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

**WCMA REDUCING REVOLVERsm LOAN AND SECURITYAGREEMENT****NO.794-07E50** (“Loan Agreement”) dated as of May 3, 2001, between **STOCKERYALE,INC. F/K/A STOCKER & YALE, INC.**, a corporation organized and existingunder the laws of the State of Massachusetts having its principal office at 32Hampshire Road, Salem, NH 03079 (“Customer”), and **MERRILL LYNCH BUSINESS FINANCIALSERVICES INC.**, a corporation organized and existing under the lawsof the State of Delaware having its principal office at 222 North LaSalleStreet, Chicago, IL 60601 (“MLBFS”).

In accordance with that certain **WORKINGCAPITAL MANAGEMENT® ACCOUNT AGREEMENT NO. 794-07E50**(“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, Customer hasrequested that MLBFS make a WCMA Reducing Revolver Loan (a “Reducing Revolver”)to Customer in the amount and upon the terms hereafter specified, and, subjectto the terms and conditions hereafter set forth, MLBFS has agreed to provide aReducing Revolver for Customer.

A Reducing Revolver is a term creditfacility, similar to a conventional term loan, but funded out of a line ofcredit under the WCMA Program (“WCMA Line of Credit”) in the amount of theinitial loan. With a Reducing Revolver: (i) interest will generally be chargedeach month to Customer's WCMA account, and, so long as the WCMA Line of Creditis in effect, paid with an additional loan under the WCMA Line of Credit (i.e.,added to the loan balance), (ii) after an initial interest only period, themaximum WCMA Line of Credit will be reduced each month by the amount that wouldbe payable on account of principal if the Reducing Revolver were a conventionalterm loan amortized over the same term and in the same manner as the ReducingRevolver, and (iii) Customer will be required to make sufficient payments onaccount of the Reducing Revolver to assure that the outstanding balance of theReducing Revolver does not at any time exceed the Maximum WCMA Line of Credit,as reduced each month.

Absent a prepayment by Customer, thisstructure results in required monthly payments for the Reducing Revolver thatare substantially the same as the required monthly payments for a conventionalterm loan with the same term and amortization. However, unlike mostconventional term loans, because it is funded out of a line of credit, theReducing Revolver permits both a prepayment in whole or in part at any time,and, subject to certain conditions, the re-borrowing on a revolving basis ofany such prepaid amounts up to the Maximum WCMA Line of Credit, as reduced eachmonth. The structure therefore will enable Customer at its option to use anyexcess or temporary cash balances that it may have from time to time to prepaythe Reducing Revolver and thereby effectively reduce interest expense on theReducing Revolver without impairing its working capital.

Accordingly, and in consideration of thepremises and of the mutual covenants of the parties hereto, Customer and MLBFShereby agree as follows:

**Article I. DEFINITIONS**

1.1        **SpecificTerms.** In addition to terms defined elsewhere in this LoanAgreement, when used herein the following terms shall have the followingmeanings:

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

(b)        “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.

(c)        “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.
(d)        “Business Day” shall mean any day other than aSaturday, Sunday, federal holiday or other day on which the New York StockExchange is regularly closed.

(e)        “Closing Date” shall mean the date upon which allconditions precedent to MLBFS' obligation to make the Loan shall have been metto the satisfaction of MLBFS.

(f)         “Collateral” shall mean all Accounts, ChattelPaper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles,Deposit Accounts, Documents, Instruments, Investment Property and FinancialAssets of Customer, howsoever arising, whether now owned or existing orhereafter 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 4.6 (b) hereof.

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

(h)        “Commitment Fee” shall mean a fee of $43,750.00due to MLBFS in connection with this Loan Agreement.

(i)         “Default” shall mean either an “Event of Default”as defined in Section 4.5 hereof, or an event which with the giving of notice,passage of time, or both, would constitute such an Event of Default.

