Document:

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                                                                   EXHIBIT 10.16

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF ROBOTIC VISION SYSTEMS, INC. (THE "COMPANY") THAT THIS
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR EXEMPTION
THEREFROM, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES.

                          ROBOTIC VISION SYSTEMS, INC.

                    Common Stock Warrant Expiring May 1, 2005

     Robotic Vision Systems, Inc., a Delaware corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Needham & Company, Inc. (the
"PURCHASER") or its permitted assigns under the terms of this warrant (the
Purchaser or such permitted assigns at the time being the registered holder or
holders hereof being hereinafter referred to as "HOLDER") is entitled, subject
to the terms set forth below, to acquire from the Company, at an exercise price
of $1.50 per share (the "EXERCISE PRICE"), at any time or from time to time on
or after the date hereof and prior to 5:00 P.M., New York City time, on May 1,
2005 (the "EXPIRATION DATE"), good and valid title to 565,249 duly authorized
fully paid and non-assessable shares of the Company's common stock, par value
$0.01 per share (the "COMMON STOCK," such shares of Common Stock, in each case
as the number of such shares may be adjusted from time to time pursuant to
Section 2.4 and the provisions of the Company's Certificate of Incorporation,
are herein referred to as the "WARRANT SHARES"), which are (i) free and clear of
any pledge, lien, security interest, charge, claim, equity or encumbrance of any
kind (each a "LIEN") created by or in respect of the Company and (ii) not
subject to preemptive rights.

     This Warrant has been issued pursuant to, and in accordance with the terms
of, that certain amended Engagement Letter, dated as of April 24, 2002, by and
among the Company and Needham & Company, Inc. (the "ENGAGEMENT LETTER").

     Certain capitalized terms not otherwise defined herein shall have the
meanings set forth in Section 4 hereof.

Section 1.  EXERCISE OF WARRANT.

     1.1.  EXERCISE. This Warrant may be converted or exercised by Holder, in
whole or in part, at any time and from time to time on or after the date hereof
and prior to 5:00 p.m. New York City time on the Expiration Date by surrender of
this Warrant, together with the form of notice of exercise (in the form attached
hereto as EXHIBIT A) duly completed and executed by Holder, to the Company at
its principal office and accompanied by payment in full, in cash or by check
payable to the order of the Company, in the amount of the aggregate Exercise
Price for the Warrant Shares covered by such exercise. In lieu of exercising
this Warrant pursuant to the immediately preceding sentence, Holder shall have
the right to require the Company to convert this Warrant, in whole or in part
and at any time or times (the "CONVERSION RIGHT"), into Warrant Shares, by
surrendering this Warrant to the Company accompanied by the form conversion
notice (in the form attached hereto as EXHIBIT B) that has been duly completed
and signed. Upon exercise of the Conversion Right, the Company shall deliver to
Holder (without payment by Holder of any Exercise Price) that number of Warrant
Shares that is equal to the quotient obtained by dividing (x) the value of this
Warrant (or the portion thereof being converted) at the time the Conversion

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Right is exercised, determined by subtracting the aggregate Exercise Price for
the Warrant (or such portion thereof being converted) immediately prior to the
exercise of the Conversion Right from the aggregate current market price
(determined on the basis of the Current Market Price Per Share) of that number
of Warrant Shares purchasable upon exercise of this Warrant (or such portion
thereof) immediately prior to the exercise of the Conversion Right (taking into
account all applicable adjustments pursuant to this Warrant) by (y) the Current
Market Price Per Share of one share of Common Stock immediately prior to the
exercise of the Conversion Right. Any references in this Warrant to the
"exercise" of any Warrants, and the use of the term "exercise" herein, shall be
deemed to include, without limitation, any exercise of the Conversion Right. For
purposes of Rule 144 promulgated under the Securities Act of 1933, as amended,
it is intended, understood and acknowledged that the Warrant Shares issued upon
exercise of a Conversion Right shall be deemed to have been acquired by Holder,
and the holding period for the Warrant Shares shall be deemed to have commenced,
on the date this Warrant was originally issued pursuant to the Engagement
Letter. In the event this Warrant is not exercised in full, the Warrant Shares
shall be reduced by the number of Warrant Shares subject to such partial
exercise, and the Company, at its expense, shall forthwith issue and deliver to
Holder a new Warrant of like tenor in the name of Holder, reflecting the number
of Warrant Shares remaining after such exercise.

     1.2.  DELIVERY OF STOCK CERTIFICATES. Promptly upon exercise of this
Warrant in full or in part, the Company will issue and deliver to Holder, a
certificate or certificates, in such name or names as such Holder may designate,
for the number of fully paid and non-assessable shares of Common Stock to which
Holder shall be entitled on such exercise. The Warrant Shares issuable upon
exercise of this Warrant shall be affixed with the legend specified in Section
4.6 of the Securities Purchase Agreement, dated as of April 23, 2002, by and
among the Company and the purchasers named on EXHIBIT A thereto (the "SECURITIES
PURCHASE AGREEMENT"). Such legend shall also be subject to removal in accordance
with Section 4.6 of the Securities Purchase Agreement.

     1.3.  FRACTIONAL SHARES. This Warrant may not be exercised as to fractional
shares of Common Stock. If any fraction of a share of Common Stock would be
issuable, except for the provisions of this Section 1.3, on the exercise of the
Warrant in full or in part, the Company shall pay a cash adjustment in respect
of such fractional interest equal to the product of (x) such fractional interest
and (y) the Current Market Price Per Share as of the date this Warrant is
surrendered for exercise as provided in Section 1.1.

Section 2.  CERTAIN OBLIGATIONS OF THE COMPANY.

     2.1.  RESERVATION OF STOCK. The Company covenants that it will at all times
reserve and keep available, free from preemptive rights and antidilution
adjustments upon issuance, solely for the purpose of effecting the exercise of
this Warrant, a number of shares of Common Stock equal to the total number of
Warrant Shares then issuable upon the exercise of this Warrant. The Company will
from time to time, in accordance with the laws of its state of incorporation,
take action to increase the authorized amount of its Common Stock if at any time
the number of shares of Common Stock authorized but remaining unissued and
unreserved for other purposes shall be insufficient to permit the exercise of
this Warrant.

     2.2.  CORPORATE ACTIONS. The Company covenants that all Warrant Shares
will, upon issuance in accordance with the terms of this Warrant Agreement and
the Company's Certificate of Incorporation, be fully paid and nonassessable,
free from all taxes with respect to the issuance thereof (other than income
taxes, if any, related to ordinary income attributable to Holder) and from all
Liens. The Company will not, by amendment of its Certificate of Incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant.
Without limiting the generality of the foregoing, the Company (a) will not
permit the par value or the determined or stated value of any shares of Common
Stock receivable upon the exercise of the Warrants to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares

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of Common Stock upon the exercise of the Warrants from time to time outstanding,
including, without limitation, amending its Certificate of Incorporation, and
(c) will not take any action that results in an adjustment in the number of
Warrant Shares obtainable upon the exercise of this Warrant if the total number
of shares of Common Stock (or other securities) issuable after such action upon
the exercise of this Warrant would exceed the total number of shares of Common
Stock (or other securities) then authorized by the Company's Certificate of
Incorporation and available for purpose of issuance upon such exercise.

     2.3.  MAINTENANCE OF OFFICE. The Company will maintain an office, initially
at 5 Shawmut Road, Canton, Massachusetts 02021, where presentations and demands
to or upon the Company in respect of this Warrant may be made. The Company will
give notice in writing to Holder, at the address of Holder appearing on the
books of the Company, of each change in the location of such office.

2.4.  ADJUSTMENT OF WARRANT SHARES PURCHASABLE.

          (a) The number of Warrant Shares that may be acquired upon the
exercise or conversion of this Warrant and the Exercise Price of such shares are
subject to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 2.4 at any time or from time to time after the date
hereof and prior to the Expiration Date.

          (b) If the Company shall, after the original date of issuance of this
Warrant, (i) declare or pay a dividend or make a distribution on its capital
stock in shares of Common Stock, (ii) subdivide (by any share split, share
dividend, recapitalization or otherwise) its outstanding shares of Common Stock
into a greater number of shares, (iii) combine (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue any shares of capital stock by reclassification of its
shares of Common Stock, the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
dividend or distribution or the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted so
that Holder shall be entitled to receive the number of shares of Common Stock
that such Holder would have owned or have been entitled to receive after the
happening of any of the events described above as if this Warrant had been
exercised immediately prior to the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this paragraph (b) shall become
effective immediately after the opening of business on the business day next
following the record date in the case of a dividend or distribution and shall
become effective immediately after the opening of business on the business day
next following the effective date in the case of a subdivision, combination or
reclassification.

          (c) If, at any time while this Warrant is outstanding, the Company
shall, after the original date of issuance of this Warrant, issue or cause to be
issued rights or warrants to acquire or otherwise sell or distribute shares of
Common Stock to all holders of shares of its Common Stock for a consideration
per share less than the Exercise Price then in effect, then, promptly upon such
issue or sale, the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such rights or
warrants or to purchase such shares shall be reduced to the price determined by
dividing (i) an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the
Exercise Price, and (B) the consideration, if any, received or receivable by the
Company upon such issue or sale by (ii) the total number of shares of Common
Stock outstanding immediately after such issue or sale (assuming for this
purpose such rights or warrants have been exercised).

          (d) If the Company shall, after the original date of issuance of this
Warrant, distribute to all holders of shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Sections 2.4(b) and (c) hereof), then
in each such case the Exercise Price in effect immediately prior to the record
date fixed for

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determination of stockholders entitled to receive such distribution shall be
adjusted by subtracting from such Exercise Price the then fair market value at
such record date of the portion of such evidence of indebtedness, assets or
securities so distributed (net of any consideration paid or payable in the case
of rights or warrants) applicable to one outstanding share of Common Stock as
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "APPRAISER") mutually selected in good faith by the holders of a
majority in interest of the Warrants then outstanding and the Company. Any
determination made by the Appraiser shall be final and binding upon the Company
and Holder. Notwithstanding the foregoing, no adjustment pursuant to this
Section 2.4(d) shall reduce the Exercise Price to below $0.01.

          (e) In the event that the provisions of this Section 2.4 fail as a
result of an unintentional oversight to provide expressly for the adjustment of
the Exercise Price or the number of Warrant Shares purchasable upon exercise of
this Warrant under circumstances that, based upon the purposes and intentions
expressed herein, would otherwise have been addressed, the Board of Directors of
the Company shall, in good faith, cause an equitable adjustment to be made to
the Exercise Price or the number of Warrant Shares purchasable upon exercise of
the Warrant to correct such an oversight.

          (f) If the Company shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all of its Common Stock, sale of all or
substantially all of the Company's assets or recapitalization of the shares of
Common Stock and excluding any transaction as to which Section 2.4(b) applies)
(each of the foregoing being referred to herein as a "TRANSACTION"), in each
case as a result of which all or substantially all of the shares of Common Stock
are converted into the right to receive shares, securities or other property
(including cash or any combination thereof), this Warrant shall thereafter be
exercisable into the kind and amount of shares, securities and other property
(including cash or any combination thereof) receivable upon the consummation of
such Transaction by a holder of that number of shares of Common Stock into which
this Warrant was exercisable immediately prior to such Transaction, assuming
such holder of Common Stock (i) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("CONSTITUENT
PERSON"), or an affiliate of a Constituent Person and (ii) failed to exercise
his rights of election, if any, as to the kind or amount of shares, securities
and other property (including cash) receivable upon such Transaction (provided
that if the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction is not the same for each share of Common
Stock held immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such rights of election
shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of
this paragraph (f) the kind and amount of shares, securities and other property
(including cash) receivable upon such Transaction by each Non-Electing Share
shall be deemed to be the kind and amount so receivable per share by a plurality
of the Non-Electing Shares). The Company shall not be a party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph (f), and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of Holder that will
contain provisions enabling Holder to exercise into the consideration received
by holders of shares of Common Stock at the Exercise Price in effect immediately
prior to such Transaction. The provisions of this paragraph (f) shall similarly
apply to successive Transactions.

          (g) Notwithstanding any other provisions of this Section 2.4, the
Company shall not be required to make any adjustment of the Exercise Price: (i)
for the issuance of any shares of Common Stock pursuant to any plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts of cash in shares of
Common Stock under such plan; or (ii) the issuance of options and the shares of
Common Stock issued upon exercise of such options pursuant to an employee,
consultant or director stock option program approved by the Board

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of Directors of the Company. All calculations under this Section 2.4 shall be
made to the nearest cent (with $.005 being rounded upward) or to the nearest
one-tenth of a share (with .05 of a share being rounded upward), as the case may
be. Anything in this Section 2.4 to the contrary notwithstanding, the Company
shall be entitled, to the extent permitted by law, to make such reductions in
the Exercise Price, in addition to those required by this Section 2.4, as it in
its discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of shares,
distribution of rights or warrants to purchase shares or securities, or
distribution of other assets (other than cash dividends) hereafter made by the
Company to its stockholders shall not be taxable.

          (h) Whenever the Exercise Price is adjusted, as herein provided,
Holder shall thereafter prior to the Expiration Date be entitled to purchase the
number of Warrant Shares obtained by multiplying such Exercise Price by the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and by dividing the product by the
Exercise Price resulting from such adjustment.

          (i) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant or the Exercise Price of such Warrant Shares is
adjusted, as herein provided, the Company shall promptly cause to be prepared a
certificate signed by its President or a Vice President and by its Treasurer or
Assistant Treasurer or its Secretary or Assistant Secretary, setting forth in
reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), the number of Warrant Shares purchasable upon the
exercise of the Warrant and the Exercise Price of such Warrant Shares after such
adjustment, and shall promptly cause copies of such certificate to be mailed (by
first class and postage prepaid) to the Warrant Holder in accordance with
Section 7.

     2.5.  REGISTRATION RIGHTS AGREEMENT. On or prior to the date hereof, the
Company shall execute and deliver to Purchaser a Registration Rights Agreement
in the form attached to the Securities Purchase Agreement as Exhibit E.

     2.6.  PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the registration
of this Warrant or any certificates for Warrant Shares issuable upon the
exercise of this Warrant in a name other than that of Holder. Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.

     2.7.  COMPANY CALL. If at any time after the original date of issuance of
this Warrant, the closing price of the Common Stock on The Nasdaq National
Market (or if different, the principal trading market for the Common Stock) is
greater, for 20 consecutive trading days, than $2.35, the Company shall have the
right to repurchase this Warrant from Holder at a price equal to $0.05 for each
share of Common Stock then purchasable by Holder under this Warrant. The Company
shall exercise its rights under this Section 2.7 by delivering a notice (the
"CALL NOTICE") to such effect to Holder within 30 days after the expiration of
the 20-day period referred to above. The Call Notice shall specify the date of
the proposed closing of such repurchase (the "CALL CLOSING Date"), which date
shall be no less than 30 nor more than 60 days after the date the Call Notice is
sent by the Company. The Company's right to purchase the Warrant pursuant to
this Section 2.7 and Holder's obligation to sell shall be subject to the
continued effectiveness of a registration statement permitting the resale of the
Warrant Shares ("EFFECTIVENESS COMPLIANCE") for the period beginning on the date
the Call Notice is sent by the Company and ending on the Call Closing Date (the
"CALL PERIOD"). The Call Notice shall confirm Effectiveness Compliance by the
Company and the Company shall promptly notify Holder in the event that at any
time during the Call Period the Company is not in Effectiveness Compliance.
Notwithstanding anything to the contrary

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contained herein, Holder shall have the right to exercise this Warrant in
accordance with its terms at any time prior to the Call Closing Date. In the
event that the Company is not in Effectiveness Compliance at any time during the
Call Period, the Company's repurchase right under this Section 2.7 shall
terminate with respect to the repurchase specified in the applicable Call Notice
and the Company may only again exercise such repurchase right after the
provisions of this Section 2.7 have again been satisfied, with the 20-day period
referred to above being measured beginning with the first date that the Company
is again in Effectiveness Compliance. If the Company purchases this Warrant
pursuant to this Section 2.7, it shall pay the consideration therefor in cash on
the Call Closing Date to Holder and Holder shall surrender this Warrant to the
Company. Upon payment of such consideration, this Warrant shall be deemed to be
cancelled and of no further force and effect.

Section 3.  NOTICE OF CERTAIN EVENTS.

     If at any time:

          (a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock or any other class of its capital stock;

          (b) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any rights to subscribe
thereto;

          (c) there shall be any recapitalization of the Company, or
consolidation or merger of the Company with, or sale of all or substantially all
of its assets or of any material asset to, another corporation or business
organization or any other extraordinary event or any Transaction;

          (d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company in a single transaction or a series of related
transactions; or

          (e) the Company shall declare any share split, share dividend,
subdivision, combination or similar distribution with respect to the shares of
Common Stock, regardless of the effect of any such event on the outstanding
number of shares of Common Stock;

(each such event, a "NOTIFICATION EVENT"), then, in any one or more of such
cases, the Company shall give Holder written notice, by certified mail (or
nationally recognized overnight courier), of the date on which a record shall be
taken for such Notification Event or for determining stockholders entitled to
vote upon such Notification Event or winding up and of the date, if determined,
when any such transaction shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights or shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such Notification Event, as the case may be. Such notice shall
describe the proposed transaction in reasonable detail and specify the
consideration to be received by Holder in respect thereto and/or any adjustment
that would be made to the number of Warrant Shares obtainable upon the exercise
of this Warrant as a result of such transaction. The Company shall also furnish
to Holder all notices and materials furnished to its stockholders in connection
with such transaction as and when such notices and materials are furnished to
its stockholders. Such written notice shall be given not less than 10 days prior
to the record date with respect thereto.

Section 4.  DEFINITIONS.

     As used herein, the following terms, unless the context otherwise requires,
have the following respective meanings:

     4.1.  The term "Common Stock" includes the Company's Common Stock and any
other securities or rights into which or for which the Common Stock is converted
or exchanged, whether pursuant to a plan of reclassification, reorganization,
consolidation, merger, sale of assets, dissolution, liquidation, or otherwise.

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     4.2.  "Current Market Price Per Share" shall mean, with respect to any of
the Common Stock, as of any particular date of determination:

          (a) if the Common Stock is then reported on the Composite Transactions
Tape, the average of the daily closing prices for the 20 consecutive trading
days immediately prior to such date as reported on the Composite Transactions
Tape (as adjusted for any stock dividend, split, combination or reclassification
that occurred during such 20-day period); or

          (b) if the Common Stock is not then reported on the Composite
Transaction Tape but is then listed or admitted to trading on a national
securities exchange, the average of the daily last sale prices regular way of
such Common Stock, for the 20 consecutive trading days immediately prior to such
date (as adjusted for any stock dividend, split, combination or reclassification
that occurred during such 20-day period), on the principal national securities
exchange on which such Common Stock is traded or, in case no such sale takes
place on any such day, the average of the closing bid and asked prices regular
way, in either case on such national securities exchange; or

          (c) if the Common Stock is not then reported on the Composite
Transaction Tape and is not then listed or admitted for trading on a national
securities exchange but is then traded on the over-the-counter market, the
average of the daily closing sales prices, or, if there is no closing sales
price, the average of the closing bid and asked prices, in the over-the-counter
market, for the 30 consecutive trading days immediately prior to such date (as
adjusted for any stock dividend, split, combination or reclassification that
occurred during such 30-day period), as reported by the National Association of
Securities Dealers' Automated Quotation System, or, if not so reported, as
reported by the National Quotation Bureau, Incorporated or any successor
thereof, or, if not so reported the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Board of Directors of the Company for
that purpose; or

          (d) if no such prices are then furnished, the higher of (x) the
Exercise Price and (y) the fair market value of a share of the Common Stock as
determined by agreement between the Holder and the Company or, in the absence of
such an agreement, by a mutually agreed upon accounting firm (the cost of which
engagement will be borne by the Company) and reasonably acceptable to the
holders of a majority of the Warrants.

     4.3.  The term "Person" shall mean an individual, corporation, partnership,
limited liability company, association, trust, joint venture, unincorporated
organization or any government, governmental department or agency or political
subdivision thereof.

Section 5.  REPLACEMENT OF WARRANTS.

     Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, shall
execute and deliver, in lieu of and in replacement of this Warrant, a Warrant
identical in form to this Warrant.

Section 6.  REMEDIES.

     The Company stipulates that the remedies at law of Holder in the event of
any breach or threatened breach by the Company of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a breach of any of the terms hereof or otherwise. The
Company hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law that may be
asserted as a bar to the remedy of specific performance in any action brought
against the Company for specific performance of this Warrant by

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Holder. Such remedies and all other remedies provided for in this Warrant shall,
however, be cumulative and not exclusive and shall be in addition to any other
remedies that may be available under this Warrant.

Section 7.  NOTICES.

     Where this Warrant provides for notice of any event, such notice shall be
given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail,
postage prepaid (iii) telexed or sent by facsimile transmission, and shall be
deemed given when so delivered personally, telexed, sent by facsimile
transmission (confirmed in writing) or mailed. Notices shall be addressed, if to
Holder, to the address of Holder appearing in the registration books referred to
in Section 8 or, if to the Company, to its office maintained pursuant to Section
2.3.

Section 8.  SALE OF WARRANT OR SHARES.

     This Warrant shall be registered on the books of the Company, which shall
be kept by it at its principal office for that purpose and shall be transferable
only on said books by the registered Holder's duly authorized attorney upon
surrender of this Warrant properly endorsed.

Section 9.  NO DIVIDENDS OR VOTING RIGHTS.

     Unless and until exercised, no provision of this Warrant shall be construed
as conferring upon Holder the right to receive dividends or to vote as a
stockholder of the Company.

Section 10.  SURVIVAL.

     The provisions of Section 6 shall survive the termination or expiration of
this Warrant and shall continue to be effective with respect to Warrant Shares.

Section 11.  MISCELLANEOUS.

     This Warrant shall be binding upon the Company and Holder and their legal
representatives, successors and assigns. In case any provision of this Warrant
shall be invalid, illegal or unenforceable, or partially invalid, illegal or
unenforceable, the provision shall be enforced to the extent, if any, that it
may legally be enforced and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by a statement in writing signed by the party against which enforcement of
such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant shall take effect as an instrument
under seal.

Section 12.  GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
conflict of laws provisions thereof.

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     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as
an instrument under seal by a duly authorized officer and attested by its
Secretary or Assistant Secretary.

Dated as of _______________, 2002

                                        Robotic Vision Systems, Inc.

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

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

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                                    EXHIBIT A

                           FORM OF NOTICE OF EXERCISE

                   (To be signed only on exercise of Warrant)

TO:
   ------------------------

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

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

     The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to receive thereunder ______* shares of
Common Stock of Robotic Vision Systems, Inc., and requests that the certificates
for such shares be issued in the name of ____________________, and delivered to
____________________________________________ whose address is
__________________________________________________.

Dated:
      -----------------------

                                         (Signature must conform in all respects
                                         to name of Holder as specified on the
                                         face of the Warrant)

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

                                         (Address)

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

*Insert here the number of shares of Common Stock as to which the Warrant is
being exercised.

                                      B-1

<PAGE>

                                    EXHIBIT B

                          FORM OF NOTICE OF CONVERSION

                   (To be executed upon conversion of Warrant)

     The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant delivered herewith, to convert ___________ shares
("CONVERTED SHARES") that may be purchased under the Warrant represented thereby
into _______ Warrant Shares* in accordance with the terms hereof and cash in the
amount of $________ in lieu of fractional shares, calculated as follows
(capitalized terms not defined in this notice are used as defined in the
Warrant):

     (______ Converted Shares x $_______ [Current Market Price Per share])
     (______ Converted Shares x Exercise Price [$______, as adjusted])
      = $_______ ["VALUE OF WARRANT TO BE CONVERTED"]

     $_______ [Value of Warrant to be Converted] / $_______ [Current Market
     Price Per Share] = ______ Warrant Shares and ._____ fractional share x
     $_______ [Current Market Price Per Share].

     The undersigned requests that a certificate for such Warrant Shares be
registered in the name of __________________________ whose address is
_______________________________ and that such certificate be delivered to
_________________ whose address is ________________________. If said number of
Warrant Shares is less than all of the Warrant Shares obtainable hereunder, the
undersigned requests that a new Warrant representing the remaining balance of
the Warrant Shares be registered in the name of ___________________________
whose address is _________________________________ and that such Warrant be
delivered to ___________________ whose address is ______________________.

Signature:

----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant.)

Date:
     ------------------

*Consisting of _____ shares of Common Stock

                                      B-2<PAGE>

EXHIBIT 10.1

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

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

                              AMENDED AND RESTATED
                                CREDIT AGREEMENT

                          Dated as of January 17, 2002

                                      Among

                                 CHRONIMED INC.,

                                   THE BANKS,
                               as defined herein,

                                       and

                         U.S. BANK NATIONAL ASSOCIATION,
                             as a Bank and as Agent

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

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

<PAGE>

                                                                  execution copy

                              AMENDED AND RESTATED
                           REVOLVING CREDIT AGREEMENT

         THIS REVOLVING CREDIT AGREEMENT, dated as of January 17, 2002, is by
and between CHRONIMED INC., a Minnesota corporation (the "Borrower"), the banks
or financial institutions listed on the signature pages hereof or which
hereafter become parties hereto by means of assignment and assumption as
hereinafter described (individually referred to as a "Bank" or collectively as
the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, as agent for the Banks (in such capacity, the "Agent").

                              Preliminary Statement

         The Borrower and U.S. Bank National Association ("U.S. Bank") have
entered into a certain letter agreement, dated as of December 31, 1996 (as
thereafter amended, the "Existing Credit Agreement"), under which U.S. Bank made
certain loans to the Borrower. Such loans are secured by the Security Agreement,
as defined herein and as referred to in the Existing Credit Agreement (Third
Amendment). The Borrower and U.S. Bank have agreed that the other Banks named
herein shall become co-lenders with U.S. Bank and U.S. Bank shall act as
administrative agent for the Banks, all as more particularly described herein.
The Borrower, the Banks and the Agent have agreed that the Existing Credit
Agreement shall be amended to read as follows to govern the loans made under the
Existing Credit Agreement and other extensions of credit as hereinafter
provided.

