment under both this
                  Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment
                  provided for in this Section 11(a)(i) shall be in addition to,
                  and shall be made prior to, any adjustment required pursuant
                  to Section 11(a)(ii) hereof.

                           (ii) Subject to Section 24 of this Agreement, in the
                  event any Person shall become an Acquiring Person (unless the
                  event causing such Person to become an Acquiring Person is a
                  transaction set forth in Section 13(a) hereof, or is an
                  acquisition of shares of Common Stock pursuant to a tender
                  offer or an exchange offer for all outstanding shares of
                  Common Stock at a price and on terms determined by at least a
                  majority of the members of the Board of Directors, who are not
                  officers of the Company and who are not representatives,
                  nominees, Affiliates or Associates of an Acquiring Person,
                  after receiving advice from one or more investment banking
                  firms, to be (a) at a price which is fair and adequate to
                  shareholders (taking into account all factors which such
                  members of the Board of Directors of the Company deem relevant
                  including, without limitation, the long-term prospects and
                  value of the Company and prices which could reasonably be
                  achieved if the Company or its assets were sold on an orderly
                  basis designed to realize maximum value) and (b) otherwise in
                  the best interests (including the possibility that these
                  interests may best be served by the continued independence of
                  the Company) of the Company and its shareholders (a "QUALIFIED
                  OFFER")), then, from and after the latest of the Share
                  Acquisition Date and the Distribution Date, proper provision
                  shall be made so that each holder of a Right (except as
                  provided below and in Section 7(e) hereof) shall thereafter
                  have the right to receive, upon exercise thereof at the then
                  current Purchase Price in accordance with the terms of this
                  Agreement, in lieu of a number of Preferred Stock Fractions,
                  such number of shares of Common Stock of the Company as shall
                  equal the result obtained by (x) multiplying the then current
                  Purchase Price by the then number of Preferred Stock Fractions
                  for which a Right was exercisable immediately prior to the
                  first occurrence of a Section 11(a)(ii) Event, and (y)
                  dividing that product (which, following such first occurrence,
                  shall thereafter be referred to as the "PURCHASE PRICE" for
                  each Right and for all purposes of this Agreement) by fifty

                                       13
<PAGE>

                  percent (50%) of the current market price (determined pursuant
                  to Section 11(d) hereof) per share of Common Stock on the date
                  of such first occurrence (such number of shares being referred
                  to herein as the "ADJUSTMENT SHARES").

                           (iii) In the event that the number of shares of
                  Common Stock which is authorized by the Company's articles of
                  incorporation but not outstanding or reserved for issuance for
                  purposes other than upon exercise of the Rights is not
                  sufficient to permit the exercise in full of the Rights in
                  accordance with the foregoing subparagraph (ii) of this
                  Section 11(a), the Company shall: (A) determine the excess of
                  (1) the value of the Adjustment Shares issuable upon the
                  exercise of a Right (the "CURRENT VALUE") over (2) the
                  Purchase Price (such excess, the "SPREAD"), and (B) with
                  respect to each Right, make adequate provision to substitute
                  for the Adjustment Shares, upon payment of the applicable
                  Purchase Price, (1) cash, (2) a reduction in the Purchase
                  Price, (3) Common Stock or other equity securities of the
                  Company (including, without limitation, shares, or units of
                  shares, of preferred stock), which the Board of Directors of
                  the Company has deemed to have essentially the same value or
                  economic rights as shares of Common Stock (such shares,
                  "COMMON STOCK EQUIVALENTS"), (4) debt securities of the
                  Company, (5) other assets or (6) any combination of the
                  foregoing, having an aggregate value equal to the Current
                  Value (less the amount of any reduction to the Purchase
                  Price), where such aggregate value has been determined by the
                  Board of Directors of the Company based upon the advice of a
                  nationally recognized investment banking firm selected by the
                  Board of Directors of the Company; provided, however, that if
                  the Company shall not have made adequate provision to deliver
                  value pursuant to clause (B) above within thirty (30) days
                  following the first occurrence of a Section 11(a)(ii) Event
                  (the "SECTION 11(A)(II) TRIGGER DATE"), then the Company shall
                  be obligated to deliver, upon the surrender for exercise of a
                  Right and without requiring payment of the Purchase Price,
                  shares of Common Stock (to the extent available) and then, if
                  necessary, cash, which shares and/or cash have an aggregate
                  value equal to the Spread. If the Board of Directors of the
                  Company shall determine in good faith that it is likely that
                  sufficient additional shares of Common Stock could be
                  authorized for issuance upon exercise in full of the Rights,
                  the thirty (30) day period set forth above may be extended to
                  the extent necessary, but not more than ninety (90) days after
                  the Section 11(a)(ii) Trigger Date, in order that the Company
                  may seek shareholder approval for the authorization of such
                  additional shares (such thirty (30) day period, as it may be
                  extended, being referred to herein as the "SUBSTITUTION
                  PERIOD"). To the extent that the Company determines that some
                  action is to be taken pursuant to the first and/or second
                  sentences of this Section 11(a)(iii), the Company (x) shall
                  provide, subject to Section 7(e) hereof, that such action
                  shall apply uniformly to all outstanding Rights and (y) may
                  suspend the exercisability of the Rights until the expiration
                  of the Substitution Period in order to seek shareholder
                  approval for such authorization of additional shares and/or to
                  decide the appropriate form of distribution to be made
                  pursuant to such first sentence and to determine the value
                  thereof. In the event of any such suspension, the Company
                  shall issue a public announcement stating that the
                  exercisability of the Rights has been temporarily suspended,

                                       14
<PAGE>

                  as well as a public announcement at such time as the
                  suspension is no longer in effect. For purposes of this
                  Section 11(a)(iii), the value of each Adjustment Share shall
                  be the current market price (as determined pursuant to Section
                  11(d) hereof) per share of Common Stock on the Section
                  11(a)(ii) Trigger Date and the per share or per unit value of
                  any "common stock equivalent" shall be deemed to equal the
                  current market price per share of the Common Stock on such
                  date.

