Document:

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                                                                     EXHIBIT 4.6

                              COLLATERAL AGREEMENT

                            dated as of July 7, 2004

                                  by and among

                              MEDCATH CORPORATION,

                             MEDCATH HOLDINGS CORP.,

                         and certain of its Subsidiaries

                                  as Grantors,

                                   in favor of

                              BANK OF AMERICA, N.A.

                             as Administrative Agent

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                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                   <C>
ARTICLE I  DEFINED TERMS............................................................   1
        1.01.    Terms Defined in the Uniform Commercial Code.......................   1
        1.02.    Defined Terms......................................................   2
        1.03.    Other Definitional Provisions......................................   5

ARTICLE II  SECURITY INTEREST.......................................................   5
        2.01.    Grant of Security Interest.........................................   5
        2.02.    Grantors Remain Liable.............................................   7

ARTICLE III  REPRESENTATIONS AND WARRANTIES.........................................   7
        3.01.    Existence; Qualification and Power; Compliance with Laws...........   7
        3.02.    Authorization of Agreement; No Conflict............................   8
        3.03.    Governmental Authorizations; Other Consents........................   8
        3.04.    Binding Effect.....................................................   8
        3.05.    Perfected First Priority Liens.....................................   8
        3.06.    Title, No Other Liens..............................................   9
        3.07.    Exact Legal Name; State of Organization; Location of
                 Inventory, Equipment and Fixtures; other Information...............   9
        3.08.    Accounts...........................................................   9
        3.09.    Chattel Paper......................................................  10
        3.10.    Deposit Accounts...................................................  10
        3.11.    Intellectual Property..............................................  10
        3.12.    Inventory..........................................................  10
        3.13.    Investment Property; Partnership/LLC Interests.....................  11
        3.14.    Commercial Tort Claims.............................................  11

ARTICLE IV  COVENANTS...............................................................  11
        4.01.    Maintenance of Perfected Security Interest; Further
                 Information........................................................  11
        4.02.    Maintenance of Insurance...........................................  11
        4.03.    Changes in Locations; Changes in Name or Structure.................  12
        4.04.    Required Notifications.............................................  12
        4.05.    Delivery Covenants.................................................  13
        4.06.    Control Covenants..................................................  13
        4.07.    Filing Covenants...................................................  14
        4.08.    Accounts...........................................................  14
        4.09.    Intellectual Property..............................................  14
        4.10.    Investment Property; Partnership/LLC Interests.....................  16
        4.11.    Equipment..........................................................  16
        4.12.    Vehicles...........................................................  16
        4.13.    Further Assurances.................................................  16

ARTICLE V  REMEDIAL PROVISIONS......................................................  17
        5.01.    General Remedies...................................................  17
        5.02.    Specific Remedies..................................................  17
        5.03.    Private Sale.......................................................  20
        5.04.    Application of Proceeds............................................  20
        5.05.    Waiver, Deficiency.................................................  20
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<TABLE>
<S>                                                                                  <C>
ARTICLE VI  THE ADMINISTRATIVE AGENT................................................  21
        6.01.    Administrative Agent's Appointment as Attorney-In-Fact.............  21
        6.02.    Duty of Administrative Agent.......................................  22
        6.03.    Authority of Administrative Agent..................................  23

ARTICLE VII  MISCELLANEOUS..........................................................  23
        7.01.    Amendments in Writing..............................................  23
        7.02.    Notices............................................................  23
        7.03.    No Waiver by Course of Conduct, Cumulative Remedies................  23
        7.04.    Enforcement Expenses, Indemnification..............................  24
        7.05.    Governing Law; Consent to Jurisdiction.............................  24
        7.06.    Waiver of Jury Trial...............................................  25
        7.07.    Successors and Assigns.............................................  26
        7.08.    Set-Off............................................................  26
        7.09.    Counterparts.......................................................  26
        7.10.    Severability.......................................................  26
        7.11.    Section Heading....................................................  26
        7.12.    Integration........................................................  26
        7.13.    Acknowledgements...................................................  27
        7.14.    Additional Grantors................................................  27
        7.15.    Releases...........................................................  27
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<TABLE>
<S>                   <C>
SCHEDULES:

Schedule 3.07         Jurisdiction of Organization; Taxpayer Identification
                      Number; Registered Organization Number; Mailing
                      Address; Chief Executive Office and other Locations
Schedule 3.10         Deposit Accounts
Schedule 3.11         Intellectual Property
Schedule 3.13         Investment Property and Partnership/LLC Interests
Schedule 3.14         Commercial Tort Claims
</TABLE>

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                                                                  EXECUTION COPY

                              COLLATERAL AGREEMENT

      COLLATERAL AGREEMENT, dated as of July 7, 2004, by and among MEDCATH
CORPORATION, a Delaware corporation (the "Parent"), MEDCATH HOLDINGS CORP., a
Delaware corporation (the "Borrower"), the Subsidiary Guarantors, as identified
on the signature pages hereto and any Additional Grantor (as defined below) who
may become party to this Agreement (such Subsidiary Guarantors and Additional
Grantors, collectively, the "Subsidiary Grantors" and, together with the Parent
and the Borrower, collectively, the "Grantors"), in favor of BANK OF AMERICA,
N.A., as Administrative Agent (in such capacity, the "Administrative Agent") for
the ratable benefit of the banks and other financial institutions (the
"Lenders") from time to time parties to the Credit Agreement, dated as of July
7, 2004 (as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), by and among the Parent, the Borrower, the
Lenders, and the Administrative Agent.

                              STATEMENT OF PURPOSE

      Pursuant to the Credit Agreement, the Lenders have agreed to make certain
Credit Extensions to the Borrower upon the terms and subject to the conditions
set forth therein.

      Pursuant to the terms of the Credit Agreement, the Parent has guaranteed
payment and performance of the Obligations of the Borrower.

      Pursuant to the terms of the Subsidiary Guaranty, certain Subsidiary
Guarantors who are parties hereto have guaranteed payment and performance of the
Obligations of the Borrower.

      It is a condition precedent to the obligation of the Lenders to make their
respective Credit Extensions to the Borrower under the Credit Agreement that the
Grantors shall have executed and delivered this Agreement to the Administrative
Agent, for the ratable benefit of itself and the Lenders.

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, and to
induce the Administrative Agent and the Lenders to enter into the Credit
Agreement and to induce the Lenders to make their respective Credit Extensions
to the Borrower thereunder, each Grantor hereby agrees with the Administrative
Agent, for the ratable benefit of itself and the Lenders, as follows:

                                    ARTICLE I

                                  DEFINED TERMS

      1.01. Terms Defined in the Uniform Commercial Code.

      (a) The following terms when used in this Agreement shall have the
meanings assigned to them in the UCC (as defined in Section 1.02 below) as in
effect from time to time: "Account", "Account Debtor", "Authenticate",
"Certificated Security", "Chattel Paper";

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"Commercial Tort Claim" "Deposit Account", "Documents", "Electronic Chattel
Paper", "Equipment", "Fixture", "General Intangible", "Instrument", "Inventory",
"Investment Property", "Issuer", "Letter of Credit Rights", "Proceeds",
"Record", "Security Entitlement", "Securities Intermediary", "Securities
Account", "Supporting Obligation", "Tangible Chattel Paper", and "Uncertificated
Security".

      (b) Terms defined in the UCC and not otherwise defined herein or in the
Credit Agreement shall have the meaning assigned in the UCC as in effect from
time to time.

      1.02. Defined Terms. The following terms when used in this Agreement shall
have the meanings assigned to them below:

      "Additional Grantor" means each Subsidiary of the Parent which hereafter
becomes a Grantor pursuant to Section 7.13 hereof.

      "Agreement" means this Collateral Agreement, as amended, restated,
supplemented or otherwise modified from time to time.

      "Applicable Insolvency Laws" means all applicable Laws governing
bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (including, without limitation, 11 U.S.C. Sections 547, 548 and 550 and
other "avoidance" provisions of Title 11 of the United States Code).

      "Assignment of Claims Act" means the Assignment of Claims Act of 1940 (41
U.S.C. Section 15, 31 U.S.C. Section 3737, and 31 U.S.C. Section 3727),
including all amendments thereto and regulations promulgated thereunder.

      "Collateral" has the meaning assigned thereto in Section 2.01.

      "Collateral Account" means any collateral account established by the
Administrative Agent as provided in Section 5.02.

      "Control" means the manner in which "control" is achieved under the UCC
with respect to any Collateral for which the UCC specifies a method of achieving
"control".

      "Controlled Depository" has the meaning assigned thereto in Section 4.06.

      "Controlled Intermediary" has the meaning assigned thereto in Section
4.06.

      "Copyrights" means, collectively, all of the following of any Grantor: (a)
all material copyrights, rights and material interests in copyrights, works
protectable by copyright, copyright registrations and copyright applications
anywhere in the world, including, without limitation, those listed on Schedule
3.11 hereto; (b) all reissues, extensions, continuations (in whole or in part)
and renewals of any of the foregoing; (c) all income, royalties, damages and
payments now or hereafter due and/or payable under any of the foregoing or with
respect to any of the

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foregoing, including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (d) the right to sue for past, present
and future infringements of any of the foregoing; and (e) all rights
corresponding to any of the foregoing throughout the world.

