AUGMENT SYSTEMS, INC.
                                 2 Robbins Road
                               Westford, MA 01886


                                                                  August 4, 1997


Fleet National Bank
75 State Street
Boston, MA  02109

Gentlemen:

         This letter  agreement  will set forth certain  understandings  between
Augment  Systems,  Inc.,  a  Delaware  corporation  (the  "Borrower")  and Fleet
National Bank (the "Bank") with respect to Revolving Loans (hereinafter defined)
to be made by the Bank to the  Borrower  and with  respect  to letters of credit
which may  hereafter be issued by the Bank for the account of the  Borrower.  In
consideration of the mutual promises contained herein and in the other documents
referred to below,  and for other good and valuable  consideration,  receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Bank agree as
follows:

        I. AMOUNTS AND TERMS
           -----------------

        1.1.  Reference  to  Documents.  Reference  is made to (i) that  certain
$3,000,000 face principal amount  promissory note (the "Revolving Note") of even
date  herewith  made by the Borrower and payable to the order of the Bank,  (ii)
that certain Inventory,  Accounts Receivable and Intangibles  Security Agreement
and that certain  Supplementary  Security Agreement  -Security Interest in Goods
and  Chattels,  each of even  date  herewith,  from  the  Borrower  to the  Bank
(collectively,  the "Security Agreement"),  and (iii) assignments and notices of
assignment (collectively, the "Intellectual Property Assignments"), if any, from
the  Borrower to the Bank  relating  to the  Borrower's  registered  trademarks,
patents and copyrights, if any.

        1.2. The Borrowing;  Revolving Note. Subject to the terms and conditions
hereinafter  set  forth,  the Bank will make  loans  ("Revolving  Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the  first  to  occur  of (i)  the  Expiration  Date,  or  (ii)  the  earlier
termination of the within-described revolving financing arrangements pursuant to
ss.5.2 or ss.6.7; provided,  however, that (1) the aggregate principal amount of
Revolving Loans outstanding shall at no time exceed the Maximum Revolving Amount
(hereinafter  defined)  and  (2) the  Aggregate  Bank  Liabilities  (hereinafter
defined)  shall at no time  exceed the  Borrowing  Base  (hereinafter  defined).
Within such limits, and subject to the terms and conditions hereof, the Borrower
may obtain  Revolving  Loans,  repay Revolving Loans and obtain  Revolving Loans
again on one or more  occasions.  The Revolving  Loans shall be evidenced by the
Revolving  Note 








and interest  thereon shall be payable at the times and at the rate provided for
in the Revolving  Note.  Overdue  principal of the  Revolving  Loans and, to the
extent  permitted by law,  overdue interest shall bear interest at a fluctuating
rate  per  annum  which at all  times  shall be equal to the sum of (i) two (2%)
percent  per annum  plus (ii) the per annum  rate  otherwise  payable  under the
Revolving  Note (but in no event in excess of the maximum rate from time to time
permitted by then applicable law), compounded monthly and payable on demand. The
Borrower hereby irrevocably  authorizes the Bank to make or cause to be made, on
a schedule  attached to the  Revolving  Note or on the books of the Bank,  at or
following the time of making each Revolving Loan and of receiving any payment of
principal,  an appropriate  notation  reflecting  such  transaction and the then
aggregate unpaid  principal  balance of the Revolving Loans. The amount so noted
shall constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal  of the  Revolving  Loans.  Failure of the Bank to make any
such notation shall not,  however,  affect any obligation of the Borrower or any
right of the Bank  hereunder  or under  the  Revolving  Note.  All  payments  of
interest,  principal  and any  other  sum  payable  hereunder  and/or  under the
Revolving Note shall be made to the Bank, in immediately available funds, at its
office at 75 State Street, Boston, MA 02109 or to such other address as the Bank
may from time to time direct.  All payments received by the Bank after 2:00 p.m.
on any day shall be deemed received as of the next succeeding  Business Day. All
monies received by the Bank shall be applied first to fees,  charges,  costs and
expenses  payable to the Bank under this letter  agreement,  the Revolving  Note
and/or any of the other Loan Documents, next to interest then accrued on account
of any Revolving  Loans or letter of credit  reimbursement  obligations and only
thereafter   to  principal  of  the   Revolving   Loans  and  letter  of  credit
reimbursement obligations.  All interest and fees payable hereunder and/or under
the  Revolving  Note shall be  calculated on the basis of a 360-day year for the
actual number of days elapsed.

