10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 25, 2002

Commission File Number 1-7707

MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)

Minnesota	41-0793183
(State of incorporation)	(I.R.S. Employer
	Identification No.)

710 Medtronic Parkway
Minneapolis, Minnesota 55432
(Address of principal executive offices)

Telephone number: (763) 514-4000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   X        No

Shares of common stock, $.10 par value, outstanding on February 22, 2002:

1,214,058,690

PART I--FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

MEDTRONIC, INC.
STATEMENT OF CONSOLIDATED EARNINGS
(Unaudited)

	Three Months Ended					Nine Months Ended
	Jan. 25, 2002		Jan. 26, 2001			Jan. 25, 2002		Jan. 26, 2001
	(in millions, except per share data)
Net sales	$	1,592.4	$	1,361.6		$	4,619.3	$	4,033.9
Costs and expenses:
Cost of products sold		412.8		345.4			1,195.9		1,013.2
Research and development
expense		163.4		143.9			476.8		428.0
Selling, general, and
administrative expense		493.5		406.8			1,417.5		1,229.8
Non-recurring charges		63.1		14.4			394.6		31.3
Other (income)/expense, net		3.5		25.2			31.0		48.7
Interest (income)/ expense, net		13.0		(18.8	)		1.7		(44.3	)
Total costs and expenses		1,149.3		916.9			3,517.5		2,706.7
Earnings before income taxes		443.1		444.7			1,101.8		1,327.2
Provision for income taxes		128.2		141.9			418.7		431.2
Net earnings	$	314.9	$	302.8		$	683.1	$	896.0
Earnings per share:
Basic	$	0.26	$	0.25		$	0.56	$	0.75
Diluted	$	0.26	$	0.25		$	0.56	$	0.73
Weighted average shares
outstanding:
Basic		1,212.4		1,207.2			1,210.7		1,201.2
Diluted		1,225.5		1,225.8			1,223.7		1,227.0

See accompanying notes to condensed consolidated financial statements.

MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	Jan. 25, 2002			Apr. 27, 2001
ASSETS	(in millions of dollars, except per share data)
Current assets:
Cash and cash equivalents	$	458.8		$	1,030.3
Short-term investments		73.4			201.4
Accounts receivable, less allowance for
doubtful accounts of $76.8 and $34.9		1,417.2			1,226.1
Inventories		738.1			729.5
Deferred tax assets, net		312.4			281.5
Prepaid expenses and other current assets		313.1			288.0
Total current assets		3,313.0			3,756.8
Property, Plant, and Equipment		2,448.7			2,057.3
Accumulated depreciation		(1,017.4	)		(880.8	)
Net Property, Plant, and Equipment		1,431.3			1,176.5
Goodwill, net		3,765.8			995.9
Patents and Other Intangible Assets, net		858.6			239.4
Long-term investments		607.2			683.2
Other assets		169.6			187.1
Total assets	$	10,145.5		$	7,038.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	2,364.6		$	145.4
Accounts payable		211.2			205.9
Accrued compensation		272.8			248.2
Accrued income taxes		235.4			204.1
Other accrued expenses		559.7			555.7
Total current liabilities		3,643.7			1,359.3
Long-term debt		13.6			13.3
Deferred tax liabilities, net		143.5			—
Long-term accrued compensation		102.5			88.3
Other long-term liabilities		79.0			68.5
Total liabilities		3,982.3			1,529.4
Shareholders’ equity:
Common stock—par value $0.10		121.4			121.0
Retained earnings		6,206.0			5,576.3
Accumulated other non-owner changes in equity		(148.8	)		(168.8	)
		6,178.6			5,528.5
Receivable from Employee Stock Ownership Plan		(15.4	)		(19.0	)
Total shareholders’ equity		6,163.2			5,509.5
Total liabilities and shareholders’ equity	$	10,145.5		$	7,038.9

See accompanying notes to condensed consolidated financial statements.

MEDTRONIC, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)

	Nine months ended
	Jan. 25, 2002			Jan. 26, 2001
	(in millions)
OPERATING ACTIVITIES:
Net earnings	$	683.1		$	896.0
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization		218.3			217.9
Non-recurring charges		356.7			10.4
Deferred income taxes		(3.8	)		15.7
Change in operating assets and liabilities:
Accounts receivable		(104.1	)		(10.8	)
Inventories		24.6			(55.9	)
Accounts payable and accrued liabilities		(76.3	)		110.4
Changes in other operating assets and
liabilities		62.9			86.9
Net cash provided by operating activities		1,161.4			1,270.6
INVESTING ACTIVITIES:
Acquisition of MiniMed and MRG, net of cash acquired		(3,651.3	)		—
Acquisition of Endonetics, net of cash acquired		(66.9	)		—
Additions to property, plant, and equipment		(282.4	)		(302.9	)
Purchases of marketable securities		(605.0	)		(969.0	)
Sales and maturities of marketable securities		868.0			297.0
Other investing activities, net		(116.2	)		(105.6	)
Net cash used in investing activities		(3,853.8	)		(1,080.5	)
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net		2,228.2			(153.3	)
Increase in long-term debt, net		0.1			0.6
Dividends to shareholders		(209.0	)		(180.3	)
Issuance of common stock		106.3			123.2
Repurchase of common stock		(25.5	)		—
Repayment of loan from ESOP		3.6			0.5
Net cash provided by (used in)
financing activities		2,103.7			(209.3	)
Effect of exchange rate changes on cash and
cash equivalents		17.2			0.2
Net change in cash and cash equivalents		(571.5	)		(19.0	)
Cash and cash equivalents at beginning of period		1,030.3			467.8
Cash and cash equivalents at end of period	$	458.8		$	448.8
Supplemental Noncash Investing and Financing Activities
Issuance of stock options for acquisition
of subsidiary	$	75.2		$	—

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, financial position, and cash flows in conformity with generally accepted accounting principles. In the opinion of management, the consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s results for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 27, 2001.

Certain reclassifications have been made to prior year amounts to conform to current year presentation.

Note 2 – Acquisitions

Endonetics, Inc.

On December 18, 2001, the Company acquired all of the outstanding shares of Endonetics, Inc. (Endonetics) for cash consideration of approximately $67.2 million, including estimated fees and expenses associated with the merger. Endonetics is engaged in the development of diagnostic and therapeutic devices for the management of gastrointestinal diseases. This acquisition strengthens the Company’s offerings of innovative gastrointestinal products. The Company expects to foster growth by leveraging common technologies and the Company’s international distribution structure and to reduce costs through economies of scale. The results of Endonetics’ operations have been included in the Company’s consolidated financial statements since the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at December 18, 2001 (in millions):

Current assets	$	0.4
Property, plant, and equipment		0.5
Intangible assets		64.8
Goodwill		11.3
Total assets acquired	$	77.0
Current liabilities	$	4.3
Deferred tax liability-long-term, net		5.3
Other long-term liabilities		0.2
Total liabilities assumed	$	9.8
Net assets acquired	$	67.2

Of the $64.8 million of intangible assets acquired, $32.7 million was assigned to research and development assets that were written off at the date of acquisition in accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.” The remaining $32.1 million of acquired intangible assets consists of technology-based assets and have a useful life of 12 years.

The goodwill for the acquisition was assigned entirely to the Neurological and Diabetes operating segment and it is not expected to be deductible for tax purposes.

In connection with the acquisition of Endonetics, the Company formulated a plan for workforce reduction, employee relocations, the closure of manufacturing facilities, and the termination of certain contractual obligations, and recorded purchase accounting liabilities of approximately $2.7 million.

Pro forma results for the acquisition of Endonetics have been omitted, as this transaction did not have a material impact on the Company’s results of operations.

MiniMed Inc. and Medical Research Group, Inc.

On August 28, 2001, the Company acquired all of the outstanding common shares of MiniMed Inc (MiniMed) and Medical Research Group, Inc (MRG) for cash consideration totaling approximately $3.8 billion. MiniMed is the market leader in the design, development, manufacture and marketing of advanced medical systems for the treatment of diabetes. MRG designs and develops technologies related to implantable pumps and sensors used in the treatment of diabetes. These acquisitions represent a new platform, offering device-based medical solutions for the treatment of diabetes. The Company expects to drive growth by leveraging common technologies and the Company’s international distribution structure and to reduce costs through economies of scale. The results of MiniMed’s and MRG’s operations have been included in the Company’s consolidated financial statements since the date of acquisition.

Each share of MiniMed and MRG common stock was valued at $48.00 and $17.00, respectively. The total acquisition cost for MiniMed was approximately $3.4 billion, which includes estimated fees and expenses associated with the merger, the cash cost of employee stock options surrendered in the acquisition, and an estimate of the fair value of employee stock options that were exchanged for approximately 2.7 million options to purchase the Company’s stock. The Company’s stock options were valued at approximately $75.2 million using the Black-Scholes option-pricing model. The total acquisition cost of MRG was approximately $429.5 million, which represents $397.7 million to acquire common shares outstanding with third parties plus $31.8 million of common shares owned by MiniMed, as well as estimated fees and expenses associated with the merger and the cash cost of employee stock options surrendered in the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at August 28, 2001 (in millions):

	MiniMed		MRG
Current assets	$	218.1	$	47.3
Property, plant, and equipment		149.8		4.3
Intangible assets		624.6		232.7
Goodwill		2,602.5		142.8
Deferred tax asset-long-term		—		9.6
Long-term investments		1.1		1.4
Total assets acquired	$	3,596.1	$	438.1
Current liabilities	$	70.7	$	5.7
Deferred tax liability-long-term		147.7		—
Other long-term liabilities		—		2.9
Total liabilities assumed	$	218.4	$	8.6
Net assets acquired	$	3,377.7	$	429.5

Of the $624.6 million of intangible assets acquired with MiniMed, $35.4 million was assigned to research and development assets that were written off at the date of acquisition in accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.” The remaining $589.2 million of MiniMed acquired intangible assets have a weighted-average useful life of approximately 13 years. The intangible assets that make up that amount include technology-based assets of $324.5 million (15-year weighted-average useful life) and trademarks and tradenames of $264.7 million (10-year useful life.) Of the $232.7 million of intangible assets acquired with MRG, $224.9 million was assigned to research and development assets that were written off at the date of acquisition. The remaining $7.8 million of MRG acquired intangible assets consists of technology-based assets with a 15-year useful life.

The goodwill for both acquisitions was assigned entirely to the Neurological and Diabetes operating segment and it is not expected to be deductible for tax purposes.

In connection with the acquisitions, the Company formulated plans for workforce reductions, employee relocations, the closure and consolidation of sales offices in the U.S. and Europe, and the termination of certain contractual obligations. The costs of employee termination and relocation benefits relate to the elimination or relocation of approximately 365 positions in the areas of manufacturing and distribution, administration, engineering, and sales and marketing. As of January 25, 2002, 104 employees had been terminated.

The purchase accounting liabilities recorded in connection with the acquisitions are summarized below (in millions):

	Aug.28, 2001		Utilized			Jan.25, 2002
Facility reductions	$	2.1	$	—		$	2.1
Severance and
relocation costs		15.0		(6.3	)		8.7
Contractual
obligations		5.7		—			5.7
Total	$	22.8	$	(6.3	)	$	16.5

The following unaudited pro forma data sets forth the combined results of operations for the nine months ended January 25, 2002 and for the nine months ended January 26, 2001 as if the acquisitions had occurred on May 1, 2000. The unaudited pro forma results of operations for the nine-month period ending January 25, 2002 include the results of operations for MiniMed and MRG for the nine-month period ended January 25, 2002. The unaudited pro forma results of operations for the nine-month period ending January 26, 2001 include the results of operations for MiniMed and MRG for the nine-month period ended December 29, 2000. The pro forma data gives effect to actual operating results prior to the acquisitions, adjustments to eliminate material intercompany items, and adjustments to reflect interest expense, intangible asset amortization, fixed asset depreciation, and income taxes. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisitions had occurred as of the beginning of the periods presented or that may occur in the future.

	For the nine months ended:
	Jan. 25, 2002		Jan. 26, 2001
	(in millions, except per share data)
Net sales	$	4,744.2	$	4,268.0
Net income		618.7		857.9
Earnings per
common share:
Basic	$	0.51	$	0.71
Diluted	$	0.51	$	0.70

Pro forma net income for the nine months ended January 25, 2002 includes $18.8 million non-deductible merger-related costs incurred by MiniMed prior to the acquisition, and a $2.4 million after tax charge related to a settlement agreement entered into by MiniMed prior to the acquisition. In addition, gross margins were reduced by approximately $10.0 million as a result of the sale of inventories acquired in the acquisitions that were written up to fair value. The reduction in gross margins as a result of fair value adjustments, which will not impact the financial statements beyond one year, has not been reflected as a pro forma adjustment for the nine-month period ended January 26, 2001, because it is considered non-recurring in nature.

Note 3 – Pending Acquisition

On December 6, 2001, Medtronic announced that it had agreed to acquire VidaMed, Inc. (VidaMed) for cash consideration of approximately $326.0 million. VidaMed’s transurethral needle ablation system treats benign prostatic hyperplasia (BPH), a condition also known as enlarged prostate. The Company expects to complete the transaction during the fourth quarter of fiscal year 2002.

Note 4 – Financing Arrangements

Contingent Convertible Debentures

In September 2001, the Company completed a private placement of contingent convertible debentures totaling $2,012.5 million, due 2021. The debentures bear interest at 1.25 percent per annum, which is payable semiannually. Each debenture is convertible, at the holder’s option and under certain circumstances, into shares of Medtronic’s common stock at a conversion price of $61.81 per share. The Company may be required to repurchase the securities at the option of the holders in September 2002, 2004, 2006, 2008, 2011, and 2016. As a result of the put option in September 2002, these debentures have been classified as short-term borrowings in the accompanying consolidated financial statements. If the repurchase option is exercised, the Company may elect to repurchase the securities for cash, the Company’s common stock, or a combination thereof. The Company may elect to redeem the securities for cash at any time after September 2006. The net proceeds from this offering were used to repay a substantial portion of the bridge financing obtained in connection with the acquisitions of MiniMed and MRG.

Commercial Paper and Credit Arrangements

On December 14, 2001 the Company implemented a commercial paper program which allows the Company to issue up to $1,000.0 million in debt securities with maturities up to 364 days from the date of issuance. At January 25, 2002, commercial paper outstanding totaled $230.6 million and is included in short-term borrowings. At January 25, 2002, the weighted average original maturity of the commercial paper outstanding was approximately 20 days and the weighted average annual interest rate was 1.8%.

On January 24, 2002 the Company closed on two syndicated credit facilities totaling $1,250.0 million with various banks. The two credit facilities consist of a 364-day $750.0 million facility and a five-year $500.0 million facility. The purpose of these syndicated credit facilities is to provide backup funding for the commercial paper program as well as general corporate purposes. There were no borrowings under these credit facilities at January 25, 2002. If the Company were to borrow from these credit facilities, interest rates would be determined by a pricing matrix based on the Company’s long-term debt rating assigned by Standard and Poor’s Ratings Group and Moody’s Investors Service. Facility fees are payable on the credit and determined in the same manner as the interest rates. Under terms of the agreements, the consolidated tangible net worth of the Company shall at all times be greater than or equal to $1,040.4 million, increased by an amount equal to 100% of the net cash proceeds from any equity offering occurring after January 24, 2002. The consolidated tangible net worth is defined as consolidated tangible assets (consolidated assets less (i) goodwill and (ii) other intangibles (other than patents, trademarks, licenses, copyrights and other intellectual property and prepaid assets) minus consolidated liabilities. The Company’s consolidated tangible net worth was $2,329.1 million at January 25, 2002. The agreements also contain other customary covenants and events of default.

Note 5 – Comprehensive Income

In addition to net earnings, comprehensive income includes changes in unrealized gains and losses on available-for-sale marketable securities, unrealized gains and losses on derivative instruments qualifying and designated as cash flow hedges, foreign currency translation adjustments and minimum pension liability. Comprehensive income for the three and nine-month periods ended January 25, 2002 was $309.8 million and $703.1 million, respectively, and $348.0 million and $905.6 million for the same periods a year ago.

Note 6 – Inventories

Inventories consisted of the following (in millions):

	January 25, 2002		April 27, 2001
Finished goods	$	385.6	$	400.7
Work in process		132.3		131.5
Raw materials		220.2		197.3
Total	$	738.1	$	729.5

Note 7 – Non-Recurring Items

(all amounts are net of tax unless otherwise stated)

During the third quarter of fiscal year 2002, the Company recorded non-recurring charges totaling $45.0 million after-tax ($63.1 million pre-tax). The charges included the following, and all are stated on an after-tax basis: $32.7 million for purchased in-process research and development in connection with the acquisition of

Endonetics, Inc. (Endonetics) in December 2001; an $18.6 million non-product related legal settlement pertaining to business matters which occurred in prior years and is protected by a confidentiality agreement; a $36.8 million gain on an equity investment which was transferred to the Medtronic Foundation; and a $30.5 million charge to fund the Medtronic Foundation. In addition, the Company recorded a $4.1 million ($6.5 million pre-tax) charge for debt issuance costs associated with the issuance of the contingent convertible debentures, which is included in interest expense. Total charges taken in the third quarter of fiscal year 2002 were $49.1 million ($69.6 million pre-tax). Without these items, net earnings for the quarter would have been $364.0 million and $0.30 per diluted share, an increase of 16.0 percent and 15.4 percent, respectively, over pre-charge net earnings and diluted earnings per share for the same period a year ago.

In the third quarter of the current fiscal year, the Company acquired Endonetics and expensed upon consummation of the acquisition $32.7 million of the purchase price for purchased in-process research and development related to the Gatekeeper Reflux Repair System (Gatekeeper), which had not yet reached technological feasibility and had no alternative future use. The Gatekeeper is a therapeutic medical device comprised of hydrogel prostheses that are implanted in the esophageal wall. After implantation, the hydrogel prostheses swell in size and create a mechanical barrier that prevents stomach acids from entering the esophagus. At the time of the acquisition, Medtronic did not have a therapeutic product offering in the Gastroesophageal Reflux Disease (GERD) market. Medtronic believes the Gatekeeper will distinguish itself in this market by its ease of use, ability to reduce treatment costs associated with extended drug therapies, and its less invasive approach to treating GERD. At the time of acquisition, the Gatekeeper was in human clinical trials. The clinical trials must be completed before regulatory approval can be obtained in the U.S. The expected remaining costs associated with bringing this product to commercialization are $2.2 million in fiscal 2002 and $6.8 million in fiscal 2003. Total expected project cost, including costs already incurred and expected to be incurred is $12.1 million. These costs are being funded by internally generated cash flows.

In the second quarter of the current fiscal year, the Company acquired MiniMed and expensed upon consummation of the acquisition $35.4 million of the purchase price for purchased in-process research and development related to a disposable pump that had not yet reached technological feasibility and had no alternative future use. Disposable pumps are designed to be used as an infusion system that is attached to the body using an adhesive and delivers a pre-set constant rate of drug. At the time of the acquisition, MiniMed did not have a primary product offering in the insulin-using Type 2 diabetes market. MiniMed believes the disposable pump will distinguish itself in the Type 2 market by its convenience and ease of use. At the time of acquisition, the disposable pump required modifications before MiniMed could file for regulatory approval. The expected remaining costs associated with bringing this product to commercialzation are $4.7 million in fiscal 2002, $3.7 million in fiscal 2003, $4.0 million in fiscal 2004, and $2.6 million in fiscal 2005. Total expected project cost, including costs already incurred and expected to be incurred is $35.2 million. These costs are being funded by internally generated cash flows.

Also in the second quarter of the current fiscal year, Medtronic acquired MRG and expensed $224.9 million of the purchase price upon consummation of the acquisition for purchased in-process research and development related to a long-term glucose sensor and an implantable glucose monitoring sensor that had not yet reached

technological feasibility and had no alternative future use. At the time of the acquisition, MRG had no product offerings in the diabetes market, and these projects were expected to enable MRG to enter this high-potential implantable market. The long-term glucose sensor is designed to be used with an implantable pump to automatically maintain glucose levels by continuously monitoring and adjusting the rate of insulin infusion without the need for frequent intervention by the physician or patient. At the time of the acquisition, the long-term glucose sensor was in human clinical trials. The clinical trials must be completed before regulatory approval can be obtained in the U.S. The implantable glucose monitoring system is used by patients to monitor glucose levels. At the time of the acquisition, MiniMed and MRG had filed with the FDA for approval of the system. The expected remaining costs associated with bringing these products to commercialization were $4.8 million in fiscal 2002, $8.8 million in fiscal 2003, $11.0 million in fiscal 2004, $7.1 million in fiscal 2005, and $0.6 million in fiscal 2006. Total expected project cost, including costs already incurred and expected to be incurred is $41.5 million. These costs are being funded by internally generated cash flows. The fair values assigned to the long term glucose sensor and to the implantable glucose monitoring system were $219.7 million and $4.4 million, respectively. Other minor product categories were valued at $0.8 million.

The value assigned to Endonetics’ purchased in-process research and development was based on a valuation prepared internally, using a methodology consistent with valuation techniques used by independent appraisers. The values assigned to MiniMed’s and MRG’s purchased in-process research and development were based on a valuation prepared by an independent third-party appraisal company. All values were determined by identifying research projects in areas for which technological feasibility had not been established. The values were determined by estimating the revenue and expenses associated with a project’s sales cycle and by estimating the amount of after-tax cash flows attributable to these projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return. The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the purchased in-process research and development.

The Company expects that all the acquired in-process research and development will reach technological feasibility, but there can be no assurance that the commercial viability of these products will actually be achieved. The nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning, designing and conducting clinical trials necessary to obtain regulatory approvals. The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, delay or failure to obtain required market clearances, market acceptance and patent litigation. If commercial viability were not achieved, the Company would look to other alternatives to provide these therapies.

In the second quarter of fiscal year 2002, the Company also recorded a charge for a $5.9 million litigation settlement. In addition, the Company recorded $16.3 million of debt issuance costs associated with the issuance of the contingent convertible debentures which are included in interest expense.

In July 2001, an arbitration panel found that certain Medtronic rapid exchange perfusion delivery systems infringed a patent held by Boston Scientific. In connection with this finding, in the fourth quarter of fiscal 2001, the Company recorded a charge of $164.4 million for the award and the related legal costs, excess inventory and for impaired intangible assets and goodwill. In the first quarter of fiscal 2002, the Company recorded an additional $17.3 million related to sales of products associated with this award.

During the fourth quarter of fiscal 2001, the Company announced restructuring initiatives expected to total between $32.0 to $36.0 million aimed at further streamlining operations. In connection with these initiatives, the Company recorded a restructuring charge of $9.1 million during the fourth quarter of fiscal 2001 and $23.2 million in the first quarter of fiscal 2002. These initiatives related to the restructuring of certain neurological sales organizations, the reduction and consolidation of certain manufacturing operations, and the streamlining and reorganization of certain European sales organizations to further integrate prior acquisitions. Of the 650 employees that were identified for termination, 277 have been terminated as of January 25, 2002.

During the third quarter of fiscal year 2001 and in connection with the merger with PercuSurge, Inc. (PercuSurge), the Company recorded transaction and integration related charges totaling $11.1 million. All employees that were identified for termination have been terminated.

Applications during the third quarter of fiscal year 2002 against remaining accruals were as follows (in millions and before taxes):

	Balance at Oct. 26, 2001		New Charges		Charges Utilized			Balance at Jan. 25, 2002
Facility reductions	$	7.6	$	—	$	(0.7	)	$	6.9
Severance and related costs		17.8		—		(3.2	)		14.6
Contractual obligations		9.8		—		—			9.8
Total restructuring-related
accruals		35.2		—		(3.9)			31.3
Purchased in-process R&D		—		32.7		(32.7)			—
Foundation (1)		—		10.8		(10.8)			—
Litigation		207.6		19.6		(20.9)			206.3
Total	$	242.8	$	63.1	$	(68.3)		$	237.6

(1) The Company funded the Foundation for $47.6 million pre-tax, $30.5 million after tax, using appreciated stock. The gain on the appreciated stock was $36.8 million, which was a non-taxable gain.

Reserve balances at January 25, 2002 include amounts necessary to complete the restructuring initiatives announced in the fourth quarter of fiscal 2001 and the termination of certain distributors associated with the integration of PercuSurge. The majority of the litigation balance includes amounts related to the Vascular arbitration award.

Note 8 – Accounting for Derivatives and Hedging Activities

On April 28, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS 133, as amended, requires companies to recognize all derivatives as assets and liabilities on the balance sheet and to measure the instruments at fair value through income unless the derivative qualifies as a hedge. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other non-owner changes in equity until the hedged item is recognized in earnings. Upon adoption, the Company recorded a cumulative after-tax unrealized gain of $35.7 million in accumulated other non-owner changes in equity.

During the first nine months of fiscal 2002, the Company recorded $10.5 million of gains in cumulative translation adjustment related to its net investment hedges. No gains or losses relating to ineffectiveness of cash flow hedges were recognized in earnings during the same period. All gains reclassified to earnings during the first half of the current fiscal year related to the transition adjustment. The Company expects that, of the balance in accumulated unrealized derivative gains at January 25, 2002, approximately $35.6 million, net of tax, will be reclassified to earnings over the next twelve months.

The following table summarizes the activity in accumulated non-owner changes in equity related to all derivatives classified as cash flow hedges during the period from April 28, 2001 through January 25, 2002 (in millions, net of tax):

Beginning Balance, April 28, 2001:	$	—
Cumulative effect of adoption of SFAS 133		(35.7	)
Gains (losses) reclassified to earnings		26.5
Change in fair value of hedges		(32.4	)
Accumulated unrealized derivative gains, Jan. 25, 2002	$	(41.6	)

Note 9 – Goodwill and Other Intangible Assets

In July 2001, the FASB issued Statement No. 142, “Goodwill and Other Intangible Assets,” which eliminated the systematic amortization of goodwill. The Company adopted this statement during the first quarter of the current fiscal year. Had this statement been effective May 1, 2000, net income and earnings per share would have been reported as the following amounts (in millions except per share data):

	Three months ended Jan.26, 2001		Nine months ended Jan. 26, 2001
Reported net earnings	$	302.8	$	896.0
Add back goodwill amortization		9.8		28.1
Adjusted net earnings	$	312.6	$	924.1
Basic earnings per share:
Net earnings as reported	$	0.25	$	0.75
Goodwill amortization		0.01		0.02
Adjusted net earnings	$	0.26	$	0.77
Diluted earnings per share:
Net earnings as reported	$	0.25	$	0.73
Goodwill amortization		0.01		0.02
Adjusted net earnings	$	0.26	$	0.75

Balances of acquired intangible assets, excluding goodwill were as follows (in millions):

As of January 25, 2002:	Purchased Technology & Patents			Trademarks			Other			Total
Amortized intangible assets:
Original cost	$	643.8		$	264.7		$	122.0		$	1,030.5
Accumulated amortization		(107.2	)		(11.0	)		(53.7	)		(171.9	)
Carrying value	$	536.6		$	253.7		$	68.3		$	858.6

As of April 27, 2001:	Purchased Technology & Patents			Trademarks		Other			Total
Amortized intangible assets:
Original cost	$	212.9		$	—	$	168.0		$	380.9
Accumulated amortization		(66.0	)		—		(75.5	)		(141.5	)
Carrying value	$	146.9		$	—	$	92.5		$	239.4

During the third quarter of fiscal year 2002, the Company completed its annual impairment test of its goodwill. As of January 25, 2002, there was no impairment of goodwill.

Note 10 – Segment and Geographic Information

During the quarter the Company announced an organizational change in the Neurological, Spinal, Diabetes and Ear, Nose and Throat operating segment. As a result, this operating segment will now be separated into two operating segments for financial reporting purposes, Neurological and Diabetes, and Spinal and ENT, to align with the organizational change. Accordingly, the Company now operates its business in five operating segments, which are aggregated into one reportable segment — the manufacture and sale of device-based medical therapies. Each of the Company’s operating segments has similar economic characteristics, technology, manufacturing processes, customers, distribution and marketing strategies, regulatory environments, and shared infrastructures. Net sales by operating segment were as follows (in millions):

	Three months ended January 25, 2002		Three months ended January 26, 2001
Cardiac Rhythm Management	$	732.1	$	644.7
Neurological and Diabetes		289.2		160.9
Spinal and ENT		253.4		203.8
Vascular		189.8		233.8
Cardiac Surgery		127.9		118.4
	$	1,592.4	$	1,361.6

	Nine months ended January 25, 2002		Nine months ended January 26, 2001
Cardiac Rhythm Management	$	2,112.2	$	1,941.5
Neurological and Diabetes		704.5		464.4
Spinal and ENT		731.5		599.0
Vascular		696.0		675.3
Cardiac Surgery		375.1		353.7
	$	4,619.3	$	4,033.9

Geographic information:
Certain historical revenue and long-lived asset amounts by geography have been reclassified to reflect revised allocations (in millions):

Three months ended: January 25, 2002	United States		Europe		Asia Pacific		Other Foreign		Elimi- nations			Consoli- dated
Revenues from external
customers	$	1,100.7	$	291.2	$	160.5	$	40.0	$	—		$	1,592.4
Intergeographic sales		204.2		108.0		—		2.6		(314.8	)		—
Total sales	$	1,304.9	$	399.2	$	160.5	$	42.6	$	(314.8	)	$	1,592.4
Long-lived assets	$	6,073.0	$	695.2	$	53.6	$	10.7	$	—		$	6,832.5

Three months ended: January 26, 2001	United States		Europe		Asia Pacific		Other Foreign		Elimi- nations			Consoli- dated
Revenues from external
customers	$	909.7	$	262.4	$	148.7	$	40.8	$	—		$	1,361.6
Intergeographic sales		169.6		79.3		—		3.8		(252.7	)		—
Total sales	$	1,079.3	$	341.7	$	148.7	$	44.6	$	(252.7	)	$	1,361.6
Long-lived assets	$	2,700.6	$	667.5	$	47.4	$	15.3	$	—		$	3,430.8

Nine months ended: January 25, 2002	United States		Europe		Asia Pacific		Other Foreign		Elimi- nations			Consoli- dated
Revenues from external
customers	$	3,187.0	$	825.1	$	488.4	$	118.8	$	—		$	4,619.3
Intergeographic sales		502.5		290.8		—		8.4		(801.7	)		—
Total sales	$	3,689.5	$	1,115.9	$	488.4	$	127.2	$	(801.7	)	$	4,619.3

Nine months ended: January 26, 2001	United States		Europe		Asia Pacific		Other Foreign		Elimi- nations			Consoli- dated
Revenues from external
customers	$	2,688.0	$	762.7	$	459.5	$	123.7	$	—		$	4,033.9
Intergeographic sales		450.7		244.5		—		11.9		(707.1	)		—
Total sales	$	3,138.7	$	1,007.2	$	459.5	$	135.6	$	(707.1	)	$	4,033.9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net Earnings

Net earnings for the three months ended January 25, 2002 were $314.9 million or $0.26 per diluted share, compared to net earnings of $302.8 million, or $0.25 per diluted share for the quarter ended January 26, 2001. During the third quarter of fiscal year 2002, the Company recorded non-recurring charges totaling $45.0 million after-tax ($63.1 million pre-tax). The charges included the following, and all are stated on an after-tax basis: $32.7 million for purchased in-process research and development in connection with the acquisition of Endonetics, Inc. (Endonetics) in December 2001; an $18.6 million non-product related legal settlement

pertaining to business matters which occurred in prior years and is protected by a confidentiality agreement; a $36.8 million gain on an equity investment which was transferred to the Medtronic Foundation; and a $30.5 million charge to fund the Medtronic Foundation. In addition, the Company recorded a $4.1 million ($6.5 million pre-tax) charge for debt issuance costs associated with the issuance of the contingent convertible debentures, which is included in interest expense. Total charges taken in the third quarter of fiscal year 2002 were $49.1 million ($69.6 million pre-tax). Without these items, net earnings for the quarter would have been $364.0 million and $0.30 per diluted share, an increase of 16.0 percent and 15.4 percent, respectively, over pre-charge net earnings and diluted earnings per share for the same period a year ago.

Net earnings for the first nine months of the year were $683.1 million or $0.56 per diluted share, compared to $896.0 million or $0.73 per diluted share for the same period a year ago. In the first nine months of fiscal year 2002 the Company recorded non-recurring charges totaling $351.7 million after-tax ($394.6 million pre-tax). The charges included the following, and all are stated on an after-tax basis: $293.0 million for purchased in-process research and development in connection with the acquisitions of Endonetics, in December 2001, and MiniMed Inc (MiniMed) and Medical Research Group, Inc. (MRG) in August 2001; $24.5 million related to legal settlements; $23.9 million related to certain restructuring activities aimed at streamlining operations announced in the fourth quarter of fiscal year 2001; $17.3 million related to sales of certain products associated with the Vascular arbitration award announced in July 2001 (In connection with this arbitration award, the Company recorded a charge in the fourth quarter of fiscal year 2001); a $0.7 million reversal of previously recorded charges for the restructuring of the Company’s Latin America operations; a $36.8 million gain on an equity investment which was transferred to the Medtronic Foundation; and a $30.5 million charge to fund the Medtronic Foundation. In addition, the Company recorded a $20.4 million ($32.0 million pre-tax) charge for debt issuance costs associated with the issuance of the contingent convertible debentures, which is included in interest expense. Total charges taken in the first nine months of the third quarter of fiscal year 2002 were $372.1 million ($426.6 million pre-tax). Without these charges, net earnings for the first nine months of the current fiscal year would have been $1,055.2 million or $0.86 per diluted share, an increase of 14.9 percent and 14.7 percent, respectively, over pre-charge net earnings for the same period a year ago.

In the third quarter of last fiscal year, the Company recorded after-tax transaction and integration charges of $11.1 million related to the acquisition of PercuSurge. Also during the third quarter of last year, the Company recorded a net one-time after-tax gain of $13.1 million from litigation settlements, the proceeds of which were contributed to the Medtronic Foundation. In the first quarter of last fiscal year, the Company recorded an $11.4 million after-tax charge related to a litigation judgment. The judgment is protected by a confidentiality agreement, is non-recurring, non-product related and pertains to business matters that occurred in 1997 and 1998.

Sales

Sales for the three and nine-month periods ended January 25, 2002 increased 17.0 percent and 14.5 percent, respectively, compared to the same periods of fiscal year 2001. Sales growth in the third quarter and the first nine months of fiscal year 2002 was negatively impacted by $14.5 million and $64.0 million, respectively, of unfavorable foreign exchange rate fluctuations. Excluding the effects of foreign currency fluctuations, sales for the quarter and first nine months of fiscal year 2002 increased 18.1 percent and 16.3 percent, respectively, over the same periods a year ago. MiniMed, acquired on August 28, 2001, contributed $102.1 million and $172.0 million of sales during the third quarter and the first nine months of fiscal year 2002. All revenue growth rates that follow are reported on a constant-currency basis.

Net sales of Cardiac Rhythm Management products increased 14.6 percent and 10.5 percent during the three and nine-month periods ended January 25, 2002, compared to the same periods a year ago. Cardiac Rhythm Management products consist primarily of pacemakers, implantable and external defibrillators, leads and ablation products. Worldwide bradycardia pacing revenues grew approximately 14 percent in the quarter. The growth was driven by strong performance from the Medtronic Kappa® 900, which received FDA approval during the quarter, and the continued market penetration of the Medtronic InSync® cardiac resynchronization device for the treatment of heart failure. Sales of implantable defibrillators grew approximately 18 percent during the quarter, driven by continued worldwide acceptance of the GEM® III AT. External defibrillator sales increased more than 15 percent over the same period a year ago, reflecting strong acceptance of the Company’s new LIFEPAK® 12 defibrillator, the industry’s only defibrillator with the biphasic waveform and escalating energy to treat arrhythmia victims with higher impedance levels. Additional milestones achieved during the third quarter include two developments to provide post-implant solutions to help physicians better and more efficiently change cardiac rhythm care for patients: FDA approval of Medtronic’s Carelink Network and the acquisition of Paceart, a worldwide leader in database systems for pacemakers, implantable defibrillators and arrhythmia management systems. In early March, the Company received U.S. FDA approval and immediately began a market launch of its Marquis™ implantable cardioverter defibrillator. The Marquis™, which offers faster charge times for increased patient safety and improved longevity for less frequent replacement, will also be launched in Europe and Canada. Also in early March, a panel of the U.S. FDA recommended for approval the Company’s InSync® ICD system for the treatment of heart failure. The InSync® ICD system combines cardiac resynchronization therapy and defibrillation therapy in a single device for the treatment of moderate to severe heart failure in patients who have left ventricular dysynchrony and who are at risk for potentially lethal ventricular arrhythmias. Looking ahead, the Company expects the worldwide launch of its CareLink™ programmer during the fourth quarter of the current fiscal year.

In connection with the strong growth and expansion of the Neurological, Spinal, Diabetes, and Ear, Nose and Throat operating segment, the Company announced an organizational change in February 2002 in this segment. As a result, this operating segment will now be separated into two operating segments for financial reporting purposes, Neurological and Diabetes, and Spinal and ENT, to align with the organizational change.

Net sales of Neurological and Diabetes products increased 79.6 percent and 52.4 percent for the three and nine-month periods ended January 25, 2002, compared to the same periods a year ago. Without MiniMed and MRG, which were acquired during the second quarter of the current fiscal year, revenue growth for the three and nine-month periods ended January 25, 2002 would have been 16.5 percent and 15.3 percent, respectively. Neurological and Diabetes products consist primarily of implantable neurostimulation devices, implantable drug administration systems, neurosurgery products, functional diagnostics equipment, and medical systems for the treatment of diabetes. The Neurological growth is the result of strong sales of therapies to address movement disorders, specifically severe spasticity and the symptoms of advanced Parkinson’s disease. During the third quarter, the Company received U.S. FDA approval of its Activa therapy which treats advanced Parkinson’s disease. Also, during the third quarter, the Company received U.S. FDA approval of a new neurostimulator, the Synergy Veritrel™,

which broadens Neurological’s industry-leading pain management technologies. The Diabetes business consisting of MiniMed and MRG, which were acquired during the second quarter of fiscal year 2002, had revenues of approximately $102 million for the three months ended January 25, 2002. The 5-month growth rate, since the acquisitions occurred, exceeded 20 percent when compared to the same period a year ago for the stand-alone companies. In February 2002, Medtronic MiniMed received U.S. FDA approval and immediately began a full market launch of its Paradigm insulin infusion pump, the latest step toward a sensor-enhanced system that will further help diabetes patients better control their blood glucose levels.

Net sales of Spinal and Ear, Nose and Throat (ENT) products increased 25.4 percent and 23.7 percent for the three and nine-month periods ended January 25, 2002, compared to the same periods a year ago. Spinal and ENT products consist primarily of thoracolumbar and interbody spinal devices, and surgical products used by ENT physicians. Quarterly sales of spinal surgery products grew approximately 26 percent compared to the same period a year ago. The growth was the result of strong sales of thoracolumbar products, including the TSRH-3D™ spinal instrumentation system and the CD HORIZON® spinal system, and interbody products, which benefited from full market release of the Novus LT Cage™. A significant milestone for the Spinal business was achieved during the quarter when it secured a unanimous panel recommendation for U.S. FDA approval of its INFUSE™ bone morphogenetic protein (BMP) used for spinal fusions. ENT revenues grew approximately 16 percent when compared to the same period a year ago.

Net sales of Vascular product lines decreased 17.3 percent for the three month period ended January 25, 2002, compared to the same period a year ago. Vascular products consist of stents, balloons and guiding catheters, and peripheral vascular products. The decrease in the quarter was primarily due to the September 2001 injunction against U.S. sales of the Company’s rapid exchange perfusion delivery systems. This decrease was partially offset by strong growth of the AneuRx™ Stent Graft System for the treatment of abdominal aortic aneurysms, which was driven by the full availability of all sizes of the product. For the nine months ended January 25, 2002, Vascular revenues increased by 5.4 percent when compared to the same period a year ago. The Company continues to offer all of its coronary stents, with alternative delivery systems in the U.S. and rapid exchange perfusion delivery systems outside the U.S., and is pursuing several options to re-enter the U.S. rapid exchange market.

Net sales of Cardiac Surgery product lines increased 9.5 percent and 8.0 percent for the three and nine-month periods ended January 25, 2002, compared to the same periods a year ago. Cardiac Surgery products consist of heart valves, minimally invasive cardiac surgery products, surgical accessories and perfusion systems. Heart valve revenues grew approximately 22 percent in the quarter. The market continues to shift from mechanical to tissue valves, and the Company is benefiting from one of the broadest tissue valve product lines in the industry. Perfusion revenues declined approximately 4 percent for the quarter, in line with a declining market and reflecting the continued industry shift toward beating heart procedures. Cardiac Surgery Technology revenues from beating heart surgery products grew by more than 50 percent in the quarter when compared to the same period a year ago, reflecting the continued acceptance of the Medtronic Octopus® tissue stabilizer and Medtronic Starfish™ Heart Positioner. At the end of January, 2002, Medtronic received FDA approval of the Cardioblate™ Ablation System, which is indicated for use in general ablation of cardiac tissue during surgery.

Cost of Products Sold

Cost of products sold as a percentage of sales was 25.9 percent and 25.4 percent for the quarters ended January 25, 2002 and January 26, 2001, respectively. Cost of products sold as a percentage of sales for the nine months ended January 25, 2002 was 25.9 percent compared to 25.1 percent for the same period a year ago. The increase in cost of sales as a percent of revenue is primarily the result of the unfavorable impact of foreign exchange rates compared to the prior year. In addition, recent acquisitions have lower gross margins than the Company’s overall margin, contributing to the increase in cost of sales as a percent of revenue. The first nine months also reflects an additional expense in the second quarter of approximately $10 million resulting from the write up of MiniMed inventory in accordance with purchase accounting rules.

Research and Development Expense

The Company is committed to the development of technological enhancements and of new indications for existing products, to the development of less invasive and new technologies that address unmet patient needs, and to help reduce patient care costs and length of hospital stay. R&D expense as a percentage of sales for the third quarter and first nine months of fiscal year 2002 was 10.3 percent, compared to 10.6 percent for the same periods a year ago.

Selling, General and Administrative Expense (SG&A)

SG&A expense as a percent of revenue for the quarters ended January 25, 2002 and January 26, 2001 was 31.0 percent and 29.9 percent of sales, respectively. SG&A expense as a percent of revenue for the first nine months of fiscal years 2002 and 2001 was 30.7 percent and 30.5 percent, respectively. The increase in SG&A expense as a percent of revenue is primarily due to the impact of recent acquisitions on the consolidated cost structure. The Company continues to be committed to controlling costs through identification of efficiencies in conjunction with the integration of acquisitions and the implementation of cost control measures.

In-Process Research and Development

In the third quarter of the current fiscal year, the Company acquired Endonetics and expensed upon consummation of the acquisition $32.7 million of the purchase price for purchased in-process research and development related to the Gatekeeper Reflux Repair System (Gatekeeper), which had not yet reached technological feasibility and had no alternative future use. The Gatekeeper is a therapeutic medical device comprised of hydrogel prostheses that are implanted in the esophageal wall. After implantation, the hydrogel prostheses swell in size and create a mechanical barrier that prevents stomach acids from entering the esophagus. At the time of the acquisition, Medtronic did not have a therapeutic product offering in the Gastroesophageal Reflux Disease (GERD) market. The Company believes the Gatekeeper will distinguish itself in this market by its ease of use, ability to reduce treatment costs associated with extended drug therapies, and its less invasive approach to treating GERD. At the time of acquisition, the Gatekeeper was in human clinical trials. The clinical trials must be completed before regulatory approval can be obtained in the U.S. The expected remaining costs associated with bringing this product to commercialization are $2.2 million in fiscal year 2002 and $6.8 million in fiscal year 2003. Total expected project cost, including costs already incurred and expected to be incurred is $12.1 million. These costs are being funded by internally generated cash flows.

In the second quarter of the current fiscal year, the Company acquired MiniMed and expensed upon consummation of the acquisition $35.4 million of the purchase price for purchased in-process research and development related to a disposable pump that had not yet reached technological feasibility and had no alternative future use.

Disposable pumps are designed to be used as an infusion system that is attached to the body using an adhesive and that delivers a pre-set constant rate of drug. At the time of the acquisition, MiniMed did not have a primary product offering in the insulin-using Type 2 diabetes market. The Company believes the disposable pump will distinguish itself in the Type 2 market by its convenience and ease of use. At the time of acquisition, the disposable pump required modifications before MiniMed could file for regulatory approval. The expected remaining costs associated with bringing this product to commercialization are $4.7 million in fiscal year 2002, $3.7 million in fiscal year 2003, $4.0 million in fiscal year 2004, and $2.6 million in fiscal year 2005. Total expected project cost, including costs already incurred and expected to be incurred is $35.2 million. These costs are being funded by internally generated cash flows.

Also in the second quarter of the current fiscal year, Medtronic acquired MRG in a separate but related transaction and expensed $224.9 million of the purchase price upon consummation of the acquisition for purchased in-process research and development related to a long-term glucose sensor and an implantable glucose monitoring sensor that had not yet reached technological feasibility and had no alternative future use. At the time of the acquisition, MRG had no product offerings in the diabetes market, and these projects were expected to enable MRG to enter this high-potential implantable market. The long-term glucose sensor is designed to be used with an implantable pump to automatically maintain glucose levels by continuously monitoring and adjusting the rate of insulin infusion without the need for frequent intervention by the physician or patient. At the time of the acquisition, the long-term glucose sensor was in human clinical trials. The clinical trials need to be completed before regulatory approval can be obtained in the U.S. The implantable glucose monitoring system is used by patients to monitor glucose levels. At the time of the acquisition, MiniMed and MRG had filed with the FDA for approval of the system. The expected remaining costs associated with bringing these products to commercialization were $4.8 million in fiscal year 2002, $8.8 million in fiscal year 2003, $11.0 million in fiscal year 2004, $7.1 million in fiscal year 2005, and $0.6 million in fiscal year 2006. Total expected project cost, including costs already incurred and expected to be incurred is $41.5 million. These costs are being funded by internally generated cash flows. The fair values assigned to the long-term glucose sensor and to the implantable glucose monitoring system were $219.7 million and $4.4 million, respectively. Other minor product categories were valued at $0.8 million.

The value assigned to Endonetics’ purchased in-process research and development was based on a valuation prepared internally, using a methodology consistent with valuation techniques used by independent appraisers. The values assigned to purchased in-process research and development for MiniMed and MRG were based on a valuation prepared by an independent third-party appraisal company. All values were determined by identifying research projects in areas for which technological feasibility had not been established. All values were determined by estimating the revenue and expenses associated with a project’s sales cycle and by estimating the amount of after-tax cash flows attributable to these projects. The future cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return. The rate of return included a factor that takes into account the uncertainty surrounding the successful development of the purchased in-process research and development.

The Company expects that all the acquired in-process research and development will reach technological feasibility, but there can be no assurance that the commercial viability of these products will actually be achieved. The nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning, designing and conducting clinical trials necessary to obtain regulatory approvals. The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, delay or failure to obtain required market clearances, and patent litigation. If commercial viability were not achieved, the Company would look to other alternatives to provide these therapies.

Other Income/Expense

Other income/expense includes purchased technology and intellectual property amortization, royalty income and expense, minority investment gains and losses and foreign currency gains and losses. The Company recorded net other expense of $3.5 million for the quarter ended January 25, 2002 and net other expense of $25.2 million for the same period a year ago. In the first quarter of the current fiscal year, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and ceased amortization of goodwill. The favorable impact of the discontinuation of goodwill amortization during the quarter was partially offset by increased amortization expense related to MiniMed and MRG purchased technology. Also contributing to the decrease in other expense were higher gains on foreign currency hedging activities.

Net other expense was $31.0 million and $48.7 million for the nine-month periods ended January 25, 2002 and January 26, 2001, respectively. An increase in foreign currency hedging gains and the favorable impact of the discontinuation of goodwill amortization were partially offset by increased royalties paid in connection with the arbitration award in July 2001 and increased amortization expense related to MiniMed and MRG purchased technology.

Interest Income/Expense

The Company reported net interest expense during the third quarter of fiscal year 2002 of $13.0 million compared to net interest income of $18.8 million for the same period a year ago. Net interest expense for the nine-month period ended January 25, 2002 was $1.7 million, compared to net interest income of $44.3 million for the same period a year ago. The change from net interest income to net interest expense is a result of reduced cash balances and higher borrowings associated with the financing of the MiniMed and MRG acquisitions, debt issuance cost associated with the issuance of the contingent convertible debentures, as well as lower interest income due to declining interest rates.

