EXHIBIT 10.1

 

SECOND AMENDED AND RESTATED

 

COMMERCIAL REVOLVING LOAN, TERM LOAN,

 

LINE OF CREDIT AND SECURITY AGREEMENT

 

between

 

MEMRY CORPORATION

 

and

 

WEBSTER BANK

 

January 30, 2004

 

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TABLE OF CONTENTS

 

Section

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   Page

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ARTICLE I. Definitions

   2

Section 1.1. Accounting Terms; Etc.

   2

ARTICLE II. Revolving Loans

   24

Section 2.1. Amounts

   25

Section 2.2. Procedure For Advances, Notice of Revolving Loan Borrowing,
Revolving Loan Note, Etc.

   25

Section 2.3. Monthly Statements

   25

Section 2.4. Lender Discretion

   25

ARTICLE III. Acquisition Loan

   26

Section 3.1. Amounts

   26

Section 3.2. Procedure for Advance Notice of Acquisition Loan Borrowing,
Acquisition Loan Note, Etc.

   26

Section 3.3. Monthly Statements

   26

Section 3.4. Lender Discretion

   26

ARTICLE IV. Existing Term Loans

   27

Section 4.1. Amount

   27

Section 4.2. Monthly Statements

   27

ARTICLE V. First Stage Equipment Loan; First Stage Converted Equipment Loan

   27

Section 5.1. Amount

   27

Section 5.2. Procedure For Advances; Equipment Loan Notice of Borrowing;
Equipment Loan Note, Etc.

   27

Section 5.3. Monthly Statements

   28

Section 5.4. Lender Discretion

   28

Section 5.5. Conversion to First Stage Converted Equipment Loan

   29

ARTICLE VI. Second Stage Equipment Loan; Second Stage Converted Equipment Loan

   29

Section 6.1. Amount

   29

Section 6.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Second
Stage Equipment Loan Note, Etc.

   30

Section 6.3. Monthly Statements

   31

Section 6.4. Lender Discretion

   31

Section 6.5. Conversion to Second Stage Converted Equipment Loan

   31

ARTICLE VII. Third Stage Equipment Loan; Third Stage Converted Equipment Loan

   32

Section 7.1. Amount

   32

Section 7.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Third
Stage Equipment Loan Note, Etc.

   32

Section 7.3. Monthly Statements

   33

Section 7.4. Lender Discretion

   33

Section 7.5. Conversion to Third Stage Converted Equipment Loan

   33

ARTICLE VIII. Fourth Stage Equipment Loan; Fourth Stage Converted Equipment Loan

   34

Section 8.1. Amount

   34

 

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Section 8.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Fourth
Stage Equipment Loan Note, Etc.

   35

Section 8.3. Monthly Statements

   36

Section 8.4. Lender Discretion

   36

Section 8.5. Conversion to Fourth Stage Converted Equipment Loan

   36

ARTICLE IX. Fifth Stage Equipment Loan

   36

Section 9.1. Amount

   36

Section 9.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Fifth
Stage Equipment Loan Note, Etc.

   37

Section 9.3. Monthly Statements

   38

Section 9.4. Lender Discretion

   38

Section 9.5. Fifth Stage Equipment Loan Maturity

   38

ARTICLE X. Interest, Prepayment, Etc.

   39

Section 10.1. Interest

   39

Section 10.2. Prepayments

   41

Section 10.3. Closing Fees

   42

Section 10.4. Unused Revolving Loan Fee

   42

Section 10.5. Early Termination Fee

   43

ARTICLE XI. Yield Protection

   43

Section 11.1. Increased Costs

   43

Section 11.2. Capital Adequacy Protection

   44

Section 11.3. Indemnity

   45

Section 11.4. Survival

   45

ARTICLE XII. Representations and Warranties

   45

Section 12.1. Representations and Warranties

   45

ARTICLE XIII. Conditions of Lending

   55

Section 13.1. Conditions of the First Stage Loan

   55

Section 13.2. Conditions of Further Loans

   55

ARTICLE XIV. Covenants

   56

Section 14.1. Financial Statements

   56

Section 14.2. Insurance and Endorsements

   57

Section 14.3. Tax and Other Liens

   58

Section 14.4. Place of Business; Locations of Collateral

   58

Section 14.5. Inspections

   58

Section 14.6. Litigation

   59

Section 14.7. Maintenance of Existence

   59

Section 14.8. Inventory

   59

Section 14.9. ERISA

   59

Section 14.10. Notice of Certain Events

   59

Section 14.11. Defaults

   60

Section 14.12. Duties

   61

Section 14.13. Collateral Duties

   61

Section 14.14. Audit and Appraisals by Lender; Fees

   61

Section 14.15. Bank Accounts

   62

Section 14.16. Pledge

   62

Section 14.17. Goods in Possession of Bailee

   62

Section 14.18. Letters of Credit

   62

Section 14.19. Commercial Tort Claims

   63

 

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Section 14.20. Encumbrances

   63

Section 14.21. Limitation on Indebtedness

   63

Section 14.22. Contingent Liabilities

   63

Section 14.23. Consolidation or Merger

   64

Section 14.24. Loans, Advances, Investments

   64

Section 14.25. Acquisition of Stock of Borrower; Dividends

   64

Section 14.26. Sale and Lease of Assets

   65

Section 14.27. Name Changes

   65

Section 14.28. Prohibited Transfers

   65

Section 14.29. Leasebacks

   65

Section 14.30. CII Agreement

   65

Section 14.31. Fixed Charge Coverage Ratio

   65

Section 14.32. Minimum Availability

   65

ARTICLE XV. Collateral

   66

Section 15.1. Grant

   66

ARTICLE XVI. Events of Default

   68

Section 16.1. Events of Default

   68

ARTICLE XVII. Collection of Receivables

   70

Section 17.1. Lockbox Agreement

   70

Section 17.2. Computation

   70

ARTICLE XVIII. Returned Merchandise

   71

Section 18.1. Procedures

   71

ARTICLE XIX. Rights and Remedies of Lender

   71

Section 19.1. Remedies of Lender

   71

Section 19.2. Specific Powers

   71

Section 19.3. Duties After Default

   72

Section 19.4. Cumulative Remedies

   73

ARTICLE XX. Term

   73

Section 20.1. Term and Termination

   73

ARTICLE XXI. Miscellaneous

   77

Section 21.1. Indemnification

   77

Section 21.2. Payment Set-Aside

   79

Section 21.3. Set-off

   79

Section 21.4. Covenants to Survive; Binding Agreement

   80

Section 21.5. Cross-Collateralization

   80

Section 21.6. Cross-Default

   80

Section 21.7. Amendments and Waivers

   80

Section 21.8. Notices

   80

Section 21.9. Transfer of Lender’s Interest

   80

Section 21.10. Waivers

   81

Section 21.11. Section Headings; Severability; Entire Agreement

   82

Section 21.12. Governing Law, Notice and Service of Process, Pleadings and Other
Papers

   82

Section 21.13. Miscellaneous Provisions Regarding Borrower’s Documents

   82

Section 21.14. Waiver

   83

 

iii

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EXHIBIT A    —    Form of Third Amended and Restated Revolving Loan Note EXHIBIT
B    —    Form of Acquisition Loan Note EXHIBIT C    —    Form of Second
Consolidated and Amended and Restated Term Loan Note EXHIBIT D    —    Form of
Amended and Restated Equipment Loan Note EXHIBIT E    —    Form of First Stage
Converted Equipment Loan Note EXHIBIT F    —    Form of Second Stage Converted
Equipment Loan Note EXHIBIT G    —    Form of Third Stage Converted Equipment
Loan Note EXHIBIT H    —    Form of Fourth Stage Converted Equipment Loan Note
SCHEDULE 12.1(g)    —    Litigation SCHEDULE 12.1(k)    —    Adverse
Developments SCHEDULE 12.1(l)    —    Title to Assets SCHEDULE 12.1(n)    —   
Compliance SCHEDULE 12.1(p)    —    Pension Plans SCHEDULE 12.1(q)    —   
Deferred Compensation Arrangements SCHEDULE 12.1(r)    —    Chief Executive
Office SCHEDULE 12.1(s)    —    Places of Business SCHEDULE 12.1(x)    —   
Collateral SCHEDULE 12.1(y)    —    Tradenames SCHEDULE 12.1(aa)    —    Parent
or Subsidiary Corporations

 

iv

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SCHEDULE 14.14    —    Place of Business; Location of Collateral SCHEDULE 14.21
   —    Indebtedness SCHEDULE 14.24    —    Loans, Advances, Investments
SCHEDULE 14.26    —    Sale and Lease of Assets SCHEDULE 15.1    —    Tangible
Assets

 

v

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SECOND AMENDED AND RESTATED COMMERCIAL REVOLVING

LOAN, TERM LOAN, LINE OF CREDIT AND SECURITY AGREEMENT

 

This Second Amended and Restated Commercial Revolving Loan, Term Loan, Line of
Credit and Security Agreement dated as of January 30, 2004 between MEMRY
CORPORATION, a Delaware corporation with its chief executive office and
principal place of business at 3 Berkshire Blvd., Bethel, Connecticut 06801
(“Borrower”) and WEBSTER BANK, a banking institution with an office at 185
Asylum Street, City Place II, 5th Floor, HFD 605, Hartford, Connecticut
06103-3494 (“Lender”).

 

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PREAMBLE

 

WHEREAS, Borrower is currently indebted to Lender by virtue of various loans
made by Lender to Borrower (collectively, the “Existing Loans”) consisting of:
(i) a revolving loan in the maximum aggregate principal amount of up to
$5,000,000 (the “Existing Revolving Loan”) made pursuant to the terms and
conditions of, and as evidenced by (a) an Amended and Restated Commercial
Revolving Loan, Term Loan, Line of Credit and Security Agreement dated December
27, 2001, as amended from time to time (the “Existing Loan Agreement”), and (b)
a Second Amended and Restated Revolving Loan Note dated December 27, 2001 in
said amount (the “Existing Revolving Loan Note”); (ii) a term loan in the
original principal amount of $2,000,000 (the “First Term Loan”), as evidenced
by, in addition to the Existing Loan Agreement, a Consolidated and Amended and
Restated Term Loan Note dated December 27, 2001 in said amount (the “First Term
Loan Note”); (iii) an equipment loan in the principal amount of $1,000,000 (the
“Equipment Line of Credit Loan”), as evidenced by, in addition to the Existing
Loan Agreement, an Equipment Loan Note dated January 1, 2002 in said amount (the
“Equipment Line of Credit Loan Note”); and (iv) a term loan in the original
principal amount of $250,000 (the “Subsequent Term Loan”), as evidenced by, in
addition to the Existing Loan Agreement, an Subsequent Converted Equipment Loan
Note dated December 31, 2002 in said amount (the “Subsequent Term Loan Note”);
and

 

WHEREAS, all indebtedness of Borrower arising under the Existing Loans is
secured by a blanket, first priority lien security interest in the Collateral
(as defined below); and

 

WHEREAS, Borrower has requested Lender to: (a) consolidate the First Term Loan,
the Equipment Line of Credit Loan and the Subsequent Term Loan

 

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(collectively, the “Existing Term Loans”) into one term loan in the principal
amount of the Existing Term Loans outstanding on the date hereof plus $28,225.20
($1,574,000); (b) extend the termination date of the Revolving Loan to January
30, 2009; (c) extend to Borrower a line of credit/term loan facility in the
principal amount of up to $1,000,000; (d) extend to Borrower an acquisition
facility in the principal amount of up to $2,000,000; and (e) amend certain
other terms and conditions of the Existing Loans; and

 

WHEREAS, Lender and Borrower desire to amend and restate the Existing Loan
Agreement in order to memorialize their understandings and agreements with
respect to the foregoing, and further desire to confirm that the terms of this
Agreement shall supersede the Existing Loan Agreement and control and govern the
Loans (as defined below), and that the Existing Loan Agreement shall have no
further force or effect except to the extent necessary to preserve and maintain
Lender’s previously filed and fully perfected first priority lien security
interest in the Collateral.

 

NOW, THEREFORE, for the mutual considerations contained in this Agreement,
Borrower and Lender agree as follows:

 

ARTICLE I. Definitions

 

Section 1.1. Accounting Terms; Etc. Unless otherwise defined, all accounting
terms shall be construed, and all computations or classifications of assets and
liabilities and of income and expenses shall be made or determined in accordance
with generally accepted accounting principles consistently applied. As used
herein, or in the Financing Agreements or in any certificate, document or report
delivered pursuant to this Agreement or any other Financing Agreement, the
following terms shall have the following meanings:

 

“Account” and “Accounts” shall have the meanings assigned in Section 15.1(a)
hereof.

 

“Account Debtor” and “Account Debtors” shall mean the person or entity or
persons or entities obligated to Borrower upon the Accounts.

 

“Acquisition Loan” shall have the meaning assigned in Section 3.1 hereof.

 

“Acquisition Loan Maturity Date” shall mean the three year anniversary of the
Drawdown Date of the Acquisition Loan.

 

“Acquisition Loan Term” shall have the meaning assigned in Section 20.1(h)
hereof.

 

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“Additional Costs” shall have the meaning assigned in Section 11.1 hereof.

 

“Adjustment Date” shall mean the first day of the month immediately following
the month in which a Compliance Certificate is to be delivered by the Borrower
pursuant to §14.1(d).

 

“Agreement” shall mean this Second Amended and Restated Commercial Revolving
Loan, Term Loan, Line of Credit and Security Agreement as the same may from time
to time be amended, supplemented or otherwise modified.

 

“Applicable Margin” shall mean for each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a “Rate
Adjustment Period”), the Applicable Margin shall be the Applicable Margin set
forth below with respect to the Fixed Charge Coverage Ratio, as determined for
the Reference Period of the Borrower and its Subsidiaries ending on the fiscal
quarter ended immediately prior to the applicable Rate Adjustment Period.

 

Level

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Fixed Charge Coverage Ratio

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   Revolving
Loans

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  Term Loan, Equipment
Loans and Converted
Equipment Loans

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  Acquisition
Loan

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I

  

Greater than or equal to 4.00:1.00

   1.50%   1.75%   2.25%

II

  

Less than 4.00:1.00 but greater than or equal to 3.00:1.00

   1.75%   2.00%   2.50%

III

  

Less than 3.00:1.00 but greater than or equal to 2.50:1.00

   2.00%   2.25%   2.75%

IV

  

Less than 2.50:1.00

   2.25%   2.50%   3.00%

 

Notwithstanding the foregoing (a) for the Loans outstanding during the period
commencing on the Closing Date through the date immediately preceding the first
Adjustment Date to occur after the Closing Date, the Applicable Margin shall be
the Applicable Margin set forth in Level II above, and (b) if the Borrower fails
to deliver any Compliance Certificate pursuant to Section 14.1(d) hereof then,
for the period commencing on the next Adjustment Date to occur subsequent to
such failure through the date immediately following the date on

 

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which such Compliance Certificate is delivered, the Applicable Margin shall be
the highest Applicable Margin set forth above.

 

“Arrangement” shall have the meaning assigned in Section 12.1(q) hereof.

 

“Business Day” shall mean any day other than a day on which commercial banks in
Hartford, Connecticut are required or permitted by law to close.

 

“Capital Assets” shall mean fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as patents,
copyrights, trademarks, franchises and good will); provided that Capital Assets
shall not include any item payment for which is customarily charged directly to
expense or depreciated over a useful life of twelve (12) months or less in
accordance with GAAP.

 

“Capital Expenditures” shall mean amounts paid or Indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with (i) the purchase or lease
by the Borrower or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with GAAP or (ii) the lease of any assets by the Borrower or any of
its Subsidiaries as lessee under any Synthetic Lease to the extent that such
assets would have been Capital Assets had the Synthetic Lease been treated for
accounting purposes as a Capitalized Lease.

 

“Capital Leases” shall mean capital leases, conditional sales contracts and
other title retention agreements relating to the purchase or acquisition of
Capital Assets.

 

“Capital Stock” shall mean any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.

 

“Capitalized Leases” shall mean Capital Leases which are required by GAAP to be
capitalized on the Borrower’s balance sheet.

 

“Change of Control” shall mean individuals who are directors of the Borrower on
the Closing Date shall cease to constitute a majority of the board of directors
of the Borrower.

 

“CII Agreement” shall mean that certain Convertible Subordinated Debenture
Purchase Agreement dated as of December 22, 1994, as amended, by and between the
Borrower and Connecticut Innovations, Incorporated.

 

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“Closing Date” shall mean January 30, 2004.

 

“Collateral” shall mean the property of Borrower described in Section 15.1
hereof.

 

“Company” and “Companies” shall mean Borrower and any entities affiliated with
Borrower in connection with any Plan.

 

“Compliance Certificate” shall have the meaning assigned in Section 13.2(b)
hereof.

 

“Consolidated Cash Flow” means, in respect of any period, the result of (a)
EBITDA for such period minus (b) the amount of all unfunded Capital Expenditures
determined in accordance with GAAP.

 

“Conversion Request” shall mean a notice given by the Borrower for the Lender of
the Borrower’s election to convert or continue a Loan in accordance with Section
10.1(g).

 

“Consolidated Net Income” shall mean with reference to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP.

 

“Converted Equipment Loan” shall mean a First Stage Converted Equipment Loan, a
Second Stage Converted Equipment Loan, a Third Stage Converted Equipment Loan or
a Fourth Stage Converted Equipment Loan and “Converted Equipment Loans” shall
mean the First Stage Converted Equipment Loan, the Second Converted Equipment
Loan, the Third Stage Converted Equipment Loan or the Fourth Stage Converted
Equipment Loan.

 

“Converted Equipment Loan Notes” shall mean the First Stage Converted Equipment
Loan Note, the Second Stage Converted Equipment Loan Note, the Third Stage
Converted Equipment Loan Note and the Fourth Stage Converted Equipment Loan
Note.

 

“Cost of Funds Margin” shall mean a margin determined by the Lender in its sole
discretion.

 

“Cost of Funds Rate” shall mean the fixed rate of interest determined and quoted
by the Lender, in its sole discretion, as its cost of funds rate for

 

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loans having a maturity approximately equal to the maturity of the Cost of Funds
Rate Loan.

 

“Cost of Funds Rate Loan” shall mean the Term Loan, a Converted Equipment Loan
or an Acquisition Loan in the event the Borrower elects an interest rate
applicable thereto based upon the Cost of Funds Rate.

 

“Cost of Funds Rate Prepayment Premium” shall mean the greater of

 

(i) one percent (1%) of the principal amount prepaid; or

 

(ii) an amount equal to the present value of a series of hypothetical monthly
payments, each such payment in the amount of:

 

(A) the principal amount of such prepayment; multiplied by

 

(B) the amount, if any, by which (1) the effective annual yield on such Loan,
based upon the interest rate applicable to such Loan at the time of prepayment,
exceeds (2) the effective annual yield of a United States Treasury obligation
having a maturity date closest to the scheduled maturity date for such Loan;
divided by

 

(C) twelve (12).

 

“Current Maturity of Long-Term Debt” shall mean the current maturity of long
term Indebtedness paid or payable during the applicable period, including but
not limited to, amounts required to be paid or payable during such period under
Capital Leases.

 

“Defaulting Event” shall mean the occurrence of an Event of Default or the
occurrence of any condition or event which but for the giving of notice or
passage of time or both would constitute an Event of Default.

 

“Discount Rate” shall mean the rate which, when compounded monthly, is
equivalent to the Treasury Rate when compounded semi-annually.

 

“Dollar” and the sign “$” shall mean lawful money of the United States of
America.

 

“Drawdown Date” shall mean the date on which any Revolving Loan, Term Loan,
Equipment Loan or Acquisition Loan is made or is to be made.

 

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“EBITDA” shall mean, for the applicable period, Borrower’s earnings before
Interest, taxes, depreciation and amortization for such period, all as
determined in accordance with GAAP.

 

“Eligible Accounts” shall mean those Accounts of Borrower which arise from the
sale of inventory or rendition of services in the ordinary course of Borrower’s
business, are subject to Lender’s perfected, first lien security interest and no
other lien or security interest, and are evidenced by an invoice or other
documentary evidence satisfactory to Lender. Further, no Account shall be an
Eligible Account if:

 

(iii) it arises out of a sale made by Borrower to any affiliate, division,
subsidiary or parent of Borrower or to any person or entity controlled by or
under common control with an affiliate, division, subsidiary or parent of
Borrower;

 

(iv) it is due or unpaid more than seventy (70) days after its original invoice
date;

 

(v) the account debtor is also Borrower’s creditor or supplier, has disputed
liability or made any claim with respect to any other account due from such
account debtor to Borrower, or the account is otherwise subject to any defense,
counterclaim or offset of or by the account debtor;

 

(vi) the account debtor is located outside the United States (unless such
account is supported by a letter of credit or credit insurance acceptable in
form, scope and substance to Lender in Lender’s sole discretion);

 

(vii) the account debtor is located in Minnesota (or any other jurisdiction
which adopts a statute or other requirement with respect to which any Person
that obtains business from within such jurisdiction or is otherwise subject to
such jurisdiction’s tax law must file a “Business Activity Report” (or other
applicable report) or make any other required filings in a timely manner in
order to enforce its claims in such jurisdiction’s courts or arising under such
jurisdiction’s laws); provided that Accounts which would be Eligible Accounts
but for the terms of this clause (vii) shall nonetheless be deemed to be
Eligible Accounts if the Borrower that owns such Account has filed a “Business
Activity Report” (or other applicable report) with the applicable state office
or is qualified to do business in such jurisdiction and, at the time the Account
was created, was qualified to do business in such jurisdiction or had on file
with the applicable state office a current “Business Activity Report” (or other
applicable report);

 

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(viii) the sale giving rise to the account is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or other repurchase or
return basis, or is evidenced by a Note or chattel paper;

 

(ix) Borrower has made an agreement with the account debtor for any deduction
from the invoice representing said account except for discounts or allowances
made in the ordinary course of Borrower’s business for prompt payment, which
discounts or allowances are reflected in the calculation of the face value of
each respective invoice related thereto;

 

(x) fifty percent (50%) or more of the aggregate invoices for an account debtor
are due or unpaid for more than seventy (70) days after their original invoice
date;

 

(xi) it arises out of a sale made by the Borrower to an account debtor that is
the United States Government or any agency or subdivision thereof (collectively
the “Government”), unless Borrower has complied in all respects with the Federal
Assignment of Claims Act of 1940, or has otherwise satisfied Lender as to the
assignability and collectability of said accounts, provided, however, that up to
$50,000 of Accounts outstanding at any one time and arising out of sales by the
Borrower to the Government shall not be rendered ineligible solely because the
Borrower has not complied as aforesaid; or

 

(xii) the Lender in its sole but reasonable discretion deems the Account to be
unacceptable for any reason.

 

If there is any dispute as to whether any Account is an Eligible Account, the
determination of Lender shall at all times control.

 

“Eligible Equipment” shall mean new equipment to be purchased by the Borrower
for its business.

 

“Eligible Inventory” shall mean Borrower’s inventory of raw materials,
work-in-process and finished goods located at the Premises to the extent Lender,
in its sole but reasonable discretion, determines that such inventory is
eligible for advance. In addition and without limiting Lender’s discretion,
Eligible Inventory shall be net of reserves and returns, valued at the lower of
cost or market (as determined in accordance with the FIFO method of accounting),
and subject to Lender’s perfected first security interest and to no other lien
or security interest. Further and without limiting Lender’s discretion, no
inventory shall be eligible if it is:

 

(xiii) deemed by Lender as slow moving or obsolete;

 

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(xiv) not otherwise in good condition and salable through normal trade channels;
or

 

(xv) not salable in the ordinary course of Borrower’s business.

 

“Environmental Laws” shall mean any and all applicable foreign, federal, state
and local statutes, laws, regulations, rules, ordinances, orders, guidances,
policies or common law (whether now existing or hereafter enacted or
promulgated) pertaining to the environment, of any and all federal, state or
local governments and governmental and quasi-governmental agencies, bureaus,
subdivisions, commissions or departments which may now or hereafter have
jurisdiction over Borrower and all applicable judicial and administrative and
regulatory decrees, judgments and orders, including common law rulings and
determinations, relating to injury to, or the protection of, real or personal
property or human health or the environment, including, without limitation, all
requirements pertaining to reporting, licensing, permitting, investigation,
remediation and removal of emissions, discharges, releases or threatened
releases of Hazardous Materials, chemical substances, pollutants or contaminants
whether solid, liquid or gaseous in nature, into the environment or relating to
the manufacture, processing, distribution use, treatment, storage, disposal,
transport or handling of such Hazardous Materials, chemical substances,
pollutants or contaminants.

 

Without limiting the generality of the foregoing, the term “Environmental Laws”
shall encompass each of the following statutes, and regulations promulgated
thereunder, and amendments and successors to such statutes and regulations, as
may be enacted and promulgated from time to time: Federal Occupational Safety
and Health Act (“OSHA”); the Clean Air Act (“CAA”); the Toxic Substances Control
Act (“TSCA”); the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”), as amended by the Superfund Amendments and
Reauthorization Act of 1986 (“SARA”); the Clean Water Act (“CWA”); the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984 (“RCRA”); the Hazardous Materials Transportation Act; and all
applicable Environmental Laws of each state and municipality in which Borrower
conducts business or locates assets and all rules and regulations thereunder and
amendments thereto, and all similar state and local laws, rules and regulations.

 

“Equipment Loan” shall mean a First Stage Equipment Loan, a Second Stage
Equipment Loan, a Third Stage Equipment Loan, a Fourth Stage Equipment Loan or a
Fifth Stage Equipment Loan and “Equipment Loans” shall mean the First Stage
Equipment Loans, the Second Stage Equipment

 

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Loans, the Third Stage Equipment Loans, the Fourth Stage Equipment Loans and the
Fifth Stage Equipment Loans.

