**Exhibit 10.59**

** **

**BANKNORTH, N.A.**

 

**LOAN AND SECURITY AGREEMENT**

**(ALL ASSETS)**

 

**LOAN AND SECURITY AGREEMENT (ALL ASSETS),**dated as of March           , 2004,between and among MFIC Corporation, a Delaware corporation (**“MFIC”**), and Microfluidics Corporation, a Delawarecorporation (**“Microfluidics”**)(MFIC and Microfluidics are hereinafter collectively referred to as the “**Borrower**”), and Banknorth, N.A., a nationalbanking association organized and existing under the laws of the United Statesof America (the “**Bank**”).  The parties hereto hereby agree as follows:

 

**1.****             DEFINITIONS ANDACCOUNTING TERMS**

 

**Section 1.01****        **As used in thisAgreement (if so used), the following terms have the following meanings (termsdefined in the singular to have the same meaning when used in the plural andvice versa):

 

“**Affiliate**” shall mean anyPerson (i) which directly or indirectly Controls, or is Controlled by or isunder common Control with the Borrower or a subsidiary, (ii) which directly orindirectly beneficially holds or owns five (5%) percent or more of any class ofvoting stock of the Borrower or any subsidiary, or (iii) five (5%) percent ormore of the voting stock of which is directly or indirectly beneficially ownedor held by the Borrower or a subsidiary.

 

“**Acts**” shall have the meaningassigned to such term in Section 12.15.

 

“**Banking Day**” shall mean aday on which banks are open for business in Boston, Massachusetts, and if theapplicable “Banking Day” relates to a LIBOR Loan, a day on which dealings arecarried on and banks are open for business in the relevant Interbank Market.

 

“**Bankruptcy Code**”****as used herein shall mean Title 11 of theUnited States Code entitled “Bankruptcy”.

 

“**Borrowing Base**”****as used herein shall mean the sum of thefollowing:

 

(a)           eighty-five (85%) percent of the unpaid faceamount of Qualified Accounts (as defined below), minus

 

(b)           one hundred (100%) percent of the aggregateamount then undrawn on all letters of credit and acceptances issued pursuant tothis Agreement for the account of the Borrower.

 

“**Borrowing Date**” shallmean any day upon which a LIBOR Loan is made.

 

“**Capital Assets**”****shall mean assets that, in accordance withGAAP, are required or permitted to be depreciated or amortized on theBorrower’s balance sheet.

 

“**Capital Expenditures**”****shall mean but not be limited to amountspaid during such year

 

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for Capital Assets or Capital Leases and shall include, in the case ofa purchase, the entire purchase price and, in the case of a Capital Lease (butnot an operating lease), the entire rental for the term.

 

“**Capital Leases**”****shall mean capital leases, conditionalsales contracts and other title retention agreements relating to the purchaseor acquisition of Capital Assets.

 

“**CMLTD**” shall mean thecurrent maturity of long term Debt to be paid during the next twelve-monthperiod, including but not limited to, amounts required to be paid during suchperiod under Capital Leases.

 

“**Collateral**” shall havethe meaning assigned to such term in Section 5.

 

“**Control**”****shall mean the possession, directly orindirectly, of the power to direct****orcause the direction of the management and policies of any Person, whetherthrough the ownership of voting securities, by contract or otherwise.

 

“**Credit Limit**” means anamount equal to One Million ($1,000,000.00) Dollars.

 

“**Debt**” means (a)indebtedness or liability for borrowed money; (b) obligations evidenced bybonds, debentures, notes, or other similar instruments; (c) obligations for thedeferred purchase price of property or services (including trade obligations);(d) obligations as lessee under Capital Leases; (e) current liabilities inrespect of unfunded vested benefits under plans covered by ERISA; (f)obligations under letters of credit; (g) obligations under acceptancefacilities; (h) all guaranties, endorsements (other than for collection ordeposit in the ordinary course of business), and other contingent obligationsto purchase, to provide funds for payment, to supply funds to invest in anyPerson or otherwise to assure a creditor against loss; and (i) obligationssecured by any Liens, whether or not the obligations have been assumed.

 

“**Debt Service Coverage Ratio**”shall mean, during the applicable period, that quotient equal to (a) theaggregate of (i) Net Income, plus (ii) Interest, plus (iii) depreciation and amortization,minus (iv) Distributions, divided by (b) Fixed Charges, that is,

 

Net Income + Interest + depreciation andamortization - Distributions

Fixed Charges

 

“**Distributions**”****shall mean all payment or distributions toOwners in cash or in property other than reasonable salaries, bonuses andexpense reimbursements.

 

“**Dollars**” or “**$**” shall mean currency of the United Statesof America.

 

“**ERISA**” shall mean theEmployee Retirement Income Security Act of 1974, as amended.

 

“**Equipment**” shall have themeaning assigned to such term in Section 5.

 

**“Eurodollars**” shallmean Dollars acquired by Bank through the purchase or other acquisition ofdeposits denominated in Dollars and made with any bank or branch

 

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of a bank (including any branch of the Bank) located outside the UnitedStates of America.

 

“**Eurodollars Liabilities**”shall have the meaning assigned to that term in Regulation D of the Board ofGovernors of the Federal Reserve System, as in effect from time to time.

 

“**Event of Default**” shallhave the meaning assigned to such term in Section 14.01.

 

“**Fixed Charges**”****shall mean Interest plus CMLTD.

 

“**GAAP**” shall meangenerally accepted accounting principles.

 

“**Interbank Market**” shallmean, with respect to any LIBOR Loan, any recognized interbank Eurodollarmarket chosen in good faith by Bank.

 

“**Interest**”****shall mean, for the applicable period, allinterest paid or payable, including, but not limited to, interest paid orpayable on Debt and on Capital Leases, determined in accordance with GAAP.

 

“**Interest Period**” shallmean, with respect to each LIBOR Loan, a period commencing on the BorrowingDate of such loan, and ending on the numerically corresponding day in thefirst, second or third calendar month thereafter, as determined in accordancewith the provisions of this Agreement, provided that any Interest Period whichwould otherwise end on a day which is not a Banking Day, shall end and the nextInterest Period shall commence on the next preceding or the next succeeding daywhich is a Banking Day as determined in good faith by the Bank in accordancewith the then current bank practices in the relevant Interbank Market.

 

“**Inventory**” shall have themeaning assigned to such term in Section 5.

 

“**Letters of Credit”**shallhave the meaning assigned to such term in Section 2.05.

 

“**LIBOR**” shall mean, withrespect to a LIBOR Loan, the rate per annum (rounded upward, if necessary, tothe nearest one-eighth (1/8th) of one (1%) percent) at which deposits inDollars are offered to Bank or Bank’s representative or agent for delivery onthe Borrowing Date for such LIBOR Loan, in the relevant Interbank Market at11:00 a.m., local time, two Banking Days prior to such Borrowing Date for aperiod equal to the Interest Period chosen by Borrower with respect to suchLIBOR Loan and in an amount substantially equal to the principal amount of suchLIBOR Loan.  The Bank shall give promptnotice to the Borrower of the LIBOR determined for each LIBOR Loan and suchnotice shall be conclusive and binding, absent manifest error, for allpurposes.

 

“**LIBOR Interest Rate**”shall mean an interest rate per annum (rounded upward, if necessary, to thenearest one-eighth (1/8th) of one (1%) percent) determined by Bank pursuant tothe following formula:

 

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|   | LIBOR Interest Rate | =      |                | LIBOR  |   |   |
|--------|---------------------|--------|---------------------|--------|--------|--------|
|   |                |   | 1.00 * Reserve Rate |   |
|        |                     |        |                     |        |        |        |  |

 

“**LIBOR Loan(s)**” shallmean, when used in the singular, any loan on which the interest rate iscalculated by reference to LIBOR and, when used in the plural, shall mean allsuch loans.

 

“**Lien**” means any mortgage,deed of trust, pledge, security interest, hypothecation, assignment, depositarrangement, encumbrance, lien (statutory or other), or preference, priority,or other security agreement or preferential arrangement, charge, or encumbranceof any kind or nature whatsoever (including, without limitation, anyconditional sale or other title retention agreement, any financing lease havingsubstantially the same economic effect as any of the foregoing, and the filingof any financing statement under the UCC or comparable law of any jurisdictionto evidence any of the foregoing).

 

“**Loans**” shall mean allRevolving Loans and the Term Loan.

 

“**Margin**” shall mean twoand three-quarters (2.75%) percent (i.e., 275 basis points).

 

“**Maturity Date**” shall meanthe date on which an Interest Period expires.

 

“**Net Income**” shall meanthe amount by which total income exceeds operating expenses plus income taxes,all as determined in accordance with GAAP.

 

“**Obligations**”****shall have the meaning assigned to suchterm in Section 6.

 

“**Organizational Documents**”means (a) with respect to a corporation, its certificate or articles ofincorporation and by-laws; (b) with respect to a partnership, its partnershipcertificate and partnership agreement; (c) with respect to a limited liabilitycompany, its articles or certificate of formation and its operating ormanagement agreement; and (d) with respect to a trust, the declaration oftrust; and, with respect to any of them, any other document required to befiled with public authorities to evidence or establish authority to conductbusiness.

 

“**Owner**” means with respectto Borrower, any Person having legal or beneficial title to an ownershipinterest in Borrower or a right to acquire such an interest.

 

“**Permitted Protests**”****means the right of the Borrower to protestany Lien (other than a Lien that secures the Obligations), tax (other thanpayroll taxes or taxes that are the subject of a federal or state tax lien) orrental payment, provided that (x) a reserve with respect to such liability isestablished on the books of the Borrower in an amount that is reasonablysatisfactory to the Bank (or said lien is bonded over by Borrower), (y) anysuch protest is instituted and diligently prosecuted by the Borrower in goodfaith, and (z) the Bank is satisfied that, while such protest is pending, therewill be no impairment of the enforceability, validity or priority of any of theLiens of the Bank in and to the Collateral.

 

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“**Person**” means anindividual, partnership, corporation, limited liability company, limitedliability partnership, business trust, joint stock company, trust,unincorporated association, joint venture, governmental authority, or otherentity of whatever nature.

 

“**Plan**” means any employeeplan subject to Title IV of ERISA maintained for employees of Borrower, anysubsidiary of Borrower or any other trade or business under common control withBorrower within the meaning of Section 414(c) of the Internal Revenue Code of1986 or any regulations thereunder.

 

“**Prime Rate**” shall meanshall mean the Prime Rate as published from time to time in the “Money Rates”section of TheWall Street Journal or any successor publication,or in the event that such rate is no longer published in The Wall StreetJournal, a comparable index or reference selected by Bank.

 

“**Prime Rate Loan(s)**” shallmean, when used in the singular, any loans on which the interest rate iscalculated by reference to the Prime Rate and, when used in the plural, shallmean all such loans.

 

“**Qualified****Account**”, as used herein, means an Accountowing to Borrower which met the following specifications at the time it cameinto existence and continues to meet the same until it is collected in full:

 

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

 

(b)           The Account arose from the performance ofservices or an outright sale of goods by Borrower, such goods have been shippedto the account debtor, and Borrower has possession of, or has delivered toBank, shipping and delivery receipts evidencing such shipment.

 

(c)           The Account is not subject to any priorassignment, claim, lien, or security interest, and Borrower will not make anyfurther assignment thereof or create any further security interest therein, norpermit Borrower’s rights therein to be reached by attachment, levy, garnishmentor other judicial process.

 

(d)           The Account is not subject to set!off,credit, allowance or adjustment by the account debtor, except discount allowedfor prompt payment and the account debtor has not complained as to hisliability thereon and has not returned any of the goods from the sale of whichthe Account arose.

 

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

 

(f)            TheAccount is not owed by any unit of government, whether foreign or domestic(provided, however, there shall be included in Qualified Accounts that portionof Accounts owed by the United States of America if

 

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Borrower hasassigned such Account to Bank in compliance with the Federal Assignment ofClaims Act or, if owed by a unit of government other than the United States ofAmerica, Borrower has provided Bank with evidence satisfactory to Bank that (i)Bank has a first priority perfected security interest in such Account, and (ii)such Account may be enforced by Bank directly against such unit of governmentunder all applicable laws).

 

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

 

(h)           The Account is not owed by an account debtorwhose principal place of business is outside the United States of America,unless such Accounts are insured by an entity on terms and conditionssatisfactory to Bank, in Bank’s sole discretion, and the policy for such creditinsurance names Bank as a co-insured. The foregoing notwithstanding, Borrowershall have a period of sixty (60) days in which to change the name of theco-insured from its existing secured lender to Bank.

 

(i)            The Account is not owed by an entity whichis a parent, brother/sister, subsidiary or Affiliate.

 

(j)            The account debtor is not located in theState of New Jersey or in the State of Minnesota (or any other state thatrequires a creditor to file a business activity report or similar document inorder to bring suit or otherwise enforce its remedies against such accountdebtor in the courts or through any judicial process of such state), unlessBorrower has qualified to do business in such state, or has filed a notice ofbusiness activities report with the applicable division of taxation, thedepartment of revenue or with such other state offices, as appropriate, for thethen current year, or is exempt from such requirement.

 

(k)           The Account when aggregated with all of theAccounts of that account debtor does not exceed fifty (50%) percent of the thenaggregate of Qualified Accounts.

 

(l)            The Account is not evidenced by apromissory note.

 

(m)          The Account did not arise out of any salemade on dating, delayed shipment or bill and hold basis unless, in the case ofan Account that arose out of a sale made on a bill and hold basis, (i) titlehas been transferred to the account debtor, (ii) the equipment being sold hasbeen completed, and (iii) the account debtor has acknowledged in writing thatthe equipment being sold has been completed.

 

(n)           The Account did not arise as a result of aprogress billing or from a project on which the Account Debtor has a payment orperformance bond.

 

(o)           The Account is not for retainage.

 

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(p)           Bank has not deemed the Account to beunacceptable for any reason.

 

PROVIDED THAT if at any time fifty (50%)percent or more of the aggregate amount of the Accounts due from any accountdebtor are unpaid in whole or in part more than ninety (90) days from therespective dates of invoice, from and after such time none of the Accounts(then existing or hereafter arising) due from such account debtor shall bedeemed to be Qualified Accounts until such time as all Accounts due from suchaccount debtor are (as a result of actual payments received thereon) no morethan ninety (90) days from the respective dates of invoice; Accounts payable byBorrower to an account debtor shall be netted against Accounts due from suchaccount debtor and the difference (if positive) shall constitute QualifiedAccounts from such account debtor for purposes of determining the BorrowingBase (notwithstanding paragraph (d) above); characterization of any Account due from an account debtor as aQualified Account shall not be deemed a determination by Bank as to its actualvalue nor in any way obligate Bank to accept any Account subsequently arisingfrom such account debtor to be, or to continue to deem such Account to be, aQualified Account; it is Borrower’s responsibility to determine thecreditworthiness of account debtors and all risks concerning the same andcollection of Accounts are with Borrower; and all Accounts whether or notQualified Accounts constitute Collateral.