      "Copyright Licenses" means any written agreement naming any Grantor as
licensor or licensee, including, without limitation, those listed on Schedule
3.11, granting any right under any Copyright, including, without limitation, the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.

      "Effective Endorsement and Assignment" means, with respect to any specific
type of Collateral, all such endorsements, assignments and other instruments of
transfer reasonably requested by the Administrative Agent with respect to the
Security Interest granted in such Collateral, and in each case, in form and
substance reasonably satisfactory to the Administrative Agent.

      "Excess Collateral" has the meaning assigned thereto in Section 4.06.

      "Government Contract" means a material contract between any Grantor and an
agency, department or instrumentality of the United States or any state,
municipal or local Governmental Authority located in the United States or all
material obligations of any such Governmental Authority arising under any
Account now or hereafter owing by any Governmental Authority, as account debtor,
to any Grantor.

      "Grantors" has the meaning set forth in the Preamble of this Agreement.

      "Intellectual Property" means, collectively, all of the following of any
Grantor: (a) all material systems software, applications software and internet
rights, including, without limitation, screen displays and formats, internet
domain names, web sites (including web links), program structures, sequence and
organization, all documentation for such software, including, without
limitation, user manuals, flowcharts, programmer's notes, functional
specifications, and operations manuals, all formulas, processes, ideas and
know-how embodied in any of the foregoing, and all program materials,
flowcharts, notes and outlines created in connection with any of the foregoing,
whether or not patentable or copyrightable, (b) Patents and Patent Licenses,
Copyrights and Copyright Licenses, Trademarks and Trademark Licenses, and (c)
other licenses to use any of the items described in the foregoing clauses (a)
and (b) or any other similar items of such Grantor necessary for the conduct of
its business.

      "Medicare/Medicaid Receivables" means any payment received by a Grantor
pursuant to Accounts arising under a Medicaid Provider Agreement or a Medicare
Provider Agreement.

      "Medicare/Medicaid Receivables Account" means any Deposit Account of any
Grantor into which the only funds that are deposited are Medicare/Medicaid
Receivables.

      "Obligations" means (i) with respect to the Borrower and the Parent, the
meaning assigned thereto in the Credit Agreement and (ii) in the case of each
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty.

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      "Partnership/LLC Interests" means, with respect to any Grantor, the entire
partnership, membership interest or limited liability company interest, as
applicable, of such Grantor in each partnership, limited partnership or limited
liability company owned thereby, including, without limitation, such Grantor's
capital account, its interest as a partner or member, as applicable, in the net
cash flow, net profit and net loss, and items of income, gain, loss, deduction
and credit of any such partnership, limited partnership or limited liability
company, as applicable, such Grantor's interest in all distributions made or to
be made by any such partnership, limited partnership or limited liability
company, as applicable, to such Grantor and all of the other economic rights,
titles and interests of such Grantor as a partner or member, as applicable, of
any such partnership, limited partnership or limited liability company, as
applicable, whether set forth in the partnership agreement or membership
agreement, as applicable, of such partnership, limited partnership or limited
liability company, as applicable, by separate agreement or otherwise.

      "Patents" means, collectively, all of the following of any Grantor: (a)
all material patents, rights and interests in patents, patentable inventions and
patent applications anywhere in the world, including, without limitation, those
listed on Schedule 3.11 hereto; (b) all reissues, extensions, continuations (in
whole or in part) and renewals of any of the foregoing; (c) all income,
royalties, damages or payments now or hereafter due and/or payable under any of
the foregoing or with respect to any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future infringements of
any of the foregoing; and (e) all rights corresponding to any of the foregoing
throughout the world.

      "Patent License" means all agreements now or hereafter in existence,
whether written, or oral, providing for the grant by or to any Grantor of any
right to manufacture, use or sell any invention covered in whole or in part by a
Patent, including, without limitation, any of the foregoing referred to in
Schedule 3.11 hereto.

      "Securities Act" means the Securities Act of 1933, including all
amendments thereto and regulations promulgated thereunder.

      "Security Interests" means the security interests granted pursuant to
Article II, as well as all future security interests created or assigned as
additional security for the Obligations pursuant to the provisions of the Credit
Agreement.

      "Subsidiary Grantors" has the meaning set forth in the Preamble of this
Agreement.

      "Subsidiary Issuer" means any Issuer of Investment Property or any
Partnership/LLC Interests, which such Issuer is a direct or indirect Subsidiary
of the Parent or the Borrower.

      "Trademarks" means, collectively, all of the following of any Grantor: (a)
all material trademarks, rights and interests in trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, whether

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registered or unregistered, all registrations and recordings thereof, and all
applications in connection therewith (other than each application to register
any trademark or service mark prior to the filing under applicable Law of a
verified statement of use for such mark) anywhere in the world, including,
without limitation, those listed on Schedule 3.11 hereto; (b) all reissues,
extensions, continuations (in whole or in part) and renewals of any of the
foregoing; (c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (d) the right to sue for past, present
and future infringements of any of the foregoing; and (e) all rights
corresponding to any of the foregoing (including the goodwill) throughout the
world.

      "Trademark License" means any agreement now or hereafter in existence,
whether written or oral, providing for the grant by or to any Grantor of any
right to use any Trademark, including, without limitation, any of the foregoing
referred to in Schedule 3.11.

      "UCC" means the Uniform Commercial Code as in effect in the State of New
York, as amended or modified from time to time.

      "Vehicles" means all cars, trucks, trailers and other vehicles covered by
a certificate of title under the laws of any state and all tires and all other
appurtenances to any of the foregoing.

      1.03. Other Definitional Provisions. Terms defined in the Credit Agreement
and not otherwise defined herein shall have the meaning assigned thereto in the
Credit Agreement. The words "hereof," "herein", "hereto" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section and Schedule references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. Where the
context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor's Collateral or the
relevant part thereof. To the extent that a direct conflict between the
provisions of this Agreement and the provisions of the Credit Agreement (other
than with respect to any provision of this Agreement relating the grant, pledge
and assignment of the Security Interest in the Collateral or the exercise of
remedies with respect thereto), the Credit Agreement shall govern.

                                   ARTICLE II

                                SECURITY INTEREST

      2.01. Grant of Security Interest. Each Grantor hereby grants, pledges and
collaterally assigns to the Administrative Agent, for the ratable benefit of
itself and the Lenders, a security interest in, all of such Grantor's right,
title and interest in the following property, now owned or at any time hereafter
acquired by such Grantor or in which such Grantor now has or at any time in the
future may acquire any right, title or interest, and wherever located or deemed
located (collectively, the "Collateral"), as collateral security for the prompt
and complete payment and

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performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations:

            (a)   all Accounts;

            (b)   all Chattel Paper;

            (c)   all Commercial Tort Claims identified on Schedule 3.14;

            (d)   subject to the proviso at the end of this Section 2.01, all
                  Deposit Accounts;

            (e)   all Documents;

            (f)   all Equipment; provided, however, that Equipment excludes any
                  and all equipment financed solely by a third party equipment
                  lender who finances the purchase, lease or refinance of
                  specific equipment and who does not permit the Administrative
                  Agent or the Lenders to encumber or obtain a security interest
                  in such financed equipment, but does include (A) all equipment
                  financed by such equipment lender who does not prohibit the
                  grant of a security interest in such financed equipment and
                  (B) all equipment financed with the proceeds obtained from the
                  Extensions of Credit;

            (g)   all Fixtures;

            (h)   all General Intangibles;

            (i)   all Instruments (including, without limitation, all Permitted
                  Intercompany Notes);

            (j)   all Intellectual Property;

            (k)   all Inventory;

            (l)   all Investment Property;

            (m)   all Letter of Credit Rights;

            (n)   all Vehicles;

            (o)   all other personal property not otherwise described above;

            (p)   all books and records pertaining to the Collateral; and

            (q)   to the extent not otherwise included, all Proceeds and
                  products of any and all of the foregoing and all collateral
                  security and Supporting Obligations

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                  (including, without limitation, all Supporting Obligations
                  relating to any Permitted Intercompany Note) given by any
                  Person with respect to any of the foregoing;

provided that, so long as applicable Medicare Regulations or Medicaid
Regulations prohibit the direct payment of Medicare/Medicaid Receivables to any
assignee of any Grantor entitled to receive direct payment of such
Medicare/Medicaid Receivables pursuant to the applicable Medicare Provider
Agreement or Medicaid Provider Agreement, the Collateral shall not include, and
no Security Interest shall be granted in, any Medicare/Medicaid Receivables
Account. Notwithstanding any of the foregoing to the contrary, nothing herein
shall limit the Administrative Agent's Security Interest in any
Medicare/Medicaid Receivables or any of the Proceeds thereof.

      2.02. Grantors Remain Liable. Anything herein to the contrary
notwithstanding: (a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Administrative Agent of any
of the rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, (c)
neither the Administrative Agent nor any Lender shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Administrative Agent or any Lender be
obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder, and (d) neither the Administrative Agent nor any Lender shall have
any liability in contract or tort for any Grantor's acts or omissions.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective Credit
Extensions to the Borrower thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:

      3.01. Existence; Qualification and Power; Compliance with Laws. Each
Grantor (a) is duly organized or formed, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization, (b) has
all requisite power and authority and all requisite governmental licenses,
authorizations, consents and approvals to (i) own its assets and carry on its
business as now being conducted and hereafter proposed to be conducted and (ii)
execute, deliver and perform its obligations under this Agreement, (c) is duly
qualified and is licensed and in good standing under the Laws of each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification or license and (d) is in
compliance with all Laws; except in each case referred to in clauses (b)(i), (c)
or (d), to the extent the failure to do so could not reasonably be expected to
have a Material Adverse Effect.