                  (b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("EQUIVALENT PREFERRED STOCK")), or securities convertible into Preferred
Stock or equivalent preferred stock, at a price per share of Preferred Stock or
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock so to be
offered for subscription or purchase (or into which the convertible securities
to be offered are initially convertible). In case such subscription price may be
paid by delivery of consideration, part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights. Shares of Preferred Stock owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

                  (c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as determined pursuant to Section 11(d) hereof) per share of Preferred
Stock on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock, and
the denominator of which shall be such current market price (as determined

                                       15
<PAGE>

pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.

                  (d)(i) For the purpose of any computation hereunder, other
                  than computations made pursuant to Section 11(a)(iii) hereof,
                  the "CURRENT MARKET PRICE" per share of Common Stock on any
                  date shall be deemed to be the average of the daily Closing
                  Prices per share of such Common Stock for the thirty (30)
                  consecutive Trading Days immediately prior to such date, and
                  for purposes of computations made pursuant to Section
                  11(a)(iii) hereof, the "CURRENT MARKET PRICE" per share of
                  Common Stock on any date shall be deemed to be the average of
                  the daily Closing Prices per share of such Common Stock for
                  the ten (10) consecutive Trading Days immediately following
                  such date; provided, however, that in the event that the
                  current market price per share of the Common Stock is
                  determined during a period following the announcement by the
                  issuer of such Common Stock of (A) a dividend or distribution
                  on such Common Stock payable in shares of such Common Stock or
                  securities convertible into shares of Common Stock (other than
                  the Rights), or (B) any subdivision, combination or
                  reclassification of such Common Stock, and prior to the
                  expiration of the requisite thirty (30) Trading Day or ten
                  (10) Trading Day period, as set forth above, after the
                  ex-dividend date for such dividend or distribution, or the
                  record date for such subdivision, combination or
                  reclassification, then, and in each such case, the "current
                  market price" shall be properly adjusted to take into account
                  ex-dividend trading.

                           (ii) For the purpose of any computation hereunder,
                  the "CURRENT MARKET PRICE" per share of Preferred Stock shall
                  be determined hereof the same manner as set forth above for
                  the Common Stock in Section 11(d)(i) hereof. If the current
                  market price per share of Preferred Stock cannot be determined
                  in the manner provided above or if the Preferred Stock is not
                  publicly held or listed or traded in a manner described in
                  Section 1(g) hereof, the "CURRENT MARKET PRICE" per share of
                  Preferred Stock shall be conclusively deemed to be an amount
                  equal to one thousand (1,000) (as such number may be
                  appropriately adjusted for such events as stock splits, stock
                  dividends and recapitalizations with respect to the Common
                  Stock occurring after the date of this Agreement) multiplied
                  by the current market price per share of Common Stock. If
                  neither the Common Stock nor the Preferred Stock is publicly
                  held or so listed or traded, "CURRENT MARKET PRICE" per share
                  shall mean the fair value per share as determined in good
                  faith by the Board of Directors of the Company, whose
                  determination shall be described in a statement filed with the
                  Rights Agent and shall be conclusive for all purposes. For all
                  purposes of this Agreement, the "CURRENT MARKET PRICE" of a
                  Preferred Stock Fraction shall be equal to the "CURRENT MARKET
                  PRICE" of one share of Preferred Stock divided by one thousand
                  (1,000).

                  (e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten-thousandth of a
share of Common Stock or other share or one one-millionth of a share of

                                       16
<PAGE>

Preferred Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment or (ii) the Expiration Date.

                  (f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares; provided, however,
that the Company shall not be liable for its inability to reserve and keep
available for issuance upon exercise of the Rights pursuant to Section 11(a)(ii)
a number of shares of Common Stock greater than the number then authorized by
the articles of incorporation of the Company but not outstanding or reserved for
other purposes.

                  (g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Preferred Stock
Fractions purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.

                  (h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Preferred Stock Fractions (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of Preferred Stock Fractions covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.

                  (i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of Preferred Stock Fractions purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of Preferred Stock
Fractions for which a Right was exercisable immediately prior to such
adjustment, at the adjusted Purchase Price. Each Right held of record prior to
such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10) days later than
the date of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of

                                       17
<PAGE>

record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates to be so
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.

                  (j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Stock Fractions issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per Preferred Stock Fraction and the
number of Preferred Stock Fractions which were expressed in the initial Rights
Certificates issued hereunder.

                  (k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, attributable to
the number of Preferred Stock Fractions issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such a number of Preferred Stock Fractions at such
adjusted Purchase Price.

                  (l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, the issuance to the holder of any Right exercised after such record date
the number of Preferred Stock Fractions and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the number of
Preferred Stock Fractions and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares or securities upon the occurrence of the
event requiring such adjustment.

                  (m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that the Board of Directors of the Company, in
its good faith judgment, shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of shares of Preferred Stock at less than the current market price, (iii)
issuance wholly for cash of any shares of Preferred Stock or securities which by
their terms are convertible into or exchangeable for shares of Preferred Stock,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred
Stock shall not be taxable to such shareholders.