(j)         “General Funding Conditions” shall mean each ofthe following conditions precedent to the obligation of MLBFS to make the Loanor any Subsequent WCMA Loan hereunder: (i) Customer shall have validlysubscribed to and continued to maintain the WCMA Account with MLPF&S, andthe WCMA Account shall then be reflected as an active “Commercial” WCMA Account(i.e., one with line of credit capabilities) on MLPF&S' WCMA computersystem; (ii) no Default shall have occurred and be continuing or would resultfrom the making of the Loan or such Subsequent WCMA Loan by MLBFS; (iii) thereshall not have occurred and be continuing any material adverse change in thebusiness or financial condition of Customer; (iv) all representations andwarranties of Customer  herein or in anyAdditional Agreements shall then be true and correct in all material respects;(v) MLBFS shall have received this Loan Agreement and all AdditionalAgreements, duly executed and filed or recorded where applicable, all of whichshall be in form and substance reasonably satisfactory to MLBFS; (vi) theCommitment Fee shall have been paid in full; (vii) MLBFS shall have received,as and to the extent applicable, copies of invoices, bills of sale, loan payoffletters and/or other evidence reasonably satisfactory to it that the proceedsof the Loan will satisfy the Loan Purpose; (viii) MLBFS shall have receivedevidence reasonably satisfactory to it as to the ownership of the Collateraland the perfection and priority of MLBFS' liens and security interests thereon,as well as the ownership of and the perfection and priority of MLBFS' liens andsecurity interests on any other collateral for the Obligations furnishedpursuant to any of the Additional Agreements; (ix) MLBFS shall have receivedevidence reasonably satisfactory to it of the insurance required hereby or byany of the Additional Agreements; and (x) any additional conditions specifiedin the “WCMA Reducing Revolver Loan Approval” letter executed by MLBFS withrespect to the transactions contemplated hereby shall have been met to thereasonable satisfaction of MLBFS.

(k)        “Interest Due Date” shall mean the last BusinessDay of each calendar month during the term hereof (or, if Customer makesspecial arrangements with MLPF&S, on the last Friday of each calendar monthduring the term hereof).

(l)         “Interest Rate” shall mean a variable per annumrate equal to the sum of (i) 2.50% per annum, and (ii) the interest rate fromtime to time published in the “Money Rates” section of *The Wall Street Journal* asthe “Dealer Commercial Paper” rate for 30-day high-grade unsecured notes soldthrough dealers by major corporations (the “30-day Dealer Commercial PaperRate”). 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.

(m)       “Loan” shall mean the specific ReducingRevolver by MLBFS to Customer pursuant to this Agreement for the Loan Purposeand in the Loan Amount.

(n)        “Loan Amount” shall mean an amount equal to thelesser of: (i) 100% of the amount required by Customer to satisfy or fulfillthe Loan Purpose, (ii) the aggregate amount which Customer shall request beadvanced by MLBFS on account of the Loan Purpose on the Closing Date, or (iii)$3,500,000.00.
(o)        “Loan Purpose” shall mean the purpose for whichthe proceeds of the Loan will be used; to wit: to refinance the existing termnote at Wells Fargo Bank and to purchase additional equipment.

(p)        “Location of Tangible Collateral” shall mean theaddress of Customer set forth at the beginning of this Loan Agreement, togetherwith any other address or addresses set forth on an exhibit hereto as being aLocation of Tangible Collateral.

(q)        “Maximum WCMA Line of Credit” shall mean themaximum aggregate line of credit which MLBFS will extend to Customer subject tothe terms and conditions hereof, as the same shall be reduced each month inaccordance with the terms hereof. On the Closing Date, the Maximum WCMA Line ofCredit will equal the Loan Amount.

(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 include interestaccruing after the filing of any petition in bankruptcy, and all present andfuture liabilities, indebtedness and obligations of Customer under this LoanAgreement.

(s)        “Permitted Liens” shall mean with respect to theCollateral: (i) liens for current taxes not delinquent, other non-consensualliens arising in the ordinary course of business for sums not due, and, ifMLBFS' rights to and interest in the Collateral are not materially andadversely affected thereby, any such liens for taxes or other non-consensualliens arising in the ordinary course of business being contested in good faithby appropriate proceedings; (ii) liens in favor of MLBFS; (iii) liens whichwill be discharged with the proceeds of the initial WCMA Loan; and (iv) anyother liens expressly permitted in writing by MLBFS.

(t)         “Subsequent WCMA Loan” shall mean each WCMA Loanother than the Loan, including, without limitation, each WCMA Loan to payaccrued interest.

(u)        “Termination Date” shall mean the first to occurof: (i) the last Business Day of the sixty-third (63rd) full calendar monthfollowing the Closing Date, or (ii) if earlier, the date of termination of theWCMA Line of Credit pursuant to the terms hereof.

