HEALTHCOR HOLDINGS INC, S-1, 1996-06-12

HEALTHCOR HOLDINGS INC
S-1, 1996-06-12

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HEALTHCOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8090 75-2294072
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>

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5720 LBJ FREEWAY, SUITE 550
DALLAS, TEXAS 75240
(214) 233-7744
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

S. WAYNE BAZZLE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
HEALTHCOR HOLDINGS, INC.
5720 LBJ FREEWAY, SUITE 550
DALLAS, TEXAS 75240
(214) 233-7744
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:

JIM A. WATSON TERRY M. SCHPOK, P.C.
VINSON & ELKINS L.L.P. J. KENNETH MENGES, JR., P.C.
3700 TRAMMELL CROW CENTER AKIN, GUMP, STRAUSS, HAUER AND FELD, L.L.P.
2001 ROSS AVENUE 1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 220-7700 (214) 969-2800

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.

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If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /

CALCULATION OF THE REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share................. 3,737,500 $14.50 $54,193,750 $18,688
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</TABLE>

(1) Includes shares of Common Stock issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

HEALTHCOR HOLDINGS, INC.

CROSS REFERENCE SHEET
(FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K)

<TABLE>
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages
3. Summary Information and Risk Factors................ "Prospectus Summary"; "Risk
Factors"
4. Use of Proceeds..................................... "Use of Proceeds"
5. Determination of Offering Price..................... Outside Front Cover Page of
Prospectus; "Underwriting"
6. Dilution............................................ "Dilution"
7. Selling Stockholders................................ "Principal and Selling
Stockholders"
8. Plan of Distribution................................ Outside Front Cover Page of
Prospectus; "Underwriting"
9. Description of Securities to be Registered.......... "Description of Capital Stock"
10. Interest of Named Experts and Counsel............... "Legal Matters"; "Experts"
11. Information with Respect to the Registrant.......... Outside Front Cover Page of
Prospectus; Inside "Prospectus
Summary"; "Dividend Policy";
"Summary Consolidated Financial and
Statistical Data"; "Management's
Discussion and Analysis of
Financial Condition and Results of
Operations"; "Business";
"Management"; "Certain
Transactions"; "Principal and
Selling Stockholders"; "Description
of Capital Stock"; "Shares Eligible
for Future Sale"
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable.
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION
JUNE , 1996

3,250,000 SHARES
[LOGO]
HEALTHCOR HOLDINGS, INC.
COMMON STOCK
---------------------
Of the 3,250,000 shares of Common Stock offered hereby, 3,000,000 are being
sold by HealthCor Holdings, Inc. ("HealthCor" or the "Company") and 250,000 are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $12.50 and $14.50 per
share. See "Underwriting" for the factors to be considered in determining the
initial offering price.

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," PAGE 6.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(2).......................... $ $ $ $
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</TABLE>

(1) Before deducting expenses of the offering estimated at $700,000.
(2) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 487,500 additional shares of Common Stock
solely to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriting."

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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about ,
1996.

ALEX. BROWN & SONS BEAR, STEARNS & CO. INC.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4

[HEALTHCOR COMPANY LOGO AND MAP]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.

THE COMPANY

HealthCor is a leading provider of comprehensive home health care services
in the southwestern and central United States. The Company provides
fully-integrated home health care services, including nursing, respiratory
therapy/medical equipment and infusion therapy. Since incorporation in 1989, the
Company has expanded from 12 offices in three states to 75 offices in eight
states at May 31, 1996. The Company has successfully diversified its business
mix from approximately 98% nursing in 1989 to 58% nursing on a pro forma basis
as of March 31, 1996, reflecting the Company's evolution to a fully-integrated
home health care provider.

Home health care is among the fastest growing segments of the health care
industry with estimated annual expenditures of $36.1 billion in 1995, up from
$12.9 billion in 1990, representing a compounded annual growth rate of
approximately 23%. The underlying growth factors in the home health care
industry include: (i) the cost-effective nature of home care; (ii) an increasing
number of patients due to growth in the aging population; (iii) technological
advances that expand the range of home care procedures; and (iv) patient
preference for treatment in the home. In addition, the home health care industry
is highly fragmented with over 17,000 companies providing home care services in
the United States.

Managed care organizations and cost containment initiatives by payors have
driven the growth of home health care by emphasizing lower cost alternatives to
hospitals and skilled nursing facilities. These organizations and payors seek
coordinated, consistent quality home health care across broad geographic areas
in order to serve their patients more effectively. The Company believes its
ability to offer comprehensive home health care services is a significant
differentiating factor in its markets and affords it the ability to attract
contracts with payors. In addition, the Company seeks to enhance its market
position by making strategic acquisitions of high-quality companies that
complement and expand its operations.

The Company's business objective is to enhance its position as one of the
leading providers of comprehensive home health care services in the southwestern
and central United States. The Company's strategy is to: (i) provide one-stop
shop home health care to enhance its appeal to referral sources and payors; (ii)
acquire companies to enter new markets and further penetrate existing markets;
(iii) accelerate internal growth by expanding its scope of services; and (iv)
enhance its competitive position through the use of clinically-based management
information technology.

In December 1994, the Company, with the assistance of Rockwell
International Corporation ("Rockwell") and others, began developing a
custom-designed, clinically-based management information system to reduce costs,
improve productivity, produce and analyze clinical outcomes data and manage
growth more effectively. To date, the Company has implemented several phases of
this system, including the nursing component which has increased nurse
productivity by up to 40%. The Company believes that this system will enable it
to compete more effectively in an increasingly competitive managed care
environment and under new government reimbursement models, such as prospective
pay.

HealthCor's predecessor was incorporated in 1984. In 1989, the Company
reorganized under HealthCor Holdings, Inc. The Company's executive offices are
located at 5720 LBJ Freeway, Suite 550, Dallas, Texas 75240, and its telephone
number is (214) 233-7744.

3
<PAGE> 6

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.................... 3,000,000 shares
Common Stock offered by the Selling Stockholders....... 250,000 shares
Common Stock to be outstanding after the offering...... 9,554,600 shares(1)
Use of proceeds to the Company......................... Repay outstanding indebtedness under its
existing bank credit facilities, fund
potential acquisitions and for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................. HCOR
</TABLE>

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(1) Excludes 350,878 shares of Common Stock issuable upon exercise of stock
options granted under the Company's 1989 Stock Option Plan (the "1989 Stock
Option Plan") outstanding at May 31, 1996 at a weighted average exercise
price of $4.68 per share. Also excludes: (i) 237,500 shares of Common Stock
reserved for issuance under the HealthCor Holdings, Inc. 1996 Long-Term
Incentive Plan (the "1996 Incentive Plan"); (ii) 36,622 shares of Common
Stock reserved for issuance under the 1989 Stock Option Plan; and (iii)
25,000 shares of Common Stock issuable upon the exercise of Warrants
outstanding as of May 31, 1996, at a purchase price of $4.00 per share. See
"Management -- Stock Option Plans."

Except as otherwise specified, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option; (ii) reflects a
five-for-two stock split to be effected in the form of a stock dividend upon the
closing of this offering; and (iii) reflects, at the closing of this offering,
the exercise of outstanding warrants to purchase 150,000 shares of Common Stock
and the automatic conversion of all outstanding shares of the Company's Series A
and Series B Convertible Preferred Stock into an aggregate of 3,339,297 shares
of Common Stock (the "Offering Related Transactions"). See "Description of
Capital Stock -- Offering Related Transactions" and "Underwriting."

4
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)

<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
-----------------------------
THREE MONTHS THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED ENDED
------------------------------- ------------------- DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996 1995(1)(2) 1996(2)(3)
------- ------- ------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................... $60,097 $57,151 $81,557 $17,553 $24,255 $ 94,258 $ 27,959
Operating expenses:
Compensation and related
benefits.................... 41,531 38,894 49,724 11,368 13,372 57,130 15,359
General and administrative.... 12,978 12,072 21,272 4,110 7,349 24,165 8,641
Depreciation and amortization
expense..................... 1,181 1,440 2,299 473 894 2,771 991
Provision for doubtful
accounts.................... 1,318 1,115 1,489 342 506 1,664 506
------ ------ ------ ------ ------ ------ ------
Total operating expenses.... 57,008 53,521 74,784 16,293 22,121 85,730 25,497
Income from operations.......... 3,089 3,630 6,773 1,260 2,134 8,528 2,462
Interest, net................... 427 244 987 119 486 122 239
Income before income taxes...... 2,662 3,386 5,786 1,141 1,648 8,406 2,223
Provision for income taxes...... 1,129 1,359 2,202 438 677 3,251 907
Net income...................... $ 1,533 $ 2,027 $ 3,584 $ 703 $ 971 $ 5,155 $ 1,316
Net income per common share..... $ .24 $ .31 $ .55 $ .11 $ .15 $ .54 $ .14
Weighted average common shares
outstanding................... 6,403 6,490 6,546 6,489 6,543 9,546 9,543
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(2)(4)
------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ -- $ -- $ 7,549
Working capital....................................................... (2,750) (3,779) 14,326
Total assets.......................................................... 57,193 71,365 78,914
Total debt, including capital leases.................................. 20,078 33,905 7,509
Redeemable convertible preferred stock................................ 5,340 -- --
Stockholders' equity.................................................. 13,033 18,673 55,638
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
YEARS ENDED DECEMBER THREE MONTHS PRO FORMA THREE MONTHS
31, ENDED YEAR ENDED ENDED
----------------------- MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1995(1) 1996(3)
----- ----- ----- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Home health care offices (at period end)........ 41 50 67 67 67 75
States of operation (at period end)............. 5 6 8 8 8 8
Number of acquisitions.......................... 0 3 12 0 12 2
Sources of net revenues:
Nursing....................................... 83.0% 79.2% 74.2% 66.8% 68.1% 58.0%
Respiratory therapy/medical equipment......... 12.5 16.5 19.8 25.3 24.1 25.3
Infusion therapy.............................. 4.5 4.3 6.0 7.9 7.8 16.7
----- ----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>

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(1) Gives effect to the acquisitions completed during the period indicated as if
such acquisitions were effective at the beginning of such period. See "Pro
Forma Condensed Consolidated Financial Data."

(2) Adjusted to give effect to the estimated net proceeds of this offering based
on an assumed offering price of $13.50 per share. See "Use of Proceeds."

(3) Gives effect to the acquisition of All Medical, Inc. and I Care of Arkansas,
Inc., I Care Home I.V. Affiliates, Inc. and I Care, Inc. (collectively, the
"I Care Group") as if those acquisitions were effective on January 1, 1996.

(4) Gives effect to the acquisition of All Medical, Inc. and the I Care Group as
of March 31, 1996, the conversion of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock into 3,339,297 shares of
Common Stock and the exercise of outstanding warrants to purchase 150,000
shares of Common Stock. See "Description of Capital Stock -- Offering
Related Transactions."

5
<PAGE> 8

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.

Dependence on Reimbursement by Third-Party Payors. In 1995, the percentages
of the Company's net revenues derived from Medicare, Medicaid and other
third-party payors were 81.0%, 1.3% and 17.7%, respectively. The net revenues
and profitability of the Company are affected by the continuing efforts of all
payors to contain or reduce the costs of health care by reducing reimbursement
rates, narrowing the scope of covered services, increasing case management
review of services and negotiating reduced contract pricing. Any changes in
reimbursement levels under Medicare, Medicaid or third-party payor programs and
any changes in applicable government regulations could have a material adverse
effect on the Company's business, financial condition, cash flows or results of
operations. Changes in the mix of the Company's patients among Medicare,
Medicaid and third-party payor categories, and among different types of private
pay sources, including managed care, could have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.
There can be no assurance that the Company will be able to maintain its current
payor or revenue mix. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Regulation."

Medicare Reimbursement. The Federal Government is considering significant
reductions in planned Medicare spending. The Senate and the House of
Representatives have passed budget resolutions calling for reductions of $256
billion and $280 billion, respectively, in forecasted Medicare program
expenditures over the next seven years. While the resolutions do not provide for
specific means of achieving these reductions, actions under discussion include
the addition of a 20% copayment for Medicare beneficiaries for home health care
services. Such a copayment could have the effect of reducing demand for Medicare
home health services. Another proposal would change Medicare reimbursement for
skilled nursing facilities, rehabilitation services and the first 60 days of
home health care services by "bundling" payments for these services into a
single prospective payment to hospitals to cover "post-acute" care for
beneficiaries who are discharged from a hospital. Other proposals under
consideration would restrict Medicare coverage of nebulizers and aerosol
medications and reduce oxygen reimbursement rates. The adoption of any of such
proposals could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. The Department of
Health and Human Services ("DHHS") currently is examining the feasibility of
changing the Medicare reimbursement system for home nursing from the existing
lower of allowable reimbursable cost or actual charges incurred to a prospective
payment system. The impact of such a change, if implemented, on the Company's
results of operations cannot be predicted at this time and would depend, to a
large extent, on the reimbursement rates for home nursing established under a
prospective pay system. There can be no assurance that the reimbursement rates
under a prospective payment system, if enacted, would cover the costs incurred
by the Company to provide home nursing. Changes in the Medicare reimbursement
system for home nursing could have a material adverse effect on the Company's
business, financial condition, cash flows or results of operations. In addition
to being subject to frequent changes in federal and state laws governing
Medicare coverage and reimbursement policies, the Company is subject to audit of
the reimbursements it receives under the Medicare program. Any significant audit
adjustment could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Regulation."

Effect of Government Regulations. The Company's business is subject to
extensive and increasing regulation by federal, state and local government,
including the Department of Health and Human Services, the Health Care Financing
Administration, the Office of the Inspector General, the Food and Drug
Administration, the Drug Enforcement Agency and the Occupational Safety and
Health Administration, as well as state departments of Health and other local
regulatory agencies. Federal laws governing the Company's activities include
regulations concerning the repackaging and dispensing of drugs, Medicare
certification of home health agencies, coverage and reimbursement and payment of
remuneration in exchange for patient referrals. The facilities operated by the
Company must comply with all applicable laws, regulations and licensing
standards. In addition, many of the Company's employees must maintain certain
licenses in

6
<PAGE> 9

order to provide some of the services offered by the Company. There can be no
assurance that federal, state or local governments will not change existing
standards or impose additional standards or that the Company will meet, or
continue to meet, existing or future standards relating to all or a portion of
the Company's activities. Additionally, there can be no assurance that acquired
companies would be in compliance with all applicable laws, regulations and
licenses when acquired. Changes in existing standards, the imposition of
additional standards or the inability of the Company to meet such standards
could have a material adverse effect on the Company's business, financial
condition, cash flows or results of operations. See "Business -- Regulation."

Operation Restore Trust. In May 1995, the Clinton Administration instituted
Operation Restore Trust, a health care fraud and abuse initiative focusing on
nursing homes, home health care agencies and durable medical equipment companies
located in the five states with the largest Medicare populations. Texas, the
Company's corporate base, is one of the targeted states. As of May 13, 1996,
Operation Restore Trust has been responsible for over $24.5 million in criminal
restitutions, fines and recovery of overpayments; over $14.1 million in civil
judgments, settlements and civil monetary penalties; 35 criminal convictions and
18 civil judgments; and 93 exclusions of individuals and corporations from the
Medicare program. Operation Restore Trust has also been expanded to cover six
states, and the Clinton Administration has called for an expansion of this
initiative to all fifty states in fiscal year 1997. The Company cannot predict
the effect of Operation Restore Trust on the Company or its results of
operations. See "Business -- Regulations" and "-- Legal Proceedings."

Subpoenas of Records. In May 1993, the Company learned that a complaint
against the Company was filed with the Federal Government and that such
complaint was being reviewed. Shortly thereafter at a meeting requested by the
Company, the FBI agent assigned to the matter would not disclose the nature of
such complaint. The Company subsequently learned that at least one of its former
employees had been interviewed by the government in connection with the
complaint. On April 17, 1995, the U.S. Attorney for the Northern District of
Texas served the Company with grand jury subpoenas duces tecum (the
"Subpoenas"). The Subpoenas sought production of personnel and payroll records
for the period January 1, 1991 to April 17, 1995 concerning 155 of the Company's
current and former employees and certain other payroll tax information, as well
as invoices from the Company's independent auditing firm. The Company tendered
documents responsive to the Subpoenas on May 31, 1995. Since the production of
such documents, no request for additional information has been made by the U.S.
Attorney, nor has the U.S. Attorney had further contact with the Company. There
can be no assurance that the U.S. Attorney or any other government agency will
not request further information or pursue a civil or criminal investigation or
proceeding against the Company or its management. Such investigation or
proceeding, if commenced, could result in one or more of the following: no
action, fines, civil monetary penalties, criminal indictments, recovery of
overpayments, criminal restitution, settlements, civil judgments and exclusion
of the Company or individuals from the Medicare program. See "Business -- Legal
Proceedings."

Impact of Health Care Reform. The Company is subject to changes in federal,
state and local regulations which can have a dramatic effect on operating
methods, costs and reimbursement amounts provided by governmental and other
third-party payors. Government officials can be expected to continue to review
and assess alternative health care delivery systems and payment methodologies.
Changes in the law or new interpretations of existing laws may have a dramatic
effect on the definition of permissible or impermissible activities, the
relative costs of doing business and the methods and amounts of payment for
medical care by both governmental and other payors. In addition, the health care
industry is currently experiencing market-driven reforms from forces within the
industry that are exerting pressure on health care companies to reduce health
care costs. Specifically, Medicare, Medicaid and other payors, such as health
maintenance organizations, preferred provider organizations, traditional
indemnity insurers and third-party administrators, are increasing pressure on
health care providers to control health care costs and are limiting increases
in, and in some cases decreasing, reimbursement rates for medical services. Such
reforms could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. See "Business --
Regulation."

Dependence on Referral Sources. The growth and profitability of the Company
depend on its ability to establish and maintain close working relationships with
referral sources, including payors, hospitals, physicians and other health care
professionals. There can be no assurance that the Company will be able to
successfully

7
<PAGE> 10

maintain significant existing referral sources and develop new referral sources,
or that certain of its referral sources, such as managed care organizations and
hospitals, will not become providers of home health services. The loss of a
significant number of existing referral sources or the failure to develop
important new referral sources (such as managed care organizations) could have a
material adverse effect on the Company's business, financial condition, cash
flows or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

Reimbursement Payment Delays. The Company is paid for its services by
government health administration authorities, insurance companies and other
third-party payors. The home health care industry is characterized by long
collection cycles for accounts receivable due to the complex and time consuming
requirements for obtaining reimbursement from private and governmental
third-party payors. In addition, reimbursement from government payors is subject
to audit and retroactive adjustment. Such delays or retroactive adjustments may,
from time to time, require the Company to borrow funds to meet its current
obligations. The Company would be adversely affected if it were to experience
such difficulties and were unable to borrow funds on acceptable terms, if at
all. See "Business -- Regulations."

Risk of Acquisitions and Expansion Into New Markets. In attempting to make
acquisitions, the Company competes with other providers, some of which have
greater financial resources than the Company. There can be no assurance that
suitable acquisitions will be identified, that consent from the Company's
lenders, where required, will be obtained, or that acquisitions will be
consummated on acceptable terms. Furthermore, there can be no assurance that
these companies, once acquired, will be integrated successfully into the
Company's operations or that any acquisition will not have a material adverse
effect upon the Company's operating and financial results, especially in the
fiscal quarters immediately following such transactions. In addition, the
Company will be required to comply with laws and regulations of states that
differ from those in which the Company currently operates, and may face
competitors with greater knowledge of such local markets. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy."

Management Information Systems. The Company is in the process of
substantially upgrading its management information systems to enhance its
existing capabilities and to integrate certain of its existing operations with
the operations of newly-acquired companies. The Company is jointly developing
portions of the information system with Rockwell, which along with the Company,
will have the right to offer major aspects of the system to companies in the
home health care industry. There can be no assurance that the Company will
successfully implement planned upgrades or integrate its management information
systems, or that the Company will not experience unanticipated delays and
expenses in such implementation and integration. Any malfunction or increase in
expenses could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. See
"Business -- Information Systems."

Need for Additional Financing. The Company's acquisition strategy requires
substantial capital resources. In order to provide the funds necessary for the
Company to continue its acquisition strategy, the Company may incur, from time
to time, additional short- and long-term bank indebtedness. At December 31,
1995, the Company had negative working capital of $1.7 million. The Company also
may issue, in public or private transactions, equity or debt securities, the
availability of which will depend on market and other conditions. There can be
no assurance that any such additional financing will be available on terms
acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Dependence on Key Personnel. The Company is highly dependent on the
services of S. Wayne Bazzle, the Company's Chairman of the Board and Chief
Executive Officer, and Cheryl C. Bazzle, the Company's President and Chief
Operating Officer, as well as its other senior management and its staff of
health care professionals. The loss of S. Wayne Bazzle or Cheryl C. Bazzle, or
an inability to attract, retain and motivate sufficient numbers of qualified
employees, could adversely affect the Company's business and prospects. In
addition, the loss of either S. Wayne Bazzle or Cheryl C. Bazzle constitutes a
default under the Company's credit facilities with its principal lender.

8
<PAGE> 11

Competition. The home health care industry is highly fragmented, and
competition varies significantly from market to market. The Company faces direct
competition for acquisitions, employees and patients. Many of the Company's
current and potential competitors are larger and have significantly greater
financial and marketing resources than those of the Company. There can be no
assurance that such competition will not limit the Company's ability to maintain
or to increase its market share and will not adversely affect the Company's
business. See "Business -- Competition."

Liability and Adequacy of Insurance. In recent years, physicians, hospitals
and other participants in the health care industry have been subjected to an
increasing number of lawsuits alleging malpractice, product liability or
negligence, many of which involve large claims and significant defense costs. It
is expected that the Company periodically may be subject to such suits. The
Company currently maintains liability insurance intended to cover such claims;
however, there can be no assurance that the coverage limits of the Company's
insurance policies will be adequate. While the Company has been able to obtain
liability insurance in the past, such insurance varies in cost and may not be
available in the future on acceptable terms, if at all. A successful claim
against the Company in excess of the Company's insurance coverage could have a
material adverse effect upon the Company and its financial condition. See
"Business -- Insurance."

Control by Executive Officers and Directors. Upon completion of the
offering, the Company's executive officers and directors and their affiliates
will beneficially own approximately 60.6% of the outstanding shares of the
Common Stock (58.8% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, acting together, would be able to exert
substantial influence over the Company and matters requiring approval by the
stockholders of the Company, including the election of directors. The voting
power of these stockholders under certain circumstances could have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal and Selling Stockholders."

Absence of Prior Public Market; Offering Price Determined by Agreement;
Possible Volatility of Stock Price. Prior to this offering, there has been no
public market for the Company's Common Stock, and there can be no assurance that
an active market will develop or will be sustained following this offering. The
initial public offering price for the shares of Common Stock sold in this
offering will be determined through negotiations between the Company and
representatives of the Underwriters and does not necessarily reflect the market
price for the Common Stock following the offering. The trading price of the
Common Stock may fluctuate widely in response to variations in quarterly
operating results, announcements by the Company or its competitors, new statutes
or regulations, general trends in the industry, general economic conditions and
other events or factors.

Anti-Takeover Provisions. Certain provisions of the Company's Amended and
Restated Certificate of Incorporation and certain provisions of the Delaware
General Corporation Law may make it difficult to change control of the Company
and replace incumbent management. For example, the Company's Amended and
Restated Certificate of Incorporation permits the Board of Directors, without
stockholder approval, to issue additional shares of Common Stock or establish
one or more classes or series of Preferred Stock having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as the Board of Directors may determine. See
"Certain Transactions" and "Description of Capital Stock."

Potential Adverse Impact of Shares Eligible for Future Sale. Sales of
substantial amounts of Common Stock in the public market following this
offering, or the perception that such sales could occur, could adversely affect
the prevailing market price of the Common Stock. The Company cannot predict the
effect, if any, that future sales of Common Stock or the availability of Common
Stock for sale may have on the market price of the Common Stock. In addition
certain existing stockholders have the right to require the Company to register
their Common Stock for resale. See "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."

Dividend Policy and Restrictions. The Company does not intend to pay cash
dividends on the Common Stock in the foreseeable future and anticipates that
future earnings will be retained to finance future operations and expansion. The
Company's revolving credit facility (the "Revolving Credit Facility") with Texas
Commerce Bank National Association ("Texas Commerce Bank") prohibits the Company
from paying

9
<PAGE> 12

dividends on its Common Stock. See "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Dilution to New Investors. Purchasers of the shares of Common Stock offered
hereby will experience immediate and substantial dilution in the net tangible
book value of their investment from the initial offering price. Additional
dilution will occur upon exercise of outstanding options. See "Dilution" and
"Shares Eligible for Future Sale."

10
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered by the Company are estimated to be approximately $37.0 million
($40.7 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial offering price of $13.50 per share and after deducting
estimated underwriting discounts and commissions and offering expenses. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholders.

The Company intends to use the net proceeds of this offering to repay
outstanding indebtedness, fund potential acquisitions and for general corporate
purposes, including $25.0 million to repay the Company's acquisition line of
credit with Texas Commerce Bank and approximately $1.0 million to retire notes
issued in connection with acquisitions. Pending such uses, the net proceeds of
the offering will be invested in short-term, investment grade instruments,
certificates of deposit or direct or guaranteed obligations of the United
States.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company intends to retain any earnings to fund future growth and the
operation of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. Moreover, the Company's Revolving Credit
Facility prohibits the payment of dividends or other distributions on the Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

11
<PAGE> 14

CAPITALIZATION

The following table sets forth the capitalization of the Company: (i) as of
March 31, 1996; (ii) on a pro forma basis; and (iii) on a pro forma as adjusted
basis:

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------- ------------ -----------------
<S> <C> <C> <C>
(IN THOUSANDS)
Long-term indebtedness, including capital lease
obligations......................................... $11,607 $ 21,129 $ 2,269
Redeemable convertible preferred stock................ 5,340 -- --
Stockholders' equity:
Common Stock, $.01 par value, 40,000,000 shares
authorized; 3,062,803 shares issued and
outstanding, actual; 6,552,100 shares issued and
outstanding, pro forma; and 9,552,100 shares
issued and outstanding, pro forma as
adjusted(3)...................................... 31 66 96
Additional paid-in capital.......................... 2,471 8,076 45,011
Retained earnings................................... 10,531 10,531 10,531
------- -------- -------
Total stockholders' equity..................... 13,033 18,673 55,638
------- -------- -------
Total capitalization...................... $29,980 $ 39,802 $57,907
======= ======== =======
</TABLE>

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

(1) Gives effect to the acquisition of All Medical, Inc. and the I Care Group as
of March 31, 1996, the conversion of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock into 3,339,297 shares of
Common Stock and the exercise of outstanding warrants to purchase 150,000
shares of Common Stock. See "Description of Capital Stock -- Offering
Related Transactions."

(2) Adjusted to give effect to the sale by the Company of Common Stock offered
hereby and the application of the estimated net proceeds therefrom as if the
sale and such application of estimated net proceeds occurred on March 31,
1996. At May 31, 1996, the Company had $25.0 million of indebtedness
outstanding under its acquisition term facility. See "Use of Proceeds."

(3) Excludes options and warrants outstanding on the date hereof to purchase
379,628 shares of Common Stock.

12
<PAGE> 15

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1996
was approximately $(4.5) million, or $(0.69) per share of Common Stock. "Pro
forma net tangible book value per share" is equal to the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding and gives effect to the Offering Related Transactions.
After giving effect to the sale by the Company of 3,000,000 shares of Common
Stock in this offering (at an assumed initial offering price of $13.50 per share
and after deducting estimated underwriting discounts and offering expenses), the
pro forma net tangible book value of the Company as of March 31, 1996 would have
been $32.4 million, or $3.40 per share of Common Stock. This represents an
immediate increase in net tangible book value per share of $4.09 to existing
holders and immediate dilution in net tangible book value of $10.10 per share to
new investors. The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial offering price per share................................... $13.50
Pro forma net tangible book value per share at March 31, 1996............ $(0.69)
Increase per share attributable to new investors......................... 4.09
------
Pro forma net tangible book value per share after the offering(1).......... 3.40
------
Net tangible book value dilution per share to new investors................ $10.10
======
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by investors purchasing shares offered by the Company hereby.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............ 6,552,100 68.6% $ 8,141,571 16.7% $ 1.24
New investors....................... 3,000,000 31.4 40,500,000 83.3 $ 13.50
--------- ----- ----------- ----- -------
Total.......................... 9,552,100 100.0% $48,641,571 100.0%
========= ===== =========== =====
</TABLE>

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

(1) Excludes an aggregate of 354,628 shares issuable upon the exercise of
options outstanding as of such date with a weighted average exercise price
of $4.68 per share, of which options to purchase 157,125 shares of Common
Stock are exercisable. As of March 31, 1996, 270,372 shares of Common Stock
were available for issuance under the 1989 Stock Option Plan and the 1996
Incentive Plan. In addition, 25,000 shares of Common Stock will be available
for issuance upon the exercise of Warrants outstanding at May 31, 1996, at a
purchase price of $4.00 per share.

13
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data which
have been derived from the consolidated financial statements of the Company. The
selected financial data for the year ended March 31, 1992, the nine months ended
December 31, 1992 and the years ended December 31, 1993, 1994 and 1995 has been
derived from the audited financial statements of the Company. The selected
financial data for the three months ended March 31, 1995 and 1996 are unaudited.
The following selected financial data is qualified in its entirety and should be
read in conjunction with the Company's financial statements and related notes
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
NINE MONTHS
YEAR ENDED ENDED YEARS ENDED DECEMBER 31, MARCH 31,
MARCH 31, DECEMBER 31, ----------------------------- ------------------
1992 1992 1993 1994 1995 1995 1996
---------- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 24,443 $ 34,301 $60,097 $57,151 $81,557 $17,553 $24,255
Operating expenses:
Compensation and related benefits..... 17,898 23,257 41,531 38,894 49,724 11,368 13,372
General and administration ........... 5,072 7,394 12,978 12,072 21,272 4,110 7,349
Depreciation and amortization
expense............................. 272 514 1,181 1,440 2,299 473 894
Provision for doubtful accounts....... 250 1,020 1,318 1,115 1,489 342 506
-------- -------- ------- ------- ------- ------- -------
Total operating expenses........ 23,492 32,185 57,008 53,521 74,784 16,293 22,121
-------- -------- ------- ------- ------- ------- -------
Income from operations.................. 951 2,116 3,089 3,630 6,773 1,260 2,134
Interest, net........................... 138 244 427 244 987 119 486
-------- -------- ------- ------- ------- ------- -------
Income before income taxes.............. 813 1,872 2,662 3,386 5,786 1,141 1,648
Provision for income taxes.............. 100 523 1,129 1,359 2,202 438 677
-------- -------- ------- ------- ------- ------- -------
Net income.............................. $ 713 $ 1,349 $ 1,533 $ 2,027 $ 3,584 $ 703 $ 971
======== ======== ======= ======= ======= ======= =======
Net income per common share............. $ .16 $ .23 $ .24 $ .31 $ .55 $ .11 $ .15
Weighted average common shares
outstanding........................... 4,619 5,787 6,403 6,490 6,546 6,489 6,543
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
MARCH 31, --------------------------------------------- ------------------
1992 1992 1993 1994 1995 1995 1996
---------- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,594 $ 1,491 $ 506 $ 3,775 $ 1,628 $ 4,726 $ --
Working capital......................... 1,696 1,923 1,292 1,296 (1,737) 1,021 (2,750)
Total assets............................ 8,455 19,444 22,251 24,504 52,573 30,087 57,193
Total debt, including capital leases.... 1,483 2,014 1,678 4,374 19,860 7,970 20,078
Redeemable convertible preferred
stock................................. 1,914 5,342 5,342 5,340 5,340 5,340 5,340
Stockholders' equity.................... 1,488 2,837 5,046 7,074 12,062 13,094 13,033
</TABLE>

14
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.

OVERVIEW

Since inception in 1984, the Company and its predecessor have expanded
operations from 12 offices in three states to 75 offices in eight states at May
31, 1996. The Company, since January 1995, has acquired 14 home health care
companies, including home nursing, respiratory therapy/medical equipment and
infusion therapy companies with approximately $34.1 million in annualized net
revenues. The operations of the acquired companies are included in the Company's
operations from the dates of acquisition. The following table represents the
Company's changing net revenue mix for the periods shown:

<TABLE>
<CAPTION>
THREE MONTHS PRO FORMA
YEARS ENDED DECEMBER ENDED THREE MONTHS
31, MARCH 31, ENDED
----------------------- -------------- MARCH 31,
1993 1994 1995 1995 1996 1996
----- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Nursing................................... 83.0% 79.2% 74.2% 77.9% 66.8% 58.0%
Respiratory therapy/medical equipment..... 12.5 16.5 19.8 17.0 25.3 25.3
Infusion therapy.......................... 4.5 4.3 6.0 5.1 7.9 16.7
----- ----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>

As the Company further pursues its fully-integrated home health care
strategy, the Company's revenue mix has shifted from predominately nursing to
higher margin respiratory therapy/medical equipment and infusion therapy. The
Company is paid for its services and products primarily by Medicare, Medicaid
and private payors, including insurance companies, managed care organizations
and other third-party payors. The following table represents the Company's payor
mix:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1993 1994 1995 1996
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Medicare Part A (cost-based)............................. 71.5% 69.5% 67.2% 60.7%
Medicare Part B (charge-based)........................... 4.5 13.7 13.8 16.6
Medicaid................................................. 2.2 1.1 1.3 1.9
Third-party payors and others............................ 21.8 15.7 17.7 20.8
----- ----- ----- -----
Total.................................................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

Medicare reimburses the Company for both Part A and Part B services.
Medicare Part A reimburses the Company on a "cost basis" based on the lower of
the Company's allowable cost as defined by Medicare regulations, not to exceed
annual cost limits or the Company's actual charges. Allowable cost is the actual
cost directly related to providing nursing, plus an overhead allocation. A cost
report evidencing the fiscal year allowable costs, visit data, charges and other
financial information is filed annually and subject to audit. Medicare Part B is
paid on a fixed fee-for-service basis similar to third-party payors, such as
managed care organizations.

As a result of initiatives aimed at controlling the rising cost of the
Medicare program and the Company's focus on lowering operating costs, the
Company may experience future declines in net revenues attributable to
Medicare's Part A reimbursement system for nursing. The Federal Government is
currently examining the feasibility of changing Medicare reimbursement for
nursing from the existing retrospective cost-based system to a prospective
payment system. The Company believes that reimbursement under a prospective
payment system would consist of either an established fee for a specific
clinical diagnosis or a fixed per diem amount for

15
<PAGE> 18

providing service. The Company believes it could generate a profit from Medicare
nursing by providing such services cost-effectively, which the clinically-based
management information system will facilitate.

RESULTS OF OPERATIONS

The following table sets forth certain items included in the Company's
consolidated statements of income as a percentage of net revenues:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Compensation and related benefits................ 69.1 68.1 61.0 64.8 55.1
General and administration....................... 21.6 21.1 26.1 23.4 30.3
Depreciation and amortization.................... 2.0 2.5 2.8 2.7 3.7
Provision for doubtful accounts.................. 2.2 2.0 1.8 1.9 2.1
----- ----- ----- ----- -----
Total operating expenses................. 94.9 93.7 91.7 92.8 91.2
----- ----- ----- ----- -----
Income from operations............................. 5.1 6.3 8.3 7.2 8.8
Interest, net...................................... 0.7 0.4 1.2 0.7 2.0
----- ----- ----- ----- -----
Income before income taxes......................... 4.4 5.9 7.1 6.5 6.8
Provision for income taxes......................... 1.8 2.4 2.7 2.5 2.8
----- ----- ----- ----- -----
Net income......................................... 2.6% 3.5% 4.4% 4.0% 4.0%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 AND 1995

The Company's results of operations during the three months ended March 31,
1996 reflect the performance of 12 companies acquired in 1995 for the entire
period; and the results of operations for the three months ended March 31, 1995
reflect the results of two of these acquisitions. Accordingly, the comparison of
the results of operations between 1995 and 1996 is materially affected by these
acquisitions.

Net revenues. Net revenues increased from $17.6 million in the first three
months of 1995 to $24.3 million in the first three months of 1996, an increase
of $6.7 million, or 38.1%. Of this $6.7 million increase, $2.0 million
represents internal growth of 11.4%, and the remaining $4.7 million is
incremental net revenues generated from the acquisitions made after March 31,
1995.

Compensation and related benefits. Compensation and related benefits
increased from $11.4 million to $13.4 million for the three months in 1996, an
increase of $2.0 million, or 17.5%, primarily as a result of personnel employed
by acquisitions made during the year as well as additional administrative
support at the corporate office to support the growth. Compensation and related
benefits include salaries and related benefits associated with providing nursing
and infusion therapy, as well as salary cost and related benefits for
administrative and support staff at both the office and corporate level.

General and administration. General and administration expenses increased
from $4.1 million in the first three months of 1995 to $7.3 million in the first
three months of 1996, an increase of $3.2 million, or 78.0%, primarily as a
result of increased costs of products sold from acquisitions and the related
operating costs associated with the addition of 20 offices after March 31, 1995.
General and administration expenses include the costs for respiratory/medical
equipment, infusion therapy products, nursing supplies, delivery expenses,
occupancy costs and other nonpatient care operating expenses.

Depreciation and amortization. Depreciation and amortization expense
increased from $0.5 million in the first three months of 1995 to $0.9 million in
the first three months of 1996, an increase of $0.4 million, or 80.0%, primarily
as a result of increased acquisitions in 1995 and information services equipment
and costs capitalized as part of the development of the Company's
clinically-based management information system. Depreciation and amortization
expense includes the amortization, over a period of 40 years, of the excess of

16
<PAGE> 19

the costs of acquired businesses over the fair value of the net assets acquired
by the Company. Depreciation expense includes the depreciation of capitalized
equipment generally over a life of 3 to 15 years.

Provision for doubtful accounts. Provision for doubtful accounts increased
from $0.3 million in the first three months of 1995 to $0.5 million the first
three months in 1996, an increase of $0.2 million, or 66.7%, primarily as a
result of an increase in net revenues from both acquisitions and internal
growth.

Interest, net. Interest, net increased from $0.1 million in the first three
months of 1995 to $0.5 million in the first three months in 1996, an increase of
$0.4 million, or 400.0%. This increase occurred primarily as a result of
increased indebtedness related to the 1995 acquisitions and, to a lesser degree,
from 1996 borrowings under the Company's line of credit to support the Company's
growth in operations and capital leases relating to the development of the
Company's clinically-based management information system. Interest, net,
reflects the result of interest paid by the Company for indebtedness, net of
interest income.

Provision for income taxes. Provision for income taxes increased from $0.4
in the first three months of 1995 to $0.7 million in the first three months in
1996, an increase of $0.3 million, or 75.0%, primarily related to the increase
in income before income taxes.

YEARS ENDED DECEMBER 31, 1995 AND 1994

During 1995, the Company completed the acquisition of 12 home health care
companies. In addition, during 1994, the Company acquired three home health care
companies. Primarily due to growth from these acquisitions, the Company operated
50 and 67 home health care offices at the end of 1994 and 1995, respectively.
Accordingly, the comparison of the results of operations between 1994 and 1995
is materially affected by these acquisitions.

Net revenues. Net revenues increased from $57.1 million in 1994 to $81.6
million in 1995, an increase of $24.5 million, or 42.9%. Of this $24.5 million
increase, $4.8 million represents internal growth of 8.4%. Internal growth was
primarily due to a $3.7 million growth in Medicare Part A services and a $1.1
million growth in infusion therapy. The remaining increase of $19.7 million is
primarily attributable to net revenues from acquisitions.

Compensation and related benefits. Compensation and related benefits
increased from $38.9 million in 1994 to $49.7 million in 1995, an increase of
$10.8 million, or 27.8%, primarily as a result of increased personnel and
related benefits associated with the acquisitions made in late 1994 and 1995.
However, relative to a percentage of net revenues, compensation and related
benefits decreased from 68.1% in 1994 to 61.0% in 1995. The percentage decrease
occurred because the mix of acquisitions in 1995 was concentrated in respiratory
therapy/medical equipment and infusion therapy, which have lower compensation
levels as a percentage of net revenues than home nursing.

General and administration. General and administration expenses increased
from $12.1 million in 1994 to $21.2 million in 1995, an increase of $9.1
million, or 75.2%. This increase is attributable primarily to additional
administrative personnel needed to support the Company's acquisitions as well as
costs of products sold associated with the acquisitions.

Depreciation and amortization. Depreciation and amortization expense
increased from $1.4 million in 1994 to $2.3 million in 1995, an increase of $0.9
million, or 64.3%. This increase is attributable primarily to acquisitions
during 1995.

Provision for doubtful accounts. Provision for doubtful accounts increased
from $1.1 million in 1994 to $1.5 million in 1995, an increase of $0.4 million
or 36.4%. This increase is primarily a result of the increase in net revenues
from acquisitions.

Interest, net. Interest, net increased from $0.2 million in 1994 to $1.0
million in 1995, an increase of $0.8 million, or 400.0%. This increase is due
primarily to interest expense on indebtedness incurred to fund acquisitions.

17
<PAGE> 20

Provision for income taxes. Provision for income taxes increased from $1.4
million in 1994 to $2.2 million in 1995, an increase of $0.8 million or 57.1%,
primarily to the increase in income before income taxes.

YEARS ENDED DECEMBER 31, 1994 AND 1993

During 1994, the Company completed the acquisition of three home health
care companies. There were no significant acquisitions during 1993. Primarily
due to growth from these acquisitions, the Company operated 41 and 50 home
health care offices at the end of 1993 and 1994, respectively. Accordingly, the
comparison of the results of operations between 1993 and 1994 is materially
affected by the acquisitions.

Net revenues. Net revenues decreased from $60.1 million in 1993 to $57.2
million in 1994, a decrease of $2.9 million, or 4.8%. This decrease is
attributable primarily to a reduction in Medicare nursing net revenues. As a
result of reduced Medicare cost limits, the Company implemented a cost reduction
program. Although this resulted in a $3.1 million reduction in Medicare net
revenues, it allowed the Company to meet the reduced cost limits. Additionally,
several referral hospitals developed internal home health departments or
agencies causing Medicare visits to decline 9.3%, resulting in reduced net
revenues of $3.5 million. These factors were offset by internal growth from
other services of $0.9 million and $3.3 million from acquisitions.

Compensation and related benefits. Compensation and related benefits
decreased from $41.5 million in 1993 to $38.9 million in 1994, a decrease of
$2.6 million, or 6.3%, primarily as a result of decreased personnel and related
benefits associated with the cost reduction program.

General and administration. General and administration expenses decreased
from $13.0 million in 1993 to $12.1 million in 1994, a decrease of $0.9 million,
or 6.9%. This decrease is attributable primarily to the cost reduction program
associated with nursing.

Depreciation and amortization. Depreciation and amortization expense
increased from $1.2 million in 1993 to $1.4 million in 1994, an increase of $0.2
million, or 16.7%. This increase is attributable primarily to acquisitions in
1994.

Provision for doubtful accounts. Provision for doubtful accounts decreased
from $1.3 million in 1993 to $1.1 million, a decline of $0.2 million or 15.4%.
The decrease is a result of the decline in net revenues and improvements in
respiratory therapy/medical equipment collections.

Interest, net. Interest, net decreased from $0.4 million in 1993 to $0.2
million in 1994, a decrease of $0.2 million, or 50.0%. This decrease is due
primarily to lower utilization of the line of credit in 1994 as a result of
increased cash flow from operations.

Provision for income taxes. Provision for income taxes increased from $1.1
million in 1993 to $1.4 million in 1994, an increase of $0.3 million or 27.3%,
primarily to the increase in income before income taxes.

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<PAGE> 21

SELECTED QUARTERLY OPERATING RESULTS

The following table sets forth certain unaudited quarterly operating
results for 1994, 1995 and the first three months of 1996. The Company believes
this unaudited information has been prepared on the same basis as the annual
financial statements and includes all adjustments necessary for a fair
presentation of the information for the quarters presented when read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus. The operating results for any quarter are not necessarily
indicative of results for any subsequent quarter. The Company's results of
operations are not significantly affected by seasonality factors.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $13,769 $13,781 $13,754 $15,847 $17,553 $18,368 $21,577 $24,059 $24,255
Income from operations....... 560 830 1,086 1,153 1,260 1,229 1,854 2,430 2,134
Income before income taxes... 499 753 1,042 1,091 1,141 1,096 1,538 2,011 1,648
Net income................... $ 281 $ 446 $ 644 $ 655 $ 703 $ 677 $ 958 $ 1,246 $ 971
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements are for acquisitions of
additional home health care companies and expansion of the services provided
through its existing home health care offices. The Company historically has
funded its working capital requirements and capital expenditures primarily from
cash flows provided from operations supplemented by short-term borrowings.

At December 31, 1995, the Company had current assets of $18.3 million and
current liabilities of $20.0 million, resulting in negative working capital of
$1.7 million. The Company also had negative working capital of $2.7 million at
March 31, 1996. This compares to working capital of $1.3 million at December 31,
1994. These decreases in working capital are attributable primarily to increases
in the current portion of long-term indebtedness resulting from acquisitions and
decreases in invested cash used to fund acquisitions. The Company's liquidity is
significantly affected by the timing of payments from government and third-party
payors. These payments average two months after services are provided.
Historically, the Company has been able to fund its operations through
internally generated cash and bank credit facilities.

Accounts receivable at March 31, 1996 were $15.3 million compared to $11.5
million at December 31, 1995 and $4.6 million at December 31, 1994. Days of
Sales Outstanding ("DSO"), defined as accounts receivable divided by average net
revenues for the last three months in the respective period were 57.0, 41.6 and
26.1 for these periods, respectively. The Company receives interim payments from
Medicare A for nursing primarily using the Periodic Interim Payment ("PIP")
program. This program pays the Company a fixed amount every two weeks. The PIP
payment is based upon the Company's historic allowable cost of nursing and is
adjusted quarterly. Because a significant portion of the Company's cash is
received under the PIP program, management believes that the Company's DSO is
lower than other home health care companies. The increase in DSO from December
31, 1995 to March 31, 1996 is attributable primarily to: (i) timing delays
resulting from a mandated change in the Company's Medicare fiscal intermediary;
(ii) net revenue deferrals relating to the reimbursement of certain
re-engineering costs; (iii) changes in net revenue mix towards
respiratory/medical equipment and infusion therapy, which historically have
higher DSO; and (iv) a slowdown by Medicare in paying for respiratory
therapy/medical equipment and infusion therapy. The increase in DSO from
December 31, 1994 to December 31, 1995 is attributable to factors discussed in
(ii) and (iii) above, as well as increases in Medicare cost report receivables.

Net cash provided by operating activities decreased from $6.3 million in
1994 to $5.8 million in 1995. This decrease is attributable primarily to
increases in accounts receivable relating to changes in revenue mix. Net cash
used in investing activities increased from $3.6 million in 1994 to $24.6
million in 1995 as a result of increased acquisition expenditures of $14.7
million. Capital expenditures also increased $6.3 million primarily due to costs
capitalized as part of the re-engineering project. Net cash provided from
financing activities

19
<PAGE> 22

increased from $0.6 million in 1994 to $16.7 in 1995. This increase is
attributable primarily to debt incurred in connection with acquisitions.

On May 16, 1996, the Company entered into a credit agreement with Texas
Commerce Bank (the "Credit Agreement"), consisting of a $10.0 million revolving
line of credit and a $25.0 million term facility, the proceeds of which will be
used, in part, to finance acquisitions. The Credit Agreement replaced a prior
credit agreement between the Company and Texas Commerce Bank (the "Old Credit
Agreement"). The Company's assets have been pledged as security for borrowings
under the Credit Agreement. As of May 31, 1996, the Company had used all of the
term portion of the Credit Agreement and there was $5.6 million outstanding
under the revolving line of credit. At the Company's option, borrowings under
the Credit Agreement bear interest at either the bank's Eurodollar rate plus
rates ranging from 1.25% to 2.75%, or the bank's prime rate plus rates ranging
from 0% to 0.75%, determined by the ratio of funded debt to EBITDA (defined as
earnings before interest, taxes, depreciation and amortization and certain other
non-cash expenditures).

The Credit Agreement contains various financial covenants, including funded
debt to EBITDA ratio, consolidated net worth, fixed charge coverage ratio,
capital expenditures, and unleveraged non-reimbursed capital expenditures. At
December 31, 1995, the Company was not in compliance with certain covenants of
the Old Credit Agreement, but obtained a waiver from the bank. The Credit
Agreement also contains certain covenants which, among other things, impose
certain limitations on the Company with respect to the incurrence of certain
indebtedness, the creation of security interest on the assets of the Company,
the payment of dividends and the redemption or repurchase of securities of the
Company, investments and sales of Company assets. The Company also must obtain
bank consent if the total consideration to be paid by the Company for an
acquisition is more than $3 million or if the total consideration to be paid by
the Company for such acquisition and all other acquisitions completed during the
previous six months exceeds $3 million in the aggregate.

At May 31, 1996, the Company had $4.4 million available under its Credit
Agreement. The Company has received a commitment from its bank to increase its
credit facility from $35 million to $75 million, subject to the completion of
this offering. Management believes that the combination of these sources,
together with the proceeds from the offering and funds generated from
operations, will be sufficient to satisfy its capital expenditure and working
capital needs, fund acquisitions and meet debt repayment requirements for the
next 12 months.

20
<PAGE> 23

BUSINESS

OVERVIEW

HealthCor seeks to differentiate itself from other home health care
companies by being a one-stop shop provider of home health care services and
products. Home nursing services continue to comprise an important component of
the Company's strategy because referral sources often will make arrangements for
home nursing services before making arrangements for other home health care
services. The Company believes that its strong market position in the home
health care industry facilitates its ability to sell fully-integrated health
care services to its referral sources and payors.

In December 1994, the Company, with the assistance of Rockwell and others,
began developing a custom-designed, clinically-based management information
system to reduce costs, improve productivity, produce and analyze clinical
outcomes data and manage growth more effectively. To date, the Company has
implemented several phases of this system, including the nursing component,
which has increased nurse productivity by up to 40%. The Company believes that
this system will enable it to compete more effectively in an increasingly
competitive managed care environment and under new government reimbursement
models, such as prospective pay.

INDUSTRY

The home health care industry remains highly fragmented with over 17,000
companies currently providing home health care services in the United States.
Many of these companies are local providers that offer a limited scope of
services in a defined geographical area and lack the capital necessary to
substantially expand their operations. Managed care organizations and cost
containment initiatives by payors have driven the growth of home health care by
emphasizing lower cost alternatives to hospitals and skilled nursing facilities.
These organizations and payors seek coordinated, consistent quality home health
care across broad geographic areas in order to serve their patients more
effectively.

STRATEGY

Provide One-Stop Shop Home Health Care Services. The Company provides payors,
physicians and patients with fully-integrated one-stop shop home health care
services in each of its existing geographic markets. The integration of
comprehensive home health care services enhances the Company's appeal to
referral sources and payors that increasingly prefer single-source providers of
home health care.

21
<PAGE> 24

Acquire Companies to Enter New Markets and Further Penetrate Existing Markets.
In order to increase utilization of the Company's services by payors and
referral sources and enhance its overall market position, the Company has
focused on achieving broad regional market coverage in both urban and non-urban
areas. To this end, the Company seeks high-quality strategic acquisitions that
complement and expand its existing operations. Since January 1995, the Company
has acquired 14 home health care companies, adding 28 offices. These
acquisitions have enabled the Company to enter into key contiguous markets and
expand the range of services offered in existing markets. The Company believes
that due to the fragmentation of the home care industry, a substantial number of
acquisition opportunities exist in its target markets.

Accelerate Internal Growth by Expanding its Scope of Services. As the Company
acquires other health care providers, including nursing, respiratory therapy or
infusion therapy companies, the Company seeks to implement its full range of
services around acquired operations. The Company also seeks to accelerate
internal growth by introducing additional specialized health care services, such
as cardiac monitoring, hospice and primary home care to many of its offices.

Enhance Competitive Position Through the Use of Clinically-Based Information
Technology. The Company seeks to enhance its operations through the use of
clinically-based management information technology. The Company, with the
assistance of Rockwell and others, is developing an innovative, custom-designed,
clinically-based management information system to facilitate the provision of
comprehensive home health care services. By enhancing its operations through the
use of management information technology, the Company seeks to be a more
cost-effective provider in an environment increasingly influenced by managed
care and subject to potential changes in reimbursement, such as prospective pay.

OPERATIONS

The Company believes that home care is a local business dependent in large
part on personal relationships and, therefore, the Company provides its
operating managers with a significant degree of autonomy to encourage prompt and
effective responses to local market demands. The Company also provides, through
its corporate office, its local managers with information and management systems
that typically are not readily available to independent operators. The Company
retains centralized control over those functions necessary to monitor quality of
patient care and to maximize operational efficiency. Services performed at the
corporate level include billing, claims processing, quality improvement
oversight, Medicare and Joint Commission on Accreditation of Health Care
Organizations ("JCAHO") licensing, human resource management, financial and
accounting functions, policy and procedure development, system design,
acquisitions and corporate development.

SERVICES AND PRODUCTS

The Company provides a comprehensive array of services and products that
are essential to the proper implementation of the physician's plan of care in
the home.

Home Nursing. The Company provides a wide variety of nursing services to
individuals with acute illnesses, long-term chronic health conditions, permanent
disabilities, terminal illnesses or post-procedural needs. The home nursing that
the Company provides includes:

General nursing care that is provided by registered nurses and licensed
practical nurses who periodically assess the appropriateness of home health
care, perform clinical procedures and instruct the patient and family
regarding necessary treatments. Patients receiving such care typically
include stabilized post-operative patients in recovery at home, patients
who are acutely ill but who do not require hospitalization and patients who
are chronically or terminally ill.

Specialty nursing care that is provided by nurses with experience or
certification in hospital emergency room, intensive care, oncology,
intravenous therapy, geriatric and neonatal or pediatric nursing. Such
nurses are employed by the Company to provide a variety of infusion
therapies and specialty care regimens to patients in the home. These nurses
also instruct patients and their families in the self-

22
<PAGE> 25

administration of certain infusion therapies and procedures, such as wound
care and infection control, emergency procedures and the proper handling
and usage of medication, medical supplies and equipment.

Therapy services that consist of rehabilitation therapies such as physical,
occupational, speech and respiratory therapy to patients recovering from
strokes, trauma or certain surgeries, services for high risk pregnancies,
post-partum care, mental health care, AIDS therapy, various medical social
services and case management services to insurance companies and
self-insured employers.

Home health aide care that involves personal care services and assistance
with activities of daily living such as personal hygiene and meal
preparation. The Company's home health aides must pass certain competency
tests and are supervised by a registered nurse.

Primary home care that is a state administered program that provides
unskilled homemaker services to the elderly or the disabled, as ordered by
a physician. A registered nurse makes the initial assessment and assigns a
homemaker, who may provide housekeeping, shopping and limited personal
care.

Hospice care that provides palliative support and care for persons in the
last phases of an incurable disease. Support and care under the direction
of a physician may be provided by a skilled nurse, aide, chaplain,
counselor, therapist or volunteer.

Patients are referred to the Company office by primary care and specialty
physicians as well as by hospital discharge planners and case managers. After
reviewing the pertinent medical records and treatment plan, a nurse or home
health aide, where appropriate, visits the patient in the home where care is
provided on either a continuous or intermittent basis. Treatment may involve a
few visits over a short period of time or may extend over several years.

Home Respiratory Therapy and Medical Equipment. The Company provides a wide
variety of home respiratory, monitoring and medical equipment services to
patients. Respiratory therapists manage the needs of the patient according to
the physician-directed plan of care and educate the patient and the care giver
regarding treatment requirements, use of equipment and self-care. The Company's
principal respiratory services include:

Oxygen systems that assist patients with breathing. The Company provides
three types of oxygen systems: (i) oxygen concentrators, which are
stationary units that filter ordinary air in order to provide a continuous
flow of oxygen and are generally the least expensive supply of oxygen for
patients who require a continuous flow of oxygen but do not require
excessive flow rates; (ii) liquid oxygen systems, which are containers used
for patients who require a continuous high flow of supplemental oxygen; and
(iii) high pressure oxygen cylinders, used for portability with oxygen
concentrators.

Nebulizers that deliver aerosol medications that are inhaled directly into
the patients' lungs. Nebulizers are used to treat patients with asthma,
chronic obstructive pulmonary disease, cystic fibrosis and neurologically
related respiratory problems and patients with AIDS.

Home ventilators that mechanically sustain a patient's respiratory function
in cases of severe respiratory failure.

Continuous positive airway pressure therapy that forces air through
respiratory passage-ways during sleep. This treatment is provided to adults
with sleep apnea, a condition in which a patient's normal breathing
patterns are disturbed during sleep.

The Company also rents, sells and services respiratory equipment for
patient use in the home and supplies patients with aerosol medications provided
by the Company for use in respiratory therapy treatments. The Company's
technicians deliver and install respiratory equipment, instruct patients in the
use of such

23
<PAGE> 26

equipment, refill liquid oxygen systems and provide continuing maintenance of
the equipment. The Company's principal monitoring services include:

Cardiac monitoring for the detection of arrhythmias, a condition that is
responsible for 500,000 deaths each year in the United States. The Company
provides cardiac loop event recorders, which in conjunction with
transtelephonic monitoring, have proven to be an efficient and
cost-effective arrhythmia detection device.

Uterine monitoring which detects, records and sends uterine activity
information to the perinatal center to alert healthcare professionals of
pre-term labor in high-risk pregnancies.

Apnea monitors to warn parents of apnea episodes in newborn infants as a
preventive measure against sudden infant death syndrome.

The Company also leases and sells convalescent equipment, in connection
with the provision of its other services to patients in the home. Such equipment
includes hospital beds, wheelchairs, walkers and patient lifts and medical and
surgical supplies such as stethoscopes, orthopedic supplies, urinary catheters,
syringes and needles. The Company benefits from the efficiencies associated with
the provision of home medical equipment and supplies to its patients who are
receiving nursing, respiratory therapy or infusion therapy in the home.

Home Infusion Therapy. The Company provides a wide range of home infusion
therapies. Home infusion therapy involves the administration of nutrients,
antibiotics and other medications intravenously (into the vein), subcutaneously
(under the skin), intramuscularly (into the muscle), intrathecally or epidurally
(via spinal routes) or through feeding tubes into the digestive tract which
often begins during hospitalization of a patient and continues in the home
environment. The Company's principal infusion therapies include:

Antibiotic therapy which is the infusion of antibiotic medications into a
patient's bloodstream to treat a variety of serious infections and
diseases.

Enteral nutrition which is the administration of essential nutrients
through a feeding tube, is necessary for patients who are unable to orally
ingest adequate nutrients.

Total Parenteral Nutrition which is a nutrient solution administered
intravenously to restore and/or maintain electrolyte balance and
nutritional function.

Pain management which is provided to patients experiencing acute pain as a
result of traumatic injury, surgical procedures or other medical disorders.
The Company provides a comprehensive approach to pain management that
includes a thorough knowledge of available agents, routes of administration
and appropriate dosage levels as directed.

Chemotherapy which is provided in the home, allows patients with cancer an
alternative to frequent and expensive hospital stays.

Pentamidine which is an agent used specifically in the treatment of
patients with AIDS who have experienced one or more episodes of
pneumocystis carinii pneumonia.

When a patient is referred to a Company office, a Company pharmacist takes
the prescription order from the treating physician, prepares the prescribed
pharmaceuticals and coordinates their delivery to the patient's home. New
patients are assisted in the administration of infusion therapy and related
services by a registered nurse who is present at the time of the patient's first
home treatment.

INFORMATION SYSTEMS

In 1994, the Company, with the assistance of Rockwell and others, began
developing an innovative clinically-based management information system which
the Company has named HealthCor Medical Information Systems Network or HealthCor
MedisynTM (the "System"). The System is designed to re-engineer all aspects of
the Company's operations by providing automated, paperless data collection and
transmission capabilities that the Company believes will enable it to enhance
operating efficiencies, produce and analyze clinical outcomes data and manage
growth more effectively. The Company believes the System

24
<PAGE> 27

will generate the data required to price and manage the Company's services and
products competitively in a managed care environment and to measure the quality
and cost of care that is delivered in the home.

The implementation of the first phase of the System, which consisted of
equipping and training all of the Company's approximately 800 nurses with
hand-held point-of-care computers, was completed in March 1996. These hand-held
computers, called PtCT units, allow each of the Company's nurses to have an
electronic patient chart in hand and allow the Company to collect clinical,
payroll and billing information. Information is transmitted via modem to the
Company's appropriate client server. Once the clinical data has been recorded,
the System enables the Company to develop clinical assessments of patients via
computer generated documentation. Same-day reporting capabilities reduce
paperwork and transcription errors, which has increased nurse productivity up to
40%. The System also expedites the processing of payroll data, accelerates the
transfer of information to attending physicians and improves the consistency and
completeness of the assessments generated. The Company anticipates equipping and
training all of its home health aides with PtCT units by early 1997, with
respiratory and physical therapists to be equipped by the end of 1997.

The Company intends to implement additional phases of the System over the
next six months, including: (i) a comprehensive general ledger, human resources,
payroll, materials management and cost accounting system; (ii) a central client
intake application and wide area networks to allow regional intake personnel to
enter the referral/admissions information for clients of all services and
transmit such information to the appropriate office's client server; and over
the next 18 months, (iii) a data warehousing application to allow extensive
analysis and reporting of outcomes data, clinical and financial reports.

MARKETING

The Company's market development efforts focus on referral sources which
include physicians, hospital discharge planners, social workers, community
service organizations, managed care organizations and other commercial payors.
In urban areas, managed care organizations are becoming increasingly important
as both referral sources and payors. As a result, the Company has created a
corporate department that develops specialized programs designed to provide
comprehensive, cost effective home care services. A large portion of the
Company's revenues originate in non-urban areas where local referral sources
continue to be very important. At the local market level, the Company's
employees, including office management, licensed professionals and coordinators
of professional services, continually communicate with referral sources in order
to provide such referral sources with knowledge of the services provided by the
Company and the level of reimbursement available from payor sources. The Company
believes that its ability to provide a full range of services to clients in all
of its markets is a strong advantage in developing relationships with managed
care organizations. In addition, the Company works with managed care
organizations to provide custom programs to effectively manage high cost
patients. These programs, coupled with the Company's focus on clinically-based
management information systems, enable the Company to effectively compete for
managed care relationships.

QUALITY ASSURANCE

Management believes that the quality of the Company's services is critical
to its ability to obtain referrals and expand its business. To assure the
delivery of high-quality patient care, and to improve the overall quality of
service, the Company has established policies and procedures prescribing
standards of patient care. The Company has a Progressive Improvement Council
designed to integrate and assess the improvement activities and processes across
all services. The Progressive Improvement Council has a fully-automated survey
tool used to assess each office to ensure compliance with its standards on a
quarterly basis. These standards include the monitoring of clinical and billing
documentation, accountability of clinical personnel by interviews and monitoring
of home visits, evaluating customer satisfaction information, reporting adverse
medical incidents, monitoring risk management and ensuring a safe and
appropriate working environment.

The Company is accredited by JCAHO in a majority of its offices. The
objective standards established by JCAHO are one of the few methods by which
referring health care professionals can assess the quality of services provided.
The Company believes that it is JCAHO certified in all markets where such
certification is

25
<PAGE> 28

important to third-party payors. There have been a number of initiatives to
require such accreditation as a prerequisite for participation in government
reimbursement and private insurance programs, and such accreditation is
generally preferred by managed care and other third-party payors.

HUMAN RESOURCE MANAGEMENT

Competition for qualified managers and personnel in the home health care
industry is intense. The Company continuously recruits, screens, trains and
offers benefits and other programs in an effort to retain its personnel.
Recruiting is conducted primarily through advertising, employment fairs, direct
contact with community groups and the use of bonuses and other employee benefit
programs to encourage new employee referrals by existing employees. The Company
has implemented a computerized interviewing software system to assist in
screening and hiring of potential employees.

The Company operates 11 regional learning centers to provide orientation
and training to new employees and continuing education for existing employees.
All care providers must complete a core curriculum before they begin independent
patient care. The Company routinely develops and distributes quality improvement
in-service materials, manuals and forms to its nurses and has implemented an
internal system of employee recognition and rewards. In addition, skilled nurses
are initially assigned to a nurse preceptor until the Company believes that
these new nurses have acquired a sufficient degree of home health care knowledge
and experience. The Company also has implemented an infusion therapy
verification program for skilled nurses. The Company is recognized as a provider
of continuing education units by the Texas Nursing Association, which is
accredited by the American Nursing Credentialing Center.

PROPERTIES AND OFFICE LOCATIONS

The Company currently leases all of its office space, with the exception of
the office located in Raton, New Mexico which the Company owns. The executive
offices, consisting of approximately 27,900 square feet, are subject to a lease
expiring March 31, 1997. The rent payable thereunder is $28,393 monthly.

On June 10, 1996, the Company executed a lease agreement for new executive
offices, effective November 1, 1996. The new executive offices, comprising
approximately 57,400 square feet, are subject to a lease expiring November 1,
2006. The rent payable thereunder is $65,753 monthly, beginning February 1,
1997.

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<PAGE> 29

The following is a list of the Company's 75 home health care offices.
Unless otherwise indicated, the Company has one office in each city.

<TABLE>
<S> <C> <C>
Texas(42) Texarkana Arizona(5)
Tomball
Abilene Tyler Casa Grande
Andrews Wichita Falls Gilbert
Austin Willis Mesa
Beaumont Winnsboro Payson
Bedford Phoenix
Brenham Oklahoma(12)
Bryan Arkansas(5)
Center Ada
Cleburne Bartlesville Fayetteville
Dallas Edmond Fort Smith
DeLeon(2) Enid Jonesboro
Denton Ft. Gibson Little Rock
El Paso Holdenville Texarkana
Grand Prairie Lawton
Houston(4) Oklahoma City Kansas(2)
Jasper(2) Ponca City
Lake Jackson Sapulpa Kansas City
Longview Stillwater Independence
Lubbock Tulsa
Lufkin New Mexico(2)
Mineral Wells Missouri(6)
Mule Shoe Hobbs
Odessa Columbia Raton
Rising Star Independence
San Antonio(2) Jefferson City Colorado(1)
Sherman Kirksville
Stephenville(2) Mexico Englewood
Temple(2) Osage Beach
</TABLE>

COMPETITION

The Company faces substantial competition in its existing markets. Home
health care providers compete for referrals based primarily on range and quality
of services, price, geographic coverage and pertinent clinical and statistical
information. Most of the markets in which the Company provides home health care
services are highly fragmented with a large number of local, independent
competitors. The Company also competes with local offices of national companies
and hospital-based home health care organizations. Some of the Company's current
and potential competitors have, or may obtain, significantly greater financial
and marketing resources than the Company.

REGULATION

The Company's business is subject to extensive and increasing regulation by
federal, state and local government. Federal agencies which regulate aspects of
the Company's business include the Department of Health and Human Services, the
Health Care Financing Administration, the Office of the Inspector General, the
Food and Drug Administration, the Drug Enforcement Agency and the Occupational
Safety and Health Administration. In most states, home health care providers are
regulated by the state department of health and board of pharmacy and certain
local agencies. See "Risk Factors -- Operation Restore Trust," "-- Subpoenas of
Records" and "Business -- Legal Proceedings."

27
<PAGE> 30

The Company is subject to federal laws covering the repackaging and
dispensing of drugs and regulating interstate motor-carrier transportation and
state laws governing pharmacies, nursing services and certain types of home
health agency activities. Under state laws, the Company's offices must be
licensed prior to commencing business and must renew its licenses periodically.
In Arkansas, the Company is limited to providing nursing services under the
Medicare program to those geographic areas in which it has obtained a Permit of
Approval by demonstrating a need for the particular type of services which it
proposes to provide. The Company believes that the absence of this requirement
in the other states in which the Company operates has proven to be a significant
operational advantage in comparison to home health care providers in states with
this requirement. In addition, certain of the Company's employees are subject to
state laws and regulations governing the professional practice of respiratory
therapy, pharmacy and nursing.

As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid anti-kickback statute, also
known as "fraud and abuse laws." This law prohibits any offer, payment,
solicitation or receipt of any form of remuneration to induce the referral of
business reimbursable under Medicare or state health programs or in return for
the purchase, lease, or order of items or services covered by Medicare or state
health programs. Violations of the fraud and abuse laws can result in the
imposition of substantial civil and criminal penalties and, potentially,
exclusion from Medicare and state health programs. In addition, several states
in which the Company operates have laws that prohibit certain direct or indirect
payments or fee-splitting arrangements between health care providers if such
arrangements are designed to induce or to encourage the referral of patients to
a particular provider. See "Risk Factors -- Operation Restore Trust,"
"-- Subpoenas of Records" and "Business -- Legal Proceedings."

Congress adopted legislation in 1989, known as the "Stark" legislation,
that generally prohibits or restricts a physician from referring a Medicare
beneficiary's clinical laboratory services to any entity in which such physician
(or a member of his immediate family) has an ownership or individual interest or
with which such physician has a financial relationship, and prohibits such
entity from billing for or receiving reimbursement on account of such referral,
unless a specified exemption is available. Additional legislation became
effective as of January 1, 1993 known as "Stark II," expanding the Stark
legislation to referrals of services eligible for Medicaid reimbursement and
"designated health services," including home health services, durable medical
equipment and outpatient prescription drugs. Pursuant to Stark II, physicians
who own an interest in the Company or who are compensated by the Company will be
prohibited from making referrals to the Company, and the Company will be
prohibited from seeking reimbursement for services rendered to such patients
unless an exception applies. Ownership interests are excepted if the interest
held is a publicly traded security in a company having shareholders' equity of
at least $75 million.

Several of the states in which the Company conducts business have enacted
statutes similar in scope and purpose to the federal fraud and abuse laws and
the Stark Laws. There is no authority interpreting the state fraud and abuse
laws in a manner that applies to the Company's operations. These laws are
generally based upon the federal fraud and abuse law, so that the interpretation
of the federal law may govern the application of the state laws.

In May 1995, the Clinton Administration instituted Operation Restore Trust,
a health care fraud and abuse initiative focusing on nursing homes, home health
care agencies and durable medical equipment companies located in five states
with the largest Medicare populations. Texas, the Company's corporate base, is
one of the targeted states. As of May 13, 1996, Operation Restore Trust has been
responsible for over $24.5 million in criminal restitutions, fines and recovery
of overpayments; over $14.1 million in civil judgments, settlements and civil
monetary penalties; 35 criminal convictions and 18 civil judgments; and 93
exclusions of individuals and corporations from the Medicare program. Operation
Restore Trust has also been expanded to cover six states, and the Clinton
Administration has called for an expansion of this initiative to all fifty
states in fiscal year 1997. The Company cannot predict the effect of Operation
Restore Trust on the Company or its results of operations.

A significant portion of the Company's revenues are derived from the
Medicare program. A number of initiatives are pending in the United States
Congress to control the cost of the Medicare program, including

28
<PAGE> 31

proposals to reduce certain reimbursement rates. It is possible that the amounts
reimbursable for Medicare services will be subject to limitation, if not a
reduction, in the future.

The Company's home medical equipment operations are subject to the Omnibus
Budget Reconciliation Act ("OBRA"). OBRA 1987 created six categories for home
medical equipment reimbursement under the Medicare program. OBRA 1987 also
defined whether products would be paid for on a rental or sale basis and
established fixed payment rates for oxygen services as well as a 15-month rental
ceiling on certain medical equipment. OBRA 1990 made new changes to Medicare
reimbursement that were implemented in 1991. The substantive changes included a
national standardization of Medicare rates for certain equipment categories and
further reductions in amounts paid for home medical equipment rentals. In 1992,
the industry experienced minimal changes in both regulation and in levels of
Medicare reimbursement.

In August 1993, Congress passed OBRA 1993, which included significant
reimbursement reductions to the Medicare program through 1998. These
reimbursement reductions began to take effect on January 1, 1994, and were
estimated to negatively affect the home medical equipment industry by
approximately $81.0 million in 1994. The specific reimbursement changes
effective for fiscal 1994 relate to recategorization of certain home respiratory
therapy products, coupled with a reduction in reimbursement rates for these
products. Offsetting this reduction, OBRA 1993 provided a Consumer Price Index
increase on certain Medicare fees, which was approximately 2.9% in 1994 and 2.5%
in 1995.

INSURANCE

The Company maintains professional liability insurance covering the
negligent acts and omissions of its home health care personnel while rendering
services. This policy provides coverage of $5.0 million in the aggregate or $5.0
million per occurrence for each policy year. The Company believes that the
insurance which it maintains, in relation to the size of its business, is
customary in the home health care industry; however, there can be no assurance
that any such insurance will be adequate to cover the Company's liabilities. The
Company maintains product liability insurance on all of the medical equipment,
supplies and pharmaceuticals that it sells, leases or provides to its home care
patients. This insurance provides coverage of $2.0 million in the aggregate or
$1.0 million per occurrence for each policy year. The Company also maintains
umbrella coverage in excess of its general liability insurance which provides
$4.0 million in the aggregate or $4.0 million per occurrence for each policy
year.

EMPLOYEES

The retention of qualified employees is a high priority for the Company. As
of May 31, 1996, the Company employed over 2,000 individuals. Management
believes that the Company's employee relations are good. None of the Company's
employees are represented by a labor union or other collective bargaining
organization.

LEGAL PROCEEDINGS

Except as set forth below and other than routine litigation incidental to
its business, the Company is not aware of material legal proceedings pending or
threatened against it.

In May 1993, the Company learned that a complaint against the Company was
filed with the Federal Government and that such complaint was being reviewed.
Shortly thereafter at a meeting requested by the Company, the FBI agent assigned
to the matter would not disclose the nature of such complaint. The Company
subsequently learned that at least one to its former employees had been
interviewed by the government in connection with the complaint. On April 17,
1995, the U.S. Attorney for the Northern district of Texas served the Company
with grand jury subpoenas duces tecum (the "Subpoenas"). The Subpoenas sought
production of personnel and payroll records for the period January 1, 1991, to
April 17, 1995 concerning 155 of the Company's current and former employees and
certain other payroll tax information, as well as invoices from the Company's
independent auditing firm. The Company tendered documents responsive to the
Subpoenas on May 31, 1995. Since the production of such documents, no request
for additional

29
<PAGE> 32

information has been made by the U.S. Attorney, nor has the U.S. Attorney had
further contact with the Company.

The Company, with legal counsel and other consultants, commenced its own
internal investigation as to its compliance with Medicare rules and regulations
in May 1993 and continued the investigation in October 1995 into matters related
to the Subpoenas. The Company believes, based on its investigation and on its
independent knowledge, that (i) it and its management have not knowingly and
intentionally violated any criminal statutes or regulations and accordingly
there is no criminal liability on the part of the Company and its management and
(ii) there has been no material noncompliance with applicable Medicare statutes
and regulations that would have a material adverse effect on the Company, its
financial position or its results of operations. Since (i) the Government will
not disclose its status or plans, (ii) Medicare rules and regulations are very
complex and subject to different interpretations and (iii) the Company has made
several acquisitions of smaller companies which may have operated under
procedures that differ from procedures implemented by the Company, there can be
no assurance that the U.S. Attorney or any other government agency will not
request further information or pursue a civil or criminal investigation or
proceeding against the Company or its management. Such investigation or
proceeding, if commenced, could result in one or more of the following: no
action, fines civil monetary penalties, criminal indictments, recovery of
overpayments, criminal restitution, settlements, civil judgments and exclusion
of the Company or individuals from the Medicare program. See "Risk
Factors -- Subpoenas of Records."

30
<PAGE> 33

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
S. Wayne Bazzle(1)............... 60 Chairman of the Board, Chief Executive Officer and
Secretary
Cheryl C. Bazzle................. 48 President, Chief Operating Officer and Director
Susan L. Belske.................. 49 Vice President and Treasurer
Michael J. Foster(1)(2).......... 43 Director
Robert B. Crates(1)(2)........... 34 Director
</TABLE>

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

(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Mr. Bazzle has served as the Chairman of the Board and Chief Executive
Officer of the Company since the Company's incorporation in October 1989. In
addition, Mr. Bazzle served as President of the Company from October 1989 to
October 1991 when Cheryl C. Bazzle was elected President. From October 1985 to
October 1989, Mr. Bazzle served as Chairman of the Board and Chief Executive
Officer of HealthCor, Inc., a predecessor of the Company. From September 1983 to
September 1985, Mr. Bazzle served as a consultant to Concepts of Care, Inc., a
home health care company. Mr. Bazzle was President and Chief Executive Officer
of Drum Financial Corporation, a publicly traded insurance and financial
services corporation from 1976 to 1981. Prior thereto, Mr. Bazzle was employed
with the Bank of Virginia, where he served as President and Chief Administrative
Officer from 1973 to 1976. Mr. Bazzle is married to Cheryl C. Bazzle.

Ms. Bazzle has served as President, Chief Operating Officer and Director
since 1991. From 1989 to 1991, Ms. Bazzle served as Senior Vice President of the
Company. From December 1987 to October 1989, Ms. Bazzle served in various
capacities for HealthCor, Inc., a predecessor and a subsidiary of the Company,
including as Senior Vice President, Chief Operating Officer and President. From
September 1985 to December 1987, Ms. Bazzle served in various capacities for
Concepts of Care, Inc. From September 1981 to October 1985, Ms. Bazzle operated
an equipment leasing company which she founded and no longer operates. Ms.
Bazzle is married to S. Wayne Bazzle.

Ms. Belske has served as Vice President and Treasurer of the Company since
April 1993. From 1987 to 1993, Ms. Belske served as Vice President and Chief
Financial Officer of Nurse Finders, Inc. From 1981 to 1987, she served as Vice
President and Chief Financial Officer of Kimberly Service, Inc., the predecessor
to Kimberly Quality Care. Prior to 1981, Ms. Belske was employed by Ernst &
Young for 11 years. Ms. Belske is a certified public accountant.

Mr. Foster has served as a Director of the Company since October 1991 and
was elected to the Board of Directors pursuant to agreements executed in
connection with the purchase by RFE Investment Partners IV, L.P. ("RFE IV") of
Series B Preferred Stock. Since 1989, Mr. Foster has been employed by RFE
Management Corp., an investment manager of several private equity investment
funds, and a general partner of RFE Associates IV, L.P. the general partner of
RFE IV. Prior thereto, Mr. Foster was a partner with the law firm of O'Sullivan
Graev & Karabell. Mr. Foster has previously served as a director of Community
Health Systems, Inc. and ReLife, Inc. See "Certain Transactions" and "Principal
and Selling Stockholders."

Mr. Crates has served as a Director of the Company since June 1992 and was
elected to the Board of Directors in connection with the purchase by LKCM
Venture Partners I, Ltd., a Texas limited partnership ("LKCM Venture Partners"),
of Series B Preferred Stock, as required by the purchase agreement under which
the Series B Preferred Stock was sold. Since December 1995, Mr. Crates has been
a principal of Crates Thompson Capital, Inc., an investment company engaged in
direct investments. From May 1988 to November 1995, Mr. Crates served as a Vice
President of Luther King Capital Management, an investment advisory firm. In
that capacity, Mr. Crates, individually and as President of RBC Investment
Corp., served as

31
<PAGE> 34

the general partner of LKCM Venture Partners I, Ltd., a stockholder of the
Company which is affiliated with Luther King Capital Management. From October
1994 to January 1995, Mr. Crates concurrently served as Interim Chairman and
Chief Executive Officer of Eddie Haggar Limited, Inc., a company in which LKCM
Venture Partners I, Ltd. had an investment, that filed for protection under
federal bankruptcy laws. See "Certain Transactions" and "Principal and Selling
Stockholders."

The Compensation Committee of the Company's Board of Directors determines
the Company's executive compensation policies and practices and changes in
compensation and benefits for senior management. The Compensation Committee also
administers the 1996 Incentive Plan. See "-- Executive Compensation."

The Audit Committee reviews the internal accounting procedures of the
Company, consults with the Company's independent public accountants and reviews
the services provided by such accountants.

BOARD COMPENSATION

All of the members of the Board of Directors (the "Board") are reimbursed
for expenses incurred in connection with their attendance at Board and Committee
meetings. The Company pays each non-employee director a monthly retainer of
$500, as well as a $750 fee for attending each regular or special meeting of the
Board. In addition, each of the Company's new non-employee directors are
eligible to receive stock options under the 1996 Incentive Plan upon their
election to the Board. See "-- Stock Option Plans."

EXECUTIVE COMPENSATION

The following table sets forth for the year ended December 31, 1995, the
compensation paid by the Company to the Company's Chairman and Chief Executive
Officer, President and Chief Operating Officer and the other most highly
compensated executive officer (collectively, the "Named Executive Officers")
whose cash compensation was in excess of $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
-------------------------------- ---------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) SATION(4) SARS(#) SATION(5)
- ------------------------------------- ---- --------- -------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
S. Wayne Bazzle
Chairman of the Board and Chief
Executive Officer.................. 1995 $ 240,000 $72,000 $ 2,250 -- $ 12,060
Cheryl C. Bazzle
President and Chief Operating
Officer............................ 1995 200,000 60,000 2,250 -- 6,591
Susan L. Belske
Vice President & Treasurer......... 1995 120,000 15,000 1,927 -- --
</TABLE>

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

(1) The Company did not grant any stock options, stock appreciation rights or
make any long-term incentive plan payments to any of the Named Executive
Officers in 1995.

(2) Represents annual salary, including compensation deferred by the Named
Executive Officers pursuant to the Company's 401(k) Plan.

(3) Represents annual bonus earned by the Named Executive Officers for the
period indicated.

(4) Represents the Company's contribution to its 401(k) Plan made on behalf of
the Named Executive Officers.

(5) Represents amounts paid by the Company for automobile expenses on behalf of
the Named Executive Officers.

OPTIONS GRANTED DURING LAST FISCAL YEAR

During 1995, the Company did not grant any options to any of the Named
Executive Officers.

32
<PAGE> 35

OPTION EXERCISES DURING 1995 AND OPTION VALUES AT DECEMBER 31, 1995

The following table summarizes information regarding the value of all
unexercised options at December 31, 1995 by the Named Executive Officers. No
stock options were exercised by any of the Named Executive Officers during the
fiscal year. The Company does not have any outstanding stock appreciation rights
("SARs").

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END(1)
SHARES VALUE ----------------------------- -----------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Wayne Bazzle... -- -- -- -- -- --
Cheryl C.
Bazzle.......... -- -- -- -- -- --
Susan L. Belske... -- -- 12,500 7,500 $ 118,550 $61,650
</TABLE>

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

(1) Based on an assumed offering price of $13.50.

STOCK OPTION PLANS

1996 Incentive Plan. The Company may grant officers, directors and key
employees awards with respect to shares of Common Stock under the HealthCor
Holdings, Inc. 1996 Long-Term Incentive Plan (the "1996 Incentive Plan"). The
awards under the 1996 Incentive Plan include: (i) incentive stock options
qualified as such under U.S. federal tax laws, (ii) stock options that do not
qualify as incentive stock options, (iii) SARs and (iv) restricted stock awards.
The 1996 Incentive Plan authorizes the issuance of 237,500 shares of Common
Stock pursuant to the exercise of non-transferable options granted to
participating employees. The Company has not granted any options under the 1996
Incentive Plan to any officers, directors or employees.

The 1996 Incentive Plan is administered by the Board or a committee of the
Board (the "Committee") who determines the exercise price of each option granted
under the 1996 Incentive Plan. However, the exercise price for an incentive
stock option must not be less than the fair market value of the Common Stock on
the date of grant. Stock options may be exercised as the Committee determines
but not later than ten years from the date of grant in the case of incentive
stock options. At the discretion of the Committee, holders may use shares of
Common Stock to pay the exercise price, including shares issuable upon exercise
of the option.

An SAR may be awarded in connection with or separate from a stock option.
An SAR is the right to receive an amount in cash or stock equal to the fair
market value of a share of the Common Stock on the date of exercise less the
exercise price specified in the agreement governing the SAR (for SARs not
granted in connection with a stock option) or the exercise price of the related
stock option (for SARs granted in connection with a stock option). An SAR
granted in connection with a stock option will require the holder, upon
exercise, to surrender the related stock option or portion thereof relating to
the number of shares for which the SAR is exercised. The surrendered stock
option, or portion thereof, will then cease to be exercisable. Such an SAR is
exercisable or transferable only to the extent that the related stock option is
exercisable or transferable. An SAR granted independently of a stock option will
be exercisable as the Committee determines. The Committee may limit the amount
payable upon exercise of any SAR and such amounts may be paid in cash or stock.