                  (n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than with a Subsidiary of the Company in a transaction which does not violate
the provisions of Section 11(o) hereof), (ii) merge with or into any other
Person (other than with a Subsidiary of the Company in a transaction which does
not violate the provisions of Section 11(o) hereof) or engage in a share

                                       18
<PAGE>

exchange with any other Person or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction or a series of related
transactions, assets, earning power or cash flow aggregating more than fifty
percent (50%) of the assets, earning power or cash flow of the Company and its
Subsidiaries (taken as a whole) to, any other Person or Persons (other than to
the Company and/or any of its Subsidiaries in one or more transactions each of
which does not violate the provisions of Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger, share exchange or sale,
there are any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger, share
exchange or sale, the shareholders of the Person who constitutes, or would
constitute, the "Principal Party" for purposes of Section 13(a) hereof shall
have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates.

                  (o) The Company covenants and agrees that, after the earlier
of the Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or otherwise eliminate
the benefits intended to be afforded by the Rights.

                  (p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, the
number of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event, and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.

         Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) if a
Distribution Date has occurred, mail a brief summary thereof to each holder of a
Rights Certificate in accordance with Section 26 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained and shall not be obligated or responsible for calculating any
adjustment nor shall it be deemed to have knowledge of any such adjustment
unless and until it shall have received such a certificate.

         Section 13. CONSOLIDATION, MERGER, SHARE EXCHANGE, SALE OR TRANSFER OF
ASSETS, EARNING POWER OR CASH FLOW. (a) In the event that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) hereof), and the
Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company

                                       19
<PAGE>

in a transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, or the Company shall engage in a share
exchange with any Person, and the Company shall be the continuing or surviving
corporation of such consolidation, merger or share exchange and, in connection
with such consolidation, merger or share exchange, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other Person or cash or any other property, or (z)
the Company shall sell, or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets, earning power or cash flow aggregating more
than fifty percent (50%) of the assets, earning power or cash flow of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary of the Company in one or more transactions
each of which complies with Section 11(o) hereof), then, and in each such case
(except as may be contemplated by Section 13(d) hereof), proper provision shall
be made so that:

                           (i) each holder of a Right (other than Rights that
                  theretofore became null and void pursuant to Section 7(e)
                  hereof) shall thereafter have the right to receive, upon the
                  exercise thereof at the then current Purchase Price in
                  accordance with the terms of this Agreement (or, if any
                  Section 11(a)(ii) Event has occurred prior to the first
                  occurrence of a Section 13 Event, at the Purchase Price in
                  effect immediately prior to the first occurrence of a Section
                  11(a)(ii) Event), such number of validly authorized and
                  issued, fully paid, nonassessable and freely tradeable shares
                  of Common Stock of the Principal Party (as such term is
                  hereinafter defined), free and clear of any liens,
                  encumbrances, rights of first refusal or other adverse claims,
                  as shall be equal to the result obtained by (1) multiplying
                  the then current Purchase Price by the number of Preferred
                  Stock Fractions for which a Right is exercisable immediately
                  prior to the first occurrence of a Section 13 Event (or, if a
                  Section 11(a)(ii) Event has occurred prior to the first
                  occurrence of a Section 13 Event, multiplying the number of
                  Preferred Stock Fractions for which a Right was exercisable
                  immediately prior to the first occurrence of a Section
                  11(a)(ii) Event by the Purchase Price in effect immediately
                  prior to such first occurrence), and (2) dividing that product
                  (which, following the first occurrence of a Section 13 Event,
                  shall be referred to as the "Purchase Price" for each Right
                  and for all purposes of this Agreement) by fifty percent (50%)
                  of the current market price (determined pursuant to Section
                  11(d)(i) hereof) per share of the Common Stock of such
                  Principal Party on the date of consummation of such Section 13
                  Event;

                           (ii) such Principal Party shall thereafter be liable
                  for, and shall assume, by virtue of such Section 13 Event, all
                  the obligations and duties of the Company pursuant to this
                  Agreement;

                           (iii) the term "COMPANY" shall thereafter be deemed
                  to refer to such Principal Party, it being specifically
                  intended that the provisions of Section 11 hereof shall apply
                  only to such Principal Party following the first occurrence of
                  a Section 13 Event;

                           (iv) such Principal Party shall take such steps
                  (including, but not limited to, the reservation of a
                  sufficient number of shares of its Common Stock) in connection
                  with the consummation of any such transaction as may be

                                       20
<PAGE>

                  necessary to assure that the provisions hereof shall
                  thereafter be applicable, as nearly as reasonably may be, in
                  relation to its shares of Common Stock thereafter deliverable
                  upon the exercise of the Rights; and

                           (v) the provisions of Section 11(a)(ii) hereof shall
                  be of no effect following the first occurrence of any Section
                  13 Event.

                  (b) "PRINCIPAL PARTY" shall mean:

                           (i) in the case of any transaction described in
                  clause (x) or (y) of the first sentence of Section 13(a)
                  hereof, the Person that is the issuer of any securities into
                  which shares of Common Stock of the Company are converted in
                  such merger or consolidation, or for which such shares of
                  Common Stock of the Company are exchanged in such share
                  exchange, and if no securities are so issued, the Person that
                  is the other party to such merger or consolidation; and

                           (ii) in the case of any transaction described in
                  clause (z) of the first sentence of Section 13(a) hereof, the
                  Person that is the party receiving the greatest portion of the
                  assets, earning power or cash flow transferred pursuant to
                  such transaction or transactions;

provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time, and has not been continuously over the preceding twelve
(12) month period, registered under Section 12 of the Exchange Act, and such
Person is a direct or indirect Subsidiary of another Person the Common Stock of
which is and has been so registered, "Principal Party" shall refer to such other
Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock of two or more of which are and have been
so registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.