Income Taxes

The Company’s effective income tax rate for the third quarter and the first nine months of fiscal year 2002 was 28.9 percent and 38.0 percent, respectively, or 29.0 percent and 31.0 percent, respectively, before non-recurring charges. The Company has increased manufacturing in lower-taxed jurisdictions, and as a result, a cumulative year-to-date adjustment was made to reflect the expected annual effective income tax rate. The Company continues to review alternative strategies to further reduce its effective income tax rate.

Liquidity and Capital Resources

Operating activities provided $1,161.4 million of cash and cash equivalents for the nine-month period ended January 25, 2002 compared to $1,270.6 million for the same period a year ago. Other than operations, significant sources of cash during the first three quarters of fiscal year 2002 were proceeds from the issuance of contingent convertible debentures and commercial paper and sales of marketable securities. Significant uses of cash during the first three quarters of the current year included the acquisition of MiniMed, MRG and Endonetics, investments in long-term marketable securities, purchases of property, plant and equipment, and payment of dividends to shareholders.

Current liabilities exceeded current assets at January 25, 2002 by approximately $330.7 million as a result of the September 2001 placement of the contingent convertible debentures due in 2021 (see Note 4 to the consolidated financial statements and discussion below). The Company expects to generate sufficient funds from operations and/or utilize credit facilities to meet all obligations as they become due. Working capital was $2,397.5 million at April 27, 2001.

The Company’s capital structure consists of equity and interest-bearing debt. Interest-bearing debt as a percent of total capital was 27.8 percent as of January 25, 2002, compared to 2.8 percent at April 27, 2001. The Company has existing lines of credit totaling $1,788.5 million with various banks, of which $1,429.2 million was unused at January 25, 2002.

On September 17, 2001, the Company completed a $2,012.5 million private placement of 1.25% Contingent Convertible Debentures due September 15, 2021. Each Debenture is convertible into the Company’s common stock at an initial conversion price of $61.81 per share. The Company may be required to repurchase the securities at the option of the holders in September 2002, 2004, 2006, 2008, 2011, and 2016. If the repurchase option is exercised, the Company may elect to repurchase the securities for cash, the Company’s common shares, or some combination thereof. The Company may elect to redeem the securities for cash at any time after September 2006. The net proceeds from this offering were used to repay a substantial portion of the outstanding bridge financing obtained in connection with the acquisitions of MiniMed and MRG.

To increase the Company’s liquidity and flexibility to support its on-going operations and working capital needs, the Company implemented a $1,000.0 million commercial paper program effective December 14, 2001. The program allows the Company to issue debt securities with maturities up to 364 days from the date of issuance. At January 25, 2002, outstanding commercial paper totaled $230.6 million. The weighted average original maturity of the commercial paper outstanding was approximately 20 days and the weighted average annual interest rate was 1.8%.

In conjunction with the commercial paper program, the Company closed on two syndicated credit facilities totaling $1,250.0 million with various banks on January 24, 2002. The two credit facilities consist of a 364-day $750.0 million facility and a five-year $500.0 million facility. The purpose of these syndicated credit facilities is to provide backup funding for the commercial paper program as well as general corporate purposes. There were no borrowings under these credit facilities at January 25, 2002. If the Company were to borrow from these credit facilities, interest rates would be determined by a pricing matrix based on the Company’s long-term debt ratings assigned by Standard and Poor’s Ratings Group and Moody’s Investors Service. Facility fees are payable on the credit and determined in the same manner as the interest rates. Under terms of the agreements, the consolidated tangible net worth of the Company shall at all times be greater than or equal to $1,040.4 million, increased by an amount equal to 100% of the net cash proceeds from any equity offering occurring after January 24, 2002. The Company’s consolidated tangible net worth at January 25, 2002 was approximately $2,329.1 million. The agreements also contain other customary covenants and events of default.

The Company has no off-balance sheet financing arrangements, other than the factoring of certain Japanese receivables and certain operating leases, as previously disclosed in the Annual Report on Form 10-K for the year ended April, 27, 2001. In addition, the Company has disclosed its significant financing arrangements, lease obligations and commitments and contingencies in the Annual Report on Form 10-K for the year ended April, 27, 2001. Any significant changes in these areas have been reflected in subsequent quarterly reports on Form 10-Q.

Operations Outside of the United States

Sales to customers located outside of the United States accounted for 30.9 percent and 31.0 percent of total sales for the third quarter and first nine months of fiscal year 2002. Sales outside of the United States are accompanied by certain financial risks, such as collection of receivables, which typically have longer payment terms. Outstanding receivables for these sales totaled $583.7 million at January 25, 2002, or 39.1 percent of total outstanding receivables, compared to $527.6 million or 41.8 percent of total receivables outstanding at April 27, 2001.

Critical Accounting Policies and Estimates

The Company has disclosed in Note 1 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended April 27, 2001 those accounting policies that it considers to be significant in determining the results of operations and its financial position. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, SFAS No. 141 “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets” during the current fiscal year, and disclosed all required information in its interim quarterly filings on Form 10-Q. In all material respects, the accounting principles utilized by the Company are in conformity with generally accepted accounting principles in the United States of America.

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, investments, warranty obligations, product liability, pension and postretirement obligations, revenue, income taxes and restructuring activities. The Company bases its estimates on historical experience, actuarial valuations, or other various assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of contingencies. As outlined in Item 3. Legal Proceedings, the Company is involved in a number of legal actions, the outcomes of which are not within the control of the Company and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, which, if granted would require significant expenditures. The Company records a liability in its consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the probable loss cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements. The Company and its legal counsel monitor developments related to these legal actions, and when appropriate, adjustments are made to reflect current facts and circumstances.

Cautionary Factors That May Affect Future Results

Certain statements contained in this document and other written and oral statements made from time to time by the Company do not relate strictly to historical or current facts. As such, they are considered “forward-looking statements” which provide current expectations or forecasts of future events. Such statements can be identified

by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “should,” “will,” “forecast” and similar words or expressions. The Company’s forward-looking statements generally relate to its growth strategies, financial results, product development and regulatory approval programs, and sales efforts. One must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions, including, among others, those discussed in the section entitled “Government Regulation and Other Matters” and “Cautionary Factors That May Affect Future Results” in the Company’s Annual Report and Form 10-K for the year ended April 27, 2001. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.

The Company undertakes no obligation to update any forward-looking statement, but investors are advised to consult any further disclosures by the Company on this subject in its filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any), in which the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

PART II — OTHER INFORMATION

Item 3.     Legal Proceedings

In October 1997, Cordis Corporation (Cordis), a subsidiary of Johnson & Johnson, filed suit in federal court in the District Court of Delaware against Arterial Vascular Engineering, Inc., which was acquired by the Company in January 1999 (AVE). The suit alleged that AVE’s modular stents infringe certain patents now owned by Cordis. Boston Scientific Corporation is also a defendant in this suit. The complaint seeks injunctive relief and damages from all defendants. In November 2000, a Delaware jury rendered a verdict that the previously marketed MicroStent and GFX stents infringe valid claims of two patents. Thereafter the jury awarded damages to Cordis totaling approximately $270.0 million. The Company believes that the jury findings are in error. In February 2001, the court heard evidence on the affirmative defense of inequitable conduct and will consider that evidence along with other post-trial motions. No expense for this matter has been recorded, based on legal counsel’s opinion that the Company’s legal position has substantial merit. The jury verdict does not address products that are currently marketed by Medtronic AVE.

In September 2000, Cordis filed an additional suit against AVE in the District Court of Delaware alleging that AVE’s S670, S660 and S540 stents infringe the patents asserted in the above case. The Court has stayed proceedings in this suit until the appeals have been decided in the October 1997 case above. 

In December 1999, Advanced Cardiovascular Systems, Inc. (ACS), a subsidiary of Guidant Corporation, sued Medtronic and AVE in federal court in the Northern District Court of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by ACS. The complaint seeks injunctive relief and monetary damages. ACS filed a demand for arbitration with the American Arbitration Association in Chicago simultaneously with the lawsuit. AVE has filed an answer denying infringement based on its license to the patent for perfusion catheters as part of the assets acquired from C.R. Bard in 1998. The parties have agreed to arbitrate all claims against all of AVE’s rapid exchange perfusion angioplasty balloons and stent delivery systems. The first panel of arbitrators was unable to reach a decision. Thereafter, the parties selected a new panel of arbitrators and hearings were completed in Chicago in February 2002. A decision is expected in April 2002. The Company discontinued sales of rapid exchange perfusion devices in the United States in September 2001.

In December 1997, ACS sued AVE in federal court in the Northern District of California alleging that AVE’s modular stents infringe certain patents held by ACS and is seeking injunctive relief and monetary damages. AVE denied infringement and in February 1998, AVE sued ACS in federal court in the District Court of Delaware alleging infringement of certain of its stent patents, for which AVE is seeking injunctive relief and monetary damages. The cases have been consolidated in Delaware and an order has been entered staying the proceedings until September 2002. 

In June 2000, Medtronic filed suit in United States District Court in Minnesota against Guidant Corporation seeking a declaration that Medtronic’s Jewel AF device does not infringe certain patents held by Guidant and/or that such patents were invalid. Thereafter, Guidant filed a counterclaim alleging that the Jewel AF and the Gem III AT infringe certain patents relating to atrial fibrillation. The case is in the early stages of discovery.  

In June 2000, Edwards Lifesciences, Inc. (Edwards) filed suit in the U.S. District Court in Delaware alleging infringement of certain patents directed to prosthetic aortic heart valves and a holder for annuloplasty rings. In March 2001, Edwards amended its complaint to add a patent relating to a holder device for prosthetic mitral heart valves that employ a suture loop guard. In November 2001, Edwards filed a second suit in the same court alleging infringement of an additional patent. The products involved in these cases are the Hancock and Mosaic aortic heart valves and heart valve holders and the Duran II annuloplasty system. The Company has asserted defenses and counterclaims of invalidity and noninfringement. Trial is scheduled for late April 2002. 

In August 1999, more than 12 years after it had abandoned its business, Stenticor, Inc. (Stenticor) and two of its shareholders filed suit in California state court in Santa Rosa alleging that certain of Stenticor’s trade secrets were misappropriated by Medtronic AVE and two individuals who were former officers and/or shareholders of Stenticor. The lawsuit alleges that Stenticor owned the modular stent design used in certain stents sold by Medtronic AVE, and that the individual defendants misappropriated those trade secrets to Endovascular Support Systems, which ultimately transferred them to AVE. Plaintiffs have also asserted claims for breach of contract, breach of fiduciary duty, misrepresentation and unfair competition. Defendants have asserted a counterclaim for professional negligence, and Medtronic AVE has agreed to indemnify the individual defendants except in certain circumstances. A trial is scheduled for April 2002. 

In May 2001, Medtronic Sofamor Danek, Inc. (MSD), a subsidiary of the Company, filed a lawsuit against Dr. Gary Karlin Michelson and Karlin Technology, Inc. (together, KTI) in the U.S. District Court for the Western District of Tennessee. The suit seeks damages and injunctive relief against KTI for breach of purchase and license agreements relating to intellectual property in the field of threaded and non-threaded spinal interbody implants, fraud, breach of non-competition obligations and other claims. In October 2001, KTI filed several counterclaims against MSD as well as a third party complaint against Sofamor Danek Holdings, Inc., a related entity, seeking damages and injunctive relief based on several claims, including breach of contract, infringement of several patents, fraud and unfair competition. The case is in the early stages of discovery and trial is scheduled for January 2003.

In June 2001, MiniMed, Inc. (MiniMed) and its directors were named in a class action lawsuit filed in the Superior Court of the State of California for the County of Los Angeles. The plaintiffs purport to represent a class of stockholders of MiniMed asserting claims in connection with the merger of Minimed with the Company, alleging violation of fiduciary duties owed by MiniMed and its directors to the MiniMed stockholders. Among other things, the complaint sought preliminary and permanent injunctive relief to prevent completion of the merger. In August 2001, the Court denied the plaintiffs’ request for injunctive relief to prevent completion of the merger. 

The Company believes that it has meritorious defenses against the above claims and intends to vigorously contest them. The Company records a liability when a loss is known or considered probable and the amount can be reasonably estimated. If a probable loss cannot be reasonably estimated, a liability is not recorded. While it is not possible to predict the outcome of these actions, the Company believes that costs associated with them will not have a material adverse impact on the Company’s financial position or liquidity, but may be material to the consolidated results of operations of any one period. 

In March 2000, Boston Scientific Corporation (BSX) sued AVE in federal court in the Northern District of California alleging that the S670 rapid exchange perfusion stent delivery system infringes a patent held by Boston Scientific. As previously disclosed, arbitration hearings were held in April 2001 and, in July 2001, the arbitrators issued an award in favor of BSX, finding infringement, awarding approximately $169.0 million in damages plus legal fees and costs to BSX, and allowing for an injunction against future sales in the U.S. of certain rapid exchange perfusion delivery systems. The Company recognized these and other related expenses during the fourth quarter of fiscal 2001 and first quarter of fiscal 2002. In September 2001, the U. S. District Court for the Northern District of California issued an order confirming the arbitration award, including imposition of the injunction. AVE has filed an appeal and a bond to stay enforcement of the money judgment until the appeal is resolved.

In 1996, two former shareholders of Endovascular Support Systems, Inc. (ESS) filed a lawsuit in Texas state court in the Dallas District against AVE and several former officers, directors and shareholders of AVE. The lawsuit was settled in December 2001 and is reflected in the results of the third quarter of fiscal year 2002. Terms of the settlement are confidential.

In May 2001, as a result of the proposed merger with the Company, MiniMed and its directors were named as defendants in a class action lawsuit filed in the Court of Chancery of the State of Delaware for New Castle County. The plaintiffs purport to represent a class of public stockholders of MiniMed whose stock was converted into the right to receive the $48 per share cash payment in connection with the merger. The complaint alleged that the $48 price is inadequate and that the directors did not undertake an appropriate process to obtain the best price reasonably available for the sale of MiniMed. As a result, the plaintiffs alleged that the directors breached their fiduciary duties to MiniMed stockholders in approving the merger agreement. In addition, the plaintiffs alleged that the merger was coupled with the sale of MRG in order to confer substantial special benefits upon Alfred E. Mann, the founder, former Executive Chairman and the largest stockholder of MiniMed, and his affiliates at the expense of a proper process to maximize value from the merger. The complaint sought remedies including unspecified monetary damages, attorneys’, accountants’ and experts’ fees. The complaint also requested injunctive relief, which was not granted, to prevent completion of the merger. In February 2002, by agreement of the parties, the lawsuit was dismissed without prejudice. No payments or other consideration were required by any of the parties in connection with the dismissal.

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Medtronic Restated Articles of Incorporation, as amended to date, incorporated by reference herein to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended April 27, 2001, filed with the Commission on July 26, 2001.

3.2 Medtronic Bylaws, as amended to date, incorporated by reference herein to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 27, 2001, filed with the Commission on September 10, 2001.

4.1 Rights Agreement, dated as of October 26, 2000, between Medtronic and Wells Fargo Bank, Minnesota, N.A., including the form of Rights Certificate as Exhibit B thereto, incorporated by reference herein to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A, filed with the Commission on November 3, 2000.

4.2 Indenture dated as of September 11, 2001 between Medtronic, Inc. and Wells Fargo Bank, N.A., incorporated by reference herein to Exhibit 4.2 of the Company’s Report on Form 8-K/A, filed with the Commission on November 13, 2001.

4.3 Registration Rights Agreement dated as of September 11, 2001, among Medtronic, Inc., Goldman Sachs & Co., Banc of America Securities LLC and Morgan Stanley & Co. Incorporated, incorporated by reference herein to Exhibit 4.3 of the Company’s Report on Form 8-K/A, filed with the Commission on November 13, 2001.

4.4 Credit Agreement dated as of January 24, 2002 among Medtronic, Inc., as Borrower, certain of its subsidiaries, as guarantors, the lenders party thereto, Bank of America, N.A. as Administrative Agent and Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager.

4.5 Credit Agreement dated as of January 24, 2002 among Medtronic, Inc., as Borrower, certain of its subsidiaries as guarantors, the lenders party thereto, Bank of America, N.A. as Administrative Agent and Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager.

11.1 Computation of ratio of earnings to fixed charges for the quarter ended January 25, 2002 and for the fiscal years ended April 27, 2001, April 30, 2000, 1999, 1998, and 1997.

(b) Reports on Form 8-K

During the quarter ended January 25, 2002, the Company filed on November 13, 2001 a Report on Form 8-K/A amending Items 2 and 7 of the Report on Form 8-K filed September 5, 2001, to provide subsequent information relating to MiniMed and MRG acquisitions and amended financial statements for MRG as required under Item 7.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Medtronic, Inc.
	(Registrant)
Date:   March 8, 2002	/s/ Arthur D. Collins, Jr.
	Arthur D. Collins, Jr.
	President
	and Chief Executive Officer
Date:   March 8, 2002	/s/ Robert L. Ryan
	Robert L. Ryan
	Senior Vice President
	and Chief Financial Officer

EX-4.4

                                                                     EXHIBIT 4.4


                                                                [EXECUTION COPY]





                                CREDIT AGREEMENT
                ($750,000,000 364-Day Revolving Credit Facility)

                                   dated as of

                                January 24, 2002

                                      among

                                MEDTRONIC, INC.,

                                  as Borrower,

                          CERTAIN OF ITS SUBSIDIARIES,

                                 as Guarantors,

                            THE LENDERS PARTY HERETO,

                             BANK OF AMERICA, N.A.,

                             as Administrative Agent

                                       and

                         BANC OF AMERICA SECURITIES LLC,

                   as Sole Lead Arranger and Sole Book Manager




                                TABLE OF CONTENTS

                                                                                                
ARTICLE I  Definitions..............................................................................1

         Section 1.01      Defined Terms............................................................1
                           -------------
         Section 1.02      Classification of Loans and Borrowings..................................15
                           --------------------------------------
         Section 1.03      Terms Generally.........................................................15
                           ---------------
         Section 1.04      Accounting Terms; GAAP..................................................16
                           ----------------------

ARTICLE II  The Credits............................................................................16
            -----------
         Section 2.01      Commitments.............................................................16
                           -----------
         Section 2.02      Revolving Loans and Revolving Borrowings................................16
                           ----------------------------------------
         Section 2.03      Requests for Revolving Borrowings.......................................17
                           ---------------------------------

         Section 2.04      [Intentionally Omitted].................................................18

         Section 2.05      [Intentionally Omitted].................................................18

         Section 2.06      Funding of Revolving Borrowings.........................................18
                           -------------------------------
         Section 2.07      Interest Elections......................................................18
                           ------------------
         Section 2.08      Termination and Reduction of Commitments................................20
                           ----------------------------------------
         Section 2.09      Repayment of Loans; Evidence of Debt....................................20
                           ------------------------------------
         Section 2.10      Prepayment of Loans.....................................................21
                           -------------------
         Section 2.11      Fees....................................................................21
                           ----
         Section 2.12      Interest................................................................22
                           --------
         Section 2.13      Alternate Rate of Interest..............................................24
                           --------------------------
         Section 2.14      Increased Costs.........................................................24
                           ---------------
         Section 2.15      Break Funding Payments..................................................25
                           ----------------------
         Section 2.16      Taxes...................................................................26
                           -----
         Section 2.17      Payments Generally; Pro Rata Treatment; Sharing of Set-offs.............27
                           -----------------------------------------------------------
         Section 2.18      Mitigation Obligations; Replacement of Lenders..........................29
                           ----------------------------------------------

ARTICLE III  Representations and Warranties........................................................30
             ------------------------------
         Section 3.01      Organization; Powers....................................................30
                           --------------------
         Section 3.02      Authorization; Enforceability...........................................30
                           -----------------------------
         Section 3.03      Governmental Approvals; No Conflicts....................................30
                           ------------------------------------
         Section 3.04      Financial Condition; No Material Adverse Change.........................30
                           -----------------------------------------------
         Section 3.05      Properties..............................................................31
                           ----------
         Section 3.06      Litigation and Environmental Matters....................................31
                           ------------------------------------
         Section 3.07      Compliance with Laws and Agreements.....................................32
                           -----------------------------------
         Section 3.08      Investment and Holding Company Status...................................32
                           -------------------------------------
         Section 3.09      Taxes...................................................................32
                           -----
         Section 3.10      ERISA...................................................................32
                           -----
         Section 3.11      Disclosure..............................................................33
                           ----------
         Section 3.12      Federal Regulations.....................................................33
                           -------------------
         Section 3.13      Purpose of Loans........................................................33
                           ----------------
         Section 3.14      Subsidiaries and Significant Subsidiaries...............................33
                           -----------------------------------------




                                       i



                                                                                                
ARTICLE IV  Conditions.............................................................................33
            ----------
         Section 4.01      Closing Conditions......................................................33
                           ------------------
         Section 4.02      Each Credit Event.......................................................34
                           -----------------

ARTICLE V  Affirmative Covenants...................................................................35
           ---------------------
         Section 5.01      Financial Statements and Other Information..............................35
                           ------------------------------------------
         Section 5.02      Notices of Material Events..............................................36
                           --------------------------
         Section 5.03      Existence; Conduct of Business..........................................37
                           ------------------------------
         Section 5.04      Payment of Obligations..................................................37
                           ----------------------
         Section 5.05      Maintenance of Properties; Insurance....................................37
                           ------------------------------------
         Section 5.06      Books and Records; Inspection Rights....................................37
                           ------------------------------------
         Section 5.07      Compliance with Laws....................................................38
                           --------------------
         Section 5.08      Use of Proceeds.........................................................38
                           ---------------
         Section 5.09      Maintenance of Accreditation, Etc.......................................38
                           ---------------------------------
         Section 5.10      Additional Subsidiary Guarantors........................................38
                           --------------------------------

ARTICLE VI  Negative Covenants.....................................................................38
            ------------------
         Section 6.01      Consolidated Tangible Net Worth.........................................38
                           -------------------------------
         Section 6.02      Indebtedness............................................................38
                           ------------
         Section 6.03      Liens...................................................................39
                           -----
         Section 6.04      Fundamental Changes.....................................................40
                           -------------------
         Section 6.05      Transactions with Affiliates............................................40
                           ----------------------------
         Section 6.06      Restrictive Agreements..................................................40
                           ----------------------
         Section 6.07      Business Activity.......................................................41
                           -----------------
         Section 6.08      Restricted Payments.....................................................41
                           -------------------

ARTICLE VII  Events of Default.....................................................................41
             -----------------

ARTICLE VIII  The Administrative Agent.............................................................44
              ------------------------
         Section 8.01      Appointment and Authorization of Administrative Agent...................44
                           -----------------------------------------------------
         Section 8.02      Notice of Default.......................................................44
                           -----------------
         Section 8.03      Reliance by Administrative Agent........................................44
                           --------------------------------
         Section 8.04      Delegation of Duties....................................................45
                           --------------------
         Section 8.05      Successor Administrative Agent..........................................45
                           ------------------------------
         Section 8.06      Credit Decision; Disclosure of Information by Administrative Agent......45
                           ------------------------------------------------------------------
         Section 8.07      Indemnification of Administrative Agent.................................46
                           ---------------------------------------
         Section 8.08      Administrative Agent in its Individual Capacity.........................46
                           -----------------------------------------------

ARTICLE IX  Miscellaneous..........................................................................47
            -------------
         Section 9.01      Notices.................................................................47
                           -------
         Section 9.02      Waivers; Amendments.....................................................48
                           -------------------
         Section 9.03      Expenses; Indemnity; Damage Waiver......................................49
                           ----------------------------------
         Section 9.04      Successors and Assigns..................................................50
                           ----------------------
         Section 9.05      Survival................................................................53
                           --------
         Section 9.06      Counterparts; Integration; Effectiveness................................53
                           ----------------------------------------
         Section 9.07      Severability............................................................54
                           ------------




                                       ii

                                       74



                                                                                                
         Section 9.08      Right of Setoff.........................................................54
                           ---------------
         Section 9.09      Governing Law; Jurisdiction; Consent to Service of Process..............54
                           ----------------------------------------------------------
         Section 9.10      WAIVER OF JURY TRIAL....................................................55
                           --------------------
         Section 9.11      Headings................................................................55
                           --------
         Section 9.12      Confidentiality.........................................................55
                           ---------------

ARTICLE X  GUARANTY................................................................................56
           --------
         Section 10.1      The Guaranty............................................................56
                           ------------
         Section 10.2      Bankruptcy..............................................................57
                           ----------
         Section 10.3      Nature of Liability.....................................................57
                           -------------------
         Section 10.4      Independent Obligation..................................................57
                           ----------------------
         Section 10.5      Authorization...........................................................58
                           -------------
         Section 10.6      Reliance................................................................58
                           --------
         Section 10.7      Waiver..................................................................58
                           ------
         Section 10.8      Limitation on Enforcement...............................................59
                           -------------------------
         Section 10.9      Confirmation of Payment.................................................59
                           -----------------------




                                      iii



SCHEDULES:

Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 3.14 -- Subsidiaries and Significant Subsidiaries
Schedule 6.02 -- Existing Indebtedness
Schedule 6.03 -- Existing Liens

EXHIBITS:

Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Joinder Agreement
Exhibit C -- Form of Revolving Borrowing Request
Exhibit D -- Form of Interest Election Request


                                       iv



                                CREDIT AGREEMENT

         THIS 364-DAY CREDIT AGREEMENT (this "Credit Agreement" or "Agreement"),
dated as of January 24, 2002, among Medtronic, Inc., a Minnesota corporation
(the "Borrower"), the Subsidiaries of the Borrower listed on the signature pages
hereto (individually a "Guarantor", collectively the "Guarantors"), the Lenders
party hereto, and Bank of America, N.A., as Administrative Agent.

                              W I T N E S S E T H:

         WHEREAS, the Borrower is party to the $3,000,000,000 Credit Agreement
dated as of August 27, 2001, as amended (the "Existing Credit Agreement"), among
the Borrower, certain Subsidiaries of the Borrower party thereto, the lenders
parties thereto and Bank of America, N.A., as Administrative Agent.

         WHEREAS, the Borrower desires to replace the Existing Credit Agreement
with this Agreement and the Five Year Facility (as defined below) upon the
terms, and subject to the conditions, hereinafter set forth.

         NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.01 DEFINED TERMS.

         As used in this Credit Agreement, the following terms have the meanings
specified below:

                  "ABR", when used in reference to any Loan or Borrowing, refers
         to whether such Loan, or the Loans comprising such Borrowing, are
         bearing interest at a rate determined by reference to the Alternate
         Base Rate.

                  "Administrative Agent" means Bank of America, in its capacity
         as administrative agent for the Lenders hereunder, and its successors
         in such capacity.

                  "Administrative Questionnaire" means an Administrative
         Questionnaire in a form supplied by the Administrative Agent.

                  "Affiliate" means, with respect to a specified Person, another
         Person that directly, or indirectly through one or more intermediaries,
         Controls or is Controlled by or is under common Control with the Person
         specified.

                  "Agent-Related Persons" means the Administrative Agent
         (including any successor agent), together with its Affiliates
         (including, in the case of Bank of America in its capacity as the
         Administrative Agent, the Arranger), and the officers, directors,
         employees, agents and attorneys-in-fact of such Persons and Affiliates.




                  "Alternate Base Rate" means, for any day, a rate per annum
         equal to the greater of (a) the Prime Rate in effect on such day and
         (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
         1%. Any change in the Alternate Base Rate due to a change in the Prime
         Rate or the Federal Funds Effective Rate shall be effective from and
         including the effective date of such change in the Prime Rate or the
         Federal Funds Effective Rate, respectively.

                  "Applicable Percentage" means, with respect to any Lender, the
         percentage of the total Commitments represented by such Lender's
         Commitment. If the Commitments have terminated or expired, the
         Applicable Percentages shall be determined based upon the Commitments
         most recently in effect, giving effect to any assignments.

                  "Applicable Rate" means, for any day, with respect to any
         Eurodollar Loan, or with respect to the facility fees or utilization
         fees payable hereunder, as the case may be, the applicable rate per
         annum set forth below (in basis points) under the caption "Eurodollar
         Spread", "Facility Fee Rate", or "Utilization Fee Rate", as the case
         may be, based upon the ratings by Moody's and S&P, respectively,
         applicable on such date to the Index Debt:



         =======================================================================================================
          CATEGORY         MOODY'S/S&P RATING       EURODOLLAR SPREAD  FACILITY FEE RATE   UTILIZATION FEE RATE
                                                                                               (COMMITMENT
                                                                                          UTILIZATION PERCENTAGE
                                                                                             GREATER THAN 50%)
         -------------------------------------------------------------------------------------------------------
                                                                                      
              I      Greater than or equal to Aa2/AA      14.25               4.5                   5.0

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

             II      Greater than or equal to Aa3/AA-     15.00               5.0                   7.5
                          but less than Aa2/AA

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

            III       Greater than or equal to A1/A+      21.50               6.0                   7.5
                          but less than Aa3/AA-

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

             IV       Greater than or equal to A2/A       27.00               8.0                  10.0
                          but less than A1/A+

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

              V              Less than A2/A               35.00              10.0                  12.5

         =======================================================================================================


                  For purposes of the foregoing, (i) if either Moody's or S&P
         shall not have in effect a rating for the Index Debt (other than by
         reason of the circumstances referred to in the last sentence of this
         definition), then such rating agency shall be deemed to have
         established a rating in Category V; (ii) if the ratings established or
         deemed to have been established by Moody's and S&P for the Index Debt
         shall fall within different Categories, the Applicable Rate shall be
         based on the higher of the two ratings unless one of the two ratings is
         two or more Categories lower than the other, in which case the
         Applicable Rate shall be determined by reference to the Category next
         above that of the lower of the two ratings; and (iii) if the ratings


                                       2



         established or deemed to have been established by Moody's and S&P for
         the Index Debt shall be changed (other than as a result of a change in
         the rating system of Moody's or S&P), such change shall be effective as
         of the date on which it is first announced by the applicable rating
         agency. Each change in the Applicable Rate shall apply during the
         period commencing on the effective date of such change and ending on
         the date immediately preceding the effective date of the next such
         change. If the rating system of Moody's or S&P shall change, or if
         either such rating agency shall cease to be in the business of rating
         corporate debt obligations, the Borrower and the Lenders shall
         negotiate in good faith to amend this definition to reflect such
         changed rating system or the unavailability of ratings from such rating
         agency and, pending the effectiveness of any such amendment, the
         Applicable Rate shall be determined by reference to the rating most
         recently in effect prior to such change or cessation.

                  "Approved Fund" means with respect to any Lender that is a
         fund that invests in commercial loans, any other fund that invests in
         commercial loans and is managed or advised by the same investment
         advisor as such Lender or by an Affiliate of such investment advisor.

                  "Arranger" means Banc of America Securities LLC, in its
         capacity as sole lead arranger and sole book manager.

                  "Assignment and Acceptance" means an assignment and acceptance
         entered into by a Lender and an assignee (with the consent of any party
         whose consent is required by Section 9.04), and accepted by the
         Administrative Agent, in the form of Exhibit A or any other form
         approved by the Administrative Agent.

                  "Availability Period" means the period from and including the
         Closing Date to but excluding the earlier of the Maturity Date and the
         date of termination of the Commitments.

                  "Bank of America" means Bank of America, N.A.

                  "Board" means the Board of Governors of the Federal Reserve
         System of the United States of America.

                  "Borrower" means Medtronic, Inc., a Minnesota corporation.

                  "Borrowing" means a Revolving Borrowing.

                  "Business Day" means any day that is not a Saturday, Sunday or
         other day on which commercial banks in Charlotte, North Carolina or New
         York, New York are authorized or required by law to remain closed;
         provided that, when used in connection with a Eurodollar Loan, the term
         "Business Day" shall also exclude any day on which banks are not open
         for dealings in dollar deposits in the London interbank market.

                  "Capital Lease Obligations" of any Person means the
         obligations of such Person to pay rent or other amounts under any lease
         of (or other arrangement conveying the right to use) real or personal


                                       3



         property, or a combination thereof, which obligations are required to
         be classified and accounted for as capital leases on a balance sheet of
         such Person under GAAP, and the amount of such obligations shall be the
         capitalized amount thereof determined in accordance with GAAP.

                  "Capital Stock" means (i) in the case of a corporation,
         capital stock, (ii) in the case of an association or business entity,
         any and all shares, interests, participations, rights or other
         equivalents (however designated) of capital stock, (iii) in the case of
         a partnership, partnership interests (whether general or limited), (iv)
         in the case of a limited liability company, membership interests and
         (v) any other interest or participation that confers on a Person the
         right to receive a share of the profits and losses of, or distributions
         of assets of, the issuing Person.

                  "Cash Equivalents" shall mean (a) securities issued or
         directly and fully guaranteed or insured by the United States of
         America or any agency or instrumentality thereof (provided that the
         full faith and credit of the United States of America is pledged in
         support thereof) having maturities of not more than twelve months from
         the date of acquisition ("Government Obligations"), (b) U.S. dollar
         denominated (or foreign currency fully hedged) time deposits,
         certificates of deposit, Eurodollar time deposits and Eurodollar
         certificates of deposit of (y) any domestic commercial bank of
         recognized standing having capital and surplus in excess of
         $250,000,000 or (z) any bank whose short-term commercial paper rating
         from S&P is at least A-1 or the equivalent thereof or from Moody's is
         at least P-1 or the equivalent thereof (any such bank being an
         "Approved Bank"), in each case with maturities of not more than 364
         days from the date of acquisition, (c) commercial paper and variable or
         fixed rate notes issued by any Approved Bank (or by the parent company
         thereof) or commercial paper or any variable rate notes issued by, or
         guaranteed by any domestic corporation rated A-2 (or the equivalent
         thereof) or better by S&P or P-2 (or the equivalent thereof) or better
         by Moody's and maturing within six months of the date of acquisition,
         (d) repurchase agreements with a bank or trust company (including a
         Lender) or a recognized securities dealer having capital and surplus in
         excess of $500,000,000 for direct obligations issued by or fully
         guaranteed by the United States of America, (e) obligations of any
         state of the United States or any political subdivision thereof for the
         payment of the principal and redemption price of and interest on which
         there shall have been irrevocably deposited Government Obligations
         maturing as to principal and interest at times and in amounts
         sufficient to provide such payment and (f) auction preferred stock
         rated in the highest short-term credit rating category by S&P or
         Moody's.

                  "Change in Control" means (a) the acquisition of ownership,
         directly or indirectly, beneficially or of record, by any Person or
         group (within the meaning of the Securities Exchange Act of 1934 and
         the rules of the SEC thereunder as in effect on the date hereof), of
         shares representing more than 25% of the aggregate ordinary voting
         power represented by the issued and outstanding Capital Stock of the
         Borrower; (b) occupation of a majority of the seats (other than vacant
         seats) on the board of directors of the Borrower by Persons who were
         neither (i) nominated by the board of directors of the Borrower nor
         (ii) appointed by directors so nominated; or (c) the acquisition of
         direct or indirect Control of the Borrower by any Person or group.


                                       4



                  "Change in Law" means (a) the adoption of any law, rule or
         regulation after the date of this Credit Agreement, (b) any change in
         any law, rule or regulation or in the interpretation or application
         thereof by any Governmental Authority after the date of this Credit
         Agreement or (c) compliance by any Lender (or, for purposes of Section
         2.14(b), by any lending office of such Lender or by such Lender's
         holding company, if any) with any request, guideline or directive
         (whether or not having the force of law) of any Governmental Authority
         made or issued after the date of this Credit Agreement.

                  "Closing Date" means the date hereof.

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

                  "Commitment" means, with respect to each Lender, the
         commitment of such Lender to make Loans hereunder, expressed as an
         amount representing the maximum aggregate amount of such Lender's
         Revolving Credit Exposure hereunder, as such commitment may be reduced
         from time to time pursuant to Section 2.08. The initial amount of each
         Lender's Commitment is set forth on Schedule 2.01, or in the Assignment
         and Acceptance pursuant to which such Lender shall have assumed its
         Commitment, as applicable.

                  "Commitment Utilization Percentage" means on any day the
         percentage equivalent of a fraction (a) the numerator of which is the
         sum of (i) the aggregate outstanding principal amount of Loans
         hereunder plus (ii) the aggregate outstanding principal amount of
         "Loans" (but not including any "Swingline Loans") plus the aggregate
         amount of "LC Exposure" under the Five Year Facility (as such terms are
         defined therein) and (b) the denominator of which is the sum of (i)
         aggregate amount of the Commitments (or, on any day after termination
         of the Commitments, the aggregate amount of the Commitments in effect
         immediately preceding such termination) hereunder plus (ii) the
         aggregate amount of the Commitments (or, on any day after termination
         of the Commitments, the aggregate amount of the Commitments in effect
         immediately preceding such termination) under the Five Year Facility
         (as such term is defined therein).

                  "Consolidated Assets" means the consolidated assets of the
         Borrower and its Subsidiaries, determined in accordance with GAAP.

                  "Consolidated Tangible Assets" means the Consolidated Assets
         less: (i) goodwill and (ii) other intangibles (other than patents,
         trademarks, licenses, copyrights and other intellectual property and
         prepaid assets).

                  "Consolidated Tangible Net Worth" means at any date,
         Consolidated Tangible Assets minus Consolidated Total Liabilities,
         determined in accordance with GAAP.


                                       5



                  "Consolidated Total Liabilities" means at any date, with
         respect to the Borrower and its Subsidiaries on a consolidated basis,
         total liabilities, determined in accordance with GAAP.

                  "Control" means the possession, directly or indirectly, of the
         power to direct or cause the direction of the management or policies of
         a Person, whether through the ability to exercise voting power, by
         contract or otherwise. "Controlling" and "Controlled" have meanings
         correlative thereto.

                  "Credit Documents" means a collective reference to this Credit
         Agreement, the promissory notes, if any, each Joinder Agreement and all
         other related agreements and documents issued or delivered hereunder or
         thereunder or pursuant hereto or thereto (in each case as the same may
         be amended, modified, restated, supplemented, extended, renewed or
         replaced from time to time), and "Credit Document" means any one of
         them.

                  "Debt Issuance" means the issuance of any Indebtedness for
         borrowed money by the Borrower or any of its Subsidiaries.

                  "Default" means any event or condition which constitutes an
         Event of Default or which upon notice, lapse of time or both would,
         unless cured or waived, become an Event of Default.

                  "Disclosed Matters" means the actions, suits and proceedings
         and the environmental matters disclosed in Schedule 3.06.

                  "dollars" or "$" refers to lawful money of the United States
         of America.

                  "Environmental Laws" means all laws, rules, regulations,
         codes, ordinances, orders, decrees, judgments, injunctions, notices or
         binding agreements issued, promulgated or entered into by any
         Governmental Authority, relating in any way to the environment,
         preservation or reclamation of natural resources or the management,
         release or threatened release of any Hazardous Material.

                  "Environmental Liability" means any liability, contingent or
         otherwise (including any liability for damages, costs of environmental
         remediation, fines, penalties or indemnities), of the Borrower or any
         Subsidiary directly or indirectly resulting from or based upon (a)
         violation of any Environmental Law, (b) the generation, use, handling,
         transportation, storage, treatment or disposal of any Hazardous
         Materials, (c) exposure to any Hazardous Materials, (d) the release or
         threatened release of any Hazardous Materials into the environment or
         (e) any contract, agreement or other consensual arrangement pursuant to
         which liability is assumed or imposed with respect to any of the
         foregoing.

                  "Equity Issuance" means any issuance by the Borrower or any of
         its Subsidiaries to any Person of (a) shares of its Capital Stock other
         than (i) any shares of its Capital Stock pursuant to the exercise of
         options or warrants, (ii) any shares of its Capital Stock pursuant to
         the conversion of any debt securities to equity and (iii) in the case
         of Subsidiaries, any shares of its Capital Stock issued to the Borrower


                                       6



         or any of its Subsidiaries or (b) any options or warrants relating to
         its Capital Stock. The term "Equity Issuance" shall not include (i) any
         Debt Issuance or (ii) the issuance of Capital Stock of the Borrower
         pursuant to any stock plans of the Borrower or its Subsidiaries.

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

                  "ERISA Affiliate" means any trade or business (whether or not
         incorporated) that, together with the Borrower, is treated as a single
         employer under Section 414(b) or (c) of the Code or, solely for
         purposes of Section 302 of ERISA and Section 412 of the Code, is
         treated as a single employer under Section 414 of the Code.

                  "ERISA Event" means (a) any "reportable event", as defined in
         Section 4043 of ERISA or the regulations issued thereunder with respect
         to a Plan (other than an event for which the 30-day notice period is
         waived); (b) the existence with respect to any Plan of an "accumulated
         funding deficiency" (as defined in Section 412 of the Code or Section
         302 of ERISA), whether or not waived; (c) the filing pursuant to
         Section 412(d) of the Code or Section 303(d) of ERISA of an application
         for a waiver of the minimum funding standard with respect to any Plan;
         (d) the incurrence by the Borrower or any of its ERISA Affiliates of
         any liability under Title IV of ERISA with respect to the termination
         of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
         from the PBGC or a plan administrator of any notice relating to an
         intention to terminate any Plan or Plans or to appoint a trustee to
         administer any Plan; (f) the incurrence by the Borrower or any of its
         ERISA Affiliates of any liability with respect to the withdrawal or
         partial withdrawal from any Plan or Multiemployer Plan; or (g) the
         receipt by the Borrower or any ERISA Affiliate of any notice, or the
         receipt by any Multiemployer Plan from the Borrower or any ERISA
         Affiliate of any notice, concerning the imposition of Withdrawal
         Liability or a determination that a Multiemployer Plan is, or is
         expected to be, insolvent or in reorganization, within the meaning of
         Title IV of ERISA.

                  "Eurodollar", when used in reference to any Loan or Borrowing,
         refers to whether such Loan, or the Loans comprising such Borrowing,
         are bearing interest at a rate determined by reference to the LIBO
         Rate.

                  "Event of Default" has the meaning assigned to such term in
         Article VII.

                  "Excess Utilization Day" means each day on which the
         Commitment Utilization Percentage exceeds 50%.

                  "Excluded Taxes" means, with respect to the Administrative
         Agent, any Lender or any other recipient of any payment to be made by
         or on account of any obligation of the Borrower hereunder, (a) income
         or franchise taxes imposed on (or measured by) its net income by the
         United States of America, or by the jurisdiction under the laws of
         which such recipient is organized or in which its principal office is
         located or, in the case of any Lender, in which its applicable lending
         office is located, (b) any branch profits taxes imposed by the United


                                       7



         States of America or any similar tax imposed by any other jurisdiction
         in which any Lender is located and (c) in the case of a Foreign Lender
         (other than an assignee pursuant to a request by the Borrower under
         Section 2.18(b)), any withholding tax that is imposed on amounts
         payable to such Foreign Lender at the time such Foreign Lender becomes
         a party to this Credit Agreement or is attributable to such Foreign
         Lender's failure or inability to comply with Section 2.16(e), except to
         the extent that such Foreign Lender's assignor (if any) was entitled,
         at the time of assignment, to receive additional amounts from the
         Borrower with respect to such withholding tax pursuant to Section
         2.16(a).

                  "Federal Funds Effective Rate" means, for any day, the
         weighted average (rounded upwards, if necessary, to the next 1/100 of
         1%) of the rates on overnight Federal funds transactions with members
         of the Federal Reserve System arranged by Federal funds brokers, as
         published on the next succeeding Business Day by the Federal Reserve
         Bank of New York, or, if such rate is not so published for any day that
         is a Business Day, the average (rounded upwards, if necessary, to the
         next 1/100 of 1%) of the quotations for such day for such transactions
         received by the Administrative Agent from three Federal funds brokers
         of recognized standing selected by it.

                  "Fee Letter" means the letter agreement dated December 14,
         2001 addressed to the Borrower from the Administrative Agent, as
         amended, modified, restated or otherwise supplemented from time to
         time.

                   "Financial Officer" means the chief financial officer,
         principal accounting officer, senior vice president of finance,
         treasurer, assistant treasurer, controller or assistant controller of
         the Borrower or any officer having substantially the same position for
         the Borrower.

                  "Five Year Facility" means the Credit Agreement ($500,000,000
         Five Year Revolving Credit Facility) dated as of the date hereof among
         the Borrower, the subsidiaries of the Borrower party thereto, the
         lenders party thereto and Bank of America, as administrative agent,
         issuing bank, and swingline lender, providing for a $500,000,000
         revolving credit facility for a five-year period, as amended and
         extended from time to time.

                  "Foreign Lender" means any Lender that is organized under the
         laws of a jurisdiction other than that in which the Borrower is
         located. For purposes of this definition, the United States of America,
         each State thereof and the District of Columbia shall be deemed to
         constitute a single jurisdiction.

                  "GAAP" means generally accepted accounting principles in the
         United States of America.

                  "Governmental Authority" means the government of the United
         States of America, any other nation or any political subdivision
         thereof, whether state or local, and any agency, authority,
         instrumentality, regulatory body, court, central bank or other entity
         exercising executive, legislative, judicial, taxing, regulatory or
         administrative powers or functions of or pertaining to government.


                                       8



                  "Guarantee" of or by any Person (the "guarantor") means any
         obligation, contingent or otherwise, of the guarantor guaranteeing or
         having the economic effect of guaranteeing any Indebtedness or other
         obligation of any other Person (the "primary obligor") in any manner,
         whether directly or indirectly, and including any obligation of the
         guarantor, direct or indirect, (a) to purchase or pay (or advance or
         supply funds for the purchase or payment of) such Indebtedness or other
         obligation or to purchase (or to advance or supply funds for the
         purchase of) any security for the payment thereof, (b) to purchase or
         lease property, securities or services for the purpose of assuring the
         owner of such Indebtedness or other obligation of the payment thereof,
         (c) to maintain working capital, equity capital or any other financial
         statement condition or liquidity of the primary obligor so as to enable
         the primary obligor to pay such Indebtedness or other obligation or (d)
         as an account party in respect of any letter of credit or letter of
         guaranty issued to support such Indebtedness or obligation; provided,
         that the term Guarantee shall not include endorsements for collection
         or deposit in the ordinary course of business.

                  "Guarantor" means each of the Persons identified as a
         "Guarantor" on the signature pages hereto and each Person which may
         hereafter execute a Joinder Agreement pursuant to Section 5.10,
         together with their successors and permitted assigns, and "Guarantor"
         means any one of them.

                  "Guaranty" shall mean the guaranty of the Guarantors set forth
         in Article X.

                  "Hazardous Materials" means all explosive or radioactive
         substances or wastes and all hazardous or toxic substances, wastes or
         other pollutants, including petroleum or petroleum distillates,
         asbestos or asbestos containing materials, polychlorinated biphenyls,
         radon gas, infectious or medical wastes and all other substances or
         wastes of any nature regulated pursuant to any Environmental Law.

                  "Hedging Agreement" means any interest rate protection
         agreement, foreign currency exchange agreement, commodity price
         protection agreement or other interest or currency exchange rate or
         commodity price hedging arrangement.

                  "Indebtedness" of any Person means, without duplication, (a)
         all obligations of such Person for borrowed money or with respect to
         similar cash advances (including, without limitation, all obligations
         pursuant to any sale or financing of receivables, but excluding any
         premiums, fees and deposits received in the ordinary course of
         business), (b) all obligations of such Person evidenced by bonds,
         debentures, notes or similar instruments, (c) all obligations of such
         Person under conditional sale or other title retention agreements
         relating to property acquired by such Person, (d) all obligations of
         such Person in respect of the deferred purchase price of property or
         services (excluding current accounts payable or other like obligations
         incurred in the ordinary course of business), (e) all Indebtedness of
         others secured by (or for which the holder of such Indebtedness has an
         existing right, contingent or otherwise, to be secured by) any Lien on


                                       9



         property owned or acquired by such Person, whether or not the
         Indebtedness secured thereby has been assumed, (f) all Guarantees by
         such Person of Indebtedness of others, (g) all Capital Lease
         Obligations of such Person, (h) all obligations, contingent or
         otherwise, of such Person as an account party in respect of letters of
         credit and letters of guaranty and (i) all obligations, contingent or
         otherwise, of such Person in respect of bankers' acceptances. The
         Indebtedness of any Person shall include the Indebtedness of any other
         entity (including any partnership in which such Person is a general
         partner) to the extent such Person is liable therefor as a result of
         such Person's ownership interest in or other relationship with such
         entity, except to the extent the terms of such Indebtedness provide
         that such Person is not liable therefor. Notwithstanding the foregoing,
         Indebtedness shall exclude Indebtedness of the Borrower to any
         Subsidiary and of any Subsidiary to the Borrower or any other
         Subsidiary.