A restricted stock award is a grant of shares of Common Stock that is
nontransferable or subject to risk of forfeiture until specific conditions are
met. The restrictions will lapse in accordance with a schedule or other
conditions as the Committee determines. During the restriction period, the
holder of a restricted stock award may, in the Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or to receive dividends thereon. Restricted stock may also be
issued upon exercise or settlement of options or SARs.

33
<PAGE> 36

An award under the 1996 Incentive Plan may have change of control features
as the Committee determines. Such change of control features may provide that
upon the change of control of the Company: (i) the holder of a stock option will
be granted a corresponding SAR, (ii) all outstanding SARs and options will
become immediately and fully vested and exercisable in full and (iii) the
restriction period on any restricted stock award will be accelerated and the
restrictions will expire. Outstanding options under the 1996 Incentive Plan have
the provision described in the preceding clause (ii). A "change in control" of
the Company means: (i) a person other than the Company, certain affiliated
companies or benefit plans, or a company a majority of which is owned directly
or indirectly by the stockholders of the Company becomes the beneficial owner of
50% or more of the voting power of the Company's outstanding voting securities;
(ii) a majority of the Board of Directors is not comprised of the members of the
Board of Directors at June , 1996, and persons whose elections as directors
were approved by those directors of their approved successors; (iii) the Company
merges or consolidates with another corporation or entity (whether the Company
or the other entity is the survivor), or the Company and the holders of the
voting securities of such other corporation or entity (or the stockholders of
the Company and such other corporation or entity) participate in a securities
exchange, other than a merger, consolidation or securities exchange in which the
Company's voting securities are converted into or continue to represent
securities having the majority of voting power in the surviving company; or (iv)
the Company liquidates or sells all or substantially all of its assets, except
sales to an entity having substantially the same ownership as the Company.

If a restructuring of the Company occurs that does not constitute a change
in control of the Company, the Committee may: (i) accelerate in whole or in part
the time of vesting and exercisability of any outstanding stock options and
SARs, in order to permit those stock options and SARs to be exercisable before,
upon, or after the completion of the restructuring; (ii) grant each option
holder corresponding SARs; (iii) accelerate in whole or in part the expiration
of some or all of the restrictions on any restricted stock award; (iv) if the
restructuring involves a transaction in which the Company is not the surviving
entity, cause the surviving entity to assume in whole or in part any one or more
of the outstanding awards under the 1996 Incentive Plan upon such terms and
provisions as the Committee deems desirable; or (v) redeem in whole or in part
any one or more of the outstanding awards (whether or not then exercisable) in
consideration of a cash payment, adjusted for withholding obligations. A
restructuring generally is any merger of the Company or the direct or indirect
transfer of all or substantially all of the Company's assets (whether by sale,
merger, consolidation, liquidation, or otherwise) in one transaction or a series
of transactions.

The options granted in 1996 under the 1996 Incentive Plan to executive
officers automatically vest upon a change in control, termination of their
employment with the Company by the Company without cause or termination of their
employment with the Company by the officer for good reason.

1989 Stock Option Plan. The Company's 1989 Stock Option Plan (the "1989
Stock Option Plan"), which was approved by the Board of Directors in October
1989 and subsequently amended in June 1996, provides for the issuance of
Incentive and Non-Qualified Stock Options to purchase up to 387,500 shares of
Common Stock of the Company. Non-Qualified Stock Options may be granted to
full-time employees (including executive officers and directors other than Mr.
and Ms. Bazzle) of the Company or to part-time employees or persons performing
services for the Company. Incentive Stock Options may only be granted to
full-time employees of the Company. Unexercised options under the 1989 Stock
Option Plan are subject to adjustment if the outstanding shares of Common Stock
of the Company are increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities or other
securities of the Company or of another corporation through a stock split,
combination, reorganization, merger, consolidation or similar transaction.

The 1989 Stock Option Plan is administered by the Board or the Committee
which (i) selects the employees, officers or directors who are to be granted
options, (ii) establishes the number of shares of Common Stock subject to the
options, (iii) determines the exercise prices and (iv) establishes the terms,
restrictions and/or conditions applicable to the options. The exercise price for
an Incentive Stock Option must not be less than the fair market value of the
Common Stock on the date of grant. Options granted under the 1989 Stock Option
Plan vest over a three year period beginning on the date of the grant, with
one-third of the options vesting and becoming exercisable on each anniversary of
the grant. All options will vest automatically

34
<PAGE> 37

upon the occurrence of a change in control triggering event, which includes a
consolidation or merger of the Company with or into any other entity or a sale
or other transfer of substantially all of the property and assets of the
Company. Options are not transferable except by the laws of devise and descent,
and during an optionee's lifetime may only be exercised by the optionee.

As of May 31, 1996, the Company has granted options to purchase 350,878
shares of Common Stock, 185,042 of which options are currently vested. The
number of shares currently available for additional grants under the 1989 Stock
Option Plan is 36,622.

EMPLOYEE STOCK OWNERSHIP PLAN

The Board of Directors adopted an Employee Stock Ownership Plan ("ESOP"),
effective as of April 1, 1990, for eligible employees. The ESOP is an employee
stock ownership plan that is intended to satisfy the applicable qualification
requirements set forth in the Code. The ESOP is designed to invest primarily in
shares of the Company's Common Stock.

Contributions of Common Stock and cash by the Company, when declared at the
discretion of the Board, are allocated to the accounts of participants based on
the ratio each participant's compensation for the year bears to all
participants' compensation for that year. Participants are not vested in any
amounts allocated to them until they have completed at least 1,000 hours of
service per year for one year. After five such years, a participant is 100%
vested in such amounts. Generally, a participant also will be fully vested upon
attaining age 65 or in the event of total and permanent disability, death or
termination of the ESOP.

Shares of Common Stock, together with any other ESOP assets, are held by a
trustee appointed by the Company. Under the ESOP, each participant has a right
to direct the trustee as to the manner in which shares of Common Stock allocated
to his or her account, as well as a portion of the shares of Common Stock held
by the trustee pending allocation to participant accounts, are to be voted at
each meeting of the Company's stockholders. Allocated shares for which no timely
instructions are received will be voted by the trustee proportionally in the
manner as the shares for which voting instructions were received.

Upon termination of employment, a participant is entitled to the amounts
which have been allocated to his or her account and which have become vested. If
a participant dies before receiving vested benefits from the ESOP, then ESOP
assets held for the participant will be distributed to the participant's
beneficiary. Under the ESOP, participants and beneficiaries will receive ESOP
distributions in the form of Common Stock and cash in lieu of any fractional
shares. If the Common Stock is not publicly traded, a participant or beneficiary
receiving a distribution of shares of Common Stock from the ESOP has a put
option to require the Company to purchase the distributed shares at fair market
value.

401(K) PLAN

The Company has a defined contribution plan (the "401(k) Plan") pursuant to
which employees at least 21 years of age and who have completed at least 1,000
hours of service are eligible to participate. Participants in the 401(k) Plan
may contribute up to 10% of his or her pre-tax total compensation with the
Company matching 25% of the participant's contributions, up to 6% of the
participant's compensation. The 401(k) Plan is being modified July 1, 1996, to
merge the 401(k) Plan of an acquired Company into the Company's 401(k) Plan.
Eligible employees are 100% vested in their own contributions.

LIMITATION ON DIRECTORS' LIABILITY

The Company's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above.

35
<PAGE> 38

CERTAIN TRANSACTIONS

In June 1992, in connection with an acquisition, the Company issued and
sold an aggregate of 1,250,013 shares of Series B Preferred Stock at a price of
$2.80 per share in a private placement. LKCM Venture Partners I, Ltd., a Texas
limited partnership, participated in this offering at this per share price by
purchasing 803,575 shares. RFE Investment Partners IV, L.P. participated in this
offering at this per share price by purchasing 267,863 shares. The Company's
ESOP also purchased 178,575 shares of Series B Preferred Stock at this per share
price. The shares of Series B Preferred Stock owned by the ESOP were converted
into shares of Common Stock in fiscal 1994.

36
<PAGE> 39

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock of as of May 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock being offered by the
Company and the Selling Stockholders hereby and giving effect to the Offering
Related Transactions (as defined below) for: (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock; (ii) each Selling Stockholder; (iii) each executive
officer and director of the Company; and (iv) all executive officers and
directors of the Company as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF SHARES TO BE BENEFICIALLY
OFFERING(1)(2) SHARES OWNED AFTER OFFERING(2)
-------------------- BEING -----------------------------
NUMBER PERCENT OFFERED NUMBER PERCENT OF CLASS
--------- ------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
S. Wayne Bazzle(3)......................... 2,600,000 39.6% -- 2,600,000 27.2%
Cheryl C. Bazzle
5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
RFE Investment Partners IV, L.P.(4)........ 2,334,828 35.6 -- 2,334,828 24.4
36 Grove Street
New Canaan, Connecticut 06840
LKCM Venture Partners I, Ltd.(5)........... 933,044 14.2 88,800 844,244 8.8
301 Commerce Street
Suite 1600
Fort Worth, Texas 76102
Shadanana P. Attaluri...................... 25,000 * 25,000 -- --
C. Al Buis................................. 4,466 * 4,466 -- --
Breck Ray.................................. 44,641 * 4,500 40,141 *
William G. Ritter.......................... 125,000 1.9 125,000 -- --
Paul T. Stoffel............................ 22,319 * 2,234 20,085 *
Susan L. Belske(6)......................... 12,500 * -- 12,500 *
Michael J. Foster(7)....................... 2,334,828 35.6 -- 2,334,828 24.4
Robert B. Crates(8)........................ 933,044 14.2 88,800 844,244 8.8
All directors and officers as a group (5
persons)................................. 5,880,372 89.6% 88,800 5,791,572 60.6%
</TABLE>

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

* Less than 1%.
(1) Includes shares of Common Stock which an individual has a right to acquire
upon exercise of options or warrants within 60 days of March 31, 1996. Such
shares are deemed to be outstanding for the purpose of computing the
percentage ownership of the individual holding such shares, but are not
deemed outstanding for purposes of computing the percentage of any other
person shown on the table.
(2) The number of shares of Common Stock deemed outstanding prior to this
offering includes shares issuable upon conversion of the Series A Preferred
Stock and the Series B Preferred Stock. The number of shares of Common
Stock deemed outstanding after this offering includes 3,000,000 shares
being offered for sale by the Company in this offering.
(3) Of the shares indicated, 1,175,000 shares are owned by S. Wayne Bazzle,
1,175,000 shares are owned by Cheryl C. Bazzle and 250,000 shares are owned
by the John Bradley Bazzle Trust (the "Trust"). S. Wayne Bazzle and Cheryl
C. Bazzle serve as trustees of the Trust. Each of Mr. and Ms. Bazzle
disclaim beneficial ownership of the shares owned by the other and the
Trust.
(4) In the event the Underwriters' over-allotment option is exercised in full,
RFE Investment Partners will sell 176,300 shares of the 487,500 additional
shares sold solely to cover over-allotments. If such shares are sold by RFE
Investment Partners pursuant to an exercise of such option, RFE Investment
Partners will own 2,158,528 shares, or 21.9%, of the total shares of Common
Stock outstanding upon the closing of this offering and upon the closing of
the sale of the additional shares subject to the over-allotment option.
(5) In the event the Underwriters' over-allotment option is exercised in full,
LKCM Venture Partners will sell 11,200 shares of the 487,500 additional
shares sold solely to cover over-allotments. If such shares are sold by
LKCM Venture Partners pursuant to an exercise of such option, LKCM Venture
Partners will own 833,044 shares, or 8.5%, of the total shares of Common
Stock outstanding upon the closing of this offering and upon the closing of
the sale of the additional shares subject to the over-allotment option.
(6) Represents shares issuable upon exercise of stock options which are vested
or will be vested prior to July 31, 1996.
(7) Michael J. Foster disclaims beneficial ownership of the shares held of
record by RFE Investment Partners except to the extent of his direct
partnership interest in RFE Investment Partners.
(8) Robert B. Crates disclaims beneficial ownership of the shares held of
record by LKCM Venture Partners except to the extent of his direct
partnership interest in LKCM Venture Partners.

37
<PAGE> 40

DESCRIPTION OF CAPITAL STOCK

Upon the consummation of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.01 par value, and
10,000,000 shares of preferred stock, $.01 par value (the "Preferred Stock").

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held.
There is no provision in the Company's Amended and Restated Certificate of
Incorporation for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the total voting power of the
Common Stock may, if they choose to do so, could elect all of the directors of
the Company. The holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock would be entitled to share in the Company's
assets remaining after the payment of liabilities and after the satisfaction of
the liquidation preference granted to the holders of any outstanding shares of
Preferred Stock. The shares of Common Stock have no preemptive or conversion
rights, redemption rights or sinking fund provisions and are not subject to
calls, assessments or rights of redemption by the Company. The outstanding
shares of Common Stock are, and the shares being offered hereby will be, upon
issuance and sale, duly authorized, validly issued, fully-paid and
nonassessable.

As of May 31, 1996, after giving effect to the Offering Related
Transactions, there were 6,554,600 shares of Common Stock outstanding and held
of record by 12 stockholders. After giving effect to the issuance of 3,000,000
shares of Common Stock to be sold by the Company in this offering, the
conversion of all of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock and the exercise of warrants to purchase 150,000 shares
of Common Stock, there will be 9,554,600 shares of Common Stock outstanding
after the offering.

PREFERRED STOCK

The Board is authorized, without further action by the Company's
stockholders, to issue Preferred Stock, from time to time, in one or more series
and to fix, as to any such series, the voting rights, if any, applicable to such
series and such other designations, preferences and special rights as the Board
may determine, including dividend, conversion, redemption and liquidation rights
and preferences. Upon the closing of this offering, there will be no shares of
Preferred Stock outstanding. The issuance of shares of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company or other corporate actions. See "-- Provisions with
Potential Anti-Takeover Effect."

WARRANTS

In connection with an acquisition completed on June 1, 1992, the Company
issued Warrants to purchase an aggregate of 150,000 shares of Common Stock at a
price of $2.00 per share, exercisable in whole or in part in increments of 1,000
at any time. These Warrants expire June 1, 1997. Unexercised Warrants, and the
exercise price thereof, are subject to adjustment if the Company issues Common
Stock for a consideration per share less than the exercise price (subject to
certain exceptions) or if there is a subdivision or consolidation of the
Company's Common Stock, the payment of a stock dividend or other increase or
decrease in the number of shares of Common Stock outstanding, and the Company
does not receive compensation therefor. In addition, the number and type of
securities subject to a Warrant are subject to adjustment if the Company is
party to a merger or consolidation. The provisions of the Warrant Agreement
relating to adjustment to the exercise price and number of shares for which such
Warrants are exercisable terminate in the event of the consummation of a public
offering of the Company's Common Stock which results in aggregate gross cash
proceeds to the Company of not less than $7,500,000 at a net offering price of
not less than $14.14 per share. The holders of the Warrants are entitled to
certain registration rights with respect to the Common Stock issued upon the
exercise thereof. See "Management -- Principal and Selling Stockholders."

38
<PAGE> 41

In connection with an acquisition completed on November 16, 1994, the
Company issued Warrants to purchase up to 25,000 shares of Common Stock at the
exercise of $4.00 per share, exercisable at any time in whole or in part. These
Warrants expire on November 1, 1999. Unexercised Warrants, and the exercise
price thereof, are subject to adjustment upon a subdivision, consolidation or
reclassification of the Company's Common Stock or a declaration of a stock
dividend. Additionally, the number and type of securities subject to a Warrant
are subject to adjustment if the Company is party to a merger, sale or
consolidation.

REGISTRATION RIGHTS

The Company has entered into an agreement with certain existing holders of
3,179,072 shares of Common Stock pursuant to which: (i) those holders that
formerly represented at least a majority of interest in the Series A Preferred
Stock (the "Former Series A Holders"); or (ii) those holders that formerly
represented at least a majority of interest in the Series B Preferred Stock (the
"Former Series B Holders") may cause the Company to file a registration
statement under the Securities Act of 1933 (the "Securities Act") covering the
shares of Common Stock owned by them. Additionally, upon receipt of notice of a
request to register such shares of Common Stock by such holders or in the event
the Company proposes to register any of its shares of Common Stock under the
Securities Act for its own account, all Former Series A Holders and Former
Series B Holders will be entitled to require the Company to include all, or a
portion of, their shares in such registration, subject to certain conditions and
restrictions. Generally, all fees, costs and expenses (other than underwriting
discounts and commissions) will be borne by the Company.

PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECT

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, Delaware law, the Company's 1996 Incentive Plan and the
employment agreements and indemnification agreements of certain executive
officers and directors of the Company summarized in the following paragraphs may
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in that stockholder's
best interests, including attempts that might result in a premium over the
market price to be paid for the shares held by stockholders.

Amended and Restated Certificate of Incorporation

Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Company's Board by resolution may issue additional shares of
Common Stock or establish one or more classes or series of Preferred Stock
having the number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations that the Board
fixes without stockholder approval. Any additional issuance of Common Stock or
designation of rights, preferences, privileges and limitations with respect to
Preferred Stock could have the effect of impeding or discouraging the
acquisition of control of the Company by means of a merger, tender offer, proxy
contest, or otherwise, and thereby protect the continuity of the Company's
management. Specifically, if, in the due exercise of its fiduciary obligations,
the Board were to determine that a takeover proposal was not in the Company's
best interest, such shares could be issued by the Board without stockholder
approval in one or more transactions that might prevent, or make more difficult
or costly, the completion of the proposed takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder group,
by putting a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.

In addition, the Company's Amended and Restated Certificate of
Incorporation prohibits stockholder action by written consent in lieu of a
meeting. As a result, stockholder action can be taken only at an annual or
special meeting of stockholders. This prevents the holders of a majority of the
voting stock of the Company from using the written consent procedure to take
stockholder action without giving all of the stockholders of the Company
entitled to vote on action the opportunity to participate in determining the
proposed action.

39
<PAGE> 42

INDEMNIFICATION OF CERTAIN PERSONS

Upon the closing of this offering, the Company intends to enter into
indemnification agreements with each of its executive officers and directors.
Pursuant to these agreements, the Company will, to the extent permitted under
applicable law, indemnify these persons against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they are, or were,
officers or directors of the Company or that they assumed certain
responsibilities at the direction of the Company. In addition, the Company's
Certificate of Incorporation provides for certain limitations on directors'
liability. See "Management -- Limitations on Directors' Liability."

OFFERING RELATED TRANSACTIONS

Concurrently with the closing of this offering, the following transactions
(the "Offering Related Transactions") will be consummated: (i) all of the
2,000,000 outstanding shares of the Company's Series A Convertible Preferred
Stock will be converted into an equal number of shares of Common Stock of the
Company; (ii) all of the 1,071,438 outstanding shares of Series B Convertible
Preferred Stock will be converted into 1,339,297 shares of Common Stock of the
Company; and (iii) Warrants to purchase 150,000 shares of Common Stock will be
exercised at an exercise price of $2.00 per share.

DELAWARE ANTI-TAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the Board of Directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is Chemical
Mellon Shareholder Services.

40
<PAGE> 43

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, the Company will have an aggregate of
9,554,600 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
Warrants). Of these shares, the 3,250,000 shares sold in this offering will be
freely transferable without restriction or further registration under the
Securities Act, except that any shares held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally only be sold in compliance with the limitations of Rule 144 described
below.

SALES OF RESTRICTED SHARES

The remaining 6,304,600 shares of Common Stock (the "Restricted Shares")
held by existing stockholders were sold by the Company in reliance on exemptions
from the registration requirements of the Securities Act and are thus treated as
"restricted" securities under Rule 144. As of the Effective Date, approximately
6,087,518 of the Restricted Shares are eligible for sale in the public market in
reliance on Rule 144(k) under the Securities Act; 5,779,072 of these shares,
however, are subject to the lock-up arrangements described below (the "Lock-up
Arrangements"). Beginning 90 days after the Effective Date, approximately 87,500
additional Restricted Shares will become eligible for sale in the public market,
pursuant to Rule 144 and Rule 701 under the Securities Act. Beginning 180 days
after the Effective Date, upon the expiration of the Lock-up Arrangements,
approximately 6,087,518 shares in the aggregate will become eligible for sale in
the public market, subject to the provisions of Rule 144 and Rule 701. The
Commission has proposed an amendment to Rule 144 which would reduce the holding
period from two years to one year for shares subject to Rule 144 to become
eligible for sale in the public market. If this proposal were adopted, an
additional 89,583 shares would become eligible for sale to the public 180 days
after the Effective Date.

Any employee, officer or director of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract is entitled
to rely on the resale provisions of Rule 701 under the Securities Act, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with Rule 144's holding period restrictions, in each case commencing 90 days
after the Effective Date.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the meaning
of Rule 144 for at least two years would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the Company's Common Stock (approximately 95,546
shares) or the average weekly trading volume of the Company's Common Stock on
Nasdaq during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of Common Stock in the public market may adversely affect
the market price of the Common Stock offered hereby.

OPTIONS

As of May 31, 1996, options to purchase a total of 350,878 shares of Common
Stock were outstanding, of which options to purchase 185,042 shares were then
exercisable; 12,500 shares issuable pursuant to stock options are subject to
certain lock-up arrangements.

Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market

41
<PAGE> 44

price of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.

LOCK-UP ARRANGEMENTS

All directors, officers and certain other stockholders, who hold in the
aggregate 5,779,072 shares of Common Stock and options to purchase 12,500 shares
of Common Stock, have agreed that they will not, without the prior written
consent of the Representatives, sell or otherwise dispose of any shares of
Common Stock or options to acquire shares of Common Stock during the 180-day
period following the Effective Date.

Certain stockholders have the right to cause the Company to register the
sale of their shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights."

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<PAGE> 45

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Bear, Stearns & Co. Inc., have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated...................................................
Bear, Stearns & Co. Inc...........................................................
---------
Total............................................................................. 3,250,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.

The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives of
the Underwriters.

The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 487,500 additional shares of Common Stock at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to 3,250,000,
and the Company and certain Selling Stockholders will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 3,250,000 shares
are being offered.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.

The Company, its executive officers, directors and certain stockholders
have agreed that, subject to certain exceptions, they will not, for a period of
180 days after the date of this Prospectus, sell, offer to sell, contract to
sell or otherwise dispose of any of their shares of Common Stock (except for
sales described in or contemplated by this Prospectus) or any other securities
of the Company without the prior written consent of the Representatives of the
Underwriters.

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors considered in such

43
<PAGE> 46

negotiations were prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Representatives of the Underwriters
believed to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain legal matters will be
passed on for the Underwriters by Akin, Gump, Strauss, Hauer and Feld, L.L.P.,
Dallas, Texas.

EXPERTS

The audited financial statements and schedule of the Company as of December
31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and 1995; the
audited combined financial statements of Specialty Med-Equip, Inc., Superior
Med-Equip, Inc. and Cross Timbers Visiting Nurses, Inc. for the year ended
December 31, 1994; the audited combined financial statements of C. Edward Elsey
d/b/a A.M. Medical and Discount Medical Equipment Company for the year ended
December 31, 1994; the audited combined financial statements of Colorado I.V.
Associates, Inc. and Specialized Nursing Services, Inc. for the year ended
December 31, 1994; the audited consolidated financial statements of RTA
HomeCare, Inc. and Subsidiary for the years ended December 31, 1993 and 1994;
and the audited financial statements of Home Hospital Equipment, Inc. for the
year ended December 31, 1994, included in this Prospectus and elsewhere in the
Registration Statement to the extent and for the years indicated in their
reports have been audited by Arthur Andersen LLP, independent public accountants
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.

The audited combined financial statements of I Care of Arkansas, Inc. and
Affiliate as of December 31, 1994 and 1995 and for the years ended December 31,
1993, 1994 and 1995 and the audited financial statements of I Care, Inc. d/b/a I
Care Health Services as of March 31, 1995 and 1996 and for the years ended March
31, 1994, 1995 and 1996 included in this Prospectus and elsewhere in the
Registration Statement to the extent and for the years indicated in their
reports have been audited by Bell & Company, independent public accountants and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.

The audited financial statements of Physician Home Health Network, Inc. for
the ten months ended October 31, 1994 included in this Prospectus and elsewhere
in the Registration Statement to the extent and for the period indicated in
their report have been audited by Ift & Barber, Chartered, independent public
accountants and are included herein in reliance upon the authority of said firm
as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto, copies of which may be inspected without charge
at the public reference facilities maintained by the Commission at Judiciary
Plaza, Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549, or obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549,
upon payment of the fees prescribed by the Commission. Such documents may also
be obtained through the Web Site maintained by the Commission at
http://www.sec.gov. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit.

44
<PAGE> 47

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-4
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993, 1994, and 1995............................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
and 1995......................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
Condensed Consolidated Balance Sheet as of March 31, 1996 (Unaudited)............... F-18
Condensed Consolidated Statements of Income for the Three Months Ended March 31,
1995 and 1996 (Unaudited)........................................................ F-19
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1995 and 1996 (Unaudited)........................................................ F-20
Notes to Condensed Consolidated Financial Statements (Unaudited).................... F-21
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES -- ACQUISITIONS
I CARE OF ARKANSAS, INC. AND AFFILIATE
Independent Auditors' Report........................................................ F-23
Combined Balance Sheets as of December 31, 1994 and 1995............................ F-24
Combined Statements of Income for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-25
Combined Statements of Retained Earnings for the Years Ended December 31, 1993,
1994, and 1995................................................................... F-26
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-27
Notes to Combined Financial Statements.............................................. F-28
I CARE, INC. D/B/A I CARE HEALTH SERVICES
Independent Auditors' Report........................................................ F-31
Balance Sheets as of March 31, 1995 and 1996........................................ F-32
Statements of Income for the Years Ended March 31, 1994, 1995, and 1996............. F-33
Statements of Retained Earnings for the Years Ended March 31, 1994, 1995, and
1996............................................................................. F-34
Statements of Cash Flows for the Years Ended March 31, 1994, 1995, and 1996......... F-35
Notes to Financial Statements....................................................... F-36
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC., AND CROSS TIMBERS VISITING
NURSES, INC.
Report of Independent Public Accountants............................................ F-40
Combined Statement of Income for the Year Ended December 31, 1994................... F-41
Combined Statement of Retained Earnings for the Year Ended December 31, 1994........ F-42
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-43
Notes to Combined Financial Statements.............................................. F-44
C. EDWARD ELSEY D/B/A A. M. MEDICAL AND DISCOUNT MEDICAL EQUIPMENT COMPANY
Report of Independent Public Accountants............................................ F-46
Combined Statement of Income for the Year Ended December 31, 1994................... F-47
Combined Statement of Owner's Equity for the Year Ended December 31, 1994........... F-48
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-49
Notes to Combined Financial Statements.............................................. F-50
</TABLE>

F-1
<PAGE> 48

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
Report of Independent Public Accountants............................................ F-52
Combined Statement of Income for the Year Ended December 31, 1994................... F-53
Combined Statement of Retained Earnings for the Year Ended December 31, 1994........ F-54
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-55
Notes to Combined Financial Statements.............................................. F-56
RTA HOMECARE, INC. AND SUBSIDIARY
Report of Independent Public Accountants............................................ F-58
Consolidated Statements of Income for the Years Ended December 31, 1993 and 1994.... F-59
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1993 and 1994.................................................................... F-60
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994............................................................................. F-61
Notes to Consolidated Financial Statements.......................................... F-62
HOME HOSPITAL EQUIPMENT, INC.
Report of Independent Public Accountants............................................ F-64
Statement of Income and Retained Earnings for the Year Ended December 31, 1994...... F-65
Statement of Cash Flows for the Year Ended December 31, 1994........................ F-66
Notes to Financial Statements....................................................... F-67
PHYSICIANS HOME HEALTH NETWORK, INC.
Report of Independent Public Accountants............................................ F-69
Statement of Operations and Retained Deficit for the Ten Months Ended October 31,
1994............................................................................. F-70
Statement of Cash Flows for the Ten Months Ended October 31, 1994................... F-71
Notes to Financial Statements....................................................... F-72
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Financial Statements Headnote................................... P-1
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended
December 31, 1995................................................................ P-2
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Three Months
Ended March 31, 1996............................................................. P-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996....... P-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ P-5
</TABLE>

F-2
<PAGE> 49

Upon the approval by the Company's Board of Directors of the 5-for-2 stock split
and increases in the number of authorized preferred and common shares discussed
in paragraph 3 of Note 13 to the Company's consolidated financial statements, we
expect to be in a position to render the following audit report.

ARTHUR ANDERSEN LLP

June 11, 1996

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors,
HealthCor Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of HealthCor
Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCor Holdings,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 29, 1996, except as to
paragraph 3 in Note 13, for
which the date is June , 1996

F-3
<PAGE> 50

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $3,774,848.. $ 1,627,940
Accounts receivable, net of allowance for doubtful accounts of
$1,285,000 and $2,056,000 in 1994 and 1995, respectively..... 4,574,598 11,465,655
Supplies inventory.............................................. 726,123 1,709,355
Prepaid expenses and other...................................... 571,388 1,456,958
Income taxes receivable......................................... 15,106 --
Deferred income taxes........................................... 806,820 2,003,328
----------- -----------
Total current assets.................................... 10,468,883 18,263,236
Property and equipment, net of accumulated depreciation of
$3,742,518 and $7,946,627, respectively......................... 3,880,317 11,054,255
Excess of cost of acquired businesses over fair values of net
assets
acquired, net................................................... 10,107,673 23,220,167
Other assets...................................................... 47,113 35,290
----------- -----------
Total assets............................................ $24,503,986 $52,572,948
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued ESOP contribution....................................... $ 1,501,291 $ 1,477,915
Accrued payroll and related expenses............................ 4,401,400 4,836,735
Accounts payable and accrued expenses........................... 1,376,087 4,456,489
Estimated settlements with third-party payors................... 280,450 322,566
Line of credit payable.......................................... -- 2,475,000
Current portion of long-term debt............................... 1,284,503 4,256,973
Current portion of capital lease obligations.................... 328,873 862,505
Income taxes payable............................................ -- 1,311,920
----------- -----------
Total current liabilities............................... 9,172,604 20,000,103
Deferred income taxes and other................................... 157,092 2,905,809
Long-term debt.................................................... 2,501,411 10,668,632
Capital lease obligations......................................... 258,770 1,596,604
----------- -----------
Total liabilities....................................... 12,089,877 35,171,148
Commitments and contingencies
Redeemable Convertible Preferred Stock, $.01 par value, 10,000,000
shares authorized
Series A Preferred Stock, 2,000,000 shares issued and
outstanding, redemption and liquidation values of
$4,079,726................................................... 20,000 20,000
Series B Preferred Stock, 1,071,438 shares issued and
outstanding, redemption and liquidation values of
$4,075,035................................................... 10,714 10,714
Additional paid-in capital on Series A and B Preferred Stocks... 5,309,100 5,309,100
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized;
2,935,720 and 3,062,803 shares issued and outstanding in 1994
and 1995, respectively....................................... 29,357 30,628
Additional paid-in capital...................................... 1,068,234 2,471,129
Retained earnings............................................... 5,976,704 9,560,229
----------- -----------
Total stockholders' equity.............................. 7,074,295 12,061,986
----------- -----------
Total liabilities and stockholders' equity.............. $24,503,986 $52,572,948
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4
<PAGE> 51

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues........................................ $60,096,700 $57,151,154 $81,557,284
Operating expenses:
Compensation and related benefits................. 41,530,959 38,893,904 49,724,055
General and administrative........................ 12,977,724 12,072,232 21,272,118
Depreciation and amortization..................... 1,181,169 1,439,751 2,299,357
Provision for doubtful accounts................... 1,317,485 1,115,705 1,488,885
----------- ----------- -----------
57,007,337 53,521,592 74,784,415
Income from operations.............................. 3,089,363 3,629,562 6,772,869
Other income (expense):
Interest income................................... 7,142 61,345 162,283
Interest expense.................................. (434,149) (304,953) (1,149,260)
----------- ----------- -----------
(427,007) (243,608) (986,977)
Income before income taxes.......................... 2,662,356 3,385,954 5,785,892
Provision for income taxes.......................... 1,129,825 1,359,398 2,202,367
----------- ----------- -----------
Net income.......................................... $ 1,532,531 $ 2,026,556 $ 3,583,525
=========== =========== ===========
Net income per common share......................... $ .24 $ .31 $ .55
=========== =========== ===========
Weighted average common shares outstanding.......... 6,402,848 6,489,563 6,545,615
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 52

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. 2,600,000 $26,000 $ 393,109 $2,417,617 $ 2,836,726
Exercise of options.................. 25,000 250 19,750 -- 20,000
Issuance of common stock to ESOP..... 87,500 875 655,375 -- 656,250
Net income........................... -- -- -- 1,532,531 1,532,531
--------- ------- ---------- ---------- -----------
Balance, December 31, 1993............. 2,712,500 27,125 1,068,234 3,950,148 5,045,507
Conversion of Series B preferred
stock to common stock............. 223,220 2,232 -- 2,232
Net income........................... -- -- -- 2,026,556 2,026,556
--------- ------- ---------- ---------- -----------
Balance, December 31, 1994............. 2,935,720 29,357 1,068,234 5,976,704 7,074,295
Issuance of common stock to ESOP..... 125,000 1,250 1,398,750 -- 1,400,000
Purchases of common stock............ 2,083 21 4,145 -- 4,166
Net income........................... -- -- -- 3,583,525 3,583,525
--------- ------- ---------- ---------- -----------
Balance, December 31, 1995............. 3,062,803 $30,628 $2,471,129 $9,560,229 $12,061,986
========= ======= ========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 53

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $1,532,531 $2,026,556 $ 3,583,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,181,169 1,439,751 2,299,357
Loss on disposition of leased assets.............. 51,207 14,299 61,784
Changes in operating assets and liabilities, net
of acquired businesses:
Accounts receivable, net........................ (724,966) 3,306,421 (4,790,507)
Supplies inventory.............................. 31,618 80,685 109,842
Prepaid expenses and other...................... 83,699 (228,140) (688,745)
Deferred income taxes........................... (378,521) 490,437 (1,184,566)
Accrued ESOP contribution....................... (462,352) 1,497,242 (23,376)
Third-party payor settlement.................... 875,799 (1,745,349) 42,116
Accounts payable and accrued expenses........... 503,103 (18,696) 2,982,865
Income taxes payable/receivable................. (941,727) (422,957) 919,447
Deferred income taxes and other................. 132,808 (180,443) 2,455,717
---------- ---------- -----------
Net cash provided by operating activities.... 1,884,368 6,259,806 5,767,459
---------- ---------- -----------
Cash flows from investing activities:
Payments for business acquisitions, net of cash
acquired.......................................... (297,346) (2,745,689) (17,458,780)
Additions to property and equipment.................. (1,957,194) (866,001) (7,179,800)
---------- ---------- -----------
Net cash used in investing activities........ (2,254,540) (3,611,690) (24,638,580)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............. 712,135 3,287,698 47,660,981
Payments on long-term debt........................... (1,129,044) (1,603,333) (32,340,934)
Issuance of common stock............................. 676,250 -- 1,404,166
Proceeds from loans from related parties............. 72,148 -- --
Payments on loans from related parties............... (945,597) (1,063,854) --
---------- ---------- -----------
Net cash provided by (used in) financing
activities................................. (614,108) 620,511 16,724,213
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents... (984,280) 3,268,627 (2,146,908)
Cash and cash equivalents, beginning of period......... 1,490,501 506,221 3,774,848
---------- ---------- -----------
Cash and cash equivalents, end of period............... $ 506,221 $3,774,848 $ 1,627,940
========== ========== ===========
Supplemental disclosure of cash flow information:
Debt issued in acquisitions.......................... $ -- $ 857,241 $ 1,567,321
Liabilities and debt assumed in acquisitions......... 81,453 217,441 566,340
Issuance of capital lease obligation................. 387,000 172,000 2,530,000
Interest paid........................................ 433,000 315,000 828,000
Income taxes paid.................................... 2,317,000 1,481,000 1,826,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 54

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995

1. GENERAL:

Organization

HealthCor Holdings, Inc., a Delaware corporation, and subsidiaries (the
"Company") commenced operations in October 1989, and provide home healthcare
services to patients including nursing, respiratory therapy, infusion therapy,
and medical equipment. The Company has operations in Arizona, Colorado, Kansas,
Missouri, Oklahoma, Texas, New Mexico, and Arkansas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation and Presentation

The consolidated financial statements of the Company include the accounts
of HealthCor Holdings, Inc. and its wholly owned subsidiaries, HealthCor, Inc.
(HealthCor), HealthCor Oxygen & Medical Equipment, Inc. (HOME), HealthCor
Pharmacy, Inc., Physicians Home Health Network, Inc., and HealthCor
Rehabilitation Services, Inc. All significant intercompany transactions and
accounts have been eliminated in consolidation.

Use of Estimates

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 and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Supplies Inventory

Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of medical supplies sold directly to patients for
use in their homes.

Property and Equipment

Property and equipment are stated at cost or fair market value at the
acquisition date (see Note 4). The cost of equipment held under capital leases
is equal to the lower of the net present value of the minimum lease commitments
or the fair value of the leased property at the inception of the lease (see Note
7). Property and equipment is depreciated using the straight-line method over
the following useful lives:

<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Furniture and equipment............................................ 10 - 15
Transportation equipment........................................... 4
Computer equipment................................................. 5
Leasehold improvements............................................. 3
</TABLE>

F-8
<PAGE> 55

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Excess of Costs of Acquired Businesses Over the Fair Values of Assets Acquired

The value of excess cost of acquired businesses over the fair values of
assets acquired (goodwill) is recorded at the dates of acquisition. Goodwill is
being amortized on a straight-line basis over a 40-year period in accordance
with the provisions of APB No. 17. Accumulated amortization at December 31, 1994
and 1995, was approximately $717,000 and $1,186,000, respectively.

The Company reviews the carrying value of goodwill at least annually on a
market-by-market basis to determine if facts and circumstances exist which would
suggest that goodwill may be impaired or that the amortization period needs to
be modified. Among the factors the Company considers in making the evaluation
are changes in the Company's market position, reputation, profitability and
geographic penetration. If indicators are present which may indicate impairment
is probable, the Company will prepare a projection of the undiscounted cash
flows of the specific market and determine if goodwill is recoverable based on
these undiscounted cash flows. If impairment is indicated, then an adjustment
will be made to reduce the carrying amount of the goodwill to their fair value.
The Company does not expect the adoption of Statement of Financial Accounting
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" to have a material impact on its
financial condition or results of operations.

Income Taxes

Deferred income taxes (receivable) provide for temporary differences
between the financial statement and income tax basis of assets and liabilities
in accordance with SFAS No. 109 "Accounting for Income Taxes."

Net Income Per Common Share

Net income per common share (both primary and fully diluted) has been
computed by dividing net income by the weighted average number of equivalent
common shares outstanding each year. The Company has treated the redeemable
convertible preferred stocks as common stock equivalents for purposes of
computing net income per common share. Accordingly, historical and pro forma net
income per common share amounts are equal. (See Note 13)

Pursuant to the requirements of the Securities and Exchange Commissions for
the purposes of computing net income per common share for the three years ended
December 31, 1995, the Company has treated the options granted and common stock
issued during the twelve months immediately preceding the filing of the initial
public offering as if they had been outstanding for all periods presented, using
the treasury stock method.

The Company plans to adopt Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective
January 1, 1996. SFAS No. 123 allows companies adopting the pronouncement to
either change the actual accounting methods for stock based compensation in the
financial statements or to disclose certain pro forma results of operations as
if the pronouncement had been adopted in the financial statements. The Company
plans to disclose pro forma information in the footnotes to the financial
statements. As a result, the adoption of SFAS 123 will have no effect on the
consolidated financial statements.

Net Revenues and Estimated Settlements with Third-Party Payors

Revenues are recognized on the date services and related products are
provided to patients and are recorded at estimated net realizable amounts from
patients, third-party payors, and others for services rendered. For the years
ended December 31, 1993, 1994, and 1995, approximately 70% of net patient
service revenues were derived under federal third-party reimbursement programs
which are based on cost reimburse-

F-9
<PAGE> 56

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ment and case payment principles. These revenues are subject to audit and
retroactive adjustment by the respective third-party fiscal intermediary. In the
opinion of management, retroactive adjustments, if any, will not be material to
the financial position or results of operations of the Company. Settlements
based on third-party reimbursement program audits are recorded in the year they
become known.

3. ACCRUED PAYROLL AND RELATED EXPENSES:

Accrued payroll and related expenses consisted of the following:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Salaries.................................................... $2,134,199 $2,391,660
Workers' compensation....................................... 795,288 853,018
Other....................................................... 1,471,913 1,592,057
---------- ----------
$4,401,400 $4,836,735
========== ==========
</TABLE>

4. ACQUISITIONS:

1995 Acquisitions

On January 1, 1995, the Company acquired, in separate transactions, for
$3,675,000 in cash, $254,000 in deferred payments, and $400,000 in debt, the net
assets of Home Hospital Equipment, Inc. and Medi-Networks, Inc. Both are
respiratory therapy companies located in Texas, specializing in providing home
medical and respiratory equipment and supplies to patients.

On June 30, 1995, the Company acquired, in separate transactions, for
$1,870,000 in cash and $546,000 in debt, the net assets of McDuffie's Rentals,
Inc. and Southwest Professional Registry, Inc. Both respiratory therapy
companies are located in Texas, specializing in providing home respiratory
equipment and supplies.

On July 31, 1995, the Company acquired for $6,400,000 in cash and
$1,000,000 in debt, the net assets of RTA Homecare and Subsidiaries (RTA). RTA,
located in Arizona, is a respiratory therapy company specializing in providing
home medical and respiratory equipment, supplies, and pharmaceuticals to
patients.

On August 31, 1995, the Company acquired for $700,000 in cash and $100,000
in debt, the net assets of Colorado I.V. Associates, Inc./Specialized Nursing
Services, Inc. ("Colorado IV"). Colorado IV, located in Colorado, is a
pharmaceutical company specializing in providing home infusion therapy.

On September 30, 1995, in separate transactions, the Company acquired for
$597,000 in cash, the net assets of Newborn Nursing Services, Inc. ("Newborn
Nursing") and Charlie's Discount Drug, Inc. ("Charlie's"). Newborn Nursing,
located in Oklahoma, is a nursing company specializing in providing pediatric
nursing care services and providing leasing and selling of medical equipment.
Charlie's, located in Oklahoma, is a respiratory company specializing in
providing home respiratory equipment and supplies.

On October 31, 1995, in separate transactions, the Company acquired for
$2,952,000 in cash and $450,000 in debt, the net assets of A.M. Medical/Discount
Medical Equipment Company ("A.M. Medical"), Cross Timbers Visiting Nurses, Inc.
("Cross Timbers"), Specialty Med-Equip, Inc. ("Specialty Med-Equip"), and
Superior Med-Equip, Inc. ("Superior Med-Equip"). A.M. Medical, Cross Timbers,
Specialty Med-Equip, and Superior Med-Equip are located in Texas. Cross Timbers
specializes in providing home nursing services. A.M. Medical, Specialty
Med-Equip, and Superior Med-Equip specialize in providing home respiratory
equipment and supplies.

F-10
<PAGE> 57

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994 Acquisitions

On April 12, 1994, the Company acquired, for $887,000 in cash and $200,000
in debt, all of the outstanding capital stock of Colfax Medical Supply and
Service Company, Inc. ("Colfax"). Colfax, located in New Mexico, is a
respiratory therapy company specializing in providing home medical and
respiratory equipment, supplies, and pharmaceuticals to patients.

On July 22, 1994, the Company acquired, for $500,000 in cash and $157,000
in debt, all of the outstanding capital stock of Ponca Medical Supply, Inc., a
respiratory company located in Oklahoma.

On November 1, 1994, the Company acquired for $1,000,000 in cash and
$500,000 in debt, all of the outstanding capital stock of Physician's Home
Health Network, Inc. (PHHN). At acquisition date, PHHN's liabilities exceeded
its assets by approximately $451,000. PHHN is a nursing company located in
Missouri, which specializes in providing home nursing care to patients.

The 1995 and 1994 acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets acquired (including all identifiable intangible assets, if material) and
liabilities assumed based upon their estimated fair values at the dates of
acquisition in accordance with APB No. 16. The results of operations of the
acquired practices are included in the consolidated financial statements from
the respective dates of acquisition. None of the acquisition agreements contain
earn-out provisions with the sellers.

Pro Forma Information

The following unaudited pro forma information reflects the effect on the
consolidated statements of income assuming that significant acquisitions were
consummated as of January 1, 1994 and 1995. This information does not purport to
be indicative of the results that would have actually been obtained if the
acquisitions had occurred on such dates. Therefore, pro forma information cannot
be considered indicative of future operations. The unaudited proforma
information for the years ended December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................... $84,988 $94,258
Net income..................................................... 2,539 4,239
Net income per common share.................................... .39 .65
</TABLE>

5. CREDIT FACILITIES:

The Company has a $5,000,000 revolving line of credit from a bank which
contains certain financial covenants with respect to maintenance of a maximum
ratio of funded debt to adjusted earnings, a minimum current ratio, and a
minimum fixed charge coverage ratio. The line of credit expires on June 30,
1997, and provides for the quarterly payment to the bank of a .25% commitment
fee on the unused portion of the line. Interest is payable at the bank's prime
rate. In addition to the borrowings of $2,475,000 at December 31, 1995, the
Company has committed $200,000 of the line to a letter of credit issued in
connection with the Company's workers' compensation coverage. In 1996, an
additional $165,000 of the line will be committed to obtain a separate letter of
credit in connection with other workers' compensation coverage.

The Company has a $20,000,000 advance-type term facility from the same bank
to be used in connection with acquisitions, which contains the same financial
covenants as above. At December 31, 1995, advances drawn for acquisitions under
this facility totaled $14,230,000, with varying repayment terms as discussed in
Note 5. The facility provides for a quarterly payment of a .25% commitment fee
on the unused amount of the

F-11
<PAGE> 58

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

facility. Interest is payable at either the bank's prime rate or at the
Eurodollar rate plus a specified margin. At December 31, 1995, the applicable
Eurodollar rate was 5.9375%, and the margin was 1.75%. Borrowings on both the
revolving line and acquisition facility are collateralized by substantially all
operating assets of the Company.

The Company is in the process of refinancing all bank debt and is seeking
to increase its working capital line of credit from $5,000,000 to $10,000,000,
to refinance its current bank debt, and to secure an additional acquisition
facility of approximately $5,000,000. It is anticipated that the existing
financial covenants, certain of which the Company was not in compliance with at
December 31, 1995, but were waived by the lender, will also be restructured as
part of the refinancing. The Company is evaluating proposals from several
sources and plans to complete the refinancing during 1996.

6. LONG-TERM DEBT:

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Notes payable to individuals in connection with
acquisitions; principal and interest payable monthly at
rates ranging from 6% to 9.5%, matures through September
1998, unsecured......................................... $ 1,716,750 $ 1,661,066
Notes payable to a bank; principal and interest payable
monthly at variable rates (7.6875% at December 31, 1995)
and at rates ranging from prime to prime plus 2 1/4%;
matures through June 1999............................... 130,343 8,467,796
Advance-type facilities with a bank; interest payable
monthly at rates ranging from prime to prime plus 1/4%
or Eurodollar based at the Company's option, matures
through March 1998...................................... 1,908,420 4,505,348
Other..................................................... 30,401 291,395
----------- -----------
3,785,914.. 14,925,605
less: current portion..................................... (1,284,503) (4,256,973)
----------- -----------
$2,501,411.. $10,668,632
=========== ===========
</TABLE>

Aggregate maturities of long-term obligations subsequent to December 31,
1995, are as follows:

<TABLE>
<S> <C>
1996............................................................ $ 4,256,973
1997............................................................ 5,364,696
1998............................................................ 1,916,303
1999............................................................ 3,387,633
2000............................................................ --
-----------
14,925,605
Less -- Current portion......................................... (4,256,973)
-----------
Total................................................. $10,668,632
===========
</TABLE>

F-12
<PAGE> 59

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LEASE COMMITMENTS:

The Company leases office space, furniture, and equipment under
noncancelable operating lease agreements which expire on various dates to 2000
and contain renewal options for up to 5 years.

The Company leases various office equipment under capital lease
arrangements. The capitalized value of leases amounted to approximately
$1,270,000 and $4,217,000 at December 31, 1994 and 1995, respectively, and net
book value amounted to approximately $495,000 and $2,584,000 at December 31,
1994 and 1995, respectively. Future minimum lease payments at December 31, 1995,
under the capital leases and noncancelable operating leases with initial or
remaining terms of one year or more are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
1996...................................................... $1,489,447 $1,114,050
1997...................................................... 752,925 963,584
1998...................................................... 508,757 817,919
1999...................................................... 439,750 26,992
2000...................................................... 319,430 --
---------- ----------
Total minimum payments...................................... $3,510,309 2,922,545
==========
Amount representing interest................................ (463,436)
----------
Present value of minimum payments........................... 2,459,109
Current portion............................................. (862,505)
----------
Total....................................................... $1,596,604
==========
</TABLE>

Rent expense under all operating leases was approximately $1,151,000,
$1,428,000, and $2,270,000 for the years ended December 31, 1993, 1994, and
1995, respectively.

8. INCOME TAXES:

The provision for income taxes includes the following components:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $1,171,397 $1,017,755 $ 2,896,714
State............................................... 156,644 138,553 329,962
---------- ---------- ----------
1,328,041 1,156,308 3,226,676
---------- ---------- ----------
Deferred:
Federal............................................. (164,916) 193,317 (944,878)
State............................................... (33,300) 9,773 (79,431)
---------- ---------- ----------
(198,216) 203,090 (1,024,309)
---------- ---------- ----------
Total....................................... $1,129,825 $1,359,398 $ 2,202,367
========== ========== ==========
</TABLE>

F-13
<PAGE> 60

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of the provision for income taxes to the federal
statutory rate is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes at statutory rate................. $ 905,201 $1,151,224 $1,967,204
Amortization................................... 79,328 77,351 108,954
State taxes, net of federal tax effect......... 81,406 97,895 165,350
Tax credits utilized........................... -- -- (92,500)
Other.......................................... 63,890 32,928 53,359
---------- ---------- ----------
$1,129,825 $1,359,398 $2,202,367
========== ========== ==========
</TABLE>

Deferred tax assets and deferred tax liabilities consist of the following
items:

<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Bad debts.................................... $ 343,612 $ 215,378 $ 598,991
Self-insurance and workers' compensation..... 114,822 -- 542,254
Amounts due to third-party payor............. 646,000 361,000 554,361
Accrued compensation......................... 123,066 165,734 193,841
State current liability...................... -- 52,381 106,702
Net operating loss carryforwards............. 168,023 61,508 --
Other........................................ 1,539 5,838 7,179
---------- --------- ----------
Total................................ 1,397,062 861,839 2,003,328
---------- --------- ----------
Deferred tax liabilities:
Depreciation and amortization................ (291,879) (92,722) (469,169)
Other........................................ (38,594) (55,019) --
---------- --------- ----------
Total................................ (330,473) (147,741) (469,169)
---------- --------- ----------
Other tax liability............................ (106,867) (64,370) (37,147)
---------- --------- ----------
Total net assets............................... $ 959,722 $ 649,728 $1,497,012
========== ========= ==========
</TABLE>

9. REDEEMABLE CONVERTIBLE PREFERRED STOCK:

In connection with an acquisition, the Company sold 2,000,000 shares of its
Series A preferred stock ($.01 par value) for $2,000,000, less issuance costs of
$85,532 to an unrelated entity. Each share has a liquidation preference of $1.00
per share, plus accrued dividends. Dividends per share are cumulative at $.20
per annum ($400,000) and are payable only upon liquidation, dissolution,
redemption, or upon certain other events. At the holder's option, the shares are
convertible into 2,000,000 shares of the Company's common stock.

In connection with an acquisition, the Company issued 1,071,438 shares of
its Series B preferred stock ($.01 par value) for $3,000,025 to the Series A
preferred stock investor and an unrelated investor and 178,575 shares of its
Series B preferred stock for $500,010 to the Company's Employee Stock Ownership
Trust (ESOT). The Company paid $72,636 in costs associated with these two
issuances. The Series B preferred shares have a ratable liquidation preference
with the Series A preferred stock. The liquidation preference is $2.80 per
share, plus accrued dividends. The Series B preferred shares carry a 10% annual
dividend rate which is cumulative in nature and payable as declared by the
Company's Board of Directors or upon liquidation, dissolution, redemption, or
upon certain other events. At the holder's option, the Series B preferred shares
are convertible into 1,562,517 shares of the Company's common stock. The
conversion rate is subject to adjustment up to 312,503 common shares based on
the Company's post issuance earnings level. On

F-14
<PAGE> 61

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

November 28, 1994, the 178,575 Series B preferred shares held by the ESOT were
converted to 223,220 common shares. The Series B preferred shares carry a
ratable dividend preference with the Series A preferred stock over all other
existing equity issues.

The shareholders of the Series A and Series B preferred stock are eligible
to vote on all matters put to the common shareholders. The preferred shares
carry voting power equivalent to the number of shares into which the preferred
shares are convertible. The Series A and Series B preferred shares are also
subject to mandatory redemption at such time as the Company's Chairman and Chief
Executive Officer ceases to devote substantially all of his working time on
behalf of the Company, the sale of the Company, or October 15, 1997, whichever
date occurs first. The Company has no funding requirements prior to redemption.

The Series A and Series B preferred shareholders are obligated to convert
all preferred shares in the event the Company's common shares become registered
and traded on a national exchange, subject to certain requirements. Conversion
would eliminate the Company's obligation to pay cumulative unpaid dividends on
the Series A and Series B preferred stock of $2,079,726 and $1,075,010,
respectively, as of December 31, 1995.

10. EMPLOYEE BENEFIT PLANS:

The Company has an incentive and qualified stock option plan and has
reserved 387,500 shares of the Company's common stock for issuance. Options to
purchase shares of the Company's common stock have been granted to nonofficer
and noninvestor directors and key employees. Options are granted at a price
determined by the Board of Directors, which approximates the fair value of the
shares at the dates of grant. Accordingly, no compensation expense is recorded
by the Company. Options granted become exercisable at the rate of 1/3 per year,
and expire 10 years after the date of grant. Information on stock options is as
follows:

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at beginning of year............ 196,250 148,750 301,375
Granted..................................... 31,250 163,875 118,253
Exercised................................... (25,000) -- (2,083)
Canceled.................................... (53,750) (11,250) (57,918)
------------ ------------ ------------
Outstanding at end of year.................. 148,750 301,375 359,627
============ ============ ============
Exercisable at end of year.................. 57,500 93,338 157,940
============ ============ ============
Price range................................. $.80 - $5.44 $.80 - $6.00 $.80 - $7.04
============ ============ ============
</TABLE>

On April 1, 1990, the Company established an employee stock ownership plan
(ESOP), which will award shares of the Company's common stock on a
noncontributory basis to eligible employees of the Company. The Company
contributed 87,500 and 125,000 common shares in 1993 and 1994, respectively. The
Company made no contributions to the ESOP in 1994.

Effective April 1, 1991, the Company formed a deferred compensation plan
structured under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all employees meeting certain minimum service requirements. Under
the plan, contributions are made by the employees and matched by the Company
subject to certain limitations. The Company's contribution to this plan was
approximately $70,000, $101,000, and $105,000 for the years ended December 31,
1993, 1994, and 1995, respectively.

11. COMMITMENTS AND CONTINGENCIES:

The Company, in the normal course of business, is party to various matters
of litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.

F-15
<PAGE> 62

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company self-insures its employees and their dependents for injury and
hospitalization. The Company self-insures claims up to $75,000 per person, with
an insurance company covering claims in excess of this amount up to a maximum of
$1,000,000 per person. The Company has paid or accrued claims of approximately
$1,445,000, $1,609,000, and $1,056,000 for the years ended December 31, 1993,
1994, and 1995, respectively.

In May 1993, the Company learned that a complaint against the Company was
filed with the Federal Government and that such complaint was being reviewed.
Shortly thereafter at a meeting requested by the Company, the FBI agent assigned
to the matter would not disclose the nature of such complaint. The Company
subsequently learned that at least one of its former employees had been
interviewed by the government in connection with the complaint. On April 17,
1995, the U.S. Attorney for the Northern district of Texas served the Company
with grand jury subpoenas duces tecum ("Subpoenas"). The Subpoenas sought
production of personnel and payroll records for the period January 1, 1991, to
April 17, 1995 concerning 155 of the Company's current and former employees and
certain other payroll tax information, as well as invoices from the Company's
independent auditing firm. The Company tendered documents responsive to the
Subpoenas on May 31, 1995. Since the production of such documents, no request
for additional information has been made by the U.S. Attorney, nor has the U.S.
Attorney had further contact with the Company.

The Company, with legal counsel and other consultants, commenced its own
internal investigation as to its compliance with Medicare rules and regulations
in May 1993 and continued the investigation in October 1995 into matters related
to the Subpoenas. The Company believes, based on its investigation and on its
independent knowledge, that (i) it and its management have not knowingly and
intentionally violated any criminal statutes or regulations and accordingly
there is no criminal liability on the part of the Company and its management and
(ii) there has been no material noncompliance with applicable Medicare statutes
and regulations that would have a material adverse effect on the Company, its
financial position or its results of operations. Since (i) the Government will
not disclose its status or plans, (ii) Medicare rules and regulations are very
complex and subject to different interpretations and (iii) the Company has made
several acquisitions of smaller companies which may have operated under
procedures that differ from procedures implemented by the Company. There can be
no assurance that the U.S. Attorney or any other government agency will not
request further information or pursue a civil or criminal investigation or
proceeding against the Company or its management. Such investigation or
proceeding, if commenced, could result in one or more of the following: no
action fines civil monetary penalties, criminal indictments and convictions,
recovery of overpayments, criminal restitution, settlements, civil judgements
and exclusion of the Company or individuals from the Medicare program.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS:

On January 1, 1995, the Company adopted the Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments." Cash and cash equivalents, accounts receivable, and accounts
payable and accrued liabilities are reflected in the consolidated financial
statements at fair value because of the short-term maturity of those
instruments. In addition, the fair value of the Company's long-term debt and
capital lease obligations were determined to approximate its carrying value
since (i) a substantial amount of the December 31, 1995, long-term debt and
capital lease obligations were issued at fair market value during 1995, and (ii)
certain long-term debt amounts are interest rate variable in nature.

13. SUBSEQUENT EVENTS:

Subsequent to year-end, the Company acquired, for $800,000 in cash and
$200,000 in debt, the net assets of All Medical, Inc., a company located in
Wichita Falls, Texas, and engaged in selling and leasing medical equipment and
supplies to the home healthcare industry. The acquisition was funded through an
advance on the acquisition term facility and was accounted for under the
purchase method.

F-16
<PAGE> 63

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, subsequent to year-end, the Company signed a letter of intent
to purchase an infusion therapy services and respiratory therapy equipment
company (I Care for Arkansas, Inc. and Affiliate and I Care, Inc.) for
$12,750,000. The Company anticipates funds for this acquisition will be obtained
through additional bank financing. This acquisition, if completed, will be
accounted for as a purchase.

The Company is currently in the process of an initial public offering (the
"Offering") of its common stock, $.01 par value. The Company plans to use the
net proceeds from the Offering (i) to repay outstanding indebtedness under its
bank credit facilities, (ii) to fund potential acquisitions, and (iii) for
general corporate purposes. On June , 1996, the Company declared a 5 for 2
stock split in the form of a stock dividend of its common stock. The
accompanying consolidated financial statements give retroactive effect to the
stock split. In addition to the stock split, the Company increased the number of
authorized preferred shares to 10,000,000 and the number of authorized common
shares to 40,000,000. In connection with the Offering, the Company's redeemable
convertible preferred stocks will be converted into 3,339,297 shares of common
stock. In addition, the 150,000 warrants will be exercised and converted into
common stock. The pro forma information below gives effect to such conversion at
December 31, 1995.

<TABLE>
<CAPTION>
DECEMBER 31, 1995 (UNAUDITED)
-------------------------------------------------
AS STATED PRO FORMA
----------------------- -----------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A and B preferred stocks....... 3,071,438 $ 30,714 -- $ --
Additional paid-in capital............ -- 5,309,100 -- --
Stockholders' equity:
Common stock.......................... 3,062,803 30,628 6,552,100 65,521
Additional paid-in capital............ -- 2,471,129 -- 8,076,051
Retained earnings..................... -- 9,560,229 -- 9,560,229
----------- -----------
Total stockholders' equity.... $12,061,986 $17,701,801
=========== ===========
</TABLE>

F-17
<PAGE> 64

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C>
Current assets:
Accounts receivable, net of allowance for doubtful accounts of $4,901,671..... $15,328,226
Supplies inventory............................................................ 1,626,657
Prepaid expenses and other.................................................... 1,247,962
Deferred income taxes......................................................... 2,420,246
-----------
Total current assets.................................................. 20,623,091
Property and equipment, net..................................................... 13,377,565
Excess of cost of acquired businesses over fair values of net assets acquired,
net........................................................................... 23,192,834
-----------
Total assets.......................................................... $57,193,490
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................................... $ 8,622,793
Accrued payroll and related expenses.......................................... 4,782,987
Estimated settlements with third-party payors................................. 322,566
Line of credit payable........................................................ 2,900,000
Current portion of long-term debt and capital lease obligations............... 5,571,391
Income taxes payable.......................................................... 1,172,929
-----------
Total current liabilities............................................. 23,372,666
Deferred income taxes and other................................................. 3,841,126
Long-term debt and capital lease obligations.................................... 11,606,610
-----------
Total liabilities..................................................... 38,820,402
Commitments and contingencies
Redeemable convertible preferred stock.......................................... 5,339,814
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized; 3,062,803 shares
issued and outstanding..................................................... 30,628
Additional paid-in capital.................................................... 2,471,129
Retained earnings............................................................. 10,531,517
-----------
Total stockholders' equity............................................ 13,033,274
-----------
Total liabilities and stockholders' equity............................ $57,193,490
===========
</TABLE>

The accompanying notes are an integral part of this condensed consolidated
balance sheet.

F-18
<PAGE> 65

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net revenues...................................................... $17,552,547 $24,254,490
Operating expenses:
Compensation and related benefits............................... 11,368,292 13,371,684
General and administrative...................................... 4,109,331 7,349,313
Depreciation and amortization................................... 473,341 893,716
Provision for doubtful accounts................................. 342,221 506,129
----------- -----------
Total operating expenses................................ 16,293,185 22,120,842
----------- -----------
Income from operations............................................ 1,259,362 2,133,648
Interest, net..................................................... (118,966) (485,900)
----------- -----------
Income before income taxes........................................ 1,140,396 1,647,748
Provision for income taxes........................................ 437,713 676,462
----------- -----------
Net income........................................................ $ 702,683 $ 971,286
=========== ===========
Net income per common share....................................... $ .11 $ .15
=========== ===========
Weighted average common shares outstanding........................ 6,489,220 6,543,430
=========== ===========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-19
<PAGE> 66

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities............................. $ (296,157) $(2,097,416)
----------- -----------
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired.......... (2,890,701) (55,883)
Additions to property and equipment............................... (416,332) (3,040,508)
----------- -----------
Net cash used in investing activities..................... (3,307,033) (3,096,391)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases....... 5,463,697 1,062,190
Payments on long-term debt and capital leases..................... (909,024) (843,904)
----------- -----------
Net cash provided by financing activities................. 4,554,673 218,286
----------- -----------
Net increase (decrease) in cash and cash equivalents................ 951,483 (4,975,521)
Cash and cash equivalents, beginning of period...................... 3,774,848 1,627,940
Amount reflected as an overdraft in accounts payable and accrued
expenses.......................................................... -- 3,347,581
----------- -----------
Cash and cash equivalents, end of period............................ $ 4,726,331 $ --
=========== ===========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-20
<PAGE> 67

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the three-
month period ended March 31, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.

2. ACQUISITIONS:

Effective April 1, 1996, the Company acquired, for $800,000 in cash and
$200,000 in debt, the net assets of All Medical, Inc., a company located in
Wichita Falls, Texas and engaged in selling and leasing medical equipment and
supplies to the home healthcare industry.

Additionally, during 1996, the Company signed a letter of intent to
purchase an infusion therapy services and respiratory therapy equipment company
for $12,750,000. The Company anticipates funds for this acquisition will be
obtained through additional bank financing. The Company completed the
acquisition in April 1996.

Both acquisitions will be accounted for using the purchase method of
accounting. Accordingly, the purchase price will be allocated to the assets
acquired (including all identifiable intangible assets, if material) and
liabilities assumed based upon their estimated fair values at the dates of
acquisition in accordance with APB 16. The excess of the total acquisition costs
over the fair value of the net assets acquired was approximately $9.7 million.
The results of operations of the acquired businesses have been included in the
condensed consolidated statement of income since the dates of acquisition.

3. CREDIT FACILITY:

On May 16, 1996, the Company obtained a $35.0 million credit facility from
a bank, consisting of a $10.0 million revolving line of credit and a $25.0
million term facility to be used to finance acquisitions. The Company's assets
have been pledged as security for borrowings under the credit facility. As of
May 31, 1996, the Company had used all of the term portion of the credit
facility, but there was $5.6 million outstanding under the line of credit. At
the Company's option, borrowings under the credit facility bear interest at
either the bank's Eurodollar rate plus rates ranging from 1.25% to 2.75%, or the
bank's prime rate plus rates ranging from 0% to 0.75%, determined by the ratio
of funded debt to EBITDA, (defined as earnings before interest, taxes,
depreciation and amortization.)

4. INITIAL PUBLIC OFFERING:

F-21
<PAGE> 68

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the Offering, the Company's redeemable convertible
preferred stocks will be converted into 3,339,297 shares of common stock. In
addition, 150,000 warrants will be exercised and converted into common stock.
The pro forma information below gives effect to such conversion at March 31,
1996.

<TABLE>
<CAPTION>
MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------
AS STATED PRO FORMA
----------------------- -----------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A and B preferred stocks....... 3,071,438 $ 30,714 -- $ --
Additional paid-in capital............ -- 5,309,100 -- --
Stockholders' equity:
Common stock.......................... 3,062,803 30,628 6,552,100 65,521
Additional paid-in capital............ -- 2,471,129 -- 8,076,050
Retained earnings..................... -- 10,531,517 -- 10,531,517
----------- -----------
Total stockholders' equity.... $13,033,274 $18,673,088
=========== ===========
</TABLE>

F-22
<PAGE> 69

INDEPENDENT AUDITORS' REPORT

To the Board of Directors,
I Care of Arkansas, Inc. and Affiliate:

We have audited the accompanying combined balance sheets of I Care of Arkansas,
Inc. and Affiliate as of December 31, 1994 and 1995, and the related combined
statements of income, retained earnings, and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of I Care of
Arkansas, Inc. and Affiliate as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

BELL & COMPANY

February 28, 1996, except as to
Note 10, for which the date is
April 15, 1996

F-23
<PAGE> 70

I CARE OF ARKANSAS, INC. AND AFFILIATE

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 326,219 $ 807,799
Accounts receivable, net of allowance for uncollectibles of
$456,709 and $1,906,524 in 1994 and 1995, respectively......... 2,570,203 3,315,727
Receivables from related companies................................ 11,520 271,852
Other receivables................................................. 224,771 421,253
Prepaid expenses.................................................. 16,333 19,891
---------- ----------
Total current assets...................................... 3,149,046 4,836,522
Property and equipment:
Land and building................................................. 121,052 121,052
Leasehold improvements............................................ 272,265 272,305
Machinery and equipment........................................... 464,484 470,434
Vehicles.......................................................... 99,649 63,049
---------- ----------
957,450 926,840
Accumulated depreciation and amortization......................... (515,225) (582,560)
---------- ----------
Net property and equipment................................ 442,225 344,280
Other assets........................................................ 6,285 55
---------- ----------
Total assets.............................................. $3,597,556 $5,180,857
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- bank.............................................. $ 200,000 --
Note payable -- stockholder....................................... -- 1,000,000
Accounts payable -- trade......................................... 1,381,686 1,444,316
Accounts payable -- related companies............................. 1,593 24,014
Accrued expenses.................................................. 211,199 325,603
Current portion of long-term debt................................. 6,882 7,435
---------- ----------
Total current liabilities................................. 1,801,360 2,801,368
Long-term debt...................................................... 169,278 161,843
---------- ----------
Total liabilities......................................... 1,970,638 2,963,211
Stockholders' equity:
Common stock, $1 par value; 300 shares authorized, issued and
outstanding.................................................... 300 300
Additional paid-in capital........................................ 239,800 239,800
Retained earnings................................................. 1,386,818 1,977,546
---------- ----------
Total stockholders' equity................................ 1,626,918 2,217,646
---------- ----------
Total liabilities and stockholders' equity................ $3,597,556 $5,180,857
========== ==========
</TABLE>

The accompanying notes are an integral part of these combined balance sheets.

F-24
<PAGE> 71

I CARE OF ARKANSAS, INC. AND AFFILIATE

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Patient service revenue.......................... $11,245,649 $15,794,202 $ 20,040,403
Allowances and uncollectibles.................... (5,271,204) (7,891,597) (10,108,413)
----------- ----------- ------------
Net revenues............................. 5,974,445 7,902,605 9,931,990
Cost of services provided.......................... 2,127,476 3,257,289 4,353,253
----------- ----------- ------------
Gross profit....................................... 3,846,969 4,645,316 5,578,737
----------- ----------- ------------
Operating expenses:
Compensation and related benefits................ 2,339,637 2,637,322 2,919,659
Depreciation..................................... 106,343 96,745 101,375
Interest......................................... 16,579 20,725 15,072
Other operating expenses......................... 1,005,624 982,253 1,225,235
----------- ----------- ------------
Total operating expenses................. 3,468,183 3,737,045 4,261,341
----------- ----------- ------------
Other income:
Interest......................................... 23,197 18,163 28,142
Other............................................ 163,923 98,821 90,516
Loss on sale of assets........................... (1,744) -- --
----------- ----------- ------------
Total other income....................... 185,376 116,984 118,658
----------- ----------- ------------
Net income......................................... $ 564,162 $ 1,025,255 $ 1,436,054
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-25
<PAGE> 72

I CARE OF ARKANSAS, INC. AND AFFILIATE

COMBINED STATEMENTS OF RETAINED EARNINGS

<TABLE>
<S> <C>
Balance, December 31, 1992, as previously stated................................. $ 263,613
Prior year adjustment -- Note 9................................................ (82,442)
----------
Balance, December 31, 1992, as restated.......................................... 181,171
Net income..................................................................... 564,162
Dividends paid................................................................. (99,667)
----------
Balance, December 31, 1993....................................................... 645,666
Net income..................................................................... 1,025,255
Dividends paid................................................................. (366,545)
----------
Balance, December 31, 1994....................................................... 1,304,376
Net income..................................................................... 1,436,054
Dividends paid................................................................. (762,884)
----------
Balance, December 31, 1995....................................................... $1,977,546
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-26
<PAGE> 73

I CARE OF ARKANSAS, INC. AND AFFILIATE

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 564,162 $1,025,255 $ 1,436,054
Prior period adjustment -- Note 9.................. -- -- (82,442)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 106,577 96,800 101,375
Loss on sale of assets.......................... 1,744 -- 2,560
Change in operating assets and liabilities:
Accounts receivable........................... 695,728 (724,635) (1,202,340)
Other current assets.......................... (29,232) 19,473 (3,558)
Accounts payable.............................. (1,359,003) 77,832 85,050
Accrued expenses.............................. (177) 32,316 114,405
----------- ---------- -----------
Net cash provided by (used in) operating
activities............................... (20,201) 527,041 451,104
----------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment................ (16,625) (167,372) (5,990)
Proceeds from sale of property and equipment....... 20,000 -- --
Collections of notes receivable.................... 105,952 57,000 --
Reduction in other assets.......................... -- 671 6,231
----------- ---------- -----------
Net cash provided by (used in) investing
activities............................... 109,327 (109,701) 241
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from note payable to stockholder.......... -- -- 1,000,000
Repayment of note payable.......................... 300,000 (100,000) (200,000)
Proceeds from long-term borrowings................. 110,000 180,000 --
Principal payments of long-term debt............... (107,518) (98,454) (6,881)
Dividends paid..................................... (99,667) (366,545) (762,884)
----------- ---------- -----------
Net cash provided by (used in) financing
activities............................... 202,815 (384,999) 30,235
----------- ---------- -----------
Net increase in cash................................. 291,941 32,341 481,580
Cash and cash equivalents, beginning of period....... 1,937 293,878 326,219
----------- ---------- -----------
Cash and cash equivalents, end of period............. $ 293,878 $ 326,219 $ 807,799
=========== ========== ===========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ 11,753 $ 18,163 $ 12,286
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-27
<PAGE> 74

I CARE OF ARKANSAS, INC. AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The accompanying combined financial statements include the accounts of I
Care of Arkansas, Inc. and I Care Home IV Affiliates, Inc. (the "Company") which
are under common control. Intercompany transactions and balances have been
eliminated in combination.

Nature of Business

I Care of Arkansas, Inc. was established in March 1992 in Little Rock,
Arkansas, for the purpose of providing home IV and nutritional services to
patients throughout Arkansas by utilizing a network of local free-standing
facilities strategically located with the state.

I Care Home IV Affiliates, Inc. is an Arkansas-based corporation which
provides managerial and clinical support for pharmacies in the home IV therapy
business throughout the United States.

Basis of Accounting

The Company uses the accrual basis of accounting. The Company uses the cash
basis of accounting for income tax purposes.

Accounts Receivable

Uncollectible accounts receivable are provided for using the allowance
method based on historical experience and management's evaluation of outstanding
accounts receivable at the end of each year. The allowance for uncollectibles
consists of amounts expected to be adjusted due to certain contractual
agreements with third-party payors as well as anticipated bad debts.

Property and Equipment

Property and equipment are recorded at cost. Additions and improvements are
capitalized. Ordinary maintenance and repair expenses are charged to expense as
incurred. Depreciation is provided by using straight-line and accelerated
methods over estimated useful lives of related assets which range from 3 to 7
years. Leasehold improvements are amortized using the straight-line method over
lives ranging from 7 to 10 years.

Income Taxes

The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be S corporations. In lieu of corporation income taxes
the Company's shareholders are taxed on their proportionate share of the
Company's taxable income. Therefore, no provision or liability for income taxes
has been included in these combined financial statements.

Use of Estimates

F-28
<PAGE> 75

I CARE OF ARKANSAS, INC. AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. OTHER RECEIVABLES:

I Care of Arkansas, Inc. has an operating agreement with Abbott Labs
("Abbott") under which Abbott reimburses the Company for certain pharmaceutical
products and provides certain other pharmaceutical products for the Company to
use in patient treatment. In return, the Company pays commissions to Abbott
based on various contracted percentages of collected revenues. At December 31,
1993, 1994, and 1995, approximately $397,000, $224,000, and $417,000,
respectively, in amounts due from Abbott was included in the accounts
receivable. Additionally, $1,036,787, $1,118,372, and $1,398,853 was accrued and
included in accounts payable for commissions to Abbott for uncollected revenues
included in accounts receivable at December 31, 1993, 1994, and 1995,
respectively.

3. RELATED-PARTY TRANSACTIONS:

Family Medical Center Pharmacy, Inc. is a corporation having common
ownership with I Care of Arkansas, Inc. During 1993, 1994, and 1995, Family
Medical Center Pharmacy, Inc. paid management fees to I Care of Arkansas, Inc.
totaling $24,000, $24,000, and $22,000, respectively.

I Care, Inc. is a corporation having common ownership with I Care of
Arkansas, Inc. During 1993, 1994, and 1995, I Care, Inc. paid management fees to
I Care of Arkansas, Inc. totaling $60,000 annually.

During 1994, I Care of Arkansas, Inc. purchased commercial real estate for
its Fort Smith operations from a stockholder for approximately $121,000. The
property had an appraisal value of $225,000.

4. NOTES PAYABLE:

I Care of Arkansas, Inc. has a note payable on demand to a stockholder,
bearing interest at 8.5%, secured by accounts receivable, property and
equipment. Outstanding borrowings at December 31, 1995 were $1,000,000.

In 1994, I Care of Arkansas, Inc. had a line of credit with a commercial
bank which provides for short-term borrowings up to $500,000 secured by accounts
receivable, property and equipment. Interest accrues on advances at Chase prime
rate (8.25% at December 31, 1994). Outstanding borrowings at December 31, 1994
were $200,000.

5. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
7.5% note payable to a bank in monthly installments of $1,695,
including interest, through June 1999, secured by real
estate....................................................... $176,160 $169,278
Less: Current maturities....................................... (6,882) (7,435)
-------- --------
Long-term debt, less current maturities........................ $169,278 $161,843
======== ========
</TABLE>

Annual aggregate maturities of long-term debt are as follows:

F-29
<PAGE> 76

I CARE OF ARKANSAS, INC. AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROFIT SHARING PLAN:

The Company has a trusteed, noncontributory profit sharing plan covering
substantially all employees. The Company may contribute amounts as determined by
the Board of Directors, not in excess of the lesser of the maximum deduction
allowable for income tax purposes or a specific percentage of the operating
profits of the Company, as defined in the plan. The Company made contributions
to the plan as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
I Care of Arkansas, Inc............................... $27,720 $38,612 $40,645
======= ======= =======
I Care Home IV Affiliates, Inc........................ $ 6,120 $ 6,685 $ 2,045
======= ======= =======
</TABLE>

7. LEASE COMMITMENTS:

The Company leases certain vehicles and facilities under noncancelable
operating leases which expire in various years through 2002.

Future minimum lease payments under these noncancelable operating leases
are as follows:

<TABLE>
<S> <C>
1996.............................................................. $285,305
1997.............................................................. 149,325
1998.............................................................. 89,729
1999.............................................................. 68,944
2000.............................................................. 71,627
Thereafter........................................................ 124,800
</TABLE>

Rent expense under all operating leases was approximately $226,475, $258,451,
and $257,202 for the years ended December 31, 1993, 1994, and 1995,
respectively.

8. CONTINGENCIES:

The Company is involved in various legal and regulatory proceedings which
have arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded or determined, will not,
in the opinion of management, have a material adverse impact upon the Company's
combined financial position, results of operations or liquidity.

9. PRIOR PERIOD ADJUSTMENT:

Subsequent to December 31, 1995, the Company made a refund to Medicare in
the amount of $82,442 for overpayment of goods and services provided during
1991. An accrual has been provided for this amount on the accompanying financial
statements as a charge to beginning retained earnings.

10. SUBSEQUENT EVENT:

On April 15, 1996, the Company and HealthCor Holdings, Inc. ("HealthCor"),
a Dallas-based home healthcare services provider, entered into an asset purchase
agreement whereby HealthCor agreed to purchase certain assets and assume certain
liabilities of the Company for approximately $12,050,000.

F-30
<PAGE> 77

INDEPENDENT AUDITORS' REPORT

To the Board of Directors,
I Care, Inc.:

We have audited the balance sheets of I Care, Inc. d/b/a I Care Health Services
(an Arkansas corporation) as of March 31, 1995 and 1996, and the related
statements of income, retained earnings, and cash flows for each of the three
years in the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of I Care, Inc. as of March 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.

BELL & COMPANY

April 18, 1996

F-31
<PAGE> 78

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1995 1996
-------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $119,220 $ 89,996
Accounts receivable -- trade, net of allowance for uncollectibles
of $142,927 in 1995 and $101,679 in 1996, respectively.......... 553,450 482,435
Receivable from affiliate.......................................... 21,615 30,225
Inventories........................................................ 56,177 73,657
Other current assets............................................... 100 35,713
Current deferred taxes............................................. 54,727 47,368
-------- ----------
Total current assets....................................... 805,289 759,394
Property and equipment:
Leasehold improvements............................................. 50,457 56,683
Machinery and equipment............................................ 56,563 81,929
Furniture and fixtures............................................. 8,762 15,310
Vehicles........................................................... 34,853 48,672
Rental equipment................................................... 818,765 1,321,899
-------- ----------
969,400 1,524,493
Accumulated depreciation........................................... (810,890) (878,060)
-------- ----------
Net property and equipment................................. 158,510 646,433
Other assets:
Goodwill, net of amortization...................................... 23,206 167,482
-------- ----------
Total assets............................................... $987,005 $1,573,309
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable....................................................... $ 60,000 --
-------- ----------
Accounts payable-
Trade........................................................... 49,223 59,170
Affiliate....................................................... 222,248 477,954
Accrued expenses................................................... 23,682 50,074
Income taxes payable............................................... 71,390 --
Current portion of long-term debt.................................. -- 155,184
-------- ----------
Total current liabilities.................................. 426,543 742,382
Long-term debt....................................................... -- 247,988
-------- ----------
Total liabilities.......................................... 426,543 990,370
Excess fair value of net assets of company acquired over cost........ 14,630 --
-------- ----------
Deferred income taxes................................................ 6,500 12,112
-------- ----------
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized, issued and
outstanding..................................................... 1,000 1,000
Paid-in capital.................................................... 51,642 51,642
Retained earnings.................................................. 486,690 518,185
-------- ----------
Total stockholders' equity................................. 539,332 570,827
-------- ----------
Total liabilities and stockholders' equity................. $987,005 $1,573,309
======== ==========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-32
<PAGE> 79

CARE, INC.
D/B/A
I CARE HEALTH SERVICES

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales revenues............................................. $1,821,561 $1,881,242 $2,580,477
Cost of sales.............................................. 672,963 659,645 819,620
---------- ---------- ----------
Gross profit............................................... 1,148,598 1,221,597 1,760,857
Operating expenses:
Compensation and related benefits........................ 658,517 745,292 1,191,744
Depreciation and amortization............................ 18,164 13,548 26,831
General and administrative............................... 398,704 366,852 485,838
---------- ---------- ----------
Total operating expenses......................... 1,075,385 1,125,692 1,704,413
Other income (expense):
Interest income.......................................... 2,002 2,330 3,997
Interest expense......................................... (740) -- (15,975)
---------- ---------- ----------
Total other income (expense)..................... 1,262 2,330 (11,978)
---------- ---------- ----------
Income before income taxes................................. 74,475 98,235 44,466
Income taxes............................................... 43,577 25,380 12,971
---------- ---------- ----------
Net income................................................. $ 30,898 $ 72,855 $ 31,495
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE> 80

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

STATEMENTS OF RETAINED EARNINGS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................................. $382,937 $413,835 $486,690
Net income............................................... 30,898 72,855 31,495
-------- -------- --------
Balance, end of year....................................... $413,835 $486,690 $518,185
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE> 81

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 30,898 $ 72,855 $ 31,495
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 231,486 227,297 189,695
Amortization of excess fair value of net assets of
company acquired over cost....................... (28,666) (28,815) (14,630)
Deferred taxes (benefit)........................... -- (48,227) 12,971
Change in current assets and liabilities:
Accounts receivables............................. (157,070) (5,514) 62,405
Inventories...................................... 11,492 (4,206) (17,480)
Other current assets............................. (3,366) 3,766 (35,613)
Refundable income taxes.......................... 5,256 -- --
Note payables.................................... 139,274 26,451 265,653
Accrued expenses................................. (119,806) 8,012 26,392
Income taxes payable............................. (9,296) 36,616 (71,390)
--------- --------- ---------
Net cash provided by operating activities..... 100,202 288,235 449,498
========= ========= =========
Cash flows from investing activities:
Purchase of intangibles............................... -- (23,352) (150,000)
Additions to property and equipment................... (67,696) (265,442) (212,030)
--------- --------- ---------
Net cash used by investing activities......... (67,696) (288,794) (362,030)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable............................ -- 60,000 --
Payment of note payable............................... -- -- (60,000)
Proceeds from long-term borrowings.................... -- -- 265,000
Payment of long-term borrowings....................... -- -- (321,692)
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. -- 60,000 (116,692)
--------- --------- ---------
Net increase (decrease) in cash......................... 32,506 59,441 (29,224)
Cash and cash equivalents, beginning of period.......... 27,273 59,779 119,220
--------- --------- ---------
Cash and cash equivalents, end of period................ $ 59,779 $ 119,220 $ 89,996
========= ========= =========
Supplemental disclosure of cash flow information:
Taxes paid............................................ $ 31,500 $ 38,600 $ 101,765
Interest paid......................................... -- -- 15,975
Property and equipment acquired through long-term
debt............................................... -- -- 459,864
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-35
<PAGE> 82

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business

I Care, Inc. (the "Company") is an Arkansas corporation which operates
under the name I Care Health Services. The Company provides healthcare
professionals and patients throughout Arkansas a complete line of home
healthcare equipment and supplies for sale or rental.

The Company has locations in Little Rock, Fort Smith, Fayetteville,
Jonesboro, and Texarkana. The Company's sister company, I Care of Arkansas,
Inc., provides home IV therapy services.