 

“Equipment Loan Conversion Dates” shall mean the First Stage Equipment Loan
Conversion Date, the Second Stage Equipment Loan Conversion Date, the Third
Stage Equipment Loan Conversion Date and the Fourth Stage Equipment Loan
Conversion Date.

 

“Equipment Loan Account” shall have the meaning assigned in Section 5.2 hereof.

 

“Equipment Loan Borrowing Base” shall mean an amount equal to the lesser of: (i)
One Million Dollars ($1,000,000); or (ii) eighty percent (80%) of the face
amount of net invoices for Eligible Equipment. For purposes of this calculation,
costs of installation, maintenance and other “soft-costs” shall not be included
in such determination.

 

“Equipment Loan Note” shall have the meaning assigned in Section 5.2 hereof.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated pursuant thereto, as the same may from time to
time be supplemented or amended.

 

“Eurocurrency Reserve Rate” shall mean for any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any bank subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against “Eurocurrency
Liabilities” (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.

 

“Eurodollar Daily Rate” shall mean the variable rate of interest equal to the
rate announced by the Lender from day to day as its overnight Eurodollar Rate
based upon the London Interbank Offered Rate for the offering by the Lender to
prime commercial banks in the inter-bank Eurodollar Market of dollar deposits in
an amount approximately equal to the principal balance of any Loan to bear
interest at such rate.

 

“Eurodollar Daily Rate Loans” shall mean any loans bearing interest calculated
by reference to the Eurodollar Daily Rate.

 

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“Eurodollar Rate” shall mean, for any Interest Period with respect to a
Eurodollar Rate Loan, the rate of interest equal to the rate at which the Lender
is offered Dollar deposits two Eurodollar Rate Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency exchange operations of the Lender are
customarily conducted, for delivery on the first day of such Interest Period for
the number of days compromised therein and in an amount comparable to the amount
of the Eurodollar Rate Loan of the Lender to which such Interest Period applies,
divided by a number equal to 1.00 minus the Eurocurrency Reserve Rate, if
applicable.

 

In the event that at any time (i) Lender shall determine that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate or (ii) any
present or future law, regulation, treaty or directive or any interpretation or
application thereof shall make it unlawful for Lender to make or maintain the
Eurodollar Rate, or (iii) Eurodollar deposits in the relevant amount and for the
relevant maturity are not available to the Lender in the interbank Eurodollar
market, with respect to the Loan, Bank shall give notice of such circumstances
to Borrower. Upon the giving of such notice described in the preceding sentence,
the commitment of Lender to continue the Loan such that they are based on the
Eurodollar Rate shall forthwith be suspended and the interest rate on the Loan
shall be converted to an interest rate per annum equal to the Prime Rate plus 25
basis points (.25%), such conversion to be effective immediately.

 

“Eurodollar Rate Business Day” shall mean any day on which commercial banks are
open for international business (including dealings in Dollar deposits) in
London or such other eurodollar interbank market as may be selected by the
Lender in its sole discretion acting in good faith.

 

“Eurodollar Rate Loans” shall mean any loans bearing interest calculated by
reference to the Eurodollar Rate.

 

“Event of Default” and “Events of Default” shall have the meanings assigned in
Section 16.1 hereof.

 

“Excess Availability” means, as of any date of determination, the difference
between (a) the sum of (i) the amount permitted to be outstanding pursuant to
clause (ii) of the definition of “Revolving Loan Borrowing Base”, plus (ii) the
aggregate amount of cash on deposit at Lender which is subject to a first
priority, perfected security interest granted to the Lender as collateral
security for the Obligations pursuant to security documents in form and
substance satisfactory to the Lender, each of which documents shall be Financing
Agreements hereunder, and (b) the then aggregate outstanding principal amount of
the Revolving Loan.

 

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“Existing Financing Agreements” shall mean the Existing Loan Agreement, the
Existing Revolving Loan Note, the Existing Term Loan Notes, any and all other
instruments, documents and agreements executed and/or delivered in connection
with any of the Existing Loans or related thereto, and all amendments,
supplements or modifications to any of the foregoing.

 

“Existing Loan Agreement” shall have the meaning assigned in the Preamble to
this Agreement.

 

“Existing Loans” shall have the meaning assigned in the Preamble to this
Agreement.

 

“Existing Revolving Loan” shall have the meaning assigned in the Preamble to
this Agreement.

 

“Existing Revolving Loan Note” shall have the meaning assigned in the Preamble
to this Agreement.

 

“Existing Second Term Loan” shall have the meaning assigned in the Preamble to
this Agreement.

 

“Existing Second Term Loan Note” shall have the meaning assigned in the Preamble
to this Agreement.

 

“Existing Term Loan” shall have the meaning assigned in the Preamble to this
Agreement.

 

“Existing Term Loan Notes” shall mean the Existing First Term Loan Note, the
Existing Second Term Loan Note, the Existing Third Term Loan Note and the
Existing Fourth Term Loan Note.

 

“Existing Third Term Loan” shall have the meaning assigned in the Preamble to
this Agreement.

 

“Existing Third Term Loan Note” shall have the meaning assigned in the Preamble
to this Agreement.

 

“Fifth Stage Equipment Loan” and “Fifth Stage Equipment Loans” shall have the
meanings assigned in Section 9.1 hereof.

 

“Fifth Stage Equipment Loan Maturity Date” shall mean January 30, 2009.

 

“Financing Agreement” or “Financing Agreements” shall mean this Agreement, the
Notes, the Patent Security Agreement, the Trademark Security Agreement, the
Existing Financing Agreements (to the extent not otherwise

 

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superseded and replaced by another Financing Agreement) and any and all other
instruments, agreements and documents executed in connection herewith or
therewith (including, but not limited to those agreements required to be
delivered in connection with the consummation of a Qualifying Acquisition) or
related hereto or thereto, together with any amendments, supplements or
modifications hereto or thereto.

 

“First Stage Converted Equipment Loan” shall have the meaning assigned in
Section 5.5 hereof.

 

“First Stage Converted Equipment Loan Maturity Date” shall mean January 30 ,
2009.

 

“First Stage Converted Equipment Loan Note” shall have the meaning assigned in
Section 5.5 hereof.

 

“First Stage Equipment Loan” and “First Stage Equipment Loans” shall have the
meanings assigned in Section 5.1 hereof.

 

“First Stage Equipment Loan Conversion Date” shall mean January 30, 2005.

 

“Fixed Assets” shall mean equipment and other assets of Borrower which, by
generally accepted accounting principles, must be treated as fixed assets in
financial statements of Borrower.

 

“Fixed Charges” shall mean, with respect to any period, the sum of (a) Interest
paid or payable in cash, (b) regularly scheduled principal payments paid or
payable in respect of long term Indebtedness and under Capital Leases, (c)
income tax expense paid or payable in cash and (d) all distributions or
dividends paid by Borrower to any Person.

 

“Fixed Charge Coverage Ratio” shall mean, at any time, the ratio of (a)
Consolidated Cash Flow for the period of four consecutive fiscal quarters ending
on, or most recently ended prior to such time to (b) Fixed Charges for such
period.

 

“Foreign Subsidiary” shall mean a Subsidiary of the Borrower that is not
organized under the laws of any state of the United States of America or the
District of Columbia.

 

“Fourth Stage Converted Equipment Loan” shall have the meaning assigned in
Section 8.5 hereof.

 

“Fourth Stage Converted Equipment Loan Maturity Date” shall mean January 30,
2012.

 

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“Fourth Stage Converted Equipment Loan Note” shall have the meaning assigned in
Section 8.5 hereof.

 

“Fourth Stage Equipment Loan Conversion Date” shall mean January 30, 2008.

 

“Fourth Stage Equipment Loan” and “First Stage Equipment Loans” shall have the
meanings assigned to them in Section 8.1 hereof.

 

“Fourth Stage Equipment Loan Maturity Date” shall have the meaning assigned to
it in Section 8.5.

 

“GAAP” shall mean United States generally accepted accounting principles
consistently applied.

 

“Government” shall have the meaning assigned in clause (xi) of the definition of
Eligible Accounts.

 

“Hazardous Material” shall mean any chemical, compound, material, mixture or
substance: (i) the presence of which requires or may hereafter require
notification, investigation, monitoring or remediation under any Environmental
Law; (ii) which is or becomes defined as a “hazardous waste”, “hazardous
material” or “hazardous substance” or “toxic substance” or “pollutant” or
contaminant” under any present or future applicable federal, state or local law
or under the rules and regulations adopted or promulgated pursuant thereto,
including, without limitation, the Environmental Laws; (iii) which is toxic,
explosive, corrosive, reactive, ignitable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by
any governmental authority, agency, department, commission, board, agency or
instrumentality of any foreign country, the United States, any state of the
United States, or any political subdivision thereof to the extent any of the
foregoing has or had jurisdiction over Borrower; (iv) which contains without
limitation, gasoline, diesel fuel or other petroleum products, asbestos or
polychlorinated biphenyls (“PCBs”); or (v) any other chemical, material or
substance, exposure to, or disposal of, which is now or hereafter prohibited,
limited or regulated by any federal, state or local governmental body,
instrumentality or agency.

 

“Hedging Agreements” shall mean any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement, interest rate futures contract,
interest rate option agreement, interest rate exchange agreement, forward
currency exchange agreement, forward rate currency agreement or other similar
agreement or arrangement to which the Borrower or any of its Subsidiaries and
the Lender is a party, designed to protect the Borrower or any

 

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of its Subsidiaries against fluctuations in interest rates, exchange rates or
forward rates.

 

“Indebtedness” shall mean all obligations that in accordance with GAAP should be
classified as liabilities upon Borrower’s balance sheet or to which reference
should be made by footnotes thereto.

 

“Indemnifiable Liability” shall have the same meaning assigned in Section
21.1(a) hereof.

 

“Indemnitees” shall have the same meaning assigned in Section 21.1(a) hereof.

 

“Intangible Assets” shall mean assets that in accordance with GAAP are properly
classifiable as intangible assets, including but not limited to, goodwill,
franchises, licenses, patents, trademarks, tradenames and copyrights.

 

“Interest” means, with respect to any period, the sum (without duplication) of
the following (in each case, eliminating all offsetting debits and credits
between the Company, and its Subsidiaries and all other items required to be
eliminated in the course of the preparation of consolidated financial statements
of the Company and its Subsidiaries in accordance with GAAP): (a) all interest
in respect of Debt of the Company and its Subsidiaries (including imputed
interest on Capital Lease Obligations) deducted in determining Consolidated Net
Income for such period, together with all interest capitalized or deferred
during such period, together with all interest capitalized or deferred during
such period and not deducted in determining Consolidated Net Income for such
period, and (b) all debt discount and expense amortized or required to be
amortized in the determination of Consolidated Net Income for such period.

 

“Interest Period” shall mean with respect to each Loan (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of a 1, 2, 3 or 6 month period, as selected by the Borrower in a Notice of
Revolving Loan Borrowing, a Notice of Acquisition Loan Borrowing or a Notice of
Equipment Loan Borrowing, as the case may be, or as otherwise required by the
terms of this Agreement for any Eurodollar Rate Loan; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Notice of Revolving Loan
Borrowing, a Notice of Acquisition Loan Borrowing or a Notice of Equipment Loan
Borrowing as the case may be; provided that all of the foregoing provisions
relating to Interest Periods are subject to the following:

 

(A) if any Interest Period with respect to a Eurodollar Rate Loan would
otherwise end on a day that is not a Eurodollar Rate Business Day,

 

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that Interest Period shall be extended to the next succeeding Eurodollar Rate
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the immediately preceding Eurodollar Rate Business Day;

 

(B) any Interest Period relating to any Eurodollar Rate Loan that begins on the
last Eurodollar Rate Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Eurodollar Rate Business Day of a
calendar month; and

 

(C) any Interest Period that would otherwise extend beyond the Revolving Loan
Maturity Date (if comprising a Revolving Loan), the Term Loan Maturity Date (if
comprising the Term Loan or a portion thereof), the First Stage Converted
Equipment Loan Maturity Date, the Second Stage Converted Equipment Loan Maturity
Date, the Third Stage Converted Equipment Loan Maturity Date, the Fourth Stage
Converted Equipment Loan Maturity Date, the Fifth Stage Equipment Loan Maturity
Date or the Acquisition Loan Maturity Date shall end on the Revolving Credit
Loan Maturity Date or the Term Loan Maturity Date, the First Stage Converted
Equipment Loan Maturity Date, the Second Stage Converted Equipment Loan Maturity
Date, the Third Stage Converted Equipment Loan Maturity Date, the Fourth Stage
Converted Equipment Loan Maturity Date, the Fifth Stage Equipment Loan Maturity
Date or the Acquisition Loan Maturity Date, as the case may be.

 

“Inventory” shall have the meaning assigned in Section 15.1(d) hereof.

 

“Loan” means a Revolving Loan, the Term Loan, an Equipment Loan, a Converted
Equipment Loan or an Acquisition Loan, and “Loans” means the Revolving Loans,
the Term Loan, the Equipment Loans, the Converted Equipment Loans and the
Acquisition Loan.

 

“Lockbox Agreement” shall have the meaning assigned in Section 17.1 hereof.

 

“Material Adverse Effect” means with respect to any event or occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding):

 

(a) a material adverse effect on the business, properties, prospects, condition
(financial or otherwise), assets, operations or income of the Borrower,
individually or the Borrower and its Subsidiaries, taken as a whole;

 

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(b) a material adverse effect on the ability of the Borrower or any of its
Subsidiaries, individually and taken as a whole, to perform any of their
respective Obligations under any of the Financing Agreements to which it is a
party; or

 

(c) a material impairment of the validity, binding effect or enforceability of
this Agreement or any of the other Financing Agreements, a material impairment
of the rights, remedies or benefits available to the Lender under any Financing
Agreement or a material impairment of the attachment, perfection or priority of
any lien of the Lender under the Financing Agreements.

 

In determining whether any individual event could reasonably be expected to
result in a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events could reasonably be expected to result in a Material Adverse Effect.

 

“Note” means the Revolving Loan Note, the Term Loan Note, the Equipment Loan
Note, the First Stage Converted Equipment Loan Note, the Second Stage Converted
Equipment Loan Note, the Third Stage Converted Equipment Loan Note, the Fourth
Stage Converted Equipment Loan Note or the Acquisition Loan Note, and “Notes”
means the Revolving Loan Note, the Term Loan Note, the Equipment Loan Note, the
First Stage Converted Equipment Loan Note, the Second Stage Converted Equipment
Loan Note, the Third Stage Converted Equipment Loan Note, the Fourth Stage
Converted Equipment Loan Note or the Acquisition Loan Notes.

 

“Notice of Acquisition Loan Borrowing” shall have the meaning assigned in
Section 3.2 hereof.

 

“Notice of Revolving Loan Borrowing” shall have the meaning assigned in Section
2.2 hereof.

 

“Notice of Equipment Loan Borrowing” shall have the meaning assigned in Section
5.2 hereof.

 

“Obligation” and “Obligations” mean and include all loans advances, interest,
indebtedness, liabilities, obligations, fees, charges, expenses, guaranties,
covenants and duties at any time owing by Borrower to Lender of every kind and
description, whether or not evidenced by any note or other instrument, whether
or not for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including,
but not limited to, the Loans, and all other indebtedness, liabilities and
obligations of Borrower arising under this Agreement and the

 

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other Financing Agreements, Hedging Agreements or otherwise, and all reasonable
costs, expenses, fees, charges incurred by Lender hereunder or otherwise with
respect to Borrower, including, without limitation, reasonable fees and expenses
of attorneys, paralegals and other professionals incurred in connection with any
of the foregoing, or in any way connected with, involving or relating to the
preservation, enforcement, protection or defense of, or realization under this
Agreement, any of the other Financing Agreements, any related agreement,
document or instrument, the Collateral and the rights and remedies hereunder or
thereunder, including without limitation, all reasonable costs, expenses and
fees incurred in inspecting or surveying mortgaged real estate, if any, or
conducting Environmental studies or tests, and all reasonable costs, expenses
and fees incurred in connection with any “workout” or default resolution
negotiations involving legal counsel or other professionals and further in
connection with any modification, renegotiation or restructuring of the
indebtedness evidenced by this Agreement and/or any of the other Financing
Agreements and/or Obligations.

 

“Patent Security Agreement” shall mean that certain Patent Collateral Assignment
and Security Agreement dated as of June 30, 1998 between the Borrower and the
Lender, as the same may be amended, restated, or supplemented from time to time.

 

“Person” shall mean any individual, corporation, limited liability company,
partnership, trust, unincorporated association, business, or other legal entity,
and any government or any governmental agency or political subdivision thereof.

 

“Plan” means any employee benefit plan or other plan maintained by Borrower or
any entity affiliated with Borrower for employees covered by Title I of ERISA.

 

“Premises” shall mean the real property located at 3 Berkshire Blvd., Bethel,
Connecticut, 4065 Campbell Avenue, San Mateo County, Menlo Park, California and
4020 Campbell Avenue, San Mateo County, Menlo Park, California.

 

“Prime Rate” shall mean the Prime Rate as published from time to time in the
“Money Rates” section of The Wall Street Journal or any successor publication,
or in the event that such rate is no longer published in The Wall Street
Journal, a comparable index or reference selected by Lender. The Prime Rate need
not and may not necessarily be the lowest or most favorable rate.

 

“Prime Rate Loan” shall mean any Loan which the Borrower has selected an
interest rate based upon the Prime Rate.

 

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“Pro Forma Basis” shall mean (a) in connection with any proposed Qualifying
Acquisition, the calculation of the financial covenants set forth in Sections
14.31 and 14.32 hereof by Borrower and its Subsidiaries (including the Person or
assets to be acquired) with reference to the audited historical financial
results of such Person, if available, and if not so available, then with
reference to such management certified financial results of such Person as shall
be reasonably acceptable to Lender (or, if an acquisition of assets, the
financial results attributable to such assets) and Borrower and its Subsidiaries
for the applicable fiscal period ending immediately prior to the date of such
acquisition, after giving effect on a pro forma basis to such Qualifying
Acquisition in the manner described below; and (b) after the consummation of a
Qualifying Acquisition, as at the end of each of the three fiscal quarters of
the Borrower immediately following such Qualifying Acquisition, the calculation
of compliance with the financial covenant set forth in Sections 14.31 and 14.32
hereof by Borrower and its Subsidiaries (including the Person or assets(s) to be
acquired) with reference to (i.e. including, as applicable) the audited
historical financial results of such Person, if available, and if not so
available, such management certified financial results of such Person as shall
be reasonably acceptable to Lender (or, if an acquisition of assets, the
financial results attributable to such assets).

 

For the purpose of determining a covenant or other information on a Pro Forma
Basis:

 

(i) all Indebtedness (whether under this Agreement or otherwise) and any other
balance sheet adjustments incurred or made in connection with the Qualifying
Acquisition shall be deemed to have been incurred or made on the first day of
the period covered by the applicable covenant, and all Indebtedness of the
Person acquired or to be acquired in such Qualifying Acquisition which was or
will have been repaid in connection with the consummation of the Qualifying
Acquisition shall be deemed to have been repaid concurrently with the deemed
incurrence of the Indebtedness incurred in connection with the Qualifying
Acquisition; and

 

(ii) all Indebtedness assumed to have been incurred pursuant to the preceding
clause (i) shall be deemed to have borne interest at the arithmetic mean of (x)
the interest rate that would have accrued on Eurodollar Rate Loans having an
Interest Period of one month if such Eurodollar Rate Loans were outstanding on
the first day of the period covered by the applicable covenant and (y) the
interest rate that would have accrued on Eurodollar Rate Loans having an
Interest Period of one month if such Eurodollar Rate Loans were outstanding on
the last day of the period covered by the applicable covenant.

 

“Product Line” shall have the meaning assigned in Section 15.1 hereof.

 

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“Qualifying Acquisition” Shall mean the acquisition of any Person, business,
division, or specified group of assets by the Borrower, provided that each of
the following conditions is met with respect to any such acquisition:

 

(a) immediately prior to and after giving effect to such acquisition, no
Defaulting Event or Event of Default shall then exist, and the Borrower shall
have delivered to the Lender a statement certified by the principal financial or
accounting officer of the Borrower to the effect that immediately prior to and
after giving effect to such acquisition, no Defaulting Event of Event of Default
exists and attaching, in reasonable detail, computations evidencing on a Pro
Forma Basis compliance (on a consolidated basis) with the covenants contained in
Sections 14.31 and 14.32 hereof, immediately prior to and after giving effect to
such acquisition;

 

(b) the consideration for such acquisition shall not include the assumption of
Indebtedness by the Borrower or any of its Subsidiaries, other than Indebtedness
(i) in existence prior to the date of such acquisition, (ii) which was not
incurred in connection with or in contemplation of, such acquisition, (iii) in
an aggregate amount for all such acquisitions not to exceed (together with other
Indebtedness outstanding which is permitted pursuant to Section 14.21 hereof)
the amount of Indebtedness permitted pursuant to Section 14.21 hereof, and (iv)
which is otherwise on terms and conditions satisfactory to the Lender;

 

(d) such acquisition shall have been approved by the board of directors and
shareholders, if applicable, of the Person so acquired;

 

(e) not less than sixty (60) days prior to such acquisition, the Borrower shall
notify the Lender thereof;

 

(f) either (i) such acquisition is the acquisition of assets only (for use in
substantially the same line of business as (or a line of business related to or
which can be vertically integrated with the line of business of the Borrower)
and in substantially all of which assets the Lender shall concurrently (or
substantially concurrently) with the closing of the acquisition have a
perfected, first priority security interest upon the occurrence of such
acquisition), or (ii) such acquisition involves the purchase of the capital
stock or other equity interests of a Person and each of the following conditions
is met:

 

(A) such acquisition is the acquisition of at least a majority of each of the
capital stock and Voting Stock of such Person, and the structure of such
acquisition is acceptable to the Lender,

 

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(B) such Person is in substantially the same line of business as (or a line of
business related to or which can be vertically integrated with) the Borrower,

 

(C) such Person has a tangible net worth (determined in accordance with GAAP)
that is at least $1.00, and

 

(D) contemporaneously with the occurrence of such acquisition, the Borrower
shall (i) take all steps as may be necessary or advisable in the opinion of the
Lender to pledge to the Lender, on a perfected, first-priority basis, all of the
capital stock or other equity interests of such Person acquired by the Borrower
(or, if the Person so acquired shall become a Foreign Subsidiary, the lesser of
(x) the amount of capital stock or other equity interests so acquired and (y)
sixty-five percent (65%) of the outstanding capital stock or other equity
interests of such Foreign Subsidiary) pursuant to a pledge agreement in form and
substance satisfactory to the Lender, which such pledge agreement shall be a
Financing Agreement hereunder, (ii) if such Person shall become a Subsidiary
(other than a Foreign Subsidiary), cause such Person to guaranty all of the
Obligations hereunder pursuant to a guaranty in form and substance satisfactory
to the Lender, which such guaranty shall be a Financing Agreement hereunder,
(iii) if such Person shall become a Subsidiary (other than a Foreign
Subsidiary), cause such Person to take all steps as may be necessary or
advisable in the reasonable opinion of the Lender to grant to the Lender, a
first priority, perfected security interest in substantially all of its assets
(other than in those assets which secure Indebtedness assumed by the Borrower
and the lien and Indebtedness with respect to which is permitted under §14.21
hereof) as collateral security for such guaranty, pursuant to security
documents, mortgages, pledges and other documents in form and substance
satisfactory to the Lender, each of which documents shall be Financing
Agreements hereunder, and (iv) cause such Person to deliver to the Lender (1)
evidence of proper corporate authorization and (2) if required by the Lender,
legal opinions with respect to each of the matters and documents set forth in
this clause (C), in each case, in form and substance satisfactory to the Lender;

 

(g) prior to closing of such acquisition, the Lender by or through any of its
officers, employees or other representatives shall have conducted such audits of
the book and records of Borrower and of such Person and shall have conducted
such appraisals of Borrower’s and such

 

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Person’s assets as the Lender shall have deemed necessary in its sole
discretion;

 

(h) prior to the closing of such acquisition, the Lender shall have received
copies of all of the documentation to be executed and/or delivered in connection
with such acquisition, all of which shall be in form and substance satisfactory
to the Lender in its sole discretion; and

 

(i) such acquisition is in all other respects satisfactory to the Lender in its
sole discretion.

 

“Receivables” shall have the meaning assigned in Section 15.1(a) hereof.

 

“Reference Period”. As of any date of determination, the period of four (4)
consecutive fiscal quarters of the Borrower and its Subsidiaries ending on such
date, or if such date is not a fiscal quarter end date, the period of four (4)
consecutive fiscal quarters most recently ended (in each case treated as a
single accounting period).

 

“Release” shall mean any release, emission, disposal, leaching or migration into
the environment (including, without limitation, the abandonment or disposal of
any barrels, containers, or other closed receptacles containing any Hazardous
Materials) or into or out of any property owned, occupied or used by Borrower.

 

“Reserves” shall mean, as determined by the Lender, such amounts as the Lender
may from time to time establish and revise (a) to reflect events, conditions,
contingencies or risks which do or may have a Material Adverse Effect or (b) to
reflect the belief of the Lender that any borrowing base report or other
collateral report or financial information furnished by or on behalf of the
Borrower to the Lender is or may have been incomplete, inaccurate or misleading
in any material respect or that the entire amount of any accounts receivable or
inventory included therein may not be collectible for any reason. Reserves may
include, but are not limited to reserves to reflect amounts owed by the Borrower
under Hedging Agreements.

 

“Revolving Loan” and “Revolving Loans” shall have the meanings assigned in
Section 2.1 hereof.

 

“Revolving Loan Account” shall have the meaning assigned in Section 2.2 hereof.