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      3.02. Authorization of Agreement; No Conflict. The execution, delivery and
performance by each Grantor of each Loan Document to which such Person is party,
have been duly authorized by all necessary corporate or other organizational
action, and do not and will not (a) contravene the terms of any of such
Grantor's Organization Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under or require any payment to be
made under, (i) any Contractual Obligation to which such Grantor is a party or
affecting such Person or the properties of such Person or any of its
Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental
Authority or any arbitral award to which such Grantor or its property is
subject; or (c) violate any applicable Law. Each Grantor is in compliance with
all Contractual Obligations referred to in clause (b)(i) to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect.

      3.03. Governmental Authorizations; Other Consents.

      (a) No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person is
necessary or required in connection with the execution, delivery or performance
by, or enforcement against, any Grantor of this Agreement except (i) as may be
required by Laws affecting the offering and sale of securities generally, (ii)
filings with the United States Copyright Office and/or the United States Patent
and Trademark Office and (iii) filings under the UCC and/or the Assignment of
Claims Act.

      (b) Each of the Grantors (i) has all Governmental Approvals required by
any applicable Law (including, without limitation, Medicare Regulations and
Medicaid Regulations (as applicable)) for it to conduct its business, each of
which is in full force and effect, is final and not subject to review on appeal
and is not the subject of any pending or, to the best of its knowledge,
threatened attack by direct or collateral proceeding, (ii) is in compliance with
each Governmental Approval applicable to it and in compliance with all other
applicable Laws (including, without limitation, Medicare Regulations and
Medicaid Regulations (as applicable)) relating to it or any of its respective
properties except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect and (iii) has timely filed all
material reports, documents and other materials required to be filed by it under
all applicable Laws (including, without limitation, Medicare Regulations and
Medicaid Regulations (as applicable)) with any Governmental Authority and has
retained all material records and documents required to be retained by it under
applicable Law.

      3.04. Binding Effect. This Agreement has been duly executed and delivered
by each Grantor that is party hereto. This Agreement constitutes a legal, valid
and binding obligation of such Grantor, enforceable against each Grantor that is
party hereto in accordance with its terms, except as such enforceability may be
limited by Applicable Insolvency Laws and the availability of equitable
remedies.

      3.05. Perfected First Priority Liens. Each financing statement naming any
Grantor as a debtor is in appropriate form for filing in the appropriate filing
offices of the states specified on Schedule 3.07 (pursuant to Section 3.07(a)).
The Security Interests granted pursuant to this Agreement (a) constitute valid
perfected security interests in all of the Collateral in favor of the

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Administrative Agent, for the ratable benefit of itself and the Lenders, as
collateral security for the Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting to
purchase any Collateral from such Grantor and, (b) upon the filing of (i) the
financing statements described above and (ii) any termination statements
required to be filed on the Closing Date pursuant to the terms and conditions of
the Credit Agreement, are prior to all other Liens on the Collateral in
existence on the date hereof except for Permitted Liens.

      3.06. Title, No Other Liens. Except for the Security Interests, each
Grantor owns each item of the Collateral free and clear of any and all Liens or
claims other than Permitted Liens. No Collateral is in the possession or Control
of any Person asserting any claim thereto or security interest therein, except
that (a) the Administrative Agent or its designee may have possession or Control
of Collateral as contemplated hereby, (b) a depositary bank may have Control of
a Deposit Account owned by a Grantor at such depositary bank and a Securities
Intermediary may have Control over a Securities Account owned by a Grantor at
such Securities Intermediary, in each case subject to the terms of any deposit
account control agreement or securities control agreement, as applicable to the
extent required hereunder, in favor of the Administrative Agent, and (c) a
bailee, consignee or other Person may have possession of the Collateral as
contemplated by, and so long as, the applicable Grantors have complied to the
reasonable satisfaction of the Administrative Agent with the applicable
provisions of Section 4.06.

      3.07. Exact Legal Name; State of Organization; Location of Inventory,
Equipment and Fixtures; other Information.

      (a) The exact legal name of each Grantor as it appears in its Articles of
Incorporation, Articles of Organization or other organizational documents is as
set forth in Schedule 3.07. Each Grantor remains organized under the laws of the
state identified on Schedule 3.07 under such Grantor's name. The taxpayer
identification number and registered organization number of each Grantor is set
forth on Schedule 3.07 under such Grantor's name. No Grantor does business nor
has done business during the past five years under any trade name, fictitious
business name or any other similar appellation except as disclosed on Schedule
3.07 under such Grantor's name. Except as disclosed on Schedule 3.07 under such
Grantor's name, no Grantor has, during the past five (5) years, (i) acquired
assets from any Person, other than assets acquired in the ordinary course of
such Grantor's business, or (ii) changed its identity or organizational
structure.

      (b) All Collateral consisting of Inventory, Equipment and Fixtures
(whether now owned of hereafter acquired) is (or will be) located at the
locations specified on Schedule 3.07, except as otherwise permitted hereunder.

      (c) The mailing address, chief executive office and office where each
Grantor keeps its books and records relating to the Accounts, Documents, General
Intangibles, Instruments and Investment Property in which it has any interest is
located at the locations specified on Schedule 3.07 under such Grantor's name.

      3.08. Accounts. Each existing Account constitutes, and each hereafter
arising Account will constitute, the legally valid and binding obligation of the
applicable Account Debtor. The

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amount represented by each Grantor to the Administrative Agent as owing by each
Account Debtor is, or will be, the correct amount actually and unconditionally
owing, except for normal cash discounts and allowances where applicable. To the
applicable Grantor's knowledge, no Account Debtor has any defense, set-off,
claim or counterclaim against any Grantor that can be asserted against the
Administrative Agent, whether in any proceeding to enforce the Administrative
Agent's rights in the Collateral or otherwise except defenses, setoffs, claims
or counterclaims that are not, in the aggregate, material to the value of the
Accounts. None of the Accounts is, nor will any hereafter arising Account be,
evidenced by a promissory note or other Instrument other than a check. No notice
of any dispute, holdback, claim of set-off or other claim, suspension,
debarment, cure notice, show cause notice or notice of termination for default
has been issued by any Governmental Authority to any Grantor. Neither the
Borrower nor any other Grantor is a party to any pending, or to the Borrower's
or any Grantor's knowledge, threatened dispute, holdback, claim of set-off or
other claim, suspension, debarment, or termination for default issued by any
Governmental Authority.

      3.09. Chattel Paper. As of the date hereof, no Grantor holds any Chattel
Paper in the ordinary course of its business (except for Permitted Intercompany
Notes delivered in connection with the Credit Agreement).

      3.10. Deposit Accounts. As of the date hereof, all Deposit Accounts
(including, without limitation, cash management accounts that are Deposit
Accounts) owned by any Grantor are listed on Schedule 3.10. Each Deposit Account
that is a Medicare/Medicaid Receivables Account is specifically identified on
Schedule 3.10. Only Medicare/Medicaid Receivables are deposited in a
Medicare/Medicaid Receivables Account.

      3.11. Intellectual Property.

      (a) All United States Copyright registrations, Copyright applications,
issued Patents, Trademark registrations and Trademark applications owned by any
Grantor in its own name on the date hereof is listed on Schedule 3.11.

      (b) Except as set forth in Schedule 3.11 on the date hereof, none of the
Intellectual Property owned by any Grantor is the subject of any written
licensing or franchise agreement pursuant to which such Grantor is the licensor
or franchisor, except as could not reasonably be expected to have a Material
Adverse Effect.

      3.12. Inventory. Collateral consisting of Inventory is of good and
merchantable quality, free from any defects (reasonable wear and tear and
obsolescence excepted). To the knowledge of each Grantor, none of such Inventory
is subject to any licensing, Patent, Trademark, trade name or Copyright with any
Person that restricts any Grantor's ability to manufacture and/or sell such
Inventory. The completion of the manufacturing process of such Inventory by a
Person other than the applicable Grantor would be permitted under any contract
to which such Grantor is a party or to which the Inventory is subject.

                                       10
<PAGE>

      3.13. Investment Property; Partnership/LLC Interests.

      (a) As of the date hereof, all Investment Property (including, without
limitation, Securities Accounts and cash management accounts that are Investment
Property) and all Partnership/LLC Interests owned by any Grantor is listed on
Schedule 3.13.

      (b) All Investment Property and all Partnership/LLC Interests issued by
any Subsidiary Issuer to any Grantor (i) have been duly and validly issued and,
if applicable, are fully paid and nonassessable, (ii) are beneficially owned as
of record by such Grantor and (iii) constitute all the issued and outstanding
shares of all classes of the capital stock of such Subsidiary Issuer issued to
such Grantor.

      3.14. Commercial Tort Claims. As of the date hereof, all material
Commercial Tort Claims owned by any Grantor are listed on Schedule 3.14.