                   ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

         Section 1.1 Defined Terms. In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the following respective
meanings (and such meanings shall be equally applicable to both the singular and
plural form of the terms defined, as the context may require):

         "Advance" means the portion of the outstanding Loans bearing interest
at an identical rate for an identical Interest Period, provided that all Prime
Rate Advances shall be deemed a single Advance. An Advance may be a "Eurodollar
Advance", or "Prime Rate Advance" (each, a "type" of Advance).

         "Adverse Event" means the occurrence of any event that could have a
material adverse effect on the business, operations, property, assets or
condition (financial or otherwise) of the Borrower and the Subsidiaries as a
consolidated enterprise or on the ability of the Borrower or any other party
obligated thereunder to perform its obligations under the Loan Documents.

                                       2
<PAGE>

         "Agent" means U.S. Bank National Association, as agent for the Banks
hereunder and as collateral agent under the Security Agreement and each
successor, as provided in Section 11.8, who shall act as Agent.

         "Agent's Fee Letter" means a letter, dated as of January 17, 2002,
between the Borrower and the Agent pertaining to certain fees payable to the
Agent.

         "Agreement" means this Credit Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.

         "Applicable Margin" shall mean (a) on and before receipt of the annual
financial statements of the Borrower for Fiscal Year 2002, 0.000% for Prime Rate
Advances, and (b) on and after receipt of such financial statements, the
percentages set forth below for the Cash Flow Leverage Ratios shown below for
the most recent Fiscal Quarter end for which financial statements have been
delivered:

<TABLE>
<CAPTION>
                                            Applicable Margin
                                    -----------------------------------
         Cash Flow                  Prime Rate               Eurodollar
         Leverage Ratio:            Advances:                 Advances:
         --------------             --------                 ----------
<S>                                 <C>                    <C>
         Greater than 2.25 to 1.00     1.000%                 2.625%

         Less than or equal
         to 2.25 to 1.00 but
         greater than 1.75 to 1.00     0.500%                 2.500%

         Less than or equal
         to 1.75 to 1.00 but
         greater than 1.25 to 1.00     0.000%                 2.250%

         Less than or equal
         to 1.25 to 1.00               0.000%                 2.000%

</TABLE>

The Applicable Margin shall be applied on a quarterly basis, effective as of the
date 45 days after the end of each Fiscal Quarter based on the Cash Flow
Leverage Ratio as demonstrated by the quarterly financial statements of the
Borrower delivered for the Fiscal Quarter most recently ended, and as certified
by the Borrowers' financial officer. In the event that such financial statements
are not delivered as required by Section 8.1(a) or (b), the Applicable Margin
shall be the highest percentage set forth above for each type of Advance until
such time as such financial statements are delivered, after which time the
Applicable Margin shall be readjusted to the rate applicable to the Cash Flow
Leverage Ratio applicable to such statements.

                                       3
<PAGE>

         "Asset Disposition" means any sale, transfer or other disposition of
any asset, other than assets held for purposes of investing cash, of the
Borrower or any Subsidiary in a single transaction or in a series of related
transactions (other than the sale of inventory in the ordinary course).

         "Borrowing Base" means the sum of (a) an amount equal to 75% of the net
amount (as determined by the Bank after deduction of such reserves and
allowances as the Bank deems proper and necessary) of the Borrower's Eligible
Accounts; plus (b) an amount equal to 50% of the net value (the lower of the
cost, determined on a first in first out basis, or market value of such
Inventory, as determined by the Bank after deduction of such reserves and
allowances as the Bank deems proper and necessary) of the Borrower's and the
Subsidiary Guarantor's Eligible Inventory.

         "Borrowing Base Certificate" means a certificate in the form of Exhibit
B signed as indicated thereon, setting forth the amount of the Borrowing Base.

         "Business Day" means any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota and New York, New York and, with respect to
Eurodollar Advances, a day on which dealings in Dollars may be carried on by the
Agent in the interbank eurodollar market.

         "Capital Expenditure" means any amount debited to the fixed asset
account on the consolidated balance sheet of the Borrower in respect of (a) the
acquisition (including, without limitation, acquisition by entry into a
Capitalized Lease), construction, improvement, replacement or betterment of
land, buildings, machinery, equipment or of any other fixed assets or
leaseholds, and (b) to the extent related to and not included in (a) above,
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).

         "Capitalized Lease" means any lease which is or should be capitalized
on the books of the lessee in accordance with GAAP.

         "Cash Flow Leverage Ratio" means the ratio, calculated for each
Measurement Period, of (a) the average principal amount of the Loans for such
Measurement Period plus the principal amount of Funded Debt (other than the
Loans) as of the last day of such Measurement Period, to (b) EBITDA for such
Measurement Period.

         "Casualty Disposition" means loss of or damage to, or condemnation or
other taking of, any assets of the Borrower or any Subsidiary for which such
Person receives insurance proceeds, proceeds of a condemnation award or other
compensation.

         "Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute, together with regulations thereunder.

                                       4
<PAGE>

         "Collateral Agent" means the "Collateral Agent" as defined in the
Security Agreement (initially, U.S. Bank).

         "Commitment" means the maximum unpaid principal amount of the Loans of
all Banks which may from time to time be outstanding hereunder, being initially
$30,000,000, as the same may be reduced from time to time pursuant to Section
4.3 , or, if so indicated, the maximum unpaid principal amount of Loans of any
Bank (which amounts are set forth on the signature pages hereof or in the
relevant Assignment and Assumption Agreement for such Bank) and, as the context
may require, the agreement of each Bank to make Loans to the Borrower subject to
the terms and conditions of this Agreement up to its Commitment.

         "Compliance Certificate" means a certificate in the form of Exhibit C,
duly completed and signed by an authorized officer of the Borrower.

         "Consolidated Tangible Net Worth" means as of any date of
determination, the sum of the amounts set forth on the consolidated balance
sheet of the Borrower as the sum of the common stocks, preferred stock,
additional paid-in capital and retained earnings of the Borrower (excluding
treasury stock), less the book value of all assets of the Borrower and its
Subsidiaries that would be treated as intangibles under GAAP, including, without
limitation, all such items as goodwill, trademarks, trade names, service marks,
copyrights, patents, licenses, unamortized debt discount and unamortized
deferred charges.

         "Default" means any event which, with the giving of notice to the
Borrower or lapse of time, or both, would constitute an Event of Default.

         "EBIT" means, for any period of determination, the consolidated net
income of the Borrower and its Subsidiaries before provision for income taxes,
plus, to the extent subtracted in determining consolidated net income, Interest
Expense, as determined in accordance with GAAP, excluding (to the extent
included): (a) non-operating gains (including, without limitation, extraordinary
or nonrecurring gains, gains from the discontinuance of operations and gains
arising from the sale of assets other than inventory) during the applicable
period; and (b) one-time expenses related to restatement of the Borrower's
financial statements, as described on Schedule 1.1 attached hereto, and (c)
lease buy-out expenses, store closing expenses and moving, severance and other
relocation expenses related to consolidation of operations and the move of the
StatScript headquarters to Minneapolis, as described in reasonable detail in the
attachment to the Compliance Certificate for the relevant period of
determination.

         "EBITDA" means, for any period of determination, EBIT plus, to the
extent subtracted in determining consolidated net income, depreciation and
amortization expense, as determined in accordance with GAAP.

                                       5
<PAGE>

         "Eligible Account" shall mean each Account owing to the Borrower which
meets the following requirements:

         (a) it is subject to a first-priority lien in favor of the Collateral
         Agent under the Security Agreement;

         (b) it is owned by the Borrower and is not subject to any assignment,
         claim or Lien other than (i) a first priority Lien in favor of the
         Collateral Agent, and (ii) other Liens consented to by the Agent in
         writing;

         (c) it is genuine and is in all respects what it purports to be;

         (d) it arises from either (i) the performance of services by the
         Borrower, which services have been fully performed and, if applicable,
         acknowledged and/or accepted by the Account Debtor with respect
         thereto; or (ii) the sale or lease of goods by the Borrower and such
         goods comply with such Account Debtor's specifications (if any) and
         have been shipped to, or delivered to and accepted by, such Account
         Debtor and not been returned to the Borrower;

         (e) it is evidenced by an invoice rendered to the Account Debtor with
         respect thereto which (i) is dated not earlier than the date of
         shipment or performance, and (ii) has payment terms acceptable to the
         Agent;

         (f) it is a valid, legally enforceable and unconditional obligation of
         the Account Debtor with respect thereto and it is reduced in amount by
         the amount of (i) accounts owing by the Borrower to the Account Debtor,
         and (ii) checks outstanding payable to the Account Debtor and is not
         subject to setoff, counterclaim, credit or allowance (except any credit
         or allowance which has been deducted in computing the net amount of the
         applicable invoice as shown in the original schedule or Borrowing Base
         Certificate furnished to the Agent identifying or including such
         Account) or adjustment by the Account Debtor with respect thereto, or
         to any claim by such Account Debtor denying liability thereunder in
         whole or in part, and such Account Debtor has not refused to accept any
         of the goods or services which are the subject of such Account or
         offered or attempted to return any of such goods;

         (g) there are no proceedings or actions which are then threatened or
         pending against the Account Debtor with respect thereto or to which
         such Account Debtor is a party which might result in any material
         adverse change in such Account Debtor's financial condition or in its
         ability to pay any Account in full when due;

         (h) it does not arise out of a contract or order which, by its terms,
         forbids, restricts or makes void or unenforceable the assignment by the
         Borrower to the Agent of such Account;

                                       6
<PAGE>

         (i) the Account Debtor with respect thereto is not a Subsidiary or
         Related Party , or a director, officer, employee or agent of the
         Borrower, any Subsidiary, or any Related Party;

         (j) the Account Debtor with respect thereto is a resident or citizen of
         and is located within the United States of America unless the sale of
         goods giving rise to such Account is on letter of credit, banker's
         acceptance or other credit support terms satisfactory to the Agent;

         (k) it does not arise from a "sale on approval," "sale or return" or
         "consignment," nor is it subject to any other repurchase or return
         agreement;

         (l) the Borrower has observed and complied with all laws of the
         jurisdiction in which the Account Debtor with respect to such Account
         is located which, if not observed or complied with would deny the
         Borrower access to the courts of such jurisdiction;

         (m) it arises in the ordinary course of the Borrower's business;

         (n) if the Account Debtor with respect thereto is the United States of
         America or any department, agency or instrumentality thereof (a
         "Federal Governmental Authority"), or any state, county or local
         Governmental Authority, or any department, agency or instrumentality
         thereof, the Borrower has assigned its right to payment of such Account
         Receivable to the Collateral Agent pursuant to the Assignment of Claims
         Act of 1940 as amended in the case of the a Federal Governmental
         Authority, or pursuant to applicable state law, if any, in all other
         instances, and such assignment has been accepted and acknowledged by
         the appropriate government officers;

         (o) if it is evidenced by chattel paper or instruments, (i) the Agent
         shall have specifically agreed to include such Account as an Eligible
         Account Receivable, (ii) only payments then due and payable under such
         chattel paper or instrument shall be included as an Eligible Account
         and (iii) the originals of such chattel paper or instruments have been
         assigned and delivered to the Collateral Agent;

         (p) it has not remained unpaid more than 90 days after the original
         invoice date; and

         (q) the Account Debtor with respect thereto is not (i) insolvent or
         dissolved, (ii) unable generally to pay its debts as they mature, or
         (iii) subject to an assignment for the benefit of creditors, bankruptcy
         or other insolvency proceeding.

An Account which is at any time an Eligible Account but which subsequently fails
to meet any of the foregoing requirements shall forthwith cease to be an
Eligible Account. Further, with respect to any Account, if the Agent at any time
or times hereafter determines, in its sole and absolute discretion, that the
prospect of payment or performance by the Account Debtor with respect thereto is
or will be impaired for any reason whatsoever, notwithstanding anything to the
contrary contained above, such Account shall forthwith cease to be an Eligible
Account.

                                       7
<PAGE>

         "Eligible Inventory" shall mean Inventory of the Borrower and the
Subsidiary Guarantor which meets the following requirements:

         (a) it is subject to a first-priority lien in favor of the Collateral
         Agent;

         (b) it is owned by the Borrower or the Subsidiary Guarantor and is not
         subject to any assignment, claim or Lien other than (i) a first
         priority Lien in favor of the Collateral Agent, and (ii) other Liens
         consented to by the Agent in writing;

         (c) if held for sale or lease or furnishing under contracts of service,
         it is (except as the Agent may otherwise consent in writing) new and
         unused;

         (d) except as the Agent may otherwise consent, it is not stored with a
         bailee, warehouseman or similar party;

         (e) the Agent has determined, in its sole and absolute discretion, that
         it is not unacceptable due to age, type, category, quality and/or
         quantity;

         (f) it is not held by the Borrower or the Subsidiary Guarantor on
         "consignment" and is not subject to any other repurchase or return
         agreement;

         (g) it complies with all standards imposed by any governmental agency
         having regulatory authority over such goods and/or their use,
         manufacture or sale;

         (h) it is located within the continental United States; and

         (i) it does not consist of branded packaging or promotional materials.

Inventory of a Borrower or the Subsidiary Guarantor which is at any time
Eligible Inventory but which subsequently fails to meet any of the foregoing
requirements shall forthwith cease to be Eligible Inventory.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute, together with regulations thereunder.

         "ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.

         "Eurodollar Advance" means an Advance designated as such in a notice of
borrowing under Section 2.3 or a notice of continuation or conversion under
Section 2.4.

                                       8
<PAGE>

         "Eurodollar Interbank Rate" means the offered rate for deposits in
United States Dollars for delivery of such deposits on the first day of an
Interest Period of a Eurodollar Advance, for the number of days comprised
therein, quoted by the Agent from Page 3750 of the Dow Jones Markets (Telerate)
screen as of approximately 11:00 a.m., London time, on the day that is two
Business Days preceding the first day of the Interest Period of such Eurodollar
Advance, or the rate for such deposits determined by the Agent at such time
based on such other published service of general application as shall be
selected by the Agent for such purpose; provided, that in lieu of determining
the rate in the foregoing manner, the Agent may determine the rate based on
rates offered to the Agent for deposits in United States Dollars in the
interbank eurodollar market at such time for delivery on the first day of the
Interest Period for the number of days comprised therein.

         "Eurodollar Rate (Reserve Adjusted)" means a rate per annum calculated
for the Interest Period of a Eurodollar Advance in accordance with the following
formula:

         ERRA = Eurodollar Interbank Rate
                -------------------------
                       1.00 - ERR

In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Agent
for the applicable Interest Period. The Agent's determination of all such rates
for any Interest Period shall be conclusive in the absence of manifest error.

         "Eurodollar Reserve Rate" means a percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), as specified
under Regulation D of the Federal Reserve Board, or any other applicable
regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to extensions
of credit by the Agent the rate of interest on which is determined with regard
to rates applicable to Eurocurrency liabilities. Without limiting the generality
of the foregoing, the Eurocurrency Reserve Rate shall reflect any reserves
required to be maintained by the Agent against (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Interbank Rate is to
be determined, or (ii) any category of extensions of credit or other assets that
includes Eurodollar Advances.

         "Event of Default" means any event described in Section 10.1.

         "Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.

         "Fiscal Year" and "Fiscal Quarter" means, respectively, the fiscal
years and fiscal quarters used by the Borrower for reporting and tax purposes,
and shall be identified (a) in the case of Fiscal Years, by the calendar year in
which the last day falls (e.g., "Fiscal Year 2002" shall mean the Fiscal Year

                                       9
<PAGE>

ending on June 28, 2002), and (b) in the case of Fiscal Quarters, by the
sequential number of the Fiscal Quarter within the Fiscal Year identified (e.g.
"Fiscal Quarter 1 of Fiscal Year 2002" shall mean the Fiscal Quarter ending
September 28, 2001). The ending dates of Fiscal Quarters and Fiscal Years are
set forth on Schedule 7.5.

         "Fixed Charge Coverage Ratio" means the ratio, calculated for each
Measurement Period, of:

         (a) the remainder of EBITDA for such Measurement Period, minus the sum
         of (i) the amount of Capital Expenditures for such Measurement Period
         less the amount of financing of such Capital Expenditures by means of
         seller financing, purchase money financing or a direct loan for the
         exclusive purposes of financing such Capital Expenditures, (ii)
         dividends and distributions in respect of the stock of the Borrower
         paid during such Measurement Period, and (iii) income taxes paid during
         such Measurement Period;

         to

         (b) the sum for such Measurement Period of (i) Interest Expense paid,
         plus (ii) mandatory or scheduled principal payments of Funded Debt,
         plus (iii) an amount equal to 1/5 of the average Loans during such
         Measurement Period.

         "Funded Debt" means, without duplication, all obligations of the
Borrower or a Subsidiary on a consolidated basis: (a) in respect of borrowed
money; (b) secured by a mortgage, pledge, security interest, lien or charge on
the assets of the Borrower or a Subsidiary, whether the obligation secured is
the obligation of the owner or another Person (provided that non-recourse
obligations will only be taken into account up to the fair market value of the
related property); (c) any obligation for the deferred purchase price of any
property or services evidenced by a note, payment contract (other than an
account payable arising in the ordinary course of business) or other instrument,
(d) any obligation as lessee under any Capitalized Lease; (e) all guaranties and
contingent or other legal obligations in respect to Funded Debt of other
Persons, excluding ordinary course endorsements; (f) net liabilities under any
interest rate swap, collar or other interest rate hedging agreement. and (g)
undertakings or agreements to reimburse or indemnify issuers of letters of
credit other than commercial letters of credit.

         "GAAP" means generally accepted accounting principles as applied in the
preparation of the audited financial statement of the Borrower referred to in
Section 7.5.

         "Indebtedness" means, without duplication, all obligations, contingent
or otherwise, which in accordance with GAAP should be classified upon the
obligor's balance sheet as liabilities, but in any event including the following
(whether or not they should be classified as liabilities upon such balance
sheet): (a) obligations secured by any mortgage, pledge, security interest,
lien, charge or other encumbrance existing on property owned or acquired subject
thereto, whether or not the obligation secured thereby shall have been assumed
and whether or not the obligation secured is the obligation of the owner or
another party; (b) any obligation on account of deposits or advances; (c) any
obligation

                                       10
<PAGE>

for the deferred purchase price of any property or services, except trade
accounts payable arising in the ordinary course of business, (d) any obligation
as lessee under any Capitalized Lease; (e) all guaranties, endorsements and
other contingent obligations in respect to Indebtedness of others; (f)
undertakings or agreements to reimburse or indemnify issuers of letters of
credit; and (g) net liabilities under any interest rate swap, collar or other
interest rate hedging agreement. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer.

         "Interest and Lease Coverage Ratio" means the ratio, calculated for
each Measurement Period on a consolidated basis for the Borrower and its
Subsidiaries in accordance with GAAP, of:

         (a) the sum for such Measurement Period of (i) EBIT, plus, (ii)
         Operating Lease Expense;

         to

         (b) the sum for such Measurement Period of (i) Interest Expense, to the
         extent paid in cash, plus, (ii) Operating Lease Expense.

         "Interest Expense means, for any period of determination, the aggregate
consolidated amount, without duplication, of interest paid, accrued or scheduled
to be paid in respect of any Indebtedness of the Borrower and its Subsidiaries,
including in all cases interest expense determined in accordance with GAAP and
(a) all but the principal component of payments in respect of conditional sale
contracts, Capitalized Leases and other title retention agreements, (b)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financings and (c) net costs under any interest
rate swap, collar or other interest rate hedging agreements, in each case
determined in accordance with GAAP.

         "Interest Period" means, for any Eurodollar Advance, the period
commencing on the borrowing date of such Eurodollar Advance or the date a Prime
Rate Advance is converted into such Eurodollar Advance, or the last day of the
preceding Interest Period for such Eurodollar Advance, as the case may be, and
ending on the numerically corresponding day one, two, three or, six months
thereafter, as selected by the Borrower pursuant to Section 2.3 or Section 2.4;
provided, that:

         (a) any Interest Period which would otherwise end on a day which is not
         a Business Day shall end on the next succeeding Business Day unless
         such next succeeding Business Day falls in another calendar month, in
         which case such Interest Period shall end on the next preceding
         Business Day;

         (b) any Interest Period which begins on the last Business Day of a
         calendar month (or on a day for which there is no numerically
         corresponding day in the calendar month at the end

                                       11
<PAGE>

         of such Interest Period) shall end on the last Business Day of the
         calendar month at the end of such Interest Period; and

         (c) no Interest Period shall extend beyond the Termination Date.

         "Investment" means the acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms), any acquisitions of real or personal
property (other than real and personal property acquired in the ordinary course
of business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of or any interest in another Person or any integral
part of any business or the assets comprising such business or part thereof.

         "Liabilities" means all obligations and liabilities of the Borrower to
the Agent and the Banks under this Agreement and all other Loan Documents,
including without limitation obligations to pay principal, interest, fees,
expenses and other amounts, and all obligations of the Borrower to any of the
Banks under any swap, collar, cap, or other interest rate hedging agreement
between the Borrower and such Bank, including without limitation any such
obligations that arise after the filing of a petition by or against the Borrower
under the Bankruptcy Code, even if the obligations do not accrue because of the
automatic stay under Bankruptcy Code Section 362 or otherwise.

         "Lien" means any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of the lessors under Capitalized Leases and the
interest of a vendor under any conditional sale or other title retention
agreement).

         "Letters of Credit" shall mean have the meaning set forth in Section
2.7.

         "Letter of Credit Agreements" shall have the meaning set forth in
Section 2.7.

         "Letter of Credit Obligations" means the aggregate amount of all
possible drawings under all Letters of Credit plus all amounts drawn under any
Letter of Credit and not reimbursed by the Borrower under the applicable Letter
of Credit Agreement.

         "Loan Documents" means this Agreement, the Notes, the Subsidiary
Guaranty, the Security Agreement, the Subsidiary Security Agreement, each Letter
of Credit Agreement and each other instrument, document, guaranty, security
agreement, mortgage, or other agreement executed and delivered by the Borrower
or any guarantor or party granting security interests in connection with this
Agreement, the Loans or any collateral for the Loans.

         "Measurement Period" means, for purposes of calculating the Cash Flow
Leverage Ratio, Fixed Charge Coverage Ratio, and Interest and Lease Coverage
Ratio:

                                       12
<PAGE>

         (a) The period ending on December 28, 2001, consisting of Fiscal
         Quarter 1 plus Fiscal Quarter 2 of Fiscal Year 2002, with EBITDA, EBIT,
         Capital Expenditures, dividends and distributions, income taxes paid,
         Interest Expense, mandatory or scheduled payments of Funded Debt and
         Operating Lease Expense for such Measurement Period, as applicable for
         calculation of such Ratios, multiplied by 2;

         (b) The period ending on March 29, 2002 consisting of Fiscal Quarter 1,
         Fiscal Quarter 2, plus Fiscal Quarter 3 of Fiscal Year 2002, with
         EBITDA, EBIT, Capital Expenditures, dividends and distributions, income
         taxes paid, Interest Expense, mandatory or scheduled payments of Funded
         Debt and Operating Lease Expense for such Measurement Period, as
         applicable for calculation of such Ratios, multiplied by 4/3; and

         (c) Each period of four consecutive Fiscal Quarters ending on and after
         the ending date of Fiscal Year 2002.

         "Net Casualty Proceeds" means, with respect to a Casualty Disposition,
the amount of insurance proceeds, proceeds of a condemnation award or other
compensation received by the Borrower or a Subsidiary, net of the Borrower's
good faith estimate of federal and state taxes, if any, payable with respect to
such Casualty Disposition, and net of amounts which the Borrower or such
Subsidiary elects within a reasonable period of time to reinvest in assets to
replace the assets lost, damaged or condemned.

         "Net Issuance Proceeds" means, with respect to any sale or issuance by
the Borrower or any Subsidiary of any equity securities of the Borrower or any
Subsidiary to a Person other than the Borrower or a Subsidiary, cash or readily
marketable cash equivalents received therefrom, whether at the time of such sale
or issuance or subsequent thereto, net of all legal expenses, commissions and
other fees and all costs and expenses directly related to such sale or issuance.

         "Net Sale Proceeds" means, with respect to any Asset Disposition, the
sum of cash or readily marketable cash equivalents received (including by way of
a cash generating sale or discounting of a note or account receivable)
therefrom, whether at the time of such disposition or subsequent thereto, net
of: (a) all legal, title and recording tax expenses, commissions and other fees
and all costs and expenses directly related to such Asset Disposition; (b) the
Borrower's good faith estimate of federal and state taxes payable in respect of
receipt of proceeds of such Asset Disposition; (c) all payments made by the
Borrower or any of its Subsidiaries on any Funded Debt which is secured by such
assets pursuant to a permitted Lien upon or with respect to such assets or which
must, by the terms of such Lien, in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from such
Asset Disposition; and (d) amounts which the Borrower or such Subsidiary elects
within a reasonable period of time to reinvest in substantially similar assets.

                                       13
<PAGE>

         "Notes" shall have the meaning set forth in Section 2.5.

         "Operating Lease Expense means, for any period of determination, the
aggregate consolidated amount, without duplication, of amounts paid under leases
of real or personal property that are not Capitalized Leases, including in all
cases operating lease expense determined in accordance with GAAP.

         "Payment Date" means the Termination Date, plus (a) the last day of
each Interest Period for each Eurodollar Advance and, if such Interest Period is
in excess of three months after the first day of such Interest Period, and
thereafter each day three months after each succeeding Payment Date; and (b) the
last day of each March, June, September and December of each year for each Prime
Rate Advance and for any fees.

         "PBGC" means the Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.

         "Percentage" means, as to any Bank, the proportion, expressed as a
percentage, that such Bank's Commitment bears to the total Commitments of all
Banks.

         "Permitted Acquisitions" means acquisition by the Borrower of all or
substantially all of the assets or stock, membership interest or other equity
interests of another Person or Persons subject to the following: (a) no Default
or Event of Default shall have occurred and continued at the time of such
acquisition, (b) total consideration for such acquisitions (including cash paid,
notes issued, Indebtedness assumed and all other consideration) for such
acquisitions shall not exceed (i) $1,000,000 for acquisition of any one Person
or related group of Persons, (ii) $2,500,000 during any period of four
consecutive Fiscal Quarters, or (iii) $10,000,000 for all such acquisitions
after the date of this Agreement.

         "Person" means any natural person, corporation, limited liability
company, partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.

         "Plan" means an employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of
ERISA or Section 412 of the Code.