        1.3. Repayment;  Renewal. The Borrower shall repay in full all Revolving
Loans and all interest  thereon  upon the first to occur of: (i) the  Expiration
Date or (ii) an acceleration under ss.5.2(a) following an Event of Default.  The
Borrower may repay, at any time,  without  penalty or premium,  the whole or any
portion of any Revolving Loan. In addition, if at any time the Borrowing Base is
in an amount which is less than the then outstanding Aggregate Bank Liabilities,
the Borrower  will  forthwith  prepay so much of the  Revolving  Loans as may be
required  (or arrange for the  termination  of such  letters of credit as may be
required) so that the Aggregate Bank  Liabilities  will not exceed the Borrowing
Base.  The Bank may, at its sole  discretion,  renew the financing  arrangements
described in this letter agreement by extending the Expiration Date in a writing
signed by the Bank and accepted by the  Borrower.  Neither the inclusion in this
letter agreement or elsewhere of covenants relating to periods of time after the
Expiration  Date,  nor any other  provision  hereof,  nor any  action  (except a
written extension pursuant to the immediately preceding sentence), non-action or
course of  dealing  on the part of the Bank will be deemed an  extension  of, or
agreement on the part of the Bank to extend, the Expiration Date.

        1.4. Advances and Payments. The proceeds of all Revolving Loans shall be
credited by the Bank to a general  deposit  account  maintained  by the Borrower
with the Bank.  The 


                                      -2-






proceeds of each Revolving Loan will be used by the Borrower  solely for working
capital purposes and to repay $42,000 in loans heretofore made to the Borrower.

         The Bank may charge any general  deposit account of the Borrower at the
Bank with the amount of all payments of interest,  principal and other sums due,
from time to time,  under this letter agreement and/or the Revolving Note and/or
with respect to any letter of credit; and will thereafter notify the Borrower of
the amount so  charged.  The  failure of the Bank so to charge any account or to
give any such  notice  shall not affect the  obligation  of the  Borrower to pay
interest, principal or other sums as provided herein or in the Revolving Note or
with respect to any letter of credit.

         Whenever  any  payment  to be made to the Bank  hereunder  or under the
Revolving Note or with respect to any letter of credit shall be stated to be due
on a day  which is not a  Business  Day,  such  payment  may be made on the next
succeeding  Business  Day, and interest  payable on each such date shall include
the amount  thereof  which shall accrue  during the period of such  extension of
time. All payments by the Borrower  hereunder and/or in respect of the Revolving
Note  and/or  with  respect  to any  letter of  credit  shall be made net of any
impositions   or  taxes  and  without   deduction,   set-off  or   counterclaim,
notwithstanding  any claim which the Borrower  may now or at any time  hereafter
have against the Bank.

        1.5. Letters of Credit.  At the Borrower's  request,  the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of the  Borrower;  provided  that at the time of such issuance and after
giving effect thereto the Aggregate Bank Liabilities will in no event exceed the
lesser of (i)  $3,000,000 or (ii) the then  effective  Borrowing  Base. Any such
letter of credit will be issued for such fee and upon such terms and  conditions
as may be agreed to by the Bank and the  Borrower at the time of  issuance.  The
Borrower hereby authorizes the Bank,  without further request from the Borrower,
to cause the Borrower's  liability to the Bank for  reimbursement of funds drawn
under any such  letter of credit to be repaid  from the  proceeds of a Revolving
Loan to be made hereunder.  The Borrower hereby  irrevocably  requests that such
Revolving Loans be made.

        1.6. Conditions to Advance. Prior to the making of the initial Revolving
Loan or the  issuance  of any letter of credit  hereunder,  the  Borrower  shall
deliver to the Bank duly executed copies of this letter agreement,  the Security
Agreement,  the Intellectual  Property  Assignments,  the Revolving Note and the
documents and other items listed on the Closing Agenda delivered herewith by the
Bank to the Borrower, all of which, as well as all legal matters incident to the
transactions contemplated hereby, shall be satisfactory in form and substance to
the Bank and its counsel.