 

“**Receivables**”shall have the meaning assigned to such term in Section 5.

 

“**ReserveRate**” shall mean the rate (expressed as a decimal) at which Bankwould be required to maintain reserves under REGULATION D of the Board ofGovernors of the Federal Reserve System against Eurodollar Liabilities if suchLiabilities were outstanding.  The LIBORInterest Rate shall be adjusted automatically as of the effective date of anychange in the Reserve Rate.

 

“**RevolvingLoan**” shall have the meaning assigned to such term in Section 2.02.

 

“**SeniorDebt**” shall mean any Debt which is not Subordinated Debt.

 

“**SubordinatedDebt**” shall mean Debt which is expressly stated to be subordinatedor junior in right of payment to Borrower’s Obligations to Bank in a manner andin a form which is satisfactory to Bank.

 

“**TangibleCapital Base**” shall mean Borrower’s Tangible Net Worth plus its SubordinatedDebt.

 

“**TangibleNet Worth**” shall mean the sum of Borrower’s Owner’s equity, subtractingtherefrom (i) intangibles (as determined in accordance with suchprinciples so applied), and (ii) Debt owing to Borrower from any employee,parent, subsidiary or Affiliate.

 

“**Term Loan**”shall have the meaning assigned to such term in Section 2.01.

 

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“**UCC**”shall mean the Massachusetts Uniform Commercial Code as in effect from time totime.

 

**Section 1.02****        **All accounting termsnot specifically defined herein shall be construed in accordance with GAAPconsistent with those applied in the preparation of the financial statementsreferred to in Section 8.05, and all financial data submitted pursuant to thisAgreement shall be prepared in accordance with such principles.

 

**Section 1.03**         Unless otherwise definedin this Agreement, capitalized words shall have the meanings set forth in theUCC.

 

**2.**             **LOANSAND OTHER FINANCIAL ACCOMMODATIONS.**

 

**Section 2.01**         Subject to the terms andprovisions of this Agreement, Bank has agreed to extend to Borrower a termloan, evidenced by a Term Note in the form of Exhibit 1 annexed hereto, in theoriginal principal amount of One Million ($1,000,000.00) Dollars (the **“Term Loan”**).  The Term Loan shall mature and bear interest as provided in theTerm Note and shall otherwise be subject to the terms and conditions of theTerm Note and this Agreement.

 

**Section 2.02**         Subject to the terms andprovisions of this Agreement, Bank hereby establishes a discretionary revolvingline of credit in Borrower’s favor in the amount of the Credit Limit, asdetermined by Bank from time to time hereafter.  Bank may make such loans, advances and grant creditaccommodations to Borrower, based upon such facts and circumstances existing atthe time of the request, as from time to time Bank elects to make which aresecured by Borrower’s Inventory, Accounts and all other Collateral and theproceeds thereof (the “**Revolving Loan**”).  Without limiting the discretionary nature ofBank’s obligation to make Revolving Loans hereunder, or the demand feature ofany Revolving Loans Bank does make hereunder, Borrower agrees that theaggregate unpaid principal of all Revolving Loans outstanding at any one timeshall not exceed the Borrowing Base.

 

In order to facilitate the borrowingprocedures hereunder, MFIC and Microfluidics hereby appoint Microfluidics assuch corporation’s duly authorized agent to request, receive and distributeloans hereunder and to communicate with Bank with respect hereto, andMicrofluidics does hereby accept such appointment.

 

**Section 2.03**         All such Revolving Loansshall bear interest and at the option of Bank shall be evidenced by a RevolvingLine of Credit Note(s) in the form of Exhibit 2 annexed hereto, but in allevents shall be conclusively evidenced by the Bank’s record of disbursementsand repayments and shall be payable ON DEMAND.

 

Interest, net of those loans (if any) whichbear interest calculated by reference to LIBOR (as defined below), will becharged to Borrower at a fluctuating rate which is the daily equivalent to arate equal to the Prime Rate, or at such other rate agreed on from time to timeby the parties, upon any balance owing to Bank at the close of each day andshall be payable on the first day of each month in arrears until the Bank makesdemand.  The rate of interest payable byBorrower shall be changed effective as of that date in which a change in thePrime Rate becomes effective.  Interestshall be computed on the basis of the actual number of days elapsed over a yearof three

 

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hundred sixty(360) days. Interest shall be payable in lawful money of the United States ofAmerica to Bank, or as Bank shall direct, without set-off, deduction or counterclaimmonthly, in arrears, on the first day of each month, commencing on the firstday of the month next succeeding the date hereof.

 

Interest, net of those loans (if any) whichbear interest calculated by reference to the Prime Rate, will be charged toBorrower at a rate which is the equivalent to the LIBOR Interest Rate plusMargin and shall be calculated and payable in the manner set forth in****Section 2.11****below.

 

The foregoing notwithstanding, absent theoccurrence of an Event of Default which is continuing, a demand for paymentshall not be effective for one hundred twenty (120) days after the date demandis made.

 

**Section 2.04****        **Borrower herebyauthorizes and directs Bank, in Bank’s sole discretion (provided, however, Bankshall have no obligation to do so): (i) to pay accrued interest as the samebecomes due and payable pursuant to this Agreement or pursuant to any note orother agreement between Borrower and Bank, and to treat the same as a RevolvingLoan to Borrower, which shall be added to Borrower’s loan balance pursuant tothis Agreement; (ii) to charge any of Borrower’s accounts under the control ofBank; or (iii) apply the proceeds of Collateral, including, without limitation,payments on Accounts and other payments from sales or lease of Inventory andany other funds to the payment of such items. Bank shall promptly notify Borrower of any such charges or applications.

 

**Section 2.05**         At the request of theBorrower, and upon the execution of letter of credit documentation satisfactoryto Bank, Bank, within the limits of the Borrowing Base, as then computed andalso within the limits of the Credit Limit as then computed, may issue lettersof credit from time to time for the account of the Borrower (hereinaftercollectively “**Letter(s) of Credit**”).  The Letters of Credit shall be on termsmutually acceptable to Bank and the Borrower. A Revolving Loan in an amount equal to any amount paid by Bank under aLetter 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 anyLetter of Credit, Borrower shall pay to Bank the fee and commissions relatingto any such Letter of Credit at such rate as Lender may from time to timeestablish, plus transaction fees at Bank’s customary rates, and all othernormal and customary fees charged by Bank. Borrower hereby authorizes anddirects Bank, in Bank’s sole discretion (provided, however, Bank shall have noobligation to do so) to pay all such fees and costs as the same become due andpayable and to treat the same as a Revolving Loan to Borrower, which shall beadded to Borrower’s loan balance pursuant to this Agreement.  For purposes of computing the Credit Limit,all Letters of Credit and acceptances shall be deemed to be Revolving Loans andin no event shall the sum of all Revolving Loans plus the sum of the aggregateamount undrawn on all letters of credit and acceptances be in excess of theCredit Limit.

 

**Section 2.06**         The Borrowing Base isintended solely for monitoring purposes. The making of Revolving Loans, advances, and credits by Bank to theBorrower in excess of the Borrowing Base is for the benefit of the Borrower anddoes not affect the Obligations of Borrower hereunder; all such Revolving Loansconstitute Obligations and must be repaid by Borrower in accordance with theterms of this Agreement.

 

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**Section 2.07**         It is the intention ofthe parties hereto to comply strictly with applicable usury laws, if any;accordingly, notwithstanding any provisions to the contrary in this Agreementor any other documents or instruments executed in connection herewith, in noevent shall this Agreement or such documents or instruments require or permitthe payment, taking, reserving, receiving, collecting or charging of any sumsconstituting interest under applicable laws which exceed the maximum amountpermitted by such laws.  If any suchexcess interest is called for, contracted for, charged, paid, taken, reserved,collected or received in connection with the Obligations or in anycommunication by Bank or any other Person to the Borrower or any other Person,or in the event all or part of the principal of the Obligations or interestthereon shall be prepaid or accelerated, so that under any of suchcircumstances or under any other circumstance whatsoever the amount of interestcontracted for, charged, taken, collected, reserved, or received on the amountof principal actually outstanding from time to time under this Agreement shallexceed the maximum amount of interest permitted by applicable usury laws, ifany, then in any such event it is agreed as follows: (i) the provisions of thisparagraph shall govern and control, (ii) neither the Borrower nor any otherPerson now or hereafter liable for the payment of the Obligations shall beobligated to pay the amount of such interest to the extent such interest is inexcess of the maximum amount of interest permitted by applicable usury laws, ifany, (iii) any such excess which is or has been received notwithstanding thisparagraph shall be credited against the then unpaid principal balance hereofor, if the Obligations have been or would be paid in full by such credit,refunded to the Borrower, and (iv) the provisions of this Agreement and theother documents or instruments executed in connection herewith, and anycommunication to the Borrower, shall immediately be deemed reformed and suchexcess interest reduced, without the necessity of executing any other document,to the maximum lawful rate allowed under applicable laws as now or hereafterconstrued by courts having jurisdiction hereof or thereof.  Without limiting the foregoing, allcalculations of the rate of interest contracted for, charged, taken, collected,reserved, or received in connection herewith which are made for the purpose ofdetermining whether such rate exceeds the maximum lawful rate shall be made tothe extent permitted by applicable laws by amortizing, prorating, allocatingand spreading during the period of the full term of the Obligations, includingall prior and subsequent renewals and extensions, all interest at any timecontracted for, charged, taken, collected, reserved or received.  The terms of this paragraph shall be deemedto be incorporated in every document and communication relating to theObligations.

 

**Section 2.08**         Bank shall not berequired to make a LIBOR Loan unless Bank shall have received from the Borrowera request for such LIBOR Loan, in the form of Exhibit 3 annexed hereto (hereina **“Notice of Borrowing”**), whichrequest complies with the requirements of this section.  Each Notice of Borrowing shall designate (i)the Borrowing Date for the requested LIBOR Loan; (ii) the amount of the LIBORLoan (which amount shall not be less than One Hundred Thousand ($100,000.00)Dollars; and (iii) the Interest Period. Each Notice of Borrowing must be received by Bank not less than three(3) Banking Days prior to the Borrowing Date. A Notice of Borrowing may be transmitted by telecopier, cable or mail, butmay not be transmitted by telephone.  Ifa Notice of Borrowing is transmitted by telecopier or cable, the Borrower shallimmediately mail to Bank written confirmation thereof.

 

**Section 2.09**         After receipt from theBorrower of any Notice of Borrowing which requests a LIBOR Loan, Bank shalldetermine if it is able to make such LIBOR Loan (or if it is unable to do sofor reasons described in this section only) and will notify the Borrower uponconfirmation of its ability to do so. If Bank determines in good faith that, by reason of

 

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circumstancesaffecting the Interbank Market, adequate and reasonable methods do not existfor ascertaining the LIBOR which would otherwise be applicable to such LIBORLoan, then Bank shall so notify the Borrower on or before 4:00 p.m. on theBanking Day prior to the Borrowing Date specified in the Notice of Borrowing,and in such event, Bank shall not be obligated to make such LIBOR Loan and theNotice of Borrowing shall be deemed to have been withdrawn by the Borrower withBank’s consent and substituted with a request for a Prime Rate Loan in anamount equal to the requested LIBOR Loan.

 

**Section 2.10**         Except as otherwiseprovided in Section 2.09 ** **above, any Notice of Borrowing whichrequests a LIBOR Loan shall be irrevocable and binding upon the Borrower.  In the event the Borrower fails to borrowthe LIBOR Loan requested on the Borrowing Date specified in such Notice ofBorrowing, the Borrower shall indemnify Bank against any and all losses andexpenses incurred by Bank by reason of such failure including, without limitingthe generality of the foregoing, all losses and expenses incurred by reason ofthe liquidation, disposition or reemployment of deposits or other funds acquiredby Bank to fund such LIBOR Loan.

 

**Section 2.11**         The Borrower shall payinterest on the aggregate unpaid principal balance of each LIBOR Loan from theBorrowing Date for such LIBOR Loan through and including the Maturity Datechosen by the Borrower with respect to such LIBOR Loan at a per annum fixedrate equal to the aggregate of the LIBOR Interest Rate plus Margin, and shallpay all interest accrued but unpaid under this section on the sooner to occurof: (i)  the first day of each month; or(ii) such Maturity Date.

 

**Section 2.12**         If a LIBOR Loan is notrepaid in full on its Maturity Date, then such LIBOR Loan shall bear interestat the rate which is calculated by reference to the Prime Rate as described inSection 2.03 above from and after such Maturity Date.

 

**Section 2.13**         Each LIBOR Loan whichconstitutes a loan pursuant to this Agreement shall be repaid in full on itsMaturity Date.

 

**Section 2.14**         Any LIBOR Loan may berepaid with the proceeds of another Loan, subject to the terms of Section2.02  above.

 

**Section 2.15**         Except as otherwiseprovided herein with respect to Bank’s rights following the occurrence of anEvent of Default, no LIBOR Loan may be repaid prior to its Maturity Date andall monies received by Bank for application to a LIBOR Loan prior to theMaturity Date of such LIBOR Loan shall be held by Bank in a non-interestbearing cash collateral account as security for all Obligations.

 

**Section 2.16**         Notwithstanding any otherprovision of this Agreement, (a) if the introduction of or any change in anylaw or regulation (or change in the interpretation thereof) applicable to Bankor any foreign branch, agent or correspondent thereof shall make it unlawful,or (b) if any central bank or other governmental authority having jurisdictionover Bank or any such branch, agent or correspondent, shall assert that it isunlawful, for Bank to perform its obligations hereunder or for any such branch,agent or correspondent to act on behalf of Bank to make LIBOR Loans to theBorrower or to continue to fund or maintain LIBOR Loans to the Borrowerhereunder, or (c) if Bank determines after making all reasonable efforts, thatdeposits of the relevant amount and for the relevant LIBOR Loan to the Borrowerare not available to Bank

 

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in theInterbank Market, then, on notice thereof by Bank to the Borrower, theobligation of the Bank to the Borrower to make future LIBOR Loans shallterminate.  If, as a result of any ofthe foregoing described events, Bank is prohibited from maintaining LIBORLoans, the Bank shall, upon the happening of such event, notify the Borrowerand the Borrower shall, in the case of each LIBOR Loan, on the Maturity Date ofsuch LIBOR Loan (or, in any event, if the Bank so requests, on such earlier dateas may be required by the relevant law, regulation or interpretation), eitherprepay such LIBOR Loan or convert such LIBOR Loan into a Prime Rate Loan.