                  "Indemnified Liabilities" shall have the meaning assigned to
         such term in Section 9.03(b).

                  "Indemnified Taxes" means Taxes other than Excluded Taxes.

                  "Index Debt" means senior, unsecured, long-term indebtedness
         for borrowed money of the Borrower that is not guaranteed by any other
         Person or subject to any other credit enhancement.

                  "Interest Election Request" means a request by the Borrower to
         convert or continue a Revolving Borrowing in accordance with Section
         2.07, in substantially the form of Exhibit D.

                  "Interest Payment Date" means (a) with respect to any ABR
         Loan, the last day of each March, June, September and December and (b)
         with respect to any Eurodollar Loan, the last day of the Interest
         Period applicable to the Revolving Borrowing of which such Loan is a
         part and, in the case of a Eurodollar Borrowing with an Interest Period
         of more than three months' duration, each day prior to the last day of
         such Interest Period that occurs at intervals of three months' duration
         after the first day of such Interest Period.

                  "Interest Period" means with respect to any Eurodollar
         Borrowing, the period commencing on the date of such Eurodollar
         Borrowing and ending on the numerically corresponding day in the
         calendar month that is one, two, three or six months thereafter, as the
         Borrower may elect; provided, that (i) if any Interest Period would end
         on a day other than a Business Day, such Interest Period shall be
         extended to the next succeeding Business Day unless such next
         succeeding Business Day would fall in the next calendar month, in which
         case such Interest Period shall end on the immediately preceding
         Business Day and (ii) any Interest Period that commences on the last
         Business Day of a calendar month (or on a day for which there is no
         numerically corresponding day in the last calendar month of such
         Interest Period) shall end on the last Business Day of the last
         calendar month of such Interest Period.


                                       10



                  "Joinder Agreement" means a Joinder Agreement substantially in
         the form of Exhibit B hereto, executed and delivered by a new Guarantor
         in accordance with the provisions of Section 5.10.

                  "Lenders" means the Persons listed on Schedule 2.01 and any
         other Person that shall have become a party hereto pursuant to an
         Assignment and Acceptance, other than any such Person that ceases to be
         a party hereto pursuant to an Assignment and Acceptance.

                  "LIBO Rate" means, with respect to any Eurodollar Borrowing
         for any Interest Period, the rate appearing on Page 3750 of the
         Telerate screen (or on any successor or substitute page of such
         Service, or any successor to or substitute for such Service, providing
         rate quotations comparable to those currently provided on such page of
         such Service, as determined by the Administrative Agent from time to
         time for purposes of providing quotations of interest rates applicable
         to dollar deposits in the London interbank market) at approximately
         11:00 a.m., London time, two Business Days prior to the commencement of
         such Interest Period, as the rate for dollar deposits with a maturity
         comparable to such Interest Period. In the event that such rate is not
         available at such time for any reason, then the "LIBO Rate" with
         respect to such Eurodollar Borrowing for such Interest Period shall be
         the rate at which dollar deposits of $5,000,000 and for a maturity
         comparable to such Interest Period are offered by the principal London
         office of the Administrative Agent in immediately available funds in
         the London interbank market at approximately 11:00 a.m., London time,
         two Business Days prior to the commencement of such Interest Period.

                  "Lien" means, with respect to any asset (a) any mortgage, deed
         of trust, lien, pledge, hypothecation, encumbrance, charge or security
         interest in, on or of such asset, (b) the interest of a vendor or a
         lessor under any conditional sale agreement, capital lease or title
         retention agreement (or any financing lease having substantially the
         same economic effect as any of the foregoing) relating to such asset
         and (c) in the case of securities, any purchase option, call or similar
         right of a third party with respect to such securities.

                  "Loans" means the loans made by the Lenders to the Borrower
         pursuant to Article II of this Credit Agreement.

                  "Material Adverse Effect" means a material adverse effect on
         (a) the business, property, operations or financial condition of the
         Borrower and the Subsidiaries taken as a whole, (b) the ability of the
         Borrower to perform any of its obligations under this Credit Agreement
         or (c) the legal rights of or benefits available to the Lenders under
         this Credit Agreement.

                  "Material Indebtedness" means Indebtedness (other than the
         Loans), or obligations in respect of one or more Hedging Agreements, of
         any one or more of the Borrower and its Subsidiaries in an aggregate
         principal amount exceeding $100,000,000. For purposes of determining
         Material Indebtedness, the "principal amount" of the obligations of the


                                       11



         Borrower or any Subsidiary in respect of any Hedging Agreement at any
         time shall be the maximum aggregate amount (giving effect to any
         netting agreements) that the Borrower or such Subsidiary would be
         required to pay if such Hedging Agreement were terminated at such time.

                  "Maturity Date" means the date 364 days following the Closing
         Date.

                  "Moody's" means Moody's Investors Service, Inc.

                  "Multiemployer Plan" means a multiemployer plan as defined in
         Section 4001(a)(3) of ERISA.

                  "Net Cash Proceeds" means the aggregate proceeds paid in cash
         or Cash Equivalents received by the Borrower or any of its Subsidiaries
         in respect of any Equity Issuance or Debt Issuance, net of (a) direct
         costs (including, without limitation, legal, accounting and investment
         banking fees, and sales commissions) and (b) taxes paid or payable as a
         result thereof; it being understood that "Net Cash Proceeds" shall
         include, without limitation, any cash or Cash Equivalents received upon
         the sale or other disposition of any non-cash consideration received by
         the Borrower or any Subsidiary of the Borrower in any Equity Issuance
         or Debt Issuance.

                  "Other Taxes" means any and all present or future stamp or
         documentary taxes or any other excise or property taxes, charges or
         similar levies arising from any payment made hereunder or from the
         execution, delivery or enforcement of, or otherwise with respect to,
         this Credit Agreement.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
         to and defined in ERISA and any successor entity performing similar
         functions.

                  "Permitted Encumbrances" means:

                  (a) Liens imposed by law for taxes that are not yet due or are
         being contested in compliance with Section 5.04;

                  (b) carriers', warehousemen's, mechanics', materialmen's,
         repairmen's and other like Liens imposed by law, arising in the
         ordinary course of business and securing obligations that are not
         overdue by more than 30 days or are being contested in compliance with
         Section 5.04;

                  (c) pledges and deposits made in the ordinary course of
         business in compliance with workers' compensation, unemployment
         insurance and other social security laws or regulations;

                  (d) deposits to secure the performance of bids, trade
         contracts, leases, statutory obligations, surety and appeal bonds,
         performance bonds and other obligations of a like nature, in each case
         in the ordinary course of business;


                                       12



                  (e) Liens arising out of judgments or awards so long as an
         appeal or proceeding for review is being prosecuted in good faith and
         for the payment of which adequate reserves, bonds or other security
         reasonably acceptable to the Administrative Agent have been provided or
         are fully covered by insurance; and

                  (f) easements, zoning restrictions, rights-of-way and similar
         encumbrances on real property imposed by law or arising in the ordinary
         course of business that do not secure any monetary obligations and do
         not materially detract from the value of the affected property or
         interfere with the ordinary conduct of business of the Borrower or any
         Subsidiary;

         provided that the term "Permitted Encumbrances" shall not include any
         Lien securing Indebtedness.

                  "Person" means any natural person, corporation, limited
         liability company, trust, joint venture, association, company,
         partnership, Governmental Authority or other entity.

                  "Plan" means any employee pension benefit plan (other than a
         Multiemployer Plan) subject to the provisions of Title IV of ERISA or
         Section 412 of the Code or Section 302 of ERISA, and in respect of
         which the Borrower or any ERISA Affiliate is (or, if such plan were
         terminated, would under Section 4069 of ERISA be deemed to be) an
         "employer" as defined in Section 3(5) of ERISA.

                  "Prime Rate" means the rate of interest per annum publicly
         announced from time to time by Bank of America as its prime rate in
         effect at its principal office in Charlotte, North Carolina; each
         change in the Prime Rate shall be effective from and including the date
         such change is publicly announced as being effective.

                  "Property" means any interest in any kind of property or
         asset, whether real, personal or mixed, or tangible or intangible.

                  "Register" has the meaning set forth in Section 9.04(c).

                  "Related Parties" means, with respect to any specified Person,
         such Person's Affiliates and the respective directors, officers,
         employees, agents and advisors of such Person and such Person's
         Affiliates.

                  "Required Lenders" means, at any time, Lenders having
         Revolving Credit Exposures and unused Commitments representing more
         than 50% of the sum of the total Revolving Credit Exposures and unused
         Commitments at such time.

                  "Restricted Payment" means (i) any dividend or other
         distribution, direct or indirect, on account of any shares of any class
         of capital stock of the Borrower or any of its Subsidiaries, now or
         hereafter outstanding, (ii) any redemption, retirement, sinking fund or
         similar payment, purchase or other acquisition for value, direct or
         indirect, of any shares of any class of capital stock of the Borrower
         or any of its Subsidiaries, now or hereafter outstanding, and (iii) any
         payment made to retire, or to obtain the surrender of, any outstanding
         warrants, options or other rights to acquire shares of any class of
         capital stock of the Borrower or any of its Subsidiaries, now or
         hereafter outstanding.


                                       13



                  "Revolving Borrowing" means Revolving Loans of the same Type,
         made, converted or continued on the same date and in the case of
         Eurodollar Loans, as to which a single Interest Period is in effect.

                  "Revolving Borrowing Request" means a request by the Borrower
         for a Revolving Borrowing in accordance with Section 2.03, in
         substantially the form of Exhibit C.

                  "Revolving Credit Exposure" means, with respect to any Lender
         at any time, the outstanding principal amount of such Lender's Loans.

                  "Revolving Loan" means a Loan made pursuant to Section 2.03.

                  "SEC" means the United States Securities and Exchange
         Commission.

                  "S&P" means Standard & Poor's Ratings Services.

                  "Significant Subsidiary" means, at any particular time, any
         Subsidiary of the Borrower (or such Subsidiary and its Subsidiaries
         taken together) that would be a "significant subsidiary" of the
         Borrower within the meaning of Rule 1-02 under Regulation S-X
         promulgated by the SEC.

                  "Statutory Reserve Rate" means a fraction (expressed as a
         decimal), the numerator of which is the number one and the denominator
         of which is the number one minus the aggregate of the maximum reserve
         percentages (including any marginal, special, emergency or supplemental
         reserves) expressed as a decimal established by the Board to which the
         Administrative Agent or any Lender is subject for eurocurrency funding
         (currently referred to as "Eurocurrency Liabilities" in Regulation D of
         the Board). Such reserve percentages shall include those imposed
         pursuant to such Regulation D. Eurodollar Loans shall be deemed to
         constitute eurocurrency funding and to be subject to such reserve
         requirements without benefit of or credit for proration, exemptions or
         offsets that may be available from time to time to any Lender under
         such Regulation D or any comparable regulation. The Statutory Reserve
         Rate shall be adjusted automatically on and as of the effective date of
         any change in any reserve percentage.

                  "subsidiary" means, with respect to any Person (the "parent")
         at any date, any corporation, limited liability company, partnership,
         association or other entity the accounts of which would be consolidated
         with those of the parent in the parent's consolidated financial
         statements if such financial statements were prepared in accordance
         with GAAP as of such date, as well as any other corporation, limited
         liability company, partnership, association or other entity (a) of
         which securities or other ownership interests representing more than
         50% of the equity or more than 50% of the ordinary voting power or, in
         the case of a partnership, more than 50% of the general partnership


                                       14



         interests are, as of such date, owned, Controlled or held, or (b) that
         is, as of such date, otherwise Controlled, by the parent or one or more
         subsidiaries of the parent or by the parent and one or more
         subsidiaries of the parent.

                  "Subsidiary" means any subsidiary of the Borrower.

                  "Taxes" means any and all present or future taxes, levies,
         imposts, duties, deductions, charges or withholdings imposed by any
         Governmental Authority.

                  "Transactions" means the execution, delivery and performance
         by the Borrower of this Credit Agreement, the borrowing of Loans and
         the use of the proceeds thereof.

                  "Type", when used in reference to any Loan or Borrowing,
         refers to whether the rate of interest on such Loan, or on the Loans
         comprising such Borrowing, is determined by reference to the LIBO Rate
         or the Alternate Base Rate.

                  "Used Commitment" means the aggregate outstanding principal
         amount of Loans hereunder.

                  "Withdrawal Liability" means liability to a Multiemployer Plan
         as a result of a complete or partial withdrawal from such Multiemployer
         Plan, as such terms are defined in Part I of Subtitle E of Title IV of
         ERISA.

         SECTION 1.02 CLASSIFICATION OF LOANS AND BORROWINGS.

         For purposes of this Agreement, Loans may be classified and referred to
by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and
referred to by Type (e.g., a "Eurodollar Borrowing").

         SECTION 1.03 TERMS GENERALLY.

         The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Credit Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, this Credit Agreement and (e) the words "asset" and "property"
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.


                                       15



         SECTION 1.04 ACCOUNTING TERMS; GAAP.

         Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided that, if the Borrower notifies the
Administrative Agent that the Borrower requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.


                                   ARTICLE II

                                   THE CREDITS

         SECTION 2.01 COMMITMENTS.

         Subject to the terms and conditions set forth herein, each Lender
agrees to make Loans to the Borrower from time to time during the Availability
Period in an aggregate principal amount that will not result in (a) the
aggregate principal amount of such Lender's Revolving Credit Exposure exceeding
such Lender's Commitment or (b) the total Revolving Credit Exposures exceeding
the total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans.

         SECTION 2.02 REVOLVING LOANS AND REVOLVING BORROWINGS.

                  (a) Each Loan shall be made as part of a Revolving Borrowing
         consisting of Loans made by the Lenders ratably in accordance with
         their respective Commitments. The failure of any Lender to make any
         Loan required to be made by it shall not relieve any other Lender of
         its obligations hereunder; provided that the Commitments of the Lenders
         are several and no Lender shall be responsible for any other Lender's
         failure to make Loans as required.

                  (b) Subject to Section 2.13, each Revolving Borrowing shall be
         comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
         request in accordance herewith. Each Lender at its option may make any
         Eurodollar Loan by causing any domestic or foreign branch or Affiliate
         of such Lender to make such Loan; provided that any exercise of such
         option shall not affect the obligation of the Borrower to repay such
         Loan in accordance with the terms of this Credit Agreement.

                  (c) At the commencement of each Interest Period for any
         Eurodollar Borrowing or on the date of any ABR Borrowing, such
         Revolving Borrowing shall be in a minimum aggregate amount of
         $5,000,000 and integral multiples of $500,000 in excess thereof;
         provided that an ABR Borrowing may be in an aggregate amount that is
         equal to the entire unused balance of the total Commitments. Revolving
         Borrowings of more than one Type may be outstanding at the same time;
         provided that there shall not at any time be more than an aggregate
         total of ten Eurodollar Borrowings outstanding.


                                       16



                  (d) Notwithstanding any other provision of this Credit
         Agreement, the Borrower shall not be entitled to request, or to elect
         to convert or continue, any Revolving Borrowing if the Interest Period
         requested with respect thereto would end after the Maturity Date.

         SECTION 2.03 REQUESTS FOR REVOLVING BORROWINGS.

         To request a Revolving Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a
Eurodollar Borrowing, not later than 12:00 noon (Charlotte, North Carolina
time), three Business Days before the date of the proposed Revolving Borrowing
or (b) in the case of an ABR Borrowing, not later than 12:00 noon (Charlotte,
North Carolina time), on the date of the proposed Revolving Borrowing. Each such
telephonic Revolving Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Revolving Borrowing Request signed by a Financial Officer of the
Borrower. Each such telephonic and written Revolving Borrowing Request shall
specify the following information in compliance with Section 2.02:

                           (i) the aggregate amount of the requested Revolving
                  Borrowing;

                           (ii) the date of such Revolving Borrowing, which
                  shall be a Business Day;

                           (iii) whether such Revolving Borrowing is to be an
                  ABR Borrowing or a Eurodollar Borrowing;

                           (iv) in the case of a Eurodollar Borrowing, the
                  initial Interest Period to be applicable thereto, which shall
                  be a period contemplated by the definition of the term
                  "Interest Period"; and

                           (v) the location and number of the Borrower's account
                  to which funds are to be disbursed, which shall comply with
                  the requirements of Section 2.06.

         If no election as to the Type of Revolving Borrowing is specified, then
the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest
Period is specified with respect to any requested Eurodollar Borrowing, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Revolving Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Loan to be made as
part of the requested Revolving Borrowing.


                                       17



         SECTION 2.04 [INTENTIONALLY OMITTED]

         SECTION 2.05 [INTENTIONALLY OMITTED]

         SECTION 2.06 FUNDING OF REVOLVING BORROWINGS.

                  (a) Each Lender shall make each Loan to be made by it
         hereunder on the proposed date thereof by wire transfer of immediately
         available funds by 2:00 p.m. (Charlotte, North Carolina time), to the
         account of the Administrative Agent most recently designated by it for
         such purpose by notice to the Lenders. The Administrative Agent will
         make such Loans available to the Borrower by promptly crediting the
         amounts so received, in like funds, to an account of the Borrower
         maintained with the Administrative Agent in Charlotte, North Carolina
         and designated by the Borrower in the applicable Revolving Borrowing
         Request.

                   (b) Unless the Administrative Agent shall have received
         notice from a Lender prior to the proposed date of any Revolving
         Borrowing that such Lender will not make available to the
         Administrative Agent such Lender's share of such Revolving Borrowing,
         the Administrative Agent may assume that such Lender has made such
         share available on such date in accordance with paragraph (a) of this
         Section and may, in reliance upon such assumption, make available to
         the Borrower a corresponding amount. In such event, if a Lender has not
         in fact made its share of the applicable Revolving Borrowing available
         to the Administrative Agent, then the applicable Lender and the
         Borrower severally agree to pay to the Administrative Agent forthwith
         on demand such corresponding amount with interest thereon, for each day
         from and including the date such amount is made available to the
         Borrower to but excluding the date of payment to the Administrative
         Agent, at (i) in the case of such Lender, the Federal Funds Effective
         Rate or (ii) in the case of the Borrower, the interest rate applicable
         to ABR Loans. If such Lender pays such amount to the Administrative
         Agent, then such amount shall constitute such Lender's Loan included in
         such Revolving Borrowing.

         SECTION 2.07 INTEREST ELECTIONS.

                  (a) Each Revolving Borrowing initially shall be of the Type
         specified in the applicable Revolving Borrowing Request and, in the
         case of a Eurodollar Borrowing, shall have an initial Interest Period
         as specified in such Revolving Borrowing Request. Thereafter, the
         Borrower may elect to convert such Revolving Borrowing to a different
         Type or to continue such Revolving Borrowing and, in the case of a
         Eurodollar Borrowing, may elect Interest Periods therefore, all as
         provided in this Section. The Borrower may elect different options with
         respect to different portions of the affected Revolving Borrowing, in
         which case each such portion shall be allocated ratably among the
         Lenders holding the Loans comprising such Revolving Borrowing, and the
         Loans comprising each such portion shall be considered a separate
         Revolving Borrowing.

                  (b) To make an election pursuant to this Section, the Borrower
         shall notify the Administrative Agent of such election by telephone by
         the time that a Revolving Borrowing Request would be required under


                                       18



         Section 2.03 if the Borrower were requesting a Revolving Borrowing of
         the Type resulting from such election to be made on the effective date
         of such election. Each such telephonic Interest Election Request shall
         be irrevocable and shall be confirmed promptly by hand delivery or
         telecopy to the Administrative Agent of a written Interest Election
         Request signed by a Financial Officer of the Borrower.

                  (c) Each telephonic and written Interest Election Request
         shall specify the following information in compliance with Section
         2.02:

                           (i) the Revolving Borrowing to which such Interest
                  Election Request applies and, if different options are being
                  elected with respect to different portions thereof, the
                  portions thereof to be allocated to each resulting Revolving
                  Borrowing (in which case the information to be specified
                  pursuant to clauses (iii) and (iv) below shall be specified
                  for each resulting Revolving Borrowing);

                           (ii) the effective date of the election made pursuant
                  to such Interest Election Request, which shall be a Business
                  Day;

                           (iii) whether the resulting Revolving Borrowing is to
                  be an ABR Borrowing or a Eurodollar Borrowing; and

                           (iv) if the resulting Revolving Borrowing is a
                  Eurodollar Borrowing, the Interest Period to be applicable
                  thereto after giving effect to such election, which shall be a
                  period contemplated by the definition of the term "Interest
                  Period."

         If any such Interest Election Request requests a Eurodollar Borrowing
         but does not specify an Interest Period, then the Borrower shall be
         deemed to have selected an Interest Period of one month's duration.

                  (d) Promptly following receipt of an Interest Election
         Request, the Administrative Agent shall advise each Lender of the
         details thereof and of such Lender's portion of each resulting
         Revolving Borrowing.

                  (e) If the Borrower fails to deliver a timely Interest
         Election Request with respect to a Eurodollar Borrowing prior to the
         end of the Interest Period applicable thereto, then, unless such
         Revolving Borrowing is repaid as provided herein, at the end of such
         Interest Period such Revolving Borrowing shall be continued as a
         Eurodollar Borrowing with an Interest Period of one month's duration.
         Notwithstanding any contrary provision hereof, if an Event of Default
         has occurred and is continuing and the Administrative Agent, at the
         request of the Required Lenders, so notifies the Borrower, then, so
         long as an Event of Default is continuing (i) no outstanding Revolving
         Borrowing may be converted to or continued as a Eurodollar Borrowing
         and (ii) unless repaid, each Eurodollar Borrowing shall be converted to
         an ABR Borrowing at the end of the Interest Period applicable thereto.


                                       19



         SECTION 2.08 TERMINATION AND REDUCTION OF COMMITMENTS.

                  (a) Unless previously terminated, the Commitments shall
         terminate on the Maturity Date.

                  (b) The Borrower may at any time terminate, or from time to
         time reduce, the Commitments in whole or in part; provided that (i)
         each reduction of the Commitments shall be in an aggregate amount not
         less than $50,000,000 and integral multiples of $10,000,000 in excess
         thereof and (ii) the Borrower shall not terminate or reduce the
         Commitments if, after giving effect to any concurrent prepayment of the
         Loans in accordance with Section 2.10, the Revolving Credit Exposures
         would exceed the total Commitments.

                  (c) The Borrower shall notify the Administrative Agent of any
         election to terminate or reduce the Commitments under paragraph (b) of
         this Section at least three Business Days prior to the effective date
         of such termination or reduction, specifying such election and the
         effective date thereof. Promptly following receipt of any notice, the
         Administrative Agent shall advise the Lenders of the contents thereof.
         Each notice delivered by the Borrower pursuant to this Section shall be
         irrevocable; provided that a notice of termination of the Commitments
         delivered by the Borrower may state that such notice is conditioned
         upon the effectiveness of other credit facilities, in which case such
         notice may be revoked by the Borrower (by notice to the Administrative
         Agent on or prior to the specified effective date) if such condition is
         not satisfied. Any termination or reduction of the Commitments shall be
         permanent. Each reduction of the Commitments shall be made ratably
         among the Lenders in accordance with their respective Commitments.

         SECTION 2.09 REPAYMENT OF LOANS; EVIDENCE OF DEBT.

                  (a) The Borrower hereby unconditionally promises to pay to the
         Administrative Agent for the account of each Lender the then unpaid
         principal amount of each Loan and all interest, fees and other amounts
         payable hereunder on the Maturity Date.

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

                  (c) The Administrative Agent shall maintain accounts in which
         it shall record (i) the amount of each Loan made hereunder, the Type
         thereof and the Interest Period applicable thereto, (ii) the amount of
         any principal or interest due and payable or to become due and payable
         from the Borrower to each Lender hereunder and (iii) the amount of any
         sum received by the Administrative Agent hereunder for the account of
         the Lenders and each Lender's share thereof.


                                       20



                  (d) The entries made in the accounts maintained pursuant to
         paragraph (b) or (c) of this Section shall be conclusive (absent
         manifest error) evidence of the existence and amounts of the
         obligations recorded therein; provided that the failure of any Lender
         or the Administrative Agent to maintain such accounts or any error
         therein shall not in any manner affect the obligation of the Borrower
         to repay the Loans in accordance with the terms of this Credit
         Agreement.

                  (e) Any Lender may request that Loans made by it be evidenced
         by a promissory note. In such event, the Borrower shall prepare,
         execute and deliver to such Lender a promissory note payable to the
         order of such Lender and in a form approved by the Administrative Agent
         and the Borrower. Thereafter, the Loans evidenced by such promissory
         note and interest thereon shall at all times (including after
         assignment pursuant to Section 9.04) be represented by one or more
         promissory notes in such form payable to the order of the payee named
         therein.

         SECTION 2.10 PREPAYMENT OF LOANS.

                  (a) The Borrower shall have the right at any time and from
         time to time to prepay any Borrowing in whole or in part, without
         premium or penalty, subject to Section 2.15 and subject to prior notice
         in accordance with paragraph (b) of this Section.

                  (b) The Borrower shall notify the Administrative Agent by
         telephone (confirmed by telecopy) of any prepayment hereunder (A) in
         the case of prepayment of a Eurodollar Borrowing, not later than 12:00
         noon (Charlotte, North Carolina time), three Business Days before the
         date of prepayment or (B) in the case of prepayment of an ABR
         Borrowing, not later than 12:00 noon (Charlotte, North Carolina time),
         on the date of prepayment. Each such notice shall be irrevocable and
         shall specify the prepayment date and the principal amount of each
         Borrowing or portion thereof to be prepaid; provided that, if a notice
         of prepayment is given in connection with a conditional notice of
         termination of the Commitments as contemplated by Section 2.08, then
         such notice of prepayment may be revoked if such notice of termination
         is revoked in accordance with Section 2.08. Promptly following receipt
         of any such notice relating to a Borrowing, the Administrative Agent
         shall advise the Lenders of the contents thereof. Each partial
         prepayment of any Borrowing shall be in an amount that would be
         permitted in the case of an advance of a Borrowing of the same Type as
         provided in Section 2.02. Each prepayment of a Borrowing shall be
         applied ratably to the Loans included in the prepaid Borrowing.
         Prepayments shall be accompanied by accrued interest to the extent
         required by Section 2.12.

         SECTION 2.11 FEES.

                  (a) The Borrower agrees to pay to the Administrative Agent for
         the account of each Lender a facility fee, which shall accrue at the
         Applicable Rate on the daily amount of the Commitment of such Lender
         (whether used or unused) during the period from and including the
         Closing Date to but excluding the date on which such Commitment
         terminates; provided that, if such Lender continues to have any
         Revolving Credit Exposure after its Commitment terminates, then such


                                       21



         facility fee shall continue to accrue on the daily amount of such
         Lender's Revolving Credit Exposure from and including the date on which
         its Commitment terminates to but excluding the date on which such
         Lender ceases to have any Revolving Credit Exposure. Accrued facility
         fees shall be payable in arrears on the last day of March, June,
         September and December of each year and on the date on which the
         Commitments terminate, commencing on the first such date to occur after
         the date hereof; provided that any facility fees accruing after the
         date on which the Commitments terminate shall be payable on demand. All
         facility fees shall be computed on the basis of a year of 360 days and
         shall be payable for the actual number of days elapsed (including the
         first day but excluding the last day).

                  (b) The Borrower agrees to pay to the Administrative Agent for
         the account of each Lender a utilization fee equal to the Applicable
         Rate in effect from time to time for each day on which the Commitment
         Utilization Percentage exceeds 50%, which fee shall accrue on the daily
         amount of the Used Commitment of such Lender for each Excess
         Utilization Day during the period from and including the Closing Date
         to but excluding the date on which such Lender's Commitment terminates;
         provided that, if such Lender continues to have any Revolving Credit
         Exposure after its Commitment terminates, then such utilization fee
         shall continue to accrue on the daily amount of such Lender's Revolving
         Credit Exposure for each Excess Utilization Day from and including the
         date on which its Commitment terminates to but excluding the date on
         which such Lender ceases to have any Revolving Credit Exposure. Accrued
         utilization fees shall be payable in arrears on the last day of March,
         June, September and December of each year and on the date on which the
         Commitments terminate, commencing on the first such date to occur after
         the date hereof; provided that any utilization fees accruing after the
         date on which the Commitments terminate shall be payable on demand. All
         utilization fees shall be computed on the basis of a year of 360 days
         and shall be payable for the actual number of days elapsed (including
         the first day but excluding the last day).

                  (c) The Borrower agrees to pay to the Administrative Agent,
         for its own account, fees payable in the amounts and at the times
         separately agreed upon between the Borrower and the Administrative
         Agent.

                  (d) All fees payable hereunder shall be paid on the dates due,
         in immediately available funds, to the Administrative Agent for
         distribution, in the case of facility fees and utilization fees, to the
         Lenders. Fees paid shall not be refundable under any circumstances.

         SECTION 2.12 INTEREST.

                  (a) The Loans comprising each ABR Borrowing shall bear
         interest at a rate per annum equal to the Alternate Base Rate.

                  (b) The Loans comprising each Eurodollar Borrowing shall bear
         interest at a rate per annum equal to the LIBO Rate for the Interest
         Period in effect for such Borrowing plus the Applicable Rate.


                                       22



                  (c) Notwithstanding the foregoing, if any principal of or
         interest on any Loan or any fee or other amount payable by the Borrower
         hereunder is not paid when due (following the expiration of any grace
         period specified in Article VII), whether at stated maturity, upon
         acceleration or otherwise, such overdue amount shall bear interest,
         after as well as before judgment, at a rate per annum equal to (i) in
         the case of overdue principal of any Loan, 2% plus the rate otherwise
         applicable to such Loan as provided above or (ii) in the case of any
         other amount, 2% plus the rate applicable to ABR Loans as provided
         above.

                  (d) Accrued interest on each Loan shall be payable in arrears
         on each Interest Payment Date for such Loan; provided that (i) interest
         accrued pursuant to paragraph (c) of this Section shall be payable on
         demand, (ii) in the event of any repayment or prepayment of any Loan
         (other than a prepayment of an ABR Loan prior to the end of the
         Availability Period), accrued interest on the principal amount repaid
         or prepaid shall be payable on the date of such repayment or
         prepayment, (iii) in the event of any conversion of any Eurodollar Loan
         prior to the end of the current Interest Period therefore, accrued
         interest on such Loan shall be payable on the effective date of such
         conversion and (iv) all accrued interest shall be payable upon
         termination of the Commitments.

                  (e) All interest hereunder shall be computed on the basis of a
         year of 360 days, except that interest computed by reference to the
         Alternate Base Rate at times when the Alternate Base Rate is based on
         the Prime Rate shall be computed on the basis of a year of 365 days (or
         366 days in a leap year), and in each case shall be payable for the
         actual number of days elapsed (including the first day but excluding
         the last day). The applicable Alternate Base Rate or LIBO Rate shall be
         determined by the Administrative Agent, and such determination shall be
         conclusive absent manifest error.

                  (f) If any Lender shall be required under the regulations of
         the Board to maintain reserves with respect to liabilities or assets
         consisting of, or including, Eurocurrency Liabilities (as defined in
         Regulation D of the Board), the Borrower shall pay to the
         Administrative Agent for the account of such Lender, additional
         interest on the unpaid principal amount of each Eurodollar Loan made to
         the Borrower by such Lender, from the date of such Loan until such Loan
         is paid in full, at an interest rate per annum equal at all times
         during the Interest Period for such Eurodollar Loan to the remainder
         obtained by subtracting (i) the LIBO Rate for such Interest Period from
         (ii) the rate obtained by multiplying LIBO Rate as referred to in
         clause (i) above by the Statutory Reserve Rate applicable to such
         Lender for such Interest Period. Such additional interest shall be
         determined by such Lender and notified to the Borrower (with a copy to
         the Administrative Agent) not later than five Business Days before the
         next Interest Payment Date for such Eurodollar Loan, and such
         additional interest so notified to the Borrower by any Lender shall be
         payable to the Administrative Agent for the account of such Lender on
         each Interest Payment Date for such Eurodollar Loan.


                                       23



         SECTION 2.13 ALTERNATE RATE OF INTEREST.

         If prior to the commencement of any Interest Period for a Eurodollar
Borrowing:

                  (a) the Administrative Agent reasonably determines (which
         determination shall be conclusive absent manifest error) that adequate
         and reasonable means do not exist for ascertaining the LIBO Rate for
         such Interest Period; or

                  (b) the Administrative Agent is advised by the Required
         Lenders that the LIBO Rate for such Interest Period will not, in their
         reasonable judgment, adequately and fairly reflect the cost to such
         Lenders of making or maintaining their Loans included in such Revolving
         Borrowing for such Interest Period;

         then the Administrative Agent shall give notice thereof to the Borrower
         and the Lenders by telephone or telecopy as promptly as practicable
         thereafter and, until the Administrative Agent notifies the Borrower
         and the Lenders that the circumstances giving rise to such notice no
         longer exist, (i) any Interest Election Request that requests the
         conversion of any Revolving Borrowing to, or continuation of any
         Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective,
         and (ii) if any Revolving Borrowing Request requests a Eurodollar
         Borrowing, such Revolving Borrowing shall be made as an ABR Borrowing;
         provided that if the circumstances giving rise to such notice affect
         only one Type of Revolving Borrowings, then the other Type of Revolving
         Borrowings shall be permitted.

         SECTION 2.14 INCREASED COSTS.

                  (a) If any Change in Law shall:

                           (i) impose, modify or deem applicable any reserve,
                  special deposit or similar requirement against assets of,
                  deposits with or for the account of, or credit extended by,
                  any Lender (other than any reserves included in the Statutory
                  Reserve Rate); or

                           (ii) impose on any Lender or the London interbank
                  market any other condition affecting this Credit Agreement or
                  Eurodollar Loans;

         and the result of any of the foregoing shall be to increase the cost
         (except with respect to Excluded Taxes) to such Lender of making or
         maintaining any Eurodollar Loan (or of maintaining its obligation to
         make any such Loan) or to increase the cost (except with respect to
         Excluded Taxes) to such Lender or to reduce the amount of any sum
         received or receivable (except to the extent caused by Excluded Taxes)
         by such Lender hereunder (whether of principal, interest or otherwise)
         by an amount deemed by such Lender to be material, then the Borrower
         will pay to such Lender such additional amount or amounts as will
         compensate such Lender for such additional costs incurred or reduction
         suffered.

                  (b) If any Lender reasonably determines that any Change in Law
         regarding capital requirements has or would have the effect of reducing
         the rate of return on such Lender's capital or on the capital of such


                                       24



         Lender's holding company, if any, as a consequence of this Credit
         Agreement or the Loans made by such Lender to a level below that which
         such Lender or such Lender's holding company could have achieved but
         for such Change in Law (taking into consideration such Lender's
         policies and the policies of such Lender's holding company with respect
         to capital adequacy), then from time to time the Borrower will pay to
         such Lender such additional amount or amounts as will compensate such
         Lender or such Lender's holding company for any such reduction
         suffered.

                  (c) A certificate of a Lender setting forth the amount or
         amounts necessary to compensate such Lender or its holding company, as
         the case may be, as specified in paragraph (a) or (b) of this Section
         and the method of calculating such amounts, in reasonable detail, shall
         be delivered to the Borrower and shall be conclusive absent manifest
         error. The Borrower shall pay such Lender the amount shown as due on
         any such certificate within 10 days after receipt thereof.

                  (d) Failure or delay on the part of any Lender to demand
         compensation pursuant to this Section shall not constitute a waiver of
         such Lender's right to demand such compensation; provided that the
         Borrower shall not be required to compensate a Lender pursuant to this
         Section for any increased costs or reductions incurred more than six
         months prior to the date that such Lender notifies the Borrower of the
         Change in Law giving rise to such increased costs or reductions and of
         such Lender's intention to claim compensation therefore; provided
         further that, if the Change in Law giving rise to such increased costs
         or reductions is retroactive, then the six-month period referred to
         above shall be extended to include the period of retroactive effect
         thereof.

         SECTION 2.15 BREAK FUNDING PAYMENTS.

         In the event of (a) the payment of any principal of any Eurodollar Loan
other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto, (c) the
failure to borrow, convert, continue or prepay any Loan on the date specified in
any notice delivered pursuant hereto (regardless of whether such notice is
permitted to be revocable under Section 2.10(b) if such notice is revoked in
accordance herewith two Business Days or less before the specified effective
date), (d) the assignment of any Eurodollar Loan other than on the last day of
the Interest Period applicable thereto as a result of a request by the Borrower
pursuant to Section 2.18, then, in any such event, the Borrower shall compensate
each Lender for the loss, cost and expense (but not loss of profit) attributable
to such event. In the case of a Eurodollar Loan, the loss to any Lender
attributable to any such event shall be deemed to include an amount reasonably
determined by such Lender to be equal to the excess, if any, of (i) the amount
of interest that such Lender would pay for a deposit equal to the principal
amount of such Loan for the period from the date of such payment, conversion,
failure or assignment to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, convert or continue, the
duration of the Interest Period that would have resulted from such borrowing,
conversion or continuation) if the interest rate payable on such deposit were
equal to the LIBO Rate for such Interest Period, over (ii) the amount of


                                       25



interest that such Lender would earn on such principal amount for such period if
such Lender were to invest such principal amount for such period at the interest
rate that would be bid by such Lender (or an affiliate of such Lender) for
dollar deposits from other banks in the eurodollar market at the commencement of
such period. A certificate of any Lender setting forth any amount or amounts
that such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.

         SECTION 2.16 TAXES.

                  (a) Any and all payments by or on account of any obligation of
         the Borrower hereunder shall be made free and clear of and without
         deduction for any Indemnified Taxes or Other Taxes; provided that if
         the Borrower shall be required to deduct any Indemnified Taxes or Other
         Taxes from such payments, then (i) the sum payable shall be increased
         as necessary so that after making all required deductions (including
         deductions applicable to additional sums payable under this Section)
         the Administrative Agent or the Lender (as the case may be) receives an
         amount equal to the sum it would have received had no such deductions
         been made, (ii) the Borrower shall make such deductions and (iii) the
         Borrower shall pay the full amount deducted to the relevant
         Governmental Authority in accordance with applicable law.

                  (b) In addition, the Borrower shall pay any Other Taxes to the
         relevant Governmental Authority in accordance with applicable law.

                  (c) The Borrower shall indemnify the Administrative Agent and
         each Lender within 10 days after written demand therefore, for the full
         amount of any Indemnified Taxes or Other Taxes (including Indemnified
         Taxes or Other Taxes imposed or asserted on or attributable to amounts
         payable under this Section) paid by the Administrative Agent or such
         Lender, as the case may be, and any penalties, interest and reasonable
         expenses arising therefrom or with respect thereto, whether or not such
         Indemnified Taxes or Other Taxes were correctly or legally imposed or
         asserted by the relevant Governmental Authority. A certificate as to
         the amount of such payment or liability delivered to the Borrower by a
         Lender, or by the Administrative Agent on its own behalf or on behalf
         of a Lender, shall be conclusive absent manifest error.

                  (d) As soon as practicable after any payment of Indemnified
         Taxes or Other Taxes by the Borrower to a Governmental Authority, the
         Borrower shall deliver to the Administrative Agent the original or a
         certified copy of a receipt issued by such Governmental Authority
         evidencing such payment, a copy of the return reporting such payment or
         other evidence of such payment reasonably satisfactory to the
         Administrative Agent.

                  (e) Each Foreign Lender, on or prior to the date of its
         execution and delivery of this Credit Agreement or on the date of the
         Assignment and Acceptance pursuant to which it becomes a Lender, as
         applicable, shall provide the Borrower with any form or certificate
         that is required by any taxing authority (including, if applicable, a


                                       26



         copy of Internal Revenue Service Forms W-9, W-8BEN or W-8ECI, as
         appropriate, or any successor or other form prescribed by the Internal
         Revenue Service), certifying that such Lender is exempt from or
         entitled to a reduced rate of withholding taxes on payments pursuant to
         this Credit Agreement. Thereafter, each such Lender shall provide
         additional forms or certificates (i) to the extent a form or
         certificate previously provided has been inaccurate, invalid or
         otherwise ceases to be effective or (ii) as requested in writing by the
         Borrower or the Administrative Agent. If any Foreign Lender fails to
         comply with the provisions of this Section, the Borrower, may, as
         required by law, deduct and withhold federal income tax payments from
         payments to such Lender under this Credit Agreement. The obligation of
         the Lenders under this Section shall survive the payment of all
         obligations and the resignation or replacement of the Administrative
         Agent.

                  (f) Any Lender claiming any additional amounts payable
         pursuant to this Section 2.16 agrees to use reasonable efforts
         (consistent with its internal policy and legal and regulatory
         restrictions) to select or change the jurisdiction of its applicable
         lending office if the making of such a selection or change would avoid
         the need for, or reduce the amount of, any such additional amounts that
         may thereafter accrue and would not, in the reasonable judgment of such
         Lender, be otherwise economically disadvantageous to such Lender.

                  (g) If any Lender or the Administrative Agent, as the case may
         be, obtains a refund of any Tax for which payment has been made
         pursuant to this Section 2.16, which refund in the good faith judgment
         of such Lender or the Administrative Agent, as the case may be, (and
         without any obligation to disclose its tax records) is allocable to
         such payment made under this Section 2.16, the amount of such refund
         (together with any interest received thereon and reduced by reasonable
         costs incurred in obtaining such refund) promptly shall be paid to the
         Borrower to the extent payment has been made in full by the Borrower
         pursuant to this Section 2.16.

         SECTION 2.17 PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS.

                  (a) The Borrower shall make each payment required to be made
         by it hereunder (whether of principal, interest or fees, or under
         Section 2.14, 2.15 or 2.16, or otherwise) prior to 1:00 P.M.
         (Charlotte, North Carolina time), on the date when due, in immediately
         available funds, without set-off or counterclaim. Any amounts received
         after such time on any date may, in the discretion of the
         Administrative Agent, be deemed to have been received on the next
         succeeding Business Day for purposes of calculating interest thereon.
         All such payments shall be made to the Administrative Agent at its
         offices at 100 North Tryon, Charlotte, North Carolina, except that
         payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made
         directly to the Persons entitled thereto. The Administrative Agent
         shall distribute any such payments received by it for the account of
         any other Person to the appropriate recipient promptly following
         receipt thereof. If any payment hereunder shall be due on a day that is
         not a Business Day, the date for payment shall be extended to the next
         succeeding Business Day, and, in the case of any payment accruing
         interest, interest thereon shall be payable for the period of such
         extension. All payments hereunder shall be made in dollars.


                                       27



                  (b) If at any time insufficient funds are received by and
         available to the Administrative Agent to pay fully all amounts of
         principal, interest and fees then due hereunder, such funds shall be
         applied (i) first, to pay interest and fees then due hereunder, ratably
         among the parties entitled thereto in accordance with the amounts of
         interest and fees then due to such parties, and (ii) second, to pay
         principal then due hereunder, ratably among the parties entitled
         thereto in accordance with the amounts of principal then due to such
         parties.

                  (c) If any Lender shall, by exercising any right of set-off or
         counterclaim or otherwise, obtain payment in respect of any principal
         of or interest on any of its Loans resulting in such Lender receiving
         payment of a greater proportion of the aggregate amount of its Loans
         and accrued interest thereon than the proportion received by any other
         Lender, then the Lender receiving such greater proportion shall
         purchase (for cash at face value) participations in the Loans of other
         Lenders to the extent necessary so that the benefit of all such
         payments shall be shared by the Lenders ratably in accordance with the
         aggregate amount of principal of and accrued interest on their
         respective Loans; provided that (i) if any such participations are
         purchased and all or any portion of the payment giving rise thereto is
         recovered, such participations shall be rescinded and the purchase
         price restored to the extent of such recovery, without interest, and
         (ii) the provisions of this paragraph shall not be construed to apply
         to any payment made by the Borrower pursuant to and in accordance with
         the express terms of this Credit Agreement or any payment obtained by a
         Lender as consideration for the assignment of or sale of a
         participation in any of its Loans to any assignee or participant, other
         than to the Borrower or any Subsidiary or Affiliate thereof (as to
         which the provisions of this paragraph shall apply). The Borrower
         consents to the foregoing and agrees, to the extent it may effectively
         do so under applicable law, that any Lender acquiring a participation
         pursuant to the foregoing arrangements may exercise against the
         Borrower rights of set-off and counterclaim with respect to such
         participation as fully as if such Lender were a direct creditor of the
         Borrower in the amount of such participation.

                  (d) Unless the Administrative Agent shall have received notice
         from the Borrower prior to the date on which any payment is due to the
         Administrative Agent for the account of the Lenders hereunder that the
         Borrower will not make such payment, the Administrative Agent may
         assume that the Borrower has made such payment on such date in
         accordance herewith and may, in reliance upon such assumption,
         distribute to the Lenders the amount due. In such event, if the
         Borrower has not in fact made such payment, then each of the Lenders
         severally agrees to repay to the Administrative Agent forthwith on
         demand the amount so distributed to such Lender with interest thereon,
         for each day from and including the date such amount is distributed to
         it to but excluding the date of payment to the Administrative Agent, at
         the Federal Funds Effective Rate.

                  (e) If any Lender shall fail to make any payment required to
         be made by it pursuant to Section 2.06(a) or 2.17(d), then the
         Administrative Agent may, in its discretion (notwithstanding any
         contrary provision hereof), apply any amounts thereafter received by
         the Administrative Agent for the account of such Lender to satisfy such
         Lender's obligations under such Sections until all such unsatisfied
         obligations are fully paid.


                                       28



         SECTION 2.18 MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.

                  (a) If any Lender requests compensation under Section 2.14, or
         if the Borrower is required to pay any additional amount to any Lender
         or any Governmental Authority for the account of any Lender pursuant to
         Section 2.16, then such Lender shall use reasonable efforts to
         designate a different lending office for funding or booking its Loans
         hereunder or to assign its rights and obligations hereunder to another
         of its offices, branches or affiliates, if, in the judgment of such
         Lender, such designation or assignment (i) would eliminate or reduce
         amounts payable pursuant to Section 2.14 or 2.16, as the case may be,
         in the future and (ii) would not subject such Lender to any
         unreimbursed cost or expense and would not otherwise be economically
         disadvantageous to such Lender. The Borrower hereby agrees to pay all
         reasonable costs and expenses incurred by any Lender in connection with
         any such designation or assignment.

                  (b) If any Lender requests compensation under Section 2.14, or
         if the Borrower is required to pay any additional amount to any Lender
         or any Governmental Authority for the account of any Lender pursuant to
         Section 2.16, or if any Lender defaults in its obligation to fund Loans
         hereunder, then the Borrower may, at its sole expense and effort, upon
         notice to such Lender and the Administrative Agent, require such Lender
         to assign and delegate, without recourse (in accordance with and
         subject to the restrictions contained in Section 9.04), all its
         interests, rights and obligations under this Credit Agreement to an
         assignee that shall assume such obligations (which assignee may be
         another Lender, if a Lender accepts such assignment); provided that (i)
         the Borrower shall have received the prior written consent of the
         Administrative Agent, which consent shall not unreasonably be withheld,
         (ii) such Lender shall have received payment of an amount equal to the
         outstanding principal of its Loans, accrued interest thereon, accrued
         fees and all other amounts payable to it hereunder, from the assignee
         (to the extent of such outstanding principal and accrued interest and
         fees) or the Borrower (in the case of all other amounts) and (iii) in
         the case of any such assignment resulting from a claim for compensation
         under Section 2.14 or payments required to be made pursuant to Section
         2.16, such assignment will result in a reduction in such compensation
         or payments. A Lender shall not be required to make any such assignment
         and delegation if, prior thereto, as a result of a waiver by such
         Lender or otherwise, the circumstances entitling the Borrower to
         require such assignment and delegation cease to apply.


                                       29



                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants to the Lenders that:

         SECTION 3.01 ORGANIZATION; POWERS.

         Each of the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.

         SECTION 3.02 AUTHORIZATION; ENFORCEABILITY.

         The Transactions are within the Borrower's corporate powers and have
been duly authorized by all necessary corporate and, if required, shareholder
action. This Credit Agreement and each promissory note, if any, has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.

         SECTION 3.03 GOVERNMENTAL APPROVALS; NO CONFLICTS.

         The Transactions (a) do not require any material consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect, (b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (c) will not violate or
result in a default under any material indenture, agreement or other instrument
binding upon the Borrower or any of its Subsidiaries or any of their respective
assets, or give rise to a right thereunder to require any payment to be made by
the Borrower or any of its Subsidiaries, and (d) will not result in the creation
or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.