(v)        “WCMA Account” shall mean and refer tothe Working Capital Management Account of Customer with MLPF&S identifiedas WCMA Account No. 794-07E50 and any successor Working Capital ManagementAccount of Customer with MLPF&S.

(w)       “WCMA Loan” shall mean each advance madeby MLBFS pursuant to the WCMA Line of Credit, including the Loan and eachSubsequent WCMA Loan.

(x)         “WCMA Loan Balance” shall mean an amountequal to the aggregate unpaid principal balance of all WCMA Loans.

1.2        **Other Terms.**Except as otherwise defined herein: (i) all terms used in this Loan Agreementwhich are defined in the Uniform Commercial Code of Illinois (“UCC”) shall havethe meanings set forth in the UCC, and (ii) capitalized terms used herein whichare defined in the WCMA Agreement (including, without limitation, “MoneyAccounts”, “Minimum Money Accounts Balance”, “WCMA Directed Reserve Program”and “WCMA Program”) shall have the meanings set forth in the WCMA Agreement.

**Article II. THE LOAN**

2.1        **Commitment.**Subject to the terms and conditions hereof, MLBFS hereby agrees to make theLoan to Customer, and Customer hereby agrees to borrow the Loan from MLBFS.Except as otherwise provided in Section 3.1 hereof, the entire proceeds of theLoan will be disbursed by MLBFS out of the WCMA Line of Credit either directlyto the applicable third party or parties on account of the Loan Purpose or toreimburse Customer for amounts directly expended by it for the Loan Purpose;all as directed by Customer in a Closing Certificate to be executed anddelivered to MLBFS prior to the date of funding.

2.2        **Conditionsof MLBFS' Obligation.** The Closing Date and MLBFS' obligations toactivate the WCMA Line of Credit, as hereafter set forth, and make the Loan onthe Closing Date are subject to the prior fulfillment of each of the followingconditions: (a) not less than two Business Days prior to any requested fundingdate, MLBFS shall have received a Closing Certificate, duly executed byCustomer, setting forth, among other things, the amount of the Loan and themethod of payment and payee(s) of the proceeds thereof; (b) after giving effectto the Loan, the WCMA Loan Balance will not exceed either the Maximum WCMA Lineof Credit or the Loan Amount; (c) the Commitment Expiration Date shall not thenhave occurred; and (d) each of the General Funding Conditions shall then havebeen met or satisfied to the reasonable satisfaction of MLBFS.

2.3        **CommitmentFee.** In consideration of the agreement by MLBFS to extend the Loanand any Subsequent WCMA Loans to Customer in accordance with and subject to theterms hereof, Customer has paid or shall, on or before the Closing Date pay,the Commitment Fee to MLBFS. Customer acknowledges and agrees that theCommitment Fee has been fully earned by MLBFS, and that it will not under anycircumstances be refundable.

2.4        **Use of LoanProceeds.** Unless otherwise agreed by MLBFS in writing, the proceedsof the Loan shall be used solely for the Loan Purpose. The Proceeds of eachSubsequent 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 the Loan or any Subsequent WCMA Loan be used: (i) for personal,family or household purposes of any person whatsoever, or (ii) to purchase,carry or trade in securities, or repay debt incurred to purchase, carry ortrade in securities, whether in or in connection with the WCMA Account, anotheraccount of Customer with MLPF&S or an account of Customer at any otherbroker or dealer in securities, or (iii) unless otherwise consented to inwriting by MLBFS, to pay any amount to Merrill Lynch and Co., Inc. or any ofits subsidiaries, other than Merrill Lynch Bank USA, Merrill Lynch Bank &Trust Co. or any subsidiary of either of them (including MLBFS and MerrillLynch Credit Corporation).**

**Article III. THE WCMA LINE OFCREDIT**

3.1        **Activationof the WCMA Line of Credit.** Subject to the terms and conditionshereof, on the Closing Date MLBFS will activate a WCMA Line of Credit forCustomer in the Loan Amount. The Loan will be funded out of the WCMA Line ofCredit immediately after such activation (or, if and to the extent otherwiseexpressly contemplated in the definition of Loan Purpose or otherwise directedin the Closing Certificate and hereafter expressly agreed by MLBFS, all or partof the Loan may be made available as a WCMA Line of Credit and funded byCustomer.)