 

**Section 2.17**         If, due to payments madeby the Borrower pursuant to this Agreement or due to the acceleration of theObligations or due to any other reason or because the Borrowing Base has beenexceeded, Bank receives payments of principal of any LIBOR Loan prior to theMaturity Date for such LIBOR Loan, the Borrower shall, upon demand by Bank, payto Bank any amounts required to compensate Bank for any additional losses,costs or expenses which it may reasonably incur as a result of such payment,including, without limitation, any loss, costs or expenses incurred by reasonof the liquidation or reemployment of deposits or other funds acquired by Bankto fund or maintain such LIBOR Loans.

 

**Section 2.18**         Calculation of the LIBORInterest Rate, as well as all other fees and charges payable with respect toeach LIBOR Loan shall be made and paid as though Bank had actually funded therelevant LIBOR Loan through the purchase of a Eurodollar deposit at LIBOR in anamount equal to the amount of the LIBOR Loan and having a maturity comparableto the relevant Interest Period and through the transfer of such Eurodollardeposit from an offshore agent or office of Bank to a domestic office of Bankin the United States of America, provided, however, that Bank may fund eachLIBOR Loan in any manner it sees fit and the foregoing assumptions shall benevertheless used for the calculation of the LIBOR Interest Rate and such otherfees and charges.

 

**Section 2.19**         Notwithstanding anythingto the contrary contained herein, Bank and Borrower agree that after theoccurrence of an Event of Default which is continuing, Borrower shall notrequest and Bank will not make LIBOR Loans.

 

**Section 2.20**         At no time shall there beoutstanding more than five (5) LIBOR Loans.

 

**3**.             **BANK’SREPORTS**.

 

After the end of each month, Bank will renderto Borrower a statement of Borrower’s loan account with Bank hereunder, showingall applicable credits and debits.  Eachstatement shall be considered correct and to have been accepted by Borrowerand, absent manifest error, shall be conclusively binding upon Borrower in respectof all charges, debits and credits of whatsoever nature contained therein underor pursuant to this Agreement, and the closing balance shown therein, unlessBorrower notifies Bank in writing of any discrepancy within twenty (20) daysfrom the mailing by Bank to Borrower of any such monthly statement.

 

**4**.             **CAPITALADEQUACY AND CONDITIONS OF LENDING.**

 

**Section 4.01**         If after the date hereof,Bank determines that (a) the adoption of any applicable law, rule, orregulation regarding capital requirements for banks or bank holding companiesor the subsidiaries thereof, (b) any change in the interpretation oradministration of any

 

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such law, ruleor regulation by any governmental authority, central bank, or comparable agencycharged with the interpretation or administration thereof, or (c) compliance byBank or its holding company with any request or directive of any suchgovernmental authority, central bank or comparable agency regarding capitaladequacy (whether or not having the force of law), has the effect of reducingthe return on Bank’s capital to a level below that which Bank could haveachieved (taking into consideration Bank’s and its holding company’s policieswith respect to capital adequacy immediately before such adoption, change, or complianceand assuming that Bank’s capital was fully utilized prior to such adoption,change, or compliance) but for such adoption, change, or compliance as aconsequence of Bank’s commitment to make advances pursuant hereto by any amountdeemed by Bank to be material:

 

(a)           Bank shall promptly, after Bank’sdetermination of such occurrence, give notice thereof to Borrower; and

 

(b)           Borrower shall pay to Bank as an additionalfee from time to time, on demand, such reasonable amount as Bank certified tobe the amount that will compensate Bank for such reduction.

 

A certificate of Bank claiming entitlement tocompensation as set forth above will be conclusive in the absence of manifesterror.  Such certificate will set forththe nature of the occurrence giving rise to such compensation, the additionalamount or amounts to be paid to Bank and the method by which such amounts weredetermined.  In determining such amount,Bank may use any reasonable averaging and attribution method.

 

**Section 4.02**         The willingness of Bankto consider making the Term Loan and the initial Revolving Loan or issuing orcausing to be issued any Letter of Credit hereunder shall be subject to thecondition precedent that Bank shall have received all of the following, each inform and substance satisfactory to Bank:

 

(a)           This Agreement, properly executed on behalfof Borrower.

 

(b)           The Term Note and the Revolving Line ofCredit Note drawn to the order of Bank.

 

(c)           Current searches of appropriate filingoffices showing that (i) no state or federal tax liens have been filed andremain in effect against Borrower, (ii) no financing statements have beenfiled and remain in effect against Borrower, except those financing statementsrelating to liens set forth on Schedule “B”, the liens of the secured lender tobe paid with the proceeds of the initial loan and those financing statementsfiled by Bank, and (iii) Bank has duly filed all financing statementsnecessary to perfect the security interests granted hereunder, to the extentthe security interests are capable of being perfected by filing.

 

(d)           A certificate of the Clerk/Secretary or anAssistant Clerk/Secretary of Borrower, certifying as to (i) theresolutions of the directors and, if required, the shareholders of Borrower,authorizing the execution, delivery and performance of this Agreement andrelated documents, (ii) the Articles of Organization and By-Laws of Borrower,and (iii) the signatures of the officers or agents of Borrower authorizedto execute and deliver this Agreement and other instruments, agreements andcertificates, including loan requests, on behalf of Borrower.

 

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

 

(f)            Evidence that Borrower is duly licensed orqualified to transact business in all jurisdictions where the character of theproperty owned or leased or the nature of the business transacted by it makessuch licensing or qualification necessary.

 

(g)           An opinion of counsel to Borrower, addressedto Bank.

 

(h)           Certificates of the insurance requiredhereunder, with all hazard insurance containing a lender’s loss payable endorsementin favor of Bank.

 

(i)            A subordination agreement, properlyexecuted by each of the subordinating creditors, if any, in form and substancesatisfactory to Bank.

 

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

 

(k)           Such other documents, instruments andagreements as Bank in its sole discretion may require.

 

**Section 4.03**         Bank will not consider arequest for any loan or the issuance of any Letter of Credit unless on the datethereof:

 

(a)           the representations and warranties containedin Sections 7 and 8 hereof are correct on and as of the date of such loan orthe issuance of a Letter of Credit, as the case may be, as though made on andas of such date, except to the extent that such representations and warrantiesrelate solely to an earlier date; and

 

(b)           no event has occurred and is continuing, orwould result from such loan or issuance of such Letter of Credit, as the casemay be, which constitutes an Event of Default or which, with notice or thepassage of time or both, would constitute an Event of Default.

 

**5.**             **SECURITYINTEREST**.

 

Borrower, for valuable consideration, receiptwhereof is hereby acknowledged, hereby grants to Bank a continuing securityinterest in and to, and assigns to Bank, all assets of the Borrower, whereverlocated and whether now owned or hereafter acquired, including, withoutlimitation, the following:

 

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

 

(b)           all Accounts, contracts, contract rights,notes, bills, drafts, acceptances,

 

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GeneralIntangibles (including without limitation registered and unregistered tradenames,copyrights, customer lists, goodwill, computer programs, computer records,computer software, computer data, trade secrets, trademarks, patents, ledgersheets, files, records, data processing records relating to any Accounts andall tax refunds of every kind and nature to which Borrower is now or hereaftermay become entitled to, no matter how arising), Instruments, Documents, ChattelPaper (whether tangible or electronic), Deposit Accounts, Letter of CreditRights (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 otherdebts, obligations and liabilities in whatever form, owing to Borrower from anyPerson, whether now existing or hereafter arising, now or hereafter received byor belonging or owing to Borrower, for goods sold by it or for servicesrendered by it, or however otherwise same may have been established or created,all guarantees and securities therefor, all right, title and interest ofBorrower in the merchandise or services which gave rise thereto, including therights of reclamation and stoppage in transit, all rights to replevy goods, andall rights of an unpaid seller of merchandise or services (all hereinaftercalled the “**Receivables**”);

 

(c)           all machinery, Equipment, Fixtures and otherGoods whether now owned or hereafter acquired by the Borrower and whereverlocated, all replacements and substitutions therefor or accessions thereto andall proceeds thereof (all hereinafter called the “**Equipment**”); and

 

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

 

**6.**             **OBLIGATIONSSECURED**.

 

The security interest granted hereby is tosecure payment and performance of all debts, liabilities and obligations ofBorrower to Bank hereunder and also any and all other debts, liabilities andobligations of Borrower to Bank of every kind and description, direct orindirect, absolute or contingent, primary or secondary, due or to become due,now existing or hereafter arising, whether or not such obligations are relatedto the transactions described in this Agreement, by class, or kind, or whetheror not contemplated by the parties at the time of the granting of this securityinterest, regardless of how they arise or by what agreement or instrument theymay be evidenced or whether evidenced by any agreement or instrument, andincludes obligations to perform acts and refrain from taking action as well asobligations to pay money including, without limitation, all interest, fees,charges, expenses and overdrafts, and also including, without limitation, allobligations and liabilities which Bank may incur or become liable for, onaccount of, or as a result of, any transactions between Bank and Borrowerincluding any which may arise out of any letter of credit, acceptance orsimilar instrument or obligation issued or caused to be issued for the accountof Borrower and also including obligations arising out of any foreign exchangecontracts, interest rate swap, cap, floor or hedging agreements and allobligations of Borrower to Bank arising out of or in connection with anyAutomated Clearing House (**“ACH”**)agreements relating to the processing of ACH transactions, together with thefees, expenses, charges and other amounts owing or chargeable to Borrower underthe ACH agreements (all hereinafter called **“Obligations”**).

 

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**7.**             **BORROWER’S PLACES OF BUSINESS, INVENTORY LOCATIONS ANDRETURNS POLICY**.

 

**Section 7.01**         Borrower warrants thatBorrower has no places of business other than that shown at the end of thisAgreement, unless other places of business are listed on Schedule “A”, annexedhereto, in which event Borrower represents that it has additional places ofbusiness at those locations set forth on Schedule “A”.

 

**Section 7.02**         Borrower’s principalexecutive office and the office where Borrower keeps its records concerning itsaccounts, contract rights and other property, is that shown at the end of thisAgreement.  All Inventory presentlyowned by Borrower is stored at the locations set forth on Schedule “A”.

 

**Section 7.03**         Borrower will promptlynotify Bank in writing of any change in the location of any place of businessor the location of any Inventory or the establishment of any new place ofbusiness or location of Inventory or office where its records are kept whichwould be shown in this Agreement if it were executed after such change.

 

**Section 7.04**         Borrower represents andwarrants that it has described its returns policy in writing to Bank and thatit does now, and will continue to, apply such policy consistently in theconduct of its business and agrees that it shall notify Bank in writing beforechanging its policy or the application thereof.

 

**8**.             **BORROWER’S****ADDITIONAL****REPRESENTATIONS****AND****WARRANTIES**.

 

Borrower represents and warrants that:

 

**Section 8.01**         Borrower is dulyorganized, validly existing and in good standing under the laws of Delaware asa corporation and shall hereafter remain in good standing in that state, and isduly qualified and in good standing in every other state in which it is doingbusiness, and shall hereafter remain duly qualified and in good standing inevery other state in which the failure to qualify or become licensed could havea material adverse effect on the financial condition, business or operations ofthe Borrower.

 

**Section 8.02**         Borrower’s exact legalname is as set forth in this Agreement and Borrower will not undertake orcommit to undertake any act which will result in a change of Borrower’s legalname, without giving Bank at least thirty (30) days’ prior written notice ofthe same.  The organizationalidentification number of Borrower is as set forth on Schedule “A” annexedhereto.

 

**Section 8.03**         The execution, deliveryand performance of this Agreement, and any other document executed inconnection herewith, are within the Borrower’s powers, have been dulyauthorized, are not in contravention of law or the terms of the Borrower’s OrganizationDocuments, or of any indenture, agreement or undertaking to which the Borroweris a party or by which it or any of its properties may be bound.

 

**Section 8.04**         All OrganizationDocuments and all amendments thereto of Borrower have been duly filed and arein proper order.  All ownership interestof Borrower outstanding was and

 

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is properlyissued and all books and records of Borrower, including but not limited to itsminute books, Organization Documents and books of account, are accurate and upto date and will be so maintained.

 

**Section 8.05**         ***Reserved***

 

**Section 8.06**         Borrower owns all of theassets reflected in the most recent of Borrower’s financial statements providedto Bank, except assets sold or otherwise disposed of in the ordinary course ofbusiness since the date thereof, and such assets together with any assetsacquired since such date, including without limitation the Collateral, are freeand clear of any Lien, except (a) the security interests and other encumbrances(if any) listed on Schedule “B” annexed hereto, (b) those leases set forth onSchedule “C” annexed hereto, (c) those liens permitted pursuant to Section13.12 of this Agreement, or (d) Liens in favor of Bank.

 

**Section 8.07**         Borrower has made orfiled all tax returns, reports and declarations relating to any material taxliability required by any jurisdiction to which it is subject (any taxliability which may result in a lien on any Collateral being hereby deemedmaterial); has paid all taxes shown or determined to be due thereon exceptthose being contested in good faith and which Borrower has, prior to the dateof such contest, identified in writing to Bank as being contested; and has madeadequate provision for the payment of all taxes so contested, so that no lienwill encumber any Collateral, and in respect of subsequent periods.

 

**Section 8.08**         Borrower (a) is notsubject to any restrictions in its Organization Documents or other legalrestriction, or any judgment, award, decree, order, governmental rule orregulation or contractual restriction which could have a material adverseeffect on its financial condition, business or prospects, and (b) is incompliance with its Organization Documents, all contractual requirements bywhich it or any of its properties may be bound and all applicable laws, rulesand regulations (including without limitation those relating to environmentalprotection) other than laws, rules or regulations the validity or applicabilityof which it is contesting in good faith or provisions of any of the foregoingthe failure to comply with which cannot reasonably be expected to materiallyadversely affect its financial condition, business or prospects or the value ofany Collateral.

 

**Section 8.09**         Except as disclosed inwriting by Borrower to Bank, there is no action, suit, proceeding orinvestigation pending or, to Borrower’s knowledge, threatened against oraffecting it or any of its assets before or by any court or other governmentalauthority which, if determined adversely to it, would have a material adverseeffect on its financial condition, business or prospects or the value of anyCollateral.

 

 **               Section 8.10**         Borrower is in compliancewith ERISA; no Reportable Event has occurred and is continuing with respect toany Plan; and it has no unfunded vested liability under any Plan.

 

**9.**             **SALES****OF****INVENTORY**

 

So long as Borrower is not in defaulthereunder, Borrower shall have the right, in the regular course of business, toprocess and sell Borrower’s Inventory. A sale in the ordinary course of business shall not include a transferin total or partial satisfaction of a debt.

 

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**10.**          **FINANCINGSTATEMENTS**.

