|      | **WCMA® LOAN AND  SECURITY AGREEMENT** |   |
|------|---------------------------------------------|--------|
| **** |

**WCMA LOAN AND SECURITYAGREEMENT****NO.  794-07E49** (“Loan Agreement”)dated as of May 3, 2001, between **STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.**,a corporation organized and existing under the laws of the State of Massachusettshaving its principal office at 32 Hampshire Road, Salem, NH 03079 (“Customer”),and **MERRILLLYNCH BUSINESS FINANCIAL SERVICES INC.**, a corporation organized andexisting under the laws of the State of Delaware having its principal office at222 North LaSalle Street, Chicago, IL 60601 (“MLBFS”).

In accordancewith that certain **WORKING CAPITAL MANAGEMENT® ACCOUNTAGREEMENT NO.  794-07E49**(“WCMA Agreement”) between Customer and MLBFS' affiliate,**MERRILL LYNCH, PIERCE, FENNER &SMITH INCORPORATED**(“MLPF&S”), Customer has subscribed to theWCMA Program described in the WCMA Agreement. The WCMA Agreement is by thisreference incorporated as a part hereof. In conjunction therewith and as partof the WCMA Program, Customer has requested that MLBFS provide, and subject tothe terms and conditions herein set forth MLBFS has agreed to provide, acommercial line of credit for Customer (the “WCMA Line of Credit”).

Accordingly,and in consideration of the premises and of the mutual covenants of the partieshereto, Customer and MLBFS hereby agree as follows:

**ArticleI. DEFINITIONS**

1.1        **Specific Terms.** In addition to termsdefined elsewhere in this Loan Agreement, when used herein the following termsshall have the following meanings:

(a)        “Account Debtor” shall mean any party whois or may become obligated with respect to an Account or Chattel Paper.

(b)        “Activation Date” shall mean the dateupon which MLBFS shall cause the WCMA Line of Credit to be fully activatedunder MLPF&S' computer system as part of the WCMA Program.

(c)        “Additional Agreements” shall mean allagreements, instruments, documents and opinions other than this Loan Agreement,whether with or from Customer or any other party, which are contemplated herebyor otherwise reasonably required by MLBFS in connection herewith, or whichevidence the creation, guaranty or collateralization of any of the Obligationsor the granting or perfection of liens or security interests upon theCollateral or any other collateral for the Obligations.

(d)        “Bankruptcy Event” shall mean any of thefollowing: (i) a proceeding under any bankruptcy, reorganization, arrangement,insolvency, readjustment of debt or receivership law or statute shall be filedor consented to by Customer; or (ii) any such proceeding shall be filed againstCustomer and shall not be dismissed or withdrawn within sixty (60) days afterfiling; or (iii) Customer shall make a general assignment for the benefit ofcreditors; or (iv) Customer shall generally fail to pay or admit in writing itsinability to pay its debts as they become due; or (v) Customer shall beadjudicated a bankrupt or insolvent.

(e)        “Business Day” shall mean any day otherthan a Saturday, Sunday, federal holiday or other day on which the New YorkStock Exchange is regularly closed.

(f)         “Collateral” shall mean all Accounts,Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, GeneralIntangibles, Deposit Accounts, Documents, Instruments, Investment Property andFinancial Assets of Customer, howsoever arising, whether now owned or existingor hereafter acquired or arising, and wherever located; together with all partsthereof (including spare parts), all accessories and accessions thereto, allbooks and records (including computer records) directly related thereto, allproceeds thereof (including, without limitation, proceeds in the form ofAccounts and insurance proceeds), and the additional collateral described inSection 3.6 (b) hereof.

(g)        “Commitment Expiration Date” shall meanJune 2, 2001.

(h)        “Default” shall mean either an “Event ofDefault” as defined in Section 3.5 hereof, or an event which with the giving ofnotice, passage of time, or both, would constitute such an Event of Default.

(i)         “Default Interest Rate” shall mean a rateequal to the sum of the “Interest Rate”, as determined below, plus two percent(2%) per annum.
(j)         “General Funding Conditions” shall meaneach of the following conditions to any WCMA Loan by MLBFS hereunder: (i) noDefault shall have occurred and be continuing or would result from the makingof any WCMA Loan hereunder by MLBFS; (ii) there shall not have occurred and becontinuing any material adverse change in the business or financial conditionof Customer; (iii) all representations and warranties of Customer herein or inany Additional Agreements shall then be true and correct in all materialrespects; (iv) MLBFS shall have received this Loan Agreement and all of theAdditional Agreements, duly executed and filed or recorded where applicable,all of which shall be in form and substance reasonably satisfactory to MLBFS;(v) MLBFS shall have received evidence reasonably satisfactory to it as to theownership of the Collateral and the perfection and priority of MLBFS' liens andsecurity interests thereon, as well as the ownership of and the perfection andpriority of MLBFS' liens and security interests on any other collateral for theObligations furnished pursuant to any of the Additional Agreements; (vi) MLBFSshall have received evidence reasonably satisfactory to it of the insurancerequired hereby or by any of the Additional Agreements; and (vii) anyadditional conditions specified in the “WCMA Line of Credit Approval” letterexecuted by MLBFS with respect to the transactions contemplated hereby shallhave been met to the reasonable satisfaction of MLBFS.

(k)        “Initial Maturity Date” shall mean thefirst date upon which the WCMA Line of Credit will expire (subject to renewalin accordance with the terms hereof); to wit: February 28, 2002.

(l)         “Interest Due Date” shall mean the lastBusiness Day of each calendar month during the term hereof (or, if Customermakes special arrangements with MLPF&S, the last Friday of each calendarmonth during the term hereof).

(m)       “Interest Rate” shall mean a variable perannum rate of interest equal to the sum of 2.50% and the 30-day DealerCommercial Paper Rate. The “30-day Dealer Commercial Paper Rate” shall mean, asof the date of any determination, the interest rate from time to time publishedin the “Money Rates” section of *The Wall Street Journal* as the “Dealer CommercialPaper” rate for 30-day high-grade unsecured notes sold through dealers by majorcorporations. The Interest Rate will change as of the date of publication in *The WallStreet Journal* of a 30-day Dealer Commercial Paper Rate that isdifferent from that published on the preceding Business Day. In the event that *The WallStreet Journal*shall, for any reason, fail or cease to publish the30-day Dealer Commercial Paper Rate, MLBFS will choose a reasonably comparableindex or source to use as the basis for the Interest Rate. Upon the occurrenceand during the continuance of a Default, the Interest Rate with respect theWCMA Line of Credit may be increased to the “Default Interest Rate”, as hereinprovided.

(n)        “Line Fee” shall mean a fee of $25,000.00payable periodically by Customer to MLBFS in accordance with the provisions ofSection 2.2 (k) hereof.

(o)        “Location of Tangible Collateral” shallmean the address of Customer set forth at the beginning of this Loan Agreement,together with any other address or addresses set forth on an exhibit hereto asbeing a Location of Tangible Collateral.

(p)        “Maturity Date” shall mean the date ofexpiration of the WCMA Line of Credit.

(q)        “Maximum WCMA Line of Credit” shall mean$2,500,000.00.

(r)         “Obligations” shall mean all liabilities,indebtedness and other obligations of Customer to MLBFS, howsoever created,arising or evidenced, whether now existing or hereafter arising, whether director indirect, absolute or contingent, due or to become due, primary or secondaryor joint or several, and, without limiting the foregoing, shall includeinterest accruing after the filing of any petition in bankruptcy, and allpresent and future liabilities, indebtedness and obligations of Customer underthis Loan Agreement.
(s)        “Permitted Liens” shall mean with respectto the Collateral: (i) liens for current taxes not delinquent, othernon-consensual liens arising in the ordinary course of business for sums notdue, and, if MLBFS' rights to and interest in the Collateral are not materiallyand adversely affected thereby, any such liens for taxes or othernon-consensual liens arising in the ordinary course of business being contestedin good faith by appropriate proceedings; (ii) liens in favor of MLBFS; (iii)liens which will be discharged with the proceeds of the initial WCMA Loan; and(iv) any other liens expressly permitted in writing by MLBFS.

(t)         “Renewal Year” shall mean and refer tothe 12-month period immediately following the Initial Maturity Date and each12-month period thereafter.

