EXHIBIT
      10.1

    


    RBS
      CITIZENS, N.A.

    LOAN
      AND
      SECURITY AGREEMENT

     

    PREAMBLE.
      This Loan and Security Agreement is entered into June 30, 2008 by and between
      iCAD, INC., a Delaware corporation with a principal place of business at 98
      Spit
      Brook Road, Nashua, New Hampshire 03062 (the “Borrower”), and RBS CITIZENS,
      N.A., a national banking association with a banking office at 53 State Street,
      Boston, Massachusetts 02109 (the Bank”). Capitalized terms used herein shall
      have the meanings ascribed to them in this Agreement, or if not defined herein,
      in the other Loan Documents (as defined herein).

     

    1. SECURITY
      INTEREST. The Borrower, for valuable consideration, receipt whereof is hereby
      acknowledged, hereby grants to the Bank, as secured party hereunder, a
      continuing security interest in and to, and assigns to Bank, all assets of
      the
      Borrower (other than Intellectual Property Rights as defined hereinafter),
      wherever located and whether now owned or hereafter acquired, including, without
      limitation, the following:

    


    (a) all
      inventory, including all goods, merchandise, raw materials and work in process,
      finished goods, and other tangible personal property now owned or hereafter
      acquired and held for sale or lease or furnished or to be furnished under
      contracts of service or used or consumed in Borrower’s business (all hereinafter
      called the “Inventory”);

    


    (b) all
      accounts (as defined in Article 9 of the Uniform Commercial Code, hereinafter
      “Accounts”), contracts, contract rights, notes, bills, drafts, acceptances,
      general intangibles (including without limitation customer lists, goodwill,
      computer programs, computer records, computer software, computer data, ledger
      sheets, files, records, data processing records relating to any Accounts and
      all
      tax refunds of every kind and nature to which Borrower is now or hereafter
      may
      become entitled to, no matter how arising, (but excluding Intellectual Property
      Rights), instruments, documents, chattel paper (whether tangible or electronic)
      deposit accounts, cash, letter of credit rights (whether or not the letter
      of
      credit is evidenced by a writing), securities, security entitlements, security
      accounts, investment property, supporting obligations, choses in action,
      commercial tort claims, and all other debts, obligations and liabilities in
      whatever form, owing to Borrower from any person, firm or corporation or any
      other legal entity, whether now existing or hereafter arising, now or hereafter
      received by or belonging or owing to Borrower, for goods sold by it or for
      services rendered by it, or however otherwise same may have been established
      or
      created, all guarantees and securities therefor, all right, title and interest
      of Borrower in the merchandise or services which gave rise thereto, including
      the rights of reclamation and stoppage in transit, all rights to replevy goods,
      and all rights of an unpaid seller of merchandise or services (all hereinafter
      called the “Receivables”);

    


    (c) all
      machinery, equipment, fixtures and other goods (as defined in Article 9 of
      the
      Uniform Commercial Code) whether now owned or hereafter acquired by the Borrower
      and wherever located, all replacements and substitutions therefor or accessions
      thereto and all proceeds thereof (all hereinafter called the “Equipment”);
      and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d) all
      proceeds and products of all of the foregoing in any form, including, without
      limitation, all proceeds of credit, fire or other insurance, and also including,
      without limitation, rents and profits resulting from the temporary use of any
      of
      the foregoing (which, with Inventory, Receivables and Equipment are all
      hereinafter called “Collateral”).

    


    Notwithstanding
      anything contained in this Section 1 to the contrary, the Borrower is not hereby
      granting to Bank a security interest in and to Intellectual Property Rights.
      For
      purposes of this Agreement, “Intellectual Property Rights” shall mean any and
      all intellectual property rights and industrial property rights arising under
      statutory or common law, contract or otherwise, and whether or not perfected,
      including all: (a) patents and patent applications and all patent applications
      hereafter filed, including any continuation, continuation-in-part, division,
      provisional or any substitute applications, any patent issued with respect
      to
      such patent applications, any reissue, reexamination, renewal or extension
      (including any supplemental patent certificate) of any such patent, and any
      confirmation patent or registration patent or patent of addition based upon
      any
      such patent, and all foreign counterparts of any of the foregoing, (b) rights
      associated with works of authorship, including copyrights, moral rights,
      copyright applications, copyright registrations, and rights to prepare
      derivative works, (c) rights relating to trade secrets and confidential
      information, (d) rights in trademarks, trademark applications, service marks,
      service mark applications, trade names. Logos, symbols and the like, including
      all goodwill therein; (e) divisions, continuations, renewals, reissues and
      extensions of the foregoing (and to the extent applicable) now existing,
      hereafter filed, issued or acquired; and (f) rights analogous to those set
      forth
      in this “Intellectual Property Rights” definition and in any and all proprietary
      rights relating to the foregoing in any jurisdiction throughout the world,
      including all rights to sue for past present and future
      infringement.

    


    2. OBLIGATIONS
      SECURED. The security interest granted hereby is to secure payment and
      performance of all debts, liabilities and obligations of Borrower to Bank under
      this Agreement, the Note, and any other documents, instruments and agreements
      executed and or delivered in connection with this Agreement (as amended,
      restated, supplemented or modified from time to time, the “Loan Documents”),
      including without limitation thereof, any obligations which may arise out of
      any
      Letter of Credit or similar instrument or obligation issued or caused to be
      issued for the account of Borrower under this Agreement or a related Application
      and Agreement for Letter of Credit (all hereinafter called
“Obligations”).

    


    3. BORROWER’S
      PLACES OF BUSINESS, INVENTORY LOCATIONS AND RETURNS POLICY. Borrower warrants
      that Borrower has no places of business other than that recited in the Preamble
      to this Agreement, unless other places of business are listed on Schedule
      “A”,
      annexed
      hereto, in which event Borrower represents that it has additional places of
      business at those locations set forth on Schedule
      “A”.

    


    Borrower’s
      principal executive office and the office where Borrower keeps its records
      concerning its accounts, contract rights and other property, is that shown
      at
      the end of this Agreement. All Inventory presently owned by Borrower is stored
      at the locations set forth on Schedule
      “A”.

    


    Borrower
      will promptly notify Bank in writing of any change in the location of any place
      of business or the location of any Inventory or the establishment of any new
      place of business or location of Inventory or office where its records are
      kept
      which would be shown in this Agreement if it were executed after such
      change.

     

    
      
        
        

      

      
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    Borrower
      represents and warrants that it has described its returns policy in writing
      to
      Bank (and annexed hereto as Schedule
      B)
      and
      that it does now, and will continue to, apply such policy consistently in the
      conduct of its business and agrees that it shall notify Bank in writing before
      changing its policy or the application thereof in any material
      respect.

    


    4. BORROWER’S
      ADDITIONAL REPRESENTATIONS AND WARRANTIES. 

    


    Borrower
      represents and warrants that:

    


    (a) Borrower
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of the State of Delaware and shall hereafter remain in good standing as
      a
      corporation in that state, and is duly qualified and in good standing in New
      Hampshire and in every other state in which it is doing business, and shall
      hereafter remain duly qualified and in good standing in every other state in
      which the failure to qualify or become licensed could have a material adverse
      effect on the financial condition, business or operations of the
      Borrower.

    


    (b) Borrower’s
      exact legal name is iCAD, Inc.

    


    (c) The
      organizational identification number of the Borrower is as set forth on
Schedule
      “C”
annexed
      hereto.

    


    (d) The
      execution, delivery and performance of this Agreement, and any other document
      executed in connection herewith, are within the Borrower’s corporate powers,
      have been duly authorized, are not in contravention of law or the terms of
      the
      Borrower’s charter, by-laws or other incorporation papers, or of any indenture,
      agreement or undertaking to which the Borrower is a party or by which it or
      any
      of its properties may be bound.

    


    (e) The
      Articles of Organization and all amendments thereto of Borrower have been duly
      filed and are in proper order. All capital stock issued by Borrower and
      outstanding was and is properly issued and all books and records of Borrower,
      including but not limited to its minute books, by-laws and books of account,
      are
      accurate and up to date and will be so maintained.

    


    (f) Borrower
      owns or has rights to (as applicable) all of the assets reflected in the most
      recent of Borrower’s financial statements provided to Bank, except assets sold
      or otherwise disposed of in the ordinary course of business since the date
      thereof, and such assets together with any assets acquired since such date,
      including without limitation the Collateral, are free and clear of any lien,
      pledge, security interest, charge, mortgage or encumbrance of any nature
      whatsoever, except the Permitted Encumbrances.

    


    (g) Except
      as
      disclosed in any filing with the Securities and Exchange Commission (the “SEC”),
      Borrower has made or filed all tax returns, reports and declarations relating
      to
      any material tax liability required by any jurisdiction to which it is subject
      (any tax liability which may result in a lien on any Collateral being hereby
      deemed material); has paid all taxes shown or determined to be due thereon
      except those being contested in good faith, by appropriate proceedings and
      which
      Borrower has, in accordance with generally accepted accounting principles
      (“GAAP”) established a reserve for the payment thereof (a “Payment
      Reserve”).

     

    
      
        
        

      

      
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    (h) Borrower
      (i) is subject to no charter, corporate or other legal restriction, or any
      judgment, award, decree, order, governmental rule or regulation or contractual
      restriction which could have a material adverse effect on its financial
      condition or business, and (ii) is in compliance with its charter documents
      and
      by-laws, all contractual requirements by which it or any of its properties
      may
      be bound and all applicable laws, rules and regulations (including without
      limitation those relating to environmental protection) other than laws, rules
      or
      regulations or provision of any of the foregoing, the failure to comply with
      which cannot reasonably be expected to materially adversely affect its financial
      condition or business, or the value of any material part of the
      Collateral.

    


    (i) There
      is
      no action, suit, proceeding or investigation pending or, to Borrower’s
      knowledge, threatened against or affecting it or any of its assets before or
      by
      any court or other governmental authority which, if determined adversely to
      it,
      would have a material adverse effect on its financial condition or business
      or
      the value of any material part of the Collateral.

     

    (j) Borrower
      is in compliance with ERISA; no Reportable Event has occurred and is continuing
      with respect to any Plan; and it has no unfunded vested liability under any
      Plan. The word “Plan” as used in this Agreement means any employee plan subject
      to Title IV of the Employee Retirement Income Security Act of 1974 (“ERISA”)
      maintained for employees of Borrower, any subsidiary of Borrower or any other
      trade or business under common control with Borrower within the meaning of
      Section 414(c) of the Internal Revenue Code of 1986 or any regulations
      thereunder.