 

“Revolving Loan Borrowing Base” shall mean an amount equal to the lesser of: (i)
Five Million Dollars ($5,000,000) or

 

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(ii) an amount equal to the aggregate of

 

(1) eighty-five percent (85%) of Eligible Accounts plus

 

(2) the lesser of (x) thirty percent (30%) of Eligible Inventory, and (y)
$3,000,000 minus

 

(3) Reserves.

 

“Revolving Loan Maturity Date” shall mean January 30, 2009.

 

“Revolving Loan Note” shall have the meaning assigned in Section 2.2 hereof.

 

“Revolving Loan Term” shall have the meaning assigned in Section 20.1(a) hereof.

 

“Second Stage Converted Equipment Loan” shall have the meaning assigned in
Section 6.5 hereof.

 

“Second Stage Converted Equipment Loan Maturity Date” shall mean January 30,
2010.

 

“Second Stage Converted Equipment Loan Note” shall have the meaning assigned in
Section 6.5 hereof.

 

“Second Stage Equipment Loan” and “Second Stage Equipment Loans” shall have the
meanings assigned in Section 6.1 hereof.

 

“Second Stage Equipment Loan Conversion Date” shall mean January 30, 2006.

 

“Subsidiary” and “Subsidiaries” shall mean any corporation or corporations of
which the outstanding shares of any stock having ordinary voting power is at the
time owned by Borrower and/or by one or more Subsidiaries.

 

“Synthetic Lease” shall mean any lease of goods or other property, whether real
or personal, which is treated as an operating lease under GAAP and as a loan or
financing for U.S. income tax purposes.

 

“Term Loan” shall have the meaning assigned in Section 4.1 hereof.

 

“Term Loan Maturity Date” shall mean January 30, 2009.

 

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“Term Loan Note” shall have the meaning assigned in Section 4.1 hereof.

 

“Third Stage Converted Equipment Loan” shall have the meaning assigned in
Section 7.5 hereof.

 

“Third Stage Converted Equipment Loan Maturity Date” shall mean January 30,
2011.

 

“Third Stage Converted Equipment Loan Note” shall have the meaning assigned in
Section 7.5 hereof.

 

“Third Stage Equipment Loan” and “Third Stage Equipment Loans” shall have the
meanings assigned in Section 7.1 hereof.

 

“Third Stage Equipment Loan Conversion Date” shall mean January 30, 2007.

 

“Trademark Security Agreement” shall mean that certain Trademark Collateral
Security and Pledge Agreement dated as of June 30, 1998 between the Borrower and
the Lender, as the same may be amended, modified or supplemented from time to
time.

 

“Treasury Rate” means the yield calculated by the linear interpolation of the
yield, as reported in Federal Reserve Statistical Release H.15-Selected Interest
Rates under the heading “U.S. Government Securities/Treasury Constant
Maturities” for the week ending prior to the date of the relevant prepayment, of
United States Treasury constant maturities with a maturity date (one longer and
one shorter) most nearly approximating the end of the term of the Loan which is
being prepaid.

 

“Type” means (i) as to any Revolving Loan or any Equipment Loan, its nature as a
Eurodollar Rate Loan or a Eurodollar Daily Rate Loan and (ii) as to the Term
Loan, any Acquisition Loan or any Converted Equipment Loan, its nature as a a
Eurodollar Rate Loan, a Eurodollar Daily Rate Loan or a Cost of Funds Rate Loan.

 

“Voting Stock” shall mean stock or other equity interests, of any class or
classes (however designated), the holders of which are at the time entitled, as
such holders, to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, limited liability
company, association, trust or other business entity involved, whether or not
the right so to vote exists by reason of the happening of a contingency.

 

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ARTICLE II. Revolving Loans

 

Section 2.1. Amounts. Subject to the terms and conditions contained in this
Agreement, and so long as no Defaulting Event has occurred, Lender agrees, in
its sole but reasonable discretion, to make and remake loans (collectively, the
“Revolving Loans” and, individually, a “Revolving Loan”) to Borrower from time
to time until terminated as provided below in principal amounts not exceeding in
the aggregate at any one time outstanding the Revolving Loan Borrowing Base, it
being agreed and understood that at no time shall the maximum aggregate
principal amount of the Revolving Loans made by Lender exceed the Revolving Loan
Borrowing Base.

 

Section 2.2. Procedure For Advances, Notice of Revolving Loan Borrowing,
Revolving Loan Note, Etc. Within the limits of the Revolving Loan Borrowing Base
and the Revolving Loan Term, so long as Borrower is in compliance with all of
the terms and conditions of this Agreement and no Defaulting Event has occurred,
Borrower may request borrowings and may repay and request reborrowings of
Revolving Loans. Whenever Borrower desires an advance, Borrower shall notify
Lender (which notice shall be irrevocable) by telecopy or telephone of the
proposed borrowing. Such notice (each, a “Notice of Revolving Loan Borrowing”)
shall be accompanied by a borrowing base certificate (in a form acceptable to
Lender), specifying (i) the proposed Drawdown Date of such Revolving Loan, (ii)
the principal amount of the Revolving Loan requested, (iii) the Interest Period
for such Revolving Loan (if applicable) and (iv) the Type of such Revolving
Loan. Each Notice of Revolving Loan Borrowing must be received by Lender (a) by
11:00 a.m. Hartford, Connecticut time the day of the proposed Drawdown Date of
any Eurodollar Daily Rate Loan and (b) not less than four (4) Eurodollar Rate
Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan.
In addition to this Agreement, the Revolving Loans shall be evidenced by a Third
Amended and Restated Revolving Loan Note payable to Lender in the form of
Exhibit A attached hereto (the “Revolving Loan Note”), which Revolving Loan Note
shall amend and restate the Existing Revolving Loan Note. Insofar as Borrower
may request and Lender shall make Revolving Loans hereunder, Lender shall enter
such advances as debits on a revolving loan account maintained by Borrower with
Lender (the “Revolving Loan Account”). Lender may also record to the Revolving
Loan Account, in accordance with customary accounting practices and procedures,
(i) all fees, accrued and unpaid interest, late fees, usual and customary
charges for the maintenance and administration of checking and any other
accounts maintained by Borrower with Lender, and other fees and charges which
are properly chargeable to Borrower under this Agreement, (ii) all payments,
subject to collection, made by or account of indebtedness evidenced by the
Revolving Loan Account, (iii) all proceeds of Collateral which are finally paid
to Lender in its own office in cash

 

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or collected items, and (iv) other appropriate debits and credits, including
without limitation, payments of interest due hereunder.

 

Section 2.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Revolving Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Revolving
Loan Account for all interest charges on the Revolving Loan as and when the same
shall be due and payable, if not otherwise paid by Borrower, subject to
applicable law.

 

Section 2.4. Lender Discretion. Nothing herein shall be construed to (a) require
Lender to make Revolving Loans, and/or (b) prohibit Lender from lending in
excess of the Revolving Loan Borrowing Base, it being agreed that all such loans
and advances shall be at Lender’s sole (but in the case of (a) above,
reasonable) discretion and shall not establish a pattern or custom binding upon
Lender.

 

ARTICLE III. Acquisition Loan.

 

Section 3.1. Amounts. Subject to the terms and conditions contained in this
Agreement, Lender agrees, in its sole discretion, to make one or more loans
(each an “Acquisition Loan”) to Borrower until terminated as provided below, it
being agreed and understood that the maximum aggregate original principal amount
of all Acquisition Loans made by Lender shall not exceed $2,000,000.

 

Section 3.2. Procedure for Advance Notice of Acquisition Loan Borrowing,
Acquisition Loan Note, Etc. Within the limits set forth in Section 3.1 hereof
and the Acquisition Loan Term, the Borrower may request an Acquisition Loan.
Whenever Borrower desires an Acquisition Loan, Borrower shall notify Lender by
telecopy or telephone of the proposed borrowing. Such notice (a “Notice of
Acquisition Loan Borrowing”) shall specify (i) the proposed Drawdown Date of
such Acquisition Loan, (ii) the principal amount of the Acquisition Loan
requested, (iii) the Interest Period for such Acquisition Loan (if applicable),
and (iv) the Type of such Acquisition Loan. The Notice of Acquisition Loan
Borrowing must be received by Lender no less than (a) two (2) Business Days
prior to the proposed Drawdown Date of any Eurodollar Daily Rate Loan and (b)
four (4) Eurodollar Rate Business Days prior to the proposed Drawdown Date of
any Eurodollar Rate Loan. In addition to this Agreement, each Acquisition Loan
shall be evidenced by an Acquisition Loan Note payable to Lender in the form of
Exhibit B attached hereto (the “Acquisition Loan Note”). Each Acquisition Loan
shall bear interest at a rate determined in accordance with Section 10.1 hereof,
and be payable in thirty-six (36)

 

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substantially equal, consecutive monthly payments of principal in accordance
with the terms and conditions of the Acquisition Loan Note evidencing such
Acquisition Loan. On the date each Acquisition Loan is closed, the Borrower
shall execute and/or deliver, or cause to be delivered to Lender an Acquisition
Loan Note and such other instruments, documents and agreements as Lender
reasonably requires, all in form, scope and substance satisfactory to Lender.

 

Section 3.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Acquisition Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Acquisition
Loan Account for all interest charges on each Acquisition Loan as and when the
same shall be due and payable, if not otherwise paid by Borrower, subject to
applicable law.

 

Section 3.4. Lender Discretion. Nothing herein shall be construed to require
Lender to make any Acquisition Loan, it being agreed that any such loans shall
be at Lender’s sole discretion.

 

ARTICLE IV. Existing Term Loans.

 

Section 4.1. Amount. Lender hereby agrees to consolidate the Existing Term Loans
into one term loan to Borrower in the original principal amount of $1,574,000
(the “Term Loan”). In addition to this Agreement, the Term Loan shall be
evidenced by a Second Consolidated and Amended and Restated Term Loan Note
payable to Lender in the form of Exhibit C attached hereto (the “Term Loan
Note”), which Term Loan Note shall supersede and replace the Existing Term Loan
Notes.

 

Section 4.2. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Term Loan, which statement shall be considered correct and
accepted by Borrower and conclusively binding upon Borrower unless Borrower
notifies Lender to the contrary within ten (10) days of the receipt of said
statement by Borrower. Lender shall have the right to debit any account of
Borrower for all principal, interest and other charges on the Term Loan as and
when the same shall be due and payable, if not otherwise paid by Borrower.

 

ARTICLE V. First Stage Equipment Loan; First Stage Converted Equipment Loan

 

Section 5.1. Amount. Subject to the terms and conditions contained in this
Agreement and so long as no Defaulting Event has occurred, Lender agrees to make
loans (collectively, the “First Stage Equipment Loans”

 

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and, individually, a “First Stage Equipment Loan”) to Borrower commencing on the
Closing Date through the First Stage Equipment Loan Conversion Date until
terminated as provided below, in principal amounts not exceeding in the
aggregate at any one time outstanding the Equipment Loan Borrowing Base, it
being agreed and understood that at no time shall the maximum aggregate
principal amount of the Equipment Loans made by Lender exceed the Equipment Loan
Borrowing Base.

 

Section 5.2. Procedure For Advances; Equipment Loan Notice of Borrowing;
Equipment Loan Note, Etc. Within the limits of the Equipment Loan Borrowing
Base, so long as Borrower is in compliance with all of the terms and conditions
of this Agreement and no Defaulting Event has occurred, Borrower may request
borrowings (but in any event, no more than one time per fiscal quarter of the
Borrower) and repay BUT NOT REBORROW First Stage Equipment Loans. To be eligible
to obtain any First Stage Equipment Loan, Borrower must submit to Lender at
least three (3) Business Days prior to the date on which Borrower requests
Lender to make such First Stage Equipment Loan, enforceable at the sole option
of Lender: (a) copies of invoices which reflect the actual cost of the Eligible
Equipment being purchased with the proceeds of such First Stage Equipment Loan,
including, if any, installation and other services and costs associated
therewith; (b) evidence satisfactory to Lender that upon payment of the purchase
price therefor, the Eligible Equipment shall be in the Borrower’s physical
possession and that (1) the Borrower has acquired good title to such Eligible
Equipment, and (2) such Eligible Equipment is not subject to any pledge, lien,
lease, encumbrance or charge of any kind whatsoever, other than in favor of
Lender. Whenever Borrower desires an advance, Borrower shall notify Lender
(which notice shall be irrevocable) by telecopy or telephone of the proposed
borrowing. Such notice (each, a “Notice of Equipment Loan Borrowing”) shall
specify (i) the proposed Drawdown Date of such Equipment Loan requested, (ii)
the principal amount of the Equipment Loan requested, (iii) the Interest Period
for such Equipment Loan (if applicable), and (iv) the Type of such Equipment
Loan. Each Notice of Equipment Loan Borrowing must be received by Lender (a) no
later than 11:00 a.m., Hartford, Connecticut time on the day of the proposed
Drawdown Date of any Eurodollar Daily Rate Loan and (b) not less than four (4)
Eurodollar Rate Business Days prior to the proposed Drawdown Date of any
Eurodollar Rate Loan. In addition to this Agreement, the First Stage Equipment
Loans shall be evidenced by an Equipment Loan Note payable to Lender in the form
of Exhibit D attached hereto (the “Equipment Loan Note”). Insofar as Borrower
may request and Lender shall make First Stage Equipment Loans hereunder, Lender
shall enter such advances as debits on an equipment loan account maintained by
Borrower with Lender (the “Equipment Loan Account”). Lender may also record to
the Equipment Loan Account, in accordance with customary accounting practices
and procedures, (i) all fees, accrued and unpaid interest, late fees, usual and

 

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customary charges for the maintenance and administration of checking and any
other accounts maintained by Borrower with Lender, and other fees and charges
which are properly chargeable to Borrower under this Agreement, (ii) all
payments, subject to collection, made by or account of indebtedness evidenced by
the Equipment Loan Account, (iii) all proceeds of Collateral which are finally
paid to Lender in its own office in cash or collected items, and (iv) other
appropriate debits and credits, including without limitation, payments of
interest due hereunder.

 

Section 5.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Equipment Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Equipment
Loan Account for all interest charges on the First Stage Equipment Loans as and
when the same shall be due and payable, if not otherwise paid by Borrower,
subject to applicable law.

 

Section 5.4. Lender Discretion. Nothing herein shall be construed to prohibit
Lender from lending in excess of the Equipment Loan Borrowing Base, it being
agreed that all such loans and advances shall be at Lender’s sole discretion and
shall not establish a pattern or custom binding upon Lender.

 

Section 5.5. Conversion to First Stage Converted Equipment Loan. Notwithstanding
anything to the contrary contained herein, so long as Borrower is in compliance
with all of the terms and conditions of this Agreement and no Defaulting Event
has occurred, on the First Stage Equipment Loan Conversion Date, the then
outstanding principal balance of the First Stage Equipment Loans shall convert
into term indebtedness having a final maturity on the First Stage Converted
Equipment Loan Maturity Date (the “First Stage Converted Equipment Loan”). The
First Stage Converted Equipment Loan shall bear interest at a rate determined in
accordance with Section 10.1 hereof, and be payable in forty-eight (48)
substantially equal, consecutive monthly payments of principal in accordance
with the terms and conditions of a First Stage Converted Equipment Loan Note
payable to Lender in the form of Exhibit E attached hereto (the “First Stage
Converted Equipment Loan Note”). On the First Stage Equipment Loan Conversion
Date, Borrower shall execute and/or deliver, or cause to be delivered to Lender
a First Stage Converted Equipment Loan Note and such other instruments,
documents and agreements as Lender reasonably requires, all in form, scope and
substance satisfactory to Lender. On and after the First Stage Equipment Loan
Conversion Date,

 

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Borrower shall have no ability to request, and Lender shall have no obligation
to make, any further First Stage Equipment Loans.

 

ARTICLE VI. Second Stage Equipment Loan; Second Stage Converted Equipment Loan

 

Section 6.1. Amount. If (a) a written notice is given by the Borrower to the
Lender not less than thirty (30) days prior to the First Stage Equipment Loan
Conversion Date requesting that the Lender make Second Stage Equipment Loans,
(b) such notice is given at a time when no Defaulting Event has occurred and is
continuing, and no Event of Default occurs between the giving of such notice and
the First Stage Equipment Loan Conversion Date, (c) the entire outstanding
principal balance of the First Stage Equipment Loan has converted into a First
Stage Converted Equipment Loan in accordance with Section 5.5 hereof, and (d)
the Lender gives written notice to the Borrower prior to the First Stage
Equipment Loan Conversion Date that the Lender agrees to make Second Stage
Equipment Loans (it being understood that the Lender shall have the right to
determine whether to agree to make any Second Stage Equipment Loans in the
Lender’s sole discretion), then, subject to the terms and conditions contained
in this Agreement and so long as no Defaulting Event has occurred, Lender agrees
to make loans (collectively, the “Second Stage Equipment Loans” and,
individually, a “Second Stage Equipment Loan”) to Borrower until terminated as
provided below, in principal amounts not exceeding in the aggregate at any one
time outstanding the Equipment Loan Borrowing Base (which shall not be reduced
by the amount of the First Stage Converted Equipment Loan), it being agreed and
understood that at no time shall the maximum aggregate principal amount of the
Second Stage Equipment Loans made by Lender exceed the Equipment Loan Borrowing
Base.

 

Section 6.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Second
Stage Equipment Loan Note, Etc. Within the limits of the Equipment Loan
Borrowing Base, subject to the terms and conditions of this Agreement and so
long as no Defaulting Event has occurred, Borrower may request borrowings (but,
in any event, no more than one time per fiscal quarter of the Borrower) and
repay BUT NOT REBORROW Second Stage Equipment Loans. To be eligible to obtain
any Second Stage Equipment Loan, Borrower must submit to Lender at least three
(3) Business Days prior to the date on which Borrower requests Lender to make
such Second Stage Equipment Loan, enforceable at the sole option of Lender: (a)
copies of invoices which reflect the actual cost of the Eligible Equipment being
purchased with the proceeds of such Second Stage Equipment Loan, including, if
any, installation and other services and costs associated therewith; (b)
evidence satisfactory to Lender that upon payment of the purchase price
therefor, the Eligible

 

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Equipment shall be in the Borrower’s physical possession and that (1) the
Borrower has acquired good title to such Eligible Equipment, and (2) such
Eligible Equipment is not subject to any pledge, lien, lease, encumbrance or
charge of any kind whatsoever, other than in favor of Lender. Whenever Borrower
desires an advance, Borrower shall notify Lender (which notice shall be
irrevocable) pursuant to a Notice of Equipment Loan Borrowing. Each Notice of
Equipment Loan Borrowing shall specify (i) the proposed Drawdown Date of such
Equipment Loan requested, (ii) the principal amount of the Equipment Loan
requested, (iii) the Interest Period for such Equipment Loan (if applicable),
and (iv) the Type of such Equipment Loan. Each Notice of Equipment Loan
Borrowing must be received by Lender (a) no later than 11:00 a.m., Hartford,
Connecticut time on the day of the proposed Drawdown Date of any Eurodollar
Daily Rate Loan and (b) not less than four (4) Eurodollar Rate Business Days
prior to the proposed Drawdown Date of any Eurodollar Rate Loan. In addition to
this Agreement, the Second Stage Equipment Loans shall be evidenced by the
Equipment Loan Note. Insofar as Borrower may request and Lender shall make
Second Stage Equipment Loans hereunder, Lender shall enter such advances as
debits on the Equipment Loan Account. Lender may also record to the Equipment
Loan Account, in accordance with customary accounting practices and procedures,
(i) all fees, accrued and unpaid interest, late fees, usual and customary
charges for the maintenance and administration of checking and any other
accounts maintained by Borrower with Lender, and other fees and charges which
are properly chargeable to Borrower under this Agreement, (ii) all payments,
subject to collection, made by or account of indebtedness evidenced by the
Equipment Loan Account, (iii) all proceeds of Collateral which are finally paid
to Lender in its own office in cash or collected items, and (iv) other
appropriate debits and credits, including without limitation, payments of
interest due hereunder.

 

Section 6.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Equipment Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Equipment
Loan Account for all interest charges on the Second Stage Equipment Loans as and
when the same shall be due and payable, if not otherwise paid by Borrower,
subject to applicable law.

 

Section 6.4. Lender Discretion. Nothing herein shall be construed to prohibit
Lender from lending in excess of the Equipment Loan Borrowing Base, it being
agreed that all such loans and advances shall be at Lender’s sole discretion and
shall not establish a pattern or custom binding upon Lender.

 

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Section 6.5. Conversion to Second Stage Converted Equipment Loan.
Notwithstanding anything to the contrary contained herein, so long as Borrower
is in compliance with all of the terms and conditions of this Agreement and no
Defaulting Event has occurred, on the Second Stage Equipment Loan Conversion
Date, the then outstanding principal balance of the Second Stage Equipment Loans
shall convert into term indebtedness having a final maturity on the Second Stage
Converted Equipment Loan Maturity Date (the “Second Stage Converted Equipment
Loan”). The Second Stage Converted Equipment Loan shall bear interest at a rate
determined in accordance with Section 10.1 hereof, and be payable in forty-eight
(48) substantially equal, consecutive monthly payments of principal in
accordance with the terms and conditions of a Second Stage Converted Equipment
Loan Note payable to Lender in the form of Exhibit F attached hereto (the
“Second Stage Converted Equipment Loan Note”). On the Second Stage Equipment
Loan Conversion Date, Borrower shall execute and/or deliver, or cause to be
delivered to Lender a Second Stage Converted Equipment Loan Note and such other
instruments, documents and agreements as Lender reasonably requires, all in
form, scope and substance satisfactory to Lender. On and after the Second Stage
Equipment Loan Conversion Date, Borrower shall have no ability to request, and
Lender shall have no obligation to make, any further Second Stage Equipment
Loans.

 

ARTICLE VII. Third Stage Equipment Loan; Third Stage Converted Equipment Loan

 

Section 7.1. Amount. If (a) a written notice is given by the Borrower to the
Lender not less than thirty (30) days prior to the Second Stage Equipment Loan
Conversion Date requesting that the Lender make Third Stage Equipment Loans, (b)
such notice is given at a time when no Defaulting Event has occurred and is
continuing, and no Event of Default occurs between the giving of such notice and
the Second Stage Equipment Loan Conversion Date, (c) the entire outstanding
principal balance of the First Stage Equipment Loans and the entire outstanding
principal balance of the Second Stage Equipment Loans has converted into a First
Stage Converted Equipment Loan and a Second Stage Converted Equipment Loan in
accordance with Sections 5.5 and 6.5 hereof, respectively, and (d) the Lender
gives written notice to the Borrower prior to the Second Stage Equipment Loan
Conversion Date that the Lender agrees to make Third Stage Equipment Loans (it
being understood that the Lender shall have the right to determine whether to
agree to make any Third Stage Equipment Loans in the Lender’s sole discretion),
then, subject to the terms and conditions contained in this Agreement and so
long as no Defaulting Event has occurred, Lender agrees to make loans
(collectively, the “Third Stage Equipment Loans” and, individually, a “Third
Stage Equipment Loan”) to

 

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Borrower until terminated as provided below, in principal amounts not exceeding
in the aggregate at any one time outstanding the Equipment Loan Borrowing Base
(which shall not be reduced by the amount of the First Stage Converted Equipment
Loan or the Second Stage Converted Equipment Loan), it being agreed and
understood that at no time shall the maximum aggregate principal amount of the
Third Stage Equipment Loans made by Lender exceed the Equipment Loan Borrowing
Base.

 

Section 7.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Third
Stage Equipment Loan Note, Etc. Within the limits of the Equipment Loan
Borrowing Base, subject to the terms and conditions of this Agreement and so
long as no Defaulting Event has occurred, Borrower may request borrowings (but,
in any event, no more than one time per fiscal quarter of the Borrower) and
repay BUT NOT REBORROW Third Stage Equipment Loans. To be eligible to obtain any
Third Stage Equipment Loan, Borrower must submit to Lender at least three (3)
Business Days prior to the date on which Borrower requests Lender to make such
Third Stage Equipment Loan, enforceable at the sole option of Lender: (a) copies
of invoices which reflect the actual cost of the Eligible Equipment being
purchased with the proceeds of such Third Stage Equipment Loan, including, if
any, installation and other services and costs associated therewith; (b)
evidence satisfactory to Lender that upon payment of the purchase price
therefor, the Eligible Equipment shall be in the Borrower’s physical possession
and that (1) the Borrower has acquired good title to such Eligible Equipment,
and (2) such Eligible Equipment is not subject to any pledge, lien, lease,
encumbrance or charge of any kind whatsoever, other than in favor of Lender.
Whenever Borrower desires an advance, Borrower shall notify Lender (which notice
shall be irrevocable) pursuant to a Notice of Equipment Loan Borrowing. Each
Notice of Equipment Loan Borrowing shall specify (i) the proposed Drawdown Date
of such Equipment Loan requested, (ii) the principal amount of the Equipment
Loan requested, (iii) the Interest Period for such Equipment Loan (if
applicable), and (iv) the Type of such Equipment Loan. Each Notice of Equipment
Loan Borrowing must be received by Lender (a) no later than 11:00 a.m.,
Hartford, Connecticut time on the day of the proposed Drawdown Date of any
Eurodollar Daily Rate Loan and (b) not less than four (4) Eurodollar Rate
Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan.
In addition to this Agreement, the Third Stage Equipment Loans shall be
evidenced by the Equipment Loan Note. Insofar as Borrower may request and Lender
shall make Third Stage Equipment Loans hereunder, Lender shall enter such
advances as debits on the Equipment Loan Account. Lender may also record to the
Equipment Loan Account, in accordance with customary accounting practices and
procedures, (i) all fees, accrued and unpaid interest, late fees, usual and
customary charges for the maintenance and administration of checking and any

 

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other accounts maintained by Borrower with Lender, and other fees and charges
which are properly chargeable to Borrower under this Agreement, (ii) all
payments, subject to collection, made by or account of indebtedness evidenced by
the Equipment Loan Account, (iii) all proceeds of Collateral which are finally
paid to Lender in its own office in cash or collected items, and (iv) other
appropriate debits and credits, including without limitation, payments of
interest due hereunder.