         Without limiting the foregoing,  any Revolving Loan or letter of credit
issuance  (including the initial Revolving Loan or letter of credit issuance) is
subject  to the  further  conditions  precedent  that on the date on which  such
Revolving  Loan is made or such  letter of credit is issued  (and  after  giving
effect thereto):


                                      -3-






         (a) All statements, representations and warranties of the Borrower made
in this letter agreement  and/or in the Security  Agreement shall continue to be
correct in all material  respects as of the date of such  Revolving  Loan or the
date of issuance of such letter of credit, as the case may be.

         (b) All  covenants  and  agreements  of the Borrower  contained  herein
and/or in any of the other Loan  Documents  shall have been complied with in all
material  respects on and as of the date of such  Revolving  Loan or the date of
issuance of such letter of credit, as the case may be.

         (c) No event which  constitutes,  or which with notice or lapse of time
or both  could  constitute,  an Event of  Default  shall  have  occurred  and be
continuing.

         (d) No material  adverse  change shall have  occurred in the  financial
condition of the Borrower from that disclosed in the financial  statements  then
most recently furnished to the Bank.

         Each request by the Borrower for any Revolving Loan or for the issuance
of any letter of credit,  and each acceptance by the Borrower of the proceeds of
any  Revolving  Loan or  delivery  of a  letter  of  credit,  will be  deemed  a
representation  and warranty by the Borrower that at the date of such  Revolving
Loan or the date of issuance  of such letter of credit,  as the case may be, and
after giving  effect  thereto all of the  conditions  set forth in the foregoing
clauses  (a)-(d) of this ss.1.6 will be satisfied.  Each request for a Revolving
Loan or  letter of credit  issuance  will be  accompanied  by a  borrowing  base
certificate on a form satisfactory to the Bank,  executed by the chief financial
officer of the Borrower,  unless such a certificate  shall have been  previously
furnished  setting forth the  Borrowing  Base as at a date not more than 30 days
prior to the date of the requested  borrowing or the requested  letter of credit
issuance, as the case may be.

         II. REPRESENTATIONS AND WARRANTIES 
             ------------------------------

         2.1.  Representations  and  Warranties.  In order to induce the Bank to
enter into this letter  agreement and to make Revolving Loans  hereunder  and/or
issue letters of credit  hereunder,  the Borrower warrants and represents to the
Bank as follows:

         (a) The Borrower is a corporation duly organized,  validly existing and
in good  standing  under the laws of Delaware.  The Borrower has full  corporate
power to own its property and conduct its  business as now  conducted,  to grant
the  security   interests   contemplated  by  the  Security  Agreement  and  the
Intellectual  Property  Assignments  and to enter into and  perform  this letter
agreement  and the other Loan  Documents.  The Borrower is duly  qualified to do
business and is in good standing in Massachusetts  and is also duly qualified to
do business in and is in good standing in each other  jurisdiction  in which the
Borrower maintains any facility,  sales office, warehouse or other location, and
in each other  jurisdiction  where the failure so to qualify could (singly or in
the aggregate with all other such  failures)  have a material  adverse effect on
the  financial  condition,  business  or  prospects  of the  Borrower,  all such
jurisdictions being listed on item 2.1(a) of the attached  Disclosure  Schedule.
At the date hereof,  the Borrower has no  


                                      -4-






Subsidiaries,  except as shown on said item  2.1(a) of the  attached  Disclosure
Schedule. The Borrower is not a member of any partnership or joint venture.


         (b) At the date of this  letter  agreement,  no  Person is known by the
Borrower  to hold  more  than 5% of the  outstanding  equity  securities  of the
Borrower  of any  class,  except  as set forth on item  2.1(b)  of the  attached
Disclosure Schedule.