         SECTION 3.04 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.

                  (a) The Borrower has heretofore furnished to the Lenders (i)
         its consolidated balance sheet and statements of operations,
         shareholders' equity and cash flows as of and for the fiscal year ended
         April 27, 2001, reported on by PricewaterhouseCoopers LLP, independent
         public accountants, and (ii) its consolidated balance sheet and
         statements of operations and cash flows as of and for the fiscal
         quarters ended July 27, 2001 and October 26, 2001, signed by its chief
         financial officer. Such financial statements present fairly, in all
         material respects, the financial position and results of operations and


                                       30



         cash flows of the Borrower and its consolidated Subsidiaries as of such
         dates and for such periods in accordance with GAAP, subject to year-end
         audit adjustments and the absence of footnotes in the case of the
         statements referred to in clause (ii) above.

                  (b) There has been no material adverse change in the business,
         assets, operations, or financial condition of the Borrower and its
         Subsidiaries, taken as a whole, from those disclosed in the Borrower's
         Form 10-K for the fiscal year ended April 27, 2001, other than as
         disclosed in the Borrower's quarterly report on Form 10-Q for its
         fiscal quarters ending on July 27, 2001 and October 26, 2001 and the
         Borrower's current report on Form 8-K dated September 5, 2001 and the
         amendment to such Form 8-K dated November 13, 2001, each as filed with
         the SEC prior to the date hereof.

         SECTION 3.05 PROPERTIES.

                  (a) Each of the Borrower and its Subsidiaries has good title
         to, or valid leasehold interests in, all its real and personal property
         material to its business, except for minor defects in title that do not
         interfere with its ability to conduct its business as currently
         conducted or to utilize such properties for their intended purposes.

                  (b) Each of the Borrower and its Subsidiaries owns, or is
         licensed to use, all trademarks, tradenames, copyrights, patents and
         other intellectual property material to its business, and the use
         thereof by the Borrower and its Subsidiaries does not infringe upon the
         rights of any other Person, except for any such infringements that,
         individually or in the aggregate, could not reasonably be expected to
         result in a Material Adverse Effect.

         SECTION 3.06 LITIGATION AND ENVIRONMENTAL MATTERS.

                  (a) There are no actions, suits or proceedings by or before
         any arbitrator or Governmental Authority pending against or, to the
         knowledge of the Borrower, threatened against or affecting the Borrower
         or any of its Subsidiaries (i) as to which there is a reasonable
         possibility of an adverse determination and that, if adversely
         determined, could reasonably be expected, individually or in the
         aggregate, to result in a Material Adverse Effect (other than the
         Disclosed Matters) or (ii) which in any manner draws into question the
         validity or enforceability of this Credit Agreement.

                  (b) Except for the Disclosed Matters or except with respect to
         any other matters that, individually or in the aggregate, could not
         reasonably be expected to result in a Material Adverse Effect, neither
         the Borrower nor any of its Subsidiaries (i) has failed to comply with
         any Environmental Law or to obtain, maintain or comply with any permit,
         license or other approval required under any Environmental Law, (ii)
         has become subject to any Environmental Liability, (iii) has received
         notice of any claim with respect to any Environmental Liability or (iv)
         knows of any basis for any Environmental Liability.

                  (c) Since the date of this Credit Agreement, there has been no
         change in the status of the Disclosed Matters that, individually or in
         the aggregate, has resulted in, or could reasonably be expected to
         result in a Material Adverse Effect.


                                       31



         SECTION 3.07 COMPLIANCE WITH LAWS AND AGREEMENTS.

                  (a) Each of the Borrower and its Subsidiaries is in compliance
         with all indentures, agreements and other instruments binding upon it
         or its property, except where the failure to do so, individually or in
         the aggregate, could not reasonably be expected to result in a Material
         Adverse Effect. No Default has occurred and is continuing.

                  (b) Neither the Borrower nor any Subsidiary is in violation of
         any law, rule or regulation, or in default with respect to any
         judgment, writ, injunction or decree of any Governmental Authority,
         where such violation or default would be reasonably be expected to
         result in a Material Adverse Effect.

         SECTION 3.08 INVESTMENT AND HOLDING COMPANY STATUS.

         Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.

         SECTION 3.09 TAXES.

         Each of the Borrower and its Subsidiaries has timely filed or caused to
be filed all Tax returns and reports required to have been filed (taking into
account any extensions granted by the applicable taxing authority) and has paid
or caused to be paid all Taxes required to have been paid by it, except (a)
Taxes that are being contested in good faith by appropriate proceedings and for
which the Borrower or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

         SECTION 3.10 ERISA.

         No ERISA Event has occurred or is reasonably expected to occur that,
when taken together with all other such ERISA Events for which liability is
reasonably expected to occur, could reasonably be expected to result in a
Material Adverse Effect. The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of
the most recent financial statements reflecting such amounts, exceed by more
than $100,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000,000 the fair
market value of the assets of all such underfunded Plans.


                                       32



         SECTION 3.11 DISCLOSURE.

         The Borrower has disclosed (which disclosure includes all filings by
the Borrower pursuant to the Securities Exchange Act of 1934) to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or other information furnished in writing by or on behalf of the Borrower to the
Administrative Agent or any Lender for use specifically in connection with the
negotiation of this Credit Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.

         SECTION 3.12 FEDERAL REGULATIONS.

         No part of the proceeds of any Loans will be used in any transaction or
for any purpose which violates the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System, as now and from time to time
hereafter in effect. If requested by any Lender or the Administrative Agent, the
Borrower will furnish to the Administrative Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of Form FR U-1 referred
to in said Regulation U.

         SECTION 3.13 PURPOSE OF LOANS.

         The proceeds of the Loans shall be used to (i) refinance the Existing
Credit Agreement and (ii) finance any lawful general corporate purpose,
including acquisitions, and working capital.

         SECTION 3.14 SUBSIDIARIES AND SIGNIFICANT SUBSIDIARIES.

         Set forth on Schedule 3.14 is a complete and accurate list of all
Subsidiaries and all Significant Subsidiaries as of the Closing Date.


                                   ARTICLE IV

                                   CONDITIONS

         SECTION 4.01 CLOSING CONDITIONS.

         This Credit Agreement shall become effective on the date on which each
of the following conditions is satisfied (or waived in accordance with Section
9.02):

                  (a) The Administrative Agent (or its counsel) shall have
         received from each party hereto either (i) a counterpart of this Credit
         Agreement signed on behalf of such party or (ii) written evidence
         satisfactory to the Administrative Agent (which may include telecopy
         transmission of a signed signature page of this Credit Agreement) that
         such party has signed a counterpart of this Credit Agreement.


                                       33



                  (b) The Administrative Agent shall have received a favorable
         written opinion or opinions (addressed to the Administrative Agent and
         the Lenders and dated the Closing Date) of (i) Fredrickson & Bryon,
         P.A., counsel for the Borrower and the Guarantors, (ii) Sullivan &
         Cromwell, special counsel for the Borrower and the Guarantors, (iii)
         Henderson, Daily, Withrow & DeVoe, special counsel for the Borrower and
         the Guarantors and (iv) of Senior Legal Counsel to the Borrower and the
         Guarantors, and covering such other matters relating to the Borrower,
         the Guarantors, this Credit Agreement or the Transactions as the
         Required Lenders shall reasonably request. The Borrower hereby requests
         such counsel to deliver such opinion.

                  (c) The Administrative Agent shall have received such
         documents and certificates as the Administrative Agent or its counsel
         may reasonably request relating to the organization, existence and good
         standing of the Borrower and each of the Guarantors, the authorization
         of the Transactions and any other legal matters relating to the
         Borrower, the Guarantors, this Agreement or the Transactions, all in
         form and substance satisfactory to the Administrative Agent and its
         counsel.

                  (d) The Administrative Agent shall have received a
         certificate, dated the Closing Date and signed by the President, a Vice
         President or a Financial Officer of the Borrower, confirming compliance
         with the conditions set forth in paragraphs (a) and (b) of Section
         4.02.

                  (e) The Administrative Agent shall have received all fees and
         other amounts due and payable on or prior to the Closing Date,
         including, without limitation the fees set forth in the Fee Letter and,
         to the extent invoiced, the reimbursement or payment of all
         out-of-pocket expenses required to be reimbursed or paid by the
         Borrower hereunder.

                  (f) The commitments under the Existing Credit Agreement shall
         have been terminated and all amounts owing thereunder shall have been
         paid.

         SECTION 4.02 EACH CREDIT EVENT.

                  The obligation of each Lender to make a Loan on the occasion
         of any Revolving Borrowing is subject to the satisfaction of the
         following conditions:

                  (a) The representations and warranties of the Borrower set
         forth in this Credit Agreement shall be true and correct in all
         material respects on and as of the date of, and after giving effect to,
         such Borrowing; provided, that, the representations and warranties
         contained in Sections 3.04(b), 3.06, 3.07(a) and 3.10 shall be deemed
         made, and shall be required to be true and correct, only on the Closing
         Date.

                  (b) At the time of and immediately after giving effect to such
         Borrowing, no Default shall have occurred and be continuing.


                                       34



        Each Borrowing shall be deemed to constitute a representation and
warranty by the Borrower on the date thereof as to the matters specified in
paragraphs (a) and (b) of this Section.


                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

         Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been paid
in full, the Borrower covenants and agrees with the Lenders that:

         SECTION 5.01 FINANCIAL STATEMENTS AND OTHER INFORMATION.

         The Borrower will furnish to the Administrative Agent (with copies for
each Lender):

                  (a) within 100 days after the end of each fiscal year of the
         Borrower, its audited consolidated balance sheet and related statements
         of operations, shareholders' equity and cash flows as of the end of and
         for such year, setting forth in each case in comparative form the
         figures for the previous fiscal year, all reported on by
         PricewaterhouseCoopers LLP or other independent public accountants of
         recognized national standing (without a "going concern" or like
         qualification or exception and without any qualification or exception
         as to the scope of such audit) to the effect that such consolidated
         financial statements present fairly in all material respects the
         financial condition and results of operations of the Borrower and its
         consolidated Subsidiaries on a consolidated basis in accordance with
         GAAP (the Lenders agree that the Borrower's obligations under this
         paragraph (a) will be satisfied in respect of any fiscal year by
         delivery to the Administrative Agent, with copies for each Lender,
         within 100 days after the end of such fiscal year of its annual report
         for such fiscal year on Form 10-K as filed with the SEC);

                  (b) within 55 days after the end of each of the first three
         fiscal quarters of each fiscal year of the Borrower (including the
         fiscal quarter ending on January 25, 2002), its consolidated balance
         sheet and related statements of operations and cash flows as of the end
         of and for such fiscal quarter and the then elapsed portion of the
         fiscal year, setting forth in each case in comparative form the figures
         for the corresponding period or periods of (or, in the case of the
         balance sheet, as of the end of) the previous fiscal year, all
         certified by one of its Financial Officers as presenting fairly in all
         material respects the financial condition and results of operations of
         the Borrower and its consolidated Subsidiaries on a consolidated basis
         in accordance with GAAP consistently applied, subject to normal
         year-end audit adjustments and the absence of footnotes (the Lenders
         agree that the Borrower's obligations under this paragraph (b) will be
         satisfied in respect of any fiscal quarter by delivering to the
         Administrative Agent, with copies for each Lender, within 55 days after
         the end of such fiscal quarter of its quarterly report for such fiscal
         quarter on Form 10-Q as filed with the SEC);


                                       35



                  (c) concurrently with any delivery of financial statements
         under paragraph (a) or (b) above, a certificate of a Financial Officer
         of the Borrower (i) certifying as to whether a Default has occurred
         and, if a Default has occurred, specifying the details thereof and any
         action taken or proposed to be taken with respect thereto, (ii) setting
         forth reasonably detailed calculations demonstrating compliance with
         Section 6.01 and (iii) stating whether any change in GAAP or in the
         application thereof has occurred since the date of the audited
         financial statements referred to in Section 3.04(a)(i) and, if any such
         change has occurred, specifying the effect of such change on the
         financial statements accompanying such certificate;

                  (d) promptly after the same become publicly available or upon
         transmission or receipt thereof, copies of all periodic and other
         reports, proxy statements and other materials filed by the Borrower or
         any Subsidiary with the SEC, or any Governmental Authority succeeding
         to any or all of the functions of the SEC, or with any national
         securities exchange, or distributed by the Borrower to its shareholders
         generally, as the case may be, provided that, with respect to materials
         filed with any national securities exchange, only material filings
         shall be required to be delivered pursuant to this paragraph (d); and

                  (e) promptly following any request therefor, such other
         information regarding the operations, business affairs and financial
         condition of the Borrower or any Subsidiary, or compliance with the
         terms of this Credit Agreement, as the Administrative Agent or any
         Lender (acting through the Administrative Agent) may reasonably
         request.

         SECTION 5.02 NOTICES OF MATERIAL EVENTS.

         The Borrower will furnish to the Administrative Agent and each Lender
prompt written notice of, but in any event not later than five Business Days
after, the following:

                  (a) the occurrence of any Default;

                  (b) the occurrence of any ERISA Event that, alone or together
         with any other ERISA Events that have occurred, could reasonably be
         expected to result in liability of the Borrower and its Subsidiaries in
         an aggregate amount exceeding $100,000,000;

                  (c) the non-compliance with any contractual obligation or
         requirement of law that is not currently being contested in good faith
         by appropriate proceedings if all such non-compliance in the aggregate
         could reasonably be expected to have a Material Adverse Effect;

                  (d) the revocation of any license, permit, authorization,
         certificate, qualification or accreditation of the Borrower or any
         Subsidiary by any Governmental Authority if all such revocations in the
         aggregate could reasonably be expected to have a Material Adverse
         Effect;

                  (e) a change in rating for the Index Debt by either Moody's or
         S & P; and


                                       36



                  (f) any other development that results in, or could reasonably
         be expected to result in, a Material Adverse Effect.

         Each notice delivered under this Section shall be accompanied by a
statement of a Financial Officer or other executive officer of the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.

         SECTION 5.03 EXISTENCE; CONDUCT OF BUSINESS.

         The Borrower will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business; provided that the foregoing
shall not prohibit any merger, consolidation, liquidation, dissolution or stock
or asset sale permitted under Section 6.04.

         SECTION 5.04 PAYMENT OF OBLIGATIONS.

         The Borrower will, and will cause each of its Subsidiaries to, pay its
obligations, including Tax liabilities, that, if not paid, could result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.

         SECTION 5.05 MAINTENANCE OF PROPERTIES; INSURANCE.

         The Borrower will, and will cause each of its Subsidiaries to, (a) keep
and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, and (b) maintain,
with financially sound and reputable insurance companies, insurance in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations or maintain a system or systems of self-insurance or assumption of
risk which accords with the practices of similar businesses.

         SECTION 5.06 BOOKS AND RECORDS; INSPECTION RIGHTS.

         The Borrower will, and will cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.


                                       37



         SECTION 5.07 COMPLIANCE WITH LAWS.

         The Borrower will, and will cause each of its Subsidiaries to, comply
with all laws, rules, regulations and orders of any Governmental Authority
applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

         SECTION 5.08 USE OF PROCEEDS.

         The proceeds of the Loans will be used for the purposes described in
Section 3.13. No part of the proceeds of any Loan will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations U and X.

         SECTION 5.09 MAINTENANCE OF ACCREDITATION, ETC.

         The Borrower will preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, all licenses, permits, authorizations,
certifications and qualifications (including, without limitation, those
qualifications with respect to solvency and capitalization) required, except
where the failure to do so would not result in a Material Adverse Effect.

         SECTION 5.10 ADDITIONAL SUBSIDIARY GUARANTORS.

         The Borrower will cause each of its Significant Subsidiaries, whether
newly formed, after acquired or otherwise existing, to promptly become a
Guarantor hereunder by way of execution of a Joinder Agreement in the form of
Exhibit B.


                                   ARTICLE VI

                               NEGATIVE COVENANTS

         Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Borrower covenants and agrees with the Lenders that:

         SECTION 6.01 CONSOLIDATED TANGIBLE NET WORTH.

         The Consolidated Tangible Net Worth shall at all times be greater than
or equal to $1,040,400,000, increased by an amount equal to 100% of the Net Cash
Proceeds from any Equity Issuance occurring after the Closing Date.

         SECTION 6.02 INDEBTEDNESS.

         The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any other Indebtedness or liability on account
of borrowed money, represented by any notes, bonds, debentures or similar
obligations, or on account of the deferred purchase price of any property, or
any other deposits, advance or progress payments under contracts, except:


                                       38



                  (a) Indebtedness arising or existing under this Credit
         Agreement and the other Credit Documents;

                  (b) Indebtedness existing on the date hereof and set forth in
         Schedule 6.02 and extensions, renewals and replacements of any such
         Indebtedness that do not increase the outstanding principal amount
         thereof;

                  (c) Indebtedness of the Borrower and its Subsidiaries incurred
         after the Closing Date consisting of Capital Lease Obligations or
         Indebtedness incurred to provide all or a portion of the purchase price
         or cost of construction of an asset provided that (i) such Indebtedness
         when incurred shall not exceed the purchase price or cost of
         construction of such asset and (ii) no such Indebtedness shall be
         refinanced for a principal amount in excess of the principal balance
         outstanding thereon at the time of such refinancing;

                  (d) Indebtedness of any Subsidiary to the Borrower or any
         other Subsidiary;

                  (e) Indebtedness secured by Liens to the extent permitted
         under Section 6.03;

                  (f) other unsecured Indebtedness of the Borrower and its
         Subsidiaries; provided that such Indebtedness is not senior in right of
         payment to the payment of the Indebtedness arising or existing under
         this Credit Agreement and the other Credit Documents.

         SECTION 6.03 LIENS.

         The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:

                  (a) Permitted Encumbrances;

                  (b) any Lien on any property or asset of the Borrower or any
         Subsidiary existing on the date hereof and set forth in Schedule 6.03;
         provided that (i) such Lien shall not apply to any other property or
         asset of the Borrower or any Subsidiary and (ii) such Lien shall secure
         only those obligations which it secures on the date hereof and
         extensions, renewals and replacements thereof that do not increase the
         outstanding principal amount thereof;

                  (c) any Lien existing on any property or asset prior to the
         acquisition thereof by the Borrower or any Subsidiary or existing on
         any property or asset of any Person that becomes a Subsidiary after the
         date hereof prior to the time such Person becomes a Subsidiary;
         provided that (i) such Lien is not created in contemplation of or in
         connection with such acquisition or such Person becoming a Subsidiary,
         as the case may be, (ii) such Lien shall not apply to any other
         property or assets of the Borrower or any Subsidiary and (iii) such
         Lien shall secure only those obligations which it secures on the date
         of such acquisition or the date such Person becomes a Subsidiary, as
         the case may be and extensions, renewals and replacements thereof that
         do not increase the outstanding principal amount thereof; and


                                       39



                  (d) Liens not otherwise permitted under this Section securing
         obligations in an aggregate amount not exceeding at any time 20% of
         Consolidated Tangible Net Worth as at the end of the immediately
         preceding fiscal quarter of the Borrower.

         SECTION 6.04 FUNDAMENTAL CHANGES.

         The Borrower will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(in one transaction or in a series of transactions) all or substantially all of
its assets, or all or substantially all of the stock of any of its Subsidiaries
(in each case, whether now owned or hereafter acquired), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing (i) any Person
may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any Person, including any Affiliate, may merge with
any Subsidiary in a transaction in which the surviving entity is a Subsidiary,
(iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its
assets or stock to the Borrower or to another Subsidiary, (iv) any Subsidiary
may liquidate or dissolve or the Borrower or any Subsidiary may sell, transfer,
lease or otherwise dispose of the assets or stock of any Subsidiary if, in each
case, the Borrower determines in good faith that such liquidation or dissolution
is in the best interests of the Borrower and is not materially disadvantageous
to the Lenders, (v) the Borrower and its Subsidiaries may sell immaterial
businesses, including Subsidiaries, in the ordinary course of business and (vi)
any Subsidiary formed for the purpose of acquiring a Person or a minority
interest in any Person may merge into such Person.

         SECTION 6.05 TRANSACTIONS WITH AFFILIATES.

         The Borrower will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in any
other transactions with, any of its Affiliates, except (a) in the ordinary
course of business at prices and on terms and conditions not less favorable to
the Borrower or such Subsidiary than could be obtained on an arm's-length basis
from unrelated third parties, (b) transactions between or among the Borrower and
its Subsidiaries not involving any other Affiliates, (c) contributions to the
Medtronic Foundation in amounts consistent with past practices or (d) as
otherwise permitted by this Credit Agreement.

         SECTION 6.06 RESTRICTIVE AGREEMENTS.

         The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon the
ability of the Borrower or any Subsidiary to grant a lien on its properties or
assets whether now owned or hereafter acquired or the ability of any Subsidiary
to pay dividends or other distributions with respect to any shares of its
capital stock or to make or repay loans or advances to the Borrower or any other


                                       40



Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary;
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law, rule, regulation or regulatory administrative agreement or
determination or by this Credit Agreement, and (ii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder.

         SECTION 6.07 BUSINESS ACTIVITY.

         The Borrower will not, nor will it permit any Significant Subsidiary
to, alter the character of its business in any material respect from that
conducted as of the Closing Date.

         SECTION 6.08 RESTRICTED PAYMENTS.

         The Borrower will not, nor will it permit any Subsidiary to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends payable solely in the same
class of capital stock of such Person, (b) to make dividends or other
distributions payable to the Borrower (directly or indirectly through
Subsidiaries) and ratably to minority shareholders and (c) other distributions
in respect of the capital stock of such Person or the redemption, retirement,
purchase or other acquisition of the capital stock of such Person (or any
warrant, option or other rights with respect to any shares of capital stock (now
or hereafter outstanding) of such Person) if no Default has occurred and is
continuing or would result from such action.


                                   ARTICLE VII

                                EVENTS OF DEFAULT

         If any of the following events ("Events of Default") shall occur:

                  (a) the Borrower shall fail to pay any principal of any Loan
         when and as the same shall become due and payable, whether at the due
         date thereof or at a date fixed for prepayment thereof or otherwise (or
         any Guarantor shall fail to pay on the Guaranty in respect of any of
         the foregoing or in respect of any other Guaranty obligations
         thereunder);

                  (b) the Borrower shall fail to pay any interest on any Loan or
         any fee or any other amount (other than an amount referred to in clause
         (a) of this Article) payable under this Credit Agreement, when and as
         the same shall become due and payable, and such failure shall continue
         unremedied for a period of five Business Days;

                  (c) any representation or warranty made or deemed made by or
         on behalf of the Borrower or any Subsidiary in or in connection with
         this Credit Agreement or any amendment or modification hereof, or in
         any report, certificate, financial statement or other document
         furnished pursuant to or in connection with this Credit Agreement or
         any amendment or modification hereof, shall prove to have been
         incorrect in any material respect when made or deemed made;


                                       41



                  (d) the Borrower shall fail to observe or perform any
         covenant, condition or agreement contained in Section 5.02, 5.03 (with
         respect to the Borrower's existence) or 5.08 or in Article VI;

                  (e) the Borrower shall fail to observe or perform any
         covenant, condition or agreement contained in this Credit Agreement
         (other than those specified in clause (a), (b) or (d) of this Article),
         and such failure shall continue unremedied for a period of 30 days
         after notice thereof from the Administrative Agent (given at the
         request of any Lender) to the Borrower;

                  (f) the Borrower or any Subsidiary shall fail to make any
         payment (whether of principal or interest and regardless of amount) in
         respect of any Material Indebtedness, when and as the same shall become
         due and payable (subject to any applicable grace periods or notice
         requirements);

                  (g) any event or condition occurs that results in any Material
         Indebtedness becoming due prior to its scheduled maturity or that
         enables or permits (with the giving of notice if required) the holder
         or holders of any Material Indebtedness or any trustee or agent on its
         or their behalf to cause any Material Indebtedness to become due, or to
         require the prepayment, repurchase, redemption or defeasance thereof,
         prior to its scheduled maturity; provided that this clause (g) shall
         not apply to (i) secured Indebtedness that becomes due as a result of
         the voluntary sale or transfer of the property or assets securing such
         Indebtedness or (ii) the Indebtedness under this Agreement or the Five
         Year Facility;

                  (h) an involuntary proceeding shall be commenced or an
         involuntary petition shall be filed seeking (i) liquidation,
         reorganization or other relief in respect of the Borrower or any
         Significant Subsidiary or its debts, or of a substantial part of its
         assets, under any Federal, state or foreign bankruptcy, insolvency,
         receivership or similar law now or hereafter in effect or (ii) the
         appointment of a receiver, trustee, custodian, sequestrator,
         conservator or similar official for the Borrower or any Significant
         Subsidiary or for a substantial part of its assets, and, in any such
         case, such proceeding or petition shall continue undismissed for 60
         days or an order or decree approving or ordering any of the foregoing
         shall be entered;

                  (i) the Borrower or any Significant Subsidiary shall (i)
         voluntarily commence any proceeding or file any petition seeking
         liquidation, reorganization or other relief under any Federal, state or
         foreign bankruptcy, insolvency, receivership or similar law now or
         hereafter in effect, (ii) consent to the institution of, or fail to
         contest in a timely and appropriate manner, any proceeding or petition
         described in clause (h) of this Article, (iii) apply for or consent to
         the appointment of a receiver, trustee, custodian, sequestrator,
         conservator or similar official for the Borrower or any Significant
         Subsidiary or for a substantial part of its assets, (iv) file an answer
         admitting the material allegations of a petition filed against it in
         any such proceeding, (v) make a general assignment for the benefit of
         creditors or (vi) take any action for the purpose of effecting any of
         the foregoing;


                                       42



                  (j) an Event of Default shall occur and be continuing under
         the Five Year Facility;

                  (k) the Borrower or any Significant Subsidiary shall become
         unable, admit in writing its inability to pay, or fail generally to pay
         its debts as they become due;

                  (l) one or more judgments or decrees shall be rendered against
         the Borrower, any Significant Subsidiary or any combination thereof and
         the same shall not have been paid, vacated, discharged, stayed or
         bonded pending appeal within 60 days from the entry thereof that
         involves in the aggregate a liability (not paid or fully covered by
         insurance) of $50,000,000 or more;

                  (m) an ERISA Event shall have occurred that, in the opinion of
         the Required Lenders, when taken together with all other ERISA Events
         that have occurred, could reasonably be expected to result in a
         Material Adverse Effect;

                  (n) a Change in Control of the Borrower shall occur; or

                  (o) the Guaranty or any provision thereof shall cease to be in
         full force and effect (other than in accordance with its terms) or any
         Guarantor or any Person acting by or on behalf of any Guarantor shall
         deny or disaffirm any Guarantor's obligations under the Guaranty;

         then, and in every such event (other than an event with respect to the
         Borrower described in clause (h) or (i) of this Article), and at any
         time thereafter during the continuance of such event, the
         Administrative Agent may, and at the request of the Required Lenders
         shall, by notice to the Borrower, take either or both of the following
         actions, at the same or different times: (i) terminate the Commitments,
         and thereupon the Commitments shall terminate immediately, and (ii)
         declare the Loans then outstanding to be due and payable in whole (or
         in part, in which case any principal not so declared to be due and
         payable may thereafter be declared to be due and payable), and
         thereupon the principal of the Loans so declared to be due and payable,
         together with accrued interest thereon and all fees and other
         obligations of the Borrower accrued hereunder, shall become due and
         payable immediately (and the Commitments shall terminate), without
         presentment, demand, protest or other notice of any kind, all of which
         are hereby waived by the Borrower; and in case of any event with
         respect to the Borrower described in clause (h) or (i) of this Article,
         the Commitments shall automatically terminate and the principal of the
         Loans then outstanding, together with accrued interest thereon and all
         fees and other obligations of the Borrower accrued hereunder, shall
         automatically become due and payable, without presentment, demand,
         protest or other notice of any kind, all of which are hereby waived by
         the Borrower.


                                       43



                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

         SECTION 8.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT.

         Each of the Lenders hereby irrevocably appoints the Administrative
Agent as its agent and authorizes the Administrative Agent to take such actions
on its behalf and to exercise such powers as are delegated to the Administrative
Agent by the terms hereof, together with such actions and powers as are
reasonably incidental thereto.

         The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or willful misconduct.

         SECTION 8.02 NOTICE OF DEFAULT.

         The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Credit Agreement,
(ii) the contents of any certificate, report or other document delivered
hereunder or in connection herewith, (iii) the performance or observance of any
of the covenants, agreements or other terms or conditions set forth herein, (iv)
the validity, enforceability, effectiveness or genuineness of this Credit
Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.

         SECTION 8.03 RELIANCE BY ADMINISTRATIVE AGENT.

         The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who


                                       44



may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.

         SECTION 8.04 DELEGATION OF DUTIES.

         The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

         SECTION 8.05 SUCCESSOR ADMINISTRATIVE AGENT.

         The Administrative Agent may resign as Administrative Agent upon 30
days' notice to the Lenders. If the Administrative Agent resigns under this
Agreement, the Required Lenders shall appoint from among the Lenders a successor
administrative agent for the Lenders which successor administrative agent shall
be consented to by the Borrower at all times other than during the existence of
an Event of Default (which consent of the Borrower shall not be unreasonably
withheld or delayed). If no successor administrative agent is appointed prior to
the effective date of the resignation of the Administrative Agent, the
Administrative Agent may appoint, after consulting with the Lenders and the
Borrower, a successor administrative agent from among the Lenders. Upon the
acceptance of its appointment as successor administrative agent hereunder, such
successor administrative agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor administrative agent and the retiring Administrative
Agent's appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article and Section 9.03 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement. If no successor administrative
agent has accepted appointment as Administrative Agent by the date which is 30
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as provided for above.

         SECTION 8.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY
ADMINISTRATIVE AGENT.

         Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the


                                       45



Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Credit
Agreement, any related agreement or any document furnished hereunder or
thereunder.

         SECTION 8.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT.

         Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand each Agent-Related Person (to the extent
not reimbursed by or on behalf of the Borrower or any Guarantor and without
limiting the obligation of the Borrower or any Guarantor to do so), pro rata,
and hold harmless each Agent-Related Person from and against any and all
Indemnified Liabilities incurred by it; provided, however, that no Lender shall
be liable for the payment to any Agent-Related Person of any portion of such
Indemnified Liabilities resulting from such Person's gross negligence or willful
misconduct; provided, however, that no action taken in accordance with the
directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section. Without
limitation of the foregoing, each Lender shall reimburse the Administrative
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including attorney costs) incurred by the Administrative Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Credit Agreement, any other Credit Document, or any document contemplated
by or referred to herein, to the extent that the Administrative Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking in
this Section shall survive termination of the Commitments, the payment of all
obligations hereunder and the resignation or replacement of the Administrative
Agent.

         SECTION 8.08 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.

         Bank of America and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Borrower and each of the Guarantors and their
respective Affiliates as though Bank of America were not the Administrative
Agent hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge that, pursuant to such activities, Bank of America or its Affiliates
may receive information regarding the Borrower, any of the Guarantors or their
respective Affiliates (including information that may be subject to
confidentiality obligations in favor of such Person or such Affiliate) and
acknowledge that the Administrative Agent shall be under no obligation to
provide such information to them. With respect to its Loans, Bank of America
shall have the same rights and powers under this Credit Agreement as any other
Lender and may exercise such rights and powers as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" include Bank of
America in its individual capacity.


                                       46



                                   ARTICLE IX

                                  MISCELLANEOUS

         SECTION 9.01      NOTICES.

         Except in the case of notices and other communications expressly
permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:

                  (a)      if to the Borrower:

                                 Medtronic, Inc.
                                 710 Medtronic Parkway
                                 Minneapolis, MN 55432-5604,
                                 Attention: Treasury Department, Mail Stop LC480
                                 Telecopy No. (763) 505-2700

                           with a copy to:

                                 Medtronic, Inc.
                                 710 Medtronic Parkway
                                 Minneapolis, MN 55432-5604,
                                 Attention: General Counsel, Mail Stop LC400
                                 Telecopy No. (763) 572-5459

                  (b) if to the Administrative Agent (for notices regarding
         borrowings, payments, conversions, fees, interest, and other
         administrative matter):

                                 Bank of America, N.A.
                                 Independence Center, 15th Floor
                                 NC1-001-15-04, 101 North Tryon Street
                                 Charlotte, North Carolina 28255
                                 Attn: Agency Services - Neal Hendrix
                                 Telephone: 704-386-4220
                                 Telecopy: 704-409-0017

                  (c) if to the Administrative Agent for all other notices
         (including with respect to delivery of financial statements, compliance
         certificates, Defaults and Events of Default, amendments, waivers and
         modifications of the Credit Documents and assignments):

                                 Bank of America, N.A.
                                 Agency Management
                                 1455 Market Street, CA5-704-05-19
                                 San Francisco, CA 94801
                                 Attention: Aamir Saleem
                                 Telephone: (415) 436-2769
                                 Telecopy: (415) 503-5089


                                       47



                           with a copy to:

                                 Bank of America, N. A.
                                 Location Code: NC1-007-17-11
                                 100 North Tryon, 17th Floor
                                 Charlotte, North Carolina 28202
                                 Attention: Phil Durand
                                 Telephone: (704) 386-4955
                                 Telecopy: (704) 388-6002

                  (d) if to any other Lender, to it at its address (or telecopy
         number) set forth in its Administrative Questionnaire.

         Any party hereto may change its address or telecopy number for notices
         and other communications hereunder by notice to the other parties
         hereto. All notices and other communications given to any party hereto
         in accordance with the provisions of this Credit Agreement shall be
         deemed to have been given on the date of receipt.

         SECTION 9.02 WAIVERS; AMENDMENTS.

                  (a) No failure or delay by the Administrative Agent or any
         Lender in exercising any right or power hereunder shall operate as a
         waiver thereof, nor shall any single or partial exercise of any such
         right or power, or any abandonment or discontinuance of steps to
         enforce such a right or power, preclude any other or further exercise
         thereof or the exercise of any other right or power. The rights and
         remedies of the Administrative Agent and the Lenders hereunder are
         cumulative and are not exclusive of any rights or remedies that they
         would otherwise have. No waiver of any provision of this Credit
         Agreement or consent to any departure by the Borrower or any Guarantor
         therefrom shall in any event be effective unless the same shall be
         permitted by paragraph (b) of this Section, and then such waiver or
         consent shall be effective only in the specific instance and for the
         purpose for which given. Without limiting the generality of the
         foregoing, the making of a Loan shall not be construed as a waiver of
         any Default, regardless of whether the Administrative Agent or any
         Lender may have had notice or knowledge of such Default at the time.

                  (b) Neither this Credit Agreement nor any provision hereof may
         be waived, amended or modified except pursuant to an agreement or
         agreements in writing entered into by the Borrower and the Required
         Lenders or by the Borrower and the Administrative Agent with the
         consent of the Required Lenders; provided that no such agreement shall
         (i) increase the Commitment of any Lender without the written consent
         of such Lender, (ii) reduce the principal amount of any Loan or reduce
         the rate of interest thereon, or reduce any fees payable hereunder,


                                       48



         without the written consent of each Lender directly affected thereby,
         (iii) postpone the scheduled date of payment of the principal amount of
         any Loan, or any interest thereon, or any fees payable hereunder, or
         reduce the amount of, waive or excuse any such payment, or postpone the
         scheduled date of expiration of any Commitment, without the written
         consent of each Lender directly affected thereby, (iv) change Section
         2.17(b) or (c) in a manner that would alter the pro rata sharing of
         payments required thereby, without the written consent of each Lender,
         (v) change any of the provisions of this Section or the definition of
         "Required Lenders" or any other provision hereof specifying the number
         or percentage of Lenders required to waive, amend or modify any rights
         hereunder or make any determination or grant any consent hereunder,
         without the written consent of each Lender or (vi) release all or
         substantially all of the Guarantors from their obligations under this
         Credit Agreement, without the written consent of each Lender; provided
         further that no such agreement shall amend, modify or otherwise affect
         the rights or duties of the Administrative Agent hereunder without the
         prior written consent of the Administrative Agent.

         SECTION 9.03 EXPENSES; INDEMNITY; DAMAGE WAIVER.

                  (a) The Borrower shall pay (i) all reasonable out-of-pocket
         expenses incurred by the Administrative Agent and its Affiliates,
         including the reasonable fees, charges and disbursements of outside
         counsel for the Administrative Agent, in connection with the
         syndication of the credit facilities provided for herein, the
         preparation and administration of this Credit Agreement or any
         amendments, modifications or waivers of the provisions hereof (whether
         or not the transactions contemplated hereby or thereby shall be
         consummated) and (ii) all reasonable out-of-pocket expenses incurred by
         the Administrative Agent or any Lender, including the fees and
         disbursements of any outside counsel for the Administrative Agent or
         any Lender, in connection with the enforcement or protection of its
         rights in connection with this Credit Agreement, including its rights
         under this Section, or in connection with the Loans made hereunder,
         including in connection with any workout, restructuring or negotiations
         in respect thereof.

                  (b) The Borrower shall indemnify the Administrative Agent and
         each Lender, and each Related Party of any of the foregoing Persons
         (each such Person being called an "Indemnitee") against, and hold each
         Indemnitee harmless from, any and all losses, claims, damages,
         liabilities and related expenses, including the fees and disbursements
         of any outside counsel for any Indemnitee, incurred by or asserted
         against any Indemnitee arising out of, in connection with, or as a
         result of (i) the execution or delivery of this Credit Agreement or any
         agreement or instrument contemplated hereby, the performance by the
         parties hereto of their respective obligations hereunder or the
         consummation of the Transactions or any other transactions contemplated
         hereby, (ii) any Loan or the actual or proposed use of the proceeds
         therefrom, (iii) any actual or alleged presence or release of Hazardous
         Materials on or from any property owned or operated by the Borrower or
         any of its Subsidiaries, or any Environmental Liability related in any
         way to the Borrower or any of its Subsidiaries, or (iv) any actual or
         prospective claim, litigation, investigation or proceeding relating to
         any of the foregoing, whether based on contract, tort or any other
         theory and regardless of whether any Indemnitee is a party thereto (all
         of the foregoing, collectively, the "Indemnified Liabilities");


                                       49



         provided that such indemnity shall not, as to any Indemnitee, be
         available to the extent that such losses, claims, damages, liabilities
         or related expenses are determined by a court of competent jurisdiction
         to have resulted from the gross negligence or willful misconduct of
         such Indemnitee.

                  (c) To the extent that the Borrower fails to pay any amount
         required to be paid by it to the Administrative Agent under paragraph
         (a) or (b) of this Section, each Lender severally agrees to pay to the
         Administrative Agent, such Lender's Applicable Percentage (determined
         as of the time that the applicable unreimbursed expense or indemnity
         payment is sought) of such unpaid amount; provided that the
         unreimbursed expense or indemnified loss, claim, damage, liability or
         related expense, as the case may be, was incurred by or asserted
         against the Administrative Agent in its capacity as such.

                  (d) To the extent permitted by applicable law, the Borrower
         shall not assert, and hereby waives, any claim against any Indemnitee,
         on any theory of liability, for special, indirect, consequential or
         punitive damages (as opposed to direct or actual damages) arising out
         of, in connection with, or as a result of, this Credit Agreement or any
         agreement or instrument contemplated hereby, the Transactions, any
         Loan, or the use of the proceeds thereof.

                  (e) All amounts due under this Section shall be payable
         promptly after written demand therefor.

         SECTION 9.04 SUCCESSORS AND ASSIGNS.

                  (a) The provisions of this Credit Agreement shall be binding
         upon and inure to the benefit of the parties hereto and their
         respective successors and assigns permitted hereby, except that neither
         the Borrower nor any Guarantor may assign or otherwise transfer any of
         its rights or obligations hereunder without the prior written consent
         of each Lender (and any attempted assignment or transfer by the
         Borrower or any Guarantor without such consent shall be null and void);
         provided, however, that no such consent shall be required for any
         transaction permitted under Section 6.04. Nothing in this Credit
         Agreement, expressed or implied, shall be construed to confer upon any
         Person (other than the parties hereto, their respective successors and
         assigns permitted hereby and, to the extent expressly contemplated
         hereby, the Related Parties of each of the Administrative Agent and the
         Lenders) any legal or equitable right, remedy or claim under or by
         reason of this Credit Agreement.

                  (b) Any Lender may assign to one or more assignees all or a
         portion of its rights and obligations under this Credit Agreement
         (including all or a portion of its Commitment and the Loans at the time
         owing to it); provided that (i) except in the case of an assignment to
         a Lender, an Affiliate of a Lender or an Approved Fund with respect
         thereto, each of the Borrower and the Administrative Agent must give
         their prior written consent to such assignment (which consent shall not
         be unreasonably withheld), (ii) except in the case of an assignment to
         a Lender, an Affiliate of a Lender, an Approved Fund with respect
         thereto or an assignment of the entire remaining amount of the


                                       50



         assigning Lender's Commitment, the amount of the Commitment of the
         assigning Lender subject to each such assignment (determined as of the
         date the Assignment and Acceptance with respect to such assignment is
         delivered to the Administrative Agent) shall not be less than
         $5,000,000, except in the case of an assignment of the entire remaining
         amount of the assigning Lender's Commitment, unless each of the
         Borrower and the Administrative Agent otherwise consent and, after
         giving effect to such assignment, the assigning Lender and its
         Affiliates and the Approved Funds with respect to such Lender shall
         have a Commitment of at least $5,000,000 unless each of the Borrower
         and the Administrative Agent otherwise consents, (iii) each partial
         assignment shall be made as an assignment of a proportionate part of
         all the assigning Lender's rights and obligations under this Credit
         Agreement, (iii) the parties to each assignment shall execute and
         deliver to the Administrative Agent an Assignment and Acceptance,
         together with a processing and recordation fee of $3,500, (iv) such
         assigning Lender shall simultaneously assign an identical percentage of
         the loans and commitments of such Lender under the Five Year Facility
         to such assignee, and (v) the assignee, if it shall not be a Lender,
         shall deliver to the Administrative Agent an Administrative
         Questionnaire; provided further that any consent of the Borrower
         otherwise required under this paragraph shall not be required if an
         Event of Default has occurred and is continuing. Upon acceptance and
         recording pursuant to paragraph (d) of this Section, from and after the
         effective date specified in each Assignment and Acceptance, the
         assignee thereunder shall be a party hereto and, to the extent of the
         interest assigned by such Assignment and Acceptance, have the rights
         and obligations of a Lender under this Credit Agreement, and the
         assigning Lender thereunder shall, to the extent of the interest
         assigned by such Assignment and Acceptance, be released from its
         obligations under this Credit Agreement (and, in the case of an
         Assignment and Acceptance covering all of the assigning Lender's rights
         and obligations under this Credit Agreement, such Lender shall cease to
         be a party hereto but shall continue to be entitled to the benefits of
         Sections 2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a
         Lender of rights or obligations under this Credit Agreement that does
         not comply with this paragraph shall be treated for purposes of this
         Credit Agreement as a sale by such Lender of a participation in such
         rights and obligations in accordance with paragraph (e) of this
         Section.

                  (c) The Administrative Agent, acting for this purpose as an
         agent of the Borrower, shall maintain at one of its offices in
         Charlotte, North Carolina a copy of each Assignment and Acceptance
         delivered to it and a register for the recordation of the names and
         addresses of the Lenders, and the Commitment of, and principal amount
         of the Loans owing to, each Lender pursuant to the terms hereof from
         time to time (the "Register"). The entries in the Register shall be
         conclusive (absent manifest error), and the Borrower, the
         Administrative Agent and the Lenders may treat each Person whose name
         is recorded in the Register pursuant to the terms hereof as a Lender
         hereunder for all purposes of this Credit Agreement, notwithstanding
         notice to the contrary.

                  (d) Upon its receipt of a duly completed Assignment and
         Acceptance executed by an assigning Lender and an assignee, the
         assignee's completed Administrative Questionnaire (unless the assignee
         shall already be a Lender hereunder), the processing and recordation
         fee referred to in paragraph (b) of this Section and any written


                                       51



         consent to such assignment required by paragraph (b) of this Section,
         the Administrative Agent shall accept such Assignment and Acceptance
         and record the information contained therein in the Register. No
         assignment shall be effective for purposes of this Credit Agreement
         unless it has been recorded in the Register as provided in this
         paragraph.

                  (e) Any Lender may, without the consent of the Borrower or the
         Administrative Agent, sell participations to one or more banks or other
         entities (a "Participant") in all or a portion of such Lender's rights
         and obligations under this Credit Agreement (including all or a portion
         of its Commitment and the Loans owing to it); provided that (i) such
         Lender's obligations under this Credit Agreement shall remain
         unchanged, (ii) such Lender shall remain solely responsible to the
         other parties hereto for the performance of such obligations and (iii)
         the Borrower, the Administrative Agent and the other Lenders shall
         continue to deal solely and directly with such Lender in connection
         with such Lender's rights and obligations under this Credit Agreement.
         Any agreement or instrument pursuant to which a Lender sells such a
         participation shall provide that such Lender shall retain the sole
         right to enforce this Credit Agreement and to approve any amendment,
         modification or waiver of any provision of this Credit Agreement;
         provided that such agreement or instrument may provide that such Lender
         will not, without the consent of the Participant, agree to any
         amendment, modification or waiver described in the first proviso to
         Section 9.02(b) that affects such Participant. Subject to paragraph (f)
         of this Section, the Borrower agrees that each Participant shall be
         entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same
         extent as if it were a Lender and had acquired its interest by
         assignment pursuant to paragraph (b) of this Section.

                  (f) A Participant shall not be entitled to receive any greater
         payment under Section 2.14 or 2.16 than the applicable Lender would
         have been entitled to receive with respect to the participation sold to
         such Participant, unless the sale of the participation to such
         Participant is made with the Borrower's prior written consent. A
         Participant that would be a Foreign Lender if it were a Lender shall
         not be entitled to the benefits of Section 2.16 unless the Borrower is
         notified of the participation sold to such Participant and such
         Participant agrees, for the benefit of the Borrower, to comply with
         Section 2.16(e) as though it were a Lender.

                  (g) Any Lender may at any time pledge or assign a security
         interest in all or any portion of its rights under this Credit
         Agreement to secure obligations of such Lender, including any such
         pledge or assignment to a Federal Reserve Bank, and this Section shall
         not apply to any such pledge or assignment of a security interest;
         provided that no such pledge or assignment of a security interest shall
         release a Lender from any of its obligations hereunder or substitute
         any such assignee for such Lender as a party hereto.

                  (h) Notwithstanding anything to the contrary contained herein,
         any Lender (a "Granting Lender") may grant to a special purpose funding
         vehicle (an "SPC") of such Granting Lender, identified as such in
         writing from time to time by the Granting Lender to the Administrative


                                       52



         Agent and the Borrower, the option to provide to the Borrower all or
         any part of any Loan that such Granting Lender would otherwise be
         obligated to make to the Borrower pursuant to Section 2.01, provided
         that (i) nothing herein shall constitute a commitment to make any Loan
         by any SPC and (ii) if an SPC elects not to exercise such option or
         otherwise fails to provide all or any part of such Loan, the Granting
         Lender shall be obligated to make such Loan pursuant to the terms
         hereof. The making of a Loan by an SPC hereunder shall utilize the
         Commitment of the Granting Lender to the same extent, and as if, such
         Loan were made by the Granting Lender. Each party hereto hereby agrees
         that no SPC shall be liable for any payment under this Credit Agreement
         for which a Lender would otherwise be liable, for so long as, and to
         the extent, the related Granting Lender makes such payment. In
         furtherance of the foregoing, each party hereto hereby agrees that,
         prior to the date that is one year and one day after the payment in
         full of all outstanding senior indebtedness of any SPC, it will not
         institute against, or join any other person in instituting against,
         such SPC any bankruptcy, reorganization, arrangement, insolvency or
         liquidation proceedings or similar proceedings under the laws of the
         United States or any State thereof. In addition, notwithstanding
         anything to the contrary contained in this Section 9.04 or in Section
         9.12, any SPC may (i) with notice to, but without the prior written
         consent of, the Borrower or the Administrative Agent and without paying
         any processing fee therefor, assign all or a portion of its interests
         in any Loans to its Granting Lender or to any financial institutions
         providing liquidity and/or credit facilities to or for the account of
         such SPC to fund the Loans made by such SPC or to support the
         securities (if any) issued by such SPC to fund such Loans and (ii)
         disclose on a confidential basis any non-public information relating to
         its Loans to any rating agency, commercial paper dealer or provider of
         a surety, guarantee or credit or liquidity enhancement to such SPC.

         SECTION 9.05 SURVIVAL.