 

Section 7.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Equipment Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Equipment
Loan Account for all interest charges on the Third Stage Equipment Loans as and
when the same shall be due and payable, if not otherwise paid by Borrower,
subject to applicable law.

 

Section 7.4. Lender Discretion. Nothing herein shall be construed to prohibit
Lender from lending in excess of the Equipment Loan Borrowing Base, it being
agreed that all such loans and advances shall be at Lender’s sole discretion and
shall not establish a pattern or custom binding upon Lender.

 

Section 7.5. Conversion to Third Stage Converted Equipment Loan. Notwithstanding
anything to the contrary contained herein, so long as Borrower is in compliance
with all of the terms and conditions of this Agreement and no Defaulting Event
has occurred, on the Third Stage Equipment Loan Conversion Date, the then
outstanding principal balance of the Third Stage Equipment Loans shall convert
into term indebtedness having a final maturity on the Third Stage Converted
Equipment Loan Maturity Date (the “Third Stage Converted Equipment Loan”). The
Third Stage Converted Equipment Loan shall bear interest at a rate determined in
accordance with Section 10.1 hereof, and be payable in forty-eight (48)
substantially equal, consecutive monthly payments of principal in accordance
with the terms and conditions of a Third Stage Converted Equipment Loan Note
payable to Lender in the form of Exhibit G attached hereto (the “Third Stage
Converted Equipment Loan Note”). On the Third Stage Equipment Loan Conversion
Date, Borrower shall execute and/or deliver, or cause to be delivered to Lender
a Third Stage Converted Equipment Loan Note and such other instruments,
documents and agreements as Lender reasonably requires, all in form, scope and
substance satisfactory to Lender. On and after the Third Stage Equipment Loan
Conversion Date, Borrower shall have no ability to request, and Lender shall
have no obligation to make, any further Third Stage Equipment Loans.

 

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ARTICLE VIII. Fourth Stage Equipment Loan; Fourth Stage Converted Equipment Loan

 

Section 8.1. Amount. If (a) a written notice is given by the Borrower to the
Lender not less than thirty (30) days prior to the Third Stage Equipment Loan
Conversion Date requesting that the Lender make Fourth Stage Equipment Loans,
(b) such notice is given at a time when no Defaulting Event has occurred and is
continuing, and no Event of Default occurs between the giving of such notice and
the Third Stage Equipment Loan Conversion Date, (c) the entire outstanding
principal balance of the First Stage Equipment Loans, the entire outstanding
principal balance of the Second Stage Equipment Loans and the entire outstanding
principal balance of the Third Stage Equipment Loans have converted into a First
Stage Converted Equipment Loan, a Second Stage Converted Equipment Loan and a
Third Stage Converted Equipment Loan in accordance with Sections 5.5, 6.5 and
7.5, respectively, and (d) the Lender gives written notice to the Borrower prior
to the Third Stage Equipment Loan Conversion Date that the Lender agrees to make
Fourth Stage Equipment Loans (it being understood that the Lender shall have the
right to determine whether to agree to make any Fourth Stage Equipment Loans in
the Lender’s sole discretion), then, subject to the terms and conditions
contained in this Agreement and so long as no Defaulting Event has occurred,
Lender agrees to make loans (collectively, the “Fourth Stage Equipment Loans”
and, individually, a “Fourth Stage Equipment Loan”) to Borrower until terminated
as provided below, in principal amounts not exceeding in the aggregate at any
one time outstanding the Equipment Loan Borrowing Base (which shall not be
reduced by the amount of the First Stage Converted Equipment Loan, Second Stage
Converted Equipment Loan or the Third Stage Converted Equipment Loan), it being
agreed and understood that at no time shall the maximum aggregate principal
amount of the Fourth Stage Equipment Loans made by Lender exceed the Equipment
Loan Borrowing Base.

 

Section 8.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Fourth
Stage Equipment Loan Note, Etc. Within the limits of the Equipment Loan
Borrowing Base, subject to the terms and conditions of this Agreement and so
long as no Defaulting Event has occurred, Borrower may request borrowings (but,
in any event, no more than one time per fiscal quarter of the Borrower) and
repay BUT NOT REBORROW Fourth Stage Equipment Loans. To be eligible to obtain
any Fourth Stage Equipment Loan, Borrower must submit to Lender at least three
(3) Business Days prior to the date on which Borrower requests Lender to make
such Fourth Stage Equipment Loan, enforceable at the sole option of Lender: (a)
copies of invoices which reflect the actual cost of the Eligible Equipment being
purchased with the proceeds of such Fourth Stage Equipment Loan, including, if
any, installation and other services and costs associated therewith; (b)
evidence satisfactory to

 

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Lender that upon payment of the purchase price therefor, the Eligible Equipment
shall be in the Borrower’s physical possession and that (1) the Borrower has
acquired good title to such Eligible Equipment, and (2) such Eligible Equipment
is not subject to any pledge, lien, lease, encumbrance or charge of any kind
whatsoever, other than in favor of Lender. Whenever Borrower desires an advance,
Borrower shall notify Lender (which notice shall be irrevocable) pursuant to a
Notice of Equipment Loan Borrowing. Each Notice of Equipment Loan Borrowing
shall specify (i) the proposed Drawdown Date of such Equipment Loan requested,
(ii) the principal amount of the Equipment Loan requested, (iii) the Interest
Period for such Equipment Loan (if applicable), and (iv) the Type of such
Equipment Loan. Each Notice of Equipment Loan Borrowing must be received by
Lender (a) no later than 11:00 a.m., Hartford, Connecticut time on the day of
the proposed Drawdown Date of any Eurodollar Daily Rate Loan and (b) not less
than four (4) Eurodollar Rate Business Days prior to the proposed Drawdown Date
of any Eurodollar Rate Loan. In addition to this Agreement, the Fourth Stage
Equipment Loans shall be evidenced by the Equipment Loan Note. Insofar as
Borrower may request and Lender shall make Fourth Stage Equipment Loans
hereunder, Lender shall enter such advances as debits on the Equipment Loan
Account. Lender may also record to the Equipment Loan Account, in accordance
with customary accounting practices and procedures, (i) all fees, accrued and
unpaid interest, late fees, usual and customary charges for the maintenance and
administration of checking and any other accounts maintained by Borrower with
Lender, and other fees and charges which are properly chargeable to Borrower
under this Agreement, (ii) all payments, subject to collection, made by or
account of indebtedness evidenced by the Equipment Loan Account, (iii) all
proceeds of Collateral which are finally paid to Lender in its own office in
cash or collected items, and (iv) other appropriate debits and credits,
including without limitation, payments of interest due hereunder.

 

Section 8.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Equipment Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Equipment
Loan Account for all interest charges on the Fourth Stage Equipment Loans as and
when the same shall be due and payable, if not otherwise paid by Borrower,
subject to applicable law.

 

Section 8.4. Lender Discretion. Nothing herein shall be construed to prohibit
Lender from lending in excess of the Equipment Loan Borrowing Base, it being
agreed that all such loans and advances shall be at Lender’s sole discretion and
shall not establish a pattern or custom binding upon Lender.

 

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Section 8.5. Conversion to Fourth Stage Converted Equipment Loan.
Notwithstanding anything to the contrary contained herein, so long as Borrower
is in compliance with all of the terms and conditions of this Agreement and no
Defaulting Event has occurred, on the Fourth Stage Equipment Loan Conversion
Date, the then outstanding principal balance of the Fourth Stage Equipment Loans
shall convert into term indebtedness having a final maturity on the Fourth Stage
Converted Equipment Loan Maturity Date (the “Fourth Stage Converted Equipment
Loan”). The Fourth Stage Converted Equipment Loan shall bear interest of a rate
determined in accordance with Section 10.1 hereof, and be payable in forty-eight
(48) substantially equal, consecutive monthly payments of principal in
accordance with the terms and conditions of a Fourth Stage Converted Equipment
Loan Note payable to lender in the form of Exhibit H attached hereto (the
“Fourth Stage Converted Equipment Loan Note”). On the Fourth Stage Equipment
Loan Conversion Date, Borrower shall execute and/or deliver, or cause to be
delivered to Lender a Fourth Stage Converted Equipment Loan Note and such other
instruments, documents and agreements, as Lender reasonably requires, all in
form, scope and substance satisfactory to Lender. On or after the Fourth Stage
Equipment Loan Conversion Date, Borrower shall have no ability to request, and
Lender shall have no obligation to make, any further Fourth Stage Equipment
Loans.

 

ARTICLE IX. Fifth Stage Equipment Loan

 

Section 9.1. Amount. If (a) a written notice is given by the Borrower to the
Lender not less than thirty (30) days prior to the Fourth Stage Equipment Loan
Conversion Date requesting that the Lender make Fifth Stage Equipment Loans, (b)
such notice is given at a time when no Defaulting Event has occurred and is
continuing, and no Event of Default occurs between the giving of such notice and
the Fourth Stage Equipment Loan Conversion Date, (c) the entire outstanding
principal balance of the First Stage Equipment Loans and the entire outstanding
principal balance of the Second Stage Equipment Loans and the entire outstanding
principal balance of the Third Stage Equipment Loans and the entire outstanding
principal balance of the Fourth Stage Equipment Loans has converted into a First
Stage Converted Equipment Loan, a Second Stage Converted Equipment Loan, a Third
Stage Converted Equipment Loan and a Fourth Stage Converted Equipment Loan in
accordance with Sections 5.5, 6.5, 7.5 and 8.5 hereof, respectively, and (d) the
Lender gives written notice to the Borrower prior to the Fourth Stage Equipment
Loan Conversion Date that the Lender agrees to make Fifth Stage Equipment Loans
(it being understood that the Lender shall have the right to determine whether
to agree to make any Fifth Stage Equipment Loans in the Lender’s sole
discretion), then, subject to the terms and conditions contained in this

 

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Agreement and so long as no Defaulting Event has occurred, Lender agrees to make
loans (collectively, the “Fifth Stage Equipment Loans” and, individually, a
“Fifth Stage Equipment Loan”) to Borrower until terminated as provided below, in
principal amounts not exceeding in the aggregate at any one time outstanding the
Equipment Loan Borrowing Base (which shall not be reduced by the amount of the
First Stage Converted Equipment Loan, the Second Stage Converted Equipment Loan,
the Third Stage Converted Equipment Loan or the Fourth Stage Converted Equipment
Loan), it being agreed and understood that at no time shall the maximum
aggregate principal amount of the Fifth Stage Equipment Loans made by Lender
exceed the Equipment Loan Borrowing Base.

 

Section 9.2. Procedure For Advances; Equipment Loan Notice of Borrowing; Fifth
Stage Equipment Loan Note, Etc. Within the limits of the Equipment Loan
Borrowing Base, subject to the terms and conditions of this Agreement and so
long as no Defaulting Event has occurred, Borrower may request borrowings (but,
in any event, no more than one time per fiscal quarter of the Borrower) and
repay BUT NOT REBORROW Fifth Stage Equipment Loans. To be eligible to obtain any
Fifth Stage Equipment Loan, Borrower must submit to Lender at least three (3)
Business Days prior to the date on which Borrower requests Lender to make such
Fifth Stage Equipment Loan, enforceable at the sole option of Lender: (a) copies
of invoices which reflect the actual cost of the Eligible Equipment being
purchased with the proceeds of such Fifth Stage Equipment Loan, including, if
any, installation and other services and costs associated therewith; (b)
evidence satisfactory to Lender that upon payment of the purchase price
therefor, the Eligible Equipment shall be in the Borrower’s physical possession
and that (1) the Borrower has acquired good title to such Eligible Equipment,
and (2) such Eligible Equipment is not subject to any pledge, lien, lease,
encumbrance or charge of any kind whatsoever, other than in favor of Lender.
Whenever Borrower desires an advance, Borrower shall notify Lender (which notice
shall be irrevocable) pursuant to a Notice of Equipment Loan Borrowing. Each
Notice of Equipment Loan Borrowing shall specify (i) the proposed Drawdown Date
of such Equipment Loan requested, (ii) the principal amount of the Equipment
Loan requested, (iii) the Interest Period for such Equipment Loan (if
applicable), and (iv) the Type of such Equipment Loan. Each Notice of Equipment
Loan Borrowing must be received by Lender (a) no later than 11:00 a.m.,
Hartford, Connecticut time on the day of the proposed Drawdown Date of any
Eurodollar Daily Rate Loan and (b) not less than four (4) Eurodollar Rate
Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan.
In addition to this Agreement, the Fifth Stage Equipment Loans shall be
evidenced by the Equipment Loan Note. Insofar as Borrower may request and Lender
shall make Fifth Stage Equipment Loans hereunder, Lender shall enter such
advances as

 

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debits on the Equipment Loan Account. Lender may also record to the Equipment
Loan Account, in accordance with customary accounting practices and procedures,
(i) all fees, accrued and unpaid interest, late fees, usual and customary
charges for the maintenance and administration of checking and any other
accounts maintained by Borrower with Lender, and other fees and charges which
are properly chargeable to Borrower under this Agreement, (ii) all payments,
subject to collection, made by or account of indebtedness evidenced by the
Equipment Loan Account, (iii) all proceeds of Collateral which are finally paid
to Lender in its own office in cash or collected items, and (iv) other
appropriate debits and credits, including without limitation, payments of
interest due hereunder.

 

Section 9.3. Monthly Statements. On a monthly basis, Lender shall render a
statement for the Equipment Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within ten (10) days of the receipt of
said statement by Borrower. Lender shall have the right to debit the Equipment
Loan Account for all interest charges on the Fifth Stage Equipment Loans as and
when the same shall be due and payable, if not otherwise paid by Borrower,
subject to applicable law.

 

Section 9.4. Lender Discretion. Nothing herein shall be construed to prohibit
Lender from lending in excess of the Equipment Loan Borrowing Base, it being
agreed that all such loans and advances shall be at Lender’s sole discretion and
shall not establish a pattern or custom binding upon Lender.

 

Section 9.5. Fifth Stage Equipment Loan Maturity. The Fifth Stage Equipment Loan
shall bear interest at a rate determined in accordance with Section 10.1 hereof,
and be payable in accordance with the terms and conditions of the Equipment Loan
Note. The entire outstanding principal balance of the Fifth Stage Equipment
Loans shall be due and payable in full in cash on Fifth Stage Equipment Loan
Maturity Date and shall not be convertible to term indebtedness. On and after
the Fifth Stage Equipment Loan Maturity Date, Borrower shall have no ability to
request, and Lender shall have no obligation to make, any further Fifth Stage
Equipment Loans.

 

ARTICLE X. Interest, Prepayment, Etc.

 

Section 10.1. Interest.

 

(a) Pre-default Interest. So long as no Defaulting Event has occurred:

 

(i) Revolving Loans. During the period from the date

 

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made through and including the date of payment in full, each Revolving Loan
shall bear interest on the outstanding principal amount thereof at a rate per
annum equal to (i) the Eurodollar Rate plus the Applicable Margin or (ii) the
Eurodollar Daily Rate plus the Applicable Margin.

 

(ii) Term Loan. The Term Loan shall bear interest on the outstanding principal
amount thereof at a rate per annum equal to (i) the Eurodollar Rate plus the
Applicable Margin, (ii) the Eurodollar Daily Rate plus the Applicable Margin or
(iii) the Cost of Funds Rate plus the Cost of Funds Margin.

 

(iii) Equipment Loans. Each Equipment Loan shall bear interest on the
outstanding principal amount thereof at a rate per annum equal to (i) the
Eurodollar Rate plus the Applicable Margin or (ii) the Eurodollar Daily Rate
plus the Applicable Margin.

 

(iv) Converted Equipment Loans. Each Converted Equipment Loan shall bear
interest on the outstanding principal amount thereof at a rate per annum equal
to (i) the Eurodollar Rate plus the Applicable Margin, (ii) the Eurodollar Daily
Rate plus the Applicable Margin or (iii) the Cost of Funds Rate plus the Cost of
Funds Margin.

 

(v) Acquisition Loan. The Acquisition Loan shall bear interest on the
outstanding principal amount thereof at a rate per annum equal to (i) the
Eurodollar Rate plus the Applicable Margin, (ii) the Eurodollar Daily Rate plus
the Applicable Margin or (iii) the Cost of Funds Rate plus the Cost of Funds
Margin.

 

(b) Payment of Interest. So long as any of the Obligations remain outstanding,
interest on the Loans shall be due and payable without notice or demand monthly
in arrears beginning on February 1, 2004 and continuing on the first business
day of each and every month thereafter.

 

(c) Default Interest Rate. Notwithstanding the foregoing, interest on the Loans,
at all times after the occurrence and during the continuance of an Event of
Default, and interest on all payments of interest that are not paid when due,
shall accrue at a rate per annum equal to, in the case of any Event of Default
two percentage points (2.0%) above the applicable interest rates otherwise in
effect under this Agreement.

 

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(d) Calculation Of Interest. Interest on the Loans shall be calculated on the
basis of a 360-day year and the actual number of days elapsed.

 

(e) Late Payment. If any amount due hereunder or under the Notes is not paid
within ten (10) days after the date it is due and payable, without in any way
affecting Lender’s right to make demand hereunder or to declare an Event of
Default to have occurred, Lender may in its sole discretion assess a late charge
against Borrower equal to five percent (5.0%) of such late payment (provided,
however, that the minimum late charge assessed by Lender hereunder shall be
$15.00), which late charge shall be immediately due and payable and may be paid
by a charge to, at Lender’s option, either Borrower’s Revolving Loan Account or
Equipment Loan Account.

 

(f) Lawful Interest. It being the intent of the parties that the rate of
interest and all other charges to Borrower be lawful, if for any reason the
payment of a portion of interest, fees or charges as required by this Agreement
would exceed the limit established by applicable law which a commercial bank
such as Lender may charge to a commercial borrower such as Borrower, then the
obligation to pay interest or charges shall automatically be reduced to such
limit and, if any amounts in excess of such limits shall have been paid, then
such amounts shall be applied to the unpaid principal amount of the Obligations
or refunded to Borrower so that under no circumstances shall interest or charges
required hereunder exceed the maximum rate allowed by law, as aforesaid.

 

(g) Conversion Options.

 

(i) Conversion to Different Type of Loan. The Borrower may elect from time to
time to convert any outstanding Loan (other than a Loan that has been previously
converted to a Cost of Funds Rate Loan pursuant to Sections 10.1 (a)(ii), 10.1
(a)(iv) or 10.1(a)(v)) to a Loan of another Type, provided, that (a) with
respect to any such conversion of a Eurodollar Daily Rate Loan to a Eurodollar
Rate Loan, the Borrower shall give the Lender at least four (4) Eurodollar Rate
Business Days prior written notice of such election; (b) with respect to any
such conversion of a Eurodollar Rate Loan to a Eurodollar Daily Rate Loan, the
Borrower shall give the Lender written notice of such election, no later than
11:00 a.m., Hartford, Connecticut, time on the day such election is to take
effect; (c) with respect to any such conversion of a Eurodollar Rate Loan into a
Eurodollar Daily Rate Loan, such conversion shall only be made on the last day
of the Interest Period with respect thereto and (d) no

 

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Loan may be converted into a Eurodollar Rate Loan when any Default or Event of
Default has occurred and is continuing. All or any part of outstanding Loans of
any Type may be converted into a Loan of another Type as provided herein,
provided that any partial conversion shall be in an aggregate principal amount
of $500,000 or a whole multiple thereof. Each Conversion Request relating to the
conversion of a Eurodollar Daily Rate Loan to a Eurodollar Rate Loan shall be
irrevocable by the Borrower.

 

(ii) Continuation of Type of Revolving Credit Loan. Any Eurodollar Rate Loan may
be continued as a Eurodollar Rate Loan upon the expiration of an Interest Period
with respect thereto by compliance by the Borrower with the notice provisions
contained in clause (i) above; provided that no Eurodollar Rate Loan may be
continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Eurodollar Daily Rate Loan
on the last day of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default. In the event that the Borrower
fails to provide any such notice with respect to the continuation of any
Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be
automatically converted to a Eurodollar Daily Rate Loan on the last day of the
first Interest Period relating thereto.

 

Section 10.2. Prepayments.

 

(a) Optional Prepayments. Borrower may, at its option and upon thirty (30)
Business Days prior written notice (except with respect to the Revolving Loan in
which case no prior written notice shall be required), prepay any Loan, in whole
or in part, on the following conditions: (a) Borrower shall pay all accrued
interest on the principal being paid to the date of the prepayment and, in the
case of prepayments in full, all fees, charges, costs, expenses and other
amounts then due under any of the Loans; (b) any partial prepayment of the Term
Loan, any Acquisition Loan or a Converted Equipment Loan shall be applied to
principal installments due thereunder in the inverse order of maturity and shall
not relieve Borrower’s obligation to make regularly scheduled principal payments
thereunder; (c) if Borrower wishes to prepay and terminate the Revolving Loans
prior to the expiration of the Revolving Loan Term, Borrower must, at the option
of Lender, also prepay in full the other Loans and all other Obligations,
including without limitation, any amount or amounts due under Article X hereof;
(d) in its notice, the Borrower shall specify the date of prepayment and the
specific amount to be prepaid on such loan. If the Borrower (i) prepays any Cost
of Funds

 

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Rate Loan, in whole or in part, or (ii) prepays any Eurodollar Rate Loan on a
day that is not the last day of the Interest Period relating thereto, the
Borrower shall indemnify the Lender therefor in accordance with Section 11.3
hereof; and (e) if the Borrower prepays all or any portion of any Cost of Funds
Rate Loan prior to its scheduled maturity date, such prepayment shall require
the concurrent payment by Borrower of the Cost of Funds Rate Prepayment Premium.

 

(b) Mandatory Prepayments.

 

(i) Revolving Loans. If, at any time, the aggregate principal amount of all
outstanding Revolving Loans shall exceed the Revolving Loan Borrowing Base, then
any such excess amount shall, without limiting any other rights or remedies of
Lender hereunder, be immediately paid by Borrower to the Lender.

 

(ii) Equipment Loans. If, at any time, the aggregate principal amount of all
outstanding Equipment Loans shall exceed the Equipment Loan Borrowing Base, then
any such excess amount shall, without limiting any other rights or remedies of
Lender hereunder, be immediately paid by Borrower to the Lender.

 

Section 10.3. Closing Fees. On or before the date hereof, Borrower shall pay or
have paid to Lender all fees, expenses and other costs incurred by Lender in
connection with the closing of the extension of the Loans (including, without
limitation, all attorney’s and other professionals’ fees and expenses).

 

Section 10.4. Unused Revolving Loan Fee. The Borrower shall pay to Lender a fee
computed at the per annum rate of one-quarter of one percentage point (.25%) on
the average daily unused portion of the Revolving Loan during the period for
which payment is made, payable monthly in arrears commencing on February 1, 2004
and continuing on the first Business Day of each and every month thereafter and
on the last day of the Revolving Loan Term or such earlier date as the Revolving
Loan shall terminate.

 

Section 10.5. Early Termination Fee. In the event that prior to the first
anniversary of the Closing Date (a) the Revolving Loan is terminated by the
Borrower, or (b) the Revolving Loan is terminated as a result of the occurrence
of an Event of Default, Borrower shall pay to Lender on the effective date of
termination, in addition to any other payments Borrower is required to make
hereunder, an amount equal to one percent (1%) of the maximum principal amount
of the Loans. In the event that after the first anniversary of the Closing Date
but prior to the second anniversary thereof (a) the Revolving Loan is terminated
by the Borrower, or (b) the Revolving Loan is terminated as

 

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a result of the occurrence of an Event of Default, Borrower shall pay to Lender
on the effective date of termination, in addition to any other payments Borrower
is required to make hereunder, an amount equal to one half of one percent (.50%)
of the maximum principal amount of the Loans. Notwithstanding the foregoing, no
amounts shall be due pursuant to this Section 10.5 should the Borrower elect to
terminate the Revolving Loan upon the occurrence of a Change of Control. It is
understood that the determination of the maximum principal amount of the Loans
shall be made without regard to the components of the Revolving Loan Borrowing
Base based upon Eligible Accounts and Eligible Inventory and the component of
the Equipment Loan Borrowing Base based upon Eligible Equipment. For example,
for purposes of this provision, on the Closing Date the maximum principal amount
of the Revolving Loan is $5,000,000, the maximum principal amount of the
Equipment Loan is $1,000,000, the maximum principal amount of the Term Loan is
$1,574,000, the maximum principal amount of the Acquisition Loan is $2,000,000
and the Termination Fee would be $95,740.

 

ARTICLE XI. Yield Protection

 

Section 11.1. Increased Costs. In the event that applicable law, treaty or
regulation or directive from any government, governmental agency or regulatory
authority, or any change therein or in the interpretation or application
thereof, or compliance by Lender with any request or directive (whether or not
having the force of law) from any central bank or government, governmental
agency or regulatory authority, shall:

 

(a) subject Lender to any tax of any kind whatsoever with respect to this
Agreement or any of the Loans (except taxes on the overall net income of Lender)
or change the basis of taxation of payments to Lender of principal, interest or
any other amount payable hereunder (except for changes in the rate of tax on the
overall net income of Lender);

 

(b) impose, modify or hold applicable any reserve, special deposit or similar
requirements against assets held by, or deposits or other liabilities in or for
the account of, advances or loans by, or other credit extending by, any office
of Lender, including without limitation, pursuant to Regulations of the Board of
Governors of the Federal Reserve System; or

 

(c) in the reasonable opinion of Lender, cause any Note, any Loan or this
Agreement to be included in any calculations used in the computation of
regulatory capital standards; or

 

(d) impose on Lender any other condition with respect to this Agreement, any of
the Notes or any of the Loans;

 

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and the result of any of the foregoing is to increase the cost to Lender of
making, renewing or maintaining any of the Loans (or any part thereof) by an
amount the Lender deems to be material or to reduce the amount of any payment
(whether of principal, interest or otherwise) with respect to any of the Loans
by an amount that Lender deems to be material, then, in any such case, Borrower
shall promptly pay Lender, upon its demand, such additional amounts as will
compensate Lender for such additional costs or such reduction as the case may be
(collectively, the “Additional Costs”). Lender shall certify the amount of such
Additional Costs to Borrower, and such certification, absent manifest error,
shall be deemed conclusive.