                  (c) The Company shall not consummate any such consolidation,
merger, share exchange, sale or transfer unless the Principal Party shall have
sufficient authorized and unissued shares of Common Stock not reserved for other
purposes to permit the full exercise of the Rights in accordance with this
Section 13, and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, share exchange, sale or transfer of assets mentioned in
paragraph (a) of this Section 13, the Principal Party at its own expense will:

                           (i) prepare and file a registration statement under
                  the Securities Act, with respect to the Rights and the
                  securities purchasable upon exercise of the Rights on an
                  appropriate form, and will use its best efforts to cause such
                  registration statement to (A) become effective as soon as
                  practicable after such filing and (B) remain effective (with a
                  prospectus at all times meeting the requirements of the
                  Securities Act) until the Expiration Date;

                           (ii) take all such other action as may be necessary
                  to enable the Principal Party to issue the securities
                  purchasable upon exercise of the Rights, including but not
                  limited to the registration or qualification of such

                                       21
<PAGE>

                  securities under all requisite securities laws of
                  jurisdictions of the various states and the listing of such
                  securities on such exchanges and trading markets as may be
                  necessary or appropriate and the securing of any regulatory
                  approvals which may be required; and

                           (iii) deliver to holders of the Rights historical
                  financial statements for the Principal Party and each of its
                  Affiliates which comply in all respects with the requirements
                  for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers,
consolidations or share exchanges or sales or other transfers. In the event that
a Section 13 Event shall occur at any time after the occurrence of a Section
11(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a) hereof.

                  (d) Notwithstanding anything in this Agreement to the
contrary, this Section 13 shall not be applicable to a transaction described in
clauses (x) and (y) of the first sentence of Section 13(a) hereof if (i) such
transaction is consummated with a Person or Persons who acquired shares of
Common Stock pursuant to a tender offer or exchange offer for all outstanding
shares of Common Stock which is a Qualified Offer as such term is defined in
Section 11(a)(ii) hereof (or a wholly-owned Subsidiary of any such Person or
Persons), (ii) the price per share of Common Stock offered in such transaction
is not less than the price per share of Common Stock paid to all holders of
shares of Common Stock whose shares were purchased pursuant to such tender offer
or exchange offer, and (iii) the form of consideration being offered to the
remaining holders of shares of Common Stock pursuant to such transaction is the
same as the form of consideration paid pursuant to such tender offer or exchange
offer. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.

         Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p) hereof, or to distribute Rights
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For purposes of this Section 14(a), the current market value of a whole
Right shall be the Closing Price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The Closing Price of the Rights for any day shall be the last sale
price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Rights are
listed or admitted to trading, or if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by Nasdaq or such other system then in use or, if on any
such date the Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making

                                       22
<PAGE>

a market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.

                  (b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than integral multiples of Preferred Stock
Fractions) upon exercise of the Rights or to distribute certificates which
evidence fractional shares of Preferred Stock (other than integral multiples of
Preferred Stock Fractions). In lieu of fractional shares of Preferred Stock that
are not Preferred Stock Fractions or integral multiples thereof, the Company may
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market price of a share of Preferred Stock. For purposes of this Section
14(b), the current market price of one share of Preferred Stock shall be the
Closing Price of a share of Preferred Stock (as determined pursuant to Section
11(d)(ii) hereof) for the Trading Day immediately prior to the date of such
exercise.

                  (c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market price of one share of Common Stock. For purposes
of this Section 14(c), the current market price of one share of Common Stock
shall be the Closing Price of a share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.

                  (d) The holder of a Right, by the acceptance of such Right,
expressly waives such holder's right to receive any fractional Rights or any
fractional shares (other than, in the case of Preferred Stock, integral
multiples of Preferred Stock Fractions) upon exercise of a Right, except as
permitted by this Section 14.

         Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in such holder's own behalf and
for such holder's benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Rights
Certificate (or, prior to the Distribution Date, certificates for Common Stock)
in the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.

         Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:

                                       23
<PAGE>

                  (a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;

                  (b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed;

                  (c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and

                  (d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.

         Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Preferred
Stock Fractions or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights evidenced by either a certificate for Common Stock or by
any Rights Certificate, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, as the case may be, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such certificate for Common Stock or Rights Certificate, as
the case may be, shall have been exercised in accordance with the provisions
hereof.

         Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in
the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent, its directors, officers, employees and agents for, and to hold
each of them harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights

                                       24
<PAGE>

Agent, for anything done or omitted by the Rights Agent or such other
indemnified party in connection with the acceptance and administration of this
Agreement or the performance of the Rights Agent's duties hereunder, including
the costs and expenses of defending against any claim of liability in the
premises.

                  (b) The Rights Agent shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement or the performance of the Rights Agent's duties
hereunder in reliance upon any Rights Certificate or certificate for Common
Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document reasonably believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.

                  (c) The indemnity provided in this Section 18 shall survive
the expiration of the Rights and the termination of this Agreement.

         Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party or any corporation succeeding to the corporate
trust or stock transfer business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.

                  (b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.

         Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:

                  (a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as

                                       25
<PAGE>

to any action taken or omitted by it in good faith and in accordance with such
advice or opinion.

                  (b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
any Affiliate or Associate thereof and the determination of "current market
price") be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

                  (c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.

                  (d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.

                  (e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution and delivery hereof by the Rights Agent) or in respect
of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11, Section 13 or Section 24 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares
of Common Stock or Preferred Stock will, when so issued, be validly authorized
and issued, fully paid and nonassessable.

                  (f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.

                  (g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions of any such officer or for any delay in acting

                                       26
<PAGE>

while awaiting instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Agreement and the date on or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which shall not be less than five Business Days after the date any
officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.