         "Prime Rate" means the rate of interest from time to time announced by
the Agent as its "prime rate." For purposes of determining any interest rate
which is based on the Prime Rate, such interest rate shall be adjusted each time
that the prime rate changes.

         "Prime Rate Advance" means an Advance designated as such in a notice of
borrowing under Section 2.3 or a notice of continuation or conversion under
Section 2.4.

                                       14
<PAGE>

         "Related Party" means any Person (other than a Subsidiary): (a) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Borrower, (b) which
beneficially owns or holds 5% or more of the equity interest of the Borrower; or
(c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

         "Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and Section 302 of ERISA shall be a
reportable event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.

         "Required Banks" means those Banks whose total Percentage equals or
exceeds 66 2/3%, or if no Commitments remain in effect, whose share of principal
of the Loans constitutes at least 66 2/3% of the aggregate outstanding principal
of all Loans. Notwithstanding the foregoing, if there are only two Banks,
"Required Banks" shall mean both Banks.

         "Security Agreement" means the Security Agreement, dated as of July 31,
2001, between the Borrower and the Agent, as amended and restated by the Amended
and Restated Security Agreement dated as of the date of this Credit Agreement,
as such agreement may hereafter be amended, modified, renewed or replaced from
time to time.

         "Subsidiary" means any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profit interest of such Person,
if it is a partnership, joint venture or similar entity, or (c) the beneficial
interest of such Person, if it is a trust, association or other unincorporated
organization.

         "Subsidiary Guarantor" means Chronimed Holdings Inc., a Minnesota
corporation.

         "Subsidiary Guaranty" means a Guaranty by the Subsidiary Guarantor in
the form of Exhibit D attached hereto, as such Guaranty may hereafter be
amended, modified, renewed or replaced from time to time.

         "Subsidiary Security Agreement" means a Security Agreement between the
Subsidiary Guarantor and the Agent dated as of the date of this Credit
Agreement, as such agreement may hereafter be amended, modified, renewed or
replaced from time to time.

                                       15
<PAGE>

         "Termination Date" means the earliest of (a) January 16, 2003, (b) the
date on which the Commitments are terminated pursuant to Section 10.2 hereof or
(c) the date on which the Commitments are reduced to zero pursuant to Section
4.3 hereof.

         Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder (including,
without limitation, determination of compliance with financial ratios and
restrictions in Articles VIII and IX hereof) shall be made in accordance with
GAAP consistently applied. Any reference to "consolidated" financial terms shall
be deemed to refer to those financial terms as applied to the Borrower and its
Subsidiaries in accordance with GAAP.

         Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding."

         Section 1.4 Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, schedules and like references are
to this Agreement unless otherwise expressly provided.

                           ARTICLE II TERMS OF LENDING

         Section 2.1 The Commitments. Subject to the terms and conditions hereof
and in reliance upon the warranties of the Borrower herein, each Bank agrees,
severally and not jointly, to make loans (each, a "Loan" and, collectively, the
"Loans") to the Borrower from time to time from the date hereof until the
Termination Date, during which period the Borrower may repay and reborrow in
accordance with the provisions hereof, provided, that (a) the aggregate unpaid
principal amount of the Loans of any Bank at any one time outstanding shall not
exceed its Commitment, and (b) the aggregate unpaid principal amount of all
Loans of all Banks and the aggregate Letter of Credit Obligations outstanding
shall not exceed at any time the lesser of (i) the Commitments of all Banks, or
(ii) the Borrowing Base, determined as of the most recent monthly Borrowing Base
Certificate delivered by the Borrower to the Agent. The Loans shall be made by
the Banks on a pro rata basis, calculated for each Bank based on its Percentage.

         Section 2.2 Advance Options. Prior to delivery of the annual financial
statements of the Borrower for Fiscal Year 2002, all Loans shall be Prime Rate
Advances. After such delivery, the Loans shall be constituted of Eurodollar
Advances and Prime Rate Advances, as shall be selected by the Borrower, except
as otherwise provided herein. Any combination of types of Advances may be
outstanding at the same time, except that the total number of outstanding
Eurodollar Advances shall not exceed 6 at any one time. Each Advance shall be in
a minimum amount of $500,000 or in an integral multiple of $100,000 above such
amount.

                                       16
<PAGE>

         Section 2.3 Borrowing Procedures.

         (a) Request by Borrower. Any request by the Borrower for a Loan or
         Letter of Credit shall be in writing, or by telephone promptly
         confirmed in writing, and must be given so as to be received by the
         Agent not later than:

                  (i) 10:00 a.m., Minneapolis time, on the Business Day of the
                  requested Loan, if the Loan shall be comprised of Prime Rate
                  Advances;

                  (ii) 10:00 a.m., Minneapolis time, three Business days prior
                  to the date of the requested Loan, if the Loan shall be, or
                  shall include, a Eurodollar Advance; or

                  (iii) 10:00 a.m., Minneapolis time, three Business days prior
                  to the date of any requested Letter of Credit.

         Each request shall specify (1) the borrowing date (which shall be a
         Business Day), (2) the amount of such Loan and the type or types of
         Advances comprising such Loan, (3) if such Loan shall include
         Eurodollar Advances, the initial Interest Periods for such Advances,
         and (4) if a request for a Letter of Credit, the form of such Letter of
         Credit and such other information as the Agent shall reasonably
         request.

         (b) Funding of Agent. The Agent shall promptly notify each other Bank
         of the receipt of such request, the matters specified therein, and of
         such Bank's Percentage of the requested Loans. On the date of the
         requested Loans, each Bank shall provide its share of the requested
         Loans to the Agent in immediately available funds not later than 1:00
         p.m., Minneapolis time. Unless the Agent determines that any applicable
         condition specified in Article VI has not been satisfied, the Agent
         will make the requested Loans available to the Borrower at the Agent's
         principal office in Minneapolis, Minnesota in immediately available
         funds not later than 5:00 p.m. (Minneapolis time) on the lending date
         so requested. If the Agent has made a Loan to the Borrower on behalf of
         a Bank but has not received the amount of such Loan from such Bank by
         the time herein required, such Bank shall pay interest to the Agent on
         the amount so advanced at the overnight Federal Funds rate from the
         date of such Loan to the date funds are received by the Agent from such
         Bank, such interest to be payable with such remittance from such Bank
         of the principal amount of such Loan (provided, however, that the Agent
         shall not make any Loan on behalf of a Bank if the Agent has received
         prior notice from such Bank that it will not make such Loan). If the
         Agent does not receive payment from such Bank by the next Business Day
         after the date of any Loan, the Agent shall be entitled to recover such
         Loan, with interest thereon at the rate then applicable to the such
         Loan, on demand, from the Borrower, without prejudice to the Agent's
         and the Borrower's rights against such Bank. If such Bank pays the
         Agent the amount herein required with interest at the overnight rate
         before the Agent has recovered from the Borrower, such Bank shall be
         entitled to the

                                       17
<PAGE>

         interest payable by the Borrower with respect to the Loan in question
         accruing from the date the Agent made such Loan.

         2.4 Continuation or Conversion of Loans. The Borrower may elect to (i)
continue any outstanding Eurodollar Advance from one Interest Period into a
subsequent Interest Period to begin on the last day of the earlier Interest
Period, or (ii) convert any outstanding Advance into another type of Advance (on
the last day of an Interest Period only, in the instance of a Eurodollar
Advance), by giving the Agent notice in writing, or by telephone promptly
confirmed in writing, given so as to be received by the Agent not later than:

         (a) 10:00 a.m., Minneapolis time, on the Business Day of the requested
         continuation or conversion, if the continuing or converted Advance
         shall be a Prime Rate Advance; or

         (b) 10:00 a.m., Minneapolis time, three Business days prior to the date
         of the requested continuation or conversion, if the continuing or
         converted Advance shall be a Eurodollar Advance.

Each notice of continuation or conversion of an Advance shall specify (i) the
effective date of the continuation or conversion date (which shall be a Business
Day), (ii) the amount and the type or types of Advances following such
continuation or conversion (subject to the limitation on amount set forth in
Section 2.2), and (iii) for continuation as, or conversion into, Eurodollar
Advances, the Interest Periods for such Advances. Absent timely notice of
continuation or conversion, the Agent may, at its option, convert the Advance
into a Prime Rate Advance, but until so converted, the Advance shall continue to
bear interest at the rate applicable thereto prior to expiration of the prior
Interest Period. No Advance shall be continued as, or converted into, a
Eurodollar Advance if the shortest Interest Period for such Advance may not
transpire prior to the Termination Date or if a Default or Event of Default
shall exist.

         Section 2.5 The Notes. The Loans of each Bank shall be evidenced by a
promissory note of the Borrower (the "Notes"), substantially in the form of
Exhibit A hereto, in the amount of such Bank's Commitment originally in effect
and dated as of the date of this Agreement. The Banks shall enter in their
respective records the amount of each Loan and Advance, the rate of interest
borne by each Advance and the payments made on the Loans, and such records shall
be deemed conclusive evidence of the subject matter thereof, absent manifest
error.

         Section 2.6 Funding Losses. In the event of (a) any failure of the
Borrower to borrow, continue or convert a Eurodollar Advance on a date specified
in a notice thereof, or (b) any payment (including, without limitation, any
payment pursuant to Section 4.2, 4.3 or 10.2), prepayment or conversion of any
Eurodollar Advance on a date other than the last day of the Interest Period for
such Advance, the Borrower agrees to pay each Bank's costs, expenses and
Interest Differential (as determined by such Bank) incurred as a result of such
event. The term "Interest Differential" shall mean that sum equal to the greater
of 0 or the financial loss incurred

                                       18
<PAGE>

by each Bank resulting from such event, calculated as the difference between the
amount of interest such Bank would have earned (from like investments in the
Money Markets as of the first day of the Interest Period of the relevant
Advance) had such event not occurred and the interest the Bank will actually
earn (from like investments in the Money Markets as of the date of such event)
as a result of the redeployment of funds from such event. Because of the
short-term nature of this facility, the Borrower agrees that the Interest
Differential shall not be discounted to its present value. The term "Money
Markets" refers to one or more wholesale funding markets available to the Banks,
including negotiable certificates of deposit, commercial paper, eurodollar
deposits, bank notes, federal funds and others. Such determinations by each Bank
shall be conclusive in the absence of manifest error.

         Section 2.7 Letters of Credit.

         (a) Letters of Credit. Subject to the terms and conditions of this
         Agreement, the Borrower may, in addition to Loans provided for in
         Section 2.1 hereof, request that the Agent issue letters of credit for
         the account of the Borrower, by making such request as provided in
         Section 2.3 hereof (such letters of credit as any of them may be
         amended, supplemented, extended or confirmed from time to time, being
         herein collectively called the `Letters of Credit'). The face amount of
         the Letters of Credit outstanding at any time shall be limited so that
         the aggregate Letter of Credit Obligations not exceed $5,000,000, and
         the sum of Letter of Credit Obligations plus Loans under Section 2.1
         shall not exceed at any time the lesser of (i) the Commitment of all
         Banks, or (ii) the Borrowing Base. The Agent may, at its discretion,
         elect to issue or decline to issue any requested Letter of Credit. Upon
         the date of the issuance of a Letter of Credit, the Agent shall be
         deemed, without further action by any party hereto, to have sold to
         each Bank, and each Bank shall be deemed without further action by any
         party hereto, to have purchased from the Agent, a participation, in a
         percentage equal to such Bank's Percentage of such Letter of Credit and
         the related Letter of Credit Obligations. No Letter of Credit issued
         pursuant to this Agreement shall have an expiration date later than one
         year from date of issuance or later than the Termination Date.

         (b) Additional Provisions. The following additional provisions shall
         apply to each Letter of Credit:

                  (i) Upon receipt of any request for a Letter of Credit, the
                  Agent shall notify each Bank of the contents of such request
                  and of such Bank's Percentage of the amount of such proposed
                  Letter of Credit.

                  (ii) No Letter of Credit may be issued if after giving effect
                  thereto the sum of (x) the aggregate outstanding principal
                  amount of Loans plus (y) the aggregate Letter of Credit
                  Obligations would exceed the Total Commitment. The

                                       19
<PAGE>

                  Commitment of each Bank shall be deemed to be utilized for all
                  purposes hereof in an amount equal to such Bank's Percentage
                  of the Letter of Credit Obligations.

                  (iii) Upon receipt from the beneficiary of any Letter of
                  Credit of any demand for payment thereunder, Agent shall
                  promptly notify the Borrower and each Bank as to the amount to
                  be paid as a result of such demand and the payment date. If at
                  any time the Agent shall have made a payment to a beneficiary
                  of such Letter of Credit in respect of a drawing or in respect
                  of an acceptance created in connection with a drawing under
                  such Letter of Credit, each Bank will pay to Agent immediately
                  upon demand by the Agent at any time during the period
                  commencing after such payment until reimbursement thereof in
                  full by the Borrower, an amount equal to such Bank's
                  Percentage of such payment, together with interest on such
                  amount for each day from the date of demand for such payment
                  (or, if such demand is made after 2:00 a.m. Minneapolis time
                  on such date, from the next succeeding Business Day) to the
                  date of payment by such Bank of such amount at a rate of
                  interest per annum equal to the overnight Federal Funds rate
                  for such period.

                  (iv) The Borrower shall be irrevocably and unconditionally
                  obligated forthwith to reimburse the Agent for any amount paid
                  by the Agent upon any drawing under any Letter of Credit,
                  without presentment, demand, protest or other formalities of
                  any kind, all of which are hereby waived. Such reimbursement
                  may, subject to satisfaction of all conditions precedent and
                  to the available Commitment (after adjustment in the same to
                  reflect the elimination of the corresponding Letter of Credit
                  Obligation), be made by the borrowing of Loans. The Agent will
                  pay to each Bank such Bank's Percentage of all amounts
                  received from the Borrower for application in payment, in
                  whole or in part, of a Letter of Credit Obligation, but only
                  to the extent such Bank has made payment to the Agent in
                  respect of such Letter of Credit pursuant to clause (iii)
                  above.

                  (v) The Borrower will pay to Agent for the account of each
                  Bank in accordance with its Percentage letter of credit fee
                  with respect to each Letter of Credit equal to an amount,
                  calculated on the basis of face amount of each Letter of
                  Credit, in each case for the period from and including the
                  date of issuance of such Letter of Credit to and including the
                  date of expiration or termination thereof at a per annum rate
                  equal to the Applicable Margin for Eurodollar Advances
                  applicable from time to time, such fee to be due and payable
                  in advance on the date of the issuance thereof. The Agent will
                  pay to each Bank, promptly after receiving any payment in
                  respect of letter of credit fee referred to in this clause
                  (v), an amount equal to the product of such Bank's Percentage
                  times the amount of such fees. The Borrower shall also pay to
                  Agent at the Principal Office for the account of the Agent an
                  up-front issuance fee of 0.125% of the face amount of the
                  applicable

                                       20
<PAGE>

                  Letter of Credit. The Borrower shall pay to the Agent the
                  Agent's fees in connection with each Letter of Credit
                  (including amendment fees, negotiation fees and others) in
                  accordance with the Agent's standard fee schedule in effect
                  from time to time. All fees hereunder shall be computed on the
                  basis of a year of 360 days and paid for the actual number of
                  days elapsed.

                  (vi) The issuance by the Agent of each Letter of Credit shall,
                  in addition to the discretionary nature of this facility, be
                  subject to the conditions precedent that the Borrower shall
                  have executed and delivered such applications and other
                  instruments and agreements relating to such Letter of Credit
                  as the Agent shall have reasonably requested and are not
                  inconsistent with the terms of this Agreement (the `Letter of
                  Credit Agreements'). In the event of a conflict between the
                  terms of this Agreement and the terms of any Letter of Credit
                  Agreement, the terms hereof shall control.

         (c) Indemnification and Release. The Borrower hereby indemnifies and
         holds harmless the Agent and each Bank from and against any and all
         claims and damages, losses, liabilities, costs or expenses which the
         Agent or such Bank may incur (or which may be claimed against the Agent
         or such Bank by any Person whatsoever), REGARDLESS OF WHETHER CAUSED IN
         WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
         in connection with the execution and delivery of any Letter of Credit
         or transfer of or payment or failure to pay under any Letter of Credit;
         provided that the Borrower shall not be required to indemnify any party
         seeking indemnification for any claims, damages, losses, liabilities,
         costs or expenses to the extent, but only to the extent, caused by (x)
         the willful misconduct or gross negligence of the party seeking
         indemnification, or (y) by the failure by the party seeking
         indemnification to pay under any Letter of Credit after the
         presentation to it of a request required to be paid under applicable
         law.

                          ARTICLE III INTEREST AND FEES

         Section 3.1  Interest.

         (a) Eurodollar Advances. The unpaid principal amount of each Eurodollar
         Advance shall bear interest prior to maturity at a rate per annum equal
         to the Eurodollar Rate (Reserve Adjusted) in effect for each Interest
         Period for such Eurodollar Advance plus the Applicable Margin.

         (b) Prime Rate Advances. The unpaid principal amount of each Prime Rate
         Advance shall bear interest prior to maturity at a rate per annum equal
         to the Prime Rate plus the Applicable Margin.

                                       21
<PAGE>

         (c) Interest After Maturity. Any amount of the Loans not paid when due,
         whether at the date scheduled therefor or earlier upon acceleration,
         shall bear interest until paid in full at a rate per annum equal to the
         greater of (i) 2.00% in excess of the rate applicable to the unpaid
         principal amount immediately before it became due, or (ii) 3.00% in
         excess of the Prime Rate in effect from time to time.

         Section 3.2 Computation. Interest shall be computed on the basis of
actual days elapsed and a year of 360 days.

         Section 3.3 Payment Dates. Accrued interest under Section 3.1(a) and
(b) shall be payable on the applicable Payment Dates. Accrued interest under
Section 3.1(c) shall be payable on demand.

         Section 3.4 Agent's Fees. The Borrower shall pay to the Agent the fees
described in the Agent's Fee Letter.

           ARTICLE IV PAYMENTS, PREPAYMENTS, REDUCTION OR TERMINATION
                            OF THE CREDIT AND SETOFF

         Section 4.1 Repayment. Principal of the Loans, together with all
accrued and unpaid interest thereon, shall be due and payable on the Termination
Date.

         Section 4.2 Prepayments.

         (a) Optional Prepayments. The Borrower may prepay the Loans, in whole
         or in part, at any time subject to the provisions of Section 2.6,
         without any other premium or penalty. Each partial prepayment shall be
         in a minimum amount of $500,000 or in an integral multiple of $100,000
         above such amount. The Borrower shall give the Agent one Business Day's
         prior notice of prepayment of a Eurodollar Advance and any prepayment
         of a Eurodollar Advance shall be in an amount equal to the remaining
         entire principal balance of such Eurodollar Advance.

         (b) Mandatory Prepayment - Asset and Casualty Dispositions and Equity
         Issuance. The Borrower shall prepay the Loans in the following amounts:

                  (i) Asset Dispositions. One Hundred Percent (100%) of the
                  aggregate Net Sale Proceeds realized upon all Asset
                  Disposition if such Net Sale Proceeds of any asset in a single
                  transaction or a series of related transactions exceeds
                  $100,000;

                  (ii) Casualty Dispositions. One Hundred Percent (100%) of the
                  aggregate Net Casualty Proceeds realized upon all Casualty
                  Dispositions if such Net Casualty Proceeds of any asset in a
                  single transaction or a series of related transactions exceeds
                  $100,000; and

                                       22
<PAGE>

                  (iii) Equity Issuance. One Hundred Percent (100%) of the Net
                  Issuance Proceeds realized upon the sale by the Borrower or
                  such Subsidiary of any issuance of its equity securities in
                  excess of $1,000,000 on and after the date of this Agreement.

         Prepayment under this Section 4.2(b) shall be made as soon as possible
         following prompt determination of the amount thereof by the Borrower,
         provided, that to the extent applied to Eurodollar Advances, such
         amounts need not be paid by the Borrower until the end of the
         applicable Interest Period. Prepayments under this subsection Section
         4.2(b) shall be applied first, to any outstanding Prime Rate Advances,
         and thereafter to any outstanding Eurodollar Advances.

         (c) Mandatory Prepayment - Borrowing Base. If at any time the aggregate
         unpaid principal amount of all Loans of all Banks and the aggregate
         Letter of Credit Obligations outstanding shall exceed the lesser of (i)
         the Commitments of all Banks, or (ii) the Borrowing Base, the Borrower
         shall (x) prepay the Loans in the amount of such excess, and (y) if all
         of the Loans are paid in full and such excess still exists, deliver
         cash collateral for the Letter of Credit Obligations in the amount of
         such excess to be held as described in Section 10.4.

         Section 4.3 Reduction or Termination of Commitments. The Borrower may,
at any time, upon no less than three Business Days prior written or telephonic
notice received by the Agent, reduce the Commitments of all Banks, such
reduction to be in a minimum amount of $1,000,000 or an integral multiple
thereof and to be applied ratably to the Commitments of the respective Banks.
The Borrower may, at any time, upon not less than three Business Days prior
written notice to the Agent, terminate the Commitments in their entirety. Upon
termination of the Commitments pursuant to this Section, the Borrower shall pay
to the Agent for the account of the Banks the full amount of all outstanding
Loans, all accrued and unpaid interest thereon, and all other unpaid obligations
of the Borrower to the Banks hereunder. Upon any reduction in the Commitments
pursuant to this Section, the Borrower shall pay to the Agent for the account of
the Banks the amount, if any, by which the aggregate unpaid principal amount of
outstanding Loans exceeds the total Commitments of all Banks as so reduced.
Amounts so paid cannot be reborrowed. All prepayments described in this Section
shall be subject to the provisions of Section 2.6.

         Section 4.4 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under the
Loan Documents shall be made without set-off or counterclaim in immediately
available funds not later than 2:00 p.m., Minneapolis time, on the dates due at
the main office of the Agent in Minneapolis, Minnesota. Funds received on any
day after such time shall be deemed to have been received on the next Business
Day. The Agent shall promptly distribute in like funds to each Bank its
Percentage share of each such payment of principal and interest. Subject to the
definition of the term "Interest Period", whenever any payment to be made
hereunder or on the Notes shall be stated to be due on

                                       23
<PAGE>

a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of any interest or fees.

         Section 4.5 Proration of Payments. If any Bank or other holder of a
Loan shall obtain any payment or other recovery (whether voluntary, involuntary,
by application of offset, pursuant to the guaranty hereunder, or otherwise) on
account of principal of, interest on, or fees with respect to any Loan, or
payment of any Letter of Credit Obligations, in any case in excess of the share
of payments and other recoveries of other Banks or holders, such Bank or other
holder shall purchase from the other Banks or holders, in a manner to be
specified by the Agent, such participations in the Loans held by such other
Banks or holders as shall be necessary to cause such purchasing Bank or other
holder to share the excess payment or other recovery ratably with each of such
other Banks or holders; provided, however, that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Bank or holder, the purchase shall be rescinded and the purchase price restored
to the extent of such recovery, but without interest.

         Section 4.6 Clean-Down Periods. The Borrower shall repay the Loans and
not borrow additional Loans so that the outstanding principal balance of all
Loans does not exceed (a) $5,000,000 for at least one Business Day of during
Fiscal Year 2002, and (b) $10,000,000 for at least one Business day during each
Fiscal Year thereafter.

                ARTICLE V ADDITIONAL PROVISIONS RELATING TO LOANS

         Section 5.1 Increased Costs. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the interpretation
or administration thereof, or compliance by the Banks with any request or
directive (whether or not having the force of law) from any court, central bank,
governmental authority, agency or instrumentality, or comparable agency:

         (a) any tax, duty or other charge with respect to any Loan, the Notes
         or the Commitments is imposed, modified or deemed applicable, or the
         basis of taxation of payments to any Bank of interest or principal of
         the Loans (other than taxes imposed on the overall net income of such
         Bank by the jurisdiction in which such Bank has its principal office)
         is changed;

         (b) any reserve, special deposit, special assessment or similar
         requirement against assets of, deposits with or for the account of, or
         credit extended by, any Bank is imposed, modified or deemed applicable;

         (c) any increase in the amount of capital required or expected to be
         maintained by any Bank or any Person controlling such Bank is imposed,
         modified or deemed applicable; or

         (d) any other condition affecting this Agreement or the Commitments is
         imposed on any Bank or the relevant funding markets;

                                       24
<PAGE>

and such Bank determines that, by reason thereof, the cost to such Bank of
making or maintaining the Loans, issuing or participating in the Letters of
Credit or extending its Commitment is increased, or the amount of any sum
receivable by such Bank hereunder or under the Notes in respect of any Loan is
reduced;

then, the Borrower shall pay to such Bank upon demand such additional amount or
amounts as will compensate such Bank (or the controlling Person in the instance
of (c) above) for such additional costs or reduction (provided that such Bank
have not been compensated for such additional cost or reduction in the
calculation of the Eurodollar Reserve Rate). Determinations by each Banks for
purposes of this Section 5.1 of the additional amounts required to compensate
such Bank shall be conclusive in the absence of manifest error. In determining
such amounts, the Banks may use any reasonable averaging, attribution and
allocation methods.

         Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or
Inadequate; Impracticability. If the Agent determines (which determination shall
be conclusive and binding on the parties hereto) that:

         (a) deposits of the necessary amount for the relevant Interest Period
         for any Eurodollar Advance are not available in the relevant markets or
         that, by reason of circumstances affecting such market, adequate and
         reasonable means do not exist for ascertaining the Eurodollar Interbank
         Rate for such Interest Period;

         (b) the Eurodollar Rate (Reserve Adjusted) will not adequately and
         fairly reflect the cost to the Banks of making or funding the
         Eurodollar Advance for a relevant Interest Period; or

         (c) the making or funding of Eurodollar Advances has become
         impracticable as a result of any event occurring after the date of this
         Agreement which, in the opinion of the Agent, materially and adversely
         affects such Advances or any Bank's Commitment or the relevant market;

the Agent shall promptly give notice of such determination to the Borrower, and
(i) any notice of a new Eurodollar Advance previously given by the Borrower and
not yet borrowed or converted shall be deemed to be a notice to make a Prime
Rate Advance, and (ii) the Borrower shall be obligated to either prepay in full
any outstanding Eurodollar Advances, without premium or penalty on the last day
of the current Interest Period with respect thereto or convert any such
Eurodollar Advance to a Prime Rate Advance on such last day.