    


    (k)
      Borrower has issued certain Convertible Notes pursuant to Note Purchase
      Agreements dated June 20, 2006 and September 19, 2006 (the “Convertible Notes”)
      to those persons described in Schedule
      D
      hereto
      (the “Convertible Noteholders”). The Borrower shall cause each of the
      Convertible Noteholders to: (i) subordinate the Convertible Notes to the
      Obligations as a condition to the Bank’s undertakings hereunder, and (ii)
      convert the Convertible Notes to capital stock of the Borrower on or before
      October 15, 2008.

    


    (l)
      Annexed as Schedule
      E
      hereto
      is a listing of all of the Borrower’s subsidiaries as of the date of this
      Agreement, together with a summary of the capital stock of each of such
      subsidiaries. 

    


    5. LOANS
      AND
      OTHER FINANCIAL ACCOMMODATIONS.

    


    (a) From
      time
      to time upon Borrower’s request, so long as the sum of the aggregate principal
      amount of all loans outstanding and the requested loan does not exceed the
      lesser of (i) the Borrowing Base, or (ii) the Credit Limit, Bank shall make
      such
      requested loan, provided that there has not occurred an Event of Default or
      an
      event which, with giving of notice or the passage of time or both, would
      constitute an Event of Default (a “Default”). At any time that Borrower is in
      compliance with the Special Conditions (as defined below), Borrower shall not
      be
      subject to a restriction as to availability of credit based upon the Borrowing
      Base. The “Special Conditions” are as follows: (x) Borrower’s Adjusted EBITDA
      (as defined in Section 15(b)) for the most recently completed fiscal quarter
      was
      greater than or equal to $1,250,000.00, (y) the Total Funded Debt to Adjusted
      EBITDA Ratio as of such fiscal quarter was not less than 1.50:1.0, and (z)
      there
      is no continuing Default or Event of Default at the time of the loan request.
      The “Total Funded Debt to Adjusted EBITDA” ratio as of any fiscal quarter shall
      mean the ratio of Borrower’s Funded Debt as of the last day of such fiscal
      quarter (excluding, for the period from the date hereof through and including
      October 15, 2008 only, Convertible Notes subordinated to the Obligations) to
      its
      Adjusted EBITDA for the trailing twelve months ending on the last day of such
      fiscal quarter; provided that for the purpose of calculating the Total Funded
      Debt to Adjusted EBITDA ratio for the fiscal quarter ended June 30, 2008,
      Adjusted EBITDA shall mean EBITDA for the trailing 6 months times 2. “Funded
      Debt” means, at any time, the outstanding amount of all indebtedness incurred on
      account of borrowed money (including issued and outstanding Letters of Credit)
      at such time.

     

    
      
        
        

      

      
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    (b) All
      loans
      shall bear interest and at the option of the Bank shall be evidenced by and
      repayable in accordance with a revolving note drawn to the order of Bank
      substantially the form of Exhibit
      1
      hereto
      (the “Note”), as the same may hereafter be amended, supplemented or restated
      from time to time and any note or notes issued in substitution therefor, but
      in
      the absence of the Note shall be conclusively evidenced by Bank’s records of
      loans and repayments. 

    


    Interest
      with respect to Prime Rate Loans (as defined in Rider
      A
      to the
      Note), will be charged to Borrower at a fluctuating rate which is the daily
      equivalent to a rate equal to the aggregate of the Prime Rate (as defined in
      Rider
      A
      to the
      Note), and one-half (0.50%) percent per annum, upon any balance owing to Bank
      at
      the close of each day and shall be payable (i) on the first day of each month
      in
      arrears; (ii) on termination of this Agreement pursuant to Section 21 hereof;
      (iii) on acceleration of the time for payment of the Obligations pursuant to
      Section 16 hereof; and (iv) on the date the Obligations are paid in full. The
      rate of interest payable by Borrower shall be changed effective as of that
      date
      in which a change in the Prime Rate becomes effective. 

    


    Interest
      with respect to LIBOR Rate Loans (as defined in Rider
      A
      to the
      Note) will be charged to Borrower at a rate which is the equivalent to the
      Adjusted LIBOR Rate (as defined in Rider
      A
      to the
      Note) plus the LIBOR Rate Margin (as defined in Rider
      A
      to the
      Note), upon any balance owing to the Bank at the close of each day and shall
      be
      payable on the Interest Payment Date (as defined in Rider
      A
      to the
      Note).

    


    All
      payments hereunder shall be made in lawful money of the United States of America
      to Bank, or as Bank directs, without set-off, counterclaim or
      deduction.

    


    (c) The
      term
“Borrowing Base” as used herein shall mean the sum of the
      following:

    


    (i) Eighty
      (80.0%) percent of the unpaid face amount of Qualified Accounts, PLUS


    


    (ii) One
      hundred (100.0%) percent of Borrower’s cash (representing collected funds) on
      deposit with the Bank; MINUS

    


    (iii) one
      hundred (100.0%) percent of the aggregate amount then undrawn on all Letters
      of
      Credit issued pursuant to this Agreement for the account of the
      Borrower;

    


    but
      in no
      event shall the sum of all loans plus the sum of the aggregate amount undrawn
      on
      all Letters of Credit and acceptances be in excess of the Credit
      Limit.

     

    
      
        
        

      

      
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    As
      used
      in this Agreement, the term “Commercial Letters of Credit” shall mean a letter
      of credit issued to support the purchase by Borrower of Inventory prior to
      its
      transport to one of Borrower’s places of business that provides that all draws
      thereunder must require presentation of customary documentation in form and
      substance satisfactory to Bank and reflecting passage to Borrower of title
      to
      first quality Inventory conforming to Borrower’s contract with the seller
      thereof.

    


    (d) The
      term
“Credit Limit” as used herein shall mean an amount equal to Five Million and
      00/100 ($5,000,000.00) Dollars, and the term “Letter of Credit Sublimit” shall
      mean a portion of the Credit Limit in an amount equal to One Million and 00/100
      ($1,000,000.00) Dollars.

    


    (e) Borrower
      hereby authorizes and directs Bank, in Bank’s sole discretion (provided,
      however, Bank shall have no obligation to do so): (i) to pay accrued interest
      as
      the same becomes due and payable pursuant to this Agreement, and to treat the
      same as a loan to Borrower, which shall be added to Borrower’s loan balance
      pursuant to this Agreement; and (ii) to charge any of Borrower’s accounts under
      the control of Bank for any payments due under this Agreement. Bank shall
      promptly notify Borrower of any such charges or applications.

    


    (f) The
      Borrowing Base formula set forth above is intended solely for monitoring
      purposes. The making of loans, advances, and credits by Bank to the Borrower
      in
      excess of the above described Borrowing Base formula is for the benefit of
      the
      Borrower and does not affect the Obligations of Borrower hereunder; all such
      loans constitute Obligations and must be repaid by Borrower in accordance with
      the terms of this Agreement.

    


    (g) At
      the
      request of the Borrower, and upon the execution of letter of credit
      documentation satisfactory to Bank, Bank, within the limits of the Borrowing
      Base, as then computed and also within the limits of the Credit Limit and Letter
      of Credit Sublimit as then computed, shall issue letters of credit from time
      to
      time for the account of the Borrower (collectively “Letters of Credit”). The
      Letters of Credit shall be on terms mutually acceptable to Bank and Borrower,
      and no Letter of Credit shall have an expiration date later than the sooner
      to
      occur of (i) twelve (12) months from the date of issuance of the subject Letter
      of Credit, or (ii) the Termination Date. A loan in an amount equal to any amount
      paid by Bank under a Letter of Credit shall be deemed made to Borrower, without
      request therefor, immediately upon any payment by Bank on such Letter of Credit.
      In connection with the issuance of any Standby Letter of Credit, Borrower shall
      pay to Bank in advance of issuance of each Letter of Credit, an issuance fee
      in
      the amount of one and three-quarter (1.75%) percent per annum times the face
      amount of such Letter of Credit plus transaction fees at the customary rates
      charged by Bank and all other normal and customary fees charged by Bank, and
      in
      the case of trade Letters of Credit Borrower shall pay to Bank transaction
      fees
      at the customary rates charged by Bank and all other normal and customary fees
      charged by Bank. Borrower hereby authorizes and directs Bank, in Bank’s sole
      discretion (provided, however, Bank shall have no obligation to do so) to pay
      all such fees and costs as the same become due and payable and to treat the
      same
      as a loan to Borrower, which shall be added to Borrower’s loan balance pursuant
      to this Agreement. For purposes of computing the Credit Limit, all Letters
      of
      Credit shall be deemed to be loans.

    


    (h) Borrower
      shall pay to Bank the principal amount of all loans as follows:

    


    (i) Borrowing
      Base Exceeded.
      At any
      time when the Borrowing Base is applicable, whenever the outstanding principal
      balance of all loans exceed the Borrowing Base, Borrower shall immediately
      pay
      to Bank the excess of the outstanding principal balance of the loans over the
      Borrowing Base.

     

    
      
        
        

      

      
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    (ii) Payment
      in Full on Termination.
      On
      termination of this Agreement, pursuant to Section 21 or acceleration of the
      Obligations pursuant to Section 16, Borrower shall pay to Bank the entire
      outstanding principal balance of all loans and shall deliver to Bank cash
      collateral in an amount equal to the aggregate of amounts then undrawn on all
      outstanding Letters of Credit issued pursuant to this Agreement for the account
      of the Borrower.

    


    (i) Bank
      may,
      at any time and from time to time, in its reasonable judgment establish reserves
      against the Accounts of the Borrower. The amount of such reserves shall be
      subtracted from Qualified Accounts when calculating the amount of the Borrowing
      Base.

    


    (j)
       Borrowing
      Procedures.
      Borrower shall submit a Notice of Borrowing in the form of Exhibit
      2
      hereto
      (a “Notice of Borrowing”) with respect to: (i) each request for a new loan, (ii)
      to convert a LIBOR Rate Loan to a Prime Rate Loan or to a LIBOR Rate Loan of
      a
      different tenor, or (iii) to convert a Prime Rate Loan to a LIBOR Rate Loan.
      Each Notice of Borrowing with respect to a new or conversion LIBOR Rate Loan
      shall be made not less than 3 or more than 5 Business Days before the date
      of
      advance, and each Notice of Borrowing with respect to a new or conversion Prime
      Rate Loan shall be made at least 1 Business Day before the date of advance.
      In
      the absence of a new Notice of Borrowing, any existing LIBOR Rate Loan shall
      automatically be continued as a LIBOR Rate Loan at the then applicable Adjusted
      LIBOR Rate and in an amount equal to the principal amount of the expiring LIBOR
      Rate Loan less
      any
      Principal Repayment Amount made by Borrower; provided, however,
      that no
      portion of the outstanding principal amount of a LIBOR Rate Loan may be
      continued as a LIBOR Rate Loan when any Event of Default has occurred and is
      continuing. 