                                   ARTICLE IV

                                    COVENANTS

      Until the Obligations shall have been paid in full and the Commitments
terminated, unless consent has been obtained in the manner provided for in
Section 7.01, each Grantor covenants and agrees that:

      4.01. Maintenance of Perfected Security Interest; Further Information.

      (a) Each Grantor shall maintain the Security Interest created by this
Agreement as a perfected Security Interest having at least the priority
described in Section 3.05 and shall defend such Security Interest against the
claims and demands of all Persons whomsoever.

      (b) Each Grantor will furnish to the Administrative Agent and the Lenders
from time to time statements and schedules further identifying and describing
the assets and property of such Grantor and such other reports in connection
therewith as the Administrative Agent may reasonably request, all in reasonable
detail.

      4.02. Maintenance of Insurance.

      (a) Each Grantor will maintain, with financially sound and reputable
insurance companies, insurance policies (i) insuring the Collateral against loss
by fire, explosion, theft, fraud and such other casualties, including business
interruption, as may be reasonably satisfactory to the Administrative Agent in
such amounts and with such deductibles at least as favorable as those
customarily covered by companies engaged in similar businesses and owning
similar properties in localities where the applicable Grantor operates and (ii)
insuring such Grantor and the Administrative Agent, for the ratable benefit of
the Lenders, against liability for hazards, risks and liability to persons and
property relating to the Collateral, in such amounts and with such deductibles
at least as favorable as those customarily covered by companies engaged in
similar businesses and owning similar properties in localities where the
applicable Grantor

                                       11
<PAGE>

operates, such policies to be in such form and having such coverage as may be
reasonably satisfactory to the Administrative Agent and the Lenders.

      (b) All such insurance shall (i) name the Administrative Agent for the
ratable benefit of itself and the Lenders as loss payee (to the extent covering
risk of loss or damage to tangible property) and as an additional insured as its
interests may appear (to the extent covering any other risk), (ii) provide that
no cancellation, material reduction in amount or material change in coverage
thereof shall be effective until reasonable prior notice is given to the
Administrative Agent (expected to be at least thirty (30) days prior notice) and
(iii) be reasonably satisfactory in all other respects to the Administrative
Agent.

      (c) Upon the reasonable request of the Administrative Agent, each Grantor
shall deliver to the Administrative Agent and the Lenders periodic reports (but
not more than once per year) from a reputable insurance broker with respect to
the insurance referred to in this Section 4.02.

      4.03. Changes in Locations; Changes in Name or Structure. No Grantor will,
except upon thirty (30) days' prior written notice to the Administrative Agent
and delivery to the Administrative Agent of (a) all additional financing
statements (executed if necessary for any particular filing jurisdiction) and
other instruments and documents reasonably requested by the Administrative Agent
to maintain the validity, perfection and priority of the Security Interests and
(b) if applicable, a written supplement to the applicable Schedules of this
Agreement:

      (i) permit any of the Fixtures to be kept at a location other than those
listed on Schedule 3.07, except as otherwise permitted hereunder;

      (ii) permit any Investment Property (other than Certificated Securities
delivered to the Administrative Agent pursuant to Section 4.05) to be held by or
at the Securities Intermediary that held such Investment Property as of the date
hereof as set forth on Schedule 3.13;

      (iii) change its jurisdiction of organization or the location of its chief
executive office from that identified on Schedule 3.07; or

      (iv) change its name, identity or corporate or organizational structure to
such an extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.

      4.04. Required Notifications. Each Grantor shall promptly notify the
Administrative Agent, in writing, of: (a) any Lien (other than the Security
Interests or Permitted Liens) on any of the Collateral which would adversely
affect the ability of the Administrative Agent to exercise any of its remedies
hereunder, (b) the occurrence of any other event which could reasonably be
expected to have a Material Adverse Effect on the aggregate value of the
Collateral or on the Security Interests, (c) any Collateral which, to the
knowledge of such Grantor, constitutes a Government Contract, and (d) the
acquisition or ownership by such Grantor of any material Commercial Tort Claim,
(ii) any Deposit Account with a value in excess of $50,000, (iii) any Investment
Property with a fair market value in excess of $50,000, after the date hereof.

                                       12
<PAGE>

      4.05. Delivery Covenants. Each Grantor will deliver and pledge to the
Administrative Agent, for the ratable benefit of itself and the Lenders, all
Certificated Securities, Partnership/LLC Interests evidenced by a certificate,
negotiable Documents, Instruments, and Tangible Chattel Paper owned or held by
such Grantor, in each case, together with an Effective Endorsement and
Assignment and all Supporting Obligations, as applicable.

      4.06. Control Covenants.

      (a)   (i) Upon the request of the Administrative Agent upon the occurrence
and during the continuance of an Event of Default, each Grantor shall instruct
(and otherwise use its reasonable efforts) to cause (x) each depositary bank
(other than the Administrative Agent) holding a Deposit Account (excluding any
Medicare/Medicaid Receivables Account) owned by such Grantor and (y) each
Securities Intermediary holding any Investment Property owned by such Grantor,
to execute and deliver a control agreement, sufficient to provide the
Administrative Agent with Control of such Deposit Account and otherwise in form
and substance reasonably satisfactory to the Administrative Agent (any such
depositary bank executing and delivering any such control agreement, a
"Controlled Depositary", and any such Securities Intermediary executing and
delivering any such control agreement, a "Controlled Intermediary") within five
(5) Business Days of such request. No Grantor shall permit any payments or other
funds other than Medicare/Medicaid Receivables paid directly to such Grantor
pursuant to the applicable Medicare Provider Agreement or Medicaid Provider
Agreement to be deposited into any Medicare/Medicaid Receivables Account. Each
Grantor shall cause all funds held in any Medicare/Medicaid Receivables Account
to be transferred to a Deposit Account at a Controlled Depository on a weekly
basis unless the Administrative Agent requests, or this Agreement otherwise
requires, a more frequent transfer following an Event of Default.

            (ii) Notwithstanding any of the provisions hereof, the applicable
Grantors shall cause the Deposit Accounts that are identified as comprising the
existing cash management system with Bank of America, N.A. on Schedule 3.10
hereof to be subject to a control agreement, sufficient to provide the
Administrative Agent with Control of such Deposit Account and otherwise in form
and substance reasonably satisfactory to the Administrative Agent.

      (b) Each Grantor will take such actions and deliver all such agreements as
are reasonably requested by the Administrative Agent to provide the
Administrative Agent with Control of all Letter of Credit Rights and Electronic
Chattel Paper owned or held by such Grantor, including, without limitation, with
respect to any such Electronic Chattel Paper, by having the Administrative Agent
identified as the assignee of the Record(s) pertaining to the single
authoritative copy thereof.

      (c) If any Collateral (other than Collateral specifically subject to the
provisions of Section 4.06(a) and Section 4.06(b)) exceeding in value $50,000 in
the aggregate (such Collateral exceeding such amount, the "Excess Collateral")
is at any time in the possession or control of any consignee, warehouseman,
bailee (other than (i) a carrier transporting Inventory to a purchaser in the
ordinary course of business, a processor, or any other third party, such Grantor
shall promptly notify in writing such Person of the Security Interests created
hereby, shall use its

                                       13
<PAGE>

reasonable efforts to obtain such Person's written agreement in writing to hold
all such Collateral for the Administrative Agent's account subject to the
Administrative Agent's instructions, and shall cause such Person to issue and
deliver to the Administrative Agent warehouse receipts, bills of lading or any
similar documents relating to such Collateral to the Administrative Agent's
together with an Effective Endorsement and Assignment.

      4.07. Filing Covenants. Pursuant to Section 9-509 of the UCC and any other
applicable Law, each Grantor authorizes the Administrative Agent to file or
record financing statements and other filing or recording documents or
instruments with respect to the Collateral without the signature of such Grantor
in such form and in such offices as the Administrative Agent determines
appropriate to perfect the Security Interests of the Administrative Agent under
this Agreement. Such financing statements may describe the Collateral in the
same manner as described herein or may contain an indication or description of
Collateral that describes such property in any other manner as the
Administrative Agent may determine, in its sole discretion, is necessary,
advisable or prudent to ensure the perfection of the Security Interest in the
Collateral granted herein, including, without limitation, describing such
property as "all assets" or "all personal property." Further, a photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement or other filing or recording document or instrument for filing or
recording in any jurisdiction.

      4.08. Accounts.

      (a) Other than in the ordinary course of business, no Grantor will (i)
grant any extension of the time of payment of any Account, (ii) compromise or
settle any material Account for less than the full amount thereof, (iii)
release, wholly or partially, any Account Debtor, (iv) allow any credit or
discount whatsoever on any material Account or (v) amend, supplement or modify
any Account in any manner that could materially adversely affect the value
thereof.

      (b) Each Grantor will deliver to the Administrative Agent a copy of each
material demand, notice or document received by it that questions or calls into
doubt the validity or enforceability of any material Account.

      (c) Upon the occurrence and during the continuance of an Event of Default,
the Administrative Agent shall have the right to make test verifications of the
Accounts in any manner and through any medium that it reasonably considers
advisable, and each Grantor shall furnish all such assistance and information as
the Administrative Agent may reasonably require in connection with such test
verifications.