 

Borrower hereby irrevocably authorizes Bankat any time and from time to time to file in any UCC jurisdiction any initialfinancing statements and amendments thereto that (a) indicate the Collateral(i) as all assets of Borrower or words of similar effect, regardless of whetherany particular asset comprised in the Collateral falls within the scope ofArticle 9 of the UCC of such jurisdiction, or (ii) as being of an equal orlesser scope or with greater detail, and (b) contain any other informationrequired by the UCC for the sufficiency or filing office acceptance of anyfinancing statement or amendment, including (i) whether Borrower is anorganization, the type of organization and any organization identificationnumber issued to Borrower, and (ii) in the case of a financing statement filedas a fixture filing or indicating Collateral as as-extracted Collateral ortimber to be cut, a sufficient description of real property to which theCollateral relates. Borrower agrees to furnish any such information to Bankpromptly upon request.  Borrower alsoratifies its authorization for Bank to have filed in any UCC jurisdiction anylike initial financing statements or amendments thereto if filed prior to thedate hereof.

 

**11.**          **BORROWER’SREPORTS**.

 

**Section 11.01**       Within fifteen (15)calendar days after the end of each month or on such other more frequent basisas may be reasonably required by Bank from time to time, Borrower shall submitto Bank an aging report in form satisfactory to Bank showing the amounts dueand owing on all Accounts according to Borrower’s records as of the close ofsuch month or such shorter period as may be required by Bank from time to time,together with such other information as Bank may require.  If Borrower’s monthly aging reports areprepared by an accounting service or other agent, Borrower hereby authorizessuch service or agent to deliver such aging reports and any other relateddocuments to Bank.

 

**Section 11.02****      **Within fifteen (15)calendar days after the end of each month or on such other more frequent basisas may be reasonably required by Bank from time to time, Borrower shall furnishto Bank a certificate describing all of Borrower’s Inventory by value based onthe lower of cost or market value, listing all Inventory by nature, quantityand location, together with such other information as Bank may require.

 

**Section 11.03**       Within fifteen (15)calendar days after the end of each month or on such other basis as may bereasonably required by Bank from time to time, Borrower shall submit to Bank anaccounts payable aging report in form satisfactory to Bank showing the amountsdue and owing on all accounts payable according to Borrower’s records as of theclose of such month or such shorter period as may be reasonably required byBank from time to time, together with such other information as Bank may require.  If Borrower’s monthly accounts payable agingreports are prepared by an accounting service or other agent, Borrower herebyauthorizes such service or agent to deliver such accounts payable aging reportsand any other related documents to Bank.

 

**Section 11.04**       Borrower shall deliver toBank all documents, as frequently as indicated below, or at such other times asBank may reasonably request, and all other documents and information requestedby Bank:

 

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|   |   | **DOCUMENT**                                                                                                                                                                                 |   | **FREQUENCY DUE**                                                                                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
| (i)    |   | A Borrowing Base Certificate, including cash receipts, credit memos,  sales, debit memos, the unpaid Revolving Loan balance, new borrowing requests  and the adjusted Revolving Loan balance |   | Monthly, within fifteen (15) calendar days after the end of each  month                                                               |
| (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 quarter to  quarter basis                     |   | Annually, at least thirty (30) days before 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 |
| (iv)   |   | Compliance Certificate in the form annexed hereto as Exhibit 4                                                                                                                               |   | As soon as available and in any event within one hundred twenty (120)  days after the close of each fiscal year of Borrower           |

 

**Section 11.05**       Borrower will furnish Bankas soon as available, and in any event within twenty (20) days after the closeof each monthly period of its fiscal year, a balance sheet as of the end ofsuch period, and a statement of income and retained earnings for the periodcommencing at the end of the previous fiscal year and ending with the end ofsuch period, and a statement of cash flows of the Borrower for the portion ofthe fiscal year ended with the last day of such period, all in reasonabledetail and stating in comparative form the respective figures for thecorresponding date and period in the previous fiscal year, and all prepared inaccordance with GAAP, certified by the chief financial officer of the Borrower(subject to year end adjustment).

 

**Section 11.06**       Borrower will furnish Bankwith copies of its quarterly 10Q Reports filed with the Securities and ExchangeCommission with fifteen (15) days of completion of such reports.

 

**Section 11.07**       Borrower will furnish Bank,annually, as soon as available, and in any event within one hundred twenty(120) days after the end of each fiscal year of Borrower, audited financialstatements including a balance sheet as of the end of such fiscal year, and astatement of income and retained earnings for such fiscal year, and a statementof cash flows for such fiscal year, all in reasonable detail and stating incomparative form the respective figures for the corresponding date and periodin the prior fiscal year, and all prepared in accordance with GAAP, accompaniedby an unqualified opinion prepared by Brown and Brown, LLP or other independentpublic accountants selected by the Borrower and acceptable to Bank.

 

**Section 11.08**       Borrower will promptly,upon receipt thereof, deliver to Bank, copies of any reports submitted to theBorrower by Borrower’s independent public accountants in connection with theexamination of the financial statements of the Borrower made by such

 

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accountants(the so-called “Management Letter”).

 

**Section 11.09**       In addition to theforegoing, the Borrower promptly shall provide Bank with such other andadditional information concerning the Borrower, the Collateral, the operationof the Borrower’s business, and the Borrower’s financial condition, includingfinancial reports and statements, as Bank may from time to time reasonablyrequest from the Borrower.  Allfinancial information provided Bank by the Borrower shall be prepared inaccordance with GAAP or generally accepted auditing principles (as applicable)applied consistently in the preparation thereof and with prior periods tofairly reflect the financial conditions of the Borrower at the close of, andits results of operations for, the periods in question.

 

**12.**          **GENERAL****AGREEMENTS****OF****BORROWER.**

 

**Section 12.01**       Borrower agrees to keep allthe Collateral insured with coverage and in amounts not less than that usuallycarried by one engaged in a like business and in any event not less than thatrequired by Bank with loss payable to Bank and Borrower, as their interests mayappear, and after an Event of Default reasonably appointing Bank as attorneyfor Borrower in obtaining, adjusting, settling and canceling such insurance andendorsing any drafts.  As furtherassurance for the payment and performance of the Obligations, Borrower herebyassigns to Bank all sums, including returns of unearned premiums, which maybecome payable under any policy of insurance on the Collateral and Borrowerhereby directs each insurance company issuing any such policy to make paymentof such sums directly to Bank.  Absentthe occurrence of an Event of Default which is continuing, all insuranceproceeds received by Bank shall be applied first to repay the Revolving Loansand shall be applied to the Term Loans only after the Revolving Loans have beenreduced to zero.

 

**Section 12.02**       Bank or its agents have theright to inspect the Collateral and all records pertaining thereto at intervalsto be determined by Bank and without hindrance or delay.

 

**Section 12.03**       Although, as above setforth, Bank has a continuing security interest in all of Borrower’s Collateraland in the proceeds thereof, Borrower will at all times maintain as the minimumsecurity hereunder a Borrowing Base not less than the aggregate unpaidprincipal of all Revolving Loans made hereunder plus the aggregate amountundrawn on all Letters of Credit issued hereunder and if Borrower fails to doso, Borrower will immediately make the necessary reduction in the unpaidprincipal amount of said Revolving Loans so that the sum of the Revolving Loansoutstanding hereunder plus the amount undrawn on Letters of Credit outstandinghereunder does not in the aggregate exceed the Borrowing Base.

 

**Section 12.04**       Borrower will at all timeskeep accurate and complete records of Borrower’s Inventory, Accounts and otherCollateral, and Bank, or any of its agents, shall have the right to call atBorrower’s place or places of business at reasonable intervals to be determinedby Bank, and without hindrance or delay, to inspect, audit, check, and makeextracts from any copies of the books, records, journals, orders, receipts,correspondence which relate to Borrower’s Accounts, and other Collateral orother transactions, between the parties thereto and the general financialcondition of Borrower and Bank may, at its expense, make copies thereof.Borrower shall pay to Bank all reasonable audit fees, plus all travel and otherexpenses incurred in connection with any such audit.  Borrower shall not have to reimburse Bank for such fees, costsand expenses to the extent they exceed Ten Thousand ($10,000.00) Dollars in anytwelve (12)

 

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month period.

 

**Section 12.05**       Borrower will maintain astandard and modern system of accounting which enables Borrower to producefinancial statements in accordance with GAAP and maintain records pertaining tothe Collateral that contain information as from time to time may be requestedby Bank.

 

**Section 12.06**       Borrower will maintain itsexistence in good standing and comply with all laws and regulations of theUnited States or of any state or states thereof or of any political subdivisionthereof, or of any governmental authority which may be applicable to it or toits business.

 

**Section 12.07**       Borrower will pay all realand personal property taxes, assessments and charges and all franchises, income,unemployment, old age benefits, withholding, sales and other taxes assessedagainst it, or payable by it at such times and in such manner as to prevent anypenalty from accruing or any lien or charge from attaching to its property.

 

**Section 12.08**       Bank may in its own name orin the name of others communicate with account debtors in order to verify withthem to Bank’s satisfaction the existence, amount and terms of any Accounts.

 

**Section 12.09**       If any of Borrower’sAccounts arise out of contracts with the United States or any department,agency, or instrumentality thereof, Borrower will immediately notify Bankthereof in writing and execute any instruments and take any steps required byBank in order that all monies due and to become due under such contracts shallbe assigned to Bank and notice thereof given to the Government under theFederal Assignment of Claims Act.

 

**Section 12.10**       If any of Borrower’sAccounts should be evidenced by promissory notes, trade acceptances, or otherinstruments for the payment of money, Borrower will immediately deliver same toBank, appropriately endorsed to Bank’s order and, regardless of the form ofsuch endorsement, Borrower hereby waives presentment, demand, notice ofdishonor, protest and notice of protest and all other notices with respectthereto.

 

**Section 12.11**       If any goods are at anytime in the possession of a bailee, Borrower shall promptly notify Bank thereofand, if requested by Bank, shall promptly obtain an acknowledgment from thebailee, in form and substance satisfactory to Bank, that the bailee holds suchCollateral 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 instructionsunless an Event of Default has occurred and is continuing or would occur aftertaking into account any action by Borrower with respect to the bailee.

 

**Section 12.12**       If Borrower is at any timea 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 ofBank, Borrower shall, pursuant to an agreement in form and substancesatisfactory to Bank, either (i) arrange for the issuer and any confirmer ofsuch letter of credit to consent to an assignment to Bank of the proceeds ofany drawing under the letter of credit, or (ii) arrange for Bank to become thetransferee beneficiary of the letter of credit, with Bank agreeing, in eachcase, that the proceeds of any drawing under the letter of credit are to beapplied in the

 

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same manner asany other payment on an Account.

 

**Section 12.13**       If Borrower shall at anytime hold or acquire a commercial tort claim, Borrower shall immediately notifyBank in a writing signed by Borrower of the brief details thereof and grant toBank in such writing a security interest therein, and in the net proceedsthereof, all upon the terms of this Agreement, with such writing to be in formand substance satisfactory to Bank.

 

**Section 12.14**       Borrower will promptly paywhen due all taxes and assessments upon the Collateral or for its use oroperation or upon this Agreement, or upon any note or notes evidencing theObligations, and will, at the request of Bank, promptly furnish Bank thereceipted bills therefor.  At itsoption, after an Event of Default, Bank may discharge taxes, Liens or otherencumbrances at any time levied or placed on the Collateral, may pay for insuranceon the Collateral and may pay for the reasonable maintenance and preservationof the Collateral.  Borrower agrees toreimburse Bank on demand for any reasonable payments made, or any expensesincurred by Bank pursuant to the foregoing authorization, and upon failure ofthe Borrower so to reimburse Bank, any such sums paid or advanced by Bank shallbe deemed secured by the Collateral and constitute part of the Obligations.

 

**Section 12.15**       Borrower will immediatelynotify Bank upon receipt of notification of any potential or known release orthreat of release of hazardous materials, hazardous waste, hazardous or toxicsubstance or oil from any site operated by Borrower or of the incurrence of anyexpense or loss in connection therewith or with the Borrower’s obtainingknowledge of any investigation, action or the incurrence of any expense or lossby any governmental authority in connection with the assessment, containment orremoval of any hazardous material or oil for which expense or loss the Borrowermay be liable.  As used herein, theterms “hazardous waste,” “hazardous or toxic substance,”  “hazardous material” or “oil” shall have thesame meanings as defined and used in any of the following (the “**Acts**”): the Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section9601 et seq.; the Federal Resource Conservation and Recovery Act, 42U.S.C. Sections 6901 et seq.; the Hazardous Materials TransportationAct, 49 U.S.C. Sections 1801 et seq.; the Toxic Substances Control Act,15 U.S.C. Section 2601 et seq.; M.G.L.A. c. 21E (Massachusetts Oil andHazardous Material Release Prevention Act); M.G.L.A. c. 21C (MassachusettsHazardous Waste Management Act); and/or the regulations adopted andpublications promulgated pursuant to any of the Acts, as the same may beamended from time to time.

 

**Section 12.16**       Except for Bank’s grossnegligence or willful misconduct, Borrower will indemnify and save Bankharmless from all loss, costs, damage, liability or expenses (including,without limitation, court costs and reasonable attorneys’ fees) that Bank maysustain or incur by reason of defending or protecting this security interest orthe priority thereof or enforcing the Obligations, or in the prosecution ordefense of any action or proceeding concerning any matter growing out of or inconnection with this Agreement and/or any other documents now or hereafterexecuted in connection with this Agreement and/or the Obligations and/or theCollateral.  This indemnity shallsurvive the repayment of the Obligations and the termination of Bank’sagreement to make Loans available to Borrower and the termination of thisAgreement.

 

**Section 12.17**       At the option of Bank,Borrower will furnish to Bank, from time to time, within five (5) days afterthe accrual in accordance with applicable law of Borrower’s obligation to

 

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make depositsfor F.I.C.A. and withholding taxes and/or sales taxes, proof satisfactory toBank that such deposits have been made as required.

 

**Section 12.18**       Should Borrower fail tomake any of such deposits or furnish such proof then Bank may, in its sole andabsolute discretion, (a) make any of such deposits or any part thereof, (b) paysuch taxes, or any part thereof, or (c) set up such reserves as Bank, in its judgment,shall deem reasonably necessary to satisfy the liability for such taxes.  Each amount so deposited or paid shallconstitute an advance under the terms hereof, repayable on demand withinterest, as provided herein, and secured by all Collateral and any otherproperty at any time pledged by Borrower with Bank.  Nothing herein shall be deemed to obligate Bank to make any suchdeposit or payment or set up such reserve and the making of one or more of suchdeposits 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) awaiver of any default by Borrower under the terms hereof.

 

**Section 12.19**       All advances by Bank toBorrower under this Agreement and under any other agreement constitute onegeneral revolving fluctuating Loan, and all indebtedness of Borrower to Bankunder this and under any other agreement constitute one generalObligation.  Each advance to Borrowerhereunder or otherwise shall be made upon the security of all of the Collateralheld and to be held by Bank.  It isdistinctly understood and agreed that all of the rights of Bank contained inthis Agreement shall likewise apply, insofar as applicable, to any modificationof or supplement to this Agreement and to any other agreements between Bank andBorrower.  Any default of this Agreementby Borrower shall constitute, likewise, a default by Borrower of any otherexisting agreement with Bank, and any default by Borrower of any otheragreement with Bank shall constitute a default of this Agreement.  The entire Obligation of Borrower to Bankshall become due and payable when payments become due and payable hereunderupon termination of this Agreement.