 

Section 11.2. Capital Adequacy Protection. If, after the date hereof, Lender
shall have determined that the adoption of any applicable law, governmental
rule, regulation or order regarding capital adequacy of banks or bank holding
companies, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Lender with any request or directive regarding capital adequacy (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful, so long as Lender believes in good faith that such has the force of
law or that the failure to so comply would be unlawful) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Lender’s capital as a consequence of Lender’s obligations
hereunder to a level below that which Lender could have achieved but for such
adoption, change or compliance (taking into consideration Lender’s policies with
respect to capital adequacy immediately before such adoption, change or
compliance and assuming that Lender’s capital was fully utilized prior to such
adoption, change or compliance) by an amount deemed by Lender in its reasonable
judgment to be material, then, upon demand, Borrower shall immediately pay to
Lender, from time to time as specified by Lender, such additional amounts as
shall be sufficient to compensate Lender of such reduced return, together with
interest on each such amount from the date of such specification by Lender until
payment in full thereof at the highest rate of interest (other than the default
rate of interest) due on the Loans. A certificate of Lender setting forth the
amount to be paid to Lender shall, in the absence of manifest error, be deemed
conclusive. In determining such amount, Lender shall use any reasonable
averaging and attribution methods. Borrower may, however, avoid paying such
amounts for future rate of return reductions if, within the maximum borrowings
permitted herein, Borrower borrows such amounts as will cause Lender to avoid
any such future rate of return reductions which would otherwise be caused by
such changed capital adequacy requirements or Borrower agrees to a reduction in
the Loans to achieve the same result.

 

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Section 11.3. Indemnity. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from any loss, cost or expense (including the additional
costs referred to in Section 11.1 above and any loss of anticipated profits) or
expense that it may sustain or incur as a consequence of (a) any default by the
Borrower in the payment of the principal of or interest on any Eurodollar Rate
Loans or Cost of Funds Rate Loan as and when due and payable, including any such
loss or expense arising from interest or fees payable by the Lender to banks of
funds obtained by it in order to maintain its Eurodollar Rate Loans or Cost of
Funds Rate Loan, as applicable, (b) the Borrower’s making of a prepayment of or
conversion of a Cost of Funds Rate Loan on a day that is not the maturity date
thereof after notice thereof has been given, including (but not limited to) any
loss of profit or any interest payable by the Lender to lenders of funds
obtained by it in order to make or maintain its Cost of Funds Rate Loans
hereunder (including the Cost of Funds Rate Prepayment Premium), (c) the
Borrower’s making of any prepayment of a Eurodollar Rate Loan or the making of
any conversion of any such Loan to a Cost of Funds Rate Loan or a Eurodollar
Daily Rate Loan on a day that is not the last day of the applicable Interest
Period with respect thereto, including interest or fees payable by the Lender to
lender of funds obtained by it in order to obtain such loans.

 

Section 11.4. Survival. Unless and only if Lender shall have made prompt demand
upon Borrower for payment of amounts due under this Article XI prior to the date
upon which full and final payment of the Revolving Loans and other Obligations
is made, the obligations and covenants of Borrower under this Article XI shall
survive the termination of this Agreement and payment of the Loans and other
Obligations.

 

ARTICLE XII. Representations and Warranties

 

Section 12.1. Representations and Warranties. Borrower represents and warrants
to Lender that:

 

(a) Existing Indebtedness. As of this date and without giving effect to the
financing accommodations contemplated herein, Borrower is legally and validly
indebted to Lender by virtue at the Existing Loan Documents in the principal
amounts of $0 with respect to the Existing Revolving Loan, $999,999.92 with
respect to the First Term Loan, $338,627.51 with respect to the Equipment Line
of Credit Loan, $207,147.37 with respect to the Subsequent Term Loan, plus
interest accrued and accruing thereon and costs and expenses of collection,
including attorneys’ fees, and there is no defense, offset, counterclaim, right
of recoupment or any independent claim or cause of action against Lender in
connection therewith.

 

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(b) Authorizations and Representations. (i) The resolutions previously adopted
by the Board of Directors of Borrower and provided to Lender have not in any way
been rescinded or modified and have been and continue to be in full force and
effect since their adoption; (ii) all representations, warranties and covenants
contained in each of the Existing Loan Documents are true and correct on and as
of the date hereof; (iii) no default or event of default (howsoever defined) has
occurred and is continuing under any of the Existing Loan Documents and no
condition exists which would constitute a default or event of default under any
of the Existing Loan Documents but for the giving of notice or passage of time,
or both; and (iv) the consummation of the transactions contemplated hereby: (A)
is not prevented or limited by and does not conflict with or result in a breach
of the terms, conditions or provisions of any evidence of indebtedness,
agreement or instrument of whatever nature to which Borrower is a party by which
Borrower is bound; (B) does not constitute a default under any of the foregoing,
and (C) is not in violation of any federal, state or local law, regulation or
order.

 

(c) Existing Security Interest. All indebtedness of Borrower to Lender, whenever
and however arising, including without limitation, the indebtedness arising
under the Existing Loan Documents, is and continues to be secured by a duly
perfected, blanket first priority lien security interest in all of Borrower’s
accounts, inventory, machinery, patents, trademarks, and other general
intangibles and all other assets of Borrower, and the Loans will be secured as
set forth in Article XV below.

 

(d) Good Standing and Qualification. It is duly organized, validly existing and
in good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to own and operate its properties and to carry on
its business as presently conducted and is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction wherein the
character of the properties owned or leased by it therein or in which the
transaction of its business therein makes such qualification necessary, except
where such failure to be so qualified would not have a material adverse effect
on the financial condition, assets or operations of the Borrower.

 

(e) Corporate Authority. It has full power and authority to enter into this
Agreement and the other Financing Agreements to which it is a party, to make the
borrowings contemplated herein, to execute and deliver the Notes and the other
Financing Agreements to which it is a party, and to incur the obligations
provided for herein and therein, all of which have been duly authorized by all
necessary and proper corporate action. No other consent or approval or the
taking of any other action in

 

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respect of shareholders or of any public authority is required as a condition to
the validity or enforceability of this Agreement, the Notes, the other Financing
Agreements or any other instrument, document or agreement delivered in
connection herewith or therewith.

 

(f) Binding Agreements. This Agreement constitutes, and the Notes and the other
Financing Agreements executed and/or delivered in connection herewith or
therewith, when issued and delivered pursuant hereto for value received shall
constitute, valid and legally binding obligations of Borrower, enforceable in
accordance with their respective terms, except as enforcement may be limited by
principles of equity, bankruptcy, insolvency, or other laws affecting the
enforcement of creditors’ rights generally.

 

(g) Litigation. Except as set forth on Schedule 12.1(g) attached hereto, (i)
there are no actions, suits or proceedings pending against Borrower before any
court or administrative agency, nor are there any (ii) actions, suits or
proceedings threatened, which, with respect to both (i) and (ii) individually or
in the aggregate, would materially and adversely affect the financial condition,
assets or operations of Borrower, nor are there any such actions, suits or
proceedings which question the validity of this Agreement, the Notes, any of the
other Financing Agreements or any action to be taken in connection with the
transactions contemplated hereby or thereby.

 

(h) No Conflicting Law or Agreements. The execution, delivery and performance by
Borrower of this Agreement, the Notes and each other Financing Agreement, as the
case may be, does not (i) violate any provision of its Certificate of
Incorporation or By-laws or any order, decree or judgment, or any material
provision of any statute, rule or regulation to which the Borrower may be
subject; (ii) violate or conflict with, result in a breach of or constitute
(with notice or lapse of time, or both) a material default under any shareholder
agreement, stock preference agreement, mortgage, indenture or other contract or
undertaking to which it is a party, or by which any of its properties may be
bound; and (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any property or assets of Borrower,
except for the liens granted hereunder to Lender.

 

(i) Taxes. With respect to all of its taxable periods it has filed all tax
returns which are required to be filed and all federal, state, municipal,
franchise and other taxes shown on such filed returns have been paid or are
being diligently contested by appropriate proceedings

 

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and have been reserved against, as required by generally accepted accounting
principles, consistently applied.

 

(j) Financial Statements. It has heretofore delivered to Lender its audited
annual balance sheet as of June 30, 2003, and the related statements of income,
retained earnings and cash flows for the fiscal year or period then ended. Each
of such statements is complete and correct in all material respects and fairly
presents its consolidated financial condition as of the dates and for the
periods referred to therein and has been prepared in accordance with generally
accepted accounting principles. There are no liabilities, direct or indirect,
fixed or contingent, of Borrower as of the dates of said balance sheets which
are not reflected in such statements or in the notes thereto, except as are not
required to be so reflected in accordance with GAAP.

 

(k) Adverse Developments. Except as set forth on Schedule 12.1(k) attached
hereto, since its unaudited balance sheet as of September 30, 2003, there has
been no material adverse change in its financial condition, business,
operations, affairs or prospects or in any of its properties or assets.

 

(l) Existence of Assets and Title Thereto. Except as set forth on Schedule
12.1(l) attached hereto, it has good and marketable title to all of its
properties and assets, including the properties and assets reflected in the
financial statements delivered in connection herewith. None of such properties
or assets are subject to any mortgage, pledge, lien, lease, encumbrance or
charge, except those permitted under the terms of this Agreement, pledges or
deposits in connection with or to secure workers’ compensation, unemployment or
liability insurance, liens for property taxes not yet due and payable, and other
similar liens arising by operation of law and not in the aggregate material.

 

(m) Regulations T, U and X. The proceeds of the borrowings hereunder are not
being used and will not be used, directly or indirectly, for the purposes of
purchasing or carrying any margin stock in contravention, or which would cause
any Lender to be in violation, of Regulations T, U or X promulgated by the Board
of Governors of the Federal Reserve System.

 

(n) Compliance. Except as set forth on Schedule 12.1(n) attached hereto, it is
not in default with respect to any order, writ, injunction or decree of any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency, authority or official, nor is it in violation
of any material law, statute, rule or regulation to which it is or any of its
properties are subject and it has

 

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not received notice of any such default from any party and is not in default in
the payment or performance of any of its material obligations to any third
parties or in the performance of any material mortgage, indenture, lease,
contract or other agreement to which it is a party or by which any of its assets
or properties may be bound.

 

(o) Leases and Subleases. It enjoys quiet and undisturbed possession under all
leases and subleases under which it is operating, and all of such leases and
subleases are valid and subsisting and not in default.

 

(p) Pension Plans.

 

(i) No fact, including but not limited to any “reportable event”, as that term
is defined in Section 4043 of ERISA, exists in connection with any Plan of any
of the Companies under Sections 414(b), (c), (m), (n) and (o) of the Internal
Revenue Code of 1986, as amended (the “Code”) which might constitute grounds for
termination of any such Plan by the Pension Benefit Guaranty Corporation (the
“PBGC”) or for the appointment by the appropriate United States District Court
of a trustee to administer any such Plan. A list of all of the Companies’
respective Plans are attached hereto on Schedule 12.1(p) attached hereto;

 

(ii) No “prohibited transaction” within the meaning of Section 406 of ERISA or
Section 4975 of the Code exists or will exist upon the execution and delivery of
this Agreement and the other Financing Agreements, or the performance by the
parties hereto or thereto of their respective duties and obligations hereunder
and thereunder;

 

(iii) Each of the Companies agrees to do all acts, including, but not limited
to, making all contributions necessary to maintain compliance with ERISA or the
Code, and agrees not to terminate any such Plan in a manner (or do or fail to do
any act) which could result in the imposition of a lien on any of its properties
pursuant to Section 4068 of ERISA;

 

(iv) None of the Companies sponsors or maintains, and has never contributed to,
and has not incurred any withdrawal liability under a “multi-employer plan” as
defined in Section 3 of ERISA and none of the Companies has any written or
verbal commitment of any kind to establish, maintain or contribute to any
“multi-employer plan” under the Multi-employer Pension Plan Amendment Act of
1980;

 

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(v) None of the Companies has any unfunded liability in contravention of ERISA
and the Code;

 

(vi) Each and every Plan complies currently, and has complied in the past, both
as to form and operation, with its terms and with provisions of the Code and
ERISA, and all applicable regulations thereunder and all rules issued by the
Internal Revenue Service U.S. Department of Labor and the PBGC and as such, is
and remains a “qualified” plan under the Code;

 

(vii) No actions, suits or claims are pending (other than routine claims for
benefits) against any Plan, or the assets of any such Plan;

 

(viii) The Companies have performed all obligations required to be performed by
it under any Plan and the Companies are not in default, or in violation of any
Plan, and have no knowledge of any such default or violation by any other party
to any and all Plans;

 

(ix) No liability has been incurred by any of the Companies to the PBGC or to
participants or beneficiaries on account of any termination of a Plan subject to
Title IV of ERISA, no notice of intent to terminate a Plan has been filed by (or
on behalf of) any of the Companies pursuant to Section 4041 of ERISA and no
proceeding has been commenced by the PBGC pursuant to Section 4042 of ERISA;

 

(x) The reporting and disclosure provisions of the Securities Act of 1933 and
Securities Exchange Act of 1934 have been complied with for all such Plans.

 

(q) Deferred Compensation Arrangements. Except as set forth in Schedule 12.1(q)
attached hereto, none of the Companies have entered into deferred compensation
plans, arrangements or commitments (each, individually an “Arrangement”). With
respect to each such Arrangement:

 

(i) Such Arrangement complies currently, and has complied in the past, both as
to form and operation, with its terms and the provisions of the Code and ERISA
and all applicable laws, rules and regulations;

 

(ii) The disclosure and reporting provisions of the Securities Act of 1933 and
the Securities Exchange Act of 1934 have been satisfied;

 

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(iii) Such Arrangement is legally valid and binding and is in full force and
effect;

 

(iv) The Companies have made all contributions required to be made under such
Arrangement and no contributions are currently due and owing thereunder;

 

(v) There are no actions, suits or claims pending (other than routine claims for
benefits) or, to the best of the Companies’ knowledge, which could be reasonably
expected to be asserted against such Arrangement; and

 

(vi) The Companies have performed all obligations required to be performed by it
under such Arrangement and the Companies are not in default or in violation of,
and the Companies have no knowledge of a such default or violation by any other
party to such Arrangement.

 

Notwithstanding anything to the contrary contained herein, the representations
and warranties contained in this Section 12.1(q) are qualified in their entirety
by the disclosure set forth in Schedule 12.1(q) attached hereto.

 

(r) Chief Executive Office. Its chief executive office and principal place of
business, and the office where its books and records concerning Collateral are
kept, is as set forth in the first paragraph of this Agreement and in Schedule
12.1(r) attached hereto.

 

(s) Places of Business. It has no other places of business and locates no
Collateral, specifically including books and records, at any location other than
as set forth in Schedule 12.1(s) attached hereto. It shall maintain a full and
complete set of its books and records in its offices at the chief executive
office described in the immediately preceding paragraph.

 

(t) Contingent Liabilities. Other than the CII Agreement, it is not a party to
any suretyship, guaranty or other similar type agreement, nor has it offered its
endorsement to any individual, concern, corporation or other entity or acted or
failed to act in any manner which would in any way create a contingent liability
that does not appear in the financial statements referred to hereinbefore.

 

(u) Contracts. After giving effect to the transactions contemplated upon the
closing of this Agreement, no material contract, governmental or otherwise, to
which it will be a party is subject to

 

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renegotiations, nor will it be in default of any material contract to which it
is a party.

 

(v) Unions and Pensions. It is not a party to any collective bargaining or union
agreement.

 

(w) Licenses. It has or, with respect to the conduct of its business in
California, has applied and reasonably expects to be granted, all material
licenses, permits and other permissions required by any government, agency or
subdivision thereof, or from any licensing entity to which Borrower may be
subject, necessary for the conduct of its business, all of which it represents
to be in good standing and in full force and effect.

 

(x) Collateral. After giving effect to the transactions contemplated upon the
closing of this Agreement, it will continue to be the sole owner of the
Collateral free and clear of all liens, encumbrances, security interests and
claims except the liens granted to Lender hereunder and the security interests
and liens listed on Schedule 12.1(x) attached hereto. Borrower is fully
authorized to grant a security interest in each and every item of the Collateral
to Lender. All documents and agreements related to the Collateral shall be true
and correct and in all respects what they purport to be. All signatures and
endorsements that appear thereon shall be genuine and all signatories and
endorsers shall have full capacity to contract. None of the transactions
underlying or giving rise to the Collateral shall violate any applicable state
or federal laws or regulations. All documents relating to the Collateral shall
be legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms. Borrower agrees to defend the
Collateral against the claims of all persons other than Lender. Notwithstanding
anything to the contrary contained herein, the representations and warranties
contained in this Section 12.1(x) are qualified in their entirety by the
disclosure set forth in Schedule 12.1(x) attached hereto.

 

(y) Tradenames. It does not have any material tradenames other than as set forth
in Schedule 12.1(y) attached hereto.

 

(z) Financial Information. All financial information, including, but not limited
to information relating to the Receivables and Inventory, submitted by it to
Lender, whether previously or in the future, is and will be true and correct in
all material respects, and is and will be complete insofar as may be necessary
to render it a true and accurate depiction of the subject matter to which it
relates.

 

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(aa) Parent or Subsidiary Corporations. Borrower has no parent corporation and
has no Subsidiaries other than as set forth in Schedule 12.1(aa) attached
hereto.

 

(bb) Environmental Matters.

 

(i) It has obtained all permits, licenses and other authorizations which are
required under all Environmental Laws. It is in compliance with the terms and
conditions of all such permits, licenses and authorizations, and is also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.

 

(ii) No notice, notification, demand, request for information, citation, summons
or order has been issued, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by Borrower to
have any permit, license or authorization required in connection with the
conduct of its business or with respect to any Environmental Laws, including
without limitation, Environmental Laws relating to the generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Materials.

 

(iii) No oral or written notification of a release of any Hazardous Material has
been filed by or against Borrower and no property now or previously owned,
leased or used by it, including without limitation, the Premises, is listed or
proposed for listing on the Comprehensive Environmental Response, Compensation
and Inventory of Sites or National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
on any similar state or federal list of sites requiring investigation or
cleanup.

 

(iv) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the property or properties owned, leased or used by
it, including without limitation, any of the properties owned or leased by it,
and no governmental actions have been taken or are in process which could
subject any of such properties to such liens or encumbrances or, as a result of
which Borrower would be required to place any notice or restriction

 

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relating to the presence of Hazardous Materials at any property owned by it in
any deed to such property.

 

(v) Neither it nor, to the best knowledge of Borrower, any previous owner,
tenant, occupant or user of any property owned, leased or used by Borrower, has
(i) engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the release, discharge, refining, dumping or disposal (whether
legal or illegal, accidental or intentional) of any Hazardous Materials on,
under, or in or about such property, or (ii) transported or had transported any
Hazardous Materials to such property except to the extent such Hazardous
Materials are raw products commonly used in day-to-day manufacturing operations
of such property and, in such case, in compliance with, all Environmental Laws;
(iii) engaged in or permitted any operations or activities which would allow the
facility to be considered a treatment, storage or disposal facility as that term
is defined in 40 CFR 264 and 265, (iv) engaged in or permitted any operations or
activities which would cause any of Borrower’s properties to become subject to
The Connecticut Transfer Act. Section 22a-134 et sea. C.G.S., or (v)
constructed, stored or otherwise located Hazardous Materials on under, in or
about any such property except to the extent commonly used in day-to-day
operations of any such property and, in such case, in compliance with all
Environmental Laws. Further, to the best knowledge of Borrower, no Hazardous
Materials have migrated from other properties upon, about or beneath any such
property.

 

(cc) Use of Proceeds. It will use the proceeds of the Loans as follows: (i) the
proceeds of the Revolving Loan shall be used solely for working capital or other
business purposes; (ii) the proceeds of the Equipment Loans shall be used solely
to finance the purchase of Eligible Equipment; and (iii) the proceeds of the
Acquisition Loan shall be used solely to finance Qualifying Acquisitions.

 

ARTICLE XIII. Conditions of Lending

 

Section 13.1. Conditions of the First Stage Loan. Subject to the terms hereof,
the obligation of Lender to make the first Revolving Loan, the First Stage
Equipment Loan and consolidate the Existing Term Loans into the Term Loan under
this Agreement is subject to the fulfillment of the following conditions
precedent at the time of the execution of this Agreement:

 

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(a) Notes. Lender shall have received a duly executed Revolving Loan Note, Term
Loan Note, and the Equipment Loan Note each drawn to its order.

 

(b) Evidence of Corporate Action. Lender shall have received certified copies of
all corporate action (in form and substance satisfactory to Lender) taken by
Borrower to authorize the execution, delivery and performance of this Agreement,
the Notes, and the other Financing Agreements to which it is a party, and the
borrowings to be made hereunder and thereunder, together with true copies of
Borrower’s Certificate of Incorporation and By-laws and such other papers as
Lender or its counsel may require.

 

(c) Opinion of Counsel. Lender shall have received a favorable written opinion
of counsel for Borrower, accompanied by such supporting documents as Lender or
its counsel may require.

 

(d) UCC-1 Financing Statements. Lender shall have received from Borrower duly
executed UCC-1 financing statements and such other documents as Lender deems
necessary or proper to ensure the continued perfection of its security interest
in the Collateral, all of which shall be in form, scope and substance
satisfactory to Lender and its counsel.

 

(e) Further Documents. Lender shall have received such further documents,
instruments and agreements as Lender may request, including without limitation,
title insurance or an attorneys’ certificate of title, landlord’s agreements,
warehouse agreements, and evidence that the insurance policies and certificates
evidencing adequate insurance and coverage on Borrower’s assets are currently in
full force and effect, continue to name Lender as loss payee or additional
insured, as the case may be, and that the premiums are current.

 

Section 13.2. Conditions of Further Loans. In addition to the conditions in
Section 13.1 above, Lender shall make no further Revolving Loans, Acquisition
Loan or Equipment Loans (collectively, the “Further Loans”) unless the following
conditions shall exist or have been satisfied by Borrower at the time any
Further Loan is requested:

 

(a) Absence of Termination or Default. Lender shall not have terminated the
Revolving Loan facility or the Equipment Loan facility hereunder, nor shall a
Defaulting Event exist or have occurred.

 

(b) Compliance Certificates. On the date of each Revolving Loan, Acquisition
Loan or Equipment Loan hereunder and after giving effect thereto, Borrower shall
have delivered to Lender, upon Lender’s

 

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request, a certificate (a “Compliance Certificate”) executed by its chief
financial officer which states, among other things, that: (i) Borrower has
complied, and is then in compliance, with all the terms, covenants and
conditions of this Agreement and the other Financing Agreements to which it is a
party; (ii) there exists no Event of Default or Defaulting Event; and (iii) the
representations and warranties contained herein and in the other Financing
Agreements are true and correct in all material respects with the same effect as
though such representations and warranties had been made at the time of each
Further Loan.

 

(c) Revolving Loan Borrowing Base and Equipment Loan Borrowing Base. The
indebtedness of Borrower by virtue of the making of any Revolving Loan or
Equipment Loan shall not exceed the Revolving Loan Borrowing Base or the
Equipment Loan Borrowing Base, respectively. Borrower shall not request any
Revolving Loan or Equipment Loan if the effect of such Revolving Loan or
Equipment Loan shall be to cause the aggregate balance of all Revolving Loans or
Equipment Loans to exceed the Revolving Loan Borrowing Base or the Equipment
Loan Borrowing Base, respectively.

 

(d) Further Documents. Lender shall have received such further documents,
instruments and agreements as Lender may reasonably request.

 

ARTICLE XIV. Covenants

 

A. Affirmative Covenants.

 

Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations, and until the termination of this
Agreement, unless Lender otherwise consents in writing, Borrower shall:

 

Section 14.1. Financial Statements. Deliver or caused to be delivered to Lender:
(a) within thirty (30) days after the close of each fiscal month of Borrower,
internally prepared financial statements of Borrower including balance sheets as
of the close of such month, and statements of income and retained earnings for
such month and for that portion of the fiscal year-to-date then ended, all of
which financial statements shall be prepared on a basis consistent with that of
the preceding period or containing disclosure of the effect on financial
condition or results of operations, and which shall be certified by the chief
financial officer of Borrower as being accurate and fairly presenting the
financial condition of Borrower; (b) within one hundred five (105) days after
the close of each fiscal year of Borrower, audited financial statements
including a balance sheet as of the close of such fiscal year and statements of
income, stockholders’ capital and cash flow for the year then ended, both
prepared in

 

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conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on financial condition or results of operations of any change in the
application of accounting principles during the year, and accompanied by a
report thereon containing an unqualified opinion of a recognized certified
public accounting firm selected by Borrower and reasonably satisfactory to
Lender (it being hereby agreed and understood that Deloitte & Touche USA LLP is
an accounting firm satisfactory to Lender), which opinion shall state that such
financial statements fairly present the financial condition and results of
operations of Borrower in accordance with generally accepted accounting
principles; (c) at least thirty (30) days prior to the close of each fiscal year
of Borrower, internally prepared drafts of annual projections of Borrower, in
form, scope and substance satisfactory to Lender; (d) within forty-five days of
the close of each fiscal quarter of the Borrower, a Compliance Certificate; (e)
within fifteen (15) days of the close of each month, monthly aging of accounts
receivable and accounts payable, inventory status reports, ineligible
calculations and reconciliations, all in form, scope and substance satisfactory
to Lender; (f) contemporaneously with the delivery to shareholders or
governmental agencies, copies of all reports and information delivered to
shareholders or filed with governmental agencies, including without limitation,
Forms 10-K and 10-Q; (g) promptly upon Lender’s written request, such other
information about the financial condition and operations of Borrower as Lender
may, from time to time, reasonably request; and (h) promptly upon becoming aware
of any Event of Default, or the occurrence or existence of a Defaulting Event,
notice thereof in writing. Notwithstanding anything to the contrary contained
herein, the requirements herein with respect to interim financial statements
shall be subject to normal and customary year-end audit adjustments and the fact
that footnotes sufficient to satisfy the requirements of the Securities and
Exchange Act of 1934, as amended, need not be as extensive as what may be
required by generally accepted accounting principles.