Cash and Cash Equivalents

For purposes of the statement of cash flows, cash equivalents include time
deposits and instruments with original maturities of three months or less.

Accounts Receivable

Uncollectible accounts receivable are provided for using the allowance
method based on historical experience and management's evaluation of outstanding
accounts receivable at the end of each year. All receivables which were
determined to be uncollectible at March 31, 1995 and 1996 have been provided for
in the applicable periods.

Inventories

Inventories consist of medical supplies and equipment and are carried at
the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment are carried at cost. Depreciation has been provided
using the straight-line and accelerated methods over estimated useful lives of
related assets as follows:

<TABLE>
<CAPTION>
LIVES METHOD
------------- --------------
<S> <C> <C>
Leasehold improvements............................... 7 -- 10 years Accelerated
Machine and equipment................................ 5 -- 7 years Accelerated
Furniture and fixtures............................... 7 years Accelerated
Vehicles............................................. 5 -- 7 years Accelerated
Rental equipment..................................... 3 years Straight-line
</TABLE>

Total depreciation expense for the years ended March 31, 1994, 1995, and
1996 was $231,486, $227,151, and $189,695, respectively, of which $213,323,
$213,749, and $162,864, respectively, was included in cost of sales.

Goodwill

Goodwill is being amortized using the straight-line method over 15 years.

F-36
<PAGE> 83

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

Deferred income taxes are based on timing differences between financial
statement and income tax reporting. Timing differences which give rise to
deferred tax assets and liabilities arise from differences in the deductibility
of the allowance for uncollectibles and from the use of accelerated methods of
depreciation.

Use of Estimates

Reclassifications

Certain reclassifications have been made to the 1995 balances in order to
conform to the 1996 presentation.

2. RELATED PARTIES:

The Company pays to I Care of Arkansas, Inc., a company with the same
ownership, management fees for various management consulting services. During
1994, 1995, and 1996, the Company paid management fees to I Care of Arkansas,
Inc. totaling $60,000 annually.

At March 31, 1996, the Company was indebted to I Care of Arkansas, Inc. in
the amount of $477,954 for operating advances and reimbursable expenses.

The Company performs certain product delivery services to patients for I
Care of Arkansas, Inc. During the year ended March 31, 1996, the Company
generated revenues from I Care of Arkansas, Inc. in the amount of $58,050. At
March 31, 1996, the Company has a receivable of $30,225 in connection with those
services.

3. ACQUISITIONS:

During October 1995, the Company purchased certain assets of Respiratory
Care of Arkansas, Inc., an unrelated Arkansas corporation. In connection with
this acquisition, the Company paid $150,000 for goodwill, which represents the
excess of cost of the business over the fair value of the net assets acquired.

During 1994, the Company purchased a subsidiary at a cost below the fair
value of the subsidiary's net assets at the date of acquisition. The deferred
credit represents the unallocated portion of the excess and is being amortized
using the straight-line method over three years.

The results of operations of the acquired entities are not material to the
Company.

4. CAPITALIZED LEASE OBLIGATIONS:

The Company leases equipment from several different leasing companies under
capital leases. The economic substance of these transactions is that the Company
is financing the acquisition of the assets through the lease. Accordingly, the
present value of the minimum lease payments is included in long-term debt.

F-37
<PAGE> 84

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is the future minimum lease payments under capitalized lease
obligations, together with their present value as of March 31, 1996:

<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
---------------------------------------------------------------------
<S> <C>
1997............................................................ $ 86,648
1998............................................................ 59,649
1999............................................................ 28,562
2000............................................................ 8,239
2001............................................................ 395
---------
Total minimum lease payments.................................... 183,493
Less amounts representing interest.............................. (12,184)
---------
Present value of minimum lease payments......................... $ 171,309
=========
</TABLE>

5. LONG-TERM DEBT:

Long-term debt at March 31, 1996, consists of the following:

<TABLE>
<S> <C>
Capitalized lease obligations payable in varying monthly installments of
up to $3,099, secured by equipment...................................... 77,045
8.75% note payable to a bank in monthly installments of $8,397, including
interest, secured by equipment.......................................... 231,863
Capitalized lease obligations payable in monthly installments of up to
$9,266, secured by equipment............................................ 94,264
--------
Total long-term debt...................................................... 403,172
Less current maturities................................................... (155,184)
--------
Long-term debt, less current maturities................................... $247,988
========
</TABLE>

Annual aggregate portion of long-term debt is as follows:

6. INCOME TAXES:

The provision for income taxes is composed of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Current provision.................................... $43,577 $115,055 $ --
Deferred provision (benefit)......................... -- (89,675) 12,971
------- -------- -------
$43,577 $ 25,380 $12,971
======= ======== =======
</TABLE>

F-38
<PAGE> 85

I CARE, INC.
D/B/A
I CARE HEALTH SERVICES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income tax at statutory rates and the actual income tax
provision is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Tax at statutory rate........................................ $24,205 $ 31,229 $14,136
State income tax............................................. 4,840 6,386 2,890
Nondeductible expense........................................ 25,712 1,206 1,547
Nontaxable income............................................ (11,180) (11,033) (5,602)
Surtax exemption............................................. -- (2,408) --
------- -------- -------
$43,577 $ 25,380 $12,971
======= ======== =======
</TABLE>

7. LEASE COMMITMENTS:

The Company leases certain vehicles and equipment under noncancelable
operating leases which expire in various years through 1999.

Future minimum lease payments under these noncancelable operating leases
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------------------------------------------------------------------
<S> <C>
1997.............................................................. $41,608
1998.............................................................. 27,994
1999.............................................................. 12,328
</TABLE>

8. PROFIT SHARING PLAN:

9. SUBSEQUENT EVENT:

F-39
<PAGE> 86

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Specialty Med-Equip, Inc., Superior Med-Equip, Inc.,
and Cross Timbers Visiting Nurses, Inc.:

We have audited the accompanying combined statements of income, retained
earnings, and cash flows of Specialty Med-Equip, Inc., Superior Med-Equip, Inc.,
and Cross Timbers Visiting Nurses, Inc. (the "Company") for the year ended
December 31, 1994. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, retained earnings,
and cash flows of the Company for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
December 27, 1995

F-40
<PAGE> 87

SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.

COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and rental income...................................................... $ 4,450,684
Cost of sales................................................................ 256,856
-----------
Total gross profit................................................. 4,193,828
-----------
Operating expenses:
Compensation and related benefits.......................................... 2,563,396
Rents and leases........................................................... 161,212
Purchased services, supplies, and other.................................... 1,243,027
Provision for doubtful accounts............................................ 131,064
Depreciation and amortization.............................................. 105,254
Interest expense........................................................... 41,419
-----------
Total expenses..................................................... 4,245,372
-----------
Net loss..................................................................... $ (51,544)
===========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-41
<PAGE> 88

SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.

COMBINED STATEMENT OF RETAINED EARNINGS

<TABLE>
<S> <C>
Balance, January 1, 1994.......................................................... $168,468
Net loss........................................................................ (51,544)
Balance, December 31, 1994........................................................ $116,924
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-42
<PAGE> 89

SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net loss................................................................... $ (51,544)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization........................................... 105,254
Changes in assets and liabilities
Increase in trade accounts receivable, net............................ (52,839)
Increase in other receivables......................................... (46,065)
Increase in inventory................................................. (2,130)
Increase in prepaid expenses.......................................... (11,695)
Increase in trade accounts payable.................................... 28,320
Increase in accrued liabilities and other............................. 46,010
---------
Net cash provided by operating activities.......................... 15,311
---------
Cash flows from investing activities:
Purchases of property and equipment, net................................... (173,109)
---------
Net cash used in investing activities.............................. (173,109)
---------
Cash flows from financing activities:
Increase in notes payable.................................................. 67,096
Proceeds from issuance of common stock..................................... 57,902
---------
Net cash provided by financing activities.......................... 124,998
---------
Net decrease in cash and cash equivalents.................................... (32,800)
Cash and cash equivalents, beginning of period............................... 66,443
---------
Cash and cash equivalents, end of period..................................... $ 33,643
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 41,518
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-43
<PAGE> 90

SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. ORGANIZATION:

Specialty Med-Equip, Inc. ("Specialty") is a Texas S corporation
incorporated in 1992. Specialty is engaged in the rental of durable medical
equipment as well as the sale of various other medical supplies. As of December
31, 1994, Specialty had three store locations in DeLeon, Stephenville, and
Richardson, Texas.

The stockholders and executive officers of Specialty and their ownership
percentage at December 31, 1994, were as follows:

<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
-------------------- ----------
<S> <C> <C>
Mike McCrary............................. President 32%
Coy A. Noles, Jr......................... Secretary/Treasurer 32%
Others................................... -- 36%
</TABLE>

Superior Med-Equip, Inc. ("Superior") is a Texas corporation incorporated
in 1988. Superior is engaged in the rental of durable medical equipment as well
as the sale of various other medical supplies. As of December 31, 1994, Superior
had three store locations in Muleshoe, Alpine, and Abilene, Texas.

The stockholders and executive officers of Superior and their ownership
percentage at December 31, 1994, were as follows:

<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
-------------------- ----------
<S> <C> <C>
Valeri, Carrie & Taylor Noles............. -- 53%
Coy A. Noles, Jr.......................... President 42%
Gae Noles................................. Secretary Treasurer 5%
Mike McCrary.............................. Vice President --
</TABLE>

Cross Timbers Visiting Nurses, Inc. ("Cross Timbers") is a Texas
corporation incorporated in 1991. Cross Timbers is engaged in the business of
providing home healthcare services to homebound patients, primarily patients
covered by the Medicare and Medicaid programs.

The stockholders and executive officers of Cross Timbers and their
ownership percentage at December 31, 1994, were as follows:

<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
------------------------------------------- ----------
<S> <C> <C>
Coy A. Noles, Jr........... Chief Executive Officer 29%
Mike McCrary............... -- 28%
Jan Hoover................. Executive Vice President and Administrator 10%
Julie Thomas............... Vice President and Assistant Administrator 10%
Wanda Baird................ Vice President 10%
Others..................... -- 13%
</TABLE>

As a home nursing services provider, Cross Timbers is certified by the
Medicare Part A program. As of December 31, 1994, Cross Timbers had four offices
located in DeLeon, Rising Star, Richardson (closed in May 1995), and Mineral
Wells, Texas.

Specialty, Superior, and Cross Timbers (the "Company") jointly rent a
corporate office located in Abilene, Texas.

F-44
<PAGE> 91

SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The accompanying financial statements are presented on a combined basis
because of the common ownership by Coy A. Noles, Jr., Mike McCrary, and certain
other stockholders.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Operating Revenues

Operating revenues are reported at the estimated net realizable amounts
from Medicare and Medicaid payors, private insurance companies, and cash sales
to customers. Payment for the retail sale and rental of durable medical
equipment and supplies to Medicare and Medicaid beneficiaries is based on the
lower of actual charges and approved fee schedules subject to certain
limitations.

Property and Equipment

Property and equipment are valued at cost at the date of acquisition and
are depreciated over their estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives of the assets are as follows:

<TABLE>
<S> <C>
Durable medical equipment....................................... 2 - 7 years
Furniture and fixtures.......................................... 5 - 7 years
Transportation equipment........................................ 5 years
</TABLE>

Start-up cost resulted from expenses incurred in 1991 before Cross Timbers
was issued a provider number and commenced operations. The cost is being
amortized over five years.

Income Taxes

In lieu of corporation income taxes, the Company's shareholders are taxed
on their proportionate share of the Company's taxable income.

3. OPERATING LEASES:

Specialty and Superior lease office and retail space at all locations. The
office space in Abilene, Texas, is leased by Cross Timbers month-to-month and
sublet to Specialty and Superior. Total rent expense for 1994 was approximately
$68,000.

4. COMMITMENTS AND CONTINGENCIES:

The Company is a party to various suits; however, in the opinion of
management, no claim will ultimately require a material settlement by the
Company over the amount covered by outside insurance policies.

5. SUBSEQUENT EVENT:

On October 31, 1995, Specialty and Superior were acquired by HealthCor
Holdings, Inc. ("HealthCor"), a Dallas-based home healthcare services provider,
for cash and debt totaling approximately $1,100,000 and $100,000, respectively.
The acquisition included the net assets of both companies excluding certain
assets and liabilities. Additionally, HealthCor acquired the fixed assets, and
medical supplies of Cross Timbers for cash and debt of approximately $714,000
and $200,000, respectively.

F-45
<PAGE> 92

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO C. EDWARD ELSEY:

We have audited the accompanying combined statements of income, owner's equity,
and cash flows of C. Edward Elsey dba A. M. Medical and Discount Medical
Equipment Company (the "Company") for the year ended December 31, 1994. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, owner's equity, and
cash flows of the Company for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
December 15, 1995

F-46
<PAGE> 93

C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY

COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and rental income...................................................... $1,942,218
Cost of sales................................................................ 578,552
----------
Total gross profit................................................. 1,363,666
----------
Operating expenses:
Compensation and related benefits.......................................... 535,951
Rents and leases........................................................... 30,566
Professional fees.......................................................... 39,283
Purchased services, supplies, and other.................................... 254,127
Provision for doubtful accounts............................................ 30,993
Depreciation and amortization.............................................. 151,709
Interest expense........................................................... 37,542
----------
Total expenses..................................................... 1,080,171
----------
Net income................................................................... $ 283,495
==========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-47
<PAGE> 94

C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY

COMBINED STATEMENT OF OWNER'S EQUITY

<TABLE>
<S> <C>
Balance, January 1, 1994......................................................... $ 395,199
Net income..................................................................... 283,495
Distributions to the owner, net................................................ (206,617)
---------
Balance, December 31, 1994....................................................... $ 472,077
=========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-48
<PAGE> 95

C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net income................................................................. $ 283,495
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization........................................... 151,709
Changes in assets and liabilities-
Increase in trade accounts receivable, net............................ (106,968)
Increase in inventory................................................. (7,754)
Increase in prepaid expenses and other................................ (23,279)
Decrease in trade accounts payable and accrued liabilities............ (111,204)
---------
Net cash provided by operating activities............................. 185,999
---------
Cash flows from investing activities:
Purchases of property and equipment........................................ (154,762)
---------
Net cash used in investing activities.............................. (154,762)
---------
Cash flows from financing activities:
Increase in notes payable.................................................. 206,622
Decrease in capital lease obligation....................................... (15,229)
Distributions to the owner................................................. (206,617)
---------
Net cash used in financing activities.............................. (15,224)
---------
Net increase in cash......................................................... 16,013
Cash, beginning of period.................................................... 5,122
---------
Cash, end of period.......................................................... $ 21,135
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 37,542
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-49
<PAGE> 96

C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. ORGANIZATION:

A. M. Medical is a sole proprietorship registered in the county of El Paso,
Texas, in 1971. A. M. Medical is engaged in the retail sale and rental of
durable medical equipment as well as the sale of various other medical supplies.

Discount Medical Equipment Company ("Discount Medical") is a sole
proprietorship registered in the county of El Paso, Texas, in 1993. Discount
Medical is engaged in the discount retail sale of certain types of durable
medical equipment. Both A. M. Medical and Discount Medical (the "Company") are
owned and operated by C. Edward Elsey and Linda Elsey. As a result of common
ownership, the financial statements are presented on a combined basis.

As of December 31, 1994, A. M. Medical and Discount Medical each has one
primary store location serving El Paso, Texas, and its surrounding areas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Accounting

The Company's combined financial statements are presented using the accrual
method of accounting. Revenues are recognized when earned and expenses when
incurred.

Revenues are reported at the estimated net realizable amounts from private
insurance companies, contracted payors, Medicare and Medicaid programs, and cash
sales to customers.

Property and Equipment

<TABLE>
<S> <C>
Buildings................................................................ 30 years
Durable medical equipment................................................ 5 years
Furniture and fixtures................................................... 5-10 years
Transportation equipment................................................. 3-5 years
</TABLE>

Federal Income Taxes

The Company operates as a sole proprietorship. Under the provisions of the
Internal Revenue Code, the owner is liable for federal income taxes on the
Company's taxable income. Accordingly, no provision or liability for federal
income taxes has been made in the accompanying combined financial statements.

3. OPERATING LEASES:

The Company leases certain types of office equipment and transportation
equipment which are accounted for as operating leases. The future minimum lease
payments under noncancelable operating leases are as follows:

F-50
<PAGE> 97

C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMITMENTS AND CONTINGENCIES:

The Company, in its regular course of business, is a party to various law
suits; however, in the opinion of management, no claim will ultimately require a
material settlement by the Company over the amount covered by outside insurance
policies.

5. SUBSEQUENT EVENT:

On October 31, 1995, the Company and HealthCor Holdings, Inc.
("HealthCor"), a Dallas-based home healthcare services provider, entered into an
asset purchase agreement whereby HealthCor agreed to purchase certain assets and
assume certain liabilities of the Company for approximately $1,300,000.

F-51
<PAGE> 98

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Colorado I.V. Associates, Inc.
and Specialized Nursing Services, Inc.:

We have audited the accompanying combined statements of income, retained
earnings, and cash flows of Colorado I.V. Associates, Inc. and Specialized
Nursing Services, Inc. (the "Company") for the year ended December 31, 1994.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.

ARTHUR ANDERSEN LLP

Dallas, Texas,
December 21, 1995

F-52
<PAGE> 99

COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.

COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and service income, net................................................ $1,897,456
Cost of sales................................................................ 570,053
----------
Total gross profit................................................. 1,327,403
----------
Operating expenses:
Compensation and related benefits.......................................... 624,297
Rents and leases........................................................... 38,488
Professional fees.......................................................... 24,723
Purchased services, supplies, and other.................................... 165,115
Provision for doubtful accounts............................................ 487,174
Depreciation and amortization.............................................. 15,999
Interest expense........................................................... 3,477
----------
Total expenses..................................................... 1,359,273
----------
Net loss..................................................................... $ (31,870)
==========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-53
<PAGE> 100

COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.

COMBINED STATEMENT OF RETAINED EARNINGS

<TABLE>
<S> <C>
Balance, January 1, 1994.......................................................... $596,157
Net loss........................................................................ (31,870)
--------
Balance, December 31, 1994........................................................ $564,287
========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-54
<PAGE> 101

COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net loss................................................................... $ (31,870)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization........................................... 15,999
Changes in assets and liabilities-
Increase in trade accounts receivable, net............................ (2,541)
Increase in inventory................................................. (1,036)
Decrease in other assets.............................................. 213
Decrease in trade accounts payable and accrued liabilities............ (813)
---------
Net cash used in operating activities.............................. (20,048)
---------
Cash flows from investing activities:
Additions of property and equipment........................................ (5,392)
---------
Net cash used in investing activities.............................. (5,392)
---------
Cash flows from financing activities:
Payments on long-term notes payable........................................ (9,052)
---------
Net cash used in financing activities.............................. (9,052)
---------
Net decrease in cash......................................................... (34,492)
Cash, beginning of period.................................................... 100,401
---------
Cash, end of period.......................................................... $ 65,909
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 3,477
=========
</TABLE>

The accompanying notes are an integral part of this combined financial
statement.

F-55
<PAGE> 102

COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION:

Colorado I.V. Associates, Inc. (CIVA) is a Colorado S corporation
incorporated in 1990. CIVA is engaged in the business of providing home infusion
therapy to home healthcare patients. CIVA has one office location in the Denver
metropolitan area.

The shareholders and executive officers of CIVA and their respective
ownership percentage at December 31, 1994, were as follows:

<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
---------- ------------------------
<S> <C> <C>
Priscilla Steinhauer............................. 50% President
Gregg Pederson................................... 50 Vice-President/Treasurer
</TABLE>

Specialized Nursing Services, Inc. (SNS) is a Colorado S corporation
incorporated in 1988. SNS is engaged in the business of providing skilled
nursing services to patients requiring I.V. therapy at home. SNS was purchased
in May 1990 from Ann Damore as a stock acquisition by Gregg Pederson. The
shareholders of SNS and their respective ownership percentage at December 31,
1994, were as follows:

SNS operates from the CIVA location using CIVA's administrative personnel.

At December 31, 1994, CIVA and SNS (the "Company") were under the common
ownership and control of Priscilla Steinhauer and Gregg Pederson. As a result,
the financial statements are presented on a combined basis.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenues

Revenues are reported at the estimated net realizable amounts from Medicare
and Medicaid payors and private insurance companies.

Property and Equipment

Property and equipment is valued at cost at the date of acquisition and is
depreciated over their estimated useful lives between five to seven years using
the straight-line method. Maintenance and repairs are expensed at the time the
expenditures are incurred.

Federal Income Taxes

The Company, with the consent of its shareholders, elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal income taxes on its taxable income.
Instead, the shareholders are liable for federal income taxes on the Company's
taxable income. Accordingly, no provision or liability for federal income taxes
has been made in these combined financial statements.

F-56
<PAGE> 103

COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

3. OPERATING LEASES:

The Company leases office space in Denver, Colorado. The future minimum
lease payments under noncancelable operating leases for buildings are as
follows:

<TABLE>
<S> <C>
1995....................................................................... $22,080
1996....................................................................... 9,200
-------
Total................................................................. $31,280
=======
</TABLE>

Rent expense under all operating leases was approximately $22,500 for the
year ended December 31, 1994.

4. RETIREMENT PLANS:

The Company provides a defined contribution pension plan and a profit
sharing plan for employees who meet certain eligibility requirements. The
Company is obligated to contribute $42,224 to the pension plan for the year
ended December 31, 1994. Contributions to the profit sharing plan are at the
discretion of the Company's management, and no contribution was made to the plan
for 1994 as the Company incurred a net loss.

5. SUBSEQUENT EVENT:

In August 1995, the Company's assets were acquired by HealthCor Holdings,
Inc., a Dallas-based home healthcare services provider, for approximately
$800,000.

F-57
<PAGE> 104

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors,
RTA Homecare, Inc. and Subsidiary:

We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of RTA Homecare, Inc. and subsidiary (the
"Company") for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations, shareholders'
equity, and cash flows of RTA Homecare, Inc. and subsidiary for the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
November 30, 1995

F-58
<PAGE> 105

RTA HOMECARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1993 1994
---------- ----------
<S> <C> <C>
Sales and rental income............................................. $4,965,640 $5,846,048
Cost of sales....................................................... 852,870 1,518,382
---------- ----------
Total gross profit........................................ 4,112,770 4,327,666
---------- ----------
Operating expenses:
Compensation and related benefits................................. 1,936,355 1,941,376
Rents and leases.................................................. 245,098 338,124
Purchased services, supplies, and other........................... 847,089 1,002,581
Provision for doubtful accounts................................... 171,404 97,619
Depreciation and amortization..................................... 168,212 311,917
---------- ----------
Total expenses............................................ 3,368,158 3,691,617
---------- ----------
Income from operations.............................................. 744,612 636,049
Benefit (provision) for income taxes................................ (187,663) 92,625
Minority interest in income (loss) of subsidiary.................... 3,426 (51,114)
---------- ----------
Net income.......................................................... $ 560,375 $ 677,560
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-59
<PAGE> 106

RTA HOMECARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1992................................ $5,050 $1,018,902 $1,023,952
Net income.............................................. -- 560,375 560,375
------ ---------- ----------
Balance, December 31, 1993................................ 5,050 1,579,277 1,584,327
Net income.............................................. -- 677,560 677,560
------ ---------- ----------
Balance, December 31, 1994................................ $5,050 $2,256,837 $2,261,887
====== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-60
<PAGE> 107

RTA HOMECARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1993 1994
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 560,375 $ 677,560
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization.................................. 168,212 311,917
Changes in assets and liabilities --
Increase in trade accounts receivable, net................... (297,868) (94,988)
Increase in inventory........................................ (223,344) (89,332)
Decrease (increase) in employee advances..................... 50,674 (3,274)
Decrease (increase) in other assets.......................... (19,990) 9,269
Increase in accounts payable................................. 179,135 114,633
Increase (decrease) in accrued liabilities................... 155,103 (177,455)
Increase in deferred income taxes payable.................... 152,195 71,924
--------- ---------
Net cash provided by operating activities................. 724,492 820,254
--------- ---------
Cash flows from investing activities:
Additions of property and equipment............................... (587,326) (985,179)
Issuance of notes receivable...................................... -- (380,779)
Payments on notes receivable...................................... 5,786 --
--------- ---------
Net cash used in investing activities..................... (581,540) (1,365,958)
--------- ---------
Cash flows from financing activities:
Issuance of notes payable......................................... -- 446,980
Payments on notes payable......................................... (97,209) --
Net change in minority interest in subsidiary..................... (3,426) 51,114
--------- ---------
Net cash provided by (used in) financing activities....... (100,635) 498,094
--------- ---------
Net increase (decrease) in cash..................................... 42,317 (47,610)
Cash, beginning of period........................................... 69,859 112,176
--------- ---------
Cash, end of period................................................. $ 112,176 $ 64,566
========= ==========
Supplemental disclosure of cash flow information:
Interest paid..................................................... $ 20,815 $ 25,448
Taxes paid........................................................ $ 138,648 $ 88,213
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-61
<PAGE> 108

RTA HOMECARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994

1. ORGANIZATION:

RTA Homecare, Inc. ("Homecare"), an Arizona corporation, commenced
operations in June 1988. Homecare is engaged in the retail sale and rental of
durable medical equipment as well as the sale of various other medical supplies
and apparel. As of December 31, 1994, Homecare had four store locations in the
Phoenix, Arizona, metropolitan area and one location in southeastern Arizona.

The shareholders and executive officers of Homecare and their respective
ownership percentages at December 31, 1994, were as follows:

<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
---------- -------------------------------
<S> <C> <C>
Steven J. Shcolnik............... 45.45% Director & President
Beverly A. Shcolnik.............. 45.45 Director & Secretary/Treasurer
Bryan L. Faith................... 4.55 Director/Vice President
David A. and Bonita Shcolnik..... 4.55 Shareholders
</TABLE>

RTA Infusion, Inc. ("Infusion"), an 80%-owned subsidiary of Homecare, is an
Arizona corporation that commenced operations in October 1990. Infusion provides
infusion services, supplies, and equipment to individual patients as prescribed
by physicians. Infusion operates from a separate office facility with its own
personnel and agents.

Homecare and Infusion (the "Company") derives a significant portion of its
income from the rental of various items of medical equipment as prescribed by
physicians. A majority of the rental charges are reimbursed by Medicare or other
insurance carriers.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Operating Revenues

Property and Equipment

<TABLE>
<S> <C>
Buildings and leasehold improvements........................... 31 - 39 years
Durable medical equipment...................................... 4 - 7 years
Furniture and fixtures......................................... 5 - 7 years
Transportation equipment....................................... 5 years
</TABLE>

F-62
<PAGE> 109

RTA HOMECARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Federal Income Taxes

The Company is taxed as a Subchapter C corporation under the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between the financial statement and income tax basis of assets and liabilities
in accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes."

3. OPERATING LEASES:

The Company leases office and retail space at all locations except for the
Phoenix retail location. In addition to the annual base liability of the retail
store and offices, an additional liability exists if the sales for a location
exceed $480,000 per year. The liability is computed at 4% of excess sales. The
Company also leases various vehicles under noncancelable operating leases.

The future minimum lease payments under noncancelable operating leases for
buildings and vehicles are:

Rent expense under all operating leases was approximately $165,000 and
$228,000 for December 31, 1993 and 1994 respectively.

4. RELATED-PARTY TRANSACTIONS:

Homecare owns 100% of RTA Hospice, Inc. ("Hospice"), an Arizona
corporation, which commenced operations in December 1993. Hospice provides
nursing care to terminally ill, homebound patients. Hospice was not consolidated
in the accompanying consolidated financial statements, as it was not included in
the purchase by HealthCor Holdings, Inc. (see Note 6).

5. PROFIT SHARING PLAN:

The Company provides a profit sharing plan for its employees which is
administered by an independent agency. Employees become participants after one
year of employment if they are at least 21 years old. The Company contributed
$60,000 and $80,000 to the plan for the years ended December 31, 1993 and 1994,
respectively.

6. SUBSEQUENT EVENT:

On July 31, 1995, the Company was acquired by HealthCor Holdings, Inc., a
Dallas-based home healthcare services provider, for approximately $7,400,000.
The acquisition included the net assets and liabilities of the Company excluding
certain fixed assets, liabilities, and a Hospice.

F-63
<PAGE> 110

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Home Hospital Equipment, Inc.:

We have audited the accompanying statement of income and retained earnings and
cash flows of Home Hospital Equipment, Inc. (a Texas corporation) for the year
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, retained earnings, and cash
flows of the Company for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
July 17, 1995

F-64
<PAGE> 111

HOME HOSPITAL EQUIPMENT, INC.

STATEMENT OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Revenues:
Medical equipment rental income............................................ $1,318,885
Sale of medical equipment and supplies..................................... 326,073
Cost of sales.............................................................. (193,224)
----------
Net sale of medical equipment and supplies......................... 132,849
----------
Total revenues..................................................... 1,451,734
----------
Expenses:
Compensation and related benefits.......................................... 463,694
General and administrative................................................. 356,760
Depreciation............................................................... 218,863
Provision for doubtful accounts............................................ 86,818
Interest................................................................... 62,249
----------
1,188,384
----------
Income from operations....................................................... 263,350
Other income................................................................. 1,072
----------
Net income................................................................... 264,422
Accumulated deficit, beginning of year....................................... (2,064)
----------
Retained earnings, end of year............................................... $ 262,358
==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-65
<PAGE> 112

HOME HOSPITAL EQUIPMENT, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net income................................................................. $264,422
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation............................................................ 218,863
Changes in operating assets and liabilities --
Decrease in accounts receivable....................................... 150,181
Increase in inventory................................................. (64,018)
Increase in prepaid expenses.......................................... (14,311)
Increase in accounts payable.......................................... 4,778
Decrease in accrued liabilities....................................... (41,668)
--------
Net cash provided by operating activities.......................... 518,247
--------
Cash flows from investing activities:
Additions to property and equipment........................................ (239,306)
--------
Net cash used in investing activities.............................. (239,306)
--------
Cash flows from financing activities:
Payments on advances from related parties.................................. (132,000)
Payments on bank line of credit............................................ (100,000)
--------
Net cash used in financing activities.............................. (232,000)
--------
Net increase in cash......................................................... 46,941
Cash, beginning of period.................................................... 10,746
--------
Cash, end of period.......................................................... $ 57,687
========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 62,249
========
</TABLE>

The accompanying notes are an integral part of this statement.

F-66
<PAGE> 113

HOME HOSPITAL EQUIPMENT, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. ORGANIZATION:

Home Hospital Equipment, Inc. (the "Company") is a Texas S corporation
incorporated since 1993. The Company is engaged in the retail sale and rental of
durable medical equipment in San Antonio, Texas.

The stockholders and executive officers of the Company and their respective
ownership percentage at December 31, 1994, were:

<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
--------- ---------------
<S> <C> <C>
William E. Gay, Jr.............................. 50% President
Erwin E. Ward................................... 50% Vice-President
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenues

Revenues are reported at the estimated net realizable amounts from Medicare
and Medicaid payors, private insurance companies, and cash sales to customers.
Payment for the retail sale and rental of durable medical equipment and supplies
to Medicare and Medicaid beneficiaries is based on the lower of actual charges
and approved fee schedules subject to certain limitations. Charges derived from
Medicare and Medicaid beneficiaries were approximately 66% as a percentage of
total charges for the year ended December 31, 1994.

Property and Equipment

Property and equipment is valued at cost at the date of acquisition and
depreciated over the respective estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives of the assets are as follows:

<TABLE>
<S> <C>
Durable medical equipment....................................... 5 years
Office furniture and equipment.................................. 5 to 7 years
</TABLE>

Federal Income Taxes

The Company, with the consent of its stockholders, elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal income taxes on its taxable income.
Instead, the stockholders are liable for federal income taxes on the Company's
taxable income. Accordingly, no provision or liability for federal income taxes
has been made in these financial statements.

3. RELATED-PARTY TRANSACTIONS:

The Company has received various advances from stockholders. These advances
bear interest at prime plus 1.5% and are due June 3, 1997. The following is a
summary of amounts owed under the arrangements as of December 31, 1994:

<TABLE>
<S> <C>
William E. Gay, Jr................................................ $301,435
Erwin E. Ward..................................................... 301,435
--------
$602,870
========
</TABLE>

Interest expense on officer advances was approximately $52,000 for the year
ended December 31, 1994.

F-67
<PAGE> 114

HOME HOSPITAL EQUIPMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMITMENTS AND CONTINGENCIES:

The Company leases office and warehouse facilities in San Antonio,
vehicles, and medical equipment held for rent under noncancelable operating
leases expiring on various dates through 2000. At December 31, 1994, the
Company's future minimum rental payments for operating leases having remaining
noncancelable lease terms in excess of one year are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------
<S> <C> <C>
1995.......................................................... $111,960
1996.......................................................... 109,254
1997.......................................................... 100,895
1998.......................................................... 81,286
1999.......................................................... 71,056
Thereafter.................................................... 11,843
--------
$486,294
========
</TABLE>

Rental expense for operating leases was $94,884 during the year ended
December 31, 1994.

5. SUBSEQUENT EVENT:

On January 20, 1995, the Company and HealthCor Oxygen and Medical
Equipment, Inc. (HOME), a wholly owned subsidiary of HealthCor Holdings, Inc.,
closed an asset purchase agreement whereby HOME purchased certain assets and
assumed certain liabilities of the Company for approximately $4,329,000.

F-68
<PAGE> 115

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors,
Physicians Home Health Network, Inc.:

We have audited the accompanying statement of operations and retained deficit
and cash flows of Physicians Home Health Network, Inc. for the ten months ended
October 31, 1994. These financial statements are the responsibility of
management of Physicians Home Health Network, Inc. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and retained deficit, and cash
flows for the ten months ended October 31, 1994, in conformity with generally
accepted accounting principles.

IFFT & BARBER, CHARTERED

Leawood, Kansas
December 23, 1994

F-69
<PAGE> 116

PHYSICIANS HOME HEALTH NETWORK, INC.

STATEMENTS OF OPERATIONS AND RETAINED DEFICIT

<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1994
----------------
<S> <C>
Net revenues.................................................................. $8,572,590
----------
Operating expenses:
Professional care of patients............................................... 5,476,768
General and administrative.................................................. 2,986,786
Occupancy................................................................... 91,229
Depreciation and amortization............................................... 4,000
----------
Total operating expense............................................. 8,558,783
----------
Operating income before interest expense...................................... 13,807
Interest expense.............................................................. 18,802
----------
Net loss...................................................................... (4,995)
Retained deficit at beginning of year......................................... (90,226)
----------
Retained deficit at end of year............................................... $ (95,221)
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-70
<PAGE> 117

PHYSICIANS HOME HEALTH NETWORK, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1994
----------------
<S> <C>
Cash flows from operating activities:
Cash received from services................................................. $8,586,929
Cash paid to employees and suppliers........................................ (8,402,151)
Interest paid............................................................... (20,371)
Deposits paid............................................................... (1,400)
----------
Net cash provided by operating activities........................... 163,007
----------
Cash flows from financing activities:
Payments on lines of credit................................................. (274,999)
Payments on long-term debt.................................................. (30,215)
----------
Net cash used in financing activities............................... (305,214)
----------
Net (decrease) in cash and cash equivalents................................... (142,207)
Cash and cash equivalents, beginning of year.................................. 227,360
----------
Cash and cash equivalents, end of year........................................ $ 85,153
==========
Reconciliation of net loss to net cash provided by operating activities:
Net loss................................................................. $ (4,995)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.......................................... 4,000
Decrease in accounts receivable........................................ 14,339
Decrease in due from affiliate......................................... 40,203
Decrease in accounts payable........................................... (60,232)
Increase in accrued payroll and vacation costs......................... 178,622
Decrease in accrued interest........................................... (1,569)
Decrease in due to affiliate........................................... (5,961)
Increase in deposits................................................... (1,400)
----------
Net cash provided by operating activities........................... $ 163,007
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-71
<PAGE> 118

PHYSICIANS HOME HEALTH NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

General

Physicians Home Health Network, Inc. (the "Company") was incorporated in
January 1985 in Missouri. The Company provides health and supportive services to
individuals at their homes.

The Company is located in Columbia, Missouri, and serves patients in 45
counties in mid-Missouri.

Net Patient Service Revenue

Net patient service revenue represents the estimated net realizable amounts
from Medicare.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization are computed using the straight line method over the estimated
lives of the assets or over the term of the leases.

Income Taxes

The Company has elected to be taxed as a S corporation effective January 1,
1987. As such, the Company does not pay federal corporate income taxes on its
taxable income, rather, the shareholders are responsible for individual federal
income taxes on their respective shares of the Company's taxable income.
Accordingly, income taxes are not provided in the accompanying financial
statements.

2. NET REVENUES AND ESTIMATED SETTLEMENTS WITH THIRD PARTY PAYORS:

All of net revenue was derived under federal third-party reimbursement
programs. These revenues are based on cost reimbursement principles and are
subject to audit and retroactive adjustment by the respective third party
intermediary. In the opinion of management, retroactive adjustments, if any,
would not be material to the financial position, results of operations or cash
flows of the Company.

3. RETIREMENT PLAN:

The Company has a salary reduction/profit sharing plan under provisions of
Section 401(k) of the Internal Revenue Code to provide retirement benefits for
its eligible employees. The plan covers all employees who have completed one
full year of service and have worked over 1,000 hours. Each plan year the
Company has the option to make a discretionary employer contribution to the
plan. During 1994, the Company matched 100% of the first 8% of an employee's
salary deferral contribution for the first three months of the year, and 100% of
the first 5% of an employee's salary deferral contribution for the last seven
months of the year. The matching contribution for 1994 was $112,716 plus
approximately $8,000 in administrative costs. The plan has a graded vesting
schedule for the Company contributions with 100% vesting after five years.

4. RELATED PARTIES:

The Company provides administrative and personnel functions for Home Health
Network, a related party. Home Health Network is charged $3,000 monthly for
these services. The total amount due the Company from Home Health Network was
$12,638 at October 31, 1994.

The Company entered into an operating lease with a related party (see Note
5).

F-72
<PAGE> 119

PHYSICIANS HOME HEALTH NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS

5. COMMITMENTS AND CONTINGENCIES:

Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred.

The following is a schedule by year of future minimum lease payments under
operating leases as of October 31, 1994, that have remaining lease terms of over
one year:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------
<S> <C>
1994 (two months ended)............................................... $ 46,672
1995.................................................................. 380,652
1996.................................................................. 352,925
1997.................................................................. 319,418
1998.................................................................. 301,306
1999.................................................................. 291,532
Thereafter............................................................ 2,687,344
----------
$4,379,849
==========
</TABLE>

Total rental expense in 1994 for all operating leases was $125,707.

The Company entered into an operating lease to rent office space commencing
October 1, 1994. The lease term is for 15 years with a monthly rental payment of
$22,969. The former principal shareholder and president of the Company has
ownership interest in the office space under this lease.

6. SUBSEQUENT EVENT:

In November, 1994, the shareholders sold all the outstanding shares of
capital stock of the Company to HealthCor Holdings, Inc., a Dallas-based home
healthcare services provider, for $1,500,000.

F-73
<PAGE> 120

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1995, and the three-month period ended
March 31, 1996, reflect (i) the acquisitions by the Company in 1995 and 1996
(referred to as the "Recent Acquisitions") using the purchase method of
accounting and (ii) the receipt and application of the net proceeds (after
deducting offering related expenses) from the sale of common stock offered
hereby and the exercise of 150,000 warrants to purchase common stock. The
unaudited pro forma condensed consolidated statements of income do not purport
to represent the Company's results of operations had the transactions occurred
in January 1, 1995, or to project the Company's results of operations for any
future periods.

The following unaudited pro forma condensed consolidated balance sheet as
of March 31, 1996, reflects (i) the Recent Acquisitions by the Company in 1996
using the purchase method of accounting, (ii) the receipt and application of the
net proceeds (after deducting offering related expenses) from the sale of common
stock offered hereby and the exercise of 150,000 warrants to purchase common
stock, and (iii) the conversion of the redeemable convertible preferred stock
into common stock, as if such transactions had occurred as of March 31, 1996.

The Company usually implements significant changes to the operations of the
entities that it acquires to enhance profitability. The expected benefits and
cost reductions anticipated by the Company have not been reflected in the
accompanying unaudited proforma condensed consolidated financial statements.
Accordingly, these pro forma financial statements are not necessarily indicative
of the operating results that would have been achieved had the Recent
Acquisitions occurred at the beginning of each period presented.

The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the transactions referenced above, and
are expected to have a continuing impact on the Company's business, results of
operations, and financial condition. The following unaudited pro forma
consolidated financial statements should be read in conjunction with the
historical financial statements of the Company and the companies acquired, which
are included elsewhere in this Prospectus.

P-1
<PAGE> 121

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
HEALTHCOR RECENT PRO FORMA
HOLDINGS, INC. ACQUISITIONS ADJUSTMENTS OFFERING AS ADJUSTED
-------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues.................... $ 81,557,284 $12,700,355(A) $ -- $ -- $94,257,639
Operating expenses:
Compensation and related
benefits.................... 49,724,055 7,405,983(A) -- -- 57,130,038
General and administrative.... 21,272,118 2,893,304(A) -- -- 24,165,422
Depreciation and
amortization................ 2,299,357 310,747(A) 160,283(B) -- 2,770,387
Provision for doubtful
accounts.................... 1,488,885 175,141(A) -- -- 1,664,026
----------- ----------- --------- ----------- -----------
74,784,415 10,785,175 160,283 -- 85,729,873
Income from operations.......... 6,772,869 1,915,180 (160,283) -- 8,527,766
Interest, net................... (986,977) 1,118(A) (663,760)(C) 1,527,598(D) (122,021)
----------- ----------- --------- ----------- -----------
Income before income taxes...... 5,785,892 1,916,298 (824,043) 1,527,598 8,405,745
Provision for income taxes...... 2,202,367 766,519(E) (329,617)(E) 611,039(E) 3,250,308
----------- ----------- --------- ----------- -----------
Net income...................... $ 3,583,525 $ 1,149,779 $(494,426) $ 916,559 $ 5,155,437
=========== =========== ========= =========== ===========
Net income per common share:
Net income per common share... $ .55 $ .54
=========== ===========
Weighted average common shares
outstanding................. 6,545,615 9,545,615
=========== ===========
</TABLE>

The accompanying notes are an integral part of the
Pro Forma Condensed Consolidated Financial Statements.

P-2
<PAGE> 122

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
HEALTHCOR RECENT PRO FORMA
HOLDINGS, INC. ACQUISITIONS ADJUSTMENTS OFFERING AS ADJUSTED
-------------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 24,254,490 $3,704,020(A) $ -- $ -- $27,958,510
Operating expenses:
Compensation and related
benefits....................... 13,371,684 1,986,692(A) -- -- 15,358,376
General and administrative....... 7,349,313 1,291,921(A) -- -- 8,641,234
Depreciation and amortization.... 893,716 30,397(A) 66,317(B) -- 990,430
Provision for doubtful
accounts....................... 506,129 -- -- -- 506,129
------------ ---------- --------- -------- -----------
22,120,842 3,309,010 66,317 -- 25,496,169
------------ ---------- --------- -------- -----------
Income from operations............. 2,133,648 395,010 (66,317) -- 2,462,341
Interest, net...................... (485,900) -- (270,976)(C) 517,575(D) (239,301)
------------ ---------- --------- -------- -----------
Income before income taxes......... 1,647,748 395,010 (337,293) 517,575 2,223,040
Provision for income taxes......... 676,462 158,004(E) (134,917) (E) 207,030(E) 906,579
------------ ---------- --------- -------- -----------
Net income......................... $ 971,286 $ 237,006 $(202,376) $310,545 $ 1,316,461
============ ========== ========= ======== ===========
Net income per common share:
Net income per common share...... $ .15 $ .14
============ ===========
Weighted average common shares
outstanding.................... 6,543,430 9,543,430
============ ===========
</TABLE>

The accompanying notes are an integral part of the
Pro Forma Condensed Consolidated Financial Statements

P-3
<PAGE> 123

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
RECENT
ACQUISITIONS
AND
HISTORICAL OFFERING
HEALTHCOR RELATED PRO FORMA
HOLDINGS, INC. TRANSACTIONS(F) PRO FORMA OFFERING(G) AS ADJUSTED
-------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $ -- $ -- $ -- $ 7,548,913 $ 7,548,913
Accounts receivable, net...... 15,328,226 2,425,378 17,753,604 -- 17,753,604
Supplies inventory............ 1,626,657 857,230 2,483,887 -- 2,483,887
Prepaid expenses and other.... 1,247,962 37,444 1,285,406 -- 1,285,406
Deferred income taxes......... 2,420,246 -- 2,420,246 -- 2,420,246
----------- ----------- ------------ ----------- -----------
Total current
assets.............. 20,623,091 3,320,052 23,943,143 7,548,913 31,492,056
Property and equipment, net..... 13,377,565 991,229 14,368,794 -- 14,368,794
Excess of cost of acquired
businesses over fair values of
net assets acquired........... 23,192,834 9,860,697 33,053,531 -- 33,053,531
----------- ----------- ------------ ----------- -----------
Total assets.......... $ 57,193,490 $14,171,978 $71,365,468 $ 7,548,913 $78,914,381
=========== =========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses................... $ 8,622,793 $ 44,933 8,667,726 $(3,019,687) $ 5,648,039
Accrued payroll and related
expenses................... 4,782,987 -- 4,782,987 -- 4,782,987
Estimated settlements with
third-party payors......... 322,566 -- 322,566 -- 322,566
Line of credit payable........ 2,900,000 -- 2,900,000 2,900,000
Current portion of long-term
debt and capital lease
obligations................ 5,571,391 4,304,512 9,875,903 (7,536,032) 2,339,871
Income taxes payable.......... 1,172,929 -- 1,172,929 -- 1,172,929
----------- ----------- ------------ ----------- -----------
Total current
liabilities......... 23,372,666 4,349,445 27,722,111 (10,555,719) 17,166,392
Deferred income taxes and
other......................... 3,841,126 -- 3,841,126 -- 3,841,126
Long-term debt and capital lease
obligations................... 11,606,610 9,522,533 21,129,143 (18,860,368) 2,268,775
----------- ----------- ------------ ----------- -----------
Total liabilities..... 38,820,402 13,871,978 52,692,380 (29,416,087) 23,276,293
Redeemable convertible preferred
stocks........................ 5,339,814 (5,339,814) -- -- --
Stockholders' equity:
Common stock.................. 30,628 34,893 65,521 30,000 95,521
Additional paid-in capital.... 2,471,129 5,604,921 8,076,050 36,935,000 45,011,050
Retained earnings............. 10,531,517 -- 10,531,517 -- 10,531,517
----------- ----------- ------------ ----------- -----------
Total stockholders'
equity.............. 13,033,274 5,639,814 18,673,088 36,965,000 55,638,088
----------- ----------- ------------ ----------- -----------
Total liabilities and
stockholders'
equity.............. $ 57,193,490 $14,171,978 $71,365,468 $ 7,548,913 $78,914,381
=========== =========== ============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the
Pro Forma Condensed Consolidated Financial Statements

P-4
<PAGE> 124

NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(A) Reflects the historical net revenues, compensation and related benefits
expense, general and administrative expense, depreciation and
amortization expense, provision for doubtful accounts, interest, net,
and provision for income taxes for the Recent Acquisitions on a
consolidated basis if such acquisitions had occurred at the beginning
of the periods.

(B) Reflects incremental depreciation and amortization expense as a result
of the Recent Acquisitions.

(C) Reflects additional interest expense that would have been incurred had
the debt issued, assumed or incurred to finance the Recent Acquisitions
been outstanding from the beginning of the period to the dates of
acquisition.

(D) Reflects an adjustment to reduce interest expense relating to the use
of proceeds of the offering. See "Use of Proceeds".

(E) Represents an adjustment to reflect income tax expense at an assumed
effective tax rate of 40%.

(F) Represents the acquisitions of All Medical, Inc. and the I Care Group
completed during 1996. The estimated fair market values reflected are
based on preliminary estimates and assumptions and are subject to
revision. In management's opinion, the preliminary allocation is not
expected to be materially different than the final allocation. The
estimated excess of cost over fair values of net assets acquired
(goodwill) is being amortized over a 40-year period in accordance with
the provisions of APB No. 17. See Note 2 to the Company's Consolidated
Financial Statements for information regarding the Company's periodic
evaluation of recorded goodwill amounts and the related amortization
period. Also includes the conversion of 2,000,000 shares of Series A
Preferred Stock and 1,071,438 shares of Series B Preferred Stock into
2,000,000 and 1,339,297 shares of Common Stock, respectively and the
exercise of warrants to purchase 150,000 shares of Common Stock at an
exercise price of $2.00 per share.

(G) Adjustments for this offering include the issuance of 3,000,000 shares
of Common Stock offered by the Company hereby and the retirement of
approximately $26.0 million of indebtedness outstanding under the
Company's credit facility. See "Use of Proceeds".

P-5
<PAGE> 125

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

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THE OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
Dividend Policy........................ 11
Capitalization......................... 12
Dilution............................... 13
Selected Consolidated Financial Data... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Business............................... 21
Management............................. 31
Certain Transactions................... 36
Principal and Selling Stockholders..... 37
Description of Capital Stock........... 38
Shares Eligible for Future Sale........ 41
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Additional Information................. 44
Index to Financial Statements.......... F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

3,250,000 SHARES

[HEALTHCOR HOLDINGS LOGO]

HEALTHCOR HOLDINGS, INC.

COMMON STOCK
-------------------

PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED

BEAR, STEARNS & CO. INC.

, 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 126

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses payable by the registrant in connection with the
registration, issuance and distribution of the Common Stock offered hereby,
other than underwriting discounts and commissions, are as follows.

<TABLE>
<S> <C>
SEC registration fee...................................................... $ 18,938
NASD filing fee........................................................... 6,000
Nasdaq National Market listing fee........................................ 41,380
Printing and engraving expenses........................................... 125,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 150,000
Fees and expenses of Transfer Agent....................................... 50,000
"Blue Sky" fees and expenses (including legal fees)....................... 20,000
Miscellaneous expenses.................................................... 88,682
--------
Total........................................................... $700,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Tenth of the registrant's Amended and Restated Certificate of
Incorporation provides that the registrant shall indemnify its officers and
directors to the maximum extent allowed by the Delaware General Corporation Law.
Pursuant to Section 145 of the Delaware General Corporation Law, the registrant
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the registrant, and with respect to any criminal action, so long as they had
no reasonable cause to believe their conduct was unlawful. With respect to suits
by or in the right of the registrant, however, indemnification is generally
limited to attorneys' fees and other expenses and is not available if the person
is adjudged to be liable to the registrant, unless the court determines that
indemnification is appropriate. The statute expressly provides that the power to
indemnify authorized thereby is not exclusive of any rights granted under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The registrant also has the power to purchase and maintain insurance for its
directors and officers. Additionally, Article Tenth of the Company's Amended and
Restated Certificate of Incorporation provides that, in the event that an
officer or director files suit against the registrant seeking indemnification of
liabilities or expenses incurred, the burden will be on the registrant to prove
that the indemnification would not be permitted under the Delaware General
Corporation Law.

The preceding discussion of the registrant's Amended and Restated
Certificate of Incorporation and Section 145 of the Delaware General Corporation
Law is not intended to be exhaustive and is qualified in its entirety by the
Amended and Restated Certificate of Incorporation and Section 145 of the
Delaware General Corporation Law.

The registrant intends to enter into indemnification agreements with the
registrant's directors and officers. Pursuant to such agreements, the registrant
will, to the extent permitted by applicable law, indemnify such persons against
all expenses, judgments, fines and penalties incurred in connection with the
defense or settlement of any actions brought against them by reason of the fact
that they were directors or officers of the registrant or assumed certain
responsibilities at the direction of the registrant.

The form of Underwriting Agreement included as Exhibit 1.1 provides for
indemnification of the registrant and certain controlling persons under certain
circumstances, including indemnification for liabilities under the Securities
Act of 1933.

II-1
<PAGE> 127

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

All securities described below were sold in reliance upon the exemption
from registration under the Securities Act provided by sections 3(a)(11), 3(b)
and/or 4(2) of the Securities Act and the rules promulgated thereunder.

1. Since June 1, 1992, the Company has periodically issued and
contributed an aggregate of 435,717 shares of Common Stock to the Company's
ESOP. Participation in the ESOP by the Company's employees is mandatory and
non-contributory. Accordingly, these contributions do not involve a sale of
securities.

2. On May 14, 1993, the Company issued and sold 25,000 shares of
Common Stock at an exercise price of $0.80 per share, to an individual
exercising stock options granted to such individual pursuant to the 1989
Stock Option Plan. In issuing such securities, the Company relied upon the
exemption from registration and prospectus delivery requirements of the
Securities Act provided by Section 4(2) and Rule 701 promulgated
thereunder.

3. On November 16, 1994, the Company issued, in connection with an
acquisition, a warrant to purchase 25,000 shares of Common Stock at an
exercise price of $2.00 per share. In issuing such securities, the Company
relied upon the exemption from registration and prospectus delivery
requirements of the Securities Act provided by Section 4(2).

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
4.1 Specimen Stock Certificate of the Company.
*4.2 Credit Agreement by and between the Company and Texas Commerce Bank
National Association, dated May 16, 1996.
5.1 Opinion of Vinson & Elkins L.L.P.
*10.1 Registration Rights Agreement, dated as of June 1, 1992 between the
Company and certain stockholders of the Company.
10.2 HealthCor Holdings, Inc. 1989 Stock Option Plan effective October 18,
1989.
10.3 Form of HealthCor Holdings, Inc. 1996 Long-Term Incentive Plan.
10.4 HealthCor Holdings, Inc. Employee Stock Ownership Plan and Trust, dated
April 1, 1990, as amended.
10.5 Warrant Agreement among the Company and certain individuals to purchase
Common Stock of the Company, dated as of June 1, 1992.
*10.6 Warrant Agreement between the Company and an individual to purchase
Company Stock of the Company, dated as of November 1, 1994.
10.7 Form of Indemnification Agreement to be entered between the Company and
its executive officers and directors.
*10.8 Stock Purchase Agreement, dated April 15, 1995, regarding the
acquisition of all of the outstanding capital stock of I Care, Inc. and
I Care Home I.V. Affiliates, Inc. and the assets of I Care of Arkansas,
Inc.
*11.1 Statement concerning Computation of net income per common share.
</TABLE>

II-2
<PAGE> 128

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*21.1 List of Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Bell & Company.
*23.3 Consent of IFT & Barber, Chartered.
23.4 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
*24.1 Power of Attorney (included on page II-4).
*27.1 Financial Data Schedule.
</TABLE>

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

* Filed herewith.

(b) Financial Statement Schedule.

Report of Independent Public Accountants on Schedule.

Schedule II -- Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that:

(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 129

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 12th day of June, 1996.

HEALTHCOR HOLDINGS, INC.

By: /s/ S. WAYNE BAZZLE
------------------------------------
S. Wayne Bazzle
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to the
registration statement appears below hereby appoints S. Wayne Bazzle and Cheryl
C. Bazzle, or either of them, as his attorney-in-fact with full power to act
alone, with full power of substitution or resubstitution, for him and in his
name, place and stead, in any and all capacities to sign on his behalf,
individually and in the capacities stated below, and to sign any and all
amendments and post-effective amendments to this registration statement, which
amendment or amendments may make such changes and additions as such
attorney-in-fact may deem necessary or appropriate and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or his or their substitutes, may lawfully do or cause
to be done by virtue hereof.

<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ S. WAYNE BAZZLE Chairman of the Board, Chief June 12, 1996
- --------------------------------------------- Executive Officer and
S. Wayne Bazzle Director (Principal
Executive Officer)

/s/ CHERYL C. BAZZLE President, Chief Operating June 12, 1996
- --------------------------------------------- Officer and Director
Cheryl C. Bazzle

/s/ SUSAN L. BELSKE Vice President and Treasurer June 12, 1996
- --------------------------------------------- (Principal Financial and
Susan L. Belske Accounting Officer)

/s/ MICHAEL J. FOSTER Director June 12, 1996
- ---------------------------------------------
Michael J. Foster

/s/ ROBERT B. CRATES Director June 12, 1996
- ---------------------------------------------
Robert B. Crates
</TABLE>

II-4
<PAGE> 130

Upon the approval by the Company's Board of Directors of the 5 for 2 stock
split and increases in the number of authorized preferred and common shares
discussed in the third paragraph of Note 13 to the Company's consolidated
financial statements, we expect to be in a position to render the following
audit report.

ARTHUR ANDERSEN LLP

June 11, 1996

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To HealthCor Holdings, Inc.:

We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of HealthCor Holdings, Inc. and subsidiaries
included in this registration statement and have issued our report dated March
29, 1996 (except as to paragraph 3 in Note 12 for which the date is June ,
1996).

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commissions rules and are not part of the basis financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas
March 29, 1996

S-1
<PAGE> 131

SCHEDULE II

HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1993:
Allowance for Doubtful Accounts...... $1,333,000 $1,317,000 $ (836,000)(b)(c) $1,814,000
Accumulated Amortization of
Intangible Assets................. 239,000 233,000 -- 472,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $1,572,000 $1,550,000 $ (836,000) $2,286,000
========== ========== =========== ==========
December 31, 1994:
Allowance for Doubtful Accounts...... $1,814,000 $1,116,000 $(1,645,000)(b)(c) $1,285,000
Accumulated Amortization of
Intangible Assets................. 472,000 245,000 -- 717,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $2,286,000 $1,361,000 $(1,645,000) $2,002,000
========== ========== =========== ==========
December 31, 1995:
Allowance for Doubtful Accounts...... $1,285,000 $1,489,000 $ (718,000)(b)(c) $2,056,000
Accumulated Amortization of
Intangible Assets................. 717,000 469,000 -- 1,186,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $2,002,000 $1,958,000 $ 718,000 $3,242,000
========== ========== =========== ==========
</TABLE>

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

(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.

(b) Recovery of bad debt write-off.

S-2
<PAGE> 132

INDEX TO EXHIBITS

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

* Filed herewith.

<PAGE> 1
EXHIBIT 4.2
********************************************************************************

CREDIT AGREEMENT

among

TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS AGENT AND AN ISSUING BANK,
THE SEVERAL FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY HERETO

and

HEALTHCOR HOLDINGS, INC.
and
HEALTHCOR, INC.,
as Borrowers

Dated as of May 16, 1996

********************************************************************************
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE II - Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.2 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.3 Repayment of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . 18
Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.6 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.7 Reduction or Termination of Revolving Credit Commitments . . . . . . . . 19

ARTICLE III - Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.1 Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.2 The Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3 Repayment of Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 Prepayments from Excess Cash Flow . . . . . . . . . . . . . . . . . . . . 21
Section 3.6 Request for Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE IV - Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2 Participation by Banks . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.3 Procedure for Issuing Letters of Credit . . . . . . . . . . . . . . . . . 22
Section 4.4 Reimbursements; Payments Constitute Revolving Credit Loans . . . . . . . 22
Section 4.5 Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.7 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 Letter of Credit Documents . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE V - Borrowing Procedure; Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.2 Conversions and Continuations . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.3 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4 Voluntary Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.5 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . 26
</TABLE>

-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.7 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.8 Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.9 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE VI - Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.3 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.4 Treatment of Eurodollar Loans . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.7 Additional Costs in Respect of Letters of Credit . . . . . . . . . . . . 31

ARTICLE VII - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2 Lockbox Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.3 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE VIII - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.1 Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

ARTICLE IX - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.4 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.6 Rights in Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.7 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.8 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.11 Use of Proceeds; Margin Securities . . . . . . . . . . . . . . . . . . . 40
Section 9.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>

-ii-
<PAGE> 4
TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 9.16 Compliance with Laws; Environmental Liabilities . . . . . . . . . . . . . 41
Section 9.17 Fraud and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.18 Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE X - Positive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.2 Maintenance of Existence; Conduct of Business . . . . . . . . . . . . . . 43
Section 10.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.7 Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.12 Security Agreements; Guaranties . . . . . . . . . . . . . . . . . . . . . 45
Section 10.13 Delivery of Post-Closing UCC Searches and Corporate Documents . . . . . . 45
Section 11.1 Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.3 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.4 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.5 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.6 Limitation on Issuance of Subsidiaries' Capital Stock . . . . . . . . . . 51
Section 11.7 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.8 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.10 Prepayment of Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.11 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.12 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.13 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

ARTICLE XII - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.1 Funded Debt to EBITDAA Ratio . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.2 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.3 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.4 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.5 Unleveraged Nonreimbursed Capital Expenditures . . . . . . . . . . . . . 53
</TABLE>

-iii-
<PAGE> 5
TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XIII - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 13.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.3 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 13.4 Performance by the Agent . . . . . . . . . . . . . . . . . . . . . . . . 56

ARTICLE XIV - The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . 57
Section 14.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 14.3 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.4 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

ARTICLE XV - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 15.2 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 15.3 LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 15.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 15.5 No Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 15.6 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . 62
Section 15.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 15.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 15.9 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 15.10 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 15.11 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 15.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 15.13 GOVERNING LAW; VENUE; SERVICE OF PROCESS . . . . . . . . . . . . . . . . 67
Section 15.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 15.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 15.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 15.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 15.18 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>

-iv-
<PAGE> 6

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (the "Agreement"), dated as of May 16, 1996, is
among HEALTHCOR HOLDINGS, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware ("Holdings"), HEALTHCOR, INC.,
a corporation duly organized and validly existing under the laws of the State
of Delaware (the "Company," with Holdings and the Company being hereinafter
collectively referred to as the "Borrowers"), each of the banks or other
lending institutions which is or which may from time to time become a signatory
hereto or any successor or assignee thereof (individually, a "Bank" and,
collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association, as an issuing bank (in such capacity, together
with its successors in such capacity, an "Issuing Bank") and as agent for
itself, the Issuing Banks and the other Banks (in such capacity, together with
its successors in such capacity, the "Agent").

R E C I T A L S:

A. Holdings and Texas Commerce Bank National Association ("TCB")
previously entered into that certain Credit Agreement dated as of May 1, 1995,
as amended by that certain Letter Agreement dated as of March 31, 1996 (the
"Holdings Credit Agreement"), pursuant to which TCB made certain term loans to
Holdings in the aggregate principal amount of $19,846,514.00 (the "Existing
Term Loans").

B. The Company and TCB previously entered into that certain Third
Amended and Restated Credit Agreement dated as of May 1, 1995, as amended by
that certain Letter Agreement dated as of March 31, 1996 (the "Company Credit
Agreement"), pursuant to which TCB made a revolving credit loan available to
the Company in a principal amount not to exceed $5,000,000.00 outstanding at
any time (the "Existing Revolving Loan").

C. Holdings and the Company have requested the Banks to (i)
refinance and increase the outstanding indebtedness of Holdings under the
Existing Term Loans; and (ii) to make a revolving credit loan in the form of
advances and letters of credit available to the Company in an aggregate
principal amount not to exceed $10,000,000.00 outstanding at any time, a
portion of the proceeds of which shall be used to repay the indebtedness of the
Company outstanding under the Existing Revolving Loan.

D. The Banks are willing to make such extensions of credit to the
Borrowers upon the terms and conditions hereinafter set forth.

NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:

CREDIT AGREEMENT - Page 1
<PAGE> 7
ARTICLE I

Definitions

Section 1.1 Definitions. As used in this Agreement, the
following terms have the following meanings:

"Acquired Company" means, as of any date of calculation of
EBITDAA, a Subsidiary acquired by a Company, or a Person all or
substantially all of the assets of which have been acquired by a
Company, and in each case having an Initial Report Date on or after
the last day of the fifth (5th) calendar month prior to such date of
calculation of EBITDAA.

"Acquired EBITDA" means, for each Acquired Company, either of
the following as approved by the Required Banks: (i) two times EBITDA
for such Acquired Company for the six (6) month period ended on the
date of calculation, or (ii) EBITDA for such Acquired Company for the
twelve (12) month period ended on the date of calculation, or (iii) if
EBITDA for such Acquired Company is calculated for a period ended on
the date of calculation which is longer than six (6) months but
shorter than twelve (12) months, the annualized amount of such EBITDA;
in each case calculated as of the Initial Report Date for such
Acquired Company, multiplied by (b) the EBITDA Factor for such
Acquired Company.

"Additional Costs" has the meaning specified in Section 6.1.

"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) determined by the Agent to be
equal to the Eurodollar Rate for such Eurodollar Loan for such
Interest Period divided by 1 minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.

"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with, such Person; (b)
that directly or indirectly beneficially owns or holds five percent or
more of any class of voting stock of such Person; or (c) five percent
or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Person in question. The term
"control" means the possession, directly or indirectly, of the power
to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by
contract, or otherwise; provided, however, in no event shall the
Agent, any Issuing Bank or any Bank be deemed an Affiliate of the
Borrower or any of its Subsidiaries.

"Alternate Base Rate" means, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day, or (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of

CREDIT AGREEMENT - Page 2
<PAGE> 8
1%. For purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Agent
as its prime rate in effect at its principal office in Houston, Texas;
and "Federal Funds Effective Rate" shall mean, for any day, the
weighted average 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 which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from three federal
funds brokers of recognized standing selected by it. If for any
reason the Agent determines (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate, for any reason, including the inability or
failure of the Agent to obtain sufficient quotations in accordance
with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition,
as appropriate, until the circumstances giving rise to such inability
no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.

"Alternate Base Rate Loans" means Loans, the interest rates on
which are determined on the basis of the rates referred to in the
definition of "Alternate Base Rate" in this Section 1.1.

"Applicable Commitment Fee Rate" means, for any day, a per
annum percentage rate that is subject to adjustment (upwards or
downwards, as appropriate) based on the Funded Debt to EBITDAA Ratio.
Effective as of the last day of each calendar month (each an
"Adjustment Date") the Applicable Commitment Fee Rate shall be
adjusted to reflect the Applicable Commitment Fee Rate prescribed
below for the Funded Debt to EBITDAA Ratio as demonstrated by the
Compliance Certificate delivered for that month:

<TABLE>
<CAPTION>
=======================================================================
APPLICABLE COMMITMENT
FUNDED DEBT TO EBITDAA RATIO FEE RATE
=======================================================================
<S> <C>
Less than .75 to 1.00 .250%
-----------------------------------------------------------------------
Greater than or equal to .75 to 1.00, but less
than 1.50 to 1.00 .250%
-----------------------------------------------------------------------
Greater than or equal to 1.5 to 1.00, but less
than 2.25 to 1.00 .250%
-----------------------------------------------------------------------
Greater than or equal to 2.25 to 1.00 .375%
=======================================================================
</TABLE>

The Applicable Commitment Fee Rate shall be .375% from the date hereof
until the first Adjustment Date after the date hereof that the
Compliance Certificate demonstrates a change in the Funded Debt to
EBITDAA Ratio to an amount so that another Applicable Commitment Fee
Rate shall be applied. After each adjustment of the Applicable

CREDIT AGREEMENT - Page 3
<PAGE> 9
Commitment Fee Rate in accordance herewith, the new Applicable
Commitment Fee Rate shall apply until the next Adjustment Date that
the Compliance Certificate demonstrates a change in the Funded Debt to
EBITDAA Ratio to an amount so that another Applicable Commitment Fee
Rate shall be applied. Upon the request of the Agent, the Borrowers
must demonstrate to the reasonable satisfaction of the Required Banks
the required applicable ratio in order to obtain an adjustment to a
lower Applicable Commitment Fee Rate. If the Borrowers fail to
furnish to the Agent any Compliance Certificate by the date required
by this Agreement, then the maximum Applicable Commitment Fee Rate
shall apply until the Borrowers furnish the required Compliance
Certificate to the Agent.

"Applicable Lending Office" means for each Bank and each Type
of Loan, the Lending Office of such Bank (or of an Affiliate of such
Bank) designated for such Type of Loan below its name on the signature
pages hereof or such other office of such Bank (or of an Affiliate of
such Bank) as such Bank may from time to time specify to the Borrower
and the Agent as the office by which its Loans of such Type are to be
made and maintained.

"Applicable Margin" means, for any day, the margin of interest
over the Eurodollar Rate or Alternate Base Rate, as the case may be,
that is applicable when any Applicable Rate based on the Eurodollar
Rate or the Alternate Base Rate is determined under this Agreement.
The Applicable Margin is subject to adjustment (upwards or downwards,
as appropriate) based on the Funded Debt to EBITDAA Ratio. Effective
as of the last day of each calendar month (each an "Adjustment Date")
the Applicable Margin for each type of Loan shall be adjusted to
reflect the Applicable Margin prescribed below for the Funded Debt to
EBITDAA Ratio as demonstrated by the Compliance Certificate delivered
for that month:

<TABLE>
<CAPTION>
===============================================================================
FUNDED DEBT TO EURODOLLAR RATE ALTERNATE BASE RATE
EBITDAA RATIO APPLICABLE MARGIN APPLICABLE RATE
===============================================================================
<S> <C> <C>
Less than .75 to 1.00 1.25% 0%
-------------------------------------------------------------------------------
Greater than or equal to .75 to 1.75% 0%
1.00, but less than 1.50 to 1.00
-------------------------------------------------------------------------------
Greater than or equal to 1.50 to 2.25% .250%
1.00, but less than 2.25 to 1.00
-------------------------------------------------------------------------------
Greater than or equal to 2.25 to 1.00 2.75% .750%
===============================================================================
</TABLE>

The Applicable Margin shall be .750% with respect to the Alternate
Base Rate and 2.75% with respect to the Eurodollar Rate from the date
hereof until the first Adjustment Date after the date hereof that the
Compliance Certificate demonstrates a change in the Funded Debt to
EBITDAA Ratio to an amount so that another Applicable Margin shall be
applied. After each adjustment of the Applicable Margin for each Type
of Loan in

CREDIT AGREEMENT - Page 4
<PAGE> 10
accordance herewith, the new Applicable Margin for each Type of Loan
shall apply to all Loans of each such Type thereafter outstanding or
made until the next Adjustment Date that the Compliance Certificate
demonstrates a change in the Funded Debt to EBITDAA Ratio to an amount
so that another Applicable Margin shall be applied. Upon the request
of the Agent, the Borrowers must demonstrate to the reasonable
satisfaction of the Required Banks the required applicable ratio in
order to obtain an adjustment to a lower applicable margin for each
Type of Loan. If the Borrowers fail to furnish to the Agent any
Compliance Certificate by the date required by this Agreement, then
the maximum Applicable Margin shall apply to all Loans of each such
Type thereafter outstanding or made until the Borrowers furnish the
required Compliance Certificate to the Agent.

"Applicable Rate" means: (a) during the period that a Loan is
an Alternate Base Rate Loan, the Alternate Base Rate plus the
Applicable Margin; and (b) during the period that a Loan is a
Eurodollar Loan, the Adjusted Eurodollar Rate plus the Applicable
Margin.

"Assignee" has the meaning assigned to it in Section 15.7(b).

"Assigning Bank" has the meaning assigned to it in Section
15.7(b).

"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and its assignee and accepted by the Agent
pursuant to Section 15.7, in substantially the form of Exhibit "J"
hereto.

"Assignments of Life Insurance" shall have the meaning
specified in Section 7.1(f).

"Borrower Security Agreements" means the Security Agreements
of the Borrowers in favor of the Agent for the benefit of the Agent,
the Banks and the Issuing Banks, in substantially the form of Exhibit
"D-1" hereto, as the same may be amended, supplemented, or modified.

"Business Day" means (a) a day other than Saturday, Sunday or
day on which commercial banks in Houston, Texas are not authorized or
required to close, and, (b) with respect to all borrowings, payments,
Conversions, Continuations, Interest Periods, and notices in
connection with Eurodollar Loans, any day which is a Business Day
described in clause (a) above and which is also a day on which
dealings in Dollar deposits are carried out in the Eurodollar
interbank market.

"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease
of (or other agreement conveying the right to use) real and/or
personal property, which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP. For

CREDIT AGREEMENT - Page 5
<PAGE> 11
purposes of this Agreement, the amount of such Capital Lease
Obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.

"Closing Date" means May 16, 1996, which shall be the date of
the closing of the transactions contemplated by this Agreement and
delivery of the items required to be delivered pursuant to Section
8.1.

"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated and rulings issued thereunder.

"Collateral" has the meaning specified in Section 7.1.

"Commitments" means, as to each Bank, its Revolving Credit
Commitment and its Term Loan Commitment.

"Companies" means Holdings and (a) all of its affiliated
entities including, without limitation, those entities described on
Schedule 1 hereto, (b) Subsidiaries of any other present or future
Company formed or acquired after the date of this Agreement, and (c)
the successors and assigns of each of the foregoing entities.

"Company Credit Agreement" has the meaning specified in the
Recitals hereto.

"Consolidated Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of the Companies.

"Continue," "Continuation," and "Continued" shall refer to the
continuation pursuant to Section 5.2 of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.

"Contribution and Indemnification Agreement" has the meaning
specified in Section 8.1(q).

"Convert," "Conversion," and "Converted" shall refer to a
conversion pursuant to Section 5.2 or Article VI of one Type of Loan
into another Type of Loan.

"Default" means an Event of Default or the occurrence of an
event or condition which with notice or lapse of time or both would
become an Event of Default.

"Default Rate" means the lesser of (i) the Maximum Rate, or
(ii) the sum of the Applicable Rate in effect from day to day, plus
four percent (4%).

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

CREDIT AGREEMENT - Page 6
<PAGE> 12
"EBITDA" means, for any Person for any period, the sum of the
following for such period determined in accordance with GAAP on a
consolidated basis: (a) net income before provision for income taxes,
plus (b) Interest Expense, plus (c) depreciation, amortization and
other non-cash charges to the extent actually deducted in arriving at
net income, minus (d) extraordinary income, plus (e) extraordinary
losses, minus (f) depreciation, relating to the Rockwell Project.

"EBITDA Factor" means, for each Acquired Company as of any
date of calculation of EBITDAA, the percentage set forth below
corresponding to the Initial Report Date for such Acquired Company,
relative to such date of calculation of EBITDAA:

<TABLE>
<CAPTION>
=======================================================================
INITIAL REPORT DATE EBITDA FACTOR
=======================================================================
<S> <C>
Same as date of calculation of 1.000
EBITDAA
-----------------------------------------------------------------------
Last day of first calendar month prior
to date of calculation of EBITDAA .667
-----------------------------------------------------------------------
Last day of second calendar month
prior to date of calculation of
EBITDAA .500
-----------------------------------------------------------------------
Last day of third calendar month prior
to date of calculation of EBITDAA .417
-----------------------------------------------------------------------
Last day of fourth calendar month
prior to date of calculation of
EBITDAA .333
-----------------------------------------------------------------------
Last day of fifth calendar month prior
to date of calculation of EBITDAA .167
=======================================================================
</TABLE>

"EBITDAA" means, as of any date, the sum of (a) two times
EBITDA for the Companies on a consolidated basis for the six (6) month
period ended on such date, plus (b) the Acquired EBITDA for all
Acquired Companies.

"Eligible Assignee" means any commercial bank, savings and
loan association, savings bank or other financial institution having
capital and surplus of at least $100,000,000 and reasonably acceptable
to the Agent.

"Environmental Laws" means any and all federal, state, and
local laws, regulations, and requirements pertaining to health,
safety, or the environment, as such laws, regulations, and
requirements may be amended or supplemented from time to time.

CREDIT AGREEMENT - Page 7
<PAGE> 13
"Environmental Liabilities" means, as to any Person, all
liabilities, obligations, responsibilities, remedial actions, losses,
damages, costs, and expenses (including, without limitation, all
reasonable fees, disbursements and expenses of counsel, expert and
consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest arising from environmental,
health or safety conditions or the Release or threatened Release of a
Hazardous Material into the environment, resulting from the past,
present, or future operations of such Person or its Affiliates.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder.

"ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as the Borrower or is under
common control (within the meaning of Section 414(c) of the Code) with
the Borrower.

"Eurodollar Loans" means Loans the interest rates on which are
determined on the basis of the rates referred to in the definition of
"Adjusted Eurodollar Rate" in this Section 1.1.

"Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) at which the Reference Bank or
any of its Affiliates is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the first day of
such Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of
its Eurodollar Loans are then being conducted for delivery on the
first day of such Interest Period for a number of days comprised
therein and in an amount comparable to the principal amount of the
Eurodollar Loan to which such Interest Period relates.

"Event of Default" has the meaning specified in Section 13.1.

"Excess Cash Flow" means, for any Person for any period, the
sum of the following determined in accordance with GAAP on a
consolidated basis: (a) net income, plus (b) depreciation,
amortization, non-cash taxes and other non-cash charges to the extent
actually deducted in arriving at net income for such period, minus (c)
other non-cash gains, minus (d) total scheduled principal payments on
long term debt during such period, minus (e) optional principal
prepayments on the Term Loans during such period, minus (f) Interest
Expense paid in cash for such period, minus (f) Unleveraged
Nonreimbursed Capital Expenditures made during such period, minus (g)
total scheduled payments made in respect of Capital Lease Obligations.

"Existing Revolving Loan" has the meaning specified in the
Recitals hereto.

"Existing Term Loans" has the meaning specified in the
Recitals hereto.

CREDIT AGREEMENT - Page 8
<PAGE> 14
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day,
provided that (a) if the day for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (b) if such rate
is not so published on such next succeeding Business Day, the Federal
Funds Rate for any day shall be the average rate charged to TCB on
such day on such transactions as determined by the Agent.

"Fee Letter" means the letter agreement dated April 24, 1996,
between the Agent and Holdings.

"Fixed Charge Coverage Ratio" means, as of any date, the ratio
determined on a consolidated basis of (a) EBITDAA, less (i) two times
cash taxes paid by the Companies during the six (6) month period ended
on such date less, (ii) two times the Unleveraged Nonreimbursed
Capital Expenditures for the six (6) month period ended on such date,
plus (iii) two times the amount of capital expenditures made during
the six (6) month period ended on such date that were paid in cash by
the companies in connection with the Rockwell Project and reimbursed
in advance by Medicare to (b) the sum of (i) the total scheduled
principal payments and mandatory principal prepayments (excluding the
amount of any mandatory principal prepayments made pursuant to Section
3.5 of this Agreement) on long-term debt and Capital Lease Obligations
of the Companies (including any payment obligations or debt that are
not subordinated to the Obligations in form and substance satisfactory
to Lender in its sole discretion and that would arise in connection
with any mandatory redemption of equity or conversion of equity to
debt) during the twelve (12) month period beginning on such date, plus
(ii) two times the Interest Expense of the Companies for the six (6)
month period ended on such date.

"Funded Debt" means at any time (without duplication): (a) all
obligations of the Companies, or any of them, for borrowed money and
all obligations of the Companies, or any of them, evidenced by bonds,
notes, debentures, or other similar instruments, including without
limitation the indebtedness of the Borrowers pursuant to this
Agreement, (b) all Capital Lease Obligations of the Companies, or any
of them, (c) all debt or other obligations of others Guaranteed by the
Companies, or any of them, (d) all reimbursement obligations of the
Companies, or any of them (whether contingent or otherwise) in respect
of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments, (e) all obligations of the Companies, or any of
them, to pay the deferred purchase price of property or services,
except trade accounts payable of the Companies, or any of them,
arising in the ordinary course of business that are not past due by
more than ninety (90) days, (f) all obligations secured by a Lien
existing on property owned by the Companies, or any of them, whether
or not the obligations secured thereby have been assumed by the
Companies, or any of them, or are non-recourse to the

CREDIT AGREEMENT - Page 9
<PAGE> 15
credit of the Companies, or any of them, and (g) all other debt of the
Companies, or any of them.

"Funded Debt to EBITDAA Ratio" means, at any time, the ratio
of Funded Debt to EBITDAA.

"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards
Board and/or their respective successors and which are applicable in
the circumstances as of the date in question. Accounting principles
are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to
those accounting principles applied in a preceding period.

"Governmental Authority" means any nation or government, any
state or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any debt
or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such debt or
other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose
of assuring in any other manner the obligee of such debt or other
obligation of the payment thereof or to protect the obligee against
loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.

"Guaranties" means (i) the guaranties of the respective
Guarantors in favor of the Agent for the benefit of the Agent, the
Issuing Banks and the Banks, each in substantially the form of Exhibit
"E-1" hereto, as the same may be amended, supplemented or modified,
(ii) the guaranties, each in substantially the form of Exhibit "E-1"
hereto, hereafter executed by any Companies formed or acquired after
the date of this Agreement, as the same may be amended, supplemented
or modified, and (iii) the guaranties of each of the Borrowers with
respect to the Obligations of the other Borrower, each in
substantially the form of Exhibit "E-2" hereto, as the same may be
amended, supplemented or modified.

"Guarantors" means the Companies other than the Borrowers.

CREDIT AGREEMENT - Page 10
<PAGE> 16
"Hazardous Material" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other
material which is or becomes listed, regulated, or addressed under any
Environmental Law, including, without limitation, asbestos, petroleum,
and polychlorinated biphenyls.

"Health Care Regulators" means all federal and state
governmental regulators and accreditation agencies and their
respective official intermediaries and/or carriers, including without
limitation the Texas Department of Health, and the Health Care
Financing Administration and its intermediary and/or carrier.

"Holdings Credit Agreement" has the meaning specified in the
Recitals hereto.

"Holdings Pledge Agreement" means that certain pledge
agreement in favor of the Agent for the benefit of the Agent, the
Issuing Banks and the Banks, in substantially the form of Exhibit
"F-1" hereto, as the same may be amended, supplemented or modified.

"HOME" means HealthCor Oxygen and Medical Equipment, Inc.
(formerly known as Permian Medical, Inc. and successor in interest by
merger to Colfax Medical Service and Supply, Inc., L.M. Supply &
Service, Inc. and Arlington Diversified Medical Equipment, Inc.), a
Texas corporation.

"HOME Holdings" means HealthCor Oxygen and Medical Equipment
Holdings, Inc. (formerly known as HealthCor Oxygen and Medical
Equipment, Inc.), a Texas corporation.

"HOME Holdings Pledge Agreement" means that certain pledge
agreement in favor of the Agent for the benefit of the Agent, the
Issuing Banks and the Banks, in substantially the form of Exhibit
"F-2" hereto, as the same may be amended, supplemented or modified.

"HOME Pledge Agreement" means that certain pledge agreement in
favor of the Agent for the benefit of the Agent, the Issuing Banks and
the Banks, in substantially the form of Exhibit "F-3" hereto, as the
same may be amended, supplemented or modified.

"Initial Report Date" for an Acquired Company means either (a)
the last day of the calendar month in which the stock or assets of
such Acquired Company are acquired by a Company, or (b) the last day
of the calendar month immediately preceding the calendar month in
which the stock or assets of such Acquired Company are acquired by a
Company, or (c) if the requisite financial information cannot be
determined for the dates or periods set forth in clause (a) or clause
(b) above, then the last day of another preceding calendar month
approved by the Required Banks.

"Interest Expense" means for any Person for any period of
calculation thereof, all interest (whether accrued as a liability and
payable in cash or imputed) on debt, liabilities or other obligations
of such Person during such period.

CREDIT AGREEMENT - Page 11
<PAGE> 17
"Interest Period" means with respect to any Eurodollar Loans,
each period commencing on the date such Loan is made or converted from
an Alternate Base Rate Loan or, in the case of each subsequent,
successive Interest Period applicable to a Eurodollar Loan, the last
day of the next preceding Interest Period with respect to such Loan,
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the applicable Borrower
may select as provided in Section 5.1, except that each such Interest
Period which commences on the last Business Day of a calendar month
(or on any day for which there is no numerically corresponding day in
the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (or, if such succeeding Business Day
falls in the next succeeding calendar month, on the next preceding
Business Day); (b) any Interest Period for a Eurodollar Loan which
would otherwise extend beyond the maturity date of the Note evidencing
such Eurodollar Loan shall end on the maturity date of such Note; (c)
no more than four (4) Interest Periods shall be in effect at the same
time; (d) no Interest Period shall have a duration of less than one
(1) month and, if the Interest Period would otherwise be a shorter
period, Eurodollar Loans shall not be available hereunder, and (e) no
Interest Period for any Loans may extend beyond a principal repayment
date unless, after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the Loans
to be outstanding hereunder after such principal payment date.

"Issuing Bank" means, with respect to any Letter of Credit,
TCB or any of its Affiliates or, with the approval of the Agent, any
other Bank which chooses to be an Issuing Bank hereunder, in its
capacity as issuer of each Letter of Credit.

"L/C Application" has the meaning specified in Section 4.1.

"L/C Documents" has the meaning specified in Section 4.1.

"LC Participation" means, with respect to any Bank at any
time, the amount of the participating interest held by such Bank in
respect of a Letter of Credit.

"Letter of Credit" means any standby letter of credit issued
by an Issuing Bank for the account of the Company pursuant to Article
IV.