 

**Section 12.20**       Borrower will, at itsexpense, upon request of Bank promptly and duly execute and deliver suchdocuments and assurances and take such actions as may be necessary or desirableor as Bank may request in order to correct any defect, error or omission whichmay at any time be discovered or to more effectively carry out the intent andpurpose of this Agreement and to establish, perfect and protect Bank’s securityinterest, rights and remedies created or intended to be created hereunder.  Without limiting the generality of theabove, Borrower will join with Bank in executing notices appropriate underapplicable Federal or state law in form satisfactory to Bank and filing thesame in all public offices and jurisdictions wherever and whenever requested byBank.

 

**Section 12.21**       Borrower shall promptlynotify Bank in writing of any litigation, proceeding, or counterclaim against,or of any investigation of, Borrower if:  (a) the outcome of suchlitigation, proceeding, counterclaim, or investigation may materially andadversely affect the finances or operations of Borrower or title to, or thevalue of, any Collateral; or (b) such litigation, proceeding,counterclaim, or investigation questions the validity of this Agreement or anyaction taken, or to be taken, pursuant to this Agreement, Borrower shall furnishto Bank such information regarding any such litigation, proceeding,counterclaim, or investigation as Bank shall request.

 

**Section 12.22**       ***Reserved***

 

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**Section 12.23**       Borrower will maintain allof its bank accounts, including without limitation, its operating anddepository accounts, at Bank.  For eachdeposit account that Borrower at any time opens or maintains with a financialinstitution other than Bank, which will not be done without first obtaining thewritten consent of Bank, Borrower shall, at Bank’s request and option, pursuantto an agreement in form and substance satisfactory to Bank, either (a) causethe depositary bank to agree to comply at any time with instructions from Bankto such depositary bank directing the disposition of funds from time to timecredited to such deposit account, without further consent of Borrower, or (b)arrange for Bank to become the customer of the depositary bank with respect tothe deposit account, with Borrower being permitted, only with the consent ofBank, to exercise rights to withdraw funds from such deposit account.  Bank agrees with Borrower that Bank shallnot give any such instructions or withhold any withdrawal rights from Borrower,unless an Event of Default has occurred and is continuing, or, after givingeffect to any withdrawal not otherwise permitted by this Agreement wouldoccur.  The provisions of this paragraphshall not apply to (a) any deposit account for which Borrower, the depositarybank and Bank have entered into a cash collateral agreement speciallynegotiated among Borrower, the depositary bank and Bank for the specificpurpose set forth therein, (b) deposit accounts specially and exclusively usedfor payroll, payroll taxes and other employee wage and benefit payments to orfor the benefit of Borrower’s salaried employees. Notwithstanding theforegoing, Borrower may maintain operating account(s) for the operation of itsEuropean sales/service office located in Lampertheim Germany with local banks,currently Deutsche Bank.

 

**Section 12.24**       Subject to any landlords’rights, Borrower hereby grants to Bank for a term to commence on the date ofthis Agreement and continuing thereafter until all debts and Obligations of anykind or character owing from Borrower to Bank are fully paid and discharged,the right to use all premises or places of business which Borrower presentlyhas or may hereafter have and where any of the Collateral may be located, at atotal rental for the entire period of $1.00. Bank agrees not to exercise the rights granted in this paragraph unlessand until Bank determines to exercise its rights against the Collateral. Inconnection with the Bank’s exercise of the Bank’s rights after the occurrenceof an Event of Default, the Bank may enter upon, occupy and use any premisesowned or occupied by the Borrower, and may exclude the Borrower from suchpremises or portion thereof as may have been so entered upon, occupied, or usedby the Bank.  The Bank shall not berequired to remove any of the Collateral from any such premises upon the Bank’staking possession thereof, and may render any Collateral unusable to theBorrower.  In no event shall the Bank beliable to the Borrower beyond the rental specified above for use or occupancyby the Bank of any premises pursuant to this Agreement.

 

**Section 12.25**       Borrower hereby grants toBank for a term to commence on the date of this Agreement and continuingthereafter until all debts and Obligations of any kind or character owed toBank are fully paid and discharged, a non!exclusive irrevocable royalty!freelicense in connection with Bank’s exercise of its rights hereunder, to use,apply or affix any trademark, trade name logo or the like and to use anypatents, in which the Borrower now or hereafter has rights, which license maybe used by Bank upon and after the occurrence of any one or more of the Eventsof Default, provided, however, that such use by Bank shall be suspended if suchEvents of Default are cured.  This licenseshall be in addition to, and not in lieu of, the inclusion of all of Borrower’strademarks, servicemarks, tradenames, logos, goodwill, patents, franchises andlicenses in the Collateral; in addition to the right to use said Collateral asprovided in this paragraph, Bank shall have full right to exercise any and allof its other rights regarding Collateral

 

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with respectto such trademarks, servicemarks, tradenames, logos, goodwill, patents,franchises and licenses.

 

**Section 12.26**       Any and all deposits(whether demand or time deposits) or other sums at any time credited by or duefrom Bank to Borrower shall at all times constitute additional security for theObligations and may be set!off against any Obligations at any time followingthe occurrence of an Event of Default or an event which with notice or thelapse of time, or both, would constitute an Event of Default whether or notthey are then due or other security held by Bank is considered by Bank to beadequate.  Any and all instruments, documents,policies and certificates of insurance, securities, goods, accounts, choses inaction, general intangibles, chattel papers, cash, property and the proceedsthereof (whether or not the same are Collateral or proceeds thereof hereunder)owned by Borrower or in which Borrower has an interest, which now or hereafterare at any time in possession or control of Bank or in transit by mail orcarrier to or from Bank or in the possession of any third party acting inBank’s behalf, without regard to whether Bank received the same in pledge, forsafekeeping, as agent for collection or transmission or otherwise or whetherBank had conditionally released the same, shall constitute additional securityfor the Obligations and may be applied at any time following the occurrence ofan Event of Default or an event which with notice or the lapse of time, orboth, would constitute an Event of Default, to any Obligations which are thenowing, whether due or not due.  Bankshall be entitled to presume, in the absence of clear and specific writtennotice to the contrary hereinafter provided by Borrower to Bank, that any andall deposits maintained by Borrower with Bank are general accounts as to whichno Person other than Borrower has any legal or equitable interest whatsoever.

 

**Section 12.27**       Borrower shall pay to Bankon demand any and all reasonable counsel fees and other expenses incurred byBank in connection with the preparation, interpretation, enforcement,administration or amendment of this Agreement, or of any documents relatingthereto, and any and all expenses, including, but not limited to, a collectioncharge on all Accounts collected, all attorneys’ fees and expenses, and allother expenses of like or unlike nature which may be expended by Bank to obtainor enforce payment of any Account either as against the account debtor,Borrower, or any guarantor or surety of Borrower or in the prosecution ordefense of any action or concerning any matter growing out of or connected withthe subject matter of this Agreement, the Obligations or the Collateral or anyof Bank’s rights or interests therein or thereto, including, without limitingthe generality of the foregoing, any counsel fees or expenses incurred in anybankruptcy or insolvency proceedings and all reasonable costs and expensesincurred or paid by Bank in connection with the administration, supervision,protection or realization on any security held by Bank for the debt securedhereby, whether such security was granted by Borrower or by any other Personprimarily or secondarily liable (with or without recourse) with respect to suchdebt, and all reasonable costs and expenses incurred by Bank in connection withthe defense, settlement or satisfaction of any action, claim or demand assertedagainst Bank in connection with the debt secured hereby, all of which amountsshall be considered advances to protect Bank’s security, and shall be securedhereby.  After an Event of Default, atits option, and without limiting any other rights or remedies, Bank may at anytime pay or discharge any taxes, liens, security interests or otherencumbrances at any time levied against or placed on any of the Collateral, andmay procure and pay any premiums on any insurance required to be carried byBorrower, and provide for the maintenance and preservation of any of theCollateral, and otherwise take any action reasonably deemed necessary to Bankto protect its security, and all amounts expended by Bank in connection withany of the foregoing matters, including reasonable

 

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attorneys’fees, shall be considered Obligations of Borrower and shall be secured hereby.

 

**Section 12.28**       Borrower does hereby make,constitute and appoint any officer or agent of Bank as Borrower’s true andlawful attorney!in!fact, with power to endorse the name of Borrower or any ofBorrower’s officers or agents upon any notes, checks, drafts, money orders, orother instruments of payment (including payments payable under any policy ofinsurance on the Collateral) or Collateral that may come into possession ofBank in full or part payment of any amounts owing to Bank; to sign and endorsethe 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, draftsagainst debtors, assignments, verifications and notices in connection withAccounts, and any instrument or documents relating thereto or to Borrower’srights therein; to give written notice to such office and officials of the UnitedStates Post Office to effect such change or changes of address so that all mailaddressed to Borrower may be delivered directly to Bank; granting uponBorrower’s said attorney full power to do any and all things necessary to bedone in and about the premises as fully and effectually as Borrower might orcould do, and hereby ratifying all that said attorney shall lawfully do orcause to be done by virtue hereof. Neither Bank nor the attorney shall be liable for any acts or omissionsnor for any error of judgment or mistake, except for their gross negligence orwillful misconduct.  This power ofattorney shall be irrevocable for the term of this Agreement and alltransactions hereunder and thereafter as long as Borrower may be indebted toBank. With the exception of endorsing items which come into the possession ofBank, Bank agrees not to exercise the foregoing power of attorney prior to theoccurrence of an Event of Default which is continuing.

 

The foregoing notwithstanding, excluding onlyendorsement of checks that come into the possession of Bank, Bank agrees not toexercise the foregoing power of attorney absent the occurrence of an Event ofDefault which is continuing.

 

**13**.          **BORROWER’SNEGATIVE COVENANTS.**  Borrowerwill not at any time:

 

**Section 13.01**       Permit its Senior Debt tobe more than four (4) times the amount of its Tangible Capital Base as atDecember 31, 2004 or at any year end thereafter;

 

**Section 13.02**       Permit, for thetwelve-month period ending on the last day of any fiscal year commencing withthe fiscal year ending December 31, 2004, it Debt Service Coverage Ratio to beless than 1.20 to 1;

 

**Section 13.03**       Issue evidence of Debt orsuffer to exist Debt in addition to the Obligations, except (a) Debt orliabilities of Borrower other than for money borrowed, incurred or arising inthe ordinary course of business, or (b) Debt related to Permitted Liens;

 

**Section 13.04**       If Borrower is a“pass-through” tax entity for United States federal income tax purposes, makedistributions to its Owners during any fiscal year of Borrower in an aggregateamount greater than the amount necessary to pay federal and state income taxesupon Borrower’s undistributed income for such year;

 

**Section 13.05**       Sell, assign, exchange orotherwise dispose of any of the Collateral, other than Inventory consisting of(a) scrap, waste, defective goods and the like; (b) obsolete goods; (c)finished goods sold in the ordinary course of business or any interest thereinto any Person; and

 

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(d) Equipmentwhich is no longer required or deemed necessary for the conduct of Borrower’sbusiness, so long as Borrower receives therefor a sum substantially equal tosuch Equipment’s fair value;

 

**Section 13.06**       Create, permit to becreated or suffer to exist any Lien upon any of the Collateral or any otherproperty of Borrower, now owned or hereafter acquired, except: (a) landlords’,carriers’, warehousemen’s, mechanics’ and other similar liens arising byoperation of law in the ordinary course of Borrower’s business; (b) arising outof pledge or deposits under worker’s compensation, unemployment insurance, oldage pension, social security, retirement benefits or other similar legislation;(c) purchase money Liens arising in the ordinary course of business (so long asthe Debt secured thereby does not exceed the lesser of the cost or fair marketvalue of the property subject thereto, and such Lien extends to no otherproperty); (d) Liens for unpaid taxes that are either (i) not yet due andpayable, or (ii) the subject of Permitted Protests; (e) Liens which are thesubject of Permitted Protests; (f) those Liens and encumbrances set forth onSchedule “B” or Schedule “C” annexed hereto; and (g) in favor of Bank(hereinafter, collectively, “**Permitted Liens**”);

 

**Section 13.07**       Pay or make anydistribution on account of (except, if Borrower is a “pass-through” tax entityconsistent with Section 13.10 above) any class of Borrower’s ownership interestin cash or in property (other than additional ownership interest), or redeem,purchase or otherwise acquire, directly or indirectly, any of the ownershipinterests;

 

**Section 13.08**       Make any loans or advancesto any Person, including without limitation Borrower’s directors, officers andemployees, except advances to officers or employees with respect to expensesincurred by them in the ordinary course of their duties which are properlyreimbursable by Borrower;

 

**Section 13.09**       Assume, guaranty, endorseor otherwise become directly or contingently liable in respect of (includingwithout limitation by way of agreement, contingent or otherwise, to purchase,provide funds to or otherwise invest in a debtor or otherwise to assure acreditor against loss), any Debt (except guarantees by endorsement ofinstruments for deposit or collection in the ordinary course of business andguarantees in favor of Bank) of any Person.

 

**Section 13.10**       (a) Use any Loan proceedsto purchase or carry any “margin stock” (as defined in Regulation U of theBoard of Governors of the Federal Reserve System) or (b) invest in or purchaseany stock or securities of any Person except (i) readily marketable directobligations of, or obligations guaranteed by, the United States of America orany agency thereof, or (ii) time deposits with or certificates of depositissued by the Bank;

 

**Section 13.11**       Enter into any lease orother transaction with any Owner, officer of Borrower or Affiliate on terms anyless favorable than those which might be obtained at the time from Persons who(or entities which) are not such a Owner, officer of Borrower or Affiliate;

 

**Section 13.12**       Sell, transfer or otherwisedispose of any stock or other ownership interest of any subsidiary of Borrower;or

 

**Section 13.13**       Without the prior writtenconsent of Bank, (a) merge or consolidate with or into any Person, (b) enterinto any joint venture or partnership with any Person; (c) convey,

 

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lease or sellall or any material portion of its property or assets or business to any otherPerson, except for the sale of Inventory in the ordinary course of itsbusiness; or (d) convey, lease or sell any of its assets to any Person for lessthan the fair market value thereof.

 

**14.**          **DEFAULT.**

 

**Section 14.01**       Nothing contained in thissection, or elsewhere in this Agreement, shall affect the demand nature of suchof the Obligations as are by their terms, demand obligations, including,without limitation, Revolving Loans under this Agreement.  The occurrence of an Event of Default shallnot be a prerequisite for the Bank’s making demand or requiring payment of suchObligations.