(u)        “WCMA Account” shall mean and refer tothe Working Capital Management Account of Customer with MLPF&S identifiedas Account No.  794-07E49 and anysuccessor Working Capital Management Account of Customer with MLPF&S.

(v)        “WCMALoan” shall mean each advance made by MLBFS pursuant to this Loan Agreement.

(w)       “WCMALoan Balance” shall mean an amount equal to the aggregate unpaid principalamount of all WCMA Loans.

1.2        **Other Terms.** Except as otherwise definedherein: (i) all terms used in this Loan Agreement which are defined in theUniform Commercial Code of Illinois (“UCC”) shall have the meanings set forthin the UCC, and (ii) capitalized terms used herein which are defined in theWCMA Agreement shall have the meanings set forth in the WCMA Agreement.

**ARTICLEII. THE WCMA LINE OF CREDIT**

2.1 **       WCMA PROMISSORY NOTE.**FORVALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at thetimes and in the manner set forth in this Loan Agreement, or in such othermanner and at such place as MLBFS may hereafter designate in writing, thefollowing: (a) on the Maturity Date, or if earlier, on the date of terminationof the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the InterestRate (or, if applicable, at the Default Interest Rate) on the outstanding WCMALoan Balance, from and including the date on which the initial WCMA Loan ismade until the date of payment of all WCMA Loans in full; and (c) on demand,all other sums payable pursuant to this Loan Agreement, including, but not limitedto, the periodic Line Fee. Except as otherwise expressly set forth herein,Customer hereby waives presentment, demand for payment, protest and notice ofprotest, notice of dishonor, notice of acceleration, notice of intent toaccelerate and all other notices and formalities in connection with this WCMAPromissory Note and this Loan Agreement.

2.2        **WCMA LOANS**

(a)         **Activation Date.** Provided that: (i) theCommitment Expiration Date shall not then have occurred, and (ii) Customershall have subscribed to the WCMA Program and its subscription to the WCMAProgram shall then be in effect, the Activation Date shall occur on or promptlyafter the date, following the acceptance of this Loan Agreement by MLBFS at itsoffice in Chicago, Illinois, upon which each of the General Funding Conditionsshall have been met or satisfied to the reasonable satisfaction of MLBFS. Noactivation by MLBFS of the WCMA Line of Credit for a nominal amount shall bedeemed evidence of the satisfaction of any of the conditions herein set forth,or a waiver of any of the terms or conditions hereof. Customer herebyauthorizes MLBFS to pay out of and charge to Customer's WCMA Account on theActivation Date any and all amounts necessary to fully pay off any bank orother financial institution having a lien upon any of the Collateral other thana Permitted Lien.
(b)        **WCMA Loans.** Subject to the terms andconditions hereof, during the period from and after the Activation Date to thefirst to occur of the Maturity Date or the date of termination of the WCMA Lineof Credit pursuant to the terms hereof, and in addition to WCMA Loansautomatically made to pay accrued interest, as hereafter provided: (i) MLBFSwill make WCMA Loans to Customer in such amounts as Customer may from time totime request in accordance with the terms hereof, up to an aggregateoutstanding amount not to exceed the Maximum WCMA Line of Credit, and (ii)Customer may repay any WCMA Loans in whole or in part at any time, and requesta re-borrowing of amounts repaid on a revolving basis. Customer may requestsuch WCMA Loans by use of WCMA Checks, FTS, Visa® charges, wiretransfers, or such other means of access to the WCMA Line of Credit as may bepermitted by MLBFS from time to time; it being understood that so long as theWCMA Line of Credit shall be in effect, any charge or debit to the WCMA Accountwhich but for the WCMA Line of Credit would under the terms of the WCMAAgreement result in an overdraft, shall be deemed a request by Customer for aWCMA Loan.

(c)         **Conditions of WCMA Loans.** Notwithstandingthe foregoing, MLBFS shall not be obligated to make any WCMA Loan, and maywithout notice refuse to honor any such request by Customer, if at the time ofreceipt by MLBFS of Customer's request: (i) the making of such WCMA Loan wouldcause the Maximum WCMA Line of Credit to be exceeded; or (ii) the Maturity Dateshall have occurred, or the WCMA Line of Credit shall have otherwise beenterminated in accordance with the terms hereof; or (iii) Customer'ssubscription to the WCMA Program shall have been terminated; or (iv) an eventshall have occurred and be continuing which shall have caused any of theGeneral Funding Conditions to not then be met or satisfied to the reasonablesatisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when anyone or more of said conditions shall not have been met shall not in any eventbe construed as a waiver of said condition or conditions or of any Default, andshall not prevent MLBFS at any time thereafter while any condition shall nothave been met from refusing to honor any request by Customer for a WCMA Loan.

(d)        **Limitation of Liability.**MLBFS shall not beresponsible, and shall have no liability to Customer or any other party, forany delay or failure of MLBFS to honor any request of Customer for a WCMA Loanor any other act or omission of MLBFS, MLPF&S or any of their affiliatesdue to or resulting from any system failure, error or delay in posting or otherclerical error, loss of power, fire, Act of God or other cause beyond the reasonablecontrol of MLBFS, MLPF&S or any of their affiliates unless directly arisingout of the willful wrongful act or active gross negligence of MLBFS. In noevent shall MLBFS be liable to Customer or any other party for any incidentalor consequential damages arising from any act or omission by MLBFS, MLPF&Sor any of their affiliates in connection with the WCMA Line of Credit or thisLoan Agreement.

(e)         **Interest.**(i) An amount equal to accrued interest on the WCMA Loan Balance shall bepayable by Customer monthly on each Interest Due Date, commencing with theInterest Due Date occurring in the calendar month in which the Activation Dateshall occur. Unless otherwise hereafter directed in writing by MLBFS on orafter the first to occur of the Maturity Date or the date of termination of theWCMA Line of Credit pursuant to the terms hereof, such interest will beautomatically charged to the WCMA Account on the applicable Interest Due Date,and, to the extent not paid with free credit balances or the proceeds of salesof any Money Accounts then in the WCMA Account, as hereafter provided, paid bya WCMA Loan and added to the WCMA Loan Balance. All interest shall be computedfor the actual number of days elapsed on the basis of a year consisting of 360days.

(ii)         Upon the occurrence and during thecontinuance of any Default, but without limiting the rights and remediesotherwise available to MLBFS hereunder or waiving such Default, the interestpayable by Customer hereunder shall at the option of MLBFS accrue and be payableat the Default Interest Rate. The Default Interest Rate, once implemented,shall continue to apply to the Obligations under this Loan Agreement and bepayable by Customer until the date such Default is either cured or waived inwriting by MLBFS.

(iii)        Notwithstandingany provision to the contrary in this Agreement or any of the AdditionalAgreements, no provision of this Agreementor any of the Additional Agreements shall require the payment or permit thecollection of any amount in excess of the maximum amount of interest permittedto be charged by law (“Excess Interest”). If any Excess Interest is providedfor, or is adjudicated as being provided for, in this Agreement or any of theAdditional Agreements, then: (A) Customer shall not be obligated to pay anyExcess Interest; and (B) any Excess Interest that MLBFS may have receivedhereunder or under any of the Additional Agreements shall, at the option ofMLBFS, be: (1) applied as a credit against the then unpaid WCMA Loan Balance,(2) refunded to the payer thereof, or (3) any combination of the foregoing.
(f)         **Payments**. All payments required orpermitted to be made pursuant to this Loan Agreement shall be made in lawfulmoney of the United States. Unless otherwise directed by MLBFS, payments onaccount of the WCMA Loan Balance may be made by the delivery of checks (otherthan WCMA Checks), or by means of FTS or wire transfer of funds (other thanfunds from the WCMA Line of Credit) to MLPF&S for credit to Customer's WCMAAccount. Notwithstanding anything in the WCMA Agreement to the contrary,Customer hereby irrevocably authorizes and directs MLPF&S to applyavailable free credit balances in the WCMA Account to the repayment of the WCMALoan Balance prior to application for any other purpose. Payments to MLBFS fromfunds in the WCMA Account shall be deemed to be made by Customer upon the samebasis and schedule as funds are made available for investment in the MoneyAccounts in accordance with the terms of the WCMA Agreement. All funds receivedby MLBFS from MLPF&S pursuant to the aforesaid authorization shall beapplied by MLBFS to repayment of the WCMA Loan Balance. The acceptance by or onbehalf of MLBFS of a check or other payment for a lesser amount than shall bedue from Customer, regardless of any endorsement or statement thereon ortransmitted therewith, shall not be deemed an accord and satisfaction oranything other than a payment on account, and MLBFS or anyone acting on behalfof MLBFS may accept such check or other payment without prejudice to the rightsof MLBFS to recover the balance actually due or to pursue any other remedyunder this Loan Agreement or applicable law for such balance. All checksaccepted by or on behalf of MLBFS in connection with the WCMA Line of Creditare subject to final collection.