"Letter of Credit Liabilities" means, at any time, the
aggregate face amounts of all outstanding Letters of Credit.

"Letter of Credit Request Form" means a certificate, in
substantially the form of Exhibit "C" hereto, properly completed and
signed by the Company requesting issuance of a Letter of Credit.

CREDIT AGREEMENT - Page 12
<PAGE> 18
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or
title retention agreement), whether arising by contract, operation of
law, or otherwise.

"Loan Documents" means this Agreement and all promissory
notes, security agreements, pledge agreements, deeds of trust, fee
letters, assignments, guaranties, letters of credit, letter of credit
applications and other instruments, documents, and agreements executed
and delivered pursuant to or in connection with this Agreement, as
such instruments, documents, and agreements may be amended, modified,
renewed, extended, or supplemented from time to time.

"Loan Request Form" means a certificate, in substantially the
form of Exhibit "B-1" hereto, properly completed and signed by the
Company with respect to Revolving Credit Loans or Holdings with
respect to Term Loans, requesting a Loan.

"Loans" means the Revolving Credit Loans and the Term Loans.

"Maximum Rate" means, at any time and with respect to any
Bank, the maximum rate of interest under applicable law that such Bank
may charge the Borrowers. The Maximum Rate shall be calculated in a
manner that takes into account any and all fees, payments, and other
charges in respect of the Loan Documents that constitute interest
under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to the Borrowers at the
time of such change in the Maximum Rate. For purposes of determining
the Maximum Rate under Texas law, the applicable rate ceiling shall be
the indicated rate ceiling described in, and computed in accordance
with, Article 5069-1.04, Vernon's Texas Civil Statutes.

"Multiemployer Plan" means a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made
by Holdings or any ERISA Affiliate and which is covered by Title IV of
ERISA.

"Notes" means the Revolving Credit Notes and the Term Notes.

"Notice of Continuation or Conversion" means a certificate, in
substantially the form of Exhibit "B-2" hereto, properly completed and
signed by the applicable Borrower requesting the conversion of a Loan
from one Type into another Type or the continuation of a Eurodollar
Loan.

"Obligated Party" means any Guarantor or any other Person who
is or becomes party to any agreement that guarantees or secures
payment and performance of the Obligations or any part thereof.

CREDIT AGREEMENT - Page 13
<PAGE> 19
"Obligations" means all obligations, indebtedness, and
liabilities of the Borrowers to the Agent, the Issuing Banks and the
Banks, or any of them, arising pursuant to any of the Loan Documents,
now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several, including, without limitation, the
obligations, indebtedness, and liabilities of the Borrowers under this
Agreement and the other Loan Documents (including, without limitation,
all of the Company's contingent reimbursement obligations in respect
of Letters of Credit), and all interest accruing thereon and all
attorneys' fees and other expenses incurred in the enforcement or
collection thereof.

"Operating Lease" means any lease (other than a lease
constituting a Capital Lease Obligation) of real or personal property.

"Payor" has the meaning assigned to it in Section 5.6.

"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.

"Permitted Debt" has the meaning specified in Section 11.1.

"Permitted Liens" has the meaning specified in Section 11.2.

"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental
Authority, or other entity.

"Pharmacy" means HealthCor Pharmacy, Inc., a Texas
corporation.

"Pharmacy Pledge Agreement" means that certain pledge
agreement in favor of the Agent for the benefit of the Agent, the
Issuing Banks and the Banks, in substantially the form of Exhibit
"F-4" hereto, as the same may be amended, supplemented or modified.

"Plan" means any employee benefit or other plan established or
maintained by Holdings or any ERISA Affiliate and which is covered by
Title IV of ERISA.

"Pledge Agreements" means the Holdings Pledge Agreement, the
HOME Holdings Pledge Agreement, the HOME Pledge Agreement and the
Pharmacy Pledge Agreement.

"Preferred Stock Purchase Agreements" means Holdings'
Convertible Preferred Stock Purchase Agreement dated October 18, 1989,
as amended, and Series B Convertible Preferred Stock Purchase
Agreement dated June 1, 1992, as amended.

"Principal Office" means the principal office of the Agent,
presently located at 707 Travis, Houston, Texas 77002.

CREDIT AGREEMENT - Page 14
<PAGE> 20
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.

"Quarterly Payment Date" means the first day of each February,
May, August and November of each year, the first of which shall be the
first such day after the date of this Agreement.

"Reference Bank" means Texas Commerce Bank National
Association.

"Register" has the meaning assigned to it in Section 15.7(d).

"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented
from time to time.

"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States federal,
state, or foreign laws or regulations (including Regulation D) or the
adoption or making after such date of any interpretations, directives,
or requests applying to a class of banks including such Bank of or
under any United States federal or state, or any foreign, laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.

"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.

"Required Banks" means at any time while no Loans or Letter of
Credit Liabilities are outstanding, Banks having at least 75% of the
aggregate amount of the Commitments and, at any time while Loans or
Letter of Credit Liabilities are outstanding, Banks holding at least
75% of the outstanding aggregate principal amount of the Loans and LC
Participations.

"Required Payment" has the meaning assigned to it in Section
5.6.

"Reserve Requirement" means, for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion Dollars against "Eurocurrency
Liabilities" as such term is used in Regulation D. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (ii) any category of
extensions of credit or other assets which include Eurodollar Loans.

CREDIT AGREEMENT - Page 15
<PAGE> 21
"Revolving Credit Commitment" means, as to each Bank, the
obligation of such Bank to make Revolving Credit Loans and purchase
participations in Letters of Credit pursuant to Section 4.1 in an
aggregate principal amount at any one time outstanding up to but not
exceeding the amount set forth opposite the name of such Bank on the
signature pages hereto under the heading "Revolving Credit
Commitment," or in the Assignment and Acceptance pursuant to which
such Lender assumed its Revolving Credit Commitment, as applicable, as
the same may be (a) reduced pursuant to Section 2.7 or terminated
pursuant to Section 2.7 or 13.2 and (b) reduced or increased from time
to time pursuant to assignments by or to such Bank pursuant to Section
15.7.

"Revolving Credit Loan" means, as to each Bank, the loans to
be made by such Bank pursuant to Section 2.1.

"Revolving Credit Note" means a promissory note of the Company
payable to the order of a Bank, in substantially the form of Exhibit
"A-1" hereto, and all extensions, renewals, and modifications thereof
and all substitutions therefor.

"Revolving Credit Termination Date" means 10:00 A.M. Houston,
Texas time on June 30, 1999, or such earlier date and time on which
the Revolving Credit Commitments terminate as provided in this
Agreement.

"RICO" means the Racketeer Influenced and Corrupt Organization
Act of 1970, as amended from time to time.

"Rockwell Project" means that certain software consulting and
design project conducted pursuant to a consulting agreement with
Rockwell International.

"Security Agreements" means (i) the Security Agreements in
favor of the Agent for the benefit of the Agent, the Issuing Banks and
the Banks, each in the form of Exhibit "D-1" hereto for each Borrower
or Exhibit "D-2" hereto for each Guarantor, as the same may be
amended, supplemented or modified, and (ii) the Security Agreements,
each in substantially the form of Exhibit "D-2" hereto, hereafter
executed by any Companies formed or acquired after the date of this
Agreement, as the same may be amended, supplemented or modified.

"Subsidiary" means any corporation of which at least a
majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by Holdings or one or more of the Subsidiaries or by Holdings and one
or more of the Subsidiaries.

"Term Loan" means as to each Bank, the term loan to be made by
such Bank pursuant to Section 3.1.

CREDIT AGREEMENT - Page 16
<PAGE> 22
"Term Loan Commitments" means, as to each Bank, the obligation
of such Bank to make a Term Loan hereunder in the principal amount set
forth opposite the name of such Bank on the signature pages hereto
under the heading "Term Loan Commitment" or on the signature pages of
an Assignment and Acceptance, as the case may be.

"Term Loan Maturity Date" means 10:00 a.m. Houston, Texas time
on June 30, 2001.

"Term Note" means a promissory note of Holdings payable to the
order of a Bank, in substantially the form of Exhibit "A-2" hereto,
and all extensions, renewals, and modifications thereof and all
substitutions therefor.

"Termination Date" means, with respect to the Revolving Credit
Commitments, the Revolving Credit Termination Date, and with respect
to the Term Loan Commitments, May 16, 1996.

"Type" means any type of Loan (i.e., Alternate Base Rate Loan
or Eurodollar Loan).

"UCC" means the Uniform Commercial Code as in effect in the
State of Texas.

"Unleveraged Nonreimbursed Capital Expenditures" means, for
any period of determination, the total capital expenditures of the
Companies less increases in long term debt directly associated with
those expenditures less any reimbursements of such expenditures paid
in cash by Medicare during such period.

Section 1.2 Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof," "herein," and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain to this
Agreement. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC.

ARTICLE II

Revolving Credit Loans

Section 2.1 Revolving Credit Commitments. Subject to the terms
and conditions of this Agreement, each Bank severally agrees to make one or
more Revolving Credit Loans to the Company from time to time from the date
hereof to and including the Revolving Credit Termination Date in an aggregate
principal amount at any time outstanding up to but not exceeding the amount of
such Bank's Revolving Credit Commitment as then in effect, provided that the
aggregate amount of all Revolving Credit Loans at any time outstanding shall
not exceed

CREDIT AGREEMENT - Page 17
<PAGE> 23
the aggregate amount of the Revolving Credit Commitments minus the outstanding
Letter of Credit Liabilities. Subject to the foregoing limitations, and the
other terms and provisions of this Agreement, the Company may borrow, repay,
and reborrow hereunder the amount of the Revolving Credit Commitments by means
of Alternate Base Rate Loans and Eurodollar Loans and, until the Revolving
Credit Termination Date, the Company may Convert Loans of one Type into Loans
of another Type. Loans of each Type made by each Bank shall be made and
maintained at such Bank's Applicable Lending Office for Loans of such Type.

Section 2.2 Revolving Credit Notes. The obligation of the
Company to repay each Bank for Revolving Credit Loans made by such Bank and
interest thereon shall be evidenced by a Revolving Credit Note executed by the
Company, payable to the order of such Bank, in the principal amount of such
Bank's Revolving Credit Commitment, and dated the date hereof or such later
date as may be required with respect to transactions contemplated by Section
15.7.

Section 2.3 Repayment of Revolving Credit Loans. The Company
shall repay the unpaid principal amount of all Revolving Credit Loans on the
Revolving Credit Termination Date.

Section 2.4 Interest. The unpaid principal amount of the
Revolving Credit Loans shall bear interest at a varying rate per annum equal
from day to day to the lesser of (a) the Maximum Rate, or (b) the Applicable
Rate. If at any time the Applicable Rate for any Revolving Credit Loan shall
exceed the Maximum Rate, thereby causing the interest accruing on such
Revolving Credit Loan to be limited to the Maximum Rate, then any subsequent
reduction in the Applicable Rate for such Revolving Credit Loan shall not
reduce the rate of interest on such Revolving Credit Loan below the Maximum
Rate until the aggregate amount of interest accrued on such Revolving Credit
Loan equals the aggregate amount of interest which would have accrued on such
Revolving Credit Loan if the Applicable Rate had at all times been in effect.
Accrued and unpaid interest on the Revolving Credit Loans shall be due and
payable as follows:

(i) in the case of Alternate Base Rate Loans, on the
fifth (5th) day of each calendar month;

(ii) in the case of each Eurodollar Loan, on the last day
of the Interest Period with respect thereto and in the case of an
Interest Period with a duration greater than three months, on the last
day of each third month during such Interest Period;

(iii) upon the payment or prepayment of any Revolving
Credit Loan or the Conversion of any Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid, or Converted); and

(iv) on the Revolving Credit Termination Date.

Notwithstanding the foregoing, any outstanding principal of any Revolving
Credit Loan and (to the fullest extent permitted by law) any other amount
payable by the Company under this

CREDIT AGREEMENT - Page 18
<PAGE> 24
Agreement or any other Loan Document that is not paid in full when due (whether
at stated maturity, by acceleration, or otherwise) shall bear interest at the
Default Rate for the period from and including the due date thereof to but
excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand.

Section 2.5 Use of Proceeds. The proceeds of Revolving Credit
Loans shall be used by the Company for general corporate purposes, including
support of working capital, issuance of Letters of Credit for all Subsidiaries
and to refinance the outstanding indebtedness of the Company to TCB under the
Existing Revolving Loan.

Section 2.6 Commitment Fee. The Company agrees to pay to the
Agent for the account of each Bank a commitment fee on the daily average unused
amount of such Bank's Revolving Credit Commitment for the period from and
including the date of this Agreement to and including the Revolving Credit
Termination Date, at the Applicable Commitment Fee Rate based on a 360 day year
and the actual number of days elapsed. For the purposes of calculating the
commitment fee hereunder, the Revolving Credit Commitment shall be deemed
utilized by the amount of all outstanding Revolving Credit Loans and Letters of
Credit. Accrued commitment fee shall be payable in arrears on each Quarterly
Payment Date and on the Revolving Credit Termination Date.

Section 2.7 Reduction or Termination of Revolving Credit
Commitments. Subject to the terms of Section 5.4 regarding prepayments, the
Company shall have the right to terminate in whole or reduce in part the unused
portion of the Revolving Credit Commitments upon at least three Business Days'
prior notice (which notice shall be irrevocable) to the Agent specifying the
effective date thereof, whether a termination or reduction is being made, and
the amount of any partial reduction, provided, however, the aggregate Revolving
Credit Commitments shall never be reduced below an amount equal to the
outstanding Letter of Credit Liabilities. Each partial reduction shall be in
the amount of $100,000 or an integral multiple thereof and the Company shall
simultaneously prepay the amount by which the unpaid principal amount of the
Revolving Credit Loans plus the outstanding Letter of Credit Liabilities
exceeds the Revolving Credit Commitments (after giving effect to such notice)
plus accrued and unpaid interest on the principal amount so prepaid. The
Commitments may not be reinstated after they have been terminated or reduced.

ARTICLE III

Term Loans

Section 3.1 Term Loans. Subject to the terms and conditions of
this Agreement, each Bank agrees to make a Term Loan to Holdings in the amount
of its Term Loan Commitment in a single advance on or before May 16, 1996.

Section 3.2 The Term Notes. The obligation of Holdings to repay
the Term Loans and interest thereon shall be evidenced by the Term Notes, each
of which shall be executed by Holdings and payable to the order of a Bank, in
the principal amount of such Bank's Term Loan

CREDIT AGREEMENT - Page 19
<PAGE> 25
Commitment and dated the date hereof or such later date as may be required with
respect to transactions contemplated by Section 15.7.

Section 3.3 Repayment of Term Loans. Holdings shall repay the
unpaid principal amount of the Term Loans in eighteen consecutive quarterly
installments in the following amounts on the first day of each February, May,
August and November during each year set forth below, and a final installment
in the amount of all outstanding principal of the Term Loans shall be due and
payable on June 30, 2001.

<TABLE>
<CAPTION>
Year Payment
---- -------
<S> <C>
1997 $ 750,000
1998 $1,000,000
1999 $1,250,000
2000 $1,500,000
2001 $1,750,000
</TABLE>

Section 3.4 Interest. The unpaid principal amount of the Term
Loans shall bear interest at a varying rate per annum equal from day to day to
the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. If at any
time the Applicable Rate for any Term Loan shall exceed the Maximum Rate,
thereby causing the interest accruing on such Term Loan to be limited to the
Maximum Rate, then any subsequent reduction in the Applicable Rate for such
Term Loan shall not reduce the rate of interest on such Term Loan below the
Maximum Rate until the aggregate amount of interest accrued on such Term Loan
equals the aggregate amount of interest which would have accrued on such Term
Loan if the Applicable Rate had at all times been in effect. Accrued and
unpaid interest on the Term Loans shall be due and payable as follows:

(i) in the case of Alternate Base Rate Loans, on each
Quarterly Payment Date;

(ii) in the case of each Eurodollar Loan, on the last day
of the Interest Period with respect thereto and, in the case of an
Interest Period with a duration greater than three months, on the last
day of each third month during such Interest Period;

(iii) upon the payment or prepayment of any Term Loan or
the Conversion of any Loan to a Loan of another Type (but only on the
principal amount so paid, prepaid, or Converted); and

(iv) on the Term Loan Maturity Date.

Notwithstanding the foregoing, any outstanding principal of any Term Loan and
(to the fullest extent permitted by law) any other amount payable by the
Borrowers under this Agreement or any other Loan Document that is not paid in
full when due (whether at stated maturity, by acceleration, or otherwise) shall
bear interest at the Default Rate for the period from and including the due
date thereof to but excluding the date the same is paid in full. Interest
payable at the Default Rate shall be payable from time to time on demand.

CREDIT AGREEMENT - Page 20
<PAGE> 26
Section 3.5 Prepayments from Excess Cash Flow. If for any fiscal
year, commencing with the fiscal year ending December 31, 1996, there shall be
any Excess Cash Flow for such fiscal year, fifty percent (50%) of such Excess
Cash Flow shall be applied toward prepayment of installments of the Term Loans
in the inverse order of maturity. Such application of prepayments shall be
made first to Alternate Base Rate Loans and second to Eurodollar Loans. Each
such prepayment shall be made on or before the date that is seven (7) Business
Days after the earlier of (a) the date on which the financial statements
referred to in subsection 10.1(a) are required to be delivered to the Agent and
the Banks and (b) the date on which such financial statements are actually
delivered.

Section 3.6 Request for Term Loans. The Term Loans shall be made
on at least one Business Days prior notice from Holdings to the Agent by means
of a Loan Request Form containing the information required therein.

Section 3.7 Use of Proceeds. The proceeds of the Term Loans
shall be used by Holdings to (i) refinance the outstanding indebtedness of
Holdings to TCB under the Existing Term Loans, (ii) to finance the acquisition
of substantially all of the assets of I Care of Arkansas, Inc. and the
outstanding capital stock of certain Affiliates thereof, and (iii) for general
corporate purposes.

ARTICLE IV

Letters of Credit

Section 4.1 Letters of Credit. Subject to the terms and
conditions of this Agreement, the Issuing Banks agree to issue one or more
Letters of Credit for the account of the Company from time to time from the
date hereof to and including the Revolving Credit Termination Date; provided,
however, that the outstanding Letter of Credit Liabilities shall not at any
time exceed the lesser of (1) $1,000,000, or (2) an amount equal to the
aggregate amount of the Revolving Credit Commitments minus the sum of the
outstanding Revolving Credit Loans. Each Letter of Credit shall have an
expiration date not beyond the Revolving Credit Termination Date, shall be
payable in Dollars must be satisfactory in form and substance to the applicable
Issuing Bank, and shall be issued pursuant to such documents and instruments
(including, without limitation, such Issuing Bank's standard application for
issuance of letters of credit as then in effect [each an "L/C Application"]) as
such Issuing Bank may require (collectively, the "L/C Documents"). No Letter
of Credit shall require any payment by the Issuing Bank to the beneficiary
thereunder pursuant to a drawing prior to the third Business Day following
presentment of a draft and any related documents to the Issuing Bank.

Section 4.2 Participation by Banks. By the issuance of any
Letter of Credit (which shall include any letters of credit issued by TCB for
the account of the Company under the Company Credit Agreement that are
outstanding on the Closing Date) and without any further action on the part of
the applicable Issuing Bank or any of the Banks in respect thereof, each
Issuing Bank hereby grants to each Bank and each Bank hereby agrees to acquire
from each Issuing Bank a participation in each such Letter of Credit and the
related Letter of Credit

CREDIT AGREEMENT - Page 21
<PAGE> 27
Liabilities, effective upon the issuance thereof without recourse or warranty,
equal to such Bank's pro rata part (based on the Revolving Credit Commitments)
of such Letter of Credit and Letter of Credit Liabilities. Each Issuing Bank
shall provide a copy of each Letter of Credit to each other Bank promptly after
issuance. This agreement to grant and acquire participations is an agreement
between each Issuing Bank and the Banks, and neither the Company nor any
beneficiary of a Letter of Credit shall be entitled to rely thereon. The
Company agrees that each Bank purchasing a participation from any Issuing Bank
pursuant to this Section 4.2 may exercise all its rights to payment against the
Company including the right of setoff, with respect to such participation as
fully as if such Bank were the direct creditor of the Company in the amount of
such participation.

Section 4.3 Procedure for Issuing Letters of Credit. Each Letter
of Credit shall be issued on at least three Business Days prior notice from the
Borrower to the applicable Issuing Bank (with a copy to the Agent) by means of
a Letter of Credit Request Form describing the transaction proposed to be
supported thereby and specifying the information required therein. Such
Issuing Bank shall notify each Bank of the contents of each such notice on the
day such notice is received by such Issuing Bank if received by 11:00 a.m.
Houston, Texas time on a Business Day and otherwise on the next succeeding
Business Day. Upon fulfillment of the applicable conditions precedent
contained in Article VIII, such Issuing Bank shall make the applicable Letter
of Credit available to the Company or, if so requested by the Company, to the
beneficiary of the Letter of Credit.

Section 4.4 Reimbursements; Payments Constitute Revolving Credit
Loans. Each payment by an Issuing Bank pursuant to a drawing under a Letter of
Credit shall constitute and be deemed an Alternate Base Rate Loan by each Bank
to the Company under such Bank's Revolving Credit Note and this Agreement as of
the day and time such payment is made by such Issuing Bank and in the amount of
such Bank's pro rata share of such payment; provided, however, if the
applicable conditions precedent contained in Section 8.2 are not satisfied on
the date such payment is made, the Company shall pay to the Agent for the
account of the Issuing Bank, prior to 10:00 a.m. Houston, Texas time on the
Business Day immediately following the date such payment is made by the Issuing
Bank, the amount of such payment, together with interest thereon at the
Alternate Base Rate plus the Applicable Margin from the date such payment is
made by the Issuing Bank. If the Company fails to reimburse the Issuing Bank
for such drawing prior to 10:00 a.m. Houston, Texas time on the Business Day
following the date such payment is made by the Issuing Bank, such amount shall
bear interest at the Default Rate for the period from and including the due
date thereof to but excluding the date the same is paid in full. Promptly on
the Business Day immediately following the date each payment is made by an
Issuing Bank pursuant to a drawing under a Letter of Credit and after receipt
of notice from the Issuing Bank of the Company's failure to reimburse the
Issuing Bank for such payment and the amount of such payment, each Bank will
make available to the Agent for the account of the Issuing Bank at the
Principal Office in immediately available funds, such Bank's pro rata share of
such payment.

Section 4.5 Letter of Credit Fee. The Company shall pay to the
Agent for the account of the Banks (to be shared ratably) a nonrefundable
letter of credit fee payable on the date each

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<PAGE> 28
Letter of Credit is issued, renewed or extended in an amount equal to the
greater of (i) one and one-half percent (1-1/2%) per annum of the face amount
of such Letter of Credit, for the period during which such Letter of Credit
will remain outstanding, based on a 360 day year and the actual number of days
elapsed, or (ii) $500.00. Such letter of credit fee shall be payable upon the
issuance of each such Letter of Credit, as a condition to such issuance. A
nonrefundable fee in the amount of one-eighth of one percent (1/8%) per annum
of the average daily face amount of such Letter of Credit shall be payable by
the Company to the applicable Issuing Bank for its own account. In addition to
the foregoing fees, the Company shall pay or reimburse the applicable Issuing
Bank for such normal and customary costs and expenses as are incurred or
charged by such Issuing Bank in issuing, effecting payment under, amending or
otherwise administering any Letter of Credit.

Section 4.6 Obligations Absolute. The obligations of the
Borrowers under this Agreement and the other Loan Documents (including without
limitation the obligation of the Company to reimburse the applicable Issuing
Bank for draws under any Letter of Credit) shall be absolute, unconditional,
and irrevocable, and shall be performed strictly in accordance with the terms
of this Agreement and the other Loan Documents under all circumstances
whatsoever, including without limitation the following circumstances:

(a) Any lack of validity or enforceability of any Letter
of Credit or any other Loan Document;

(b) The existence of any claim, set-off, counterclaim,
defense or other rights which the Company, any Obligated Party, or any
other Person may have at any time against any beneficiary of any
Letter of Credit, the Issuing Bank, or any other Person, whether in
connection with this Agreement or any other Loan Document or any
unrelated transaction;

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

(d) Payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or other document which does
not comply with the terms of such Letter of Credit; or

(e) Any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.

Section 4.7 Limitation of Liability. The Company assumes all
risks of the acts or omissions of any beneficiary of any Letter of Credit with
respect to its use of such Letter of Credit. Neither the Issuing Bank, the
Agent, any Bank nor any of their officers or directors shall have any
responsibility or liability to the Company or any other Person for: (a) the
failure of any draft to bear any reference or adequate reference to any Letter
of Credit, or the failure of any documents to accompany any draft at
negotiation, or the failure of any Person to surrender or to

CREDIT AGREEMENT - Page 23
<PAGE> 29
take up any Letter of Credit or to send documents apart from drafts as required
by the terms of any Letter of Credit, or the failure of any Person to note the
amount of any instrument on any Letter of Credit, each of which requirements,
if contained in any Letter of Credit itself, it is agreed may be waived by the
Issuing Bank, (b) errors, omissions, interruptions, or delays in transmission
or delivery of any messages, (c) the validity, sufficiency, or genuineness of
any draft or other document, or any endorsement(s) thereon, even if any such
draft, document or endorsement should in fact prove to be in any and all
respects invalid, insufficient, fraudulent, or forged or any statement therein
is untrue or inaccurate in any respect, (d) the payment by the Issuing Bank to
the beneficiary of any Letter of Credit against presentation of any draft or
other document that does not comply with the terms of the Letter of Credit, or
(e) any other circumstance whatsoever in making or failing to make any payment
under a Letter of Credit. The Issuing Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.

Section 4.8 Letter of Credit Documents. Certain additional
provisions regarding the obligations, liabilities, rights, remedies and
agreements of the Company and the Issuing Bank relative to the Letters of
Credit shall be set forth in the L/C Documents.

ARTICLE V

Borrowing Procedure; Payments

Section 5.1 Borrowing Procedure. The Borrowers shall give the
Agent notice of each requested Loan by means of a Loan Request Form containing
the information therein required on the requested date of each Alternate Base
Rate Loan and at least three Business Days before the requested date of each
Eurodollar Loan. The Agent at its option may accept telephonic requests for
Loans, provided that such acceptance shall not constitute a waiver of the
Agent's right to delivery of a Loan Request Form in connection with subsequent
Loans. Any telephonic request for a Loan by any Borrower shall be promptly
confirmed by submission of a properly completed Loan Request Form to the Agent.
Each Revolving Credit Loan shall be in a minimum principal amount of $100,000
or an integral multiple thereof. The aggregate principal amount of Eurodollar
Loans having the same Interest Period shall be at least equal to $1,000,000.
The Agent shall notify each Bank of the contents of each such notice. Not
later than 12:00 P.M. Houston, Texas time on the date specified for each Loan
hereunder, each Bank will make available to the Agent at the Principal Office
in immediately available funds, for the account of the Borrower, its pro rata
share of each Loan. After the Agent's receipt of such funds and subject to the
other terms and conditions of this Agreement, the Agent will make each Loan
available to the Borrower by depositing the same, in immediately available
funds, in an account of the Borrower (designated by the Borrower) maintained
with the Agent at the Principal Office. All notices under this Section shall
be irrevocable and shall be given not later than 10:00 A.M. Houston, Texas,
time on the day which is not less than the number of Business Days specified
above for such notice.

Section 5.2 Conversions and Continuations. The Borrowers shall
have the right from time to time to Convert all or part of a Loan of one Type
into a Loan of another Type or to

CREDIT AGREEMENT - Page 24
<PAGE> 30
Continue Eurodollar Loans as Eurodollar Loans by giving the Agent written
notice at least three Business Days before Conversion or Continuation by means
of a Notice of Conversion or Continuation containing the information required
therein; provided that (i) Eurodollar Loans may only be Converted on the last
day of the Interest Period, and (ii) except for Conversions into Alternate Base
Rate Loans, no Conversions shall be made while a Default has occurred and is
continuing. The Agent shall promptly notify each Bank of the contents of each
such notice. All notices under this Section shall be irrevocable and shall be
given not later than 10:00 A.M. Houston, Texas time on the day which is not
less than the number of Business Days specified above for such notice. If the
applicable Borrower shall fail to give the Agent the notice as specified above
for Continuation or Conversion of a Eurodollar Loan prior to the end of the
Interest Period with respect thereto, such Eurodollar Loan shall be Converted
automatically into an Alternate Base Rate Loan on the last day of the then
current Interest Period for such Eurodollar Loan.

Section 5.3 Method of Payment. All payments of principal,
interest, and other amounts to be made by the Borrowers under this Agreement
and the other Loan Documents shall be made to the Agent at the Principal Office
for the account of each Bank's Applicable Lending Office in Dollars and in
immediately available funds, without setoff, deduction, or counterclaim, not
later than 10:00 A.M., Houston, Texas time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Each Borrower
shall, at the time of making each such payment, specify to the Agent the sums
payable by such Borrower under this Agreement and the other Loan Documents to
which such payment is to be applied (and in the event that such Borrower fails
to so specify, or if an Event of Default has occurred and is continuing, the
Agent may apply such payment to the Obligations in such order and manner as it
may elect in its sole discretion, subject to Section 5.6 hereof). Each payment
received by the Agent under this Agreement or any other Loan Document for the
account of a Bank shall be paid promptly to such Bank, in immediately available
funds, for the account of such Bank's Applicable Lending Office. Whenever any
payment under this Agreement or any other Loan Document shall be stated to be
due on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.

Section 5.4 Voluntary Prepayment. The Borrowers may, upon at
least one Business Day's prior notice to the Agent in the case of Alternate
Base Rate Loans and at least three Business Days' prior notice to the Agent in
the case of Eurodollar Loans, prepay the Loans in whole at any time or from
time to time in part without premium or penalty (except as set forth in Section
6.5) but with accrued interest to the date of prepayment on the amount so
prepaid, provided that (a) Eurodollar Loans may be prepaid only on the last day
of the Interest Period for such Loans, and (b) each partial prepayment shall be
in the principal amount of $1,000,000 or an integral multiple thereof.
Otherwise, the applicable Borrower shall pay to the Agent on demand for the
account of the Banks, any loss or expense that the Banks incur because of such
prepayment. All notices under this Section shall be irrevocable and shall be
given not later than 10:00 A.M. Houston, Texas, time on the day which is not
less than the number of Business Days specified above for such notice.

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<PAGE> 31
Section 5.5 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under Section 2.1 and
3.1 or deemed made by the Banks under Section 4.4, each payment of commitment
fee under Section 2.6 and letter of credit fee under Section 4.5 shall be made
for the account of the Banks, and each termination or reduction of the
Revolving Credit Commitments under Section 2.7 shall be applied to the
Revolving Credit Commitments of the Banks, pro rata according to the respective
unused Revolving Credit Commitments and each Letter of Credit shall be deemed
participated in by the Banks, pro rata according to the amounts of their
respective Revolving Credit Commitments; (b) the making, Conversion, and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 6.4) shall be made pro rata among the Banks holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment of principal of or interest on Loans by the Borrowers of a
particular Type shall be made to the Agent for the account of the Banks holding
Loans of such Type pro rata in accordance with the respective unpaid principal
amounts of such Loans held by such Banks; and (d) Interest Periods for Loans of
a particular Type shall be allocated among the Banks holding Loans of such Type
pro rata according to the respective principal amounts held by such Banks.

Section 5.6 Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Bank or a Borrower (the "Payor") prior to the
date on which such Bank is to make payment to the Agent of the proceeds of a
Loan to be made by it hereunder or such Borrower is to make a payment to the
Agent for the account of one or more of the Banks, as the case may be (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient on such date and,
if the Payor has not in fact made the Required Payment to the Agent, the
recipient of such payment shall, on demand, pay to the Agent the amount made
available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such period.

Section 5.7 Withholding Taxes.

(a) Each of the Borrowers agrees to pay to each Bank that
is not a U.S. Person such additional amounts as are necessary in order
that the net payment of any amount due to such non-U.S. Person
hereunder after deduction for or withholding in respect of any U.S.
taxes imposed with respect to such payment (or in lieu thereof,
payment of such U.S. taxes by such non-U.S. Person), will not be less
than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not
apply:

(i) to any payment to any Bank hereunder unless
such Bank is, on the date hereof (or on the date it becomes a
Bank hereunder as provided in Section 15.8 hereof) and on the
date of any change in the Applicable Lending Office of such
Bank, either entitled to submit a Form 1001 (relating to such
Bank

CREDIT AGREEMENT - Page 26
<PAGE> 32
and entitling it to a complete exemption from withholding on
all interest to be received by it hereunder in respect of the
Loans) or Form 4224 (relating to all interest to be received
by such Bank hereunder in respect of the Loans),

(ii) to any U.S. taxes imposed solely by reason of
the failure of such non-U.S. Person (or, if such non-U.S.
Person is not the beneficial owner of the relevant Loan, such
beneficial owner) to comply with applicable certification,
information, documentation or other reporting requirements
concerning the nationality, residence, identity or connections
with the United States of America of such non-U.S. Person (or
beneficial owner, as the case may be) if such compliance is
required by statute or regulation of the United States of
America as a precondition to relief or exemption from such
U.S. taxes.

For the purposes of this Section 5.8(a), (A) "Form 1001" shall mean
Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the
Department of the Treasury of the United States of America, and (B)
"Form 4224" shall mean Form 4224 (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade Business in
the United States) of the Department of the Treasury of the United
States of America (or in relation to either such Form such successor
and related forms as may from time to time be adopted by the relevant
taxing authorities of the United States of America to document a claim
to which such Form relates).

(b) Within 30 days after paying any amount to the Agent
or any Bank from which it is required by law to make any deduction or
withholding, and within 30 days after it is required by law to remit
such deduction or withholding to any relevant taxing or other
authority, the Borrowers shall deliver to the Agent for delivery to
such non-U.S. Person evidence satisfactory to such Person of such
deduction, withholding or payment (as the case may be).

Section 5.8 Withholding Tax Exemption. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrowers and the Agent two duly completed
copies of Form 1001 or 4224, certifying in either case that such Bank is
entitled to receive payments from the Borrowers under any Loan Document without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to the
Borrowers and the Agent two additional copies of such form (or a successor
form) on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrowers or the Agent, in each case certifying
that such Bank is entitled to receive payments from the Borrowers under any
Loan Document without deduction or withholding of any United States federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it

CREDIT AGREEMENT - Page 27
<PAGE> 33
and such Bank advises the Borrowers and the Agent that it is not capable of
receiving such payments without any deduction or withholding of United States
federal income tax.

Section 5.9 Computation of Interest. Interest on the Loans and
all other amounts payable by either of the Borrowers hereunder shall be
computed on the basis of a year of 360 days and the actual number of days
elapsed (including the first day but excluding the last day) unless such
calculation would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be.

ARTICLE VI

Yield Protection and Illegality

Section 6.1 Additional Costs.

(a) Each of the Borrowers shall pay directly to each Bank
from time to time such amounts as such Bank may determine to be
necessary to compensate it for any costs incurred by such Bank which
such Bank determines are attributable to such Borrower and its making
or maintaining of any Eurodollar Loans hereunder or its obligation to
make any of such Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Loans or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:

(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than taxes imposed on the
overall net income of such Bank or its Applicable Lending
Office for any Eurodollar Loans by the jurisdiction in which
such Bank has its principal office or such Applicable Lending
Office);

(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (including any Eurodollar Loans or
any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.1 hereof); or

(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.

Each Bank will notify the Borrowers of any event occurring after the
date of this Agreement which will entitle such Bank to compensation
pursuant to this Section 6.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation,
and will designate a different Applicable Lending Office for the Loans
affected by such event if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole
opinion of such Bank, violate any

CREDIT AGREEMENT - Page 28
<PAGE> 34
law, rule, or regulation or be in any way disadvantageous to such
Bank, provided that such Bank shall have no obligation to so designate
an Applicable Lending Office located outside the United States of
America. Each Bank will furnish the Borrowers with a certificate
(which absent manifest error, shall be conclusive) setting forth the
basis and the amount of each request of such Bank for compensation
under this Section 6.1(a). If any Bank requests compensation from the
Borrowers under this Section 6.1(a), the Borrowers may, by notice to
such Bank (with a copy to the Agent) suspend the obligation of such
Bank to make or Continue making, or Convert Loans into, Loans of the
Type with respect to which such compensation is requested until the
Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 6.4 hereof shall be
applicable).

(b) Without limiting the effect of the foregoing
provisions of this Section 6.1, in the event that, by reason of any
Regulatory Change that becomes effective after date hereof, any Bank
either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or
other liabilities of such Bank which includes deposits by reference to
which the interest rate on Eurodollar Loans is determined as provided
in this Agreement or a category of extensions of credit or other
assets of such Bank which includes Eurodollar Loans or (ii) becomes
subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects
by notice to the Borrowers (with a copy to the Agent), the obligation
of such Bank to make or Continue making, or Convert Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section
6.4 hereof shall be applicable).

(c) Determinations and allocations by any Bank for
purposes of this Section 6.1 of the effect of any Regulatory Change on
its costs of maintaining its obligations to make Eurodollar Loans or
of making or maintaining Eurodollar Loans or on amounts receivable by
it in respect of Eurodollar Loans, and of the additional amounts
required to compensate such Bank in respect of any Additional Costs,
shall be conclusive, provided that such determinations and allocations
are made on a reasonable basis.

Section 6.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:

(a) The Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest
for Eurodollar Loans as provided in this Agreement; or

(b) Required Banks determine (which determination shall
be conclusive) and notify the Agent that the relevant rates of
interest referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof on the basis of which the rate of interest for such

CREDIT AGREEMENT - Page 29
<PAGE> 35
Loans for such Interest Period is to be determined do not accurately
reflect the cost to the Banks of making or maintaining Eurodollar
Loans for such Interest Period;

then the Agent shall give the Borrowers prompt notice thereof specifying the
relevant amounts or periods, and so long as such condition remains in effect,
the Banks shall be under no obligation to make additional Eurodollar Loans or
to Convert Alternate Base Rate Loans into Eurodollar Loans and the Borrowers
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert
such Eurodollar Loans into Alternate Base Rate Loans in accordance with the
terms of this Agreement.

Section 6.3 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
hereunder or (b) maintain Eurodollar Loans hereunder, then such Bank shall
promptly notify the Borrowers (with a copy to the Agent) thereof and such
Bank's obligation to make or maintain Eurodollar Loans and to Convert Alternate
Base Rate Loans into Eurodollar Loans hereunder shall be suspended until such
time as such Bank may again make and maintain Eurodollar Loans (in which case
the provisions of Section 6.4 hereof shall be applicable).

Section 6.4 Treatment of Eurodollar Loans. If the Eurodollar
Loans of any Bank are to be Converted pursuant to Section 6.1 or 6.3 hereof,
such Bank's Eurodollar Loans shall be automatically Converted into Alternate
Base Rate Loans on the last day(s) of the then current Interest Period(s) for
the Eurodollar Loans (or, in the case of a Conversion required by Section
6.1(b) or 6.3 hereof, on such earlier date as such Bank may specify to the
Borrowers with a copy to the Agent) and, unless and until such Bank gives
notice as provided below that the circumstances specified in Section 6.1 or 6.3
hereof which gave rise to such Conversion no longer exist:

(a) To the extent that such Bank's Eurodollar Loans have
been so Converted, all payments and prepayments of principal which
would otherwise be applied to such Bank's Eurodollar Loans shall be
applied instead to its Alternate Base Rate Loans;

(b) All Loans which would otherwise be made or Continued
by such Bank as Eurodollar Loans shall be made as or Converted into
Alternate Base Rate Loans and all Loans of such Bank which would
otherwise be Converted into Eurodollar Loans shall be Converted
instead into (or shall remain as) Alternate Base Rate Loans; and

If such Bank gives notice to the Borrowers (with a copy to the Agent) that the
circumstances specified in Section 6.1 or 6.3 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 6.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans are outstanding, such Bank's
Alternate Base Rate Loans shall be automatically Converted, on the first day(s)
of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans
to the extent necessary so that, after giving effect thereto, all Loans held by
the Banks holding

CREDIT AGREEMENT - Page 30
<PAGE> 36
Eurodollar Loans and by such Bank are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Commitments.

Section 6.5 Compensation. The Borrowers shall pay to the Agent
for the account of each Bank, upon the request of such Bank through the Agent,
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Bank) to compensate it for any loss, cost, or expense incurred by it as a
result of:

(a) Any payment, prepayment or Conversion of a Eurodollar
Loan for any reason (including, without limitation, the acceleration
of the outstanding Loans pursuant to Section 13.2) on a date other
than the last day of an Interest Period for such Loan; or

(b) Any failure by the Borrower for any reason
(including, without limitation, the failure of any conditions
precedent specified in Article VIII to be satisfied) to borrow,
Convert, or prepay a Eurodollar Loan on the date for such borrowing,
Conversion, or prepayment, specified in the relevant notice of
borrowing, prepayment, or Conversion under this Agreement.

Section 6.6 Capital Adequacy. If after the date hereof, any Bank
shall have determined that the adoption or implementation of any applicable
law, rule, or regulation regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any central bank
or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Bank (or its parent) with any
guideline, request, or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority,
has or would have the effect of reducing the rate of return on such Bank's (or
its parent's) capital as a consequence of its obligations hereunder or the
transactions contemplated hereby to a level below that which such Bank (or its
parent) could have achieved but for such adoption, implementation, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within ten (10) Business Days after demand by such Bank (with a
copy to the Agent), the Borrowers shall pay to such Bank such additional amount
or amounts as will compensate such Bank (or its parent) for such reduction;
provided, however, the Borrowers shall not be required to compensate any such
Bank for any such reduction for any period prior to the date upon which such
Bank gives notice to the Borrowers that an event or change resulting in a
reduced rate of return on the Bank's capital has occurred. A certificate of
such Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Bank may use any reasonable averaging
and attribution methods.

Section 6.7 Additional Costs in Respect of Letters of Credit. If
as a result of any Regulatory Change there shall be imposed, modified, or
deemed applicable any tax, reserve, special deposit, or similar requirement
against or with respect to or measured by reference to Letters of Credit issued
or to be issued hereunder or the commitments to issue or participate in Letters
of Credit hereunder, and the result shall be to increase the cost to an Issuing
Bank or any

CREDIT AGREEMENT - Page 31
<PAGE> 37
Bank of issuing, maintaining or participating in any Letter of Credit or its
commitment to issue or participate in Letters of Credit hereunder or reduce any
amount receivable by an Issuing Bank or any Bank hereunder in respect of any
Letter of Credit (which increase in cost, or reduction in amount receivable,
shall be the result of the Issuing Bank's or such Bank's reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Issuing Bank or such Bank, the Borrowers agree to pay
such Issuing Bank or such Bank, from time to time as specified by such Issuing
Bank or such Bank, such additional amounts as shall be sufficient to compensate
such Issuing Bank or such Bank for such increased costs or reductions in
amount. A statement as to such increased costs or reductions in amount incurred
by such Issuing Bank or such Bank, submitted by such Issuing Bank or such Bank
to the Borrowers, shall be conclusive as to the amount thereof, provided that
the determination thereof is made on a reasonable basis.

ARTICLE VII

Security

Section 7.1 Collateral. To secure full and complete payment and
performance of the Obligations, the Borrowers shall execute and deliver or
cause to be executed and delivered the documents described below covering the
property and collateral described in this Section 7.1 (which, together with any
other property and collateral which may now or hereafter secure the Obligations
or any part thereof, is sometimes herein called the "Collateral"):

(a) Each of the Companies shall grant to the Agent for
the benefit of the Agent, the Banks and the Issuing Banks a first
priority security interest in all of its accounts, accounts
receivable, equipment, machinery, fixtures, inventory, chattel paper,
documents, instruments, and general intangibles, whether now owned or
hereafter acquired, and all products and proceeds thereof, pursuant to
the Security Agreements, provided that such security interest may be
subject in priority to certain Permitted Liens. The Agent may file
and cause to be filed such documents and instruments, including
without limitation, Uniform Commercial Code financing statements, as
the Agent, in its sole discretion, deems necessary or desirable to
evidence and perfect its Liens and security interests in the
Collateral described in the Security Agreements.

(b) The Borrowers shall cause each Person that becomes a
Company after the date hereof to grant to the Agent for the benefit of
the Agent, the Banks and the Issuing Bank a first priority security
interest in all of its accounts, accounts receivable, equipment,
machinery, fixtures, inventory, chattel paper, documents, instruments,
and general intangibles, whether now owned or hereafter acquired, and
all products and proceeds thereof, pursuant to a Security Agreement,
provided that such security interest may be subject in priority to
certain Permitted Liens. The Agent may file and cause to be filed
such documents and instruments, including without limitation, Uniform
Commercial Code financing statements, as the Agent, in its sole
discretion, deems necessary or desirable to evidence and perfect its
Liens and security interests in the Collateral described in each such
Security Agreement.

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<PAGE> 38
(c) Holdings shall pledge and grant to the Agent for the
benefit of the Agent, the Banks and the Issuing Banks a continuing
first priority security interest in one hundred percent (100%) of the
issued and outstanding capital stock of each of its Subsidiaries,
whether now existing or hereafter formed or acquired, and all products
and proceeds thereof, pursuant to the Holdings Pledge Agreement. The
Agent shall retain possession of the certificates evidencing the
capital stock of the Subsidiaries, together with stock powers duly
executed in blank by Holdings.

(d) HOME Holdings shall grant to the Agent for the
benefit of the Agent, the Issuing Banks and the Banks a continuing
first priority security interest in one hundred percent (100%) of the
capital stock of each of its Subsidiaries, whether now existing or
hereafter formed or acquired, pursuant to the HOME Holdings Pledge
Agreement. The Agent shall retain possession of the certificates
evidencing the capital stock of such Subsidiaries, together with stock
powers duly executed in blank by HOME Holdings.

(e) HOME shall grant to the Agent for the benefit of the
Agent, the Issuing Banks and the Banks a continuing first priority
security interest in one hundred percent (100%) of the capital stock
of each of the Subsidiaries, whether now existing or hereafter formed
or acquired, pursuant to the HOME Pledge Agreement. The Agent shall
retain possession of the certificates evidencing the capital stock of
such Subsidiaries, together with stock powers duly executed in blank
by HOME.

(f) Pharmacy shall grant to Agent for the benefit of the
Agent, the Issuing Banks and the Banks a continuing first priority
security interest in 100% of the capital stock of each of the
Subsidiaries, whether now existing or hereafter formed or acquired,
pursuant to the Pharmacy Pledge Agreement. The Agent shall retain
possession of the certificates evidencing the capital stock of such
Subsidiaries, together with stock powers duly executed in blank by
Pharmacy.

(g) A Life insurance policy issued on the life of S.
Wayne Bazzle in the amount of $2,000,000.00 and a life insurance
policy issued on the life of Cheryl C. Bazzle in the amount of
$1,500,000 shall be collaterally assigned to the Agent for the benefit
of the Agent, the Issuing Banks and the Banks pursuant to assignments
of life insurance policy as collateral, each in form and substance
satisfactory to the Agent (the "Assignments of Life Insurance").

(h) Each of the Companies shall execute and cause to be
executed such further documents and instruments, including without
limitation, Uniform Commercial Code financing statements, as the
Agent, in its sole discretion, deems necessary or desirable to
evidence and perfect its liens and security interests in the
Collateral.

Section 7.2 Lockbox Accounts. Each Borrower shall (and shall
cause each other presently existing Company and each Company formed or acquired
in the future to) (a) establish and maintain one or more lockboxes and/or
accounts (the "Lockbox Accounts") with the Agent (the maintenance of which
shall be subject to such rules and regulations as the Agent shall from

CREDIT AGREEMENT - Page 33
<PAGE> 39
time to time specify), (b) grant security interests to the Agent for the
benefit of the Agent, the Issuing Banks and the Banks in each such Lockbox
Account and the related deposit accounts by executing one or more, as
appropriate, assignments in substantially the form of Exhibit "G" hereto, and
(c) promptly notify all of their respective accounts receivable obligors
hereafter to direct all payments on such accounts receivable directly into one
of the Lockbox Accounts. At any time while a Default does not exist and will
not occur as a result of any withdrawal, then (and at all other times to the
extent required by applicable law), the Companies may have full access to their
respective Lockbox Accounts and may withdraw from their respective Lockbox
Accounts in the amounts then remaining in excess of the minimum deposit
required to keep such account active. While a Default exists, the Agent may,
without prior notice or demand, take and apply against the Obligations for the
pro rata benefit of the Banks any and all funds then or thereafter on deposit
in any one or more Lockbox Accounts.

Section 7.3 Guaranties. Each Borrower shall, and shall cause (a)
the presently existing Companies jointly and severally (without limit) to
guarantee full payment and performance of the Obligations, and (b) each Company
formed or acquired in the future to execute and deliver to the Agent on demand
a guarantee of the full payment and performance of the Obligations, pursuant to
the respective Guaranties.

Section 7.4 Setoff. If an Event of Default shall have occurred
and is continuing, the Agent, Issuing Banks and each Bank are hereby authorized
at any time and from time to time, without notice to the Borrowers (any such
notice being hereby expressly waived by the Borrowers), to set off and apply
any and all deposits (general, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by the Agent, Issuing Banks
or such Bank to or for the credit or the account of the Borrowers against any
and all of the obligations of the Borrowers now or hereafter existing under
this Agreement, the Notes, or any other Loan Document, irrespective of whether
or not the Agent, the Issuing Banks or such Bank shall have made any demand
under this Agreement, the Notes or any other Loan Document and although such
obligations may be unmatured. As further security for the Obligations, each
Borrower hereby grants to the Agent for the benefit of the Agent, the Banks and
the Issuing Banks a security interest in all money, instruments and other
property of each such Borrower now or hereafter held by the Agent. In addition
to the right of setoff and as further security for the Obligations, each
Borrower hereby grants to the Agent for the benefit of the Agent, the Banks and
the Issuing Banks a security interest in all deposits (general or special, time
or demand, provisional or final) and other accounts of such Borrower now or
hereafter on deposit with or held by the Lender and all other sums at any time
credited or owing from the Agent, the Banks or the Issuing Banks to the
Borrowers. The rights and remedies of the Agent, Issuing Banks and each Bank
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Agent, Issuing Banks and the
Banks may have.

CREDIT AGREEMENT - Page 34
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ARTICLE VIII

Conditions Precedent

Section 8.1 Initial Loans. The obligation of each Bank to make
its initial Loan or of any Issuing Bank to issue the initial Letter of Credit
is subject to the condition precedent that the Agent shall have received on or
before the day of such Loan or issuance all of the following, each dated
(unless otherwise indicated) the date hereof, in form and substance
satisfactory to the Agent:

(a) Resolutions. Resolutions of the Board of Directors
of each of the Companies certified by a Secretary or an Assistant
Secretary of such Company which authorize the execution, delivery, and
performance by such Company of the Loan Documents to which such
Company is or is to be a party;

(b) Incumbency Certificate. A certificate of incumbency
of each of the Companies certified as of the Closing Date by the
Secretary or an Assistant Secretary of such Company certifying the
names of the officers of such Company authorized to sign this
Agreement and each of the other Loan Documents to which such Company
is or is to be a party (including the certificates contemplated
herein) together with specimen signatures of such officers;

(c) Articles or Certificate of Incorporation. The
articles or certificate of incorporation, as applicable, of each of
the Companies certified by the Secretary of State of such Company's
jurisdiction of incorporation as of a current date acceptable to the
Agent;

(d) Bylaws. The bylaws of each of the Companies
certified as of the Closing Date by the Secretary or an Assistant
Secretary of such Company;

(e) Governmental Certificates. Certificates of the
appropriate government officials of the state of incorporation of each
of the Companies as to the existence and good standing of such
Company, each dated a current date acceptable to the Agent;

(f) Revolving Credit Notes. The Revolving Credit Notes
executed by the Company;

(g) Term Notes. The Term Notes executed by Holdings;

(h) Security Agreements. The Security Agreements
executed by the respective Companies;

(i) Guaranties. The Guaranties executed by each Borrower
and each Guarantor;

CREDIT AGREEMENT - Page 35
<PAGE> 41
(j) Holdings Pledge Agreement. The Holdings Pledge
Agreement executed by Holdings;

(k) HOME Holdings Pledge Agreement. The HOME Holdings
Pledge Agreement executed by HOME Holdings;

(l) HOME Pledge Agreement. The HOME Pledge Agreement
executed by HOME;

(m) Pharmacy Pledge Agreement. The Pharmacy Pledge
Agreement executed by Pharmacy;

(n) Stock Certificates. The original stock certificates
evidencing the stock pledged pursuant to the Pledge Agreements,
together with stock powers duly executed in blank;

(o) Financing Statements. Uniform Commercial Code
financing statements executed by the Companies and covering such
Collateral as the Agent may request;

(p) Assignments of Deposit Accounts. Assignments of
deposit accounts, executed by the appropriate parties in accordance
with Section 7.2;

(q) Assignments of Life Insurance Policies. The
Assignments of Life Insurance, executed by the appropriate parties, in
accordance with Section 7.1(f);

(r) Contribution and Indemnification Agreement. The
Contribution and Indemnification Agreement (herein so called) in
substantially the form of Exhibit "H" hereto, executed by the
Companies;

(s) Amendments to Preferred Stock Purchase Agreements.
Amendments to the Preferred Stock Purchase Agreements, in form and
substance satisfactory to the Agent and the Required Banks, extending
the date specified in Section 11(a)(i) of the Preferred Stock Purchase
Agreements to a date no earlier than October 15, 2001;

(t) Asset Audit. An audit of the Companies' assets shall
have been completed, the results of which shall be satisfactory to the
Agent;

(u) Material Adverse Change. No material adverse change
shall have occurred since the date of the most recent financial
statements delivered by Holdings to the Agent, in the financial
condition, business, operations, or prospects of the Borrowers or in
their assets, liabilities and properties and there shall be no
material threatened or pending litigation adversely affecting their
property;

CREDIT AGREEMENT - Page 36
<PAGE> 42
(v) Insurance Policies. Copies of all insurance policies
required by Section 10.5, together with insurance certificates
evidencing such policies and showing the Agent as an additional
insured and loss payee;

(w) UCC Searches. The results of Uniform Commercial
Code searches showing all financing statements and other documents or
instruments on file against the Companies in such jurisdictions as the
Agent shall determine;

(x) Lien Releases. Executed UCC-3 Termination Statements
or Assignments and other Lien releases that release or assign to the
Agent all Liens held by holders of Funded Debt not constituting
Permitted Debt and all other Liens that do not constitute Permitted
Liens;

(y) Opinion of Counsel. A favorable opinion of legal
counsel to the Companies, as to the matters set forth in Exhibit "I"
hereto, and such other matters as the Agent may reasonably request;

(z) Fees. Evidence that the fees referred to in the Fee
Letter shall have been paid in full;

(aa) Attorneys' Fees and Expenses. Evidence that the
costs, fees and expenses (including attorneys' fees) referred to in
the Fee Letter and in Section 15.1, to the extent incurred, shall have
been paid in full by the Borrower.

Section 8.2 All Loans. The obligation of each Bank to make any
Loan or of any Issuing Bank to issue any Letter of Credit (including the
initial Loan or issuance) is subject to the following additional conditions
precedent:

(a) Request for Loan or Letter of Credit. The Agent or
the Issuing Bank shall have received, in accordance with Section 5.1
or 4.3, as the case may be, a Loan Request Form or Letter of Credit
Request Form, dated the date of such Loan or Letter of Credit,
executed by an authorized officer of the applicable Borrower;

(b) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit, as the
case may be;

(c) Representations and Warranties. All of the
representations and warranties contained in Article IX hereof and in
the other Loan Documents shall be true and correct on and as of the
date of such Loan with the same force and effect as if such
representations and warranties had been made on and as of such date;
and

(d) Additional Documentation. The Agent shall have
received such additional approvals, opinions, or documents as the
Agent or its legal counsel, Winstead Sechrest & Minick P.C., may
reasonably request.

CREDIT AGREEMENT - Page 37
<PAGE> 43
ARTICLE IX

Representations and Warranties

To induce the Agent, the Issuing Banks and the Banks to enter into
this Agreement, each Borrower represents and warrants to the Agent, the Issuing
Bank and the Banks that:

Section 9.1 Corporate Existence. Each Company (a) is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation; (b) has all requisite corporate
power and authority to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a material adverse effect
on its business, condition (financial or otherwise), operations, prospects, or
properties. Such Borrower has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement and the other Loan
Documents to which it is or may become a party. Each Guarantor has the
corporate power and authority to execute, deliver, and perform its obligations
under its Guaranty and the other Loan Documents to which it is or may become a
party.

Section 9.2 Financial Statements. Holdings has delivered to the
Agent audited consolidated financial statements of the Companies as at and for
the fiscal year ended December 31, 1995, and unaudited consolidated and
consolidating financial statements of the Companies for the three (3)-month
period ended March 31, 1996. Such financial statements are true and correct,
have been prepared in accordance with GAAP (subject to year end adjustments and
disclosures in the case of unaudited interim financial statements), and fairly
and accurately present, on a consolidated and consolidating basis, the
financial condition of the Companies as of the respective dates indicated
therein and the results of operations for the respective periods indicated
therein. None of the Companies has any material obligations or liabilities
(direct, indirect, contingent or liquidated), liabilities for taxes, unusual
forward or long-term commitments, or unrealized or anticipated losses from any
unfavorable commitments except as scheduled or referred to or reflected in such
financial statements. There has been no material adverse change in the
business, condition (financial or otherwise), operations, prospects, or
properties of any of the Companies since the effective date of the most recent
financial statements referred to in this Section.

Section 9.3 Corporate Action; No Breach. The execution,
delivery, and performance by each Company of this Agreement and the other Loan
Documents to which such Company is or may become a party and compliance with
the terms and provisions hereof and thereof have been duly authorized by all
requisite corporate action on the part of such Company and do not and will not
(a) violate or conflict with, or result in a breach of, or require any consent
under (i) the articles of incorporation or bylaws of such Company, (ii) any
applicable law, rule, or regulation or any order, writ, injunction, or decree
of any Governmental Authority or arbitrator, which violation or conflict could
have a material adverse effect on the business, condition (financial or
otherwise), operations, prospects, or properties of any Company, the Collateral
taken as a whole, or the ability of the Companies to pay and perform the
Obligations, or (iii) any

CREDIT AGREEMENT - Page 38
<PAGE> 44
material agreement or instrument to which such Company is a party or by which
any of them or any of their property is bound or subject, or (b) constitute a
default under any such material agreement or instrument, or result in the
creation or imposition of any Lien (except as provided in Article VII) upon any
of the revenues or assets of such Company.

Section 9.4 Operation of Business. Each Company possesses all
licenses, permits, franchises, patents, copyrights, trademarks, and tradenames,
or rights thereto, necessary to conduct its business substantially as now
conducted and as presently proposed to be conducted, and no Company is in
violation of any valid rights of others with respect to any of the foregoing,
which violation would have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of any Company,
the Collateral taken as a whole, or the abilities of the Companies to pay and
perform the Obligations. Without in any way limiting the foregoing, (a) each
Borrower is (and each Company is, except to the extent that it would not have a
material adverse effect on the business, condition [financial or otherwise],
operations, prospects, or properties of such Company) an accredited, licensed,
registered, or certified, as the case may be, healthcare provider with the
appropriate Healthcare Regulators where the nature and extent of its business
require, and (b) each Company has obtained and possesses all requisite licenses
and permits from and has registered with all of the appropriate Governmental
Authorities as necessary for such Company to distribute or dispense drugs or
controlled substances, to the extent such Company does so, including without
limitation, the Drug Enforcement Agency of the United States Department of
Justice and the Texas Department of Public Safety.

Section 9.5 Litigation and Judgments. Except as disclosed on
Schedule 2 hereto, there is no action, suit, investigation, or proceeding
before or by any Governmental Authority or arbitrator pending, or to the
knowledge of such Borrower, threatened against or affecting any Company, that
would, if adversely determined, have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of any
Company or the ability of the Companies to pay and perform the Obligations.
There are no outstanding judgments against any Company.

Section 9.6 Rights in Properties; Liens. Each Company has good
and indefeasible title to or valid leasehold interests in its properties and
assets, real and personal, including the properties, assets, and leasehold
interests reflected in the financial statements described in Section 9.2, and
none of the properties, assets, or leasehold interests of any Company is
subject to any Lien, except the Permitted Liens.

Section 9.7 Enforceability. This Agreement constitutes, and the
other Loan Documents, when delivered, shall constitute the legal, valid, and
binding obligations of the respective Companies that are party thereto,
enforceable against the respective Companies in accordance with their
respective terms, except as limited by bankruptcy, insolvency, or other laws of
general application relating to the enforcement of creditors' rights.

Section 9.8 Approvals. No authorization, approval, or consent
of, and no filing or registration with, any Governmental Authority or third
party is or will be necessary for the

CREDIT AGREEMENT - Page 39
<PAGE> 45
execution, delivery, or performance by the Companies of the respective Loan
Documents to which they are or may become a party or for the validity or
enforceability thereof.

Section 9.9 Debt. The Companies have no Funded Debt, except as
disclosed on Schedule 3 hereto.

Section 9.10 Taxes. Each Company has filed all tax returns
(federal, state, and local) required to be filed, including all income,
franchise, employment, property, and sales tax returns, and has paid all of its
liabilities for taxes, assessments, governmental charges, and other levies that
are due and payable, except where failure to pay state taxes does not and will
not have a material adverse effect on the business, condition (financial or
otherwise), operations, prospects or properties of any Company, the Collateral
taken as a whole, or the ability of the Companies to pay and perform the
Obligations. Such Borrower knows of no pending investigation of any Company by
any taxing authority or of any pending but unassessed tax liability of any
Company.

Section 9.11 Use of Proceeds; Margin Securities. None of the
Companies is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.

Section 9.12 ERISA. Each Company is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event
nor a Prohibited Transaction has occurred and is continuing with respect to any
Plan. No notice of intent to terminate a Plan has been filed, nor has any Plan
been terminated. No circumstances exist which constitute grounds entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to administer,
a Plan, nor has the PBGC instituted any such proceedings. No Company or ERISA
Affiliate has completely or partially withdrawn from a Multiemployer Plan.
Each Company and each ERISA Affiliate have met their minimum funding
requirements under ERISA with respect to all of their Plans, and the present
value of all vested benefits under each Plan do not exceed the fair market
value of all Plan assets allocable to such benefits, as determined on the most
recent valuation date of the Plan and in accordance with ERISA. No Company or
ERISA Affiliate has incurred any liability to the PBGC under ERISA.

Section 9.13 Disclosure. No statement, information, report,
representation, or warranty made by the Company in this Agreement or in any
other Loan Document or furnished to the Agent, any Issuing Bank or any Bank in
connection with this Agreement or any transaction contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to such Borrower which has a material adverse effect, or which might
in the future have a material adverse effect, on the business, condition
(financial or otherwise), operations, prospects, or properties of any Company
that has not been disclosed in writing to the Agent, the Issuing Banks and the
Banks.

CREDIT AGREEMENT - Page 40
<PAGE> 46
Section 9.14 Subsidiaries. Such Borrower has no Subsidiaries
other than those listed on Schedule 1 hereto, and Schedule 1 sets forth the
jurisdiction of incorporation of each Subsidiary and the percentage of such
Borrower's ownership of the outstanding voting stock of each Subsidiary. All
of the outstanding capital stock of each Subsidiary has been validly issued, is
fully paid, and is nonassessable.

Section 9.15 Agreements. No Company is a party to any indenture,
loan, or credit agreement, or to any lease or other agreement or instrument, or
subject to any charter or corporate restriction the compliance with which is
reasonably likely to have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of the Company,
or the ability of the Company to pay and perform its obligations under the Loan
Documents to which it is a party. No Company is in default in any respect in
the performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument material to
its business to which it is a party.

Section 9.16 Compliance with Laws; Environmental Liabilities. No
Company is in violation in any material respect of any law, rule, regulation,
order, or decree of any Governmental Authority or arbitrator, including without
limitation any Environmental Laws. No Company is aware of, nor has any Company
received notice of, any conditions or circumstances associated with the
currently or previously owned or leased properties or operations of any Company
that has given or could reasonably be expected to give rise to any
Environmental Liabilities of any Company, and no Lien arising under any
Environmental Law has attached to any property or revenues of any Company.

Section 9.17 Fraud and Abuse. None of the Companies, and to such
Borrower's knowledge, none of the officers, directors, agents, and employees of
any of the respective Companies, have engaged in any activities that are
prohibited under 42 U.S.C. Section 1320a-7b, known as the anti-kickback
statute, or the regulations promulgated thereunder, or related or similar state
or local statutes or regulations (including, but not limited to, Texas Health &
Safety Code Section 161.091), including but not limited to the following: (a)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or
payment; (b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment; (c) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another; (d) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or knowingly and willfully offering or paying such remuneration as an
inducement (a) in return for referring an individual to a Person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid, or other
government program or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare, Medicaid, or other government program. The investments set forth on
Schedule 2 and Schedule 6 hereto conform to a safe harbor promulgated under 42
U.S.C. Section 1320a-7b.

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<PAGE> 47
Section 9.18 Self Referral. None of the Companies, and to such
Borrower's knowledge none of the officers, directors, agents, and employees of
any of the respective Companies, have engaged in any activities that are
prohibited under 42 U.S.C. Section 1395nn, known as the self-referral or Stark
statute, or the regulations promulgated thereunder, or related or similar state
or local statutes or regulations. The Companies' respective businesses
currently are conducted in a manner that will not violate 42 U.S.C. Section
1395nn as amended and to be effective January 1, 1995. The ownership interests
set forth on Schedule 2 and Schedule 6 hereto in entities to which the Borrower
or its employees make referrals do not constitute a violation of 42 U.S.C.
Section 1395nn.

ARTICLE X

Positive Covenants

Each Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder or
any Issuing Bank has any obligation to issue Letters of Credit hereunder, such
Borrower will perform and observe the following positive covenants:

Section 10.1 Reporting Requirements. The Borrowers will furnish
to the Agent, the Issuing Banks and each Bank:

(a) Annual Financial Statements. As soon as available,
and in any event within ninety (90) days after the end of each fiscal
year of the Borrower, beginning with the fiscal year ending December
31, 1996, a copy of the annual audit report of the Companies for such
fiscal year containing, on a consolidated and consolidating basis,
balance sheets and statements of income, retained earnings, and cash
flow as at the end of such fiscal year and for the 12-month period
then ended, in each case setting forth in comparative form the figures
for the preceding fiscal year, all in reasonable detail and audited
and certified by and accompanied by the unqualified opinion of,
independent certified public accountants of recognized standing
acceptable to the Agent, to the effect that such report has been
prepared in accordance with GAAP and presents fairly the financial
conditions and results of operations of the Companies;

(b) Monthly Financial Statements. As soon as available,
and in any event within forty-five (45) days after the end of each
calendar month, a copy of an unaudited financial report of the
Companies as of the end of such month and for the portion of the
fiscal year then ended, containing, on a consolidated and
consolidating basis, balance sheets and statements of income, retained
earnings, and cash flow, in each case setting forth in comparative
form the figures for the corresponding period of the preceding fiscal
year, all in reasonable detail and prepared in accordance with GAAP to
fairly and accurately present (subject to year-end audit adjustments
and disclosures) the financial condition and results of operations of
the Companies, on a consolidated and consolidating basis, at the date
and for the periods indicated therein;

CREDIT AGREEMENT - Page 42
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(c) Compliance Certificate; Accounts Receivable Report.
Concurrently with the delivery of each of the financial statements
referred to in subsection 10.1(a), and within forty-five (45) days
after the end of each fiscal quarter, a compliance certificate of the
chief financial officer or chief executive officer of the Companies in
substantially the form of Exhibit "K" hereto;

(d) Accounts Receivable Report. Concurrently with the
delivery of each of the financial statements referred to in subsection
10.1(b), an accounts receivable report in form and detail satisfactory
to the Agent and the Required Banks;

(e) Acquisition Agreements. Promptly, and in any event
within three (3) days after the execution thereof, copies of each
letter of intent or purchase contract or agreement executed by any
Company for the purchase of stock of any Person or substantially all
of the assets of any Person if permitted under this Agreement;

(f) Regulatory Noncompliance. Promptly, notice of any
investigation or claim in respect of any Company's status as a
provider by or before any Health Care Regulator that is not resolved
in favor of such Company in the exit interview or that results in
notification to any Company that it is out of compliance;

(g) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any Governmental Authority or arbitrator affecting any Company
seeking $100,000 or more in damages or which, if determined adversely
to such Company, could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or
properties of such Company;

(h) Notice of Default. As soon as possible and in any
event within five (5) days after the occurrence of each Default, a
written notice setting forth the details of such Default and the
action that the Borrowers have taken and propose to take with respect
thereto;

(i) Notice of Material Adverse Change. As soon as
possible and in any event within five (5) days after the occurrence
thereof, written notice of any matter that is reasonably likely to
have a material adverse effect on the business, condition (financial
or otherwise), operations, prospects, or properties of any Company;

(j) General Information. Promptly, such other
information concerning the Companies as the Agent or any Bank may from
time to time reasonably request.

Section 10.2 Maintenance of Existence; Conduct of Business. Such
Borrower will preserve and maintain, and will cause each Company to preserve
and maintain, its corporate existence and all of its leases, privileges,
licenses, permits, franchises, qualifications, and rights that are necessary or
desirable in the ordinary conduct of its business, except where the failure to
do so does not and will not have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of any
Company, the Collateral taken as a

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whole, or the ability of the Companies to pay and perform the Obligations.
Without in any way limiting the foregoing, the Borrower will preserve and
maintain, and will cause each Company to preserve and maintain its status as an
approved provider with all the Health Care Regulators and other applicable
Governmental Authorities where the failure to do so would have a material
adverse effect on its business, condition (financial or otherwise), operations,
prospects, or properties. Such Borrower will conduct, and will cause each
Company to conduct, its business in an orderly and efficient manner in
accordance with good business practices.

Section 10.3 Maintenance of Properties. Such Borrower will
maintain, keep, and preserve, and cause each Company to maintain, keep, and
preserve, all of its properties (tangible and intangible) necessary or useful
in the proper conduct of its business in good working order and condition.

Section 10.4 Taxes and Claims. Such Borrower will pay or
discharge, and will cause each Company to pay or discharge, at or before
maturity or before becoming delinquent (a) all taxes, levies, assessments, and
governmental charges imposed on it or its income or profits or any of its
property, and (b) all lawful claims for labor, material, and supplies, which,
if unpaid, might become a Lien upon any of its property; provided, however,
that neither such Borrower nor any Company shall be required to pay or
discharge any tax, levy, assessment, or governmental charge which is being
contested in good faith by appropriate proceedings diligently pursued, and for
which adequate reserves have been established; provided, further that with
respect to taxes in an aggregate amount in excess of $100,000, the conditions
of Permitted Liens as described in Section 11.2 shall exist and notice shall
have been given to the Agent and the Banks.

Section 10.5 Insurance. Such Borrower will maintain, and will
cause each of the Companies to maintain, insurance with financially sound and
reputable insurance companies in such amounts and covering such risks as is
usually carried by corporations engaged in similar businesses and owning
similar properties in the same general areas in which such Borrower and the
Companies operate, provided that in any event such Borrower will maintain and
cause each Company to maintain property and casualty insurance coverage for
each Company of at least $1,000,000 per incident and $2,000,000 maximum
coverage and medical malpractice liability coverage for each Company of at
least $1,500,000 per incident and $3,000,000 maximum coverage. Each insurance
policy covering Collateral or general liability shall, within ten (10) Business
Days following the Closing Date, name the Agent as loss payee or as an
additional insured, as applicable, and shall provide that such policy will not
be cancelled or reduced without thirty (30) days' prior written notice to the
Agent. The Borrowers shall at all times keep and maintain the insurance
coverage on the lives of S. Wayne and Cheryl C. Bazzle described in Section
7.1.

Section 10.6 Inspection Rights. At any reasonable time and from
time to time, the Borrowers will permit, and will cause each Company to permit,
representatives of the Agent, the Issuing Bank and each Bank to examine, copy,
and make extracts from its books and records, to visit and inspect its
properties, and to discuss its business, operations, and financial condition
with its officers, employees, and independent certified public accountants.

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Section 10.7 Keeping Books and Records. Such Borrower will
maintain, and will cause each Company to maintain, proper books of record and
account in which full, true, and correct entries in conformity with GAAP
(subject to year-end adjustments and disclosures) shall be made of all dealings
and transactions in relation to its business and activities.

Section 10.8 Compliance with Laws. Such Borrower will comply, and
will cause each Company to comply, in all material respects with all applicable
laws, rules, regulations, orders, and decrees of any Governmental Authority or
arbitrator.

Section 10.9 Compliance with Agreements. Such Borrower will
comply, and will cause each Company to comply, in all material respects with
all agreements, contracts, and instruments binding on it or affecting its
properties or business.

Section 10.10 Further Assurances. Such Borrower will, and will
cause each Company to, execute and deliver such further agreements and
instruments and take such further action as may be requested by the Agent to
carry out the provisions and purposes of this Agreement and the other Loan
Documents and to create, preserve, and perfect the Liens of the Agent for the
benefit of the Agent, the Issuing Banks and the Banks in the Collateral.

Section 10.11 ERISA. Such Borrower will comply, and will cause
each Company to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.

Section 10.12 Security Agreements; Guaranties. Such Borrower shall
cause each Person that becomes a Company after the date hereof to execute and
deliver to the Agent a Security Agreement and a Guaranty within thirty (30)
days after the date such Person becomes a Company. Contemporaneously with the
execution and delivery of such Security Agreement and Guaranty, such Borrower
shall cause all outstanding capital stock of such Company to be pledged to the
Agent pursuant to a Pledge Agreement and deliver to the Agent such other
documents as the Agent may reasonably request.

Section 10.13 Delivery of Post-Closing UCC Searches and Corporate
Documents. Within ten (10) Business Days after the Closing Date, such Borrower
shall deliver or cause to be delivered to the Agent (a) UCC searches showing
all financing statements and other documents or instruments on file against
McDuffie's Rentals, Inc., RTA Homecare, Inc., RTA Infusion, Inc., Specialty
Medical Equipment, Inc. and Superior Medical Equipment, Inc. (collectively, the
"New Companies") in such jurisdictions as the Agent shall determine, (b)
certificates of the appropriate government officials of the state of
incorporation of each of the New Companies as to the existence and good
standing of such Company, and (c) the articles or certificate of incorporation,
as applicable, of each of the New Companies certified by the Secretary of State
of such Company's jurisdiction of incorporation. In the event that such
post-Closing UCC searches show any Liens that do not constitute Permitted Liens
hereunder, but that the Agent and the Required Banks otherwise agree may remain
outstanding, the parties hereto hereby agree to amend Schedule 4 attached
hereto to include any such Liens thereon. In the event that such UCC searches
show any Liens that are not Permitted Liens and that are not otherwise
acceptable to

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the Agent and the Required Banks, the Borrowers shall deliver to the Agent
within thirty (30) days of the Closing Date, UCC-3 Termination Statements or
other releases that release all such Liens.

ARTICLE XI

Negative Covenants

Section 11.1 Funded Debt. Such Borrower will not incur, create,
assume, or permit to exist, and will not permit any Company to incur, create,
assume, or permit to exist, any Funded Debt, except the following (herein
referred to as "Permitted Debt"):

(a) Funded Debt to the Agent, the Banks and the Issuing
Banks pursuant to the Loan Documents;

(b) Funded Debt in an aggregate amount not to exceed
$2,000,000 at any time outstanding subordinated in payment to the
Obligations in the manner, to the extent and pursuant to documentation
satisfactory to the Agent and the Required Banks;

(d) Funded Debt of any Company to any other Company, so
long as each such Company shall have executed and delivered to the
Agent a Security Agreement, Uniform Commercial Code Financing
Statements, assignment of deposit accounts, and a Guaranty in
accordance with Article VII, shall be a party to the Contribution and
Indemnification Agreement, and shall have delivered to the Agent
Uniform Commercial Code Lien searches and tax and judgment Lien
searches for all appropriate names and jurisdictions as the Agent may
require;

(e) Funded Debt of any Company under any seller note or
any guarantee of a seller note incurred in connection with any
acquisition permitted under this Agreement;

(f) Purchase money indebtedness of any Company
representing the purchase price of equipment, that is secured by the
asset purchased; provided that the principal amount of such
indebtedness does not exceed the purchase price of the equipment
acquired and the Lien does not attach to any other asset of any
Company; capital leases so long as such leases do not cover any
property other than the property acquired in connection therewith,
together with renewals and extensions thereof; and

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<PAGE> 52
(g) Existing Funded Debt described on Schedule 3 hereto.

Section 11.2 Limitation on Liens. Such Borrower will not incur,
create, assume, or permit to exist, and will not permit any Company to incur,
create, assume, or permit to exist, any Lien upon any of its property, assets,
or revenues, whether now owned or hereafter acquired, except the following
(herein referred to as "Permitted Liens"):

(a) Liens on the property described on Schedule 4 hereto
to secure Permitted Debt;

(b) Liens in favor of the Agent for the benefit of the
Agent, the Banks and the Issuing Banks to secure the Obligations;

(c) Capital leases so long as such leases do not cover
any property other than the property acquired in connection therewith,
together with renewals and extensions thereof;

(d) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that
do not (individually or in the aggregate) materially affect the value
of the assets encumbered thereby or materially impair the ability of
the Borrower or the Subsidiaries to use such assets in their
respective businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;

(e) The following to the extent no Lien has been filed in
any jurisdiction or agreed to: Liens for taxes, assessments, or other
governmental charges which are not yet due and payable;

(f) The following to the extent no Lien has been filed in
any jurisdiction or agreed to: Liens of mechanics, materialmen,
warehousemen, carriers, or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary
course of business; and landlord's Liens for rental not yet due and
payable and which, to the extent the same encumbers any of the
Collateral, has been waived or subordinated to the extent required by
the Security Agreements;

(g) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security programs
or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of Funded
Debt), or leases made in the ordinary course of business, not in
excess of 10% of the aggregate amount due thereunder;

(h) The following so long as the validity or amount
thereof is being contested in good faith and by appropriate and lawful
proceedings diligently conducted, reserve or other appropriate
provision (if any) required by GAAP shall have been made, levy and
execution thereon have been stayed and continue to be stayed, any
thereof covering any

CREDIT AGREEMENT - Page 47
<PAGE> 53
Collateral must be subordinate to all Liens in favor of the Agent, and
they do not in the aggregate materially detract from the value of the
property of the Person in question, or materially impair the use
thereof in the operation of its business: Claims and Liens for taxes
due and payable; claims and Liens upon, and defects of title to, real
or personal property (other than any of the Collateral), including any
attachment of personal or real property or other legal process prior
to adjudication of a dispute on the merits; claims and Liens of
mechanics, materialmen, warehousemen, carriers, landlords, or other
like Liens; and adverse judgments on appeal;

(i) Liens on the capital stock of any Subsidiary acquired
after the date of this Agreement in a transaction permitted hereunder,
securing all or part of the purchase price thereof to the seller, so
long as either (i) the indebtedness secured thereby is subordinated to
the Obligations in the manner and to the extent satisfactory to the
Agent and the Required Banks and such Subsidiary shall have executed
and delivered to the Agent a Security Agreement, Uniform Commercial
Code financing statements, and assignment of deposit accounts, and a
Guaranty in accordance with Article VII and an addendum to the
Contribution and Indemnification Agreement by which such Subsidiary is
made a party thereto, and shall have delivered to the Agent Uniform
Commercial Code Lien searches and tax and judgment Lien searches for
all appropriate names and jurisdictions as the Agent may require, or
(ii) the indebtedness secured thereby was incurred in connection with
an acquisition, no portion of the purchase price of which was financed
with funds advanced by the Banks pursuant to this Agreement;

(j) Liens securing indebtedness for the purchase price of
equipment; provided that any such Lien shall attach only to the asset
purchased; and

(k) Financing Statements filed in connection with
operating lease transactions described in Uniform Commercial Code
search reports previously furnished to the Agent.

Section 11.3 Mergers, Etc. Such Borrower will not, and will not
permit any Company to, form any new Subsidiary, become a party to a merger or
consolidation, or purchase or otherwise acquire or commit to purchase or
acquire all or any part of the assets of any Person or any shares or other
evidence of beneficial ownership of any Person, or wind-up, dissolve, or
liquidate; provided, however, that each Company shall be permitted to (a) form
a new Subsidiary which shall have executed and delivered to the Agent a
Security Agreement, Uniform Commercial Code financing statements, an assignment
of deposit accounts, and a Guaranty in accordance with Article VII and an
addendum to the Contribution and Indemnification Agreement by which such
Subsidiary is made a party thereto, (b) subject to the provisions of subsection
(c) of this Section and Section 11.5, merge or consolidate with any Person if
the surviving Person shall have executed and delivered to the Agent a Security
Agreement, Uniform Commercial Code financing statements, an assignment of
deposit accounts, and a Guaranty in accordance with Article VII and an addendum
to the Contribution and Indemnification Agreement by which such Person is made
a party thereto and shall have delivered to the Agent Uniform Commercial Code
Lien searches and tax and judgment Lien searches for all appropriate names and
jurisdictions as the Agent may require, (c) purchase or acquire or commit to
purchase or acquire assets of or any

CREDIT AGREEMENT - Page 48
<PAGE> 54
shares or other evidence of beneficial ownership of any Person to the extent
permitted by Section 11.5, provided that each Subsidiary so acquired shall have
executed and delivered to the Agent a Security Agreement, Uniform Commercial
Code financing statements, an assignment of deposit accounts, and a Guaranty in
accordance with Article VII and an addendum to the Contribution and
Indemnification Agreement by which such Subsidiary is made a party thereto and
shall have delivered to the Agent Uniform Commercial Code Lien searches and tax
and judgment Lien searches for all appropriate names and jurisdictions as the
Agent may require.

Section 11.4 Restricted Payments. Such Borrower will not declare
or pay any dividends or make any other payment or distribution (whether in
cash, property, or obligations) on account of its capital stock, or redeem,
purchase, retire, or otherwise acquire any of its capital stock, or permit any
of the Companies to purchase or otherwise acquire any capital stock of another
Company, or set apart any money for a sinking or other analogous fund for any
dividend or other distribution on its capital stock or for any redemption,
purchase, retirement, or other acquisition of any of its capital stock, except
for the following:

(a) Any loan, advance, extension of credit, capital
contribution, or distribution (which includes, with respect to the
equity securities issued by any Company, the retirement, redemption,
or purchase of such shares or the declaration or payment of any
dividend by that Company) by any Company to any other Company so long
as each of the Companies shall have executed and delivered to the
Agent a Security Agreement, Uniform Commercial Code financing
statements, an assignment of deposit accounts, and a Guaranty in
accordance with Article VII, shall be a party to the Contribution and
Indemnification Agreement and shall have delivered to the Agent all
Uniform Commercial Code, tax and judgment lien searches required by
the Agent; and

(b) Repurchase by any Company of any of its stock owned
by any employee of such Company (other than S. Wayne Bazzle or Cheryl
C. Bazzle) whose employment is terminated by such employee or such
Company for any reason.