 

Upon the occurrence of any one or more of thefollowing events (herein, “**Events****of****Default**”),any and all Obligations of Borrower to Bank shall become immediately due andpayable, at the option of Bank and without notice or demand.  The occurrence of any such Event of Defaultshall also constitute, without notice or demand, a default under all otheragreements between Bank and Borrower and instruments and papers given Bank byBorrower, whether such agreements, instruments, or papers now exist orhereafter arise, namely:

 

(a)           The failure by Borrower to pay upon demandany amount due under this Agreement.

 

(b)           The failure by Borrower to pay upon demand(or when due, if not payable on demand) any other Obligations.

 

(c)           The failure by Borrower to promptly,punctually and faithfully perform, or observe any term, covenant or agreementon its part to be performed or observed pursuant to any of the provisions ofthis Agreement.

 

(d)           The determination by Bank that anyrepresentation or warranty heretofore, now or hereafter made by Borrower toBank, in any documents, instrument, agreement, or paper was not true oraccurate in any material respect when given.

 

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

 

(f)            The occurrence of any event which wouldcause a lien creditor, as that term is defined in Section 9!102 of the UCC, totake priority over advances made by Bank.

 

(g)           A filing against or relating to Borrower of(i) a federal tax lien in favor of the United States of America or anypolitical subdivision of the United States of America, or (ii) a state tax lienin favor of any state of the United States of America or any politicalsubdivision of any such state.

 

(h)           The occurrence of any event of default underany agreement between Bank and Borrower or instrument or paper given Bank byBorrower, whether such agreement, instrument, or paper now exists or hereafterarises (notwithstanding that Bank may not have

 

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exercised itsrights upon default under any such other agreement, instrument or paper).

 

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

 

(j)            The granting of any trust mortgage orexecution of an assignment for the benefit of the creditors of Borrower, or theoccurrence of any other voluntary or involuntary liquidation or extension ofdebt agreement for Borrower; the failure by Borrower to generally pay the debtsof Borrower as they mature; adjudication of bankruptcy or insolvency relativeto Borrower; the entry of an order for relief or similar order with respect toBorrower in any proceeding pursuant to the Bankruptcy Code or any other federalbankruptcy law; the filing of any complaint, application, or petition by oragainst Borrower initiating any matter in which Borrower is or may be grantedany relief from the debts of Borrower pursuant to the Bankruptcy Code or anyother insolvency statute or procedure; the calling or sufferance of a meetingof creditors of Borrower; the meeting by Borrower of a formal or informalcreditor’s committee; the offering by or entering into by Borrower of anycomposition, extension or any other arrangement seeking relief or extension forthe debts of Borrower, or the initiation of any other judicial or non!judicialproceeding or agreement by, against or including Borrower which seeks orintends to accomplish a reorganization or arrangement with creditors.

 

(k)           The entry of any judgment against Borrower,which judgment is not satisfied or appealed from (with execution or similarprocess stayed) or bonded over within thirty (30) days of its entry.

 

(l)            The occurrence of any event or circumstancewith respect to Borrower such that Bank shall believe in good faith that theprospect of payment of all or any part of the Obligations or the performance byBorrower under this Agreement or any other agreement between Bank and Borroweris impaired.

 

(m)          The entry of any court order which enjoins,restrains or in any way prevents Borrower from conducting all or any part ofits business affairs in the ordinary course of business.

 

(n)           The occurrence of any uninsured loss, theft,damage or destruction to any material asset(s) of Borrower in excess of TenThousand ($10,000.00) Dollars.

 

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

 

(p)           This Agreement shall, at any time after itsexecution and delivery and for any reason, cease (i) to create a valid andperfected first priority security interest in and to the property purported tobe subject to this Agreement; or (ii) to be in full force and effect or shallbe declared null and void, or the validity or enforceability hereof shall becontested by Borrower or any guarantor of Borrower denies it has any furtherliability or obligation hereunder.

 

(q)           Any of the following events occur or existwith respect to Borrower or any

 

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ERISAaffiliate: (i) any “prohibited transaction” (as defined in Section 406 of ERISAor Section 4975 of the Internal Revenue Code) involving any Plan; (ii) any“reportable event” (as defined in Section 4043 of ERISA and the regulationsissued under such Section) shall occur with respect to any Plan; (iii) thefiling under Section 4041 of ERISA of a notice of intent to terminate any Planor the termination of any Plan; (iv) any event or circumstance exists whichmight constitute grounds entitling the Pension Benefit Guaranty Corporation(PBGC) to institute proceedings under Section 4042 of ERISA for the terminationof, or for the appointment of a trustee to administer, any Plan, or theinstitution by the PBGC of any such proceedings; or (v) partial withdrawalunder Section 4201 or 4204 of ERISA from a Multiemployer Plan or thereorganization, insolvency, or termination of any Multiemployer Plan; and ineach case above, such event or condition, together with all other events orconditions, if any, could in the opinion of Bank subject Borrower to any tax,penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, orotherwise.

 

(r)            The occurrence of any of the foregoingEvents of Default with respect to any guarantor, endorser, or surety to Bank ofthe Obligations, as if such guarantor, endorser or surety, were the “Borrower”described therein.

 

(s)           Any guarantor or Person signing a guarantyor support agreement in favor of Bank shall repudiate, purport to revoke orfail to perform his obligations under such guaranty or support agreement infavor of Bank.

 

**15.****              RIGHTS AND REMEDIESUPON DEFAULT; SET-OFF; EXPENSES; POWER OF ATTORNEY**.

 

Upon the occurrence of an Event of Default,after applicable cure periods, or demand by the Bank, the Bank shall have thefollowing rights and remedies.

 

**Section 15.01****      **Bank may declare anyobligation Bank may have hereunder to be cancelled, declare all Obligations ofBorrower to be due and payable and proceed to enforce payment of theObligations and to exercise any and all of the rights and remedies afforded toBank by the UCC or under the terms of this Agreement or otherwise.  In addition, upon the occurrence of an Eventof Default, if Bank proceeds to enforce payment of the Obligations, Borrowershall be obligated to deliver to Bank cash collateral in an amount equal to theaggregate amounts then undrawn on all outstanding Letters of Credit oracceptances issued or guaranteed by Bank for the account of Borrower, and Bankmay proceed to enforce payment of the same and to exercise all rights andremedies afforded to Bank by the UCC or under the terms of this Agreement orotherwise. Upon the occurrence of, and during the continuance of, an Event ofDefault, the Borrower, as additional compensation to the Bank for its increasedcredit risk, promises to pay interest on all Obligations (including, withoutlimitation, principal, whether or not past due, past due interest and any otheramounts past due under this Agreement) at a per annum rate of four (4%) percentgreater than the rate of interest then specified in Section 2 of thisAgreement.

 

**Section 15.02**       Upon the filing of anycomplaint, application, or petition by or against the Borrower initiating anymatter in which the Borrower is or may be granted any relief from the debts ofthe Borrower pursuant to the Bankruptcy Code, Bank’s obligation hereunder shallbe canceled immediately, automatically, and without notice, and all Obligationsof the Borrower then outstanding shall become immediately due and payablewithout presentation, demand, or notice of

 

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any kind tothe Borrower.

 

**Section 15.03**       Any sale or otherdisposition of the Collateral may be at public or private sale upon such termsand in such manner as the Bank deems advisable, having due regard to compliancewith any statute or regulation which might affect, limit or apply to the Bank’sdisposition of the Collateral.  The Bankmay conduct any such sale or other disposition of the Collateral upon theBorrower’s premises.  Unless theCollateral is perishable or threatens to decline speedily in value, or is of atype customarily sold on a recognized market (in which event the Bank shallprovide the Borrower with such notice as may be practicable under thecircumstances), the Bank shall give the Borrower at least the greater of theminimum notice required by law or seven (7) days prior written notice of thedate, time and place of any proposed public sale, and of the date after whichany private sale or other disposition of the Collateral may be made.  The Bank may purchase the Collateral, or anyportion of it at any such sale.

 

If the Bank sells any of the Collateral oncredit, the Borrower will be credited only with payments actually made by thepurchaser of such Collateral and received by the Bank. If the purchaser failsto pay for the Collateral, the Bank may re-sell the Collateral and the Borrowershall be credited with the proceeds of the sale.

 

**Section 15.04**       The Bank may require theBorrower to assemble the Collateral and make it available to the Bank at theBorrower’s sole risk and expense at a place or places which are reasonablyconvenient to both the Bank and the Borrower.

 

**Section 15.05**       In connection with Bank’sexercise of Bank’s rights under this Agreement, and subject to the rights ofany landlord,  Bank may enter upon,occupy and use any premises owned or occupied by Borrower, and may excludeBorrower from such premises or portion thereof as may have been so enteredupon, occupied, or used by Bank.  Bankshall not be required to remove any of the Collateral from any such premisesupon Bank’s taking possession thereof, and may render any Collateral unusableto Borrower.  In no event shall Bank beliable to Borrower for use or occupancy by Bank of any premises pursuant tothis Agreement.

 

**Section 15.06**       Borrower shall, followingthe occurrence of an Event of Default which is continuing, deliver to Bank,daily, a schedule in form and content satisfactory to Bank describing theinvoices issued by Borrower since the last schedule submitted to Bank.  The schedules to be provided under thissubsection are solely for the convenience of Bank in administering thisAgreement and maintaining records of the Collateral.  Borrower’s failure to provide Bank with any such schedule shallnot affect the security interest of Bank in such Accounts.

 

**Section 15.07**       From and after theoccurrence of an Event of Default which is continuing, Borrower willimmediately, upon receipt of all checks, drafts, cash and other remittances inpayment of any Inventory sold or in payment or on account of Borrower’saccounts, contracts, contract rights, notes, bills, drafts, acceptances,general intangibles, choses in action and all other forms of obligations,deliver the same to Bank accompanied by a remittance report in form specifiedby Bank.  Said proceeds shall bedelivered to Bank in the same form received except for the endorsement ofBorrower where necessary to permit collection of items, which endorsementBorrower agrees to make.  Bank willcredit (conditional upon final collection) all such payments against theprincipal or interest of any Loans secured hereby; provided,

 

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however, forthe purpose of computing interest, any items requiring clearance or paymentshall not be considered to have been credited against any Loans secured herebyuntil three (3) business days after receipt by Bank of any such items.  The order and method of such applicationshall be in the sole discretion of Bank and any portion of such funds whichBank elects not to so apply shall be paid over from time to time by Bank toBorrower. Bank will at all times have the right to require Borrower (i) toenter into a lockbox arrangement with Bank for the collection of suchremittances and payments, or (ii) to maintain its deposit accounts at Bank or,in the alternative, at another financial institution which has agreed to acceptdrafts drawn on it by Bank under a written depository transfer agreement withBank and to block Borrower’s account and waive its rights as against suchaccount. Notwithstanding anything contained to the contrary herein, saidproceeds shall not be applied to the principal of any LIBOR Loan(s), until allPrime Rate Loans have been paid in full.

 

**Section 15.08**       Bank may at any time, afterthe occurrence of an Event of Default or an event which, with notice or thepassage of time or both, would constitute an Event of Default, notify accountdebtors that Collateral has been assigned to Bank and that payments shall bemade directly to or as directed by Bank. Upon request of Bank at any time, Borrower will so notify such accountdebtors and will indicate on all billings to such account debtors that theirAccounts must be paid directly to or as directed by Bank.  Bank shall have full power to collect, compromise,endorse, sell or otherwise deal with the Collateral or proceeds thereof in itsown name or in the name of Borrower.

 

**Section 15.09**       Borrower hereby appointsBank as its attorney-in-fact, with full authority in the place and stead ofBorrower and in the name of Borrower, Bank, or otherwise, from time to time inBank’s discretion, to take any actions and to execute any instruments whichBank may deem necessary or desirable to obtain, adjust, make claims under, andotherwise deal with insurance required pursuant hereto and to receive, endorse,and collect any drafts or other instruments delivered in connectiontherewith.  This power of attorney shallbe irrevocable for the term of this Agreement and all transactions hereunderand thereafter as long as Borrower may be indebted to Bank.  Bank agrees not to exercise the foregoingpower of attorney until the occurrence of an Event of Default which iscontinuing.

 

**16.****              STANDARDS FOREXERCISING REMEDIES.**

 

To the extent that applicable law imposesduties on Bank to exercise remedies in a commercially reasonable manner,Borrower acknowledges and agrees that it is not commercially unreasonable forBank (a) to fail to incur expenses reasonably deemed significant by Bank toprepare Collateral for disposition or otherwise to complete raw material orwork in process into finished goods or other finished products for disposition,(b) to fail to obtain third party consents for access to Collateral to bedisposed of, or to obtain or, if not required by other law, to fail to obtaingovernmental or third party consents for the collection or disposition ofCollateral to be collected or disposed of, (c) to fail to exercise collectionremedies against account debtors or other Persons obligated on Collateral or toremove liens or encumbrances on or any adverse claims against Collateral, (d)to exercise collection remedies against account debtors and other Personsobligated on Collateral directly or through the use of collection agencies andother collection specialists, (e) to advertise dispositions of Collateralthrough publications or media of general circulation, whether or not theCollateral is of a specialized nature, (f) to contact other Persons, whether ornot in the same business as Borrower, for expressions of interest in acquiringall or any portion of the Collateral, (g) to hire one or more professionalauctioneers to assist in the

 

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disposition ofCollateral, whether or not the Collateral is of a specialized nature, (h) todispose of the Collateral by utilizing Internet sites that provide for theauction of assets of the types included in the Collateral or that have thereasonable capability of doing so, or that match buyers and sellers of assets,(i) to dispose of assets in wholesale rather than retail markets, (j) todisclaim disposition warranties specifically to disclaim any warranties oftitle or the like, (k) to purchase insurance or credit enhancements to insureBank against risks of loss, collection or disposition of Collateral or toprovide to Bank a guaranteed return from the collection or disposition ofCollateral, or (l) to the extent deemed appropriate by Bank, to obtain theservices of other brokers, investment bankers, consultants and otherprofessionals to assist Bank in the collection or disposition of any of theCollateral. Borrower acknowledges that the purpose of this section is toprovide non-exhaustive indications of what actions or omissions by Bank wouldnot be commercially unreasonable in Bank’s exercise of remedies against theCollateral and that other actions or omissions by Bank shall not be deemedcommercially unreasonable solely on account of not being indicated in thissection.  Without limitation upon theforegoing, nothing contained in this section shall be construed to grant anyrights to Borrower or to impose any duties on Bank that would not have beengranted or imposed by this Agreement or by applicable law in the absence ofthis section.

 

**17.**          **WAIVER OFJURY TRIAL.**

 

BORROWER AND BANK EACH HEREBY KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TOA TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF ORRELATING TO THIS AGREEMENT.  Borrower herebycertifies that neither Bank nor any of its representatives, agents or counselhas represented, expressly or otherwise, that Bank would not, in the event ofany such suit, action or proceeding, seek to enforce this waiver of right totrial by jury.  Borrower acknowledgesthat it has read the provisions of this Agreement and in particular, thissection; has consulted legal counsel; understands the right it is granting inthis Agreement and is waiving in this section in particular; and makes theabove waiver knowingly, voluntarily and intentionally.