      4.09. Intellectual Property.

      (a) Except as could not reasonably be expected to have a Material Adverse
Effect, each Grantor (either itself or through licensees) (i) will continue to
use each Trademark (owned by such Grantor) and Trademark for which an
application (owned by such Grantor) is pending, to the extent reasonably
necessary to maintain such Trademark in full force free from any claim of
abandonment for non-use, (ii) will maintain products and services offered under
such Trademark at a level substantially consistent with the quality of such
products and services as of

                                       14
<PAGE>

the date hereof, (iii) will not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby such Trademark
could reasonably be expected to become invalidated or impaired in any way, (iv)
will not do any act, or knowingly omit to do any act, whereby any issued Patent
owned by such Grantor would reasonably be expected to become forfeited,
abandoned or dedicated to the public, (v) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any registered Copyright owned by such Grantor or Copyright for which an
application is pending (owned by such Grantor) could reasonably be expected to
become invalidated or otherwise impaired and (vi) will not (either itself or
through licensees) do any act whereby any material portion of the Copyrights may
fall into the public domain.

      (b) Each Grantor will notify the Administrative Agent and the Lenders
promptly if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property owned by such
Grantor may become forfeited, abandoned or dedicated to the public, or of any
adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court or tribunal in any country) regarding such Grantor's
ownership of, or the validity of, any material Intellectual Property owned by
such Grantor or such Grantor's right to register the same or to own and maintain
the same.

      (c) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within five (5) Business Days after the last
day of the fiscal quarter in which such filing occurs. Upon request of the
Administrative Agent, such Grantor shall execute and deliver, and have recorded,
any and all agreements, instruments, documents, and papers as the Administrative
Agent may reasonably request to evidence the Administrative Agent's and the
Lenders' security interest in any material Copyright, Patent or Trademark and
the goodwill and General Intangibles of such Grantor relating thereto or
represented thereby.

      (d) Each Grantor will take all reasonable and necessary steps, at such
Grantor's sole cost and expense, including, without limitation, in any
proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
material Intellectual Property, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.

      (e) In the event that any material Intellectual Property owned by a
Grantor is infringed, misappropriated or diluted by a third party, the
applicable Grantor shall (i) at such Grantor's sole cost and expense, take such
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such

                                       15
<PAGE>

Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns of such infringement, misappropriation or
dilution.

      4.10. Investment Property; Partnership/LLC Interests.

      (a) Without the prior written consent of the Administrative Agent, no
Grantor will (i) vote to enable, or take any other action to permit, any Issuer
to issue any Investment Property or Partnership/LLC Interests, except for such
additional Investment Property or Partnership/LLC Interests that will be subject
to the Security Interest granted herein in favor of the Administrative Agent, or
(ii) enter into any agreement or undertaking restricting the right or ability of
such Grantor or the Administrative Agent to sell, assign or transfer any
Investment Property or Partnership/LLC Interests or Proceeds thereof. The
Grantors will defend the right, title and interest of the Administrative Agent
in and to any Investment Property and Partnership/LLC Interests against the
claims and demands of all Persons whomsoever.

      (b) If any Grantor shall become entitled to receive or shall receive any
Certificated Securities (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the
ownership interests of any Issuer, whether in addition to, in substitution of,
as a conversion of, or in exchange for, any Investment Property, or otherwise in
respect thereof or (ii) any sums paid upon or in respect of any Investment
Property upon the liquidation or dissolution of any Issuer, such Grantor shall
accept the same as the agent of the Administrative Agent and the Lenders, hold
the same in trust for the Administrative Agent and the Lenders, segregated from
other funds of such Grantor, and promptly deliver the same to the Administrative
Agent in accordance with the terms hereof.

      4.11. Equipment. Each Grantor will maintain each item of Equipment in good
working order and condition (reasonable wear and tear and obsolescence excepted)
and will promptly furnish to the Administrative Agent a statement respecting any
material loss or material damage to any of the Equipment.

      4.12. Vehicles. Upon the request of the Administrative Agent upon the
occurrence and during the continuance of an Event of Default, all applications
for certificates of title or ownership indicating the Administrative Agent's
first priority Lien on the Vehicle covered by such certificate, and any other
necessary documentation, shall be filed in each office in each jurisdiction
which the Administrative Agent shall deem reasonably advisable to perfect its
Liens on the Vehicles. Prior thereto, each certificate of title or ownership
relating to each Vehicle shall be maintained by the applicable Grantor in
accordance with applicable Law to reflect the ownership interest of such
Grantor.

      4.13. Further Assurances. Upon the request of the Administrative Agent and
at the sole expense of the Grantors, each Grantor will promptly and duly execute
and deliver, and have recorded, such further instruments and documents and take
such further actions as the Administrative Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without

                                       16
<PAGE>

limitation, all applications, certificates, instruments, registration
statements, and all other documents and papers the Administrative Agent may
reasonably request and as may be required by law in connection with the
obtaining of any consent, approval, registration, qualification, or
authorization of any Person deemed necessary or appropriate for the effective
exercise of any rights under this Agreement.

                                    ARTICLE V

                               REMEDIAL PROVISIONS

      5.01. General Remedies. If an Event of Default shall occur and be
continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in
addition to all other rights and remedies granted to them in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the UCC or any
other applicable Law. Without limiting the generality of the foregoing, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent may disclaim any
warranties of title, possession and quiet enjoyment. The Administrative Agent or
any Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by applicable Law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in any Grantor, which right or equity is hereby waived and
released. Each Grantor further agrees, at the Administrative Agent's request, to
assemble the Collateral and make it available to the Administrative Agent at
places which the Administrative Agent shall reasonably select, whether at such
Grantor's premises or elsewhere. To the extent permitted by applicable Law, each
Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them of any
rights hereunder except to the extent any such claims, damages, or demands
result solely from the gross negligence or willful misconduct of the
Administrative Agent or any Lender, in each case against whom such claim is
asserted. If any notice of a proposed sale or other disposition of Collateral
shall be required by applicable Law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.

      5.02. Specific Remedies.

      (a) The Administrative Agent hereby authorizes each Grantor to collect
such Grantor's Accounts, under the Administrative Agent's direction and control;
provided that, the

                                       17
<PAGE>

Administrative Agent may curtail or terminate such authority at any time after
the occurrence and during the continuance of an Event of Default.

      (b) Upon the occurrence and during the continuance of an Event of Default:

            (i) the Administrative Agent may communicate with Account Debtors of
      any Account subject to a Security Interest and upon the request of the
      Administrative Agent, each Grantor shall notify (such notice to be in form
      and substance satisfactory to the Administrative Agent) its Account
      Debtors that such Accounts have been assigned to the Administrative Agent,
      for the ratable benefit of itself and the Lenders;

            (ii) upon the request of the Administrative Agent, each Grantor
      shall forward to the Administrative Agent, on the last Business Day of
      each week, deposit slips related to all cash, money, checks or any other
      similar items of payment received by the Grantor during such week, and, if
      requested by the Administrative Agent, copies of such checks or any other
      similar items of payment, together with a statement showing the
      application of all payments on the Collateral during such week and a
      collection report with regard thereto, in form and substance satisfactory
      to the Administrative Agent;

            (iii) upon the request of the Administrative Agent, whenever any
      Grantor shall receive any cash, money, checks or any other similar items
      of payment relating to any Collateral (including any Proceeds of any
      Collateral), such Grantor agrees that it will, within one (1) Business Day
      of such receipt, deposit all such items of payment into the Collateral
      Account or in a Deposit Account at Controlled Depositary, until such
      Grantor shall deposit such cash, money, checks or any other similar items
      of payment in the Collateral Account or in a Deposit Account at a
      Controlled Depositary, such Grantor shall hold such cash, money, checks or
      any other similar items of payment in trust for the Administrative Agent
      and Lenders and as property of the Administrative Agent and Lenders,
      separate from the other funds of such Grantor, and the Administrative
      Agent shall have the right in to transfer or direct the transfer of the
      balance of each Deposit Account to the Collateral Account. All such
      Collateral and Proceeds of Collateral received by the Administrative Agent
      hereunder shall be held by the Administrative Agent in the Collateral
      Account as collateral security for all the Obligations and shall not
      constitute payment thereof until applied as provided in Section 5.04;

            (iv) the Administrative Agent shall have the right to receive any
      and all cash dividends, payments or distributions made in respect of any
      Investment Property, any Partnership/LLC Interests or any other Proceeds
      paid in respect of any Investment Property or any Partnership/LLC
      Interests, and any or all of any Investment Property or any
      Partnership/LLC Interests shall be registered in the name of the
      Administrative Agent or its nominee, and the Administrative Agent or its
      nominee may thereafter exercise (A) all voting, corporate and other rights
      pertaining to such Investment Property or such Partnership/LLC Interests
      at any meeting of shareholders, partners or members of the relevant
      Issuers and (B) any and all rights of conversion, exchange and
      subscription and any other rights, privileges or options pertaining to
      such Investment Property or such Partnership/LLC Interests as if it were
      the absolute owner thereof (including, without