3.2        **SubsequentWCMA Loans.** Subject to the terms and conditions hereof, during theperiod from and after the Closing Date to the Termination Date: (a) Customermay repay the WCMA Loan Balance in whole or in part at any time without premiumor penalty (except, as hereafter set forth, upon a refinancing by anotherlender), and request a re-borrowing of amounts repaid on a revolving basis, and(b) in addition to Subsequent WCMA Loans made automatically to pay accruedinterest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans asCustomer may from time to time request or be deemed to have requested inaccordance with the terms hereof. Customer may request Subsequent WCMA Loans byuse of WCMA Checks, FTS, Visa® charges, wire transfers, or such other means ofaccess to the WCMA Line of Credit as may be permitted by MLBFS from time totime; it being understood that so long as the WCMA Line of Credit shall be ineffect, any charge or debit to the WCMA Account which but for the WCMA Line ofCredit would under the terms of the WCMA Agreement result in an overdraft,shall be deemed a request by Customer for a Subsequent WCMA Loan.
3.3        **Conditionsof Subsequent WCMA Loans.** Notwithstanding the foregoing, MLBFS shallnot be obligated to make any Subsequent WCMA Loan, and may without noticerefuse to honor any such request by Customer, if at the time of receipt byMLBFS of Customer's request: (a) the making of such Subsequent WCMA Loan wouldcause the Maximum WCMA Line of Credit, as reduced pursuant to the provisions ofSection 3.6 hereof, to be exceeded; or (b) the Termination Date shall haveoccurred; or (c) an event shall have occurred and be continuing which shallhave caused any of the General Funding Conditions to not then be met orsatisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of anySubsequent WCMA Loan (including, without limitation, the making of a SubsequentWCMA Loan to pay accrued interest or late charges, as hereafter provided) at atime when any one or more of said conditions shall not have been met shall notin any event be construed as a waiver of said condition or conditions or of anyDefault, and shall not prevent MLBFS at any time thereafter while any conditionshall not have been met from refusing to honor any request by Customer for aSubsequent WCMA Loan.

3.4        **WCMA Note.**Customerhereby promises to pay to the order of MLBFS, at the times and in the mannerset forth in this Loan Agreement, or in such other manner and at such place asMLBFS may hereafter designate in writing: (a) the WCMA Loan Balance; (b)interest at the Interest Rate on the outstanding WCMA Loan Balance (computedfor the actual number of days elapsed on the basis of a year consisting of 360days), from and including the date on which the Loan is made until the date ofpayment of all WCMA Loans in full; and (c) on demand, all other sums payablepursuant to this Loan Agreement, including, but not limited to, any latecharges. Except as otherwise expressly set forth herein, Customer hereby waivespresentment, demand for payment, protest and notice of protest, notice ofdishonor, notice of acceleration, notice of intent to accelerate and all othernotices and formalities in connection with this WCMA Note and this LoanAgreement.

3.5        **Interest.**(a) 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 Closing Dateshall occur. Unless otherwise hereafter directed in writing by MLBFS on orafter the Termination Date, such interest will be automatically charged to theWCMA Account on the applicable Interest Due Date, and, to the extent not paidwith free credit balances or the proceeds of sales of any Money Accounts thenin the WCMA Account, as hereafter provided, such interest will be paid by aSubsequent WCMA Loan and added to the WCMA Loan Balance. All interest shall becomputed for the actual number of days elapsed on the basis of a yearconsisting of 360 days.

(b)        Notwithstanding any provision to the contrary inthis Agreement or any of the Additional Agreements, no provision of this Agreement or any of theAdditional Agreements shall require the payment or permit the collection of anyamount in excess of the maximum amount of interest permitted to be charged bylaw (“Excess Interest”). If any Excess Interest is provided for, or isadjudicated as being provided for, in this Agreement or any of the AdditionalAgreements, then: (i) Customer shall not be obligated to pay any ExcessInterest; and (ii) any Excess Interest that MLBFS may have received hereunderor under any of the Additional Agreements shall, at the option of MLBFS, beeither applied as a credit against the then WCMA Loan Balance, or refunded tothe payer thereof.