                  (h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

                  (i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, the Rights Agent was not
grossly negligent in the selection and continued employment thereof.

                  (j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.

                  (k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, split up, combination or exchange,
the certificate attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or indicates an
affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not
take any further action with respect to such requested exercise or transfer
without first consulting with the Company.

                  (l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.

         Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint

                                       27
<PAGE>

a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit such holder's Rights
Certificate for inspection by the Company), then any registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (a) a corporation or other legal
business entity organized, doing business and in good standing under the laws of
the United States or of the State of North Carolina (or of any other state of
the United States so long as such corporation is authorized to do business in
the State of North Carolina), having a principal office in such state, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate of any such corporation or
other legal business entity described in clause (a) above. After appointment,
the successor Rights Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates
or, if prior to the Distribution Date, to the registered holders of shares of
Common Stock. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

         Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights Certificates to the contrary,
the Company may, at its option, issue new Rights Certificates evidencing Rights
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Rights Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock following the
Distribution Date and prior to the redemption or expiration of the Rights, the
Company (a) shall, with respect to shares of Common Stock so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities issued by the Company hereafter
but prior to the Distribution Date, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.

                                       28
<PAGE>

         Section 23. REDEMPTION AND TERMINATION. (a) Subject to Section 27
hereof, the Board of Directors of the Company may, at its option, at any time
prior to the Close of Business on the later of the Distribution Date and the
Share Acquisition Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.001 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "REDEMPTION PRICE"); provided, however, that in
the event of a change, resulting from a proxy or consent solicitation, in a
majority of the directors in office at the commencement of such solicitation,
until the later to occur of (x) one hundred eighty (180) days following the
effectiveness of such change or (y) the next regular annual meeting of
shareholders of the Company following the effectiveness of such change, the
Rights shall not be redeemed unless there are Continuing Directors then in
office and a majority of such Continuing Directors concur with such redemption;
provided, further, however, that if the Board of Directors of the Company
authorizes redemption of the Rights on or after the time a Person becomes an
Acquiring Person, then there must be Continuing Directors then in office and
such authorization shall require the concurrence of a majority of such
Continuing Directors. The Company may, at its option, pay the Redemption Price
in cash, shares of Common Stock (based on the "current market price," as defined
in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or
any other form of consideration, or any combination of any of the foregoing,
deemed appropriate by the Board of Directors of the Company.

                  (b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.

         Section 24. EXCHANGE. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section 7(e)
hereof) for Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Stock for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of fifty percent (50%) or more of the Common Stock then
outstanding.

                  (b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right

                                       29
<PAGE>

to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Company. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.

                  (c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Stock (or equivalent preferred stock, as
such term is defined in paragraph (b) of Section 11 hereof) for Common Stock
exchangeable for Rights, at the initial rate of one one-thousandth of a share of
Preferred Stock (or equivalent preferred stock) for each share of Common Stock,
as appropriately adjusted to reflect stock splits, stock dividends or other
similar transactions effected after the date hereof.

                  (d) In the event that there shall not be sufficient Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.

                  (e) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Right Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this subsection (e), the current
market value of a whole share of Common Stock shall be the Closing Price of a
share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.

         Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in shares of any class of stock to the holders of Preferred Stock or to
make any other distribution to the holders of Preferred Stock (other than a
regular quarterly cash dividend out of earnings or retained earnings of the
Company), or (ii) to offer to the holders of Preferred Stock rights or warrants
to subscribe for or to purchase any additional shares of Preferred Stock or
shares of stock of any class or any other securities, rights or options, or
(iii) to effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision of outstanding shares of
Preferred Stock), or (iv) to effect any consolidation, merger or share exchange

                                       30
<PAGE>

into or with any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof) or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one transaction or a series of related transactions, of
more than fifty percent (50%) of the assets, earning power or cash flow of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), or (v) to effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible, and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, share exchange, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock,
whichever shall be the earlier.

                  (b) In case any Section 11(a)(ii) Event shall occur, then, in
any such case, (i) the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, to the extent feasible, and in accordance
with Section 26 hereof, a notice of the occurrence of such event which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.

         Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificates
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:

                           Cree, Inc.
                           4600 Silicon Drive
                           Durham, North Carolina 27703
                           Attention:  General Counsel

                           With a copy to:
                           Smith, Anderson, Blount, Dorsett, Mitchell &
                              Jernigan, L.L.P.
                           2500 First Union Capitol Center
                           Raleigh, North Carolina 27601
                           Attention:  Gerald F. Roach

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificates to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:

                           American Stock Transfer & Trust Company
                           59 Maiden Lane
                           New York, New York  10038
                           Attention:  Shareholder Services Group

                                       31
<PAGE>

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or if prior
to the Distribution Date, to the holder of certificates representing shares of
Common Stock) shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

         Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock. From and after the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (iii) to change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Rights
Certificates (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person), or (iv) to shorten or lengthen any time period hereunder
(which lengthening or shortening, following the first occurrence of an event set
forth in the provisos to Section 23(a) hereof, shall be effective only if there
are Continuing Directors and shall require the concurrence of a majority of such
Continuing Directors); provided, however, from and after the Distribution Date,
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iv) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment.
Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Notwithstanding anything contained herein to the contrary, (i) this Agreement
may not be amended at a time when the Rights are not redeemable and (ii) no
supplement or amendment that changes the rights and duties of the Rights Agent
under this Agreement shall be effective without the consent of the Rights Agent.

         Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

         Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company (with, where
specifically provided for herein, the concurrence of the Continuing Directors)
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board (with, where
specifically provided for herein, the concurrence of the Continuing Directors)
or the Company, or as may be necessary or advisable in the administration of

                                       32
<PAGE>

this Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or not redeem the Rights or to amend this
Agreement and any determination as to whether actions of any Person shall be
such as to cause such Person to beneficially own shares held by another Person).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board of Directors of the Company (with, where
specifically provided for herein, the concurrence of the Continuing Directors)
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board of Directors or the Continuing Directors to any liability to
the holders of the Rights.

         Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).

         Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid, void or unenforceable language from this Agreement would adversely
affect the purpose or effect of this Agreement, the right of redemption set
forth in Section 23 hereof shall be reinstated and shall not expire until the
Close of Business on the tenth day following the date of such determination by
the Board of Directors of the Company. Without limiting the foregoing, if any
provision requiring a majority of the Board of Directors of the Company to be
Continuing Directors to act is held by any court of competent jurisdiction or
other authority to be invalid, void or unenforceable, such determination shall
then be made by the Board of Directors of the Company in accordance with
applicable law and the Company's Articles of Incorporation and Bylaws.

         Section 32. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of North Carolina and for all purposes shall be governed by
and construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State and without regard to
conflicts of laws principles.

         Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

         Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

                        [Signatures appear on next page.]

                                       33
<PAGE>

                    [Signature page to Cree Rights Agreement]

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

                       CREE, INC.

                       By:      /s/ CHARLES M. SWOBODA
                                -----------------------------------------------
                                Name:  Charles M. Swoboda
                                Title:  Chief Executive Officer and President

                       AMERICAN STOCK TRANSFER & TRUST COMPANY

                       By:      /s/ HERBERT J. LEMMER
                                -----------------------------------------------
                                Name:  Herbert. J. Lemmer
                                Title:  Vice President

                                       34
<PAGE>

                                                                       EXHIBIT A

                             State of North Carolina

                      Department of the Secretary of State

                              ARTICLES OF AMENDMENT
                                       OF
                            ARTICLES OF INCORPORATION
                                       OF
                                   CREE, INC.

Pursuant to Section 55-10-06 and Section 55-6-02 of the General Statutes of
North Carolina, the undersigned corporation hereby submits the following
Articles of Amendment for the purpose of amending its Articles of Incorporation
to fix the preferences, limitations, and relative rights of a series of its
shares:

         I. The name of the corporation is Cree, Inc.

         II. The text of the amendment adopted is as follows:

         The Articles of Incorporation of the corporation are hereby amended as
follows:

         Article IV of the Articles of Incorporation is amended by inserting the
following new paragraphs at the end of the existing provisions of Article IV:

         A series of Preferred Stock of the Corporation is hereby created and
the designation and amount thereof and the preferences, relative rights, and
powers of the shares of such series, and the qualifications, limitations or
restrictions thereof, are fixed, determined and set forth as follows:

         (a) DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Preferred Stock," $.01 par value per share, and the
number of shares constituting such series shall be two hundred thousand
(200,000). Such number of shares may be increased or decreased by action of the
Board of Directors; provided that no decrease shall reduce the number of shares
of Series A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.

         (b) DIVIDENDS AND DISTRIBUTIONS.

                  (1) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock and of
any other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10 or (b) subject to the provision for adjustment
hereinafter set forth, one thousand (1,000) times the aggregate per share amount
of all cash dividends, and one thousand (1,000) times the aggregate per share

                                      A-1
<PAGE>

amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event,
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

                  (2) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

                  (3) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than sixty (60) days prior to the
date fixed for the payment thereof.

         (c) VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

                  (1) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to one thousand (1,000) votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any time

                                      A-2
<PAGE>

declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than a
payment of dividend in shares of Common Stock into a greater or lesser number of
shares of Common Stock), then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

                  (2) Except as otherwise provided herein, in any articles of
amendment to articles of incorporation of the Corporation, or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of shareholders of the Corporation.

                  (3) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.

         (d) CERTAIN RESTRICTIONS.

                  (1) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided above are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

                           (i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

                           (ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;

                           (iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or

                           (iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the Board of

                                      A-3
<PAGE>

Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.

                  (2) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (d)(1),
purchase or otherwise acquire such shares at such time and in such manner.

         (e) REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock, subject to
the conditions and restrictions on issuance set forth herein, in articles of
amendment of articles of incorporation of the Corporation, or as otherwise
required by law.

         (f) LIQUIDATION, DISSOLUTION OR WINDING UP.

         Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to one
thousand (1,000) times the aggregate amount to be distributed per share to
holders of shares of Common Stock or (ii) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (i) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

         (g) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination, share exchange or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to one thousand (1,000) times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the

                                      A-4
<PAGE>

case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

         (h) NO REDEMPTION. The shares of Series A Preferred Stock shall not be
redeemable.

         (i) RANK. The Series A Preferred Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise.

         (j) AMENDMENT. The Articles of Incorporation of the Corporation shall
not be further amended in any manner which would materially alter or change the
preferences, rights or powers of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds (2/3) or more of the outstanding shares of Series A Preferred Stock,
voting separately as a single class.

         (k) FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock.

         III. The foregoing amendment was duly adopted and approved on the 29th
day of May, 2002, by the board of directors without shareholder action, which
was not required because the amendment only fixes the preferences, limitations
and relative rights of a series of the corporation's preferred stock pursuant to
authority granted to the directors by the corporation's Articles of
Incorporation and Section 55-6-02 of the General Statutes of North Carolina.

         IV. These articles shall be effective upon filing.

                                      A-5
<PAGE>

           [Signature page to Cree Preferred Stock Charter Amendment]

         IN WITNESS WHEREOF, the corporation has caused this instrument to be
duly executed as of the _____ day of ___________, 2002.