                                       18
<PAGE>

      limitation, the right to exchange at its discretion any and all of the
      Investment Property or the Partnership/LLC Interests upon the merger,
      consolidation, reorganization, recapitalization or other fundamental
      change in the corporate, partnership or company structure of any Issuer or
      upon the exercise by any Grantor or the Administrative Agent of any right,
      privilege or option pertaining to such Investment Property or such
      Partnership/LLC Interests, and in connection therewith, the right to
      deposit and deliver any and all of the Investment Property or the
      Partnership/LLC Interests with any committee, depositary, transfer agent,
      registrar or other designated agency upon such terms and conditions as the
      Administrative Agent may determine), all without liability except to
      account for property actually received by it; but the Administrative Agent
      shall have no duty to any Grantor to exercise any such right, privilege or
      option and the Administrative Agent and the Lenders shall not be
      responsible for any failure to do so or delay in so doing. In furtherance
      thereof, each Grantor hereby authorizes and instructs each Issuer with
      respect to any Collateral consisting of Investment Property and
      Partnership/LLC INTERESTS to (i) comply with any instruction received by
      it from the Administrative Agent in writing that (A) states that an Event
      of Default has occurred and is continuing and (B) is otherwise in
      accordance with the terms of this Agreement, without any other or further
      instructions from such Grantor, and each Grantor agrees that each Issuer
      shall be fully protected in so complying, and (ii) except as otherwise
      expressly permitted hereby, pay any dividends, distributions or other
      payments with respect to any Investment Property or any Partnership/LLC
      Interests directly to the Administrative Agent; and

            (v) the Administrative Agent shall be entitled to (but shall not be
      required to): (A) do all other acts which the Administrative Agent may
      deem necessary or proper to protect its Security Interest granted
      hereunder, provided such acts are not inconsistent with or in violation of
      the terms of the Credit Agreement, any of the other Loan Documents or any
      applicable Law, and (B) sell, assign or otherwise transfer any Collateral
      in accordance with the Credit Agreement, the other Loan Documents and
      applicable Law.

      (c) Unless an Event of Default shall have occurred and be continuing and
the Administrative Agent shall have given notice to the relevant Grantor of the
Administrative Agent's intent to exercise its corresponding rights pursuant to
Section 5.02(b), each Grantor shall be permitted to receive all cash dividends,
payments or other distributions made in respect of any Investment Property and
Partnership/LLC Interests, in each case paid in the normal course of business of
the relevant Issuer and consistent with past practice, to the extent permitted
in the Credit Agreement, and to exercise all voting and other corporate, company
and partnership rights with respect to any Investment Property and
Partnership/LLC Interests; provided that, no vote shall be cast or other
corporate, company and partnership right exercised or other action taken which,
in the Administrative Agent's reasonable judgment, would impair the Collateral
or which would result in a Default or Event of Default under any provision of
the Credit Agreement, this Agreement or any other Loan Document.

                                       19
<PAGE>

      5.03. Private Sale.

      (a) Each Grantor recognizes that the Administrative Agent may be unable to
effect a public sale of any or all the Collateral, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Collateral for
the period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.

      (c) Each Grantor agrees to use its best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of all or any
portion of Collateral valid and binding and in compliance with any and all other
applicable Laws. Each Grantor further agrees that a breach of any of the
covenants contained in this Section 5.03 will cause irreparable injury to the
Administrative Agent and the Lenders, that the Administrative Agent and the
Lenders have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 5.03 shall
be specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Credit Agreement.

      5.04. Application of Proceeds. At such intervals as may be agreed upon by
the Borrower and the Administrative Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent may apply all or any part of the Collateral or any
Proceeds of the Collateral in payment in whole or in part of the Obligations
(after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements) in accordance with Section 9.03 of
the Credit Agreement. Any balance of such Proceeds remaining after shall be paid
over to the Borrower, on behalf of the Grantors, or to whomsoever (if such
Person is not a Grantor) may be lawfully entitled to receive the same. Only
after (i) the payment by the Administrative Agent of any other amount required
by any provision of law, including, without limitation, Section 9-610 and
Section 9-615 of the UCC and (ii) the payment in full of the Obligations and the
termination of the Commitments, shall the Administrative Agent account for the
surplus, if any, to any Grantor, or to whomever may be lawfully entitled to
receive the same (if such Person is not a Grantor).

      5.05. Waiver, Deficiency. Except to the extent prohibited under applicable
Law (including Section 9-602 of the UCC), each Grantor waives and agrees not to
assert any rights or privileges which it may acquire under Sections 9-607,
9-610, 9-615 or 9-627 of the UCC. Each

                                       20
<PAGE>

Grantor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay its Obligations and
the fees and disbursements of any attorneys employed by the Administrative Agent
or any Lender to collect such deficiency.

                                   ARTICLE VI

                            THE ADMINISTRATIVE AGENT

      6.01. Administrative Agent's Appointment as Attorney-In-Fact.

      (a) Each Grantor hereby irrevocably constitutes and appoints the
Administrative Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following upon the occurrence and continuation of an
Event of Default:

            (i) in the name of such Grantor or its own name, or otherwise, take
      possession of and indorse and collect any checks, drafts, notes,
      acceptances or other instruments for the payment of moneys due under any
      Account or with respect to any other Collateral and file any claim or take
      any other action or proceeding in any court of law or equity or otherwise
      deemed appropriate by the Administrative Agent for the purpose of
      collecting any and all such moneys due under any Account or with respect
      to any other Collateral whenever payable;

            (ii) in the case of any Intellectual Property, execute and deliver,
      and have recorded, any and all agreements, instruments, documents and
      papers as the Administrative Agent may request to evidence the
      Administrative Agent's and the Lenders' security interest in such
      Intellectual Property and the goodwill and General Intangibles of such
      Grantor relating thereto or represented thereby;

            (iii) pay or discharge taxes and Liens levied or placed on or
      threatened against the Collateral, effect any repairs or any insurance
      called for by the terms of this Agreement and pay all or any part of the
      premiums therefor and the costs thereof,

            (iv) execute, in connection with any sale provided for in this
      Agreement, any endorsements, assignments or other instruments of
      conveyance or transfer with respect to the Collateral; and

            (v) (A) direct any party liable for any payment under any of the
      Collateral to make payment of any and all moneys due or to become due
      thereunder directly to the Administrative Agent or as the Administrative
      Agent shall direct; (B) ask or demand for,

                                       21
<PAGE>

      collect, and receive payment of and receipt for, any and all moneys,
      claims and other amounts due or to become due at any time in respect of or
      arising out of any Collateral; (C) sign and indorse any invoices, freight
      or express bills, bills of lading, storage or warehouse receipts, drafts
      against debtors, assignments, verifications, notices and other documents
      in connection with any of the Collateral; (D) commence and prosecute any
      suits, actions or proceedings at law or in equity in any court of
      competent jurisdiction to collect the Collateral or any portion thereof
      and to enforce any other right in respect of any Collateral; (E) defend
      any suit, action or proceeding brought against such Grantor with respect
      to any Collateral; (F) settle, compromise or adjust any such suit, action
      or proceeding and, in connection therewith, give such discharges or
      releases as the Administrative Agent may deem appropriate; (G) license or
      assign any Copyright, Patent or Trademark (along with the goodwill of the
      business to which any such Copyright, Patent or Trademark pertains), for
      such term or terms, on such conditions, and in such manner, as the
      Administrative Agent shall in its sole discretion determine; and (H)
      generally, sell, transfer, pledge and make any agreement with respect to
      or otherwise deal with any of the Collateral as fully and completely as
      though the Administrative Agent were the absolute owner thereof for all
      purposes, and do, at the Administrative Agent's option and such Grantor's
      expense, at any time, or from time to time, all acts and things which the
      Administrative Agent deems necessary to protect, preserve or realize upon
      the Collateral and the Administrative Agent's and the Lenders' Security
      Interests therein and to effect the intent of this Agreement, all as fully
      and effectively as such Grantor might do.

      (b) If any Grantor fails to perform or comply with any of its agreements
contained herein, the Administrative Agent, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement in accordance with the provisions of Section
6.01(a).

      (c) The expenses of the Administrative Agent incurred in connection with
actions taken pursuant to the terms of this Agreement, together with interest
thereon at a rate per annum equal to the Default Rate for Base Rate Loans under
the Credit Agreement, from the date of payment by the Administrative Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.

      (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof in accordance with Section 6.01(a). All
powers, authorizations and agencies contained in this Agreement are coupled with
an interest and are irrevocable until this Agreement is terminated and the
Security Interests created hereby are released.

      6.02. Duty of Administrative Agent. The Administrative Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall
be to deal with it in the same manner as the Administrative Agent deals with
similar property for its own account. Neither the Administrative Agent, any
Lender nor any of their respective officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any

                                       22
<PAGE>

Collateral upon the request of any Grantor or any other Person or to take any
other action whatsoever with regard to the Collateral or any part thereof. The
powers conferred on the Administrative Agent and the Lenders hereunder are
solely to protect the Administrative Agent's and the Lenders' interests in the
Collateral and shall not impose any duty upon the Administrative Agent or any
Lender to exercise any such powers. The Administrative Agent and the Lenders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to any Grantor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.

      6.03. Authority of Administrative Agent. Each Grantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Grantors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and no Grantor shall be under any
obligation, or entitlement to make any inquiry respecting such authority.

                                   ARTICLE VII

                                  MISCELLANEOUS

      7.01. Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 11.01 of the Credit Agreement.

      7.02. Notices. All notices, requests and demands to or upon the
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in Section 12.02 of the Credit Agreement.