    


    (k) In
      addition to all other sums payable hereunder, the Borrower shall pay the Bank
      a
      fee equal to one-quarter of one (0.25%) percent of the difference between:
      (i)
      the Credit Limit and (ii) the average amount of the principal balance of loans
      outstanding plus amounts undrawn on all outstanding Letters of Credit for each
      quarterly period this Agreement is in effect. Such fee shall be payable
      quarterly in arrears.

    


    (l)
      In
      addition to all other sums payable hereunder, the Borrower shall pay the Bank
      a
      closing fee in the amount of $16,000.00, which shall be due and payable and
      deemed to be fully earned and non-refundable as of the date of this
      Agreement.

    


    6. DEFINITION
      OF QUALIFIED ACCOUNT. The term “Qualified Account”, as used herein, means an
      Account owing to Borrower which met the following specifications at the time
      it
      came into existence and continues to meet the same until it is collected in
      full:

    


    (a) The
      Account is not outstanding more than ninety (90) days from the date of the
      invoice thereof.

    


    (b) The
      Account arose from the performance of services or an outright sale of goods
      by
      Borrower, such goods have been shipped to the account debtor (including shipment
      by any national delivery service), and Borrower has possession of shipping
      and
      delivery receipts evidencing such shipment.

     

    
      
        
        

      

      
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    (c) The
      Account is not subject to any prior
      assignment, claim, lien, or security interest, and Borrower will not make any
      further assignment thereof or create any further security interest therein,
      nor
      permit Borrower’s rights therein to be reached by attachment, levy, garnishment
      or other judicial process.

    


    (d) The
      Account is not subject to set-off, credit, allowance or adjustment by the
      account debtor, except discount allowed for prompt payment and the account
      debtor has not complained as to his liability thereon and has not returned
      any
      of the goods from the sale of which the Account arose.

    


    (e) The
      Account arose in the ordinary course of Borrower’s business and did not arise
      from the performance of services or a sale of goods to a supplier or employee
      of
      the Borrower.

    


    (f) No
      notice
      of bankruptcy or insolvency of the account debtor has been received by or is
      known to the Borrower.

    


    (g) The
      Account is not owed by an account debtor whose principal place of business
      is
      outside the United States of America, unless (i) covered by credit insurance
      in
      form and issued by an insurer reasonably acceptable to the Bank, (ii) backed
      by
      a letter of credit in form and by an issuer acceptable to the Bank, or (ii)
      the
      account debtor has an investment grade US public debt rating from a recognized
      rating service, or investment grade rating equivalent for non-US companies.
      

    


    (h) The
      Account is not owed by an entity which is a parent, subsidiary or affiliate
      of
      Borrower.

    


    (i) The
      account debtor is not located in the State of New Jersey or in the State of
      Minnesota (or any other state that requires an entity to file a business
      activity report or similar document in order to bring suit or otherwise enforce
      its remedies against an account debtor in the courts or through any judicial
      process of such state), unless (i) Borrower has filed and shall file all legally
      required Notice of Business Activities Reports with the New Jersey Division
      of
      Taxation or the Minnesota Department of Revenue, as the case may be; or (ii)
      Borrower is exempt from such filing requirement.

    


    (j) Not
      applicable.

    


    (k) The
      Account is not evidenced by a promissory note.

    


    (l) The
      Account did not arise out of any sale made on a bill and hold, dating or delayed
      shipment basis, until such time as the goods have in fact been shipped to the
      account debtor or as the account debtor has instructed.

    


    (m) The
      Account does not arise out of a progress billing prior to completion of the
      order therefor.

    


    (n) Bank,
      in
      accordance with its normal credit policies, has not deemed the Account to be
      unacceptable for any reason.

    


    
      
        
        

      

      
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    PROVIDED
      THAT if at any time fifty (50.0%) percent or more of the aggregate amount of
      the
      Accounts due from any account debtor are unpaid in whole or in part more than
      ninety (90) days from the respective dates of invoice, none of the Accounts
      due
      from such account debtor shall be deemed to be Qualified Accounts until such
      time as less than fifty (50.0%) percent of Accounts due from such account debtor
      are (as a result of actual payments received thereon) no more than ninety (90)
      days from the date of invoice; Accounts payable by Borrower to an account debtor
      shall be netted against Accounts due from and credits due from Borrower to
      such
      account debtor, and the difference (if positive) shall constitute Qualified
      Accounts from such account debtor for purposes of determining the Borrowing
      Base
      (notwithstanding paragraph (d) or (e) above); characterization of any Account
      due from an account debtor as a Qualified Account shall not be deemed a
      determination by Bank as to its actual value nor in any way obligate Bank to
      accept any Account subsequently arising from such account debtor to be, or
      to
      continue to deem such Account to be, a Qualified Account; it is Borrower’s
      responsibility to determine the creditworthiness of account debtors and all
      risks concerning the same and collection of Accounts are with Borrower; and
      all
      Accounts whether or not Qualified Accounts constitute Collateral.

    


    7. Not
      Applicable.

    


    8. BANK’S
      REPORTS. After the end of each month, Bank will render to Borrower a statement
      of Borrower’s loan account with Bank hereunder, showing all applicable credits
      and debits. Each statement shall be considered correct and to have been accepted
      by Borrower and shall be conclusively binding upon Borrower in respect of all
      charges, debits and credits of whatsoever nature contained therein under or
      pursuant to this Agreement, and the closing balance shown therein, unless
      Borrower notifies Bank in writing of any discrepancy within sixty (60) days
      from
      the mailing by Bank to Borrower of any such monthly statement.

    


    9. CONDITIONS
      OF LENDING. 

    


    (a) The
      obligation of Bank to make the initial loan hereunder or issuing or causing
      to
      be issued the initial Letter of Credit hereunder shall be subject to the
      condition precedent that Bank shall have received all of the following, each
      in
      form and substance satisfactory to Bank:

    


    (i) This
      Agreement, properly executed on behalf of Borrower.

    


    (ii) The
      Note
      drawn to the order of Bank in the face amount of the Credit Limit.

    


    (iii) A
      true
      and correct copy of any and all leases pursuant to which Borrower is leasing
      any
      real property.

    


    (iv) Current
      searches of appropriate filing offices showing that (A) no state or federal
      tax
      liens have been filed and remain in effect against Borrower, (B) no financing
      statements have been filed and remain in effect against Borrower, except those
      financing statements relating to liens set forth on Schedule
      “E”,
      the
      liens of the secured lender to be paid with the proceeds of the initial loan
      and
      those financing statements filed by the Bank, and (C) the Bank has duly filed
      all financing statements necessary to perfect the security interests granted
      hereunder, to the extent the security interests are capable of being perfected
      by filing.

    


    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

       

    

    (v) A
      certificate of the Secretary or an Assistant Secretary of the Borrower,
      certifying as to (A) the resolutions of the directors and, if required, the
      shareholders of Borrower, authorizing the execution, delivery and performance
      of
      this Agreement and related documents, (B) the Articles of Organization and
      By-Laws of Borrower, and (C) the signatures of the officers or agents of
      Borrower authorized to execute and deliver this Agreement and other instruments,
      agreements and certificates, including loan requests, on behalf of
      Borrower.

    


    (vi) A
      current
      certificate issued by the Secretary of State of the state of the Borrower’s
      incorporation, certifying that Borrower is in compliance with all corporate
      organizational requirements of such state.

    


    (vii) Evidence
      that Borrower is duly licensed or qualified to transact business in New
      Hampshire and Ohio and in all jurisdictions where the character of the property
      owned or leased or the nature of the business transacted by it makes such
      licensing or qualification necessary, except where the failure to so qualify
      would not have a material adverse effect on the Borrower or its
      business.

    


    (viii) An
      opinion of counsel to the Borrower as to authorization of the transaction and
      enforceability of the Loan Documents, addressed to Bank.

    


    (ix) Certificates
      of the insurance required hereunder, with all hazard insurance containing a
      lender’s loss payable endorsement in favor of Bank.

    


    (x) Intentionally
      omitted.

    


    (xi) Subordination
      agreements, properly executed by each of the Borrower’s Convertible Noteholders,
      in form and substance satisfactory to Bank.

    


    (xii) A
      negative pledge with respect to its Intellectual Property Rights in the form
      of
      the Negative Pledge Agreement annexed as Exhibit
      3.

    


    (xiii) Payment
      of the fees due through the date of the initial loan and expenses incurred
      by
      Bank through such date required to be paid by Borrower pursuant to this
      Agreement.

    


    (xiv) An
      initial Borrowing Base Certificate in support of Borrower’s initial loan request
      which indicates that the Borrower has the necessary loan availability to pay
      all
      existing secured lenders.

    


    (xv) Such
      other documents, instruments and agreements as Bank in its sole discretion
      may
      require.

    


    (b) The
      obligation of Bank to make each loan and to issue each Letter of Credit shall
      be
      subject to the further conditions precedent on such date:

    


    (i) the
      representations and warranties contained in Sections 3 and 4 hereof are correct
      on and as of the date of such loan or the issuance of a Letter of Credit, as
      the
      case may be, as though made on and as of such date, except to the extent that
      such representations and warranties relate solely to an earlier date;
      and

    


    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

       

    

    (ii) no
      event
      has occurred and is continuing, or would result from such loan or issuance
      of
      such Letter of Credit, as the case may be, which constitutes a Default or an
      Event of Default.

    


    10. CAPITAL
      ADEQUACY.  If
      any
      change in, or the introduction, adoption, effectiveness, interpretation,
      reinterpretation or phase-in of, any law or regulation, directive, guideline,
      decision or request (whether or not having the force of law) of any court,
      central bank, regulator or other governmental authority affects the amount
      of
      capital required or expected to be maintained by the Bank, or person controlling
      the Bank, and the Bank determines (in its sole and absolute discretion) that
      the
      rate of return on its or such controlling person’s capital as a consequence of
      its commitments or the loans made by the Bank under this Agreement is reduced
      to
      a level below that which the Bank or such controlling person could have achieved
      but for the occurrence of any such circumstance, then, in any such case upon
      notice from time to time by the Bank to the Borrower, the Borrower shall within
      30 days of notice from the Bank pay directly to the Bank additional amounts
      sufficient to compensate the Bank or such controlling person for such reduction
      in rate of return. A statement of the Bank as to any such additional amount
      or
      amounts (including calculations thereof in reasonable detail) shall, in the
      absence of manifest error, be conclusive and binding on the Borrower. In
      determining such amount, Bank may use any method of averaging and attribution
      that it uses with respect to other similarly situated customers of
      Lender.

    


    11. COLLECTIONS;
      SET OFF; DEPOSIT ACCOUNTS; NOTICE OF ASSIGNMENT; EXPENSES; POWER OF ATTORNEY.
      

    


    (a) Borrower
      shall maintain its primary operating accounts with the Bank and will, upon
      receipt of all checks, drafts, cash and other remittances in payment of any
      Inventory or Equipment sold or in payment or on account of Borrower’s
      Receivables, deposit the same in the Borrower’s operating account with the Bank.