(g)        **Irrevocable Instructions to MLPF&S.** Inorder to minimize the WCMA Loan Balance, Customer hereby irrevocably authorizesand directs MLPF&S, effective on the Activation Date and continuingthereafter so long as this Agreement shall be in effect: (i) to immediately andprior to application for any other purpose pay to MLBFS to the extent of anyWCMA Loan Balance or other amounts payable by Customer hereunder all availablefree credit balances from time to time in the WCMA Account; and (ii) if suchavailable free credit balances are insufficient to pay the WCMA Loan Balanceand such other amounts, and there are in the WCMA Account at any time anyinvestments in Money Accounts (other than any investments constituting anyMinimum Money Accounts Balance under the WCMA Directed Reserve Program), toimmediately liquidate such investments and pay to MLBFS to the extent of anyWCMA Loan Balance and such other amounts the available proceeds from theliquidation of any such Money Accounts.

(h)        **Statements.** MLPF&S will include in eachmonthly statement it issues under the WCMA Program information with respect toWCMA Loans and the WCMA Loan Balance. Any questions that Customer may have withrespect to such information should be directed to MLBFS; and any questions withrespect to any other matter in such statements or about or affecting the WCMAProgram should be directed to MLPF&S.

(i)          **Use of WCMA Loan Proceeds.** The proceeds ofeach WCMA Loan initiated by Customer shall be used by Customer solely forworking capital in the ordinary course of its business, or, with the priorwritten consent of MLBFS, for other lawful business purposes of Customer notprohibited hereby. **Customer agrees that under no circumstances will theproceeds of any WCMA Loan be used: (i) for personal, family or householdpurposes of any person whatsoever, or (ii) to purchase, carry or trade insecurities, or repay debt incurred to purchase, carry or trade in securities,whether in or in connection with the WCMA Account, another account of Customerwith MLPF&S or an account of Customer at any other broker or dealer insecurities, or (iii) unless otherwise consented to in writing by MLBFS, to payany amount to Merrill Lynch and Co., Inc. or any of its subsidiaries, otherthan Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co. or anysubsidiary of either of them (including MLBFS and Merrill Lynch CreditCorporation).**

(j)          **Renewal at Option of MLBFS; Right of Customer toTerminate.** MLBFS may at any time, in its sole discretion and at itssole option, renew the WCMA Line of Credit for one or more Renewal Years; itbeing understood, however, that no such renewal shall be effective unless setforth in a writing executed by a duly authorized representative of MLBFS anddelivered to Customer. Unless any such renewal is accompanied by a proposedchange in the terms of the WCMA Line of Credit (other than the extension of theMaturity Date), no such renewal shall require Customer's approval. Customershall, however, have the right to terminate the WCMA Line of Credit at any timeupon written notice to MLBFS.

(k)         **Line Fees.** (i) In consideration of theextension of the WCMA Line of Credit by MLBFS to Customer during the periodfrom the Activation Date to the Initial Maturity Date, Customer has paid orshall pay the Line Fee to MLBFS. If the Line Fee has not heretofore been paidby Customer, Customer hereby authorizes MLBFS, at its option, to either causethe Line Fee to be paid on the Activation Date with a WCMA Loan, or invoiceCustomer for such Line Fee (in which event Customer shall pay said fee within 5Business Days after receipt of such invoice). No delay in the Activation Date,howsoever caused, shall entitle Customer to any rebate or reduction in the LineFee or to any extension of the Initial Maturity Date.

(ii)         Customer shall pay an additional LineFee for each Renewal Year. In connection therewith, Customer hereby authorizesMLBFS, at its option, to either cause each such additional Line Fee to be paidwith a WCMA Loan on or at any time after the first Business Day of such RenewalYear or invoiced to Customer at such time (in which event Customer shall paysuch Line Fee within 5 Business Days after receipt of such invoice). Each LineFee shall be deemed fully earned by MLBFS on the date payable by Customer, andno termination of the WCMA Line of Credit, howsoever caused, shall entitleCustomer to any rebate or refund of any portion of such Line Fee; provided,however, that if Customer shall terminate the WCMA Line of Credit not laterthan 5 Business Days after the receipt by Customer of notice from MLBFS of arenewal of the WCMA Line of Credit, Customer shall be entitled to a refund ofany Line Fee charged by MLBFS for the ensuing Renewal Year.
**ArticleIII. GENERAL PROVISIONS**

3.1        **REPRESENTATIONS AND WARRANTIES**

Customerrepresents and warrants to MLBFS that:

(a)       **Organization and Existence.** Customer is a corporation, duly organized andvalidly existing in good standing under the laws of the State of Massachusettsand is qualified to do business and in good standing in each other state wherethe nature of its business or the property owned by it make such qualificationnecessary.

(b)       **Execution, Delivery and Performance.** The execution, delivery and performanceby Customer of this Loan Agreement and such of the Additional Agreements towhich it is a party: (i) have been duly authorized by all requisite action,(ii) do not and will not violate or conflict with any law or other governmentalrequirement, or any of the agreements, instruments or documents which formed orgovern Customer, and (iii) do not and will not breach or violate any of theprovisions of, and will not result in a default by Customer under, any otheragreement, instrument or document to which it is a party or by which it or itsproperties are bound.

(c)       **Notices and Approvals.** Except as may have been given or obtained, nonotice to or consent or approval of any governmental body or authority or otherthird party whatsoever (including, without limitation, any other creditor) isrequired in connection with the execution, delivery or performance by Customerof such of this Loan Agreement and the Additional Agreements to which it is aparty.

(d)       **Enforceability.** This Loan Agreement and such of the AdditionalAgreements to which Customer is a party are the legal, valid and bindingobligations of Customer, enforceable against it in accordance with theirrespective terms, except as enforceability may be limited by bankruptcy andother similar laws affecting the rights of creditors generally or by general principlesof equity.

(e)       **Collateral.** Except for any Permitted Liens: (i) Customerhas good and marketable title to the Collateral, (ii) none of the Collateral issubject to any lien, encumbrance or security interest, and (iii) upon thefiling of all Uniform Commercial Code financing statements executed by Customerwith respect to the Collateral in the appropriate jurisdiction(s) and/or thecompletion of any other action required by applicable law to perfect its liensand security interests, MLBFS will have valid and perfected first liens andsecurity interests upon all of the Collateral.

(f)        **Financial Statements.** Except as expressly set forth in Customer'sfinancial statements, all financial statements of Customer furnished to MLBFShave been prepared in conformity with generally accepted accounting principles,consistently applied, are true and correct in all material respects, and fairlypresent the financial condition of it as at such dates and the results of itsoperations for the periods then ended (subject, in the case of interimunaudited financial statements, to normal year-end adjustments); and since themost recent date covered by such financial statements, there has been nomaterial adverse change in any such financial condition or operation.

(g)       **Litigation.** No litigation, arbitration, administrative orgovernmental proceedings are pending or, to the knowledge of Customer,threatened against Customer, which would, if adversely determined, materiallyand adversely affect the liens and security interests of MLBFS hereunder orunder any of the Additional Agreements, the financial condition of Customer orthe continued operations of Customer.

(h)       **Tax Returns.** All federal, state and local tax returns,reports and statements required to be filed by Customer have been filed withthe appropriate governmental agencies and all taxes due and payable by Customerhave been timely paid (except to the extent that any such failure to file orpay will not materially and adversely affect either the liens and security interestsof MLBFS hereunder or under any of the Additional Agreements, the financialcondition of Customer, or the continued operations of Customer).

(i)        **Collateral Location.** All of the tangible Collateral is located at aLocation of Tangible Collateral.

(j)        **No Outside Broker.**Except for employees of MLBFS, MLPF&S or oneof their affiliates, Customer has not in connection with the transactionscontemplated hereby directly or indirectly engaged or dealt with, and was notintroduced or referred to MLBFS by, any broker or other loan arranger.