                                   CREE, INC.

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

                                      A-6
<PAGE>

                                                                       EXHIBIT B

                          [Form of Rights Certificate]

Certificate No. R- __________                                __________ Rights

NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS SUCH TERM IS DEFINED IN THE RIGHTS
AGREEMENT REFERRED TO BELOW). THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY SHALL
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE
RIGHTS AGREEMENT.](1)

                               Rights Certificate

                                   CREE, INC.

         This certifies that __________________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of May 30, 2002 (as it may be amended, modified
or supplemented from time to time, the "Rights Agreement"), between Cree, Inc.,
a North Carolina corporation (the "Company"), and American Stock Transfer Trust
Company, a New York State banking corporation (the "Rights Agent"), to purchase
from the Company at any time prior to 5:00 P.M. (North Carolina time) on the
Expiration Date (as such term is defined in the Rights Agreement), which shall
not be later than June 10, 2012, at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-thousandth (1/1,000) of a fully paid, nonassessable share of the Company's
Series A Preferred Stock, $.01 par value per share (the "Preferred Stock"), at a
purchase price of One Hundred Ten Dollars ($110.00) (the "Purchase Price") per
one one-thousandth (1/1,000) of a share of Preferred Stock (such fraction, a
"Preferred Stock Fraction"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of _________________, 20__(2), based on the Preferred Stock as
constituted at such date and may be adjusted in accordance with the provisions
of the Rights Agreement. The Company reserves the right to require, prior to the
occurrence of a Triggering Event (as such term is defined in the Rights
Agreement), that a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.

--------
(1)  The portion of the legend in brackets shall be inserted only if applicable
     and shall replace the preceding sentences.
(2)  Insert the Distribution Date.

                                      B-1
<PAGE>

         Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or any Affiliate
or Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Affiliate or
Associate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.

         As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate,
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.

         This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
A copy of the Rights Agreement is on file at the office of the Company and is
also available upon written request to the Company.

         This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Stock Fractions as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall
have entitled such holder to purchase. The Rights evidenced by this Rights
Certificate may be transferred, in whole or in part, upon surrender of this
Rights Certificates at the principal office or offices of the Rights Agent
designated for such purpose, with the form of Assignment and related Certificate
duly executed. If the Rights evidenced by this Rights Certificate shall be
transferred or exercised in part, the holder shall be entitled to receive upon
surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not transferred or exercised.

         Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may generally be redeemed by the Company at its option at a
redemption price of $.001 per Right at any time before the later of the
Distribution Date (as such term is defined in the Rights Agreement) and the
Stock Acquisition Date (as such term is defined in the Rights Agreement). Under
certain circumstances set forth in the Rights Agreement, the decision to redeem
shall require the concurrence of a majority of the Continuing Directors.

         No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth (1/1,000) of a share of Preferred
Stock, which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.

                                      B-2
<PAGE>

         No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.

         This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.

         WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.

Dated as of __________, 20__.

ATTEST:                                     CREE, INC.

By:  __________________________             By:  __________________________
     Name:                                       Name:
     Title:                                      Title:

Countersigned:

[RIGHTS AGENT]

By:  ___________________________
     Name:
     Title:

                                      B-3
<PAGE>

                  [Form of Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT

       (To be executed by the registered holder if such holder desires to
                       transfer the Rights Certificate.)

FOR VALUE RECEIVED ________________________________________________ hereby

sells, assigns and transfers unto

_______________________________________________________________________________
                  (Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
________________________Attorney, to transfer the within Rights Certificate on
the books of the within-named Company with full power of substitution.

Dated:                       , 20
       ----------------------    --

                                                -------------------------------
                                                Signature

Signature Guaranteed:
                     ------------------------

                                   CERTIFICATE

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement);

         (2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

Dated:                       , 20
       ----------------------    --

                                                -------------------------------
                                                Signature

Signature Guaranteed:
                     ------------------------

                                     NOTICE

         The signature(s) to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.

                                      B-4
<PAGE>

                          FORM OF ELECTION TO PURCHASE

         (To be executed if the holder desires to exercise Rights represented by
the Rights Certificate.)

To:      CREE, INC.

                  The undersigned hereby irrevocably elects to exercise
         ____________ Rights represented by this Rights Certificate to purchase
         the shares of Preferred Stock issuable upon the exercise of the Rights
         (or such other securities of the Company or of any other person which
         may be issuable upon the exercise of the Rights) and requests that
         certificates for such shares be issued in the name of and delivered to:

______________________________________________________________________________
                         (Please print name and address)

Please insert social security
or other identifying number:  ________________________________________________

         If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:

______________________________________________________________________________
                         (Please print name and address)

Please insert social security
or other identifying number:  ________________________________________________

Dated:                       , 20
       ----------------------    --

                                                -------------------------------
                                                Signature

Signature Guaranteed:
                     ------------------------

                                      B-5
<PAGE>

                                   CERTIFICATE

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);

         (2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

Dated:                       , 20
       ----------------------    --

                                                -------------------------------
                                                Signature

Signature Guaranteed:
                     ------------------------

                                     NOTICE

         The signature(s) to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.