    


    (b) At
      any
      time during the continuance of an Event of Default or immediately upon the
      service upon Bank of any trustee writ or attachment, without demand or notice,
      Bank may set off any deposit accounts with Bank, or any part thereof and apply
      the same to any liability or Obligations of Borrower even though unmatured
      and
      regardless of the adequacy of any other collateral securing the Obligations.
      ANY
      AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT
      TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING
      ITS
      RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF
      BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
      WAIVED.

    


    (c) Bank
      may
      at any time, during the continuance of an Event of Default, notify account
      debtors that Collateral has been assigned to Bank and that payments shall be
      made directly to or as directed by Bank. Upon request of Bank at any time during
      the continuance of an Event of Default, Borrower will so notify such account
      debtors and will indicate on all billings to such account debtors that their
      Accounts must be paid directly to or as directed by Bank. Upon request of Bank
      at any time during the continuance of an Event of Default, Bank shall have
      full
      power to collect, compromise, endorse, sell or otherwise deal with the
      Collateral or proceeds thereof in its own name or in the name of Borrower.
      

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    (d) Borrower
      shall pay to Bank on demand any and all reasonable counsel fees and other
      expenses incurred by Bank in connection with the preparation, enforcement,
      administration or amendment of this Agreement, or of any documents relating
      thereto, and any and all expenses, including, but not limited to, a collection
      charge on all Accounts collected, all attorneys’ fees and expenses, and all
      other expenses of like or unlike nature which may be expended by Bank to obtain
      or enforce payment of any Account either as against the account debtor,
      Borrower, or any guarantor or surety of Borrower or in the prosecution or
      defense of any action or concerning any matter growing out of or connected
      with
      the subject matter of this Agreement, the Obligations or the Collateral or
      any
      of Bank’s rights or interests therein or thereto, including, without limiting
      the generality of the foregoing, any reasonable counsel fees or expenses
      incurred in any bankruptcy or insolvency proceedings and all costs and expenses
      incurred or paid by Bank in connection with the administration, supervision,
      protection or realization on any security held by Bank for the debt secured
      hereby, whether such security was granted by Borrower or by any other person
      primarily or secondarily liable (with or without recourse) with respect to
      such
      debt, and all costs and expenses incurred by Bank in connection with the
      defense, settlement or satisfaction of any action, claim or demand asserted
      against Bank in connection with the debt secured hereby, all of which amounts
      shall be considered advances to protect Bank’s security, and shall be secured
      hereby. At its option, and without limiting any other rights or remedies, Bank
      may at any time pay or discharge any taxes, liens, security interests or other
      encumbrances at any time levied against or placed on any of the Collateral,
      and
      may procure and pay any premiums on any insurance required to be carried by
      Borrower, and provide for the maintenance and preservation of any of the
      Collateral, and otherwise take any action reasonably deemed necessary to Bank
      to
      protect its security, and all amounts expended by Bank in connection with any
      of
      the foregoing matters, including reasonable attorneys’ fees, shall be considered
      Obligations of Borrower and shall be secured hereby. 

    


    (e) Borrower
      does hereby make, constitute and appoint any officer or agent of Bank as
      Borrower’s true and lawful attorney-in-fact, with power, during the continuance
      of an Event of Default: (i) to endorse the name of Borrower or any of Borrower’s
      officers or agents upon any notes, checks, drafts, money orders, or other
      instruments of payment (including payments payable under any policy of insurance
      on the Collateral) or Collateral that may come into possession of Bank in full
      or part payment of any amounts owing to Bank; and (ii) to sign and endorse
      the
      name of Borrower or any of Borrower’s officers or agents upon any invoice,
      freight or express bill, bill of lading, storage or warehouse receipts, drafts
      against debtors, assignments, verifications and notices in connection with
      Accounts, and any instrument or documents relating thereto or to Borrower’s
      rights therein; granting upon the Bank full power to do any and all things
      necessary to be done in and about the premises as fully and effectually as
      Borrower might or could do, and hereby ratifying all that said attorney shall
      lawfully do or cause to be done by virtue hereof. Neither Bank nor the attorney
      shall be liable for any acts or omissions nor for any error of judgment or
      mistake, except for their gross negligence or willful misconduct. This power
      of
      attorney shall be irrevocable for the term of this Agreement and all
      transactions hereunder and thereafter as long as Borrower may be indebted to
      Bank.

    


    12. FINANCING
      STATEMENTS. A legible carbon, photographic or other reproduction of this
      Agreement shall be sufficient as a financing statement. Borrower hereby
      irrevocably authorizes Bank 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 (other than Intellectual Property Rights) 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. Borrower agrees to furnish any such information as Bank may
      require to file any such financing statement promptly upon request from the
      Bank. 

    


    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    13. BORROWER’S
      REPORTS.

    


    (a) Within
      thirty (30) calendar days after the end of each month, Borrower shall submit
      to
      Bank an aging report in form satisfactory to Bank showing the amounts due and
      owing on all Accounts according to Borrower’s records as of the close of such
      month, together with such other information as Bank may require; provided that
      if there are no loans outstanding under this Agreement, such aging report shall
      be submitted on a quarterly basis, within forty-five (45) days of the end of
      each quarter; and further provided that if Borrower is in compliance with the
      Special Conditions, no aging report shall be necessary until such time as
      Borrower is no longer in compliance with the Special Conditions. If Borrower’s
      aging reports are prepared by an accounting service or other agent, Borrower
      hereby authorizes such service or agent to deliver such aging reports and any
      other related documents to Bank.

    


    (b) Borrower
      shall deliver to Bank all documents, as frequently as indicated below, or at
      such other times as Bank may reasonably request, and all other documents and
      information requested by Bank:

    
      


      
        	 	
                DOCUMENT

              	 	
                FREQUENCY
                  DUE

              
	 	 	 	 
	
                (i)

              	
                A
                  Borrowing Base Certificate

              	 	
                Monthly
                  within 30 days of month end if borrowing; quarterly within 45 days
                  of
                  quarter end if not borrowing; not required while Borrower is in
                  compliance
                  with Special Conditions

              
	 	 	 	 
	
                (ii)

              	
                Projections
                  of Borrower’s balance sheet, statement of profit and loss and cash flow
                  for the next succeeding fiscal year broken down on a quarterly
                  basis

              	 	
                Annually,
                  within 45 days of the beginning of each fiscal year of
                  Borrower

              
	 	 	 	 
	
                (iii)

              	
                Notice
                  of noncompliance with the provisions of this Agreement

              	 	
                Immediately
                  upon learning of such noncompliance, or if any representation or
                  warranty
                  contained herein is no longer true or
                  accurate

              


      

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

       

      
        	
                (iv)

              	
                Compliance
                  Certificate in the form annexed hereto as Exhibit
                  3

              	
                At
                  the time of submission of annual and quarterly financial statements
                  

              


      

    

    
       

    

    (c) Borrower
      will furnish Bank copies of each form 10-K and 10-Q at the time of submission
      of
      such forms to the SEC.

    


    (d) In
      addition to the foregoing, the Borrower promptly shall provide Bank with such
      other and additional information concerning the Borrower, the Collateral, the
      operation of the Borrower’s business, and the Borrower’s financial condition,
      including financial reports and statements, as Bank may from time to time
      reasonably request from the Borrower. All financial information provided Bank
      by
      the Borrower shall be prepared in accordance with generally accepted accounting
      or auditing principles (as applicable) applied consistently in the preparation
      thereof and with prior periods to fairly reflect the financial conditions of
      the
      Borrower at the close of, and its results of operations for, the periods in
      question.

    


    14. GENERAL
      AGREEMENTS OF BORROWER.

    


    (a) Borrower
      agrees to keep all the Collateral insured with coverage and in amounts not
      less
      than that usually carried by one engaged in a like business, with loss payable
      to Bank and Borrower, as their interests may appear, hereby appointing Bank
      as
      attorney for Borrower in obtaining, adjusting, and settling such insurance
      and
      endorsing any drafts, at any time during the continuance of an Event of Default.
      As further assurance for the payment and performance of the Obligations,
      Borrower hereby assigns to Bank all sums, including returns of unearned
      premiums, which may become payable under any policy of insurance on the
      Collateral and Borrower hereby directs each insurance company issuing any such
      policy to make payment of such sums directly to Bank and Borrower; provided
      that, in the absence of a continuing Event of Default, Bank will agree that
      casualty insurance proceeds of $500,000.00 or less shall be released to Borrower
      without condition for repair or replacement of Borrower’s property. With respect
      to casualty insurance proceeds in excess of $500,000.00, Bank will authorize
      release of such proceeds to Borrower on a commercially reasonable basis provided
      (i) there is no continuing Event of Default, (ii) such proceeds are adequate
      to
      repair, replace or restore the property, together with any of Borrower’s own
      available funds, (iii) such repair, replacement or restoration can be completed
      within a commercially reasonable period of time, and (iv) Borrower promptly
      undertakes the repair, replacement or restoration of such property.

    


    (b) Bank
      or
      its agents have the right to inspect the Collateral and all records pertaining
      thereto and the books and financial records of the Borrower at intervals to
      be
      determined by Bank and without hindrance or delay at reasonable times and on
      reasonable notice to Borrower. In the absence of an Event of Default, Bank
      anticipates that it shall not conduct more than 2 such examinations in any
      calendar year, and Bank will not charge Borrower for more than one such
      examination in any calendar year. At any time during the continuance of an
      Event
      of Default, Bank shall also have the right to obtain from time to time at the
      sole cost and expense of Borrower an appraisal of the Collateral by an appraiser
      acceptable to Bank.

    


    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    (c) Borrower
      will maintain a system of accounting which enables Borrower to produce financial
      statements in accordance with GAAP.

    


    (d) Borrower
      will maintain its corporate existence in good standing and comply with all
      laws
      and regulations of the United States or of any state or states thereof or of
      any
      political subdivision thereof, or of any governmental authority which may be
      applicable to it or to its business, except where the failure to be so qualified
      or in good standing could not reasonably be expected to result in a material
      adverse effect on (a) the Collateral, business operations or financial condition
      of Borrower, (b) the ability of Borrower to perform its Obligations under the
      Loan Documents, (c) the validity or enforceability of any of the Loan Documents,
      or (d) the rights, remedies, powers and privileges of Bank under any of the
      Loan
      Documents (“Material Adverse Effect”). 