Each of theforegoing representations and warranties: (i) has been and will be relied uponas an inducement to MLBFS to provide the WCMA Line of Credit, and (ii) iscontinuing and shall be deemed remade by Customer concurrently with eachrequest for a WCMA Loan.
3.2        **FINANCIALAND OTHER INFORMATION**

(a)         Customer shall furnish or cause to befurnished to MLBFS during the term of this Loan Agreement all of the following:

(i)          **Annual Financial Statements.** Within 120 days after the close of each fiscalyear of Customer, a copy of the annual audited financial statements ofCustomer, including in reasonable detail, a balance sheet and statement ofretained earnings as at the close of such fiscal year and statements of profitand loss and cash flow for such fiscal year;

(ii)         **Interim Financial Statements.** Within 45 days after the close of each fiscalquarter of Customer, a copy of the interim financial statements of Customer forsuch fiscal quarter (including in reasonable detail both a balance sheet as ofthe close of such fiscal period, and statement of profit and loss for theapplicable fiscal period);

(iii)        **A/R Agings.** Within 45 days after the close of each fiscalquarter of Customer, a copy of the Accounts Receivable Aging of Customer as ofthe end of such fiscal quarter;

(iv)       **Inventory Reports.** Within 45 days after the close of each fiscalquarter of Customer, a copy of the Inventory Report (as and to the extentapplicable, breaking out Inventory by location, and separately reporting anywork in process) of Customer as of the end of such fiscal quarter; and

(v)        **Other Information.** Such other information as MLBFS may from timeto time reasonably request relating to Customer or the Collateral.

(b)        **General Agreements With Respect to FinancialInformation**. Customer agrees that except as otherwise specifiedherein or otherwise agreed to in writing by MLBFS: (i) all annual financialstatements required to be furnished by Customer to MLBFS hereunder will beprepared by either the current independent accountants for Customer or otherindependent accountants reasonably acceptable to MLBFS, and (ii) all otherfinancial information required to be furnished by Customer to MLBFS hereunderwill be certified as correct in all material respects by the party who hasprepared such information, and, in the case of internally prepared informationwith respect to Customer, certified as correct by its chief financial officer.
3.3        **OTHER COVENANTS**

Customerfurther covenants and agrees during the term of this Loan Agreement that:

(a)       **Financial Records; Inspection.** Customer will: (i) maintain at its principalplace of business complete and accurate books and records, and maintain all ofits financial records in a manner consistent with the financial statements heretoforefurnished to MLBFS, or prepared on such other basis as may be approved inwriting by MLBFS; and (ii) permit MLBFS or its duly authorized representatives,upon reasonable notice and at reasonable times, to inspect its properties (bothreal and personal), operations, books and records.

(b)       **Taxes.**Customer will pay when due all taxes, assessments and other governmentalcharges, howsoever designated, and all other liabilities and obligations,except to the extent that any such failure to pay will not materially andadversely affect either the liens and security interests of MLBFS hereunder orunder any of the Additional Agreements, the financial condition of Customer orthe continued operations of Customer.

(c)       **Compliance With Laws and Agreements.** Customer will not violate any law,regulation or other governmental requirement, any judgment or order of anycourt or governmental agency or authority, or any agreement, instrument ordocument to which it is a party or by which it is bound, if any such violationwill materially and adversely affect either the liens and security interests ofMLBFS hereunder or under any of the Additional Agreements, or the financialcondition or the continued operations of Customer.

(d)       **No Use of Merrill Lynch Name.**Customer will not directly or indirectly publish, disclose or otherwise use in anyadvertising or promotional material, or press release or interview, the name,logo or any trademark of MLBFS, MLPF&S, Merrill Lynch and Co., Incorporatedor any of their affiliates.

(e)       **Notification By Customer.** Customer shall provide MLBFS with promptwritten notification of: (i) any Default; (ii) any materially adverse change inthe business, financial condition or operations of Customer; (iii) anyinformation which indicates that any financial statements of Customer fail inany material respect to present fairly the financial condition and results ofoperations purported to be presented in such statements; and (iv) any change inCustomer's outside accountants. Each notification by Customer pursuant heretoshall specify the event or information causing such notification, and, to theextent applicable, shall specify the steps being taken to rectify or remedysuch event or information.

(f)        **Notice of Change.** Customer shall give MLBFS not less than 30 daysprior written notice of any change in the name (including any fictitious name)or principal place of business or residence of Customer.

(g)       **Continuity.** Except upon the prior written consent of MLBFS,which consent will not be unreasonably withheld: (i) Customer shall not be aparty to any merger or consolidation with, or purchase or otherwise acquire allor substantially all of the assets of, or any material stock, partnership,joint venture or other equity interest in, any person or entity, or sell,transfer or lease all or any substantial part of its assets, if any such actionwould result in either: (A) a material change in the principal business,ownership or control of Customer, or (B) a material adverse change in thefinancial condition or operations of Customer; (ii) Customer shall preserve itsexistence and good standing in the jurisdiction(s) of establishment andoperation; (iii) Customer shall not engage in any material businesssubstantially different from its business in effect as of the date ofapplication by Customer for credit from MLBFS, or cease operating any suchmaterial business; (iv) Customer shall not cause or permit any other person orentity to assume or succeed to any material business or operations of Customer;and (v) Customer shall not cause or permit any material change in itscontrolling ownership.

(h)       **Minimum Tangible Net Worth.**As of December 31, 2000, Customer's “tangiblenet worth” shall at all times exceed $7,750,000.00. For the purposes hereof,the term “tangible net worth” shall mean Customer's net worth as shown onCustomer's regular financial statements prepared in a manner consistent withthe terms hereof, but excluding an amount equal to (i) any assets which areordinarily classified as “intangible” in accordance with generally acceptedaccounting principles, and (ii) any amounts now or hereafter directly orindirectly owing to Customer by officers, shareholders or affiliates ofCustomer.
3.4       **COLLATERAL**

(a)       **Pledge of Collateral.** To secure payment and performance of theObligations, Customer hereby pledges, assigns, transfers and sets over toMLBFS, and grants to MLBFS first liens and security interests in and upon allof the Collateral, subject only to Permitted Liens.

(b)       **Liens.**Except upon the prior written consent of MLBFS, Customer shall not create orpermit to exist any lien, encumbrance or security interest upon or with respectto any Collateral now owned or hereafter acquired other than Permitted Liens.

(c)       **Performance of Obligations.** Customer shall perform all of its obligationsowing on account of or with respect to the Collateral; it being understood thatnothing herein, and no action or inaction by MLBFS, under this Loan Agreementor otherwise, shall be deemed an assumption by MLBFS of any of Customer's saidobligations.

(d)       **Sales and Collections.** So long as no Event of Default shall haveoccurred and be continuing, Customer may in the ordinary course of itsbusiness: (i) sell any Inventory normally held by Customer for sale, (ii) useor consume any materials and supplies normally held by Customer for use orconsumption, and (iii) collect all of its Accounts. Customer shall take suchaction with respect to protection of its Inventory and the other Collateral andthe collection of its Accounts as MLBFS may from time to time reasonablyrequest.

(e)       **Account Schedules.** Upon the request of MLBFS, made now or at anyreasonable time or times hereafter, Customer shall deliver to MLBFS, inaddition to the other information required hereunder, a schedule identifying,for each Account and all Chattel Paper subject to MLBFS' security interestshereunder, each Account Debtor by name and address and amount, invoice orcontract number and date of each invoice or contract. Customer shall furnish toMLBFS such additional information with respect to the Collateral, and amountsreceived by Customer as proceeds of any of the Collateral, as MLBFS may fromtime to time reasonably request.

(f)        **Alterations and Maintenance.** Except upon the prior written consent of MLBFS,Customer shall not make or permit any material alterations to any tangibleCollateral which might materially reduce or impair its market value or utility.Customer shall at all times keep the tangible Collateral in good condition andrepair, reasonable wear and tear excepted, and shall pay or cause to be paidall obligations arising from the repair and maintenance of such Collateral, aswell as all obligations with respect to any Location of Tangible Collateral,except for any such obligations being contested by Customer in good faith byappropriate proceedings.

(g)       **Location.**Except for movements required in the ordinary course of Customer's business,Customer shall give MLBFS 30 days' prior written notice of the placing at ormovement of any tangible Collateral to any location other than a Location ofTangible Collateral. In no event shall Customer cause or permit any materialtangible Collateral to be removed from the United States without the expressprior written consent of MLBFS.