                                      B-6
<PAGE>

                                                                       EXHIBIT C

                          SUMMARY OF RIGHTS TO PURCHASE
                                 PREFERRED STOCK

         On May 29, 2002, the Board of Directors of Cree, Inc., a North Carolina
corporation (the "Company"), declared a dividend distribution of one preferred
stock purchase right (a "Right") for each outstanding share of the Company's
common stock, $.00125 par value (the "Common Stock"), to shareholders of record
at the close of business on June 10, 2002 (the "Record Date"). Each Right
entitles the registered holder to purchase from the Company one one-thousandth
(1/1,000) of a share (a "Preferred Stock Fraction") of the Company's Series A
Preferred Stock, $.01 par value (the "Preferred Stock"), at a price of One
Hundred Ten Dollars ($110.00) (the "Purchase Price"), subject to adjustment in
certain circumstances. The description and terms of the Rights are set forth in
a Rights Agreement dated May 30, 2002 between the Company and American Stock
Transfer & Trust Company, as Rights Agent (as it may be amended, modified or
supplemented from time to time, the "Rights Agreement").

         Initially, the Common Stock certificates representing the outstanding
shares shall be deemed to be certificates for Rights, and no separate Rights
Certificates will be distributed. Subject to certain exceptions specified in the
Rights Agreement, the Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of fifteen percent (15%) or more of the
outstanding shares of Common Stock (the date of such announcement being the
"Stock Acquisition Date"), or (ii) 10 business days (or such later date as the
Company's Board of Directors shall determine) following the commencement of a
tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person.

         Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.

         As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, and except in connection with the exercise of stock
options and any other issuances of Common Stock with respect to awards under
employee benefit plans, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.

         The Rights are not exercisable until the Distribution Date and will
expire at the close of business on June 10, 2012, North Carolina time, unless
extended prior to such time by the Board of Directors, or earlier if redeemed by
the Company as described below.

         Except in the circumstances described below, after the Distribution
Date each Right will be exercisable for a Preferred Stock Fraction. Each
Preferred Stock Fraction carries voting and dividend rights that are intended to
produce the equivalent of one share of Common Stock. The voting and dividend
rights of the Preferred Stock are subject to adjustment in the event of

                                      C-1
<PAGE>

dividends, subdivisions and combinations with respect to the Common Stock of the
Company. In lieu of issuing certificates for fractions of shares of Preferred
Stock (other than fractions which are integral multiples of Preferred Stock
Fractions), the Company may pay cash in accordance with the Rights Agreement.

         In the event that any person becomes an Acquiring Person, except
pursuant to an offer for all outstanding shares of Common Stock which the
independent directors, who are not associated with an Acquiring Person,
determine to be fair and adequate to shareholders and to be otherwise in the
best interests of the Company and its shareholders (a "Qualified Offer"), each
holder of a Right will thereafter have the right to receive, upon exercise,
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the exercise price of the
Right. In any event, following the occurrence of the events described in this
paragraph, any Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null
and void.

         In the event that, at any time following the Stock Acquisition Date,
(i) the Company engages in a merger or other business combination transaction in
which the Company is not the surviving corporation, (ii) the Company engages in
a merger or other business combination transaction with another person in which
the Company is the surviving corporation, but its Common Stock is changed or
exchanged, or (iii) 50% or more of the Company's assets, earning power or cash
flow is sold or transferred (except with respect to clauses (i) and (ii), a
merger or other business combination which follows a Qualified Offer and in
which the amount and form of consideration is the same as was paid in such
offer), each holder of a Right (except Rights which previously have been voided
as set forth above) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the Right.

         The Purchase Price payable, and the number of Preferred Stock Fractions
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on the Preferred Stock or other capital stock, or a
subdivision, combination or reclassification of the Preferred Stock, (ii) if the
holders of the Preferred Stock are granted certain rights or warrants to
subscribe for Preferred Stock or securities convertible into Preferred Stock at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).

         At any time after a person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding Common Stock, the Board of Directors may
exchange the Rights (other than Rights owned by such person or its affiliates
and associates, which have become void), in whole or in part, at an exchange
ratio of one share of Common Stock, or one one-thousandth of a share of
Preferred Stock (or of a share of a series of the Company's preferred stock
having equivalent preferences, limitations and relative rights), per Right
(subject to adjustment).

         In general, at any time until the later of the Distribution Date and
the Stock Acquisition Date, the Company may redeem the Rights in whole, but not
in part, at a price of $.001 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors). Under certain
circumstances set forth in the Rights Agreement, the decision to redeem the
Rights will require the concurrence of a majority of the Continuing Directors
(as defined below). Immediately upon the action of the Board of Directors of the

                                      C-2
<PAGE>

Company ordering redemption of the Rights (with, where required, the concurrence
of the Continuing Directors), the Rights will terminate and the only right of
the holders of Rights will be to receive the $.001 redemption price.

         The term "Continuing Director", as that term is defined in the Rights
Agreement, means any member of the Board of Directors of the Company who was a
member of the Board of Directors prior to the date of the Rights Agreement, and
any person who is subsequently elected to the Board if such person is
recommended or approved by a majority of the Continuing Directors, but shall not
include an Acquiring Person or an affiliate or associate of an Acquiring Person,
or any representative of any of such entities.

         Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights is not
includable in a shareholder's taxable income for federal income tax purposes
under U.S. law, shareholders may, depending upon the circumstances, recognize
taxable income in the event that the Rights become exercisable for Common Stock
(or other consideration) of the Company, or for common stock of the acquiring
company or in the event of the redemption of the Rights as set forth above.

         Prior to the Distribution Date, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board (in certain circumstances, with the concurrence of the Continuing
Directors) in order to cure any ambiguity, to correct or supplement any
defective or inconsistent provision, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person or affiliate or associate of such Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided that no
amendment may be made at such time as the Rights are not redeemable.

A copy of the Rights Agreement is being filed by the Company with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
and/or an Exhibit to a Current Report on Form 8-K. A copy of the Rights
Agreement is available free of charge from the Company. This summary description
of the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is incorporated herein by reference.

                                      C-3

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