         Section 5.3 Changes in Law Rendering Eurodollar Advances Unlawful. If
at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration
thereof by any court, central bank, governmental authority,

                                       25
<PAGE>

agency or instrumentality, or comparable agency charged with the interpretation
or administration thereof, or for any other reason arising subsequent to the
date of this Agreement, it shall become unlawful or impossible for any Bank to
make or fund any Eurodollar Advance, the obligation of such Bank to provide such
Advance shall, upon the happening of such event, forthwith be suspended for the
duration of such illegality or impossibility. If any such event shall make it
unlawful or impossible for the Bank to continue any Eurodollar Advance
previously made by it hereunder, such Bank shall, upon the happening of such
event, notify the Agent and the Borrower thereof in writing, and the Borrower
shall, at the time notified by such Bank, either convert each such unlawful
Advance to a Prime Rate Advance or repay such Advance in full, together with
accrued interest thereon, subject to the provisions of Section 2.6.

         Section 5.4 Discretion of the Banks as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Bank shall
be entitled to fund and maintain its funding of all or any part of the Loans in
any manner it elects; it being understood, however, that for purposes of this
Agreement, all determinations hereunder shall be made as if the Banks had
actually funded and maintained each Eurodollar Advance during the Interest
Period for such Advance through the purchase of deposits having a term
corresponding to such Interest Period and bearing an interest rate equal to the
Eurodollar Interbank Rate for such Interest Period (whether or not any Bank
shall have granted any participations in such Advances).

                         ARTICLE VI CONDITIONS PRECEDENT

         Section 6.1 Conditions of Initial Loan. The obligation of the Banks to
make the initial Loan hereunder shall be subject to the satisfaction of the
conditions precedent, in addition to the applicable conditions precedent set
forth in Section 6.2 below, that the Agent shall have received all of the
following, in form and substance satisfactory to the Agent, each duly executed
and certified or dated as of the date of this Agreement or such other date as is
satisfactory to the Agent:

         (a) The Notes payable to each Bank executed by a duly authorized
         officer of the Borrower.

         (b)  The Subsidiary Guaranty.

         (c) The Amended and Restated Security Agreement (as described in the
         definition of "Security Agreement") and the Subsidiary Security
         Agreement, and each financing statement and other document requested by
         the Agent to perfect the security interest of the Collateral Agent
         thereunder, lien searches for each relevant jurisdiction, and each
         further document (including landlord's or mortgagee's waivers and
         insurance documents) required under the Security Agreement.

                                       26
<PAGE>

         (d) Certificates of the Secretary or an Assistant Secretary of the
         Borrower and of the Subsidiary Guarantor, attesting to and attaching
         (i) a copy of the corporate resolution of the Borrower and Subsidiary
         Guarantor authorizing the execution, delivery and performance of the
         Loan Documents, (ii) an incumbency certificate showing the names and
         titles, and bearing the signatures of, the officers of the Borrower and
         Subsidiary Guarantor authorized to execute the Loan Documents, (iii) a
         copy of the Articles or Certificate of Incorporation of the Borrower
         and Subsidiary Guarantor with all amendments thereto, and (iv) a copy
         of the By-Laws of the Borrower and Subsidiary Guarantor with all
         amendments thereto.

         (d) A Certificate of Good Standing for the Borrower and Subsidiary
         Guarantor in the jurisdiction of its incorporation, certified by the
         appropriate governmental officials.

         (e) An opinion of counsel to the Borrower and Subsidiary Guarantor,
         addressed to the Bank, in substantially the form of Exhibit E.

         (f) The Borrowing Base Certificate for the month most recently ended
         (or if ended less than 25 days before the closing date, the prior
         month).

         Section 6.2 Conditions Precedent to all Loans. The obligation of the
Bank to make any Loan hereunder (including the initial Loan) shall be subject to
the satisfaction of the following conditions precedent (and any request for a
Loan shall be deemed a representation by the Borrower that the following are
satisfied):

         (a) Before and after giving effect to such Loan, the representation and
         warranties contained in Article VII shall be true and correct, as
         though made on the date of such Loan.

         (b) Before and after giving effect to such Loan, no Default or Event of
         Default shall have occurred and be continuing.

                   ARTICLE VII REPRESENTATIONS AND WARRANTIES

         To induce the Agent and the Banks to enter into this Agreement, to
grant the Commitments and to make Loans hereunder, the Borrower represents and
warrants to the Agent and the Banks:

         Section 7.1 Organization, Standing, Etc. The Borrower and each of its
corporate Subsidiaries are corporations duly incorporated and validly existing
and in good standing under the laws of the jurisdiction of their respective
incorporation and have all requisite corporate power and authority to carry on
their respective businesses as now conducted, to (in the instance of the
Borrower) enter into the Loan Documents and to perform its obligations under the
Loan Documents. The Borrower and each of its Subsidiaries are duly qualified and
in good standing as a foreign corporation in each

                                       27
<PAGE>

jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary, and
where failure to so qualify would not constitute an Adverse Event.

         Section 7.2 Authorization and Validity. The execution, delivery and
performance by the Borrower of the Loan Documents have been duly authorized by
all necessary corporate action by the Borrower, and the Loan Documents
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, subject to
limitations as to enforceability which might result from bankruptcy, insolvency,
moratorium and other similar laws affecting creditors' rights generally and
subject to limitations on the availability of equitable remedies.

         Section 7.3 No Conflict; No Default. The execution, delivery and
performance by the Borrower of the Loan Documents will not (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to the Borrower, (b) violate
or contravene any provisions of the Articles (or Certificate) of Incorporation
or by-laws of the Borrower, or (c) result in a breach of or constitute a default
under any indenture, loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or any of its
properties may be bound or result in the creation of any Lien on any asset of
the Borrower or any Subsidiary. Neither the Borrower nor any Subsidiary is in
default under or in violation of any such law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, loan or credit agreement or other agreement, lease or instrument in
any case in which the consequences of such default or violation could constitute
an Adverse Event. No Default or Event of Default has occurred and is continuing.

         Section 7.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Borrower to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents.

         Section 7.5 Financial Statements and Condition. The Borrower's audited
consolidated and consolidating financial statements for Fiscal Year 2001, and
its unaudited consolidated and consolidating financial statements for Fiscal
Quarter 1 of Fiscal Year 2002, as heretofore furnished to the Banks, have been
prepared in accordance with GAAP on a consistent basis and fairly present the
financial condition of the Borrower and its Subsidiaries as at such dates and
the results of their operations and changes in financial position for the
respective periods then ended. As of the dates of such financial statements,
neither the Borrower nor any Subsidiary had any material obligation, contingent
liability, liability for taxes or long-term lease obligation which is not
reflected in such financial statements or in the notes thereto. Since the end of
Fiscal Year 2001, no Adverse Event has occurred. The dates of the last days of
the Borrower's Fiscal Quarters and Fiscal Years are set forth on Schedule 7.5.

                                       28
<PAGE>

         Section 7.6 Litigation and Contingent Liabilities. Except as described
in Schedule 7.6, there are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any of their properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to the Borrower or such Subsidiary, could constitute an
Adverse Event. Except as described in Schedule 7.6, neither the Borrower nor any
Subsidiary has any contingent liabilities which are material to the Borrower and
the Subsidiaries as a consolidated enterprise.

         Section 7.7 Compliance. The Borrower and its Subsidiaries are in
material compliance with all statutes and governmental rules and regulations
applicable to them.

         Section 7.8 Environmental, Health and Safety Laws. There does not exist
any violation by the Borrower or any Subsidiary of any applicable federal, state
or local law, rule or regulation or order of any government, governmental
department, board, agency or other instrumentality relating to environmental,
pollution, health or safety matters which will or threatens to impose a material
liability on the Borrower or a Subsidiary or which would require a material
expenditure by the Borrower or such Subsidiary to cure. Neither the Borrower nor
any Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, the consequences of which non-compliance or remedial action could
constitute an Adverse Event.

         Section 7.9 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event, other than a Reportable Event for which
the reporting requirements have been waived by regulations of the PBGC, has
occurred and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event
or condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. The current value of the Plans' benefits
guaranteed under Title IV or ERISA does not exceed the current value of the
Plans' assets allocable to such benefits.

         Section 7.10 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Loan will be used to purchase or carry margin
stock or for any other purpose which would violate any of the margin
requirements of the Board of Governors of the Federal Reserve System.

         Section 7.11 Ownership of Property; Liens. Each of the Borrower and the
Subsidiaries has good and marketable title to its real properties and good and
sufficient title to its other properties,

                                       29
<PAGE>

including all properties and assets referred to as owned by the Borrower and its
Subsidiaries in the audited financial statement of the Borrower referred to in
Section 7.5 (other than property disposed of since the date of such financial
statement in the ordinary course of business). None of the properties, revenues
or assets of the Borrower or any of its Subsidiaries is subject to a Lien,
except for (a) Liens disclosed in the financial statements referred to in
Section 7.5, (b) Liens listed on Schedule 7.11, or (c) Liens allowed under
Section 9.13.

         Section 7.12 Taxes. Each of the Borrower and the Subsidiaries has filed
all federal, state and local tax returns required to be filed and has paid or
made provision for the payment of all taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
and all other taxes, fees and other charges imposed on it or any of its property
by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Borrower). No tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Borrower in
respect of taxes and other governmental charges are adequate.

         Section 7.13 Trademarks, Patents. Each of the Borrower and the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.

         Section 7.14 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.

         Section 7.15 Public Utility Holding Company Act. Neither the Borrower
nor any Subsidiary is 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.

         Section 7.16 Subsidiaries. Schedule 7.16 sets forth as of the date of
this Agreement a list of all Subsidiaries and the number and percentage of the
shares of each class of capital stock owned beneficially or of record by the
Borrower or any Subsidiary therein, and the jurisdiction of incorporation of
each Subsidiary.

         Section 7.17 Partnerships and Joint Ventures. Schedule 7.17 sets forth
as of the date of this Agreement a list of all partnerships or joint ventures in
which the Borrower or any Subsidiary is a partner (limited or general) or joint
venturer.

                       ARTICLE VIII AFFIRMATIVE COVENANTS

                                       30
<PAGE>

         From the date of this Agreement and thereafter until the Commitments
are terminated or expire and the Loans and all other liabilities of the Borrower
to the Banks hereunder and under the Note have been paid in full, the Borrower
will do, and will cause each Subsidiary (except in the instance of Section 8.1)
to do, all of the following:

         Section 8.1 Financial Statements and Reports. Furnish to the Banks:

         (a) As soon as available and in any event within 90 days after the end
         of each Fiscal Year of the Borrower, the annual audit report of the
         Borrower and its Subsidiaries prepared on a consolidating and
         consolidated basis and in conformity with GAAP, consisting of at least
         statements of income, cash flow, changes in financial position and
         stockholders' equity, and a consolidated balance sheet as at the end of
         such Fiscal Year, setting forth in each case in comparative form
         corresponding figures from the previous annual audit, certified without
         qualification by independent certified public accountants of recognized
         standing selected by the Borrower and acceptable to the Bank, together
         with any management letters, management reports or other supplementary
         comments or reports to the Borrower or its board of directors furnished
         by such accountants and the Borrower's report filed with the Securities
         and Exchange Commission on Form 10K.

         (b) As soon as available and in any event within 45 days after the end
         of each Fiscal Year, an annual budget for the next Fiscal Year,
         including anticipated expenditures and cash flows and other information
         reasonably requested by the Agent.

         (c) As soon as available and in any event within 45 days after the end
         of each of the first three Fiscal Quarters of each Fiscal Year, a copy
         of the unaudited financial statement of the Borrower and its
         subsidiaries prepared in the same manner as the audit report referred
         to in Section 8.1(a), signed by the Borrower's chief financial officer,
         consisting of at least consolidated statements of income, cash flow,
         changes in financial position and stockholders' equity for the Borrower
         and the Subsidiaries for such Fiscal Quarter and for the period from
         the beginning of such Fiscal Year to the end of such Fiscal Quarter,
         and a consolidated balance sheet of the Borrower as at the end of such
         Fiscal Quarter and the Borrower's report filed with the Securities and
         Exchange Commission on Form 10Q.

         (d) Together with the financial statements furnished by the Borrower
         under Sections 8.1(a) and 8.1(c), a Compliance Certificate signed by
         the chief financial officer of the Borrower stating that as at the date
         of each such financial statement there did not exist any Default or
         Event of Default or, if such Default or Event of Default existed,
         specifying the nature and period of existence thereof and what action
         the Borrower proposes to take with respect thereto.

         (e) Within 30 days after the end of each month, a Borrowing Base
         Certificate as of the end of such month.

                                       31
<PAGE>

         (f) Immediately upon becoming aware of any Default or Event of Default,
         a notice describing the nature thereof and what action the Borrower
         proposes to take with respect thereto.

         (g) Immediately upon becoming aware of the occurrence, with respect to
         any Plan, of any Reportable Event (other than a Reportable Event for
         which the reporting requirements have been waived by PBGC regulations)
         or any "prohibited transaction" (as defined in Section 4975 of the
         Code), a notice specifying the nature thereof and what action the
         Borrower proposes to take with respect thereto, and, when received,
         copies of any notice from PBGC of intention to terminate or have a
         trustee appointed for any Plan.

         (h) Promptly upon the mailing or filing thereof, copies of all
         financial statements, reports and proxy statements mailed to the
         Borrower's shareholders, and copies of all registration statements,
         periodic reports and other documents filed with the Securities and
         Exchange Commission (or any successor thereto) or any national
         securities exchange.

         (i) Immediately upon becoming aware of the occurrence thereof, notice
         of the institution of any litigation, arbitration or governmental
         proceeding, or the rendering of a judgment or decision in such
         litigation or proceeding, which is material to the Borrower and its
         Subsidiaries as a consolidated enterprise, and the steps being taken by
         the Person(s) affected by such proceeding.

         (j) Immediately upon becoming aware of the occurrence thereof, notice
         of any violation as to any environmental matter by the Borrower or any
         Subsidiary and of the commencement of any judicial or administrative
         proceeding relating to health, safety or environmental matters (i) in
         which an adverse determination or result could result in the revocation
         of or have a material adverse effect on any operating permits, air
         emission permits, water discharge permits, hazardous waste permits or
         other permits held by the Borrower or any Subsidiary which are material
         to the operations of the Borrower or such Subsidiary, or (ii) which
         will or threatens to impose a material liability on the Borrower or
         such Subsidiary to any Person or which will require a material
         expenditure by the Borrower or such Subsidiary to cure any alleged
         problem or violation.

         (k) From time to time, such other information regarding the business,
         operation and financial condition of the Borrower and the Subsidiaries
         as any Bank may reasonably request.

         Section 8.2 Corporate Existence. Subject to Section 9.1 in the instance
of a Subsidiary, maintain its corporate existence in good standing under the
laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction in which the character of the properties owned,
leased or operated by it or the business conducted by it makes such
qualification necessary and where failure to so qualify would constitute an
Adverse Event.

                                       32
<PAGE>

         Section 8.3 Insurance. Maintain with financially sound and reputable
insurance companies such insurance as may be required by law and such other
insurance in such amounts and against such hazards as is customary in the case
of reputable corporations engaged in the same or similar business and similarly
situated.

         Section 8.4 Payment of Taxes and Claims. File all tax returns and
reports which are required by law to be filed by it and pay before they become
delinquent all taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind (including,
without limitation, those of suppliers, mechanics, carriers, warehouses,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Borrower's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Borrower's or such Subsidiary's books
in accordance with GAAP.

         Section 8.5 Inspection. Permit any Person designated by the Agent (or,
following occurrence of an Event of Default, any Bank) to visit and inspect any
of its properties, corporate books and financial records, to examine and to make
copies of its books of accounts and other financial records, and to discuss the
affairs, finances and accounts of the Borrower and the Subsidiaries with, and to
be advised as to the same by, its officers at such reasonable times and
intervals as such Bank may designate. So long as no Event of Default exists, the
expenses of the Agent for one such examination per Fiscal Year shall be
reimbursed by the Borrower and the expense of any additional examinations shall
be at the expense of the Agent, and any such visits, inspections, and
examinations made while any Event of Default is continuing shall be at the
expense of the Borrower.

         Section 8.6 Maintenance of Properties. Maintain its properties used or
useful in the conduct of its business in good condition, repair and working
order, and supplied with all necessary equipment, and make all necessary
repairs, renewals, replacements, betterments and improvements thereto, all as
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.

         Section 8.7 Books and Records. Keep adequate and proper records and
books of account in which full and correct entries will be made of its dealings,
business and affairs.

         Section 8.8 Compliance. Comply in all material respects with all laws,
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it may be subject.

         Section 8.9 ERISA. Maintain each Plan in compliance with all material
applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and of
the Code.

                                       33
<PAGE>

         Section 8.10 Environmental Matters. Observe and comply with all laws,
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters to
the extent non-compliance could result in a material liability or otherwise
constitute or result in an Adverse Event.

                          ARTICLE IX NEGATIVE COVENANTS

         From the date of this Agreement and thereafter until the Commitments
are terminated or expire and the Loans and all other liabilities of the Borrower
to the Banks hereunder and under the Note have been paid in full, the Borrower
will not, and will not permit any Subsidiary to, do any of the following:

         Section 9.1 Merger. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person; provided, however, any
wholly-owned Subsidiary may be merged with or liquidated into the Borrower (if
the Borrower is the surviving corporation) or any other wholly-owned Subsidiary.

         Section 9.2 Sale of Assets. Sell, transfer, lease or otherwise convey
all or any substantial part of its assets except for sales and leases of
inventory in the ordinary course of business and except for sales or other
transfers by a wholly-owned Subsidiary to the Borrower or another wholly-owned
Subsidiary.

         Section 9.3 Purchase of Assets. Purchase or lease or otherwise acquire
all or substantially all of the assets of any Person, except for (a) purchases
or other transfers by the Borrower or a wholly-owned Subsidiary from a
wholly-owned Subsidiary, and (b) Permitted Acquisitions made in accordance with
and subject to the limitations set forth in the definition thereof.

         Section 9.4 Plans. Permit any condition to exist in connection with any
Plan which might constitute grounds for the PBGC to institute proceedings to
have such Plan terminated or a trustee appointed to administer such Plan, permit
any Plan to terminate under any circumstances which would cause the lien
provided for in Section 4068 of ERISA to attach to any property, revenue or
asset of the Borrower or any Subsidiary or permit the underfunded amount of Plan
benefits guaranteed under Title IV of ERISA to exceed $100,000.

         Section 9.5 Change in Nature of Business. Make any material change in
the nature of the business of the Borrower or such Subsidiary, as carried on at
the date hereof.

         Section 9.6 Subsidiaries, Partnerships, Joint Ventures and Ownership of
Stock. Do any of the following: (a) form or acquire any corporation which would
thereby become a Subsidiary, except for any Permitted Acquisition; (b) form or
enter into any partnership as a limited or general partner or into any joint
venture; (c) permit any Subsidiary to purchase or otherwise acquire any shares
of the stock of the Borrower; or (d) take any action, or permit any Subsidiary
to take any action, which would result in

                                       34
<PAGE>

a decrease in the Borrower's or any Subsidiary's ownership interest in any
Subsidiary (including, without limitation, decrease in the percentage of the
shares of any class of stock owned).

         Section 9.7 Other Agreements. Enter into any agreement, bond, note or
other instrument with or for the benefit of any Person other than the Banks
which would: (a) prohibit the Borrower or such Subsidiary from granting, or
otherwise limit the ability of the Borrower or such Subsidiary to grant, to the
Banks any Lien on any assets or properties of the Borrower or such Subsidiary;
or (b) be violated or breached by the Borrower's performance of its obligations
under the Loan Documents.

         Section 9.8 Restricted Payments. Either: (a) purchase or redeem or
otherwise acquire for value any shares of the Borrower's or any Subsidiary's
stock, declare or pay any dividends thereon (other than stock dividends and
dividends payable solely to the Borrower), make any distribution on, or payment
on account of the purchase, redemption, defeasance or other acquisition or
retirement for value of, any shares of the Borrower's or any Subsidiary's stock
or set aside any funds for any such purpose (other than payment to, or on
account of or for the benefit of, the Borrower only); or (b) directly or
indirectly make any payment on, or redeem, repurchase, defease, or make any
sinking fund payment on account of, or any other provision for, or otherwise
pay, acquire or retire for value, any Indebtedness of the Borrower or any
Subsidiary that is subordinated in right of payment to the Loans (whether
pursuant to its terms or by operation of law), except for regularly-scheduled
payments of interest and principal (which shall not include payments
contingently required upon occurrence of a change of control or other event)
that are not otherwise prohibited hereunder or under the document or agreement
stating the terms of such subordination.

         Section 9.9 Capital Expenditures. Make Capital Expenditures (exclusive
of any Permitted Acquisition or any portion thereof that may be deemed a Capital
Expenditure) in an amount exceeding $4,000,000 on a consolidated basis during
any period of four consecutive Fiscal Quarters.

         Section 9.10 Leases. Enter into or permit to exist any arrangements for
the leasing by the Borrower or any of its Subsidiaries, as lessee, of any real
or personal property (or any interest therein) under leases (other than
Capitalized Leases) which require the payment by the Borrower and its
Subsidiaries on a consolidated bases of rental amounts in the aggregate in
excess of (a) $4,000,000 during any period of four consecutive Fiscal Quarters.

         Section 9.11 Investments. Acquire for value, make, have or hold any
Investments, except:

         (a) Investments outstanding on the date hereof and listed on Schedule
         9.11;

         (b) Travel advances to officers and employees in the ordinary course of
         business;

         (c) Investments in readily marketable direct obligations of the United
         States of America having maturities of one year or less from the date
         of acquisition;

                                       35
<PAGE>

         (d) Certificates of deposit or bankers' acceptances, each maturing
         within one year from the date of acquisition, issued by any commercial
         bank organized under the laws of the United States or any State thereof
         which has (i) combined capital, surplus and undivided profits of at
         least $100,000,000, and (ii) a credit rating with respect to its
         unsecured indebtedness from a nationally recognized rating service that
         is satisfactory to the Bank;

         (e) Commercial paper maturing within 270 days from the date of issuance
         and given the highest rating by a nationally recognized rating service;

         (f) Repurchase agreements relating to securities issued or guaranteed
         as to principal and interest by the United States of America;

         (g) extensions of credit in the nature of accounts receivable or notes
         receivable arising from the sale of goods and services in the ordinary
         course of business;

         (h) share of stock, obligations or other securities received in
         settlement of claims arising in the ordinary course of business;

         (i) Permitted Acquisitions, made in accordance with and subject to the
         limitations set forth in the definition thereof; and

         (j) Investments outstanding on the date hereof in Subsidiaries by the
         Borrower and other Subsidiaries.

         Section 9.12 Indebtedness. Incur, create, issue, assume or suffer to
exist any Indebtedness, except:

         (a) Indebtedness under this Agreement;

         (b) Current liabilities, other than for borrowed money, incurred in the
         ordinary course of business;

         (c) Indebtedness existing on the date of this Agreement and disclosed
         on Schedule 9.12 hereto;

         (d) Indebtedness secured by Liens permitted under Section 9.13 hereof;
         and

         (e) Indebtedness consisting of endorsements for collection, deposit or
         negotiation and warranties of products or services, in each case
         incurred in the ordinary course of business.

         Section 9.13 Liens. Create, incur, assume or suffer to exist any Lien
with respect to any property, revenues or assets now owned or hereafter arising
or acquired, except:

                                       36
<PAGE>

         (a) Liens in connection with the acquisition of property after the date
         hereof by way of purchase money mortgage, conditional sale or other
         title retention agreement, Capitalized Lease or other deferred payment
         contract, and attaching only to the property being acquired if the
         Indebtedness secured thereby does not exceed the fair market value of
         such property at the time of acquisition thereof nor $500,000 in the
         aggregate for the Borrower and all Subsidiaries at any one time
         outstanding;

         (b) Liens existing on the date of this Agreement and disclosed on
         Schedule 7.11 hereto;

         (c) Deposits or pledges to secure payment of workers' compensation,
         unemployment insurance, old age pensions or other social security
         obligations, in the ordinary course of business of the Borrower or a
         Subsidiary;

         (d) Liens for taxes, fees, assessments and governmental charges not
         delinquent or to the extent that payments therefor shall not at the
         time be required to be made in accordance with the provisions of
         Section 8.4;

         (e) Liens of carriers, warehousemen, mechanics and materialmen, and
         other like Liens arising in the ordinary course of business, for sums
         not due or to the extent that payment therefor shall not at the time be
         required to be made in accordance with the provisions of Section 8.4;
         and

         (f) Deposits to secure the performance of bids, trade contracts,
         leases, statutory obligations and other obligations of a like nature
         incurred in the ordinary course of business.

         Section 9.14 Contingent Liabilities. Either: (i) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except by the endorsement of negotiable instruments for deposit or collection
(or similar transactions) in the ordinary course of business, or (ii) agree to
maintain the net worth or working capital of, or provide funds to satisfy any
other financial test applicable to, any other Person.

         Section 9.15 Unconditional Purchase Obligations. Enter into or be a
party to any contract for the purchase or lease of materials, supplies or other
property or services if such contract requires that payment be made by it
regardless of whether or not delivery is ever made of such materials, supplies
or other property or services.

         Section 9.16 Transactions with Related Parties. Enter into or be a
party to any transaction or arrangement, including, without limitation, the
purchase, sale lease or exchange of property or the rendering of any service,
with any Related Party, except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or the applicable Subsidiary's
business and upon fair and

                                       37
<PAGE>

reasonable terms no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's-length transaction with a Person not a Related
Party.

         Section 9.17 Use of Proceeds. Permit any proceeds of the Loans to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Federal Reserve Board, as amended from time to
time, and furnish to any Bank, upon its request, a statement in conformity with
the requirements of Federal Reserve Form U-1 referred to in Regulation U.

         Section 9.18 Tangible Net Worth. Permit its Consolidated Tangible Net
Worth at any time to be less than the sum of (a) $35,000,000, plus (b) 50% of
the aggregate amount of consolidated net income of the Borrower for Fiscal
Quarter 2 Fiscal Year 2002 and each Fiscal Quarter thereafter, on a cumulative
basis without giving effect to any net loss for any Fiscal Quarter.