(h)       **Insurance.** Customer shall insure all of the tangibleCollateral under a policy or policies of physical damage insurance providingthat losses will be payable to MLBFS as its interests may appear pursuant to aLender's Loss Payable Endorsement and containing such other provisions as maybe reasonably required by MLBFS. Customer shall further provide and maintain apolicy or policies of comprehensive public liability insurance naming MLBFS asan additional party insured. Customer shall maintain such other insurance asmay be required by law or is customarily maintained by companies in a similarbusiness or otherwise reasonably required by MLBFS. All such insurance policiesshall provide that MLBFS will receive not less than 10 days prior writtennotice of any cancellation, and shall otherwise be in form and amount and withan insurer or insurers reasonably acceptable to MLBFS. Customer shall furnishMLBFS with a copy or certificate of each such policy or policies and, prior toany expiration or cancellation, each renewal or replacement thereof.
(i)        **Event of Loss.** Customer shall at its expense promptly repairall repairable damage to any tangible Collateral. In the event that anytangible Collateral is damaged beyond repair, lost, totally destroyed orconfiscated (an “Event of Loss”) and such Collateral had a value prior to suchEvent of Loss of $25,000.00 or more, then, on or before the first to occur of(i) 90 days after the occurrence of such Event of Loss, or (ii) 10 BusinessDays after the date on which either Customer or MLBFS shall receive anyproceeds of insurance on account of such Event of Loss, or any underwriter ofinsurance on such Collateral shall advise either Customer or MLBFS that itdisclaims liability in respect of such Event of Loss, Customer shall, atCustomer's option, either replace the Collateral subject to such Event of Losswith comparable Collateral free of all liens other than Permitted Liens (inwhich event Customer shall be entitled to utilize the proceeds of insurance onaccount of such Event of Loss for such purpose, and may retain any excessproceeds of such insurance), or deposit into the WCMA Account an amount equalto the actual cash value of such Collateral as determined by either theinsurance company's payment (plus any applicable deductible) or, in absence ofinsurance company payment, as reasonably determined by MLBFS; it being furtherunderstood that any such deposit shall be accompanied by a like permanentreduction in the Maximum WCMA Line of Credit. Notwithstanding the foregoing, ifat the time of occurrence of such Event of Loss or any time thereafter prior toreplacement or line reduction, as aforesaid, an Event of Default shall haveoccurred and be continuing hereunder, then MLBFS may at its sole option,exercisable at any time while such Event of Default shall be continuing,require Customer to either replace such Collateral or make a deposit into theWCMA Account and reduce the Maximum WCMA Line of Credit, as aforesaid.

(j)        **Notice of Certain Events.** Customer shall give MLBFS immediate notice of anyattachment, lien, judicial process, encumbrance or claim affecting or involving$25,000.00 or more of the Collateral.

(k)       **Indemnification.** Customer shall indemnify, defend and save MLBFSharmless from and against any and all claims, liabilities, losses, costs andexpenses (including, without limitation, reasonable attorneys' fees andexpenses) of any nature whatsoever which may be asserted against or incurred byMLBFS arising out of or in any manner occasioned by (i) the ownership,collection, possession, use or operation of any Collateral, or (ii) any failureby Customer to perform any of its obligations hereunder; excluding, however,from said indemnity any such claims, liabilities, etc. arising directly out ofthe willful wrongful act or active gross negligence of MLBFS. This indemnityshall survive the expiration or termination of this Loan Agreement as to allmatters arising or accruing prior to such expiration or termination.

3.5        **EVENTS OF DEFAULT**

The occurrenceof any of the following events shall constitute an “Event of Default” underthis Loan Agreement:

(a)         **Exceeding the Maximum WCMA Line of Credit.**If the WCMA Loan Balance shall at any time exceed the Maximum WCMA Line ofCredit and Customer shall fail to deposit sufficient funds into the WCMA Accountto reduce the WCMA Loan Balance below the Maximum WCMA Line of Credit withinfive (5) Business Days after written notice thereof shall have been given byMLBFS to Customer.

(b)        **Other****Failure to Pay.** Customer shall fail to payto MLBFS or deposit into the WCMA Account when due any other amount owing orrequired to be paid or deposited by Customer under this Loan Agreement, orshall fail to pay when due any other Obligations, and any such failure shallcontinue for more than five (5) Business Days after written notice thereofshall have been given by MLBFS to Customer.

(c)         **Failure to Perform.** Customer shall defaultin the performance or observance of any covenant or agreement on its part to beperformed or observed under this Loan Agreement or any of the AdditionalAgreements (not constituting an Event of Default under any other clause of thisSection), and such default shall continue unremedied for ten (10) Business Daysafter written notice thereof shall have been given by MLBFS to Customer.

(d)        **Breach of Warranty.** Any representation orwarranty made by Customer contained in this Loan Agreement or any of theAdditional Agreements shall at any time prove to have been incorrect in anymaterial respect when made.

(e)         **Default Under Other Agreement.** A default orEvent of Default by Customer or any other party providing collateral for theObligations shall occur under the terms of any other agreement, instrument ordocument with or intended for the benefit of MLBFS, MLPF&S or any of theiraffiliates, and any required notice shall have been given and required passageof time shall have elapsed.

(f)         **Bankruptcy Event.** Any Bankruptcy Eventshall occur.

(g)        **Material Impairment.** Any event shall occurwhich shall reasonably cause MLBFS to in good faith believe that the prospectof full payment or performance by Customer of its liabilities or obligationsunder this Loan Agreement or any of the Additional Agreements to which Customeris a party has been materially impaired. The existence of such a materialimpairment shall be determined in a manner consistent with the intent ofSection 1-208 of the UCC.

(h)        **Acceleration of Debt to Other Creditors.**Any event shall occur which results in the acceleration of the maturity of anyindebtedness of $100,000.00 or more of Customer to another creditor under anyindenture, agreement, undertaking, or otherwise.

(i)          **Seizure or Abuse of Collateral.** TheCollateral, or any material part thereof, shall be or become subject to anymaterial abuse or misuse, or any levy, attachment, seizure or confiscationwhich is not released within ten (10) Business Days.
3.6        **REMEDIES**

(a)         **Remedies Upon Default.** Upon the occurrenceand during the continuance of any Event of Default, MLBFS may at its soleoption do any one or more or all of the following, at such time and in suchorder as MLBFS may in its sole discretion choose:

(i)          **Termination.** MLBFS may without noticeterminate the WCMA Line of Credit and all obligations to provide the WCMA Lineof Credit or otherwise extend any credit to or for the benefit of Customer (itbeing understood, however, that upon the occurrence of any Bankruptcy Event theWCMA Line of Credit and all such obligations shall automatically terminatewithout any action on the part of MLBFS); and upon any such termination MLBFSshall be relieved of all such obligations.

(ii)         **Acceleration.** MLBFS may declare theprincipal of and interest on the WCMA Loan Balance, and all other Obligationsto be forthwith due and payable, whereupon all such amounts shall beimmediately due and payable, without presentment, demand for payment, protestand notice of protest, notice of dishonor, notice of acceleration, notice ofintent to accelerate or other notice or formality of any kind, all of which arehereby expressly waived; provided, however, that upon the occurrence of anyBankruptcy Event all such principal, interest and other Obligations shallautomatically become due and payable without any action on the part of MLBFS.

(iii)        **Exercise Other Rights.** MLBFS may exerciseany or all of the remedies of a secured party under applicable law, including,but not limited to, the UCC, and any or all of its other rights and remediesunder this Loan Agreement and the Additional Agreements.

(iv)       **Possession.** MLBFS may require Customer tomake the Collateral and the records pertaining to the Collateral available toMLBFS at a place designated by MLBFS which is reasonably convenient toCustomer, or may take possession of the Collateral and the records pertainingto the Collateral without the use of any judicial process and without any priornotice to Customer.

(v)        **Sale.** MLBFS may sell any or all of theCollateral at public or private sale upon such terms and conditions as MLBFSmay reasonably deem proper. MLBFS may purchase any Collateral at any suchpublic sale. The net proceeds of any such public or private sale and all otheramounts actually collected or received by MLBFS pursuant hereto, afterdeducting all costs and expenses incurred at any time in the collection of theObligations and in the protection, collection and sale of the Collateral, willbe applied to the payment of the Obligations, with any remaining proceeds paidto Customer or whoever else may be entitled thereto, and with Customerremaining liable for any amount remaining unpaid after such application.