         All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Credit Agreement shall be considered to have
been relied upon by the other parties hereto and shall survive the execution and
delivery of this Credit Agreement and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent or any Lender may have had notice or knowledge of
any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Credit Agreement is outstanding and unpaid and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.14,
2.15, 2.16 and 9.03 and Article VIII shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans and the Commitments or the termination of this Credit
Agreement or any provision hereof.

         SECTION 9.06 COUNTERPARTS; INTEGRATION; EFFECTIVENESS.

         This Credit Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single


                                       53



contract. This Credit Agreement and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among
the parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the subject
matter hereof. Except as provided in Section 4.01, this Credit Agreement shall
become effective when it shall have been executed by the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Credit Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Credit
Agreement.

         SECTION 9.07 SEVERABILITY.

         Any provision of this Credit Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

         SECTION 9.08 RIGHT OF SETOFF.

         If an Event of Default shall have occurred and be continuing, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Credit Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under this
Credit Agreement and although such obligations may be unmatured. The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.

         SECTION 9.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.

                  (a) This Credit Agreement shall be construed in accordance
         with and governed by the law of the State of New York.

                  (b) Each of the Borrower and the Guarantors hereby irrevocably
         and unconditionally submits, for itself and its property, to the
         nonexclusive jurisdiction of the Supreme Court of the State of New York
         sitting in New York County and of the United States District Court of
         the Southern District of New York, and any appellate court from any
         thereof, in any action or proceeding arising out of or relating to this
         Credit Agreement, or for recognition or enforcement of any judgment,
         and each of the parties hereto hereby 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 extent
         permitted by law, in such Federal court. Each of the parties hereto


                                       54



         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 Credit
         Agreement shall affect any right that the Administrative Agent or any
         Lender may otherwise have to bring any action or proceeding relating to
         this Credit Agreement against the Borrower or any Guarantor or their
         respective properties in the courts of any jurisdiction.

                  (c) Each of the Borrower and the Guarantors hereby irrevocably
         and unconditionally waives, to the fullest extent it may legally and
         effectively do so, any objection which it may now or hereafter have to
         the laying of venue of any suit, action or proceeding arising out of or
         relating to this Credit Agreement 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 law, the defense of an
         inconvenient forum to the maintenance of such action or proceeding in
         any such court.

                  (d) Each party to this Credit Agreement irrevocably consents
         to service of process in the manner provided for notices in Section
         9.01. Nothing in this Credit Agreement will affect the right of any
         party to this Credit Agreement to serve process in any other manner
         permitted by law.

         SECTION 9.10 WAIVER OF JURY TRIAL.

         EACH PARTY HERETO HEREBY 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 THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY 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 BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

         SECTION 9.11 HEADINGS.

         Article and Section headings and the Table of Contents used herein are
for convenience of reference only, are not part of this Credit Agreement and
shall not affect the construction of, or be taken into consideration in
interpreting, this Credit Agreement.

         SECTION 9.12 CONFIDENTIALITY.

         Each of the Administrative Agent and the Lenders agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates' and its Approved Funds'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure


                                       55



is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent, and only to the extent, required
by applicable laws or regulations or by any subpoena or similar legal process,
provided that the Person required to disclose such information shall take
reasonable efforts (at Borrower's expense) to ensure that any Information so
disclosed shall be afforded confidential treatment, (d) to any other party to
this Credit Agreement, (e) in connection with the exercise of any remedies
hereunder or any suit, action or proceeding relating to this Credit Agreement or
the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Credit Agreement, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available to
the Administrative Agent or any Lender on a nonconfidential basis from a source
other than the Borrower who is not, to the knowledge of the Administrative Agent
or such Lender, under an obligation of confidentiality to Borrower with respect
to such Information. For the purposes of this Section, "Information" means all
information received from the Borrower relating to the Borrower or its business,
other than any such information that is available to the Administrative Agent or
any Lender on a nonconfidential basis prior to disclosure by the Borrower;
provided that, in the case of information received from the Borrower after the
date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.


                                    ARTICLE X

                                    GUARANTY

         SECTION 10.1 THE GUARANTY.

         In order to induce the Lenders to enter into this Credit Agreement and
the other Credit Documents and to extend credit hereunder and in recognition of
the direct benefits to be received by the Guarantors from the Borrowings
hereunder, each of the Guarantors hereby agrees with the Administrative Agent
and the Lenders as follows: the Guarantor hereby unconditionally and irrevocably
jointly and severally guarantees as primary obligor and not merely as surety the
full and prompt payment when due, whether upon maturity, by acceleration or
otherwise, of any and all obligations of the Borrower to the Administrative
Agent and the Lenders. If any or all of the obligations of the Borrower to the
Administrative Agent and the Lenders becomes due and payable hereunder, each
Guarantor unconditionally promises to pay such indebtedness to the
Administrative Agent and the Lenders, on order, or demand, together with any and
all reasonable expenses which may be incurred by the Administrative Agent or the
Lenders in collecting any of the obligations.

         Notwithstanding any provision to the contrary contained herein, to the
extent the obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any


                                       56



applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of each such Guarantor hereunder shall be limited to the
maximum amount that is permissible under applicable law (whether federal or
state).

         SECTION 10.2 BANKRUPTCY.

         Additionally, each of the Guarantors unconditionally and irrevocably
guarantees jointly and severally the payment of any and all indebtedness of the
Borrower to the Administrative Agent and Lenders whether or not due or payable
by the Borrower upon the occurrence of any of the Event of Default specified in
Article VII, subsection (i), and unconditionally promises to pay such
obligations to the Administrative Agent for the account of the Lenders, or
order, on demand, in lawful money of the United States. Each of the Guarantors
further agrees that to the extent that the Borrower or a Guarantor shall make a
payment or a transfer of an interest in any property to the Administrative Agent
or any Lender, which payment or transfer or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, or otherwise is avoided,
and/or required to be repaid to the Borrower or a Guarantor, the estate of the
Borrower or a Guarantor, a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such avoidance or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.

         SECTION 10.3 NATURE OF LIABILITY.

         The liability of each Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the indebtedness of the Borrower
whether executed by any such Guarantor, any other guarantor or by any other
party, and no Guarantor's liability hereunder shall be affected or impaired by
(a) any direction as to application of payment by the Borrower or by any other
party, or (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the indebtedness of the
Borrower, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change
in personnel by the Borrower, or (e) any payment made to the Administrative
Agent or the Lenders on the indebtedness which the Administrative Agent or such
Lenders repay the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each of the Guarantors waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding.

         SECTION 10.4 INDEPENDENT OBLIGATION.

         The obligations of each Guarantor hereunder are independent of the
obligations of any other guarantor or the Borrower, and a separate action or
actions may be brought and prosecuted against each Guarantor whether or not
action is brought against any other guarantor or the Borrower and whether or not
any other Guarantor or the Borrower is joined in any such action or actions.


                                       57



         SECTION 10.5 AUTHORIZATION.

         Each of the Guarantors authorizes the Administrative Agent and each
Lender without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the indebtedness or any part thereof in accordance with this Credit
Agreement, including any increase or decrease of the rate of interest thereon,
(b) take and hold security from any guarantor or any other party for the payment
of this Guaranty or the indebtedness and exchange, enforce waive and release any
such security, (c) apply such security and direct the order or manner of sale
thereof as the Administrative Agent and the Lenders in their discretion may
determine and (d) release or substitute any one or more endorsers, guarantors,
the Borrower or other obligors.

         SECTION 10.6 RELIANCE.

         It is not necessary for the Administrative Agent or the Lenders to
inquire into the capacity or powers of the Borrower or the officers, directors,
members, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.

         SECTION 10.7 WAIVER.

                  (a) Each of the Guarantors waives any right (except as shall
         be required by applicable statute and cannot be waived) to require the
         Administrative Agent or any Lender to (i) proceed against the Borrower,
         any other guarantor or any other party, (ii) proceed against or exhaust
         any security held from the Borrower, any other guarantor or any other
         party, or (iii) pursue any other remedy in the Administrative Agent's
         or any Lender's power whatsoever. Each of the Guarantors waives any
         defense based on or arising out of any defense of the Borrower, any
         other guarantor or any other party other than payment in full of the
         indebtedness, including without limitation any defense based on or
         arising out of the disability of the Borrower, any other guarantor or
         any other party, or the unenforceability of the indebtedness or any
         part thereof from any cause, or the cessation from any cause of the
         liability of the Borrower other than payment in full of the
         indebtedness. The Administrative Agent or any of the Lenders may, at
         their election, foreclose on any security held by the Administrative
         Agent or a Lender by one or more judicial or nonjudicial sales, whether
         or not every aspect of any such sale is commercially reasonable (to the
         extent such sale is permitted by applicable law), or exercise any other
         right or remedy the Administrative Agent and any Lender may have
         against the Borrower or any other party, or any security, without
         affecting or impairing in any way the liability of any Guarantor
         hereunder except to the extent the indebtedness has been paid. Each of
         the Guarantors waives any defense arising out of any such election by
         the Administrative Agent and each of the Lenders, even though such
         election operates to impair or extinguish any right of reimbursement or
         subrogation or other right or remedy of the Guarantors against the
         Borrower or any other party or any security.


                                       58



                  (b) Each of the Guarantors waives all presentments, demands
         for performance, protests and notices, including without limitation
         notices of nonperformance, notice of protest, notices of dishonor,
         notices of acceptance of this Guaranty, and notices of the existence,
         creation or incurring of new or additional indebtedness. Each Guarantor
         assumes all responsibility for being and keeping itself informed of the
         Borrower's financial condition and assets, and of all other
         circumstances bearing upon the risk of nonpayment of the indebtedness
         and the nature, scope and extent of the risks which such Guarantor
         assumes and incurs hereunder, and agrees that neither the
         Administrative Agent nor any Lender shall have any duty to advise such
         Guarantor of information known to it regarding such circumstances or
         risks.

                  (c) Each of the Guarantors hereby agrees it will not exercise
         any rights of subrogation which it may at any time otherwise have as a
         result of this Guaranty (whether contractual, under Section 509 of the
         U.S. Bankruptcy Code, or otherwise) to the claims of the Administrative
         Agent and the Lenders against the Borrower or any other guarantor of
         the indebtedness of the Borrower owing to the Administrative Agent and
         the Lenders (collectively, the "Other Parties") and all contractual,
         statutory or common law rights of reimbursement, contribution or
         indemnity from any Other Party which it may at any time otherwise have
         as a result of this Guaranty until such time as the Loans hereunder
         shall have been paid and the Commitments have been terminated. Each of
         the Guarantors hereby further agrees not to exercise any right to
         enforce any other remedy which the Administrative Agent and the Lenders
         now have or may hereafter have against any Other Party, any endorser or
         any other guarantor of all or any part of the indebtedness of the
         Borrower and any benefit of, and any right to participate in, any
         security or collateral given to or for the benefit of the Lenders to
         secure payment of the indebtedness of the Borrower until such time as
         the Loans hereunder shall have been paid and the Commitments have been
         terminated.

         SECTION 10.8 LIMITATION ON ENFORCEMENT.

         The Lenders agree that this Guaranty may be enforced only by the action
of the Administrative Agent acting upon the instructions of the Required Lenders
and that no Lender shall have any right individually to seek to enforce or to
enforce this Guaranty, it being understood and agreed that such rights and
remedies may be exercised by the Administrative Agent for the benefit of the
Lenders under the terms of this Credit Agreement. The Lenders further agree that
this Guaranty may not be enforced against any director, officer, employee or
stockholder or other equityholder of the Guarantors.

         SECTION 10.9 CONFIRMATION OF PAYMENT.

         The Administrative Agent and the Lenders will, upon request after
payment of the indebtedness and obligations which are the subject of this
Guaranty and termination of the Commitments relating thereto, confirm to the


                                       59



Borrower, the Guarantors or any other Person that such indebtedness and
obligations have been paid and the Commitments relating thereto terminated,
subject to the provisions of Section 10.2.


                                       60



         IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written


BORROWER:                               MEDTRONIC, INC,
- --------                                a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


GUARANTORS:                             MEDTRONIC MINIMED, INC.,
- ----------                              a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC INTERNATIONAL, LTD,
                                        a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC AVE, INC.,
                                        a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC INTERNATIONAL
                                        TECHNOLOGY, INC.,
                                        a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                       61



                                        MEDTRONIC SOFAMOR DANEK, INC.,
                                        an Indiana corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC USA, INC.,
                                        a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                       62



                                        BANK OF AMERICA, N.A.,
                                        individually in its capacity as
                                        Administrative Agent


                                        By:    /s/ Christine Cordi
                                           -------------------------------------
                                        Name:  Christine Cordi
                                             -----------------------------------
                                        Title: Vice-President
                                              ----------------------------------


LENDERS:                                BANK OF AMERICA, N.A.,
                                        As Lender


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                        BANK OF AMERICA, N.A.,
                                        As Swingline Lender


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                        BANK OF AMERICA, N.A.,
                                        As Letter of Credit Issuer


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                       63



LENDERS:                                BANK ONE, N.A.,
                                        As Lender


                                        By:    /s/ Anthony F. Maggiore
                                           -------------------------------------
                                        Name:  Anthony F. Maggiore
                                             -----------------------------------
                                        Title: Director, Capital Markets
                                              ----------------------------------


                                        THE BANK OF TOKYO-MITSUBISHI,
                                        LTD., CHICAGO BRANCH
                                        As Lender


                                        By:    /s/ Patrick McCue
                                           -------------------------------------
                                        Name:  Patrick McCue
                                             -----------------------------------
                                        Title: Vice President & Manager
                                              ----------------------------------


                                        BNP PARIBAS,
                                        As Lender


                                        By:    /s/ Thomas H. Ambrose
                                           -------------------------------------
                                        Name:  Thomas H. Ambrose
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        By:    /s/ Christine L. Howatt
                                           -------------------------------------
                                        Name:  Christine L. Howatt
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        CITICORP USA, INC.
                                        As Lender


                                        By:    /s/ Mary O'Connell
                                           -------------------------------------
                                        Name:  Mary O'Connell
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                       64



                                        DEUTSCHE BANK AG, NEW YORK
                                        BRANCH
                                        As Lender


                                        By:    /s/ Iain Stewart
                                           -------------------------------------
                                        Name:  Iain Stewart
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        By:    /s/ Jean M. Hannigan
                                           -------------------------------------
                                        Name:  Jean M. Hannigan
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        FIRST UNION NATIONAL
                                        BANK,
                                        As Lender


                                        By:    /s/ Paige Mesaros
                                           -------------------------------------
                                        Name:  Paige Mesaros
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        FLEET NATIONAL BANK, N.A.
                                        As Lender


                                        By:    /s/ Gordon B. Coughlin
                                           -------------------------------------
                                        Name:  Gordon B. Coughlin
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        THE FUJI BANK, LTD.
                                        As Lender


                                        By:    /s/ Peter L. Chinnici
                                           -------------------------------------
                                        Name:  Peter L. Chinnici
                                             -----------------------------------
                                        Title: Senior Vice President & Group
                                               Head
                                              ----------------------------------


                                       65



                                        KEYBANK NATIONAL
                                        ASSOCIATION,
                                        As Lender


                                        By:    /s/ Frank J. Jancar
                                           -------------------------------------
                                        Name:  Frank J. Jancar
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        ROYAL BANK OF CANADA,
                                        As Lender


                                        By:    /s/ Gordon C. MacArthur
                                           -------------------------------------
                                        Name:  Gordon C. MacArthur
                                             -----------------------------------
                                        Title: Senior Manager
                                              ----------------------------------


                                        SUNTRUST BANK,
                                        As Lender


                                        By:    /s/ Cathy Hunnicutt
                                           -------------------------------------
                                        Name:  Cathy Hunnicutt
                                             -----------------------------------
                                        Title: Assistant Vice President
                                              ----------------------------------


                                        UBS AG, STAMFORD BRANCH,
                                        As Lender


                                        By:    /s/ Wilfred V. Saint
                                           -------------------------------------
                                        Name:  Wilfred V. Saint
                                             -----------------------------------
                                        Title: Associate Director Banking
                                               Products Services, US
                                              ----------------------------------


                                        By:    /s/ Lynne B. Alfarone
                                           -------------------------------------
                                        Name:  Lynne B. Alfarone
                                             -----------------------------------
                                        Title: Associate Director Banking
                                               Products Services, US
                                              ----------------------------------


                                       66



                                        U.S. BANK NATIONAL
                                        ASSOCIATION,
                                        As Lender


                                        By:    /s/ Karen Weathers
                                           -------------------------------------
                                        Name:  Karen Weathers
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        WELLS FARGO BANK,
                                        NATIONAL ASSOCIATION
                                        As Lender


                                        By:    /s/ Christopher A. Cudak
                                           -------------------------------------
                                        Name:  Christopher A. Cudak
                                             -----------------------------------
                                        Title: Vice President
                                               Wells Fargo Bank, National
                                               Association
                                              ----------------------------------


                                        By:    /s/ James D. Heinz
                                           -------------------------------------
                                        Name:  James D. Heinz
                                             -----------------------------------
                                        Title: Senior Vice President
                                              ----------------------------------


                                       67

EX-4.5

                                                                     EXHIBIT 4.5


                                                                [EXECUTION COPY]





                                CREDIT AGREEMENT
               ($500,000,000 Five Year Revolving Credit Facility)

                                   dated as of

                                January 24, 2002

                                      among

                                MEDTRONIC, INC.,

                                  as Borrower,

                          CERTAIN OF ITS SUBSIDIARIES,

                                 as Guarantors,

                            THE LENDERS PARTY HERETO,

                             BANK OF AMERICA, N.A.,

                             as Administrative Agent

                                       and

                         BANC OF AMERICA SECURITIES LLC,

                   as Sole Lead Arranger and Sole Book Manager




                                TABLE OF CONTENTS

                                                                                                
ARTICLE I  Definitions..............................................................................1

         Section 1.01      Defined Terms............................................................1
                           -------------
         Section 1.02      Classification of Loans and Borrowings..................................16
                           --------------------------------------
         Section 1.03      Terms Generally.........................................................16
                           ---------------
         Section 1.04      Accounting Terms; GAAP..................................................16
                           ----------------------

ARTICLE II  The Credits............................................................................17
            -----------
         Section 2.01      Commitments.............................................................17
                           -----------
         Section 2.02      Revolving Loans and Revolving Borrowings................................17
                           ----------------------------------------
         Section 2.03      Requests for Revolving Borrowings.......................................18
                           ---------------------------------
         Section 2.04      Requests for Swingline Borrowings.......................................19
                           ---------------------------------
         Section 2.05      Letters of Credit.......................................................20
                           -----------------
         Section 2.06      Funding of Revolving Borrowings.........................................25
                           -------------------------------
         Section 2.07      Interest Elections......................................................26
                           ------------------
         Section 2.08      Termination and Reduction of Commitments................................27
                           ----------------------------------------
         Section 2.09      Repayment of Loans; Evidence of Debt....................................28
                           ------------------------------------
         Section 2.10      Prepayment of Loans.....................................................28
                           -------------------
         Section 2.11      Fees....................................................................29
                           ----
         Section 2.12      Interest................................................................30
                           --------
         Section 2.13      Alternate Rate of Interest..............................................32
                           --------------------------
         Section 2.14      Increased Costs.........................................................32
                           ---------------
         Section 2.15      Break Funding Payments..................................................33
                           ----------------------
         Section 2.16      Taxes...................................................................34
                           -----
         Section 2.17      Payments Generally; Pro Rata Treatment; Sharing of Set-offs.............35
                           -----------------------------------------------------------
         Section 2.18      Mitigation Obligations; Replacement of Lenders..........................37
                           ----------------------------------------------

ARTICLE III  Representations and Warranties........................................................38
             ------------------------------
         Section 3.01      Organization; Powers....................................................38
                           --------------------
         Section 3.02      Authorization; Enforceability...........................................38
                           -----------------------------
         Section 3.03      Governmental Approvals; No Conflicts....................................38
                           ------------------------------------
         Section 3.04      Financial Condition; No Material Adverse Change.........................39
                           -----------------------------------------------
         Section 3.05      Properties..............................................................39
                           ----------
         Section 3.06      Litigation and Environmental Matters....................................39
                           ------------------------------------
         Section 3.07      Compliance with Laws and Agreements.....................................40
                           -----------------------------------
         Section 3.08      Investment and Holding Company Status...................................40
                           -------------------------------------
         Section 3.09      Taxes...................................................................40
                           -----
         Section 3.10      ERISA...................................................................40
                           -----
         Section 3.11      Disclosure..............................................................41
                           ----------
         Section 3.12      Federal Regulations.....................................................41
                           -------------------
         Section 3.13      Purpose of Loans........................................................41
                           ----------------
         Section 3.14      Subsidiaries and Significant Subsidiaries...............................41
                           -----------------------------------------




                                       i



                                                                                                
ARTICLE IV  Conditions.............................................................................42
            ----------
         Section 4.01      Closing Conditions......................................................42
                           ------------------
         Section 4.02      Each Credit Event.......................................................43
                           -----------------

ARTICLE V  Affirmative Covenants...................................................................43
           ---------------------
         Section 5.01      Financial Statements and Other Information..............................43
                           ------------------------------------------
         Section 5.02      Notices of Material Events..............................................45
                           --------------------------
         Section 5.03      Existence; Conduct of Business..........................................45
                           ------------------------------
         Section 5.04      Payment of Obligations..................................................45
                           ----------------------
         Section 5.05      Maintenance of Properties; Insurance....................................46
                           ------------------------------------
         Section 5.06      Books and Records; Inspection Rights....................................46
                           ------------------------------------
         Section 5.07      Compliance with Laws....................................................46
                           --------------------
         Section 5.08      Use of Proceeds.........................................................46
                           ---------------
         Section 5.09      Maintenance of Accreditation, Etc.......................................46
                           ---------------------------------
         Section 5.10      Additional Subsidiary Guarantors........................................47
                           --------------------------------

ARTICLE VI  Negative Covenants.....................................................................47
            ------------------
         Section 6.01      Consolidated Tangible Net Worth.........................................47
                           -------------------------------
         Section 6.02      Indebtedness............................................................47
                           ------------
         Section 6.03      Liens...................................................................48
                           -----
         Section 6.04      Fundamental Changes.....................................................48
                           -------------------
         Section 6.05      Transactions with Affiliates............................................49
                           ----------------------------
         Section 6.06      Restrictive Agreements..................................................49
                           ----------------------
         Section 6.07      Business Activity.......................................................49
                           -----------------
         Section 6.08      Restricted Payments.....................................................49
                           -------------------

ARTICLE VII  Events of Default.....................................................................50
             -----------------

ARTICLE VIII  The Administrative Agent.............................................................52
              ------------------------
         Section 8.01      Appointment and Authorization of Administrative Agent...................52
                           -----------------------------------------------------
         Section 8.02      Notice of Default.......................................................53
                           -----------------
         Section 8.03      Reliance by Administrative Agent........................................53
                           --------------------------------
         Section 8.04      Delegation of Duties....................................................53
                           --------------------
         Section 8.05      Successor Administrative Agent..........................................53
                           ------------------------------
         Section 8.06      Credit Decision; Disclosure of Information by Administrative Agent......54
                           ------------------------------------------------------------------
         Section 8.07      Indemnification of Administrative Agent.................................54
                           ---------------------------------------
         Section 8.08      Administrative Agent in its Individual Capacity.........................55
                           -----------------------------------------------

ARTICLE IX  Miscellaneous..........................................................................55
            -------------
         Section 9.01      Notices.................................................................55
                           -------
         Section 9.02      Waivers; Amendments.....................................................57
                           -------------------
         Section 9.03      Expenses; Indemnity; Damage Waiver......................................58
                           ----------------------------------
         Section 9.04      Successors and Assigns..................................................59
                           ----------------------
         Section 9.05      Survival................................................................62
                           --------
         Section 9.06      Counterparts; Integration; Effectiveness................................62
                           ----------------------------------------
         Section 9.07      Severability............................................................63
                           ------------




                                       ii



                                                                                                
         Section 9.08      Right of Setoff.........................................................63
                           ---------------
         Section 9.09      Governing Law; Jurisdiction; Consent to Service of Process..............63
                           ----------------------------------------------------------
         Section 9.10      WAIVER OF JURY TRIAL....................................................64
                           --------------------
         Section 9.11      Headings................................................................64
                           --------
         Section 9.12      Confidentiality.........................................................64
                           ---------------

ARTICLE X  GUARANTY................................................................................65
           --------
         Section 10.1      The Guaranty............................................................65
                           ------------
         Section 10.2      Bankruptcy..............................................................66
                           ----------
         Section 10.3      Nature of Liability.....................................................66
                           -------------------
         Section 10.4      Independent Obligation..................................................66
                           ----------------------
         Section 10.5      Authorization...........................................................67
                           -------------
         Section 10.6      Reliance................................................................67
                           --------
         Section 10.7      Waiver..................................................................67
                           ------
         Section 10.8      Limitation on Enforcement...............................................68
                           -------------------------
         Section 10.9      Confirmation of Payment.................................................69
                           -----------------------




                                      iii



SCHEDULES:

Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 3.14 -- Subsidiaries and Significant Subsidiaries
Schedule 6.02 -- Existing Indebtedness
Schedule 6.03 -- Existing Liens

EXHIBITS:

Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Joinder Agreement
Exhibit C -- Form of Revolving Borrowing Request
Exhibit D -- Form of Interest Election Request


                                       iv



                                CREDIT AGREEMENT

         THIS FIVE YEAR CREDIT AGREEMENT (this "Credit Agreement" or
"Agreement"), dated as of January 24, 2002, among Medtronic, Inc., a Minnesota
corporation (the "Borrower"), the Subsidiaries of the Borrower listed on the
signature pages hereto (individually a "Guarantor", collectively the
"Guarantors"), the Lenders party hereto, and Bank of America, N.A., as
Administrative Agent, Issuing Bank and Swingline Lender.

                              W I T N E S S E T H:

         WHEREAS, the Borrower is party to the $3,000,000,000 Credit Agreement
dated as of August 27, 2001, as amended (the "Existing Credit Agreement"), among
the Borrower, certain Subsidiaries of the Borrower party thereto, the lenders
parties thereto and Bank of America, N.A., as Administrative Agent.

         WHEREAS, the Borrower desires to replace the Existing Credit Agreement
with this Agreement and the 364-Day Facility (as defined below) upon the terms,
and subject to the conditions, hereinafter set forth.

         NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.01 DEFINED TERMS.

         As used in this Credit Agreement, the following terms have the meanings
specified below:

                  "ABR", when used in reference to any Loan or Borrowing, refers
         to whether such Loan, or the Loans comprising such Borrowing, are
         bearing interest at a rate determined by reference to the Alternate
         Base Rate.

                  "Administrative Agent" means Bank of America, in its capacity
         as administrative agent for the Lenders hereunder, and its successors
         in such capacity.

                  "Administrative Questionnaire" means an Administrative
         Questionnaire in a form supplied by the Administrative Agent.

                  "Affiliate" means, with respect to a specified Person, another
         Person that directly, or indirectly through one or more intermediaries,
         Controls or is Controlled by or is under common Control with the Person
         specified.

                  "Agent-Related Persons" means the Administrative Agent
         (including any successor agent), together with its Affiliates
         (including, in the case of Bank of America in its capacity as the
         Administrative Agent, the Arranger), and the officers, directors,
         employees, agents and attorneys-in-fact of such Persons and Affiliates.




                  "Alternate Base Rate" means, for any day, a rate per annum
         equal to the greater of (a) the Prime Rate in effect on such day and
         (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
         1%. Any change in the Alternate Base Rate due to a change in the Prime
         Rate or the Federal Funds Effective Rate shall be effective from and
         including the effective date of such change in the Prime Rate or the
         Federal Funds Effective Rate, respectively.

                  "Applicable Percentage" means, with respect to any Lender, the
         percentage of the total Commitments represented by such Lender's
         Commitment. If the Commitments have terminated or expired, the
         Applicable Percentages shall be determined based upon the Commitments
         most recently in effect, giving effect to any assignments.

                  "Applicable Rate" means, for any day, with respect to any
         Eurodollar Loan, or with respect to the facility fees or utilization
         fees payable hereunder, as the case may be, the applicable rate per
         annum set forth below (in basis points) under the caption "Eurodollar
         Spread", "Facility Fee Rate", or "Utilization Fee Rate", as the case
         may be, based upon the ratings by Moody's and S&P, respectively,
         applicable on such date to the Index Debt:



         =======================================================================================================


          CATEGORY         MOODY'S/S&P RATING       EURODOLLAR SPREAD  FACILITY FEE RATE   UTILIZATION FEE RATE
                                                                                                (COMMITMENT
                                                                                          UTILIZATION PERCENTAGE
                                                                                             GREATER THAN 50%)
         -------------------------------------------------------------------------------------------------------
                                                                                       
              I      Greater than or equal to Aa2/AA      12.25               6.5                   5.0

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

             II       Greater than or equal to Aa3/AA-    13.00               7.0                   7.5
                           but less than Aa2/AA

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

            III       Greater than or equal to A1/A+      19.50               8.0                   7.5
                           but less than Aa3/AA-

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

             IV       Greater than or equal to A2/A       25.00              10.0                  10.0
                           but less than A1/A+

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

              V              Less than A2/A               32.50              12.5                  12.5

         =======================================================================================================


                  For purposes of the foregoing, (i) if either Moody's or S&P
         shall not have in effect a rating for the Index Debt (other than by
         reason of the circumstances referred to in the last sentence of this
         definition), then such rating agency shall be deemed to have
         established a rating in Category V; (ii) if the ratings established or
         deemed to have been established by Moody's and S&P for the Index Debt
         shall fall within different Categories, the Applicable Rate shall be
         based on the higher of the two ratings unless one of the two ratings is
         two or more Categories lower than the other, in which case the
         Applicable Rate shall be determined by reference to the Category next
         above that of the lower of the two


                                       2



         ratings; and (iii) if the ratings established or deemed to have been
         established by Moody's and S&P for the Index Debt shall be changed
         (other than as a result of a change in the rating system of Moody's or
         S&P), such change shall be effective as of the date on which it is
         first announced by the applicable rating agency. Each change in the
         Applicable Rate shall apply during the period commencing on the
         effective date of such change and ending on the date immediately
         preceding the effective date of the next such change. If the rating
         system of Moody's or S&P shall change, or if either such rating agency
         shall cease to be in the business of rating corporate debt obligations,
         the Borrower and the Lenders shall negotiate in good faith to amend
         this definition to reflect such changed rating system or the
         unavailability of ratings from such rating agency and, pending the
         effectiveness of any such amendment, the Applicable Rate shall be
         determined by reference to the rating most recently in effect prior to
         such change or cessation.

                  "Approved Fund" means with respect to any Lender that is a
         fund that invests in commercial loans, any other fund that invests in
         commercial loans and is managed or advised by the same investment
         advisor as such Lender or by an Affiliate of such investment advisor.

                  "Arranger" means Banc of America Securities LLC, in its
         capacity as sole lead arranger and sole book manager.

                  "Assignment and Acceptance" means an assignment and acceptance
         entered into by a Lender and an assignee (with the consent of any party
         whose consent is required by Section 9.04), and accepted by the
         Administrative Agent, in the form of Exhibit A or any other form
         approved by the Administrative Agent.

                  "Availability Period" means the period from and including the
         Closing Date to but excluding the earlier of the Maturity Date and the
         date of termination of the Commitments.

                  "Bank of America" means Bank of America, N.A.

                  "Board" means the Board of Governors of the Federal Reserve
         System of the United States of America.

                  "Borrower" means Medtronic, Inc., a Minnesota corporation.

                  "Borrowing" means a Revolving Borrowing or a Swingline
         Borrowing, as the case may be.

                  "Business Day" means any day that is not a Saturday, Sunday or
         other day on which commercial banks in Charlotte, North Carolina or New
         York, New York are authorized or required by law to remain closed;
         provided that, when used in connection with a Eurodollar Loan, the term
         "Business Day" shall also exclude any day on which banks are not open
         for dealings in dollar deposits in the London interbank market.


                                       3



                  "Capital Lease Obligations" of any Person means the
         obligations of such Person to pay rent or other amounts under any lease
         of (or other arrangement conveying the right to use) real or personal
         property, or a combination thereof, which obligations are required to
         be classified and accounted for as capital leases on a balance sheet of
         such Person under GAAP, and the amount of such obligations shall be the
         capitalized amount thereof determined in accordance with GAAP.

                  "Capital Stock" means (i) in the case of a corporation,
         capital stock, (ii) in the case of an association or business entity,
         any and all shares, interests, participations, rights or other
         equivalents (however designated) of capital stock, (iii) in the case of
         a partnership, partnership interests (whether general or limited), (iv)
         in the case of a limited liability company, membership interests and
         (v) any other interest or participation that confers on a Person the
         right to receive a share of the profits and losses of, or distributions
         of assets of, the issuing Person.

                  "Cash Equivalents" shall mean (a) securities issued or
         directly and fully guaranteed or insured by the United States of
         America or any agency or instrumentality thereof (provided that the
         full faith and credit of the United States of America is pledged in
         support thereof) having maturities of not more than twelve months from
         the date of acquisition ("Government Obligations"), (b) U.S. dollar
         denominated (or foreign currency fully hedged) time deposits,
         certificates of deposit, Eurodollar time deposits and Eurodollar
         certificates of deposit of (y) any domestic commercial bank of
         recognized standing having capital and surplus in excess of
         $250,000,000 or (z) any bank whose short-term commercial paper rating
         from S&P is at least A-1 or the equivalent thereof or from Moody's is
         at least P-1 or the equivalent thereof (any such bank being an
         "Approved Bank"), in each case with maturities of not more than 364
         days from the date of acquisition, (c) commercial paper and variable or
         fixed rate notes issued by any Approved Bank (or by the parent company
         thereof) or commercial paper or any variable rate notes issued by, or
         guaranteed by any domestic corporation rated A-2 (or the equivalent
         thereof) or better by S&P or P-2 (or the equivalent thereof) or better
         by Moody's and maturing within six months of the date of acquisition,
         (d) repurchase agreements with a bank or trust company (including a
         Lender) or a recognized securities dealer having capital and surplus in
         excess of $500,000,000 for direct obligations issued by or fully
         guaranteed by the United States of America, (e) obligations of any
         state of the United States or any political subdivision thereof for the
         payment of the principal and redemption price of and interest on which
         there shall have been irrevocably deposited Government Obligations
         maturing as to principal and interest at times and in amounts
         sufficient to provide such payment and (f) auction preferred stock
         rated in the highest short-term credit rating category by S&P or
         Moody's.

                  "Change in Control" means (a) the acquisition of ownership,
         directly or indirectly, beneficially or of record, by any Person or
         group (within the meaning of the Securities Exchange Act of 1934 and
         the rules of the SEC thereunder as in effect on the date hereof), of
         shares representing more than 25% of the aggregate ordinary voting
         power represented by the issued and outstanding Capital Stock of the
         Borrower; (b) occupation of a majority of the seats (other than vacant
         seats) on the board of directors of the


                                       4



         Borrower by Persons who were neither (i) nominated by the board of
         directors of the Borrower nor (ii) appointed by directors so nominated;
         or (c) the acquisition of direct or indirect Control of the Borrower by
         any Person or group.

                  "Change in Law" means (a) the adoption of any law, rule or
         regulation after the date of this Credit Agreement, (b) any change in
         any law, rule or regulation or in the interpretation or application
         thereof by any Governmental Authority after the date of this Credit
         Agreement or (c) compliance by any Lender or the Issuing Bank (or, for
         purposes of Section 2.14(b), by any lending office of such Lender or by
         such Lender's or the Issuing Bank's holding company, if any) with any
         request, guideline or directive (whether or not having the force of
         law) of any Governmental Authority made or issued after the date of
         this Credit Agreement.

                  "Closing Date" means the date hereof.

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

                  "Commitment" means, with respect to each Lender, the
         commitment of such Lender to make Loans and to acquire participations
         in Swingline Loans and Letters of Credit hereunder, expressed as an
         amount representing the maximum aggregate amount of such Lender's
         Revolving Credit Exposure hereunder, as such commitment may be reduced
         from time to time pursuant to Section 2.08. The initial amount of each
         Lender's Commitment is set forth on Schedule 2.01, or in the Assignment
         and Acceptance pursuant to which such Lender shall have assumed its
         Commitment, as applicable.

                  "Commitment Utilization Percentage" means on any day the
         percentage equivalent of a fraction (a) the numerator of which is the
         sum of (i) the aggregate outstanding principal amount of Loans (but not
         including any Swingline Loans) hereunder plus the aggregate amount of
         LC Exposure hereunder plus (ii) the aggregate outstanding principal
         amount of "Loans" under the 364-Day Facility (as such term is defined
         therein) and (b) the denominator of which is the sum of (i) aggregate
         amount of the Commitments (or, on any day after termination of the
         Commitments, the aggregate amount of the Commitments in effect
         immediately preceding such termination) hereunder plus (ii) the
         aggregate amount of the Commitments (or, on any day after termination
         of the Commitments, the aggregate amount of the Commitments in effect
         immediately preceding such termination) under the 364-Day Facility (as
         such term is defined therein).

                  "Consolidated Assets" means the consolidated assets of the
         Borrower and its Subsidiaries, determined in accordance with GAAP.

                  "Consolidated Tangible Assets" means the Consolidated Assets
         less: (i) goodwill and (ii) other intangibles (other than patents,
         trademarks, licenses, copyrights and other intellectual property and
         prepaid assets).

                  "Consolidated Tangible Net Worth" means at any date,
         Consolidated Tangible Assets minus Consolidated Total Liabilities,
         determined in accordance with GAAP.


                                       5



                  "Consolidated Total Liabilities" means at any date, with
         respect to the Borrower and its Subsidiaries on a consolidated basis,
         total liabilities, determined in accordance with GAAP.

                  "Control" means the possession, directly or indirectly, of the
         power to direct or cause the direction of the management or policies of
         a Person, whether through the ability to exercise voting power, by
         contract or otherwise. "Controlling" and "Controlled" have meanings
         correlative thereto.

                  "Credit Documents" means a collective reference to this Credit
         Agreement, the promissory notes, if any, each Joinder Agreement and all
         other related agreements and documents issued or delivered hereunder or
         thereunder or pursuant hereto or thereto (in each case as the same may
         be amended, modified, restated, supplemented, extended, renewed or
         replaced from time to time), and "Credit Document" means any one of
         them.

                  "Debt Issuance" means the issuance of any Indebtedness for
         borrowed money by the Borrower or any of its Subsidiaries.

                  "Default" means any event or condition which constitutes an
         Event of Default or which upon notice, lapse of time or both would,
         unless cured or waived, become an Event of Default.

                  "Disclosed Matters" means the actions, suits and proceedings
         and the environmental matters disclosed in Schedule 3.06.

                  "dollars" or "$" refers to lawful money of the United States
         of America.

                  "Environmental Laws" means all laws, rules, regulations,
         codes, ordinances, orders, decrees, judgments, injunctions, notices or
         binding agreements issued, promulgated or entered into by any
         Governmental Authority, relating in any way to the environment,
         preservation or reclamation of natural resources or the management,
         release or threatened release of any Hazardous Material.

                  "Environmental Liability" means any liability, contingent or
         otherwise (including any liability for damages, costs of environmental
         remediation, fines, penalties or indemnities), of the Borrower or any
         Subsidiary directly or indirectly resulting from or based upon (a)
         violation of any Environmental Law, (b) the generation, use, handling,
         transportation, storage, treatment or disposal of any Hazardous
         Materials, (c) exposure to any Hazardous Materials, (d) the release or
         threatened release of any Hazardous Materials into the environment or
         (e) any contract, agreement or other consensual arrangement pursuant to
         which liability is assumed or imposed with respect to any of the
         foregoing.

                  "Equity Issuance" means any issuance by the Borrower or any of
         its Subsidiaries to any Person of (a) shares of its Capital Stock other
         than (i) any shares of its Capital Stock pursuant to the exercise of
         options or warrants, (ii) any shares of its Capital Stock pursuant to
         the conversion of any debt securities to equity and (iii) in the case
         of Subsidiaries, any


                                       6



         shares of its Capital Stock issued to the Borrower or any of its
         Subsidiaries or (b) any options or warrants relating to its Capital
         Stock. The term "Equity Issuance" shall not include (i) any Debt
         Issuance or (ii) the issuance of Capital Stock of the Borrower pursuant
         to any stock plans of the Borrower or its Subsidiaries.

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

                  "ERISA Affiliate" means any trade or business (whether or not
         incorporated) that, together with the Borrower, is treated as a single
         employer under Section 414(b) or (c) of the Code or, solely for
         purposes of Section 302 of ERISA and Section 412 of the Code, is
         treated as a single employer under Section 414 of the Code.

                  "ERISA Event" means (a) any "reportable event", as defined in
         Section 4043 of ERISA or the regulations issued thereunder with respect
         to a Plan (other than an event for which the 30-day notice period is
         waived); (b) the existence with respect to any Plan of an "accumulated
         funding deficiency" (as defined in Section 412 of the Code or Section
         302 of ERISA), whether or not waived; (c) the filing pursuant to
         Section 412(d) of the Code or Section 303(d) of ERISA of an application
         for a waiver of the minimum funding standard with respect to any Plan;
         (d) the incurrence by the Borrower or any of its ERISA Affiliates of
         any liability under Title IV of ERISA with respect to the termination
         of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
         from the PBGC or a plan administrator of any notice relating to an
         intention to terminate any Plan or Plans or to appoint a trustee to
         administer any Plan; (f) the incurrence by the Borrower or any of its
         ERISA Affiliates of any liability with respect to the withdrawal or
         partial withdrawal from any Plan or Multiemployer Plan; or (g) the
         receipt by the Borrower or any ERISA Affiliate of any notice, or the
         receipt by any Multiemployer Plan from the Borrower or any ERISA
         Affiliate of any notice, concerning the imposition of Withdrawal
         Liability or a determination that a Multiemployer Plan is, or is
         expected to be, insolvent or in reorganization, within the meaning of
         Title IV of ERISA.

                  "Eurodollar", when used in reference to any Loan or Borrowing,
         refers to whether such Loan, or the Loans comprising such Borrowing,
         are bearing interest at a rate determined by reference to the LIBO
         Rate.

                  "Event of Default" has the meaning assigned to such term in
         Article VII.

                  "Excess Utilization Day" means each day on which the
         Commitment Utilization Percentage exceeds 50%.

                  "Excluded Taxes" means, with respect to the Administrative
         Agent, any Lender, the Issuing Bank or any other recipient of any
         payment to be made by or on account of any obligation of the Borrower
         hereunder, (a) income or franchise taxes imposed on (or measured by)
         its net income by the United States of America, or by the jurisdiction
         under the laws of which such recipient is organized or in which its
         principal office is located or, in the case of any Lender, in which its
         applicable lending office is located,


                                       7



         (b) any branch profits taxes imposed by the United States of America or
         any similar tax imposed by any other jurisdiction in which any Lender
         is located and (c) in the case of a Foreign Lender (other than an
         assignee pursuant to a request by the Borrower under Section 2.18(b)),
         any withholding tax that is imposed on amounts payable to such Foreign
         Lender at the time such Foreign Lender becomes a party to this Credit
         Agreement or is attributable to such Foreign Lender's failure or
         inability to comply with Section 2.16(e), except to the extent that
         such Foreign Lender's assignor (if any) was entitled, at the time of
         assignment, to receive additional amounts from the Borrower with
         respect to such withholding tax pursuant to Section 2.16(a).

                  "Federal Funds Effective Rate" means, for any day, the
         weighted average (rounded upwards, if necessary, to the next 1/100 of
         1%) of the rates on overnight Federal funds transactions with members
         of the Federal Reserve System arranged by Federal funds brokers, as
         published on the next succeeding Business Day by the Federal Reserve
         Bank of New York, or, if such rate is not so published for any day that
         is a Business Day, the average (rounded upwards, if necessary, to the
         next 1/100 of 1%) of the quotations for such day for such transactions
         received by the Administrative Agent from three Federal funds brokers
         of recognized standing selected by it.

                  "Fee Letter" means the letter agreement dated December 14,
         2001 addressed to the Borrower from the Administrative Agent, as
         amended, modified, restated or otherwise supplemented from time to
         time.

                   "Financial Officer" means the chief financial officer,
         principal accounting officer, senior vice president of finance,
         treasurer, assistant treasurer, controller or assistant controller of
         the Borrower or any officer having substantially the same position for
         the Borrower.

                  "Foreign Lender" means any Lender that is organized under the
         laws of a jurisdiction other than that in which the Borrower is
         located. For purposes of this definition, the United States of America,
         each State thereof and the District of Columbia shall be deemed to
         constitute a single jurisdiction.

                  "GAAP" means generally accepted accounting principles in the
         United States of America.

                  "Governmental Authority" means the government of the United
         States of America, any other nation or any political subdivision
         thereof, whether state or local, and any agency, authority,
         instrumentality, regulatory body, court, central bank or other entity
         exercising executive, legislative, judicial, taxing, regulatory or
         administrative powers or functions of or pertaining to government.

                  "Guarantee" of or by any Person (the "guarantor") means any
         obligation, contingent or otherwise, of the guarantor guaranteeing or
         having the economic effect of guaranteeing any Indebtedness or other
         obligation of any other Person (the "primary obligor") in any manner,
         whether directly or indirectly, and including any obligation of the


                                       8



         guarantor, direct or indirect, (a) to purchase or pay (or advance or
         supply funds for the purchase or payment of) such Indebtedness or other
         obligation or to purchase (or to advance or supply funds for the
         purchase of) any security for the payment thereof, (b) to purchase or
         lease property, securities or services for the purpose of assuring the
         owner of such Indebtedness or other obligation of the payment thereof,
         (c) to maintain working capital, equity capital or any other financial
         statement condition or liquidity of the primary obligor so as to enable
         the primary obligor to pay such Indebtedness or other obligation or (d)
         as an account party in respect of any letter of credit or letter of
         guaranty issued to support such Indebtedness or obligation; provided,
         that the term Guarantee shall not include endorsements for collection
         or deposit in the ordinary course of business.

                  "Guarantor" means each of the Persons identified as a
         "Guarantor" on the signature pages hereto and each Person which may
         hereafter execute a Joinder Agreement pursuant to Section 5.10,
         together with their successors and permitted assigns, and "Guarantor"
         means any one of them.

                  "Guaranty" shall mean the guaranty of the Guarantors set forth
         in Article X.

                  "Hazardous Materials" means all explosive or radioactive
         substances or wastes and all hazardous or toxic substances, wastes or
         other pollutants, including petroleum or petroleum distillates,
         asbestos or asbestos containing materials, polychlorinated biphenyls,
         radon gas, infectious or medical wastes and all other substances or
         wastes of any nature regulated pursuant to any Environmental Law.

                  "Hedging Agreement" means any interest rate protection
         agreement, foreign currency exchange agreement, commodity price
         protection agreement or other interest or currency exchange rate or
         commodity price hedging arrangement.

                  "Indebtedness" of any Person means, without duplication, (a)
         all obligations of such Person for borrowed money or with respect to
         similar cash advances (including, without limitation, all obligations
         pursuant to any sale or financing of receivables, but excluding any
         premiums, fees and deposits received in the ordinary course of
         business), (b) all obligations of such Person evidenced by bonds,
         debentures, notes or similar instruments, (c) all obligations of such
         Person under conditional sale or other title retention agreements
         relating to property acquired by such Person, (d) all obligations of
         such Person in respect of the deferred purchase price of property or
         services (excluding current accounts payable or other like obligations
         incurred in the ordinary course of business), (e) all Indebtedness of
         others secured by (or for which the holder of such Indebtedness has an
         existing right, contingent or otherwise, to be secured by) any Lien on
         property owned or acquired by such Person, whether or not the
         Indebtedness secured thereby has been assumed, (f) all Guarantees by
         such Person of Indebtedness of others, (g) all Capital Lease
         Obligations of such Person, (h) all obligations, contingent or
         otherwise, of such Person as an account party in respect of letters of
         credit and letters of guaranty and (i) all obligations, contingent or
         otherwise, of such Person in respect of bankers' acceptances. The
         Indebtedness of any Person shall include the Indebtedness of any other
         entity (including any partnership in which such Person is a general
         partner) to


                                       9



         the extent such Person is liable therefor as a result of such Person's
         ownership interest in or other relationship with such entity, except to
         the extent the terms of such Indebtedness provide that such Person is
         not liable therefor. Notwithstanding the foregoing, Indebtedness shall
         exclude Indebtedness of the Borrower to any Subsidiary and of any
         Subsidiary to the Borrower or any other Subsidiary.