         Section 9.19 Cash Flow Leverage Ratio. Permit the Cash Flow Leverage
Ratio to exceed the following for the following Measurement Periods:

<TABLE>
<CAPTION>

         Measurement Period:                                Maximum Cash Flow Leverage Ratio:
         ------------------                                 --------------------------------
<S>                                                                 <C>
         Measurement Period
         ending December 28, 2001:                                     2.00 to 1.00

         Each Measurement Period ending
         thereafter:                                                   2.50 to 1.00

</TABLE>

         Section 9.20 Interest and Lease Coverage Ratio. Permit the Interest and
Lease Coverage Ratio to be less than 2.00 to 1.00 for any Measurement Period.

         Section 9.21 Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio to be less than 1.50 to 1.00 for any Measurement Period.

                    ARTICLE X EVENTS OF DEFAULT AND REMEDIES

         Section 10.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default:

         (a) The Borrower shall fail to make when due, whether by acceleration
         or otherwise, any payment of principal of or interest on the Note or
         any fee or other amount required to be made to the Banks pursuant to
         the Loan Documents;

                                       38
<PAGE>

         (b) Any representation or warranty made or deemed to have been made by
         or on behalf of the Borrower or any Subsidiary by any of the Loan
         Documents or by or on behalf of the Borrower or any Subsidiary in any
         certificate, statement, report or other writing furnished by or on
         behalf of the Borrower to the Banks pursuant to the Loan Documents
         shall prove to have been false or misleading in any material respect on
         the date as of which the facts set forth are stated or certified or
         deemed to have been stated or certified;

         (c) The Borrower shall fail to comply with Section 8.2 hereof or any
         Section of Article IX hereof;

         (d) The Borrower or the Subsidiary Guarantor shall fail to comply with
         any agreement, covenant, condition, provision or term contained in the
         Loan Documents (and such failure shall not constitute an Event of
         Default under any of the other provisions of this Section 10.1) and
         such failure to comply shall continue for 30 calendar days after notice
         thereof to the Borrower by the Bank;

         (e) The Borrower or any Subsidiary shall become insolvent or shall
         generally not pay its debts as they mature or shall apply for, shall
         consent to, or shall acquiesce in the appointment of a custodian,
         trustee or receiver of the Borrower or such Subsidiary or for a
         substantial part of the property thereof or, in the absence of such
         application, consent or acquiescence, a custodian, trustee or receiver
         shall be appointed for the Borrower or a Subsidiary or for a
         substantial part of the property thereof and shall not be discharged
         within 30 days;

         (f) Any bankruptcy, reorganization, debt arrangement or other
         proceedings under any bankruptcy or insolvency law shall be instituted
         by or against the Borrower or a Subsidiary, and, if instituted against
         the Borrower or a Subsidiary, shall have been consented to or
         acquiesced in by the Borrower or such Subsidiary, or shall remain
         undismissed for 30 days, or an order for relief shall have been entered
         against the Borrower or such Subsidiary, or the Borrower or any
         Subsidiary shall take any corporate action to approve institution of,
         or acquiescence in, such a proceeding;

         (g) Any dissolution or liquidation proceeding shall be instituted by or
         against the Borrower or a Subsidiary and, if instituted against the
         Borrower or such Subsidiary, shall be consented to or acquiesced in by
         the Borrower or such Subsidiary or shall remain for 30 days
         undismissed, or the Borrower or any Subsidiary shall take any corporate
         action to approve institution of, or acquiescence in, such a
         proceeding;

         (h) A judgment or judgments for the payment of money in excess of the
         sum of $1,000,000 in the aggregate shall be rendered against the
         Borrower or a Subsidiary and the Borrower or such Subsidiary shall not
         discharge the same or provide for its discharge in accordance with its
         terms, or procure a stay of execution thereof, prior to any execution
         on such judgments by such judgment creditor, within 30 days from the
         date of entry thereof, and within said period of

                                       39
<PAGE>

         30 days, or such longer period during which execution of such judgment
         shall be stayed, appeal therefrom and cause the execution thereof to be
         stayed during such appeal;

         (i) The institution by the Borrower or any ERISA Affiliate of steps to
         terminate any Plan if in order to effectuate such termination, the
         Borrower or any ERISA Affiliate would be required to make a
         contribution to such Plan, or would incur a liability or obligation to
         such Plan, in excess of $1,000,000, or the institution by the PBGC of
         steps to terminate any Plan;

         (j) The maturity of any Funded Debt of the Borrower (other than Funded
         Debt under this Agreement) or a Subsidiary shall be accelerated, or the
         Borrower or a Subsidiary shall fail to pay any such Funded Debt when
         due or, in the case of such Funded Debt payable on demand, when
         demanded, or any event shall occur or condition shall exist and shall
         continue for more than the period of grace, if any, applicable thereto
         and shall have the effect of causing, or permitting (any required
         notice having been given and grace period having expired) the holder of
         any such Funded Debt or any trustee or other Person acting on behalf of
         such holder to cause, such Funded Debt to become due prior to its
         stated maturity or to realize upon any collateral given as security
         therefor;

         (k) Any Loan Document shall not be, or shall cease to be, enforceable
         in accordance with its terms or the Borrower or the Subsidiary
         Guarantor shall disavow, contest, or attempt to disavow or contest, its
         obligations thereunder; or

         (l) Any Person, or group of Persons acting in concert, that owned less
         than 5% of the shares of any voting class of stock of the Borrower
         shall have acquired more than 25% of the shares of such voting stock.

         Section 10.2 Remedies. If (a) any Event of Default described in
Sections 10.1(e), (f) or (g) shall occur with respect to the Borrower, the
Commitments shall automatically terminate and the outstanding unpaid principal
balance of the Notes, the accrued interest thereon and all other obligations of
the Borrower to the Banks and the Agent under the Loan Documents shall
automatically become immediately due and payable; or (b) any other Event of
Default shall occur and be continuing, then the Agent may take any or all of the
following actions (and shall take any or all of the following actions on
direction of the Required Banks): (i) declare the Commitments terminated,
whereupon the Commitments shall terminate, (ii) declare that the outstanding
unpaid principal balance of the Notes, the accrued and unpaid interest thereon
and all other obligations of the Borrower to the Banks and the Agent under the
Loan Documents to be forthwith due and payable, whereupon the Notes, all accrued
and unpaid interest thereon and all such obligations shall immediately become
due and payable, in each case without demand or notice of any kind, all of which
are hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding, (iii) exercise all rights and remedies under any other
instrument, document or agreement between the Borrower and the Agent or the
Banks, and (iv) enforce all rights and remedies under any applicable law.

                                       40
<PAGE>

         Section 10.3 Offset. In addition to the remedies set forth in Section
10.2, upon the occurrence of any Event of Default or at any time thereafter
while such Event of Default continues, each Bank or any other holder of the Note
may offset any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or monies of the Borrower then or
thereafter with such Bank or such other holder, or any obligations of such Bank
or such other holder of the Note, against the Indebtedness then owed by the
Borrower to such Bank.

         Section 10.4 Letters of Credit. In addition to the foregoing remedies,
if any Event of Default described in Sections 10.1(e), (f) or (g) shall occur,
or if any other Event of Default shall have occurred and the Agent shall have
declared that the principal balance of the Notes is due and payable, the
Borrower shall, upon demand by the Agent, pay to the Agent, as agent and bailee
for the Banks, an amount equal to all Letter of Credit Obligations. Such payment
shall be in immediately available funds or in similar cash collateral acceptable
to the Agent and shall be pledged to the Agent as agent and bailee for the
benefit of the Banks. Such amount shall be held by the Agent in a cash
collateral account until the outstanding Letters of Credit are terminated
without payment or are paid and Letter of Credit Obligations with respect
thereto are payable. In the event the Borrower defaults in the payment of any
Letter of Credit Obligations, the proceeds of the cash collateral account shall
be applied to the payment thereof. The Borrower acknowledges and agrees that the
Banks would not have an adequate remedy at law for failure by the Borrower to
pay immediately to the Agent the amount provided under this Section, and that
the Agent and the Banks shall have the right to require the Borrower to perform
specifically such undertaking whether or not any of the Letter of Credit
Obligations are due and payable. Upon the failure of the Borrower to make any
payment required under this Paragraph, the Agent, on behalf of the Banks, may
proceed to use all remedies available at law or equity to enforce the obligation
of the Borrower to pay or reimburse the Banks, including without limitation any
right the Agent or Banks may have to enforce any security interest in any
collateral for such obligations. The balance of any payment due under this
Section shall bear interest payable on demand until paid in full at a per annum
rate equal to the Reference Rate plus 2%.

                                   ARTICLE XI

                                    THE AGENT

         Section 11.1 Appointment and Grant of Authority. Each Bank hereby
appoints the Agent, and the Agent hereby agrees to act, as agent under this
Agreement and each other Loan Document. The Agent shall have and may exercise
such powers under this Agreement and the other Loan Documents as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. Each Bank hereby
authorizes, consents to, and directs the Borrower to deal with the Agent as the
true and lawful agent of such Bank to the extent set forth herein.

                                       41
<PAGE>

         Section 11.2 Non-Reliance on Agent. Each Bank agrees that it has,
independently and without reliance on the Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and decision to enter into this Agreement and that it
will, independently and without reliance upon the Agent, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Agent shall not be required to keep informed as to the
performance or observance by the Borrower of this Agreement and the Loan
Documents or to inspect the properties or books of the Borrower. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its related companies) which may come into the Agent's possession.

         Section 11.3 Responsibility of the Agent and Other Matters.

         (a) The Agent shall have no duties or responsibilities except those
         expressly set forth in this Agreement and those duties and liabilities
         shall be subject to the limitations and qualifications set forth in
         this Section. The duties of the Agent shall be mechanical and
         administrative in nature.

         (b) Neither the Agent nor any of its directors, officers or employees
         shall be liable for any action taken or omitted (whether or not such
         action taken or omitted is within or without the Agent's
         responsibilities and duties expressly set forth in this Agreement)
         under or in connection with this Agreement, or any other instrument or
         document in connection herewith, except for gross negligence or willful
         misconduct. Without limiting the foregoing, neither the Agent nor any
         of its directors, officers or employees shall be responsible for, or
         have any duty to examine: (i) the genuineness, execution, validity,
         effectiveness, enforceability, value or sufficiency of the Loan
         Agreements; (ii) the collectibility of any amounts owed by the
         Borrower; (iii) any recitals or statements or representations or
         warranties in connection with this Agreement or the Notes; (iv) any
         failure of any party to this Agreement to receive any communication
         sent; or (v) the assets, liabilities, financial condition, results of
         operations, business or creditworthiness of the Borrower.

         (c) The Agent shall be entitled to act, and shall be fully protected in
         acting upon, any communication in whatever form believed by the Agent
         in good faith to be genuine and correct and to have been signed or sent
         or made by a proper person or persons or entity. The Agent may consult
         counsel and shall be entitled to act, and shall be fully protected in
         any action taken in good faith, in accordance with advice given by
         counsel. The Agent may employ agents and attorneys-in-fact and shall
         not be liable for the default or

                                       42
<PAGE>

         misconduct of any such agents or attorneys-in-fact selected by the
         Agent with reasonable care. The Agent shall not be bound to ascertain
         or inquire as to the performance or observance of any of the terms,
         provisions or conditions of this Agreement or the Notes on the
         Borrower's part.

         Section 11.4 Action on Instructions. The Agent shall be entitled to act
or refrain from acting, and in all cases shall be fully protected in acting or
refraining from acting under this Agreement or the Notes or any other instrument
or document in connection herewith or therewith in accordance with instructions
in writing from (i) the Required Banks except for instructions which under the
express provisions hereof must be received by the Agent from all the Banks, and
(ii) in the case of such instructions, from all the Banks.

         Section 11.5 Indemnification. To the extent the Borrower does not
reimburse and save the Agent harmless according to the terms hereof for and from
all costs, expenses and disbursements in connection herewith or with the other
Loan Documents, such costs, expenses and disbursements to the extent reasonable
shall be borne by the Banks ratably in accordance with their Percentages and the
Banks hereby agree on such basis (a) to reimburse the Agent for all such
reasonable costs, expenses and disbursements on request and (b) to indemnify and
save harmless the Agent against and from any and all losses, obligations,
penalties, actions, judgments and suits and other reasonable costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent, other than as a consequence of actual gross
negligence or willful misconduct on the part of the Agent, arising out of or in
connection with this Agreement or the Notes or any instrument or document in
connection herewith or therewith, or any request of the Banks, including without
limitation the reasonable costs, expenses and disbursements in connection with
defending itself against any claim or liability, or answering any subpoena,
related to the exercise or performance of any of its powers or duties under this
Agreement or the other Loan Documents or the taking of any action under or in
connection with this Agreement or the Notes.

         Section 11.6 U.S. Bank National Association and Affiliates. With
respect to U.S. Bank National Association's Commitment and any Loans by U.S.
Bank National Association under this Agreement and any Note and any interest of
U.S. Bank National Association in any Note, U.S. Bank National Association shall
have the same rights, powers and duties under this Agreement and such Note as
any other Bank and may exercise the same as though it were not the Agent. U.S.
Bank National Association and its affiliates may accept deposits from, lend
money to, and generally engage, and continue to engage, in any kind of business
with the Borrower as if U.S. Bank National Association were not the Agent.

         Section 11.7 Notice to Holder of Notes. The Agent may deem and treat
the payees of the Notes as the owners thereof for all purposes unless a written
notice of assignment, negotiation or transfer thereof has been filed with the
Agent. Any request, authority or consent of any holder

                                       43
<PAGE>

of any Note shall be conclusive and binding on any subsequent holder, transferee
or assignee of such Note.

         Section 11.8 Successor Agent. The Agent may resign at any time by
giving at least 30 days written notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been appointed by the Required
Banks and shall have accepted such appointment within 30 days after the retiring
Agent's giving notice of resignation, then the retiring Agent may, but shall not
be required to, on behalf of the Banks, appoint a successor Agent.

                            ARTICLE XII MISCELLANEOUS

         Section 12.1 No Waiver and Amendment. No failure on the part of the
Banks or the holder of the Notes to exercise and no delay in exercising any
power or right hereunder or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in any other instrument, document or
agreement delivered or to be delivered to the Banks hereunder or in connection
herewith are cumulative and not exclusive of any remedies provided by law. No
notice to or demand on the Borrower not required hereunder or under the Notes
shall in any event entitle the Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the right of the
Banks or the holder of the Notes to any other or further action in any
circumstances without notice or demand.

         Section 12.2 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Borrower and the Agent upon direction of the required Banks and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or consent
shall, unless agreed to by the Agent and all of the Banks:

         (a) increase the amounts of or extend the terms of the Commitments or
         subject the Banks to any additional obligations;

         (b) reduce the principal of, or interest on, the Notes or any fees or
         other amounts payable hereunder;

         (c) postpone any date fixed for any payment of principal of, or
         interest on, the Notes or any fees or other amounts payable hereunder;

         (d) change the definition of Required Banks or amend this Section 12.2

                                       44
<PAGE>

provided, further that amendments, waivers or consents affecting the rights of
the Agent shall also require the consent of the Agent.

         Section 12.3 Assignments and Participations.

         (a) Assignments. Each Bank shall have the right, subject to the further
         provisions of this Sections 12.3, to sell or assign all or any part of
         its Commitments, Loans, Notes, and other rights and obligations under
         this Agreement and related documents (such transfer, and "Assignment")
         to any commercial lender, other financial institution or other entity
         (an "Assignee"). Upon such Assignment becoming effective as provided in
         Section 12.3(b), the assigning Bank shall be relieved from the portion
         of its Commitment, obligations to indemnify the Agent and other
         obligations hereunder to the extent assumed and undertaken by the
         Assignee, and to such extent the Assignee shall have the rights and
         obligations of a "Bank" hereunder. Notwithstanding the foregoing,
         unless otherwise consented to by the Borrower and the Agent, each
         Assignment shall be in the initial principal amount of not less than
         $5,000,000 in the aggregate for all Loans and Commitments assigned, or
         an integral multiple of $1,000,000 if above such amount Each Assignment
         shall be documented by an agreement between the assigning Bank and the
         Assignee (an "Assignment and Assumption Agreement") substantially in
         the form of Exhibit F attached hereto.

         (b) Effectiveness of Assignments. An Assignment shall become effective
         hereunder when all of the following shall have occurred: (i) the Agent
         and the Borrower (or, following occurrence and during continuance of an
         Event of Default, the Agent only and not the Borrower) shall have been
         given notice of the Assignment and shall have given prior written
         consent to such Assignment, unless the Assignee is already a Bank under
         this Agreement, (ii) either the assigning Bank or the Assignee shall
         have paid a processing fee of $5,000 to the Agent for its own account,
         (iii) the Assignee shall have submitted the Assignment and Assumption
         Agreement to the Agent with a copy for the Borrower, and shall have
         provided to the Agent information the Agent shall have reasonably
         requested to make payments to the Assignee, and (iv) the assigning Bank
         and the Agent shall have agreed upon a date upon which the Assignment
         shall become effective. Upon the Assignment becoming effective, (x) if
         requested by the assigning Bank, the Agent and the Borrower shall make
         appropriate arrangements so that new Notes are issued to the assigning
         Bank and the Assignee; and (y) the Agent shall forward all payments of
         interest, principal, fees and other amounts that would have been made
         to the assigning Bank, in proportion to the percentage of the assigning
         Bank's rights transferred, to the Assignee.

         (c) Participations. Each Bank shall have the right, subject to the
         further provisions of this Section 12.3, to grant or sell a
         participation in all or any part of its Loans, Notes and Commitments (a
         "Participation") to any commercial lender, other financial institution
         or

                                       45
<PAGE>

         other entity (a "Participant") without the consent of the Borrower, the
         Agent of any other party hereto. The Borrower agrees that if amounts
         outstanding under this agreement and the Notes are due and unpaid, or
         shall have been declared or shall have become due and payable upon the
         occurrence of an Event of Default, each Participant shall be deemed to
         have the right of setoff in respect of its Participation in amounts
         owing under this Agreement and any Note to the same extent as if the
         amount of its Participation were owing directly to it as a Bank under
         this agreement or any note; provided, that such right of setoff shall
         be subject to the obligation of such Participant to share with the
         Banks, and the Banks agree to share with such Participant, as provided
         in Section 4.5 hereof. The Borrower also agrees that each Participant
         shall be entitled to the benefits of Article V with respect to its
         Participation, provided, that no Participant shall be entitled to
         receive any greater amount pursuant to such Sections than the
         transferor Bank would have been entitled to receive in respect of the
         amount of the Participation transferred by such transferor Bank to such
         Participant had no such transfer occurred.

         (d) Limitation of Rights of any Assignee or Participant.
         Notwithstanding anything in the foregoing to the contrary, except in
         the instance of an Assignment that has become effective as provided in
         Section 12.3(b), (i) no Assignee or Participant shall have any direct
         rights hereunder, (ii) the Borrower, the Agent and the Banks other than
         the assigning or selling Bank shall deal solely with the assigning or
         selling Bank and shall not be obligated to extend any rights or make
         any payment to, or seek any consent of, the Assignee or Participant,
         (iii) no Assignment or Participation shall relieve the assigning or
         selling Bank from its Commitment to make Loans hereunder or any of its
         other obligations hereunder and such Bank shall remain solely
         responsible for the performance hereof, the (iv) no Assignee or
         Participant, other than an affiliate of the assigning or selling Bank,
         shall be entitled to require such Bank to take or omit to take any
         action hereunder, except that such Bank may agree with such Assignee or
         Participant that such Bank will not, without such Assignee's or
         Participant's consent, take any action which would, in the case of any
         principal, interest or fee in which the Assignee or Participant has an
         ownership or beneficial interest: (w) extend the final maturity of any
         Loans or extend the Termination Date, (x) reduce the interest rate on
         the Loans, (y) forgive any principal of, or interest on, the Loans or
         any fees, or (z) release all or substantially all of the Collateral for
         the Loans.

         (e) Tax Matters. No Bank shall be permitted to enter into any
         Assignment or Participation with any Assignee or Participant who is not
         a United States Person unless such Assignee or Participant represents
         and warrants to such Bank that, as at the date of such Assignment or
         Participation, it is entitled to receive interest payments without
         withholding or deduction of any taxes and such Assignee or Participant
         executes and delivers to such Bank on or before the date of execution
         and delivery of documentation of such Participation or Assignment, a
         United States Internal Revenue Service Form W8BEN or W8ECI, or any
         successor to either of such forms, as appropriate, properly completed
         and claiming complete exemption from withholding and deduction of all
         Federal Income

                                       46
<PAGE>

         Taxes. A "United States Person" means any citizen, national or resident
         of the United States, any corporation or other entity created or
         organized in or under the laws of the United States or any political
         subdivision hereof or any estate or trust, in each case that is not
         subject to withholding of United States Federal income taxes or other
         taxes on payment of interest, principal or fees hereunder.

         (f) Information. Each Bank may furnish any information concerning the
         Borrower in the possession of such Bank from time to time to Assignees
         and Participants and potential Assignees and Participants.

         (g) Federal Reserve Bank. Nothing herein stated shall limit the right
         of any Bank to assign any interest herein and in any Note to a Federal
         Reserve Bank.

         Section 12.4 Costs, Expenses and Taxes; Indemnification.

         (a) The Borrower agrees, whether or not any Advance is made hereunder,
         to pay on demand: (i) all costs and expenses of the Agent (including
         the reasonable fees and expenses of counsel and paralegals for such
         persons who may be employees of such persons) incurred in connection
         with the preparation, execution and delivery of the Loan Documents and
         the preparation, negotiation and execution of any and all amendments to
         each thereof, and (ii) all costs and expenses of the Agent and each of
         the Banks incurred after the occurrence of an Event of Default in
         connection with the enforcement of the Loan Documents. The Borrower
         agrees to pay, and save the Banks harmless from all liability for, any
         stamp or other taxes which may be payable with respect to the execution
         or delivery of the Loan Documents. The Borrower agrees to indemnify and
         hold the Banks harmless from any loss or expense which may arise or be
         created by the acceptance in good faith by the Agent of telephonic or
         other instructions for making Advances or disbursing the proceeds
         thereof.

         (b) The Borrower agrees to defend, protect, indemnify, and hold
         harmless the Agent and each and all of the Banks, each of their
         respective Affiliates and each of the respective officers, directors,
         employees and agents of each of the foregoing (each an "Indemnified
         Person" and, collectively, the "Indemnified Persons") from and against
         any and all liabilities, obligations, losses, damages, penalties,
         actions, judgments, suits, claims, costs, expenses and disbursements of
         any kind or nature whatsoever (including, without limitation, the fees
         and disbursements of counsel to such Indemnified Persons in connection
         with any investigative, administrative or judicial proceeding, whether
         direct, indirect or consequential and whether based on any federal or
         state laws or other statutory regulations, including, without
         limitation, securities and commercial laws and regulations, under
         common law or at equitable cause, or on contract or otherwise, the
         capitalization of the Borrower, the Commitments, the making of,
         management of and participation in the Advances or the use or intended
         use of the proceeds of the Advances, provided that the Borrower shall
         have no obligation under this Section 12.4(b) to an Indemnified Person

                                       47
<PAGE>

         with respect to any of the foregoing to the extent resulting from the
         gross negligence or willful misconduct of such Indemnified Person or
         arising solely from claims between one such Indemnified Person and
         another such Indemnified Person. The indemnity set forth herein shall
         be in addition to any other obligations or liabilities of the Borrower
         to each Indemnified Person under the Loan Documents or at common law or
         otherwise.

         (c) The obligations of the Borrower under this Section 12.4 shall
         survive any termination of this Agreement.

         Section 12.5 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Agent under Article II hereof shall be deemed to have been
given only when received by the Agent.

         Section 12.6 Successors. This Agreement shall be binding upon the
Borrower, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of the Borrower, the Banks and the Agent and the
successors and assigns of the Banks. The Borrower shall not assign its rights or
duties hereunder without the written consent of the Banks.

         Section 12.7 Severability. Any provision of the Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

         Section 12.8 Subsidiary References. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Borrower has
one or more Subsidiaries.

         Section 12.9 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.

         Section 12.10 Entire Agreement. The Loan Documents embody the entire
agreement and understanding between the Borrower, the Banks and the Agent with
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.

                                       48
<PAGE>

         Section 12.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

         Section 12.12 Governing Law. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.

         Section 12.13 Consent to Jurisdiction. AT THE OPTION OF THE BANKS, THIS
AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE BORROWER CONSENTS
TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT
VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE BANKS AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

         Section 12.14 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE
AGENT EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

                            (signature pages follows)

                                       49
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above.

                                              CHRONIMED INC.

                                              By:_______________________________

                                              Title:____________________________

                                              10900 Red Circle Drive
                                              Minnetonka, MN 55343
         `                                    Attention: Mr. Gregory H. Keane
                                              Telephone: (952) 979-3352
                                              Fax: (952) 352-6667

                                Signature Page 1

<PAGE>

Commitments:
------------
$20,000,000                                 U.S. BANK NATIONAL ASSOCIATION,
                                            as Agent and a Bank

                                            By:_________________________________

                                            Title:______________________________

                                            225 South Sixth St.
                                            Minneapolis, MN 55402-4302
                                            Attention: Joshua R. Pirozzolo
                                            Telephone: (612) 973-0520
                                            Fax: (612) 973-0823

                                Signature Page 2

<PAGE>

$10,000,000                                M&I MARSHALL & ILSLEY BANK,
                                           as a Bank

                                           By:__________________________________

                                           Title:_______________________________

                                           and

                                           By:__________________________________

                                           Title:_______________________________

                                           651 Nicollet Mall
                                           Minneapolis, MN 55402
                                           Attention: Douglas Pudvah
                                           Telephone: (612) 904-8589
                                           Fax: (612) 904-8015

                                Signature Page 3

<PAGE>

                                    EXHIBITS

         Exhibit                      Contents
         -------                      --------

           A                        Form of Note

           B                        Borrowing Base Certificate

           C                        Compliance Certificate

           D                        Subsidiary Guaranty

           E                        Form of Legal Opinion

           F                        Assignment and Assumption

Schedules

           7.5                      Fiscal Quarter and Fiscal Year ending dates

           7.6                      Litigation (Section 7.6)
                                    Contingent Liabilities (Section 7.6)

           7.11                     Existing Liens (Sections 7.11 and 9.13)

           7.16                     Subsidiaries (Section 7.16)

           7.17                     Partnerships/Joint Ventures (Section 7.17)

           9.11                     Investments (Section 9.11)

           9.12                     Existing Indebtedness (Section 9.12)

<PAGE>

                                    EXHIBIT A
                                 PROMISSORY NOTE

$__________                            Minneapolis, Minnesota:  January 17, 2002

         FOR VALUE RECEIVED, the undersigned CHRONIMED INC., a Minnesota
corporation (the "Borrower"), promises to pay to the order of ___________ (the
"Bank"), on the Termination Date, or other due date or dates determined under
the Credit Agreement hereinafter referred to, the principal sum of
_________________ DOLLARS ($__________), or if less, the then aggregate unpaid
principal amount of the Loans (as such terms are defined in the Credit
Agreement) as may be borrowed by the Borrower from the Bank under the Credit
Agreement. All Loans and all payments of principal shall be recorded by the
holder in its records which records shall be conclusive evidence of the subject
matter thereof, absent manifest error.