(vi)       **Delivery of Cash, Checks, Etc.** MLBFS mayrequire Customer to forthwith upon receipt, transmit and deliver to MLBFS inthe form received, all cash, checks, drafts and other instruments for thepayment of money (properly endorsed, where required, so that such items may becollected by MLBFS) which may be received by Customer at any time in full orpartial payment of any Collateral, and require that Customer not commingle anysuch items which may be so received by Customer with any other of its funds orproperty but instead hold them separate and apart and in trust for MLBFS untildelivery is made to MLBFS.

(vii)      **Notification of Account Debtors.** MLBFS maynotify any Account Debtor that its Account or Chattel Paper has been assignedto MLBFS and direct such Account Debtor to make payment directly to MLBFS ofall amounts due or becoming due with respect to such Account or Chattel Paper;and MLBFS may enforce payment and collect, by legal proceedings or otherwise,such Account or Chattel Paper.
(viii)     **Control of Collateral.** MLBFS may otherwisetake control in any lawful manner of any cash or non-cash items of payment orproceeds of Collateral and of any rejected, returned, stopped in transit orrepossessed goods included in the Collateral and endorse Customer's name on anyitem of payment on or proceeds of the Collateral.

(b)        **Set-Off.** MLBFS shall have the further rightupon the occurrence and during the continuance of an Event of Default toset-off, appropriate and apply toward payment of any of the Obligations, insuch order of application as MLBFS may from time to time and at any time elect,any cash, credit, deposits, accounts, financial assets, investment property,securities and any other property of Customer which is in transit to or in thepossession, custody or control of MLBFS, MLPF&S or any agent, bailee, oraffiliate of MLBFS or MLPF&S. Customer hereby collaterally assigns andgrants to MLBFS a continuing security interest in all such property asadditional Collateral.

(c)         **Power of Attorney.** Effective upon theoccurrence and during the continuance of an Event of Default, Customer herebyirrevocably appoints MLBFS as its attorney-in-fact, with full power ofsubstitution, in its place and stead and in its name or in the name of MLBFS,to from time to time in MLBFS' sole discretion take any action and to executeany instrument which MLBFS may deem necessary or advisable to accomplish thepurposes of this Loan Agreement, including, but not limited to, to receive,endorse and collect all checks, drafts and other instruments for the payment ofmoney made payable to Customer included in the Collateral.

(d)        **Remedies are Severable and Cumulative.** Allrights and remedies of MLBFS herein are severable and cumulative and inaddition to all other rights and remedies available in the AdditionalAgreements, at law or in equity, and any one or more of such rights andremedies may be exercised simultaneously or successively.

(e)         **Notices.** To the fullest extent permitted byapplicable law, Customer hereby irrevocably waives and releases MLBFS of andfrom any and all liabilities and penalties for failure of MLBFS to comply withany statutory or other requirement imposed upon MLBFS relating to notices ofsale, holding of sale or reporting of any sale, and Customer waives all rightsof redemption or reinstatement from any such sale. Any notices required underapplicable law shall be reasonably and properly given to Customer if given byany of the methods provided herein at least 5 Business Days prior to takingaction. MLBFS shall have the right to postpone or adjourn any sale or otherdisposition of Collateral at any time without giving notice of any suchpostponed or adjourned date. In the event MLBFS seeks to take possession of anyor all of the Collateral by court process, Customer further irrevocably waivesto the fullest extent permitted by law any bonds and any surety or securityrelating thereto required by any statute, court rule or otherwise as anincident to such possession, and any demand for possession prior to the commencementof any suit or action.
3.7        **MISCELLANEOUS**

(a)         **Non-Waiver.** No failure or delay on the partof MLBFS in exercising any right, power or remedy pursuant to this LoanAgreement or any of the Additional Agreements shall operate as a waiverthereof, and no single or partial exercise of any such right, power or remedyshall preclude any other or further exercise thereof, or the exercise of anyother right, power or remedy. Neither any waiver of any provision of this LoanAgreement or any of the Additional Agreements, nor any consent to any departureby Customer therefrom, shall be effective unless the same shall be in writingand signed by MLBFS. Any waiver of any provision of this Loan Agreement or anyof the Additional Agreements and any consent to any departure by Customer fromthe terms of this Loan Agreement or any of the Additional Agreements shall beeffective only in the specific instance and for the specific purpose for whichgiven. Except as otherwise expressly provided herein, no notice to or demand onCustomer shall in any case entitle Customer to any other or further notice ordemand in similar or other circumstances.

(b)        **Disclosure.** Customer hereby irrevocablyauthorizes MLBFS and each of its affiliates, including without limitationMLPF&S, to at any time (whether or not an Event of Default shall haveoccurred) obtain from and disclose to each other any and all financial andother information about Customer. In connection with said authorization, theparties recognize that in order to provide a WCMA Line of Credit certaininformation about Customer is required to be made available on a computernetwork accessible by certain affiliates of MLBFS, including MLPF&S.

(c)         **Communications.** All notices and othercommunications required or permitted hereunder shall be in writing, and shallbe either delivered personally, mailed by postage prepaid certified mail orsent by express overnight courier or by facsimile. Such notices andcommunications shall be deemed to be given on the date of personal delivery, facsimiletransmission or actual delivery of certified mail, or one Business Day afterdelivery to an express overnight courier. Unless otherwise specified in anotice sent or delivered in accordance with the terms hereof, notices and othercommunications in writing shall be given to the parties hereto at theirrespective addresses set forth at the beginning of this Loan Agreement, or, inthe case of facsimile transmission, to the parties at their respective regularfacsimile telephone number.

(d)        **Fees,****Expenses and Taxes.** Customershall pay or reimburse MLBFS for: (i) all Uniform Commercial Code filing andsearch fees and expenses incurred by MLBFS in connection with the verification,perfection or preservation of MLBFS' rights hereunder or in the Collateral or any other collateral for the Obligations; (ii) any and allstamp, transfer and other taxes and fees payable or determined to be payable inconnection with the execution, delivery and/or recording of this Loan Agreementor any of the Additional Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including, but notlimited to, reasonable fees and expenses of outside counsel) incurred by MLBFSin connection with the collection of any sum payable hereunder or under any ofthe Additional Agreements not paid when due, the enforcement of this LoanAgreement or any of the Additional Agreements and the protection of MLBFS'rights hereunder or thereunder, excluding, however, salaries and normaloverhead attributable to MLBFS' employees. Customer hereby authorizes MLBFS, atits option, to either cause any and all such fees, expenses and taxes to bepaid with a WCMA Loan, or invoice Customer therefor (in which event Customershall pay all such fees, expenses and taxes within 5 Business Days after receiptof such invoice). The obligations of Customer under this paragraph shallsurvive the expiration or termination of this Loan Agreement and the dischargeof the other Obligations.

(e)         **Right to Perform Obligations.** If Customershall fail to do any act or thing which it has covenanted to do under this LoanAgreement or any representation or warranty on the part of Customer containedin this Loan Agreement shall be breached, MLBFS may, in its sole discretion,after 5 Business Days written notice is sent to Customer (or such lessernotice, including no notice, as is reasonable under the circumstances), do thesame or cause it to be done or remedy any such breach, and may expend its fundsfor such purpose. Any and all reasonable amounts so expended by MLBFS shall berepayable to MLBFS by Customer upon demand, with interest at the Interest Rateduring the period from and including the date funds are so expended by MLBFS tothe date of repayment, and all such amounts shall be additional Obligations.The payment or performance by MLBFS of any of Customer's obligations hereundershall not relieve Customer of said obligations or of the consequences of havingfailed to pay or perform the same, and shall not waive or be deemed a cure ofany Default.
(f)         **Further Assurances.** Customer agrees to dosuch further acts and things and to execute and deliver to MLBFS suchadditional agreements, instruments and documents as MLBFS may reasonablyrequire or deem advisable to effectuate the purposes of this Loan Agreement orany of the Additional Agreements, or to establish, perfect and maintain MLBFS'security interests and liens upon the Collateral, including, but not limitedto: (i) executing financing statements or amendments thereto when and asreasonably requested by MLBFS; and (ii) if in the reasonable judgment of MLBFSit is required by local law, causing the owners and/or mortgagees of the realproperty on which any Collateral may be located to execute and deliver to MLBFSwaivers or subordinations reasonably satisfactory to MLBFS with respect to anyrights in such Collateral.