3.6        **PeriodicReduction of Maximum WCMA Line of Credit.** Commencing on the lastBusiness Day of the fourth (4th) full calendar month following the ClosingDate, and continuing on the last Business Day of each calendar month thereafterto and including the last Business Day of the sixty-second (62nd) such calendarmonth, the Maximum WCMA Line of Credit shall be reduced by an amount equal toone-eighty-fourth (1/84th) of the Loan Amount per month. Unless the WCMA Lineof Credit shall have been earlier terminated pursuant to the terms hereof, onthe last Business Day of the sixty-third (63rd) such calendar month, the WCMALine of Credit shall, without further action of either of the parties hereto,be terminated, Customer shall pay to MLBFS the entire WCMA Loan Balance, ifany, and all other Obligations, and the WCMA Account, at the option ofCustomer, will either be converted to a WCMA Cash Account (subject to anyrequirements of MLPF&S) or terminated. No failure or delay on the part ofMLBFS in entering into the WCMA computer system any scheduled reduction in theMaximum WCMA Line of Credit pursuant to this Section shall have the effect ofpreventing or delaying such reduction.

3.7        **MandatoryPayments.****CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND,INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTSON ACCOUNT OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILLNOT AT ANY TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTHPURSUANT TO SECTION 3.6 HEREOF.**
3.8        **Method ofMaking Payments.** All payments required or permitted to be madepursuant to this Loan Agreement shall be made in lawful money of the UnitedStates. Unless otherwise hereafter directed by MLBFS, such payments may be madeby the delivery of checks (other than WCMA Checks), or by means of FTS or wiretransfer of funds (other than funds from the WCMA Line of Credit) to MLPF&Sfor credit to the WCMA Account. Payments to MLBFS from funds in the WCMAAccount shall be deemed to be made by Customer upon the same basis and scheduleas funds are made available for investment in the Money Accounts in accordancewith the terms of the WCMA Agreement. The acceptance by or on behalf of MLBFSof a check or other payment for a lesser amount than shall be due fromCustomer, regardless of any endorsement or statement thereon or transmittedtherewith, shall not be deemed an accord and satisfaction or anything otherthan a payment on account, and MLBFS or anyone acting on behalf of MLBFS mayaccept such check or other payment without prejudice to the rights of MLBFS torecover the balance actually due or to pursue any other remedy under this LoanAgreement or applicable law for such balance. All checks accepted by or onbehalf of MLBFS in connection with this Loan Agreement are subject to finalcollection.

3.9        **IrrevocableInstructions to MLPF&S.** In order to minimize the WCMA LoanBalance, Customer hereby irrevocably authorizes and directs MLPF&S,effective on the Closing Date and continuing thereafter so long as thisAgreement shall be in effect: (a) to immediately and prior to application forany other purpose pay to MLBFS to the extent of any WCMA Loan Balance or otheramounts payable by Customer hereunder all available free credit balances fromtime to time in the WCMA Account; and (b) if such available free creditbalances are insufficient to pay the WCMA Loan Balance and such other amounts,and there are in the WCMA Account at any time any investments in Money Accounts(other than any investments constituting any Minimum Money Accounts Balanceunder the WCMA Directed Reserve Program), to immediately liquidate suchinvestments and pay to MLBFS to the extent of any WCMA Loan Balance and suchother amounts the available proceeds from the liquidation of any such MoneyAccounts.

3.10      **Late Charge.**Any payment or deposit required to be made by Customer pursuant to this LoanAgreement or any of the Additional Agreements not paid or made within ten (10)days of the applicable due date shall be subject to a late charge in an amountequal to the lesser of: (a) 5% of the overdue amount, or (b) the maximum amountpermitted by applicable law. Such late charge shall be payable on demand, or,without demand, may in the sole discretion of MLBFS be paid by a SubsequentWCMA Loan and added to the WCMA Loan Balance in the same manner as providedherein for accrued interest with respect to the WCMA Line of Credit.

3.11      **Prepayment.**Customermay prepay the Loan and any Subsequent WCMA Loan at any time in whole or inpart without premium or penalty; provided, however, that any refinancing of theWCMA Loan Balance by another financial institution shall: (a) if suchrefinancing shall occur prior to the first anniversary of the Closing Date, beaccompanied by a premium in an amount equal to 3% of the amount prepaid by suchrefinancing; (b) if such refinancing shall occur thereafter, but prior to thesecond anniversary of the Closing Date, be accompanied by a premium in anamount equal to 2% of the amount prepaid by such refinancing; and (c) if suchrefinancing shall occur on or at any time after the second anniversary of theClosing Date, be accompanied by a premium in an amount equal to 1% of theamount prepaid by such refinancing.