         The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.

         All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of U.S. Bank National Association, at 225 South Sixth St.,
Minneapolis, Minnesota 55402-4302, or at such other place as may be designated
by the Agent to the Borrower in writing.

         This Note is the Note referred to in, and evidences indebtedness
incurred under, a Credit Agreement dated as of January 17, 2002 (herein, as it
may be amended, modified or supplemented from time to time, called the "Credit
Agreement") among the Borrower, the Banks, as defined therein (including the
Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.

         All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.

         This Note is made under and governed by the internal laws of the State
of Minnesota.

                                CHRONIMED INC.

                                By:_____________________________________
                                Title:___________________________________

<PAGE>

                                    Exhibit B
                       Form of Borrowing Base Certificate
                                     [date]

To:  The Agent and Banks party
to the Credit Agreement described herein

M&I Marshall & Ilsley Bank
651 Nicollet Mall
Minneapolis, MN 55402
Attention: Douglas Pudvah

U.S. Bank National Association
225 South Sixth St.
Minneapolis, MN 55402-4302
Attention: Joshua R. Pirozzolo

Ladies/Gentlemen:

         Reference is made to that certain Amended and Restated Credit
Agreement, dated as of January 17, 2002 (as amended from time to time, the
"Credit Agreement"), among Chronimed Inc. (the "Borrower"), the Banks named
therein and U.S. BANK NATIONAL ASSOCIATION, as Agent (the "Agent"). Terms not
otherwise expressly defined herein shall have the meanings set forth in the
Credit Agreement.

         As required pursuant to Section 8.1(e) of the Credit Agreement, the
Borrower hereby certifies that as of _____________, 20__, the Borrowing Base is
calculated as follows:

         Eligible Accounts:
         -----------------

         Total Accounts:                             $_______

         less:
         ----
         Ineligibles:                                $_______

                  Contra accounts:                   $_____
                  Government:                        $_____
                  Affiliates:                        $_____
                  Past 90 days:                      $_____
                  Others:                            $_____

                                              x 0.75            =       $_______

<PAGE>

         Eligible Inventory:

         Total Inventory:                            $_______

         less:
         ----
         Ineligible:                                 $_______
         (specify types)

                                              x 0.50            =       $_______

         Total Borrowing Base:                                          $_______

         Outstanding Loans:                                             $_______

         Availability (or shortfall)                                    $_______

                                                Chronimed Inc.

                                                By:_____________________________

                                                Title:__________________________

<PAGE>

                                    Exhibit C
                         Form of Compliance Certificate

                                     [date]

To:  The Agent and Banks party
to the Credit Agreement described herein

M&I Marshall & Ilsley Bank
651 Nicollet Mall
Minneapolis, MN 55402
Attention: Douglas Pudvah

U.S. Bank National Association
225 South Sixth St.
Minneapolis, MN 55402-4302
Attention: Joshua R. Pirozzolo

Ladies/Gentlemen:

         Reference is made to that certain Amended and Restated Credit
Agreement, dated as of January 17, 2002 (as amended from time to time, the
"Credit Agreement"), among Chronimed Inc. (the "Borrower"), the Banks named
therein and U.S. BANK NATIONAL ASSOCIATION, as Agent (the "Agent"). Terms not
otherwise expressly defined herein shall have the meanings set forth in the
Credit Agreement.

         As required pursuant to Section 8.1(d) of the Credit Agreement, the
Borrower hereby certifies that as of _____________, 20__ (the "Statement Date"),
the following is true, correct and accurate in all respects:

         1. The financial statements submitted herewith are true, correct and
         complete.

         2. No Default and no Event of Default, has occurred and continued;

         3. All representations and warranties of the Borrower contained in
         Article VII of the Credit Agreement are true and correct, as though
         made on such date;

<PAGE>

         4.  Covenant compliance is demonstrated as follows:

         Section 9.9  Capital Expenditures.

                 Capital Expenditures for the period of four
                 consecutive Fiscal Quarters ending on the
                 Statement Date:                                      $________
                 (Required: not more than $4,000,000)

         Section 9.10  Leases.
                       ------

                 Lease payments (operating leases) for the period of four
                 consecutive Fiscal Quarters ending on the Statement Date:
                 $__________

                 (Required:  not more than $4,000,000 for any 4-quarter period)

         Section 9.18  Tangible Net Worth.

                 Consolidated Tangible Net Worth:                     $________

                 (Required:  $35,000,000, increased as provided in Section 9.18)

         Section 9.19  Cash Flow Leverage Ratio.

                 Average principal amount of Loans
                 for Measurement Period:                              $________

                 plus
                 Principal amount of Funded Debt (other
                 than the Loans) on the last day of such
                 Measurement Period:                                  $________

                 Total:                                               $________

                 to

                 EBITDA for Measurement Period ending on
                 the Statement Date:                                  $________

<PAGE>

                  Ratio:                                            ____ to 1.00
                  (Required: See Section 9.19)

         Section 9.20  Interest and Lease Coverage Ratio.

                  EBIT for Measurement Period:                         $_______
                  plus
                  Operating Lease Expense for Measurement
                  Period:                                              $_______

                  to

                  Interest Expense (cash) for Measurement
                  Period :                                             $_______
                  plus
                  Operating Lease Expense for Measurement
                  Period:                                              $_______

                  Ratio:                                            ____ to 1.00
                  (Required: See Section 9.20)

         Section 9.21  Fixed Charge Coverage Ratio.

                  EBITDA for Measurement Period :                      $_____
                  less
                           Unfinanced Capital Expenditures: $_____
                           Dividends and distributions:     $_____
                           Cash taxes:                      $_____

                           Remainder                                    $_______
                  to

                  Interest Expense:                         $_____
                  Mandatory payment of Funded Debt:         $_____
                  1/5 of average Loans for
                  Measurement Period:                       $_____

                           Total:                                        $______

                  Ratio:                                            ____ to 1.00
                  (Required:  See Section 9.21)

<PAGE>

         5. A statement showing calculation of "EBIT" in reasonable detail is
attached.

                                                Chronimed Inc.

                                                By:_____________________________

                                                Title:__________________________

<PAGE>

                               Calculation of EBIT

         Net Income (before provision for income taxes):               $________
         Interest Expense:                                             $________
         One time expenses under (b) of the definition:                $________
         (further described on Schedule 1.1 to the Credit Agreement)
         Expenses under (c) of the definition:                         $________

         Total:                                                        $________

         less:  non-operating gains:                                   $_______

         Describe expenses under (c):_________________________________________

<PAGE>

                                    Exhibit D
                               Subsidiary Guaranty

<PAGE>

Attach gpm draft

                                    EXHIBIT E
                               Opinion of Counsel

<PAGE>

                                    Exhibit F
                       ASSIGNMENT AND ASSUMPTION AGREEMENT
                                (Chronimed Inc.)

         This Agreement, dated as of the date set forth in Item I (each
reference to an "Item" herein shall be deemed to refer to such Item on Schedule
I hereto), is made by the party named in Item II, (the "Assignor") to the entity
named in Item III (the "Assignee").

                              Preliminary Statement

         The Assignor has entered into a Credit Agreement dated as of January
17, 2002, as amended thereafter (the "Credit Agreement") among CHRONIMED INC.
(the "Borrower"), certain lenders including the Assignor (collectively, the
"Bank Group") and U.S. BANK NATIONAL ASSOCIATION, as Agent, under which the
Assignor has agreed to make Revolving Loans and Term Loans, and to issue or
participate in the risk of issuance of Letters of Credit, in each instance in
amounts of up to those set forth in Item IV (such amount equals the original
commitment of the Assignor and may have been, or may be, reduced or increased by
other assignments by, or to, the Assignor, and will be reduced by the assignment
under this Agreement) and the Bank Group has agreed to make Revolving Loans and
Term Loans, and to issue or participate in the risk of issuance of Letters of
Credit, in each instance in amounts of up to those set forth in Item V. Such
Revolving Loans and Term Loans are sometimes called the "Loans" hereinafter;
such Letters of Credit are sometimes called the "Letters of Credit" hereinafter;
the Loans, the Bank's participation in the Letters of Credit, and the Bank's
participation in any unreimbursed drawing under any Letter of Credit or any
advance or loans made in connection with drawings under any Letter of Credit are
sometimes called the "Advances" or each "Advance,, hereinafter. Unless the
context clearly indicates otherwise, all other terms used in this Agreement
shall have the meanings given them by, and shall be construed as set forth in
the Credit Agreement.

         In consideration of the premises and the mutual covenants contained
herein, the Assignor and the Assignee hereby covenant and agree as follows:

         1. Assignment and Assumption. Subject to the terms and conditions of
this Agreement, the Assignor and the Assignee agree that:

         (a) the Assignor hereby sells, transfers, assigns and delegates to the
         Assignee, in consideration of entry by the Assignee into this Agreement
         [and of Payment by the Assignee to the Assignor of the amount set forth
         in Item VI]; and

         (b) the Assignee hereby purchases, assumes and undertakes from the
         Assignor, without recourse and without representation or warranty
         (except as expressly provided in this Agreement)

<PAGE>

a share equal to the percentage set forth in Item VII (expressed as a percentage
of the aggregate Advances and Commitments of the Bank Group) of the Assignor's
commitments, loans, participations, rights, benefits, obligations, liabilities
and indemnities under and in connection with the Credit Agreement and all of the
Advances, including without limitation the right to receive payment of
principal, and interest on such percentage of the Assignor's Advances, and the
obligation to fund all future Advances and drawings under the Letters of Credit
in respect of such assignment, and to indemnify the Agent or any other party
under the Credit Agreement and to pay all other amounts payable by a Bank (in
such percentage of the aggregate obligations of the Bank Group) under or in
connection with the Credit Agreement.

         The interest of the Assignor under the Credit Agreement (including the
portion of the Assignor's Advances and all such commitments, loans,
participations, rights, benefits, obligations, liabilities and indemnities)
which the Assignee purchases and assumes hereunder is hereinafter referred to as
its "Assigned Share". The day upon which the Assignee shall make the payment
described in the prior paragraph is hereinafter referred to as the "Funding
Date". Upon completion of the assignment hereunder, the Assignor will have the
revised share of the total Loans and Commitments of the Bank Group set fort in
Item VIII.

         2. Future Payments. The Assignor shall notify the Agent to make all
payments with respect to the Assigned Share after the Funding Date directly to
the Assignee. The Assignor and Assignee agree and acknowledge that all payment
of interest, fees, letter of credit commissions and other fees accrued up to,
but not including, the Funding Date are the property of the Assignor, and not
the Assignee. The Assignee shall, upon payment of any interest, fees, letter of
credit commissions or other fees, remit to the Assignor all of such interest,
fees, letter of credit commissions an other fees accrued u to, but not
including, the Funding Date.

         3. No Warranty or Recourse. The sale, transfer, assignment and
delegation of the Assigned Share is made without warranty or recourse against
the Assignor of any kind, except that the Assignor warrants that it has not sold
or otherwise transferred any other interest in the Assigned Share to any other
party. The Assignor may, however, have sold and may hereafter sell
Participations in, or may have assigned or may hereafter assign, portions of its
interest in the Advances and the Credit Agreement that in the aggregate
(together with the portion assigned hereby), do not exceed 100% of the
Assignor's interest in the Advances and the Credit Agreement.

         4. Covenants and Warranties. To induce the other to enter into this
Agreement, each of the Assignee and the Assignor warrants and covenants with
respect to itself that:

         (a) Existence. It is, in the case of the Assignee, a ________________
         organized under the laws of _________________ and it is, in the case of
         the Assignor, a ___________ duly existing under the laws of
         _____________;

<PAGE>

         (b) Authority. It is duly authorized to execute, deliver and perform
         this Agreement;

         (c) No Conflict. The execution, delivery and performance of this
         Agreement do not conflict with any provision of law or of the charter
         or by-laws (or equivalent constituent documents) of such party, or of
         any agreement binding upon it; and

         (d) Valid and Binding. All acts, conditions and things required to be
         done and performed and to have occurred prior to the execution,
         delivery and performance of this Agreement, and to constitute the same
         the legal, valid and binding obligation of such party enforceable
         against such party in accordance with its terms, have been done and
         performed and have occurred in due and strict compliance with all
         applicable laws.

         5. Covenants and Warranties by the Assignee. To induce the Assignor to
enter into this Agreement, the Assignee warrants and covenants that (a) it is
purchasing and assuming the Assigned Share in the course of making loans in the
ordinary course of its commercial lending business, and (b) it has,
independently and without reliance upon the Assignor, and based upon such
financial statements and other documents and information as it has deemed
appropriate, made its own credit analysis an decision to engage in this purchase
and transfer of the Assigned Share. The Assignee acknowledges that the Assignor
has not made and does not make any representations or warranties or assume any
responsibility with respect to the validity, genuineness, enforceability or
collectibility of the Advances, the Credit Agreement or any related instrument,
document or agreement.

         6. Promissory Note. The Notes of the Assignor shall be delivered to the
Agent or Borrower at such time and by such means as the Assignor and the Agent
or Borrower shall agree, with the request by the Assignor that the Borrower
issue new notes payable to the Assignor and to the Assignee to reflect the
assignment of the Assigned Share hereunder.

         7. Payments to the Assignor. All amounts payable to the Assignor in
U.S. Dollars shall be paid by transfer of federal funds to the Assignor, ABA No.
        , Account       No.    Attention:      Reference:      [Borrower].

         8. Other Transactions. The Assignee shall have no interest in any
property in the Assignor's possession or control, or in any deposit held or
other indebtedness owing by the Assignor, which may be or become collateral for
or otherwise available for payment of the Advances by reason of the general
description of secured obligations contained in any security agreement or other
agreement or instrument held by the Assignor or by reason of the right of
set-off, counterclaim or otherwise, except that if such interest is provided for
in provisions of the Credit Agreement regarding sharing of set-off, the Assignee
shall have the same rights as any other lender that is a party to the Credit
Agreement. The Assignor and its affiliates may accept deposits from, lend money
to, act as trustee under indentures for an generally engage in any kind

<PAGE>

of business with the Borrower, and any person who may do business with or own
securities of the Borrower, or any of the Borrower's subsidiaries. The Assignee
shall have no interest in any property taken as security for any other loans or
any other credits extended to the Borrower or any of its subsidiaries by the
Assignor to the Borrower.

         9. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Assignor and the Assignee.

         10. Expenses. In the event of any action to enforce the provisions of
this Agreement against a party hereto, the prevailing party shall be entitled to
recover all costs and expenses incurred in connection therewith including,
without limitation, attorneys' fees and expenses, including allocable cost of
in-house legal counsel and staff.

         11. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE 0F MINNESOTA.

         12. Amendments, Changes and Modifications. This Agreement may not be
amended, changed, modified, altered, or terminated except by an agreement in
writing signed by the Assignor and the Assignee or their permitted successors or
assigns).

         13. Withholding Taxes. The Assignee (a) represents and warrants to the
Assignor, the Agent and the Borrower that under applicable law and treaties no
tax will be required to be withheld by the Assignor with respect to any payments
to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized
under the laws of any jurisdiction other than the United States or any State
thereof) to the Assignor, the Agent and the Borrower prior to the time that the
Agent or Borrower is required to make any payment of principal, interest or fees
hereunder either U.S. Internal Revenue Service Form W8ECI or W8BEN and agrees to
provide new Forms upon the expiration of any previously delivered form or
comparable statements in accordance with applicable U.S. law and regulations and
amendments thereto, duly executed and completed by the Assignee, and (c) agrees
to comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.

         14. Entire Agreement. This Agreement sets forth the entire
understanding of the parties except for the consents contemplated hereby, and
supersedes any and all prior agreements, arrangements, and understandings
relating to the subject matter hereof. No representation, promise, inducement or
statement of intent has been made by any party which is not embodied in this
Agreement, and no party shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not expressly set
forth herein.

         15. Counterparts. This Agreement may be executed by the Assignor and
the Assignee in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute one and the same Agreement.

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf by their duly authorized officers as of the date and
year first above written.

Address:                                        [Assignor]

                                                By:___________________________
                                                ____________________(print name)
                                                Title:_________________________

Address:                                        [Assignee]

                                                By:___________________________
                                                ____________________(print name)
                                                Title:_________________________

[Consents required to become effective AS provided in Section 12.3 of the Credit
Agreement:

Consented to this ____ day
of _____________, 20___.

U.S. Bank National Association, as Agent

By:__________________________________
__________________________(print name)
Title:________________________________

Consented to this ____ day
of _________________, 20____.

CHRONIMED INC., as Borrower

By:_________________________________
__________________________(print name)
Title:_______________________________]

<PAGE>

                                   Schedule I
                                       to
                            Assignment and Assumption

Item I:           Date of Assignment:

Item II:          Assigning Bank (the "Assignor"):

Item III:         Assignee (the "Assignee"):

Item IV:          Initial Total Commitment of the Assignor:
                  Revolving Loans:
                  Term Loans:
                  Letters of Credit:

Item V:           Bank Group's Initial Total Commitment:
                  Revolving Loans:
                  Term Loans:
                  Letters of Credit:

Item VI:          Payment to the Assignor on Funding Date:

Item VII:         Percentage Assigned:  ________%

                  (Expressed as a percentage of the total aggregate Commitments
                  of the Bank Group, carry out to 10 decimal places; upon
                  effectiveness of the Assignment as provide in the Credit
                  Agreement, this will constitute the Assignee's "Percentage"

Item VIII:        Revised Percentage of the Assignor:  _____________%

                  (carry out to 10 decimal places; upon effectiveness of the
                  Assignment as provided in the Credit Agreement, this will
                  constitute the Assignor's "Percentage")

<PAGE>

                                  Schedule 1.1

             Expenses related to restatement of financial statements
                           (see definition of "EBIT")

<PAGE>

                                  Schedule 7.5

            Fiscal Quarter and Fiscal Year ending dates (Section 7.5)

     Fiscal Year 2001:                                    June 29, 2001

     Fiscal Year 2002

              Fiscal Quarter 1 Fiscal Year 2002:          September 28, 2001
              Fiscal Quarter 2 Fiscal Year 2002:          December 28, 2001
              Fiscal Quarter 3 Fiscal Year 2002           March 29, 2002
              Fiscal Quarter 4 Fiscal Year 2002
              and Fiscal Year 2002:                       June 28, 2002

     Fiscal Year 2003

              Fiscal Quarter 1 Fiscal Year 2003:          September 28, 2002
              Fiscal Quarter 2 Fiscal Year 2003:          December 28, 2002
              Fiscal Quarter 3 Fiscal Year 2003           March 28, 2003
              Fiscal Quarter 4 Fiscal Year 2003
              and Fiscal Year 2003:                       June 27, 2003

     Fiscal Year 2004

              Fiscal Quarter 1 Fiscal Year 2004:          October 3, 2003
              Fiscal Quarter 2 Fiscal Year 2004:          January 1, 2004
              Fiscal Quarter 3 Fiscal Year 2004           April 4, 2004
              Fiscal Quarter 4 Fiscal Year 2004
              and Fiscal Year 2004:                       July 2, 2004

     Thereafter:  Schedule will be provided by Borrower if relevant.

<PAGE>

                                  Schedule 7.6

                            Litigation (Section 7.6)
                      Contingent Liabilities (Section 7.6)

Borrower, its Chief Executive Officer, and Chief Financial Officer have been
named as defendants in the matter In Re Chronimed Inc. Securities Litigation,
01-CV-1092 (DWF/AJB)(D.Minn.2000). In Re Chronimed is a shareholder class action
in which plaintiffs allege violations of the Securities Exchange Act of 1934
associated with Borrowers restatement of its financial statements for fiscal
year 2000 and portions of fiscal year 2001. Defendants have brought a motion to
have the action dismissed and a ruling is anticipated in early 2002. Defendants
have denied any wrongdoing, assert that the case is wholly without merit, and
are vigorously defending themselves. Plaintiffs have not quantified their
damages claims. Borrower's insurer has accepted defense of this matter with
reservation of rights. An adverse judgment in this action could have a material
impact on Borrower.

<PAGE>

                                  Schedule 7.11

                     Existing Liens (Sections 7.11 and 9.13)

                                      None

<PAGE>

                                  Schedule 7.16

                           Subsidiaries (Section 7.16)

Chronimed Holdings Inc., dba StatScript Pharmacy, a Minnesota corporation.
Borrower owns all issued and outstanding shares of Chronimed Holdings Inc.

<PAGE>

                                  Schedule 7.17

                   Partnerships/Joint Ventures (Section 7.17)

<PAGE>

                                  Schedule 9.11

                           Investments (Section 9.11)

<PAGE>

                                  Schedule 9.12

                      Existing Indebtedness (Section 9.12)

<PAGE>

                                 PROMISSORY NOTE

$10,000,000                            Minneapolis, Minnesota:  January 17, 2002

         FOR VALUE RECEIVED, the undersigned CHRONIMED INC., a Minnesota
corporation (the "Borrower"), promises to pay to the order of M&I MARSHALL &
ILSLEY BANK (the "Bank"), on the Termination Date, or other due date or dates
determined under the Credit Agreement hereinafter referred to, the principal sum
of TEN MILLION DOLLARS ($10,000,000), or if less, the then aggregate unpaid
principal amount of the Loans (as such terms are defined in the Credit
Agreement) as may be borrowed by the Borrower from the Bank under the Credit
Agreement. All Loans and all payments of principal shall be recorded by the
holder in its records which records shall be conclusive evidence of the subject
matter thereof, absent manifest error.

         The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.

         All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of U.S. Bank National Association, at 225 South Sixth St.,
Minneapolis, Minnesota 55402-4302, or at such other place as may be designated
by the Agent to the Borrower in writing.

         This Note is the Note referred to in, and evidences indebtedness
incurred under, a Credit Agreement dated as of January 17, 2002 (herein, as it
may be amended, modified or supplemented from time to time, called the "Credit
Agreement") among the Borrower, the Banks, as defined therein (including the
Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.

         All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.

         This Note is made under and governed by the internal laws of the State
of Minnesota.

                                     CHRONIMED INC.

                                     By:_____________________________________

                                     Title:___________________________________

<PAGE>

                                 PROMISSORY NOTE

$20,000,000                            Minneapolis, Minnesota:  January 17, 2002

         FOR VALUE RECEIVED, the undersigned CHRONIMED INC., a Minnesota
corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the "Bank"), on the Termination Date, or other due date or dates
determined under the Credit Agreement hereinafter referred to, the principal sum
of TWENTY MILLION DOLLARS ($20,000,000), or if less, the then aggregate unpaid
principal amount of the Loans (as such terms are defined in the Credit
Agreement) as may be borrowed by the Borrower from the Bank under the Credit
Agreement. All Loans and all payments of principal shall be recorded by the
holder in its records which records shall be conclusive evidence of the subject
matter thereof, absent manifest error.

         The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.

         All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of U.S. Bank National Association, at 225 South Sixth St.,
Minneapolis, Minnesota 55402-4302, or at such other place as may be designated
by the Agent to the Borrower in writing.

         This Note is the Note referred to in, and evidences indebtedness
incurred under, a Credit Agreement dated as of January 17, 2002 (herein, as it
may be amended, modified or supplemented from time to time, called the "Credit
Agreement") among the Borrower, the Banks, as defined therein (including the
Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.

         All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.

         This Note is made under and governed by the internal laws of the State
of Minnesota.

                                     CHRONIMED INC.

                                     By:_____________________________________

                                     Title:___________________________________

<PAGE>

                              AMENDED AND RESTATED
                               SECURITY AGREEMENT

         THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement"), dated
as of January 17, 2002, is entered into between U.S. BANK NATIONAL ASSOCIATION
(the "Agent") and CHRONIMED INC. (the "Borrower").

                             Preliminary Statement:

         The Borrower and U.S. Bank National Association ("U.S. Bank") entered
into a Security Agreement, dated as of July 31, 2001 (the "Existing Security
Agreement"), to secure all obligations of the Borrower to U.S. Bank, including
those under the letter agreement, dated as of December 31, 1996 (as thereafter
amended, the "Existing Credit Agreement"), under which U.S. Bank made certain
loans to the Borrower. The Borrower and U.S. Bank have agreed to amend and
restate the Existing Credit Agreement by an Amended and Restated Revolving
Credit Agreement, dated as of January 17, 2002 (as thereafter amended, modified,
extended, renewed or restated from time to time, the "Credit Agreement"). The
Borrower and U.S. Bank have further agreed that the other Banks named in the
Credit Agreement shall become co-lenders with U.S. Bank and U.S. Bank shall act
as administrative agent for the Banks, all as more particularly described
therein. The Borrower, the Banks and the Agent have agreed that the Existing
Security Agreement shall be amended to read as follows to secure the loans made
by the Banks under the Credit Agreement, obligations of the Borrower to the
Agent under the Credit Agreement and other extensions of credit as hereinafter
provided.

         Section 1 - Definitions and Interpretation.

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

         Section 1.2 Terms defined in Uniform Commercial Code. "Account",
"Account Debtor", "Chattel Paper", "Deposit Account", "Document", "General
Intangibles", "Health-care-insurance receivables", "Instrument", "Inventory",
"Investment Property", "Letter-of-Credit Rights", "Proceeds" and "Supporting
Obligations" shall have the meanings set forth in the Minnesota Uniform
Commercial Code (for purposes of this Agreement, such terms may be capitalized,
even if not capitalized in the Minnesota Uniform Commercial Code), provided,
that if any additional goods, property or rights shall be included in such terms
under Section 2 hereof, such terms shall be construed to include such additional
goods, property or rights.