(g)        **BindingEffect.** This Loan Agreement and the Additional Agreements shall bebinding upon, and shall inure to the benefit of MLBFS, Customer and theirrespective successors and assigns. Customer shall not assign any of its rightsor delegate any of its obligations under this Loan Agreement or any of theAdditional Agreements without the prior written consent of MLBFS. Unlessotherwise expressly agreed to in a writing signed by MLBFS, no such consent shallin any event relieve Customer of any of its obligations under this LoanAgreement or the Additional Agreements.

(h)        **Headings.** Captions and section andparagraph headings in this Loan Agreement are inserted only as a matter ofconvenience, and shall not affect the interpretation hereof.

(i)          **Governing Law.** This Loan Agreement, and,unless otherwise expressly provided therein, each of the Additional Agreements,shall be governed in all respects by the laws of the State of Illinois.

(j)          **Severability of Provisions.** Wheneverpossible, each provision of this Loan Agreement and the Additional Agreementsshall be interpreted in such manner as to be effective and valid underapplicable law. Any provision of this Loan Agreement or any of the AdditionalAgreements which is prohibited or unenforceable in any jurisdiction shall, asto such jurisdiction, be ineffective only to the extent of such prohibition orunenforceability without invalidating the remaining provisions of this LoanAgreement and the Additional Agreements or affecting the validity orenforceability of such provision in any other jurisdiction.

(k)         **Term.** This Loan Agreement shall becomeeffective on the date accepted by MLBFS at its office in Chicago, Illinois,and, subject to the terms hereof, shall continue in effect so long thereafteras the WCMA Line of Credit shall be in effect or there shall be any Obligationsoutstanding.

(l)          **Counterparts.** This Loan Agreement may beexecuted in one or more counterparts which, when taken together, constitute oneand the same agreement.

(m)        **Jurisdiction; Waiver.**   **CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT ISBEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, INITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT (INCLUDING THE WCMA NOTESET FORTH HEREIN) AND THE ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOISOR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THEOBLIGATIONS MAY BE LOCATED. CUSTOMER IRREVOCABLY SUBMITS ITSELF TO JURISDICTIONIN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTYOF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTESTSAID JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH FORUM, AND ANY ANDALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. CUSTOMER FURTHERWAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTIONEXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBYEACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHERPARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAYCONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONALAGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THISLOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORYCOUNTERCLAIMS.**
(n)        **Integration.**   **THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS, CONSTITUTESTHE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEENTHE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BECONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUSOR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORALAGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMERACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISEOR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVEEMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMALINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OFCREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY;(II) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMALINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALIDOR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS;AND (III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS,LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER,NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT ORMODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICHCUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFSAND CUSTOMER.**

**IN WITNESS WHEREOF**, this Loan Agreement has been executedas of the day and year first above written.
**STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.** By:/s/ Mark W. Blodgett/s/ Gary B. Godin   Signature (1)Signature (2) Mark W. BlodgettGary B. Godin   Printed NamePrinted Name CEOCFO   TitleTitle
 
Accepted at Chicago, Illinois:**MERRILL LYNCH BUSINESS FINANCIAL****SERVICES INC.** By:/s/ Julie Ellman     
 

**EXHIBITA**

**ATTACHED TO AND HEREBY MADE A PART OF WCMA LOAN AND SECURITYAGREEMENT NO.  794-07E49 BETWEEN MERRILLLYNCH BUSINESS FINANCIAL SERVICES INC. AND STOCKERYALE, INC. F/K/A STOCKER& YALE, INC.**
****
 

**Additional Locations ofTangible Collateral:**

             15935 Sturgeon Street             Roseville, Michigan**SECRETARY'S CERTIFICATE******
**The undersigned herebycertifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.** that the undersigned is the dulyappointed and acting Secretary (or Assistant Secretary) of **STOCKERYALE, INC. F/K/A STOCKER &YALE, INC.**, a corporation duly organized, validly existing and ingood standing under the laws of the State of Massachusetts; and that thefollowing is a true, accurate and compared transcript of resolutions duly,validly and lawfully adopted on the 19 day of March, 2001 by the Board ofDirectors of said Corporation acting in accordance with the laws of the stateof incorporation and the charter and by-laws of said Corporation:

**“****RESOLVED**, that this Corporation is authorized andempowered, now and from time to time hereafter, to borrow and/or obtain creditfrom, and/or enter into other financial arrangements with, **MERRILL LYNCH BUSINESS FINANCIALSERVICES INC.** (“MLBFS”), and in connection therewith to grant toMLBFS liens and security interests on any or all property belonging to thisCorporation; all such transactions to be on such terms and conditions as may bemutually agreed from time to time between this Corporation and MLBFS; and

**“****FURTHER RESOLVED**, that the President, any Vice President,Treasurer, Secretary or other officer of this Corporation, or any one or moreof them, be and each of them hereby is authorized and empowered to: (a) executeand deliver to MLBFS on behalf of this Corporation any and all loan agreements,promissory notes, security agreements, pledge agreements, financing statements,mortgages, deeds of trust, leases and/or all other agreements, instruments anddocuments required by MLBFS in connection therewith, and any present or futureextensions, amendments, supplements, modifications and restatements thereof;all in such form as any such officer shall approve, as conclusively evidencedby his or her signature thereon, and (b) do and perform all such acts andthings deemed by any such officer to be necessary or advisable to carry out andperform the undertakings and agreements of this Corporation in connectiontherewith; and any and all prior acts of each of said officers in thesepremises are hereby ratified and confirmed in all respects; and

**“FURTHER RESOLVED**, that MLBFS is authorized to rely uponthe foregoing resolutions until it receives written notice of any change orrevocation from an authorized officer of this Corporation, which change orrevocation shall not in any event affect the obligations of this Corporationwith respect to any transaction conditionally agreed or committed to by MLBFSor having its inception prior to the receipt of such notice by MLBFS.”

**The undersigned furthercertifies**that: (a) the foregoing resolutions have not been rescinded, modified orrepealed in any manner, are not in conflict with any agreement of saidCorporation and are in full force and effect as of the date of thisCertificate, and (b) the following individuals are now the duly elected and actingofficers of said Corporation and **the signatures set forth below are the true signaturesof said officers**:
 President:/s/ Mark W. Blodgett   Vice President:    Treasurer:/s/ Gary B. Godin   Secretary:/s/ Gary B. Godin    :    Additional Title    
**IN WITNESS WHEREOF,** the undersigned has executed thisCertificate and has affixed the seal of said Corporation hereto, pursuant todue authorization, all as of this 14 day of May, 2001.
**(Corporate Seal)**  /s/ Gary B. Godin  Secretary Gary B. Godin Printed Name:
 

**May 3, 2001**

**To: WELLS FARGO BANK**
**Attention:**Patricia P.  Trayers **Phone Number:** 
**Ladies and Gentlemen:**

**You are hereby authorized anddirected to furnish to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., 222North LaSalle Street, 17th Floor, Chicago, IL 60601 (“MLBFS”):**

**1. A payoff letter in the formattached hereto setting forth the amounts necessary to pay off all loans andobligations of the undersigned to you and the other information set forth on saidform; and**

**2. Such information about theundersigned's loans and obligations, credit history and the relationshipbetween you and the undersigned as may be requested by MLBFS.**

**If and when all of theundersigned's said loans and obligations have been fully paid and satisfied,please forward UCC and/or other applicable lien terminations directly to MLBFS.**

**Very truly yours,**

**STOCKERYALE, INC. F/K/A STOCKER& YALE, INC.**
**By:**/s/ Gary B.  Godin **Title:**CFO 
 

**WELLSFARGO BANKPAYOFF LETTER**
**Date:**May 17, 2001 
**Merrill Lynch BusinessFinancial Services Inc.222 North LaSalle Street, 17th FloorChicago, IL 60601**

**Ladies and Gentlemen:**

**In accordance with the requestof STOCKERYALE, INC. F/K/A STOCKER & YALE, INC. (“Customer”), the followingare the amounts necessary to fully pay off all loans and other obligations ofCustomer to WELLS FARGO BANK:**
**Loan No(s):**  
**Balance of Principal & Interest as of May 17, 2001:  $****1,349,535.42**

**Per Diem Interest: $****356.16**

**Funds to pay off said loan(s)should be wire transferred to:**
 **WELLS FARGO BANK**     **Bank's Address:**      **Routing #: 091000019**   **Account Name: Wells Fargo Business Credit**   **Attention: Rosemary Rosano**   **Phone #:**  
 

**Upon our receipt of theabove-referenced wire transfer, Wells Fargo Bank will immediately terminate andrelease all security interests, mortgages, deeds of trust and other liens orencumbrances that it may have with respect to property of Stockeryale, Inc.F/K/A Stocker & Yale, Inc., and remit appropriate evidence of suchtermination and release directly to Merrill Lynch Business Financial ServicesInc. at the above address.**

**Very truly yours,**

**WELLS FARGO BANK**
**By:****/s/ Patricia P. Trayers** ******Title:****Vice President** ****
 
**COLLATERAL REMOVAL AGREEMENT******
The undersigned**Landlord**is the record owner and lessor to **STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.**(“Tenant”) of the real property commonly known as 32 Hampshire Road, Salem, NH03079 (the “Premises”).