3.12      **Option ofCustomer to Terminate.** Customer will have the option to terminatethe WCMA Line of Credit at any time upon written notice to MLBFS. Concurrentlywith any such termination, Customer shall pay to MLBFS the entire WCMA LoanBalance and all other Obligations.

3.13      **Limitationof Liability.** MLBFS shall not be responsible, and shall have noliability to Customer or any other party, for any delay or failure of MLBFS tohonor any request of Customer for a WCMA Loan or any other act or omission ofMLBFS, MLPF&S or any of their affiliates due to or resulting from anysystem failure, error or delay in posting or other clerical error, loss ofpower, fire, Act of God or other cause beyond the reasonable control of MLBFS,MLPF&S or any of their affiliates unless directly arising out of thewillful wrongful act or active gross negligence of MLBFS. In no event shallMLBFS be liable to Customer or any other party for any incidental orconsequential damages arising from any act or omission by MLBFS, MLPF&S orany of their affiliates in connection with the WCMA Line of Credit or this LoanAgreement.

3.14      **Statements.** MLPF&S willinclude in each monthly statement it issues under the WCMA Program informationwith respect to WCMA Loans and the WCMA Loan Balance. Any questions thatCustomer may have with respect to such information or the Loan should bedirected to MLBFS; and any questions with respect to any other matter in suchstatements or about or affecting the WCMA Program should be directed toMLPF&S.

**Article IV. GENERAL PROVISIONS**

4.1        **Representationsand Warranties.**

Customer represents and warrants to MLBFSthat:

(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 the provisionsof, and will not result in a default by Customer under, any other agreement,instrument or document to which it is a party or by which it or its propertiesare 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 generalprinciples of 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 securityinterests of MLBFS hereunder or under any of the Additional Agreements, thefinancial condition 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.
Eachof the foregoing representations and warranties: (i) has been and will berelied upon as an inducement to MLBFS to make the Loan and each Subsequent WCMALoan, and (ii) is continuing and shall be deemed remade by Customer on theClosing Date, and concurrently with each request by Customer for a SubsequentWCMA Loan.

4.2        **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)        **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.
4.3       **Other Covenants.** Customer further covenantsand 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 statementsheretofore furnished to MLBFS, or prepared on such other basis as may beapproved in writing by MLBFS; and (ii) permit MLBFS or its duly authorizedrepresentatives, upon reasonable notice and at reasonable times, to inspect itsproperties (both real 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, regulationor other governmental requirement, any judgment or order of any court orgovernmental agency or authority, or any agreement, instrument or document towhich it is a party or by which it is bound, if any such violation willmaterially 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 accepted accountingprinciples, and (ii) any amounts now or hereafter directly or indirectly owingto Customer by officers, shareholders or affiliates of Customer.
4.4       **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 each 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 tangible Collateralunder a policy or policies of physical damage insurance providing that losseswill be payable to MLBFS as its interests may appear pursuant to a Lender'sLoss Payable Endorsement and containing such other provisions as may bereasonably 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 permanently prepay the Loan by 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 permanent prepayment shall be accompanied by a likepermanent reduction in the Maximum WCMA Line of Credit. Notwithstanding theforegoing, if at the time of occurrence of such Event of Loss or any timethereafter prior to replacement or line reduction, as aforesaid, an Event ofDefault shall have occurred and be continuing hereunder, then MLBFS may at itssole option, exercisable at any time while such Event of Default shall becontinuing, require Customer to either replace such Collateral or prepay theLoan and reduce the Maximum WCMA Line of Credit, as aforesaid.

(j)        **Notice of Certain Events.** Customer shall give MLBFS immediate notice ofany attachment, lien, judicial process, encumbrance or claim affecting orinvolving $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 indemnity shallsurvive the expiration or termination of this Loan Agreement as to all mattersarising or accruing prior to such expiration or termination.
4.5       **Events ofDefault.**

The occurrence of any of the followingevents shall constitute an “Event of Default” under this Loan Agreement:

(a)       **Failure to Pay.** (i) Customer shall fail todeposit into the WCMA Account an amount sufficient to assure that the WCMA LoanBalance does not exceed the Maximum WCMA Line of Credit, as reduced inaccordance with the provisions hereof, or (ii) Customer shall fail to pay toMLBFS or deposit into the WCMA Account when due any other amount owing orrequired to be paid or deposited by Customer under this Loan Agreement, or(iii) Customer shall fail to pay when due any other Obligations; and any suchfailure shall continue for more than five (5) Business Days after writtennotice thereof shall have been given by MLBFS to Customer.