                  "Indemnified Liabilities" shall have the meaning assigned to
         such term in Section 9.03(b).

                  "Indemnified Taxes" means Taxes other than Excluded Taxes.

                  "Index Debt" means senior, unsecured, long-term indebtedness
         for borrowed money of the Borrower that is not guaranteed by any other
         Person or subject to any other credit enhancement.

                  "Interest Election Request" means a request by the Borrower to
         convert or continue a Revolving Borrowing in accordance with Section
         2.07, in substantially the form of Exhibit D.

                  "Interest Payment Date" means (a) with respect to any ABR Loan
         (including Swingline Loans), the last day of each March, June,
         September and December, and (b) with respect to any Eurodollar Loan,
         the last day of the Interest Period applicable to the Revolving
         Borrowing of which such Loan is a part and, in the case of a Eurodollar
         Borrowing with an Interest Period of more than three months' duration,
         each day prior to the last day of such Interest Period that occurs at
         intervals of three months' duration after the first day of such
         Interest Period.

                  "Interest Period" means with respect to any Eurodollar
         Borrowing, the period commencing on the date of such Eurodollar
         Borrowing and ending on the numerically corresponding day in the
         calendar month that is one, two, three or six months thereafter, as the
         Borrower may elect; provided, that (i) if any Interest Period would end
         on a day other than a Business Day, such Interest Period shall be
         extended to the next succeeding Business Day unless such next
         succeeding Business Day would fall in the next calendar month, in which
         case such Interest Period shall end on the immediately preceding
         Business Day and (ii) any Interest Period that commences on the last
         Business Day of a calendar month (or on a day for which there is no
         numerically corresponding day in the last calendar month of such
         Interest Period) shall end on the last Business Day of the last
         calendar month of such Interest Period.

                  "Issuing Bank" means Bank of America in its capacity as the
         issuer of Letters of Credit hereunder, and its successors in such
         capacity as provided in Section 2.05(j).

                  "Joinder Agreement" means a Joinder Agreement substantially in
         the form of Exhibit B hereto, executed and delivered by a new Guarantor
         in accordance with the provisions of Section 5.10.

                  "LC Commitment" means $50,000,000.


                                       10



                  "LC Disbursement" means a payment made by the Issuing Bank
         pursuant to a Letter of Credit.

                  "LC Exposure" means, at any time, the sum of (a) the aggregate
         undrawn amount of all outstanding Letters of Credit at such time plus
         (b) the aggregate amount of all LC Disbursements that have not yet been
         reimbursed by or on behalf of the Borrower at such time. The LC
         Exposure of any Lender at any time shall be its Applicable Percentage
         of the total LC Exposure at such time.

                  "Lenders" means the Persons listed on Schedule 2.01 and any
         other Person that shall have become a party hereto pursuant to an
         Assignment and Acceptance, other than any such Person that ceases to be
         a party hereto pursuant to an Assignment and Acceptance.

                  "Letter of Credit" means any letter of credit issued pursuant
         to this Agreement.

                  "LIBO Rate" means, with respect to any Eurodollar Borrowing
         for any Interest Period, the rate appearing on Page 3750 of the
         Telerate screen (or on any successor or substitute page of such
         Service, or any successor to or substitute for such Service, providing
         rate quotations comparable to those currently provided on such page of
         such Service, as determined by the Administrative Agent from time to
         time for purposes of providing quotations of interest rates applicable
         to dollar deposits in the London interbank market) at approximately
         11:00 a.m., London time, two Business Days prior to the commencement of
         such Interest Period, as the rate for dollar deposits with a maturity
         comparable to such Interest Period. In the event that such rate is not
         available at such time for any reason, then the "LIBO Rate" with
         respect to such Eurodollar Borrowing for such Interest Period shall be
         the rate at which dollar deposits of $5,000,000 and for a maturity
         comparable to such Interest Period are offered by the principal London
         office of the Administrative Agent in immediately available funds in
         the London interbank market at approximately 11:00 a.m., London time,
         two Business Days prior to the commencement of such Interest Period.

                  "Lien" means, with respect to any asset (a) any mortgage, deed
         of trust, lien, pledge, hypothecation, encumbrance, charge or security
         interest in, on or of such asset, (b) the interest of a vendor or a
         lessor under any conditional sale agreement, capital lease or title
         retention agreement (or any financing lease having substantially the
         same economic effect as any of the foregoing) relating to such asset
         and (c) in the case of securities, any purchase option, call or similar
         right of a third party with respect to such securities.

                  "Loans" means the loans made by the Lenders to the Borrower
         pursuant to Article II of this Credit Agreement (including, without
         limitation, the Swingline Loans).

                  "Material Adverse Effect" means a material adverse effect on
         (a) the business, property, operations or financial condition of the
         Borrower and the Subsidiaries taken as a whole, (b) the ability of the
         Borrower to perform any of its obligations under this Credit Agreement
         or (c) the legal rights of or benefits available to the Lenders under
         this Credit Agreement.


                                       11



                  "Material Indebtedness" means Indebtedness (other than the
         Loans), or obligations in respect of one or more Hedging Agreements, of
         any one or more of the Borrower and its Subsidiaries in an aggregate
         principal amount exceeding $100,000,000. For purposes of determining
         Material Indebtedness, the "principal amount" of the obligations of the
         Borrower or any Subsidiary in respect of any Hedging Agreement at any
         time shall be the maximum aggregate amount (giving effect to any
         netting agreements) that the Borrower or such Subsidiary would be
         required to pay if such Hedging Agreement were terminated at such time.

                  "Maturity Date" means the fifth anniversary of the Closing
         Date.

                  "Moody's" means Moody's Investors Service, Inc.

                  "Multiemployer Plan" means a multiemployer plan as defined in
         Section 4001(a)(3) of ERISA.

                  "Net Cash Proceeds" means the aggregate proceeds paid in cash
         or Cash Equivalents received by the Borrower or any of its Subsidiaries
         in respect of any Equity Issuance or Debt Issuance, net of (a) direct
         costs (including, without limitation, legal, accounting and investment
         banking fees, and sales commissions) and (b) taxes paid or payable as a
         result thereof; it being understood that "Net Cash Proceeds" shall
         include, without limitation, any cash or Cash Equivalents received upon
         the sale or other disposition of any non-cash consideration received by
         the Borrower or any Subsidiary of the Borrower in any Equity Issuance
         or Debt Issuance.

                  "Other Taxes" means any and all present or future stamp or
         documentary taxes or any other excise or property taxes, charges or
         similar levies arising from any payment made hereunder or from the
         execution, delivery or enforcement of, or otherwise with respect to,
         this Credit Agreement.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
         to and defined in ERISA and any successor entity performing similar
         functions.

                  "Permitted Encumbrances" means:

                  (a) Liens imposed by law for taxes that are not yet due or are
         being contested in compliance with Section 5.04;

                  (b) carriers', warehousemen's, mechanics', materialmen's,
         repairmen's and other like Liens imposed by law, arising in the
         ordinary course of business and securing obligations that are not
         overdue by more than 30 days or are being contested in compliance with
         Section 5.04;


                                       12



                  (c) pledges and deposits made in the ordinary course of
         business in compliance with workers' compensation, unemployment
         insurance and other social security laws or regulations;

                  (d) deposits to secure the performance of bids, trade
         contracts, leases, statutory obligations, surety and appeal bonds,
         performance bonds and other obligations of a like nature, in each case
         in the ordinary course of business;

                  (e) Liens arising out of judgments or awards so long as an
         appeal or proceeding for review is being prosecuted in good faith and
         for the payment of which adequate reserves, bonds or other security
         reasonably acceptable to the Administrative Agent have been provided or
         are fully covered by insurance; and

                  (f) easements, zoning restrictions, rights-of-way and similar
         encumbrances on real property imposed by law or arising in the ordinary
         course of business that do not secure any monetary obligations and do
         not materially detract from the value of the affected property or
         interfere with the ordinary conduct of business of the Borrower or any
         Subsidiary;

         provided that the term "Permitted Encumbrances" shall not include any
         Lien securing Indebtedness.

                  "Person" means any natural person, corporation, limited
         liability company, trust, joint venture, association, company,
         partnership, Governmental Authority or other entity.

                  "Plan" means any employee pension benefit plan (other than a
         Multiemployer Plan) subject to the provisions of Title IV of ERISA or
         Section 412 of the Code or Section 302 of ERISA, and in respect of
         which the Borrower or any ERISA Affiliate is (or, if such plan were
         terminated, would under Section 4069 of ERISA be deemed to be) an
         "employer" as defined in Section 3(5) of ERISA.

                  "Prime Rate" means the rate of interest per annum publicly
         announced from time to time by Bank of America as its prime rate in
         effect at its principal office in Charlotte, North Carolina; each
         change in the Prime Rate shall be effective from and including the date
         such change is publicly announced as being effective.

                  "Property" means any interest in any kind of property or
         asset, whether real, personal or mixed, or tangible or intangible.

                  "Register" has the meaning set forth in Section 9.04(c).

                  "Related Parties" means, with respect to any specified Person,
         such Person's Affiliates and the respective directors, officers,
         employees, agents and advisors of such Person and such Person's
         Affiliates.


                                       13



                  "Required Lenders" means, at any time, Lenders having
         Revolving Credit Exposures and unused Commitments representing more
         than 50% of the sum of the total Revolving Credit Exposures and unused
         Commitments at such time.

                  "Restricted Payment" means (i) any dividend or other
         distribution, direct or indirect, on account of any shares of any class
         of capital stock of the Borrower or any of its Subsidiaries, now or
         hereafter outstanding, (ii) any redemption, retirement, sinking fund or
         similar payment, purchase or other acquisition for value, direct or
         indirect, of any shares of any class of capital stock of the Borrower
         or any of its Subsidiaries, now or hereafter outstanding, and (iii) any
         payment made to retire, or to obtain the surrender of, any outstanding
         warrants, options or other rights to acquire shares of any class of
         capital stock of the Borrower or any of its Subsidiaries, now or
         hereafter outstanding.

                  "Revolving Borrowing" means Revolving Loans of the same Type,
         made, converted or continued on the same date and in the case of
         Eurodollar Loans, as to which a single Interest Period is in effect.

                  "Revolving Borrowing Request" means a request by the Borrower
         for a Revolving Borrowing in accordance with Section 2.03, in
         substantially the form of Exhibit C.

                  "Revolving Credit Exposure" means, with respect to any Lender
         at any time, the sum of the outstanding principal amount of such
         Lender's Loans, Swingline Exposure and LC Exposure at such time.

                  "Revolving Loan" means a Loan made pursuant to Section 2.03.

                  "SEC" means the United States Securities and Exchange
         Commission.

                  "S&P" means Standard & Poor's Ratings Services.

                  "Significant Subsidiary" means, at any particular time, any
         Subsidiary of the Borrower (or such Subsidiary and its Subsidiaries
         taken together) that would be a "significant subsidiary" of the
         Borrower within the meaning of Rule 1-02 under Regulation S-X
         promulgated by the SEC.

                  "Statutory Reserve Rate" means a fraction (expressed as a
         decimal), the numerator of which is the number one and the denominator
         of which is the number one minus the aggregate of the maximum reserve
         percentages (including any marginal, special, emergency or supplemental
         reserves) expressed as a decimal established by the Board to which the
         Administrative Agent or any Lender is subject for eurocurrency funding
         (currently referred to as "Eurocurrency Liabilities" in Regulation D of
         the Board). Such reserve percentages shall include those imposed
         pursuant to such Regulation D. Eurodollar Loans shall be deemed to
         constitute eurocurrency funding and to be subject to such reserve
         requirements without benefit of or credit for proration, exemptions or
         offsets that may be available from time to time to any Lender under
         such Regulation D or any comparable regulation. The Statutory Reserve
         Rate shall be adjusted automatically on and as of the effective date of
         any change in any reserve percentage.


                                       14



                  "subsidiary" means, with respect to any Person (the "parent")
         at any date, any corporation, limited liability company, partnership,
         association or other entity the accounts of which would be consolidated
         with those of the parent in the parent's consolidated financial
         statements if such financial statements were prepared in accordance
         with GAAP as of such date, as well as any other corporation, limited
         liability company, partnership, association or other entity (a) of
         which securities or other ownership interests representing more than
         50% of the equity or more than 50% of the ordinary voting power or, in
         the case of a partnership, more than 50% of the general partnership
         interests are, as of such date, owned, Controlled or held, or (b) that
         is, as of such date, otherwise Controlled, by the parent or one or more
         subsidiaries of the parent or by the parent and one or more
         subsidiaries of the parent.

                  "Subsidiary" means any subsidiary of the Borrower.

                  "Swingline Borrowing" means a Swingline Loan made pursuant to
         Section 2.04(b).

                  "Swingline Commitment" means the commitment of the Swingline
         Lender to make Swingline Loans in an aggregate principal amount at any
         time outstanding of up to the Swingline Committed Amount.

                  "Swingline Committed Amount" shall have the meaning assigned
         to such term in Section 2.04(a).

                  "Swingline Exposure" means, at any time, the aggregate amount
         of all Swingline Loans outstanding at such time. The Swingline Exposure
         of any Lender at any time shall be its Applicable Percentage of the
         total Swingline Exposure at such time.

                  "Swingline Lender" means Bank of America, in its capacity as
         lender of Swingline Loans hereunder, and its successors in such
         capacity.

                  "Swingline Loan" means a Loan made pursuant to Section 2.04.

                  "Taxes" means any and all present or future taxes, levies,
         imposts, duties, deductions, charges or withholdings imposed by any
         Governmental Authority.

                  "Transactions" means the execution, delivery and performance
         by the Borrower of this Credit Agreement, the borrowing of Loans, the
         use of the proceeds thereof and the issuance of Letters of Credit
         hereunder.

                  "Type", when used in reference to any Loan or Borrowing,
         refers to whether the rate of interest on such Loan, or on the Loans
         comprising such Borrowing, is determined by reference to the LIBO Rate
         or the Alternate Base Rate.


                                       15



                  "Used Commitment" means the aggregate outstanding principal
         amount of Loans (but not including any Swingline Loans) hereunder plus
         the aggregate amount of LC Exposure hereunder.

                  "Withdrawal Liability" means liability to a Multiemployer Plan
         as a result of a complete or partial withdrawal from such Multiemployer
         Plan, as such terms are defined in Part I of Subtitle E of Title IV of
         ERISA.

                  "364-Day Facility" means the Credit Agreement ($750,000,000
         364-Day Revolving Credit Facility), dated as of the date hereof, among
         the Borrower, the subsidiaries of the Borrower party thereto, the
         lenders parties thereto and Bank of America, as administrative agent,
         providing for a $750,000,000 revolving credit facility for a 364-day
         period, as amended or extended from time to time.

         SECTION 1.02 CLASSIFICATION OF LOANS AND BORROWINGS.

         For purposes of this Agreement, Loans may be classified and referred to
by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and
referred to by Type (e.g., a "Eurodollar Borrowing").

         SECTION 1.03 TERMS GENERALLY.

         The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Credit Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, this Credit Agreement and (e) the words "asset" and "property"
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

         SECTION 1.04 ACCOUNTING TERMS; GAAP.

         Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided that, if the Borrower notifies the
Administrative Agent that the Borrower requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision


                                       16



hereof for such purpose), regardless of whether any such notice is given before
or after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                                   ARTICLE II

                                   THE CREDITS

         SECTION 2.01 COMMITMENTS.

         Subject to the terms and conditions set forth herein, each Lender
agrees to make Loans to the Borrower from time to time during the Availability
Period in an aggregate principal amount that will not result in (a) the
aggregate principal amount of such Lender's Revolving Credit Exposure exceeding
such Lender's Commitment or (b) the total Revolving Credit Exposures exceeding
the total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans.

         SECTION 2.02 REVOLVING LOANS AND REVOLVING BORROWINGS.

                  (a) Each Revolving Loan shall be made as part of a Revolving
         Borrowing consisting of Revolving Loans made by the Lenders ratably in
         accordance with their respective Commitments. The failure of any Lender
         to make any Revolving Loan required to be made by it shall not relieve
         any other Lender of its obligations hereunder; provided that the
         Commitments of the Lenders are several and no Lender shall be
         responsible for any other Lender's failure to make Revolving Loans as
         required.

                  (b) Subject to Section 2.13, each Revolving Borrowing shall be
         comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
         request in accordance herewith. Each Swingline Loan shall be an ABR
         Loan. Each Lender at its option may make any Eurodollar Loan by causing
         any domestic or foreign branch or Affiliate of such Lender to make such
         Loan; provided that any exercise of such option shall not affect the
         obligation of the Borrower to repay such Loan in accordance with the
         terms of this Credit Agreement.

                  (c) At the commencement of each Interest Period for any
         Eurodollar Borrowing or on the date of any ABR Borrowing, such
         Revolving Borrowing shall be in a minimum aggregate amount of
         $5,000,000 and integral multiples of $500,000 in excess thereof;
         provided that an ABR Borrowing may be in an aggregate amount that is
         equal to the entire unused balance of the total Commitments. Revolving
         Borrowings of more than one Type may be outstanding at the same time;
         provided that there shall not at any time be more than an aggregate
         total of ten Eurodollar Borrowings outstanding.

                  (d) Notwithstanding any other provision of this Credit
         Agreement, the Borrower shall not be entitled to request, or to elect
         to convert or continue, any Revolving Borrowing if the Interest Period
         requested with respect thereto would end after the Maturity Date.


                                       17



         SECTION 2.03 REQUESTS FOR REVOLVING BORROWINGS.

         To request a Revolving Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a
Eurodollar Borrowing, not later than 12:00 noon (Charlotte, North Carolina
time), three Business Days before the date of the proposed Revolving Borrowing
or (b) in the case of an ABR Borrowing, not later than 12:00 noon (Charlotte,
North Carolina time), on the date of the proposed Revolving Borrowing, including
any such notice of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e). Each such telephonic Revolving
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Revolving
Borrowing Request signed by a Financial Officer of the Borrower. Each such
telephonic and written Revolving Borrowing Request shall specify the following
information in compliance with Section 2.02:

                           (i) the aggregate amount of the requested Revolving
                  Borrowing;

                           (ii) the date of such Revolving Borrowing, which
                  shall be a Business Day;

                           (iii) whether such Revolving Borrowing is to be an
                  ABR Borrowing or a Eurodollar Borrowing;

                           (iv) in the case of a Eurodollar Borrowing, the
                  initial Interest Period to be applicable thereto, which shall
                  be a period contemplated by the definition of the term
                  "Interest Period"; and

                           (v) the location and number of the Borrower's account
                  to which funds are to be disbursed, which shall comply with
                  the requirements of Section 2.06.

         If no election as to the Type of Revolving Borrowing is specified, then
the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest
Period is specified with respect to any requested Eurodollar Borrowing, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Revolving Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Loan to be made as
part of the requested Revolving Borrowing.


                                       18



         SECTION 2.04 REQUESTS FOR SWINGLINE BORROWINGS.

                  (a) Subject to the terms and conditions set forth herein, the
         Swingline Lender agrees to make Swingline Loans to the Borrower from
         time to time during the Availability Period; provided that (i) the
         aggregate principal amount of Swingline Loans outstanding at any time
         shall not exceed $50,000,000 (the "Swingline Committed Amount"), and
         (ii) the sum of the total Revolving Credit Exposures shall not exceed
         the total Commitments. Subject to the terms and conditions set forth
         herein, the Borrower may borrow, prepay and reborrow Swingline Loans.

                  (b) Whenever the Borrower desires a Swingline Loan hereunder
         it shall give written notice (or telephonic notice promptly confirmed
         in writing), signed by a Financial Officer of the Borrower, to the
         Swingline Lender not later than 1:00 P.M., (Charlotte, North Carolina
         time), on the Business Day of the requested Swingline Loan. Each such
         notice shall be irrevocable and shall specify (i) that a Swingline Loan
         is requested, (ii) the date of the requested Swingline Loan (which
         shall be a Business Day) and (iii) the principal amount of the
         Swingline Loan requested. Each Swingline Loan shall be made as an ABR
         Loan and shall have such maturity date as set forth in paragraph (d)
         below. The Swingline Lender shall make each Swingline Loan available to
         the Borrower by 3:00 P.M., (Charlotte, North Carolina time), on the
         Business Day of the requested Swingline Borrowing.

                  (c) Each Swingline Loan shall be in a minimum principal amount
         of $1,000,000 and integral multiples of $100,000 in excess thereof (or
         the remaining amount of the Swingline Committed Amount, if less).

                  (d) The principal amount of all Swingline Loans shall be due
         and payable on the earlier of (i) a date not more than seven (7)
         Business Days from the date of advance thereof or (ii) the Maturity
         Date. The Borrower may prepay all or a portion of any Swingline Loan at
         any time without premium or penalty. The Swingline Lender may, at any
         time, in its sole discretion, upon one Business Day's prior written
         notice to the Borrower and the Lenders, demand repayment of any
         Swingline Loan by way of a Revolving Borrowing, in which case the
         Borrower shall be deemed to have requested a Revolving Borrowing
         comprised solely of ABR Loans in the amount of such Swingline Loan.
         Each Lender hereby irrevocably agrees to make a Loan ratably in
         accordance with its respective Commitment as set forth in Section
         2.02(a) in the amount, in the manner and on the date specified in the
         preceding sentence notwithstanding (i) the amount of such Revolving
         Borrowing may not comply with the minimum amount for ABR Borrowings
         otherwise required hereunder, (ii) whether any conditions specified in
         Section 4.02 are then satisfied, (iii) whether a Default or an Event of
         Default then exists, (iv) failure of any such request or deemed request
         for an ABR Borrowing to be made by the time otherwise required
         hereunder, (v) whether the date of such Revolving Borrowing is a date
         on which ABR Borrowings are otherwise permitted to be made hereunder or
         (vi) any termination of the Commitments relating thereto immediately
         prior to or contemporaneously with such Revolving Borrowing. In the
         event that any Revolving Borrowing cannot for any reason be made on the
         date otherwise required above (including, without limitation, as a
         result of the commencement of a proceeding under


                                       19



         any federal, state or foreign bankruptcy, insolvency, receivership or
         similar law now or hereafter in effect), then each Lender hereby agrees
         that it shall forthwith purchase (as of the date such Revolving
         Borrowing would otherwise have occurred, but adjusted for any payments
         received from the Borrower on or after such date and prior to such
         purchase) from the Swingline Lender its Applicable Percentage of the
         outstanding Swingline Loans as shall be necessary to cause each such
         Lender to share in such Swingline Loans ratably based upon its
         Applicable Percentage (determined before giving effect to any
         termination of the Commitments pursuant to Section 2.08), provided that
         (i) all interest payable on the Swingline Loans shall be for the
         account of the Swingline Lender until the date as of which the
         respective interests in the outstanding Swingline Loans are purchased
         and (ii) at the time any purchase of the respective interests in the
         outstanding Swingline Loans pursuant to this sentence is actually made,
         the purchasing Lender shall be required to pay to the Swingline Lender,
         to the extent not paid to the Swingline Lender by the Borrower in
         accordance with Section 2.12, interest on the principal amount of the
         outstanding Swingline Loans purchased for each day from and including
         the day upon which such Revolving Borrowing would otherwise have
         occurred to but excluding the date of payment for such purchase, at the
         rate equal to the Federal Funds Effective Rate.

         SECTION 2.05 LETTERS OF CREDIT.

                  (a) General. Subject to the terms and conditions set forth
         herein, the Borrower may request the issuance (or the amendment,
         renewal or extension) of Letters of Credit for its own account or the
         account of any Subsidiary, in a form acceptable to the Issuing Bank, at
         any time and from time to time during the Availability Period. In the
         event of any inconsistency between the terms and conditions of this
         Agreement and the terms and conditions of any form of letter of credit
         application or other agreement submitted by the Borrower to, or entered
         into by the Borrower with, the Issuing Bank relating to any Letter of
         Credit, the terms and conditions of this Agreement shall control.
         Notwithstanding any language in a letter of credit application or other
         agreement, no Lien shall be granted by the Borrower or any Subsidiary
         pursuant to such application or agreement.

                  (b) Notice of Issuance, Amendment, Renewal, Extension; Certain
         Conditions. To request the issuance of a Letter of Credit (or the
         amendment, renewal or extension of an outstanding Letter of Credit),
         the Borrower shall hand deliver or telecopy (or transmit by electronic
         communication, if arrangements for doing so have been approved by the
         Issuing Bank) to the Issuing Bank and the Administrative Agent (not
         less than 2 Business Days in advance of the requested date of issuance,
         amendment, renewal or extension) a letter of credit application on the
         Issuing Bank's standard form and signed by a Financial Officer of the
         Borrower requesting the issuance of a Letter of Credit, or identifying
         the Letter of Credit to be amended, renewed or extended, and specifying
         the date of issuance, amendment, renewal or extension, the date on
         which such Letter of Credit is to expire (which shall comply with
         paragraph (c) of this Section), the amount of such Letter of Credit,
         the name and address of the beneficiary thereof and such other
         information as shall be necessary to prepare, amend, renew or extend
         such Letter of Credit. A Letter of Credit shall be issued, amended,
         renewed or extended only if (and upon issuance,


                                       20



         amendment, renewal or extension of each Letter of Credit the Borrower
         shall be deemed to represent and warrant that), after giving effect to
         such issuance, amendment, renewal or extension, (i) the total Revolving
         Credit Exposures shall not exceed the total Commitments and (ii) the LC
         Exposure shall not exceed the LC Commitment.

                  (c) Expiration Date. No Letter of Credit shall (i) have an
         original expiry date more than one year from the date of issuance
         (provided that any such Letter of Credit may contain customary
         "evergreen" provisions pursuant to which the expiry date is
         automatically extended by a specific time period unless the Issuing
         Bank gives notice to the beneficiary of such Letter of Credit at least
         a specified time period prior to the expiry date then in effect) and
         (ii) as originally issued or extended, have an expiry date extending
         beyond the date that is five Business Days prior to the Maturity Date.

                  (d) Participations. By the issuance of a Letter of Credit (or
         an amendment to a Letter of Credit increasing the amount thereof) and
         without any further action on the part of the Issuing Bank or the
         Lenders, the Issuing Bank hereby grants to each Lender, and each Lender
         hereby acquires from the Issuing Bank, a participation in such Letter
         of Credit equal to such Lender's Applicable Percentage of the aggregate
         amount available to be drawn under such Letter of Credit. In
         consideration and in furtherance of the foregoing, each Lender hereby
         absolutely and unconditionally agrees to pay to the Administrative
         Agent, for the account of the Issuing Bank, such Lender's Applicable
         Percentage of each LC Disbursement made by the Issuing Bank and not
         reimbursed as provided in paragraph (e) of this Section, or of any
         reimbursement payment required to be refunded to the Borrower for any
         reason. Each Lender acknowledges and agrees that its obligation to
         acquire participations pursuant to this paragraph in respect of Letters
         of Credit is absolute and unconditional and shall not be affected by
         any circumstance whatsoever, including any amendment, renewal or
         extension of any Letter of Credit or the occurrence and continuance of
         a Default or reduction or termination of the Commitments, and that each
         such payment shall be made without any offset, abatement, withholding
         or reduction whatsoever.

                  (e) Reimbursement. If the Issuing Bank shall make any LC
         Disbursement in respect of a Letter of Credit, the Borrower shall
         reimburse such LC Disbursement by paying to the Administrative Agent an
         amount equal to such LC Disbursement not later than 12:00 noon,
         (Charlotte, North Carolina time), on the date that such LC Disbursement
         is made, if the Borrower shall have received notice of such LC
         Disbursement prior to 10:00 a.m., (Charlotte, North Carolina time), on
         such date, and otherwise such payment shall be made not later than
         12:00 noon, (Charlotte, North Carolina time), on the Business Day
         immediately following the day such notice is received by the Borrower.
         Unless the Borrower shall immediately notify the Issuing Bank and the
         Administrative Agent of its intent to otherwise reimburse the Issuing
         Bank for an LC Disbursement, the Borrower shall be deemed to have
         requested a Revolving Borrowing in the amount of the LC Disbursement as
         provided in paragraph (f) below, the proceeds of which will be used to
         satisfy its reimbursement obligation. If the LC Disbursement is not
         reimbursed as provided above, the Administrative Agent shall notify
         each Lender of the applicable LC Disbursement, the payment then due
         from the Borrower in respect thereof and such


                                       21



         Lender's Applicable Percentage thereof. Promptly following receipt of
         such notice, each Lender shall pay to the Administrative Agent its
         Applicable Percentage of the payment then due from the Borrower, in the
         same manner as provided in Section 2.06 with respect to Loans made by
         such Lender (and Section 2.06 shall apply, mutatis mutandis, to the
         payment obligations of the Lenders), and the Administrative Agent shall
         promptly pay to the Issuing Bank the amounts so received by it from the
         Lenders. Promptly following receipt by the Administrative Agent of any
         payment from the Borrower pursuant to this paragraph, the
         Administrative Agent shall distribute such payment to the Issuing Bank
         or, to the extent that Lenders have made payments pursuant to this
         paragraph to reimburse the Issuing Bank, then to such Lenders and the
         Issuing Bank as their interests may appear. Any payment made by a
         Lender pursuant to this paragraph to reimburse the Issuing Bank for any
         LC Disbursement (other than the funding of a Revolving Borrowing as
         contemplated in paragraph (f) below) shall not constitute a Loan and
         shall not relieve the Borrower of its obligation to reimburse such LC
         Disbursement.

                  (f) Repayment with Revolving Loans. On any day on which the
         Borrower shall have requested, or been deemed to have requested, a
         Revolving Borrowing to reimburse an LC Disbursement, the Administrative
         Agent shall give notice to the Lenders that a Revolving Borrowing has
         been requested or deemed requested in connection with an LC
         Disbursement, in which case a Revolving Borrowing comprised entirely of
         ABR Loans (each such Borrowing, a "Mandatory Borrowing") shall be
         immediately made (without giving effect to any termination of the
         Commitments hereunder) ratably by the Lenders based on each Lender's
         respective Applicable Percentage of the total Commitments (determined
         before giving effect to any termination of the Commitments hereunder)
         and the proceeds thereof shall be paid directly to the Administrative
         Agent, for the benefit of the Issuing Bank, for application to the
         applicable LC Disbursement. Each Lender hereby irrevocably agrees to
         make its Revolving Loan immediately upon any such request or deemed
         request on account of each Mandatory Borrowing in the amount and in the
         manner specified in the preceding sentence and on the same date
         notwithstanding (i) the amount of the Mandatory Borrowing may not
         comply with the minimum amount for ABR Borrowings otherwise required
         hereunder, (ii) whether any conditions specified in Section 4.02 are
         then satisfied, (iii) whether a Default or Event of Default then
         exists, (iv) failure of any such request or deemed request for an ABR
         Borrowing to be made by the time otherwise required hereunder, (v) the
         date of the Mandatory Borrowing or (vi) any reduction in the total
         Commitments after any such Letter of Credit may have been drawn upon.

                  (g) Obligations Absolute. The Borrower's obligation to
         reimburse LC Disbursements as provided in paragraph (e) of this Section
         shall be absolute, unconditional and irrevocable, and shall be
         performed strictly in accordance with the terms of this Agreement under
         any and all circumstances whatsoever and irrespective of:

                           (i) any lack of validity or enforceability of any
                  Letter of Credit or this Credit Agreement, or any term or
                  provision therein;


                                       22



                           (ii) any amendment or waiver of or any consent to
                  departure from all or any of the provisions of any Letter of
                  Credit or this Credit Agreement;

                           (iii) the existence of any claim, setoff, defense or
                  other right that the Borrower, any other party guaranteeing,
                  or otherwise obligated with, the Borrower, any Subsidiary or
                  other Affiliate thereof or any other Person may at any time
                  have against the beneficiary under any Letter of Credit, the
                  Issuing Bank, the Administrative Agent or any Lender or any
                  other Person, whether in connection with this Agreement or any
                  other related or unrelated agreement or transaction;

                           (iv) any draft or other document presented under a
                  Letter of Credit proving to be forged, fraudulent or invalid
                  in any respect or any statement therein being untrue or
                  inaccurate in any respect;

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

                           (vi) any other act or omission to act or delay of any
                  kind of the Issuing Bank, the Lenders, the Administrative
                  Agent or any other Person or any other event or circumstance
                  whatsoever, whether or not similar to any of the foregoing,
                  that might, but for the provisions of this Section, constitute
                  a legal or equitable discharge of the Borrower's obligations
                  hereunder.

provided that (i) the Borrower shall not be obligated to reimburse the Issuing
Bank for any payment or indemnify the Issuing Bank for any wrongful dishonor or
any other matter to the extent resulting from acts or omissions constituting
gross negligence or willful misconduct by the Issuing Bank, (ii) the Borrower
shall not be obligated to reimburse any Lender for any payment or indemnify any
Lender for any matter to the extent resulting from acts or omissions
constituting gross negligence or willful misconduct by such Lender and (iii) the
Lenders shall not be obligated to reimburse the Issuing Bank for any payment or
indemnify the Issuing Bank for any wrongful dishonor or any other matter to the
extent resulting from acts or omissions constituting gross negligence or willful
misconduct by the Issuing Bank.

Nothing in this Agreement shall be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise the agreed standard of
care (as set forth below) in determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that the Issuing Bank shall have exercised the agreed
standard of care in the absence of gross negligence or willful misconduct on the
part of the Issuing Bank and if performed in accordance with the standards of
care specified in the Uniform Commercial Code of the State of New York and The
Uniform Customs and Practice for Documentary Credits.


                                       23



                  (h) Disbursement Procedures. The Issuing Bank shall, promptly
         following its receipt thereof, examine all documents purporting to
         represent a demand for payment under a Letter of Credit. The Issuing
         Bank shall promptly notify the Administrative Agent and the Borrower by
         telephone (confirmed by telecopy) of such demand for payment and
         whether the Issuing Bank has made or will make an LC Disbursement
         thereunder; provided that any failure to give or delay in giving such
         notice shall not relieve the Borrower of its obligation to reimburse
         the Issuing Bank and the Lenders with respect to any such LC
         Disbursement.

                  (i) Interim Interest. If the Issuing Bank shall make any LC
         Disbursement, then, unless the Borrower shall reimburse such LC
         Disbursement in full on the date such LC Disbursement is made, the
         unpaid amount thereof shall bear interest, for each day from and
         including the date such LC Disbursement is made to but excluding the
         date that such LC Disbursement is reimbursed, at the rate per annum
         then applicable to ABR Loans. Interest accrued pursuant to this
         paragraph shall be for the account of the Issuing Bank, except that
         interest accrued on and after the date of payment by any Lender
         pursuant to paragraph (e) of this Section to reimburse the Issuing Bank
         shall be for the account of such Lender to the extent of such payment.

                  (j) Replacement of the Issuing Bank. The Issuing Bank may be
         replaced at any time by written agreement among the Borrower, the
         Administrative Agent, the replaced Issuing Bank and the successor
         Issuing Bank. The Administrative Agent shall notify the Lenders of any
         such replacement of the Issuing Bank. At the time any such replacement
         shall become effective, the Borrower shall pay all unpaid fees accrued
         for the account of the replaced Issuing Bank pursuant to Section
         2.11(c). From and after the effective date of any such replacement, (i)
         the successor Issuing Bank shall have all the rights and obligations of
         the Issuing Bank under this Agreement with respect to Letters of Credit
         to be issued thereafter and (ii) references herein to the term "Issuing
         Bank" shall be deemed to refer to such successor or to any previous
         Issuing Bank, or to such successor and all previous Issuing Banks, as
         the context shall require. After the replacement of an Issuing Bank
         hereunder, the replaced Issuing Bank shall remain a party hereto and
         shall continue to have all the rights and obligations of an Issuing
         Bank under this Agreement with respect to Letters of Credit issued by
         it prior to such replacement, but shall not be required to issue
         additional Letters of Credit.

                  (k) Cash Collateralization. If any Event of Default shall
         occur and be continuing, on the Business Day that the Borrower receives
         notice from the Administrative Agent or the Required Lenders (or, if
         the maturity of the Loans has been accelerated, Lenders with LC
         Exposure representing greater than 50% of the total LC Exposure)
         demanding the deposit of cash collateral pursuant to this paragraph,
         the Borrower shall deposit in an account with the Administrative Agent,
         in the name of the Administrative Agent and for the benefit of the
         Lenders, an amount in cash equal to the LC Exposure as of such date
         plus any accrued and unpaid interest and fees thereon; provided that
         the obligation to deposit such cash collateral shall become effective
         immediately, and such deposit shall become immediately due and payable,
         without demand or other notice of any kind, upon the occurrence of any
         Event of Default with


                                       24



         respect to the Borrower described in clause (h) or (i) of Article VII.
         Such deposit shall be held by the Administrative Agent as collateral
         for the payment and performance of the obligations of the Borrower
         under this Agreement. The Administrative Agent shall have exclusive
         dominion and control, including the exclusive right of withdrawal, over
         such account. Other than any income earned on the investment of such
         deposits in Cash Equivalents, which investments the Administrative
         Agent agrees to make at the Borrower's risk and expense, such deposits
         shall not otherwise bear interest. Interest or profits, if any, on such
         investments shall accumulate in such account. Moneys in such account
         shall be applied by the Administrative Agent to reimburse the Issuing
         Bank for LC Disbursements for which it has not been reimbursed and, to
         the extent not so applied, shall be held for the satisfaction of the
         reimbursement obligations of the Borrower for the LC Exposure at such
         time (including, without limitation, reimbursement of the Lenders with
         LC Exposure), or, if the maturity of the Loans has been accelerated
         (but subject to the consent of Lenders with LC Exposure representing
         greater than 50% of the total LC Exposure), be applied to satisfy other
         obligations of the Borrower under this Agreement. If the Borrower is
         required to provide an amount of cash collateral hereunder as a result
         of the occurrence of an Event of Default, such amount (to the extent
         not applied as aforesaid) shall be returned to the Borrower within two
         Business Days after all Events of Default have been cured or waived.

         SECTION 2.06 FUNDING OF REVOLVING BORROWINGS.

                  (a) Each Lender shall make each Loan to be made by it
         hereunder on the proposed date thereof by wire transfer of immediately
         available funds by 2:00 p.m. (Charlotte, North Carolina time), to the
         account of the Administrative Agent most recently designated by it for
         such purpose by notice to the Lenders; provided that Swingline Loans
         shall be made as provided in Section 2.04. The Administrative Agent
         will make such Loans available to the Borrower by promptly crediting
         the amounts so received, in like funds, to an account of the Borrower
         maintained with the Administrative Agent in Charlotte, North Carolina
         and designated by the Borrower in the applicable Revolving Borrowing
         Request.

                   (b) Unless the Administrative Agent shall have received
         notice from a Lender prior to the proposed date of any Revolving
         Borrowing that such Lender will not make available to the
         Administrative Agent such Lender's share of such Revolving Borrowing,
         the Administrative Agent may assume that such Lender has made such
         share available on such date in accordance with paragraph (a) of this
         Section and may, in reliance upon such assumption, make available to
         the Borrower a corresponding amount. In such event, if a Lender has not
         in fact made its share of the applicable Revolving Borrowing available
         to the Administrative Agent, then the applicable Lender and the
         Borrower severally agree to pay to the Administrative Agent forthwith
         on demand such corresponding amount with interest thereon, for each day
         from and including the date such amount is made available to the
         Borrower to but excluding the date of payment to the Administrative
         Agent, at (i) in the case of such Lender, the Federal Funds Effective
         Rate or (ii) in the case of the Borrower, the interest rate applicable
         to ABR Loans. If such Lender pays such amount to the Administrative
         Agent, then such amount shall constitute such Lender's Loan included in
         such Revolving Borrowing.


                                       25



         SECTION 2.07 INTEREST ELECTIONS.

                  (a) Each Revolving Borrowing initially shall be of the Type
         specified in the applicable Revolving Borrowing Request and, in the
         case of a Eurodollar Borrowing, shall have an initial Interest Period
         as specified in such Revolving Borrowing Request. Thereafter, the
         Borrower may elect to convert such Revolving Borrowing to a different
         Type or to continue such Revolving Borrowing and, in the case of a
         Eurodollar Borrowing, may elect Interest Periods therefore, all as
         provided in this Section. The Borrower may elect different options with
         respect to different portions of the affected Revolving Borrowing, in
         which case each such portion shall be allocated ratably among the
         Lenders holding the Loans comprising such Revolving Borrowing, and the
         Loans comprising each such portion shall be considered a separate
         Revolving Borrowing. This Section shall not apply to Swingline
         Borrowings, which may not be converted or continued.

                  (b) To make an election pursuant to this Section, the Borrower
         shall notify the Administrative Agent of such election by telephone by
         the time that a Revolving Borrowing Request would be required under
         Section 2.03 if the Borrower were requesting a Revolving Borrowing of
         the Type resulting from such election to be made on the effective date
         of such election. Each such telephonic Interest Election Request shall
         be irrevocable and shall be confirmed promptly by hand delivery or
         telecopy to the Administrative Agent of a written Interest Election
         Request signed by a Financial Officer of the Borrower.

                  (c) Each telephonic and written Interest Election Request
         shall specify the following information in compliance with Section
         2.02:

                           (i) the Revolving Borrowing to which such Interest
                  Election Request applies and, if different options are being
                  elected with respect to different portions thereof, the
                  portions thereof to be allocated to each resulting Revolving
                  Borrowing (in which case the information to be specified
                  pursuant to clauses (iii) and (iv) below shall be specified
                  for each resulting Revolving Borrowing);

                           (ii) the effective date of the election made pursuant
                  to such Interest Election Request, which shall be a Business
                  Day;

                           (iii) whether the resulting Revolving Borrowing is to
                  be an ABR Borrowing or a Eurodollar Borrowing; and

                           (iv) if the resulting Revolving Borrowing is a
                  Eurodollar Borrowing, the Interest Period to be applicable
                  thereto after giving effect to such election, which shall be a
                  period contemplated by the definition of the term "Interest
                  Period."


                                       26



         If any such Interest Election Request requests a Eurodollar Borrowing
         but does not specify an Interest Period, then the Borrower shall be
         deemed to have selected an Interest Period of one month's duration.

                  (d) Promptly following receipt of an Interest Election
         Request, the Administrative Agent shall advise each Lender of the
         details thereof and of such Lender's portion of each resulting
         Revolving Borrowing.

                  (e) If the Borrower fails to deliver a timely Interest
         Election Request with respect to a Eurodollar Borrowing prior to the
         end of the Interest Period applicable thereto, then, unless such
         Revolving Borrowing is repaid as provided herein, at the end of such
         Interest Period such Revolving Borrowing shall be continued as a
         Eurodollar Borrowing with an Interest Period of one month's duration.
         Notwithstanding any contrary provision hereof, if an Event of Default
         has occurred and is continuing and the Administrative Agent, at the
         request of the Required Lenders, so notifies the Borrower, then, so
         long as an Event of Default is continuing (i) no outstanding Revolving
         Borrowing may be converted to or continued as a Eurodollar Borrowing
         and (ii) unless repaid, each Eurodollar Borrowing shall be converted to
         an ABR Borrowing at the end of the Interest Period applicable thereto.

         SECTION 2.08 TERMINATION AND REDUCTION OF COMMITMENTS.

                  (a) Unless previously terminated, the Commitments shall
         terminate on the Maturity Date.

                  (b) The Borrower may at any time terminate, or from time to
         time reduce, the Commitments in whole or in part; provided that (i)
         each reduction of the Commitments shall be in an aggregate amount not
         less than $50,000,000 and integral multiples of $10,000,000 in excess
         thereof and (ii) the Borrower shall not terminate or reduce the
         Commitments if, after giving effect to any concurrent prepayment of the
         Loans in accordance with Section 2.10, the Revolving Credit Exposures
         would exceed the total Commitments.

                  (c) The Borrower shall notify the Administrative Agent of any
         election to terminate or reduce the Commitments under paragraph (b) of
         this Section at least three Business Days prior to the effective date
         of such termination or reduction, specifying such election and the
         effective date thereof. Promptly following receipt of any notice, the
         Administrative Agent shall advise the Lenders of the contents thereof.
         Each notice delivered by the Borrower pursuant to this Section shall be
         irrevocable; provided that a notice of termination of the Commitments
         delivered by the Borrower may state that such notice is conditioned
         upon the effectiveness of other credit facilities, in which case such
         notice may be revoked by the Borrower (by notice to the Administrative
         Agent on or prior to the specified effective date) if such condition is
         not satisfied. Any termination or reduction of the Commitments shall be
         permanent. Each reduction of the Commitments shall be made ratably
         among the Lenders in accordance with their respective Commitments.


                                       27



         SECTION 2.09 REPAYMENT OF LOANS; EVIDENCE OF DEBT.

                  (a) The Borrower hereby unconditionally promises to pay (i) to
         the Administrative Agent for the account of each Lender the then unpaid
         principal amount of each Revolving Loan and all interest, fees and
         other amounts payable hereunder on the Maturity Date and (ii) to the
         Swingline Lender, the then unpaid principal amount of each Swingline
         Loan on the maturity thereof.

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

                  (c) The Administrative Agent shall maintain accounts in which
         it shall record (i) the amount of each Loan made hereunder, the Type
         thereof and the Interest Period applicable thereto, (ii) the amount of
         any principal or interest due and payable or to become due and payable
         from the Borrower to each Lender hereunder and (iii) the amount of any
         sum received by the Administrative Agent hereunder for the account of
         the Lenders and each Lender's share thereof.

                  (d) The entries made in the accounts maintained pursuant to
         paragraph (b) or (c) of this Section shall be conclusive (absent
         manifest error) evidence of the existence and amounts of the
         obligations recorded therein; provided that the failure of any Lender
         or the Administrative Agent to maintain such accounts or any error
         therein shall not in any manner affect the obligation of the Borrower
         to repay the Loans in accordance with the terms of this Credit
         Agreement.

                  (e) Any Lender may request that Loans made by it be evidenced
         by a promissory note. In such event, the Borrower shall prepare,
         execute and deliver to such Lender a promissory note payable to the
         order of such Lender and in a form approved by the Administrative Agent
         and the Borrower. Thereafter, the Loans evidenced by such promissory
         note and interest thereon shall at all times (including after
         assignment pursuant to Section 9.04) be represented by one or more
         promissory notes in such form payable to the order of the payee named
         therein.

         SECTION 2.10 PREPAYMENT OF LOANS.

                  (a) The Borrower shall have the right at any time and from
         time to time to prepay any Borrowing in whole or in part, without
         premium or penalty, subject to Section 2.15 and subject to prior notice
         in accordance with paragraph (b) of this Section.

                  (b) The Borrower shall notify the Administrative Agent by
         telephone (confirmed by telecopy) of any prepayment hereunder (A) in
         the case of prepayment of a Eurodollar Borrowing, not later than 12:00
         noon (Charlotte, North Carolina time), three Business Days before the
         date of prepayment, (B) in the case of prepayment of an ABR Borrowing,
         not later than 12:00 noon (Charlotte, North Carolina time), on the date
         of prepayment or (C) in the case of prepayment of a Swingline Loan, not
         later than


                                       28



         12:00 noon (Charlotte, North Carolina time), on the date of prepayment.
         Each such notice shall be irrevocable and shall specify the prepayment
         date and the principal amount of each Borrowing or portion thereof to
         be prepaid; provided that, if a notice of prepayment is given in
         connection with a conditional notice of termination of the Commitments
         as contemplated by Section 2.08, then such notice of prepayment may be
         revoked if such notice of termination is revoked in accordance with
         Section 2.08. Promptly following receipt of any such notice relating to
         a Borrowing, the Administrative Agent shall advise the Lenders of the
         contents thereof. Each partial prepayment of any Borrowing shall be in
         an amount that would be permitted in the case of an advance of a
         Borrowing of the same Type as provided in Section 2.02. Each prepayment
         of a Borrowing shall be applied ratably to the Loans included in the
         prepaid Borrowing. Prepayments shall be accompanied by accrued interest
         to the extent required by Section 2.12.

         SECTION 2.11 FEES.

                  (a) The Borrower agrees to pay to the Administrative Agent for
         the account of each Lender a facility fee, which shall accrue at the
         Applicable Rate on the daily amount of the Commitment of such Lender
         (whether used or unused) during the period from and including the
         Closing Date to but excluding the date on which such Commitment
         terminates; provided that, if such Lender continues to have any
         Revolving Credit Exposure after its Commitment terminates, then such
         facility fee shall continue to accrue on the daily amount of such
         Lender's Revolving Credit Exposure from and including the date on which
         its Commitment terminates to but excluding the date on which such
         Lender ceases to have any Revolving Credit Exposure. Accrued facility
         fees shall be payable in arrears on the last day of March, June,
         September and December of each year and on the date on which the
         Commitments terminate, commencing on the first such date to occur after
         the date hereof; provided that any facility fees accruing after the
         date on which the Commitments terminate shall be payable on demand. All
         facility fees shall be computed on the basis of a year of 360 days and
         shall be payable for the actual number of days elapsed (including the
         first day but excluding the last day).