Landlord hasbeen advised that **MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.**(“MLBFS”) has or is about to extend or continue to extend credit to or for thebenefit of Tenant, or for the benefit of a third party based upon the creditand/or collateral of Tenant, and in connection therewith that Tenant hasgranted or is about to grant to MLBFS a security interest in, among othercollateral, the following property of Tenant (“MLBFS' Collateral”):

All equipment, inventory, removable tradefixtures and other tangible and intangible personal property now and hereafterowned by Tenant.

Among otherconditions thereof, MLBFS has required that Landlord execute and deliver thisAgreement.

Accordingly,and for valuable consideration, the receipt and sufficiency of which is herebyacknowledged, Landlord hereby agrees that in the event that MLBFS shall at anytime seek to take possession of or remove all or any part of MLBFS' Collateralfrom the Premises, Landlord will not hinder the same or interfere or objectthereto, and Landlord hereby consents to MLBFS' entry upon the Premises forsuch purposes; provided, however, that: (i) any such removal shall be madeduring reasonable business hours; (ii) MLBFS shall not, without the priorwritten consent of Landlord, conduct any public or auction sale on thePremises; and (iii) MLBFS shall promptly at its expense repair any damage tothe Premises directly caused by any such removal by MLBFS or its agents ofMLBFS' Collateral from the Premises.

This Agreementshall be binding upon and shall inure to the benefit of Landlord and itsuccessors, assigns, heirs and/or personal representatives, as applicable, andMLBFS and its successors and assigns.

Dated as of May3, 2001.
**Landlord:**   By:   (Signature 1)(Signature 2)    (Printed Name)(Printed Name)    (Title)(Title)
 
**COLLATERAL REMOVAL AGREEMENT******
The undersigned**Landlord**is the record owner and lessor to **STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.**(“Tenant”) of the real property commonly known as 15935 Sturgeon Street,Roseville, MI (the “Premises”).

Landlord has beenadvised that **MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.** (“MLBFS”) hasor is about to extend or continue to extend credit to or for the benefit ofTenant, or for the benefit of a third party based upon the credit and/orcollateral of Tenant, and in connection therewith that Tenant has granted or isabout to grant to MLBFS a security interest in, among other collateral, thefollowing property of Tenant (“MLBFS' Collateral”):

All equipment, inventory, removable tradefixtures and other tangible and intangible personal property now and hereafterowned by Tenant.

Among otherconditions thereof, MLBFS has required that Landlord execute and deliver thisAgreement.

Accordingly,and for valuable consideration, the receipt and sufficiency of which is herebyacknowledged, Landlord hereby agrees that in the event that MLBFS shall at anytime seek to take possession of or remove all or any part of MLBFS' Collateralfrom the Premises, Landlord will not hinder the same or interfere or objectthereto, and Landlord hereby consents to MLBFS' entry upon the Premises forsuch purposes; provided, however, that: (i) any such removal shall be madeduring reasonable business hours; (ii) MLBFS shall not, without the priorwritten consent of Landlord, conduct any public or auction sale on thePremises; and (iii) MLBFS shall promptly at its expense repair any damage tothe Premises directly caused by any such removal by MLBFS or its agents ofMLBFS' Collateral from the Premises.

This Agreementshall be binding upon and shall inure to the benefit of Landlord and itsuccessors, assigns, heirs and/or personal representatives, as applicable, andMLBFS and its successors and assigns.

Dated as of May3, 2001.
**Landlord:**   By:   (Signature 1)(Signature 2)    (Printed Name)(Printed Name)    (Title)(Title)
 
   Private Client Group******Merrill Lynch Business  Financial Services Inc.**222 North LaSalle Street17th Floor  Chicago, Illinois 60601  (312) 269-1348  FAX: (312) 201-0210
May16, 2001

StockerYale,Inc. f/k/a Stocker & Yale, Inc.32 Hampshire RoadSalem, NH 03079

**             Re: Amendment to Loan Documents**

Ladies & Gentlemen:

This Letter Agreement will serve toconfirm certain agreements of Merrill Lynch Business Financial Services Inc.("MLBFS") and StockerYale, Inc. f/k/a Stocker & Yale, Inc.("Customer") with respect to: (i) that certain **WCMA LOAN AND SECURITY AGREEMENT NO. 794-07E49**between MLBFS and Customer (including any previous amendments and extensionsthereof), and (ii) all other agreements between MLBFS and Customer inconnection therewith (collectively, the "Loan Documents").Capitalized terms used herein and not defined herein shall have the meaning setforth in the Loan Documents.

Subject to the terms hereof, effective asof the "Effective Date" (as defined below), the Loan Documents arehereby amended as follows:

(a) "Initial Maturity Date"shall mean the first date upon which the WCMA Line of Credit will expire(subject to renewal in accordance with the terms hereof); to wit: May 31, 2002.

(b) The term "Interest Rate"shall mean a variable per annum rate of interest equal to the sum of 2.50% andthe One-Month LIBOR. "One-Month LIBOR" shall mean, as of the date ofany determination, the interest rate then most recently published in the"Money Rates" section of *The**Wall Street Journal*as theone-month London Interbank Offered Rate. The Interest Rate will change as ofthe date of publication in *The**Wall Street Journal*of a One-Month LIBORthat is different from that published on the preceding Business Day. In theevent that *The**Wall Street Journal*shall, for any reason,fail or cease to publish the One-Month LIBOR, MLBFS will choose a reasonablycomparable index or source to use as the basis for the Interest Rate.

Except as expressly amended hereby, theLoan Documents shall continue in full force and effect upon all of their termsand conditions.

Customer acknowledges, warrants andagrees, as a primary inducement to MLBFS to enter into this Agreement, that:(a) no Default or Event of Default has occurred and is continuing under theLoan Documents; (b) each of the warranties of Customer in the Loan Documentsare true and correct as of the date hereof and shall be deemed remade as of thedate hereof; (c) Customer does not have any claim against MLBFS or any of itsaffiliates arising out of or in connection with the Loan Documents or any othermatter whatsoever; and (d) Customer does not have any defense to payment of anyamounts owing, or any right of counterclaim for any reason under, the LoanDocuments.

Provided that no Event of Default, orevent which with the giving of notice, passage of time, or both, wouldconstitute an Event of Default, shall then have occurred and be continuingunder the terms of the Loan Documents, the amendments and agreements in thisLetter Agreement will become effective on the date (the "EffectiveDate") upon which: (a) Customer shall have executed and returned theduplicate copy of this Letter Agreement and the other document enclosedherewith; and (b) an officer of MLBFS shall have reviewed and approved thisLetter Agreement and said other document as being consistent in all respectswith the original internal authorization hereof.
Notwithstanding the foregoing, ifCustomer does not execute and return the duplicate copy of this LetterAgreement and said other document within 14 days from the date hereof, or iffor any other reason (other than the sole fault of MLBFS) the Effective Dateshall not occur within said 14-day period, then all of said amendments andagreements will, at the sole option of MLBFS, be void.

Very truly yours,

**Merrill Lynch BusinessFinancial Services, Inc.**
By:/s/ Stephanie Sparks   Stephanie Sparks  Senior Documentation Manager    
 

*Accepted:*

**StockerYale, Inc. f/k/a Stocker& Yale, Inc.**
By:/s/ Gary B. Godin Printed Name:Gary B. Godin Title:CFO