(b)       **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.

(c)       **Breach of Warranty.** Any representation orwarranty made by Customer or any other party providing collateral for theObligations contained in this Loan Agreement or any of the other AdditionalAgreements shall at any time prove to have been incorrect in any materialrespect when made.

(d)       **Default Under Other Agreement.** A default orEvent of Default by Customer shall occur under the terms of any otheragreement, instrument or document with or intended for the benefit of MLBFS,MLPF&S or any of their affiliates, and any required notice shall have beengiven and required passage of time shall have elapsed.

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

(f)        **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.

(g)       **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.

(h)       **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.
4.6       **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 its obligation to make the Loan (if the Loan has not then beenfunded), terminate the WCMA Line of Credit, and terminate any obligation tomake any Subsequent WCMA Loan (including, without limitation, any SubsequentWCMA Loan to pay accrued interest) or otherwise extend any credit to or for thebenefit of Customer (it being understood that upon the occurrence of anyBankruptcy Event the WCMA Line of Credit and all such obligations shallautomatically terminate without any action on the part of MLBFS); and upon anysuch termination MLBFS shall be relieved of all such obligations.

(ii)          **Acceleration.** MLBFS may declare the WCMALoan Balance and all other Obligations to be forthwith due and payable,whereupon all such amounts shall be immediately due and payable, withoutpresentment, demand for payment, protest and notice of protest, notice ofdishonor, notice of acceleration, notice of intent to accelerate or othernotice or formality of any kind, all of which are hereby expressly waived;provided, however, that upon the occurrence of any Bankruptcy Event the WCMALoan Balance and other Obligations shall automatically become due and payablewithout 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 to MLBFSat a place designated by MLBFS which is reasonably convenient to Customer, ormay take possession of the Collateral and the records pertaining to theCollateral without the use of any judicial process and without any prior noticeto 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 thecommencement of any suit or action.
4.7         **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 thereof shall be effective only in the specific instance and for thespecific purpose for which given. Except as otherwise expressly providedherein, no notice to or demand on Customer shall in any case entitle Customerto any other or further notice or demand 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.

(c)        **Communications.** All notices and othercommunications required or permitted hereunder or in connection with any of theAdditional Agreements shall be in writing, and shall be either deliveredpersonally, mailed by postage prepaid certified mail or sent by expressovernight courier or by facsimile. Such notices and communications shall bedeemed to be given on the date of personal delivery, facsimile transmission oractual delivery of certified mail, or one Business Day after delivery to anexpress overnight courier. Unless otherwise specified in a notice sent ordelivered in accordance with the terms hereof, notices and other communicationsin writing shall be given to the parties hereto at their respective addressesset forth at the beginning of this Loan Agreement, or, in the case of facsimiletransmission, to the parties at their respective regular facsimile telephonenumber.

(d)        **Fees,****Expensesand Taxes.** Customer shall pay or reimburse MLBFS for: (i) allUniform Commercial Code filing and search fees and expenses incurred by MLBFSin connection with the verification, perfection or preservation of MLBFS'rights hereunder or in theCollateral or any other collateral for theObligations; (ii) any and all stamp, transfer and other taxes and fees payableor determined to be payable in connection with the execution, delivery and/orrecording of this Loan Agreement or any of the Additional Agreements; and(iii) all reasonable fees and out-of-pocketexpenses (including, but not limited to, reasonable fees and expenses ofoutside counsel) incurred by MLBFS in connection with the collection of any sumpayable hereunder or under any of the Additional Agreements not paid when due,the enforcement of this Loan Agreement or any of the Additional Agreements andthe protection of MLBFS' rights hereunder or thereunder, excluding, however,salaries and normal overhead attributable to MLBFS' employees. Customer herebyauthorizes MLBFS, at its option, to either cause any and all such fees,expenses and taxes to be paid with a WCMA Loan, or invoice Customer therefor(in which event Customer shall pay all such fees, expenses and taxes within 5Business Days after receipt of such invoice). The obligations of Customer underthis paragraph shall survive the expiration or termination of this LoanAgreement and the discharge of 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 MLBFS itis 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)        **Binding Effect.**This Loan Agreement and theAdditional Agreements shall be binding upon, and shall inure to the benefit ofMLBFS, Customer and their respective successors and assigns. Customer shall notassign any of its rights or delegate any of its obligations under this LoanAgreement or any of the Additional Agreements without the prior written consentof MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS, nosuch consent shall in any event relieve Customer of any of its obligationsunder this Loan Agreement or any of 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 or enforceabilityof 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: (i) MLBFS shall be obligated to make the Loan, (ii) the WCMA Line of Creditshall be in effect, (iii) there shall be any moneys outstanding under this LoanAgreement, or (iv) there shall be any other Obligations outstanding.