 

**18**.          **CONSENT TOJURISDICTION.**

 

Borrower and Bank agree that any action orproceeding to enforce or arising out of this Agreement may be commenced in anycourt of the Commonwealth of Massachusetts sitting in the county of Suffolk,the County of Middlesex, or in the District Court of the United States for theDistrict of Massachusetts, and Borrower waives personal service of process andagrees that a summons and complaint commencing an action or proceeding in anysuch court shall be properly served and confer personal jurisdiction if servedby registered or certified mail to Borrower, or as otherwise provided by thelaws of the Commonwealth of Massachusetts or the United States of America.

 

**19**.          **TERMINATION**

 

This Agreement may be terminated at any timeby either party giving written notice of termination to the other party;provided, however, that unless and until all Loans made by the Bank to theBorrower hereunder and all other Obligations or commitments of the Bank underwhich an Obligation could arise, outstanding as of the time of giving orreceipt as the case may

 

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be, of suchnotice by the Bank have been paid in full, such termination shall in no wayaffect the security interest or other rights and powers herein granted to theBank, and until such payment in full the security interest of the Bank in allInventory, Accounts and other Collateral of the Borrower, whether existing asof the time of such termination or thereafter arising, and all rights andpowers herein granted to the Bank in respect thereof shall remain in full forceand effect.  Until all of theObligations of Borrower to Bank have been fully paid and satisfied and allcommitments of the Bank under which an Obligation could arise have expired,Borrower shall continue to assign Accounts to Bank, turn over all collectionsto the Bank in kind and otherwise fully comply with the terms and conditions ofthis Agreement as herein provided. Prior to such payment in full of all of the Obligations of Borrower toBank, this Agreement shall be a continuing agreement in every respect.

 

Absent the occurrence of an Event of Defaultwhich is continuing, Bank will give Borrower one hundred twenty (120) daysprior notice before terminating this Agreement.

 

**20.****          JOINT AND SEVERALLIABILITY.**

 

**Section 20.01****      **Each Borrower isaccepting joint and several liability under this Agreement in consideration ofthe financial accommodations to be provided by Bank under this Agreement, forthe mutual benefit, directly and indirectly, of each Borrower and inconsideration of the undertakings of each other Borrower to accept joint andseveral liability for the Obligations of each Borrower to Bank.

 

**Section 20.02****      **Each Borrower, jointlyand severally, hereby irrevocably and unconditionally accepts, not merely as asurety but also as a co-debtor, joint and several liability with each otherBorrower, with respect to the payment and performance of all of the Obligationsof each Borrower to Bank under this Agreement (including, without limitation,any Obligations arising under this section), it being the intention of theparties hereto that all the Obligations of each Borrower to Bank under thisAgreement shall be the joint and several Obligations of each of the Borrowerswithout preferences or distinction among them.

 

**Section 20.03****      **If and to the extentthat any of the Borrowers shall fail to make any payment with respect to any ofthe Obligations of each Borrower to Bank under this Agreement,  as and when due or to perform any of suchObligations in accordance with the terms thereof, then in each such event theother Borrower, under this Agreement will make such payment with respect to, orperform, such Obligation.

 

**Section 20.04****      **The Obligations of eachBorrower under the provisions of this section constitute full recourseObligations of each Borrower enforceable against each such Borrower to the fullextent of its properties and assets, irrespective of the validity, regularityor enforceability of this Agreement or any other circumstance whatsoever.

 

**Section 20.05****      **Each Borrower herebywaives notice of acceptance of its joint and several liability, notice of anyloans made under this Agreement, notice of any action at any time taken oromitted by Bank under or in respect of any of the Obligations of each Borrowerto Bank under this Agreement, and, generally, to the extent permitted byapplicable law, all demands, notices and other formalities of every kind inconnection with this Agreement.  EachBorrower hereby assents to, and waives notice of, any extension or postponementof the time for the

 

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payment of anyof the Obligations of each Borrower to Bank under this Agreement, theacceptance of any payment of any of such Obligations, the acceptance of anypartial payment thereon, any waiver, consent or other action or acquiescence byBank at any time or times in respect of any default by any Borrower in theperformance or satisfaction of any term, covenant, condition or provision ofthis Agreement, any and all other indulgences whatsoever by Bank in respect ofany of the Obligations of each Borrower to Bank under this Agreement, and thetaking, addition, substitution or release, in whole or in part, at any time ortimes, of any security for any of such Obligations of each Borrower to Bank orthe addition, substitution or release, in whole or in part, of anyBorrower.  Without limiting thegenerality of the foregoing, each Borrower assents to any other action or delayin acting or failure to act on Bank’s part with respect to the failure by anyBorrower to comply with any of its respective Obligations, including, withoutlimitation, any failure strictly or diligently to assert any right or to pursueany remedy or to comply fully with applicable laws or regulations thereunder,which might, but for the provisions of this section, afford grounds forterminating, discharging or relieving any Borrower, in whole or in part, fromany of its Obligations under this section, it being the intention of eachBorrower that, so long as any of the Obligations under this Agreement remainunsatisfied, the Obligations of such Borrower under this section shall not bedischarged except by performance and then only to the extent of suchperformance.  The Obligations of eachBorrower under this section shall not be diminished or rendered unenforceableby any winding up, reorganization, arrangement, liquidation, reconstruction orsimilar proceeding with respect to any other Borrower or Bank.  The joint and several liability of eachBorrower under this Agreement shall continue in full force and effectnotwithstanding any absorption, merger, amalgamation or any other changewhatsoever in the name, membership, constitution or place of formation of anyBorrower or Bank.

 

**Section 20.06****      **The provisions of thissection are made for the benefit of Bank and Bank’s successors and assigns, andmay be enforced by Bank in good faith from time to time against any or all ofthe Borrowers as often as occasion therefor may arise and without requirementon Bank’s part first to marshal any of its claims or to exercise any of itsrights against any Borrower or to exhaust any remedies available to Bankagainst any other Borrower or to resort to any other source or means ofobtaining payment of any of the Obligations under this Agreement or to electany other remedy.  The provisions ofthis section shall remain in effect until all of the Obligations of eachBorrower to Bank under this Agreement shall have been paid in full or otherwisefully satisfied.  If at any time, anypayment, or any part thereof, made in respect of any of such Obligations ofeach Borrower to Bank, is rescinded or must otherwise be restored or returnedby Bank upon the insolvency, bankruptcy or reorganization of any Borrower, orotherwise, the provisions of this section will forthwith be reinstated ineffect, as though such payment had not been made.

 

**Section 20.07****      **Each Borrower agreesthat it shall not exercise, and hereby expressly waives until full and finalpayment of all Obligations to Bank: (i) any right to subrogation orindemnification, and any other right to payment from or reimbursement by anyother Borrower, in connection with or as a consequence of any payment made byany Borrower to Bank, (ii) any right to enforce any right or remedy which Bankmay have or may hereafter have against any other Borrower, and (iii) anybenefit of, and any right to participate in (A) any collateral now or hereafterheld by Bank, or (B) any payment to Bank by, or collection by Bank from anyother Borrower.  The provisions of thisparagraph are made for the express benefit of each Borrower as well as Bank,and may be enforced independently by each Borrower or any successor in interestto each Borrower.

 

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**21.**          **MISCELLANEOUS.**

 

**Section 21.01**       No delay or omission on thepart of Bank in exercising any rights shall operate as a waiver of such rightor any other right. Waiver on any one occasion shall not be construed as a barto or waiver of any right or remedy on any future occasion.  All Bank’s rights and remedies, whetherevidenced hereby or by any other agreement, instrument or paper, shall becumulative and may be exercised singularly or concurrently.

 

**Section 21.02**       Bank is authorized to makeLoans under the terms of this Agreement upon the request, either written ororal, in the name of Borrower or any authorized Person whose name appears atthe 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 timeto time be set forth in separate banking and borrowing resolutions.

 

**Section 21.03**       This Agreement shall bindand inure to the benefit of the respective successors and assigns of each ofthe parties hereto; provided, however, that Borrower may notassign this Agreement or any rights or duties hereunder without Bank’s priorwritten consent and any prohibited assignment shall be absolutely void.  No consent to an assignment by Bank shallrelease Borrower from its Obligations. Bank may assign this Agreement and its rights and duties hereunder andno consent or approval by Borrower is required in connection with any suchassignment.  Bank reserves the right tosell, assign, transfer, negotiate or grant participations in all or any partof, or any interest in Bank’s rights and benefits hereunder.  In connection with any assignment orparticipation, Bank may disclose all documents and information which Bank nowor hereafter may have relating to Borrower or Borrower’s business.  To the extent that Bank assigns its rightsand obligations hereunder to another party, Bank thereafter shall be releasedfrom such assigned obligations to Borrower and such assignment shall effect anovation between Borrower and such other party.

 

**Section 21.04**       Borrower agrees that anyand all Loans made by Bank to Borrower or for its account under this Agreementshall be conclusively deemed to have been authorized by Borrower and to havebeen made pursuant to duly authorized requests therefor on its behalf.

 

**Section 21.05**       Paragraph and sectionheadings used in this Agreement are for convenience only, and shall not effectthe construction of this Agreement.  Ifone or more provisions of this Agreement (or the application thereof) shall beinvalid, illegal or unenforceable in any respect in any jurisdiction, the sameshall not, invalidate or render illegal or unenforceable such provision (or itsapplication) in any other jurisdiction or any other provision of this Agreement(or its application).  This Agreement isthe entire agreement of the parties with respect to the subject matter hereofand supersedes any prior written or verbal communications or instrumentsrelating thereto.

 

**Section 21.06**       Unless otherwise providedin this Agreement, all notices or demands by any party relating to thisAgreement or any other loan document shall be in writing and (except forfinancial statements and other informational documents which may be sent byfirst-class mail, postage prepaid) shall be personally delivered or sent byregistered or certified mail (postage prepaid, return receipt requested ),overnight courier, or telecopier to Borrower or to Bank, as

 

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the case maybe, at its address set forth below:

 

| If to Bank:      |   | Banknorth, N.A.                                                          |
|------------------|--------|--------------------------------------------------------------------------|
|             |   | 7 New England Executive Park                                             |
|             |   | Burlington, MA 01803                                                     |
|             |   | Attn:     Brant A. McDougall, Senior Vice  President |
|             |   | Telephone:                                                               | 781-229-4570, ext. 7101 |
|             |   | Telecopier:                                                              | 781-221-6988 |
|             |   |                                                                     |
|             |   |                                                                     |
| If to  Borrower: |   | Microfluidics Corporation, as Agent                                      |
|             |   | 30 Ossipee Road                                                          |
|             |   | Newton, Massachusetts 02464-9101                                         |
|             |   | Attn:    Dennis P. Riordan, Controller               |
|             |   | Telephone:                                                               | 617-969-5452 |
|             |   | Telecopier:                                                              |
|             |   |                                                                     |
|             |   |                                                                     |
| With a copy  to: |   | MFIC Corporation                                                         |
|             |   | 30 Ossipee Road                                                          |
|             |   | Newton, Massachusetts 02464-9101                                         |
|             |   | Attn:     Dennis P. Riordan, Controller              |
|             |   | Telephone:                                                               | 617-969-5452 |
|             |   | Telecopier:                                                              |

 

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

 

**Section 21.07**  Bank shall have no obligation to maintain anyelectronic records or any documents, schedules, invoices, agings or any otherpaper delivered to Bank by Borrower in connection with this Agreement or anyother agreement for more than four (4) months after receipt of the same byBank.

 

**Section 21.08**Neitherthis Agreement nor any uncertainty or ambiguity herein shall be construed orresolved against Bank or Borrower, whether under any rule of construction orotherwise.  On the contrary, thisAgreement has been reviewed by all parties and shall be construed andinterpreted according to the ordinary meaning of the words used so as to fairlyaccomplish the purposes and intentions of all parties hereto.

 

**Section 21.09** Eachprovision of this Agreement shall be severable from every other provision ofthis Agreement for the purpose of determining the legal enforceability of anyspecific provision.

 

**Section 21.10**  This Agreement, together with the otherdocuments and instruments executed concurrently herewith represent the entireand final understanding of the parties with respect to the transactionscontemplated hereby and shall not be contradicted or qualified by evidence ofany prior, contemporaneous or subsequent other agreement, oral or written,before the date hereof.

 

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**Section 21.11**  This Agreement can only be amended by awriting signed by both Bank and Borrower.

 

**Section 21.12**  The laws of Massachusetts shall govern theconstruction of this Agreement and the rights and duties of the partieshereto.  This Agreement shall takeeffect as a sealed instrument.

 
| Witnessed by: | MFIC CORPORATION          |
|---------------|---------------------------|
|          |                      |
|          |                      |
|          |                      | By: |   |   |
|          |                      | Irwin J. Gruverman, Chief Executive Officer |
|          |                      |
|          | Address:                  | 30 Ossipee Road |
|          |                      | Newton, Massachusetts 02464-9101 |
|          |                      |
|          | MICROFLUIDICS CORPORATION |
|          |                      |
|          |                      |
|          | By:                       |   |   |
|          |                      | Irwin J. Gruverman, Chief Executive Officer |
|          |                      |
|          | Address:                  | 30 Ossipee Road |
|          |                      | Newton, Massachusetts 02464-9101 |
|          |                      |
|          | BANKNORTH, N.A.           |
|          |                      |
|          |                      |
|          | By:                       |   |   |
|          |                      | Brant A. McDougall, Senior Vice President |
|          |                      |
|          | Address:                  | 7 New England Executive Park |
|          |                      | Burlington, Massachusetts 01803 |
|               |                           |  |  |  |  |

 

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**SCHEDULES**

 

The following Schedules to the within Loan and Security Agreement (AllAssets) are respectively described in the section indicated.  Those Schedules in which no information hasbeen inserted shall be deemed to read “None”.