 

Section 14.2. Insurance and Endorsements. (a) Keep its properties and cause the
Premises to be insured against fire and other hazards (pursuant to so-called
“All Risk” coverage) in amounts and with companies satisfactory to Lender to the
same extent and covering such risks as is customary in the same or a similar
business; maintain public liability coverage, including without limitation,
products liability coverage, against claims for personal injuries or death; and
maintain all worker’s compensation, employment or similar insurance as may be
required by applicable law; and (b) all insurance shall contain such terms, be
in such form, and be for such periods reasonably satisfactory to Lender, and be
written by carriers duly licensed by the appropriate governmental authorities of
each state where any Collateral is located. Without limiting the generality of
the foregoing, such insurance must provide that it may not be canceled without
thirty (30) days’ prior written notice

 

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to Lender. Borrower shall cause Lender to be endorsed as a loss payee with a
long form Lender’s Loss Payable Clause, in form and substance acceptable to
Lender on all such insurance. In the event of failure to provide and maintain
insurance as herein provided, Lender may, at its option, provide such insurance
and charge the amount thereof to the Revolving Loan Account. Borrower shall
furnish to Lender certificates or other satisfactory evidence of compliance with
the foregoing insurance provisions. Borrower hereby irrevocably appoints Lender
as its attorney-in-fact, coupled with an interest to make proofs of loss and
claims for insurance, and to receive payments of the insurance proceeds and
execute and endorse all documents, checks and drafts in connection with payment
of such insurance. Any insurance proceeds received by Lender shall be applied to
the Obligations in such order and manner as Lender shall determine in its sole
discretion.

 

Section 14.3. Tax and Other Liens. Comply in all material respects with all
statutes and government regulations and pay all taxes, assessments, governmental
charges or levies, or claims for labor, supplies, rent and other obligations
made against it or their property which, if unpaid, might become a lien or
charge against Borrower or its properties, except for any of the foregoing being
contested in good faith and against which adequate reserves have been
established in accordance with generally accepted accounting principles.

 

Section 14.4. Place of Business; Locations of Collateral. Maintain its chief
place of business and chief executive offices at the address set forth in the
introductory sentence hereof and its other places of business as set forth in
Schedule 14.4 hereto unless Borrower shall have given Lender thirty (30) days’
prior written notice of each change in such place of business. Locate no
Collateral at any location other than the Premises; provided, however, that (a)
Borrower may locate inventory (other than work-in-process at customers’
premises) at locations other than the Premises which in the aggregate at any one
time does not have a value of more than $100,000, and (b) Borrower may locate
work-in-process at customers’ premises.

 

Section 14.5. Inspections. Allow Lender by or through any of its officers,
attorneys, and/or accountants designated by it, for the purpose of ascertaining
whether or not each and every provision hereof and of any related agreement,
instrument and document is being performed, to enter the offices and plants of
Borrower to examine or inspect any of the properties, books and records or
extracts therefrom, to make copies of such books and records or extracts
therefrom and to make complete environmental studies and/or investigations, and
to discuss the affairs, finances and accounts thereof with Borrower all at such
reasonable times, upon reasonable notice and as often as Lender or any
representative of Lender may reasonably request.

 

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Section 14.6. Litigation. Promptly advise Lender of the commencement or threat
of litigation, including arbitration proceedings and any proceedings before any
governmental agency (but excluding product liability claims which are either
fully covered by insurance or adequately covered by insurance and which are not
likely to have a material adverse effect on the business, assets or condition
(financial or otherwise) of Borrower), which is instituted against Borrower and
is reasonably likely to have a materially adverse effect upon the condition
financial, operating or otherwise, of Borrower.

 

Section 14.7. Maintenance of Existence. Maintain its corporate existence and
comply with all valid and applicable statutes, rules and regulations, and
maintain its properties in good repair, working order and operating condition.
Borrower shall immediately notify Lender of any event causing material loss in
the value of their assets.

 

Section 14.8. Inventory. Allow Lender to examine and inspect the Inventory at
reasonable times and intervals and upon reasonable notice. Borrower shall
immediately notify Lender of any event causing material loss or depreciation in
value of Inventory and the amount of such loss or depreciation.

 

Section 14.9. ERISA. Immediately notify Lender of any event which causes it not
to be in compliance with ERISA in all material respects.

 

Section 14.10. Notice of Certain Events. Give prompt written notice to Lender
of:

 

(a) any material dispute that may arise between Borrower and any governmental
regulatory body or law enforcement agency;

 

(b) any labor controversy resulting or likely to result in a strike or work
stoppage against Borrower;

 

(c) any proposal by any public authority to acquire the assets or business of
Borrower;

 

(d) the location of any Collateral other than at Borrower’s places of business
disclosed in this Agreement (other than Collateral in transit in the ordinary
course of Borrower’s business);

 

(e) any proposed or actual change of the name, identity or legal form of
organization of Borrower;

 

(f) any circumstance or event by virtue of which or in connection with which
Borrower may have incurred or may incur any liability, expense or responsibility
under any Environmental Law, including,

 

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without limitation: (i) any Release of any Hazardous Material required to be
reported to any federal, state or local governmental authority instrumentality
or agency under any applicable Environmental Law; (ii) any and all written
communications with respect to claims or suits under any applicable
Environmental Law or any Release of Hazardous Material required to be reported
to any federal, state or local governmental authority, instrumentality or
agency; (iii) any remedial action taken by Borrower or any other person in
response to (A) any Hazardous Material on, under or about the properties or
assets of Borrower, the existence of which may give rise to a claim or suit
resulting in a material change of Borrower’s business operations or financial
condition, or (B) any claim or suit resulting in a material change of Borrower’s
business operations or financial condition; (iv) Borrower’s discovery of any
occurrence or condition on any real property adjoining or in the vicinity of
Borrower’s business premises which may cause such premises to be in violation of
any Environmental Law or to be subject to any restrictions on the ownership,
occupation, transferability or use thereof under any Environmental Law and (v)
any request for information from any federal, state or local governmental
authority, instrumentality or agency that indicates such entity is investigating
Borrower’s potential responsibility for a Release of Hazardous Material;

 

(g) any other matter which has resulted or is reasonably likely to result in a
material adverse change in the financial condition or operations of Borrower;

 

(h) any information received by Borrower with respect to any Receivable that may
materially affect the value thereof or the rights and remedies of Lender with
respect thereto; and

 

(i) any action, suit or claim pending or which is threatened or asserted against
Borrower.

 

Section 14.11. Defaults. Upon the occurrence of an Event of Default or of a
Defaulting Event, give prompt written notice of such occurrence to Lender signed
by the president or chief financial officer of Borrower describing such
occurrence and the action, if any, being taken to cure the Event of Default or
Defaulting Event.

 

Section 14.12. Duties. Borrower has complied and will continue to comply with
any and all material federal, state and local laws affecting its business,
including, but not limited to, payment of all federal and state taxes with
respect to sales to Account Debtors by Borrower and disclosures in connection
therewith. Borrower agrees to indemnify Lender against and hold Lender harmless
from, all claims, actions and losses, including reasonable

 

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attorney’s fees and costs incurred by Lender arising from any contention,
whether well founded or otherwise, that there has been a failure to comply with
such laws.

 

Section 14.13. Collateral Duties. At the request of Lender, Borrower will join
with Lender in executing one or more financing statements pursuant to the
Uniform Commercial Code or other notices appropriate under applicable law in
form satisfactory to Lender and will pay the cost of filing the same in all
public offices wherever filing is deemed by Lender to be necessary or desirable.
A legible carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement. Borrower hereby irrevocably authorizes
Lender at any time and from time to time to file in any Uniform Commercial Code
jurisdiction any initial financing statements and amendments thereto that (a)
indicate the Collateral (i) as all assets of Borrower or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the Uniform Commercial Code of such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by the Uniform Commercial
Code for the sufficiency or filing office acceptance of any financing statement
or amendment, including (i) whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower, and
(ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted Collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates.
Borrower agrees to furnish any such information to Lender promptly upon request.
Borrower also ratifies its authorization for Lender to have filed in any Uniform
Commercial Code jurisdiction any like initial financing statements or amendments
thereto if filed prior to the Closing Date. All reasonable charges, expenses and
fees Lender may incur in filing any of the foregoing, together with reasonable
costs and expenses of any lien search required by Lender, and any taxes relating
thereto, shall be charged to the Revolving Loan Account and added to the
Obligations.

 

Section 14.14. Audit and Appraisals by Lender; Fees. Permit Lender by or through
any of its officers, employees or other representatives to audit the books and
records of Borrower and to conduct or cause to be conducted appraisals of
Borrower’s assets at such times, upon reasonable notice, and in such manner and
detail as Lender deems reasonable. Without limiting the generality of the
foregoing, Lender shall be allowed to verify the Receivables and Inventory of
Borrower and to confirm with Account Debtors the validity and amount of
Receivables. Lender is hereby authorized to charge any such audit and appraisal
fees and expenses to the Revolving Loan Account. Notwithstanding the foregoing,
so long as no Event of Default has occurred, Lender shall not conduct more than
(i) two (2) audits per calendar year and (ii) one (1) appraisal per two
consecutive calendar years, exclusive of any audits or

 

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appraisals conducted in connection with a Qualifying Acquisition, whether or not
such Qualifying Acquisition is consummated.

 

Section 14.15. Bank Accounts. Maintain all of its bank accounts, including
without limitation, its operating and depository accounts, at Lender; provided
however, the Borrower shall be permitted to have operating and depository
accounts not maintained by Lender so long as either (i) the aggregate amount on
deposit therein (not including for payroll) does not exceed $100,000 at any one
time and so long as it is necessary for Borrower to have such accounts because
Lender does not maintain a branch convenient to Borrower for the purposes of
such account or (ii) the Borrower has on deposit with Lender an aggregate amount
at least equal to the aggregate outstanding principal amount of the Loans.

 

Section 14.16. Pledge. Pledge to the Lender when acquired all of its stock or
similar equity interests in any Foreign Subsidiary (subject to appropriate legal
and tax limits) pursuant to the terms of a pledge agreement reasonably
satisfactory in form and substance to the Lender.

 

Section 14.17. Goods in Possession of Bailee. If any goods, individually or in
the aggregate having a cost of more than $100,000, are at any time in the
possession of any one bailee, Borrower shall promptly notify Lender thereof and,
if requested by Lender, shall promptly obtain an acknowledgment from the bailee,
in form and substance satisfactory to Lender, that the bailee holds such
Collateral for the benefit of Lender and shall act upon the instructions of
Lender, without the further consent of Borrower. Lender agrees with Borrower
that Lender shall not give any such instructions unless an Event of Default has
occurred and is continuing or would occur after taking into account any action
by Borrower with respect to the bailee.

 

Section 14.18. Letters of Credit. If Borrower is at any time a beneficiary under
a letter of credit in a face amount in excess of $100,000 now or hereafter
issued in favor of Borrower, Borrower shall promptly notify Lender thereof and,
at the request and option of Lender, Borrower shall, pursuant to an agreement in
form and substance satisfactory to Lender, either (a) arrange for the issuer and
any confirmer of such letter of credit to consent to an assignment to Lender of
the proceeds of any drawing under the letter of credit, or (b) arrange for
Lender to become the transferee beneficiary of the letter of credit, with Lender
agreeing, in each case, that the proceeds of any drawing under the letter of
credit are to be applied in the same manner as any other payment on an Account.

 

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Section 14.19. Commercial Tort Claims. If Borrower shall at any time hold or
acquire a commercial tort claim, Borrower shall immediately notify Lender in a
writing signed by Borrower of the brief details thereof and grant to Lender in
such writing a security interest therein, and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to Lender.

 

B. Negative Covenants.

 

The Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations and until the termination of this
Agreement, unless Lender otherwise consents in writing, the Borrower shall not:

 

Section 14.20. Encumbrances. Incur or permit to exist any lien, mortgage, charge
or other encumbrance against any of its properties or assets, whether now owned
or hereafter acquired, except: (a) liens required or expressly permitted by this
Agreement; (b) pledges or deposits in connection with or to secure worker’s
compensation, unemployment or liability insurance; (c) those listed on Schedule
12.1(x) attached hereto; and (d) purchase money liens securing financing for
machinery and equipment purchased in the ordinary course of business as
permitted pursuant to Section 14.21(b) below.

 

Section 14.21. Limitation on Indebtedness. Create, incur or guarantee any
indebtedness or obligation for borrowed money (including without limitation, any
reimbursement obligations for any letter of credit issued by any financial
institution) or issue or sell any of its obligations to any lender, except: (a)
as set forth on Schedule 14.21 attached hereto; (b) purchase money financing
and/or obligations in respect of Capitalized Leases, for machinery and equipment
purchased or leased in the ordinary course of business in the aggregate
principal amount of not greater than $350,000 in any fiscal year; and (c)
indebtedness in respect of Hedging Agreements.

 

Section 14.22. Contingent Liabilities. Assume, guarantee, endorse or otherwise
become liable upon the obligations of any person, firm or corporation, or enter
into any purchase or option agreement or other arrangement having substantially
the same effect as such a guarantee, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.

 

Section 14.23. Consolidation or Merger. Merge into or consolidate with or into
any entity.

 

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Section 14.24. Loans, Advances, Investments. Except as disclosed on Schedule
14.24, make or permit to exist any loans or advances to, or purchase any stock,
other securities or evidences of indebtedness of, or make or permit to exist any
investment (including without limitation the acquisition of stock of a
corporation) in, or acquire any assets or any other interest whatsoever in, any
other person (“Loans, Advances and Investments”); provided, however, that (a)
Borrower shall be permitted to make investments in short-term direct obligations
of the United States Government so long as such obligations mature not more than
one (1) year after the date of acquisition thereof and that Lender continues to
have a duly perfected first lien security interest in such obligations in form,
scope and substance satisfactory to Lender, (b) Borrower shall be permitted to
make loans to its officers, directors and shareholders in the ordinary course of
business in the aggregate principal amount of not greater than $25,000 at any
time, and advances for travel expenses incurred in the ordinary course of
Borrower’s business, and (c) in addition to Loans, Advances and Investments
permitted pursuant to clauses (a) and (b) above, Borrower shall be permitted to
make additional Loans, Advances and Investments (other than loans or advances to
any other Person) so long as, (x) at the time Borrower makes any such additional
Loans, Advances and Investments (and after giving effect to the making of any
such Loan, Advance or Investment) Borrower has (or will have) $5,000,000 in
Excess Availability, (y) any Loans, Advances and Investments which are the
acquisition of any Person, business, division, or specified group of assets by
the Borrower meet the conditions set forth in the definition of “Qualifying
Acquisition” other than the conditions set forth in clause (i) of such
definition, and (z) the aggregate amount of such additional Loans, Advances and
Investments and Acquisitions and Dividends pursuant to Section 14.25 does not,
after the Closing Date, exceed $1,000,000. Lender acknowledges that Borrower has
advised it that Borrower may, in the future, desire to acquire interests in
other persons and, in connection with any such acquisition, Borrower may request
financing from Lender to fund any such acquisition.

 

Section 14.25. Acquisition of Stock of Borrower; Dividends. Purchase, acquire,
redeem or retire, or make any commitment to purchase, acquire, redeem or retire,
any of the capital stock of Borrower, whether now or hereafter outstanding, or
declare or pay any dividend, or make any distribution to any of its stockholders
(“Acquisitions and Dividends”); provided, however that Borrower shall be
permitted to make or pay (as the case may be) Acquisitions and Dividends so long
as (a) at the time Borrower makes or pays (as the case may be) any Acquisitions
and Dividends (and after giving effect to the making of any such Acquisitions
and Dividends) Borrower has (or will have) $5,000,000 in Excess Availability,
(b) at the time Borrower makes or pays (as the case may be) any Acquisitions and
Dividends no Event of Default or Defaulting Event has occurred and is continuing
(c) after giving effect to any

 

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Acquisition and Dividend no Defaulting Event or Event of Default will exist and
(d) the aggregate amount of Acquisitions and Dividends and additional Loans,
Advances and Investments pursuant to Section 14.24 does not, after the Closing
Date, exceed $1,000,000.

 

Section 14.26. Sale and Lease of Assets. Except as set forth on Schedule 14.26
attached hereto and except for the sale of any asset no longer used in
Borrower’s business having a value not exceeding $10,000, sell or lease any of
the assets of the Borrower, except for sales of inventory in the ordinary course
of business consistent with past practices and on an arms-length basis.

 

Section 14.27. Name Changes. (a) Change its name from that set forth in this
Agreement, its place of business or, if more than one, chief executive office,
or its mailing address or organizational identification number if it has one,
and (b) change its type of organization jurisdiction or organization or other
legal structure. If the Borrower does not have an organizational identification
number and later obtains one, the Borrower shall forthwith notify the Lender of
such organizational identification number.

 

Section 14.28. Prohibited Transfers. Transfer, in any manner, either directly or
indirectly, any cash, property, or other asset to any parent or any of its
affiliates or Subsidiaries, other than sales made in the ordinary course of
business and for fair consideration on terms no less favorable than if such sale
had been an arms-length transaction between Borrower or such Subsidiary and an
unaffiliated entity.

 

Section 14.29. Leasebacks. Lease any real estate or other capital asset from any
lessor who shall have acquired such property from Borrower.

 

Section 14.30. CII Agreement. Amend the CII Agreement or make payment of any
sums to CII in violation of the CII Agreement.

 

C. Financial Covenants.

 

Borrower agrees and covenants that from the date hereof until the payment and
performance in full of all Obligations, and until the termination of this
Agreement, Borrower shall not:

 

Section 14.31. Fixed Charge Coverage Ratio. On the last day of each fiscal
quarter of the Company permit its Fixed Charge Coverage Ratio to be less than
1.25 to 1.0.

 

Section 14.32. Minimum Availability. At any time permit its Excess Availability
to be less than $2,000,000.

 

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ARTICLE XV. Collateral

 

Section 15.1. Grant. To secure the prompt payment and performance of each and
all of the Obligations, the Borrower pledges, assigns, transfers and grants to
Lender a continuing first priority security interest in the following property
of Borrower, whether now owned or hereafter acquired or arising (the
“Collateral”):

 

(a) All accounts and accounts receivable related to or arising from the sale or
lease of inventory or rendition of services by Borrower (the “Accounts”) and all
other accounts, contracts, contract rights, general intangibles related to or
arising from any account, notes, documents, chattel paper (whether tangible or
electronic), deposit accounts, letter of credit rights (whether or not the
letter of credit is evidenced by a writing), supporting obligations, commercial
tort claims, instruments, acceptances, drafts or other forms of obligations and
receivables (collectively with the Accounts, the “Receivables”), whether or not
the same are listed on any schedules assignments or reports furnished to Lender
from time to time, and whether such Receivables are now existing or are created
or arise at any time hereafter, together with all goods, inventory and
merchandise returned by or reclaimed by or repossessed from customers wherever
such goods, inventory and merchandise are located, and all proceeds thereto
including without limitation, proceeds of insurance thereon and all guaranties,
securities, and liens which Borrower may hold for the payment of any such
Receivables, including without limitation, all rights of stoppage in transit,
replevin and reclamation and all other rights and remedies of an unpaid vendor
or lienor, and any liens held by Borrower as a mechanic, contractor,
subcontractor, processor, materialman, machinist manufacturer, artisan, or
otherwise;

 

(b) All documents, instruments, documents of title, general intangibles,
policies and certificates of insurance, guaranties, securities chattel paper,
deposits, tax returns, proceeds of insurance, proceeds of an eminent domain or
condemnation award, cash, liens or other property, which are now or may
hereinafter be in the possession of Borrower or as to which Borrower may now or
hereafter control possession by documents of title or otherwise, including, but
not limited to, all property allocable to unshipped orders relating to
Receivables and Inventory;

 

(c) All books, records, customer lists, supplier lists, ledgers, evidences of
shipping, invoices, purchase orders, sales orders and all other evidences of
Borrower’s business records, including all cabinets, drawers, etc. that may hold
the same; computer records, lists, software, programs,

 

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wherever located, all whether now existing or hereafter arising or acquired;

 

(d) All of Borrower’s inventory, whether now owned or hereafter acquired
(collectively, the “Inventory”), including without limitation : (i) all goods
manufactured or acquired for sale or lease, and any piece goods, raw materials,
work in process and finished merchandise, findings or component materials, and
all supplies, goods, incidentals, office supplies, packaging materials, and any
and all items including machinery and equipment used or consumed in the
operation of the business of Borrower or which contribute to the finished
product or to the, sale, promotion and shipment thereof, in which Borrower may
now or at any time hereafter have an interest, whether or not such inventory is
listed in this Agreement on any reports furnished to Lender from time to time;
(ii) all inventory whether or not the same is in transit or in the constructive,
actual or exclusive occupancy or possession of Borrower or is held by Borrower
or by others for the Accounts, including without limitation, all goods covered
by purchase orders and contracts with suppliers and all goods billed and held by
suppliers; (iii) all inventory which may be located on the premises of Borrower
or of any carrier, forwarding agents, truckers, warehousemen, vendors, selling
agents or third parties; (iv) all general intangibles relating to or arising out
of inventory; (v) all proceeds and products of the foregoing resulting from the
sale, lease or other disposition of inventory, including cash, accounts
receivable, other non-cash proceeds and trade-ins; and (vi) with respect to
after-acquired inventory, the security interest shall be deemed to be a purchase
money security interest;

 

(e) All general intangibles, including without limitation, tax refunds,
investment property, proceeds of insurance eminent domain awards, condemnation
proceeds, and patents, copyrights, tradenames, trademarks, applications
therefor, and licenses to any patent, copyright, trademark, or tradename that
Borrower now owns, has the right to use or may hereafter own or acquire the
right to use;

 

(f) All equipment, machinery, appliances, and furniture and fixtures, now
existing or hereafter arising, wherever located, and all contracts, contract
rights and chattel paper arising out of any lease of any of the foregoing;

 

(g) All other collateral in which Borrower may hereafter grant to Lender a
security interest; and

 

(h) All renewals, substitutions, replacements, additions, accessions, proceeds,
and products of any and all of the foregoing,

 

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including without limitation, all proceeds of credit, fire and other insurance
and also including, without limitation, rents and profits resulting from the
temporary use of the Collateral.

 

Provided, however, that notwithstanding anything in this Section 15.1 to the
contrary: (A) the priority of Lender’s lien in chattel paper shall be subject to
the proper perfection thereof; (B) the Lender’s lien in Borrower’s intellectual
property is subject to existing licenses of certain thereof to Raychem
Corporation, and to existing licenses of certain thereof to Automation
Electronics, Inc. and AMT, N.V.; and (C) the Collateral shall not include any of
Borrower’s right, title and interest in, to and under any of the following: (i)
Borrower’s inventory of finished goods and work-in-process of its Ultravalve
microprocessor controlled bath and shower valves product line (the “Product
Line”), including the version of the Memry safe valve used in the Product Line
(which is not currently used by Borrower for any other purpose), as well as the
raw materials owned by Borrower that are used exclusively for the Product Line;
(ii) the Borrower’s registered trademark Ultravalve, with U.S. Registration No.
2,122,691 and a registration date of December 23, 1997; (iii) the Borrower’s
U.S. patent no. Des. 313,761, dated January 15, 1991, actuator plate for
temperature control valve; (iv) the following intellectual property of the
Borrower, to the extent (and only to the extent) that they relate exclusively to
the Product Line or Borrower’s business of manufacturing and selling the Product
Line: (a) all trade dress and logos, including any goodwill associated
therewith; (b) all copyrightable works, all copyrights, and any applications,
registrations and renewals in connection therewith; (c) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, schematics, diagrams, test
procedures, specifications, customer and supplier lists, catalogs, pricing and
cost information, and business and marketing plans and proposals); (d) all other
similar proprietary rights; and (e) all copies and tangible embodiments thereof
(in whatever form or medium); (v) the specified tangible assets of Borrower set
forth on Schedule 15.1 hereto; and (vi) Borrower’s right, title and interest in,
to and under (x) the Agreement, dated February 22, 1995, between the Borrower
and American Standard, Inc., (y) the IAPMO Research and Testing, Inc.
Certificate of Listing relating to the Product Line, and (z) the Underwriters
Laboratories Inc. listings relating to the Product Line.