Section 11.5 Loans and Investments. Such Borrower will not make,
and will not permit any Company to make, any advance, loan, extension of
credit, or capital contribution to or investment in, or purchase or own, or
permit any Company to purchase or own, any stock, bonds, notes, debentures, or
other securities of, any Person, except for the following:

(a) Expense accounts for directors, officers, and
employees of the Companies in the ordinary course of business not to
exceed (a) $10,000 in the aggregate outstanding at any time for any
one director, officer, or employee of the Companies, other than S.
Wayne Bazzle and Cheryl C. Bazzle, (b) $15,000 in the aggregate
outstanding at any time for S. Wayne Bazzle, and (c) $15,000 in the
aggregate outstanding at any time for Cheryl C. Bazzle;

(b) Investments in obligations of the United States of
America and agencies thereof and obligations guaranteed by the United
States of America maturing within one year from the date of
acquisition;

CREDIT AGREEMENT - Page 49
<PAGE> 55
(c) Certificates of deposit issued by commercial banks
organized under the laws of the United States of America or any state
thereof and having (i) combined capital, surplus, and undivided
profits of not less than $100,000,000 and (ii) a commercial paper
rating from Moody's Investors Service, Inc., or Standard & Poor's
Corporation of at least P-1 and A-1, respectively;

(d) Eurodollar investments with financial institutions
having (i) combined capital, surplus, and undivided profits of not
less than U.S. $100,000,000, and (ii) a commercial paper rated at
least P-1 or A-1 by Moody's Investors Service, Inc., or Standard &
Poor's Corporation, respectively, or, if any institution does not have
a commercial paper rating, a comparable bond rating of at least A or
BAA-1 by Standard & Poor's Corporation or Moody's Investors Service,
Inc., respectively;

(e) Extensions of credit in connection with trade
receivables and overpayments of trade payables, in each case resulting
from transactions in the ordinary course of business;

(f) Any loan, advance, extension of credit, capital
contribution, or distribution (which includes, with respect to the
equity securities issued by any Company, the retirement, redemption,
or purchase of such shares or the declaration or payment of any
dividend by that Company) by any Company to any other Company so long
as each of the Companies shall have executed and delivered to the
Agent a Security Agreement, Uniform Commercial Code financing
statements, an assignment of deposit accounts, and a Guaranty in
accordance with Article VII, shall be a party to the Contribution and
Indemnification Agreement and shall have delivered to the Agent all
Uniform Commercial Code, tax and judgment lien searches required by
the Agent;

(g) Investments in the Companies listed on Schedule 2;

(h) Acquisition of assets of any Person, so long as (a)
the provisions of Section 10.1(e) of the Agreement have been complied
with, (b) the total consideration - cash and noncash - for each such
acquisition paid or to be paid by the Companies is not more than
$3,000,000, (c) the total consideration - cash and noncash - for such
acquisition and all other acquisitions of assets of or any shares or
other beneficial ownership of any Person during the six (6) month
period then ended paid or to be paid by the Companies is not more than
$3,000,000 in the aggregate, and (d) no Default is then continuing or
would result from such acquisition; and

(i) Acquisition of any new Subsidiary, so long as (a)
such Subsidiary has executed and delivered to the Agent a Security
Agreement, Uniform Commercial Code financing statements, an assignment
of deposit accounts, and a Guaranty in accordance with Article VII and
an addendum to the Contribution and Indemnification Agreement by which
such Subsidiary is made a party thereto, and has delivered to the
Agent Uniform Commercial Code lien searches and tax and judgment lien
searches for all appropriate names and jurisdictions as the Agent may
require, (b) the provisions of Section 10.1(e)

CREDIT AGREEMENT - Page 50
<PAGE> 56
of the Agreement have been complied with, (c) the total consideration
- cash and noncash - for each such acquisition paid or to be paid by
the Companies is not more than $3,000,000, (d) the total consideration
- cash and noncash - for such acquisition and all other acquisitions
of assets of or any shares or other beneficial ownership of any Person
during the six (6) month period then ended paid or to be paid by the
Companies is not more than $3,000,000, in the aggregate and (e) no
Default is then continuing or would result from such acquisition.

Section 11.6 Limitation on Issuance of Subsidiaries' Capital
Stock. Such Borrower will not, and will not permit any of the Companies to, at
any time issue, sell, assign, or otherwise dispose of (a) any of its capital
stock, (b) any securities exchangeable for or convertible into or carrying any
rights to acquire any of its capital stock, or (c) any option, warrant, or
other right to acquire any of its capital stock; provided, however, that the
following shall be permitted so long as no Default exists or would occur as a
result thereof: (i) options for the purchase of common stock issued to
employees of the Companies, (ii) Holdings may issue common stock, warrants for
common stock, or debt convertible into common stock to a seller in connection
with an acquisition permitted by Section 11.5, (iii) the issuance and sale of
stock to the HealthCor Employee Stock Ownership Plan, and (iv) the issuance and
sale of stock in connection with an initial public offering of the stock of
Holdings if all amounts outstanding under the Term Notes are prepaid in full
with the proceeds of such offering.

Section 11.7 Transactions With Affiliates. Such Borrower will not
enter into, and will not permit any Company to enter into, any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate of such Borrower or such
Company, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to such Borrower or such Subsidiary than
would be obtained in a comparable arm's-length transaction with a Person not an
Affiliate of such Borrower or such Subsidiary.

Section 11.8 Disposition of Assets. Such Borrower will not and
will not permit any Company to, sell, lease, assign, transfer, or otherwise
dispose of any of its assets, except dispositions of inventory in the ordinary
course of business.

Section 11.9 Sale and Leaseback. Such Borrower will not enter
into, and will not permit any Company to enter into, any arrangement with any
Person pursuant to which it leases from such Person real or personal property
that has been or is to be sold or transferred, directly or indirectly, by it to
such Person.

Section 11.10 Prepayment of Funded Debt. Such Borrower will not
prepay, and will not permit any Company to prepay, any Funded Debt, except the
Obligations.

Section 11.11 Nature of Business. Such Borrower will not and will
not permit any Company to, engage in any business not reasonably related to the
businesses in which they are engaged on the date hereof.

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<PAGE> 57
Section 11.12 Environmental Protection. Such Borrower will not,
and will not permit any Company to, (a) use (or permit any tenant to use) any
of their respective properties or assets for the handling, processing, storage,
transportation, or disposal of any Hazardous Material, (b) generate any
Hazardous Material, (c) conduct any activity that is likely to cause a release
or threatened release of any Hazardous Material, or (d) otherwise conduct any
activity or use any of their respective properties or assets in any manner that
is likely to violate any Environmental Law or create any Environmental
Liabilities for which such Borrower or any Company would be responsible.

Section 11.13 Accounting. Such Borrower will not, and will not
permit any Company to, change its fiscal year or make any change (a) in
accounting treatment or reporting practices, except as required by GAAP and
disclosed to the Agent, or (b) in tax reporting treatment, except as required
by law and disclosed to the Agent.

Section 11.14 Compensation. Such Borrower will not pay, and will
not permit any Company to pay, to S. Wayne Bazzle or Cheryl C. Bazzle, or
either of them, any cash compensation (including salary, bonus and other cash
compensation) which would cause the combined cash compensation of S. Wayne
Bazzle and Cheryl C. Bazzle to be greater than $750,000 during any fiscal year
of Borrower.

ARTICLE XII

Financial Covenants

Section 12.1 Funded Debt to EBITDAA Ratio. Such Borrower will at
all times maintain or cause to be maintained a Funded Debt to EBITDAA Ratio of
not greater than 3.00 to 1.00.

Section 12.2 Consolidated Net Worth. Such Borrower will at all
times maintain or cause to be maintained Consolidated Net Worth in an amount
not less than the sum of (a) $16,500,000, plus (b) eighty percent (80%) of the
consolidated net income of the Companies (to the extent positive) for each
fiscal year (which for the 1996 fiscal year shall be limited to the net income
of the Companies after the Closing Date), plus (c) one hundred percent (100%)
of the net proceeds received by the Companies from the sale or issuance of
equity securities.

Section 12.3 Fixed Charge Coverage Ratio. Such Borrower will at
all times maintain or cause to be maintained a Fixed Charge Coverage Ratio of
not less than 1.20 to 1.00.

Section 12.4 Capital Expenditures. Such Borrower will not permit
the aggregate capital expenditures of the Companies to exceed $10,000,000
during any fiscal year.

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<PAGE> 58
Section 12.5 Unleveraged Nonreimbursed Capital Expenditures. Such
Borrower will not permit the aggregate Unleveraged Nonreimbursed Capital
Expenditures of the Companies to exceed $2,500,000 during any fiscal year.

ARTICLE XIII

Default

Section 13.1 Events of Default. Each of the following shall be
deemed an "Event of Default":

(a) Either Borrower shall fail to pay (i) any principal
of the Obligations when due, or (ii) any interest or other part of the
Obligations within five (5) days after the date due.

(b) Any representation or warranty made or deemed made by
either Borrower or any Obligated Party (or any of their respective
officers) in any Loan Document or in any certificate, report, notice,
or financial statement furnished at any time in connection with this
Agreement shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.

(c) Either Borrower or any Obligated Party shall fail to
perform, observe, or comply with any covenant, agreement, or term
contained in Article XI, or Article XII of this Agreement.

(d) Either Borrower or any Obligated Party shall fail to
perform, observe, or comply with any other covenant, agreement, or
term contained in this Agreement or any other Loan Document (other
than covenants to pay the Obligations and the covenants contained in
Articles XI and XII of this Agreement) and such failure shall continue
for a period of thirty (30) days after notice thereof to such Borrower
or such Borrower or Obligated Party otherwise has notice thereof.

(e) Either Borrower, any Company, or any Obligated Party
shall commence a voluntary proceeding seeking liquidation,
reorganization, or other relief with respect to itself or its debts
under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or a
substantial part of its property or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it or shall
make a general assignment for the benefit of creditors or shall
generally fail to pay its debts as they become due or shall take any
corporate action to authorize any of the foregoing.

(f) An involuntary proceeding shall be commenced against
either Borrower, any Company, or any Obligated Party seeking
liquidation, reorganization, or other relief with respect to it or its
debts under any bankruptcy, insolvency, or other similar law now

CREDIT AGREEMENT - Page 53
<PAGE> 59
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for it or a
substantial part of its property, and such involuntary proceeding
shall remain undismissed and unstayed for a period of sixty (60) days.

(g) Either Borrower, any Company, or any Obligated Party
shall fail to discharge within a period of thirty (30) days after the
commencement thereof any attachment, sequestration, or similar
proceeding or proceedings involving an aggregate amount in excess of
One Hundred Thousand Dollars ($100,000) against any of its assets or
properties.

(h) A final judgment or judgments for the payment of
money in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate shall be rendered by a court or courts against either
Borrower, any of the Companies, or any Obligated Party and the same
shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured,
within thirty (30) days from the date of entry thereof and such
Borrower or the relevant Company or Obligated Party shall not, within
said period of thirty (30) days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.

(i) Either Borrower, any Company, or any Obligated Party
shall fail to pay when due (after the lapse of any applicable grace
periods) any principal of or interest on any Funded Debt in excess of
One Hundred Thousand Dollars ($100,000) (other than the Obligations),
or the maturity of any such Funded Debt shall have been accelerated,
or any such Funded Debt shall have been required to be prepaid prior
to the stated maturity thereof, or any event shall have occurred that
permits (or, with the giving of notice or lapse of time or both, would
permit) any holder or holders of such Funded Debt or any Person acting
on behalf of such holder or holders to accelerate the maturity thereof
or require any such prepayment.

(j) This Agreement or any other Loan Document shall cease
to be in full force and effect or shall be declared null and void or
the validity or enforceability thereof shall be contested or
challenged by either Borrower, any Company, any Obligated Party or any
of their respective shareholders, or either Borrower or any Obligated
Party shall deny that it has any further liability or obligation under
any of the Loan Documents, or any Lien or security interest created by
the Loan Documents shall for any reason cease to be a valid, first
priority perfected security interest in and Lien upon any of the
Collateral purported to be covered thereby.

(k) Any of the following events shall occur or exist with
respect to any Company or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv)
any event or circumstance that might constitute grounds entitling the
PBGC to institute

CREDIT AGREEMENT - Page 54
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proceedings under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete or
partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination
of any Multiemployer Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, have
subjected or could in the reasonable opinion of Required Banks subject
any Company to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise (or any combination
thereof) which in the aggregate exceed or could reasonably be expected
to exceed One Hundred Thousand Dollars ($100,000).

(l) S. Wayne Bazzle and Cheryl C. Bazzle, or either of
them, shall transfer, assign, sell, or convey in any manner all or any
portion of the equity securities of Holdings owned or held by S. Wayne
Bazzle and Cheryl C. Bazzle, or either of them; except as a result of
an initial public offering of the stock of Holdings if all amounts
outstanding under the Term Notes are repaid in full with the proceeds
of such offering.

(m) There shall occur a material change or changes in the
management of the Companies, or any of them. Without in any way
limiting the foregoing, a material change in management shall be
deemed to have occurred if S. Wayne Bazzle or Cheryl C. Bazzle ceases
to be actively involved in the management of the Companies.

(n) Any Company shall fail to be an accredited, licensed,
registered or certified health care provider, as the case may be, as
represented and warranted pursuant to Section 9.4.

(o) The mandatory redemption date for the Preferred Stock
(as set forth in the Restated Certificate of Incorporation of
Holdings) or the date specified in Section 11(a)(i) of either of the
Preferred Stock Purchase Agreements shall be amended, modified or
changed to a date earlier than October 15, 2001.

Section 13.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any one
or more of the following:

(a) Acceleration. Declare all outstanding principal of
and accrued and unpaid interest on the Notes and all other obligations
of the Borrowers under the Loan Documents immediately due and payable,
and the same shall thereupon become immediately due and payable,
without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other
formalities of any kind, all of which are hereby expressly waived by
the Borrowers.

(b) Termination of Commitments. Terminate the
Commitments and the obligation of the Issuing Banks to issue Letters
of Credit hereunder without notice to the Borrowers.

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(c) Judgment. Reduce any claim to judgment.

(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself, the Issuing Banks and
the Banks to secure payment and performance of the Obligations in
accordance with the terms of the Loan Documents.

(e) Rights. Exercise any and all rights and remedies
afforded by the laws of the State of Texas or any other jurisdiction,
by any of the Loan Documents, by equity, or otherwise.

Provided, however, that upon the occurrence of an Event of Default under
Subsection (e) or (f) of Section 13.1, the Commitments of all of the Banks and
the obligation of the Issuing Banks to issue Letters of Credit shall
automatically terminate, and the outstanding principal of and accrued and
unpaid interest on the Notes and all other obligations of the Borrowers under
the Loan Documents shall thereupon become immediately due and payable without
notice, demand, presentment, notice of dishonor, notice of acceleration, notice
of intent to accelerate, protest, or other formalities of any kind, all of
which are hereby expressly waived by the Borrowers.

Section 13.3 Letters of Credit. If any Event of Default shall
occur and be continuing, the Company shall, if requested by the Agent for the
Required Banks, immediately deposit with and pledge to the Agent cash or cash
equivalent investments in an amount equal to the outstanding Letter of Credit
Liabilities as security for the Obligations. Furthermore, in order to continue
to secure the full and complete payment and performance of the Obligations
arising in connection with the Letter of Credit Liabilities that continue to be
outstanding after acceleration of the other Obligations or the exercise of
other rights after the occurrence of an Event of Default, the Lender may do
either or both of the following: (a) segregate such Collateral or accounts and
other property as the Lender may in its sole discretion select, and (b) retain
and deposit into one or more cash collateral accounts any proceeds received by
the Lender from the foreclosure of Collateral, exercise of rights of offset or
banker's lien, or exercise of other rights.

Section 13.4 Performance by the Agent. If either Borrower shall
fail to perform any covenant or agreement in accordance with the terms of the
Loan Documents, the Agent may, at the direction of Required Banks, perform or
attempt to perform such covenant or agreement on behalf of such Borrower. In
such event, such Borrower shall, at the request of the Agent, promptly pay any
amount expended by the Agent or the Banks in connection with such performance
or attempted performance to the Agent at the Principal Office, together with
interest thereon at the Default Rate from and including the date of such
expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent,
any Issuing Bank nor any Bank shall have any liability or responsibility for
the performance of any obligation of the Borrowers under this Agreement or any
of the other Loan Documents.

CREDIT AGREEMENT - Page 56
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ARTICLE XIV

The Agent

Section 14.1 Appointment, Powers and Immunities. In order to
expedite the various transactions contemplated by this agreement, the Banks and
the Issuing Banks hereby irrevocably appoint and authorize TCB to act as their
Agent hereunder and under each of the other Loan Documents. TCB consents to
such appointment and agrees to perform the duties of the Agent as specified
herein. The Banks and the Issuing Banks authorize and direct the Agent to take
such action in their name and on their behalf under the terms and provisions of
the Loan Documents and to exercise such rights and powers thereunder as are
specifically delegated to or required of the Agent for the Banks and the
Issuing Banks, together with such rights and powers as are reasonably
incidental thereto. The Agent is hereby expressly authorized to act as the
Agent on behalf of itself, the other Banks and the Issuing Banks:

(a) To receive on behalf of each of the Banks and the
Issuing Banks any payment of principal, interest, fees or other
amounts paid pursuant to this Agreement and the Notes and to
distribute to each Bank and/or Issuing Bank its share of all payments
so received as provided in this Agreement;

(b) To receive all documents and items to be furnished
under the Loan Documents;

(d) To arrange for the means whereby the funds of the
Banks are to be made available to the Borrower;

(e) To distribute to the Banks and the Issuing Banks
information, requests, notices, payments, prepayments, documents and
other items received from the Borrowers, the other Obligated Parties,
and other Persons;

(f) To execute and deliver to the Borrowers, the other
Obligated Parties, and other Persons, all requests, demands,
approvals, notices, and consents received from the Banks and the
Issuing Banks;

(g) To the extent permitted by the Loan Documents, to
exercise on behalf of each Bank and Issuing Bank all rights and
remedies of the Banks and the Issuing Banks upon the occurrence of any
Event of Default;

(h) To accept, execute, and deliver the Security
Agreements, the Pledge Agreements and any other security documents as
the secured party, including, without limitation all UCC financing
statements; and

CREDIT AGREEMENT - Page 57
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(i) To take such other actions as may be requested by
Required Banks or, if otherwise required by the Loan Documents, all of
the Banks.

Neither the Agent nor any of its Affiliates, officers, directors,
employees, attorneys, or agents shall be liable for any action taken or omitted
to be taken by any of them hereunder or otherwise in connection with this
Agreement or any of the other Loan Documents except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
preceding sentence, the Agent (i) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Bank or
Issuing Bank; (iii) shall not be required to initiate any litigation or
collection proceedings hereunder or under any other Loan Document except to the
extent requested by Required Banks; (iv) shall not be responsible to the Banks
or the Issuing Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, enforceability, or sufficiency of this Agreement or
any other Loan Document or any other document referred to or provided for
herein or therein or for any failure by any Person to perform any of its
obligations hereunder or thereunder; (v) may consult with legal counsel
(including counsel for the Borrowers), independent public accountants, and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants, or experts; and (vi) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate,
or other instrument or writing believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for
by this Agreement, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with instructions signed
by Required Banks, and such instructions of Required Banks and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks;
provided, however, that the Agent shall not be required to take any action
which exposes the Agent to personal liability or which is contrary to this
Agreement or any other Loan Document or applicable law.

Section 14.2 Rights of Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Notes issued to it, TCB in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Agent or an Issuing Bank, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its individual capacity. The
Agent and its Affiliates may (without having to account therefor to any Bank or
Issuing Bank) accept deposits from, lend money to, act as trustee under
indentures of, provide merchant banking services to, and generally engage in
any kind of business with the Borrowers, any of the Companies, any other
Obligated Party, and any other Person who may do business with or own
securities of either Borrower, any Company, or any other Obligated Party, all
as if it were not acting as the Agent and without any duty to account therefor
to the Banks or the Issuing Banks.

CREDIT AGREEMENT - Page 58
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Section 14.3 Sharing of Payments, Etc. If any Bank shall obtain
any payment of any principal of or interest on any Loan made by it under this
Agreement or payment of any other obligation under the Loan Documents then owed
by either Borrower or any other Obligated Party to such Bank, whether
voluntary, involuntary, through the exercise of any right of setoff, banker's
lien, counterclaim or similar right, or otherwise, in excess of its pro rata
share, such Bank shall promptly purchase from the other Banks participations in
the Loans held by them hereunder in such amounts, and make such other
adjustments from time to time as shall be necessary to cause such purchasing
Bank to share the excess payment ratably with each of the other Banks in
accordance with its pro rata portion thereof. To such end, all of the Banks
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if all or any portion of such excess payment
is thereafter rescinded or must otherwise be restored. Each Borrower agrees,
to the fullest extent it may effectively do so under applicable law, that any
Bank so purchasing a participation in the Loans made by the other Banks may
exercise all rights of setoff, banker's lien, counterclaim, or similar rights
with respect to such participation as fully as if such Bank were a direct
holder of Loans to such Borrower in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of such Borrower.

Section 14.4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY
THE AGENT FROM AND HOLD THE AGENT AND THE ISSUING BANKS HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTIONS 15.1 AND 15.2, BUT WITHOUT LIMITING
THE OBLIGATIONS OF THE BORROWERS UNDER SECTIONS 15.1 AND 15.2), RATABLY IN
ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST THE AGENT OR THE ISSUING BANKS IN ANY WAY RELATING TO OR ARISING OUT OF
ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE
AGENT OR AN ISSUING BANK UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS;
PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF THE
FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S OR SUCH ISSUING BANK'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS
THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT AND THE ISSUING BANKS SHALL
BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR SUCH ISSUING
BANK. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES
TO REIMBURSE THE AGENT AND THE ISSUING BANKS PROMPTLY UPON DEMAND

CREDIT AGREEMENT - Page 59
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FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY AND
ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT OR
AN ISSUING BANK 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, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
AGENT OR SUCH ISSUING BANK IS NOT REIMBURSED FOR SUCH EXPENSES BY THE
BORROWERS.

Section 14.5 Independent Credit Decisions. Each Bank agrees that
it has independently and without reliance on the Agent, any Issuing Bank or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrowers and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent, any Issuing Bank or any other Bank, and based upon such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement or any of the other Loan Documents. The Agent shall not be required
to keep itself informed as to the performance or observance by either Borrower
or any Obligated Party of this Agreement or any other Loan Document or to
inspect the properties or books of either Borrower or any Obligated Party.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder or under the other
Loan Documents, the Agent shall not have any duty or responsibility to provide
the Issuing Banks or any Bank with any credit or other financial information
concerning the affairs, financial condition or business of the Borrowers or any
Obligated Party (or any of their Affiliates) which may come into the possession
of the Agent or any of its Affiliates.

Section 14.6 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The default by any
Bank in making a Loan in accordance with its Commitment shall not relieve the
other Banks of their obligations under this Agreement. In the event of any
default by any Bank in making any Loan, each nondefaulting Bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In no event shall
any Bank be required to advance an amount or amounts which shall in the
aggregate exceed such Bank's Commitment. No Bank shall be responsible for any
act or omission of any other Bank.

Section 14.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Borrowers and the Agent may
be removed at any time with or without cause by Required Banks. Upon any such
resignation or removal, Required Banks will have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by
Required Banks and shall have accepted such appointment within 30 days after
the retiring Agent's giving of notice of resignation or the Required Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or any State thereof and having
combined capital

CREDIT AGREEMENT - Page 60
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and surplus of at least $100,000,000. Upon the acceptance of its appointment
as successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities, and duties of the
resigning or removed Agent, and the resigning or removed Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any Agent's resignation or removal as Agent, the
provisions of this Article XIV shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Agent.

ARTICLE XV

Miscellaneous

Section 15.1 Expenses. Each Borrower hereby agrees to pay on
demand: (a) all reasonable costs and expenses of the Agent, the Issuing Banks
and the Banks in connection with the preparation, negotiation, execution, and
delivery of this Agreement and the other Loan Documents and any and all
amendments, modifications, renewals, extensions, and supplements thereof and
thereto, including, without limitation, the fees and expenses of legal counsel
for the Agent, the Issuing Banks and the Banks, (b) all costs and expenses of
the Agent, the Issuing Banks and the Banks in connection with any Default and
the enforcement of this Agreement or any other Loan Document, including,
without limitation, the fees and expenses of legal counsel for the Agent, the
Issuing Banks and the Banks, and (c) all other costs and expenses incurred by
the Agent, the Issuing Banks and the Banks in connection with this Agreement or
any other Loan Document.

Section 15.2 INDEMNIFICATION. EACH BORROWER SHALL INDEMNIFY THE
AGENT, EACH ISSUING BANK AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS (COLLECTIVELY,
THE "INDEMNIFIED PARTIES") FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY
AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) TO WHICH ANY OF
THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO
(A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY EITHER BORROWER OF ANY
REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE
LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF EITHER BORROWER OR ANY COMPANY, OR
(E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING
RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER, NO INDEMNIFIED PARTY SHALL
HAVE THE RIGHT TO

CREDIT AGREEMENT - Page 61
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BE INDEMNIFIED FOR ITS OWN FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT,
IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF
OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.

Section 15.3 LIMITATION OF LIABILITY. NONE OF THE AGENT, ANY
ISSUING BANK, ANY BANK, OR ANY AFFILIATE, OFFICER, DIRECTOR, EMPLOYEE,
ATTORNEY, OR AGENT THEREOF SHALL HAVE ANY LIABILITY WITH RESPECT TO, AND EACH
BORROWER HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE ANY OF THEM UPON, ANY
CLAIM FOR ANY SPECIAL OR PUNITIVE DAMAGES SUFFERED OR INCURRED BY EITHER
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH
BORROWER HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE THE AGENT, ANY ISSUING
BANK, OR ANY BANK OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS, OR AGENTS FOR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

Section 15.4 No Duty. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by the Agent, the Issuing
Banks and the Banks shall have the right to act exclusively in the interest of
the Agent, the Issuing Banks and the Banks and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to the Borrower or any of the Borrower's shareholders
or any other Person.

Section 15.5 No Fiduciary Relationship. The relationship between
the Borrowers and each Bank is solely that of debtor and creditor, and neither
the Agent, any Issuing Bank nor any Bank has any fiduciary or other special
relationship with the Borrowers, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between the
Borrowers and any Bank to be other than that of debtor and creditor.

Section 15.6 No Waiver; Cumulative Remedies. No failure on the
part of the Agent, any Issuing Bank or any Bank to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power, or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power, or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right,

CREDIT AGREEMENT - Page 62
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power, or privilege. The rights and remedies provided for in this Agreement
and the other Loan Documents are cumulative and not exclusive of any rights and
remedies provided by law.

Section 15.7 Successors and Assigns.

(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrowers may not assign or transfer any of their rights
or obligations hereunder without the prior written consent of the
Agent and all of the Banks. Any Bank may sell participations to one
or more banks or other institutions in or to all or a portion of its
rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its
Commitments and the Loans owing to it); provided, however, that (i)
such Bank's obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitments) shall
remain unchanged, (ii) such Bank shall remain solely responsible to
the Borrower for the performance of such obligations, (iii) such Bank
shall remain the holder of its Notes for all purposes of this
Agreement, (iv) the Borrowers shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Loan Documents, and (v)
such Bank shall not sell a participation that conveys to the
participant the right to vote or give or withhold consents under this
Agreement or any other Loan Document, other than the right to vote
upon or consent to (A) any increase of such Bank's Commitments, (B)
any reduction of the principal amount of, or interest to be paid on,
the Loans of such Bank, (C) any reduction of any commitment fee or
other amount payable to such Bank under any Loan Document, (D) any
release of Collateral or release of any Guarantor, or (E) any
postponement of any date for the payment of any amount payable in
respect of the Loans of such Bank.

(b) The Borrowers and each of the Banks agree that any
Bank (the "Assigning Bank") may, with the Agent's consent and unless
an Event of Default has occurred, the Borrowers' consent (except that
no consent shall be required with respect to assignments by TCB during
the first six months after the date hereof, TCB agreeing to use
reasonable efforts to keep the Borrowers advised of any potential
assignees), which consent of the Borrowers shall not be unreasonably
withheld or delayed, at any time assign to one or more Eligible
Assignees all, or a proportionate part of all, of its rights and
obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitments and Loans) (each an
"Assignee"); provided, however, that (i) each such assignment shall be
of a consistent, and not a varying, percentage of all of the assigning
Bank's Commitments, rights and obligations under this Agreement and
the other Loan Documents, (ii) except in the case of an assignment of
all of a Bank's rights and obligations under this Agreement and the
other Loan Documents, the amount of the Commitments of the assigning
Bank being assigned pursuant to each assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5,000,000, and (iii) the parties to
each such assignment shall execute and deliver to the Agent for its
acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Notes

CREDIT AGREEMENT - Page 63
<PAGE> 69
subject to such assignment, and, except in the case of an assignment
to an Affiliate of the Assigning Bank, a processing and recordation
fee of $2,500, to be paid by the Assignee. Upon such execution,
delivery, acceptance, and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, or,
if so specified in such Assignment and Acceptance, the date of
acceptance thereof by the Agent, (x) the assignee thereunder shall be
a party hereto as a "Bank" and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and under the Loan Documents and (y) the Bank that is an
assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations
under this Agreement and the other Loan Documents (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of
a Bank's rights and obligations under the Loan Documents, such Bank
shall cease to be a party thereto).

(c) By executing and delivering an Assignment and
Acceptance, the Bank that is an assignor thereunder and the assignee
thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and
Acceptance, such assigning Bank makes no representation or warranty
and assumes no responsibility with respect to any statements,
warranties, or representations made in or in connection with the Loan
Documents or the execution, legality, validity, and enforceability,
genuineness, sufficiency, or value of the Loan Documents or any other
instrument or document furnished pursuant thereto; (ii) such assigning
Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrowers or any
Obligated Party or the performance or observance by either Borrower or
any Obligated Party of its obligations under the Loan Documents; (iii)
such assignee confirms that it has received a copy of the other Loan
Documents, together with copies of the financial statements referred
to in Section 9.2 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent or such assignor and
based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents;
(v) such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Agent to take such action as
agent on its behalf and exercise such powers under the Loan Documents
as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to
be performed by it as a Bank.

(d) The Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the
Banks and the Commitments of, and principal amount of the

CREDIT AGREEMENT - Page 64
<PAGE> 70
Loans owing to, each Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrowers, the Agent, the
Issuing Banks and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes under
the Loan Documents. The Register shall be available for inspection by
either Borrower, any Issuing Bank or any Bank at any reasonable time
and from time to time upon reasonable prior notice.

(e) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and assignee representing that it is an
Eligible Assignee, together with any Note subject to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit "J" hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt written notice thereof
to the Borrowers. Within five (5) Business Days after their receipt
of such notice, the Borrowers, at their expense, shall execute and
deliver to the Agent in exchange for the surrendered Notes new Notes
to the order of such Eligible Assignee in an amount equal to the
Commitments assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Bank has retained a portion of its Commitments,
new Notes to the order of the assigning Bank in an amount equal to the
Commitments retained by it hereunder (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new
Notes shall be in an aggregate principal amount of the surrendered
Notes, shall be dated the effective date of such Assignment and
Acceptance, and shall otherwise be in substantially the form of
Exhibits "A-1" and "A-2" hereto.

(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrowers or its
Subsidiaries furnished to such Bank by or on behalf of the Borrower or
its Subsidiaries.

(g) Any Bank may pledge or assign its Notes to any
Federal Reserve Bank in accordance with applicable law.

Section 15.8 Survival. All representations and warranties made in
this Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by the Agent, any Issuing Bank or any Bank or any closing shall
affect the representations and warranties or the right of the Agent, any
Issuing Bank or any Bank to rely upon them. Without prejudice to the survival
of any other obligation of the Borrowers hereunder, the obligations of the
Borrowers under Article VI and Sections 15.1 and 15.2 shall survive repayment
of the Notes and termination of the Commitments.

Section 15.9 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE

CREDIT AGREEMENT - Page 65
<PAGE> 71
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO.

Section 15.10 Amendments, Etc. No amendment or waiver of any
provision of this Agreement, the Notes, or any other Loan Document to which
either Borrower is a party, nor any consent to any departure by either Borrower
therefrom, shall in any event be effective unless the same shall be agreed or
consented to by Required Banks and the Borrowers, and each such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, that no amendment, waiver, or consent shall,
unless in writing and signed by all of the Banks and the Borrowers, do any of
the following: (a) increase the Commitments of the Banks or subject the Banks
to any additional obligations; (b) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable to the Banks hereunder; (c) postpone
any date fixed for any payment of principal of, or interest on, the Notes or
any fees or other amounts payable to the Banks hereunder; (d) waive any of the
conditions specified in Article VI; (e) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes or the
number of Banks which shall be required for the Banks or any of them to take
any action under this Agreement; (f) change any provision contained in this
Section 15.11; or (g) release any Collateral or any Guarantor. Notwithstanding
anything to the contrary contained in this Section, no amendment, waiver, or
consent shall be made with respect to Article XIV hereof without the prior
written consent of the Agent and no amendment, waiver, or consent shall be made
with respect to Article IV hereof without the prior written consent of the
Issuing Banks.

Section 15.11 Maximum Interest Rate. No provision of this
Agreement or of any other Loan Document shall require the payment or the
collection of interest in excess of the maximum amount permitted by applicable
law. If any excess of interest in such respect is hereby provided for, or
shall be adjudicated to be so provided, in any Loan Document or otherwise in
connection with this loan transaction, the provisions of this Section shall
govern and prevail and neither the Borrowers nor the sureties, guarantors,
successors, or assigns of the Borrowers shall be obligated to pay the excess
amount of such interest or any other excess sum paid for the use, forbearance,
or detention of sums loaned pursuant hereto. In the event any Bank ever
receives, collects, or applies as interest any such sum, such amount which
would be in excess of the maximum amount permitted by applicable law shall be
applied as a payment and reduction of the principal of the indebtedness
evidenced by the Notes; and, if the principal of the Notes has been paid in
full, any remaining excess shall forthwith be paid to the Borrowers. In
determining whether or not the interest paid or payable exceeds the Maximum
Rate, the Borrowers and each Bank shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the entire contemplated term of
the indebtedness evidenced by the Notes so that interest for the entire term
does not exceed the Maximum Rate.

CREDIT AGREEMENT - Page 66
<PAGE> 72
Section 15.12 Notices. All notices and other communications
provided for in this Agreement and the other Loan Documents to which either
Borrower is a party shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested, or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof; or, as to any party at such other address as shall
be designated by such party in a notice to each other party given in accordance
with this Section. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy, subject to telephone confirmation of receipt, or when personally
delivered or, in the case of a mailed notice, when duly deposited in the mails,
in each case given or addressed as aforesaid; provided, however, notices to the
Agent pursuant to Article II, III and IV shall not be effective until received
by the Agent.

SECTION 15.13 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST EITHER BORROWER UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS
MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. EACH
BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT
ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH BORROWER AGREES THAT SERVICE OF
PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 15.12. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN
DOCUMENTS SHALL AFFECT THE RIGHT OF THE AGENT, ANY ISSUING BANK OR ANY BANK TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
THE AGENT, ANY ISSUING BANK OR ANY BANK TO BRING ANY ACTION OR PROCEEDING
AGAINST EITHER BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN
OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY EITHER BORROWER AGAINST THE
AGENT, ANY ISSUING BANK OR ANY BANK SHALL BE BROUGHT ONLY IN A COURT LOCATED IN
DALLAS COUNTY, TEXAS.

Section 15.14 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

Section 15.15 Severability. Any provision of this Agreement held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder

CREDIT AGREEMENT - Page 67
<PAGE> 73
of this Agreement and the effect thereof shall be confined to the provision
held to be invalid or illegal.

Section 15.16 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

Section 15.17 Construction. Each of the Borrowers, the Agent, each
Issuing Bank and each Bank acknowledge that each of them has had the benefit of
legal counsel of its own choice and has been afforded an opportunity to review
this Agreement and the other Loan Documents with its legal counsel and that
this Agreement and the other Loan Documents shall be construed as if jointly
drafted by the parties hereto.

Section 15.18 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or such
condition exists.

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

BORROWERS:

HEALTHCOR HOLDINGS, INC.

By: /s/ S. WAYNE BAZZLE
-----------------------------------
S. Wayne Bazzle
Chairman of the Board, Chief
Executive Officer and Secretary

Address for Notices:
5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

CREDIT AGREEMENT - Page 68
<PAGE> 74
HEALTHCOR, INC.

By: /s/ S. WAYNE BAZZLE
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

Address for Notices:
5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

AGENT:

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION

By: /s/ STEVEN T. PRICHETT
-----------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue, 6th Floor
Dallas, Texas 75201
Fax No.: (214) 922-2384
Telephone No.: (214) 965-3710

Attention: Mr. Steven T. Prichett
Vice President

CREDIT AGREEMENT - Page 69
<PAGE> 75
ISSUING BANK:

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION

By: /s/ STEVEN T. PRICHETT
-----------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue, 6th Floor
Dallas, Texas 75201
Fax No.: (214) 922-2384
Telephone No.: (214) 965-3710

Attention: Mr. Steven T. Prichett
Vice President

CREDIT AGREEMENT - Page 70
<PAGE> 76
BANKS:

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION

Revolving Credit Commitment:
By: /s/ STEVEN T. PRICHETT
-----------------------------------
Steven T. Prichett
$5,714,285.71 Vice President

Term Loan Commitment: Address for Notices:

$14,285,714.29 2200 Ross Avenue, 6th Floor
Dallas, Texas 75201
Fax No.: (214) 922-2384
Telephone No.: (214) 965-3710

Attention: Mr. Steven T. Prichett
Vice President

Lending Office for Alternate Base Rate
Loans

2200 Ross Avenue
Dallas, Texas 75201

Lending Office for Eurodollar Loans

2200 Ross Avenue
Dallas, Texas 75201

CREDIT AGREEMENT - Page 71
<PAGE> 77
FIRST NATIONAL BANK OF CHICAGO

Revolving Credit Commitment:
By: /s/ ERIK C. BACK
-----------------------------------
Name: Erik C. Back
------------------------------
$4,285,714.29 Title: Corporate Banking Officer
-----------------------------

Term Loan Commitment: Address for Notices:

$10,714,285.71 Public Banking Department
One First National Plaza, Suite 0091
Chicago, Illinois 60670
Fax No.: (312) 732-2016
Telephone No.: (312) 732-4406

Attention: Mr. Erik Back
Corporate Banking Officer

Lending Office for Alternate Base Rate
Loans

Public Banking Department
One First National Plaza, Suite 0091
Chicago, Illinois 60670

Lending Office for Eurodollar Loans

Public Banking Department
One First National Plaza, Suite 0091
Chicago, Illinois 60670

CREDIT AGREEMENT - Page 72
<PAGE> 78
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit Description of Exhibit Section
------- ---------------------- -------
<S> <C> <C>
"A-1" Form of Revolving Credit Note 2.2
"A-2" Form of Term Note 3.2
"B-1" Loan Request Form 5.1
"B-2" Notice of Continuation or Conversion 5.2
"C" Letter of Credit Request Form 4.3
"D-1" Borrower Security Agreement 7.1(a)
"D-2" Subsidiary Security Agreement 7.1(b)
"E-1" Subsidiary Guaranty 7.3
"E-2" Borrower Guaranty 7.3
"F-1" Holdings Pledge Agreement 7.1(c)
"F-2" HOME Holdings Pledge Agreement 7.1(d)
"F-3" HOME Pledge Agreement 7.1(e)
"F-4" Pharmacy Pledge Agreement 7.1(f)
"G" Assignment of Deposit Accounts 7.2
"H" Contribution and Indemnification Agreement 8.1(r)
"I" Matters to be Addressed by Opinion of Counsel
for the Companies 8.1(y)
"J" Assignment and Acceptance 15.7
"K" Compliance Certificate 10.1(c)
</TABLE>

INDEX TO SCHEDULES

<TABLE>
<CAPTION>
Schedule Description of Schedule Section
- -------- ----------------------- -------
<S> <C> <C>
1 Companies 9.14
2 Litigation 9.5
3 Existing Debt 9.9
4 Existing Liens 11.2
</TABLE>
<PAGE> 79

EXHIBIT "A-1"

REVOLVING CREDIT NOTE

$__________ Dallas, Texas May 16, 1996

FOR VALUE RECEIVED, the undersigned, HEALTHCOR, INC., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
______________________________ ("Payee"), at the offices of Texas Commerce Bank
National Association, a national banking association ("Agent") located at 2200
Ross Avenue, Dallas, Texas 75201, or at such other location as Agent may
designate to Maker in writing, for the account of the Applicable Lending Office
(as defined in the Agreement referred to below) of Payee, in lawful money of
the United States of America and in immediately available funds, the principal
sum of ________________________ DOLLARS ($____________), or such lesser amount
as shall equal the aggregate unpaid principal amount of the Revolving Credit
Loans made by Payee to Maker under the Agreement referred to below on the dates
and in the principal amounts provided in the Agreement, and to pay interest on
the amount of each such Revolving Credit Loan, at such office, in like money
and funds, for the period commencing on the date of such Revolving Credit Loan
until the Revolving Credit Loan shall be paid in full, at the rates per annum
and on the dates provided in the Agreement.

This Note (the "Note") has been executed and delivered by Maker
pursuant to the terms of that certain Credit Agreement of even date herewith,
among Maker, HealthCor Holdings, Inc., a Delaware corporation, Payee, certain
other lenders from time to time party thereto (collectively, the "Banks"), the
Issuing Banks (as defined in the Agreement) and the Agent (as the same may be
amended, supplemented or modified from time to time, the "Agreement") and is
one of the Revolving Credit Notes described therein. Capitalized terms used
and not otherwise defined herein shall have the same meanings as set forth in
the Agreement. Reference is hereby made to the Agreement for provisions
affecting this Note including, but not limited to, provisions regarding
interest rates, repayments, prepayments, Events of Default and Payee's rights
as a result of the occurrence thereof.

Subject to the terms of the Agreement and as otherwise calculated in
accordance with the Agreement, the outstanding principal balance hereof shall
bear interest prior to maturity at a varying rate per annum which shall from
day to day be equal to the lesser of (a) the Maximum Rate, or (b) the
Applicable Rate. If at any time the Applicable Rate shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Applicable Rate shall not reduce the
rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the Applicable Rate had at all times been in effect. The outstanding
principal balance of this Note, together with all accrued and unpaid interest
thereon shall be due and payable on the Revolving Credit Termination Date.
Accrued and unpaid interest on the outstanding principal balance hereof shall
be due and payable as provided in Section 2.4 of the Agreement. All past due
principal and interest shall bear interest at the Default Rate.

REVOLVING CREDIT NOTE - Page 1
<PAGE> 80
Maker may prepay the principal of this Note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay, and reborrow
hereunder upon the terms and conditions specified in the Agreement.

If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all reasonable
costs, expenses, and fees incurred by the holder, including reasonable
attorneys' fees.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THIS NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS.

Maker and each surety, guarantor, endorser, and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent
to accelerate, notice of intent to demand, diligence in collecting, grace, and
all other formalities of any kind, and consent to all extensions without notice
for any period or periods of time and partial payments, before or after
maturity, all without prejudice to the holder. The holder shall similarly have
the right to deal in any way, at any time, with one or more of the foregoing
parties without notice to any other party, and to grant any such party any
extensions of time for payment of any of said indebtedness, or to grant any
other indulgences or forbearances whatsoever, without notice to any other party
and without in any way affecting the personal liability of any party hereunder.

Maker hereby authorizes the holder hereof to record in its internal
records the amount and Type of all Loans made to Maker hereunder and all
continuations, conversions, and payments of principal in respect of such Loans,
which recordings shall be prima facie evidence as to the outstanding principal
amount of this Note; provided, however, any failure by the holder hereof to
make any recording shall not limit or otherwise affect the obligations of Maker
under the Agreement or this Note.

HEALTHCOR, INC.

By:
---------------------------------
S. Wayne Bazzle
Chairman of the Board

REVOLVING CREDIT NOTE - Page 2
<PAGE> 81

EXHIBIT "A-2"

TERM NOTE

$________________ Dallas, Texas May 16, 1996

FOR VALUE RECEIVED, the undersigned, HEALTHCOR HOLDINGS, INC., a
Delaware corporation ("Maker"), hereby promises to pay to the order of
_____________________ ("Payee") at the offices of Texas Commerce Bank National
Association, a national banking association ("Agent"), located at 2200 Ross
Avenue, Dallas, Texas 75201, or at such other location as Agent may designate
to Maker in writing, for the account of the Applicable Lending Office (as
defined in the Agreement referred to below) of Payee on the Term Loan Maturity
Date (as defined in the Agreement referred to below), in lawful money of the
United States of America and in immediately available funds, the principal sum
of _________________________________ DOLLARS ($____________), or, if less, the
then unpaid principal amount of all Term Loans (as defined in the Agreement)
made by Payee to Maker pursuant to the Agreement, together with interest on the
outstanding principal balance from day to day remaining at the rates per annum
and on the dates provided in the Agreement.

This Note has been executed and delivered by Maker pursuant to the
terms of that certain Credit Agreement of even date herewith, among Maker,
HealthCor, Inc., a Delaware corporation, Payee, certain other lenders from time
to time party thereto (collectively, the "Banks"), the Issuing Banks (as
defined in the Agreement) and the Agent (as the same may be amended,
supplemented or modified from time to time, the "Agreement") and is one of the
Term Notes described therein. All capitalized terms used and not otherwise
defined herein shall have the same meanings as set forth in the Agreement.
Reference is hereby made to the Agreement for provisions affecting this Note
including, but not limited to, provisions regarding interest rates, repayments,
prepayments, Events of Default and Payee's rights as a result of the occurrence
thereof. Maker may prepay all or any portion of the principal amount of this
Note upon the terms and conditions specified in the Agreement.

Subject to the terms of the Agreement and as otherwise calculated in
accordance with the terms of the Agreement, the outstanding principal balance
hereof shall bear interest prior to maturity at a varying rate per annum which
shall from day to day be equal to the lesser of (a) the Maximum Rate, or (b)
the Applicable Rate. If at any time the Applicable Rate shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Applicable Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total
amount of interest accrued hereon equals the amount of interest which would
have accrued hereon if the Applicable Rate had at all times been in effect.
The outstanding principal balance of this Note, together with interest thereon
shall be due and payable on the dates and in the amounts set forth in the
Agreement. Accrued and unpaid interest on the outstanding principal balance
hereof shall be due and payable as provided in Section 3.4 of the Agreement.
All past due principal and interest shall bear interest at the Default Rate.

If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands

TERM NOTE - Page 1
<PAGE> 82
of an attorney for collection, or if it is collected through any legal
proceedings, Maker agrees to pay all collection costs and fees incurred by the
holder, including reasonable attorneys' fees.

Maker and each surety, guarantor, endorser, and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent
to accelerate, notice of intent to demand, diligence in collecting, grace, and
all other formalities of any kind, and consent to all extensions without notice
for any period or periods of time and partial payments, before or after
maturity, and any impairment of any collateral securing this Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute part or all of
the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.

HEALTHCOR HOLDINGS, INC.

By:
-------------------------------
S. Wayne Bazzle
Chairman of the Board, Chief
Executive Officer and Secretary

TERM NOTE - Page 2
<PAGE> 83
EXHIBIT "B-1"
LOAN REQUEST FORM

TO: TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent
2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197
Attention: Steven T. Prichett

Gentlemen:

The undersigned is an officer of HEALTHCOR, INC. or HEALTHCOR
HOLDINGS, INC. [as applicable], a Delaware corporation (the "Borrower"), and is
authorized to make and deliver this certificate pursuant to that certain Credit
Agreement dated as of May 16, 1996, among HealthCor, Inc., HealthCor Holdings,
Inc., Texas Commerce Bank National Association, a national banking association,
as agent (in such capacity, the "Agent"), certain other lenders from time to
time party thereto (collectively, the "Banks") and the Banks from time to time
issuing letters of credit thereunder (the "Issuing Banks") (such Credit
Agreement, as the same may be amended, supplemented or modified from time to
time, being hereinafter referred to as the "Credit Agreement"). All terms
defined in the Credit Agreement shall have the same meaning herein.

In accordance with the Credit Agreement, the undersigned Borrower
hereby requests that the Lender make the Loan requested on schedule or
schedules attached hereto (the "Requested Loan").

In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies to the
Agent, the Banks and the Issuing Banks that the following statements are true
and correct:

(i) The representations and warranties contained in
Article IX of the Credit Agreement and in each of the other Loan
Documents are true and correct on and as of the date hereof with the
same force and effect as if made on and as of such date.

(ii) No Default has occurred and is continuing or would
result from the Requested Loan.

(iii) All information supplied on the schedule or schedules
hereto is true, correct, and complete as of the date hereof.

BORROWER:
--------

[HEALTHCOR, INC./
HEALTHCOR HOLDINGS, INC.]

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

Dated as of:
--------------------
[insert date of
Requested Loan]
<PAGE> 84
SCHEDULE 1
TO
LOAN REQUEST FORM

Revolving Credit Loan
Request Information

<TABLE>
<S> <C> <C>
(1) Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000,000.00

(2) Aggregate outstanding principal amount of all Revolving Credit Loans . . . . . . . . . . . . . . . . $_____________

(3) Aggregate amount of all Letter of Credit Liabilities . . . . . . . . . . . . . . . . . . . . . . . . $_____________

(4) Available Revolving Credit Commitment [line (1) minus the sum of
line (2) and line (3)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_____________

(5) Amount of requested Revolving Credit Loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_____________

(6) Type of requested Revolving Credit Loan (check whichever is applicable):

_____ Alternate Base Rate Loan

_____ Eurodollar Loan having an Interest Period of:

_____ one month
_____ two months
_____ three months
_____ six months

(7) Date of requested Revolving Credit Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . _________, 19___
</TABLE>

__________________________________

(1) The requested Revolving Credit Loan must be in an amount equal to or
less than the amount shown on line (4) above.
<PAGE> 85
SCHEDULE 2
TO
LOAN REQUEST FORM

Term Loan Request Information

<TABLE>
<S> <C> <C>
(1) Amount of requested Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_________

(2) Type of requested Term Loan (check whichever is applicable):

_____ Alternate Base Rate Loan
_____ Eurodollar Loan having an Interest Period of:

_____ one month
_____ two months
_____ three months
_____ six months

(3) Date of Requested Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _________, 19___
</TABLE>
<PAGE> 86
EXHIBIT "B-2"

NOTICE OF CONTINUATION OR CONVERSION

TO: TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent
2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197
Attention: Steven T. Prichett

Gentlemen:

The undersigned is an officer of HEALTHCOR, INC./HEALTHCOR HOLDINGS,
INC. [as applicable], a Delaware corporation (the "Borrower"), and is
authorized to make and deliver this certificate pursuant to that certain Credit
Agreement dated as of May 16, 1996, among HealthCor, Inc., HealthCor Holdings,
Inc., Texas Commerce Bank National Association, a national banking association
as agent (in such capacity, the "Agent"), the lenders from time to time party
thereto (collectively, the "Banks"), and the Banks issuing letters of credit
from time to time thereunder (in such capacity, the "Issuing Banks") (as the
same may be amended, supplemented or modified from time to time, being
hereinafter referred to as the "Credit Agreement"). All terms defined in the
Credit Agreement shall have the same meaning herein.

In accordance with the Credit Agreement, the Borrower hereby (check
whichever is applicable):

___ 1. Requests that the Banks convert a Eurodollar Loan
into an Alternate Base Rate Loan in the amount of $__________; or

___ 2. Requests that the Banks convert an Alternate Base
Rate Loan into a Eurodollar Loan in the amount of $__________, having an
Interest Period of (check whichever is applicable):

_____ one month
_____ two months
_____ three months
_____ six months

___ 3. Requests that the Banks continue a Eurodollar Loan in
the amount of $__________, having an Interest Period of (check whichever is
applicable):

_____ one month
_____ two months
_____ three months
_____ six months

NOTICE OF CONTINUATION OR CONVERSION - Page 1
<PAGE> 87
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies to the
Agent, the Banks and the Issuing Banks that the following statements are true
and correct:

(ii) No Default has occurred and is continuing or would
result from the Loan requested hereunder.

BORROWER:
--------

[HEALTHCOR, INC./
HEALTHCOR HOLDINGS, INC.]

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

Dated as of:
-----------------------------
[insert date of
Requested Continuation
or Conversion]

NOTICE OF CONTINUATION OR CONVERSION - Page 2
<PAGE> 88
EXHIBIT "C"

LETTER OF CREDIT REQUEST FORM

TO: Texas Commerce Bank National Association,
as an Issuing Bank
2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197
Attention: Steven T. Prichett

Ladies and Gentlemen:

The undersigned is an officer of HEALTHCOR, INC., a Delaware
corporation (the "Borrower"), and is authorized to make and deliver this
certificate pursuant to that certain Credit Agreement dated as of May 16, 1996,
among Borrower, HealthCor Holdings, Inc., a Delaware corporation, Texas
Commerce Bank National Association, as agent (in such capacity, the "Agent"),
the lenders from time to time party thereto (collectively, the "Banks"), and
the Banks from time to time issuing letters of credit thereunder (in such
capacity, the "Issuing Banks") (as the same may be amended, supplemented or
modified from time to time, the "Credit Agreement"). All terms defined in the
Credit Agreement shall have the same meaning herein.

In accordance with the Credit Agreement, the Borrower hereby requests
that the Issuing Bank issue a Letter of Credit. The Letter of Credit shall:

(a) be issued on ________________, 19___;(1)

(b) be in the amount of $____________;(2)

(c) permit [a single drawing/multiple drawings](3) on the
terms and conditions set forth in the L/C Application
attached as Annex I hereto;

(d) be payable upon presentation of a [sight draft/time
draft. The time draft shall be payable on
__________________, 19___];(4) and

(e) expire on __________________, 19___.(4)

- -----------------------
(1) Insert date not later than the Revolving Credit Termination Date.

(2) Insert face amount of Letter of Credit. Issuance is subject to
Dollar limit on aggregate face amount of Letters of Credit specified
in Section 4.1 of the Credit Agreement.

(3) Specify one.

(4) Insert date not later than the earlier of (a) one year after issuance
or (b) the Revolving Credit Termination Date.

LETTER OF CREDIT REQUEST FORM - Page 1
<PAGE> 89
The Letter of Credit is to be delivered by the Issuing Bank to
_____________________.(5)

[Drawing/Each drawing](3) under the Letter of Credit shall be subject
to the conditions specified in the L/C Application attached as Annex I hereto.

In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that the
following statements are true and correct:

(ii) No Default has occurred and is continuing or would
result from the issuance of the Letter of Credit requested hereunder.

(iii) The face amount of the Letter of Credit requested
hereunder, when added to all outstanding Revolving Credit Loans and
Letter of Credit Liabilities, will not exceed the aggregate amount of
the Revolving Credit Commitments.

(iv) The proposed terms of the Letter of Credit requested
hereunder and the transactions proposed to be supported thereby are
accurately and completely described on the L/C Application attached as
Annex I hereto.

(v) All information supplied below is true, correct, and
complete as of the date hereof.

Information

<TABLE>
<S> <C> <C>
(a) Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . $10,000,000.00

(b) Aggregate outstanding principal amount of all Revolving Credit
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_____________

(c) Aggregate outstanding amount of all Letter of Credit
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $_____________

(d) Net availability for Letters of Credit: [line (a) minus the
sum of line (b) and line (c)] . . . . . . . . . . . . . . . . . . $_____________

</TABLE>

- -----------------------------
(5) Insert name of Borrower or name and address of beneficiary.

LETTER OF CREDIT REQUEST FORM - Page 2
<PAGE> 90

<TABLE>
<S> <C> <C>
(e) Face Amount of requested Letter of Credit . . . . . . . . . . . . $_____________

(f) Date requested for issuance of Letter of Credit . . . . . . . . . ________, 19__

</TABLE>
BORROWER:
--------

HEALTHCOR, INC.

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

Dated as of:
-------------------------
[insert date of
proposed issuance
of Letter of Credit]

LETTER OF CREDIT REQUEST FORM - Page 3
<PAGE> 91
ANNEX 1
TO
LETTER OF CREDIT REQUEST FORM

L/C Application

<PAGE> 92
EXHIBIT "D-1"

BORROWER SECURITY AGREEMENT

THIS BORROWER SECURITY AGREEMENT dated as of May 16, 1996, is by and
between __________________________, a Delaware corporation (the "Debtor"), and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as
agent (in such capacity, the "Agent") for itself, the other Issuing Banks
(hereinafter defined) and the other lenders (collectively, the "Banks") from
time to time party to that certain Credit Agreement dated of even date herewith
among Debtor, _____________________, a Delaware corporation (_________________
and together with Debtor, the "Borrowers"), the Agent, Texas Commerce Bank
National Association and each of the other Banks that issue letters of credit
under the Credit Agreement, as issuing banks (in such capacity, collectively,
the "Issuing Banks"), and the Banks, as the same may be amended or modified
from time to time (the "Credit Agreement").

R E C I T A L S:

The Banks have agreed to make loans to the Borrowers and the Issuing
Banks have agreed to issue letters of credit for the account of the Company
subject to the terms and conditions of the Credit Agreement. The obligation of
the Banks to lend and of the Issuing Banks to issue letters of credit under the
Credit Agreement are conditioned on, among other things, the execution and
delivery by the Debtor of this Agreement.

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

ARTICLE I

Definitions; Security Interest

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

Section 1.2 Security Interest. Debtor hereby grants to the Agent
for the benefit of itself, the Banks and the Issuing Banks, a security interest
in the following property, whether now owned or existing or hereafter arising
or acquired and wherever arising or located (such property being hereinafter
sometimes called the "Collateral"):

(ACCOUNTS)

(a) All accounts, receivables, accounts receivable, general
intangibles, book debts, contract rights, instruments, and documents
(including, without limitation, all documents of title); (b) all
chattel paper, notes, drafts, acceptances, other evidences, and forms
of payment under leases of equipment or contracts for the sale of
inventory or the performance of services, and other forms of
obligations received by or belonging to Debtor for goods sold or
leased and/or services rendered by Debtor; (c) all of

BORROWER SECURITY AGREEMENT - Page 1
<PAGE> 93
Debtor's rights in, to, and under all purchase orders, sales
contracts, instruments, and other documents evidencing obligations for
or representing payment for goods sold or leased and/or services
rendered by Debtor; and (d) all moneys due or to become due to Debtor
under all contracts for the sale or lease of goods and/or the
performance of services by Debtor; in each case of whatever nature,
now owned by Debtor or existing or hereafter acquired, created, or
arising and the rights and interests of Debtor in goods, the sale and
delivery of which give rise to any and all proceeds of any of the
foregoing Collateral (including, but not limited to, all insurance and
claims for insurance in respect of the Collateral).

(INVENTORY)

All goods, merchandise, raw materials, goods in process,
finished goods, and other tangible personal property of whatever
nature now owned by Debtor or hereafter from time to time existing or
acquired, and held for sale or lease or furnished or to be furnished
under contracts of service or used or usable or consumed or consumable
in Debtor's business and all accessions and appurtenances thereto, and
all accounts, receivables, accounts receivables, instruments, notes,
chattel paper, documents (including, without limitation, all documents
of title), contract rights, and general intangibles arising in
connection with any of the foregoing and all products and proceeds of
any of the foregoing Collateral (including, without limitation, all
insurance and claims for insurance effective or held for the benefit
of Debtor or the Agent in respect of any of the foregoing Collateral).

(EQUIPMENT)

All goods, equipment, machinery, furnishings, fixtures,
furniture, appliances, accessories, leasehold improvements, chattels,
and other articles of personal property of whatever nature now owned
by Debtor or hereafter acquired, all accessions and appurtenances
thereto, and all renewals or replacements of or substitutions for any
of the foregoing and all proceeds of any of the foregoing Collateral
(including, but not limited to, all insurance and claims for insurance
in respect of any of the foregoing Collateral).

BORROWER SECURITY AGREEMENT - Page 2
<PAGE> 94
Banks under that certain guaranty agreement of even date herewith, executed by
Debtor in favor of the Agent, the Banks and the Issuing Banks, pursuant to the
Credit Agreement, (f) all future advances by the Banks and the Issuing Banks to
Debtor and ________________, or either of them; (g) all costs and expenses,
including without limitation all attorneys' fees and legal expenses, incurred
by the Agent, the Banks and the Issuing Banks to preserve and maintain the
Collateral, collect the obligations herein described, and enforce this
Agreement; (h) all other Obligations (as such term is defined in the Credit
Agreement); and (i) all extensions, renewals, and modifications of any of the
foregoing.

ARTICLE II

Representations and Warranties

To induce the Agent to enter into this Agreement and to induce the
Banks and the Issuing Banks to extend credit to the Borrowers under the Credit
Agreement, Debtor represents and warrants to the Agent, the Banks and the
Issuing Banks that:

Section 2.1 Title. Except for the Permitted Liens, Debtor owns,
and with respect to Collateral acquired after the date hereof Debtor will own,
the Collateral free and clear of any Lien.

Section 2.2 Accounts. Debtor represents, warrants, and covenants
that each and all of its accounts will meet the following requirements
continuously from the time each of them comes into existence until it is
collected in full: (a) the account arose from the performance of services by
Debtor which have been fully and satisfactorily performed or from the absolute
sale of goods by Debtor in which Debtor had the sole and complete ownership,
and the goods have been shipped or delivered to the account debtor, evidencing
which Debtor or the Agent has possession of shipping and delivery receipts; (b)
the account is not subject to setoff, counterclaim, defense, allowance or
adjustment other than discounts for prompt payment shown on the invoice or to
dispute, objection or complaint by the account debtor concerning his or its
liability on the account, and the goods, the sale of which gives rise to the
account, have not been returned, rejected, lost, or damaged; (c) the account
arose in the ordinary course of Debtor's business, and no notice of bankruptcy,
insolvency, or financial embarrassment of the account debtor has been received
by Debtor; and (d) Debtor shall notify the Agent promptly in writing when any
account ceases to meet any of the requirements of this Agreement. Nothing in
this Section shall be construed to limit or release any right of the Agent to
any Collateral arising pursuant to Section 1.2 of this Agreement.

Section 2.3 Financing Statements. No financing statement,
security agreement, or other lien instrument covering all or any part of the
Collateral is on file in any public office, except as may have been filed in
favor of the Agent or to perfect any Permitted Lien.

Section 2.4 Organization and Authority. Debtor is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of incorporation. Debtor has the corporate power and authority to
execute, deliver, and perform this Agreement, and the execution,

BORROWER SECURITY AGREEMENT - Page 3
<PAGE> 95
delivery, and performance of this Agreement by Debtor (a) have been authorized
by all necessary corporate action on the part of Debtor, (b) do not and will
not violate (i) any law, rule or regulation which violation would have a
material adverse effect on the business, condition (financial or otherwise),
operations, prospects, or properties of Debtor, the Collateral taken as whole,
or the ability of the Companies to pay and perform the Obligations, or (iii)
the certificate of incorporation or bylaws of Debtor, and (c) do not and will
not conflict with, result in a breach of, or constitute a default under the
provisions of any material indenture, mortgage, deed of trust, security
agreement, instrument, or agreement pursuant to which Debtor or any of its
property is bound.

Section 2.5 Principal Place of Business. The principal place of
business and chief executive office of Debtor, and the office where Debtor
keeps its books and records, is located at the address of Debtor shown below
its name on the signature pages of this Agreement.

Section 2.6 Location of Collateral. All inventory, machinery,
and equipment of Debtor are located at the locations specified on Schedule 1
hereto or at other locations within the continental United States of America in
the ordinary course of Debtor's business so long as all actions have been taken
to assure the continued perfection and priority of the Agent's security
interest therein.

ARTICLE III

Covenants

Debtor covenants and agrees with the Agent, the Banks and the Issuing
Banks that until the Obligations are paid and performed in full and all
commitments of the Banks and the Issuing Banks to the Borrowers have been
terminated:

Section 3.1 Maintenance. Debtor shall maintain the Collateral in
good operating condition and repair and shall not permit any waste or
destruction of the Collateral or any part thereof except for the ordinary wear
and tear of its intended primary use. Debtor shall not use or permit the
Collateral to be used in violation of any law or inconsistently with the terms
of any policy of insurance. Debtor shall not use or permit the Collateral to
be used in any manner or for any purpose that would impair the value of the
Collateral or expose the Collateral to unusual risk.

Section 3.2 Encumbrances. Debtor shall not create, permit, or
suffer to exist, and shall defend the Collateral against, any Lien on the
Collateral except Permitted Liens, and shall defend Debtor's rights in the
Collateral and the Agent's security interest in the Collateral against the
claims of all Persons.

Section 3.3 Modification of Collateral. Debtor shall do nothing
to impair the rights of the Agent in the Collateral. Without the prior written
consent of the Agent, Debtor shall not grant any extension of time for any
payment with respect to the Collateral, or compromise, compound, or settle any
of the Collateral, or release in whole or in part any person or entity

BORROWER SECURITY AGREEMENT - Page 4
<PAGE> 96
liable for payment with respect to the Collateral, or allow any credit or
discount for payment with respect to the Collateral other than normal trade
discounts granted in the ordinary course of business and other adjustments,
such as bad debt expense, made in the ordinary course of business, or release
any lien, security interest, or assignment securing the Collateral, or
otherwise amend or modify any of the Collateral.

Section 3.4 Disposition of Collateral. Debtor shall not sell,
lease, or otherwise dispose of the Collateral or any part thereof without the
prior written consent of the Agent, except Debtor may sell inventory in the
ordinary course of business and may dispose of obsolete items of equipment in
the ordinary course of business.

Section 3.5 Further Assurances. At any time and from time to
time, upon the request of the Agent, and at the sole expense of Debtor, Debtor
shall promptly execute and deliver all such further instruments and documents
and take such further action as the Agent may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as the Agent may require. A
carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Debtor shall promptly endorse and deliver to the Agent all documents,
instruments, and chattel paper that it now owns or may hereafter acquire.

Section 3.6 Risk of Loss; Insurance. Debtor shall be responsible
for any loss of or damage to the Collateral. Debtor shall maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Collateral against loss by fire, explosion, theft, and such other risks and
casualties as are customarily insured against by companies engaged in the same
or a similar business, and (ii) insuring Debtor and the Agent against liability
for personal injury and property damage relating to the Collateral, such
policies to be in such amounts and covering such risks as are customarily
insured against by companies engaged in the same or a similar business, but at
least in the amounts specified in the Credit Agreement, with losses payable to
Debtor and the Agent as their respective interests may appear. All insurance
with respect to the Collateral shall provide that no cancellation, reduction in
amount, or change in coverage thereof shall be effective unless the Agent has
received thirty (30) days prior written notice thereof. Debtor shall furnish
the Agent with certificates or other evidence satisfactory to the Agent of
compliance with the foregoing insurance provisions. Debtor shall deliver to
the Agent upon demand copies of all insurance policies covering the Collateral
or any part thereof.

Section 3.7 Inspection Rights. Debtor shall permit the Agent,
the Banks and the Issuing Banks and their representatives, upon one (1)
Business Day's prior notice, to examine or inspect the Collateral wherever
located and to examine, inspect, and copy Debtor's books and records at any
reasonable time and as often as they may desire. The Agent may at any time and
from time to time contact account debtors and other obligors to verify the
existence, amounts, and terms of Debtor's accounts.

BORROWER SECURITY AGREEMENT - Page 5
<PAGE> 97
Section 3.8 Mortgagee's and Landlord Waivers. Debtor shall
deliver to the Agent an instrument satisfactory in form and substance to the
Agent, executed by the landlord of the premises located at 5720 LBJ Freeway,
Suite 550, Dallas, Texas 75240, by which such landlord waives or subordinates
its rights, if any, in the Collateral. With respect to all other locations of
Collateral, upon the request of the Agent at any time, Debtor shall exert its
best efforts to cause each mortgagee of real property owned by Debtor and each
landlord of real property leased by Debtor to execute and deliver instruments
satisfactory in form and substance to the Agent by which such mortgagee or
landlord waives or subordinates its rights, if any, in the Collateral.

Section 3.9 Notification. Debtor shall promptly notify the Agent
of (i) any Lien or material claim made or threatened against the Collateral,
(ii) any material change in the Collateral, including, without limitation, any
material damage to or loss of the Collateral, and (iii) the occurrence or
existence of any Default.

Section 3.10 Corporate Changes. Debtor shall not change its name,
identity, or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
Debtor shall have given the Agent thirty (30) days prior written notice thereof
and shall have taken all action deemed necessary or desirable by the Agent to
make each financing statement not seriously misleading. Debtor shall not change
its principal place of business, chief executive office, or the place where it
keeps its books and records unless it shall have given the Agent thirty (30)
days prior written notice thereof and shall have taken all action deemed
necessary or desirable by the Agent to cause its security interest in the
Collateral to be perfected with the priority required by this Agreement.

Section 3.11 Books and Records; Information. Debtor shall keep
accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with GAAP (subject to year-end
adjustments and disclosures). Debtor shall from time to time at the request of
the Agent deliver to the Agent such information regarding the Collateral and
Debtor as the Agent may request, including, without limitation, lists and
descriptions of the Collateral and evidence of the identity and existence of
the Collateral. Debtor shall mark its books and records to reflect the
security interest of the Agent under this Agreement.

Section 3.12 Location of Collateral. Debtor shall not move any of
its equipment, machinery, or inventory from the locations specified herein
without the prior written consent of the Agent, except to other locations
within the continental United States of America in the ordinary course of
business so long as all actions have been taken to assure the continued
perfection and priority of the Agent's security interest therein.

Section 3.13 Lockbox Accounts. Debtor hereby agrees to the terms,
provisions and covenants set forth in Section 7.2 of the Credit Agreement and
the rights of the Agent thereunder, and hereby agrees to comply with each of
the requirements specified therein.

BORROWER SECURITY AGREEMENT - Page 6
<PAGE> 98
ARTICLE IV

Rights of the Agent

Section 4.1 Certain Covenants and Rights Regarding Collateral.

(a) Debtor shall from time to time at the request of the
Agent furnish the Agent with a schedule of each account included in
the Collateral and a list of all those liable on checks, notes,
drafts, and other instruments representing the proceeds of such
accounts. The Agent shall have the right to make test verifications
of the Collateral. If any part of the Collateral is or becomes
subject to the Federal Assignment of Claims Act, Debtor will execute
all instruments and take all steps required by the Agent to comply
with that act. If part of the Collateral is evidenced by promissory
notes, trade acceptances or other instruments for the payment of
money, Debtor will, at the request of the Agent, immediately deliver
them to the Agent, appropriately endorsed to the Agent's order, and
regardless of the form of endorsement, Debtor waives presentment,
demand, notice of dishonor, protest, and notice of protest.

(b) If the validity or priority of this Agreement or of
any rights, titles, security interests or other interests created or
evidenced hereby shall be attacked, endangered, or questioned, or if
any legal proceedings are instituted with respect thereto, Debtor will
give prompt written notice thereof to the Agent and, at Debtor's own
cost and expense, will diligently endeavor to cure any defect which
may be developed or claimed, and will take all necessary and proper
steps for the defense of such legal proceedings, and the Agent
(whether or not named as a party to legal proceedings with respect
thereto) is hereby authorized and empowered to take such additional
steps as in its judgment and discretion may be necessary or proper for
the defense of any such legal proceedings or the protection of the
validity or priority of this Agreement and the rights, titles,
security interests, and other interests created or evidenced hereby,
and all expenses so incurred of every kind and character shall be a
demand obligation owing by Debtor and the party incurring such
expenses shall be subrogated to all rights of the Person receiving
such payment.

(c) Upon the occurrence of an Event of Default, or if the
Agent shall deem payment of the Obligations to be insecure, and at any
time thereafter, the Agent is authorized peaceably to take possession
of the Collateral and of all books, records and accounts relating
thereto, and to exercise without interference from Debtor any and all
rights which Debtor has with respect to the management, possession,
protection, or preservation of the Collateral. If necessary to obtain
the possession provided for above, the Agent may invoke any and all
legal remedies to dispossess Debtor, including specifically one or
more actions for forcible entry and detainer. In connection with any
action taken by the Agent pursuant to this Section, the Agent shall
not be liable for any loss sustained by Debtor resulting from any act
or omission of the Agent unless such loss is caused by the willful
misconduct and bad faith of the Agent, nor shall the Agent be
obligated to perform or discharge any obligation, duty, or liability
under any sale or lease

BORROWER SECURITY AGREEMENT - Page 7
<PAGE> 99
agreement covering the Collateral or any part thereof, or under or by
reason of this Agreement or exercise of rights or remedies hereunder.

(d) At any time prior to the termination of this
Agreement the Agent may notify the account debtors or obligors of any
accounts, chattel paper, negotiable instruments, or other evidences of
indebtedness included in the Collateral to pay the Agent directly.
Until the Agent elects to exercise these rights Debtor is authorized
as agent of the Agent to collect and enforce such accounts. The costs
of collection and enforcement, including attorneys' fees and expenses,
shall be borne solely by Debtor whether incurred by the Agent or
Debtor.

Section 4.2 Performance by the Agent. If Debtor fails to perform
or comply with any of its agreements contained herein, the Agent itself may, at
its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of the Agent, together with interest thereon at
the Default Rate, shall be payable by Debtor to the Agent on demand and shall
constitute Obligations secured by this Agreement. The Agent, upon making such
payment, shall be subrogated to all of the rights of the Person receiving such
payment. Notwithstanding the foregoing, it is expressly agreed that the Agent
shall not have any liability or responsibility for the performance of any
obligation of Debtor under this Agreement.

Section 4.3 Setoff; Property Held by the Agent. If an Event of
Default shall have occurred and be continuing, the Agent shall have the right
to set off and apply against the Obligations, at any time and without notice to
Debtor, any and all deposits (general or special, time or demand, provisional
or final) or other sums at any time credited by or owing from the Agent to
Debtor whether or not the Obligations are then due. As additional security for
the Obligations, Debtor hereby grants the Agent a security interest in all
money, instruments, and other property of Debtor now or hereafter held by the
Agent. In addition to the Agent's right of setoff and as further security for
the Obligations, Debtor hereby grants the Agent a security interest in all
deposits (general or special, time or demand, provisional or final) and other
accounts of Debtor now or hereafter deposited with or held by the Agent and all
other sums at any time credited by or owing from the Agent to Debtor. The
rights and remedies of the Agent hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which the
Agent may have.

Section 4.4 Assignment by the Agent. The Agent, the Banks and
the Issuing Banks may from time to time assign the Obligations and any portion
thereof and/or the Collateral and any portion thereof, and the assignee shall
be entitled to all of the rights and remedies of the Agent under this Agreement
in relation thereto.

BORROWER SECURITY AGREEMENT - Page 8
<PAGE> 100
ARTICLE V

Default

Section 5.1 Rights and Remedies. Upon the occurrence of an Event
of Default, the Agent shall have the following rights and remedies:

(i) In addition to all other rights and remedies granted
to the Agent in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations or any
part thereof, the Agent shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as adopted by the
State of Texas. Without limiting the generality of the foregoing, the
Agent may (A) without demand or notice to Debtor, collect, receive, or
take possession of the Collateral or any part thereof and for that
purpose the Agent may enter upon any premises on which the Collateral
is located and remove the Collateral therefrom or render it
inoperable, and/or (B) sell, lease, or otherwise dispose of the
Collateral, or any part thereof, in one or more parcels at public or
private sale or sales, at the Agent's offices or elsewhere, for cash,
on credit, or for future delivery. Upon the request of the Agent,
Debtor shall assemble the Collateral and make it available to the
Agent at any place designated by the Agent that is reasonably
convenient to Debtor and the Agent. Debtor agrees that the Agent
shall not be obligated to give more than ten (10) days written notice
of the time and place of any public sale or of the time after which
any private sale may take place and that such notice shall constitute
reasonable notice of such matters. Debtor shall be liable for all
expenses of retaking, holding, preparing for sale, or the like, and
all attorneys' fees, legal expenses, and all other costs and expenses
incurred by the Agent in connection with the collection of the
Obligations and the enforcement of the Agent's rights under this
Agreement. Debtor shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient
to pay the Obligations in full. Debtor waives all rights of
marshalling in respect of the Collateral.

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

Section 5.2 Application of Proceeds of Sale. The proceeds of any
sale of Collateral pursuant to Section 5.1 hereof, as well as any Collateral
consisting of cash, shall be applied by the Agent as follows:

FIRST, to the payment of all reasonable out-of-pocket costs
and expenses incurred by the Agent in connection with such sale or
otherwise in connection with this Agreement or any of the Obligations,
including, but not limited to, all court costs and the reasonable fees
and expenses of its agents and one legal counsel, the repayment of all
advances made hereunder or under any other Loan Document by the Agent
on behalf of Debtor and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder;

BORROWER SECURITY AGREEMENT - Page 9
<PAGE> 101
SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

THIRD, to the payment of all reasonable out-of-pocket costs
and expenses incurred by the Issuing Banks in connection with the
Credit Agreement, any Letter of Credit, or any of the Obligations,
including, but not limited to, all court costs and the reasonable fees
and expenses of their agents and one legal counsel;

FOURTH, to the payment in full of all other Obligations that
are payable to the Issuing Banks, including, without limitation, all
Letter of Credit disbursements and all accrued and unpaid interest
thereon and all Letter of Credit fees;

FIFTH, to the payment in full of the Obligations, pro rata
among the Banks in accordance with the amounts of the Loans held by
them, or, if no Loans shall be outstanding, in accordance with the
amounts of their Commitments;

SIXTH, if any Letter of Credit remains outstanding, the Agent,
after making the applications required by paragraphs "FIRST" through
"FIFTH" above, shall hold back and retain as Collateral for the
Obligations an amount equal to the aggregate face amounts of all
outstanding Letters of Credit; and

SEVENTH, provided that all of the Obligations have been paid
and performed in full and all Commitments and Letters of Credit have
terminated, to the Debtor, or its successors or assigns, or to
whomsoever may lawfully be entitled to the same, or as a court of
competent jurisdiction may otherwise direct.

Upon any sale of the Collateral by the Agent (including, without limitation, a
sale pursuant to any applicable Uniform Commercial Code or under a judicial
proceeding), the receipt of the Agent or of the officer making the sale shall
be a sufficient discharge to the purchaser or purchasers of the Collateral so
sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Agent or such
officer or be answerable in any way for the misapplication thereof.

ARTICLE VI

Miscellaneous

Section 6.1 No Waiver; Cumulative Remedies. No failure on the
part of the Agent to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies

BORROWER SECURITY AGREEMENT - Page 10
<PAGE> 102
provided for in this Agreement are cumulative and not exclusive of any rights
and remedies provided by law.

Section 6.2 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of Debtor, the Agent, the Banks and the
Issuing Banks and their respective heirs, successors, and assigns, except that
Debtor may not assign any of its rights or obligations under this Agreement
without the prior written consent of the Agent.

Section 6.3 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES
HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. The
provisions of this Agreement may be amended or waived only by an instrument in
writing signed by the parties hereto.

Section 6.4 Notices. All notices and other communications
provided for in this Agreement shall be given or made by telecopy or in writing
and telecopied, mailed by certified mail return receipt requested, or delivered
to the intended recipient at the "Address for Notices" specified below its name
on the signature pages hereof; or, as to any party at such other address as
shall be designated by such party in a notice to the other party given in
accordance with this Section. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when
transmitted by telecopy, subject to telephone confirmation of receipt, or when
personally delivered or, in the case of a mailed notice, when duly deposited in
the mails, in each case given or addressed as aforesaid.

Section 6.5 Applicable Law; Venue; Service of Process. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST DEBTOR UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY,
TEXAS. DEBTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. DEBTOR AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED

BORROWER SECURITY AGREEMENT - Page 11
<PAGE> 103
OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6.4 OF THIS
AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER INSTRUMENT OR AGREEMENT
SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR ANY PART THEREOF SHALL
AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING ANY ACTION OR PROCEEDING
AGAINST DEBTOR OR WITH RESPECT TO ANY OF THE COLLATERAL IN ANY STATE OR FEDERAL
COURT IN ANY OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST
THE AGENT SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

Section 6.7 Survival of Representations and Warranties. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by the Agent, any Bank or Issuing Bank shall
affect the representations and warranties or the right of the Agent, the Banks
and the Issuing Banks to rely upon them.

Section 6.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

Section 6.9 Waiver of Bond. In the event the Agent seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.

Section 6.10 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.

Section 6.11 Construction. Debtor and the Agent acknowledge that
each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel
and that this Agreement shall be construed as if jointly drafted by Debtor and
the Agent.

Section 6.12 Obligations Absolute. The obligations of Debtor
under this Agreement shall be absolute and unconditional and shall not be
released, discharged, reduced, or in any way impaired by any circumstance
whatsoever, including, without limitation, any amendment,

BORROWER SECURITY AGREEMENT - Page 12
<PAGE> 104
modification, extension, or renewal of this Agreement, the Obligations, or any
document or instrument evidencing, securing, or otherwise relating to the
Obligations, or any release or subordination of collateral, or any waiver,
consent, extension, indulgence, compromise, settlement, or other action or
inaction in respect of this Agreement, the Obligations, or any document or
instrument evidencing, securing, or otherwise relating to the Obligations, or
any exercise or failure to exercise any right, remedy, power, or privilege in
respect of the Obligations.

Section 6.13 Release of Security Interest. At such time as all of
the Obligations have been paid and performed in full, all obligations and
commitments of the Banks and the Issuing Banks to make advances, issue letters
of credit or otherwise extend credit under the Credit Agreement have expired or
terminated, and no Letters of Credit remain outstanding, the Agent shall
release the security interest granted hereby.

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

DEBTOR:
------

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

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744
Attention: S. Wayne Bazzle

THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
-----------------------------------
Steven T. Prichett
Vice President

BORROWER SECURITY AGREEMENT - Page 13
<PAGE> 105
Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197
Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710
Attention: Steven T. Prichett

BORROWER SECURITY AGREEMENT - Page 14
<PAGE> 106
EXHIBIT "D-2"

SUBSIDIARY SECURITY AGREEMENT

THIS SUBSIDIARY SECURITY AGREEMENT dated as of May 16, 1996, is by and
between GUAR~, STATE~ corporation (the "Debtor"), and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association, as agent (in such
capacity, the "Agent") for itself, the other Issuing Banks (hereinafter
defined) and the other lenders (collectively, the "Banks") from time to time
party to that certain Credit Agreement dated of even date herewith among
HealthCor, Inc., a Delaware corporation (the "Company"), HealthCor Holdings,
Inc., a Delaware corporation ("Holdings" and together with the Company, the
"Borrowers"), the Agent, Texas Commerce Bank National Association and each of
the other Banks that issues letters of credit thereunder, as issuing banks (in
such capacity, the "Issuing Banks") and the Banks, as the same may be amended,
modified or supplemented from time to time (the "Credit Agreement").

R E C I T A L S:

The Banks have agreed to make loans to the Borrowers and the Issuing
Banks have agreed to issue letters of credit for the account of the Company
subject to the terms and conditions of the Credit Agreement. The obligation of
the Banks to lend and of the Issuing Banks to issue letters of credit under the
Credit Agreement are conditioned on among other things, the execution and
delivery by the Debtor of this Agreement.

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

ARTICLE I

Definitions; Security Interest

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

Section 1.2 Security Interest. Debtor hereby grants to the Agent
for the benefit of itself, the Issuing Banks and the Banks, a security interest
in the following property, whether now owned or existing or hereafter arising
or acquired and wherever arising or located (such property being hereinafter
sometimes called the "Collateral"):

(ACCOUNTS)

SUBSIDIARY SECURITY AGREEMENT - Page 1
<PAGE> 107
the performance of services, and other forms of obligations received
by or belonging to Debtor for goods sold or leased and/or services
rendered by Debtor; (c) all of Debtor's rights in, to, and under all
purchase orders, sales contracts, instruments, and other documents
evidencing obligations for or representing payment for goods sold or
leased and/or services rendered by Debtor; and (d) all moneys due or
to become due to Debtor under all contracts for the sale or lease of
goods and/or the performance of services by Debtor; in each case of
whatever nature, now owned by Debtor or existing or hereafter
acquired, created, or arising and the rights and interests of Debtor
in goods, the sale and delivery of which give rise to any and all
proceeds of any of the foregoing Collateral (including, but not
limited to, all insurance and claims for insurance in respect of the
Collateral).

(INVENTORY)

(EQUIPMENT)

All goods, equipment, machinery, furnishings, fixtures,
furniture, appliances, accessories, leasehold improvements, chattels,
and other articles of personal property of whatever nature now owned
by Debtor or hereafter acquired, all accessions and appurtenances
thereto, and all renewals or replacements of or substitutions for any
of the foregoing and all proceeds of any of the foregoing Collateral
(including, without limitation, all insurance and claims for insurance
in respect of any of the foregoing Collateral).

SUBSIDIARY SECURITY AGREEMENT - Page 2
<PAGE> 108
Banks, pursuant to the Credit Agreement; (d) the obligations, indebtedness, and
liabilities of the Company to the Agent, the Issuing Banks and the Banks under
the Credit Agreement; (e) the obligations, indebtedness and liabilities of
Holdings to the Agent, the Issuing Banks and the Banks under the Credit
Agreement; (f) all future advances by the Banks and the Issuing Banks to the
Company, Holdings and Debtor, or any of them; (g) all costs and expenses,
including without limitation all attorneys' fees and legal expenses, incurred
by the Agent, the Issuing Banks and the Banks to preserve and maintain the
Collateral, collect the obligations herein described, and enforce this
Agreement; (h) all other Obligations (as such term is defined in the Credit
Agreement); and (i) all extensions, renewals, and modifications of any of the
foregoing.

ARTICLE II

Representations and Warranties

To induce the Agent to enter into this Agreement and to induce the
Banks and the Issuing Banks to extend credit to the Borrowers under the Credit
Agreements, Debtor represents and warrants to the Agent, the Issuing Banks and
the Banks that:

Section 2.1 Title. Except for the Permitted Liens, Debtor owns,
and with respect to Collateral acquired after the date hereof Debtor will own,
the Collateral free and clear of any Lien.