 

**MFIC CORPORATION**

 

**SCHEDULE**“**A**”

**Borrower’s Places ofBusiness and Organizational Identification Number (§8.02)**

 
| **Address** |   | **Property Located At Such  Address** |
|-------------|--------|---------------------------------------|
|        |   |                                  |
|        |   |                                  |
|        |   |                                  |
|        |   |                                  |

 

Organizational Identification Number:              2008286

 

**SCHEDULE**“**B**”

**Other Encumbrances and Liens(§8.06(a))**

 
| **Secured  Party or Mortgagee** |   | **Description  of Collateral** |   | **Payment  Terms and Dates of Maturity** |   |
|---------------------------------|--------|--------------------------------|--------|------------------------------------------|--------|
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |

** **

**SCHEDULE**“**C**”

**Leases (§8.06(b))**

 
| **Lessor** |   | **Description  of Property** |   | **Date of  Lease and Term** |   | **Rental  Payable** |   |
|------------|--------|------------------------------|--------|-----------------------------|--------|---------------------|--------|
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |

 

**MICROFLUIDICS CORPORATION**

 

**SCHEDULE**“**A**”

**Borrower’s Places ofBusiness and Organizational Identification Number (§8.02)**

 
| **Address** |   | **Property Located At Such  Address** |
|-------------|--------|---------------------------------------|
|        |   |                                  |
|        |   |                                  |
|        |   |                                  |
|        |   |                                  |

 

Organizational Identification Number:

 

**SCHEDULE**“**B**”

**Other Encumbrances and Liens(§8.06(a))**

 
| **Secured  Party or Mortgagee** |   | **Description  of Collateral** |   | **Payment  Terms and Dates of Maturity** |   |
|---------------------------------|--------|--------------------------------|--------|------------------------------------------|--------|
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |
|                            |   |                           |   |                                     |   |

 

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**SCHEDULE**“**C**”

**Leases (§8.06(b))**

 
| **Lessor** |   | **Description  of Property** |   | **Date of  Lease and Term** |   | **Rental  Payable** |   |
|------------|--------|------------------------------|--------|-----------------------------|--------|---------------------|--------|
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |
|       |   |                         |   |                        |   |                |   |

 

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**EXHIBIT1**

 

**BANKNORTH,N.A.**

 

**TERMNOTE**

 
| $1,000,000.00 |   | March          , 2004 |
|---------------|--------|---------------------------------------------------------------|
|          |   | Boston, Massachusetts                                         |
|          |   |                                                          |

 

For value received, the undersigned, whichterm whenever used herein shall mean each and all of the signers of this note,jointly and severally, promises to pay to Banknorth, N.A. (“**Bank**”), or order, at its office atBurlington, MA, or at such other place as may be designated in writing by theholder hereof, the principal sum of One Million ($1,000,000.00) Dollars inforty-eight (48) installments, as follows: $20,833.00 on April 1, 2004, and thesame amount (except the last installment which shall be the unpaid balance) onthe first day of each month thereafter until this note is fully paid, withinterest from the date hereof on the said principal sum from time to timeoutstanding at the rate of five and 67/100 (5.67%) percent per annum.  Such interest shall be payable monthly inarrears on the first day of each month, commencing on the first of such datesnext succeeding the date hereof. Interest shall be calculated on the basis of actual days elapsed and a360!day year.

 

In all events the entire principal balance,together with all accrued interest, is to be fully paid on or before February1, 2008.

 

Whenever any installment of principal andinterest due hereunder shall not be paid within fifteen (15) days of its duedate, the undersigned shall pay, in addition thereto as a late charge, fivepercent (5%) percent of the amount of any such installment.

 

The undersigned hereby authorizes Bank tocharge the amount of all monthly interest and principal payments, when due andpayable hereunder, against any of the undersigned’s accounts under the controlof Bank or the undersigned’s loan account created pursuant to a Loan andSecurity Agreement (All Assets) dated March          ,2004 (the “**Agreement**”).

 

At the option of the holder, this note shallbecome immediately due and payable without notice or demand upon the occurrenceat any time of (a) the failure to pay in full and when due any installment ofprincipal or interest hereunder; (b) one or more Events of Default as definedin the Agreement; or (c) the termination of the Agreement. Upon the occurrenceof any of the foregoing events, interest on unpaid balances shall thereafter bepayable at an interest rate per annum which is four (4%) percent greater thanthe rate of interest specified herein.

 

The undersigned may prepay this note at anytime, provided, however, that at the time of any full or partial pre-payment,the undersigned shall pay the Bank a fee equal to the greater of at least one(1%) percent of the principal balance being prepaid or a “Yield MaintenanceFee” in an amount computed as follows: The Federal Home Loan Bank rate with amaturity date closest to the remaining term of this note shall be subtractedfrom the above stated interest rate, or default rate, if applicable.  If the result is zero or a negative number,there shall be no Yield Maintenance Fee due and payable.  If the result is a positive number, then theresulting percentage shall be multiplied by the amount of the principal balancebeing prepaid.  The resulting amountshall be

 

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divided by 360and multiplied by the number of days remaining in the term of this note.  Said amount shall be reduced to presentvalue calculated by using the above referenced Federal Home Loan Bank rate andthe number of days remaining in the term of this note.  The resulting amount shall be the yieldmaintenance fee due to the Bank upon prepayment of the principal of thisnote.  The foregoing notwithstanding,the undersigned will not be obligated to pay to the Bank a Yield MaintenanceFee if this note is accelerated as a result of the termination of the Agreementor a demand by the Bank for payment in full of all obligations under theAgreement, without the existence of an Event of Default as defined in theAgreement.

 

The undersigned and any guarantor herebygrants to Bank a lien, security interest and right of setoff as security forall liabilities and Obligations to Bank, whether now existing or hereafterarising, upon and against all deposits, credits, collateral and property, nowor hereafter in the possession, custody, safekeeping or control of Bank or anyentity in the control of Bank or in transit to Bank.  At any time, without demand or notice, Bank may set off the sameor any part thereof and apply the same to any liability or obligation of theundersigned and any guarantor even though unmatured and regardless of theadequacy of any other collateral securing this note.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS ORREMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THIS NOTE, PRIOR TOEXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHERPROPERTY OF THE UNDERSIGNED OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILYAND IRREVOCABLY WAIVED.

 

The undersigned agrees to pay all costs ofcollection including reasonable fees of attorney.

 

No delay or omission on the part of theholder in exercising any right hereunder shall operate as a waiver of suchright or of any other right of such holder, nor shall any delay, omission orwaiver on any one occasion be deemed a bar to or waiver of the same or anyother right on any future occasion. Every one of the undersigned and every indorser or guarantor of thisnote regardless of the time, order or place of signing waives presentment,demand, protest and notices of every kind and assents to any one or moreextensions or postponements of the time of payment or any other indulgences, toany substitutions, exchanges or releases of collateral if at any time there beavailable to the holder collateral for this note, and to the additions orreleases of any other parties or persons primarily or secondarily liable.

 

This note is secured pursuant to the terms ofthe Agreement.

 

THE UNDERSIGNED AND THE BANK MUTUALLY HEREBYKNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY INRESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITHTHIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTIONHEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHERVERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.

 

All rights and obligations hereunder shall begoverned by the law of the Commonwealth of Massachusetts and this note shall bedeemed to be under seal.

 
| Witness: | MFIC CORPORATION          |
|----------|---------------------------|
|     |                      |
|     |                      |
|     |                      | By: |   |   |
|     |                      | Irwin J. Gruverman, Chief Executive Officer |
|     |                      |
|     |                      |
|     | MICROFLUIDICS CORPORATION |
|     |                      |
|     |                      |
|     |                      | By: |   |   |
|     |                      | Irwin J. Gruverman, Chief Executive Officer |

 

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**EXHIBIT2**

 

**BANKNORTH,N.A.**

 

**REVOLVINGLINE OF CREDIT NOTE**

 
| $1,000,000.00 |   | Boston, Massachusetts                                         |
|---------------|--------|---------------------------------------------------------------|
|          |   | March          , 2004 |
|          |   |                                                          |

 

For value received, the undersigned, MFICCorporation and Microfluidics Corporation, both Delaware corporations (each andtogether the “**Borrower**”), herebyjointly and severally promise to pay ON DEMAND, and if demand is not soonermade, then as provided in the Loan Agreement (defined below), to the order ofBanknorth, N.A., a national banking association organized and existing underthe laws of the United States of America (the “**Bank**”), at its main office in Burlington, MA, or at any otherplace designated at any time by the holder hereof, in lawful money of theUnited States of America and in immediately available funds, the principal sumof One Million ($1,000,000.00) Dollars or, if less, the aggregate unpaidprincipal amount of all Revolving Loans made by Bank to Borrower under the LoanAgreement, together with interest on the principal amount hereunder remainingunpaid from time to time, computed on the basis of the actual number of dayselapsed and a 360-day year, from the date hereof until this Note is fully paidat the rates from time to time in effect under the Loan and Security Agreement(All Assets) of even date herewith (the “**LoanAgreement**”) by and between Bank and Borrower. The principal hereofand interest accruing thereon shall be due and payable as provided in the LoanAgreement.

 

This Note may be prepaid at any time withoutpremium or penalty.

 

This Note is issued pursuant, and is subject,to the Loan Agreement, which provides, among other things, for accelerationhereof. This Note is the “Revolving Line of Credit Note” referred to in theLoan Agreement.

 

This Note is secured, among other things,pursuant to the Loan Agreement, and may now or hereafter be secured by one ormore other security agreements, mortgages, deeds of trust, assignments or otherinstruments or agreements.

 

Borrower hereby agrees to pay all costs ofcollection, including attorneys’ fees and legal expenses in the event this Noteis not paid when due, whether or not legal proceedings are commenced.

 

Presentment or other demand for payment,notice of dishonor and protest are expressly waived.

 

All rights and obligations hereunder shall begoverned by the laws of the Commonwealth of Massachusetts and this Note shallbe deemed to be under seal.

 
| Witness: | MFIC CORPORATION          |
|----------|---------------------------|
|     |                      |
|     |                      |
|     |                      | By: |   |   |
|     |                      | Irwin J. Gruverman, Chief Executive Officer |
|     |                      |
|     |                      |
|     | MICROFLUIDICS CORPORATION |
|     |                      |
|     |                      |
|     | By:                       |   |   |
|     |                      | Irwin J. Gruverman, Chief Executive Officer |
|          |                           |  |  |  |

 

43

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**EXHIBIT3**

 

**NOTICEOF BORROWING**

 

Date:                ,200    

 
| To:    |   | Banknorth, N.A.                 |
|--------|--------|---------------------------------|
|   |   | 7 New England Executive Park    |
|   |   | Burlington, Massachusetts 01803 |
|   |   |                            |

 

Re:          Loan and Security Agreement (All Assets)dated March        , 2004 (the “**Agreement**”) between Banknorth, N.A. (the “**Bank**”) and MFIC Corporation andMicrofluidics Corporation (each and together the “**Borrower**”)

 

This Notice of Borrowing confirms thefollowing request for a LIBOR Loan under the Agreement.

 

Date of Request:

 

Date of LIBOR Loan:

 

Amount of LIBOR Loan at LIBOR Rate:*

 

Interest Period:

 

1, 2 or 3 months

 

The Borrower hereby certifies that allrepresentations and warranties contained in the Agreement are true and accuratein all material respects on the date of this Notice of Borrowing as though suchrepresentations and warranties had been made on this date (except to the extentthat such representation or warranty expressly relates to an earlier date).

 

Terms used herein which are defined in theAgreement are used as so defined.

 
|   | MICROFLUIDICS CORPORATION, as Agent |
|--------|-------------------------------------|
|   |                                |
|   |                                |
|   | By:                                 |   |

 

----

*              Minimumof $100,000.00

 

44

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**EXHIBIT4**

 

**COMPLIANCECERTIFICATE**

 

MFIC Corporation and MicrofluidicsCorporation (each and together, the “**Borrower**”)hereby certifies to Banknorth, N.A. (“**Bank**”)pursuant to the Loan and Security Agreement (All Assets) between Borrower andBank dated March       , 2004, as may be amendedfrom time to time (“**Loan Agreement**”),that:

 

A.            General

 

1.             Capitalized terms not defined herein shallhave the meanings set forth in the Loan Agreement.

 

2.             The Borrower has complied with all theterms, covenants and conditions to be performed or observed by the Borrowercontained in the Loan Agreement and other documents required to be executed bythe Borrower in connection with the Loan Agreement.

 

3.             Neither on the date hereof nor, ifapplicable, after giving effect to the loan made on the date hereof, does thereexist an Event of Default or an event which would with notice or the lapse oftime, or both, constitute an Event of Default.

 

4.             The representations and warrantiescontained in the Loan Agreement and in any certificate, document or financialor other statement furnished at any time thereunder are true, correct andcomplete in all material respects with the same effect as though suchrepresentations and warranties had been made on the date hereof, except to theextent that any such representation and warranty relates solely to an earlierdate (in which case such representation and warranty shall be true, correct andcomplete on and as of such earlier date).

 

B.            FinancialCovenants

 

As of the date hereof or, for such period asmay be designated below, the computations, ratios and calculations as set forthbelow in accordance with Section 13 of the Loan Agreement are true and correct:

 

1              **Senior Debt to Tangible Capital Base**

 

The Senior Debt of the Borrower as of                ,2004 was equal to              times the amount of the Borrower’s Tangible Capital Base, computed as follows:

 
| A.     |   | Total  Debt $                                                 |   |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                            |   |   |
| B.     |   | Subordinated  Debt  $                |   |   |
|   |   |                                                                                                            |   |   |
| C.     |   | A - B = Senior  Debt $               |   |   |
|   |   |                                                                                                            |   |   |
| D.     |   | Owner’s Equity $                                              |   |   |
|   |   |                                                                                                            |   |   |
| E.     |   | Intangibles $                             |   |   |

 

45

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| F.           |   | Debt Owing from Employees, Owner and Affiliates  $                              |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                    |
| G.           |   | D – E – F = Tangible Net  Worth $                           |
|         |   |                                                                                                                    |
| H.           |   | G + B = Tangible Capital Base $                   |
|         |   |                                                                                                                    |
| Required:    |   | Not more than four (4)  times $                                  |
|         |   |                                                                                                                    |
| C ÷ H = |   |                    times |

 

2.             **Debt Service Coverage Ratio**

 

The Debt Service Coverage Ratio of theBorrower for the twelve (12) month period ending December 31,200       was          to 1, computed asfollows:

 
| A.        |   | Net Income $                                                                            |   |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|      |   |                                                                                                                                 |   |
| B.        |   | Interest $                                                                    |   |
|      |   |                                                                                                                                 |   |
| C.        |   | Depreciation and  Amortization $                                                        |   |
|      |   |                                                                                                                                 |   |
| D.        |   | Distributions $                                                                         |   |
|      |   |                                                                                                                                 |   |
| E.        |   | A + B + C - D $                                                                         |   |
|      |   |                                                                                                                                 |   |
| F.        |   | Interest $                                                                              |   |
|      |   |                                                                                                                                 |   |
| G.        |   | CMLTD $                                                                                 |   |
|      |   |                                                                                                                                 |   |
| H.        |   | F + G = $                                                                               |   |
|      |   |                                                                                                                                 |   |
| I.        |   | Ratio of E to  H          to          |   |
|      |   |                                                                                                                                 |   |
| Required: |   | Not less  than 1.20 to 1                                                                                                             |   |

 

IN WITNESS WHEREOF, the undersigned, a dulyauthorized officer of Borrower, has executed and delivered this Certificate inthe name and on behalf of the Borrower on                      ,200      .

 
|   | MFIC CORPORATION          |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By:                       |   |
|   |                      |
|   |                      |
|   | MICROFLUIDICS CORPORATION |
|   |                      |
|   |                      |
|   | By:                       |   |

 

 

46

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