    


    (e) Borrower
      will pay all real and personal property taxes, assessments and charges and
      all
      franchises, income, unemployment, old age benefits, withholding, sales and
      other
      taxes assessed against it, or payable by it at such times and in such manner
      as
      to prevent any penalty from accruing or any lien or charge from attaching to
      its
      property, (“Property Charges”), unless such Property Charges are being contested
      by Borrower through appropriate proceedings and for which Borrower has
      established a Payment Reserve.

    


    (f) During
      the continuance of a Default or an Event of Default, and in the course of any
      field examination in accordance with the Bank’s customary examination
      procedures, Bank may in its own name or in the name of others communicate with
      account debtors in order to verify with them to Bank’s satisfaction the
      existence, amount and terms of any Accounts. 

    


    (g) If
      any of
      Borrower’s Accounts arise out of contracts with the United States or any
      department, agency, or instrumentality thereof, Borrower will immediately notify
      Bank thereof in writing and execute any instruments and take any steps required
      by Bank in order that all monies due and to become due under such contracts
      shall be assigned to Bank and notice thereof given to the Government under
      the
      Federal Assignment of Claims Act.

    


    (h) If
      any of
      Borrower’s Accounts should be evidenced by promissory notes, trade acceptances,
      or other instruments for the payment of money, Borrower will immediately deliver
      same to Bank, appropriately endorsed to Bank’s order.

    


    (i) If
      any
      goods are at any time in the possession of a warehouseman, processor or other
      bailee, Borrower shall promptly notify Bank thereof and, if requested by Bank,
      shall promptly obtain an acknowledgment from such bailee, in form and substance
      reasonably satisfactory to Bank, that the bailee holds such Collateral for
      the
      benefit of Bank and shall act upon the instructions of Bank, without the further
      consent of Borrower. Bank agrees with Borrower that Bank 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 any
      bailee.

    


    (j) If
      Borrower is at any time a beneficiary under a letter of credit now or hereafter
      issued in favor of Borrower, Borrower shall promptly notify Bank thereof and,
      at
      the request and option of Bank, Borrower shall, pursuant to an agreement in
      form
      and substance reasonably satisfactory to Bank, either (i) arrange for the issuer
      and any confirmer of such letter of credit to consent to an assignment to Bank
      of the proceeds of any drawing under the letter of credit, or (ii) arrange
      for
      Bank to become the transferee beneficiary of the letter of credit, with Bank
      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.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    


    (k) If
      Borrower shall at any time hold or acquire a commercial tort claim, Borrower
      shall immediately notify Bank in a writing signed by Borrower of the brief
      details thereof and grant to Bank 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 Bank.

    


    (l) Unless
      being contested by Borrower by appropriate proceedings and with a Payment
      Reserve, Borrower will promptly pay when due all taxes and assessments upon
      the
      Collateral or for its use or operation or upon this Agreement, or upon any
      note
      or notes evidencing the Obligations, and will, at the request of Bank, promptly
      furnish Bank the receipted bills therefor. If such charges are not promptly
      paid
      or contested with appropriate proceeding and Payment Reserve, Bank may discharge
      taxes, liens or security interests or other encumbrances at any time levied
      or
      placed on the Collateral, may pay for insurance on the Collateral and may pay
      for the maintenance and preservation of the Collateral. Borrower agrees to
      reimburse Bank on demand for any payments made, or any expenses incurred by
      Bank
      pursuant to the foregoing authorization, and upon failure of the Borrower so
      to
      reimburse Bank, any such sums paid or advanced by Bank shall be deemed secured
      by the Collateral and constitute part of the Obligations.

    


    (m) Borrower
      will immediately notify Bank upon receipt of notification of any potential
      or
      known release or threat of release of hazardous materials, hazardous waste,
      hazardous or toxic substance or oil from any site operated by Borrower or of
      the
      incurrence of any expense or loss in connection therewith or with the Borrower’s
      obtaining knowledge of any investigation, action or the incurrence of any
      expense or loss by any governmental authority in connection with the assessment,
      containment or removal of any hazardous material or oil for which expense or
      loss the Borrower may be liable. As used herein, the terms “hazardous waste,”
“hazardous or toxic substance,” “hazardous material” or “oil” shall have the
      same meanings as defined and used in any of the following (the “Acts”): the
      Comprehensive Environmental Response, Compensation and Liability Act of 1980,
      42
      USC Sections 9601-9657, as amended by the Superfund Accounts and Reauthorization
      Act of 1986; the Federal Resource Conservation and Recovery Act, 42 USC Sections
      6901 et
      seq.;
      the
      Hazardous Materials Transportation Act, 49 USC Sections 1801 et
      seq.;
      the
      Toxic Substances Control Act, 15 USC Sections 2601 et
      seq.;
      the
      Federal Water Pollution Control Act, 33 USC Sections 1251 et
      seq.;
      the
      Clean Air Act, 42 USC Sections 741 et
      seq.;
      the
      Clean Water Act, 33 USC Section 701; the Safe Drinking Water Act, 42 USC
      Sections 300(f)-300(j); and/or the regulations adopted and publications
      promulgated pursuant to any of the Acts or pursuant to applicable state laws,
      as
      the same may be amended from time to time.

    


    (n) Except
      for Bank’s gross negligence or willful misconduct, Borrower will indemnify and
      save Bank harmless from all loss, costs, damage, liability or expenses
      (including, without limitation, court costs and reasonable attorneys’ fees) that
      Bank may sustain or incur by reason of defending or protecting this security
      interest or the priority thereof or enforcing the Obligations, or in the
      prosecution or defense of any action or proceeding concerning any matter growing
      out of or in connection with this Agreement and/or any other documents now
      or
      hereafter executed in connection with this Agreement and/or the Obligations
      and/or the Collateral. This indemnity shall survive the repayment of the
      Obligations and the termination of Bank’s agreement to make loans available to
      Borrower and the termination of this Agreement.


    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    


    (o) At
      the
      option of Bank, Borrower will furnish to Bank, from time to time, within five
      (5) days after the accrual in accordance with applicable law of Borrower’s
      obligation to make deposits for F.I.C.A. and withholding taxes and/or sales
      taxes, proof satisfactory to Bank that such deposits have been made as
      required.

    


    (p) Should
      Borrower fail to make any of such deposits required by (o) above, then Bank
      may,
      in its sole and absolute discretion, (a) make any of such deposits or any part
      thereof, or (b) set-up such reserves as Bank, in its judgment, shall deem
      necessary to satisfy the liability for such taxes. Each amount so deposited
      or
      paid shall constitute an advance under the terms hereof, repayable on demand
      with interest, as provided herein, and secured by all Collateral and any other
      property at any time pledged by Borrower with Bank. Nothing herein shall be
      deemed to obligate Bank to make any such deposit or payment or set-up such
      reserve and the making of one or more of such deposits or payments or the
      setting-up of such reserve shall not constitute (i) an agreement on Bank’s part
      to take any further or similar action, or (ii) a waiver of any default by
      Borrower under the terms hereof.

    


    (q) All
      advances by Bank to Borrower under this Agreement and the Loan Documents
      constitute one general revolving fluctuating loan, and all indebtedness of
      Borrower to Bank under this Agreement and the other Loan Documents constitute
      one general Obligation. Each advance to Borrower hereunder or otherwise shall
      be
      made upon the security of all of the Collateral held and to be held by Bank.
      It
      is understood and agreed that all of the rights of Bank contained in this
      Agreement and the Loan Documents shall likewise apply, insofar as applicable,
      to
      any modification of or supplement to this Agreement or any of the Loan
      Documents. The entire Obligation of Borrower to Bank shall become due and
      payable upon termination of this Agreement. 

    


    (r) Borrower
      hereby grants to Bank the right to use all premises or places of business which
      Borrower presently has or may hereafter have and where any of the Collateral
      may
      be located. Bank agrees not to exercise the rights granted in this paragraph
      unless and until Bank determines to exercise its rights against the Collateral
      after an Event of Default.

    


    (s) Borrower
      will, at its expense, upon request of Bank promptly and duly execute and deliver
      such documents and assurances and take such actions as Bank may reasonably
      deem
      to be necessary in order to correct any defect, error or omission which may
      at
      any time be discovered or to more effectively carry out the intent and purpose
      of this Agreement and to establish, perfect and protect Bank’s security
      interest, rights and remedies created or intended to be created hereunder.
      Without limiting the generality of the above, Borrower will join with Bank
      in
      executing financing and continuation statements pursuant to the Uniform
      Commercial Code or other notices appropriate under applicable Federal or state
      law in form reasonably satisfactory to Bank and filing the same in all public
      offices and jurisdictions which Bank reasonably determines are necessary to
      perfect its security interest in the Collateral. Borrower shall perform any
      and
      all further reasonable steps as may be reasonably requested by Bank to perfect
      or maintain perfection of Bank’s security interest in the
      Collateral.

    


    (t) Borrower
      hereby grants to Bank for a term to commence on the date of this Agreement
      and
      continuing thereafter until the Obligations are fully paid and discharged,
      a
      non-exclusive irrevocable royalty-free license in connection with Bank’s
      disposition of tangible personal property hereunder after the occurrence of
      an
      Event of Default, to use, apply or affix any trademark, trade name logo or
      the
      like and to use any patents, in which the Borrower now or hereafter has rights,
      which license may be used by Bank in connection with such disposition of
      Collateral. 