         Section 1.3 Interpretation. A reference to a Section, Exhibit or
Schedule is, unless otherwise stated, a reference to a section hereof, or an
exhibit or schedule hereto, as the case may be. Section captions used in this
Agreement are for convenience only, and shall not affect the

<PAGE>

construction of this Agreement. The word "including" shall, in each instance, be
deemed to mean "including but not limited to".

         Section 2 Grant of Security Interest. As security for the payment of
all Liabilities, the Borrower hereby assigns to the Agent and grants to the
Agent, for the benefit of the Agent and the Banks, a continuing security
interest in the following personal property of the Borrower, including without
limitation the following, whether now owned or hereafter arising or acquired
(collectively, the "Collateral"):

         (a) Accounts, including all other rights and interests (including all
         liens and security interests) that the Borrower may at any time have by
         law or agreement against any Account Debtor or other obligor obligated
         to make any such payment or against any of the property of such Account
         Debtor or other obligor and including Health-care-insurance
         receivables;

         (b) Inventory, including goods that are returned, repossessed, stopped
         in transit or which otherwise come into the possession of the Borrower;

         (c) General Intangibles, including payment intangibles, inventions,
         designs, patents, patent applications, design patents, design patent
         applications, trademarks, trademark applications, trade names, trade
         secrets, goodwill, copyrights, registrations, licenses, franchises,
         customer lists, tax refund claims, rights to indemnification and rights
         under warranties;

         (d) Chattel Paper, Instruments and Documents;

         (e) Investment Property;

         (f) Deposit Accounts;

         (g) Letter-of-Credit rights;

         (h) Supporting Obligations;

         (i) books, correspondence, credit files, records, invoices, manuals,
         service records and programs, other papers and documents, computer
         records, runs, software, systems, procedures, disks, tapes and other
         storage media relating to any of the Collateral, including any of the
         foregoing in the possession or control of any service, consultant, or
         outside vendor;

         (j) to the extent relating to the Collateral, Proceeds, including all
         policies, claims to payment under, and proceeds of any and all
         insurance policies payable to the Borrower, or

<PAGE>

         on behalf of the Borrower's property, whether or not such policies are
         issued to or owned by the Borrower and whether or not the Agent is
         named as loss payee or additional insured, including any credit
         insurance.

Notwithstanding the foregoing, the Collateral shall not include any medical
records that cannot be pledged under applicable law.

         Section 3 - Representations and Warranties

         The Borrower represents and warrants to the Agent and the Banks that:

         Section 3.1 Organization, Names and Organization Number. The Borrower
is an entity of the type identified on Schedule A, organized under the laws of
the jurisdiction identified on Schedule A. The organization identification
number, if any, and the federal taxpayer identification number of the Borrower
are set forth on Schedule A. The Borrower does business solely under its own
name and the trade names and styles, if any, set forth on Schedule A (which
includes any name used within the past 5 years).

         Section 3.2 Owner, No Other Financing Statements. The Borrower is and
will be the lawful owner of all Collateral, free of all liens and claims
whatsoever, other than the security interest hereunder, and those shown on
Schedule B. No financing statement (other than any which may have been filed on
behalf of the Agent) covering any of the Collateral is on file in any public
office, except those listed on Schedule B.

         Section 3.3 Offices and Locations. The Borrower's chief place of
business and chief executive office and the office where it keeps its books and
records concerning the Collateral, and the originals of all Chattel Paper,
Instruments and Documents are located at its address set forth on the signature
page hereof.

         Section 3.4 Locations Inventory. All of the Inventory existing on the
date of the Agreement is located at the places specified in Schedule C. The
Borrower will immediately notify the Agent of any additional state in which any
item of Inventory is hereafter located.

         Section 4 - Sale and Collection

         4.1 Sale in Ordinary Course. Until the occurrence of an Event of
Default, the Borrower may, in the ordinary course of its business, sell, lease,
or consume (if raw materials) Inventory and furnish Inventory under contracts of
service.

         4.2 Collection of Collateral. Until such time as the Agent shall notify
the Borrower of the revocation of such authority, the Borrower will endeavor to
collect, as and when due, all

<PAGE>

amounts due with respect to any of the Collateral, and shall take any action in
connection with such collection as the Agent may reasonably request.

         4.3 Refunds. The Borrower may grant, in the ordinary course of its
business, any refund or allowance to any Account Debtor to which it may be
lawfully entitled, and may accept, in connection therewith, the return of goods,
the sale or lease of which shall have given rise to Accounts.

         Section 4.4 Collection by the Agent. The Agent may, but shall not be
obligated to, following any Event of Default (a) notify any parties obligated on
any of the Collateral to make payment directly to the Agent, (b) enforce
collection of any of the Collateral by suit or otherwise, and (c) surrender,
release, exchange, compromise, extend or renew all or any part of the
Collateral. Following the occurrence of any Event of Default, if requested by
the Agent, the Borrower will, at its own expense, notify all parties obligated
on any of the Collateral to make all payments thereunder directly to the Agent.

         Section 4.5 Transmittal of Items to the Agent. The Borrower will, upon
request of the Agent following an Event of Default, upon receipt, transmit and
deliver to the Agent, in the form received, all cash, checks, drafts, and any
other form of payment (properly endorsed, where required, so that such items may
be collected by the Agent) received as proceeds of any of the Collateral. The
Agent is authorized to endorse, in the name of the Borrower, any item received
by the Agent constituting a proceed of any of the Collateral. After such request
by the Agent, any such items received by the Borrower will not be commingled
with any other of its funds or property, but will be held separate and apart
from its own funds or property and upon express trust for the Agent until
delivered to the Agent.

         Section 5 - Agreements of Borrower

         The Borrower agrees that, unless otherwise agreed in writing by the
Agent, it will:

         Section 5.1 Schedules and Reports. Furnish to the Agent, in form and
detail satisfactory to the Agent: (a) written notice of any event causing loss,
material damage or depreciation in value of any of the Collateral, describing,
and specifying the amount of, such loss, damage or depreciation; and (b) from
time to time, as the Agent may request, such additional schedules, certificates
and reports concerning the Collateral, including the Account Debtors obligated
thereon, as the Agent may request.

         Section 5.2 Inspection. Permit the Agent and its agents or its
designees, from time to time, to inspect and evaluate the Collateral, and to
inspect, audit and make copies of all books and records constituting or
otherwise concerning the Collateral, and will, upon request of the Agent,
deliver to the Agent all of such records which pertain to the Collateral and all
Account Debtors.

<PAGE>

The Borrower will reimburse the Agent upon demand for all reasonable costs and
expenses incurred by the Agent, its agents or its designees in the course of
such inspection and evaluation.

         Section 5.3 Financing Statements and Filing. Upon request of the Agent,
execute such financing statements and other documents (and pay the cost of
recording the same in all offices requested by the Agent) and do such other acts
as the Agent may from time to time request to establish and maintain a valid
perfected security interest in the Collateral. The Borrower agrees that any
carbon, photographic or other reproduction of this Agreement or of any such
financing statement shall be sufficient for filing as a financing statement. The
Borrower authorizes the Agent to file any financing statements describing the
Collateral that do not require the manual signature of the Borrower.

         Section 5.4 Locations and Notices. Maintain and keep (a) all Inventory
at the locations shown on Schedule C and at such other locations of which the
Borrower shall have given the Agent notice in writing before inventory is
maintained at such locations; (b) except as delivered to the Agent from time to
time, all Chattel Paper, Instruments and Documents, and all records included as
Collateral or otherwise concerning the Collateral, at the address shown on the
signature page and not duplicate any records regarding any Collateral at any
other address; and (c) the location of its chief office at the address shown on
the signature page.

         Section 5.5 Names. Not do business under any other name other than
those shown on Schedule B.

         Section 5.6 Notation on Records. Upon request of the Agent, stamp on
its records concerning the Collateral a notation, in form satisfactory to the
Agent, of the security interest of the Agent hereunder, and mark conspicuously
each Document, Chattel Paper, Instrument or contract included in the Collateral
with a legend, in form and substance satisfactory to the Agent, indicating that
such Document, Chattel Paper, Instrument or contract is subject to the security
interest of the Agent.

         Section 5.7 Delivery of Collateral. Upon request of the Agent, deliver
to the Agent all Documents, Instruments and Chattel Paper, duly endorsed to be
payable to the Agent, or accompanied by duly executed instruments of transfer or
assignment in form and substance satisfactory to the Agent, with full recourse
to the Borrower.

         Section 5.8 Transfer, Sale or Security Interest. Except as expressly
authorized under Section 4.1 hereof (subject to the limits therein), not sell,
lease, transfer, consume, assign or otherwise dispose of, or create or permit to
exist any lien on or security interest (other than the Agent's security
interest) in, any Collateral.

         Section 5.9 Insurance. Keep all Inventory insured against loss, damage,
theft and other risks, with amounts and insurance companies, and under policies,
satisfactory to the Agent, which

<PAGE>

policies shall provide that loss thereunder shall be payable to the Agent as its
interest may appear (and the Agent may apply any proceeds of such insurance
which may be received by it toward payment of Liabilities, whether or not due,
in such order of application as the Agent may determine), and such policies or
certificates thereof shall, if the Agent so requests, be deposited with the
Agent.

         Section 5.10 Payment of Taxes, etc. Pay, when due, all taxes,
assessments, governmental charges and other similar charges levied against any
of the Collateral, except and so long as the Borrower is contesting such taxes,
assessments or charges in good faith and, by appropriate proceedings and the
Borrower has set aside on its books such reserves or other appropriate
provisions therefor as may be required by generally accepted accounting
principles, and so long as no enforcement action is being taken that would
interfere with the Borrower's use of such Collateral or the enforcement of the
Agent's rights hereunder.

         Section 5.11 Waivers. Upon request of the Agent, obtain and deliver to
the Agent waivers in form and substance satisfactory to the Agent of any claim
to any Collateral by any landlord or mortgagee of any property where Inventory
is located.

         Section 6 - Agent's Duties and Power of Attorney

         Section 6.1 Agent's Performance of Agreements and Reimbursement. The
Agent may, from time to time, at its option, perform any agreement of the
Borrower hereunder which the Borrower shall fail to perform and take any other
action which the Agent deems necessary for the maintenance or preservation of
the Collateral or its interest therein, and the Borrower shall reimburse the
Agent for all expenses of the Agent in connection with the foregoing, together
with interest thereon at the highest rate of interest borne by any of the
Liabilities at such time from the date incurred until reimbursed by the
Borrower.

         Section 6.2 Power of Attorney. The Borrower hereby irrevocably appoints
the Agent as the Borrower's attorney-in-fact, with full authority in the place
and stead of the Borrower and in the name of the Borrower, the Agent or
otherwise, from time to time in the Agent's discretion, to take any action and
to execute any instrument which the Agent may deem advisable to accomplish the
purposes of Section 6.1 and to exercise any right and remedy upon the occurrence
of an Event of Default. The Borrower hereby ratifies all that such attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is irrevocable and is coupled with an interest.

         Section 6.3 No Liability on Collateral; Indemnity. The rights and
powers of the Agent hereunder are conferred solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such rights
or powers. The Agent does not in any way assume any of the Borrower's
obligations under, or with respect to, the Collateral. The Borrower shall remain
liable with respect to the Collateral to the same extent as if this Agreement
had not been executed.

<PAGE>

The Borrower agrees to indemnify and hold harmless the Agent against any and all
liabilities, claims, damages, actions, proceedings, losses or other obligations
arising in connection with or on account of any of the Collateral.

         Section 6.4 Care of Collateral. Except for the safe custody of any
Collateral in its possession, the Agent shall have no duty as to any Collateral
or as to the taking of any steps to preserve rights against any other party. The
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Agent accords its own property,
or is accorded treatment complying with any provision of any other document
setting forth a standard of care for such Collateral.

         Section 7 - Event of Default and Remedies

         Whenever an Event of Default shall be existing:

         Section 7.1 Liabilities Due and Payable. All of the Liabilities may
(notwithstanding any provisions of any of the Loan Documents), at the option of
the Agent, and without demand or notice of any kind, be declared, and thereupon
immediately shall become, due and payable.

         Section 7.2. Deposits, etc. The Agent may, from time to time, without
demand or notice of any kind, appropriate and apply toward the payment of such
of the Liabilities, and in such order of application, as the Agent may from time
to time elect, any and all balances, credits, deposits (general or special, time
or demand, provisional or final), accounts or moneys of or in the name of the
Borrower then or thereafter with the Agent.

         Section 7.3 Assembly of Collateral. Upon demand of the Agent, the
Borrower shall assemble, at its expense, all Collateral at a convenient place
acceptable to the Agent.

         Section 7.4 Use and Sale of Collateral. The Agent may, to the fullest
extent permitted by applicable law, without notice, hearing or process of law of
any kind, (a) enter upon any premises where any of the Collateral may be located
and take possession of and remove such Collateral; (b) use or license, on an
exclusive or non-exclusive basis, any General Intangibles throughout the world
for such term or terms, on such conditions, and in such manner, as the Agent
shall in its sole discretion determine, without compensation to the Borrower;
(c) sell any or all of the Collateral, free of all rights and claims of the
Borrower therein and thereto; and (d) bid for and purchase any or all of such
Collateral at any such sale.

         Section 7.5 Additional Provisions on Sale. Any sale of Collateral may
be in one or more parcels at public or private sales, at any of the Agent's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Agent may reasonably believe are commercially reasonable. The
Agent shall not be obligated to make any sale of Collateral

<PAGE>

regardless of notice of sales having been given, and the Agent may adjourn any
public or private sale from time to time by announcement made at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.

         Section 7.6 Waiver by Borrower. The Borrower hereby expressly waives,
to the fullest extent permitted by applicable law, any and all notices,
advertisements, hearings or process of law in connection with the exercise by
the Agent of any of its rights and remedies upon an Event of Default. Any
notification of intended disposition of any of the Collateral required by law
shall be deemed reasonably and properly given if given at least five days before
such disposition.

         Section 7.7 Proceeds of Collateral. Any proceeds of any disposition by
the Agent of any of the Collateral may be applied by the Agent to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by the Agent
toward the payment of such of the Liabilities, and in such order of application,
as the Agent may from time to time elect.

         Section 7.8 Recourse to Collateral; Remedies not Exclusive. The Agent
may resort to the Collateral for payment of any of the Liabilities, whether or
not the Agent shall have resorted to any other property securing the Liabilities
or shall have proceeded against the Borrower or any other party obligated to pay
or perform the Liabilities. The Agent's exercise of rights hereunder shall not
prevent the Agent's exercise of any other rights it may have upon the occurrence
of an Event of Default under any other Loan Documents or otherwise, and one
exercise of rights hereunder shall not prevent any subsequent exercise of rights
of the Agent hereunder, under any Loan Documents or otherwise.

         Section 7.9 Other Rights. The Agent may exercise from time to time any
other rights and remedies available to it under any Loan Document and under all
applicable law.

         Section 8 - General Provisions

         Section 8.1 Reimbursement of Expenses. The Borrower shall reimburse the
Agent upon demand for all costs and expenses, including reasonable fees of
attorneys for the Agent (who may be employees of the Agent) and legal expenses,
incurred by the Agent in seeking to collect or enforce any rights under the
Collateral and its rights hereunder and, in case of an Event of Default, in
seeking to collect each Loan Document and the Liabilities.

         Section 8.2 Notices. Any notice from the Borrower to the Agent or from
the Agent to the Borrower shall be given, and deemed received, as provided in
the Credit Agreement.

         Section 8.3 Waivers and Amendments. No failure or delay on the part of
the Agent in the exercise of any power, right or remedy, and no course of
dealing between the Borrower and the Agent, shall operate as a waiver of such
power, right or remedy, nor shall any single or partial

<PAGE>

exercise of any power, right or remedy preclude other or further exercise
thereof or the exercise of any other power, right or remedy. No notice to or
demand on the Borrower not required hereunder shall in any event entitle the
Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Agent to any other or
further action in any circumstances without notice or demand. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Agent. Any waiver of any provision of this
Agreement, and any consent to any departure by the Borrower from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which given.

         Section 8.4 Remedies Cumulative. The remedies provided for herein are
cumulative and not exclusive of any remedies which may be available to the Agent
at law or in equity.

         Section 8.5 Termination of Agreement. Unless sooner terminated by the
Agent, this Agreement shall terminate when all of the Loan Documents shall have
expired or been terminated and all Liabilities shall have been paid in full.
This Agreement shall continue notwithstanding that there may be, from time to
time, no outstanding loans or extensions of credit from the Agent to the
Borrower. Any return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Borrower
and shall be without warranty by, or recourse against, the Agent.

         Section 8.6 Successors and Assigns. This Agreement shall be binding
upon the Borrower, its successors and assigns (and, if an individual, the
Borrower's heirs, estate and personal representatives), and shall inure to the
benefit of, and be enforceable by, the Agent and its successors, transferees,
and assigns. Without limiting the generality of the foregoing, the Agent may
assign or otherwise transfer all or any portion of the Liabilities to any other
person or entity and may similarly transfer all or any portion of its rights
under this Agreement to such person or entity.

         Section 8.7 Choice of Law. This Agreement has been delivered at
Minneapolis, Minnesota, and shall be construed in accordance with and governed
by the laws of the State of Minnesota.

         Section 8.8 Severance. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

<PAGE>

         Section 8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

         Section 8.10 Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE AGENT AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

         Section 8.11 Waiver of Notice and Hearing. THE BORROWER HEREBY WAIVES
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT
OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS
RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING.

         Section 8.12 Waiver of Jury Trial. THE BORROWER AND THE AGENT EACH
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT A JURY.

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

                                         CHRONIMED INC.

                                         By:______________________________

                                         Its:______________________________

<PAGE>

Address:
10900 Red Circle Drive
Minnetonka, MN 55343
Attention: Mr. Greg Keane
              Vice President - Finance

                                           U.S. BANK NATIONAL ASSOCIATION

                                           By:______________________________

                                           Its:______________________________
Address:
601 2nd Ave. S.
Minneapolis, Minnesota 55402-4302
Attention: Mr. Joshua R. Pirozzolo
Telephone: (612) 973-0520
Fax: (612) 973-0823

<PAGE>

                                   SCHEDULE A
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                                 CHRONIMED INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

1.  Type of entity: Corporation.

2.  Jurisdiction of Organization: Minnesota

3.  Organizational Identification Number: 4W-676

4.  Federal Taxpayer Identification Number: 41-1515691

5.  Trade Names and Trade Styles used by the Borrower during the past 5 years:

         Chronimed Holdings Inc. d/b/a/ Statscript
         Clinical Partners
         Home Direct Medical Services
         British American Medical
         Los Feliz Drugs
         MEDgenesis Inc.
         Clinical Services Inc.
         Red Circle Ventures Inc.

<PAGE>

                                   SCHEDULE B
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                                 CHRONIMED INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

         Other Security Interests:

Holder:           Amount Secured:          Financing Statement:

One Financing Statement naming First Commercial Bank as secured party covering
certain specified equipment subject to a master equipment lease.

<PAGE>

                                   SCHEDULE C
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                                 CHRONIMED INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

Locations at which Inventory is kept:

Location:                                             Type of Inventory

See Attached List                                     pharmaceutical products

<PAGE>

                                    GUARANTY

         FOR VALUE RECEIVED and in consideration of entry by the Banks (as
defined in the Credit Agreement) and U.S. BANK NATIONAL ASSOCIATION, as agent
for the Banks (in such capacity, together with it successors and assigns, called
the "Agent") into that certain Credit Agreement, dated as of January 17, 2002
(as thereafter amended, modified, extended, renewed, restated or replaced from
time to time called the "Credit Agreement") among the Banks, the Agent and
CHRONIMED INC., a Minnesota corporation (hereinafter called the "Debtor"),
CHRONIMED HOLDINGS INC., a Minnesota corporation (the "Guarantor") hereby
unconditionally guarantees the full and prompt payment when due, whether by
acceleration or otherwise, and at all times thereafter, of all obligations of
the Debtor to the Banks or the Agent under the Credit Agreement, each Note
issued thereunder, and each other Loan Document (as defined therein), including
without limitation all future advances, and all obligations to reimburse the
Agent for drawings under all Letters of Credit, and all of such obligations that
arise after the filing of a petition by or against the Debtor under the
Bankruptcy Code, even if the obligations do not accrue because of the automatic
stay under Bankruptcy Code Section 362 or otherwise (all such obligations being
hereinafter collectively called the "Liabilities"), and the Guarantor further
agrees to pay all expenses (including attorneys' fees and legal expenses) paid
or incurred by the Banks or Agent in endeavoring to collect the Liabilities, or
any part thereof, and in enforcing this guaranty.

         The Guarantor agrees that, in the event of the dissolution or
insolvency of the Debtor or the Guarantor, or the inability of the Debtor or the
Guarantor to pay debts as they mature, or an assignment by the Debtor or the
Guarantor for the benefit of creditors, or the institution of any proceeding by
or against the Debtor or the Guarantor alleging that the Debtor or the Guarantor
is insolvent or unable to pay debts as they mature, and if such event shall
occur at a time when any of the Liabilities may not then be due and payable, the
Guarantor will pay to the Agent forthwith the full amount which would be payable
hereunder by the Guarantor if all Liabilities were then due and payable.

         As additional security for the payment of all of the Liabilities and
all obligations of the Guarantor hereunder (collectively, the "Guaranty
Obligations"), the Guarantor grants to the Agent for the benefit of itself and
the Banks a security interest in, a lien on, and an express contractual right to
set off against, each deposit account and all deposit account balances, cash and
any other property of the Guarantor now or hereafter maintained with, or in the
possession of, the Agent. Upon the occurrence of any default hereunder (as
described in the immediately preceding paragraph), the Agent may: (a) refuse to
allow withdrawals from any such deposit account; (b) apply the amount of such
deposit account balances and the other assets of the Guarantor described above
to the Guaranty Obligations; and (c) offset any other obligation of the Agent
against the Guaranty Obligations; all whether or not the Guaranty Obligations
are then due or have been accelerated and all without any advance or
contemporaneous notice or demand of any kind to the Guarantor, such notice and
demand being expressly waived.

<PAGE>

         This guaranty shall in all respects be a continuing, absolute and
unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of the Guarantor or that
at any time or from time to time all Liabilities may have been paid in full).

         The Guarantor further agrees that, if at any time all or any part of
any payment theretofore applied by the Agent or the Banks to any of the
Liabilities is or must be rescinded or returned by the Agent or the Banks for
any reason whatsoever (including, without limitation, the insolvency, bankruptcy
or reorganization of the Debtor), such Liabilities shall, for the purposes of
this guaranty, to the extent that such payment is or must be rescinded or
returned, be deemed to have continued in existence, notwithstanding such
application by the Agent or the Banks, and this guaranty shall continue to be
effective or be reinstated, as the case may be, as to such Liabilities, all as
though such application by the Agent or the Banks had not been made.

         The Agent and the Banks may, from time to time, at their sole
discretion and without notice to the Guarantor, take any or all of the following
actions: (a) be granted a security interest in any property to secure any of the
Liabilities or the Guaranty Obligations, (b) retain or obtain the primary or
secondary obligation of any obligor or obligors, in addition to the Guarantor,
with respect to any of the Liabilities, (c) extend or renew for one or more
periods (whether or not longer than the original period), alter or exchange any
of the Liabilities, or release or compromise any obligation of any nature of any
other obligor with respect to any of the Liabilities, (d) release its security
interest in, or surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities or any
obligation hereunder, or extend or renew for one or more periods (whether or not
longer than the original period) or release, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such property, and
(e) resort to the Guarantor for payment of any of the Liabilities, whether or
not the Agent and the Banks (i) shall have resorted to any property securing any
of the Liabilities or (ii) shall have proceeded against any other obligor
primarily or secondarily obligated with respect to any of the Liabilities (all
of the actions referred to in preceding clauses (i) and (ii) being hereby
expressly waived by the Guarantor).

         Any amounts received by the Agent and the Banks from whatsoever source
on account of the Liabilities may be applied by it toward the payment of such of
the Liabilities, and in such order of application, as the Agent may from time to
time elect.

         Until such time as this guaranty shall have been discontinued and the
Agent and the Banks shall have received payment of the full amount of all
Liabilities and of all obligations of the Guarantor hereunder, no payment made
by or for the account of the Guarantor pursuant to this guaranty shall entitle
the Guarantor by subrogation or otherwise to any payment by the Debtor or from
or out of any property of the Debtor and the Guarantor shall not exercise any
right or remedy against the Debtor or any property of the Debtor by reason of
any performance by the Guarantor of this guaranty.

<PAGE>

         The Guarantor hereby expressly waives: (a) notice of the acceptance by
the Agent or the Banks of this guaranty, (b) notice of the existence or creation
or non-payment of all or any of the Liabilities, (c) presentment, demand, notice
of dishonor, protest, and all other notices whatsoever, and (d) all diligence in
collection or protection of or realization upon the Liabilities or any part
thereof, any obligation hereunder, or any security for, or guaranty of, any of
the foregoing.

         Each Bank may from time to time without notice to the Guarantor, assign
or transfer its Percentage (as defined in the Credit Agreement) or any or all of
the Liabilities or any interest therein; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Liabilities shall be and remain Liabilities for the purposes of this guaranty,
and each and every immediate and successive assignee or transferee of any of the
Liabilities or of any interest therein shall, to the extent of the interest of
such assignee or transferee in the Liabilities, be entitled to the benefits of
this guaranty to the same extent as if such assignee or transferee were such
Bank.

         Unless the Agent shall otherwise consent in writing, the Agent shall
have the sole right to enforce this Guaranty, as Agent as provided in the Credit
Agreement, for the benefit of the Agent and the Banks (including any transferee,
as provided in the prior paragraph).

         The Guarantor hereby warrants to the Agent and the Banks that the
Guarantor now has, and will continue to have independent means of obtaining
information concerning the affairs, financial condition and business of the
Debtor. Neither the Agent nor the Bank shall have any duty or responsibility to
provide the Guarantor with any credit or other information concerning the
affairs, financial condition or business of the Debtor which may come into the
Agent's or the Bank's possession.