         (c) The  execution,  delivery and  performance  by the Borrower of this
letter  agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:

                 (i) violate  any  provision  of, or require any filings  (other
         than filings under the Uniform Commercial Code), registration,  consent
         or approval under, any law, rule,  regulation,  order, writ,  judgment,
         injunction,  decree,  determination or award presently in effect having
         applicability to the Borrower;

                 (ii)  violate  any  provision  of the charter or by-laws of the
         Borrower,  or result in a breach of or  constitute a default or require
         any waiver or consent under any  indenture or loan or credit  agreement
         or any  other  material  agreement,  lease or  instrument  to which the
         Borrower is a party or by which the  Borrower or any of its  properties
         may be bound or affected or require any other consent of any Person; or

                 (iii) result in, or require,  the creation or imposition of any
         lien,  security interest or other  encumbrance  (other than in favor of
         the Bank),  upon or with respect to any of the  properties now owned or
         hereafter acquired by the Borrower.

         (d) This letter agreement and each of the other Loan Documents has been
duly  executed and  delivered  by the  Borrower  and each is a legal,  valid and
binding  obligation  of  the  Borrower,  enforceable  against  the  Borrower  in
accordance with its respective terms.

         (e)  Except as  described  on item  2.1(e) of the  attached  Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the  Borrower,  threatened by or against the Borrower or any
Subsidiary  before  any court or  governmental  department,  commission,  board,
bureau,  agency or instrumentality,  domestic or foreign,  which could hinder or
prevent the  consummation of the transactions  contemplated  hereby or call into
question  the  validity  of  this  letter  agreement  or any of the  other  Loan
Documents or any action taken or to be taken in connection with the transactions
contemplated  hereby or thereby or which in any single case or in the  aggregate
might  result  in  any  material  adverse  change  in the  business,  prospects,
condition, affairs or operations of the Borrower or any Subsidiary.

         (f) The  Borrower  is not in  violation  of any term of its  charter or
by-laws  as now in  effect.  Neither  the  Borrower  nor any  Subsidiary  of the
Borrower is in material  violation  of any term of any  mortgage,  indenture  or
judgment,  decree or order,  or any other  instrument,  contract or agreement to
which it is a party or by which any of its property is bound.


                                      -5-






         (g) The Borrower has filed (and has caused each of its  Subsidiaries to
file) all federal,  state and local tax returns,  reports and estimates required
to be filed  by the  Borrower  and/or  by any such  Subsidiary.  All such  filed
returns,  reports and  estimates are proper and accurate and the Borrower or the
relevant Subsidiary has paid all taxes, assessments, impositions, fees and other
governmental  charges  required to be paid in respect of the periods  covered by
such returns,  reports or estimates.  No deficiencies for any tax, assessment or
governmental charge have been asserted or assessed, and the Borrower knows of no
material tax liability or basis therefor.

         (h) The Borrower is in compliance  (and each Subsidiary of the Borrower
is in compliance)  with all requirements of law,  federal,  state and local, and
all requirements of all governmental bodies or agencies having jurisdiction over
it, the conduct of its business,  the use of its properties and assets,  and all
premises occupied by it, failure to comply with any of which could (singly or in
the aggregate with all other such failures) have a material  adverse effect upon
the assets,  business,  financial  condition or prospects of the Borrower or any
such  Subsidiary.  Without  limiting  the  foregoing,  the  Borrower has all the
franchises,  licenses,  leases, permits,  certificates and authorizations needed
for the conduct of its business and the use of its  properties  and all premises
occupied by it, as now conducted, owned and used.

         (i) The audited financial statements of the Borrower as at December 31,
1996 and the  management-generated  statements  of the  Borrower as at March 31,
1997,  each  heretofore  delivered  to the Bank,  are  complete and accurate and
fairly  present the  financial  condition of the  Borrower as at the  respective
dates   thereof  and  for  the  periods   covered   thereby,   except  that  the
management-generated  statements  do not have  footnotes and thus do not present
the  information  which would  normally be  contained  in footnotes to financial
statements.  The  Borrower  has  no  liability,  contingent  or  otherwise,  not
disclosed in the  aforesaid  financial  statements  or in any notes thereto that
could materially affect the financial condition of the Borrower.  Since December
31,  1996,  there has been no  material  adverse  development  in the  business,
condition  or  prospects  of  the  Borrower,  and  except  as  disclosed  in the
Borrower's Form SB-2 Registration  Statement  declared effective on May 12, 1997
and its Form 10-QSB  filed with the SEC on July 26,  1997,  the Borrower has not
entered into any transaction other than in the ordinary course.