    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    


    15. BORROWER’S
      NEGATIVE COVENANTS. Borrower will not at any time:

    


    (a) (Current
      Ratio)
      permit
      the ratio of its current assets to its current liabilities (each as computed
      in
      accordance with GAAP) to be less than 1.20:1.0 at any quarter end; provided
      that
      convertible notes shall be excluded from current liabilities for purposes of
      calculation of this covenant through October 15, 2008;

    


    (b) (Adjusted
      EBITDA)
      permit
      its Adjusted EBITDA to be less than $500,000.00 for any fiscal quarter. Adjusted
      EBITDA shall mean, for each fiscal quarter, Borrower’s earnings before gross
      interest expense, depreciation, amortization, SFAS 123R stock option expense
      and
      income tax expense;

    


    (c) (Capital
      Expenditures)
      during
      any fiscal year of Borrower, make, directly or indirectly, capital expenditures
      in an aggregate amount greater than $1,000,000.00;

    


    (d) (Minimum
      Cash on Deposit)
      permit,
      at any time, its minimum cash balances of collected funds on deposit with the
      Bank to be less than the lesser of (i) $6,000,000.00 or (ii) 85.0% of Borrower’s
      total cash and cash equivalents at such time;

    


    (e) Not
      applicable;

    


    (f) Not
      applicable;

    


    (g) (Disposition
      of Collateral)
      sell,
      assign, exchange or otherwise dispose of any of the Collateral, other than
      (1)
      Inventory consisting of (i) scrap, waste, defective goods and the like; (ii)
      obsolete goods; and (iii) finished goods sold in the ordinary course of
      business; and (2) Equipment which is no longer required or deemed necessary
      for
      the conduct of Borrower’s business, so long as Borrower receives therefor a sum
      substantially equal to such Equipment’s fair value; 


    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    


    (h) (Liens)
      create,
      permit to be created or suffer to exist any lien, encumbrance or security
      interest of any kind (“Lien”) upon any of the Collateral, except: (i)
      landlords’, carriers’, warehousemen’s, mechanics’ and other similar liens
      arising by operation of law in the ordinary course of Borrower’s business; (ii)
      arising out of pledge or deposits under worker’s compensation, unemployment
      insurance, old age pension, social security, retirement benefits or other
      similar legislation; (iii) purchase money Liens (and capital leases) arising
      in
      the ordinary course of business for the purchase of Equipment (so long as the
      indebtedness secured thereby does not exceed the lesser of the cost or fair
      market value of the property subject thereto, and such Lien extends to no other
      property); (iv) Liens for unpaid taxes that are either (x) not yet due and
      payable, or (y) are subject of permitted protests; (v) Liens which are the
      subject of permitted protests; (vi) those Liens and encumbrances set forth
      on
Schedule
      “E”
annexed
      hereto; and (vii) in favor of Bank (collectively, the “Permitted Encumbrances”).
      The term “permitted protests”, as used herein, means the right of the Borrower
      to protest any Lien (other than a Lien that secures the Obligations), tax (other
      than payroll taxes or taxes that are the subject of a federal or state tax
      lien)
      or rental payment, provided that (x) a Payment Reserve has been established
      by
      Borrower, (y) any such protest is instituted and diligently prosecuted by the
      Borrower in good faith, and (z) the Bank is satisfied that, while such protest
      is pending, there will be no impairment of the enforceability, validity or
      priority of any of the Liens of the Bank in and to the Collateral;

    


    (i) (Dividends)
      pay any
      dividends on or make any distribution on account of any class of Borrower’s
      capital stock in cash or in property, or redeem, purchase or otherwise acquire,
      directly or indirectly, any of such stock, if there is a continuing Default
      or
      Event of Default, or if the making of such payment would result in a Default
      or
      Event of Default under this Agreement;

    


    (j) (Loans)
      make any
      loans or advances to any individual, partnership, trust or other corporation
      in
      excess of $50,000.00 outstanding at any time, including without limitation
      Borrower’s directors, officers and employees, except advances to officers or
      employees with respect to expenses incurred by them in the ordinary course
      of
      their duties which are properly reimbursable by Borrower; 

    


    (k) (Guarantees)
      assume,
      guaranty, endorse or otherwise become directly or contingently liable in respect
      of (including without limitation by way of agreement, contingent or otherwise,
      to purchase, provide funds to or otherwise invest in a debtor or otherwise
      to
      assure a creditor against loss), any indebtedness (except guarantees by
      endorsement of instruments for deposit or collection in the ordinary course
      of
      business and guarantees in favor of Bank) of any individual, partnership, trust
      or other corporation;


    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    


    (l) (Investments)
      (i) use
      any loan proceeds to purchase or carry any “margin stock” (as defined in
Regulation
      U of the
      Board of Governors of the Federal Reserve System) or (ii) invest in or purchase
      any stock or securities of any individual, partnership, trust or other
      corporation except (x) readily marketable direct obligations of, or obligations
      guaranteed by, the United States of America or any agency thereof or (y) time
      deposits with or certificates of deposit issued by the Bank, or (z) Permitted
      Acquisitions. For purposes hereof, a Permitted Acquisition means the acquisition
      of the assets or ownership of the equity of a company which meets the following
      criteria: (1) no Default or Event of Default under the Loan Documents shall
      be
      continuing either before or giving effect to the acquisition, (2) the Borrower
      (and all subsidiaries on a consolidated basis) shall be in compliance with
      the
      financial covenants contained in Sections 15(a), 15(b), 15(c) and 15(d) both
      before and on a pro forma basis after giving effect to the acquisition, (3)
      the
      sum of the Borrower’s availability under the Borrowing Base, plus its cash and
      cash equivalents both before and after the acquisition (including any loans
      made
      in connection therewith) shall be at least $1,000,000.00, (4) the total cost
      or
      purchase price of such acquisition shall be $4,000,000.00 or less unless the
      acquisition has been approved in advance by the Bank, (5) the business acquired
      must be in substantially the same business as the Borrower or a line of business
      directly related thereto, (6) the acquisition shall have been approved by the
      board of directors (or similar board) of both the Borrower and the other
      company, (7) the Borrower shall be the surviving entity following such
      acquisition and shall have suffered no change in control resulting from such
      acquisition, (8) if the acquired company remains as a US subsidiary of the
      Borrower, such subsidiary shall execute a guaranty of the Obligations and a
      security agreement and form of double negative pledge as security for such
      guaranty, and if the acquired company is a foreign subsidiary of the Borrower,
      the Borrower shall execute a pledge of 65% of such company’s equity capital and
      voting control, and (9) as of the time of acquisition of such company, such
      company is not a party to any material pending or threatened litigation. The
      acquisition of CAD Sciences, Inc. by Borrower has been approved by the Bank
      and
      is a Permitted Acquisition.

    


    (m) (Transactions
      with Affiliates)
      enter
      into any lease or other transaction with any shareholder, officer or affiliate
      on terms any less favorable than those which might be obtained at the time
      from
      persons who (or entities which) are not such a shareholder, officer or
      affiliate;

    


    (n) (Subsidiaries)
      sell,
      transfer or otherwise dispose of any stock of any subsidiary of Borrower, other
      than the stock of Qualia Acquisition Corp.; 

    


    (o) (Mergers,
      Consolidations or Sales)
      (i)
      merge or consolidate with or into any corporation, unless Borrower is the
      surviving entity and remains in compliance with all provisions of this
      Agreement, after giving effect to such merger; (ii) enter into any joint venture
      or partnership with any person, firm or corporation; (iii) convey, lease or
      sell
      all or any material portion of its property or assets or business to any other
      person, firm or corporation, except for the sale of Inventory in the ordinary
      course of its business; or (iv) convey, lease or sell any of its assets to
      any
      person, firm or corporation for less than the fair market value
      thereof;

    


    (p) (Change
      in Legal Status)
      (i)
      change its name, its place of business or, if more than one, chief executive
      office, or its mailing address or organizational identification number if it
      has
      one, or (ii) change its type of organization, jurisdiction or organization
      or
      other legal structure, without, in each case, giving Bank at least 30 days
      advance notice thereof. If the Borrower does not have an organizational
      identification number and later obtains one, the Borrower shall forthwith notify
      the Bank of such organizational identification number.


    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    


    For
      purposes of this section, the following additional definitions shall
      apply:

    “affiliate”
      shall mean any person or entity (i) which directly or indirectly controls,
      or is
      controlled by or is under common control with the Borrower or a subsidiary,
      (ii)
      which directly or indirectly beneficially holds or owns ten (10.0%) percent
      or
      more of any class of voting stock of the Borrower or any subsidiary, or (iii)
      ten (10.0%) percent or more of the voting stock of which is directly or
      indirectly beneficially owned or held by the Borrower or a subsidiary; “capital
      assets” shall mean assets that, in accordance with GAAP, are required or
      permitted to be depreciated or amortized on the Borrower’s balance sheet;
“capital expenditures” shall mean but not be limited to amounts paid during such
      fiscal year for capital assets or capital leases and shall include, in the
      case
      of a purchase, the entire purchase price and, in the case of a capital lease
      (but not an operating lease), the entire rental for the term; “capital leases”
shall mean capital leases, conditional sales contracts and other title retention
      agreements relating to the purchase or acquisition of capital assets; “control”
shall mean the possession, directly or indirectly, of the power to direct or
      cause the direction of the management and policies of any person or entity,
      whether through the ownership of voting securities, by contract or otherwise;
      “indebtedness” shall mean (i) all liabilities for borrowed money, for the
      deferred purchase price of property or services, and under leases which are
      or
      should be, under GAAP, recorded as capital leases, in respect of which a person
      or entity is directly or indirectly, absolutely or contingently liable as
      obligor, guarantor, endorser or otherwise, or in respect of which such person
      or
      entity otherwise assures a creditor against loss, (ii) all liabilities of the
      type described in (i) above which are secured by (or for which the holder has
      an
      existing right, contingent or otherwise, to be secured by) any lien upon
      property owned by such person or entity, whether or not such person or entity
      has assumed or become liable for the payment thereof, and (iii) all other
      liabilities or obligations which would, in accordance with GAAP, be classified
      as liabilities of such person or entity; “interest” shall mean, for the
      applicable period, all interest paid or payable, including, but not limited
      to,
      interest paid or payable on indebtedness and on capital leases, determined
      in
      accordance with GAAP. 

    


    16. EVENTOF
      DEFAULT; RIGHTS AND REMEDIES AFTER DEFAULT. 

    


    (a) During
      the continuance of a Default or an Event of Default, Bank may decline to make
      any or all further loans or issue Letters of Credit hereunder or under any
      applicable Application and Agreement for Letters of Credit. “During the
      continuance of”, as used herein, shall mean after the occurrence of a Default or
      an Event of Default which has not been cured to the Bank’s satisfaction or
      waived by the Bank. The occurrence of any of the following events or
      circumstances shall be an “Event of Default”: 

    


    (i) The
      failure by the Borrower to pay when due any principal, interest, fees, costs,
      and expenses due pursuant to this Agreement, in each case, within five (5)
      days
      of when due.

    


    (ii) The
      failure by the Borrower to perform the Obligations or maintain any of the
      covenants described in Sections 11(a) and 15 hereof. 

    


    (iii) The
      failure by the Borrower to timely perform, or observe any term, covenant or
      agreement on its part to be performed or observed pursuant to any of the
      provisions of this Agreement, other than those described in Sections 11(a)
      and
      15, or in any other agreement with Bank which is not remedied within the earlier
      of (i) thirty (30) days after notice thereof by Bank to Borrower, or (ii) the
      date Borrower was required to give notice to Bank pursuant to Section 13
      hereof.


    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    


    (iv) The
      determination by Bank that any representation or warranty heretofore, now or
      hereafter made by the Borrower to Bank, in any documents, instrument, agreement,
      or paper delivered in connection with this Agreement or the Loan Documents
      was
      not true or accurate when given in any material respect.

    


    (v) The
      occurrence of any event such that any material indebtedness of the Borrower
      from
      any lender other than Bank could be accelerated, notwithstanding that such
      acceleration has not taken place.

    


    (vi) The
      occurrence of any event which would cause a lien creditor, as that term is
      defined in Section 9-102 of the Uniform Commercial Code, to take priority over
      advances made by Bank.