(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 AND THE ADDITIONALAGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERECUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMERIRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUEIN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, ANDCUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE ANDTHE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTIONFROM STATE TO FEDERAL COURT. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANYACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATEOF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTSTO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHEROF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO,ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, ANYADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECTMATTER OF THIS LOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANYNON-COMPULSORY COUNTERCLAIMS.
(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: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS,MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TOMAKE THE LOAN OR ANY SUBSEQUENT WCMA LOAN ON ANY TERMS OTHER THAN AS EXPRESSLYSET FORTH HEREIN, OR TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND ANY OTHERCREDIT TO CUSTOMER OR ANY OTHER PARTY; AND (II) EXCEPT AS OTHERWISE EXPRESSLYPROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALLPROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TOCUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NOAMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTSTO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BYBOTH MLBFS AND CUSTOMER.**

**IN WITNESS WHEREOF**, this Loan Agreement has been executed as ofthe 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    
 

**EXHIBIT A**

** **

**ATTACHED TO AND HEREBY MADE A PART OF WCMA REDUCING REVOLVERsmLOAN AND SECURITY AGREEMENT NO. 794-07E50 BETWEEN MERRILL LYNCH BUSINESSFINANCIAL SERVICES INC. AND STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.**
****
**Additional Locations of Tangible Collateral:**

                15935 Sturgeon Street                Roseville, Michigan

 
**CLOSING CERTIFICATE******
The undersigned, **STOCKERYALE, INC. F/K/A STOCKER &YALE, INC.**, a corporation organized and existing under the laws ofthe State of Massachusetts (“Customer”), as a primary inducement to **MERRILLLYNCH BUSINESS FINANCIAL SERVICES INC.**(“MLBFS”) to make a loan toCustomer (the “Loan”) pursuant to that certain **WCMA REDUCING REVOLVERsm LOANAND SECURITY AGREEMENT No. 794-07E50** between Customer and MLBFSdated as of May 3, 2001 (the “Loan Agreement”) **DOES HEREBY REPRESENT, WARRANT AND AGREEAS FOLLOWS:**

1.             All of Customer's representationsand warranties in the Loan Agreement are true and correct and remade as of thedate hereof, and, without limiting the foregoing: (i) subject only to“Permitted Liens” (as defined in the Loan Agreement), MLBFS has a first lienand security interest upon all of the “Collateral” under the Loan Agreement(including any Collateral financed or refinanced with the proceeds of theLoan), and (ii) the Loan is being applied on account of and will satisfy the“Loan Purpose” under the Loan Agreement.

2.             There has not occurred any eventwhich constitutes a “Default” under the Loan Agreement.

3.             There has not occurred any materialadverse change in the business or financial condition of Customer since thedate of the last financial statements submitted to MLBFS.

4.          MLBFSis hereby authorized and directed to disburse the proceeds of the Loan, in theamount of **$3,500,000.00** by:             **o****check**          **ý****wire transfer**           **o****deposit**         as follows:

1.)            Payoff Wells Fargo Bank per their payoff letterand instructions.

2.)

 

Datedthis 14 day of May, 2001

**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
 
   Private Client Group**Merrill Lynch Business  Financial Services Inc.**222 North LaSalle Street  17th 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 REDUCING REVOLVER LOAN AND SECURITY AGREEMENT NO.794-07E50** between MLBFS and Customer (including any previousamendments and extensions thereof), and (ii) all other agreements between MLBFSand Customer in connection therewith (collectively, the "LoanDocuments"). Capitalized terms used herein and not defined herein shallhave the meaning set forth 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) 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 the one-monthLondon Interbank Offered Rate. The Interest Rate will change as of the date ofpublication 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 
 

 **