      7.03. No Waiver by Course of Conduct, Cumulative Remedies. Neither the
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 7.01), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default. No failure to exercise, nor any delay in
exercising on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.

                                       23
<PAGE>

      7.04. Enforcement Expenses, Indemnification.

      (a) Each Grantor agrees to pay or reimburse each Lender and the
Administrative Agent for all its costs and expenses incurred in connection with
enforcing or preserving any rights under this Agreement and the other Loan
Documents to which such Grantor is a party, (including, without limitation, in
connection with any workout, restructuring, bankruptcy or other similar
proceeding) including, without limitation, the reasonable fees and disbursements
of counsel to each Lender and of counsel to the Administrative Agent.

      (b) Each Grantor agrees to pay, and to save the Administrative Agent and
the Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes (in
each case, subject to Section 3.01 of the Credit Agreement) which may be payable
or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.

      (c) Each Grantor agrees to pay, and to save the Administrative Agent and
the Lenders harmless from, any and all liabilities, obligations, losses,
damages, penalties, costs and expenses in connection with actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement to the extent any Grantor would be required to do so pursuant
to Section 11.04 of the Credit Agreement.

      (d) The agreements in this Section 7.04 shall survive termination of the
Commitments and repayment of the Obligations and all other amounts payable under
the Credit Agreement and the other Loan Documents.

      7.05. Governing Law; Consent to Jurisdiction.

      (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, the LAW OF THE STATE OF NEW YORK, including Section 5-1401 and
Section 5-1402 of the General Obligations Law of the State of New York, (without
regard to the conflicts of law provisions of such state) applicable to
agreements made and to be performed entirely within such State; PROVIDED THAT
THE ADMINISTRATIVE Agent AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.

      (b) SUBMISSION TO JURISDICTION. EACH GRANTOR IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF
MANHATTAN, NEW YORK OR OF THE UNITED STATES DISTRICT COURTS OF SUCH STATE
SITTING IN THE BOROUGH OF MANHATTAN, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF

                                       24
<PAGE>

ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL
AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT AGAINST ANY GRANTOR OR ITS PROPERTIES IN THE COURTS OF
ANY JURISDICTION.

      (c) WAIVER OF VENUE. EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT
REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.

      (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE
OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02 OF THE CREDIT
AGREEMENT. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

      7.06. Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                                       25
<PAGE>

      7.07. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of each
Grantor (and shall bind all Persons who become bound as a Grantor to this
Collateral Agreement), the Administrative Agent and the Lenders and their
successors and assigns; provided that no Grantor may assign, transfer or
delegate any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent (given in accordance with Section
7.01).

      7.08. Set-Off. Each Grantor hereby irrevocably authorizes the
Administrative Agent and each Lender at any time and from time to time pursuant
to Section 11.08 of the Credit Agreement, without notice to such Grantor or any
other Grantor, any such notice being expressly waived by each Grantor, to
set-off and appropriate and apply any and all deposits (general or special, time
or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or such
Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Loan Document
or otherwise, as the Administrative Agent or such Lender may elect, whether or
not the Administrative Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof; provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Lender under this Section 7.08 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Lender may have.

      7.09. Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

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

      7.11. Section Heading. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

      7.12. Integration. This Agreement and the other Loan Documents represent
the agreement of the Grantors, the Administrative Agent and the Lenders with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties

                                       26
<PAGE>

by the Administrative Agent or any Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Loan
Documents.

      7.13. Acknowledgements.

      (a) Each Grantor hereby acknowledges that: (i) it has been advised by
counsel in the negotiation, execution and delivery of this Agreement and the
other Loan Documents to which it is a party, (ii) neither the Administrative
Agent nor any Lender has any fiduciary relationship with or duty to any Grantor
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Grantors, on the one hand, and the
Administrative Agent and Lenders, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor, and (iii) no joint venture is
created hereby or by the other Loan Documents or otherwise exists by virtue of
the transactions contemplated hereby or thereby among the Lenders or among the
Grantors and the Lenders.

      (b) Each Subsidiary Issuer party to this Agreement acknowledges receipt of
a copy of this Agreement and agrees to be bound thereby and to comply with the
terms thereof insofar as such terms are applicable to it. Each Subsidiary Issuer
agrees to provide such notices to the Administrative Agent as may be necessary
to give full effect to the provisions of this Agreement.

      7.14. Additional Grantors. Each Subsidiary of the Parent that is required
to become a party to this Agreement pursuant to Section 6.15 of the Credit
Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of a joinder agreement in form and
substance satisfactory to the Administrative Agent.

      7.15. Releases.

      (a) At such time as the Obligations shall have been paid in full and the
Commitments have been terminated, the Collateral shall be released from the
Liens created hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of the Administrative Agent and
each Grantor hereunder shall terminate, all without delivery of any instrument
or performance of any act by any party, and all rights to the Collateral shall
revert to the Grantors. At the request and sole expense of any Grantor following
any such termination, the Administrative Agent shall deliver to such Grantor any
Collateral held by the Administrative Agent hereunder, and execute and deliver
to such Grantor such documents as such Grantor shall reasonably request to
evidence such termination.

      (b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. In the event that all the capital stock of any Grantor shall be
sold, transferred or otherwise disposed of in a transaction permitted by the
Credit Agreement, then, at the request of the Borrower and at the expense of the
Grantors, such Grantor shall be released from its obligations hereunder;
provided that the Borrower shall have delivered to the Administrative Agent, at
least ten (10) Business Days prior to the date of the proposed release, a

                                       27
<PAGE>

written request for release identifying the relevant Grantor and the terms of
the sale or other disposition in reasonable detail, including the price thereof
and any expenses in connection therewith, together with a certification by the
Borrower stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents.

                           [Signature Pages to Follow]

                                       28
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Collateral
Agreement to be executed under seal by their duly authorized officers, all as of
the day and year first written above.

[CORPORATE SEAL]                            MEDCATH CORPORATION

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH HOLDINGS CORP.

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH FINANCE COMPANY, LLC a North
                                            Carolina limited liability company

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH INCORPORATED, a North
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

[CORPORATE SEAL]                            MEDCATH OF ARKANSAS, INC., a North
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH OF TEXAS, INC., a North
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH DIAGNOSTICS, LLC, a North
                                            Carolina limited liability company

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MEDCATH CARDIOLOGY CONSULTING &
                                            MANAGEMENT, INC., an Arizona
                                            corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            AHH MANAGEMENT, INC., a North
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

[CORPORATE SEAL]                            DTO MANAGEMENT, INC., a North
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            HOSPITAL MANAGEMENT IV, INC., a Nort
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            HARLINGEN HOSPITAL MANAGEMENT, INC.,
                                            a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            HARLINGEN PARTNERSHIP HOLDINGS, INC.
                                            an Arizona corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            LAFAYETTE HOSPITAL MANAGEMENT, INC.,
                                            a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

[CORPORATE SEAL]                            LOUISIANA HOSPITAL MANAGEMENT, INC.,
                                            a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            NM HOSPITAL MANAGEMENT, INC., a Nort
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            SAN ANTONIO HOSPITAL MANAGEMENT,
                                            INC., a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            SIOUX FALLS HOSPITAL MANAGEMENT,
                                            INC., a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            MILWAUKEE HOSPITAL MANAGEMENT, INC.,
                                            a North Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

[CORPORATE SEAL]                            AUSTIN MOB, INC., a North Carolina
                                            corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            HHBF, INC., a North Carolina
                                            corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            SOUTHERN ARIZONA HEART, INC., a Nort
                                            Carolina corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            SAN ANTONIO HOLDINGS, INC., an
                                            Arizona corporation

                                            By: /s/ James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

[CORPORATE SEAL]                            VENTURE HOLDINGS, INC., an Arizona
                                            corporation

                                            By: /s James A. Parker
                                                --------------------------------
                                                Name: James A. Parker
                                                Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

[CORPORATE SEAL]                           METUCHEN NUCLEAR MANAGEMENT, LLC, a
                                           Delaware limited liability company

                                           By: /s James A. Parker
                                               ---------------------------------
                                               Name: James A. Parker
                                               Title: Treasurer

[CORPORATE SEAL]                           INTERIM DIAGNOSTICS SOLUTIONS, LLC,
                                           Delaware limited liability company

                                           By: /s/ James A. Parker
                                               ---------------------------------
                                               Name: James A. Parker
                                               Title: Treasurer

[CORPORATE SEAL]                           MEDCATH NUCLEAR SERVICES, LLC, a
                                           North Carolina limited liability
                                           company

                                           By: /s/ James A. Parker
                                               ---------------------------------
                                               Name: James A. Parker
                                               Title: Treasurer

[CORPORATE SEAL]                           HEART RESEARCH CENTERS INTERNATIONAL,
                                           LLC, a North Carolina limited
                                           liability company

                                           By: /s James A. Parker
                                               ---------------------------------
                                               Name: James A. Parker
                                               Title: Treasurer

                           [Signature Pages Continue]

<PAGE>

                                                BANK OF AMERICA, N.A.,
                                                as Administrative Agent

                                                By: /s/ Kristine Thennes
                                                    ---------------------------
                                                Name: Kristine Thennes
                                                Title: Vice PresidentEX-10.1

 

Exhibit 10.1

Amendment to Executive Indexed Salary Continuation Plan

hereinafter the

“Supplemental Executive Retirement Plan”

     Whereas, The Marion Bank (the “Bank”) and Gary E. Pendleton (“Executive”)
have previously entered into an Executive Indexed Salary Continuation Plan,
dated December 30, 1996 and related Endorsement Method Split Dollar Plan
Agreement of even date therewith (hereinafter collectively the “Plan”); and

     Whereas, the parties desire to amend and restate the Plan as permitted by
section VI.C thereof by their mutual consent;

     Now therefore, effective September 16, 2004, the parties agree to amend
and restate the Plan in its entirety as follows:

     The Executive and the Bank agree as follows:

Lifetime Benefits

     1 Retirement Benefit. Upon Termination of Employment on or after the
Normal Retirement Age of age 65 (hereinafter “Normal Retirement Age”) the Bank
shall pay to the Executive a nonqualified retirement benefit, as provided for
herein, for the remainder of his life.