                  (b) The Borrower agrees to pay to the Administrative Agent for
         the account of each Lender a utilization fee equal to the Applicable
         Rate in effect from time to time for each day on which the Commitment
         Utilization Percentage exceeds 50%, which fee shall accrue on the daily
         amount of the Used Commitment of such Lender for each Excess
         Utilization Day during the period from and including the Closing Date
         to but excluding the date on which such Lender's Commitment terminates;
         provided that, if such Lender continues to have any Revolving Credit
         Exposure after its Commitment terminates, then such utilization fee
         shall continue to accrue on the daily amount of such Lender's Revolving
         Credit Exposure for each Excess Utilization Day from and including the
         date on which its Commitment terminates to but excluding the date on
         which such Lender ceases to have any Revolving Credit Exposure. Accrued
         utilization fees shall be payable in arrears on the last day of March,
         June, September and December of each year and on the date on which the
         Commitments terminate, commencing on the first such date to occur after
         the date hereof; provided that any utilization fees accruing after the
         date on which the Commitments terminate shall be payable on demand. All
         utilization fees shall be computed on the basis of a year of 360 days
         and shall be payable for the actual number of days elapsed (including
         the first day but excluding the last day).


                                       29



                  (c) The Borrower agrees to pay (i) to the Administrative Agent
         for the account of each Lender a participation fee with respect to its
         participations in Letters of Credit, which shall accrue at a rate per
         annum equal to the Applicable Rate for Eurodollar Spreads (as defined
         under "Applicable Rate") on the average daily amount of such Lender's
         LC Exposure (excluding any portion thereof attributable to unreimbursed
         LC Disbursements) during the period from and including the Closing Date
         to but excluding the later of the date on which such Lender's
         Commitment terminates and the date on which such Lender ceases to have
         any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which
         shall accrue at the rate of 0.125% per annum on the average daily
         amount of the LC Exposure (excluding any portion thereof attributable
         to unreimbursed LC Disbursements) during the period from and including
         the Closing Date to but excluding the later of the date of termination
         of the Commitments and the date on which there ceases to be any LC
         Exposure, as well as the Issuing Bank's standard fees with respect to
         the issuance, amendment, renewal or extension of any Letter of Credit
         or processing of drawings thereunder. Participation fees and fronting
         fees accrued through and including the last day of March, June,
         September and December of each year shall be payable on the third
         Business Day following such last day, commencing on the first such date
         to occur after the Closing Date; provided that all such fees shall be
         payable on the date on which the Commitments terminate and any such
         fees accruing after the date on which the Commitments terminate shall
         be payable on demand. Any other fees payable to the Issuing Bank
         pursuant to this paragraph shall be payable within 10 days after
         demand. All participation fees and fronting fees shall be computed on
         the basis of a year of 360 days and shall be payable for the actual
         number of days elapsed (including the first day but excluding the last
         day).

                  (d) The Borrower agrees to pay to the Administrative Agent,
         for its own account, fees payable in the amounts and at the times
         separately agreed upon between the Borrower and the Administrative
         Agent.

                  (e) All fees payable hereunder shall be paid on the dates due,
         in immediately available funds, to the Administrative Agent (or to the
         Issuing Bank, in the case of fees payable to it) for distribution, in
         the case of facility fees, utilization fees and participation fees, to
         the Lenders. Fees paid shall not be refundable under any circumstances.

         SECTION 2.12 INTEREST.

                  (a) The Loans comprising each ABR Borrowing shall bear
         interest at a rate per annum equal to the Alternate Base Rate.

                  (b) The Loans comprising each Eurodollar Borrowing shall bear
         interest at a rate per annum equal to the LIBO Rate for the Interest
         Period in effect for such Borrowing plus the Applicable Rate.


                                       30



                  (c) Notwithstanding the foregoing, if any principal of or
         interest on any Loan or any fee or other amount payable by the Borrower
         hereunder is not paid when due (following the expiration of any grace
         period specified in Article VII), whether at stated maturity, upon
         acceleration or otherwise, such overdue amount shall bear interest,
         after as well as before judgment, at a rate per annum equal to (i) in
         the case of overdue principal of any Loan, 2% plus the rate otherwise
         applicable to such Loan as provided above or (ii) in the case of any
         other amount, 2% plus the rate applicable to ABR Loans as provided
         above.

                  (d) Accrued interest on each Loan shall be payable in arrears
         on each Interest Payment Date for such Loan; provided that (i) interest
         accrued pursuant to paragraph (c) of this Section shall be payable on
         demand, (ii) in the event of any repayment or prepayment of any Loan
         (other than a prepayment of an ABR Loan prior to the end of the
         Availability Period), accrued interest on the principal amount repaid
         or prepaid shall be payable on the date of such repayment or
         prepayment, (iii) in the event of any conversion of any Eurodollar Loan
         prior to the end of the current Interest Period therefore, accrued
         interest on such Loan shall be payable on the effective date of such
         conversion and (iv) all accrued interest shall be payable upon
         termination of the Commitments.

                  (e) All interest hereunder shall be computed on the basis of a
         year of 360 days, except that interest computed by reference to the
         Alternate Base Rate at times when the Alternate Base Rate is based on
         the Prime Rate shall be computed on the basis of a year of 365 days (or
         366 days in a leap year), and in each case shall be payable for the
         actual number of days elapsed (including the first day but excluding
         the last day). The applicable Alternate Base Rate or LIBO Rate shall be
         determined by the Administrative Agent, and such determination shall be
         conclusive absent manifest error.

                  (f) If any Lender shall be required under the regulations of
         the Board to maintain reserves with respect to liabilities or assets
         consisting of, or including, Eurocurrency Liabilities (as defined in
         Regulation D of the Board), the Borrower shall pay to the
         Administrative Agent for the account of such Lender, additional
         interest on the unpaid principal amount of each Eurodollar Loan made to
         the Borrower by such Lender, from the date of such Loan until such Loan
         is paid in full, at an interest rate per annum equal at all times
         during the Interest Period for such Eurodollar Loan to the remainder
         obtained by subtracting (i) the LIBO Rate for such Interest Period from
         (ii) the rate obtained by multiplying LIBO Rate as referred to in
         clause (i) above by the Statutory Reserve Rate applicable to such
         Lender for such Interest Period. Such additional interest shall be
         determined by such Lender and notified to the Borrower (with a copy to
         the Administrative Agent) not later than five Business Days before the
         next Interest Payment Date for such Eurodollar Loan, and such
         additional interest so notified to the Borrower by any Lender shall be
         payable to the Administrative Agent for the account of such Lender on
         each Interest Payment Date for such Eurodollar Loan.


                                       31



         SECTION 2.13 ALTERNATE RATE OF INTEREST.

         If prior to the commencement of any Interest Period for a Eurodollar
Borrowing:

                  (a) the Administrative Agent reasonably determines (which
         determination shall be conclusive absent manifest error) that adequate
         and reasonable means do not exist for ascertaining the LIBO Rate for
         such Interest Period; or

                  (b) the Administrative Agent is advised by the Required
         Lenders that the LIBO Rate for such Interest Period will not, in their
         reasonable judgment, adequately and fairly reflect the cost to such
         Lenders of making or maintaining their Loans included in such Revolving
         Borrowing for such Interest Period;

         then the Administrative Agent shall give notice thereof to the Borrower
         and the Lenders by telephone or telecopy as promptly as practicable
         thereafter and, until the Administrative Agent notifies the Borrower
         and the Lenders that the circumstances giving rise to such notice no
         longer exist, (i) any Interest Election Request that requests the
         conversion of any Revolving Borrowing to, or continuation of any
         Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective,
         and (ii) if any Revolving Borrowing Request requests a Eurodollar
         Borrowing, such Revolving Borrowing shall be made as an ABR Borrowing;
         provided that if the circumstances giving rise to such notice affect
         only one Type of Revolving Borrowings, then the other Type of Revolving
         Borrowings shall be permitted.

         SECTION 2.14 INCREASED COSTS.

                  (a) If any Change in Law shall:

                           (i) impose, modify or deem applicable any reserve,
                  special deposit or similar requirement against assets of,
                  deposits with or for the account of, or credit extended by,
                  any Lender or the Issuing Bank (other than any reserves
                  included in the Statutory Reserve Rate); or

                           (ii) impose on any Lender or the Issuing Bank or the
                  London interbank market any other condition affecting this
                  Credit Agreement or Eurodollar Loans or any Letter of Credit
                  or participation therein;

         and the result of any of the foregoing shall be to increase the cost
         (except with respect to Excluded Taxes) to such Lender of making or
         maintaining any Eurodollar Loan (or of maintaining its obligation to
         make any such Loan) or to increase the cost (except with respect to
         Excluded Taxes) to such Lender or the Issuing Bank of participating in,
         issuing or maintaining any Letter of Credit or to reduce the amount of
         any sum received or receivable (except to the extent caused by Excluded
         Taxes) by such Lender or the Issuing Bank hereunder (whether of
         principal, interest or otherwise) by an amount deemed by such Lender or
         the Issuing Bank to be material, then the Borrower will pay to such
         Lender or the Issuing Bank, as the case may be, such additional amount
         or amounts as will compensate such Lender or the Issuing Bank, as the
         case may be, for such additional costs incurred or reduction suffered.



                                       32



                  (b) If any Lender or the Issuing Bank reasonably determines
         that any Change in Law regarding capital requirements has or would have
         the effect of reducing the rate of return on such Lender's or the
         Issuing Bank's capital or on the capital of such Lender's or the
         Issuing Bank's holding company, if any, as a consequence of this Credit
         Agreement or the Loans made by, or participations in Letters of Credit
         held by, such Lender, or the Letters of Credit issued by the Issuing
         Bank, to a level below that which such Lender or the Issuing Bank or
         such Lender's or the Issuer Bank's holding company could have achieved
         but for such Change in Law (taking into consideration such Lender's or
         the Issuing Bank's policies and the policies of such Lender's or the
         Issuing Bank's holding company with respect to capital adequacy), then
         from time to time the Borrower will pay to such Lender or the Issuing
         Bank, as the case may be, such additional amount or amounts as will
         compensate such Lender or the Issuing Bank or such Lender's or the
         Issuing Bank's holding company for any such reduction suffered.

                  (c) A certificate of a Lender or the Issuing Bank setting
         forth the amount or amounts necessary to compensate such Lender or the
         Issuing Bank or its holding company, as the case may be, as specified
         in paragraph (a) or (b) of this Section and the method of calculating
         such amounts, in reasonable detail, shall be delivered to the Borrower
         and shall be conclusive absent manifest error. The Borrower shall pay
         such Lender or the Issuing Bank, as the case may be, the amount shown
         as due on any such certificate within 10 days after receipt thereof.

                  (d) Failure or delay on the part of any Lender or the Issuing
         Bank to demand compensation pursuant to this Section shall not
         constitute a waiver of such Lender's or the Issuing Bank's right to
         demand such compensation; provided that the Borrower shall not be
         required to compensate a Lender or the Issuing Bank pursuant to this
         Section for any increased costs or reductions incurred more than six
         months prior to the date that such Lender or the Issuing Bank, as the
         case may be, notifies the Borrower of the Change in Law giving rise to
         such increased costs or reductions and of such Lender's or the Issuing
         Bank's intention to claim compensation therefore; provided further
         that, if the Change in Law giving rise to such increased costs or
         reductions is retroactive, then the six-month period referred to above
         shall be extended to include the period of retroactive effect thereof.

         SECTION 2.15 BREAK FUNDING PAYMENTS.

         In the event of (a) the payment of any principal of any Eurodollar Loan
other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto, (c) the
failure to borrow, convert, continue or prepay any Loan on the date specified in
any notice delivered pursuant hereto (regardless of whether such notice is
permitted to be revocable under Section 2.10(b) if such notice is revoked in
accordance herewith two Business Days or less before the specified effective
date), (d) the assignment of any Eurodollar


                                       33



Loan other than on the last day of the Interest Period applicable thereto as a
result of a request by the Borrower pursuant to Section 2.18, then, in any such
event, the Borrower shall compensate each Lender for the loss, cost and expense
(but not loss of profit) attributable to such event. In the case of a Eurodollar
Loan, the loss to any Lender attributable to any such event shall be deemed to
include an amount reasonably determined by such Lender to be equal to the
excess, if any, of (i) the amount of interest that such Lender would pay for a
deposit equal to the principal amount of such Loan for the period from the date
of such payment, conversion, failure or assignment to the last day of the then
current Interest Period for such Loan (or, in the case of a failure to borrow,
convert or continue, the duration of the Interest Period that would have
resulted from such borrowing, conversion or continuation) if the interest rate
payable on such deposit were equal to the LIBO Rate for such Interest Period,
over (ii) the amount of interest that such Lender would earn on such principal
amount for such period if such Lender were to invest such principal amount for
such period at the interest rate that would be bid by such Lender (or an
affiliate of such Lender) for dollar deposits from other banks in the eurodollar
market at the commencement of such period. A certificate of any Lender setting
forth any amount or amounts that such Lender is entitled to receive pursuant to
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.

         SECTION 2.16 TAXES.

                  (a) Any and all payments by or on account of any obligation of
         the Borrower hereunder shall be made free and clear of and without
         deduction for any Indemnified Taxes or Other Taxes; provided that if
         the Borrower shall be required to deduct any Indemnified Taxes or Other
         Taxes from such payments, then (i) the sum payable shall be increased
         as necessary so that after making all required deductions (including
         deductions applicable to additional sums payable under this Section)
         the Administrative Agent, Lender or Issuing Bank (as the case may be)
         receives an amount equal to the sum it would have received had no such
         deductions been made, (ii) the Borrower shall make such deductions and
         (iii) the Borrower shall pay the full amount deducted to the relevant
         Governmental Authority in accordance with applicable law.

                  (b) In addition, the Borrower shall pay any Other Taxes to the
         relevant Governmental Authority in accordance with applicable law.

                  (c) The Borrower shall indemnify the Administrative Agent,
         each Lender, and the Issuing Bank within 10 days after written demand
         therefore, for the full amount of any Indemnified Taxes or Other Taxes
         (including Indemnified Taxes or Other Taxes imposed or asserted on or
         attributable to amounts payable under this Section) paid by the
         Administrative Agent, such Lender or the Issuing Bank, as the case may
         be, and any penalties, interest and reasonable expenses arising
         therefrom or with respect thereto, whether or not such Indemnified
         Taxes or Other Taxes were correctly or legally imposed or asserted by
         the relevant Governmental Authority. A certificate as to the amount of
         such payment or liability delivered to the Borrower by a Lender or the
         Issuing Bank, or by the Administrative Agent on its own behalf or on
         behalf of a Lender or the Issuing Bank, shall be conclusive absent
         manifest error.


                                       34



                  (d) As soon as practicable after any payment of Indemnified
         Taxes or Other Taxes by the Borrower to a Governmental Authority, the
         Borrower shall deliver to the Administrative Agent the original or a
         certified copy of a receipt issued by such Governmental Authority
         evidencing such payment, a copy of the return reporting such payment or
         other evidence of such payment reasonably satisfactory to the
         Administrative Agent.

                  (e) Each Foreign Lender, on or prior to the date of its
         execution and delivery of this Credit Agreement or on the date of the
         Assignment and Acceptance pursuant to which it becomes a Lender, as
         applicable, shall provide the Borrower with any form or certificate
         that is required by any taxing authority (including, if applicable, a
         copy of Internal Revenue Service Forms W-9, W-8BEN or W-8ECI, as
         appropriate, or any successor or other form prescribed by the Internal
         Revenue Service), certifying that such Lender is exempt from or
         entitled to a reduced rate of withholding taxes on payments pursuant to
         this Credit Agreement. Thereafter, each such Lender shall provide
         additional forms or certificates (i) to the extent a form or
         certificate previously provided has been inaccurate, invalid or
         otherwise ceases to be effective or (ii) as requested in writing by the
         Borrower or the Administrative Agent. If any Foreign Lender fails to
         comply with the provisions of this Section, the Borrower, may, as
         required by law, deduct and withhold federal income tax payments from
         payments to such Lender under this Credit Agreement. The obligation of
         the Lenders under this Section shall survive the payment of all
         obligations and the resignation or replacement of the Administrative
         Agent.

                  (f) Any Lender claiming any additional amounts payable
         pursuant to this Section 2.16 agrees to use reasonable efforts
         (consistent with its internal policy and legal and regulatory
         restrictions) to select or change the jurisdiction of its applicable
         lending office if the making of such a selection or change would avoid
         the need for, or reduce the amount of, any such additional amounts that
         may thereafter accrue and would not, in the reasonable judgment of such
         Lender, be otherwise economically disadvantageous to such Lender.

                  (g) If any Lender or the Administrative Agent, as the case may
         be, obtains a refund of any Tax for which payment has been made
         pursuant to this Section 2.16, which refund in the good faith judgment
         of such Lender or the Administrative Agent, as the case may be, (and
         without any obligation to disclose its tax records) is allocable to
         such payment made under this Section 2.16, the amount of such refund
         (together with any interest received thereon and reduced by reasonable
         costs incurred in obtaining such refund) promptly shall be paid to the
         Borrower to the extent payment has been made in full by the Borrower
         pursuant to this Section 2.16.

         SECTION 2.17 PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS.

                  (a) The Borrower shall make each payment required to be made
         by it hereunder (whether of principal, interest, fees or reimbursement
         of LC Disbursements, or under Section 2.14, 2.15 or 2.16, or otherwise)
         prior to 1:00 P.M. (Charlotte, North Carolina time), on the date when
         due, in immediately available funds, without set-off or


                                       35



         counterclaim. Any amounts received after such time on any date may, in
         the discretion of the Administrative Agent, be deemed to have been
         received on the next succeeding Business Day for purposes of
         calculating interest thereon. All such payments shall be made to the
         Administrative Agent at its offices at 100 North Tryon, Charlotte,
         North Carolina, except payments to be made directly to the Issuing Bank
         as expressly provided herein and except that payments pursuant to
         Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the
         Persons entitled thereto. The Administrative Agent shall distribute any
         such payments received by it for the account of any other Person to the
         appropriate recipient promptly following receipt thereof. If any
         payment hereunder shall be due on a day that is not a Business Day, the
         date for payment shall be extended to the next succeeding Business Day,
         and, in the case of any payment accruing interest, interest thereon
         shall be payable for the period of such extension. All payments
         hereunder shall be made in dollars.

                  (b) If at any time insufficient funds are received by and
         available to the Administrative Agent to pay fully all amounts of
         principal, unreimbursed LC Disbursements, interest and fees then due
         hereunder, such funds shall be applied (i) first, to pay interest and
         fees then due hereunder, ratably among the parties entitled thereto in
         accordance with the amounts of interest and fees then due to such
         parties, and (ii) second, to pay principal and unreimbursed LC
         Disbursements then due hereunder, ratably among the parties entitled
         thereto in accordance with the amounts of principal and unreimbursed LC
         Distributions then due to such parties.

                  (c) If any Lender shall, by exercising any right of set-off or
         counterclaim or otherwise, obtain payment in respect of any principal
         of or interest on any of its Loans or participations in LC
         Disbursements resulting in such Lender receiving payment of a greater
         proportion of the aggregate amount of its Loans and participations in
         LC Disbursements and accrued interest thereon than the proportion
         received by any other Lender, then the Lender receiving such greater
         proportion shall purchase (for cash at face value) participations in
         the Loans and participations in LC Disbursements of other Lenders to
         the extent necessary so that the benefit of all such payments shall be
         shared by the Lenders ratably in accordance with the aggregate amount
         of principal of and accrued interest on their respective Loans and
         participations in LC Disbursements; provided that (i) if any such
         participations are purchased and all or any portion of the payment
         giving rise thereto is recovered, such participations shall be
         rescinded and the purchase price restored to the extent of such
         recovery, without interest, and (ii) the provisions of this paragraph
         shall not be construed to apply to any payment made by the Borrower
         pursuant to and in accordance with the express terms of this Credit
         Agreement or any payment obtained by a Lender as consideration for the
         assignment of or sale of a participation in any of its Loans or
         participations in LC Disbursements to any assignee or participant,
         other than to the Borrower or any Subsidiary or Affiliate thereof (as
         to which the provisions of this paragraph shall apply). The Borrower
         consents to the foregoing and agrees, to the extent it may effectively
         do so under applicable law, that any Lender acquiring a participation
         pursuant to the foregoing arrangements may exercise against the
         Borrower rights of set-off and counterclaim with respect to such
         participation as fully as if such Lender were a direct creditor of the
         Borrower in the amount of such participation.


                                       36



                  (d) Unless the Administrative Agent shall have received notice
         from the Borrower prior to the date on which any payment is due to the
         Administrative Agent for the account of the Lenders or the Issuing
         Bank, as the case may be, hereunder that the Borrower will not make
         such payment, the Administrative Agent may assume that the Borrower has
         made such payment on such date in accordance herewith and may, in
         reliance upon such assumption, distribute to the Lenders the amount
         due. In such event, if the Borrower has not in fact made such payment,
         then each of the Lenders or the Issuing Bank, as the case may be,
         severally agrees to repay to the Administrative Agent forthwith on
         demand the amount so distributed to such Lender or Issuing Bank with
         interest thereon, for each day from and including the date such amount
         is distributed to it to but excluding the date of payment to the
         Administrative Agent, at the Federal Funds Effective Rate.

                  (e) If any Lender shall fail to make any payment required to
         be made by it pursuant to Section 2.05(d) or (e), 2.06(a) or 2.17(d),
         then the Administrative Agent may, in its discretion (notwithstanding
         any contrary provision hereof), apply any amounts thereafter received
         by the Administrative Agent for the account of such Lender to satisfy
         such Lender's obligations under such Sections until all such
         unsatisfied obligations are fully paid.

         SECTION 2.18 MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.

                  (a) If any Lender requests compensation under Section 2.14, or
         if the Borrower is required to pay any additional amount to any Lender
         or any Governmental Authority for the account of any Lender pursuant to
         Section 2.16, then such Lender shall use reasonable efforts to
         designate a different lending office for funding or booking its Loans
         hereunder or to assign its rights and obligations hereunder to another
         of its offices, branches or affiliates, if, in the judgment of such
         Lender, such designation or assignment (i) would eliminate or reduce
         amounts payable pursuant to Section 2.14 or 2.16, as the case may be,
         in the future and (ii) would not subject such Lender to any
         unreimbursed cost or expense and would not otherwise be economically
         disadvantageous to such Lender. The Borrower hereby agrees to pay all
         reasonable costs and expenses incurred by any Lender in connection with
         any such designation or assignment.

                  (b) If any Lender requests compensation under Section 2.14, or
         if the Borrower is required to pay any additional amount to any Lender
         or any Governmental Authority for the account of any Lender pursuant to
         Section 2.16, or if any Lender defaults in its obligation to fund Loans
         hereunder, then the Borrower may, at its sole expense and effort, upon
         notice to such Lender and the Administrative Agent, require such Lender
         to assign and delegate, without recourse (in accordance with and
         subject to the restrictions contained in Section 9.04), all its
         interests, rights and obligations under this Credit Agreement to an
         assignee that shall assume such obligations (which assignee may be
         another Lender, if a Lender accepts such assignment); provided that (i)
         the Borrower shall have received the prior written consent of the
         Administrative Agent, which consent shall not unreasonably be withheld,
         (ii) such Lender shall have received payment of an amount equal to the
         outstanding principal of its Loans and participations in


                                       37



         LC Disbursements, accrued interest thereon, accrued fees and all other
         amounts payable to it hereunder, from the assignee (to the extent of
         such outstanding principal and accrued interest and fees) or the
         Borrower (in the case of all other amounts) and (iii) in the case of
         any such assignment resulting from a claim for compensation under
         Section 2.14 or payments required to be made pursuant to Section 2.16,
         such assignment will result in a reduction in such compensation or
         payments. A Lender shall not be required to make any such assignment
         and delegation if, prior thereto, as a result of a waiver by such
         Lender or otherwise, the circumstances entitling the Borrower to
         require such assignment and delegation cease to apply.



                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants to the Lenders that:

         SECTION 3.01 ORGANIZATION; POWERS.

         Each of the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.

         SECTION 3.02 AUTHORIZATION; ENFORCEABILITY.

         The Transactions are within the Borrower's corporate powers and have
been duly authorized by all necessary corporate and, if required, shareholder
action. This Credit Agreement and each promissory note, if any, has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.

         SECTION 3.03 GOVERNMENTAL APPROVALS; NO CONFLICTS.

         The Transactions (a) do not require any material consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect, (b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (c) will not violate or
result in a default under any material indenture, agreement or other instrument
binding upon the Borrower or any of its Subsidiaries or any of their respective
assets, or give rise to a right thereunder to require any payment to be made by
the Borrower or any of its Subsidiaries, and (d) will not result in the creation
or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.


                                       38



         SECTION 3.04 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.

                  (a) The Borrower has heretofore furnished to the Lenders (i)
         its consolidated balance sheet and statements of operations,
         shareholders' equity and cash flows as of and for the fiscal year ended
         April 27, 2001, reported on by PricewaterhouseCoopers LLP, independent
         public accountants, and (ii) its consolidated balance sheet and
         statements of operations and cash flows as of and for the fiscal
         quarters ended July 27, 2001 and October 26, 2001, signed by its chief
         financial officer. Such financial statements present fairly, in all
         material respects, the financial position and results of operations and
         cash flows of the Borrower and its consolidated Subsidiaries as of such
         dates and for such periods in accordance with GAAP, subject to year-end
         audit adjustments and the absence of footnotes in the case of the
         statements referred to in clause (ii) above.

                  (b) There has been no material adverse change in the business,
         assets, operations, or financial condition of the Borrower and its
         Subsidiaries, taken as a whole, from those disclosed in the Borrower's
         Form 10-K for the fiscal year ended April 27, 2001, other than as
         disclosed in the Borrower's quarterly report on Form 10-Q for its
         fiscal quarters ending on July 27, 2001 and October 26, 2001 and the
         Borrower's current report on Form 8-K dated September 5, 2001 and the
         amendment to such Form 8-K dated November 13, 2001, each as filed with
         the SEC prior to the date hereof.

         SECTION 3.05 PROPERTIES.

                  (a) Each of the Borrower and its Subsidiaries has good title
         to, or valid leasehold interests in, all its real and personal property
         material to its business, except for minor defects in title that do not
         interfere with its ability to conduct its business as currently
         conducted or to utilize such properties for their intended purposes.

                  (b) Each of the Borrower and its Subsidiaries owns, or is
         licensed to use, all trademarks, tradenames, copyrights, patents and
         other intellectual property material to its business, and the use
         thereof by the Borrower and its Subsidiaries does not infringe upon the
         rights of any other Person, except for any such infringements that,
         individually or in the aggregate, could not reasonably be expected to
         result in a Material Adverse Effect.

         SECTION 3.06 LITIGATION AND ENVIRONMENTAL MATTERS.

                  (a) There are no actions, suits or proceedings by or before
         any arbitrator or Governmental Authority pending against or, to the
         knowledge of the Borrower, threatened against or affecting the Borrower
         or any of its Subsidiaries (i) as to which there is a reasonable
         possibility of an adverse determination and that, if adversely
         determined, could reasonably be expected, individually or in the
         aggregate, to result in a Material Adverse Effect (other than the
         Disclosed Matters) or (ii) which in any manner draws into question the
         validity or enforceability of this Credit Agreement.


                                       39



                  (b) Except for the Disclosed Matters or except with respect to
         any other matters that, individually or in the aggregate, could not
         reasonably be expected to result in a Material Adverse Effect, neither
         the Borrower nor any of its Subsidiaries (i) has failed to comply with
         any Environmental Law or to obtain, maintain or comply with any permit,
         license or other approval required under any Environmental Law, (ii)
         has become subject to any Environmental Liability, (iii) has received
         notice of any claim with respect to any Environmental Liability or (iv)
         knows of any basis for any Environmental Liability.

                  (c) Since the date of this Credit Agreement, there has been no
         change in the status of the Disclosed Matters that, individually or in
         the aggregate, has resulted in, or could reasonably be expected to
         result in a Material Adverse Effect.

         SECTION 3.07 COMPLIANCE WITH LAWS AND AGREEMENTS.

                  (a) Each of the Borrower and its Subsidiaries is in compliance
         with all indentures, agreements and other instruments binding upon it
         or its property, except where the failure to do so, individually or in
         the aggregate, could not reasonably be expected to result in a Material
         Adverse Effect. No Default has occurred and is continuing.

                  (b) Neither the Borrower nor any Subsidiary is in violation of
         any law, rule or regulation, or in default with respect to any
         judgment, writ, injunction or decree of any Governmental Authority,
         where such violation or default would be reasonably be expected to
         result in a Material Adverse Effect.

         SECTION 3.08 INVESTMENT AND HOLDING COMPANY STATUS.

         Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.

         SECTION 3.09 TAXES.

         Each of the Borrower and its Subsidiaries has timely filed or caused to
be filed all Tax returns and reports required to have been filed (taking into
account any extensions granted by the applicable taxing authority) and has paid
or caused to be paid all Taxes required to have been paid by it, except (a)
Taxes that are being contested in good faith by appropriate proceedings and for
which the Borrower or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

         SECTION 3.10 ERISA.

         No ERISA Event has occurred or is reasonably expected to occur that,
when taken together with all other such ERISA Events for which liability is
reasonably expected to occur, could reasonably be expected to result in a


                                       40



Material Adverse Effect. The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of
the most recent financial statements reflecting such amounts, exceed by more
than $100,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000,000 the fair
market value of the assets of all such underfunded Plans.

         SECTION 3.11 DISCLOSURE.

         The Borrower has disclosed (which disclosure includes all filings by
the Borrower pursuant to the Securities Exchange Act of 1934) to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or other information furnished in writing by or on behalf of the Borrower to the
Administrative Agent or any Lender for use specifically in connection with the
negotiation of this Credit Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.

         SECTION 3.12 FEDERAL REGULATIONS.

         No part of the proceeds of any Loans will be used in any transaction or
for any purpose which violates the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System, as now and from time to time
hereafter in effect. If requested by any Lender or the Administrative Agent, the
Borrower will furnish to the Administrative Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of Form FR U-1 referred
to in said Regulation U.

         SECTION 3.13 PURPOSE OF LOANS.

         The proceeds of the Loans and Letters of Credit shall be used to (i)
refinance the Existing Credit Agreement and (ii) finance any lawful general
corporate purpose, including acquisitions, and working capital.

         SECTION 3.14 SUBSIDIARIES AND SIGNIFICANT SUBSIDIARIES.

         Set forth on Schedule 3.14 is a complete and accurate list of all
Subsidiaries and all Significant Subsidiaries as of the Closing Date.


                                       41



                                   ARTICLE IV

                                   CONDITIONS

         SECTION 4.01 CLOSING CONDITIONS.

         This Credit Agreement shall become effective on the date on which each
of the following conditions is satisfied (or waived in accordance with Section
9.02):
                  (a) The Administrative Agent (or its counsel) shall have
         received from each party hereto either (i) a counterpart of this Credit
         Agreement signed on behalf of such party or (ii) written evidence
         satisfactory to the Administrative Agent (which may include telecopy
         transmission of a signed signature page of this Credit Agreement) that
         such party has signed a counterpart of this Credit Agreement.

                  (b) The Administrative Agent shall have received a favorable
         written opinion or opinions (addressed to the Administrative Agent and
         the Lenders and dated the Closing Date) of (i) Fredrickson & Bryon,
         P.A., counsel for the Borrower and the Guarantors, (ii) Sullivan &
         Cromwell, special counsel for the Borrower and the Guarantors, (iii)
         Henderson, Daily, Withrow & DeVoe, special counsel for the Borrower and
         the Guarantors and (iv) of Senior Legal Counsel to the Borrower and the
         Guarantors, and covering such other matters relating to the Borrower,
         the Guarantors, this Credit Agreement or the Transactions as the
         Required Lenders shall reasonably request. The Borrower hereby requests
         such counsel to deliver such opinion.

                  (c) The Administrative Agent shall have received such
         documents and certificates as the Administrative Agent or its counsel
         may reasonably request relating to the organization, existence and good
         standing of the Borrower and each of the Guarantors, the authorization
         of the Transactions and any other legal matters relating to the
         Borrower, the Guarantors, this Agreement or the Transactions, all in
         form and substance satisfactory to the Administrative Agent and its
         counsel.

                  (d) The Administrative Agent shall have received a
         certificate, dated the Closing Date and signed by the President, a Vice
         President or a Financial Officer of the Borrower, confirming compliance
         with the conditions set forth in paragraphs (a) and (b) of Section
         4.02.

                  (e) The Administrative Agent shall have received all fees and
         other amounts due and payable on or prior to the Closing Date,
         including, without limitation the fees set forth in the Fee Letter and,
         to the extent invoiced, the reimbursement or payment of all
         out-of-pocket expenses required to be reimbursed or paid by the
         Borrower hereunder.

                  (f) The commitments under the Existing Credit Agreement shall
         have been terminated and all amounts owing thereunder shall have been
         paid.


                                       42



         SECTION 4.02 EACH CREDIT EVENT.

                  The obligation of each Lender to make a Loan on the occasion
         of any Revolving Borrowing, the Issuing Bank to issue, amend, renew or
         extend any Letter of Credit and the Swingling Lender to make a
         Swingline Loan on the occasion of any Swingline Borrowing is subject to
         the satisfaction of the following conditions:

                  (a) The representations and warranties of the Borrower set
         forth in this Credit Agreement shall be true and correct in all
         material respects on and as of the date of, and after giving effect to,
         such Borrowing and after giving effect to, the issuance, amendment,
         renewal or extension of such Letter of Credit, as applicable; provided,
         that, the representations and warranties contained in Sections 3.04(b),
         3.06, 3.07(a) and 3.10 shall be deemed made, and shall be required to
         be true and correct, only on the Closing Date.

                  (b) At the time of and immediately after giving effect to such
         Borrowing or the issuance, amendment, renewal or extension of such
         Letter of Credit, as applicable, no Default shall have occurred and be
         continuing.

        Each Borrowing and each issuance, amendment, renewal or extension of a
Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.



                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

         Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been paid
in full, and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:

         SECTION 5.01 FINANCIAL STATEMENTS AND OTHER INFORMATION.

         The Borrower will furnish to the Administrative Agent (with copies for
each Lender):

                  (a) within 100 days after the end of each fiscal year of the
         Borrower, its audited consolidated balance sheet and related statements
         of operations, shareholders' equity and cash flows as of the end of and
         for such year, setting forth in each case in comparative form the
         figures for the previous fiscal year, all reported on by
         PricewaterhouseCoopers LLP or other independent public accountants of
         recognized national standing (without a "going concern" or like
         qualification or exception and without any qualification or exception
         as to the scope of such audit) to the effect that such consolidated
         financial statements present fairly in all material respects the
         financial condition and results of operations of the Borrower and its
         consolidated Subsidiaries on a consolidated basis in accordance with


                                       43



         GAAP (the Lenders agree that the Borrower's obligations under this
         paragraph (a) will be satisfied in respect of any fiscal year by
         delivery to the Administrative Agent, with copies for each Lender,
         within 100 days after the end of such fiscal year of its annual report
         for such fiscal year on Form 10-K as filed with the SEC);

                  (b) within 55 days after the end of each of the first three
         fiscal quarters of each fiscal year of the Borrower (including the
         fiscal quarter ending on January 25, 2002), its consolidated balance
         sheet and related statements of operations and cash flows as of the end
         of and for such fiscal quarter and the then elapsed portion of the
         fiscal year, setting forth in each case in comparative form the figures
         for the corresponding period or periods of (or, in the case of the
         balance sheet, as of the end of) the previous fiscal year, all
         certified by one of its Financial Officers as presenting fairly in all
         material respects the financial condition and results of operations of
         the Borrower and its consolidated Subsidiaries on a consolidated basis
         in accordance with GAAP consistently applied, subject to normal
         year-end audit adjustments and the absence of footnotes (the Lenders
         agree that the Borrower's obligations under this paragraph (b) will be
         satisfied in respect of any fiscal quarter by delivering to the
         Administrative Agent, with copies for each Lender, within 55 days after
         the end of such fiscal quarter of its quarterly report for such fiscal
         quarter on Form 10-Q as filed with the SEC);

                  (c) concurrently with any delivery of financial statements
         under paragraph (a) or (b) above, a certificate of a Financial Officer
         of the Borrower (i) certifying as to whether a Default has occurred
         and, if a Default has occurred, specifying the details thereof and any
         action taken or proposed to be taken with respect thereto, (ii) setting
         forth reasonably detailed calculations demonstrating compliance with
         Section 6.01 and (iii) stating whether any change in GAAP or in the
         application thereof has occurred since the date of the audited
         financial statements referred to in Section 3.04(a)(i) and, if any such
         change has occurred, specifying the effect of such change on the
         financial statements accompanying such certificate;

                  (d) promptly after the same become publicly available or upon
         transmission or receipt thereof, copies of all periodic and other
         reports, proxy statements and other materials filed by the Borrower or
         any Subsidiary with the SEC, or any Governmental Authority succeeding
         to any or all of the functions of the SEC, or with any national
         securities exchange, or distributed by the Borrower to its shareholders
         generally, as the case may be, provided that, with respect to materials
         filed with any national securities exchange, only material filings
         shall be required to be delivered pursuant to this paragraph (d); and

                  (e) promptly following any request therefor, such other
         information regarding the operations, business affairs and financial
         condition of the Borrower or any Subsidiary, or compliance with the
         terms of this Credit Agreement, as the Administrative Agent or any
         Lender (acting through the Administrative Agent) may reasonably
         request.


                                       44



         SECTION 5.02 NOTICES OF MATERIAL EVENTS.

         The Borrower will furnish to the Administrative Agent and each Lender
prompt written notice of, but in any event not later than five Business Days
after, the following:

                  (a) the occurrence of any Default;

                  (b) the occurrence of any ERISA Event that, alone or together
         with any other ERISA Events that have occurred, could reasonably be
         expected to result in liability of the Borrower and its Subsidiaries in
         an aggregate amount exceeding $100,000,000;

                  (c) the non-compliance with any contractual obligation or
         requirement of law that is not currently being contested in good faith
         by appropriate proceedings if all such non-compliance in the aggregate
         could reasonably be expected to have a Material Adverse Effect;

                  (d) the revocation of any license, permit, authorization,
         certificate, qualification or accreditation of the Borrower or any
         Subsidiary by any Governmental Authority if all such revocations in the
         aggregate could reasonably be expected to have a Material Adverse
         Effect;

                  (e) a change in rating for the Index Debt by either Moody's or
         S & P; and

                  (f) any other development that results in, or could reasonably
         be expected to result in, a Material Adverse Effect.

         Each notice delivered under this Section shall be accompanied by a
statement of a Financial Officer or other executive officer of the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.

         SECTION 5.03 EXISTENCE; CONDUCT OF BUSINESS.

         The Borrower will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business; provided that the foregoing
shall not prohibit any merger, consolidation, liquidation, dissolution or stock
or asset sale permitted under Section 6.04.

         SECTION 5.04 PAYMENT OF OBLIGATIONS.

         The Borrower will, and will cause each of its Subsidiaries to, pay its
obligations, including Tax liabilities, that, if not paid, could result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.


                                       45



         SECTION 5.05 MAINTENANCE OF PROPERTIES; INSURANCE.

         The Borrower will, and will cause each of its Subsidiaries to, (a) keep
and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, and (b) maintain,
with financially sound and reputable insurance companies, insurance in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations or maintain a system or systems of self-insurance or assumption of
risk which accords with the practices of similar businesses.

         SECTION 5.06 BOOKS AND RECORDS; INSPECTION RIGHTS.

         The Borrower will, and will cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.

         SECTION 5.07 COMPLIANCE WITH LAWS.

         The Borrower will, and will cause each of its Subsidiaries to, comply
with all laws, rules, regulations and orders of any Governmental Authority
applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

         SECTION 5.08 USE OF PROCEEDS.

         The proceeds of the Loans will be used for the purposes described in
Section 3.13. No part of the proceeds of any Loan will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations U and X.

         SECTION 5.09 MAINTENANCE OF ACCREDITATION, ETC.

         The Borrower will preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, all licenses, permits, authorizations,
certifications and qualifications (including, without limitation, those
qualifications with respect to solvency and capitalization) required, except
where the failure to do so would not result in a Material Adverse Effect.


                                       46



         SECTION 5.10 ADDITIONAL SUBSIDIARY GUARANTORS.

         The Borrower will cause each of its Significant Subsidiaries, whether
newly formed, after acquired or otherwise existing, to promptly become a
Guarantor hereunder by way of execution of a Joinder Agreement in the form of
Exhibit B.


                                   ARTICLE VI

                               NEGATIVE COVENANTS

         Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:

         SECTION 6.01 CONSOLIDATED TANGIBLE NET WORTH.

         The Consolidated Tangible Net Worth shall at all times be greater than
or equal to $1,040,400,000, increased by an amount equal to 100% of the Net Cash
Proceeds from any Equity Issuance occurring after the Closing Date.

         SECTION 6.02 INDEBTEDNESS.

         The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any other Indebtedness or liability on account
of borrowed money, represented by any notes, bonds, debentures or similar
obligations, or on account of the deferred purchase price of any property, or
any other deposits, advance or progress payments under contracts, except:

                  (a) Indebtedness arising or existing under this Credit
         Agreement and the other Credit Documents;

                  (b) Indebtedness existing on the date hereof and set forth in
         Schedule 6.02 and extensions, renewals and replacements of any such
         Indebtedness that do not increase the outstanding principal amount
         thereof;

                  (c) Indebtedness of the Borrower and its Subsidiaries incurred
         after the Closing Date consisting of Capital Lease Obligations or
         Indebtedness incurred to provide all or a portion of the purchase price
         or cost of construction of an asset provided that (i) such Indebtedness
         when incurred shall not exceed the purchase price or cost of
         construction of such asset and (ii) no such Indebtedness shall be
         refinanced for a principal amount in excess of the principal balance
         outstanding thereon at the time of such refinancing;

                  (d) Indebtedness of any Subsidiary to the Borrower or any
         other Subsidiary;

                  (e) Indebtedness secured by Liens to the extent permitted
         under Section 6.03;


                                       47



                  (f) other unsecured Indebtedness of the Borrower and its
         Subsidiaries; provided that such Indebtedness is not senior in right of
         payment to the payment of the Indebtedness arising or existing under
         this Credit Agreement and the other Credit Documents.

         SECTION 6.03 LIENS.

         The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:

                  (a) Permitted Encumbrances;

                  (b) any Lien on any property or asset of the Borrower or any
         Subsidiary existing on the date hereof and set forth in Schedule 6.03;
         provided that (i) such Lien shall not apply to any other property or
         asset of the Borrower or any Subsidiary and (ii) such Lien shall secure
         only those obligations which it secures on the date hereof and
         extensions, renewals and replacements thereof that do not increase the
         outstanding principal amount thereof;

                  (c) any Lien existing on any property or asset prior to the
         acquisition thereof by the Borrower or any Subsidiary or existing on
         any property or asset of any Person that becomes a Subsidiary after the
         date hereof prior to the time such Person becomes a Subsidiary;
         provided that (i) such Lien is not created in contemplation of or in
         connection with such acquisition or such Person becoming a Subsidiary,
         as the case may be, (ii) such Lien shall not apply to any other
         property or assets of the Borrower or any Subsidiary and (iii) such
         Lien shall secure only those obligations which it secures on the date
         of such acquisition or the date such Person becomes a Subsidiary, as
         the case may be and extensions, renewals and replacements thereof that
         do not increase the outstanding principal amount thereof; and

                  (d) Liens not otherwise permitted under this Section securing
         obligations in an aggregate amount not exceeding at any time 20% of
         Consolidated Tangible Net Worth as at the end of the immediately
         preceding fiscal quarter of the Borrower.

                  SECTION 6.04 FUNDAMENTAL CHANGES.

         The Borrower will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(in one transaction or in a series of transactions) all or substantially all of
its assets, or all or substantially all of the stock of any of its Subsidiaries
(in each case, whether now owned or hereafter acquired), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing (i) any Person
may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any Person, including any Affiliate, may merge with
any Subsidiary in a transaction in which the surviving entity is a Subsidiary,
(iii) any Subsidiary


                                       48



may sell, transfer, lease or otherwise dispose of its assets or stock to the
Borrower or to another Subsidiary, (iv) any Subsidiary may liquidate or dissolve
or the Borrower or any Subsidiary may sell, transfer, lease or otherwise dispose
of the assets or stock of any Subsidiary if, in each case, the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to the Lenders,
(v) the Borrower and its Subsidiaries may sell immaterial businesses, including
Subsidiaries, in the ordinary course of business and (vi) any Subsidiary formed
for the purpose of acquiring a Person or a minority interest in any Person may
merge into such Person.

         SECTION 6.05 TRANSACTIONS WITH AFFILIATES.

         The Borrower will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in any
other transactions with, any of its Affiliates, except (a) in the ordinary
course of business at prices and on terms and conditions not less favorable to
the Borrower or such Subsidiary than could be obtained on an arm's-length basis
from unrelated third parties, (b) transactions between or among the Borrower and
its Subsidiaries not involving any other Affiliates, (c) contributions to the
Medtronic Foundation in amounts consistent with past practices or (d) as
otherwise permitted by this Credit Agreement.

         SECTION 6.06 RESTRICTIVE AGREEMENTS.

         The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon the
ability of the Borrower or any Subsidiary to grant a lien on its properties or
assets whether now owned or hereafter acquired or the ability of any Subsidiary
to pay dividends or other distributions with respect to any shares of its
capital stock or to make or repay loans or advances to the Borrower or any other
Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary;
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law, rule, regulation or regulatory administrative agreement or
determination or by this Credit Agreement, and (ii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder.

         SECTION 6.07 BUSINESS ACTIVITY.

         The Borrower will not, nor will it permit any Significant Subsidiary
to, alter the character of its business in any material respect from that
conducted as of the Closing Date.

         SECTION 6.08 RESTRICTED PAYMENTS.

         The Borrower will not, nor will it permit any Subsidiary to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends payable solely in the same
class of capital stock of such Person, (b) to make dividends or other
distributions payable to the Borrower (directly or indirectly through
Subsidiaries) and ratably to minority shareholders and (c) other distributions
in respect of the capital stock of such Person or the redemption, retirement,


                                       49



purchase or other acquisition of the capital stock of such Person (or any
warrant, option or other rights with respect to any shares of capital stock (now
or hereafter outstanding) of such Person) if no Default has occurred and is
continuing or would result from such action.