Section 2.4 Organization and Authority. Debtor is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of incorporation. Debtor has the

SUBSIDIARY SECURITY AGREEMENT - Page 3
<PAGE> 109
corporate power and authority to execute, deliver, and perform this Agreement,
and the execution, delivery, and performance of this Agreement by Debtor (a)
have been authorized by all necessary corporate action on the part of Debtor,
(b) do not and will not violate (i) any law, rule or regulation which violation
would have a material adverse effect on the business, condition (financial or
otherwise), operations, prospects, or properties of Debtor, the Collateral
taken as a whole, or the ability of the Companies to pay and perform the
Obligations, or (ii) the articles or certificate of incorporation or bylaws of
Debtor, and (c) do not and will not conflict with, result in a breach of, or
constitute a default under the provisions of any material indenture, mortgage,
deed of trust, security agreement, instrument or agreement pursuant to which
Debtor or any of its property is bound.

ARTICLE III

Covenants

Debtor covenants and agrees with the Agent, the Issuing Banks and the
Banks that until the Obligations are paid and performed in full and all
commitments of the Banks and the Issuing Banks to the Borrowers have been
terminated:

SUBSIDIARY SECURITY AGREEMENT - Page 4
<PAGE> 110
compound, or settle any of the Collateral, or release in whole or in part any
person or entity liable for payment with respect to the Collateral, or allow
any credit or discount for payment with respect to the Collateral other than
normal trade discounts granted in the ordinary course of business and other
adjustments, such as bad debt expense, made in the ordinary course of business,
or release any lien, security interest, or assignment securing the Collateral,
or otherwise amend or modify any of the Collateral.

Section 3.7 Inspection Rights. Debtor shall permit the Agent,
the Banks, the Issuing Banks and their representatives, upon one (1) Business
Day's prior notice, to examine or inspect the Collateral wherever located and
to examine, inspect, and copy Debtor's books and records at any reasonable time
and as often as they may desire. The Agent may at any time and from time to
time contact account debtors and other obligors to verify the existence,
amounts, and terms of Debtor's accounts.

SUBSIDIARY SECURITY AGREEMENT - Page 5
<PAGE> 111
Section 3.8 Mortgagee's and Landlord Waivers. Debtor shall
deliver to the Agent an instrument satisfactory in form and substance to the
Agent, executed by the landlord of the premises located at 5720 LBJ Freeway,
Suite 550, Dallas, Texas 75240, by which such landlord waives or subordinates
its rights, if any, in the Collateral. With respect to all other locations of
Collateral, upon the request of the Agent at any time, Debtor shall exert its
best efforts to cause each mortgagee of real property owned by Debtor and each
landlord of real property leased by Debtor to execute and deliver instruments
satisfactory in form and substance to the Agent by which such mortgagee or
landlord waives or subordinates its rights, if any, in the Collateral.

SUBSIDIARY SECURITY AGREEMENT - Page 6
<PAGE> 112
ARTICLE IV

Rights of the Agent

Section 4.1 Certain Covenants and Rights Regarding Collateral.

SUBSIDIARY SECURITY AGREEMENT - Page 7
<PAGE> 113
loss sustained by Debtor resulting from any act or omission of the
Agent unless such loss is caused by the willful misconduct and bad
faith of the Agent, nor shall the Agent be obligated to perform or
discharge any obligation, duty, or liability under any sale or lease
agreement covering the Collateral or any part thereof, or under or by
reason of this Agreement or exercise of rights or remedies hereunder.

SUBSIDIARY SECURITY AGREEMENT - Page 8
<PAGE> 114
ARTICLE V

Default

Section 5.1 Rights and Remedies. Upon the occurrence of an Event
of Default, the Agent shall have the following rights and remedies:

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

SUBSIDIARY SECURITY AGREEMENT - Page 9
<PAGE> 115
SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

ARTICLE VI

Miscellaneous

SUBSIDIARY SECURITY AGREEMENT - Page 10
<PAGE> 116
provided for in this Agreement are cumulative and not exclusive of any rights
and remedies provided by law.

SUBSIDIARY SECURITY AGREEMENT - Page 11
<PAGE> 117
OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6.4 OF THIS
AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER INSTRUMENT OR AGREEMENT
SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR ANY PART THEREOF SHALL
AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING ANY ACTION OR PROCEEDING
AGAINST DEBTOR OR WITH RESPECT TO ANY OF THE COLLATERAL IN ANY STATE OR FEDERAL
COURT IN ANY OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST
THE AGENT SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

SUBSIDIARY SECURITY AGREEMENT - Page 12
<PAGE> 118
modification, extension, or renewal of this Agreement, the Obligations, or any
document or instrument evidencing, securing, or otherwise relating to the
Obligations, or any release or subordination of collateral, or any waiver,
consent, extension, indulgence, compromise, settlement, or other action or
inaction in respect of this Agreement, the Obligations, or any document or
instrument evidencing, securing, or otherwise relating to the Obligations, or
any exercise or failure to exercise any right, remedy, power, or privilege in
respect of the Obligations.

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

DEBTOR:
------

GUAR~

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

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744
Attention: S. Wayne Bazzle

SUBSIDIARY SECURITY AGREEMENT - Page 13
<PAGE> 119
THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
-----------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197
Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710
Attention: Steven T. Prichett

SUBSIDIARY SECURITY AGREEMENT - Page 14
<PAGE> 120
EXHIBIT "E-1"

SUBSIDIARY GUARANTY AGREEMENT

WHEREAS, the execution of this Subsidiary Guaranty Agreement
("Guaranty Agreement") is a condition to the extension of credit in the form of
loans and letters of credit to HEALTHCOR, INC., a Delaware corporation (the
"Company") and HEALTHCOR HOLDINGS, INC., a Delaware corporation ("Holdings,"
and together with the Company, the "Borrowers") by certain lenders
(collectively, the "Banks") from time to time party to that certain Credit
Agreement of even date herewith among Borrowers, the Banks, Texas Commerce Bank
National Association, as agent (in such capacity, the "Agent") for itself, the
other Banks and the other Banks acting from time to time as issuing banks (in
such capacity, the "Issuing Banks") and the Issuing Banks (such Credit
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time is hereinafter referred to as the "Credit Agreement");

NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the undersigned, GUAR~, STATE~ corporation
(the "Guarantor"), hereby irrevocably and unconditionally guarantees to the
Agent, the Banks, the Issuing Banks and each of them the full and prompt
payment and performance of the Guaranteed Indebtedness (hereinafter defined),
this Guaranty Agreement being upon the following terms:

1. The term "Guaranteed Indebtedness", as used herein means all
of the "Obligations", as defined in the Credit Agreement. The term "Guaranteed
Indebtedness" shall include any and all post-petition interest and expenses
(including reasonable attorneys' fees) whether or not allowed under any
bankruptcy, insolvency, or other similar law. All other capitalized terms used
and not otherwise defined herein shall have their respective meanings as set
forth in the Credit Agreement.

2. This instrument shall be an absolute, continuing, irrevocable,
and unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder
until the payment and performance in full of the Guaranteed Indebtedness. No
set-off, counterclaim, recoupment, reduction, or diminution of any obligation,
or any defense of any kind or nature which either Borrower may have against the
Agent, any Bank, Issuing Bank or any other party, or which Guarantor may have
against either Borrower, the Agent, any Bank, Issuing Bank or any other party,
shall be available to, or shall be asserted by, Guarantor against the Agent,
any Bank, Issuing Bank or any subsequent holder of the Guaranteed Indebtedness
or any part thereof or against payment of the Guaranteed Indebtedness or any
part thereof.

3. The obligations of Guarantor hereunder shall be limited to an
aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance under Section 548 of the United
States Bankruptcy Code or to being set aside, avoided, or annulled under any
applicable state law relating to fraudulent transfers or fraudulent
obligations.

4. If Guarantor becomes liable for any indebtedness owing by
either Borrower to the Agent, any Bank or Issuing Bank by endorsement or
otherwise, other than under this Guaranty Agreement, such liability shall not
be in any manner impaired or affected hereby, and the rights of the Agent, the
Banks and the Issuing Banks hereunder shall be cumulative of any and all other

SUBSIDIARY GUARANTY AGREEMENT - Page 1
<PAGE> 121
rights that the Agent, the Banks and the Issuing Banks may ever have against
Guarantor. The exercise by the Agent, any Bank or Issuing Bank of any right or
remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or
remedy.

5. In the event of default by either Borrower in payment or
performance of the Guaranteed Indebtedness, or any part thereof, when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration, or
otherwise, Guarantor shall promptly pay the amount due thereon to the Agent,
the Banks and the Issuing Banks without notice or demand in lawful currency of
the United States of America and it shall not be necessary for the Agent, any
Bank or Issuing Bank, in order to enforce such payment by Guarantor, first to
institute suit or exhaust its remedies against either Borrower or others liable
on such Guaranteed Indebtedness, or to enforce any rights against any
collateral which shall ever have been given to secure such Guaranteed
Indebtedness. Notwithstanding anything to the contrary contained in this
Guaranty Agreement, Guarantor hereby irrevocably waives any and all rights it
may now or hereafter have under any agreement or at law or in equity
(including, without limitation, any law subrogating the Guarantor to the rights
of the Agent, the Banks and the Issuing Banks) to assert any claim against or
seek contribution, indemnification or any other form of reimbursement from
either Borrower or any other party liable for payment of any or all of the
Guaranteed Indebtedness for any payment made by Guarantor under or in
connection with this Guaranty Agreement or otherwise.

6. If acceleration of the time for payment of any amount payable
by either Borrower under the Guaranteed Indebtedness is stayed upon the
insolvency, bankruptcy, or reorganization of either Borrower, all such amounts
otherwise subject to acceleration under the terms of the Guaranteed
Indebtedness shall nonetheless be payable by Guarantor hereunder forthwith on
demand by the Agent.

7. Guarantor hereby agrees that its obligations under this
Guaranty Agreement shall not be released, discharged, diminished, impaired,
reduced, or affected for any reason or by the occurrence of any event,
including, without limitation, one or more of the following events, whether or
not with notice to or the consent of Guarantor: (a) the taking or accepting of
collateral as security for any or all of the Guaranteed Indebtedness or the
release, surrender, exchange, or subordination of any collateral now or
hereafter securing any or all of the Guaranteed Indebtedness; (b) any partial
release of the liability of Guarantor hereunder, or the full or partial release
of any other guarantor from liability for any or all of the Guaranteed
Indebtedness; (c) any disability of either Borrower, or the dissolution,
insolvency, or bankruptcy of either Borrower, Guarantor, or any other party at
any time liable for the payment of any or all of the Guaranteed Indebtedness;
(d) any renewal, extension, modification, waiver, amendment, or rearrangement
of any or all of the Guaranteed Indebtedness or any instrument, document, or
agreement evidencing, securing, or otherwise relating to any or all of the
Guaranteed Indebtedness; (e) any adjustment, indulgence, forbearance, waiver,
or compromise that may be granted or given by the Agent, the Banks and the
Issuing Banks to either Borrower, Guarantor, or any other party ever liable for
any or all of the Guaranteed Indebtedness; (f) any neglect, delay, omission,
failure, or refusal of the Agent, the Banks and the Issuing Banks to take or
prosecute any action for the collection of any of the Guaranteed Indebtedness
or to foreclose or take or prosecute any action in connection with any
instrument, document, or agreement

SUBSIDIARY GUARANTY AGREEMENT - Page 2
<PAGE> 122
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (g) the unenforceability or invalidity of any or all of the
Guaranteed Indebtedness or of any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (h) any payment by either Borrower or any other party to the
Agent, any Bank or Issuing Bank is held to constitute a preference under
applicable bankruptcy or insolvency law or if for any other reason the Agent,
any Bank or Issuing Bank is required to refund any payment or pay the amount
thereof to someone else; (i) the settlement or compromise of any of the
Guaranteed Indebtedness; (j) the non-perfection of any security interest or
lien securing any or all of the Guaranteed Indebtedness; any impairment of any
collateral securing any or all of the Guaranteed Indebtedness; (k) the failure
of the Agent, any Bank or Issuing Bank to sell any collateral securing any or
all of the Guaranteed Indebtedness in a commercially reasonable manner or as
otherwise required by law; or (l) any change in the corporate existence,
structure, or ownership of either Borrower.

8. Guarantor represents and warrants to the Agent, the Banks and
the Issuing Banks as follows:

(a) Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation, is qualified to do business in all jurisdictions in
which the nature of the business conducted by it makes such
qualification necessary and where failure to so qualify would have a
material adverse effect on its business, financial condition, or
operations.

(b) Guarantor has the corporate power and authority and
legal right to execute, deliver, and perform its obligations under
this Guaranty Agreement and this Guaranty Agreement constitutes the
legal, valid, and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its respective terms, except as limited
by bankruptcy, insolvency, or other laws of general application
relating to the enforcement of creditor's rights.

(c) The execution, delivery, and performance by Guarantor
of this Guaranty Agreement (i) have been duly authorized by all
requisite action on the part of Guarantor, (ii) do not and will not
violate or conflict with (x) any law, rule, or regulation or any
order, writ, injunction or decree of any court, governmental authority
or agency, or arbitrator, which violation would have a material
adverse effect on the business, condition (financial or otherwise),
operations, prospects, or properties of Guarantor or any other
Company, the Collateral taken as a whole, or the ability of Guarantor
or the other Companies to pay and perform the Guaranteed Indebtedness,
or (y) the articles of certificate of incorporation or bylaws of
Guarantor, and (iii) do not and will not conflict with, result in a
breach of, or constitute a default under, or result in the imposition
of any lien upon any assets of Guarantor pursuant to the provisions of
any material indenture, mortgage, deed of trust, security agreement,
franchise, permit, license, instrument, or agreement to which
Guarantor or its properties is bound.

(d) No authorization, approval, or consent of, and no
filing or registration with, any court, governmental authority, or
third party is necessary for the execution, delivery

SUBSIDIARY GUARANTY AGREEMENT - Page 3
<PAGE> 123
or performance by Guarantor of this Guaranty Agreement or the validity
or enforceability thereof.

(e) The value of the consideration received and to be
received by Guarantor as a result of the Borrowers, the Agent, the
Banks and the Issuing Banks entering into the Credit Agreement and
Guarantor executing and delivering this Guaranty Agreement is
reasonably worth at least as much as the liability and obligation of
Guarantor hereunder, and such liability and obligation and the Credit
Agreement have benefited and may reasonably be expected to benefit
Guarantor directly or indirectly.

(f) Guarantor has, independently and without reliance
upon the Agent, any Bank or Issuing Bank and based upon such documents
and information as Guarantor has deemed appropriate, made its own
analysis and decision to enter into this Guaranty Agreement.

(g) The ability of Borrower to borrow and obtain letters
of credit from time to time under the Credit Agreement will benefit
Guarantor and the consolidated corporate group of which the Guarantor
is a part and are necessary and convenient to the conduct, promotion
and attainment of the business of Guarantor.

(h) Guarantor hereby acknowledges that as additional
consideration for entering into this Guaranty Agreement, Guarantor has
obtained certain rights under that certain Contribution and
Indemnification Agreement of even date herewith among the Borrowers,
Guarantor and certain other guarantors of the Guaranteed Indebtedness.

(i) Guarantor has adequate capital to conduct its
business as a going concern, as presently conducted and as proposed to
be conducted; Guarantor will be able to meet its obligations hereunder
and in respect of its other existing and future indebtedness and
liabilities as and when the same shall be due and payable; Guarantor
is not insolvent (as that term is defined in 11 U.S.C. Section 101 or
applicable law) and will not be rendered insolvent by its obligations
hereunder; and the foregoing representations are supported by
Guarantor's internal projections and forecasts.

(j) Guarantor has determined that the execution and
delivery of this Guaranty Agreement is to its advantage and benefit,
taking into account all relevant facts and circumstances.

(k) All of the representations and warranties contained
in the Credit Agreement, to the extent that they relate to the
Guarantor, are true and correct.

9. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or any Bank or Issuing Bank has
any commitment under the Credit Agreement:

(a) Guarantor will furnish promptly to the Agent written
notice of the occurrence of any default under this Guaranty Agreement
or any Default under the Credit Agreement of which Guarantor has
knowledge.

SUBSIDIARY GUARANTY AGREEMENT - Page 4
<PAGE> 124
(b) Guarantor will furnish promptly to the Agent such
additional information concerning Guarantor as the Agent or any Bank
may reasonably request.

(c) Guarantor will obtain at any time and from time to
time all authorizations, licenses, consents or approvals as shall now
or hereafter be necessary or desirable under all applicable laws or
regulations to conduct its business substantially as now conducted and
as presently proposed to be conducted or otherwise in connection with
the execution, delivery and performance of this Guaranty Agreement and
will promptly furnish copies thereof to the Agent.

10. If an Event of Default shall have occurred and be continuing,
the Agent, the Banks and the Issuing Banks shall each have the right to set off
and apply against this Guaranty Agreement or the Guaranteed Indebtedness or
both, at any time and without notice to Guarantor, any and all deposits
(general or special, time or demand, provisional or final) or other sums at any
time credited by or owing from the Agent, any Bank or Issuing Bank to Guarantor
whether or not the Guaranteed Indebtedness is then due and irrespective of
whether or not the Agent, any Bank or Issuing Bank shall have made any demand
under this Guaranty Agreement. As security for this Guaranty Agreement and the
Guaranteed Indebtedness, Guarantor hereby grants the Agent, the Banks and the
Issuing Banks a security interest in all money, instruments, certificates of
deposit, and other property of Guarantor now or hereafter held by the Agent,
any Bank or Issuing Bank. In addition to the rights of setoff of the Agent,
the Banks and the Issuing Banks, and as further security for this Guaranty
Agreement and the Guaranteed Indebtedness, Guarantor hereby grants the Agent,
the Banks and the Issuing Banks a security interest in all deposits (general or
special, time or demand, provisional or final) and all other accounts of
Guarantor now or hereafter on deposit with or held by the Agent, any Bank or
Issuing Bank and all other sums at any time credited by or owing from the
Agent, any Bank or Issuing Bank to Guarantor. The rights and remedies of the
Agent, the Banks and the Issuing Banks hereunder are in addition to other
rights and remedies (including, without limitation, other rights of setoff)
which the Agent, the Banks and the Issuing Banks may have.

11. No amendment or waiver of any provision of this Guaranty
Agreement or consent to any departure by the Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by the Agent.
No failure on the part of the Agent, any Bank or Issuing Bank to exercise, and
no delay in exercising, any right, power, or privilege hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

12. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by the Borrowers or others
(including Guarantor), with respect to any of the Guaranteed Indebtedness
shall, if the statute of limitations in favor of Guarantor against the Agent,
the Banks or the Issuing Banks shall have commenced to run, toll the running of
such statute of limitations and, if the period of such statute of limitations
shall have expired, prevent the operation of such statute of limitations.

SUBSIDIARY GUARANTY AGREEMENT - Page 5
<PAGE> 125
13. This Guaranty Agreement is for the benefit of the Agent, the
Banks and the Issuing Banks and their successors and assigns, and in the event
of an assignment of the Guaranteed Indebtedness, or any part thereof, the
rights and benefits hereunder, to the extent applicable to the indebtedness so
assigned, may be transferred with such indebtedness. This Guaranty Agreement is
binding not only on Guarantor, but on Guarantor's successors and assigns.
14. Guarantor recognizes that the Agent, the Banks and the Issuing
Banks are relying upon this Guaranty Agreement and the undertakings of
Guarantor hereunder in making extensions of credit to the Borrowers under the
Credit Agreement and further recognizes that the execution and delivery of this
Guaranty Agreement is a material inducement to the Agent, the Banks and the
Issuing Banks in entering into the Credit Agreement. Guarantor hereby
acknowledges that there are no conditions to the full effectiveness of this
Guaranty Agreement.

15. THIS GUARANTY AGREEMENT IS EXECUTED AND DELIVERED AS AN
INCIDENT TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE IN
DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS. ANY ACTION OR PROCEEDING AGAINST GUARANTOR
UNDER OR IN CONNECTION WITH THIS GUARANTY AGREEMENT MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY IRREVOCABLY (I)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (II) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
GUARANTOR AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY BANK OR ISSUING BANK TO
SERVE PROCESS IN ANY OTHER MATTER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
THE AGENT, ANY BANK OR ISSUING BANK TO BRING ANY ACTION OR PROCEEDING AGAINST
GUARANTOR OR WITH RESPECT TO ANY OF GUARANTOR'S PROPERTY IN COURTS IN OTHER
JURISDICTIONS TO THE EXTENT SUCH JURISDICTION IS PROPER. ANY ACTION OR
PROCEEDING BY GUARANTOR AGAINST THE AGENT, ANY BANK OR ISSUING BANK SHALL BE
BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

16. Guarantor shall pay on demand all reasonable attorneys' fees
and all other costs and expenses incurred by the Agent, the Banks and the
Issuing Banks in connection with the enforcement or collection of this Guaranty
Agreement.

17. Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty Agreement, presentment, notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
the incurring by either Borrower of additional indebtedness, and all other
notices and demands with respect to the Guaranteed Indebtedness and this
Guaranty Agreement.

18. The Credit Agreement, and all of the terms thereof, are
incorporated herein by reference, the same as if stated verbatim herein, and
Guarantor agrees that the Agent, the Banks

SUBSIDIARY GUARANTY AGREEMENT - Page 6
<PAGE> 126
and the Issuing Banks may exercise any and all rights granted to them under the
Credit Agreement and the other Loan Documents (as defined in the Credit
Agreement) without affecting the validity or enforceability of this Guaranty
Agreement.

19. Guarantor hereby represents and warrants to the Agent, the
Banks and the Issuing Banks that Guarantor has adequate means to obtain from
the Borrowers on a continuing basis information concerning the financial
condition and assets of the Borrowers and that Guarantor is not relying upon
the Agent, any Bank or Issuing Bank to provide (and the Agent, the Banks and
the Issuing Banks shall have no duty to provide) any such information to
Guarantor either now or in the future.

20. THIS GUARANTY AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT
OF GUARANTOR, THE AGENT, THE BANKS AND THE ISSUING BANKS WITH RESPECT TO
GUARANTOR'S GUARANTY OF THE GUARANTEED INDEBTEDNESS AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY
AGREEMENT IS INTENDED BY GUARANTOR, THE AGENT, THE BANKS AND THE ISSUING BANKS
AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY AGREEMENT, AND
NO COURSE OF DEALING AMONG GUARANTOR, THE AGENT, THE BANKS AND THE ISSUING
BANKS, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC
EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY
ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS AMONG
GUARANTOR, THE AGENT, THE BANKS AND THE ISSUING BANKS.

EXECUTED as of the 16th day of May, 1996.

GUARANTOR:
---------

GUAR~

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

Address: 5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Attn.: S. Wayne Bazzle

SUBSIDIARY GUARANTY AGREEMENT - Page 7
<PAGE> 127

EXHIBIT "E-2"

BORROWER GUARANTY AGREEMENT

WHEREAS, the execution of this Borrower Guaranty Agreement ("Guaranty
Agreement") is a condition to the extension of credit in the form of loans and
letters of credit to _______________________, a Delaware corporation (the
"Guarantor") and _______________________, a Delaware corporation ("Affiliate,"
and together with the Guarantor, the "Borrowers") by certain lenders
(collectively, the "Banks") from time to time party to that certain Credit
Agreement of even date herewith among Borrowers, the Banks, Texas Commerce Bank
National Association, as agent (in such capacity, the "Agent") for itself, the
other Banks and the other Banks acting from time to time as issuing banks (in
such capacity, the "Issuing Banks") and the Issuing Banks (such Credit
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time is hereinafter referred to as the "Credit Agreement");

NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the undersigned hereby irrevocably and
unconditionally guarantees to the Agent, the Banks, the Issuing Banks and each
of them the full and prompt payment and performance of the Guaranteed
Indebtedness (hereinafter defined), this Guaranty Agreement being upon the
following terms:

1. The term "Guaranteed Indebtedness", as used herein means all
of the "Obligations", as defined in the Credit Agreement (other than the
Obligations of Guarantor). The term "Guaranteed Indebtedness" shall include any
and all post-petition interest and expenses (including reasonable attorneys'
fees) whether or not allowed under any bankruptcy, insolvency, or other similar
law. All other capitalized terms used and not otherwise defined herein shall
have their respective meanings as set forth in the Credit Agreement.

2. This instrument shall be an absolute, continuing, irrevocable,
and unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder
until the payment and performance in full of the Guaranteed Indebtedness. No
set-off, counterclaim, recoupment, reduction, or diminution of any obligation,
or any defense of any kind or nature which Affiliate may have against the
Agent, any Bank, Issuing Bank or any other party, or which Guarantor may have
against Affiliate, the Agent, any Bank, Issuing Bank or any other party, shall
be available to, or shall be asserted by, Guarantor against the Agent, any
Bank, Issuing Bank or any subsequent holder of the Guaranteed Indebtedness or
any part thereof or against payment of the Guaranteed Indebtedness or any part
thereof.

4. If Guarantor becomes liable for any indebtedness owing by
Affiliate to the Agent, any Bank or Issuing Bank by endorsement or otherwise,
other than under this Guaranty Agreement, such liability shall not be in any
manner impaired or affected hereby, and the rights

BORROWER GUARANTY AGREEMENT - Page 1
<PAGE> 128
of the Agent, the Banks and the Issuing Banks hereunder shall be cumulative of
any and all other rights that the Agent, the Banks and the Issuing Banks may
ever have against Affiliate. The exercise by the Agent, any Bank or Issuing
Bank of any right or remedy hereunder or under any other instrument, or at law
or in equity, shall not preclude the concurrent or subsequent exercise of any
other right or remedy.

5. In the event of default by Affiliate in payment or performance
of the Guaranteed Indebtedness, or any part thereof, when such Guaranteed
Indebtedness becomes due, whether by its terms, by acceleration, or otherwise,
Guarantor shall promptly pay the amount due thereon to the Agent, the Banks and
the Issuing Banks without notice or demand in lawful currency of the United
States of America and it shall not be necessary for the Agent, any Bank or
Issuing Bank, in order to enforce such payment by Guarantor, first to institute
suit or exhaust its remedies against Affiliate or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness.
Notwithstanding anything to the contrary contained in this Guaranty Agreement,
Guarantor hereby irrevocably waives any and all rights it may now or hereafter
have under any agreement or at law or in equity (including, without limitation,
any law subrogating the Guarantor to the rights of the Agent, the Banks and the
Issuing Banks) to assert any claim against or seek contribution,
indemnification or any other form of reimbursement from Affiliate or any other
party liable for payment of any or all of the Guaranteed Indebtedness for any
payment made by Guarantor under or in connection with this Guaranty Agreement
or otherwise.

6. If acceleration of the time for payment of any amount payable
by Affiliate under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Affiliate, all such amounts otherwise subject
to acceleration under the terms of the Guaranteed Indebtedness shall
nonetheless be payable by Guarantor hereunder forthwith on demand by the Agent.

7. Guarantor hereby agrees that its obligations under this
Guaranty Agreement shall not be released, discharged, diminished, impaired,
reduced, or affected for any reason or by the occurrence of any event,
including, without limitation, one or more of the following events, whether or
not with notice to or the consent of Guarantor: (a) the taking or accepting of
collateral as security for any or all of the Guaranteed Indebtedness or the
release, surrender, exchange, or subordination of any collateral now or
hereafter securing any or all of the Guaranteed Indebtedness; (b) any partial
release of the liability of Guarantor hereunder, or the full or partial release
of any other guarantor from liability for any or all of the Guaranteed
Indebtedness; (c) any disability of Affiliate, or the dissolution, insolvency,
or bankruptcy of Affiliate, Guarantor, or any other party at any time liable
for the payment of any or all of the Guaranteed Indebtedness; (d) any renewal,
extension, modification, waiver, amendment, or rearrangement of any or all of
the Guaranteed Indebtedness or any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (e) any adjustment, indulgence, forbearance, waiver, or
compromise that may be granted or given by the Agent, the Banks and the Issuing
Banks to Affiliate, Guarantor, or any other party ever liable for any or all of
the Guaranteed Indebtedness; (f) any neglect, delay, omission, failure, or
refusal of the Agent, the Banks and the Issuing Banks to take or prosecute any
action for the collection of any of the Guaranteed Indebtedness or to foreclose
or take or prosecute any action in connection with any instrument, document, or
agreement evidencing, securing, or otherwise relating to any or all of

BORROWER GUARANTY AGREEMENT - Page 2
<PAGE> 129
the Guaranteed Indebtedness; (g) the unenforceability or invalidity of any or
all of the Guaranteed Indebtedness or of any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (h) any payment by Affiliate or any other party to the Agent, any
Bank or Issuing Bank is held to constitute a preference under applicable
bankruptcy or insolvency law or if for any other reason the Agent, any Bank or
Issuing Bank is required to refund any payment or pay the amount thereof to
someone else; (i) the settlement or compromise of any of the Guaranteed
Indebtedness; (j) the non-perfection of any security interest or lien securing
any or all of the Guaranteed Indebtedness; any impairment of any collateral
securing any or all of the Guaranteed Indebtedness; (k) the failure of the
Agent, any Bank or Issuing Bank to sell any collateral securing any or all of
the Guaranteed Indebtedness in a commercially reasonable manner or as otherwise
required by law; or (l) any change in the corporate existence, structure, or
ownership of Affiliate.

8. Guarantor represents and warrants to the Agent, the Banks and
the Issuing Banks as follows:

(d) No authorization, approval, or consent of, and no
filing or registration with, any court, governmental authority, or
third party is necessary for the execution, delivery or performance by
Guarantor of this Guaranty Agreement or the validity or enforceability
thereof.

BORROWER GUARANTY AGREEMENT - Page 3
<PAGE> 130
(e) The value of the consideration received and to be
received by Guarantor as a result of the Borrowers, the Agent, the
Banks and the Issuing Banks entering into the Credit Agreement and
Guarantor executing and delivering this Guaranty Agreement is
reasonably worth at least as much as the liability and obligation of
Guarantor hereunder, and such liability and obligation and the Credit
Agreement have benefited and may reasonably be expected to benefit
Guarantor directly or indirectly.

(g) The ability of Affiliate to borrow from time to time
under the Credit Agreement will benefit Guarantor and the consolidated
corporate group of which the Guarantor is a part and are necessary and
convenient to the conduct, promotion and attainment of the business of
Guarantor.

(h) Guarantor hereby acknowledges that as additional
consideration for entering into this Guaranty Agreement, Guarantor has
obtained certain rights under that certain Contribution and
Indemnification Agreement of even date herewith among Affiliate,
Guarantor and certain other guarantors of the Guaranteed Indebtedness.

(j) Guarantor has determined that the execution and
delivery of this Guaranty Agreement is to its advantage and benefit,
taking into account all relevant facts and circumstances.

(k) All of the representations and warranties contained
in the Credit Agreement, to the extent that they relate to the
Guarantor, are true and correct.

9. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or any Bank or Issuing Bank has
any commitment under the Credit Agreement:

(b) Guarantor will furnish promptly to the Agent such
additional information concerning Guarantor as the Agent or any Bank
may reasonably request.

BORROWER GUARANTY AGREEMENT - Page 4
<PAGE> 131
(c) Guarantor will obtain at any time and from time to
time all authorizations, licenses, consents or approvals as shall now
or hereafter be necessary or desirable under all applicable laws or
regulations to conduct its business substantially as now conducted and
as presently proposed to be conducted or otherwise in connection with
the execution, delivery and performance of this Guaranty Agreement and
will promptly furnish copies thereof to the Agent.

12. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by Affiliate or others
(including Guarantor), with respect to any of the Guaranteed Indebtedness
shall, if the statute of limitations in favor of Guarantor against the Agent,
the Banks or the Issuing Banks shall have commenced to run, toll the running of
such statute of limitations and, if the period of such statute of limitations
shall have expired, prevent the operation of such statute of limitations.

13. This Guaranty Agreement is for the benefit of the Agent, the
Banks and the Issuing Banks and their successors and assigns, and in the event
of an assignment of the Guaranteed Indebtedness, or any part thereof, the
rights and benefits hereunder, to the extent

BORROWER GUARANTY AGREEMENT - Page 5
<PAGE> 132
applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.

14. Guarantor recognizes that the Agent, the Banks and the Issuing
Banks are relying upon this Guaranty Agreement and the undertakings of
Guarantor hereunder in making extensions of credit to Affiliate under the
Credit Agreement and further recognizes that the execution and delivery of this
Guaranty Agreement is a material inducement to the Agent, the Banks and the
Issuing Banks in entering into the Credit Agreement. Guarantor hereby
acknowledges that there are no conditions to the full effectiveness of this
Guaranty Agreement.

17. Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty Agreement, presentment, notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
the incurring by Affiliate of additional indebtedness, and all other notices
and demands with respect to the Guaranteed Indebtedness and this Guaranty
Agreement.

18. The Credit Agreement, and all of the terms thereof, are
incorporated herein by reference, the same as if stated verbatim herein, and
Guarantor agrees that the Agent, the Banks and the Issuing Banks may exercise
any and all rights granted to them under the Credit Agreement and the other
Loan Documents (as defined in the Credit Agreement) without affecting the
validity or enforceability of this Guaranty Agreement.

BORROWER GUARANTY AGREEMENT - Page 6
<PAGE> 133
19. Guarantor hereby represents and warrants to the Agent, the
Banks and the Issuing Banks that Guarantor has adequate means to obtain from
Affiliate on a continuing basis information concerning the financial condition
and assets of Affiliate and that Guarantor is not relying upon the Agent, any
Bank or Issuing Bank to provide (and the Agent, the Banks and the Issuing Banks
shall have no duty to provide) any such information to Guarantor either now or
in the future.

EXECUTED as of the 16th day of May, 1996.

GUARANTOR:
---------

GUAR~

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

Address: 5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Attn.: S. Wayne Bazzle

BORROWER GUARANTY AGREEMENT - Page 7
<PAGE> 134

EXHIBIT "F-1"

PLEDGE AGREEMENT
(Holdings)

THIS PLEDGE AGREEMENT dated as of May 16, 1996, is by and between
HEALTHCOR HOLDINGS, INC., a Delaware corporation (the "Debtor"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as agent
(in such capacity, the "Agent") for itself, the other Issuing Banks
(hereinafter defined) and the other lenders (collectively, the "Banks") from
time to time party to that certain Credit Agreement dated of even date herewith
among HealthCor, Inc., a Delaware corporation (the "Company"), Debtor (together
with the Company, the "Borrowers"), the Agent, Texas Commerce Bank National
Association and each of the other banks issuing letters of credit from time to
time under the Credit Agreement (in such capacity, collectively, the "Issuing
Banks"), and the Banks, as the same may be amended or modified from time to
time (the "Credit Agreement").

R E C I T A L S:

The Banks have agreed to make loans to the Borrowers and the Issuing
Banks have agreed to issue letters of credit for the account of the Company
subject to the terms and conditions of the Credit Agreement. The obligation of
the Banks to lend and of the Issuing Banks to issue letters of credit under the
Credit Agreement are conditioned on among other things, the execution and
delivery by the Debtor of this Agreement.

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

ARTICLE I

Definition; Security Interest and Pledge

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

Section 1.2 Security Interest and Pledge. Debtor hereby pledges
and grants to the Agent for the benefit of itself, the Banks and the Issuing
Banks, a security interest in the following property (such property being
hereinafter sometimes called the "Collateral"):

(a) all present and future issued and outstanding shares
of capital stock or other equity or investment securities issued by
Debtor's Subsidiaries, or any of them, and now owned or hereafter
acquired by Debtor, including without limitation the following
described shares of stock:

PLEDGE AGREEMENT - Page 1
<PAGE> 135
<TABLE>
<CAPTION>
Type of Number Certificate
Company Stock of Shares Number(s)
------- --------- --------- ---------
<S> <C> <C> <C>
HealthCor, Inc. Common 1,000 001
HealthCor Pharmacy, Inc. Common 1,000 1
Physicians Home Health
Network, Inc. Common 1,000 05
HealthCor Oxygen and
Medical Equipment Holdings,
Inc. (f/k/a HealthCor
Oxygen and Medical
Equipment, Inc.) Common 1,000 2
HealthCor Rehabilitation
Services, Inc. Common 100 1
I Care, Inc. Common
I Care Home I.V.
Affiliates, Inc. Common

</TABLE>
(b) all present and future increases, profits,
combinations, reclassifications of, and substitutes and replacements
for, all or part of the foregoing, and all present and future
accounts, contract rights, general intangibles, chattel paper,
documents, instruments, cash and noncash proceeds, and other rights
arising from or by virtue of, or from the voluntary or involuntary
sale, lease, or other disposition of, or collections with respect to,
or proceeds payable by virtue of claims against any Person with
respect to, all or any part of the foregoing; and

(c) all products, proceeds, revenues, distributions,
dividends, stock dividends, securities, and other property, rights,
and interests the Debtor receives or is at any time entitled to
receive on account of any of the foregoing.

Section 1.3 Obligations. The Collateral shall secure the
following obligations, indebtedness, and liabilities (all such obligations,
indebtedness, and liabilities being hereinafter sometimes called the
"Obligations"): (a) the obligations, indebtedness, and liabilities of the
Company to the Banks and the Issuing Banks evidenced by the Revolving Credit
Notes (herein so called) executed by the Company pursuant to the Credit
Agreement; (b) the obligations, indebtedness, and liabilities of Debtor to the
Banks evidenced by the Term Notes executed by Debtor pursuant to the Credit
Agreement; (c) the obligations, indebtedness, and liabilities of Debtor to the
Agent, the Banks and the Issuing Banks under that certain Guaranty Agreement of
even date herewith, executed by Debtor in favor of the Agent, the Banks and the
Issuing Banks, pursuant to the Credit Agreement; (d) the obligations,
indebtedness, and liabilities of the Company to the Agent, the Banks and the
Issuing Banks under the Credit Agreement; (e) the obligations, indebtedness,
and liabilities of Debtor to the Agent, the Banks and the Issuing Banks under
the Credit Agreement; (f) all future advances by the Banks and the Issuing
Banks to the Company and Debtor, or either of them; (g) all costs and expenses,
including without limitation attorneys fees and legal expenses incurred by the
Agent, the Banks and the Issuing Banks to

PLEDGE AGREEMENT - Page 2
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preserve and maintain the Collateral, collect the obligations herein described,
and enforce this Agreement; (h) all other Obligations (as such term is defined
in the Credit Agreement); and (i) all extensions, renewals and modifications of
any of the foregoing.

ARTICLE II

Representations and Warranties

Debtor represents and warrants to the Agent, the Banks and the Issuing
Banks that:

Section 2.1 Title. Debtor owns, and with respect to Collateral
acquired after the date hereof, Debtor will own, legally and beneficially, the
Collateral free and clear of any Lien, or any right or option on the part of
any Person to purchase or otherwise acquire the Collateral or any part thereof.
The Collateral is not subject to any restriction on transfer or assignment
except for compliance with applicable federal and state securities laws and
regulations promulgated thereunder. Debtor has the unrestricted right to
pledge the Collateral as contemplated hereby. All of the Collateral has been
duly and validly issued and is fully paid and nonassessable.

Section 2.2 Organization and Authority. Debtor is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of incorporation. Debtor has the corporate power and authority to
execute, deliver, and perform this Agreement, and the execution, delivery, and
performance of this Agreement by Debtor (a) have been duly authorized by all
necessary corporate action on the part of Debtor, (b) do not and will not
violate or conflict with (i) any law, rule, or regulation or any order, writ,
injunction, or decree of any court, governmental authority, or arbitrator which
violation would have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of Debtor, the
Collateral taken as a whole, or the ability of the Companies to pay and perform
the Obligations, or (ii) the articles of incorporation or bylaws of Debtor, and
(c) do not and will not conflict with, result in a breach of, or constitute a
default under the provisions of any material indenture, mortgage, deed of
trust, security agreement, instrument or agreement binding on Debtor or any of
its property.

Section 2.3 Principal Place of Business. The principal place of
business and chief executive office of Debtor, and the office where Debtor
keeps its books and records, is located at the address of Debtor shown below
Debtor's name on the signature pages hereof.

Section 2.4 Percentage of Stock. The Collateral constitutes one
hundred percent (100%) of the issued and outstanding shares of capital stock of
the issuer thereof.

Section 2.5 First Priority Perfected Security Interest. This
Agreement creates in favor of the Agent for the benefit of itself, the Banks
and the Issuing Banks, a first priority perfected security interest in the
Collateral. There are no conditions precedent to the effectiveness of this
Agreement that have not been fully and permanently satisfied.

PLEDGE AGREEMENT - Page 3
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ARTICLE III

Affirmative and Negative Covenants

Debtor covenants and agrees with the Agent, the Banks and the Issuing
Banks that:

Section 3.1 Encumbrances. Debtor shall not create, permit, or
suffer to exist, and shall defend the Collateral against, any Lien on the
Collateral except the pledge and security interest of the Agent hereunder, and
shall defend Debtor's rights in the Collateral and the Agent's security
interest in the Collateral against the claims of all Persons.

Section 3.2 Sale of Collateral. Debtor shall not sell, assign,
or otherwise dispose of the Collateral or any part thereof without the prior
written consent of the Agent, except as provided in Section 11.5 of the Credit
Agreement.

Section 3.3 Distributions. If Debtor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase, or reduction of capital or issued in
connection with any reorganization), option or rights, whether as an addition
to, in substitution of, or in exchange for any Collateral or otherwise, Debtor
agrees to accept the same as the Agent's agent and to hold the same in trust
for the Agent, and to deliver the same forthwith to the Agent in the exact form
received, with the appropriate endorsement of Debtor when necessary and/or
appropriate undated stock powers duly executed in blank, to be held by the
Agent as additional Collateral for the Obligations, subject to the terms
hereof. Any sums paid upon or in respect of the Collateral upon the
liquidation or dissolution of the issuer thereof shall be paid over to the
Agent to be held by it as additional Collateral for the Obligations subject to
the terms hereof; and in case any distribution of capital shall be made on or
in respect of the Collateral or any property shall be distributed upon or with
respect to the Collateral pursuant to any recapitalization or reclassification
of the capital of the issuer thereof or pursuant to any reorganization of the
issuer thereof, the property so distributed shall be delivered to the Agent to
be held by it, as additional Collateral for the Obligations, subject to the
terms hereof. All sums of money and property so paid or distributed in respect
of the Collateral that are received by Debtor shall, until paid or delivered to
the Agent, be held by Debtor in trust as additional security for the
Obligations.

PLEDGE AGREEMENT - Page 4
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such Collateral so received by Debtor (together with any necessary endorsements
in blank or undated stock powers duly executed in blank), which Collateral
shall thereafter be held by the Agent pursuant to the terms of this Agreement.
The Agent shall at all times have the right to exchange any certificates
representing Collateral for certificates of smaller or larger denominations for
any purpose consistent with this Agreement.

Section 3.5 Inspection Rights. Debtor shall permit the Agent,
the Banks, the Issuing Banks and their representatives, upon one (1) Business
Day's prior notice, to examine, inspect, and copy Debtor's books and records at
any reasonable time and as often as they may desire.

Section 3.6 Notification. Debtor shall promptly notify the Agent
of (i) any Lien or material claim made or threatened against the Collateral,
(ii) any material change in the Collateral, including, without limitation, any
material decrease in the value of the Collateral, and (iii) the occurrence or
existence of any Default.

Section 3.7 Books and Records; Information. Debtor shall keep
accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with GAAP (subject to year-end
adjustments and disclosures). Debtor shall from time to time at the request of
the Agent deliver to the Agent such information regarding the Collateral and
Debtor as the Agent may request. Debtor shall mark its books and records to
reflect the security interest of the Agent under this Agreement.

Section 3.8 Additional Securities. Debtor shall not consent to
or approve the issuance of any additional shares of any class of capital stock
of the issuer of the Collateral, or any securities convertible into, or
exchangeable for, any such shares or any warrants, options, rights, or other
commitments entitling any Person to purchase or otherwise acquire any such
shares.

Section 3.9 Provide Information. Debtor shall fully cooperate,
to the extent requested by the Agent, in the completion of any notice, form,
schedule, or other document filed by the Agent on its own behalf or on behalf
of Debtor, including, without limitation, any required notice or statement of
beneficial ownership or of the acquisition of beneficial ownership of equity
securities constituting part of the Collateral and any notice of proposed sale
of any such securities pursuant to Rule 144 as promulgated by the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended.
Without limiting the generality of the foregoing, Debtor shall furnish to the
Agent any and all information which the Agent may reasonably request for
purposes of any such filing, regarding Debtor, the Collateral, and any issuer
of any of the Collateral, and Debtor shall disclose to the Agent all material
adverse information known by Debtor with respect to the operations of any
issuer of any of the Collateral.

PLEDGE AGREEMENT - Page 5
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ARTICLE IV

Rights of the Agent and Debtor

Section 4.1 Certain Covenants and Rights Regarding Collateral.

(a) Debtor shall from time to time at the request of the
Agent furnish the Agent with a schedule of each account included in
the Collateral and a list of all those liable on checks, notes,
drafts, and other instruments representing the proceeds of such
accounts. The Agent shall have the right to make test verifications
of the Collateral. If any part of the Collateral is or becomes
subject to the Federal Assignment of Claims Act, Debtor will execute
all instruments and take all steps required by the Agent to comply
with that act. If part of the Collateral is evidenced by promissory
notes, trade acceptances or other instruments for the payment of
money, Debtor will, at the request of the Agent immediately deliver
them to the Agent, appropriately endorsed to the Agent's order, and
regardless of the form of endorsement, Debtor waives presentment,
demand, notice of dishonor, protest, and notice of protest.

PLEDGE AGREEMENT - Page 6
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obligated to perform or discharge any obligation, duty, or liability
under any sale or lease agreement covering the Collateral or any part
thereof, or under or by reason of this Agreement or exercise of rights
or remedies hereunder.

Section 4.2 Voting Rights. Unless and until an Event of Default
shall have occurred and be continuing, Debtor shall be entitled to exercise any
and all voting rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Credit
Agreement. The Agent shall execute and deliver to the Debtor all such proxies
and other instruments as Debtor may reasonably request for the purpose of
enabling Debtor to exercise the voting rights which it is entitled to exercise
pursuant to this Section.

Section 4.3 Dividends. Unless and until an Event of Default
shall have occurred and be continuing, Debtor shall be entitled to receive and
retain any dividends on the Collateral paid in cash out of earned surplus to
the extent and only to the extent that such dividends are permitted by the
Credit Agreement.

Section 4.4 Performance by the Agent. If Debtor fails to perform
or comply with any of its agreements contained herein, the Agent itself may, at
its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of the Agent, together with interest thereon at
the Default Rate, shall be payable by Debtor to the Agent on demand and shall
constitute Obligations secured by this Agreement. The Agent upon making such
payment, shall be subrogated to all of the rights of the Person receiving such
payment. Notwithstanding the foregoing, it is expressly agreed that the Agent
shall not have any liability or responsibility for the performance of any
obligation of Debtor under this Agreement.

Section 4.5 Setoff; Property Held by the Agent. If an Event of
Default shall have occurred and be continuing, the Agent shall have the right
to set off and apply against the Obligations, at any time and without notice to
Debtor, any and all deposits (general or special, time or demand, provisional
or final) or other sums at any time credited by or owing from the Agent to
Debtor whether or not the Obligations are then due. As additional security for
the Obligations, Debtor hereby grants the Agent a security interest in all
money, instruments, and other property of Debtor now or hereafter held by the
Agent. In addition to the Agent's right of setoff and as further security for
the Obligations, Debtor hereby grants the Agent a security interest in all
deposits (general or special, time or demand, provisional or final) and other
accounts of Debtor now or hereafter maintained with the Agent and all other
sums at any time credited by or owing from the Agent to Debtor. The rights and
remedies of the Agent hereunder

PLEDGE AGREEMENT - Page 7
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are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Agent may have.

Section 4.6 The Agent's Duty of Care. Other than the exercise of
reasonable care in the physical custody of the Collateral while held by the
Agent hereunder, the Agent shall have no responsibility for or obligation or
duty with respect to all or any part of the Collateral or any matter or
proceeding arising out of or relating thereto, including, without limitation,
any obligation or duty to collect any sums due in respect thereof or to protect
or preserve any rights against prior parties or any other rights pertaining
thereto, it being understood and agreed that Debtor shall be responsible for
preservation of all rights in the Collateral. Without limiting the generality
of the foregoing, the Agent shall be conclusively deemed to have exercised
reasonable care in the custody of the Collateral if the Agent takes such
action, for purposes of preserving rights in the Collateral, as Debtor may
reasonably request in writing, but no failure or omission or delay by the Agent
in complying with any such request by Debtor, and no refusal by the Agent to
comply with any such request by Debtor, shall be deemed to be a failure to
exercise reasonable care. The Agent shall not be responsible for any decline
in the value of the Collateral and shall not be required to take any steps to
preserve rights against prior parties or to protect, preserve, or maintain any
Lien given to secure the Collateral.

Section 4.7 Assignment by the Agent. The Agent, the Banks and
the Issuing Banks may at any time and from time to time assign the Obligations
and any portion thereof and/or the Collateral and any portion thereof, and the
assignee shall be entitled to all of the rights and remedies of the Agent under
this Agreement in relation thereto.

ARTICLE V

Default

Section 5.1 Rights and Remedies. If any Event of Default shall
occur, the Agent shall have the following rights and remedies:

PLEDGE AGREEMENT - Page 8
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to give more than ten (10) days written notice of the time and place
of any public sale or of the time after which any private sale may
take place and that such notice shall constitute reasonable notice of
such matters. The Agent shall not be obligated to make any sale of
the Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned. Debtor shall be liable for all expenses of retaking,
holding, preparing for sale, or the like, and all attorneys' fees and
other expenses incurred by the Agent in connection with the collection
of the Obligations and the enforcement of the Agent's rights under
this Agreement, all of which expenses and fees shall constitute
additional Obligations secured by this Agreement. The Agent may apply
the Collateral against the Obligations in such order and manner as the
Agent may elect in its sole discretion. Debtor shall remain liable
for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations. Debtor waives all
rights of marshalling in respect of the Collateral.

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

(iii) The Agent may collect or receive all money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so.

(iv) The Agent shall have the right, but shall not be
obligated to, exercise or cause to be exercised all voting,
consensual, and other powers of ownership pertaining to the
Collateral, and Debtor shall deliver to the Agent, if requested by the
Agent, irrevocable proxies with respect to the Collateral in form
satisfactory to the Agent.

(v) Debtor hereby acknowledges and confirms that the
Agent may be unable to effect a public sale of any or all of the
Collateral by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities
laws and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire any shares of the Collateral for
their own respective accounts for investment and not with a view to
distribution or resale thereof. Debtor further acknowledges and
confirms that any such private sale may result in prices or other
terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially
reasonable manner, and the Agent shall be under no obligation to take
any steps in order to permit the Collateral to be sold at a public
sale. The Agent shall be under no obligation to delay a sale of any
of the Collateral for any period of time necessary to permit any
issuer thereof to register such Collateral for public sale under the
Securities Act of 1933, as amended, or under applicable state
securities laws.

PLEDGE AGREEMENT - Page 9
<PAGE> 143
(vi) On any sale of the Collateral, the Agent is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of the Agent's counsel, in order
to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable
governmental authority.

SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

PLEDGE AGREEMENT - Page 10
<PAGE> 144
Upon any sale of the Collateral by the Agent (including, without limitation, a
sale pursuant to any applicable Uniform Commercial Code or under a judicial
proceeding), the receipt of the Agent or of the officer making the sale shall
be a sufficient discharge to the purchaser or purchasers of the Collateral so
sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Agent or such
officer or be answerable in any way for the misapplication thereof.

ARTICLE VI

Miscellaneous

Section 6.2 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of Debtor, the Agent, the Banks, the
Issuing Banks and their respective heirs, successors, and assigns, except that
Debtor may not assign any of its rights or obligations under this Agreement
without the prior written consent of the Agent.

PLEDGE AGREEMENT - Page 11
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Section 6.5 APPLICABLE LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST DEBTOR UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY,
TEXAS. DEBTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. DEBTOR AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 6.4 OF THIS AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
ANY ACTION OR PROCEEDING AGAINST DEBTOR OR WITH RESPECT TO ANY OF ITS PROPERTY
IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST
THE AGENT SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

Section 6.7 Survival. All representations and warranties made in
this Agreement shall survive the execution and delivery of this Agreement, and
no investigation by the Agent, the Banks or the Issuing Banks shall affect the
representations and warranties of Debtor herein or the right of the Agent, the
Banks and the Issuing Banks to rely upon them.

Section 6.9 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.

PLEDGE AGREEMENT - Page 12
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Section 6.10 Construction. Debtor and the Agent acknowledge that
each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel
and that this Agreement shall be construed as if jointly drafted by Debtor and
the Agent.

Section 6.11 Obligations Absolute. The obligations of Debtor
under this Agreement shall be absolute and unconditional and shall not be
released, discharged, reduced, or in any way impaired by any circumstance
whatsoever, including, without limitation, any amendment, modification,
extension, or renewal of this Agreement, the Obligations, or any document or
instrument evidencing, securing, or otherwise relating to the Obligations, or
any release, subordination, or impairment of collateral, or any waiver,
consent, extension, indulgence, compromise, settlement, or other action or
inaction in respect of this Agreement, the Obligations, or any document or
instrument evidencing, securing, or otherwise relating to the Obligations, or
any exercise or failure to exercise any right, remedy, power, or privilege in
respect of the Obligations.

Section 6.12 Release of Security Interest. At such time as all of
the Obligations have been paid and performed in full, all obligations and
commitments of the Banks and the Issuing Banks to make advances, issue letters
of credit or otherwise extend credit under the Credit Agreement have expired or
terminated, and no Letters of Credit remain outstanding, the Agent shall
release the security interest granted hereby.

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

DEBTOR:
------

HEALTHCOR HOLDINGS, INC.

By:
------------------------------------------------
S. Wayne Bazzle
Chairman of the Board, Chief Executive Officer
and Secretary

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240

Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

PLEDGE AGREEMENT - Page 13
<PAGE> 147

THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
---------------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197

Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710

Attention: Steven T. Prichett

PLEDGE AGREEMENT - Page 14
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EXHIBIT "F-2"

PLEDGE AGREEMENT
(HOME Holdings)

THIS PLEDGE AGREEMENT dated as of May 16, 1996, is by and between
HEALTHCOR OXYGEN AND MEDICAL EQUIPMENT HOLDINGS, INC. (formerly known as
HealthCor Oxygen and Medical Equipment, Inc.), a Texas corporation (the
"Debtor"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association, as agent (in such capacity, the "Agent") for itself, the other
Issuing Banks (hereinafter defined) and the other lenders (collectively, the
"Banks") from time to time party to that certain Credit Agreement dated of even
date herewith among HealthCor, Inc., a Delaware corporation (the "Company"),
HealthCor Holdings, Inc., a Delaware corporation ("Holdings," and together with
the Company, the "Borrowers"), the Agent, Texas Commerce Bank National
Association and each of the other banks that issue letters of credit under the
Credit Agreement, as issuing banks (in such capacity, collectively, the
"Issuing Banks"), and the Banks, as the same may be amended or modified from
time to time (the "Credit Agreement").

R E C I T A L S:

The Banks have agreed to make loans to the Borrowers and the Issuing
Banks have agreed to issue letters of credit for the account of the Company
subject to the terms and conditions of the Credit Agreement. The obligation of
the Banks to lend and of the Issuing Banks to issue letters of credit under the
Credit Agreement are conditioned on among other things, the execution and
delivery by the Debtor of this Agreement.

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

ARTICLE I

Definition; Security Interest and Pledge

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

PLEDGE AGREEMENT - Page 1
<PAGE> 149
<TABLE>
<CAPTION>
Type of Number Certificate
Company Stock of Shares Number(s)
------- --------- --------- ---------
<S> <C> <C> <C>
HealthCor Oxygen and
Medical Equipment, Inc.
(formerly known as
Permian Medical, Inc.
and successor in interest
by merger to Arlington
Diversified Medical
Equipment, Inc., L.M.
Supply & Service, Inc., and
Colfax Medical Service and
Supply, Inc.) Common 400 9

Section 1.3 Obligations. The Collateral shall secure the
following obligations, indebtedness, and liabilities (all such obligations,
indebtedness, and liabilities being hereinafter sometimes called the
"Obligations"): (a) the obligations, indebtedness, and liabilities of the
Company to the Banks and the Issuing Banks evidenced by the Revolving Credit
Notes (herein so called) executed by the Company pursuant to the Credit
Agreement; (b) the obligations, indebtedness, and liabilities of Holdings to
the Banks evidenced by the Term Notes executed by Holdings pursuant to the
Credit Agreement; (c) the obligations, indebtedness, and liabilities of Debtor
to the Agent, the Banks and the Issuing Banks under that certain Guaranty
Agreement of even date herewith, executed by Debtor in favor of the Agent, the
Banks and the Issuing Banks, pursuant to the Credit Agreement; (d) the
obligations, indebtedness, and liabilities of the Company to the Agent, the
Banks and the Issuing Banks under the Credit Agreement; (e) the obligations,
indebtedness, and liabilities of Holdings to the Agent, the Banks and the
Issuing Banks under the Credit Agreement; (f) all future advances by the Banks
and the Issuing Banks to the Company, Holdings and Debtor, or any of them; (g)
all costs and expenses, including without limitation attorneys fees and legal
expenses incurred by the Agent, the Banks and the Issuing Banks to preserve and
maintain the Collateral, collect the obligations herein described, and enforce
this Agreement; (h) all other Obligations (as such term is defined in the
Credit Agreement); and (i) all extensions, renewals and modifications of any of
the foregoing.

PLEDGE AGREEMENT - Page 2
<PAGE> 150
ARTICLE II

Representations and Warranties

Debtor represents and warrants to the Agent, the Banks and the Issuing
Banks that:

Section 2.4 Percentage of Stock. The Collateral constitutes one
hundred percent (100%) of the issued and outstanding shares of capital stock of
the issuer thereof.

PLEDGE AGREEMENT - Page 3
<PAGE> 151
ARTICLE III

Affirmative and Negative Covenants

Debtor covenants and agrees with the Agent, the Banks and the Issuing
Banks that:

PLEDGE AGREEMENT - Page 4
<PAGE> 152
such Collateral so received by Debtor (together with any necessary endorsements
in blank or undated stock powers duly executed in blank), which Collateral
shall thereafter be held by the Agent pursuant to the terms of this Agreement.
The Agent shall at all times have the right to exchange any certificates
representing Collateral for certificates of smaller or larger denominations for
any purpose consistent with this Agreement.

PLEDGE AGREEMENT - Page 5
<PAGE> 153
ARTICLE IV

Rights of the Agent and Debtor

Section 4.1 Certain Covenants and Rights Regarding Collateral.

(a) Debtor shall from time to time at the request of the
Agent furnish the Agent with a schedule of each account included in
the Collateral and a list of all those liable on checks, notes,
drafts, and other instruments representing the proceeds of such
accounts. The Agent shall have the right to make test verifications
of the Collateral. If any part of the Collateral is or becomes
subject to the Federal Assignment of Claims Act, Debtor will execute
all instruments and take all steps required by the Agent to comply
with that act. If part of the Collateral is evidenced by promissory
notes, trade acceptances or other instruments for the payment of
money, Debtor will, at the request of the Agent immediately deliver
them to the Agent, appropriately endorsed to the Agent's order, and
regardless of the form of endorsement, Debtor waives presentment,
demand, notice of dishonor, protest, and notice of protest.

PLEDGE AGREEMENT - Page 6
<PAGE> 154
obligated to perform or discharge any obligation, duty, or liability
under any sale or lease agreement covering the Collateral or any part
thereof, or under or by reason of this Agreement or exercise of rights
or remedies hereunder.

PLEDGE AGREEMENT - Page 7
<PAGE> 155
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Agent may have.

ARTICLE V

Default

Section 5.1 Rights and Remedies. If any Event of Default shall
occur, the Agent shall have the following rights and remedies:

PLEDGE AGREEMENT - Page 8
<PAGE> 156
to give more than ten (10) days written notice of the time and place
of any public sale or of the time after which any private sale may
take place and that such notice shall constitute reasonable notice of
such matters. The Agent shall not be obligated to make any sale of
the Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned. Debtor shall be liable for all expenses of retaking,
holding, preparing for sale, or the like, and all attorneys' fees and
other expenses incurred by the Agent in connection with the collection
of the Obligations and the enforcement of the Agent's rights under
this Agreement, all of which expenses and fees shall constitute
additional Obligations secured by this Agreement. The Agent may apply
the Collateral against the Obligations in such order and manner as the
Agent may elect in its sole discretion. Debtor shall remain liable
for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations. Debtor waives all
rights of marshalling in respect of the Collateral.

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

(iii) The Agent may collect or receive all money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so.

PLEDGE AGREEMENT - Page 9
<PAGE> 157
(vi) On any sale of the Collateral, the Agent is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of the Agent's counsel, in order
to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable
governmental authority.

SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

PLEDGE AGREEMENT - Page 10
<PAGE> 158
Upon any sale of the Collateral by the Agent (including, without limitation, a
sale pursuant to any applicable Uniform Commercial Code or under a judicial
proceeding), the receipt of the Agent or of the officer making the sale shall
be a sufficient discharge to the purchaser or purchasers of the Collateral so
sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Agent or such
officer or be answerable in any way for the misapplication thereof.

ARTICLE VI

Miscellaneous

PLEDGE AGREEMENT - Page 11
<PAGE> 159
Section 6.5 APPLICABLE LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST DEBTOR UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY,
TEXAS. DEBTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. DEBTOR AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 6.4 OF THIS AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
ANY ACTION OR PROCEEDING AGAINST DEBTOR OR WITH RESPECT TO ANY OF ITS PROPERTY
IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST
THE AGENT SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

PLEDGE AGREEMENT - Page 12
<PAGE> 160
Section 6.10 Construction. Debtor and the Agent acknowledge that
each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel
and that this Agreement shall be construed as if jointly drafted by Debtor and
the Agent.

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

DEBTOR:
------

HEALTHCOR OXYGEN AND MEDICAL
EQUIPMENT HOLDINGS, INC. (formerly known
as HealthCor Oxygen and Medical Equipment,
Inc.)

By:
---------------------------------------------
S. Wayne Bazzle
Chairman of the Board

PLEDGE AGREEMENT - Page 13
<PAGE> 161

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240

Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
------------------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197

Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710

Attention: Steven T. Prichett

PLEDGE AGREEMENT - Page 14
<PAGE> 162

EXHIBIT "F-3"

PLEDGE AGREEMENT
(HOME)

THIS PLEDGE AGREEMENT ("Agreement") dated as of May 16, 1996, is by
and between HEALTHCOR OXYGEN AND MEDICAL EQUIPMENT, INC. (formerly known as
Permian Medical, Inc.), a Texas corporation (the "Debtor"), and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association, as agent (in such
capacity, the "Agent") for itself, the other Issuing Banks (hereinafter
defined) and the other lenders (collectively, the "Banks") from time to time
party to that certain Credit Agreement dated of even date herewith among
HealthCor, Inc., a Delaware corporation (the "Company"), HealthCor Holdings,
Inc., a Delaware corporation ("Holdings," and together with the Company, the
"Borrowers"), the Agent, Texas Commerce Bank National Association and each of
the other Banks that issue letters of credit under the Credit Agreement (in
such capacity, collectively, the "Issuing Banks"), and the Banks, as the same
may be amended or modified from time to time (the "Credit Agreement").

R E C I T A L S:

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

ARTICLE I

Definition; Security Interest and Pledge

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

PLEDGE AGREEMENT - Page 1
<PAGE> 163
<TABLE>
<CAPTION>
Type of Number Certificate
Issuer Stock of Shares Number(s)
------ --------- --------- ---------
<S> <C> <C> <C>
Ponca Medical Supply, Inc. Common 100 3
RTA Homecare, Inc. Common 5,007.19 11
McDuffie's Rentals, Inc. Common 200 4
Specialty Med-Equip, Inc. Common 9,000 13
Superior Med-Equip, Inc. Common 18,278 11
</TABLE>

(b) all present and future increases, profits,
combinations, reclassifications of, and substitutes and replacements
for, all or part of the foregoing, and all present and future
accounts, contract rights, general intangibles, chattel paper,
documents, instruments, cash and noncash proceeds, and other rights
arising from or by virtue of, or from the voluntary or involuntary
sale, lease, or other disposition of, or collections with respect to,
or proceeds payable by virtue of claims against any Person with
respect to, all or any part of the foregoing; and

Section 1.3 Obligations. The Collateral shall secure the
following obligations, indebtedness, and liabilities (all such obligations,
indebtedness, and liabilities being hereinafter sometimes called the
"Obligations"): (a) the obligations, indebtedness, and liabilities of the
Company to the Banks and the Issuing Banks evidenced by the Revolving Credit
Notes executed by the Company pursuant to the Credit Agreement; (b) the
obligations, indebtedness, and liabilities of Holdings to the Banks evidenced
by the Term Notes executed by Holdings pursuant to the Credit Agreement; (c)
the obligations, indebtedness, and liabilities of Debtor to the Agent, the
Banks and the Issuing Banks under that certain Guaranty Agreement of even date
herewith, executed by Debtor in favor of the Agent, the Banks and the Issuing
Banks, pursuant to the Credit Agreement; (d) the obligations, indebtedness, and
liabilities of the Company to the Agent, the Banks and the Issuing Banks under
the Credit Agreement; (e) the obligations, indebtedness, and liabilities of
Holdings to the Agent, the Banks and the Issuing Banks under the Credit
Agreement; (f) all future advances by the Banks and the Issuing Banks to the
Company, Holdings and Debtor, or any of them; (g) all costs and expenses,
including without limitation attorneys fees and legal expenses incurred by the
Agent, the Banks and the Issuing Banks to preserve and maintain the Collateral,
collect the obligations herein described, and enforce this Agreement; (h) all
other Obligations (as such term is defined in the Credit Agreement); and (i)
all extensions, renewals and modifications of any of the foregoing.

PLEDGE AGREEMENT - Page 2
<PAGE> 164
ARTICLE II

Representations and Warranties

Debtor represents and warrants to the Agent, the Banks and the Issuing
Banks that:

Section 2.2 Organization and Authority. Debtor is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of incorporation. Debtor has the corporate power and authority to
execute, deliver, and perform this Agreement, and the execution, delivery, and
performance of this Agreement by Debtor (a) have been duly authorized by all
necessary corporate action on the part of Debtor, (b) do not and will not
violate or conflict with (i) any law, rule, or regulation or any order, writ,
injunction, or decree of any court, governmental authority, or arbitrator which
violation would have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of Debtor, the
Collateral taken as a whole, or the ability of the Companies to pay and perform
the Obligations, or (ii) the certificate or articles of incorporation or bylaws
of Debtor, and (c) do not and will not conflict with, result in a breach of, or
constitute a default under the provisions of any material indenture, mortgage,
deed of trust, security agreement, instrument or agreement binding on Debtor or
any of its property.

Section 2.4 Percentage of Stock. The Collateral constitutes one
hundred percent (100%) of the issued and outstanding shares of capital stock of
the respective issuers thereof.

Section 2.5 First Priority Perfected Security Interest. This
Agreement creates in favor of the Agent for the benefit of itself, the Banks
and the Issuing Banks, a perfected security interest in the Collateral. There
are no conditions precedent to the effectiveness of this Agreement that have
not been fully and permanently satisfied.

PLEDGE AGREEMENT - Page 3
<PAGE> 165
ARTICLE III

Affirmative and Negative Covenants

Debtor covenants and agrees with the Agent, the Banks and the Issuing
Banks that:

Section 3.2 Sale of Collateral. Debtor shall not sell, assign,
or otherwise dispose of the Collateral or any part thereof without the prior
written consent of the Agent.

Section 3.4 Further Assurances. At any time and from time to
time, upon the request of the Agent, and at the sole expense of Debtor, Debtor
shall promptly execute and deliver all such further instruments and documents
and take such further action as the Agent may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as the Agent may require. A
carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Subject to the right of Debtor to receive cash dividends under Section 4.3
hereof, in the event any Collateral is ever received by Debtor, Debtor shall
promptly transfer and deliver to the Agent such Collateral so received by
Debtor (together with any necessary endorsements in blank or

PLEDGE AGREEMENT - Page 4
<PAGE> 166
undated stock powers duly executed in blank), which Collateral shall thereafter
be held by the Agent pursuant to the terms of this Agreement. The Agent shall
at all times have the right to exchange any certificates representing
Collateral for certificates of smaller or larger denominations for any purpose
consistent with this Agreement.

Section 3.5 Inspection Rights. Debtor shall permit the Agent and
its representatives, upon one (1) Business Day's prior notice, to examine,
inspect, and copy Debtor's books and records at any reasonable time and as
often as the Agent may desire.

PLEDGE AGREEMENT - Page 5
<PAGE> 167
ARTICLE IV

Rights of the Agent and Debtor

Section 4.1 Certain Covenants and Rights Regarding Collateral.

PLEDGE AGREEMENT - Page 6
<PAGE> 168
obligated to perform or discharge any obligation, duty, or liability
under any sale or lease agreement covering the Collateral or any part
thereof, or under or by reason of this Agreement or exercise of rights
or remedies hereunder.

PLEDGE AGREEMENT - Page 7
<PAGE> 169
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Agent may have.

ARTICLE V

Default

Section 5.1 Rights and Remedies. If any Event of Default shall
occur, the Agent shall have the following rights and remedies:

PLEDGE AGREEMENT - Page 8
<PAGE> 170
to give more than ten (10) days written notice of the time and place
of any public sale or of the time after which any private sale may
take place and that such notice shall constitute reasonable notice of
such matters. The Agent shall not be obligated to make any sale of
the Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned. Debtor shall be liable for all expenses of retaking,
holding, preparing for sale, or the like, and all attorneys' fees and
other expenses incurred by the Agent in connection with the collection
of the Obligations and the enforcement of the Agent's rights under
this Agreement, all of which expenses and fees shall constitute
additional Obligations secured by this Agreement. Debtor shall remain
liable for any deficiency if the proceeds of any sale or disposition
of the Collateral are insufficient to pay the Obligations. Debtor
waives all rights of marshalling in respect of the Collateral.

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

(iii) The Agent may collect or receive all money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so.

(vi) On any sale of the Collateral, the Agent is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of the

PLEDGE AGREEMENT - Page 9
<PAGE> 171
Agent's counsel, in order to avoid any violation of applicable law or
in order to obtain any required approval of the purchaser or
purchasers by any applicable governmental authority.

SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

PLEDGE AGREEMENT - Page 10
<PAGE> 172
Upon any sale of the Collateral by the Agent (including, without limitation, a
sale pursuant to any applicable Uniform Commercial Code or under a judicial
proceeding), the receipt of the Agent or of the officer making the sale shall
be a sufficient discharge to the purchaser or purchasers of the Collateral so
sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Agent or such
officer or be answerable in any way for the misapplication thereof.

ARTICLE VI

Miscellaneous

PLEDGE AGREEMENT - Page 11
<PAGE> 173
Section 6.5 APPLICABLE LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST DEBTOR UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY,
TEXAS. DEBTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. DEBTOR AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 6.4 OF THIS AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
ANY ACTION OR PROCEEDING AGAINST DEBTOR OR WITH RESPECT TO ANY OF ITS PROPERTY
IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST
THE AGENT SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

Section 6.7 Survival. All representations and warranties made in
this Agreement shall survive the execution and delivery of this Agreement, and
no investigation by the Agent, any Banks or Issuing Bank shall affect the
representations and warranties of Debtor herein or the right of the Agent, the
Banks and the Issuing Banks to rely upon them.

PLEDGE AGREEMENT - Page 12
<PAGE> 174
Section 6.10 Construction. Debtor and the Agent acknowledge that
each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel
and that this Agreement shall be construed as if jointly drafted by Debtor and
the Agent.

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

DEBTOR:
------

HEALTHCOR OXYGEN AND MEDICAL
EQUIPMENT, INC. (formerly known as
Permian Medical, Inc.)

By:
---------------------------------------
S. Wayne Bazzle
Chairman of the Board

PLEDGE AGREEMENT - Page 13
<PAGE> 175

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240

Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
--------------------------------------
Steven T. Prichett
Vice President

Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197

Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710

Attention: Steven T. Prichett

PLEDGE AGREEMENT - Page 14
<PAGE> 176

EXHIBIT "F-4"

PLEDGE AGREEMENT
(Pharmacy)

THIS PLEDGE AGREEMENT dated as of May 16, 1996, is by and between
HEALTHCOR PHARMACY, INC., a Texas corporation (the "Debtor"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as agent
(in such capacity, the "Agent") for itself, the other Issuing Banks
(hereinafter defined) and the other lenders (collectively, the "Banks") from
time to time party to that certain Credit Agreement dated of even date herewith
among HealthCor, Inc., a Delaware corporation (the "Company"), HealthCor
Holdings, Inc., a Delaware corporation ("Holdings," and together with the
Company, the "Borrowers"), the Agent, Texas Commerce Bank National Association
and each of the other banks that issue letters of credit under the Credit
Agreement, as issuing banks (in such capacity, collectively, the "Issuing
Banks"), and the Banks, as the same may be amended or modified from time to
time (the "Credit Agreement").

R E C I T A L S:

The Banks have agreed to make loans to the Borrowers and the Issuing
Banks have agreed to issue letters of credit for the account of the Company
subject to the terms and conditions of the Credit Agreement. The obligation of
the Banks to lend and of the Issuing Banks to issue letters of credit under the
Credit Agreement are conditioned on among other things, the execution and
delivery by the Debtor of this Agreement.

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

ARTICLE I

Definition; Security Interest and Pledge

Section 1.1 Definitions. All capitalized terms used and not
otherwise defined herein shall have their respective meanings as set forth in
the Credit Agreement.

PLEDGE AGREEMENT - Page 1
<PAGE> 177
<TABLE>
<S> <C> <C> <C>
Type of Number Certificate
Company Stock of Shares Number(s)
------- --------- --------- ---------

RTA Infusion, Inc. Common 8,000 3

Section 1.3 Obligations. The Collateral shall secure the
following obligations, indebtedness, and liabilities (all such obligations,
indebtedness, and liabilities being hereinafter sometimes called the
"Obligations"): (a) the obligations, indebtedness, and liabilities of the
Company to the Banks and the Issuing Banks evidenced by the Revolving Credit
Notes (herein so called) executed by the Company pursuant to the Credit
Agreement; (b) the obligations, indebtedness, and liabilities of Holdings to
the Banks evidenced by the Term Notes executed by Holdings pursuant to the
Credit Agreement; (c) the obligations, indebtedness, and liabilities of Debtor
to the Agent, the Banks and the Issuing Banks under that certain Guaranty
Agreement of even date herewith, executed by Debtor in favor of the Agent, the
Banks and the Issuing Banks, pursuant to the Credit Agreement; (d) the
obligations, indebtedness, and liabilities of the Company to the Agent, the
Banks and the Issuing Banks under the Credit Agreement; (e) the obligations,
indebtedness, and liabilities of Holdings to the Agent, the Banks and the
Issuing Banks under the Credit Agreement; (f) all future advances by the Banks
and the Issuing Banks to the Company, Holdings and Debtor, or any of them; (g)
all costs and expenses, including without limitation attorneys fees and legal
expenses incurred by the Agent, the Banks and the Issuing Banks to preserve and
maintain the Collateral, collect the obligations herein described, and enforce
this Agreement; (h) all other Obligations (as such term is defined in the
Credit Agreement); and (i) all extensions, renewals and modifications of any of
the foregoing.

ARTICLE II

Representations and Warranties

Debtor represents and warrants to the Agent, the Banks and the Issuing
Banks that:

PLEDGE AGREEMENT - Page 2
<PAGE> 178
part thereof. The Collateral is not subject to any restriction on transfer or
assignment except for compliance with applicable federal and state securities
laws and regulations promulgated thereunder. Debtor has the unrestricted right
to pledge the Collateral as contemplated hereby. All of the Collateral has
been duly and validly issued and is fully paid and nonassessable.

Section 2.4 Percentage of Stock. The Collateral constitutes one
hundred percent (100%) of the issued and outstanding shares of capital stock of
the issuer thereof.

ARTICLE III

Affirmative and Negative Covenants

Debtor covenants and agrees with the Agent, the Banks and the Issuing
Banks that:

PLEDGE AGREEMENT - Page 3
<PAGE> 179
Section 3.3 Distributions. If Debtor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase, or reduction of capital or issued in
connection with any reorganization), option or rights, whether as an addition
to, in substitution of, or in exchange for any Collateral or otherwise, Debtor
agrees to accept the same as the Agent's agent and to hold the same in trust
for the Agent, and to deliver the same forthwith to the Agent in the exact form
received, with the appropriate endorsement of Debtor when necessary and/or
appropriate undated stock powers duly executed in blank, to be held by the
Agent as additional Collateral for the Obligations, subject to the terms
hereof. Any sums paid upon or in respect of the Collateral upon the
liquidation or dissolution of the issuer thereof shall be paid over to the
Agent to be held by it as additional Collateral for the Obligations subject to
the terms hereof; and in case any distribution of capital shall be made on or
in respect of the Collateral or any property shall be distributed upon or with
respect to the Collateral pursuant to any recapitalization or reclassification
of the capital of the issuer thereof or pursuant to any reorganization of the
issuer thereof, the property so distributed shall be delivered to the Agent to
be held by it, as additional Collateral for the Obligations, subject to the
terms hereof. All sums of money and property so paid or distributed in respect
of the Collateral that are received by Debtor shall, until paid or delivered to
the Agent, be held by Debtor in trust as additional security for the
Obligations.

PLEDGE AGREEMENT - Page 4
<PAGE> 180
Section 3.7 Books and Records; Information. Debtor shall keep
accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with GAAP (subject to year-end
adjustments and disclosures). Debtor shall from time to time at the request of
the Agent deliver to the Agent such information regarding the Collateral and
Debtor as the Agent may request. Debtor shall mark its books and records to
reflect the security interest of the Agent under this Agreement.

ARTICLE IV

Rights of the Agent and Debtor

Section 4.1 Certain Covenants and Rights Regarding Collateral.

(a) Debtor shall from time to time at the request of the
Agent furnish the Agent with a schedule of each account included in
the Collateral and a list of all those liable on checks, notes,
drafts, and other instruments representing the proceeds of such
accounts. The Agent shall have the right to make test verifications
of the Collateral. If any part of the Collateral is or becomes
subject to the Federal Assignment of Claims Act, Debtor will execute
all instruments and take all steps required by the Agent to comply
with that act. If part of the Collateral is evidenced by promissory
notes, trade acceptances or other instruments for the payment of
money, Debtor will, at the request of the Agent immediately deliver
them to the Agent, appropriately endorsed to the Agent's order, and
regardless of the form of endorsement, Debtor waives presentment,
demand, notice of dishonor, protest, and notice of protest.

PLEDGE AGREEMENT - Page 5
<PAGE> 181
prompt written notice thereof to the Agent and, at Debtor's own cost
and expense, will diligently endeavor to cure any defect which may be
developed or claimed, and will take all necessary and proper steps for
the defense of such legal proceedings, and the Agent (whether or not
named as a party to legal proceedings with respect thereto) is hereby
authorized and empowered to take such additional steps as in its
judgment and discretion may be necessary or proper for the defense of
any such legal proceedings or the protection of the validity or
priority of this Agreement and the rights, titles, security interests,
and other interests created or evidenced hereby, and all expenses so
incurred of every kind and character shall be a demand obligation
owing by Debtor and the party incurring such expenses shall be
subrogated to all rights of the Person receiving such payment.

Section 4.3 Dividends. Unless and until an Event of Default
shall have occurred and be continuing, Debtor shall be entitled to receive and
retain any dividends on the Collateral paid

PLEDGE AGREEMENT - Page 6
<PAGE> 182
in cash out of earned surplus to the extent and only to the extent that such
dividends are permitted by the Credit Agreement.

Section 4.7 Assignment by the Agent. The Agent, the Banks and
the Issuing Banks may at any time and from time to time assign the Obligations
and any portion thereof and/or the

PLEDGE AGREEMENT - Page 7
<PAGE> 183
Collateral and any portion thereof, and the assignee shall be entitled to all
of the rights and remedies of the Agent under this Agreement in relation
thereto.

ARTICLE V

Default

Section 5.1 Rights and Remedies. If any Event of Default shall
occur, the Agent shall have the following rights and remedies:

(i) In addition to all other rights and remedies granted
to the Agent in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations, the
Agent shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code as adopted by the State of Texas.
Without limiting the generality of the foregoing, the Agent may (A)
without demand or notice to Debtor, collect, receive, or take
possession of the Collateral or any part thereof, (B) sell or
otherwise dispose of the Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at the Agent's
offices or elsewhere, for cash, on credit, or for future delivery,
and/or (C) bid and become a purchaser at any sale free of any right or
equity of redemption in Debtor, which right or equity is hereby
expressly waived and released by Debtor. Upon the request of the
Agent, Debtor shall assemble the Collateral and make it available to
the Agent at any place designated by the Agent that is reasonably
convenient to Debtor and the Agent. Debtor agrees that the Agent
shall not be obligated to give more than ten (10) days written notice
of the time and place of any public sale or of the time after which
any private sale may take place and that such notice shall constitute
reasonable notice of such matters. The Agent shall not be obligated
to make any sale of the Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place
to which it was so adjourned. Debtor shall be liable for all expenses
of retaking, holding, preparing for sale, or the like, and all
attorneys' fees and other expenses incurred by the Agent in connection
with the collection of the Obligations and the enforcement of the
Agent's rights under this Agreement, all of which expenses and fees
shall constitute additional Obligations secured by this Agreement.
The Agent may apply the Collateral against the Obligations in such
order and manner as the Agent may elect in its sole discretion.
Debtor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay the
Obligations. Debtor waives all rights of marshalling in respect of
the Collateral.

(ii) The Agent may cause any or all of the Collateral held
by it to be transferred into the name of the Agent or the name or
names of the Agent's nominee or nominees.

PLEDGE AGREEMENT - Page 8
<PAGE> 184
(iii) The Agent may collect or receive all money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so.

(vi) On any sale of the Collateral, the Agent is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of the Agent's counsel, in order
to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable
governmental authority.

PLEDGE AGREEMENT - Page 9
<PAGE> 185
SECOND, to the payment in full of all other Obligations that
are payable to the Agent including, without limitation, all expense
reimbursements and indemnities;

ARTICLE VI

Miscellaneous

PLEDGE AGREEMENT - Page 10
<PAGE> 186
provided for in this Agreement are cumulative and not exclusive of any rights
and remedies provided by law.

Section 6.5 APPLICABLE LAW; VENUE; SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING
AGAINST DEBTOR UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
INSTRUMENT OR AGREEMENT SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR
ANY PART THEREOF MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY,
TEXAS. DEBTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. DEBTOR AGREES THAT SERVICE OF PROCESS
UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
AT ITS ADDRESS SPECIFIED

PLEDGE AGREEMENT - Page 11
<PAGE> 187
OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6.4 OF THIS
AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER INSTRUMENT OR AGREEMENT
SECURING, EVIDENCING, OR RELATING TO THE OBLIGATIONS OR ANY PART THEREOF SHALL
AFFECT THE RIGHT OF THE AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING ANY ACTION OR PROCEEDING
AGAINST DEBTOR OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER
JURISDICTIONS. ANY ACTION OR PROCEEDING BY DEBTOR AGAINST THE AGENT SHALL BE
BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS.

Section 6.6 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.

Section 6.10 Construction. Debtor and the Agent acknowledge that
each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel
and that this Agreement shall be construed as if jointly drafted by Debtor and
the Agent.

PLEDGE AGREEMENT - Page 12
<PAGE> 188
Section 6.12 Release of Security Interest. At such time as all of
the Obligations have been paid and performed in full, all obligations and
commitments of the Banks and the Issuing Banks to make advances, issue letters
of credit or otherwise extend credit under the Credit Agreement have expired or
terminated, and no Letters of Credit remain outstanding, the Agent shall
release the security interest granted hereby.