 

ARTICLE XVI. Events of Default

 

Section 16.1. Events of Default. Any and all Obligations, including without
limitation, the Obligations arising pursuant to or in connection with the Loans,
shall, at the option of Lender and notwithstanding any time or credit allowed by
any Notes or agreement, become immediately due

 

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and payable if any one or more of the following events (collectively, “Events of
Default” and individually, an “Event of Default”) shall occur:

 

(a) Borrower’s failure to pay principal, interest or, within three (3) days of
when due, any other sum due hereunder or under the Notes;

 

(b) Borrower’s failure to pay or perform when due any other covenant, duty,
indebtedness, liability or obligation arising under this Agreement, the Notes or
any of the other Financing Agreements, or any other Obligation (provided,
however, that the Borrower’s failure to perform any of the obligations set forth
in Sections 14.3, 14.6, 14.7, 14.9, 14.12 and 14.13 shall not constitute an
Event of Default unless and until such failure continues for thirty (30) days or
more);

 

(c) the making by Borrower of any misrepresentation of a material fact to
Lender;

 

(d) the filing, making or issuance of any lien, levy, seizure, attachment,
garnishment, injunction, execution, tax lien or judgment upon or against
Borrower or any of the Collateral, or any other property or assets of Borrower
which is not discharged or removed within a period of thirty (30) days from the
date of such filing, making or issuance;

 

(e) any of the following of, by, or involving Borrower: insolvency (failure to
pay debts as they mature or where the fair value of assets is not in excess of
liabilities); business failure; appointment of a receiver or custodian;
assignment for the benefit of creditors; calling of a meeting of creditors;
appointment of a committee of creditors, or liquidating banks, or offering of a
composition extension to creditors; or the commencement of any proceedings under
any bankruptcy or insolvency law;

 

(f) Borrower’s failure to keep the Collateral insured against loss by fire or
otherwise for the full insurable value thereof with companies and for coverages
(including Lender’s Long Form Loss Payable Endorsement) acceptable to Lender and
making the loss, if any, payable to Lender;

 

(g) the loss, revocation or failure to renew any license and/or permit now held
or hereafter acquired by Borrower which materially adversely affects the ability
of Borrower to continue their operations as presently conducted;

 

(h) the declaration of a default under any obligation of Borrower for borrowed
money to any other creditor;

 

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(i) the occurrence of any event or circumstance with respect to the Borrower
such that Lender shall reasonably and in good faith believe that the prospect of
payment of all or any part of Obligations or the performance by the Borrower
under this Agreement, or any other agreement between the Lender and the
Borrower, is impaired; or

 

(j) the receipt by Lender of a Put Notice from Connecticut Innovations, Inc. (as
defined in the CII Agreement); provided, however, that if the total amount owed
pursuant to any such Put Notice is permitted to be paid pursuant to Section
14.25 and such amount is paid (i) in accordance with the terms of the CII
Agreement and such Put Notice and (ii) within fourteen (14) days of Lender’s
receipt of a Put Notice from Connecticut Innovations, Inc., the receipt of such
Put Notice shall not be deemed an Event of Default hereunder.

 

Upon the occurrence of any Event of Default, at the option of Lender: (x) any
and all Obligations, including without limitation, the Obligations arising from
or in connection with the Loans, shall become immediately due and payable, and
(y) Borrower’s eligibility to request any further Loans shall automatically and
immediately terminate, without presentment, demand, protest, notice of protest
or other notice or requirements of any kind, all of which Borrower expressly
waives. Notwithstanding the foregoing sentence, if any Event of Default under
clause (e) occurs, the acceleration of the Obligations and termination of
Borrower’s eligibility to request further Loans shall be automatic.

 

At any time after an Event of Default, Lender may proceed to enforce the rights
of Lender whether by suit in equity or by action at law, whether for specific
performance of any covenant or agreement contained in this Agreement, the Notes
or the other Financing Agreements, or in aid of the exercise of any power
granted in either this Agreement or the Notes or any other Financing Agreement,
or it may proceed to obtain judgment or any other relief whatsoever appropriate
to the enforcement of such rights, or proceed to enforce any legal or equitable
right which Lender may have by reason of the occurrence of any Event of Default
hereunder.

 

ARTICLE XVII. Collection of Receivables

 

Section 17.1. Lockbox Agreement. All Receivables shall be directed to and
deposited in a lockbox established by Lender pursuant to a lockbox agreement in
form and substance satisfactory to the Lender (“Lockbox Agreement”).

 

Section 17.2. Computation. Collections of Receivables shall be credited to the
Obligations of Borrower; provided, however, that all credits shall

 

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be conditional credits subject to collection and that returned items at Lender’s
option, may be charged to Borrower; and further provided that for purposes of
the computation of interest, items shall not be deemed to be collected until
three (3) days after their actual receipt by Lender.

 

ARTICLE XVIII. Returned Merchandise

 

Section 18.1. Procedures. The Borrower shall promptly notify Lender of any
credits, adjustments or disputes arising concerning the goods or services
represented by Receivables. Borrower will immediately pay Lender from its own
funds (and not from the proceeds of Receivables), for application to the
Revolving Loans, an amount equal to any credit or adjustment made to any
Eligible Accounts; provided, however, that so long as Borrower is not in default
hereunder, such payment need not be made if Borrower shall have, after making
such credit or adjustment, sufficient Receivables to maintain the aggregate
outstanding balance of the Revolving Loans under the Revolving Loan Borrowing
Base.

 

ARTICLE XIX. Rights and Remedies of Lender

 

Section 19.1. Remedies of Lender. Upon the occurrence of any Event of Default,
Lender shall have in any jurisdiction where enforcement of this Agreement, the
Notes or any other Financing Agreement is sought, in addition to all other
rights and remedies which Lender may have under law and equity, the following
rights and remedies, all of which may be exercised with or without further
notice to Borrower and without a prior judicial or administrative hearing, which
notice and hearing are expressly waived: to occupy any of Borrower’s premises
for up to six (6) months rent free for the purposes of liquidating Collateral,
including, without limitation, conducting an auction thereon; to enforce or
foreclose the liens and security interests created under this Agreement or under
any other agreement relating to Collateral by any available judicial procedure
or without judicial process; to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the same; to sell,
assign, lease, or otherwise dispose of Collateral or any part thereof, either at
public or private sale, in lots or in bulk, for cash, on credit or otherwise,
with or without representations or warranties, and upon such terms as shall be
acceptable to Lender, all at Lender’s sole option and as Lender in its sole
discretion may deem advisable; to bid or become purchaser at any such sale if
public; and, at the option of Lender to apply or be credited with the amount of
all or any part of the Obligations owing to Lender against the purchase price
bid by Lender at any such sale.

 

Section 19.2. Specific Powers. Lender may at any time, before (only with respect
to clauses (v), (vii) and (x) of this Section 19.2) or after the occurrence of
an Event of Default and during the continuance of an Event of

 

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Default, at Lender’s sole discretion: (i) give notice of assignment to any
Account Debtor (it being agreed and understood that Lender may at any time,
before or after demand for payment of the Revolving Loan or the occurrence of an
Event of Default, verify receivables directly with Account Debtors); (ii)
collect Receivables directly and charge, or cause to be charged, the collection
costs and expenses to the Revolving Loan Account; (iii) collect receivables
submitted by Borrower to Lender for collection and charge, or cause to be
charged, the collection costs and expenses to the Revolving Loan Account; (iv)
settle or adjust disputes and claims directly with Account Debtors for amounts
and upon terms which Lender considers advisable, and credit, or cause to be
credited, the Revolving Loan Account with the net amounts received in payment of
Receivables; (v) exercise all other rights granted in this Agreement and the
other Financing Agreements; (vi) receive, open and dispose of all mail addressed
to Borrower and notify the Post Office authorities to change the address for
delivery of Borrower’s mail to an address designated by Lender; (vii) endorse
the name of Borrower on any checks or other evidence of payment that may come
into possession of Lender and on any invoice, freight or express bill, bill of
lading or other document; (viii) in the name of Borrower or otherwise, demand,
sue for, collect and give acquittance for any and all monies due or to become
due on Receivables; (ix) compromise, prosecute or defend any action, claim or
proceeding concerning Receivables; and (x) do any and all things necessary and
proper to carry out the purposes contemplated in this Agreement, the other
Financing Agreements and any other agreement between the parties. Neither Lender
nor any person acting as its representative hereunder shall be liable for any
acts or omissions or for any error of judgment or mistake of fact or law, except
for gross negligence or willful misconduct. Borrower agrees that the powers
granted hereunder, being coupled with an interest, shall be irrevocable so long
as any Obligation remains unsatisfied. Notwithstanding the foregoing, it is
understood that Lender is under no duty to take any of the foregoing actions and
that after having made demand upon the Account Debtors for payment, Lender shall
have no further duty as to the collection or protection of Receivables or any
income therefrom and no further duty to preserve any rights pertaining thereto,
other than the safe custody thereof in the event Lender takes possession
thereof.

 

Section 19.3. Duties After Default. After the occurrence and during the
continuance of an Event of Default, Borrower will, at Lender’s request, assemble
all Collateral and make it available to Lender at places which Lender may
reasonably select, whether at the premises of Borrower or elsewhere, and will
make available to Lender all premises and facilities of Borrower for the purpose
of Lender taking possession of Collateral or of removing or putting the
Collateral in salable form. In the event that Lender elects to exercise its
right to take possession and control of any Collateral, and any goods called for
in any sales order, contract, invoice or other instrument or

 

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agreement evidencing or purporting to give rise to any Receivable shall not have
been delivered or shall be claimed to be defective by any customer, Lender shall
have the right in its sole discretion to use and deliver to such customer any
goods of Borrower to fulfill such order, contract or the like so as to make good
any such Receivable. If any Collateral shall require repairing, maintenance,
preparation, or the like, or is in process or other unfinished state, Lender
shall have the right, but shall not be obligated, to effectuate such repair,
maintenance, preparation, processing or completion of manufacturing for the
purpose of putting the same in such salable form as Lender shall deem
appropriate, provided that Lender shall nonetheless have the right to sell or
dispose of such Collateral without such processing. The net cash proceeds
resulting from the collection, liquidation, sale, lease or other disposition of
Collateral shall be applied first to the expenses (including all attorneys’ and
professionals’ fees) of retaking, holding, storing, processing and preparing for
sale, selling, collecting, liquidating and the like such collateral, and then to
the satisfaction of all Obligations, (application as to any particular
Obligations or against principal or interest to be at Lender’s sole discretion),
and then, upon full and final payment of the Obligations, and unless otherwise
prohibited by court order or law, to Borrower, it being agreed that if any such
payment made to Lender is recovered from or repaid by Lender in whole or in part
in any bankruptcy, insolvency or similar proceeding instituted by or against
Borrower, this Agreement automatically shall be reinstated without any further
action by Borrower and Lender. Borrower shall be liable to Lender and shall pay
to Lender on demand any deficiency which may remain after such sale,
disposition, collection or liquidation of Collateral.

 

Section 19.4. Cumulative Remedies. The enumeration of Lender’s rights and
remedies set forth in this Article XIX is not intended to be exhaustive and the
exercise by Lender of any right or remedy hereunder shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative and
shall be in addition to any other right or remedy given hereunder or under any
other agreement between the parties or which may now or hereafter exist in law
or at equity or by suit or otherwise. No delay or failure to take action on the
part of Lender in exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the exercise of
any other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between Borrower and Lender or its
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any Event of Default.

 

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ARTICLE XX. Term

 

Section 20.1. Term and Termination.

 

(a) Revolving Loan. Unless sooner terminated by Lender as a result of the
occurrence of an Event of Default, Borrower’s eligibility to request Revolving
Loans shall commence on the Closing Date and shall continue for a period through
and including the Revolving Loan Maturity Date (the “Revolving Loan Term”).
Borrower’s eligibility to request Revolving Loans may be extended after the
Revolving Loan Term only with the express written consent of both Borrower and
Lender. At the end of the Revolving Loan Term, Borrower shall pay the entire
balance of the Revolving Loans, the Equipment Loans, the Converted Equipment
Loans, any Acquisition Loans, the Term Loan, and all other outstanding
Obligations. Further, upon termination of the Revolving Loan facility all of the
rights, interests and remedies of Lender and Obligations of Borrower shall
survive and Borrower shall have no right to receive, and Lender shall have no
obligation to make, any further Loans.

 

(b) Term Loan. Unless sooner terminated by Lender as a result of the occurrence
of an Event of Default (including without limitation the failure to pay the
Revolving Note upon demand or on its due date), the principal of the Term Loan
shall be due and payable (in addition to interest in arrears) in sixty (60)
consecutive monthly installments as follows: (a) fifty-nine (59) installments in
the amount of $26,233.33 each commencing on February 1, 2004 and continuing on
the first day of each and every month thereafter through and including December
1, 2008, and (b) one final installment of $26,333.53 plus all accrued and unpaid
interest, principal and any other sums due hereunder or under the Term Loan Note
on January 30, 2009.

 

(c) First Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date), Borrower’s eligibility to
request First Stage Equipment Loans shall commence on the Closing Date and shall
continue for a period until the First Stage Equipment Loan Conversion Date and
Borrower shall thereafter have no right to receive, and Lender shall have no
obligation to make, any further First Stage Equipment Loans.

 

(d) Second Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date), Borrower’s eligibility to
request Second Stage Equipment Loans shall commence on the First Stage Equipment
Loan Conversion Date and shall continue for a period until the Second Stage
Equipment Loan Conversion Date and Borrower shall thereafter have no right to
receive,

 

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and Lender shall have no obligation to make, any further Second Stage Equipment
Loans.

 

(e) Third Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date), Borrower’s eligibility to
request Third Stage Equipment Loans shall commence on the Second Stage Equipment
Loan Conversion Date and shall continue for a period through and including the
Third Stage Equipment Loan Conversion Date and Borrower shall thereafter have no
right to receive, and Lender shall have no obligation to make, any further Third
Stage Equipment Loans.

 

(f) Fourth Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date), Borrower’s eligibility to
request Fourth Stage Equipment Loans shall commence on the Third Stage Equipment
Loan Conversion Date and shall continue for a period through and including the
Fourth Stage Equipment Loan Maturity Date and Borrower shall thereafter have no
right to receive, and Lender shall have no obligation to make, any further
Fourth Stage Equipment Loans.

 

(g) Fifth Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date), Borrower’s eligibility to
request Fifth Stage Equipment Loans shall commence on the Fourth Stage Equipment
Loan Conversion Date and shall continue for a period through and including the
Fifth Stage Equipment Loan Maturity Date and Borrower shall thereafter have no
right to receive, and Lender shall have no obligation to make, any further Fifth
Stage Equipment Loans.

 

(h) Acquisition Loan. Unless sooner terminated by Lender as a result of the
occurrence of an Event of Default (including without limitation the failure to
pay the Revolving Note on its due date), Borrower’s eligibility to request an
Acquisition Loan shall commence on the Closing Date and shall continue for a
period through and including January 30, 2007 (the “Acquisition Loan Term”).
Borrower’s eligibility to request an Acquisition Loan may be extended after the
Acquisition Loan Term only with the express written consent of both Borrower and
Lender. Upon termination of the Acquisition Loan facility all of the rights,
interests and remedies of Lender and Obligations of Borrower

 

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shall survive and Borrower shall have no right to receive, and Lender shall have
no obligation to make, any Acquisition Loan.

 

(i) First Stage Converted Equipment Loans. Unless sooner terminated by Lender as
a result of the occurrence of an Event of Default (including without limitation
the failure to pay the Revolving Note on its due date), the First Stage
Converted Equipment Loans shall be due and payable in forty-eight (48)
consecutive equal monthly installments of principal, each equal to 1/48th of the
outstanding principal balance of the Equipment Loan Note as of the First Stage
Equipment Loan Conversion Date (plus interest in arrears), commencing on the
First Stage Converted Equipment Loan Conversion Date and continuing on the first
day of each and every month thereafter through and including the First Stage
Converted Equipment Loan Maturity Date. Notwithstanding the foregoing,
principal, accrued and unpaid interest and any other amounts due hereunder or
under the First Stage Converted Equipment Loan Note shall be due and payable in
full on the First Stage Converted Equipment Loan Maturity Date.

 

(j) Second Stage Converted Equipment Loans. Unless sooner terminated by Lender
as a result of the occurrence of an Event of Default (including without
limitation the failure to pay the Revolving Note on its due date), the Second
Stage Converted Equipment Loans shall be due and payable in forty-eight (48)
consecutive equal monthly installments of principal, each equal to 1/48th of the
outstanding principal balance of the Equipment Loan Note as of the Second Stage
Equipment Loan Conversion Date (plus interest in arrears), commencing on the
Second Stage Equipment Loan Conversion Date and continuing on the first day of
each and every month thereafter through and including the Second Stage Converted
Equipment Loan Maturity Date. Notwithstanding the foregoing, principal, accrued
and unpaid interest and any other amounts due hereunder or under the Second
Stage Converted Equipment Loan Note shall be due and payable in full on the
Second Stage Converted Equipment Loan Maturity Date.

 

(k) Third Stage Converted Equipment Loans. Unless the Revolving Loan is not
renewed or unless the Third Stage Converted Equipment Loan is sooner terminated
by Lender as a result of the occurrence of an Event of Default (including
without limitation the failure to pay the Revolving Note on its due date), the
Third Stage Converted Equipment Loans shall be due and payable in forty-eight
(48) consecutive equal monthly installments of principal, each equal to 1/48th
of the outstanding principal balance of the Equipment Loan Note as of the Third
Stage Equipment Loan Conversion Date (plus interest in arrears),

 

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commencing on the Third Stage Equipment Loan Conversion Date and continuing on
the first day of each and every month thereafter through and including the Third
Stage Equipment Loan Maturity Date. Notwithstanding the foregoing, principal,
accrued and unpaid interest and any other amounts due hereunder or under the
Third Stage Converted Equipment Loan Note shall be due and payable in full on
the Third Stage Equipment Loan Maturity Date.

 

(l) Fourth Stage Converted Equipment Loans. Unless sooner terminated by Lender
as a result of the occurrence of an Event of Default (including without
limitation the failure to pay the Revolving Note on its due date), the Fourth
Stage Converted Equipment Loans shall be due and payable in forty-eight (48)
consecutive equal monthly installments of principal, each equal to 1/48th of the
outstanding principal balance of the Equipment Loan Note as of the Fourth Stage
Equipment Loan Conversion Date (plus interest in arrears), commencing on the
Fourth Stage Equipment Loan Conversion Date and continuing on the first day of
each and every month thereafter through and including the Fourth Stage Equipment
Loan Maturity Date. Notwithstanding the foregoing, principal, accrued and unpaid
interest and any other amounts due hereunder or under the Fourth Stage Converted
Equipment Loan Note shall be due and payable in full on the Fourth Stage
Equipment Loan maturity Date.

 

(m) Fifth Stage Equipment Loans. Unless sooner terminated by Lender as a result
of the occurrence of an Event of Default (including without limitation the
failure to pay the Revolving Note on its due date) the Equipment Loan Note shall
be due and payable in full on the Fifth Stage Equipment Loan Maturity Date.

 

(n) Acquisition Loan. Unless sooner terminated by Lender as a result of the
occurrence of an Event of Default (including without limitation the failure to
pay the Revolving Note on its due date) the Acquisition Loan Note shall be due
and payable in full on the Acquisition Loan Maturity Date.

 

(o) Termination of Obligations. Upon full, final and indefeasible payment of the
Obligations to Lender, all rights and remedies of Borrower and Lender hereunder
shall cease, so long as any payment so made to Lender and applied to the
Obligations is not thereafter recovered from or repaid by Lender in whole or in
part in any bankruptcy, insolvency or similar proceeding instituted by or
against Borrower, whereupon this Agreement shall be automatically reinstated
without any further action by Borrower and Lender and shall continue to be fully

 

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applicable to such Obligations to the same extent as though the payment so
recovered or repaid had never been originally made on such Obligations.

 

ARTICLE XXI. Miscellaneous

 

Section 21.1. Indemnification.

 

(a) In consideration of Lender’s execution and delivery of this Agreement and
Lender’s making of the Loans hereunder and in addition to all other obligations
of Borrower under this Agreement, Borrower hereby agrees to defend, protect,
indemnify and hold harmless Lender, its successors, assigns, officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(individually, each an “Indemnitee” and collectively, the “Indemnitees”) from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages and expenses in connection therewith
(irrespective of whether any such Indemnitees is a party to any action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements as and when incurred (collectively, the “Indemnifiable
Liabilities”) incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to (i) the execution, delivery, performance or
enforcement of this Agreement and the other Financing Agreements and any
instrument, document or agreement executed pursuant hereto to any of the
Indemnitees; (ii) Lender’s status as lender to, or creditor of, Borrower; or
(iii) the operation of Borrower’s business from and after the date hereof,
including, without limitation, those arising under any Environmental Law. To the
extent that the foregoing undertaking by Borrower may be unenforceable for any
reason, Borrower shall make the maximum contribution to the payment and
satisfaction of each of the Indemnifiable Liabilities which is permissible under
applicable law.

 

(b) The Borrower hereby covenants and agrees at all times to indemnify, hold
harmless and defend the Indemnitees, whether as secured party in possession or
as successor in interest to Borrower as owner of any personal property assets
located on the real property of Borrower by virtue of any action taken by Lender
pursuant to the Financing Agreements, the Uniform Commercial Code (as in effect
in any applicable jurisdiction) or otherwise, from and against any and all
liabilities, losses, damages, costs, expenses, penalties, fines, causes of
actions, suits, claims, demands or judgments, including, without limitation,
attorneys’ fees and expenses, suffered or incurred in connection with: (i) the
Environmental Laws, including, without

 

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limitation, liens or claims of any federal, state or municipal government or
quasi-governmental agency or any third person, whether arising under any
Environmental Law or any other federal, state or municipal law or regulation;
(ii) any spill or contamination affecting the Premises or any other property
owned, leased, controlled or used by Borrower, including, without imitation, any
Hazardous Substance or other waste-like or toxic substances located on, under,
emanating from or relating to the Premises or such property from and on and
after the date hereof or any portion of any thereof or any property contiguous
to the Premises or such property from and after the date hereof, and including,
without limitation, any loss of value of the Premises or such property as a
result of any such spill or contamination; and (iii) the direct or indirect
installation, use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of any Hazardous Substance
on under or about the Premises or any other property owned, leased, controlled
or used by Borrower or any portion of any thereof, from and including all
consequential damages, the costs of any required or necessary repair, cleanup or
detoxification, and the costs of the preparation and implementation of any
closure, remedial or other required plans; provided, however, that Borrower
shall have no obligation to indemnify the Indemnitees under this Section 21.1(b)
for claims or losses resulting solely from the Indemnitees’ Parties own
negligent action while on the Premises or property of Borrower. Further, is
expressly agreed and understood that the mere fact that an Indemnitee has been
declared an “owner” or “operator” (as such term is defined in any Environmental
Law) resulting from such Indemnitee having taking possession of any of the
Collateral (without any negligence on the part of such Indemnitee) shall not
exonerate Borrower from any claim by such Indemnitee or any other Indemnitee
seeking indemnification.

 

Section 21.2. Payment Set-Aside. To the extent that Borrower makes a payment or
payments to Lender (whether hereunder, under the Notes, or under the other
Financing Agreements) or Lender enforces its security interests or rights or
exercises its right of setoff; and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to Borrower, a
trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action) in connection with any bankruptcy or similar proceeding
involving Borrower, then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

 

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Section 21.3. Set-off. The Borrower hereby grants to Lender a lien and right of
setoff for all its liabilities to Lender upon and against all its deposits,
credits, collateral and property now or hereafter in the possession or control
of Lender or in transit to Lender. Lender may, upon the occurrence of any Event
of Default or Defaulting Event or both, apply or exercise the right of set off
against any or all of the foregoing or any part of any thereof against any
liability of Borrower to Lender, regardless whether such liability is matured or
unmatured.

 

Section 21.4. Covenants to Survive; Binding Agreement. All covenants,
agreements, warranties and representations made herein, in the Notes, in the
other Financing Agreements, and in all certificates or other documents of
Borrower shall survive the advances of money made by Lender to Borrower
hereunder and the delivery of the Notes and the other Financing Agreements, and
all such covenants, agreements, warranties and representations shall be binding
upon and inure to the benefit of Lender and its successors and assigns, whether
or not so expressed.

 

Section 21.5. Cross-Collateralization. All Collateral which Lender may at any
time acquire from Borrower or from any other source in connection with
Obligations arising under this Agreement and the other Financing Agreements
shall constitute collateral for each and every Obligation, without apportionment
or designation as to particular Obligations and all Obligations, however and
whenever incurred, shall be secured by all Collateral however and whenever
acquired, and Lender shall have the right, in its sole discretion, to determine
the order in which Lender’s rights in or remedies against any Collateral are to
be exercised and which type of Collateral or which portions of Collateral are to
be proceeded against and the order of application of proceeds of Collateral as
against particular Obligations.

 

Section 21.6. Cross-Default. Borrower acknowledges and agrees that an Event of
Default and/or Defaulting Event under any one of the Financing Agreements shall
constitute an Event of Default or Defaulting Event under each of the other
Financing Agreements.

 

Section 21.7. Amendments and Waivers. Neither this Agreement, the Notes, the
other Financing Agreements, nor any term, covenant or condition hereof or
thereof may be changed, waived, discharged, modified or terminated except by a
writing executed by the parties hereto or thereto. No failure on the part of
Lender to exercise, and no delay in exercising, any right, remedy or power
hereunder or under the Notes or the other Financing Agreements shall preclude
any other or future exercise thereof, or the exercise of any other right remedy
or power.

 

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Section 21.8. Notices. All notices, requests, consents, demands and other
communications hereunder shall be in writing and shall be mailed by first class
mail to the respective parties to this Agreement to the address set forth in the
introductory sentence hereof.

 

Section 21.9. Transfer of Lender’s Interest. Borrower hereby agrees that Lender,
in its sole discretion, may freely sell, assign or otherwise transfer
participations, portions, co-lender interests or other interests in all or any
portion of the indebtedness, liabilities or obligations arising in connection
with or in any way related to the financing transactions of which this Agreement
is a part provided that such transferee is a recognized financial institution.
In the event of any such transfer, the transferee may, in Lender’s sole
discretion, have and enforce all the rights, remedies and privileges of Lender.
Borrower consents to the release by Lender to any potential transferee of any
and all information (including, without limitation, financial information)
pertaining to Borrower as Lender, in its sole discretion, may deem appropriate.
If such transferee so participates with Lender in making loans or advances
hereunder or under any other agreement between such Lender and Borrower,
Borrower hereby grants to such transferee and such transferee shall have and is
hereby given a continuing lien and security interest in any money, securities or
other property of Borrower in the custody or possession of such transferee,
including the right of setoff under circumstances consistent with this
Agreement, to the extent of such transferee’s participation in the Obligations
of Borrower to Lender.