         No delay on the part of the Agent or any Bank in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Agent or any Bank of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy; nor shall
any modification or waiver of any of the provisions of this guaranty be binding
upon the Agent or any Bank except as expressly set forth in a writing duly
signed and delivered on behalf of the Agent and the Required Banks (as defined
in the Credit Agreement). No action of the Agent or the Banks permitted
hereunder shall in any way affect or impair the rights of the Agent or the Banks
and the obligations of the Guarantor under this guaranty. For the purposes of
this guaranty, Liabilities shall include all obligations of the Debtor to the
Agent or the Banks specified as Liabilities, notwithstanding any right or power
of the Debtor or anyone else to assert any claim or defense as to the invalidity
or unenforceability of any such obligation, and no such claim or defense shall
affect or impair the obligations of the Guarantor hereunder. The obligations of
the Guarantor under this guaranty shall be absolute and unconditional
irrespective of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of the Guarantor. The Guarantor hereby
acknowledges that there are no conditions to the effectiveness of this guaranty.

<PAGE>

         This guaranty shall be binding upon the Guarantor, and upon the
successors and assigns of the Guarantor.

         Wherever possible, each provision of this guaranty shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this guaranty.

         THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.

         THE AGENT AND THE BANKS (BY ACCEPTING THIS GUARANTY) AND THE GUARANTOR
HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

         AT THE OPTION OF THE AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY
FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL,
MINNESOTA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN
THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS GUARANTY THE AGENT, AT ITS OPTION, SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

<PAGE>

                  SIGNED AND DELIVERED as of January 17, 2002.

                                           CHRONIMED HOLDINGS, INC.

                                           By:____________________________

                                           Title:_________________________

<PAGE>

                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT (this "Agreement"), dated as of January 17,
2002, is entered into between U.S. BANK NATIONAL ASSOCIATION (the "Agent") and
CHRONIMED HOLDINGS INC. (the "Company").

                             Preliminary Statement:

         CHRONIMED INC. (the "Borrower"), the Banks named therein, and U.S. Bank
National Association, as Agent (the "Agent") have entered into an Amended and
Restated Revolving Credit Agreement, dated as of January 17, 2002 (as thereafter
amended, modified, extended, renewed or restated from time to time, the "Credit
Agreement"). It is a condition to entry into the Credit Agreement and inclusion
of certain assets of the Company into the Borrowing Base that the Company enter
into a Guaranty, dated as of January 17, 2002 (as thereafter amended, modified,
extended, renewed or restated from time to time,the "Guaranty") of the
obligations of the Borrower to the Banks and the Agent and enter into this
Agreement and grant the security interests hereunder to secure the Guaranty and
the loans made by the Banks under the Credit Agreement, obligations of the
Borrower to the Banks and the Agent under the Credit Agreement and other
extensions of credit as hereinafter provided.

         Section 1 - Definitions and Interpretation.

         Section 1.1 Terms in Credit Agreement. Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Credit
Agreement, provided, that the term "Liabilities" shall mean (a) the Liabilities
as defined in the Credit Agreement, plus (b) all obligations and liabilities of
the Company under this Agreement, plus (c) the "Liabilities" as defined in the
Guaranty.

         Section 1.2 Terms defined in Uniform Commercial Code. "Account",
"Account Debtor", "Chattel Paper", "Deposit Account", "Document", "General
Intangibles", "Health-care-insurance receivables", "Instrument", "Inventory",
"Investment Property", "Letter-of-Credit Rights", "Proceeds" and "Supporting
Obligations" shall have the meanings set forth in the Minnesota Uniform
Commercial Code (for purposes of this Agreement, such terms may be capitalized,
even if not capitalized in the Minnesota Uniform Commercial Code), provided,
that if any additional goods, property or rights shall be included in such terms
under Section 2 hereof, such terms shall be construed to include such additional
goods, property or rights.

         Section 1.3 Interpretation. A reference to a Section, Exhibit or
Schedule is, unless otherwise stated, a reference to a section hereof, or an
exhibit or schedule hereto, as the case may be. Section captions used in this
Agreement are for convenience only, and shall not affect the construction of
this Agreement. The word "including" shall, in each instance, be deemed to mean
"including but not limited to".

<PAGE>

         Section 2 Grant of Security Interest. As security for the payment of
all Liabilities, the Company hereby assigns to the Agent and grants to the
Agent, for the benefit of the Agent and the Banks, a continuing security
interest in the following personal property of the Company, including without
limitation the following, whether now owned or hereafter arising or acquired
(collectively, the "Collateral"):

         (a) Accounts, including all other rights and interests (including all
         liens and security interests) that the Company may at any time have by
         law or agreement against any Account Debtor or other obligor obligated
         to make any such payment or against any of the property of such Account
         Debtor or other obligor and including Health-care-insurance
         receivables;

         (b) Inventory, including goods that are returned, repossessed, stopped
         in transit or which otherwise come into the possession of the Company;

         (c) General Intangibles, including payment intangibles, inventions,
         designs, patents, patent applications, design patents, design patent
         applications, trademarks, trademark applications, trade names, trade
         secrets, goodwill, copyrights, registrations, licenses, franchises,
         customer lists, tax refund claims, rights to indemnification and rights
         under warranties;

         (d) Chattel Paper, Instruments and Documents;

         (e) Investment Property;

         (f) Deposit Accounts;

         (g) Letter-of-Credit rights;

         (h) Supporting Obligations;

         (i) books, correspondence, credit files, records, invoices, manuals,
         service records and programs, other papers and documents, computer
         records, runs, software, systems, procedures, disks, tapes and other
         storage media relating to any of the Collateral, including any of the
         foregoing in the possession or control of any service, consultant, or
         outside vendor;

         (j) to the extent relating to the Collateral, Proceeds, including all
         policies, claims to payment under, and proceeds of any and all
         insurance policies payable to the Company, or on behalf of the
         Company's property, whether or not such policies are issued to or

<PAGE>

         owned by the Company and whether or not the Agent is named as loss
         payee or additional insured, including any credit insurance.

Notwithstanding the foregoing, the Collateral shall not include any medical
records that cannot be pledged under applicable law.

         Section 3 - Representations and Warranties

         The Company represents and warrants to the Agent and the Banks that:

         Section 3.1 Organization, Names and Organization Number. The Company is
an entity of the type identified on Schedule A, organized under the laws of the
jurisdiction identified on Schedule A. The organization identification number,
if any, and the federal taxpayer identification number of the Company are set
forth on Schedule A. The Company does business solely under its own name and the
trade names and styles, if any, set forth on Schedule A (which includes any name
used within the past 5 years).

         Section 3.2 Owner, No Other Financing Statements. The Company is and
will be the lawful owner of all Collateral, free of all liens and claims
whatsoever, other than the security interest hereunder, and those shown on
Schedule B. No financing statement (other than any which may have been filed on
behalf of the Agent) covering any of the Collateral is on file in any public
office, except those listed on Schedule B.

         Section 3.3 Offices and Locations. The Company's chief place of
business and chief executive office and the office where it keeps its books and
records concerning the Collateral, and the originals of all Chattel Paper,
Instruments and Documents are located at its address set forth on the signature
page hereof.

         Section 3.4 Locations Inventory. All of the Inventory existing on the
date of the Agreement is located at the places specified in Schedule C. The
Company will immediately notify the Agent of any additional state in which any
item of Inventory is hereafter located.

         Section 4 - Sale and Collection

         4.1 Sale in Ordinary Course. Until the occurrence of an Event of
Default, the Company may, in the ordinary course of its business, sell, lease,
or consume (if raw materials) Inventory and furnish Inventory under contracts of
service.

         4.2 Collection of Collateral. Until such time as the Agent shall notify
the Company of the revocation of such authority, the Company will endeavor to
collect, as and when due, all

<PAGE>

amounts due with respect to any of the Collateral, and shall take any action in
connection with such collection as the Agent may reasonably request.

         4.3 Refunds. The Company may grant, in the ordinary course of its
business, any refund or allowance to any Account Debtor to which it may be
lawfully entitled, and may accept, in connection therewith, the return of goods,
the sale or lease of which shall have given rise to Accounts.

         Section 4.4 Collection by the Agent. The Agent may, but shall not be
obligated to, following any Event of Default (a) notify any parties obligated on
any of the Collateral to make payment directly to the Agent, (b) enforce
collection of any of the Collateral by suit or otherwise, and (c) surrender,
release, exchange, compromise, extend or renew all or any part of the
Collateral. Following the occurrence of any Event of Default, if requested by
the Agent, the Company will, at its own expense, notify all parties obligated on
any of the Collateral to make all payments thereunder directly to the Agent.

         Section 4.5 Transmittal of Items to the Agent. The Company will, upon
request of the Agent following an Event of Default, upon receipt, transmit and
deliver to the Agent, in the form received, all cash, checks, drafts, and any
other form of payment (properly endorsed, where required, so that such items may
be collected by the Agent) received as proceeds of any of the Collateral. The
Agent is authorized to endorse, in the name of the Company, any item received by
the Agent constituting a proceed of any of the Collateral. After such request by
the Agent, any such items received by the Company will not be commingled with
any other of its funds or property, but will be held separate and apart from its
own funds or property and upon express trust for the Agent until delivered to
the Agent.

         Section 5 - Agreements of Company

         The Company agrees that, unless otherwise agreed in writing by the
Agent, it will:

         Section 5.1 Schedules and Reports. Furnish to the Agent, in form and
detail satisfactory to the Agent: (a) written notice of any event causing loss,
material damage or depreciation in value of any of the Collateral, describing,
and specifying the amount of, such loss, damage or depreciation; and (b) from
time to time, as the Agent may request, such additional schedules, certificates
and reports concerning the Collateral, including the Account Debtors obligated
thereon, as the Agent may request.

         Section 5.2 Inspection. Permit the Agent and its agents or its
designees, from time to time, to inspect and evaluate the Collateral, and to
inspect, audit and make copies of all books and records constituting or
otherwise concerning the Collateral, and will, upon request of the Agent,
deliver to the Agent all of such records which pertain to the Collateral and all
Account Debtors. The Company will reimburse the Agent upon demand for all
reasonable costs and

<PAGE>

expenses incurred by the Agent, its agents or its designees in the course of
such inspection and evaluation.

         Section 5.3 Financing Statements and Filing. Upon request of the Agent,
execute such financing statements and other documents (and pay the cost of
recording the same in all offices requested by the Agent) and do such other acts
as the Agent may from time to time request to establish and maintain a valid
perfected security interest in the Collateral. The Company agrees that any
carbon, photographic or other reproduction of this Agreement or of any such
financing statement shall be sufficient for filing as a financing statement. The
Company authorizes the Agent to file any financing statements describing the
Collateral that do not require the manual signature of the Company.

         Section 5.4 Locations and Notices. Maintain and keep (a) all Inventory
at the locations shown on Schedule C and at such other locations of which the
Company shall have given the Agent notice in writing before inventory is
maintained at such locations; (b) except as delivered to the Agent from time to
time, all Chattel Paper, Instruments and Documents, and all records included as
Collateral or otherwise concerning the Collateral, at the address shown on the
signature page and not duplicate any records regarding any Collateral at any
other address; and (c) the location of its chief office at the address shown on
the signature page.

         Section 5.5 Names. Not do business under any other name other than
those shown on Schedule B.

         Section 5.6 Notation on Records. Upon request of the Agent, stamp on
its records concerning the Collateral a notation, in form satisfactory to the
Agent, of the security interest of the Agent hereunder, and mark conspicuously
each Document, Chattel Paper, Instrument or contract included in the Collateral
with a legend, in form and substance satisfactory to the Agent, indicating that
such Document, Chattel Paper, Instrument or contract is subject to the security
interest of the Agent.

         Section 5.7 Delivery of Collateral. Upon request of the Agent, deliver
to the Agent all Documents, Instruments and Chattel Paper, duly endorsed to be
payable to the Agent, or accompanied by duly executed instruments of transfer or
assignment in form and substance satisfactory to the Agent, with full recourse
to the Company.

         Section 5.8 Transfer, Sale or Security Interest. Except as expressly
authorized under Section 4.1 hereof (subject to the limits therein), not sell,
lease, transfer, consume, assign or otherwise dispose of, or create or permit to
exist any lien on or security interest (other than the Agent's security
interest) in, any Collateral.

         Section 5.9 Insurance. Keep all Inventory insured against loss, damage,
theft and other risks, with amounts and insurance companies, and under policies,
satisfactory to the Agent,

<PAGE>

which policies shall provide that loss thereunder shall be payable to the Agent
as its interest may appear (and the Agent may apply any proceeds of such
insurance which may be received by it toward payment of Liabilities, whether or
not due, in such order of application as the Agent may determine), and such
policies or certificates thereof shall, if the Agent so requests, be deposited
with the Agent.

         Section 5.10 Payment of Taxes, etc. Pay, when due, all taxes,
assessments, governmental charges and other similar charges levied against any
of the Collateral, except and so long as the Company is contesting such taxes,
assessments or charges in good faith and, by appropriate proceedings and the
Company has set aside on its books such reserves or other appropriate provisions
therefor as may be required by generally accepted accounting principles, and so
long as no enforcement action is being taken that would interfere with the
Company's use of such Collateral or the enforcement of the Agent's rights
hereunder.

         Section 5.11 Waivers. Upon request of the Agent, obtain and deliver to
the Agent waivers in form and substance satisfactory to the Agent of any claim
to any Collateral by any landlord or mortgagee of any property where Inventory
is located.

         Section 6 - Agent's Duties and Power of Attorney

         Section 6.1 Agent's Performance of Agreements and Reimbursement. The
Agent may, from time to time, at its option, perform any agreement of the
Company hereunder which the Company shall fail to perform and take any other
action which the Agent deems necessary for the maintenance or preservation of
the Collateral or its interest therein, and the Company shall reimburse the
Agent for all expenses of the Agent in connection with the foregoing, together
with interest thereon at the highest rate of interest borne by any of the
Liabilities at such time from the date incurred until reimbursed by the Company.

         Section 6.2 Power of Attorney. The Company hereby irrevocably appoints
the Agent as the Company's attorney-in-fact, with full authority in the place
and stead of the Company and in the name of the Company, the Agent or otherwise,
from time to time in the Agent's discretion, to take any action and to execute
any instrument which the Agent may deem advisable to accomplish the purposes of
Section 6.1 and to exercise any right and remedy upon the occurrence of an Event
of Default. The Company hereby ratifies all that such attorney shall lawfully do
or cause to be done by virtue hereof. This power of attorney is irrevocable and
is coupled with an interest.

         Section 6.3 No Liability on Collateral; Indemnity. The rights and
powers of the Agent hereunder are conferred solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such rights
or powers. The Agent does not in any way assume any of the Company's obligations
under, or with respect to, the Collateral. The Company shall remain

<PAGE>

liable with respect to the Collateral to the same extent as if this Agreement
had not been executed. The Company agrees to indemnify and hold harmless the
Agent against any and all liabilities, claims, damages, actions, proceedings,
losses or other obligations arising in connection with or on account of any of
the Collateral.

         Section 6.4 Care of Collateral. Except for the safe custody of any
Collateral in its possession, the Agent shall have no duty as to any Collateral
or as to the taking of any steps to preserve rights against any other party. The
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Agent accords its own property,
or is accorded treatment complying with any provision of any other document
setting forth a standard of care for such Collateral.

         Section 7 - Event of Default and Remedies

         Whenever an Event of Default shall be existing:

         Section 7.1 Liabilities Due and Payable. All of the Liabilities may
(notwithstanding any provisions of any of the Loan Documents), at the option of
the Agent, and without demand or notice of any kind, be declared, and thereupon
immediately shall become, due and payable.

         Section 7.2. Deposits, etc. The Agent may, from time to time, without
demand or notice of any kind, appropriate and apply toward the payment of such
of the Liabilities, and in such order of application, as the Agent may from time
to time elect, any and all balances, credits, deposits (general or special, time
or demand, provisional or final), accounts or moneys of or in the name of the
Company then or thereafter with the Agent.

         Section 7.3 Assembly of Collateral. Upon demand of the Agent, the
Company shall assemble, at its expense, all Collateral at a convenient place
acceptable to the Agent.

         Section 7.4 Use and Sale of Collateral. The Agent may, to the fullest
extent permitted by applicable law, without notice, hearing or process of law of
any kind, (a) enter upon any premises where any of the Collateral may be located
and take possession of and remove such Collateral; (b) use or license, on an
exclusive or non-exclusive basis, any General Intangibles throughout the world
for such term or terms, on such conditions, and in such manner, as the Agent
shall in its sole discretion determine, without compensation to the Company; (c)
sell any or all of the Collateral, free of all rights and claims of the Company
therein and thereto; and (d) bid for and purchase any or all of such Collateral
at any such sale.

         Section 7.5 Additional Provisions on Sale. Any sale of Collateral may
be in one or more parcels at public or private sales, at any of the Agent's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Agent may reasonably believe are

<PAGE>

commercially reasonable. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sales having been given, and the Agent may
adjourn any public or private sale from time to time by announcement made at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.

         Section 7.6 Waiver by Company. The Company hereby expressly waives, to
the fullest extent permitted by applicable law, any and all notices,
advertisements, hearings or process of law in connection with the exercise by
the Agent of any of its rights and remedies upon an Event of Default. Any
notification of intended disposition of any of the Collateral required by law
shall be deemed reasonably and properly given if given at least five days before
such disposition.

         Section 7.7 Proceeds of Collateral. Any proceeds of any disposition by
the Agent of any of the Collateral may be applied by the Agent to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by the Agent
toward the payment of such of the Liabilities, and in such order of application,
as the Agent may from time to time elect.

         Section 7.8 Recourse to Collateral; Remedies not Exclusive. The Agent
may resort to the Collateral for payment of any of the Liabilities, whether or
not the Agent shall have resorted to any other property securing the Liabilities
or shall have proceeded against the Company or any other party obligated to pay
or perform the Liabilities. The Agent's exercise of rights hereunder shall not
prevent the Agent's exercise of any other rights it may have upon the occurrence
of an Event of Default under any other Loan Documents or otherwise, and one
exercise of rights hereunder shall not prevent any subsequent exercise of rights
of the Agent hereunder, under any Loan Documents or otherwise.

         Section 7.9 Other Rights. The Agent may exercise from time to time any
other rights and remedies available to it under any Loan Document and under all
applicable law.

         Section 8 - General Provisions

         Section 8.1 Reimbursement of Expenses. The Company shall reimburse the
Agent upon demand for all costs and expenses, including reasonable fees of
attorneys for the Agent (who may be employees of the Agent) and legal expenses,
incurred by the Agent in seeking to collect or enforce any rights under the
Collateral and its rights hereunder and, in case of an Event of Default, in
seeking to collect each Loan Document and the Liabilities.

         Section 8.2 Notices. Any notice from the Company to the Agent or from
the Agent to the Company shall be given, and deemed received, as provided in the
Credit Agreement, to the address on the signature page of this Agreement.

<PAGE>

         Section 8.3 Waivers and Amendments. No failure or delay on the part of
the Agent in the exercise of any power, right or remedy, and no course of
dealing between the Company and the Agent, shall operate as a waiver of such
power, right or remedy, nor shall any single or partial exercise of any power,
right or remedy preclude other or further exercise thereof or the exercise of
any other power, right or remedy. No notice to or demand on the Company not
required hereunder shall in any event entitle the Company to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Agent to any other or further action in any
circumstances without notice or demand. No amendment, modification or waiver of,
or consent with respect to, any provision of this Agreement shall in any event
be effective unless the same shall be in writing and signed and delivered by the
Agent. Any waiver of any provision of this Agreement, and any consent to any
departure by the Company from the terms of any provision of this Agreement,
shall be effective only in the specific instance and for the specific purpose
for which given.

         Section 8.4 Remedies Cumulative. The remedies provided for herein are
cumulative and not exclusive of any remedies which may be available to the Agent
at law or in equity.

         Section 8.5 Termination of Agreement. Unless sooner terminated by the
Agent, this Agreement shall terminate when all of the Loan Documents shall have
expired or been terminated and all Liabilities shall have been paid in full.
This Agreement shall continue notwithstanding that there may be, from time to
time, no outstanding loans or extensions of credit from the Agent to the
Company. Any return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Company
and shall be without warranty by, or recourse against, the Agent.

         Section 8.6 Successors and Assigns. This Agreement shall be binding
upon the Company, its successors and assigns (and, if an individual, the
Company's heirs, estate and personal representatives), and shall inure to the
benefit of, and be enforceable by, the Agent and its successors, transferees,
and assigns. Without limiting the generality of the foregoing, the Agent may
assign or otherwise transfer all or any portion of the Liabilities to any other
person or entity and may similarly transfer all or any portion of its rights
under this Agreement to such person or entity.

         Section 8.7 Choice of Law. This Agreement has been delivered at
Minneapolis, Minnesota, and shall be construed in accordance with and governed
by the laws of the State of Minnesota.

         Section 8.8 Severance. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

<PAGE>

         Section 8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

         Section 8.10 Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE COMPANY CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS AGREEMENT, THE AGENT AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

         Section 8.11 Waiver of Notice and Hearing. THE COMPANY HEREBY WAIVES
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT
OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS
RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING.

         Section 8.12 Waiver of Jury Trial. THE COMPANY AND THE AGENT EACH WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT A JURY.

<PAGE>

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

                                               CHRONIMED HOLDINGS INC.

                                               By:______________________________

                                               Its:_____________________________
Address:
10900 Red Circle Drive
Minnetonka, MN 55343
Attention: Mr. Greg Keane
              Vice President - Finance

                                               U.S. BANK NATIONAL ASSOCIATION

                                               By:______________________________

                                               Its:_____________________________
Address:
601 2nd Ave. S.
Minneapolis, Minnesota 55402-4302
Attention: Mr. Joshua R. Pirozzolo
Telephone: (612) 973-0520
Fax: (612) 973-0823

<PAGE>

                                   SCHEDULE A
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                             CHRONIMED HOLDINGS INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

1.  Type of entity: Corporation.

2.  Jurisdiction of Organization: Minnesota

3.  Organizational Identification Number: 9F-428

4.  Federal Taxpayer Identification Number: ______

5.  Trade Names and Trade Styles used by the Company during the past 5 years:

         Statscript Pharmacy

<PAGE>

                                   SCHEDULE B
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                             CHRONIMED HOLDINGS INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

         Other Security Interests:

Holder:           Amount Secured:          Financing Statement:

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

<PAGE>

                                   SCHEDULE C
                                       TO
                               SECURITY AGREEMENT
                                     BETWEEN
                             CHRONIMED HOLDINGS INC.
                                       AND
                         U.S. BANK NATIONAL ASSOCIATION

Locations at which Inventory is kept:

Location:                                            Type of Inventory

See Attached List                                    pharmaceutical products

<PAGE>

                            CHRONIMED HOLDINGS, INC.
                             SECRETARY'S CERTIFICATE

         I, Kenneth S. Guenthner, do hereby certify that I am the duly elected
and qualified Secretary and the keeper of the records and corporate seal of
CHRONIMED HOLDINGS, INC., a corporation organized and existing under the laws of
the State of Minnesota, and that the following is a true and correct copy of
certain resolutions duly adopted at a meeting of the Board of Directors thereof,
convened and held in accordance with law and by-laws of said corporation, and
that such resolutions are now in full force and effect, unamended, unaltered and
unrepealed, and are not in contravention of, or in conflict with, the by-laws or
the charter or articles of incorporation of said corporation:

         WHEREAS, there has been presented to this meeting a form of Guaranty of
this Corporation in favor of the Banks (as defined in the Credit Agreement) and
U.S. BANK NATIONAL ASSOCIATION, as agent for the Banks (in such capacity,
together with it successors and assigns, called the "Agent") under that certain
Credit Agreement, dated as of January 17, 2002 (as thereafter amended, modified,
extended, renewed, restated or replaced from time to time called the "Credit
Agreement") among the Banks, the Agent and CHRONIMED, INC., a Minnesota
corporation (hereinafter called the "Debtor"), guarantying the Liabilities, as
defined in such Guaranty, and obligating this Corporation to pay the Guaranty
Obligations, as defined in such Guaranty;

         WHEREAS, it is in the best interests of this Corporation to guarantee
the Liabilities, as provided for in the form of Guaranty presented to this
meeting;

         NOW, THEREFORE, BE IT RESOLVED, that this Corporation guarantee all of
the Liabilities, whether now or hereafter existing, of the Debtor, as provided
for in such Guaranty;

         FURTHER RESOLVED, that the Chief Executive Officer and the Treasurer of
this Corporation, individually or collectively, be and they hereby are
authorized and directed to execute, in the name and on behalf of this
Corporation, and deliver a Guaranty of this Corporation substantially in the
form of the Guaranty presented to this meeting, except for such changes,
additions and deletions as to any or all of the terms and provisions thereof as
the officer(s) executing such Guaranty on behalf of this Corporation shall deem
proper, such execution by such officer(s) of a Guaranty of this Corporation to
be conclusive evidence that such officer(s) deem(s) all of the terms and
provisions thereof to be proper;

         FURTHER RESOLVED, that the Chief Executive Officer and Treasurer of
this Corporation, individually or collectively, be and they hereby are
authorized and directed to execute and deliver such other documents and to take
such other action from time to time in the name and

<PAGE>

on behalf of this Corporation as such officer(s) deem(s) necessary or
appropriate to carry out the foregoing resolutions;

         FURTHER RESOLVED, that the Secretary or any other officer of this
Corporation be and he hereby is authorized to certify to the Agent and the Banks
a copy of these resolutions and the names and signatures of this Corporation's
officers or employees hereby authorized to act in the premises, and the Agent
and the Banks are authorized to rely upon such certificate until formally
advised by a like certificate of any changes therein, and are hereby authorized
to rely upon any such additional certificates.

         I FURTHER CERTIFY THAT the following persons have been appointed or
elected and are now acting as officers or employees of said Corporation in the
capacity set before their respective names:

<TABLE>
<CAPTION>

         Title                      Name                                        Signature
         -----                      ----                                        ---------
<S>                              <C>
Chief Executive Officer             Henry F. Blissenbach

Treasurer                           Gregory H. Keane

Secretary                           Kenneth S. Guenthner

</TABLE>

         I FURTHER CERTIFY THAT the Articles of Incorporation attached hereto as
Exhibit A and the Bylaws attached hereto as Exhibit B are, respectively, true,
complete and correct copies of this Corporation's Articles of Incorporation,
duly filed with the Secretary of State of the state of Minnesota, and the Bylaws
of this Corporation, which Articles and Bylaws have been duly adopted by this
Corporation and are presently in full force and effect.

         IN WITNESS WHEREOF, I have subscribed my name as Secretary as of
January 17, 2002.

                                           -------------------------------------
                                                        Secretary
                                                 CHRONIMED HOLDINGS INC.

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