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

DEBTOR:
------
HEALTHCOR PHARMACY, INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

Address for Notices:

5720 LBJ Freeway, Suite 550
Dallas, Texas 75240

Fax No.: (214) 239-5162
Telephone No.: (214) 233-7744

Attention: S. Wayne Bazzle

THE AGENT:
---------

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent

By:
------------------------------------
Steven T. Prichett
Vice President

PLEDGE AGREEMENT - Page 13

<PAGE> 189
Address for Notices:

2200 Ross Avenue
Post Office Box 660197
Dallas, Texas 75266-0197

Fax No.: (214) 965-2384
Telephone No.: (214) 965-3710

Attention: Steven T. Prichett

PLEDGE AGREEMENT - Page 14

<PAGE> 190

EXHIBIT "G"

ASSIGNMENT OF DEPOSIT ACCOUNTS

THIS ASSIGNMENT OF DEPOSIT ACCOUNTS ("Assignment") is made by the
parties signatory hereto (although more than one, "Assignor"), to TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Agent
("Assignee"), 2200 Ross Avenue, Post Office Box 660197, Dallas, Dallas County,
Texas 75266-0197 under that certain Credit Agreement dated of even date
herewith among HealthCor, Inc. (the "Company"), HealthCor Holdings, Inc.
("Holdings," and together with the Company, the "Borrowers"), the lenders from
time to time party thereto (collectively, the "Banks") and the Banks that from
time to time issue letters of credit thereunder (in such capacity, the "Issuing
Banks") (such credit agreement as the same may be amended or otherwise modified
is referred to as the "Credit Agreement"). In consideration of the extensions
of credit made or to be made or other financial accommodations afforded or to
be afforded to the Borrowers by the Banks and the Issuing Banks pursuant to the
Credit Agreement, Assignor does hereby assign and transfer to and pledge with
Assignee all right, title, and interest of Assignor in and to the following
accounts:

<TABLE>
<S> <C> <C> <C>
Assignor Lockbox No. Account No. Institution
-------- ----------- ----------- -----------
HealthCor Oxygen Medical Texas Commerce Bank
Equipment, Inc. 911437 074 019 153 13 National Association

HealthCor, Inc. 911556 074 019 132 35 Texas Commerce Bank
National Association
</TABLE>
together with all instruments, documents, and other writings evidencing the
same and all sums now or at any time hereafter on deposit therein, all sums due
or to become due thereon, and all extensions or renewals thereof, if the
account or accounts may be extended or renewed (collectively, the "Account"),
and Assignor does also hereby grant to Assignor for the benefit of itself, the
Banks and the Issuing Banks, a security interest in the Account, which security
interest may also be evidenced by one or more other security agreements between
Assignor and Assignee, and in the event of any conflict between the terms
hereof and the terms thereof, the terms thereof will apply. Such security
interest extends to any payment, renewal, or other proceeds of the Account.

This assignment is made as and shall constitute collateral security
for any and all indebtedness and liabilities of any kind and nature of Assignor
to the Assignee, the Banks and the Issuing Banks, howsoever evidenced, whether
now existing or hereafter arising, direct or indirect, absolute, contingent,
joint, several, or joint and several (the "Obligation").

Upon default in the payment of the Obligation or any part thereof,
Assignee is hereby authorized to apply all or any portion of the funds
represented by the Account to the payment of the Obligation and to withdraw
funds for such purpose at such times and in such amounts as it shall in its
discretion determine.

ASSIGNMENT OF DEPOSIT ACCOUNTS - Page 1
<PAGE> 191
Assignor hereby constitutes and appoints Assignee the true and lawful
attorney of Assignor, with full power of substitution, to ask, demand, collect,
receive, receipt for, sue for, compound, and give acquittance for any and all
amounts which may be or become due or payable under the Account, to execute any
and all withdrawal receipts or other orders for the payment of money drawn on
the Account, to endorse the name of Assignor on all commercial paper given in
payment or in part payment thereof, and, in its discretion, to file any claim
or take any other action or proceeding, either in its own name or in the name
of Assignor or otherwise, which Assignee may deem necessary or appropriate to
protect and preserve the right, title and interest of Assignee, the Banks and
the Issuing Banks hereunder, and without limiting the foregoing Assignee shall
have and is hereby given full power and authority to transfer the Account into
the name of Assignee or its nominee.

Assignor represents and warrants that (a) the Account is genuine and
in all respects what it purports to be, (b) Assignor is the owner thereof free
and clear of all liens and encumbrances of any nature whatsoever, (c) will not
create any other security interest in, mortgage, or otherwise assign the
Account or any part thereof, (d) that any funds payable with respect to the
Account that are received by Assignor shall immediately upon such receipt
become subject to the lien hereof and be segregated from all other funds of
Assignor and be held in trust for Assignee, the Banks and the Issuing Banks and
be immediately paid into the Account, and (e) Assignor has full powers, right
and authority to execute and deliver this assignment.

THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

EXECUTED as of May 16, 1996.

ASSIGNOR:

HEALTHCOR, INC.

By:
------------------------------
S. Wayne Bazzle
Chairman of the Board

ASSIGNMENT OF DEPOSIT ACCOUNTS - Page 2
<PAGE> 192
HEALTHCOR HOLDINGS, INC.

By:
------------------------------
S. Wayne Bazzle
Chairman of the Board,
Chief Executive Officer
and Secretary

HEALTHCOR PHARMACY, INC.

By:
------------------------------
Cheryl C. Bazzle
Chief Executive Officer,
President and Secretary

HEALTHCOR OXYGEN AND MEDICAL
EQUIPMENT HOLDINGS, INC.

By:
------------------------------
S. Wayne Bazzle
Chairman of the Board

HEALTHCOR OXYGEN AND
MEDICAL EQUIPMENT, INC.

By:
------------------------------
S. Wayne Bazzle
Chairman of the Board

HEALTHCOR REHABILITATION
SERVICES, INC.

By:
------------------------------
S. Wayne Bazzle
Chairman of the Board

ASSIGNMENT OF DEPOSIT ACCOUNTS - Page 3
<PAGE> 193
PONCA MEDICAL SUPPLY, INC.

By:
------------------------------
Cheryl C. Bazzle
Chief Executive Officer,
President and Secretary

PHYSICIANS HOME HEALTH NETWORK, INC.

By:
---------------------------------
Cheryl C. Bazzle
Chairman of the Board,
President and Secretary

RTA INFUSION, INC.

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

RTA HOMECARE, INC.

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

MCDUFFIE'S RENTALS, INC.

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

ASSIGNMENT OF DEPOSIT ACCOUNTS - Page 4

<PAGE> 194
SPECIALTY MED-EQUIP, INC.

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

SUPERIOR MED-EQUIP, INC.

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

ASSIGNMENT OF DEPOSIT ACCOUNTS - Page 5
<PAGE> 195
EXHIBIT "H"

CONTRIBUTION AND INDEMNIFICATION AGREEMENT

CONTRIBUTION AND INDEMNIFICATION AGREEMENT ("Agreement") dated as of
May 16, 1996, among HEALTHCOR HOLDINGS, INC., a Delaware corporation
("Holdings"), HEALTHCOR, INC., a Delaware corporation ("HealthCor," and
together with Holdings, the "Borrowers"), and the other parties signatory
hereto (such other parties being herein each called an "Affiliate" and
collectively called the "Affiliates", and together with HealthCor, and
Holdings, each a "Company" and collectively the "Companies").

R E C I T A L S:

A. HealthCor, Holdings, Texas Commerce Bank National Association,
a national banking association, as agent (in such capacity, the "Agent"),
certain banks (collectively, the "Banks") and certain Banks issuing letters of
credit thereunder (in such capacity, the "Issuing Banks") have entered into a
Credit Agreement of even date herewith (as the same may hereafter be amended,
supplemented or modified from time to time, the "Credit Agreement"), pursuant
to which the Banks have agreed to make certain loans and extensions of credit
to the Borrowers.

B. Each Affiliate has executed and delivered to the Agent a
Guaranty Agreement of even date herewith (each a "Guaranty" and, collectively,
the "Guaranties"), pursuant to which such Affiliate has jointly and severally
guaranteed the full and prompt payment and performance of the Guaranteed
Indebtedness (as defined in the Guaranties);

C. Each of the Borrowers has executed and delivered to the Agent
a Guaranty Agreement of even date herewith (each a "Borrower Guaranty"),
pursuant to which such Borrower has jointly and severally guaranteed the full
and prompt payment and performance of the other Borrower's obligations under
the Credit Agreement; and

D. The parties wish to enter into this Agreement to effect an
equitable sharing of the Affiliates' risk in guaranteeing the Guaranteed
Indebtedness.

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

1. If any Affiliate makes a payment in respect of the Guaranteed
Indebtedness, it shall have the rights of contribution and reimbursement set
forth below against the other Companies and the Borrowers and shall be
indemnified as set forth below; provided that no Affiliate shall enforce its
rights to any payment by exercising its rights of contribution, reimbursement
or indemnification until all the Guaranteed Indebtedness shall have been paid
in full.

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 1
<PAGE> 196
2. If any Affiliate makes a payment in respect of the Guaranteed
Indebtedness that is greater than its Pro Rata Percentage (hereinafter defined)
of the Guaranteed Indebtedness, calculated as of the date such payment is made,
the Affiliate making such payment shall have the right to receive from each of
the other Companies, and the other Companies jointly and severally agree to
pay to such Affiliate, when permitted by paragraph 1 hereof, an amount such
that the net payments made by the Companies in respect of the Guaranteed
Indebtedness shall be shared among the Companies pro rata in proportion to
their respective Pro Rata Percentage of the Guaranteed Indebtedness. The
Companies hereby jointly and severally indemnify each of the Affiliates and
jointly and severally agree to hold each of them harmless from and against any
and all amounts which any such Affiliate shall ever be required to pay in
respect of the Guaranteed Indebtedness in excess of such Affiliate's respective
Pro Rata Percentage of the Guaranteed Indebtedness. Notwithstanding anything
to the contrary contained in this paragraph or in this Agreement, no liability
or obligation of any Company that shall accrue pursuant to this Agreement shall
be paid nor shall it be deemed owed pursuant to this Agreement or any Loan
Documents until all of the Guaranteed Indebtedness shall be paid in full. As
used herein, the term "Pro Rata Percentage" shall mean, for each Company, the
percentage derived by dividing (a) the aggregate amount of all accounts
receivable of such Company, by (b) the total aggregate amount of all accounts
receivable of all of the Companies.

3. If any Affiliate makes any payment in respect of the
Guaranteed Indebtedness, the Affiliate making such payment shall have the right
to receive from the Borrowers, and Borrowers agree to pay to such Affiliate,
when permitted by paragraph 1 hereof, an amount equal to such payment. Each
of the Borrowers hereby indemnifies each of the Affiliates and agrees to hold
each of them harmless from and against any and all amounts which any such
Affiliate shall ever be required to pay in respect of the Guaranteed
Indebtedness. Notwithstanding anything to the contrary contained in this
paragraph or in this Agreement , no liability or obligation of Borrowers that
shall accrue pursuant to this Agreement shall be paid or shall be deemed owed
pursuant to this Agreement or any Loan Documents until all of the Guaranteed
Indebtedness shall be paid in full.

4. Each party hereto represents and warrants to each other party
hereto and to their respective successors and assigns that:

(a) the execution, delivery and performance by each party
hereto of this Agreement are within such party's corporate or
partnership powers, have been duly authorized by all necessary
corporate or partnership action, as the case may be, require no action
by or in respect of, or filing with, any governmental body, agency or
official and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of
incorporation or bylaws or other organizing document of such party or
of any agreement, judgment, injunction, order, decree or other
instrument binding upon such party or result in the creation or
imposition of any lien, security interest or other charge or
encumbrance on any asset of such party; and

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 2
<PAGE> 197
(b) this Agreement constitutes a legal, valid and binding
agreement of each party hereto, enforceable against such party in
accordance with its terms.

5. No failure or delay by any Company in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and non-exclusive of any rights or
remedies provided by law.

6. Any provision of this Agreement may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by the
parties hereto and consented to by the Agent and the Required Banks.

7. The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

8. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

9. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall become
effective when a counterpart hereof shall have been signed by all the parties
hereto.

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

HEALTHCOR HOLDINGS, INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board, Chief
Executive Officer and Secretary

HEALTHCOR, INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 3
<PAGE> 198
HEALTHCOR PHARMACY, INC.

By:
-----------------------------------
Cheryl C. Bazzle
Chief Executive Officer, President
and Secretary

HEALTHCOR OXYGEN AND MEDICAL
EQUIPMENT HOLDINGS, INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

HEALTHCOR OXYGEN AND MEDICAL
EQUIPMENT, INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

HEALTHCOR REHABILITATION SERVICES,
INC.

By:
-----------------------------------
S. Wayne Bazzle
Chairman of the Board

PONCA MEDICAL SUPPLY, INC.

By:
-----------------------------------
Cheryl C. Bazzle
Chief Executive Officer, President
and Secretary

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 4
<PAGE> 199
PHYSICIANS HOME HEALTH NETWORK, INC.

By:
-----------------------------------
Cheryl C. Bazzle
Chairman of the Board, President
and Secretary

RTA INFUSION, INC.

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

RTA HOMECARE, INC.

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

MCDUFFIE'S RENTALS, INC.

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

SPECIALTY MED-EQUIP, INC.

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

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 5
<PAGE> 200
SUPERIOR MED-EQUIP, INC.

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

CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 6
<PAGE> 201
EXHIBIT "I"

Matters to be Addressed in Opinion of Counsel

All capitalized terms used and not otherwise defined herein shall have
their respective meanings as set forth in the Credit Agreement to which this is
an Exhibit (the "Credit Agreement").

1. Each Company is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its
incorporation. Except where failure would not have a material adverse
effect on its business, condition (financial or otherwise), operations,
prospects, or properties, each Company is duly qualified to transact
business as a foreign corporation in each jurisdiction where such Company
conducts any substantial business or has any property, which includes,
without limitation, those jurisdictions named for each Company on Schedule
2 to the Credit Agreement.

2. Each of the Borrowers has the corporate power and authority
to execute, deliver, and perform the Credit Agreement, the Note, and the
other Loan Documents to which such Borrower is a party. The execution,
delivery, and performance by each of the Borrowers of the Credit Agreement,
the Note, and the other Loan Documents to which such Borrower is a party
and compliance with the terms and provisions thereof have been duly
authorized by all requisite corporate action on the part of such Borrower
and do not and will not (a) violate or conflict with, or result in a breach
of, or require any consent under (i) the certificate of incorporation or
bylaws of such Borrower, (ii) any applicable law, rule, or regulation or
any order, writ, injunction, or decree of any Governmental Authority or
arbitrator, or (iii) any agreement or instrument to which such Borrower is
a party or by which such Borrower or any of its properties is bound or
subject, or (b) constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien (except
Liens created in favor of the Agent for the benefit of itself, the Banks
and the Issuing Banks pursuant to the Loan Documents) upon any of the
revenues or assets of such Borrower.

3. Each Guarantor has the corporate power and authority to
execute, deliver, and perform its respective Guaranty and each of the other
Loan Documents to which such Guarantor is a party. The execution,
delivery, and performance by each Guarantor of its respective Guaranty and
each of the other Loan Documents to which such Guarantor is a party and
compliance with the terms and provisions thereof have been duly authorized
by all requisite corporate action on the part of such Guarantor and do not
and will not (a) violate or conflict with, or result in a breach of, or
require any consent under (i) the articles or certificate of incorporation
or bylaws of such Guarantor, (ii) any applicable law, rule, or regulation
or any order, writ, injunction, or decree of any Governmental Authority or
arbitrator, or (iii) any agreement or instrument to which such Guarantor is
a party or by which it or any of its property is bound or subject, or (b)
constitute a default under any such agreement or instrument, or result in
the creation or imposition of any Lien (except Liens created in favor of
the Agent for the benefit of itself, the Banks and the Issuing Banks
pursuant to the Loan Documents) upon any of the revenues or assets of such
Guarantor.
<PAGE> 202
4. The Credit Agreement, the Notes, and the other Loan
Documents to which either Borrower is a party have been duly executed and
delivered by such Borrower and constitute the legal, valid, and binding
obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the enforcement of creditors'
rights generally.

5. Each Guaranty and each of the other Loan Documents to which
each Guarantor is a party have been duly executed and delivered by each
Guarantor and constitute the legal, valid, and binding obligations of each
Guarantor enforceable against such Guarantor in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally.

6. There are no legal or arbitral proceedings, and no
proceedings by or before any Governmental Authority, pending or, to our
knowledge, threatened against or affecting either Borrower, any Guarantor
or any properties or rights of either Borrower or any Guarantor, which if
adversely determined, would have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of
either Borrower or any Guarantor.

7. No authorization, consent, or approval of, or filing or
registration with, any Governmental Authority is required for the
execution, delivery, and performance by either Borrower of the Credit
Agreement, the Note, or any other Loan Documents to which either Borrower
is a party, or the execution, delivery, and performance by any Guarantor of
such Guarantor's Guaranty or any other Loan Document to which such
Guarantor is a party.

8. None of the Companies is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

9. To our knowledge, after reasonable investigation, the
proceeds of the Advances under the Credit Agreement are not intended to be
used directly or indirectly for the purpose of purchasing or carrying, or
for the purpose of extending credit to others for the purpose of purchasing
or carrying, any "margin stock" as that term is defined in Regulation U of
the Board of Governors of the Federal Reserve System, as amended.

10. The extensions of credit by the Banks to the Borrowers
provided for in the Loan Documents are not usurious.

11. The mandatory redemption date for the Preferred Stock has
been extended to a date no earlier than October 15, 2001. All required
shareholder approvals have been obtained in connection with the foregoing,
and all necessary and appropriate documentation has been filed with the
Secretary of State of Delaware in connection with the foregoing.

-2-
<PAGE> 203
12. That certain Convertible Preferred Stock Purchase Agreement
dated October 18, 1989 and that certain Series B Convertible Preferred
Stock Purchase Agreement dated June 1, 1992, relating to the Preferred
Stock, have each been amended to extend the date specified in Section
11(a)(i) of each such agreement to a date no earlier than October 15, 2001.

-3-
<PAGE> 204
EXHIBIT "J"

ASSIGNMENT AND ACCEPTANCE

Dated _____________, 19__

Reference is made to the Credit Agreement dated as of May 16, 1996 (as the
same may be amended and in effect from time to time, the "Credit Agreement"),
among HEALTHCOR, INC., a Delaware corporation, HEALTHCOR HOLDINGS, INC., a
Delaware corporation (collectively, "the Borrowers"), the lenders from time to
time party thereto (the "Banks"), Texas Commerce Bank National Association, as
an issuing bank (in such capacity, an "Issuing Bank") and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as agent for itself, the Issuing Banks and the other
Banks (in such capacity, the "Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Credit
Agreement.

________________________ (the "Assignor") and _________________ (the
"Assignee") agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a
_________% interest in and to all the Assignor's rights and
obligations under the Credit Agreement and the other Loan
Documents as of the Effective Date (as defined below)
(including, without limitation, such percentage interest in the
Revolving Credit Commitment of the Assignor on the Effective
Date and such percentage interest in Assignor's pro rata
interest in the Term Loans and Revolving Loans and pro rata
participation interests in the Letter of Credit Liabilities
outstanding on the Effective Date together with such percentage
interest in all unpaid interest and fees accrued from the
Effective Date). This Assignment and Acceptance is made by
Assignor without recourse.

2. The Assignor (i) represents that as of the date hereof, its
Revolving Credit Commitment is equal to $_______________, the
outstanding principal balance of its Revolving Loans is
$______________, the outstanding principal balance of its Term
Loans is $_____________, and its participation in outstanding
Letters of Credit is $______________ (all as unreduced by any
assignments which have not yet become effective); (ii) makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in
or in connection with the Credit Agreement or any other Loan
Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any
other Loan Document, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim;
(iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the
Borrowers or any Obligated Party or the performance or
observance by the Borrowers or any other Obligated Party of any
of their obligations under the Agreement or any other Loan
Document; and (iv) attaches the Notes held by

ASSIGNMENT AND ACCEPTANCE - Page 1
<PAGE> 205
Assignor and requests that the Agent exchange such Notes for new
Notes payable to the order of (a) the Assignee and in the case
of the Revolving Credit Note, in an amount equal to the
Revolving Credit Commitment assumed by the Assignee pursuant
hereto and in the case of the Term Note, in an amount equal to
the outstanding principal amount of the Term Loans purchased,
and (b) the Assignor and in the case of the Revolving Credit
Note, in an amount equal to the Revolving Credit Commitment
retained by the Assignor under the Credit Agreement and in the
case of the Term Note, in an amount equal to the outstanding
principal amount of the Term Loans retained thereby,
respectively, as specified above.

3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b)
confirms that it has received a copy of the Credit Agreement,
together with copies of the most recent financial statements
delivered pursuant to Section 10.1(a) thereof and such other
documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this
Assignment and Acceptance; (c) agrees that it will,
independently and without reliance upon the Agent, the Assignor,
any Issuing Bank or any other Bank and based on such documents
and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not
taking action under the Credit Agreement and the other Loan
Documents; (d) confirms that it is eligible to be an Assignee;
(e) appoints and authorizes Texas National Bank National
Association to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated
to the agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (f) agrees that it will
perform in accordance with their terms all the obligations which
by the terms of the Credit Agreement and the other Loan
Documents are required to be performed by it as a Bank; [and]
(g) agrees that it will keep confidential all information with
respect to the Borrowers or any Obligated Party furnished to it
by the Borrowers or any Obligated Party or the Assignor (other
than information generally available to the public or otherwise
available to the Assignor on a nonconfidential basis) [; and (h)
attaches the forms prescribed by the Internal Revenue Service of
the United States certifying as to the Assignee's exemption from
United States withholding taxes with respect to all payments to
be made to the Assignee under the Loan Documents or such other
documents as are necessary to indicate that all such payments
are subject to such tax at a rate reduced by an applicable tax
treaty].(1)

4. The effective date for this Assignment and Acceptance shall be
______________, 19__ (the "Effective Date").(2) Following the
execution of this Assignment and

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

(1) If the Assignee is organized under the laws of a jurisdiction outside
the United States.

(2) Such date shall be at least ten (10) Business Days after the execution
of this Assignment and Acceptance and delivery thereof to the Agent.

ASSIGNMENT AND ACCEPTANCE - Page 2
<PAGE> 206
Acceptance, it will be delivered to the Agent for acceptance and
recording by the Agent.

5. Upon such acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance,
shall have the rights and obligations of a Bank thereunder and
under the other Loan Documents and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under
the Credit Agreement and the other Loan Documents.

6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments in respect of the
interest assigned hereby (including payments of principal,
interest, fees, and other amounts) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in
payments for periods prior to the Effective Date by the Agent or
with respect to the making of this assignment directly between
themselves.

7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Texas and
applicable laws of the United States of America.

[NAME OF ASSIGNOR],

Original
Revolving Credit Commitment: By:
---------------------------------
Name:
$ Title:
---------------------------------

Effective Date
Revolving Credit Commitment:

$
---------------------------------

Amount of Term Note as of
Effective Date:

$
---------------------------------

ASSIGNMENT AND ACCEPTANCE - Page 3
<PAGE> 207
[NAME OF ASSIGNEE],

Revolving Credit Commitment: By:
---------------------------------
Name:
$ Title:
---------------------------------

Amount of Term Note:

$
---------------------------------

Accepted on the _____ day
of __________, 19__.

TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
as agent for itself, the Issuing Banks
and the other Banks

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

ASSIGNMENT AND ACCEPTANCE - Page 4
<PAGE> 208
EXHIBIT "K"

HEALTHCOR HOLDINGS, INC.
HEALTHCOR, INC.

COMPLIANCE CERTIFICATE

FOR THE PERIOD ENDING ___________________

The undersigned officer of HealthCor Holdings, Inc. or HealthCor, Inc. (as
applicable) does hereby certify that the following covenants and financial
tests, as defined in the Credit Agreement dated as of May 16, 1996 (the
"Agreement"), among HealthCor, Inc., HealthCor Holdings, Inc., Texas Commerce
Bank National Association, as agent (in such capacity, the "Agent"), the
lenders from time to time party thereto (the "Banks") and the Issuing Banks (as
defined therein) are as follows on a consolidated basis for HealthCor Holdings,
Inc., and its subsidiaries:

<TABLE>
<CAPTION>
In Compliance
(Please indicate)
-----------------
<S> <C> <C> <C>
1. Financial Statements and Reports
(i) Annual CPA audited consolidated and consolidating FYE
financial statements together with a Compliance Certificate
within 90 days after the end of each fiscal year. Yes No
(ii) Monthly unaudited consolidated and consolidating
financial statements within 45 days of each month end.
Such financial statements have been prepared in accordance with
GAAP and fairly and accurately present (subject to year-end audit
adjustments and disclosure) the financial condition and results
of operations of the Companies, on a consolidated and
consolidating basis, at the date and for the periods indicated therein. Yes No
(iii) Monthly "Executive Summary" Accounts Receivable Aging
within 45 days of each month end. Yes No
(iv) Quarterly Compliance Certificate within 45 days of each fiscal quarter end. Yes No

2. Funded Debt Ratio (To be calculated on a consolidated basis.)
Maximum of 3.00 to 1.00 allowed at all times.

As of the month ending _________________:

$__________________ / $__________ = _____________ Yes No
Funded Debt EBITDAA Ratio

3. Fixed Charge Coverage Ratio (To be calculated at each month end on a consolidated basis.)
Minimum of 1.2 to 1.0 required at end of each calculated period.

Two times the following for the last 6 months:
Net income before provision
for income taxes $____________________
Plus: Interest Expense $____________________
Depreciation $____________________
Amortization $____________________
Other non-cash charges $____________________
Minus: Extraordinary income $____________________
Plus: Extraordinary losses $____________________
Minus: Two times Unleveraged
Non Reimbursed Capital
Expenditures for last 6 months $____________________
Plus: Two times the amount of
capital expenditures made during
the last 6 months that were paid in
cash in connection with the Rockwell
Project and reimbursed in advance
by Medicare $____________________
</TABLE>

Page 1 of 3
<PAGE> 209
<TABLE>
<S> <C> <C> <C>
Plus: Acquired EBITDA for all
Acquired Subsidiaries $____________________

Minus: two times cash taxes
paid in last 6 months $____________________

Total Available Cash Flow $____________________

Scheduled principal payments and
prepayments on long-term debt
and capital lease obligations
during next 12 months $____________________
Plus: two times Interest
Expense for last 6 months $____________________
Total Debt Service = $____________________

$_____________________ / $___________________ = ___________________
Total Available Total Debt Service Ratio
Cash Flow Yes No

4. Litigation
Litigation against any Company seeking damages in excess of $100,000.00 or which, if
determined adversely, could have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of such Company is as follows:

Plaintiff Dollar Amount of Claim

_________________________ ________________________
_________________________ ________________________
_________________________ ________________________ Yes No

5. Dividends and Distributions
No dividends and distributions to shareholders of any Company at any time.
As of _________________ dividends and distributions are $____________________. Yes No

6. Regulatory Compliance
Maintain compliance with all regulatory agencies, including satisfactory audits and examinations. Yes No

7. Insurance Coverage
Maintain insurance coverage as required by Section 8.5 of the Credit Agreement, including:
Property/Casualty, coverage per incident of
$1,000,000.00 for each Company: $___________________
Property/Casualty, maximum coverage of
$2,000,000.00 for each Company: $___________________
Medical Malpractice, coverage per incident of
$1,500,000.00 for each Company: $___________________
Medical Malpractice, maximum coverage of
$3,000,000.00 for each Company: $___________________ Yes No

8. Additional Funded Debt
Except as provided in the Agreement, no additional Funded Debt at any
time without prior written consent of the Lender. Yes No
</TABLE>

THE ABOVE SUMMARY REPRESENTS ONLY A SMALL PORTION OF THE COVENANTS AND
AGREEMENTS CONTAINED IN THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR
MODIFY THE TERMS AND CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN
THIS CERTIFICATE AND THE AGREEMENT, THE AGREEMENT SHALL CONTROL.

All capitalized terms used and not defined herein shall have their respective
meanings as set forth in the Agreement.

Page 2 of 3
<PAGE> 210
The undersigned hereby certifies that the above information and computations
are true and correct and not misleading as of the date hereof, and that no
Default exists. The undersigned hereby further certifies that the
representations and warranties contained in Article IX of the Credit Agreement
and in each of the other Loan Documents are true and correct on and as of the
date hereof with the same force and effect as if made on and as of such date.

Executed this ________ day of ______________________, 19___.

COMPANY NAME: HEALTHCOR, INC./HEALTHCOR HOLDINGS, INC.

SIGNATURE:____________________________________________

NAME:_________________________________________________

TITLE:________________________________________________

ADDRESS:______________________________________________

Page 3 of 3

<PAGE> 1
EXHIBIT 10.1

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated June 1,
1992, is among HEALTHCOR HOLDINGS, INC., a Delaware corporation (the
"Corporation"), S. WAYNE BAZZLE (the "Founder"), CHERYL C. BAZZLE ("C.
Bazzle"), LKCM VENTURE PARTNERS I, LTD., a Texas limited partnership ("LKCM"),
RFE INVESTMENT PARTNERS IV, L.P., a Delaware limited partnership ("RFE"), the
HEALTHCOR HOLDINGS, INC. EMPLOYEE STOCK OWNERSHIP PLAN (the "ESOP"), WILLIAM G.
RITTER ("Ritter"), and SHADANANA P. ATTALURI ("Attaluri") (the foregoing
parties to this Agreement, other than the Corporation, are hereinafter
collectively referred to as the "Holders").

WHEREAS, the Holders own the Common Stock, $.01 par value per share,
of the Corporation (the "Common Stock"), the Series A Convertible Preferred
Stock, $.01 par value per share, of the Corporation (the "Series A Preferred
Stock"), the Series B Convertible Preferred Stock, $.01 par value per share, of
the Corporation (the "Series B Preferred Stock"), and warrants to acquire
shares of the Common Stock as set forth on Schedule A attached hereto; and

WHEREAS, the Corporation and the Holders desire to set forth certain
agreements with respect to the shares of stock of the Corporation.

NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the parties hereto, intending to be legally bound, hereby
covenant and agree as follows:

SECTION 1. Registration Rights.

1.1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:

"Commission" shall mean the Securities and Exchange
commission, or any other federal agency at the time administering the
Securities Act.

"Non-corporate Shares" shall mean the Restricted Shares, the
Warrant Shares, and/or the Other Shares (as the case may be).

"Other Shareholders" shall mean (i) the Founder, (ii) C.
Bazzle, (iii) the lineal descendants of the Founder or C. Bazzle, or
(iv) any trust for the benefit of the foregoing individuals described
in (i), (ii), and/or (iii).

"Other Shares" shall mean shares of Common Stock held by the
Other Shareholders.

<PAGE> 2
"Person" shall mean and include an individual, a corporation,
a partnership, limited partnership, a limited liability partnership, a
limited liability company, a trust, an unincorporated organization and
a government or any department, agency or political subdivision
thereof.

"Preferred Stock" shall mean the issued and outstanding shares
of Series A Preferred Stock and Series B Preferred Stock.

"Restricted Shares" shall mean shares of Common Stock
constituting Restricted Securities.

"Restricted Securities" shall mean the Series A Preferred
Stock, the Series A Reserved Shares, the Series B Preferred Stock, the
Series B Reserved Shares, and any shares of capital stock received in
respect of any of the foregoing shares, whether by reason of a stock,
split or share reclassification thereof, a stock dividend thereon or
otherwise, in each case which have not been sold to the public
pursuant to (a) registration under the Securities Act or (b) Rule 144
(or similar or successor rule) promulgated under the Securities Act
subsequent to the Corporation's initial public offering of securities
registered under the Securities Act.

"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the
time.

"Series A Reserved Shares" shall mean the shares of Common
Stock issued or issuable upon conversion of the Series A Preferred
Stock and any additional shares of Common Stock received in respect
thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon, or otherwise.

"Series B Reserved Shares" shall mean the shares of Common
Stock issued or issuable upon conversion of the Series B Preferred
Stock and any additional shares of Common Stock received in respect
thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon, or otherwise.

"Transfer" shall include any disposition of any shares of
Restricted Securities or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.

-2-
<PAGE> 3
"Warrant Shares" shall mean the shares of Common Stock issued
or issuable pursuant to (i) the Warrant, of even date herewith, to
Ritter representing 50,000 Warrants to acquire (subject to adjustment
as therein provided) 50,000 shares of Common Stock and (ii) the
Warrant, of even date herewith, to Attaluri representing 10,000
Warrants to acquire (subject to adjustment as therein provided) 10,000
shares of Common Stock.

1.2. Required Registration. If at any time the Corporation shall be
requested by either (i) a majority in interest of the Series B Preferred Stock
and the Series B Reserved Shares or (ii) a majority in interest of the Series A
Preferred Stock and the Series A Reserved Shares to effect the registration
under the Securities Act of Restricted Shares, then the Corporation shall
promptly give written notice of such proposed registration to all holders of
outstanding Restricted Securities, and thereupon the Corporation shall promptly
use its best efforts to effect the registration under the Securities Act of the
Restricted Shares which the Corporation has been requested to register for
disposition described in the request of said holder or holders and in any
response received within 30 days after the giving of the written notice by the
Corporation; provided, however, that the Corporation shall not be obligated to
use its best efforts to effect any registration under the Securities Act except
in accordance with the following provisions:

(a) The Corporation shall not be obligated to file and use its
best efforts to cause to become effective (i) more than one
registration statement pursuant to Section 1.2(i) above and sold
thereunder, (ii) more than two registration statements pursuant to
Section 1.2(ii) above and sold thereunder, (iii) any registration
statement during the period starting with the date forty-five (45)
days prior to the Corporation's estimated date of filing of, and
ending on a date six months after the effective date of such
registration or any previous registration statement filed by the
Corporation and with respect to which the holders of Restricted
Securities, pursuant to Section 1.3, were given the opportunity to
include therein all Restricted Shares which were requested to be
included therein, or (iv) any registration statement if the
Corporation shall furnish to the holders of Restricted Shares a
certificate signed by the President of the Corporation stating that in
the good faith judgment of the Board of Directors of the corporation
it would be seriously detrimental to the Corporation or its
stockholders for the registration statement to be filed or declared
effective in the near future; provided, however, that the
Corporation's obligations pursuant to this Section 1.2 (a) (iv) shall
not be deferred for a period exceeding six (6) months; and provided
further, however, that the Corporation's exemption pursuant to this
Section 1. 2 (a) (iv)

-3-
<PAGE> 4
shall only be available to the Corporation once every two years.

(b) Anything contained herein to the contrary notwithstanding,
with respect to each registration requested pursuant to this Section
1.2, the Corporation may include in such registration Warrant Shares,
which shall be Restricted Shares for purposes of this Section 1.2(b)
and Section 1.3, any authorized but unissued shares of Common Stock
for sale by the Corporation, and any other issued and outstanding
shares of Common Stock for sale by others; provided, however, that if
the number of shares of Common Stock so included pursuant to this
clause (b) exceeds the number of Restricted Shares registered by the
holder or holders of outstanding Restricted Securities requesting such
registration, then such registration shall be deemed to be a
registration in accordance with and pursuant to Section 1.3; provided,
further, however that the, inclusion of such previously authorized but
unissued shares by the Corporation or other issued and outstanding
shares of Common Stock by others in such registration shall not
prevent the holders of outstanding Restricted Shares requesting such
registration from registering the entire number of Restricted Shares
requested by them and, in the event the registration is, in whole or
in part, an underwritten public offering, and the managing underwriter
determines and advises in writing that the inclusion of all Restricted
Shares proposed to be included in such registration, and such
previously authorized but unissued shares of Common Stock by the
Corporation and/or other issued and outstanding shares of Common Stock
by persons other than the holders of Restricted Shares proposed to be
included in such registration, would interfere with the successful
marketing (including pricing) of such securities, then such previously
authorized but unissued shares of Common Stock proposed to be included
by the Corporation, and other issued and outstanding shares of Common
Stock proposed to be included by persons other than the holders of
Restricted Shares, shall be reduced or excluded from such registration
(as the case may be).

1.3. Incidental Registration. If the Corporation at any time proposes
for any reason to register any of its securities under the Securities Act
(other than on Forms S-4, S-8 or any similar or successor form), other than
pursuant to Section 1.2 hereof, it shall each such time promptly give written
notice to all holders of outstanding Restricted Securities, holders of Warrant
Shares, and the Other Shareholders of its intention to do so. Within 30 days
after receipt of any such notice, upon the written request to register any
Restricted Shares, Warrant Shares, or Other Shares by (i) any holder of the
Restricted Securities then outstanding, (ii) any holder of Warrant Shares, or
(iii) the Other Shareholders, as

-4-
<PAGE> 5
appropriate (which request shall specify the Non-corporate Shares intended to
be sold or disposed of by such holders, and shall state the intended method of
disposition of such Non-corporate Shares by the prospective seller), the
Corporation shall use its best efforts to cause all such Non-corporate Shares
to be registered under the Securities Act promptly upon receipt of the written
request of such holders for such registration, all to the extent requisite to
permit the sale or other disposition (in accordance with the intended methods
thereof, as aforesaid) by the prospective seller or sellers of the
Non-corporate Shares so registered. In the event that the proposed registration
by the Corporation is, in whole or in part, an underwritten public offering of
securities of the Corporation, any request pursuant to this Section 1.3 to
register Non-corporate Shares shall specify that such shares are to be included
in the underwriting (a) on the same terms and conditions as the shares of
Common Stock, if any, otherwise being sold through underwriters under such
registration or (b) on terms and conditions comparable to those normally
applicable to offerings of Common Stock in reasonably similar circumstances in
the event that no other shares of Common Stock are being sold through
underwriters under such registration; provided, however, that if the managing
underwriter determines and advises in writing that the inclusion of all
Non-corporate Shares would interfere with the successful marketing (including
pricing) of the shares of Common Stock to be registered by the Corporation (the
"Corporate Shares"), then the number of Non-corporate Shares to be included in
the underwritten public offering shall be reduced first, pro rata among the
holders of Other Shares (based upon the total number of Other Shares submitted
for registration) and, if the reduction in the Other Shares (which may include
the elimination of the Other Shares from the offering) is insufficient to
comply with the reduction required in writing by the managing underwriter,
second, pro rata among the holders of the Restricted Shares (based upon the
total number of Restricted Shares submitted for registration) to a number
deemed satisfactory by the managing underwriter; and provided, further, however
that at such time as the holders of Restricted Securities shall have realized
on a cumulative basis from and after the date hereof net proceeds from the
Transfer (whether public or private) of Restricted Shares equal to (i)
$2,750,015 for RFE, (ii) $2,250,010 for LKCM, and (iii) $500,010 for the ESOP,
any such reductions shall be made pro rata among the holders of Non-corporate
Shares (based upon the total number of Non-corporate Shares submitted for
registration). Those shares of Common Stock which are excluded from the
underwritten public offering (either because such shares were not requested by
the holders thereof to be included therein or which were excluded pursuant to
the immediately preceding sentence or in connection with a registration
pursuant to Section 1.2 hereof) shall be withheld from the market by the holder
thereof for a period, not to exceed 120 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.

-5-
<PAGE> 6
1.4. Preparation and Filing. If and whenever the Corporation is under
an obligation pursuant to the provisions of this Section 1 to use its best
efforts to effect the registration of any Non-corporate Shares, the Corporation
shall, as expeditiously as practicable:

(a) prepare and file with the Commission a registration
statement with respect to such Non-corporate Shares and use its best
efforts to cause such registration statement to become and remain
effective;

(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least six months and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all Restricted Shares covered by such registration
statement;

(c) furnish to each selling stockholder such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request in
order to facilitate the public sale or other disposition of such
Non-corporate Shares;

(d) use its best efforts to register or qualify the
Non-corporate Shares covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each such seller
(or, in the case of an underwritten offering, the managing
underwriter) shall reasonably request (provided, however, that the
Corporation shall not be required to consent to general service of
process for all purposes in any jurisdiction where it is not then
qualified or to register or qualify the Non-corporate Shares covered
by such registration statement in any jurisdiction which would require
the Corporation to amend its Certificate of Incorporation or Bylaws or
covenant or undertake to do any other act or make any other change
regarding its capitalization or share ownership prior to the
effectiveness of such registration or qualification);

(e) notify each seller of Non-corporate Shares covered by such
registration statement, at any time when a prospectus relating to the
Non-corporate Shares covered by such registration statement is
required to be delivered under the Securities Act within the
appropriate period mentioned in clause (b) of this Section 1.4, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact

-6-
<PAGE> 7
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and at the request of such seller, prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing; and

(f) at the request of any holder or holders requesting
registration of Non-corporate Shares pursuant to this section 1, if
such Non-corporate Shares are being sold through underwriters, use its
best efforts to furnish to the underwriters on the date that such
Non-corporate Shares are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, or, if such
Non-corporate Shares are not being sold through underwriters, use its
best efforts to furnish to such holder or holders on the date that the
registration statement with respect to such Non-corporate Shares
becomes effective, (i) an opinion, dated such date, of the counsel
representing the Corporation for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the holder or holders making such request; and (ii) a comfort
letter dated such date, from the independent certified public
accountants of the Corporation, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the holder or holders making such
request.

1.5. Expenses. All expenses incurred by the Corporation in complying
with Section 1.4, including, without limitation, all registration and
filing-fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws, printing expenses and fees and disbursements of
counsel, including with respect to each registration effected pursuant to
Sections 1.2 and 1.3, reasonable fees and disbursements of not more than one
counsel for the sellers requesting registration hereunder and of the
independent certified public accountants for the Corporation (including the
expense of any special audits in connection with any such registration) shall
be paid by the Corporation; provided, however, that all underwriting discounts
and selling commissions applicable to the Non-corporate Shares covered by such
registration shall be borne by the seller or sellers, in proportion to the
number of Non-corporate Shares sold by such seller or sellers.

-7-
<PAGE> 8
Anything contained herein to the contrary notwithstanding, the
Corporation shall not be required to pay for any expenses of any registration
commenced pursuant to Section 1.2 hereof if the request for such registration
is subsequently withdrawn at the request of the holders of a majority of the
Restricted Shares to be registered, unless such holders agree to forfeit their
rights to one demand registration pursuant to Section 1.2, or unless, at the
time of such withdrawal, such holders shall have learned of a material adverse
change in the condition, business or prospects of the Corporation from that
known to them at the time of their initial request pursuant to Section 1.2
(other than general market conditions), in which case such holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 1.2.

1.6. Indemnification. In connection with any registration of any
Non-corporate Shares under the Securities Act pursuant to this Agreement, the
Corporation shall indemnify and hold harmless the seller of such Non-corporate
Shares, each underwriter, broker or any other person acting on behalf of such
seller and each other person, if any, who controls any of the foregoing persons
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any of
the foregoing persons may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under
which such Non-corporate Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Non-corporate Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated herein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, or any violation by the Corporation of the Securities Act or
state securities or blue sky laws applicable to the Corporation and relating to
action or inaction required of the Corporation in connection with such
registration or qualification under such state securities or blue sky laws; and
shall reimburse such seller, such underwriter, such broker or such other person
acting on behalf of such seller and each such controlling person for any legal
or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue

-8-
<PAGE> 9
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Non-corporate Shares in reliance upon and in conformity with written
information furnished to the Corporation through an instrument duly executed by
such seller specifically for use in the preparation thereof.

In connection with any registration of Non-corporate Shares under the
Securities Act pursuant to this Agreement, each seller of Non-corporate Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section 1.6) the Corporation and
each officer or director of the Corporation who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the foregoing within the meaning of the
Securities Act and each other seller of Non-corporate Shares under such
registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification of
any Non-corporate Shares, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Corporation or
such underwriter through an instrument duly executed by such seller
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the maximum amount of liability in respect of
such indemnification shall be limited, in the case of each seller of
Non-corporate Shares, to an amount equal to the net after-tax proceeds actually
received by such seller from the sale of Non-corporate Shares effected pursuant
to such registration.

Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of. this Section 1.6, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof; provided, however, that if any indemnified party
shall have reasonably concluded that there may be

-9-
<PAGE> 10
one or more legal or equitable defenses available to such indemnified party
which are additional to or conflict with those available to the indemnifying
party, or that such claim or litigation involves or could have an effect upon
matters beyond the scope of the indemnity agreement provided in this Section
1.6, the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party -and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 1.6.

If the indemnification provided for in this Section 1.6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.

1.7. Information by Holder. Each holder of Non-corporate Shares
included in any registration effected pursuant to this Section 1 shall furnish
to the Corporation such information with respect to such holder and the
proposed distribution by such holder as the Corporation shall request in
writing on a timely basis and as shall, in the reasonable opinion of counsel
for the Corporation, be required by federal or applicable state securities laws
in connection with such registration effected pursuant to this Section 1.

SECTION 2. Securities Act Registration Statements. The Corporation
shall not file any registration statement (other than on Form S-8 or any
similar or successor form thereto) under the Securities Act covering any
securities unless it shall first have given the Holders written notice thereof.
The Corporation further covenants that each Holder shall have the right, at any
time when in its sole and exclusive judgment exercised in good faith it is or

-10-
<PAGE> 11
might be deemed to be a controlling person of the Corporation, to participate
in the preparation of such registration statement and to require the insertion
therein of material furnished to the Corporation in writing, which in such
Holder's judgment or, if requested by the Corporation, in the opinion of
counsel to such Holder (which counsel shall be reasonably satisfactory to the
Corporation and whose reasonable fees and disbursements shall be paid by the
Corporation), should be included. In connection with any registration statement
referred to in this Section 2, the Corporation will indemnify, to the extent
permitted by law, such Holder, its officers, directors, and partners, and each
person, if any, who control such Holder within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities and expenses
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statements or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any untrue statement or alleged untrue statement or omission or
alleged omission contained in written information furnished to the Corporation
by such Holder expressly for use in such registration statement. If, in
connection with any such registration statement, such Holder shall furnish
written information to the Corporation expressly for use in the registration
statement, such Holder will indemnify to the extent permitted by law, the
Corporation, its directors and officers, each underwriter and each person, if
any, who controls the Corporation or any such underwriter within the meaning of
Section 15 of the Securities Act against all losses, claims, damages,
liabilities and expenses caused by any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or alleged untrue statement or such omission or
alleged omission is contained in or omitted from information so furnished in
writing by such Holder for use therein. For purposes of this Section 2, the
term "Holders" shall not include any holder of Warrant Shares.

SECTION 3. Permitted Transfer by LKCM. [Intentionally Omitted].

SECTION 4. Remedies. In case any one or more of the covenants set
forth in this Agreement shall have been breached by the Corporation, the
parties may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such

-11-
<PAGE> 12
breach and/or an action for specific performance of any such covenant contained
in this Agreement.

SECTION 5. Successors and Assigns. This Agreement shall bind and inure
to the benefit of their respective successors, assigns, heirs, and personal
representatives; provided, however, that any such person or entity shall be
bound by this Agreement.

SECTION 6. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof
contain the entire agreement among the parties with respect to the subject
matter hereof and supersedes any prior arrangement or understanding with
respect thereto.

SECTION 7. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in person or, if mailed, three days after such notice has been
sent by first class registered or certified mail, postage prepaid, addressed to
such party at the address set forth below or such other address as may
hereafter be designated in writing by the addressee to the addressor listing
all parties:

(i) If to the Corporation, to:

HealthCor Holdings, Inc.
5720 L.B.J. Freeway, Suite 550
Dallas, Texas 75240
Attention: President

With a copy (which shall not constitute notice) to:

Haynes and Boone, L.L.P.
3100 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attention: Wm. S. Kleinman

(ii) If to the Founder or C. Bazzle, to:

11215 St. Judes Drive
Dallas, Texas 75230

(iii) If to LKCM, to:

LKCM Venture Partners I, Ltd.
301 Commerce Street
Suite 1600
Fort Worth, Texas 76102
Attention: General Partner

-12-
<PAGE> 13
With a copy (which shall not constitute notice) to:

Gardere & Wynne
A Registered Limited Liability Partnership
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Larry Schoenbrun

(iv) If to RFE, to:

RFE Investment Partners IV, Ltd.
36 Grove Street
New Canaan, Connecticut 06840
Attention: Mike Foster

With a copy (which shall not constitute notice) to:

O'Sullivan Graev & Karabell
30 Rockefeller Plaza
New York, New York 10012
Attention: Martin H. Levenglick, Esq.

(v) If to the ESOP, to:

5720 L.B.J. Freeway
Suite 550
Dallas, Texas 75240

With a copy (which shall not constitute notice) to:

Gardere & Wynne,
a Registered Limited Liability Partnership
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: T. Mark Edwards

(vi) If to Ritter, to:

P.O. Box 893
Odessa, Texas 79760

With a copy (which shall not constitute notice) to:

Hollman, Lyon, Patterson & Durell, Inc.
1205 West University
Odessa, Texas 79764
Attention: Daniel J. Hollman

-13-
<PAGE> 14
(vii) If to Attaluri, to:

P.O. Box 893
Odessa, Texas 79760

With a copy (which shall not constitute notice) to:

Hollman, Lyon, Patterson & Durell, Inc.
1205 West University
Odessa, Texas 79764
Attention: Daniel J. Hollman

SECTION 8. Changes. The terms and provisions of this Agreement may not
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, except pursuant to the written consent of the party against whom
the enforcement of any modification, amendment or waiver is sought.

SECTION 9. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute only
one agreement.

SECTION 10. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.

SECTION 11. Governing Law. This Agreement shall be governed by and
construed in accordance with (a) the laws of the State of Texas applicable to
contracts made and to be performed wholly therein, and (b) the laws of the
State of Delaware applicable to corporations organized under the laws of such
state.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE FOLLOWS]

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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.

HEALTHCOR HOLDINGS, INC.

By: /s/ S. WAYNE BAZZLE
-----------------------------------
S. Wayne Bazzle, President

/s/ S. WAYNE BAZZLE
--------------------------------------
S. Wayne Bazzle, Individually

/s/ CHERYL C. BAZZLE
--------------------------------------
Cheryl C. Bazzle, Individually

LKCM VENTURE PARTNERS I, LTD.

By: RBC Investment Corporation,
a Texas corporation
General Partner

By: /s/ ROBERT B. CRATES
-------------------------------
Robert B. Crates,
President

RFE INVESTMENT PARTNERS IV, L.P.

By: RFE Associates IV, L.P.,
General Partner

By: /s/ [ILLEGIBLE]
-------------------------------
Its: General Partner
---------------------------

HEALTHCOR HOLDINGS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN

By: /s/ EVELYN L. WERTZ
-----------------------------------
Its: Trustee
-------------------------------

/s/ WILLIAM G. RITTER
--------------------------------------
William G. Ritter

/s/ SHADANANA P. ATTALURI
--------------------------------------
Shadanana P. Attaluri

-15-

<PAGE> 1

EXHIBIT 10.6

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
WARRANT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.

HEALTHCOR HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT

HealthCor Holdings, Inc., a Delaware corporation (the "Company"),
hereby certifies that for value received, C. Eugene Austin, Jr. or assigns
(the "Holder"), is entitled, subject to the terms and conditions herein set
forth, to purchase from the Company, at any time during the period commencing
on the Effective Date and ending on the Expiration Date (each as defined
below), 10,000 shares of the Common Stock, $.01 par value (the "Common Stock"),
of the Company, upon payment therefor of a purchase price equal to $10.00 per
share of Common Stock, subject to adjustment as set forth below (the "Exercise
Price").

SECTION 1: Effective Date; Expiration Date.

The Holder shall be entitled to purchase the Common Stock issuable
upon exercise of this Warrant (the "Warrant Shares") at the Exercise Price from
the Company at any time during the period, all dates inclusive, commencing upon
9:00 a.m. (Dallas, Texas time) on November 1, 1994 (the "Exercise Date") and
ending at 5:00 p.m. (Dallas, Texas time) on November 1, 1999 (the "Expiration
Date").

SECTION 2: Manner of Exercise.

The exercise (the "Exercise") of this Warrant shall be made by
delivery by the Holder of the form of the subscription attached as Schedule A
hereto, duly executed by Holder, to the Company at the address set forth
opposite its signature hereto, accompanied by payment of the Exercise Price, in
cash or by check to the order of the Company.

SECTION 3: Exercisable in Whole or in Part.

The purchase rights represented by this Warrant are exercisable at the
option of the Holder in whole or in part at any time after the Effective Date
and prior to the Expiration Date (but not as to fractional shares). In the
case of the purchase of less than all of the Warrant Shares, the Company shall
cancel this Warrant upon the surrender hereof and shall execute and deliver a
new Warrant of like tenor for the balance of the Warrant Shares.
<PAGE> 2
SECTION 4: Delivery of Stock Certificates, Etc.

As soon as practicable after the Exercise and payment of the Exercise
Price, and in any event within 10 days thereafter, the Company at its expense
(including the payment by it of all applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as the Holder (upon
payment by the Holder of all applicable transfer taxes) may direct, a
certificate or certificates for the Warrant Shares. All Warrant Shares will,
upon issuance, be fully paid and non-assessable and free from all taxes, liens,
charges, pledges, claims, encumbrances and security interests.

SECTION 5: Representations and Covenants.

5.1 Unless Holder shall otherwise consent in writing, prior to and
during the period in which the Warrant may be exercised, the Company covenants
to Holder as follows:

A. That the Company shall at all times reserve and keep
available, sufficient shares of its Common Stock to satisfy the Warrant Shares;
and

B. That the Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, void or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist with all such action as may be necessary or
appropriate in order to protect the rights of Holder against dilution or other
impairment. Without limiting the foregoing, the Company will not authorize a
par value of any Warrant Shares above the amount payable therefor upon such
Exercise, and at all times will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable stock upon the Exercise of this Warrant.

SECTION 6: Investment Representation.

By acceptance of this Warrant, the Holder hereof represents and
warrants that (i) he has acquired this Warrant for his own account for
investment and not with a present view to, or for resale in connection with,
the distribution thereof or the grant of any participation therein, and that he
has no present intention of distributing or reselling the same; (ii) he fully
understands the restrictions on the resale of this Warrant and the Warrant
Shares, specifically including the restrictions set forth in the legend on the
first page hereof; and (iii) he fully understands that such a legend may limit
or eliminate the value of the Warrant or the Warrant Shares, including its
value as collateral security.

2
<PAGE> 3
SECTION 7: Legend.

Until registered under the Securities Act, or until such time as such
registration may not be necessary for the lawful sale or other disposition
thereof, all certificates evidencing Warrant Shares shall contain an
appropriate legend notifying the Holder or any potential transferee of such
securities of the provisions of this Warrant, such legend to be substantially
in the form of the legend on the first page hereof.

SECTION 8: Negotiability.

This Warrant is issued upon the following terms, to all of which the
Holder consents and agrees:

A. Subject to the restrictions set forth in this Warrant, title
to this Warrant may be transferred by endorsement and delivery in the same
manner as in the case of a negotiable instrument transferable by endorsement
and delivery, and upon surrender for exchange of this Warrant (in negotiable
form, if not surrendered by the Holder named on the face hereof) to the
Company, the Company at its expense will issue and deliver upon the order of
the Holder a new warrant of like tenor, in such name as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct, calling
for the aggregate number of shares of Warrant Shares then called for by this
Warrant;

B. Any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner thereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona
fide purchaser hereof for value; each prior taker or owner waives and renounces
all of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby; and

C. Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary.

SECTION 9: Adjustment for Dividends, Reclassification, Etc.

The Exercise Price and the total number of Warrant Shares shall be
subject to adjustment from time to time as follows:

A. Consolidation, Merger, Sale, Conveyance. If the Company at any
time shall consolidate or merge with, or sell or convey all or substantially
all of its assets to, any other corporation, this Warrant shall thereafter
entitle the Holder to purchase at the Exercise Price then in effect such number
and kind of securities as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance

3
<PAGE> 4
upon or with respect to the Warrant Shares immediately prior to such
consolidation, merger, sale or conveyance. The Company shall take such steps
in connection with such consolidation, merger, sale or conveyance as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonable may be, in relation to any securities or property
thereafter deliverable upon the exercise of this Warrant. The foregoing
provisions shall similarly apply to successive transactions of a similar nature
by any such successor or purchaser. Without limiting the generality of the
foregoing, the adjustment provisions hereof shall apply to such securities of
such successor or purchaser after any such consolidation, merger, sale or
conveyance.

B. Stock Dividend, Reclassification, etc. If the Company shall (i)
pay a dividend in or make a distribution of shares of its capital stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (iv)
issue any shares of its capital stock in a reclassification of its Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the number of
shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted so that the Holder of this Warrant shall be entitled to
receive the kind and number of shares or other securities of the Company which
such Holder would have owned or would have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto. An adjustment made pursuant to this subparagraph (B) shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event.

C. Adjustment of Purchase Price. Whenever the number of Warrant
Shares is adjusted as herein provided, the Exercise Price payable upon exercise
of this Warrant shall be adjusted by multiplying the Exercise Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares subject to this Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
subject to this Warrant immediately thereafter.

D. Written Notice. On the occurrence of an event requiring an
adjustment of the Exercise Price or the number of Warrant Shares, the Company
shall forthwith give written notice to the Holder stating the adjusted Exercise
Price and the adjusted number and kind of securities purchasable hereunder
resulting from the event and setting forth the method of calculation. The
Board of Directors of the Company, acting in good faith, shall determine the
calculation.

4
<PAGE> 5
SECTION 10: Replacement of Warrant.

Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon delivery of indemnity reasonably
satisfactory in form and amount to the Company (it being understood and agreed
that in the case of any bank, insurance company or other institutional investor
its agreement to indemnify the Company against loss shall constitute
satisfactory indemnity) or in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

SECTION 11: Notices, Etc.

All notices and other communications under this Warrant shall be in
writing and given by personal delivery or sent by registered or certified mail,
or a commercial delivery service, to the addresses of the parties hereto set
forth opposite their signature hereto, or at such other address as may be
designated by either party in a written notice to the other complying as to
delivery with the terms of this Section. All such notices and other
communications shall be effective when delivered.

SECTION 12: Miscellaneous.

This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and be governed by
the laws of the State of Texas. If any provision of this Warrant is held
invalid or unenforceable according to law, the remaining provisions hereof
shall not be affected thereby and shall remain in full force and effect. The
headings in this Warrant are for reference only, and shall not limit or
otherwise affect any of the terms hereof.

5
<PAGE> 6
IN WITNESS WHEREOF, this Warrant has been executed as of the 1st day
of November, 1994.

HEALTHCOR HOLDINGS, INC.

By:/s/ S. Wayne Bazzle
---------------------------------------------
S. Wayne Bazzle
Chairman and Chief Executive Officer

Address: 5720 LBJ Freeway
Suite 550
Dallas, Texas 75240

Agreed to and acknowledged:

/s/ C. Eugene Austin, Jr.
- -----------------------------
C. Eugene Austin, Jr.

6
<PAGE> 7
Schedule A

FORM OF SUBSCRIPTION

TO: HealthCor Holdings, Inc.

The undersigned, the holder of a Common Stock Purchase Warrant issued
on ________________, 1994, hereby irrevocably elects to exercise the right to
purchase __________ Warrant Shares (as defined therein) and herewith makes
payment of the exercise price therefor.

The undersigned represents and warrants that it is acquiring this
stock for its own account for investment and not with a present view to, or for
resale in connection with, the distribution thereof or the grant of any
participation therein, and that it has no present intention of distributing or
reselling the stock, or granting any participation therein, subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be and remain within its control as owner thereof.

Dated: _____________________

Sign here: ______________________________________

<PAGE> 1
EXHIBIT 10.8

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (this "Agreement"), dated as of April 15,
1996, is by and among I Care of Arkansas, Inc., an Arkansas corporation ("I
Care"); I Care, Inc. (d/b/a I Care Health Services, Inc.), an Arkansas
corporation ("Health Services"); I Care Home I.V. Affiliates, Inc., an Arkansas
corporation ("IV Affiliates") (I Care, Health Services and IV Affiliates being
sometimes referred to herein collectively as the "Companies"); Gene Graves (the
"Shareholder"); and HealthCor Holdings, Inc., a Delaware corporation
("Purchaser").

W I T N E S S E T H:

WHEREAS, the Companies are a comprehensive provider of home health
products and services, including I.V. therapy services and products and the
sale and lease of home respiratory/medical equipment (the "Business"); and

WHEREAS, the Shareholder owns all of the issued and outstanding shares
of capital stock of the Companies; and

WHEREAS, I Care (the "Asset Seller") desires to sell to Purchaser, and
Purchaser desires to purchase from the Asset Seller, substantially all of its
properties and assets under the terms and conditions herein set forth; and

WHEREAS, the Shareholder desires to sell to Purchaser, and Purchaser
desires to purchase from the Shareholder (the Shareholder and the Asset Seller
being sometimes collectively referred to herein as the "Sellers"), all of the
issued and outstanding shares (the "Shares") of capital stock of Health
Services and IV Affiliates (collectively, the "Stock Corporations");

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and certain other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

1. PURCHASE AND SALE OF ASSETS AND SHARES

1.1 Purchase and Sale of I Care Assets. Upon the terms
and subject to the conditions set forth in this Agreement, at the Closing (as
defined hereinafter), the Asset Seller shall assign, transfer, convey and
deliver to Purchaser, and Purchaser shall purchase from the Asset Seller, all
right, title and interest in and to the following assets (the "Assets"),
together with replacements thereof and additions thereto made between the date
hereof and the Closing Date (as defined herein), whether or not on the books
and records of the Asset Seller (exclusive of the Excluded Assets described

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in Section 1.2 below), free and clear of all liens, security interests,
charges, encumbrances and rights of others:

(a) All personal property, tangible or intangible, owned
by the Asset Seller, which is used or useful in the operation of the Asset
Seller's business, including, but not limited to, accounts receivable,
equipment, inventories, prepaid expenses and fixed assets, including, but not
limited to the assets listed on Schedule 1.1(a) attached hereto;

(b) All of the Assets Seller's (A) proprietary
information, trade secrets and confidential information, technical information
and data, trademarks, trade names and service marks, including any rights of
the Asset Seller in and to the business names "I Care", "I Care of Arkansas"
and variations thereof; (B) machinery and equipment warranties related to the
Assets; (C) rights in any causes of action related to or in connection with the
Assets; (D) all other documentation relating to the operation of the Assets,
including all license, permits and approvals issued by any governmental
authority or otherwise necessary or relating to the operation of the Asset
Seller's business; and (E) the goodwill and going concern value of the Asset
Seller's business;

(c) All of the Asset Seller's books and records,
including all financial, accounting and property tax records, computer data and
programs, market data and all correspondence with and documents pertaining to
suppliers, governmental authorities and other third parties; and

(d) the Asset Seller's customers, customer lists, work
orders, file and computer copies of customer invoices, customer files and other
customer records.

1.2 Excluded Assets. The parties acknowledge that the
assets of the Asset Seller listed on Schedule 1.2 hereto (the "Excluded
Assets") are not being acquired by Purchaser.

1.3 Assumed Liabilities.

(a) At the Closing, the Purchaser agrees to assume and
discharge those specified contractual obligations of the Asset Seller listed on
Schedule 1.4 hereto (the "Assumed Liabilities"), except that Purchaser shall
not assume or agree to pay, discharge or perform any liabilities or obligations
arising out of any breach by the Companies of any provision of any of the
contracts, agreements or documents entered into in connection with the Assumed
Liabilities, including but not limited to liabilities or obligations arising
out of penalties, late charges or any of the Asset Seller's failure to perform
under any such Assumed Liability prior to the Closing Date.

(b) All items of income and expense arising from the
operation of the Business relating to the Assets and the Assumed Liabilities
set forth on Schedule 1.4

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hereof shall be adjusted between the Asset Seller and Purchaser as of the
Closing Date. Those items arising before the Closing Date shall be allocated
to the account of the Asset Seller and those items arising on or after the
Closing Date shall be allocated to the account of Purchaser. Proration of the
items described herein between the Asset Seller and the Purchaser shall be
effective as of 12:01 a.m., local time, on the Closing Date. Liability for
state and local taxes assessed on the Assets payable with respect to the tax
year in which the Closing Date falls shall be prorated as between the Asset
Seller and the Purchaser on the basis of the number of days of the tax year
elapsed to and including such date. All prorations shall be made and paid
insofar as feasible on the Closing Date with a final settlement to be made no
later than 60 days thereafter. The Asset Seller and Purchaser agree to assume,
pay and perform all costs, liabilities and expenses allocated to each of them
pursuant to this Section 1.3.

(c) Except for the Assumed Liabilities, Purchaser does
not assume and shall in no event be liable for any debt, obligation,
responsibility or liability of the Asset Seller's business, the Shareholder,
any subsidiary or any affiliate or successor of the Asset Seller or Shareholder
arising from or related to the Assets or the business of the Asset Seller, or
any claim against any of the foregoing, whether known or unknown, contingent or
absolute, or otherwise (the "Excluded Liabilities"). The Excluded Liabilities
shall include, but shall not be limited to, the liabilities listed on Schedule
1.3(c) hereof.

1.4 Purchase and Sale of Shares of Stock Corporations.
Upon the terms and subject to the conditions set forth in this Agreement, at
the Closing (as defined in Section 2.2 hereof), the Shareholder shall assign,
transfer, convey and deliver to Purchaser, and Purchaser shall purchase from
the Shareholder, all right, title and interest in and to all of the Shares,
free and clear of all liens, security interests, charges, encumbrances and
rights of others.

1.5 Eliminated Assets and Liabilities of the Stock
Corporations.

(a) The Shareholder acknowledges and agrees that as of
the Closing Date, the assets of each Stock Corporation designated as Eliminated
Assets on Schedule 1.5(a) hereto and made a part hereof (the "Eliminated
Assets") shall not be directly or indirectly owned by such Companies at the
time of the Closing.

(b) Notwithstanding anything to the contrary in this
Agreement, as of the Closing Date, the liabilities of each Stock Corporation
designated as Eliminated Liabilities on Schedule 1.5(b) hereto and made a part
hereof (the "Eliminated Liabilities") shall not be owed by either of the Stock
Corporations, nor will either of such Companies be obligated in any manner with
respect to any of such liabilities.

(c) Any Eliminated Liabilities relating to federal, state
or local income or other taxes payable ("Tax Liabilities") shall be eliminated
by Shareholder as follows:

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(i) At the Closing, the Shareholder will
deliver to Purchaser a schedule 1.5(c) (which shall then be
attached hereto) estimating the aggregate amount of federal, state
and local income and other tax liabilities of the Stock
Corporations incurred through the Closing Date as if the taxable
year of the Stock Corporations had ended on the Closing Date (the
"Estimated Tax Liabilities"). The Estimated Tax Liabilities that
relate to Health Services will be an offset to the Purchase Price
set forth in Section 2.1(b)(i) hereof and the Estimated Tax
Liabilities that relate to IV Affiliates will be an offset to the
Purchase Price set forth in Section 2.1(b)(ii) hereof. Upon the
satisfaction of the Tax Liabilities by Purchaser and the Stock
Corporations, the Purchaser will either:

(A) pay to the Shareholder the
amount by which the Estimated Tax Liabilities exceed
the actual amount spent by Purchaser and the Stock
Corporations to extinguish the Tax Liabilities; or

(B) deduct from the principal
amount of the Note (defined in Section 2.1(a) below)
the amount by which the actual amount spent by
Purchaser and the Stock Corporations to extinguish
the Tax Liabilities exceeds the amount of Estimated
Tax Liabilities.

(ii) The payment pursuant to subsection
1.5(c)(i)(A) shall be made by wire transfer to an account specified
by the Shareholder no later than fourteen days after the entire
amount of the Tax Liabilities has been paid by Purchaser or the
Stock Corporations. In the event that an offset to the Note occurs
pursuant to subsection 1.5(c)(i)(B) hereof, the Purchaser shall
deliver to the Shareholder tax returns or such other appropriate
documentation necessary to verify the amounts actually paid to the
extent reasonably requested by Shareholder.

1.6 Employment Agreement. At the Closing, Purchaser and
the Shareholder shall enter into an employment, confidentiality and
non-competition agreement in the form of Exhibit "A" hereto (the "Employment
Agreement").

1.7 Record Retention. Notwithstanding the foregoing, the
Purchaser agrees that the Sellers may retain copies of the books and records of
the Companies; provided, however, such books and records are to be used solely
to prepare tax returns or to prepare for tax audits of the Companies or the
Shareholder.

2. CONSIDERATION; CLOSING

2.1 Consideration.

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(a) Assets. The consideration to be received by I Care at
the Closing in exchange for the Assets (exclusive of the Abbot Assets defined
in Section 5.6) owned by it shall be an amount equal to the sum of (a)
$10,200,000 payable by wire transfer in immediately available funds to an
account specified by I Care and (b) a promissory note ("Note") payable to I
Care, in the principal amount of $1,000,000, in the form of Exhibit "B"
attached hereto.

(b) Shares.

(i) Health Services. The consideration to be
received by the Shareholder at the Closing in exchange for the
Shares of Health Services shall be an amount equal to $700,000
payable by wire transfer in immediately available funds to an
account specified by the Shareholder.

(ii) IV Affiliates. The consideration to be received
by the Shareholder at the Closing in exchange for the Shares of IV
Affiliates shall be an amount equal to $100,000 payable by wire
transfer in immediately available funds to an account specified by
the Shareholder.

2.2 Time of Closing. A closing (the "Closing") for the
sale and purchase of the Assets shall be held on or before May 1, 1996 or on
such other date as may be agreed upon by the parties (the "Closing Date"). The
Closing shall be deemed effective as of the open of business on the Closing
Date. The Closing shall take place at the Purchaser's executive offices or the
offices of its counsel or at such other place or places as the parties may
agree.

2.3 Closing Procedure. At the Closing, the Asset Seller
shall deliver to Purchaser such bills of sale, instruments of assignment,
transfer and conveyance and similar documents as Purchaser shall reasonably
request, and the Shareholder shall deliver to Purchaser stock certificates duly
endorsed to Purchaser and representing the Shares, in form sufficient to vest
record and beneficial title fully in Purchaser to the Shares. Against such
delivery, Purchaser shall deliver to the Asset Seller and the Shareholder the
purchase price to be paid at the Closing in accordance with Section 2.1 above.
Each party will cause to be prepared, executed and delivered all other
documents required to be delivered by such party pursuant to this Agreement and
all other appropriate and customary documents as another party or its counsel
may reasonably request for the purpose of consummating the transactions
contemplated by this Agreement. All actions taken at the Closing shall be
deemed to have been taken simultaneously at the time the last of any such
actions is taken or completed.

2.4 Allocation of Purchase Price. The purchase price
shall be allocated to the Assets in accordance with Schedule 2.4 hereof. The
Sellers and the Purchaser each hereby covenant and agree that they will not
take a position on any income tax return, before any governmental agency
charged with the collection of any income tax

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or in any judicial proceeding that is in any way inconsistent with the terms of
this Section 2.4.

2.5 Post-Closing Purchase Price Adjustment.

(a) No later than 180 days after the Closing Date,
Purchaser shall prepare and deliver to the Sellers an audited balance sheet of
the Companies as of the Closing Date (the "Closing Balance Sheet") prepared in
accordance with accounting principles used to prepare the Companies Financial
Statements (as defined) giving pro forma effect to the exclusion of the
Excluded Liabilities and the Excluded Assets. The Purchaser shall permit the
Sellers and their accountants to participate in the preparation thereof and
shall promptly make available to them all work papers and other pertinent
information used in connection therewith.

(b) Within 30 days after the Closing Balance Sheet is
delivered to the Sellers pursuant to subsection (a) above, the Sellers shall
complete their examination thereof and shall deliver to Purchaser either (i) a
written acknowledgement accepting the Closing Balance Sheet or (ii) a written
report (the "Objection Report") setting forth in reasonable detail any proposed
objections to the Closing Balance Sheet. A failure by the Sellers to deliver
the Objection Report within the required 30 day period shall constitute their
acceptance of the calculations set forth in the Closing Balance Sheet.

(c) During a period of 20 days following the receipt by
Purchaser of the Objection Report, the Sellers and Purchaser shall attempt to
resolve any differences they may have with respect to the matters raised in the
Objection Report. In the event the Sellers and Purchaser fail to agree on any
of the Sellers' proposed adjustments contained in the Objection Report within
such 20 day period, then the parties will request that the Dallas, Texas office
of Price Waterhouse, certified public accountants ("Independent Auditors"),
make the final determination with respect to the correctness of the proposed
adjustments in the Objection Report in light of the terms and provisions of
this Agreement. Each of the parties hereto represents and warrants that such
party has not engaged Price Waterhouse and that Price Waterhouse is not
affiliated with such party, and such party further agrees not to engage Price
Waterhouse until such time as any post-closing price adjustment has been
determined. The decision of the Independent Auditors shall be final and
binding on the parties. The costs and expenses of the Independent Auditors and
their services rendered pursuant to this subsection shall be borne equally by
the Sellers, on the one hand, and the Purchaser, on the other.

(d) If after finalization of the Closing Balance Sheet
(which shall be deemed to mean either the failure of the Sellers to deliver an
Objection Report within the 30-day period referred to in Section 2.5(b) above
or, if the Sellers deliver an Objection Report, upon receipt by Purchaser and
the Sellers of the written final determination rendered pursuant to Section
2.5(c) concerning the resolution of the matters raised in the Objection Report
pursuant to Section 2.5(c) above), the Adjusted

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Tangible Net Worth (defined hereinafter) of the Companies as set forth on the
Closing Balance Sheet is less than $3,145,029, the principal amount of the
Notes issued pursuant to Section 2.1 hereof shall be immediately decreased,
effective as of the Closing Date, by the amount of any such decrease in the
Adjusted Tangible Net Worth. For purposes of this Agreement, "Adjusted
Tangible Net Worth" shall mean the Companies' net worth after giving effect to
the exclusion of the Excluded Assets and Excluded Liabilities.

(e) The parties hereto agree that the rights and remedies of
Purchaser described in this Section 2.5 are not exclusive and are in addition
to the rights and remedies of Purchaser provided elsewhere herein. In addition,
the $25,000 "basket" of indemnification claims referred to in Section 11 hereof
shall not apply to any decrease in Adjusted Tangible Net Worth.

2.6 Earn-Out Amount.

(a) As early as practicable following the completion of
Purchaser's financial statements for the year ending December 31, 1996 and in
no event later than March 31, 1997, Purchaser shall deliver to the Asset Seller
a preliminary calculation of Adjusted Earnings before Interest and Income
Taxes, as calculated in accordance with this Section 2.6, for the year ending
December 31, 1996 ("Adjusted EBIT"), with supporting materials and prepared in
a manner consistent with generally accepted accounting principles used in the
preparation of the Companies Financial Statements. If the Adjusted EBIT as
reflected on the Purchaser's calculation equals or exceeds $2,600,000, (i) the
Purchaser shall pay to Asset Seller an amount in cash equal to $480,000 (the
"Earn-Out Amount") in full satisfaction of its obligations under this Section
2.6 and (ii) subsection (b) of this Section 2.6 shall not apply.

(b) In the event that the Asset Seller shall propose any
adjustment to the Purchaser's Adjusted EBIT calculation, the parties shall
attempt to resolve any differences within the next 10 business days. If the
parties are unable to resolve such differences within such period, the
procedures set forth in the remainder of this subsection (b) shall be
applicable:

(i) Within 30 days after the delivery of
Purchaser's calculation, the Asset Seller shall prepare and deliver
to Purchaser a calculation of any further proposed adjustments (the
"Adjustment Report") to the Purchaser's calculation of Adjusted
EBIT. The Asset Seller shall make available to Purchaser and its
accountants all work papers and other pertinent information used
in connection therewith.

(ii) Within 30 days after the Adjustment Report
is delivered to Purchaser pursuant to subsection (i) above,
Purchaser shall complete its examination thereof and shall deliver
to the Asset Seller either a written acknowledgement accepting the
Adjustment Report or a written report (the

<PAGE> 8

"Objection Report") setting forth in reasonable detail any proposed
objections to the Adjustment Report. A failure by Purchaser to
deliver the Objection Report within the required 30 day period
shall constitute Purchaser's acceptance of the calculations set
forth in the Adjustment Report.

(iii) During a period of 30 days following the
receipt by the Asset Seller of the Objection Report, the Asset
Seller and Purchaser shall attempt to resolve any difference they
may have with respect to the matters raised in the Objection
Report. In the event the Asset Seller and the Purchaser fail to
agree on any of Purchaser's proposed adjustments contained in the
Objection Report within such 30 day period, then Purchaser and the
Asset Seller mutually agree that the Independent Auditors shall
make the final determination with respect to the correctness of the
proposed adjustments in the Objection Report in light of the terms
and provisions of this Agreement. The decision of the Independent
Auditors shall be final and binding on the Asset Seller and
Purchaser. The costs and expenses of the Independent Auditors and
their services rendered pursuant to this subsection shall be borne
equally by the Asset Seller and the Purchaser.

(iv) If after finalization of the Adjusted EBIT
calculation, the Adjusted EBIT equals or exceeds $2,600,000, the
Purchaser shall pay the Earn Out Amount to the Asset Seller within
10 days of such finalization in full satisfaction of its
obligations under this Section 2.6.

(c) In calculating the Adjusted EBIT, the parties agree
that earnings of the Companies from the period from and after the Closing will
calculated under the same principals used in the preparation of the Companies
Financial Statements as if the transactions contemplated hereby had not
occurred, subject to the following:

(i) No amount will be attributable to overhead
expense charged by the Purchaser or its affiliates to the Companies
from and after the Closing;

(ii) The salary expense related to the
Shareholder will be readjusted as if his annual salary was $200,000
throughout the year ending December 31, 1996;

(iii) Adjusted EBIT will reflect any expenses or
benefits realized in connection with the purchase of the Abbott
Assets and collection of the Abbott Receivables (as such terms are
defined herein); including without limitation, depreciation expense
on those Abbott Assets constituting depreciable equipment inventory
(as determined based on the cost allocation to be agreed upon by
the parties at Closing), which depreciation shall be calculated
using the straight-line method over 36 months;

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(iv) The portion of the Abbott Assets
constituting nondepreciable materials inventory (as determined
based on the cost allocation to be agreed upon by parties at
Closing) is to be accounted for as the purchase of inventory and
expensed accordingly;

(v) The accrual method will be used to report
accounts receivable (including the accrual of all applicable
reserves for contractual allowances and bad debts consistent with
past practices); and

(vi) Adjusted EBIT will not reflect any
expenses incurred by Sellers prior to the Closing Date that are
directly attributable to the consummation of the purchase and sale
of Assets and Shares contemplated by this Agreement; provided that
Sellers shall provide Purchaser with adequate documentation to
support such excluded expenses.

(d) In order to facilitate the calculation of Adjusted
EBIT, the Purchaser agrees to keep separate books and records for the Companies
during the year ending December 31, 1996.

3. REPRESENTATIONS AND WARRANTIES OF THE ASSET SELLER AND THE
SHAREHOLDER.

The Shareholder and the Asset Seller, jointly and severally, hereby
represent and warrant to Purchaser as follows (except as qualified by the
Disclosure Schedule attached hereto as Exhibit "C"):

3.1 Organization; Good Standing. Each of the Companies
is a corporation, duly incorporated, validly existing and in good standing
under the laws of the State of Arkansas and has all requisite corporate power
and authority to own and lease its properties and assets and to carry on its
business as currently conducted. Except as set forth on the Disclosure
Schedule, the Companies have no subsidiaries and no equity, profit sharing,
participation or other ownership interest (including any general partnership
interest) in any corporation, partnership, limited partnership or other entity.
Each of the Companies is duly qualified and licensed to do business and is in
good standing in all jurisdictions where the nature of its business makes such
qualification necessary, which such jurisdictions are set forth on the
Disclosure Schedule.

3.2 Due Authorization; Execution and Delivery. The
Companies and the Shareholder have full power and authority to enter into and
perform this Agreement and the other agreements contemplated hereby
(collectively, the "Transaction Agreements") and to carry out the transactions
contemplated thereby. The Companies has taken all requisite action to approve
the execution and delivery of the Transaction Agreements and the transactions
contemplated thereby. The

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Transaction Agreements constitute the legal, valid and binding obligation of
the Companies and the Shareholder, enforceable against them in accordance with
its terms, except as may be limited by the availability of equitable remedies
or by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally. Neither the execution and delivery
by the Companies or the Shareholder of the Transaction Agreements nor the
consummation of the transactions contemplated hereby will: (a) conflict with or
result in a breach of the articles of incorporation or bylaws of the Companies;
(b) violate any statute, law, rule or regulation or any order, writ, injunction
or decree of any court or governmental authority, which violation, either
individually or in the aggregate, might reasonably be expected to have a
material adverse effect on the business or operations of the Companies or
Purchaser's ownership of the Assets or Shares; or (c) violate or conflict with
or constitute a default under (or give rise to any right of termination,
cancellation or acceleration under), or result in the creation of any lien on
the Assets or any of the properties or assets of the Companies pursuant to any
material agreement, indenture, mortgage or other instrument to which the
Companies or the Shareholder are a party or by which their assets may be bound
or affected.

3.3 Consents. No approval, authorization, consent, order
or other action of, or filing with, any governmental authority or
administrative agency is required in connection with the execution and delivery
by the Companies or the Shareholder of the Transaction Agreements or the
consummation of the transactions contemplated thereby. Except as set forth in
the Disclosure Schedule, no approval, authorization or consent of any other
third party is required in connection with the execution and delivery by the
Companies or the Shareholder of the Transaction Agreement and the consummation
of the transactions contemplated hereby.

3.4 Transactions with Affiliates. At the time of the
Closing, neither the Shareholder, nor any Affiliate of the Shareholder or of
Companies, will have any interest in or will own any property or right used
principally in the conduct of the Companies' businesses. The term "Affiliate"
shall mean the Shareholder or any other officer, employee, director or
shareholder of the Companies; any partner of the foregoing persons; or any
member of the immediate family (including brother, sister, descendant, ancestor
or in-law) of such persons; or any corporation, partnership, trust or other
entity in which any of such persons has a substantial interest or is a
director, officer, partner or trustee.

3.5 Title to Assets. The Asset Seller is the sole and
exclusive legal owner of all right, title and interest in and have good and
marketable title to all of the Assets, free and clear of liens, claims and
encumbrances. The Stock Corporations are the sole and exclusive legal owners
of all right, title and interest in and have good and marketable title to all
of the assets used in the operation of their business and as reflected on their
balance sheets described in Section 3.14 hereof, free and clear of liens,
claims and encumbrances.

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3.6 Capitalization. All of the issued and outstanding
shares of the capital stock of the Stock Corporations have been duly authorized
and validly issued and are fully paid and nonassessable, and (as of the date
hereof and the Closing) will be owned of record and beneficially by the
Shareholder. There are no outstanding subscription, contract, option, warrant,
call or other right obligating either of the Stock Corporations to issue, sell,
exchange or otherwise dispose of, or to purchase, redeem or otherwise acquire,
shares of, or securities convertible into or exchangeable for, capital stock of
either of the Stock Corporations. The Shareholder is the lawful, sole and
beneficial owners of the Shares, free and clear of all liens, claims and
encumbrances of every kind, and, at the Closing, the Shareholder will convey to
Purchaser good and indefeasible title to the Shares.

3.7 Real Estate.

(a) Other than the real property (the "Real Property")
included in the Excluded Assets, the Companies do not own and have never owned
any real property. With respect to the Real Property to be leased to the
Purchaser and the Companies' leased real property (collectively, the "Real
Estate"), (i) applicable zoning ordinances permit the operation of the Business
at the Real Estate; (ii) each of the Companies has all easements and rights,
including easements for all utilities, services, roadways and other means of
ingress and egress, necessary to operate the Business; (iii) the Real Estate is
not located within a flood or lakeshore erosion hazard area; and (iv) neither
the whole nor any portion of the Real Estate has been condemned, requisitioned
or otherwise taken by any public authority, and no notice of any such
condemnation, requisition or taking has been received. No such condemnation,
requisition or taking is threatened or contemplated, and there are no pending
public improvements which may result in special assessments against or which
may otherwise affect the Real Estate.

(b) The Companies have received no notice of, and have no actual
knowledge of, any material violation of any zoning, building, health, fire,
water use or similar statute, ordinance, law, regulation or code in connection
with the Real Estate.

(c) The Companies have received no notice of, and have no
actual knowledge of, any hazardous or toxic material (as hereinafter defined)
existing in any structure located on, or exists on or under the surface of, any
of the Real Estate which is, in any case, in material violation of applicable
environmental law. For purposes of this Section, "hazardous or toxic material"
shall mean waste, substance, materials, smoke, gas or particulate matter
designated as hazardous, toxic or dangerous under any environmental law. For
purposes of this Section, "environmental law" shall included the Comprehensive
Environmental Response Compensation and Liability Act, the Clean Air Act, the
Clean Water Act and any other applicable federal, state or local environmental,
health or safety law, rule or regulation relating to or imposing liability or
standards concerning or in connection with hazardous, toxic or dangerous waste,
substance, materials, smoke, gas or particulate matter.

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3.8 Condition of Assets.

(a) All of the Assets and the assets owned by the Stock
Corporations that are not Excluded Assets viewed as a whole and not on an asset
by asset basis are in good condition and working order, ordinary wear and tear
excepted, and are suitable for the uses for which intended, free from any known
defects except such minor defects as do not substantially interfere with the
continued use thereof. The fixed assets of the Asset Seller as of the date
hereof are set forth on Schedule 1.1(a)(i) and, with respect to the Stock
Corporations, on the Disclosure Schedule.