         (j) The principal place of business and chief executive  offices of the
Borrower are located at 2 Robbins Road, Westford, MA 01886 (the "Premises"). All
of the books and records of the Borrower are located at said address.  Except as
described on item 2.1(j) of the attached Disclosure Schedule, no material assets
of the  Borrower  are  located  at any other  address.  Said item  2.1(j) of the
attached  Disclosure  Schedule  sets forth the names and addresses of all record
owners of the Premises.

         (k) The  Borrower  owns or has a valid right to use all of the patents,
licenses,  copyrights,  trademarks,  trade names and  franchises  ("Intellectual
Property") now being used to conduct its business, all of which are described on
item  2.1(k)  of the  attached  Disclosure  Schedule.  None of the  Intellectual
Property  owned  by the  Borrower  is  represented  by a  registered  copyright,
trademark,  patent or other  federal or state  registration,  except as shown 


                                      -6-







on said item 2.1(k). To the Borrower's knowledge, the conduct of its business as
now  operated  does not  conflict  with  valid  patents,  licenses,  copyrights,
trademarks,  trade  names or  franchises  of others  in any  manner  that  could
materially  adversely  affect  the  business,  prospects,  assets or  condition,
financial or otherwise, of the Borrower.

         (l) None of the executive  officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or  restricts  that  person's  right to engage in the type of business  activity
conducted  or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas  susceptible
to legal protection developed or conceived by any such officer or key employee.

         (m) The Borrower is not a party to any contract or agreement  which now
has or, as far as can be foreseen by the Borrower at the date hereof, may have a
material  adverse  effect on the  financial  condition,  business,  prospects or
properties of the Borrower.

         III.  AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
               ------------------------------------------------

         Without  limitation of any covenants  and  agreements  contained in the
Security  Agreement  or  elsewhere,  the  Borrower  agrees  that  so long as the
financing  arrangements  contemplated hereby are in effect or any Revolving Loan
or any of the other  Obligations  shall be  outstanding  or any letter of credit
issued hereunder shall be outstanding:

        3.1.  Legal  Existence;  Qualification;  Compliance.  The Borrower  will
maintain  (and will cause each  Subsidiary  of the  Borrower  to  maintain)  its
corporate  existence and good standing in the jurisdiction of its incorporation.
The Borrower  will qualify to do business and will remain  qualified and in good
standing (and the Borrower will cause each Subsidiary of the Borrower to qualify
and  remain  qualified  and in good  standing)  in each  jurisdiction  where the
Borrower or such Subsidiary,  as the case may be, maintains any facility,  sales
office,  warehouse or other location and in each other jurisdiction in which the
failure so to qualify  could  (singly  or in the  aggregate  with all other such
failures) have a material adverse effect on the financial condition, business or
prospects of the Borrower or any such Subsidiary.  The Borrower will comply (and
will cause each Subsidiary of the Borrower to comply) with its charter documents
and by-laws.  The Borrower  will comply with (and will cause each  Subsidiary of
the  Borrower  to  comply  with) all  applicable  laws,  rules  and  regulations
(including,  without  limitation,  ERISA and  those  relating  to  environmental
protection)   other  than  (i)  laws,  rules  or  regulations  the  validity  or
applicability  of which the Borrower or such  Subsidiary  shall be contesting in
good faith by proceedings which serve as a matter of law to stay the enforcement
thereof and (ii) those laws,  rules and  regulations  the failure to comply with
any of which  could not  (singly or in the  aggregate)  have a material  adverse
effect on the financial condition,  business or prospects of the Borrower or any
such Subsidiary.