    


    (vii) A
      filing
      against or relating to the Borrower of (A) a federal tax lien in favor of the
      United States of America or any political subdivision of the United States
      of
      America, or (B) a state tax lien in favor of any state of the United States
      of
      America or any political subdivision of any such state.

    


    (viii) The
      occurrence of any event of default under any agreement between Bank and the
      Borrower or instrument or paper given Bank by the Borrower, whether such
      agreement, instrument, or paper now exists or hereafter arises (notwithstanding
      that Bank may not have exercised its rights upon default under any such other
      agreement, instrument or paper).

    


    (ix) Any
      act
      by, against, or relating to the Borrower, or its property or assets, which
      act
      constitutes the application for, consent to, or sufferance of the appointment
      of
      a receiver, trustee or other person, pursuant to court action or otherwise,
      over
      all, or any part of the Borrower’s property.

    


    (x) The
      granting of any trust mortgage or execution of an assignment for the benefit
      of
      the creditors of the Borrower, or the occurrence of any other voluntary or
      involuntary liquidation or extension of debt agreement for the Borrower; the
      failure by the Borrower to generally pay the debts of the Borrower as they
      mature; adjudication of bankruptcy or insolvency relative to the Borrower;
      the
      entry of an order for relief or similar order with respect to the Borrower
      in
      any proceeding pursuant to Title 11 of the United States Code entitled
“Bankruptcy” (hereinafter the “Bankruptcy Code”) or any other federal Bankruptcy
      law; the filing of any complaint, application, or petition by or against the
      Borrower initiating any matter in which the Borrower is or may be granted any
      relief from the debts of the Borrower pursuant to the Bankruptcy Code or any
      other insolvency statute or procedure; provided that, with respect to any such
      involuntary proceeding which is being contested by Borrower, such involuntary
      proceeding shall remain undismissed or undischarged for a period of 60 days;
      the
      calling or sufferance of a meeting of creditors of the Borrower; the meeting
      by
      the Borrower of a formal or informal creditor’s committee; the offering by or
      entering into by the Borrower of any composition, extension or any other
      arrangement seeking relief or extension for the debts of the Borrower, or the
      initiation of any other judicial or non-judicial proceeding or agreement by,
      against or including the Borrower which seeks or intends to accomplish a
      reorganization or arrangement with creditors.


    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    


    (xi) The
      final
      non-appealable entry of any judgment(s) against Borrower, in excess of
      $500,000.00 in the aggregate, which judgment(s) is not covered by insurance
      where the insurer has not denied liability with respect to such judgment and
      which is not satisfied or appealed from (with execution or similar process
      stayed) within thirty (30) days of its entry.

    


    (xii) The
      loss
      or revocation of any license, permit, governmental or administrative regulatory
      approval now held or hereafter acquired which is material to Borrower's business
      and which could reasonably be expected to have an adverse financial impact
      on
      Borrower of $500,000.00 or more which is not cured within thirty (30)
      days.

    


    (xiii) The
      entry
      of any court, governmental or administrative order or ruling which enjoins,
      restrains or in any way prevents the Borrower from conducting all or any
      material part of its business affairs in the ordinary course of business, which
      order is not terminated within fifteen (15) days of its issuance.

    


    (xiv) Intentionally
      omitted.

    


    (xv) Darlene
      Deptula-Hicks or Kenneth Ferry shall cease to function for Borrower in the
      capacity in which she or he serves, or a similar capacity and that a substitute
      reasonably satisfactory to Bank has not been retained within 120
      days.

    


    (xvi) The
      occurrence of any uninsured loss, theft, damage or destruction to any material
      asset(s) of the Borrower in an amount in excess of $500,000.00 in the
      aggregate.

    


    (xvii) Any
      act
      by or against, or relating to the Borrower or its assets pursuant to which
      any
      creditor of the Borrower reclaims or repossesses $500,000.00 or more in the
      aggregate of the Borrower’s assets.

    


    (xviii) The
      termination of existence, dissolution, or liquidation of the Borrower, or the
      ceasing to carry on actively any substantial part of the Borrower’s current
      business.

    


    (xix) This
      Agreement shall, at any time after its execution and delivery and for any
      reason, cease (A) to create a valid and perfected first priority security
      interest, subject to Permitted Encumbrances, in and to the property purported
      to
      be subject to this Agreement; or (B) to be in full force and effect or shall
      be
      declared null and void, or the validity or enforceability hereof shall be
      contested by the Borrower or any guarantor of the Borrower denies it has any
      further liability or obligation hereunder.

    


    (xx) Any
      of
      the following events occur or exist with respect to the Borrower or any ERISA
      affiliate: (A) any “prohibited transaction” (as defined in Section 406 of ERISA
      or Section 4975 of the Internal Revenue Code) involving any Plan; (B) any
“reportable event” (as defined in Section 4043 of ERISA and the regulations
      issued under such Section) shall occur with respect to any Plan; (C) The filing
      under Section 4041 of ERISA of a notice of intent to terminate any Plan or
      the
      termination of any Plan; (D) any event or circumstance exists which might
      constitute grounds entitling the Pension Benefit Guaranty Corporation (PBGC)
      to
      institute proceedings under Section 4042 of ERISA for the termination of, or
      for
      the appointment of a trustee to administer, any Plan, or the institution by
      the
      PBGC of any such proceedings; (E) or partial withdrawal under Section 4201
      or
      4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency,
      or
      termination of any Multiemployer Plan; and in each case above, such event or
      condition, together with all other events or conditions, if any, could in the
      opinion of Bank subject the Borrower to any tax, penalty, or other liability
      to
      a Plan, a Multiemployer Plan, the PBGC, in excess of $500,000 in the
      aggregate.


    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    Upon
      the
      occurrence of an Event of Default, the Bank may declare any obligation the
      Bank
      may have hereunder to be cancelled, declare all Obligations of the Borrower
      to
      be due and payable and proceed to enforce payment of the Obligations and to
      exercise any and all of the rights and remedies afforded to the Bank by the
      Uniform Commercial Code or under the terms of this Agreement or otherwise.
      In
      addition, upon the occurrence of an Event of Default, if the Bank proceeds
      to
      enforce payment of the Obligations, the Borrower shall be obligated to deliver
      to the Bank cash collateral in an amount equal to the aggregate amounts then
      undrawn on all outstanding Letters of Credit issued by Bank for the account
      of
      Borrower. During the continuance of an Event of Default, if requested by the
      Bank, the Borrower, as additional compensation to the Bank for its increased
      credit risk, promises to pay interest on all Obligations (including, without
      limitation, principal, whether or not past due, past due interest and any other
      amounts past due under this Agreement) at a per annum rate of two (2.0%) percent
      greater than the rate of interest then specified in Section 5 of this
      Agreement.

    


    (b) Upon
      the
      filing of any complaint, application, or petition by or against the Borrower
      initiating any matter in which the Borrower is or may be granted any relief
      from
      the debts of the Borrower pursuant to the Bankruptcy Code, Bank’s obligation
      hereunder shall be canceled immediately, automatically, and without notice,
      and
      all Obligations of the Borrower then outstanding shall become immediately due
      and payable without presentation, demand, or notice of any kind to the
      Borrower.

    


    (c) Any
      sale
      or other disposition of the Collateral after an Event of Default may be at
      public or private sale upon such terms and in such manner as the Bank deems
      advisable, having due regard to compliance with any statute or regulation which
      might affect, limit or apply to the Bank’s disposition of the Collateral. The
      Bank may conduct any such sale or other disposition of the Collateral upon
      the
      Borrower’s premises. Unless the Collateral is perishable or threatens to decline
      speedily in value, or is of a type customarily sold on a recognized market
      (in
      which event the Bank shall provide the Borrower with such notice as may be
      practicable under the circumstances), the Bank shall give the Borrower at least
      the greater of the minimum notice required by law or ten (10) days prior written
      notice of the date, time and place of any proposed public sale, and of the
      date
      after which any private sale or other disposition of the Collateral may be
      made.
      The Bank may purchase the Collateral, or any portion of it at any public
      sale.

    


    (d) If
      the
      Bank sells any of the Collateral on credit, the Borrower will be credited only
      with payments actually made by the purchaser of such Collateral and received
      by
      the Bank. If the purchaser fails to pay for the Collateral, the Bank may re-sell
      the Collateral and the Borrower shall be credited with the proceeds of the
      sale.


    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    


    (e) In
      connection with the Bank’s exercise of the Bank’s rights after the occurrence of
      an Event of Default, the Bank may enter upon, occupy and use any premises owned
      or occupied by the Borrower, and may exclude the Borrower from such premises
      or
      portion thereof as may have been so entered upon, occupied, or used by the
      Bank.
      The Bank shall not be required to remove any of the Collateral from any such
      premises upon the Bank’s taking possession thereof, and may render any
      Collateral unusable to the Borrower. In no event shall the Bank be liable to
      the
      Borrower for use or occupancy by the Bank of any premises pursuant to this
      Agreement.

    


    (f) Upon
      the
      occurrence of any Event of Default, the Bank may require the Borrower to
      assemble the Collateral and make it available to the Bank at the Borrower’s sole
      risk and expense at a place or places which are reasonably convenient to both
      the Bank and the Borrower.

    


    17. STANDARDS
      FOR EXERCISING REMEDIES. To the extent that applicable law imposes duties on
      Bank to exercise remedies in a commercially reasonable manner, Borrower
      acknowledges and agrees that it is not commercially unreasonable for Bank (a)
      to
      fail to incur expenses reasonably deemed significant by Bank to prepare
      Collateral for disposition or otherwise to complete raw material or work in
      process into finished goods or other finished products for disposition, (b)
      to
      fail to obtain third party consents for access to Collateral to be disposed
      of,
      or to obtain or, if not required by other law, to fail to obtain governmental
      or
      third party consents for the collection or disposition of Collateral to be
      collected or disposed of, (c) to fail to exercise collection remedies against
      account debtors or other persons obligated on Collateral or to remove liens
      or
      encumbrances on or any adverse claims against Collateral, (d) to exercise
      collection remedies against account debtors and other persons obligated on
      Collateral directly or through the use of collection agencies and other
      collection specialists, (e) to advertise dispositions of Collateral through
      publications or media of general circulation, whether or not the Collateral
      is
      of a specialized nature, (f) to contact other persons, whether or not in the
      same business as Borrower, for expressions of interest in acquiring all or
      any
      portion of the Collateral, (g) to hire one or more professional auctioneers
      to
      assist in the disposition of Collateral, whether or not the Collateral is of
      a
      specialized nature, (h) to dispose of the Collateral by utilizing Internet
      sites
      that provide for the auction of assets of the types included in the Collateral
      or that have the reasonable capability of doing so, or that match buyers and
      sellers of assets, (i) to dispose of assets in wholesale rather than retail
      markets, (j) to disclaim disposition warranties specifically to disclaim any
      warranties of title or the like, (k) to purchase insurance or credit
      enhancements to insure Bank against risks of loss, collection or disposition
      of
      Collateral or to provide to Bank a guaranteed return from the collection or
      disposition of Collateral, or (l) to the extent deemed appropriate by Bank,
      to
      obtain the services of other brokers, investment bankers, consultants and other
      professionals to assist Bank in the collection or disposition of any of the
      Collateral. Borrower acknowledges that the purpose of this section is to provide
      non-exhaustive indications of what actions or omissions by Bank would not be
      commercially unreasonable in Bank’s exercise of remedies against the Collateral
      and that other actions or omissions by Bank shall not be deemed commercially
      unreasonable solely on account of not being indicated in this section. Without
      limitation upon the foregoing, nothing contained in this section shall be
      construed to grant any rights to Borrower or to impose any duties on Bank that
      would not have been granted or imposed by this Agreement or by applicable law
      in
      the absence of this section.