                                   ARTICLE VII

                                EVENTS OF DEFAULT

         If any of the following events ("Events of Default") shall occur:

                  (a) the Borrower shall fail to pay any principal of any Loan
         or any reimbursement obligation in respect to any LC Disbursement when
         and as the same shall become due and payable, whether at the due date
         thereof or at a date fixed for prepayment thereof or otherwise (or any
         Guarantor shall fail to pay on the Guaranty in respect of any of the
         foregoing or in respect of any other Guaranty obligations thereunder);

                  (b) the Borrower shall fail to pay any interest on any Loan or
         any fee or any other amount (other than an amount referred to in clause
         (a) of this Article) payable under this Credit Agreement, when and as
         the same shall become due and payable, and such failure shall continue
         unremedied for a period of five Business Days;

                  (c) any representation or warranty made or deemed made by or
         on behalf of the Borrower or any Subsidiary in or in connection with
         this Credit Agreement or any amendment or modification hereof, or in
         any report, certificate, financial statement or other document
         furnished pursuant to or in connection with this Credit Agreement or
         any amendment or modification hereof, shall prove to have been
         incorrect in any material respect when made or deemed made;

                  (d) the Borrower shall fail to observe or perform any
         covenant, condition or agreement contained in Section 5.02, 5.03 (with
         respect to the Borrower's existence) or 5.08 or in Article VI;

                  (e) the Borrower shall fail to observe or perform any
         covenant, condition or agreement contained in this Credit Agreement
         (other than those specified in clause (a), (b) or (d) of this Article),
         and such failure shall continue unremedied for a period of 30 days
         after notice thereof from the Administrative Agent (given at the
         request of any Lender) to the Borrower;

                  (f) the Borrower or any Subsidiary shall fail to make any
         payment (whether of principal or interest and regardless of amount) in
         respect of any Material Indebtedness, when and as the same shall become
         due and payable (subject to any applicable grace periods or notice
         requirements);

                  (g) any event or condition occurs that results in any Material
         Indebtedness becoming due prior to its scheduled maturity or that
         enables or permits (with the giving of notice if required) the holder


                                       50



         or holders of any Material Indebtedness or any trustee or agent on its
         or their behalf to cause any Material Indebtedness to become due, or to
         require the prepayment, repurchase, redemption or defeasance thereof,
         prior to its scheduled maturity; provided that this clause (g) shall
         not apply to (i) secured Indebtedness that becomes due as a result of
         the voluntary sale or transfer of the property or assets securing such
         Indebtedness or (ii) the Indebtedness under this Agreement or the
         364-Day Facility;

                  (h) an involuntary proceeding shall be commenced or an
         involuntary petition shall be filed seeking (i) liquidation,
         reorganization or other relief in respect of the Borrower or any
         Significant Subsidiary or its debts, or of a substantial part of its
         assets, under any Federal, state or foreign bankruptcy, insolvency,
         receivership or similar law now or hereafter in effect or (ii) the
         appointment of a receiver, trustee, custodian, sequestrator,
         conservator or similar official for the Borrower or any Significant
         Subsidiary or for a substantial part of its assets, and, in any such
         case, such proceeding or petition shall continue undismissed for 60
         days or an order or decree approving or ordering any of the foregoing
         shall be entered;

                  (i) the Borrower or any Significant Subsidiary shall (i)
         voluntarily commence any proceeding or file any petition seeking
         liquidation, reorganization or other relief under any Federal, state or
         foreign bankruptcy, insolvency, receivership or similar law now or
         hereafter in effect, (ii) consent to the institution of, or fail to
         contest in a timely and appropriate manner, any proceeding or petition
         described in clause (h) of this Article, (iii) apply for or consent to
         the appointment of a receiver, trustee, custodian, sequestrator,
         conservator or similar official for the Borrower or any Significant
         Subsidiary or for a substantial part of its assets, (iv) file an answer
         admitting the material allegations of a petition filed against it in
         any such proceeding, (v) make a general assignment for the benefit of
         creditors or (vi) take any action for the purpose of effecting any of
         the foregoing;

                  (j) an Event of Default shall occur and be continuing under
         the 364-Day Facility;

                  (k) the Borrower or any Significant Subsidiary shall become
         unable, admit in writing its inability to pay, or fail generally to pay
         its debts as they become due;

                  (l) one or more judgments or decrees shall be rendered against
         the Borrower, any Significant Subsidiary or any combination thereof and
         the same shall not have been paid, vacated, discharged, stayed or
         bonded pending appeal within 60 days from the entry thereof that
         involves in the aggregate a liability (not paid or fully covered by
         insurance) of $50,000,000 or more;

                  (m) an ERISA Event shall have occurred that, in the opinion of
         the Required Lenders, when taken together with all other ERISA Events
         that have occurred, could reasonably be expected to result in a
         Material Adverse Effect;


                                       51



                  (n) a Change in Control of the Borrower shall occur; or

                  (o) the Guaranty or any provision thereof shall cease to be in
         full force and effect (other than in accordance with its terms) or any
         Guarantor or any Person acting by or on behalf of any Guarantor shall
         deny or disaffirm any Guarantor's obligations under the Guaranty;

         then, and in every such event (other than an event with respect to the
         Borrower described in clause (h) or (i) of this Article), and at any
         time thereafter during the continuance of such event, the
         Administrative Agent may, and at the request of the Required Lenders
         shall, by notice to the Borrower, take either or both of the following
         actions, at the same or different times: (i) terminate the Commitments,
         and thereupon the Commitments shall terminate immediately, and (ii)
         declare the Loans then outstanding to be due and payable in whole (or
         in part, in which case any principal not so declared to be due and
         payable may thereafter be declared to be due and payable), and
         thereupon the principal of the Loans so declared to be due and payable,
         together with accrued interest thereon and all fees and other
         obligations of the Borrower accrued hereunder, shall become due and
         payable immediately (and the Commitments shall terminate), without
         presentment, demand, protest or other notice of any kind, all of which
         are hereby waived by the Borrower; and in case of any event with
         respect to the Borrower described in clause (h) or (i) of this Article,
         the Commitments shall automatically terminate and the principal of the
         Loans then outstanding, together with accrued interest thereon and all
         fees and other obligations of the Borrower accrued hereunder, shall
         automatically become due and payable, without presentment, demand,
         protest or other notice of any kind, all of which are hereby waived by
         the Borrower.


                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

         SECTION 8.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT.

         Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.

         The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or


                                       52



obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or willful misconduct.

         SECTION 8.02 NOTICE OF DEFAULT.

         The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Credit Agreement,
(ii) the contents of any certificate, report or other document delivered
hereunder or in connection herewith, (iii) the performance or observance of any
of the covenants, agreements or other terms or conditions set forth herein, (iv)
the validity, enforceability, effectiveness or genuineness of this Credit
Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.

         SECTION 8.03 RELIANCE BY ADMINISTRATIVE AGENT.

         The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.

         SECTION 8.04 DELEGATION OF DUTIES.

         The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

         SECTION 8.05 SUCCESSOR ADMINISTRATIVE AGENT.

         The Administrative Agent may resign as Administrative Agent upon 30
days' notice to the Lenders. If the Administrative Agent resigns under this
Agreement, the Required Lenders shall appoint from among the Lenders a successor
administrative agent for the Lenders which successor administrative agent shall


                                       53



be consented to by the Borrower at all times other than during the existence of
an Event of Default (which consent of the Borrower shall not be unreasonably
withheld or delayed). If no successor administrative agent is appointed prior to
the effective date of the resignation of the Administrative Agent, the
Administrative Agent may appoint, after consulting with the Lenders and the
Borrower, a successor administrative agent from among the Lenders. Upon the
acceptance of its appointment as successor administrative agent hereunder, such
successor administrative agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor administrative agent and the retiring Administrative
Agent's appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article and Section 9.03 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement. If no successor administrative
agent has accepted appointment as Administrative Agent by the date which is 30
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as provided for above.

         SECTION 8.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY
ADMINISTRATIVE AGENT.

         Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Credit
Agreement, any related agreement or any document furnished hereunder or
thereunder.

         SECTION 8.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT.

         Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand each Agent-Related Person (to the extent
not reimbursed by or on behalf of the Borrower or any Guarantor and without
limiting the obligation of the Borrower or any Guarantor to do so), pro rata,
and hold harmless each Agent-Related Person from and against any and all
Indemnified Liabilities incurred by it; provided, however, that no Lender shall
be liable for the payment to any Agent-Related Person of any portion of such
Indemnified Liabilities resulting from such Person's gross negligence or willful
misconduct; provided, however, that no action taken in accordance with the
directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section. Without
limitation of the foregoing, each Lender shall reimburse the Administrative
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including attorney costs) incurred by the Administrative Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,


                                       54



this Credit Agreement, any other Credit Document, or any document contemplated
by or referred to herein, to the extent that the Administrative Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking in
this Section shall survive termination of the Commitments, the payment of all
obligations hereunder and the resignation or replacement of the Administrative
Agent.

         SECTION 8.08 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.

         Bank of America and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Borrower and each of the Guarantors and their
respective Affiliates as though Bank of America were not the Administrative
Agent or the Issuing Bank hereunder and without notice to or consent of the
Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of
America or its Affiliates may receive information regarding the Borrower, any of
the Guarantors or their respective Affiliates (including information that may be
subject to confidentiality obligations in favor of such Person or such
Affiliate) and acknowledge that the Administrative Agent shall be under no
obligation to provide such information to them. With respect to its Loans, Bank
of America shall have the same rights and powers under this Credit Agreement as
any other Lender and may exercise such rights and powers as though it were not
the Administrative Agent or the Issuing Bank, and the terms "Lender" and
"Lenders" include Bank of America in its individual capacity.


                                   ARTICLE IX

                                  MISCELLANEOUS

         SECTION 9.01 NOTICES.

         Except in the case of notices and other communications expressly
permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:

                  (a) if to the Borrower:

                                 Medtronic, Inc.
                                 710 Medtronic Parkway
                                 Minneapolis, MN 55432-5604,
                                 Attention: Treasury Department, Mail Stop LC480
                                 Telecopy No. (763) 505-2700

                           with a copy to:

                                 Medtronic, Inc.
                                 710 Medtronic Parkway
                                 Minneapolis, MN 55432-5604,
                                 Attention: General Counsel, Mail Stop LC400
                                 Telecopy No. (763) 572-5459


                                       55



                  (b) if to the Administrative Agent, Issuing Bank and/or
         Swingline Lender (for notices regarding borrowings, payments,
         conversions, fees, interest, and other administrative matter):

                                 Bank of America, N.A.
                                 Independence Center, 15th Floor
                                 NC1-001-15-04, 101 North Tryon Street
                                 Charlotte, North Carolina 28255
                                 Attn: Agency Services - Neal Hendrix
                                 Telephone: 704-386-4220
                                 Telecopy: 704-409-0017

                  (c) if to the Administrative Agent for all other notices
         (including with respect to delivery of financial statements, compliance
         certificates, Defaults and Events of Default, amendments, waivers and
         modifications of the Credit Documents and assignments):

                                  Bank of America, N.A.
                                  Agency Management
                                  1455 Market Street, CA5-704-05-19
                                  San Francisco, CA 94801
                                  Attention: Aamir Saleem
                                  Telephone: (415) 436-2769
                                  Telecopy: (415) 503-5089

                           with a copy to:

                                  Bank of America, N. A.
                                  Location Code: NC1-007-17-11
                                  100 North Tryon, 17th Floor
                                  Charlotte, North Carolina 28202
                                  Attention: Phil Durand
                                  Telephone: (704) 386-4955
                                  Telecopy: (704) 388-6002

                  (d) if to any other Lender, to it at its address (or telecopy
         number) set forth in its Administrative Questionnaire.

         Any party hereto may change its address or telecopy number for notices
         and other communications hereunder by notice to the other parties
         hereto. All notices and other communications given to any party hereto
         in accordance with the provisions of this Credit Agreement shall be
         deemed to have been given on the date of receipt.


                                       56



         SECTION 9.02 WAIVERS; AMENDMENTS.

                  (a) No failure or delay by the Administrative Agent, the
         Issuing Bank or any Lender in exercising any right or power hereunder
         shall operate as a waiver thereof, nor shall any single or partial
         exercise of any such right or power, or any abandonment or
         discontinuance of steps to enforce such a right or power, preclude any
         other or further exercise thereof or the exercise of any other right or
         power. The rights and remedies of the Administrative Agent, the Issuing
         Bank and the Lenders hereunder are cumulative and are not exclusive of
         any rights or remedies that they would otherwise have. No waiver of any
         provision of this Credit Agreement or consent to any departure by the
         Borrower or any Guarantor therefrom shall in any event be effective
         unless the same shall be permitted by paragraph (b) of this Section,
         and then such waiver or consent shall be effective only in the specific
         instance and for the purpose for which given. Without limiting the
         generality of the foregoing, the making of a Loan or issuance of a
         Letter of Credit shall not be construed as a waiver of any Default,
         regardless of whether the Administrative Agent, any Lender or the
         Issuing Bank may have had notice or knowledge of such Default at the
         time.

                  (b) Neither this Credit Agreement nor any provision hereof may
         be waived, amended or modified except pursuant to an agreement or
         agreements in writing entered into by the Borrower and the Required
         Lenders or by the Borrower and the Administrative Agent with the
         consent of the Required Lenders; provided that no such agreement shall
         (i) increase the Commitment of any Lender without the written consent
         of such Lender, (ii) reduce the principal amount of any Loan or LC
         Disbursement or reduce the rate of interest thereon, or reduce any fees
         payable hereunder, without the written consent of each Lender directly
         affected thereby, (iii) postpone the scheduled date of payment of the
         principal amount of any Loan or LC Disbursement, or any interest
         thereon, or any fees payable hereunder, or reduce the amount of, waive
         or excuse any such payment, or postpone the scheduled date of
         expiration of any Commitment, without the written consent of each
         Lender directly affected thereby, (iv) change Section 2.17(b) or (c) in
         a manner that would alter the pro rata sharing of payments required
         thereby, without the written consent of each Lender, (v) change any of
         the provisions of this Section or the definition of "Required Lenders"
         or any other provision hereof specifying the number or percentage of
         Lenders required to waive, amend or modify any rights hereunder or make
         any determination or grant any consent hereunder, without the written
         consent of each Lender, (vi) release all or substantially all of the
         Guarantors from their obligations under this Credit Agreement, without
         the written consent of each Lender or (vii) change or amend Section
         2.04 without the consent of the Swingline Lender; provided further that
         no such agreement shall amend, modify or otherwise affect the rights or
         duties of the Administrative Agent or the Issuing Bank hereunder
         without the prior written consent of the Administrative Agent or the
         Issuing Bank, as the case may be.


                                       57



         SECTION 9.03 EXPENSES; INDEMNITY; DAMAGE WAIVER.

                  (a) The Borrower shall pay (i) all reasonable out-of-pocket
         expenses incurred by the Administrative Agent and its Affiliates,
         including the reasonable fees, charges and disbursements of outside
         counsel for the Administrative Agent, in connection with the
         syndication of the credit facilities provided for herein, the
         preparation and administration of this Credit Agreement or any
         amendments, modifications or waivers of the provisions hereof (whether
         or not the transactions contemplated hereby or thereby shall be
         consummated), (ii) all reasonable out-of-pocket expenses incurred by
         the Issuing Bank in connection with the issuance, amendment, renewal or
         extension of any Letter of Credit or any demand for payment thereunder
         and (iii) all reasonable out-of-pocket expenses incurred by the
         Administrative Agent, the Issuing Bank or any Lender, including the
         fees and disbursements of any outside counsel for the Administrative
         Agent, the Issuing Bank or any Lender, in connection with the
         enforcement or protection of its rights in connection with this Credit
         Agreement, including its rights under this Section, or in connection
         with the Loans made or Letters of Credit issued hereunder, including in
         connection with any workout, restructuring or negotiations in respect
         thereof.

                  (b) The Borrower shall indemnify the Administrative Agent, the
         Issuing Bank and each Lender, and each Related Party of any of the
         foregoing Persons (each such Person being called an "Indemnitee")
         against, and hold each Indemnitee harmless from, any and all losses,
         claims, damages, liabilities and related expenses, including the fees
         and disbursements of any outside counsel for any Indemnitee, incurred
         by or asserted against any Indemnitee arising out of, in connection
         with, or as a result of (i) the execution or delivery of this Credit
         Agreement or any agreement or instrument contemplated hereby, the
         performance by the parties hereto of their respective obligations
         hereunder or the consummation of the Transactions or any other
         transactions contemplated hereby, (ii) any Loan or Letter of Credit or
         the actual or proposed use of the proceeds therefrom (including any
         refusal by the Issuing Bank to honor a demand for payment under a
         Letter of Credit if the documents presented in connection with such
         demand do not strictly comply with the terms of such Letter of Credit),
         (iii) any actual or alleged presence or release of Hazardous Materials
         on or from any property owned or operated by the Borrower or any of its
         Subsidiaries, or any Environmental Liability related in any way to the
         Borrower or any of its Subsidiaries, or (iv) any actual or prospective
         claim, litigation, investigation or proceeding relating to any of the
         foregoing, whether based on contract, tort or any other theory and
         regardless of whether any Indemnitee is a party thereto (all of the
         foregoing, collectively, the "Indemnified Liabilities"); provided that
         such indemnity shall not, as to any Indemnitee, be available to the
         extent that such losses, claims, damages, liabilities or related
         expenses are determined by a court of competent jurisdiction to have
         resulted from the gross negligence or willful misconduct of such
         Indemnitee.

                  (c) To the extent that the Borrower fails to pay any amount
         required to be paid by it to the Administrative Agent or the Issuing
         Bank under paragraph (a) or (b) of this Section, each Lender severally
         agrees to pay to the Administrative Agent or the Issuing Bank as the
         case may be, such Lender's Applicable Percentage (determined as of the
         time that the applicable unreimbursed expense or indemnity payment is
         sought) of such unpaid amount; provided that the unreimbursed expense
         or indemnified loss, claim, damage, liability or related expense, as
         the case may be, was incurred by or asserted against the Administrative
         Agent or the Issuing Bank in its capacity as such.


                                       58



                  (d) To the extent permitted by applicable law, the Borrower
         shall not assert, and hereby waives, any claim against any Indemnitee,
         on any theory of liability, for special, indirect, consequential or
         punitive damages (as opposed to direct or actual damages) arising out
         of, in connection with, or as a result of, this Credit Agreement or any
         agreement or instrument contemplated hereby, the Transactions, any
         Loan, Letter of Credit or the use of the proceeds thereof.

                  (e) All amounts due under this Section shall be payable
         promptly after written demand therefor.

         SECTION 9.04 SUCCESSORS AND ASSIGNS.

                  (a) The provisions of this Credit Agreement shall be binding
         upon and inure to the benefit of the parties hereto and their
         respective successors and assigns permitted hereby, except that neither
         the Borrower nor any Guarantor may assign or otherwise transfer any of
         its rights or obligations hereunder without the prior written consent
         of each Lender (and any attempted assignment or transfer by the
         Borrower or any Guarantor without such consent shall be null and void);
         provided, however, that no such consent shall be required for any
         transaction permitted under Section 6.04. Nothing in this Credit
         Agreement, expressed or implied, shall be construed to confer upon any
         Person (other than the parties hereto, their respective successors and
         assigns permitted hereby and, to the extent expressly contemplated
         hereby, the Related Parties of each of the Administrative Agent, the
         Issuing Bank and the Lenders) any legal or equitable right, remedy or
         claim under or by reason of this Credit Agreement.

                  (b) Any Lender may assign to one or more assignees all or a
         portion of its rights and obligations under this Credit Agreement
         (including all or a portion of its Commitment and the Loans at the time
         owing to it); provided that (i) except in the case of an assignment to
         a Lender, an Affiliate of a Lender or an Approved Fund with respect
         thereto, each of the Borrower and the Administrative Agent (and, in the
         case of an assignment of all or a portion of a Commitment or any
         Lender's obligations in respect of its LC Exposure, the Issuing Bank)
         must give their prior written consent to such assignment (which consent
         shall not be unreasonably withheld), (ii) except in the case of an
         assignment to a Lender, an Affiliate of a Lender, an Approved Fund with
         respect thereto or an assignment of the entire remaining amount of the
         assigning Lender's Commitment, the amount of the Commitment of the
         assigning Lender subject to each such assignment (determined as of the
         date the Assignment and Acceptance with respect to such assignment is
         delivered to the Administrative Agent) shall not be less than
         $5,000,000, except in the case of an assignment of the entire remaining
         amount of the assigning Lender's Commitment, unless each of the
         Borrower and the Administrative Agent otherwise consent and, after
         giving effect to such assignment, the assigning Lender and its


                                       59



         Affiliates and the Approved Funds with respect to such Lender shall
         have a Commitment of at least $5,000,000 unless each of the Borrower
         and the Administrative Agent otherwise consents, (iii) each partial
         assignment shall be made as an assignment of a proportionate part of
         all the assigning Lender's rights and obligations under this Credit
         Agreement, (iii) the parties to each assignment shall execute and
         deliver to the Administrative Agent an Assignment and Acceptance,
         together with a processing and recordation fee of $3,500, (iv) such
         assigning Lender shall simultaneously assign an identical percentage of
         the loans and commitments of such Lender under the 364-Day Facility to
         such assignee, and (v) the assignee, if it shall not be a Lender, shall
         deliver to the Administrative Agent an Administrative Questionnaire;
         provided further that any consent of the Borrower otherwise required
         under this paragraph shall not be required if an Event of Default has
         occurred and is continuing. Upon acceptance and recording pursuant to
         paragraph (d) of this Section, from and after the effective date
         specified in each Assignment and Acceptance, the assignee thereunder
         shall be a party hereto and, to the extent of the interest assigned by
         such Assignment and Acceptance, have the rights and obligations of a
         Lender under this Credit Agreement, and the assigning Lender thereunder
         shall, to the extent of the interest assigned by such Assignment and
         Acceptance, be released from its obligations under this Credit
         Agreement (and, in the case of an Assignment and Acceptance covering
         all of the assigning Lender's rights and obligations under this Credit
         Agreement, such Lender shall cease to be a party hereto but shall
         continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16
         and 9.03). Any assignment or transfer by a Lender of rights or
         obligations under this Credit Agreement that does not comply with this
         paragraph shall be treated for purposes of this Credit Agreement as a
         sale by such Lender of a participation in such rights and obligations
         in accordance with paragraph (e) of this Section.

                  (c) The Administrative Agent, acting for this purpose as an
         agent of the Borrower, shall maintain at one of its offices in
         Charlotte, North Carolina a copy of each Assignment and Acceptance
         delivered to it and a register for the recordation of the names and
         addresses of the Lenders, and the Commitment of, and principal amount
         of the Loans and LC Disbursements owing to, each Lender pursuant to the
         terms hereof from time to time (the "Register"). The entries in the
         Register shall be conclusive (absent manifest error), and the Borrower,
         the Administrative Agent, the Issuing Bank and the Lenders may treat
         each Person whose name is recorded in the Register pursuant to the
         terms hereof as a Lender hereunder for all purposes of this Credit
         Agreement, notwithstanding notice to the contrary.

                  (d) Upon its receipt of a duly completed Assignment and
         Acceptance executed by an assigning Lender and an assignee, the
         assignee's completed Administrative Questionnaire (unless the assignee
         shall already be a Lender hereunder), the processing and recordation
         fee referred to in paragraph (b) of this Section and any written
         consent to such assignment required by paragraph (b) of this Section,
         the Administrative Agent shall accept such Assignment and Acceptance
         and record the information contained therein in the Register. No
         assignment shall be effective for purposes of this Credit Agreement
         unless it has been recorded in the Register as provided in this
         paragraph.


                                       60



                  (e) Any Lender may, without the consent of the Borrower, the
         Administrative Agent or the Issuing Bank, sell participations to one or
         more banks or other entities (a "Participant") in all or a portion of
         such Lender's rights and obligations under this Credit Agreement
         (including all or a portion of its Commitment and the Loans owing to
         it); provided that (i) such Lender's obligations under this Credit
         Agreement shall remain unchanged, (ii) such Lender shall remain solely
         responsible to the other parties hereto for the performance of such
         obligations and (iii) the Borrower, the Administrative Agent, the
         Issuing Bank and the other Lenders shall continue to deal solely and
         directly with such Lender in connection with such Lender's rights and
         obligations under this Credit Agreement. Any agreement or instrument
         pursuant to which a Lender sells such a participation shall provide
         that such Lender shall retain the sole right to enforce this Credit
         Agreement and to approve any amendment, modification or waiver of any
         provision of this Credit Agreement; provided that such agreement or
         instrument may provide that such Lender will not, without the consent
         of the Participant, agree to any amendment, modification or waiver
         described in the first proviso to Section 9.02(b) that affects such
         Participant. Subject to paragraph (f) of this Section, the Borrower
         agrees that each Participant shall be entitled to the benefits of
         Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender
         and had acquired its interest by assignment pursuant to paragraph (b)
         of this Section.

                  (f) A Participant shall not be entitled to receive any greater
         payment under Section 2.14 or 2.16 than the applicable Lender would
         have been entitled to receive with respect to the participation sold to
         such Participant, unless the sale of the participation to such
         Participant is made with the Borrower's prior written consent. A
         Participant that would be a Foreign Lender if it were a Lender shall
         not be entitled to the benefits of Section 2.16 unless the Borrower is
         notified of the participation sold to such Participant and such
         Participant agrees, for the benefit of the Borrower, to comply with
         Section 2.16(e) as though it were a Lender.

                  (g) Any Lender may at any time pledge or assign a security
         interest in all or any portion of its rights under this Credit
         Agreement to secure obligations of such Lender, including any such
         pledge or assignment to a Federal Reserve Bank, and this Section shall
         not apply to any such pledge or assignment of a security interest;
         provided that no such pledge or assignment of a security interest shall
         release a Lender from any of its obligations hereunder or substitute
         any such assignee for such Lender as a party hereto.

                  (h) Notwithstanding anything to the contrary contained herein,
         any Lender (a "Granting Lender") may grant to a special purpose funding
         vehicle (an "SPC") of such Granting Lender, identified as such in
         writing from time to time by the Granting Lender to the Administrative
         Agent and the Borrower, the option to provide to the Borrower all or
         any part of any Loan that such Granting Lender would otherwise be
         obligated to make to the Borrower pursuant to Section 2.01; provided
         that (i) nothing herein shall constitute a commitment to make any Loan
         by any SPC and (ii) if an SPC elects not to exercise such option or
         otherwise fails to provide all or any part of such Loan, the Granting
         Lender shall be obligated to make such Loan pursuant to the terms
         hereof. The making of a Loan by an SPC hereunder shall utilize the


                                       61



         Commitment of the Granting Lender to the same extent, and as if, such
         Loan were made by the Granting Lender. Each party hereto hereby agrees
         that no SPC shall be liable for any payment under this Credit Agreement
         for which a Lender would otherwise be liable, for so long as, and to
         the extent, the related Granting Lender makes such payment. In
         furtherance of the foregoing, each party hereto hereby agrees that,
         prior to the date that is one year and one day after the payment in
         full of all outstanding senior indebtedness of any SPC, it will not
         institute against, or join any other person in instituting against,
         such SPC any bankruptcy, reorganization, arrangement, insolvency or
         liquidation proceedings or similar proceedings under the laws of the
         United States or any State thereof. In addition, notwithstanding
         anything to the contrary contained in this Section 9.04 or in Section
         9.12, any SPC may (i) with notice to, but without the prior written
         consent of, the Borrower or the Administrative Agent and without paying
         any processing fee therefor, assign all or a portion of its interests
         in any Loans to its Granting Lender or to any financial institutions
         providing liquidity and/or credit facilities to or for the account of
         such SPC to fund the Loans made by such SPC or to support the
         securities (if any) issued by such SPC to fund such Loans and (ii)
         disclose on a confidential basis any non-public information relating to
         its Loans to any rating agency, commercial paper dealer or provider of
         a surety, guarantee or credit or liquidity enhancement to such SPC.

         SECTION 9.05 SURVIVAL.

         All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Credit Agreement shall be considered to have
been relied upon by the other parties hereto and shall survive the execution and
delivery of this Credit Agreement and the making of any Loans and issuance of
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Credit Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Credit Agreement or any provision hereof.

         SECTION 9.06 COUNTERPARTS; INTEGRATION; EFFECTIVENESS.

         This Credit Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract. This Credit Agreement and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among
the parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the subject
matter hereof. Except as provided in Section 4.01, this Credit Agreement shall


                                       62



become effective when it shall have been executed by the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Credit Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Credit
Agreement.

         SECTION 9.07 SEVERABILITY.

         Any provision of this Credit Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

         SECTION 9.08 RIGHT OF SETOFF.

         If an Event of Default shall have occurred and be continuing, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Credit Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under this
Credit Agreement and although such obligations may be unmatured. The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.

         SECTION 9.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS.

                  (a) This Credit Agreement shall be construed in accordance
         with and governed by the law of the State of New York.

                  (b) Each of the Borrower and the Guarantors hereby irrevocably
         and unconditionally submits, for itself and its property, to the
         nonexclusive jurisdiction of the Supreme Court of the State of New York
         sitting in New York County and of the United States District Court of
         the Southern District of New York, and any appellate court from any
         thereof, in any action or proceeding arising out of or relating to this
         Credit Agreement, or for recognition or enforcement of any judgment,
         and each of the parties hereto hereby 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 extent
         permitted by 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 Credit
         Agreement shall affect any right that the Administrative Agent, the
         Issuing Bank or any Lender may otherwise have to bring any action or
         proceeding relating to this Credit Agreement against the Borrower or
         any Guarantor or their respective properties in the courts of any
         jurisdiction.


                                       63



                  (c) Each of the Borrower and the Guarantors hereby irrevocably
         and unconditionally waives, to the fullest extent it may legally and
         effectively do so, any objection which it may now or hereafter have to
         the laying of venue of any suit, action or proceeding arising out of or
         relating to this Credit Agreement 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 law, the defense of an
         inconvenient forum to the maintenance of such action or proceeding in
         any such court.

                  (d) Each party to this Credit Agreement irrevocably consents
         to service of process in the manner provided for notices in Section
         9.01. Nothing in this Credit Agreement will affect the right of any
         party to this Credit Agreement to serve process in any other manner
         permitted by law.

         SECTION 9.10 WAIVER OF JURY TRIAL.

         EACH PARTY HERETO HEREBY 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 THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY 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 BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

         SECTION 9.11 HEADINGS.

         Article and Section headings and the Table of Contents used herein are
for convenience of reference only, are not part of this Credit Agreement and
shall not affect the construction of, or be taken into consideration in
interpreting, this Credit Agreement.

         SECTION 9.12 CONFIDENTIALITY.

         Each of the Administrative Agent, the Issuing Bank and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates' and its
Approved Funds' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent, and only to the extent, required by applicable laws or regulations
or by any subpoena or similar legal process, provided that the Person required


                                       64



to disclose such information shall take reasonable efforts (at Borrower's
expense) to ensure that any Information so disclosed shall be afforded
confidential treatment, (d) to any other party to this Credit Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Credit Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Credit Agreement, (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a result of
a breach of this Section or (ii) becomes available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis from a source other
than the Borrower who is not, to the knowledge of the Administrative Agent, the
Issuing Bank or such Lender, under an obligation of confidentiality to Borrower
with respect to such Information. For the purposes of this Section,
"Information" means all information received from the Borrower relating to the
Borrower or its business, other than any such information that is available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis prior to disclosure by the Borrower; provided that, in the case of
information received from the Borrower after the date hereof, such information
is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.


                                    ARTICLE X

                                    GUARANTY

         SECTION 10.1 THE GUARANTY.

         In order to induce the Lenders and the Issuing Bank to enter into this
Credit Agreement and the other Credit Documents and to extend credit hereunder
and in recognition of the direct benefits to be received by the Guarantors from
the Borrowings and Letters of Credit hereunder, each of the Guarantors hereby
agrees with the Administrative Agent and the Lenders as follows: the Guarantor
hereby unconditionally and irrevocably jointly and severally guarantees as
primary obligor and not merely as surety the full and prompt payment when due,
whether upon maturity, by acceleration or otherwise, of any and all obligations
of the Borrower to the Administrative Agent, the Issuing Bank and the Lenders.
If any or all of the obligations of the Borrower to the Administrative Agent,
the Issuing Bank and the Lenders becomes due and payable hereunder, each
Guarantor unconditionally promises to pay such indebtedness to the
Administrative Agent, the Issuing Bank and the Lenders, on order, or demand,
together with any and all reasonable expenses which may be incurred by the
Administrative Agent, the Issuing Bank or the Lenders in collecting any of the
obligations.

         Notwithstanding any provision to the contrary contained herein, to the
extent the obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of each such Guarantor hereunder shall be limited to the
maximum amount that is permissible under applicable law (whether federal or
state).


                                       65



         SECTION 10.2 BANKRUPTCY.

         Additionally, each of the Guarantors unconditionally and irrevocably
guarantees jointly and severally the payment of any and all indebtedness of the
Borrower to the Administrative Agent, the Issuing Bank and Lenders whether or
not due or payable by the Borrower upon the occurrence of any of the Event of
Default specified in Article VII, subsection (i), and unconditionally promises
to pay such obligations to the Administrative Agent for the account of itself,
the Issuing Bank and the Lenders, or order, on demand, in lawful money of the
United States. Each of the Guarantors further agrees that to the extent that the
Borrower or a Guarantor shall make a payment or a transfer of an interest in any
property to the Administrative Agent or any Lender, which payment or transfer or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, or otherwise is avoided, and/or required to be repaid to the
Borrower or a Guarantor, the estate of the Borrower or a Guarantor, a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such avoidance or
repayment, the obligation or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if said payment had not been
made.

         SECTION 10.3 NATURE OF LIABILITY.

         The liability of each Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the indebtedness of the Borrower
whether executed by any such Guarantor, any other guarantor or by any other
party, and no Guarantor's liability hereunder shall be affected or impaired by
(a) any direction as to application of payment by the Borrower or by any other
party, or (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the indebtedness of the
Borrower, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change
in personnel by the Borrower, or (e) any payment made to the Administrative
Agent or the Lenders on the indebtedness which the Administrative Agent or such
Lenders repay the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each of the Guarantors waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding.

         SECTION 10.4 INDEPENDENT OBLIGATION.

         The obligations of each Guarantor hereunder are independent of the
obligations of any other guarantor or the Borrower, and a separate action or
actions may be brought and prosecuted against each Guarantor whether or not
action is brought against any other guarantor or the Borrower and whether or not
any other Guarantor or the Borrower is joined in any such action or actions.


                                       66



         SECTION 10.5 AUTHORIZATION.

         Each of the Guarantors authorizes the Administrative Agent, the Issuing
Bank and each Lender without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof in accordance with this
Credit Agreement, including any increase or decrease of the rate of interest
thereon, (b) take and hold security from any guarantor or any other party for
the payment of this Guaranty or the indebtedness and exchange, enforce waive and
release any such security, (c) apply such security and direct the order or
manner of sale thereof as the Administrative Agent and the Lenders in their
discretion may determine and (d) release or substitute any one or more
endorsers, guarantors, the Borrower or other obligors.

         SECTION 10.6 RELIANCE.

         It is not necessary for the Administrative Agent, the Issuing Bank or
the Lenders to inquire into the capacity or powers of the Borrower or the
officers, directors, members, partners or agents acting or purporting to act on
its behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.

         SECTION 10.7 WAIVER.

                  (a) Each of the Guarantors waives any right (except as shall
         be required by applicable statute and cannot be waived) to require the
         Administrative Agent, the Issuing Bank or any Lender to (i) proceed
         against the Borrower, any other guarantor or any other party, (ii)
         proceed against or exhaust any security held from the Borrower, any
         other guarantor or any other party, or (iii) pursue any other remedy in
         the Administrative Agent's, the Issuing Bank's or any Lender's power
         whatsoever. Each of the Guarantors waives any defense based on or
         arising out of any defense of the Borrower, any other guarantor or any
         other party other than payment in full of the indebtedness, including
         without limitation any defense based on or arising out of the
         disability of the Borrower, any other guarantor or any other party, or
         the unenforceability of the indebtedness or any part thereof from any
         cause, or the cessation from any cause of the liability of the Borrower
         other than payment in full of the indebtedness. The Administrative
         Agent, the Issuing Bank or any of the Lenders may, at their election,
         foreclose on any security held by the Administrative Agent, the Issuing
         Bank or a Lender by one or more judicial or nonjudicial sales, whether
         or not every aspect of any such sale is commercially reasonable (to the
         extent such sale is permitted by applicable law), or exercise any other
         right or remedy the Administrative Agent, the Issuing Bank or any
         Lender may have against the Borrower or any other party, or any
         security, without affecting or impairing in any way the liability of
         any Guarantor hereunder except to the extent the indebtedness has been
         paid. Each of the Guarantors waives any defense arising out of any such
         election by the Administrative Agent, the Issuing Bank or any of the
         Lenders, even though such election operates to impair or extinguish any
         right of reimbursement or subrogation or other right or remedy of the
         Guarantors against the Borrower or any other party or any security.


                                       67



                  (b) Each of the Guarantors waives all presentments, demands
         for performance, protests and notices, including without limitation
         notices of nonperformance, notice of protest, notices of dishonor,
         notices of acceptance of this Guaranty, and notices of the existence,
         creation or incurring of new or additional indebtedness. Each Guarantor
         assumes all responsibility for being and keeping itself informed of the
         Borrower's financial condition and assets, and of all other
         circumstances bearing upon the risk of nonpayment of the indebtedness
         and the nature, scope and extent of the risks which such Guarantor
         assumes and incurs hereunder, and agrees that none of the
         Administrative Agent, the Issuing Bank and the Lenders shall have any
         duty to advise such Guarantor of information known to it regarding such
         circumstances or risks.

                  (c) Each of the Guarantors hereby agrees it will not exercise
         any rights of subrogation which it may at any time otherwise have as a
         result of this Guaranty (whether contractual, under Section 509 of the
         U.S. Bankruptcy Code, or otherwise) to the claims of the Administrative
         Agent, the Issuing Bank and the Lenders against the Borrower or any
         other guarantor of the indebtedness of the Borrower owing to the
         Administrative Agent, the Issuing Bank and the Lenders (collectively,
         the "Other Parties") and all contractual, statutory or common law
         rights of reimbursement, contribution or indemnity from any Other Party
         which it may at any time otherwise have as a result of this Guaranty
         until such time as the Loans and the reimbursement obligations in
         respect of LC Disbursements hereunder shall have been paid and the
         Commitments have been terminated and no Letters of Credit are
         outstanding. Each of the Guarantors hereby further agrees not to
         exercise any right to enforce any other remedy which the Administrative
         Agent, the Issuing Bank and the Lenders now have or may hereafter have
         against any Other Party, any endorser or any other guarantor of all or
         any part of the indebtedness of the Borrower and any benefit of, and
         any right to participate in, any security or collateral given to or for
         the benefit of the Issuing Bank and the Lenders to secure payment of
         the indebtedness of the Borrower until such time as the Loans and the
         reimbursement obligations in respect of LC Disbursements hereunder
         shall have been paid and the Commitments have been terminated and no
         Letters of Credit are outstanding.

         SECTION 10.8 LIMITATION ON ENFORCEMENT.

         The Lenders and the Issuing Bank agree that this Guaranty may be
enforced only by the action of the Administrative Agent acting upon the
instructions of the Required Lenders and that none of the Lenders and the
Issuing Bank shall have any right individually to seek to enforce or to enforce
this Guaranty, it being understood and agreed that such rights and remedies may
be exercised by the Administrative Agent for the benefit of itself, the Issuing
Bank and the Lenders under the terms of this Credit Agreement. The
Administrative Agent, the Issuing Bank and the Lenders further agree that this
Guaranty may not be enforced against any director, officer, employee or
stockholder or other equityholder of the Guarantors.


                                       68



         SECTION 10.9 CONFIRMATION OF PAYMENT.

         The Administrative Agent, the Issuing Bank and the Lenders will, upon
request after payment of the indebtedness and obligations which are the subject
of this Guaranty and termination of the Commitments relating thereto and the
expiration or the termination of all Letters of Credit, confirm to the Borrower,
the Guarantors or any other Person that such indebtedness and obligations have
been paid and the Commitments relating thereto terminated, subject to the
provisions of Section 10.2.


                                       69



         IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written


BORROWER:                               MEDTRONIC, INC,
- --------                                a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


GUARANTORS:                             MEDTRONIC MINIMED, INC.,
- ----------                              a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC INTERNATIONAL, LTD,
                                        a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC AVE, INC.,
                                        a Delaware corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC INTERNATIONAL
                                        TECHNOLOGY, INC.,
                                        a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                       70



                                        MEDTRONIC SOFAMOR DANEK, INC.,
                                        an Indiana corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                        MEDTRONIC USA, INC.,
                                        a Minnesota corporation

                                        By:    /s/ Robert L. Ryan
                                           -------------------------------------
                                        Name:  Robert L. Ryan
                                             -----------------------------------
                                        Title: Vice-President and Chief
                                               Financial Officer
                                              ----------------------------------


                                       71



                                        BANK OF AMERICA, N.A.,
                                        individually in its capacity as
                                        Administrative Agent


                                        By:    /s/ Christine Cordi
                                           -------------------------------------
                                        Name:  Christine Cordi
                                             -----------------------------------
                                        Title: Vice-President
                                              ----------------------------------


LENDERS:                                BANK OF AMERICA, N.A.,
                                        As Lender


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                        BANK OF AMERICA, N.A.,
                                        As Swingline Lender


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                        BANK OF AMERICA, N.A.,
                                        As Letter of Credit Issuer


                                        By:    /s/ Philip S. Durand
                                           -------------------------------------
                                        Name:  Philip S. Durand
                                             -----------------------------------
                                        Title: Principal
                                              ----------------------------------


                                       72



LENDERS:                                BANK ONE, N.A.,
                                        As Lender


                                        By:    /s/ Anthony F. Maggiore
                                           -------------------------------------
                                        Name:  Anthony F. Maggiore
                                             -----------------------------------
                                        Title: Director, Capital Markets
                                              ----------------------------------


                                        THE BANK OF TOKYO-MITSUBISHI,
                                        LTD., CHICAGO BRANCH
                                        As Lender


                                        By:    /s/ Patrick McCue
                                           -------------------------------------
                                        Name:  Patrick McCue
                                             -----------------------------------
                                        Title: Vice President & Manager
                                              ----------------------------------


                                        BNP PARIBAS,
                                        As Lender


                                        By:    /s/ Thomas H. Ambrose
                                           -------------------------------------
                                        Name:  Thomas H. Ambrose
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        By:    /s/ Christine L. Howatt
                                           -------------------------------------
                                        Name:  Christine L. Howatt
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        CITICORP USA, INC.
                                        As Lender


                                        By:    /s/ Mary O'Connell
                                           -------------------------------------
                                        Name:  Mary O'Connell
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                       73



                                        DEUTSCHE BANK AG, NEW YORK
                                        BRANCH
                                        As Lender


                                        By:    /s/ Iain Stewart
                                           -------------------------------------
                                        Name:  Iain Stewart
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        By:    /s/ Jean M. Hannigan
                                           -------------------------------------
                                        Name:  Jean M. Hannigan
                                             -----------------------------------
                                        Title: Director
                                              ----------------------------------


                                        FIRST UNION NATIONAL
                                        BANK,
                                        As Lender


                                        By:    /s/ Paige Mesaros
                                           -------------------------------------
                                        Name:  Paige Mesaros
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        FLEET NATIONAL BANK, N.A.
                                        As Lender


                                        By:    /s/ Gordon B. Coughlin
                                           -------------------------------------
                                        Name:  Gordon B. Coughlin
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        THE FUJI BANK, LTD.
                                        As Lender


                                        By:    /s/ Peter L. Chinnici
                                           -------------------------------------
                                        Name:  Peter L. Chinnici
                                             -----------------------------------
                                        Title: Senior Vice President & Group
                                               Head
                                              ----------------------------------


                                       74



                                        KEYBANK NATIONAL
                                        ASSOCIATION,
                                        As Lender


                                        By:    /s/ Frank J. Jancar
                                           -------------------------------------
                                        Name:  Frank J. Jancar
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        ROYAL BANK OF CANADA,
                                        As Lender


                                        By:    /s/ Gordon C. MacArthur
                                           -------------------------------------
                                        Name:  Gordon C. MacArthur
                                             -----------------------------------
                                        Title: Senior Manager
                                              ----------------------------------


                                        SUNTRUST BANK,
                                        As Lender


                                        By:    /s/ Cathy Hunnicutt
                                           -------------------------------------
                                        Name:  Cathy Hunnicutt
                                             -----------------------------------
                                        Title: Assistant Vice President
                                              ----------------------------------


                                        UBS AG, STAMFORD BRANCH,
                                        As Lender


                                        By:    /s/ Wilfred V. Saint
                                           -------------------------------------
                                        Name:  Wilfred V. Saint
                                             -----------------------------------
                                        Title: Associate Director Banking
                                               Products Services, US
                                              ----------------------------------


                                        By:    /s/ Lynne B. Alfarone
                                           -------------------------------------
                                        Name:  Lynne B. Alfarone
                                             -----------------------------------
                                        Title: Associate Director Banking
                                               Products Services, US
                                              ----------------------------------


                                       75



                                        U.S. BANK NATIONAL
                                        ASSOCIATION,
                                        As Lender


                                        By:    /s/ Karen Weathers
                                           -------------------------------------
                                        Name:  Karen Weathers
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        WELLS FARGO BANK,
                                        NATIONAL ASSOCIATION
                                        As Lender


                                        By:    /s/ Christopher A. Cudak
                                           -------------------------------------
                                        Name:  Christopher A. Cudak
                                             -----------------------------------
                                        Title: Vice President
                                               Wells Fargo Bank, National
                                               Association
                                              ----------------------------------


                                        By:    /s/ James D. Heinz
                                           -------------------------------------
                                        Name:  James D. Heinz
                                             -----------------------------------
                                        Title: Senior Vice President
                                              ----------------------------------


                                       76

EX-11.1

                                                                    EXHIBIT 11.1


                                 MEDTRONIC, INC.
              COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)


The ratio of earnings to fixed charges for the quarter ended January 25, 2002,
was computed based on Medtronic's current Quarterly Report on Form 10-Q. The
ratio of earnings to fixed charges for the fiscal years ended April 27, 2001,
April 30, 2000, 1999, 1998, and 1997 was computed based on Medtronic's
historical consolidated financial information included in Medtronic's Annual
Report on Form 10-K filed on July 26, 2001.



                                                NINE MONTHS     YEAR ENDED                   YEAR ENDED APRIL 30,
                                                    ENDED        APRIL 27,    ------------------------------------------------
                                              JANUARY 25, 2002    2001(7)         2000         1999        1998        1997
                                              --------------------------------------------------------------------------------
                                                                                                   
 Earnings:
   Net Earnings                                 $    683.1     $  1,046.0     $  1,084.2     $  466.7    $  587.7    $  582.0
   Provision for income taxes                        418.7          503.4          530.6        358.4       316.8       304.4
   Minority interest                                   2.4            1.4            4.4          3.3         2.4         1.8
   Amortization of capitalized interest                0.1            0.1             --           --          --          --
   Capitalized interest(2)                            (0.1)          (3.5)          (0.2)          --          --          --
                                              --------------------------------------------------------------------------------
                                                $  1,104.2     $  1,547.4     $  1,619.0     $  828.4    $  906.9    $  888.2
                                              --------------------------------------------------------------------------------
Fixed Charges:
   Interest expense(3)                          $     29.5     $     17.6     $     14.0     $   29.2    $   15.5    $   15.4
   Capitalized interest(2)                             0.1            3.5            0.2           --          --          --
   Amortization of debt issuance costs(4)             32.0             --             --           --          --          --
   Rentals(5)                                         12.0           15.5           14.9         14.2        12.2        11.5
                                              --------------------------------------------------------------------------------
                                                $     73.6     $     36.6     $     29.1     $   43.4    $   27.7    $   26.9
                                              --------------------------------------------------------------------------------
Earnings before income taxes and
   fixed charges                                $  1,177.8     $  1,584.0     $  1,648.1     $  871.8    $  934.6    $  915.1
                                              ================================================================================

Ratio of earnings to fixed charges(6)                 16.0           43.3           56.6         20.1        33.7        34.0



     (1)  On December 21, 2000, November 5, 1999, January 28, 1999, January 27,
          1999, and September 30, 1998, Medtronic acquired PercuSurge, Inc.,
          Xomed Surgical Products, Inc., Arterial Vascular Engineering, Inc.,
          Sofamor Danek Group, Inc., and Physio-Control International
          Corporation, respectively. These five acquisitions were accounted for
          under the pooling of interests method of accounting. As such, the
          ratios of earnings to fixed charges presented above include the effect
          of the mergers.

     (2)  Capitalized interest consists of interest related to the construction
          of Medtronic's new World Headquarters.





     (3)  Interest expense consists of interest on indebtedness.

     (4)  Represents the amortization of debt issuance costs incurred in
          connection with the Company's completion of a $2,012.5 million private
          placement of 1.25% Contingent Convertible Debentures on September 17,
          2001.

     (5)  Approximately one-third of rental expense is deemed representative of
          the interest factor.

     (6)  Earnings for the nine months ended January 25, 2002, the fiscal year
          ended April 27, 2001 and April 30, 2000, 1999, 1998, and 1997 include
          pre-tax net merger, restructuring and other non-recurring charges of
          $426.6 million (of which $32.0 million is included in interest
          expense), $347.2 million (of which $8.4 million is included in cost of
          sales), $13.8 million, $554.1 million (of which $29.0 million is
          included in cost of sales), $205.3 million (of which $12.9 million is
          included in cost of sales), and $55.5 million, respectively.

          On a supplemental basis, the ratio of earnings to fixed charges
          excluding net merger, restructuring, and other non-recurring charges
          would have been 21.4, 52.7, 57.0, 32.9, 41.1, and 36.1 for the quarter
          ended January 25, 2002, the fiscal years ended April 27, 2001, and
          April 30, 2000, 1999, 1998, and 1997, respectively.

     (7)  In April 2001, Medtronic changed its fiscal year end from April 30 to
          the last Friday in April.