     2. Amount of Benefit. The annual benefit to be provided Executive shall be
an amount per annum set forth on Schedule 2 hereof. The Bank’s Board of
Directors, in its sole discretion, may increase the annual benefit provided for
in Schedule 2.

     3. Disability Benefit. If the Executive terminates employment due to
Disability prior to Normal Retirement Age, the Bank shall pay to the Executive
the benefit provided for in Section 2 hereof, as though he had reached Normal
Retirement on the date of such Disability. For purposes hereof Disability
shall mean, if the Executive is covered by a Bank-sponsored disability policy,
total disability as defined in such policy without regard to any waiting
period. If the Executive is not covered by such a policy, Disability means the
Executive suffering a sickness, accident or injury which, in the judgment of a
physician satisfactory to the Bank, prevents the Executive from performing
substantially all of the Executive’s normal duties for the Bank. As a condition
to receiving any Disability benefits, the Bank may require the Executive to
submit to such physical to mental evaluations and tests as the Bank’s Board of
Directors deems appropriate.

     4. Pre-Retirement Death Benefit. Upon the death of the Executive prior to
reaching Normal Retirement Age, the Bank shall pay the Benefit provided for in
Section 2 hereof, to his spouse, Donna J. Pendleton, if then living, for her
life as though Executive had reached Normal Retirement Age on the date of his
death.

 

 

     5. Post-Retirement Death Benefit. Upon the death of the Executive after
reaching Normal Retirement Age, the Bank shall continue to pay the Benefit
provided for in Section 2 hereof, to his spouse, Donna J. Pendleton, if then
living, for her life.

     6. Minimum Benefit. In The event that Executive and his spouse, Donna J.
Pendleton, have received less than $750,000 of total cash payments at the time
of the completion of the payment obligations otherwise provided for hereunder,
the Bank shall pay to the persons identified in Beneficiary Designation Form
attached hereto (as amended by Executive from time to time), and as directed by
Executive therein, a final payment equal to the difference between $750,000 and
the then total of the payments made pursuant to this Agreement. In the event
Executive shall fail to complete a Beneficiary Designation Form such payment
shall be made to his estate.

General Limitations

     7. Payment of Benefit. The Bank shall pay the annual benefit provided for
in Section 2 hereof in 12 equal monthly installments, payable on the first day
of each month commencing with the month following the Executive’s Normal
Retirement Date, Disability or death.

     8. Termination for Cause. Notwithstanding any provision of this Agreement
to the Agreement to the contrary, the Bank shall not pay any benefit under this
Agreement if the Bank terminates the Executive’s employment for:

     (a) Gross negligence or gross neglect of duties; or

     (b) Commission of a felony or of a gross misdemeanor involving
moral turpitude.

     9. Removal. If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank’s affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. 1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement
shall terminate as of the effective date of the order.

Claims and Review Procedures

     10. Claims Procedure. The Bank shall notify any person or entity that
makes a claim against the Agreement (the “Claimant”) in writing, within ninety
(90) days of Claimant’s written application for benefits, or his or her
eligibility or noneligibility for benefits under the Agreement. If the Bank
determines that the Claimant is not eligible for benefits or full benefits, the
notice shall set forth (1) the specific reasons for such denial, (2) a specific
reference to the provisions of the Agreement on which the denial is based, (3)
a description of any additional information or material necessary for the
claimant to perfect his or her claim, and a description of why it is needed,
and (4) an explanation of the Agreement’s claims review procedure and other
appropriate information as to the steps to be taken if the Claimant wishes to
have the claim reviewed. If the Bank determines that there are special
circumstances requiring additional time to make a decision, the Bank shall
notify the Claimant of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an
additional ninety (90) days.

 

 

     11. Review Procedure. If the Claimant is determined by the Bank not to be
eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Bank by filing a petition for review with the
Bank within sixty (60) days after receipt of the notice issued by the Bank.
Said petition shall state the specific reasons which the Claimant believes
entitle him or her to benefits or to greater or different benefits. Within
sixty (60) days after receipt by the Bank of the petition, the Bank shall
afford the Claimant (and counsel, if any) an opportunity to present his or her
position to the Bank verbally or in writing, and the Claimant (or counsel)
shall have the right to review the pertinent documents. The Bank shall notify
the Claimant of its decision in writing within the sixty-day period, stating
specifically the basis of its decision, written in a manner calculated to be
understood by the Claimant and the specific provisions of the Agreement on
which the decision is based. If, because of the need for a hearing, the
sixty-day period is not sufficient, the decision may be deferred for up to
another sixty (60) days at the election of the Bank, but notice of this
deferral shall be given to the Claimant.

Amendments and Termination

     12. Amendment. This Agreement may be amended or terminated only by a
written agreement signed by the Bank and the Executive.

Miscellaneous

     13. Binding Effect. This Agreement shall bind the Executive and the Bank,
and their beneficiaries, survivors, executors, successors, administrators and
transferees.

     14. No Guarantee of Employment. This Agreement is not an employment
policy or contract. It does not give the Executive the right to remain an
employee of the Bank, nor does it interfere with the Bank’s right to discharge
the Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive’s right to terminate employment at any time.

     15. Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.

     16. Successors. The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform this Agreement if no such
succession had taken place. Failure of the Bank to obtain such assumption
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement.

     17. Tax Withholding. The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.

 

 

     18. Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of Ohio.

     19. Unfunded Arrangement. The Executive and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general
asset of the Bank to which the Executive and beneficiary have no preferred or
secured claim.

     20. Entire Agreement. This Agreement constitutes the entire agreement
between the Bank and the Executive as to the subject matter hereof. No rights
are granted to the Executive by virtue of this Agreement other than those
specifically set forth herein.

     21. Administration. The Bank shall have powers which are necessary to
administer this Agreement, including but not limited to:

     (a) Interpreting the provisions of the Agreement;

     (b) Establishing and revising the method of accounting for the Agreement;

     (c) Maintaining a record of benefit payments; and

     (d) Establishing rules and prescribing any forms necessary or desirable to
administer the Agreement.

     22. Named Fiduciary. The Bank shall be the named fiduciary and plan
administrator under the Agreement. The named fiduciary may delegate to others
certain aspects of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of ministerial duties
to qualified individuals.

     23. Severability. If for any reason any provision of this Agreement is
held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall, to the full
extent consistent with the law, continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity
shall in no way affect the rest of such provision, not held so invalid, and the
rest of such provision, together with all other provisions of this Agreement
shall, to the full extent consistent with the law, continue in full force and
effect.

     24. Headings. The headings of Sections herein are included solely for
convenience of reference and shall not affect the meaning or interpretation of
any provision of this Agreement.

     25. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.

 

 

(a) If to the Bank, to:

Chairman of the Board

The Marion Bank

111 Main Street

Marion, OH 43302

(b) If to the Executive, to:

Mr. Gary E. Pendleton

2111 Marion Edison Rd.

Marion, Ohio 43302

and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.

     IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have
signed this Agreement.

	 	 	 
	EXECUTIVE:	 	The Marion Bank:
	 	 	 
	/s/ Gary E Pendleton

	 	/s/ Fred K White
	

	 	

 

 

Parent Corporation Guarantee

     Ohio State Bancshares, Inc, the sole shareholder of The Marion Bank, in
consideration of mutual benefits contained herein, hereby provides its
unconditional guarantee of the obligations of The Marion Bank under the terms
of the forgoing Supplemental Executive Retirement Plan (the “SERP Plan”).
Pursuant to this guarantee Ohio State Bancshares, Inc. agrees to pay and
discharge any and all obligations of The Marion Bank under the terms of the
forgoing SERP Plan. The guarantee provide for herein has been duly authorized
by the Board of Directors of Ohio State Bancshares, Inc. on the 19th day of
August, 2004, and this guarantee has been executed this 16th day of September,
2004, the Chairman of the Board of Ohio State Bancshares, Inc.

	 	 	 	 	 
	 	Ohio State Bancshares, Inc.

 	 
	 	/s/ Fred K. White
 	 
	 	By: Fred K. White 	 
	 	Chairman of the Board 	 
	 

Schedule 2 – Executive Supplemental Retirement Plan – Gary E. Pendleton

	 	 	 
	 	 	Annual
	 Payment Year
	 	Benefit

	1
	 	$75,000
	2
	 	$75,000
	3
	 	$75,000
	4
	 	$75,000
	5
	 	$75,000
	Thereafter
	 	$80,000

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