     

    18. PROCESSING
      AND SALES OF INVENTORY. So long as Borrower is not in default hereunder,
      Borrower shall have the right, in the regular course of business, to process
      and
      sell Borrower’s Inventory. A sale in the ordinary course of business shall not
      include a transfer in total or partial satisfaction of a debt.


    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    


    19. WAIVER
      OF
      JURY TRIAL. BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND
      INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY
      JURY
      IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
      THIS
      AGREEMENT. Borrower hereby certifies that neither Bank nor any of its
      representatives, agents or counsel has represented, expressly or otherwise,
      that
      Bank would not, in the event of any such suit, action or proceeding, seek to
      enforce this waiver of right to trial by jury. Borrower acknowledges that Bank
      has been induced to enter into this Agreement by, among other things, this
      waiver. Borrower acknowledges that it has read the provisions of this Agreement
      and in particular, this section; has consulted legal counsel; understands the
      right it is granting in this Agreement and is waiving in this section in
      particular; and makes the above waiver knowingly, voluntarily and
      intentionally.

    


    20. CONSENT
      TO JURISDICTION. Borrower and Bank agree that any action or proceeding to
      enforce or arising out of this Agreement may be commenced in any court of the
      Commonwealth of Massachusetts sitting in the counties of Suffolk or Middlesex,
      or in the District Court of the United States for the District of Massachusetts,
      and Borrower waives personal service of process and agrees that a summons and
      complaint commencing an action or proceeding in any such court shall be properly
      served and confer personal jurisdiction if served by registered or certified
      mail to Borrower, or as otherwise provided by the laws of the Commonwealth
      of
      Massachusetts or the United States of America.

    


    21. TERMINATION.

    


    (a) Unless
      renewed in writing, this Agreement shall terminate on June 30, 2009 (the
“Termination Date”), and all Obligations shall be due and payable in full
      without presentation, demand, or further notice of any kind, whether or not
      all
      or any part of the Obligations is otherwise due and payable pursuant to the
      agreement or instrument evidencing same. Bank may terminate this Agreement
      immediately and without notice upon the occurrence of an Event of Default.
      Notwithstanding the foregoing or anything in this Agreement or elsewhere to
      the
      contrary, the security interest, Bank’s rights and remedies hereunder and
      Borrower’s Obligations and liabilities hereunder shall survive any termination
      of this Agreement and shall remain in full force and effect until all of the
      Obligations outstanding, or contracted or committed for (whether or not
      outstanding), shall be finally and irrevocably paid in full. No Collateral
      shall
      be released or financing statement terminated until such final and irrevocable
      payment in full of the Obligations, as described in the preceding
      sentence.

    


    (b) In
      the
      event that Bank continues to make loans hereunder after the Termination Date
      without a written extension of such Termination Date or after the occurrence
      of
      an Event of Default, all such loans: (i) shall be made in the sole and absolute
      discretion of Bank; and (ii) shall, together with all other Obligations, be
      payable thereafter ON DEMAND.


    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    


    22. MISCELLANEOUS.

    


    (a) No
      delay
      or omission on the part of Bank in exercising any rights shall operate as a
      waiver of such right or any other right. Waiver on any one occasion shall not
      be
      construed as a bar to or waiver of any right or remedy on any future occasion.
      All Bank’s rights and remedies, whether evidenced hereby or by any other
      agreement, instrument or paper, shall be cumulative and may be exercised
      singularly or concurrently. 

    


    (b) Bank
      is
      authorized to make loans under the terms of this Agreement upon the request,
      either written or oral, in the name of Borrower or any authorized person whose
      name appears at the end of this Agreement or of any of the following named
      person, or persons, from time to time, holding the following offices of
      Borrower, President, Treasurer and such other officers and authorized
      signatories as may from time to time be set forth in separate resolutions.
      Any
      request for a loan which is not accompanied by a Notice of Borrowing shall
      be
      deemed a request for a Prime Rate Loan.

    


    (c) This
      Agreement shall bind and inure to the benefit of the respective successors
      and
      assigns of each of the parties hereto; provided,
      however,
      that
      Borrower may not assign this Agreement or any rights or duties hereunder without
      Bank’s prior written consent and any prohibited assignment shall be absolutely
      void. No consent to an assignment by Bank shall release Borrower from its
      Obligations. Bank may assign this Agreement and its rights and duties hereunder
      with the consent of Borrower, unless there is a continuing Event of Default
      in
      which case no consent shall be required in connection with any such assignment.
      Bank reserves the right to grant participations in all or any part of, or any
      interest in Bank’s rights and benefits hereunder. In connection with any
      assignment or participation, Bank may disclose all documents and information
      which Bank now or hereafter may have relating to Borrower or Borrower’s
      business. To the extent that Bank assigns its rights and obligations hereunder
      to another party, Bank thereafter shall be released from such assigned
      obligations to Borrower and such assignment shall effect a novation between
      Borrower and such other party.

    


    (d) Borrower
      agrees that any and all loans made by Bank to Borrower or for its account under
      this Agreement pursuant to this Agreement shall be conclusively deemed to have
      been authorized by Borrower.

    


    (e) Unless
      otherwise defined in this Agreement, capitalized words shall have the meanings
      set forth in the Uniform Commercial Code as in effect in the Commonwealth of
      Massachusetts as of the date of this Agreement.

    


    (f) Paragraph
      and section headings used in this Agreement are for convenience only, and shall
      not effect the construction of this Agreement. If one or more provisions of
      this
      Agreement (or the application thereof) shall be invalid, illegal or
      unenforceable in any respect in any jurisdiction, the same shall not, invalidate
      or render illegal or unenforceable such provision (or its application) in any
      other jurisdiction or any other provision of this Agreement (or its
      application). This Agreement is the entire agreement of the parties with respect
      to the subject matter hereof and supersedes any prior written or verbal
      communications or instruments relating thereto.

    


    (g) Unless
      otherwise provided in this Agreement, all notices or demands by any party
      relating to this Agreement or any other loan document shall be in writing and
      (except for financial statements and other informational documents which may
      be
      sent by first-class mail, postage prepaid) shall be personally delivered or
      sent
      by registered or certified mail (postage prepaid, return receipt requested
      ),
      overnight courier, or telefacsimile to Borrower or to Bank, as the case may
      be,
      at its address set forth below:


    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    


    
      	
              If
                to Bank:

            	
              RBS
                CITIZENS, N.A.

            
	 	
              53
                State Street

            
	 	
              Boston,
                Massachusetts 02109

            
	 	
              Attn:
                Victoria Lazzell

            
	 	
              Telephone:  
                (617) 994-7124

            
	 	
              Telecopier:  
                (617) 742-9548

            
	 	 
	
              If
                to Borrower:

            	
              iCAD,
                INC. 

            
	 	
              98
                Spit Brook Road

            
	 	
              Nashua,
                New Hampshire 03062

            
	 	
              Attn:
                Darlene Deptula-Hicks

            
	 	
              Telephone: 
                (937) 431-7944

            
	 	
              Telecopier:  (603)
                886-3798

            


    

    


    The
      parties hereto may change the address at which they are to receive notices
      hereunder, by notice in writing in the foregoing manner given to the other.
      All
      notices or demand sent in accordance with this section shall be deemed received
      on the earlier of the date of actual receipt or three (3) days after the deposit
      thereof in the mail.

    


    (h) Bank
      shall have no obligation to maintain any electronic records or any documents,
      schedules, invoices, agings or any other paper delivered to Bank by Borrower
      in
      connection with this Agreement or any other agreement for more than four (4)
      months after receipt of the same by Bank.

    


    (i) Neither
      this Agreement nor any uncertainty or ambiguity herein shall be construed or
      resolved against Bank or Borrower, whether under any rule of construction or
      otherwise. On the contrary, this Agreement has been reviewed by all parties
      and
      shall be construed and interpreted according to the ordinary meaning of the
      words used so as to fairly accomplish the purposes and intentions of all parties
      hereto.

    


    (j) Each
      provision of this Agreement shall be severable from every other provision of
      this Agreement for the purpose of determining the legal enforceability of any
      specific provision.

    


    (k) This
      Agreement, together with the other documents and instruments executed
      concurrently herewith represent the entire and final understanding of the
      parties with respect to the transactions contemplated hereby and shall not
      be
      contradicted or qualified by evidence of any prior, contemporaneous or
      subsequent other agreement, oral or written, before the date
      hereof.

    


    (l) This
      Agreement can only be amended by a writing signed by both Bank and
      Borrower.

    


    (m) The
      laws
      of Massachusetts shall govern the construction of this Agreement and the rights
      and duties of the parties hereto. This Agreement shall take effect as a sealed
      instrument.


    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    


    WITNESS
      our hands and seals as of this 30th day of June, 2008.

    

      
        	
                Witnessed
                  by:

              	 	
                iCAD,
                  INC.

              
	 	 	 
	
                /s/Annette
                  Heroux

              	 	
                By:

              	
                /s/
                  Darlene Deptula-Hicks

              
	 	 	
                Darlene-Deptula-Hicks,
                  Chief Financial Officer

              
	 	 	 	 
	
                 

              	 	
                Address:   
                      98 Spit Brook Road

              
	 	 	
                                     
                  Nashua, New Hampshire 03062

              
	 	 	 	 
	
                Witnessed
                  by:

              	 	
                RBS
                  CITIZENS, N.A.

              
	 	 	 	 
	
                /s/Maria
                  Liachev

              	 	
                By:

              	
                /s/Victoria
                  P. Lazzell

              
	 	 	
                Victoria
                  P. Lazzell, Senior Vice President

              
	 	 	 
	 	 	
                Address:       
                  53 State Street

              
	 	 	
                                     
                  Boston, Massachusetts
                  02109

              


      

    


    
      
        
        

      

      
        -29-