 

Section 21.10. Waivers.

 

(a) THE BORROWER ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE COMMERCIAL
TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. THE BORROWER FURTHER WAIVES
DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND
NOTICE OF ANY RENEWALS OR EXTENSIONS.

 

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(b) THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE ENFORCEMENT
OF ANY OF LENDER’S RIGHTS, INCLUDING, WITHOUT LIMITATION, TORT CLAIMS. THE
BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT REPRESENTED TO BORROWER THAT
THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.

 

(c) THE BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN CLAUSE (a)
AND CLAUSE (b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.

 

Section 21.11. Section Headings; Severability; Entire Agreement. Section and
subsection headings have been inserted herein for convenience only and shall not
be construed as part of this Agreement. Every provision of this Agreement, the
Notes and the other Financing Agreements is intended to be severable; if any
term or provision of this Agreement, the Notes, the other Financing Agreements,
or any other document delivered in connection herewith shall be invalid, illegal
or unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not in any
way be affected or impaired thereby. All Exhibits and Schedules to this
Agreement shall be annexed hereto and shall be deemed to be part of this
Agreement. This Agreement, the other Financing Agreements, and the Exhibits and
Schedules attached hereto and thereto embody the entire agreement and
understanding between Borrower and Lender and supersede all prior agreements and
understandings relating to the subject matter hereof unless otherwise
specifically reaffirmed or restated herein.

 

Section 21.12. Governing Law, Notice and Service of Process, Pleadings and Other
Papers. This Agreement and the other Financing Agreements, and all transactions,
assignments and transfers hereunder and thereunder, and all the rights of the
parties, shall be governed as to validity, construction, enforcement and in all
other respects by the laws of the State of Connecticut (but not its conflicts of
law provisions). Borrower hereby designates and appoints, without power of
revocation, the Secretary of the State of the State of Connecticut as Borrower’s
agent upon whom may be served all process, pleadings, notices or other papers
which may be served upon it as a

 

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result of any of its Obligations under this Agreement or other Financing
Agreements. Borrower agrees that the Superior Court for the Judicial District of
Hartford/New Britain or the United States District Court for the District of
Connecticut shall have jurisdiction to hear and determine any claims or disputes
pertaining to the financing transactions of which this Agreement is a part
and/or to any matter arising or in any way related to this Agreement or any
other agreement between Lender and Borrower, and Borrower expressly submits and
consents in advance to such jurisdiction in any action or proceeding.

 

Section 21.13. Miscellaneous Provisions Regarding Borrower’s Documents.

 

(a) Lender acknowledges that, pursuant to Section 7(b) of the Amended and
Restated Asset Purchase Agreement, dated as of May 10, 1996, between Borrower
and Raychem Corporation, a Delaware corporation (“Raychem”), as amended (the
“Raychem Agreement”), Borrower is required (i) to keep books and records
relating to products which Borrower manufactures and which Raychem manufactured
prior to the Closing (as defined in the Raychem Agreement) for a period of seven
(7) years, and (ii) to maintain all documents purchased from Raychem under the
Raychem Agreement relating in any way to the matters subject to the lawsuit
entitled Intrinsic v. Raychem Corporation during the pendency of such litigation
(including all appeals thereof). In the event that Lender forecloses upon any
such books, records and/or documents at a time when the aforesaid requirements
are still in force, Lender agrees to take possession of such books, records
and/or documents, and/or to sell or otherwise convey such books, records and/or
documents, or cause such books, records and/or documents to be sold or otherwise
conveyed, subject to the aforesaid restrictions.

 

(b) Lender acknowledges that, pursuant to the definition of the term “Documents”
contained in Section 1 of the Raychem Agreement, Borrower may not have title to
certain documents in Borrower’s possession due to the inability of Raychem to
transfer such documents to Borrower without the prior written consent of various
third parties. Lender agrees and acknowledges that its lien upon Borrower’s
assets hereunder only covers documents to the extent that Borrower in fact has
any right, title and/or interest in and to the same, and that Lender will have
no more interest in any such documents upon an exercise of any of its
foreclosure or similar rights hereunder than Borrower currently has to such
documents. Borrower represents and warrants to Lender that the aforesaid
documents (i) do not relate to the Borrower’s accounts receivable, inventory
and/or machinery and equipment, and (ii) are not material to the Borrower’s
respective assets, businesses and/or prospects.

 

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

Section 21.14. Waiver. Without limiting the generality of the waivers contained
in this Agreement or in any other Financing Agreement, Borrower irrevocably
waives any right to claim that Lender is not dealing fairly with Borrower, or
for any other reason has any liability to Borrower, regardless of the status of
the business, financial condition, or prospects of Borrower, on account of
Lender taking action to repossess or collect upon the Collateral or otherwise to
collect the Obligations as a result of receiving a Put Notice from Connecticut
Innovations, Inc.

 

[SIGNATURE PAGES FOLLOW]

 

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

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

 

Witnesses:

      MEMRY CORPORATION /s/ Michele Saad       By:  

/s/ Robert P. Belcher

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

         

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

Michele Saad

         

Its: SVP & CFO

/s/ Kathleen M. Gavaghan            

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

           

Kathlees M. Gavaghan

           

Witnessed:

      WEBSTER BANK /s/ Martha L. Skinner       By  

/s/ Daniel C. Dupre

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

         

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

           

Its Authorized Signor

/s/ Adam MacLaughlin            

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

           

 

STATE OF CONNECTICUT    )           )   

ss. Bethel

COUNTY OF FAIRFIELD    )     

 

Before me, the undersigned, this 29th day of January, 2004, personally appeared
Robert P. Belcher, known to me to be the SVP & CFO of MEMRY CORPORATION and that
he as such officer, signer and sealer of the foregoing instrument, acknowledged
the execution of the same to be his free act and deed individually and as such
officer, and the free act and deed of said corporation.

 

In Witness Whereof; I hereunto set my hand.

 

/s/ Kathleen Ferris

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

Notary Public

My Commission Expires: December 31, 2007

Commissioner of the Superior Court

 

KATHLEEN FERRIS

NOTARY PUBLIC, STATE OF CONNECTICUT NO. 65478. QUALIFIED IN FAIRFIELD COUNTY
COMMISSION EXPIRES DECEMBER 31, 2007

 

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

STATE OF CONNECTICUT    )           )   

ss. Hartford

COUNTY OF HARTFORD    )     

 

Before me, the undersigned, this 30th day of January, 2004 personally appeared
Daniel C. Dupre, known to me to be the Authorized Signor of WEBSTER BANK, and
that he as such officer, signer and sealer of the foregoing instrument,
acknowledged the execution of the same to be his free act and deed individually
and as such officer, and the free act and deed of said corporation.

 

In Witness Whereof; I hereunto set my hand.

 

/s/ Martha L. Skinner

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

Notary Public

My Commission Expires:

Commissioner of the Superior Court

 

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

EXHIBIT A

 

THIRD AMENDED AND RESTATED REVOLVING LOAN NOTE

 

$5,000,000   January 30, 2004

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of up to FIVE MILLION DOLLARS ($5,000,000),
together with interest on the unpaid balance of this Note, beginning as of the
date hereof, before or after maturity or judgment, as provided for in the Loan
Agreement (as defined below), together with all taxes levied (excluding income
taxes) or assessed on this Note or the debt evidenced hereby against the Holder,
and together with all reasonable costs, expenses and reasonable attorneys’ and
other reasonable professional fees incurred in any action to collect this Note
or to enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 2.2 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement of even date herewith by and between Maker and Lender (as
amended and in effect from time to time, the “Loan Agreement”), and is entitled
to the benefits and is subject to the provisions of the Loan Agreement. All
capitalized terms used herein which are defined in the Loan Agreement that are
not defined herein shall have the same meanings herein as are ascribed to them
in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Revolving Loans until all amounts payable under the Loan Agreement are
paid in full, at the rates per annum set forth in or established pursuant to the
Loan Agreement. Such interest shall be payable on such dates as are determined
from time to time pursuant to the Loan Agreement and shall be calculated as
therein provided. Notwithstanding anything to the contrary, the entire
indebtedness under this Note, including but not limited to, all outstanding
principal and accrued and unpaid interest shall be due and payable in full on
January 30, 2009.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDERS’ RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS

 

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

ATTORNEYS. THE MAKER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR
REPRESENTED TO MAKER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note hereby amends and restates a certain Second Amended and Restated
Revolving Loan Note dated December 27, 2001, in the original principal amount of
up to $5,000,000 executed and delivered by the Maker to the Lender.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT B

 

FORM OF ACQUISITION LOAN NOTE

 

[$        ]    As of [            ]

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of up to [            ], together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before or after maturity or judgment, as provided for in the Loan Agreement (as
defined below), together with all taxes levied (excluding income taxes) or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys’ and other
reasonable professional fees incurred in any action to collect this Note or to
enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 3.2 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of January     , 2004 by and between Maker and
Lender (as amended and in effect from time to time, the “Loan Agreement”), and
is entitled to the benefits and is subject to the provisions of the Loan
Agreement. All capitalized terms used herein which are defined in the Loan
Agreement that are not defined herein shall have the same meanings herein as are
ascribed to them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Acquisition Loans until all amounts payable under the Loan Agreement are
paid in full, at the rates per annum set forth in or established pursuant to the
Loan Agreement. Such interest shall be payable on such dates as are determined
from time to time pursuant to the Loan Agreement and shall be calculated as
therein provided. Notwithstanding anything to the contrary, the entire
indebtedness under this Note, including but not limited to, all outstanding
principal and accrued and unpaid interest shall be due and payable in full on
[        ].

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND

 

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

ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
THE MAKER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO
MAKER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT C

 

SECOND CONSOLIDATED AND AMENDED

AND RESTATED TERM LOAN NOTE

 

$1,574,000    January 30, 2004

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of ONE MILLION FIVE HUNDRED SEVENTY FOUR
THOUSAND DOLLARS ($1,574,000), together with interest on the unpaid balance of
this Note, beginning as of the date hereof, before or after maturity or
judgment, as provided for in the Loan Agreement (as defined below), together
with all taxes levied (excluding income taxes) or assessed on this Note or the
debt evidenced hereby against the Holder, and together with all reasonable
costs, expenses and reasonable attorneys’ and other reasonable professional fees
incurred in any action to collect this Note or to enforce or foreclose any
mortgage, security agreement or other agreement securing this Note or to protect
or sustain the lien of said mortgage, security agreement or other agreement or
in any litigation or controversy arising from or connected with said mortgage,
security agreement or other agreement or this Note.

 

This Note is made and delivered by Maker pursuant to Section 4.1 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated of even date herewith by and between Maker and Lender
(as amended and in effect from time to time, the “Loan Agreement”), and is
entitled to the benefits and is subject to the provisions of the Loan Agreement.
All capitalized terms used herein which are defined in the Loan Agreement that
are not defined herein shall have the same meanings herein as are ascribed to
them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Term Loan until all amounts payable under the Loan Agreement are paid in
full, at the rates per annum set forth in or established pursuant to the Loan
Agreement. Such interest shall be payable on such dates as are determined from
time to time pursuant to the Loan Agreement and shall be calculated as therein
provided. Notwithstanding anything to the contrary, the entire indebtedness
under this Note, including but not limited to, all outstanding principal and
accrued and unpaid interest shall be due and payable in full on January 30,
2009.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND

 

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

ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
THE MAKER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO
MAKER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note consolidates and amends and restates the following: (i) a certain
Consolidated and Amended and Restated Term Loan Note dated December 27, 2001 in
the original principal amount of $2,000,000 executed and delivered by the Maker
to the Lender, (ii) a certain Subsequent Converted Equipment Loan Note dated
December 31, 2002 in the original principal amount of $250,000 executed and
delivered by the Maker to the Lender.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT D

 

AMENDED AND RESTATED EQUIPMENT LOAN NOTE

 

$1,000,000    January 30, 2004

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of up to ONE MILLION DOLLARS ($1,000,000),
together with interest on the unpaid balance of this Note, beginning as of the
date hereof, before or after maturity or judgment, as provided for in the Loan
Agreement (as defined below), together with all taxes levied (excluding income
taxes) or assessed on this Note or the debt evidenced hereby against the Holder,
and together with all reasonable costs, expenses and reasonable attorneys’ and
other reasonable professional fees incurred in any action to collect this Note
or to enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 5.2 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of even date herewith by and between Maker and
Lender (as amended and in effect from time to time, the “Loan Agreement”), and
is entitled to the benefits and is subject to the provisions of the Loan
Agreement. All capitalized terms used herein which are defined in the Loan
Agreement that are not defined herein shall have the same meanings herein as are
ascribed to them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Equipment Loans until all amounts payable under the Loan Agreement are
paid in full, at the rates per annum set forth in or established pursuant to the
Loan Agreement. Such interest shall be payable on such dates as are determined
from time to time pursuant to the Loan Agreement and shall be calculated as
therein provided. Notwithstanding anything to the contrary, the entire
indebtedness under this Note, including but not limited to, all outstanding
principal and accrued and unpaid interest shall be due and payable in full on
January 30, 2009.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES

 

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

THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note amends and restates a certain Equipment Loan Note dated as of January
1, 2002 in the original principal amount of up to $1,000,000 executed and
delivered by the Maker to the Lender.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT E

 

FORM OF FIRST STAGE CONVERTED EQUIPMENT LOAN NOTE

 

[$        ]    [            ]

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of [$                 ], together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before or after maturity or judgment, as provided for in the Loan Agreement (as
defined below), together with all taxes levied (excluding income taxes) or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys’ and other
reasonable professional fees incurred in any action to collect this Note or to
enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 5.5 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of January 30, 2004 by and between Maker and Lender
(as amended and in effect from time to time, the “Loan Agreement”), and is
entitled to the benefits and is subject to the provisions of the Loan Agreement.
All capitalized terms used herein which are defined in the Loan Agreement that
are not defined herein shall have the same meanings herein as are ascribed to
them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the First Stage Converted Equipment Loan until all amounts payable under the
Loan Agreement are paid in full, at the rates per annum set forth in or
established pursuant to the Loan Agreement. Such interest shall be payable on
such dates as are determined from time to time pursuant to the Loan Agreement
and shall be calculated as therein provided. Notwithstanding anything to the
contrary, the entire indebtedness under this Note, including but not limited to,
all outstanding principal and accrued and unpaid interest shall be due and
payable in full on January 30, 2009.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES

 

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

THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT F

 

FORM OF SECOND STAGE CONVERTED EQUIPMENT LOAN NOTE

 

[$        ]    [            ]

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of [$                 ], together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before or after maturity or judgment, as provided for in the Loan Agreement (as
defined below), together with all taxes levied (excluding income taxes) or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys’ and other
reasonable professional fees incurred in any action to collect this Note or to
enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 6.5 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of January 30, 2004 by and between Maker and Lender
(as amended and in effect from time to time, the “Loan Agreement”), and is
entitled to the benefits and is subject to the provisions of the Loan Agreement.
All capitalized terms used herein which are defined in the Loan Agreement that
are not defined herein shall have the same meanings herein as are ascribed to
them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Second Stage Converted Equipment Loan until all amounts payable under the
Loan Agreement are paid in full, at the rates per annum set forth in or
established pursuant to the Loan Agreement. Such interest shall be payable on
such dates as are determined from time to time pursuant to the Loan Agreement
and shall be calculated as therein provided. Notwithstanding anything to the
contrary, the entire indebtedness under this Note, including but not limited to,
all outstanding principal and accrued and unpaid interest shall be due and
payable in full on January 30, 2010.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES

 

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

THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT G

 

FORM OF THIRD STAGE CONVERTED EQUIPMENT LOAN NOTE

 

[$        ]    [            ]

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of [$                ], together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before or after maturity or judgment, as provided for in the Loan Agreement (as
defined below), together with all taxes levied (excluding income taxes) or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys’ and other
reasonable professional fees incurred in any action to collect this Note or to
enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 7.5 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of January 30, 2004 by and between Maker and Lender
(as amended and in effect from time to time, the “Loan Agreement”), and is
entitled to the benefits and is subject to the provisions of the Loan Agreement.
All capitalized terms used herein which are defined in the Loan Agreement that
are not defined herein shall have the same meanings herein as are ascribed to
them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Third Stage Converted Equipment Loan until all amounts payable under the
Loan Agreement are paid in full, at the rates per annum set forth in or
established pursuant to the Loan Agreement. Such interest shall be payable on
such dates as are determined from time to time pursuant to the Loan Agreement
and shall be calculated as therein provided. Notwithstanding anything to the
contrary, the entire indebtedness under this Note, including but not limited to,
all outstanding principal and accrued and unpaid interest shall be due and
payable in full on January 30, 2011.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES

 

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

THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

EXHIBIT H

 

FORM OF FOURTH STAGE CONVERTED EQUIPMENT LOAN NOTE

 

[$        ]    [            ]

 

For value received, the undersigned, MEMRY CORPORATION, a Delaware corporation
(“Maker”), promises to pay to WEBSTER BANK, or order (“Lender”), at its office
at CityPlace II, 5th Floor, HFD 605, Hartford, Connecticut 06103-3439, or at
such other place as the holder hereof (including Lender, hereinafter referred to
as “Holder”) may designate, the sum of [$                 ], together with
interest on the unpaid balance of this Note, beginning as of the date hereof,
before or after maturity or judgment, as provided for in the Loan Agreement (as
defined below), together with all taxes levied (excluding income taxes) or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys’ and other
reasonable professional fees incurred in any action to collect this Note or to
enforce or foreclose any mortgage, security agreement or other agreement
securing this Note or to protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement or other agreement or this
Note.

 

This Note is made and delivered by Maker pursuant to Section 8.5 of the Second
Amended and Restated Commercial Revolving Loan, Term Loan, Line of Credit and
Security Agreement dated as of January 30, 2004 by and between Maker and Lender
(as amended and in effect from time to time, the “Loan Agreement”), and is
entitled to the benefits and is subject to the provisions of the Loan Agreement.
All capitalized terms used herein which are defined in the Loan Agreement that
are not defined herein shall have the same meanings herein as are ascribed to
them in the Loan Agreement.

 

The Maker also promises to pay interest on the aggregate unpaid principal amount
of the Fourth Stage Converted Equipment Loan until all amounts payable under the
Loan Agreement are paid in full, at the rates per annum set forth in or
established pursuant to the Loan Agreement. Such interest shall be payable on
such dates as are determined from time to time pursuant to the Loan Agreement
and shall be calculated as therein provided. Notwithstanding anything to the
contrary, the entire indebtedness under this Note, including but not limited to,
all outstanding principal and accrued and unpaid interest shall be due and
payable in full on January 30, 2012.

 

The Maker has the right in certain circumstances to prepay the principal of this
Note on the terms and conditions specified in the Loan Agreement.

 

If an Event of Default shall occur, the entire unpaid principal amount of this
Note, all of the unpaid interest accrued thereon and any other sum due hereunder
may become or be declared due and payable in the manner and with the effect
provided in the Loan Agreement.

 

THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER’S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THE MAKER ACKNOWLEDGES

 

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

THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF
THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations, and further consents to the release
of all or any part of the security for the payment hereof, at the discretion of
Holder, or the release of any party liable for this obligation without affecting
the liability of the other parties hereto. The Maker further (i) consents to any
and all delays, extensions, renewals or other modifications of this Note, any
other Financing Agreements or the debts or collateral evidenced hereby or
thereby or any waivers of any term hereof or thereof, any release, surrender,
taking of additional, substitution, exchange, failure to perfect or record any
interest in, failure to preserve or realize upon, failure to lawfully dispose
of, or any other impairment of, any collateral or other security, or any other
failure to act by the Lender or any other forbearance or indulgence shown by the
Lender, from time to time and in one or more instances (without notice to or
assent from the Maker) and agrees that none of the foregoing shall release,
discharge or otherwise impair any of their liabilities; and (ii) waives any
defenses based on suretyship or impairment of collateral. THE MAKER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

 

This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut (but not its conflicts of law provisions).

 

MEMRY CORPORATION By:        

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

   

Its

 

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

Schedule 12.1(g) – Litigation

 

None.

 

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

Schedule 12.1(k) — Adverse Developments

 

None.

 

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

Schedule 12.1(l) – Title to Assets

 

1. The following liens and encumbrances against Borrower evidenced by UCC
filings with the California Secretary of State:

 

a. Secured Party: Advance Acceptance Corporation, Collateral: Autoscrubber,
Filing no. 9926060752.

 

b. Secured Party: Norwest Financial Leasing Inc, Collateral: Copier, Filing no.
0001160112.

 

c. Secured Party: General Electric Capital Corporation, Collateral: Three
Lasers, Filing no. 0013360321.

 

d. Secured Party: Norwest Financial Leasing Inc., Collateral: Copier, Filing no.
0018260694.

 

e. Secured Party: General Electric Capital Corporation, Collateral: Laser
Cutting System, Filing no. 0020960172.

 

f. Secured Party: General Electric Capital Corporation, Collateral: Laser
Cutting System, Filing no. 0023760014.

 

g. Secured Party: Wells Fargo Financial Leasing, Inc., Collateral: Copier,
Filing no. 00215860053.

 

2. The following liens and encumbrances against Borrower evidenced by UCC
filings with the Connecticut Secretary of State:

 

a. Secured Party: General Electric Capital Corporation, Collateral: Lasers,
Filing no. 1993700.

 

b. Secured Party: General Electric Capital Corporation, Collateral: Laser
Cutting System, Filing no. 2012014.

 

c. Secured Party: General Electric Capital Corporation, Collateral: Laser
Cutting System, Filing no. 2017445.

 

d. Secured Party: General Electric Capital Corporation, Collateral: Office
Furniture, Filing no. 2060470.

 

e. Secured Party: General Electric Capital Corporation, Collateral: Phone
System, Filing no. 2060471.

 

f. Secured Party: General Electric Capital Corporation, Collateral: Office
Furniture, Filing no. 2060479.

 

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

Schedule 12.1(n) – Compliance

 

The Borrower is in default of its obligation to pay Chrysler Canada Limited
(“CCL”) and its pension funds unpaid interest on a $1,500,000 promissory note,
the principal of which was repaid over eight years ago. The Borrower is carrying
$162,112.12 on its books with respect to this obligation, but has not paid said
amount to CCL because CCL failed to respond to an offer by Borrower to repay
said amount in return for a release. CCL may believe it is owed interest on this
interest or other amounts, but has not contacted Borrower on this matter for
approximately eight years.

 

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

Schedule 12.1(p) – Pension Plans

 

401(k) Plan - currently with Merrill Lynch - also see Schedule 12.1(q) below.

 

Stock Plan - also see Schedule 12.1(q) below.

 

Medical Plan - currently with Anthem B/C and B/S Century Preferred

 

Dental Plan - currently with Guardian Life Insurance

 

Vision Plan - currently with Guardian Life Insurance

 

Section 125 Plan - currently with Guardian Life Insurance

 

Life Insurance Plan - currently with Guardian Life Insurance

 

Supplemental Life Insurance Plan - currently with Guardian Life Insurance

 

AD&D Plan - currently with Guardian Life Insurance

 

Short Term Disability Plan - currently with Guardian Life Insurance

 

Long Term Disability Plan - currently with Guardian Life Insurance

 

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

Schedule 12.1(q) — Deferred Compensation Arrangements

 

Borrower has two stock option plans in place, and has numerous stock option
agreements covering options issued under said plans. Borrower has also issued a
de minimus amount of stock appreciation rights under the earlier of said plans.

 

Borrower has a 401(k) plan.

 

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

Schedule 12.1(r) – Chief Executive Office

 

Borrower’s chief executive office is at 3 Berkshire Blvd., Bethel, CT 06801.

 

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

Schedule 12.1(s) — Places of Business

 

Reference is made to Schedule 12.1(r) for Borrower’s chief executive office.

 

Borrower’s only other places of business are at:

 

  a. 4065 Campbell Ave., Menlo Park, CA 94025, and

 

  b. 4020 Campbell Ave., Menlo Park, CA 94025.

 

Borrower’s inventory is from time to time located at its customers’ facilities.
Borrower also keeps equipment and files not being used, and small amounts of
inventory, at offsite locations in each of Bethel and Menlo Park.

 

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

Schedule 12.1(x) – Collateral

 

Reference is made to Section 12.1(l) of the Loan Agreement and Schedule 12.1(l).

 

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

Schedule 12.1(y) – Tradenames

 

None.

 

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

Schedule 12.1(aa) – Parent or Subsidiary Corporations

 

None (except Subsidiaries with no current or anticipated material assets or
activities).

 

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

Schedule 14.14 — Place of Business; Location of Collateral

 

Reference is made to Schedule 12.1(s).

 

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

Schedule 14.21 — Indebtedness

 

Indebtedness to equipment suppliers relating to the financing statements set
forth on Schedule 12.1(l).

 

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

Schedule 14.24 — Loans, Advances, Investments

 

On June 30, 1998, Borrower was issued a $325,000 promissory note by Automation
Electronics, Inc., a Wisconsin corporation (“AEI”), in connection with the sale
by Borrower of the UltraValve® product line. The debt evidenced by this note has
since been written-off by Borrower, but Borrower still holds the note.

 

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

Schedule 14.26 — Sale and Lease of Assets

 

None.

 

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

Schedule 15.1 – Tangible Assets

 

None.