(b) The accounts receivable of the Companies (that are
not Excluded Assets) as set forth on the Companies Balance Sheets (as defined
in Section 3.14) and arising since the date thereof are valid and genuine; have
arisen solely out of bona fide sales and deliveries of goods, performance of
services and other business transactions in the ordinary course of business
consistent with past practice; are not subject to valid defenses, set-offs or
counterclaims; and at least 70% of which are collectible within 120 days after
the Closing Date and 100% of which are collectible by December 31, 1996 at the
full recorded amount thereof less (i) the allowance for doubtful accounts and
(ii) amounts due Abbott as such items are reflected on the Companies Balance
Sheets.

(c) Except as described in Section 5.6 hereof, all
inventory of the Companies used in the conduct of the Business was acquired and
has been maintained in the ordinary course of business; is of good and
merchantable quality; consists substantially of a quality, quantity and
condition usable, leasable or saleable in the ordinary course of business; is
valued at reasonable amounts based on the ordinary course of business of the
Companies during the past six months; and is not subject to any write-down or
write-off.

3.9 Governmental Licenses. The Disclosure Schedule lists
and accurately describes all licenses, permits, orders, approvals,
authorizations and filings issued to the Companies or the Shareholder by a
governmental or regulatory authority in connection with the lawful ownership
and operation of the Business (the "Governmental Licenses"), except where the
failure to hold such Governmental License would not have a material adverse
effect on the Companies. The Companies have furnished to Purchaser true and
accurate copies of all such Governmental Licenses, and each Governmental
License is in full force and effect and is valid under applicable federal,
state and local laws. The Companies have not violated any rule or regulation
of the U.S. Department of Health and Human Services, the U.S. Health Care
Finance Administration, the U.S. Food and Drug Administration, applicable state
health care agencies, any provider or intermediary manual, the State Medicaid
Manual, and Medicare or Medicaid program instruction or memorandum, the result
of which violation is reasonably likely to result in the revocation or
termination of any Governmental License or the imposition of any financial
penalty or restriction of such

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<PAGE> 13
a nature as might materially and adversely affect the operation of Companies as
now conducted.

3.10 Taxes. All tax reports and returns required to be
filed by or relating to the Companies (including sales, use, income, property,
franchise and employment taxes) have been filed with the appropriate federal,
state and local governmental agencies. All taxes, penalties, interest,
deficiencies, assessments or other charges, including without limitation those
that are reflected on such reports and returns, that have been or will be
claimed to be due by any taxing authority from the Companies have been or will
be paid. There are no examinations or audits pending or unresolved examinations
or audit issues with respect to the Companies' federal, state or local tax
returns. All additional taxes, if any, assessed as a result of such
examinations or audits have been paid. There are no pending claims or
proceedings relating to, or asserted for, taxes, penalties, interest,
deficiencies or assessments against the Companies. The Companies have delivered
to the Purchaser true, accurate and complete copies of all tax returns and
filings made by them in the last three years and any related correspondence
from the Companies, the Shareholder or applicable taxing authority relating to
such returns and filings.

3.11 Litigation. There is no order of any court,
governmental agency or authority and no action, suit, proceeding or
investigation, judicial, administrative or otherwise, of which the Companies or
the Shareholder have knowledge that is pending or threatened against or
affecting the Companies or the Shareholder which, if adversely determined,
might materially and adversely affect the business, operations, properties,
assets or conditions (financial or otherwise) of the Companies or which
challenges the validity or propriety of any of the transactions contemplated by
this Agreement.

3.12 Reports and Governmental Compliance.

(a) The Companies have duly filed all reports required to
be filed by law or applicable rule, regulation, order, writ or decree of any
court, governmental commission, body or instrumentality and have made payment
of all charges and other payments, if any, shown by such reports to be due and
payable.

(b) The Companies and their officers, directors, agents
and employees have not engaged in any activities that are prohibited under 42
U.S.C. Section 1320a-7b, known as the anti-kickback statute, or the regulations
promulgated thereunder, or related or similar state or local statutes or
regulations.

(c) The Companies and their officers, directors, agents
and employees have not: (i) made or caused to be made a false statement or
representation of a material fact in any application for any benefit or
payment; (ii) made or caused to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment;
(iii) failed to disclose knowledge by a claimant of the

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<PAGE> 14
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another; (iv) knowingly and
willfully solicited or received any remuneration (including any kickback, bribe
or rebate), directly or indirectly, overtly or covertly, in cash or in kind or
knowingly and willfully offered or paid such remuneration as an inducement (A)
in return for referring an individual to any person or entity for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or other
government program, or (B) in return for purchasing, leasing or ordering or
arranging for or recommending purchasing, leasing or ordering any good,
facility, service or item for which payment may be made in whole or in part by
Medicare, Medicaid or other government program.

(d) The Companies and their officers, directors, agents
and employees have not engaged in any activities that are prohibited under 42
U.S.C. Section 1395nn, known as the self-referral or Stark statute, or the
regulations promulgated thereunder, or related or similar state or local
statutes or regulations. The Business currently is conducted in a manner that
will not violate 42 U.S.C. Section 1395nn as amended.

3.13 Employee Benefit Plans; Labor Controversies.

(a) The Disclosure Schedule sets forth all liabilities of
the Companies under ERISA or similar laws with respect to employee benefit
plans. There are no labor disputes of a material nature pending between the
Companies and any of their employees and there are no known organizational
efforts presently being made involving any of such employees. The Companies
has complied in all material respects with all laws relating to the employment
of labor, including any provisions thereof relating to wages, hours, collective
bargaining and the payment of social security and other taxes, and is not
liable for any material arrearages of wages or any taxes or penalties for
failure to comply with any of the foregoing.

(b) The Disclosure Schedule sets forth the accrued
vacation, sick and personal days or other related obligations owing to or
accrued for the benefit of the employees of the Companies and the projected
amount of such benefits as of the Closing Date.

3.14 Financial Statements and Records of the Companies.

(a) The Companies have delivered to Purchaser true, correct and
complete copies of the following financial statements (the "Companies Financial
Statements"): (i) the audited consolidated balance sheet of I Care and IV
Affiliates (the "Audited Balance Sheet") as of December 31, 1995 and the
related audited statements of income, cash flow and stockholders' equity for
the year then ended, which financial statements contain a report of Bell and
Company, P.A., independent auditors, reporting thereon; (ii) Health Services'
audited consolidated balance sheet as of March 31, 1995 and the related audited
statements of income, cash flow and stockholders'

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<PAGE> 15
equity for the year then ended, which financial statements contain a report of
Bell and Company, P.A., independent auditors, reporting thereon; and (iii)
Health Services' unaudited balance sheet at December 31, 1995 ("Health Services
Balance Sheet" and with the Audited Balance Sheet the "Companies Balance
Sheet") and related statement of income for the period then ended.

(b) The Companies Financial Statements, including the notes
thereto, present fairly the assets, liabilities and financial position of the
Companies as of the dates thereof and the results of operations thereof for the
periods then ended and have been prepared from the books and records of the
Companies in conformity with generally accept accounting principles consistent
with prior periods. The interim unaudited financial statements of Health
Services for the period ended December 31, 1995 contain all adjustments, which
are solely of a normal, recurring nature, necessary to present fairly the
financial position for the period then ended. The books and records of the
Companies have been and are being maintained in accordance with good business
practice, reflect only valid transactions, are complete and correct in all
material respects and present fairly in all material respects the basis for the
financial position and results of operations of the Companies set forth in the
Companies Financial Statements.

3.15 Absence of Certain Changes. Since December 31,
1995, the Companies have not (a) suffered any change in their financial
condition or results of operations other than changes in the ordinary course of
business that, individually or in the aggregate, have not had a material
adverse effect on the Companies, (b) acquired or disposed of any asset, or
incurred, assumed, guaranteed or endorsed any liability or obligation, or
subjected or permitted to be subjected any material amount of assets to any
lien, claim or encumbrance of any kind, except in the ordinary course of
business or as contemplated by this Agreement, (c) entered into or terminated
any Material Contract (as hereinafter defined), or agreed or made any material
changes in any Material Contract, other than renewals and extensions thereof in
the ordinary course of business, (d) declared, paid or set aside for payment
any dividend or distribution with respect to its capital stock, (e) entered
into any collective bargaining, employment, consulting, compensation or similar
agreement with any person or group or (f) entered into, adopted or amended any
employee benefit plan. At all times from the date of this Agreement through
the Closing Date, the Companies will, and the Shareholder will cause the
Companies to, be operated in the ordinary course of business, except for such
changes as are contemplated by this Agreement.

3.16 Material Undisclosed Liabilities. The Disclosure
Schedule sets forth all of the material undisclosed liabilities of the
Companies which are known to the Companies, and which are not reflected in the
Companies Financial Statements.

3.17 Contracts and Agreements. The Disclosure Schedule
contains a list, complete and accurate in all material respects, of all of the
following categories of contracts and agreements to which the Companies are
bound at the date hereof:

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<PAGE> 16
(i) employee benefit plans, employment, consulting or similar contracts; (ii)
contracts that involve remaining aggregate payments by the Companies in excess
of $10,000 or which have a term in excess of one year; (iii) insurance
policies; (iv) managed care contracts; and (v) other contracts not made in the
ordinary course of business (collectively the "Material Contracts"). The
Companies are not in default with respect to any of the Material Contracts.

3.18 Completeness of Disclosure. No representation or
warranty by the Companies or the Shareholder in this Agreement nor any
certificate, schedule, document or instrument furnished or to be furnished to
Purchaser pursuant hereto, or in connection with the negotiation, execution or
performance of this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading.

3.19 Finders and Brokers. Other than Telesis Mergers and
Acquisitions, Inc. ("Telesis"), no person has as a result of any agreement or
action of the Companies or the Shareholder any valid claim against any of the
parties hereto for a brokerage commission, finder's fee or other like payment.
The Sellers will pay any fees, expenses, commissions or other liabilities of
Telesis arising in connection with the transactions contemplated hereby.

3.20 Eliminated Assets and Liabilities. As of the Closing
Date, (a) the Eliminated Assets will not be owned directly or indirectly by the
Stock Corporations and (b) the Eliminated Liabilities will not be owed by
either Stock Corporation, nor will either of such Companies be obligated in any
manner with respect to any of such liabilities.

4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.

Purchaser represents and warrants to the Companies and the
Shareholder as follows:

4.1 Organization and Good Standing. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own and lease its properties and carry on its business as
currently conducted.

4.2 Due Authorization. Purchaser has full power and
authority to enter into this Agreement, the Notes, the Employment Agreement and
the other documents and agreements contemplated hereby and to carry out its
obligations hereunder. The execution and delivery of this Agreement, the Notes,
the Employment Agreement and the other documents and agreements contemplated
hereby and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Purchaser. This Agreement, the Notes, the

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<PAGE> 17
Employment Agreement and the other documents and agreements contemplated hereby
have been duly executed and delivered by Purchaser and constitute the legal,
valid and binding obligation of it, enforceable against it in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally or general equitable principles.

4.3 Execution and Delivery. The execution and delivery
by Purchaser of this Agreement, the Notes, the Employment Agreement and the
other documents and agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby will not: (i) conflict with or
result in a breach of the Certificate of Incorporation or Bylaws of Purchaser;
(ii) violate any law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority; or (iii) violate
or conflict with or constitute a default under (or give rise to any right of
termination, cancellation or acceleration under) any indenture, mortgage,
lease, contract or other instrument to which Purchaser is a party or by which
it is bound or affected.

4.4 Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by Purchaser
directly with the Shareholder, the Companies and Telesis, the Companies'
broker. No person has as a result of any agreement or action of Purchaser any
valid claim against any of the parties hereto for a brokerage commission,
finder's fee or other like payment.

4.5 Financial Statements and Records of Purchaser.

(a) Purchaser has delivered to the Companies and the Shareholder
true, correct and complete copies of the following financial statements (the
"Purchaser Financial Statements"): the audited consolidated balance sheet of
Purchaser and its subsidiaries (the "Purchaser Audited Balance Sheet") as of
December 31, 1995 and the related audited statements of income, cash flow and
stockholders' equity for the year then ended, which financial statements
contain a report of Arthur Andersen L.L.P., independent auditors, reporting
thereon.

(b) The Purchaser Financial Statements, including the notes
thereto, present fairly the assets, liabilities and financial position of the
Purchaser as of the dates thereof and the results of operations thereof for the
periods then ended and have been prepared from the books and records of the
Purchaser in conformity with generally accept accounting principles consistent
with prior periods. The books and records of the Purchaser have been and are
being maintained in accordance with good business practice, reflect only valid
transactions, are complete and correct in all material respects and present
fairly in all material respects the basis for the financial position and
results of operations of the Purchaser set forth in the Purchaser Financial
Statements.

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5. CERTAIN COVENANTS AND AGREEMENTS

The Shareholder and the Companies, jointly and severally, covenant
and agree that from and after the execution and delivery of this Agreement to
and including the Closing Date (and thereafter as reflected below), it shall
comply (with respect to each of the Companies), and he shall cause the
Companies to comply (with respect to the Shareholder) with the covenants set
forth below, and Purchaser covenants and agrees that it shall similarly comply
with said covenants to the extent applicable to it.

5.1 Access. Upon reasonable notice, the Companies and
the Shareholder will give to Purchaser and its counsel, accountants and other
authorized representatives, full access during reasonable business hours to all
of its properties, books, contracts, documents and records and shall furnish
Purchaser with all such information concerning their affairs, including
existing financial statements, as Purchaser may reasonably request in order
that it may have full opportunity to make such reasonable investigations as it
shall desire for the purpose of verifying the performance of and compliance
with the representations, warranties, covenants and the conditions contained
herein or for other purposes reasonably related to the transactions
contemplated hereby. Each of the Companies and the Shareholder will take all
action necessary to enable Purchaser, its counsel, accountants and other
representatives to discuss the affairs, properties, business, operations and
records of the Companies at such times and as often as the Purchaser may
reasonably request with executives, independent accountants, and counsel of the
Companies and the Shareholder. The Companies and the Shareholder acknowledge
that Purchaser, at its own expense, may audit the books and records of the
Companies, and the Companies and the Shareholder agree to provide such
assistance as may be reasonably requested by Purchaser in conducting such
audit. In the event that the Closing does not occur and this Agreement is
terminated, each of the Shareholder, Companies and Purchaser shall keep in
confidence and shall not use or disclose to others all information provided
hereunder to the other, except such information as is in the public domain.

5.2 Best Efforts. Each of the Companies and Purchaser
shall take all reasonable action necessary to consummate the transactions
contemplated by this Agreement and will use all necessary and reasonable means
at its disposal to obtain all necessary consents and approvals of other persons
and governmental authorities required to enable it to consummate the
transactions contemplated by this Agreement.

5.3 Public Announcements. Prior to the Closing Date, all
notices to third parties and other publicity relating to the transactions
contemplated by this Agreement shall be jointly planned and agreed to by the
Companies and Purchaser; provided, however that any required public disclosures
related to any regulatory or governmental filing or requirement may be made by
Purchaser without the Shareholder's or the Companies' consent.

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5.4 Ordinary Course of Business. During the period from
the execution and delivery of this Agreement through the Closing Date, the
Companies shall (a) conduct their operations in the ordinary course of business
consistent with past and current practices, (b) use reasonable best efforts to
maintain and preserve intact their goodwill and business relationships, (c) not
enter into any agreement which involves the payment by any of the Companies of
an aggregate amount exceeding $10,000 or which has a term exceeding one year,
(d) enter into discussions, agreements or commitments with any person other
than the Purchaser regarding the purchase or sale of the Companies, or (e) take
any action which would cause any representation contained in Article 3 to be
untrue as of the Closing Date.

5.5 Use of Corporate Name. From and after the Closing
Date, the Shareholder and the Asset Seller will sign such consents and take
such other action as the Purchaser shall reasonably request in order to permit
the Purchaser to use the names "I Care", "I Care of Arkansas" and variations
thereof. From and after the Closing Date, the Asset Seller will not use such
names or any names similar thereto and will accordingly amend its Articles of
Incorporation to change its corporate names or dissolve.

5.6 Abbott Inventory and Equipment.

(a) The parties acknowledge that Abbott Laboratories,
Inc. ("Abbott") owns certain assets used in the operation of the Asset Seller's
businesses, including all of their inventory, certain equipment and certain
leasehold improvements (all such assets owned by Abbott and used in the
operation of the Asset Seller's businesses being referred to herein as the
"Abbott Assets.") A listing of the Abbott Assets that is true and correct in
all material respects is set forth on or attached to the Disclosure Schedule.

(b) Prior to the Closing Date, Asset Seller agrees to use
its best efforts to consummate the Abbott Purchase and Release (as defined
hereinafter) prior to the Closing Date. The "Abbott Purchase and Release"
shall mean that transaction or series of transactions between Asset Seller and
Abbott whereby (i) Asset Seller purchases from Abbott the Abbott Assets, (ii)
any and all liens or other encumbrances of any kind in favor or to the benefit
of Abbott with respect to the Abbott Assets or any other property used in the
operation of the businesses of the Companies or their successors or assigns are
terminated and (iii) any contractual obligations of the Asset Seller, the
Shareholder and their successors and assigns owing to Abbott (other than as
described in Section 5.9 hereof) are completely released.

(c) In the event that Asset Seller does not consummate
the Abbott Purchase and Release prior to or simultaneously with the Closing,
the Purchaser may exercise its termination rights pursuant to Sections 6.8 and
14(c) of this Agreement. In the event that Asset Seller consummates the Abbott
Purchase and Release prior to or simultaneously with the Closing, effective as
of the Closing Date the Asset Seller

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hereby agrees to sell, and the Purchaser agrees to buy from the Asset Seller,
the Abbott Assets in consideration of $750,000 payable in cash at the Closing.

5.7 Certain Governmental Filings. The Companies shall
make all filings, applications, statements and reports to all governmental
agencies or entities which are required to be made prior to the Closing Date by
or on their behalf pursuant to any statute, rule or regulation in connection
with the transactions contemplated by this Agreement, and copies of all such
filings, applications, statements and reports shall be provided to the
Purchaser.

5.8 Lease. At the Closing, the Shareholder and Purchaser
will enter into a lease in the form attached hereto as Exhibit D (the "Lease")
regarding the lease of the building located in Fort Smith, Arkansas which is an
Excluded Asset.

5.9 Collection of Abbott Receivable. The parties hereto
acknowledge that a portion of the amount collected on the Asset Seller's
accounts receivable, less the amount of any reserves existing on the Closing
Date are owed to Abbott upon collection (the "Abbott Receivable") and that such
portion of the accounts receivable are Excluded Assets and will be the property
of the Sellers from and after the Closing Date. At or prior to the Closing,
the parties will mutually agree on the amount of the Abbott Receivable. In
order to efficiently collect the Abbott Receivable, the Asset Seller hereby
assigns as of the Closing Date the Abbott Receivable to the Purchaser as its
agent for the purposes of collection. From and after the Closing Date, the
Purchaser shall use its commercially reasonable best efforts consistent with
the Companies' past practices to collect in a timely manner the agreed amount
of the Abbott Receivable; provided, however, that the Purchaser's obligation to
use its best efforts shall not extend to the institution of litigation,
employment of counsel or any other extraordinary means of collection. The
Purchaser shall separately account for all amounts collected on the Sellers'
behalf and remit to them for the benefit of Abbott such amounts quarterly in
arrears, within 30 days after each quarter end, until the agreed amount of the
Abbott Receivable is collected.

5.10 Management Agreement. At the Closing, the Seller and
the Purchaser shall enter into a Management Agreement (the "Management
Agreement"), on terms mutually acceptable to each such parties regarding the
management of certain aspects of the Business following the Closing.

5.11 Certain Tax Matters.

(a) The Purchaser covenants that it will not
make a Section 338(h)(10) election with respect to the purchase of
the Shares.

(b) Shareholder covenants that he will (i)
prepare all federal and state income tax returns relating to the
business, assets, properties or operations of the Stock
Corporations for all periods ending on or before the

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Closing Date, including without limitation (A) fiscal year 1995
(for each Stock Corporation, respectively) and (B) the period that
commences on the first day of fiscal year 1996 and ends on the
Closing Date (for each Stock Corporation, respectively); and (ii)
submit such tax returns to the Purchaser for review no later than
20 days before the appropriate filing deadline.

5.12 Schedules. Purchaser shall have 10 days from the
date hereof to review the Schedules to this Agreement, including the Disclosure
Schedule attached hereto as Exhibit C, and any other information provided to
Purchaser relating to the Companies, and within such period may reject the
Schedules and such information in its sole discretion and terminate this
Agreement. If Purchaser does not reject the Schedules or information within
such period, the Schedules shall be attached to the Agreement and deemed a part
thereof.

6. CONDITIONS TO PURCHASER'S CLOSING

All obligations of Purchaser under this Agreement shall be subject
to the fulfillment at or prior to the Closing of the following conditions, it
being understood that Purchaser may, in its sole discretion, waive any or all
of such conditions in whole or in part:

6.1 Representations, Etc. The Companies and the
Shareholder shall have performed in all material respects the covenants and
agreements contained in this Agreement that are to be performed by each of them
at or prior to the Closing, and the representations and warranties of the
Companies and the Shareholder contained in this Agreement shall be true and
correct as of the Closing Date with the same effect as though made at each such
time (except as contemplated or permitted by this Agreement).

6.2 Consents. The Companies and the Shareholder will
have used their best efforts to obtain all consents and approvals of
governmental agencies and from any other third parties (including consents
regarding managed care contracts) required to consummate the transactions
contemplated by this Agreement, and any such consents shall have been obtained
without material cost or other materially adverse consequence to Purchaser and
shall be in full force and effect.

6.3 No Adverse Litigation. No order or preliminary or
permanent injunction shall have been entered and no action, suit or other legal
or administrative proceeding by any court or governmental authority, agency or
other person shall be pending or threatened on the Closing Date which may have
the effect of (a) making any of the transactions contemplated hereby illegal,
(b) materially adversely affecting the value of the assets or business of the
Companies or (c) making Purchaser liable for the payment of a material amount
of damages to any person.

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6.4 Material Adverse Changes. Since December 31, 1995,
no material adverse change has occurred in the business, properties, assets,
liabilities, results of operations or condition, financial or otherwise, of the
Companies.

6.5 Completion of Due Diligence Review. Purchaser will
have completed its due diligence review of the Companies, including their
accounting records, major contracts and tax returns, and the results of which
shall be satisfactory to Purchaser in its sole discretion.

6.6 Financing. Purchaser will have obtained financing
sufficient to complete the transactions contemplated hereby on such terms as
are acceptable to Purchaser in its sole discretion; provided, however, if
Purchaser has not terminated this Agreement by the close of business on April
15, 1996, then Purchaser will be deemed to have waived this condition.

6.7 Closing Deliveries. Purchaser shall have received
each of the documents or items required to be delivered to it pursuant to
Section 8.1 hereof.

6.8 Abbott Purchase and Release. From and after the
Closing, there will be no liens or encumbrances of any kind in favor or to the
benefit of Abbott on the Abbott Assets or any other property used in the
operation of the Companies' businesses and there will not be any contractual
obligations owing to Abbott from the Companies, Shareholder, Purchaser, or
their successors or assigns (other than as described in Section 5.9 hereof).

7. CONDITIONS TO THE SHAREHOLDER'S AND THE COMPANIES' CLOSING

All obligations of the Shareholder and the Companies under this
Agreement shall be subject to the fulfillment at or prior to the Closing of the
following conditions, it being understood that the Shareholder and the
Companies may, in their sole discretion, waive any or all of such conditions in
whole or in part:

7.1 Representations, Etc. Purchaser shall have
performed in all material respects the covenants and agreements contained in
this Agreement that are to be performed by Purchaser at or prior to the
Closing, and the representations and warranties of Purchaser contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though made at each such time (except as contemplated or permitted by this
Agreement).

7.2 No Adverse Litigation. No order or preliminary or
permanent injunction shall have been entered and no action, suit or other legal
or administrative proceeding by any court or governmental authority, agency or
other person shall be pending or threatened on the Closing Date which may have
the effect of making any of the transactions contemplated hereby illegal.

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7.3 Closing Deliveries. The Shareholder and the
Companies shall have received each of the documents or items required to be
delivered to them pursuant to Section 8.2 hereof.

7.4 Termination of Abbott Obligations. From and after
the Closing, the Shareholder and the Asset Seller will have no continuing
contractual obligations owing to Abbott, other than as provided in Section 5.9
hereof.

8. DOCUMENTS TO BE DELIVERED AT CLOSING

8.1 To Purchaser. At the Closing, there shall be
delivered to Purchaser:

(a) The bills of sale, agreements of assignment and
similar instruments of transfer of the Assets contemplated herein and the bill
of sale related to the Abbott Assets as contemplated hereunder;

(b) The Shares together with duly executed stock powers,
in form satisfactory to Purchaser and its counsel;

(d) A certificate, signed by the Companies, as to the
fulfillment of the conditions set forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.7
hereof;

(e) Opinion of counsel to the Companies, dated as of the
Closing Date, in form reasonably acceptable to Purchaser;

(f) A copy of all consents and approvals referred to in
Section 6.2 hereof;

(g) The Lease;

(h) The Management Agreement;

(i) The corporate minute books and stock books of the
Stock Corporations;

(j) Schedule 1.5(c)

(k) Documentation evidencing the consummation of the
Abbott Purchase and Release including evidence of appropriate lien releases as
requested by Purchaser.

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(l) Evidence that the Asset Seller's corporate name will
be promptly changed after the Closing; and

(m) All other items reasonably requested by Purchaser.

8.2 To Sellers. At the Closing, there shall be delivered
to the Asset Seller and the Shareholder:

(a) The purchase price as contemplated by Section 2.1
hereof, including the Notes;

(b) A certificate, signed by an executive officer of the
Purchaser, as to the fulfillment of the conditions set forth in Sections 7.1
and 7.2 hereof;

(d) The Lease;

(e) An assumption agreement pursuant to which Purchaser
shall assume the Assumed Liabilities;

(f) The amount of $750,000 in cash to the Asset Seller
for the Abbott Assets; and

(g) All other items reasonably requested by the
Companies.

9. SURVIVAL

All representations, warranties, covenants and agreements made by
any party to this Agreement or pursuant hereto shall be deemed to be material
and to have been relied upon by the parties hereto and shall survive the
Closing for a three year period; provided, however, that any representations,
warranties, covenants and agreements relating to tax liabilities and Medicare
or Medicaid billings, reports or filings shall survive the Closing for a five
year period. The representations and warranties hereunder shall not be
affected or diminished by any investigation at any time by or on behalf of the
party for whose benefit such representations and warranties were made. All
statements contained herein or in any certificate, exhibit, list or other
document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties.

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10. INDEMNIFICATION OF THE COMPANIES AND THE SELLERS

Purchaser shall indemnify and hold the Sellers harmless from,
against, for and in respect of:

(a) any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action and encumbrances
suffered, sustained, incurred or required to be paid by the Sellers because of
the breach of any written representation, warranty, agreement or covenant of
Purchaser contained in or made in connection with this Agreement;

(b) any and all liabilities, obligations, claims and
demands arising out of the ownership and operation of the Assets or Stock
Corporations on and after the Closing Date, except to the extent the same
arises from a breach of any written representation, warranty, agreement or
covenant of the Companies or the Shareholder contained in or made in connection
with this Agreement or as otherwise provided in Section 11; and

(c) all reasonable costs and expenses (including, without
limitation, attorneys' fees, interest and penalties) incurred by the Companies
or the Shareholder in connection with any action, suit, proceeding, demand,
assessment or judgment incident to any of the matters indemnified against in
this Section 10.

11. INDEMNIFICATION OF PURCHASER

The Sellers, jointly and severally, shall indemnify and hold
Purchaser harmless from, against, for and in respect of:

(a) any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action and encumbrances
suffered, sustained, incurred or required to be paid by Purchaser that result
from, relate to or arise out of (A) a breach of any written representation,
warranty, agreement or covenant of the Companies or the Shareholder contained
in this Agreement or (B) the ownership and operation of the Assets or the Stock
Corporations prior to the Closing Date, including but not limited to, claims
related to services provided by the Companies pursuant to Medicare, Medicaid
and third payors for periods prior to the Closing;

(b) any product liability or similar claims for injury to person
or property arising in connection with the Companies' operations made prior to
the Closing Date, including without limitation any claim related thereto
seeking recovery for consequential damage, lost revenue or income;

(c) any product liability or similar claims for injury to person or
property, regardless when made or asserted, that arise out of or are based upon
the negligence or willful misconduct of the Companies or their employees and
agents in connection

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with any service performed (including maintenance services) on or prior to the
Closing, including without limitation any claim related thereto seeking
recovery for consequential damage, lost revenue or income;

(d) any claims, regardless when made or asserted, which arise out of
or are based upon any express or implied representation, warranty, agreement or
guarantee made by the Companies or alleged to have been made by the Companies
or their employees and agents;

(e) any federal, state or local income or other tax (i) payable with
respect to the business, assets, properties or operations of the Companies or
the Shareholder or any member of any affiliated group of which any of such
parties is a member for any period prior to the Closing Date or (ii) incident
to or arising as a consequence of the negotiation or consummation by the
Companies or the Shareholder or any member of any affiliated group of which any
of them is a member of this Agreement and the transactions contemplated hereby;

(f) any liability or obligation under or in connection with the
Excluded Assets, the Eliminated Assets, the Excluded Liabilities or the
Eliminated Liabilities, including without limitation any liability or
obligation arising out of any litigation pending against any of the Companies
or Shareholder as of the Closing Date;

(g) any liability or obligation arising prior to or as a result of
the Closing to any employees, agents or independent contractors of the
Companies, whether or not employed by Purchaser after the Closing or under any
benefit arrangement with respect thereto; and

(h) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by Purchaser in connection
with any action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against in this Section 11.

Notwithstanding the foregoing, Purchaser shall not be entitled to make
any claims pursuant to this Section 11 unless the aggregate cumulative
liability of the Sellers exceeds $25,000; provided further, if Purchaser does
incur such liability, the Sellers shall be liable for the entire amount such
liability. In addition, the Sellers will not be liable for claims in excess of
$5,000,000 in the aggregate.

12. GENERAL RULES REGARDING INDEMNIFICATION

(a) The obligations and liabilities of each indemnifying party
hereunder with respect to claims resulting from the assertion of liability by
the other party or indemnified third parties shall be subject to the following
terms and conditions:

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<PAGE> 27
(i) the indemnified party shall give prompt written
notice (which in no event shall exceed 10 days from the date on which
the indemnified party first became aware of such claim or assertion)
to the indemnifying party of any claim which might give rise to a
claim by the indemnified party against the indemnifying party based on
the indemnity agreements contained in Section 10 or 11 hereof, stating
the nature and basis of said claims and the amounts thereof, to the
extent known;

(ii) if any action, suit or proceeding is brought against
the indemnified party with respect to which the indemnifying party may
have liability under the indemnity agreements contained in Section 10
or 11 hereof, the action, suit or proceeding shall, upon the written
acknowledgement by the indemnifying party that is obligated to
indemnify under such indemnity agreement, be defended (including all
proceedings on appeal or for review which counsel for the indemnified
party shall deem appropriate) by the indemnifying party. The
indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at
the indemnified party's own expense unless the employment of such
counsel and the payment of such fees and expenses both shall have been
specifically authorized in writing by the indemnifying party in
connection with the defense of such action, suit or proceeding, in
which event the indemnifying party shall not have the right to direct
the defense of such action, suit or proceeding on behalf of the
indemnified party. The indemnified party shall be kept fully informed
of such action, suit or proceeding at all stages thereof whether or
not it is represented by separate counsel.

(iii) The indemnified party shall make available to the
indemnifying party and its attorneys and accountants all books and
records of the indemnified party relating to such proceedings or
litigation and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to
ensure the proper and adequate defense of any such action, suit or
proceeding.

(iv) The indemnified party shall not make any settlement
of any claims without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed.

(v) If any claims are made by third parties against an
indemnified party for which an indemnifying party would be liable, and
it appears likely that such claims might also be covered by the
indemnified party's insurance policies, the indemnified party shall
make a timely claim under such policies and to the extent that such
party obtains any recovery from such insurance, such recovery shall be
offset

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<PAGE> 28
against any sums due from an indemnifying party (or shall be repaid by
the indemnified party to the extent that an indemnifying party has
already paid any such amounts). If the indemnified party files a
claim under any insurance policy, the indemnified party shall waive
its rights of subrogation against the indemnifying party with respect
to such claim and shall use its reasonable best efforts to cause the
insurer to waive its rights of subrogation against the indemnifying
party. The parties acknowledge, however, that if an indemnified party
is self-insured as to any matters, either directly or through an
insurer which assesses retroactive premiums based on loss experience,
then to the extent that the indemnified party bears the economic
burden of any claims through self-insurance or retroactive premiums or
insurance ratings, the indemnifying party's obligation shall only be
reduced by any insurance recovery in excess of the amount paid or to
be paid by the indemnified party in insurance premiums.

(vi) Unless the Sellers satisfy in full an
indemnification claim payable by them hereunder (the "Claim Amount")
in cash or other consideration acceptable to the Purchaser including,
without limitation, by means of offset pursuant to a Direction to
Offset delivered in accordance with subsection (b) below, Purchaser
will be entitled to offset against amounts payable under the Notes
whereupon the monthly payments thereunder will be reduced, and shall
so advise the Sellers in writing of such intent to offset (the date of
which such writing is sent by the Purchaser being referred to as the
"Offset Notice Date"), the unpaid balance of the Claim Amount.

(b) The Sellers may, in their sole discretion, elect to satisfy
all or any portion of a Claim Amount, subject to the provisions in this
subsection (b), by delivering a written notice to Purchaser (a "Direction to
Offset") directing it to offset the unpaid balance of such Claim Amount against
amounts payable under the Notes issued pursuant to Section 2.1 hereof in the
manner provided in Section 12(a)(vi) above, provided that "Offset Notice Date"
shall be the date on which the applicable Direction to Offset is sent by the
Sellers to Purchaser; provided further, that if the aggregate unpaid balance of
the Notes is less than the Claim Amount, the Sellers shall remain liable for
the unsatisfied portion of the Claim Amount.

(c) Except as herein expressly provided, the remedies provided
in Sections 10 through 12 hereof shall be cumulative and shall not preclude
assertion by any party of any other rights or the seeking of any other rights
or remedies against any other party hereto.

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<PAGE> 29
13. FAILURE TO CLOSE BECAUSE OF DEFAULT

In the event that the Closing is not consummated by virtue of a
material default made by a party in the observance or in the due and timely
performance of any of its covenants or agreements herein contained ("Default"),
the parties shall have and retain all of the rights afforded them at law or in
equity by reason of that Default. In addition, the Companies, the Shareholder
and Purchaser acknowledge that the Assets and the transactions contemplated
hereby are unique, that a failure by the Companies, the Shareholder or
Purchaser to complete such transactions will cause irreparable injury to the
other, and that actual damages for any such failure may be difficult to
ascertain and may be inadequate. Consequently, Purchaser, the Companies and
the Shareholder agree that each shall be entitled, in the event of a Default by
the other, to specific performance of any of the provisions of this Agreement
in addition to any other legal or equitable remedies to which the
non-defaulting party may otherwise be entitled.

14. TERMINATION RIGHTS

14.1 General. This Agreement may be terminated by either
Purchaser or the Companies, if either such party is not then in Default, upon
written notice to the other upon the occurrence of any of the following:

(a) If the Closing has not occurred on or before June 3, 1996;

(b) If the Companies and the Shareholder, on the one hand, or
the Purchaser, on the other, Defaults and such Default has not been cured
within 10 days of written notice of such Default by the other party;

(c) Subject to the provisions of Sections 6 and 7 hereof, by the
Companies and the Shareholder or Purchaser if on the Closing Date any of the
conditions precedent to the obligations of the Companies and the Shareholder or
Purchaser, respectively, set forth in this Agreement have not been satisfied or
waived by such party; or

(d) By mutual consent of the Companies and Purchaser.

15. MISCELLANEOUS PROVISIONS

15.1 Expenses. The Purchaser shall pay the fees and expenses
incurred by it in connection with the transactions contemplated by this
Agreement and the Companies and the Shareholder shall pay the fees and expenses
incurred by them in connection with the transactions contemplated by this
Agreement. If any action is brought for breach of this Agreement or to enforce
any provision of this Agreement,

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<PAGE> 30
the prevailing party shall be entitled to recover court costs, arbitration
expenses and reasonable attorneys' fees.

15.2 Amendment. This Agreement may be amended at any time but
only by an instrument in writing signed by the parties hereto.

15.3 Notices. Any notice, consent, demand, request, approval or
other communication to be given hereunder by any party to another shall be
deemed to have been duly given if given in writing and personally delivered or
sent by overnight delivery service, telegram, facsimile transmission, telex or
United States mail, registered or certified, postage prepaid, with return
receipt requested, to the address set forth on the signature page hereto.
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by telegram, facsimile transmission, telex
or personal delivery, on the date of actual transmission or, as the case may
be, personal delivery.

15.4 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, heirs and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the others; provided, however, that Purchaser may
assign its rights under this Agreement to any of its wholly owned subsidiaries.
If Purchaser so assigns its rights to a subsidiary, Purchaser agrees to execute
a guaranty in a form reasonably satisfactory to the Companies and the
Shareholder guaranteeing the obligations of such subsidiary.

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

15.6 Headings. The headings of the Sections of this Agreement
are inserted for convenience only and shall not constitute a part hereof.

15.7 Entire Agreement. This Agreement and the documents referred
to herein contain the entire understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties, conveyances or undertakings other than those expressly set forth
herein. This Agreement supersedes any prior agreements and understandings
between the parties with respect to the subject matter.

15.8 Waiver. No attempted waiver of compliance with any
provision or condition hereof, or consent pursuant to this Agreement, will be
effective unless

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<PAGE> 31
evidenced by an instrument in writing by the party against whom the
enforcement of any such waiver or consent is sought.

15.9 Governing Law; Venue . This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
acknowledge that this Agreement is performable in Dallas County, Texas. If any
action is brought to enforce or interpret this Agreement, venue for such action
will be in Dallas County, Texas.

15.10 Intended Beneficiaries. The rights and obligations
contained in this Agreement are hereby declared by the parties hereto to have
been provided expressly for the exclusive benefit of such entities as set forth
herein and shall not benefit, and do not benefit, any unrelated third parties.

15.11 Mutual Contribution. The parties to this Agreement and
their counsel have mutually contributed to its drafting. Consequently, no
provision of this Agreement shall be construed against any party on the ground
that such party drafted the provision or caused it to be drafted or the
provision contains a covenant of such party.

15.12 Purchaser's Acknowledgments. Purchaser realizes that the
Shares are not and will not be registered under the Securities Act of 1933 or
under any applicable state securities law. Purchaser is purchasing the Shares
for Purchaser's own account and not with a view to resell the Shares.

15.13 Assertion of Claims against the Stock Corporations. In any
proceeding by the Purchaser to assert or prosecute any claims under, or to
otherwise enforce, this Agreement, the Sellers agree that they shall not assert
as a defense or bar to recover, and hereby waive any right to so assert such
defense or bar such recovery, that (a) prior to Closing, the Stock Corporations
shall have had knowledge of the circumstances giving rise to the claim being
pursued; (b) prior to Closing, the Stock Corporations engaged in conduct or
took action that caused or brought about the circumstances giving rise to the
claim, or otherwise contributed thereto; or (c) the Sellers have a right of
contribution from the Stock Corporations to the extent that there is any
recovery against them.

(Signature Page to Follow)

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

HEALTHCOR HOLDINGS, INC.

By: /s/ S. Wayne Bazzle
----------------------------------
S. Wayne Bazzle, Chief Executive
Officer

ADDRESS: 5720 LBJ Freeway
Suite 550
Dallas, Texas 75240

I CARE OF ARKANSAS, INC.

By: /s/ Gene Graves
----------------------------------
Gene Graves, President

I CARE, INC.

By: /s/ Gene Graves
----------------------------------
Gene Graves, President

I CARE HOME I.V. AFFILIATES, INC.

By: /s/ Gene Graves
----------------------------------
Gene Graves, President

/s/ Gene Graves
--------------------------------------
Gene Graves

ADDRESS FOR COMPANIES AND SHAREHOLDER:

3227 McKinney Drive
Dallas, Texas 75204

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<PAGE> 33
EXHIBIT A TO PURCHASE AGREEMENT

EMPLOYMENT, CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

THIS EMPLOYMENT, CONFIDENTIALITY AND NON-COMPETITION AGREEMENT, dated
as of May 1, 1996 (this "Agreement"), is by and among HealthCor Holdings, Inc.,
a Delaware corporation ("Employer"), and Gene Graves ("Employee").

W I T N E S S E T H:

WHEREAS, pursuant to that certain Purchase Agreement, dated as of
April 15, 1996 (the "Acquisition Agreement"), Employer purchased certain of the
assets (the "Assets") of I Care of Arkansas, Inc. ("Arkansas") and purchased
all of the issued and outstanding shares (the "Shares") of capital stock of
each of I Care, Inc., d/b/a I Care Health Services, Inc. ("Health Services"),
and I Care Home I.V. Affiliates, Inc. ("IV Affiliates" and with Arkansas and
Health Services the "Companies"); and

WHEREAS, immediately prior to the purchase of the Assets and Shares by
Employer, Employee was an officer, director and employee and the sole
shareholder of the Companies; and

WHEREAS, in order to induce Employer to purchase the Assets and the
Shares, Employee has agreed to enter into this Agreement and Employee
acknowledges that he will economically benefit from the transactions
contemplated by the Acquisition Agreement; and

WHEREAS, the execution of this Agreement is a condition precedent to
the closing of the transactions contemplated by the Acquisition Agreement; and

WHEREAS, Employer would not consummate the transactions contemplated
by the Acquisition Agreement absent the execution by Employee of this
Agreement; and

WHEREAS, the Employer and its Affiliates (the term "Affiliates" shall
include any person or entity that directly or indirectly controls, is
controlled by, or is under the control of Employer) through the acquisition of
the Companies and through existing operations are engaged in the business of
providing a wide range of services and products in the home health industry,
including but not limited to, home nursing, IV and other therapy services,
hospice services, primary home care and the sale and lease of products used in
the home health industry (collectively, the "Business"); and

WHEREAS, the Employer and its Affiliates would suffer damages,
including the loss of profits, if Employee solicited any of its customers or
employees; and

WHEREAS, Employee recognizes and agrees that the covenants made by him
herein are essential to the ability of Employer to retain the goodwill owned by
the Companies that are being acquired by it;
<PAGE> 34
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants set forth below, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, covenant and agree as follows:

1. Compensation and Employment. Employee agrees to be employed
by Employer, and Employer agrees to so employ Employee, on the terms and
conditions set forth below. Employer shall pay to Employee, and Employee
agrees to accept as full consideration for his employment, $200,000 per year,
payable in accordance with Employer's normal payroll procedures and subject to
all appropriate withholdings.

Employee shall be entitled to such fringe benefits that are consistent
with Employee's status as an executive of Employer as determined by the Board
of Directors of Employer, including the use of an Employer owned automobile,
gasoline, maintenance and country club dues consistent with the Companies' past
practices. Employee agrees during the term of his employment to devote his full
business time and his best efforts, skills and abilities exclusively to the
performance of his duties as stated in this Agreement and to the furtherance of
Employer's business.

Employee's job title shall be the President of I Care (Employer's
Arkansas Division) and his duties shall include managing the business and
operations of Employer's I Care Division, and performing such other similar
services for Employer or as may be directed from time to time by the Chief
Executive Officer of Employer.

Employee shall also use his best efforts to preserve the business of
Employer and the good will of all employees, customers, suppliers and other
persons having business relations with Employer.

2. Term. The employment of Employee shall begin on the date of
this Agreement and shall continue until the earliest of (i) December 31, 1999;
(ii) the date Employer terminates it for just cause; or (iii) the death of
Employee.

For purposes of this Section 2, "just cause" for termination shall
include: (a) the failure or inability for any reason of Employee to devote such
time as necessary to fulfill his duties regarding Employer's business as
provided hereunder, (b) the failure of Employee to diligently or effectively
perform his duties under this Agreement, (c) the commission by Employee of a
felony or an act involving moral turpitude or the commission by Employee of an
act or the suffering by Employee of any occurrence or state of facts, which
renders Employee incapable of performing his duties under this Agreement, or
adversely affects or could reasonably be expected to adversely affect
Employer's business reputation, (d) any breach by Employee of any of the terms
of, or the failure to perform any covenant contained in, this Agreement, (e)
the violation by Employee of instructions or policies established by Employer
with respect to the operation of its business and affairs or Employee's failure
to carry out the reasonable instructions of the Chief Executive Officer of
Employer, or (f) the commission by

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<PAGE> 35
Employee of any action or the existence of any state of facts which would
legally justify an employer in terminating a contract of employment.

Unless otherwise indicated herein, the provisions of Sections 3, 4 and
5 shall survive any termination of Employee's employment under this Agreement.
In the event of the termination of Employee's employment prior to the
completion of the initial term of employment, Employee shall be entitled only
to the compensation earned by him as of the date of termination.

3. Nondisclosure Agreement. Employee, during the term of
employment under this Agreement and as an employee and shareholder of the
Companies, has had and will have access to and become familiar with various
trade secrets and proprietary and confidential information consisting of, but
not limited to, processes, computer programs, compilations of information,
records, sales procedures, customer requirements, pricing techniques, customer
lists, methods of doing business and other confidential information
(collectively referred to as the "Trade Secrets"), that are owned by Employer,
the Companies or their Affiliates and regularly used in the operation of the
Business, but in connection with which Employer takes precautions to prevent
dissemination to persons other than certain directors, officers and employees.
Employee acknowledges and agrees that the Trade Secrets (1) are secret and not
known in the industry; (2) are entrusted to Employee after being informed of
their confidential and secret status by Employer and because of the fiduciary
position occupied by Employee with Employer; (3) have been developed by
Employer for and on behalf of Employer through substantial expenditures of
time, effort and money and are used in its business; (4) give Employer an
advantage over competitors who do not know or use the Trade Secrets; (5) are of
such value and nature as to make it reasonable and necessary to protect and
preserve the confidentiality and secrecy of the Trade Secrets; (6) the Trade
Secrets are valuable, special and unique assets of Employer and its Affiliates
the disclosure of which could cause substantial injury and loss of profits and
good will to Employer and its Affiliates; and (7) with respect to the Trade
Secrets relating to the Companies as of the date hereof, are valuable assets
being acquired by Employer in connection with the Acquisition Agreement.
Employee shall not use in any way or disclose any of the Trade Secrets,
directly or indirectly, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment under this
Agreement. All files, records, documents, information, data and similar items
relating to the business of Employer or its Affiliates whether prepared by
Employee or otherwise coming into his possession, shall remain the exclusive
property of Employer or its Affiliates and shall not be removed from the
premises of Employer or its Affiliates under any circumstances without the
prior written consent of the Chief Executive Officer of Employer (except in the
ordinary course of business during Employee's period of active employment under
this Agreement), and in any event shall be promptly delivered to Employer upon
termination of this Agreement. Employee agrees that upon his receipt of any
subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person,
Employee shall timely notify

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<PAGE> 36
and promptly hand deliver a copy of the subpoena, process or other request to
the Chief Executive Officer of Employer. For this purpose, Employee
irrevocably nominates and appoints Employer (including any attorney retained by
Employer), as his true and lawful attorney-in-fact, to act in Employee's name,
place and stead to perform any act that Employee might perform to defend and
protect against any disclosure of any Trade Secrets.

4. Non-Competition Agreement. Employee acknowledges and agrees
that the training he will receive, the experience he will gain while employed
and the information he will acquire regarding the Trade Secrets will enable his
to injure Employer if he should compete with Employer in a business that is
competitive with the business conducted or to be conducted by Employer. In
addition, Employer has acquired the Trade Secret and the good will of the
Companies as a result of the transactions described in the Acquisition
Agreement, and Employer would not have consummated such transactions without
Employee executing a non-competition agreement. For these reasons, Employee
hereby agrees as follows:

(a) Without the prior written consent of Employer,
Employee shall not, during the period of employment with Employer, directly or
indirectly, either as an individual, a partner or a joint venturer, or in any
other capacity, (i) invest (other than investments in publicly owned companies
which constitute not more than 1% of the voting securities of any such company)
or engage in any business that is competitive with the Business, (ii) accept
employment with or render services to a competitor of Employer as a director,
officer, agent, employee or consultant, (iii) contact, solicit or attempt to
solicit or accept business from any (A) customers of Employer, the Companies or
their Affiliates or (B) person or entity whose business Employer or its
Affiliates are soliciting, (iv) contact, solicit or attempt to solicit or
accept or direct business that is competitive with the Business during
Employee's employment under this Agreement from any of the customers of
Employer or its Affiliates, or (v) take any action inconsistent with the
fiduciary relationship of an employee to his employer.

(b) For a period of five years after the date hereof,
Employee shall not, directly or indirectly, either as an individual, a partner
or a joint venturer, or in any other capacity, in the Restricted Area (as
defined herein) (i) invest (other than investments in publicly owned companies
which constitute not more than 1% of the voting securities of any such company)
or engage in any business that is competitive with the Business, (ii) accept
employment with or render services to a competitor of Employer or its
Affiliates as a director, officer, agent, employee or consultant, or (iii)
contact, solicit or attempt to solicit or accept business from any (A) customer
of Employer, the Companies or their Affiliates or (B) person or entity whose
the Employer or its Affiliates are soliciting. For the purposes of this
Agreement, the "Restricted Area" shall mean following areas: (1) the State of
Arkansas and (2) a 75- mile radius of Texarkana, Texas. As used herein, a
"competitor" specifically includes persons, firms, sole proprietorships,
partnerships, companies, corporations or other entities that

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<PAGE> 37
market products and/or perform services in direct or indirect competition with
the Business within the Restricted Area.

5. Nonemployment Agreement. For a period of five years after the
termination or cessation of his employment with Employer for any reason
whatsoever, Employee shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation or other entity, hire or solicit
or in any manner attempt to influence or induce any employee of Employer or its
Affiliates to leave the employment of Employer or its Affiliates nor shall he
use or disclose to any person, partnership, association, corporation or other
entity any information obtained while an employee of Employer concerning the
names and addresses of Employer's employees.

6. Severability. The parties hereto intend all provisions of
Sections 4 and 5 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Sections 4 and 5 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such
narrower scope as it determines to be reasonable and enforceable. In addition,
however, Employee agrees that the non-competition agreements, nondisclosure
agreements and nonemployment agreements set forth above each constitute
separate agreements independently supported by good and adequate consideration
and shall be severable from the other provisions of, and shall survive, this
Agreement. The existence of any claim or cause of action of Employee against
Employer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of the covenants and
agreements of Employee contained in the non-competition, nondisclosure or
nonemployment agreements. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part of this Agreement; and the remaining
provisions of this Agreement shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement, a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.

7. Inventions. Employee shall promptly disclose, grant and
assign to Employer for its sole use and benefit any and all inventions,
improvements, technical information and suggestions relating in any way to the
products and services of Employer or its Affiliates or capable of beneficial
use by Employer or its Affiliates which Employee has in the past conceived,
developed or acquired, or may conceive, develop or acquire during the term
hereof (whether or not during usual working hours), together with all patent
applications, letters patent, copyrights and reissues thereof that may at any
time be granted for or upon any such invention, improvement or

5
<PAGE> 38
technical information. In connection therewith, Employee shall promptly at all
times during and after the term hereof:

(a) Execute and deliver such applications, assignments,
descriptions and other instruments as may be necessary or proper in the opinion
of Employer to vest title to such inventions, improvements, technical
information, patent applications and patents or reissues thereof in Employer
and to enable it to obtain and maintain the entire right and title thereto
throughout the world.

(b) Render to Employer, at its expense, all such assistance as it may
require in the prosecution of applications for said patents or reissues
thereof, in the prosecution or defense of interferences which may be declared
involving any said application or patents, and in any litigation in which
Employer may be involved relating to any such patents, inventions, improvements
or technical information.

8. Affiliates. Employee will use his best efforts to ensure that
no relative of his or corporation of which he is an officer, director or
shareholder, or other affiliate of him, shall take any action that Employee
could not take without violating any provision of this Agreement.

9. Remedies. Employee recognizes and acknowledges that the
ascertainment of damages in the event of his breach of any provision of this
Agreement would be difficult, and Employee agrees that Employer, in addition to
all other remedies it may have, shall have the right to injunctive relief if
there is such a breach.

10. Acknowledgements. Employee acknowledges and recognizes that
the enforcement of any of the non-competition provisions in this Agreement by
Employer will not interfere with Employee's ability to pursue a proper
livelihood. Employee further represents that he is capable of pursuing a
career in other industries to earn a proper livelihood. Employee recognizes
and agrees that the enforcement of this Agreement is necessary to ensure the
preservation and continuity of the business and good will of Employer. Employee
agrees that due to the nature of Employer's business, the non-competition
restrictions set forth in this Agreement are reasonable as to time and
geographic area. At any time during the five years commencing on the date
hereof, Employer may request Employee to supply such information as Employer
deems necessary to ascertain whether or not Employee has complied with, or has
violated, the restrictive covenants of Sections 3, 4, and 5 hereof. Any such
request for information will be sent to Employee by certified mail, return
receipt requested, addressed to Employee's last known address. Employee shall
furnish the requested information to Employer within 10 days following the
receipt of such request.

11. Notices. Any notice, consent, demand, request, approval or
other communication to be given hereunder by any party to another shall be
deemed to have been duly given if given in writing and personally delivered or
sent by overnight

6
<PAGE> 39
delivery service, telegram, facsimile transmission, telex or United States
mail, registered or certified, postage prepaid, with return receipt requested,
to the following addresses:

If to Employer: HealthCor Holdings, Inc.
5720 LBJ Freeway
Dallas, Texas 75240
Attention: S. Wayne Bazzle

If to Employee: Gene Graves
3227 McKinney Avenue
Dallas, Texas 75204

Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by telegram, facsimile transmission, telex
or personal delivery, on the date of actual transmission or, as the case may
be, personal delivery.

12. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or written, between the parties hereto with respect to
the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto.

13. Modification. No change or modification of this Agreement
shall be valid or binding upon the parties hereto, nor shall any waiver of any
term or condition in the future be so binding, unless such change or
modification or waiver shall be in writing and signed by the parties hereto.

14. Governing Law and Venue. The parties acknowledge and agree
that this Agreement and the obligations and undertakings of the parties
hereunder will be performable in Little Rock, Arkansas. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Texas. If any action is brought to enforce or interpret this Agreement, venue
for such action shall be in Little Rock, Arkansas.

15. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which shall constitute
one document.

16. Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.

7
<PAGE> 40
17. Estate. If Employee dies prior to the expiration of the term
of employment, any monies that may be due him from Employer under this
Agreement as of the date of his death shall be paid to his estate.

18. Assignment. Employer shall have the right to assign this
Agreement to its affiliates, successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of Employer's assets or all of its stock, or
with which Employer merges or consolidates. The rights, duties and benefits to
Employee hereunder are personal to him, and no such right or benefit may be
assigned by him.

19. Binding Effect. This Agreement shall be binding upon the
parties hereto, together with their respective executors, administrators,
successors, personal representatives, heirs and assigns.

20. Waiver of Breach. The waiver by Employer of a breach of any
provisions of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.

21. Intended Beneficiaries. The rights and obligations contained
in this Agreement are hereby declared by the parties hereto to have been
provided expressly for the exclusive benefit of such entities as set forth
herein and shall not benefit, and do not benefit, any unrelated third parties.

22. Mutual Contribution. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision
of this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision
contains a covenant of such party.

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

EMPLOYEE:

/s/ Gene Graves
----------------------------------
Gene Graves

EMPLOYER:

HEALTHCOR HOLDINGS, INC.

By: /s/ S. Wayne Bazzle
------------------------------
S. Wayne Bazzle
Chief Executive Officer

8
<PAGE> 41
EXHIBIT B TO PURCHASE AGREEMENT

PROMISSORY NOTE

May 1, 1996 $1,000,000

HealthCor Holdings, Inc. (the "Maker"), for value received, hereby
promises to pay to I Care of Arkansas, Inc. (the "holder"), in connection with
that certain Purchase Agreement (the "Purchase Agreement"), dated as of April
15, 1996 and by and among the holder, the sole stockholder of the holder and
Maker, the principal balance of $1,000,000 together with interest as provided
for herein, at the times specified herein. The outstanding principal amount of
this Note shall bear interest from the date hereof until the due date at a rate
equal to 8% per annum.

1. Payment of Principal and Interest.

(a) Principal and Interest Payments. Subject to the
provisions of Section 6 hereof, this Note will be paid to the holder
in monthly payments of principal and interest of $31,336.37 payable on
the first day of each month commencing on June 1, 1996 and will
continue until May 1, 1999, when the entire principal amount of this
Note and all interest accrued thereon shall be paid in full.

(b) Method of Payment. This Note shall be payable at or
to such other address as the holder may notify the Maker in writing in
such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
Except as otherwise provided herein, all sums of past-due principal
and accrued interest shall bear interest at the maximum rate of
interest permitted by applicable law.

2. Prepayment. The Maker may at any time prepay all or any part
of the outstanding principal amount of this Note. Prepayments shall be deemed
to apply first against accrued and unpaid interest and then to unpaid
principal.

3. Events of Default. Should any of the following events occur
(an "Event of Default"), the Maker shall be in default hereunder:

(a) If a payment of principal of, or interest accrued on,
this Note is not paid when the same becomes due; provided, however, an
Event of Default shall not have occurred until the expiration of a
five-day period commencing on the date written notice is delivered to
the Maker of such non-payment;

(b) If the Maker shall voluntarily suspend the
transaction of its business or if the Maker shall make a general
assignment for the benefit of creditors; or if the Maker shall be
adjudicated a bankrupt, or shall file a voluntary petition in
bankruptcy or for a reorganization or to effect a plan or other
arrangement with its creditors, or if the Maker shall file an answer
to a creditor's petition or other petition against it (admitting the
material allegations
<PAGE> 42
thereof) for an adjudication in bankruptcy or for a reorganization; or
if the Maker shall apply for or permit the appointment of a receiver,
trustee or custodian for any substantial portion of its properties or
assets; or if any order shall be entered by any court approving an
involuntary petition seeking reorganization; or if a receiver, trustee
or custodian shall be appointed for it or for any substantial portion
of its property or assets; or if bankruptcy, reorganization or
liquidation proceedings are instituted against it and remain
undismissed for 60 days.

4. Acceleration of Indebtedness.

(a) Upon the occurrence of an Event of Default, the
entire unpaid principal amount, together with any interest accrued
thereon, of this Note shall be due and payable in full at the option
of the holder.

(b) The Maker and each surety, guarantor, endorser and
other party ever liable for payment of any sums of money payable on
this Note, jointly and severally expressly waive all notices, demands
for payment, presentations for payment, notices of intention to
accelerate maturity, notices of acceleration of maturity, protest and
notice of protest, and any other notices of any kind as to this Note
and as to each, every and all installments or part payments thereof,
and consents that the payee or other holder of this Note may at any
time and from time to time, upon request of or by agreement with the
Maker, extend the date of maturity hereof or change the time or method
of payments hereof without notice to any of the other makers, sureties
or endorsers, who shall remain bound for the payment hereof. The
holder shall have the right to deal in any way, at any time, with one
or more of the foregoing parties without notice to any other party,
and to grant any party any extensions of time for payment of any said
indebtedness, or to grant any other indulgences or forebearances
whatsoever, without notice to any other party and without in any way
affecting the personal liability of any party hereunder.

5. Collection Fees. If an Event of Default occurs and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through
bankruptcy proceedings, the Maker agrees to pay in addition to all sums then
due hereon, including principal and interest, all reasonable expenses of
collection including reasonable attorneys' fees.

6. Terms of Purchase Agreement. This Note is made subject to the
terms and conditions contained in the Purchase Agreement, including but not
limited to Sections 2.5 and 12 relating to certain offset rights in favor of
Maker. The amount of the monthly payments set forth in Section 1(a) shall be
appropriately adjusted in the event of any adjustment in the principal amount
of this Note as a result of the events described in the preceding sentence.

<PAGE> 43

7. Amendments and Waivers. This Note may be amended by written
agreement of the Maker and the holder. No waiver of the provisions hereof
shall be effective unless agreed to in writing by the party against whom such
waiver is asserted.

8. Notice. All notices to the Maker required or permitted by
this Note shall be sufficient if given in writing and executed by the holder of
this Note. All such notices of the Maker shall be delivered by registered or
certified mail, return receipt requested, or personally delivered, to the Maker
at its principal place of business on the date of the execution of this Note as
set forth under its signature hereto, or such other address as the Maker may
designate by written notice to the holder of this Note.

9. Governing Law; Venue. This Note shall be deemed to be a
contract made under the laws of the State of Texas, and for all purposes shall
be governed by and construed in accordance with the laws of the State of Texas,
exclusive of any such law under which the law of any other jurisdiction would
apply. The parties hereto agree that venue of any action pertaining to this
Note shall lie in Little Rock, Arkansas.

10. Binding Effect. This Note and all the covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal and personal representatives, devisees, heirs, successors
and permitted assigns of Maker and holder hereof.

THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
as of May 1, 1996.

HEALTHCOR HOLDINGS, INC.

By: /s/ S. Wayne Bazzle
----------------------------------
S. Wayne Bazzle
Chief Executive Officer

Address: 5720 LBJ Freeway
Suite 550
Dallas, Texas 75240

3
<PAGE> 44
EXHIBIT D TO PURCHASE AGREEMENT

LEASE AGREEMENT

This Lease Agreement ("Lease") is made and entered into by and between
Gene Graves (hereinafter referred to as "Landlord"), and HealthCor Holdings,
Inc. (hereinafter referred to as "Tenant").

1. Leased Premises. In consideration of the terms, provisions,
and covenants of this Lease, Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the following described premises (the "leased
premises"):

523 Lexington Avenue, Fort Smith, Arkansas (Lots 5 and 6, Block P,
Fitzgerald Addition to City of Fort Smith, Sebastian County,
Arkansas). The building has 3,362 square feet.

2. Term. The term of this Lease shall be for a period of five
years, commencing on May 1, 1996 and ending on April 30, 2001, unless otherwise
extended as hereinafter provided in this Agreement.

3. Option to Renew. Landlord hereby grants to Tenant an option
to renew and extend this Lease, upon the same terms and conditions except as
provided in this paragraph 3, for successive three-year periods, each such
option to renew to be exercised in writing by Tenant and forwarded to Landlord
not less than 30 days prior to the expiration of the original or any renewal
term of this Lease. The amount of rent for each renewal term shall increase or
decrease on an annual basis by the percentage change for the proceeding year in
the Consumer Price Index for All Urban Consumers, U.S. City Average (all items,
1982-1984 = 100), published by the United States Department of Labor, Bureau of
Labor Statistics or any successor agency.

4. Use. Tenant shall use the leased premises for general
business purposes. Tenant shall occupy the leased premises and conduct its
business in such a manner as is lawful, reputable and will not create a
nuisance. Tenant shall not do or permit anything to be done in or about the
Premises which will cause the cancellation of any insurance policy covering the
Premises. Tenant shall not commit nor suffer to be committed any waste or
nuisance on the Premises. Tenant shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted, relating to or affecting the condition, use or occupancy
of the Premises.

5. Rent. On or before the first day of each calendar month
during the term of this Lease, Tenant shall pay to Landlord monthly rental
("Rent") in the amount of $2,941.75.

The first month's Rent shall be due and payable on the date of
execution of this Lease by Landlord and Tenant. Rent for any partial calendar
month shall be prorated based on one-thirty first (1/31) of the current monthly
Rent for each day of the partial
<PAGE> 45
calendar month this Lease is in effect. All payments of Rent shall be made by
Tenant to Landlord at Landlord's address set forth on the signature page of
this Lease.

6. Possession. Tenant acknowledges that it has inspected the
leased premises and on the basis of such inspection Tenant accepts the leased
premises as suitable for the purposes for which the same are leased. Upon the
last day of the lease term or upon any sooner termination date as may be
required, Tenant shall vacate and surrender the leased premises in same
condition as received, broom clean, ordinary wear and tear excepted.

7. Services. Landlord shall, at Tenant's expense, provide the
leased premises water (hot and cold) at those points of supply provided for the
general use of tenants of the Building, heated and refrigerated air
conditioning at such temperatures as are necessary to maintain the average
temperature within the leased premises in accordance with commercially
reasonable standards. Landlord shall further make available to Tenant, at
Tenant's expense, 24 hours per day, 7 days per week, all electrical current
required by Tenant in its use and occupancy of the leased premises.

8. Parking. During the term of this Lease, Tenant shall have the
non-exclusive use in common with Landlord, other tenants of the Building, their
guests and invitees, of all non-reserved common automobile parking areas,
driveways, and footways.

9. Maintenance and Repairs. Tenant shall pay the first $5,000 of
the cost of maintaining the leased premises in good repair during each fiscal
year ending April 30, and the excess shall be paid by the Landlord.

10. Signs. Tenant shall have the right to install and display
signs on the Building or on any part of the real property appurtenant to the
Building, provided such signs to be displayed conform to all applicable zoning
ordinances. Tenant shall remove all such signs upon the expiration of this
Lease.

11. Alterations and Improvements. Tenant shall have the right, at
its sole cost and expense, to make such alterations, additions and improvements
("Alterations") to the Premises with the prior written consent of Landlord;
provided, however, that when completed, shall not materially diminish the value
of the Premises. Consent for nonstructural alterations, additions or
improvements to the leased premises shall not be unreasonably withheld by
Landlord.

Any Alterations shall be surrendered by Tenant as part of the leased
premises, without disturbance or injury, upon the termination of this Lease,
unless Landlord designates in writing that such Alterations shall be removed.
If so designated by Landlord, Tenant shall, upon the termination of this Lease,
at its sole cost and expense, remove any such Alterations designated for
removal, and Tenant shall, at its

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<PAGE> 46
sole cost and expense, restore the Premises to their original condition, normal
wear and tear excepted.

All furniture, moveable trade fixtures, partitions and equipment
installed by tenant in the leased premises shall remain the property of Tenant
and may be removed by Tenant at the termination of this Lease.

Tenant shall, upon the termination of this Lease, promptly repair any
injury or damage to Premises resulting from the removal by Tenant of any
Alterations, fixtures, equipment or furnishings; or, at Landlord's election,
Tenant shall pay Landlord an amount sufficient for Landlord to repair same or
to compensate Landlord for such injury or damage to the Premises.

Tenant shall keep the leased premises free from any liens arising from
work performed, materials furnished or obligations incurred by Tenant and shall
indemnify, hold harmless and defend Landlord from any liens and encumbrances
arising from any work performed or materials furnished by or at the direction
of Tenant.

12. Indemnity.

(a) As used in this paragraph 12, "Claims" means any
claims, suits, proceedings, actions, judgments, liability, damages, losses,
costs, and expenses.

(b) Tenant hereby indemnifies and agrees to hold Landlord
harmless from and against any and all Claims, which either (i) are caused by
the negligence or misconduct of Tenant or any of Tenant's employees, patrons,
customers, guests, agents, servants, licensees, invitees, or visitors; or (ii)
result from any default, breach, violation, or non-performance of this Lease by
Tenant. If any such Claim is made against Landlord, Tenant shall, at Tenant's
sole cost and expense, defend such Claim by or through attorneys satisfactory
to Landlord. In resolving or settling any Claim, Tenant shall obtain a release
of such Claim against Landlord.

(c) Landlord hereby indemnifies and agrees to hold Tenant
harmless from and against any and all Claims, which either (i) are caused by
the negligence or misconduct of Landlord or any of Landlord's tenants (other
than the Tenant) of the Building, employees, patrons, customers, guests,
agents, servants, licensees, invitees, or visitors; or (ii) result from any
default, breach, violation, or non-performance of this Lease by Landlord. If
any such Claim is made against Tenant, Landlord shall, at Landlord's sole cost
and expense, defend such Claim by or through attorneys satisfactory to Tenant.
In resolving or settling any Claim, Landlord shall obtain a release of such
Claim against Tenant.

-3-
<PAGE> 47
13. Insurance.

(a) If an increase in any fire and extended coverage insurance
premiums paid by Landlord for the Building is caused by Tenant's use of the
leased premises in a manner other than as set forth in this Lease, then Tenant
shall pay as additional rent the amount of such increase to Landlord.

(b) Landlord shall at all times during the term of this Lease
maintain a policy or policies of insurance with the premiums paid in advance,
issued by and binding upon some solvent insurance company, insuring the
Building against all risk of direct physical loss in an amount equal to at
least ninety percent (90%) of the full replacement cost of the Building
structure and its improvements as of the date of the loss; provided, Landlord
shall not be obligated in any way or manner to insure any personal property of
Tenant upon or within the leased premises, any fixtures installed or paid for
by Tenant upon or within the leased premises, or any improvements which Tenant
may construct on the leased premises.

(c) During the entire Lease Term, Tenant shall, at its sole cost
and expense, procure and maintain: (i) comprehensive general public liability
insurance against claims for personal injury, death and property damage
occurring upon, in or about the leased premises, with a single limit of not
less than $1,000,000 per occurrence and a combined limit of not less than
$2,000,000; and (ii) fire and extended coverage, vandalism, malicious mischief,
and special extended perils (all risk) insurance in an amount not less than the
full cost of replacement of improvements by Tenant on the leased premises and
all of Tenant's personal property, inventory, decorations, trade fixtures,
furnishings, equipment and other contents in the leased premises.

(d) All such policies of insurance shall name both Landlord and
Tenant as insured (and/or such other party or parties as Landlord may require)
and shall be issued by insurance carriers acceptable to Landlord. Tenant
agrees to furnish Landlord, on or before the Commencement Date, certificates of
insurance showing that insurance meeting the requirements hereof has been
obtained and fully paid for by Tenant, and Tenant shall obtain a written
commitment from each insurance carrier to notify Landlord in writing at least
ten (10) days prior to any cancellation, expiration or modification thereof.

(e) Notwithstanding the provisions of this paragraph 13, Tenant
and Landlord each hereby waive any and all rights of recovery against the
other, or against the officers, employees, agents and representatives of the
other, for loss of or damage to such waiving party or its property or the
property of others under its control to the extent that such loss or damage is
insured against under any insurance policy in force at the time of such loss or
damage, but only to the extent that such insurance policies permit such waiver.

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<PAGE> 48
14. Assignment or Sublease. Tenant shall not assign this Lease or
sublet the leased premises, or any part thereof, without the consent of
Landlord in writing, which consent Landlord agrees to not unreasonably withhold
or delay; provided, however, Tenant may assign this Lease to a corporation
which is directly or indirectly controlled by, controlling or under the common
control with Tenant. No assignment or subletting shall release Tenant from any
obligations under this Lease.

15. Casualty. In the event all or substantially all of the
Premises are destroyed by fire or any other casualty so as to become
untenantable, Landlord may elect to terminate this Lease as of the date of such
damage or destruction, by notice to Tenant within ninety (90) days thereafter.
In the alternative, Landlord, in its sole discretion, may elect to repair or
rebuild the Premises as promptly as possible at the expense of Landlord. In
the event Landlord elects to so repair or rebuild but fails to substantially
complete such repair or rebuilding within one hundred eighty (180) days after
such damage or destruction occurs (extended for delays due to causes beyond the
control of Landlord), then either party may thereupon terminate this Lease by
notice to the other party not later than ten (10) days after expiration of said
one hundred eighty (180) day period or extension thereof. If the Premises
shall be partially damaged or injured by fire or other casualty, Landlord shall
promptly repair or rebuild the same. In connection with any repair or
rebuilding by Landlord hereunder, should there be a substantial interference
with Tenant's use of the Premises, Tenant shall be entitled to a proportionate
reduction of Rent while such repairs are being made, to be based upon the
extent to which the making of such repairs shall interfere with the business
conducted by Tenant in the Premises; provided, however, that rent shall not
abate if such damage was caused by Tenant, its agents, employees or invitees,
and further provided, that Tenant shall not be permitted to terminate this
Lease except as set forth herein.

Notwithstanding anything contained herein to the contrary, in the
event the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant, whereupon all rights and
obligations hereunder shall cease and terminate. No damages, compensation or
claim shall be payable by Landlord to Tenant for inconvenience, loss of
business or annoyance from any repair or rebuilding of any portion of the
Premises or from the termination of this Lease pursuant to this Article 15.

16. Default by Tenant. The following shall be deemed to be events
of default by Tenant under this Lease: (a) Tenant shall fail to pay when due
any installment of Rent or any other payment required by Tenant under this
Lease; (b) Tenant shall abandon any substantial portion of the leased premises;
(c) Tenant shall fail to comply with any material term, provision, or covenant
of this Lease, other than the payment of Rent; or (d) Tenant shall file a
petition or be adjudged bankrupt or insolvent under any applicable federal or
state bankruptcy or insolvency law or admit that it cannot

-5-
<PAGE> 49
meet its financial obligations as they become due, or a receiver or trustee
shall be appointed for all or substantially all of the assets of Tenant, or
Tenant shall make an assignment for the benefit of creditors.

17. Remedies for Tenant's Default. Upon the failure of Tenant to
cure any event of default set forth in paragraph 17 of this Lease within 10
days after written notice from Landlord to Tenant, Landlord shall have the
option to pursue any one or more of the following remedies: (a) Landlord may
enter upon and take possession of the leased premises and lock out, expel, or
remove Tenant from the leased premises without being liable for any claim for
damages, and relet the leased premises on behalf of Tenant and receive the rent
directly by reason of the reletting, and Tenant agrees to pay Landlord on
demand any deficiency that may arise by reason of any reletting of the leased
premises; (b) Landlord may enter upon the leased premises, without being
liable for any claim for damages, and do whatever Tenant is obligated to do
under the terms of this Lease, and Tenant agrees to reimburse Landlord on
demand for any reasonable expenses which Landlord may incur in effecting
compliance with Tenant's obligations under this Lease; (c) Landlord may
terminate this Lease, in which event Tenant shall immediately surrender the
leased premises to Landlord, and if Tenant fails to surrender the leased
premises, Landlord may, without prejudice to any other remedy which he may have
for possession or arrearages in Rent, enter upon and take possession of the
leased premises and lock out, expel, or remove Tenant from the leased premises
without being liable for any claim for damages.

18. Holding Over. In the event that Tenant holds over the leased
premises after the expiration of the term of this Lease, Tenant shall be deemed
to be occupying the leased premises as a tenant from month to month at a
monthly rental of 150% of the last month's Rent paid under this Lease; such
tenancy shall be subject to all the other terms, provisions, and conditions of
this Lease insofar as the same are applicable to a month to month tenancy.
This provision shall not be construed as an extension of this Lease.

19. Subordination. This Lease and all rights of Tenant hereunder
shall be subject and subordinate to (a) any mortgage and deed of trust which
now or may hereafter affect the real property of which the Building form a
part, and (b) any and all increases, renewals, modifications, consolidations,
replacements, and extensions of any and all such mortgages and deeds of trust.

20. Condemnation. If the whole of the leased premises or access
thereto should be taken under the power of eminent domain or condemnation, or a
sale made under threat thereof, then this Lease shall terminate as of the date
of the taking without further liability upon either Landlord or Tenant. If
only a portion of the leased premises or access thereto is taken under the
power of eminent domain or condemnation or a sale made under the threat
thereof, and the portion remaining will not, in the reasonable opinion of
Tenant, be adequate for Tenant's continued use, Tenant shall have the option to
terminate this Lease by giving Landlord notice thereof

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<PAGE> 50
within thirty (30) days after the date of the taking. If this Lease is not so
terminated, Landlord shall promptly restore the portion remaining to an
integral unit resembling as much as possible the leased premises prior to the
taking.

21. Sale by Landlord. Landlord may sell, transfer, assign or
otherwise dispose of the leased premises, or this Lease, or any part thereof or
interest therein at any time without the consent of Tenant. Upon such sale,
transfer, assignment or disposal of all its interest in the Premises, or this
Lease, Landlord shall be relieved of all obligations hereunder on the condition
that Landlord's successor-in-interest shall expressly assume such obligations.
This Lease shall not be affected by any such sale, transfer, assignment or
disposal of Landlord's interest, and Tenant agrees to attorn to Landlord's
purchaser or assignee.

22. Taxes.

(a) Landlord shall pay all real estate taxes and all
special assessments, if any, before they become delinquent which are levied or
assessed against the Building and the real property of which the Building forms
a part.

(b) Tenant shall pay all taxes assessed against and
levied upon all personal property, trade fixtures, and inventory placed by
Tenant in the leased premises.

23. Quiet Enjoyment. Landlord represents that Landlord has the
full right, power, and authority to enter into this Lease and perform its
obligations hereunder and that Tenant shall be entitled to peaceably and
quietly hold and enjoy the leased premises for the entire term of this Lease
without hindrance from Landlord, subject to the terms and conditions of this
Lease.

24. Default by Landlord. If Landlord shall fail to perform or
observe any term, provision, or covenant of this Lease and such failure should
continue for a period beyond ten (10) days after written notice thereof is
given by Tenant to Landlord, then Tenant shall have the right to either (a)
cure such default, and Landlord shall reimburse Tenant for all reasonable sums
expended in so curing such default, or (b) terminate this Lease, whereupon all
rights and obligations of Landlord and Tenant under this Lease shall cease to
exist. With respect to the right of Tenant to cure any default by Landlord
under the terms of this Lease and be reimbursed for the expense of cure under
clause (a) above, Tenant shall have the right to effect such cure and
reimbursement by the withholding of Rent to the extent required to satisfy and
cure such default and reimbursement.

25. Estoppel Certificate. Tenant shall at any time upon not less
than ten days prior written notice from Landlord execute, acknowledge and
deliver to Lessor a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this

-7-
<PAGE> 51
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any; (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of
Lessor hereunder, or specifying such default if any are claimed; and (iii)
setting forth such other statements with respect to this Lease as may be
reasonably requested by Lessor. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the leased premises. If
Tenant fails to deliver such statement within such time set forth above, then
it shall be conclusively established that (i) this Lease is in full force and
effect, without modification except as may be represented by Lessor, (ii) there
are no uncured defaults in Lessor's performance, and (iii) not more than one
month's rent has been paid in advance.

26. Abatement Sole Remedy. Except for abatement of rent as set
forth in paragraph 24, if any, Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair or
restoration of the leased premises.

27. Interest on Past-Due Obligations. Any amount due to Landlord
not paid when due shall bear interest at the rate of 15% per annum from the
date due. Payment of such interest shall not excuse or cure any default by the
Tenant under this Lease.

28. Captions. The captions of paragraphs in this Lease are
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.

29. Successors. The terms, conditions, and covenants contained in
this Lease shall apply to, inure to the benefit of, and be binding upon the
parties hereto and their respective successors in interest and legal
representatives except as otherwise herein expressly provided. All rights,
powers, and duties of Landlord under this Lease, including but not limited to
any notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by Landlord's
agent or attorney.

30. Notices. Any notice required or permitted to be delivered
under this Lease shall be deemed to be delivered when actually received in the
United States Mail, postage prepaid, registered or certified mail, return
receipt requested, addressed to the parties hereto at the respective addresses
set out opposite their names below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith.

31. Entire Agreement; Amendments. This Lease constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof. This Lease may not be altered or amended except by an instrument in
writing signed by both Landlord and Tenant.

-8-
<PAGE> 52

EXECUTED this the 1st day of May, 1996.

TENANT: LANDLORD:

HealthCor Holdings, Inc. Gene Graves

By:/s/ S. Wayne Bazzle /s/ Gene Graves
--------------------------------- ---------------------------
S. Wayne Bazzle,
Chief Executive Officer
Address:
Address:
c/o HealthCor Holdings, Inc. 3227 McKinney Avenue
5720 LBJ Freeway Dallas, Texas 75204
Suite 550
Dallas, Texas 75240
ATT: C. Wayne Bazzle

-9-

<PAGE> 1

EXHIBIT 11.1
PAGE 1 OF 5

HEALTHCOR HOLDINGS, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------
<S> <C>
Net income................................................................... $1,532,531
----------
Shares:
Weighted average number of common shares issued............................ 2,641,329
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such
options................................................................. 199,003
Assuming conversion of Series A preferred stock............................ 2,000,000
Assuming conversion of Series B preferred stock............................ 1,562,516
----------
Weighted average number of common shares outstanding, as adjusted.......... 6,402,848
==========
Net income per common share.................................................. $ .24
==========
</TABLE>
<PAGE> 2

EXHIBIT 11.1
PAGE 2 OF 5

HEALTHCOR HOLDINGS, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Net income................................................................... $ 2,026,556
-----------
Shares:
Weighted average number of common shares issued............................ 2,957,778
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such
options................................................................. 192,488
Assuming conversion of Series A preferred stocks........................... 2,000,000
Assuming conversion of Series B preferred stocks........................... 1,339,297
-----------
Weighted average number of common shares outstanding, as adjusted.......... 6,489,563
===========
Net income per common share.................................................. $ .31
===========
</TABLE>
<PAGE> 3

EXHIBIT 11.1
PAGE 3 OF 5

HEALTHCOR HOLDINGS, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net income................................................................... $ 3,583,525
-----------
Shares:
Weighted average number of common shares issued............................ 2,959,650
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such
options................................................................. 246,668
Assuming conversion of Series A preferred stocks........................... 2,000,000
Assuming conversion of Series B preferred stocks........................... 1,339,297
-----------
Weighted average number of common shares outstanding, as adjusted.......... 6,545,615
===========
Net income per common share.................................................. $ .55
===========
</TABLE>
<PAGE> 4

EXHIBIT 11.1
PAGE 4 OF 5

HEALTHCOR HOLDINGS, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
-----------------
<S> <C>
Net income................................................................... $ 971,286
-----------
Shares:
Weighted average number of common shares issued............................ 2,959,099
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such
options................................................................. 245,034
Assuming conversion of Series A preferred stocks........................... 2,000,000
Assuming conversion of Series B preferred stocks........................... 1,339,297
-----------
Weighted average number of common shares outstanding, as adjusted.......... 6,543,430
===========
Net income per common share.................................................. $ .15
===========
</TABLE>
<PAGE> 5

EXHIBIT 11.1
PAGE 5 OF 5

HEALTHCOR HOLDINGS, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1995
-----------------
<S> <C>
Net income................................................................... $ 702,683
-----------
Shares:
Weighted average number of common shares issued............................ 2,959,005
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such
options................................................................. 190,918
Assuming conversion of Series A preferred stocks........................... 2,000,000
Assuming conversion of Series B preferred stocks........................... 1,339,297
-----------
Weighted average number of common shares outstanding, as adjusted.......... 6,489,220
===========
Net income per common share.................................................. $ .11
===========
</TABLE>

<PAGE> 1

<TABLE>
<CAPTION>
Company State Incorporated
- ------- ------------------
<S> <C>
HealthCor, Inc. Delaware
HealthCor Pharmacy, Inc. Texas
HealthCor Oxygen and Medical Equipment Holdings, Inc. Texas
HealthCor Oxygen and Medical Equipment, Inc. Texas
HealthCor Rehabilitation Services, Inc. Texas
Ponca Medical Supply, Inc. Oklahoma
Physicians Home Health Network, Inc. Missouri
McDuffies Rental, Inc. Texas
RTA Homecare, Inc. Arizona
RTA Infusion, Inc. Arizona
Specialty Med-Equip Inc. Texas
Superior Med-Equip Inc. Texas
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.

ARTHUR ANDERSEN LLP

Dallas, Texas
June 11, 1996

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.

BELL & COMPANY, PA

June 11, 1996

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.

IFFT & BARBER, CHARTERED

Leawood, Kansas
June 11, 1996

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,627,940
<SECURITIES> 0
<RECEIVABLES> 13,521,655
<ALLOWANCES> 2,056,000
<INVENTORY> 1,709,355
<CURRENT-ASSETS> 18,263,236
<PP&E> 19,000,882
<DEPRECIATION> 7,946,627
<TOTAL-ASSETS> 52,572,948
<CURRENT-LIABILITIES> 20,000,103
<BONDS> 19,859,714
<COMMON> 30,628
5,339,814
0
<OTHER-SE> 12,031,358
<TOTAL-LIABILITY-AND-EQUITY> 52,572,948
<SALES> 0
<TOTAL-REVENUES> 81,557,284
<CGS> 0
<TOTAL-COSTS> 73,295,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,488,885
<INTEREST-EXPENSE> 986,977
<INCOME-PRETAX> 5,785,892
<INCOME-TAX> 2,202,367
<INCOME-CONTINUING> 3,583,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,583,525
<EPS-PRIMARY> .55
<EPS-DILUTED> .55

</TABLE>