        3.2. Maintenance of Property;  Insurance. The Borrower will maintain and
preserve  (and will  cause each  Subsidiary  of the  Borrower  to  maintain  and
preserve)  all of its fixed assets in good working order and  condition,  making
all  necessary  repairs  thereto and  replacements  

                                      -7-







thereof.  The Borrower will maintain all such insurance as may be required under
the  Security  Agreement  and will also  maintain,  with  financially  sound and
reputable insurers,  insurance with respect to its property and business against
such  liabilities,  casualties and  contingencies  and of such types and in such
amounts as shall be reasonably satisfactory to the Bank from time to time and in
any event all such insurance as may from time to time be customary for companies
conducting a business similar to that of the Borrower in similar locales.

        3.3.  Payment of Taxes and Charges.  The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments  and  governmental  charges  or levies  imposed  upon it or upon its
income or property, including, without limitation,  taxes, assessments,  charges
or  levies  relating  to  real  and  personal  property,   franchises,   income,
unemployment, old age benefits,  withholding, or sales or use, prior to the date
on which penalties would attach thereto,  and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid,  might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being  contested  in good faith and by  appropriate  proceedings  which
serve as a matter  of law to stay the  enforcement  thereof  and for  which  the
Borrower has established and is maintaining adequate reserves. The Borrower will
pay, and will cause each of its  Subsidiaries  to pay, in a timely  manner,  all
lease obligations,  all trade debt, purchase money obligations,  equipment lease
obligations  and all of its  other  material  Indebtedness.  The  Borrower  will
perform and fulfill all material  covenants and  agreements  under any leases of
real estate,  agreements  relating to purchase money debt,  equipment leases and
other material  contracts.  The Borrower will maintain in full force and effect,
and comply  with the terms and  conditions  of,  all  permits,  permissions  and
licenses necessary or desirable for its business.

        3.4. Accounts.  The Borrower will maintain its principal  depository and
operating accounts with the Bank.

        3.5.  Conduct of Business.  The Borrower will  conduct,  in the ordinary
course,  the business in which it is presently  engaged.  The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any  Subsidiary)  enter into any other lines of business,  businesses or
ventures.

        3.6.     Reporting Requirements.  The Borrower will furnish to the Bank:

                  (i)  Within 90 days after the end of each  fiscal  year of the
         Borrower  (commencing with the fiscal year ending December 31, 1997), a
         copy of the  Borrower's  Annual  Report on Form  10-KSB for such fiscal
         year and  (whether  or not  contained  in such  Annual  Report  on Form
         10-KSB) all of the  following:  the annual audit report for such fiscal
         year for the Borrower, including therein consolidated and consolidating
         balance sheets of the Borrower and  Subsidiaries  as at the end of such
         fiscal year and related  consolidated and  consolidating  statements of
         income,  stockholders'  equity and cash flow for the  fiscal  year then
         ended. The annual consolidated  financial statements shall be certified
         by  independent  public  accountants   selected  by  the  Borrower  and

   
                                       -8-







         reasonably  acceptable to the Bank,  such  certification  to be in such
         form as is generally recognized as "unqualified".

                  (ii)  Within 45 days after the end of each  fiscal  quarter of
         the Borrower,  a copy of the Borrower's Quarterly Report on Form 10-QSB
         for such fiscal quarter and (whether or not contained in such Quarterly
         Report  on  Form  10-QSB)  all  of  the  following:   consolidated  and
         consolidating  balance sheets of the Borrower and its  Subsidiaries and
         related  consolidated and  consolidating  statements of income and cash
         flow,  unaudited  but complete and accurate and prepared in  accordance
         with generally  accepted  accounting  principles  consistently  applied
         fairly  presenting  the  financial  condition of the Borrower as at the
         dates  thereof and for the periods  covered  thereby  (except that such
         quarterly  statements  need not contain  footnotes)  and  certified  as
         accurate (subject to normal year-end audit adjustments, which shall not
         be  material)  by the chief  financial  officer of the  Borrower,  such
         balance sheets to be as at the end of each such fiscal quarter and such
         statements  of income and cash flow to be for such  fiscal  quarter and
         for the  year to date,  in each  case  together  with a  comparison  to
         budget.

                  (iii) At the time of  delivery  of each  annual  or  quarterly
         statement  of  the  Borrower,  a  certificate  executed  by  the  chief
         financial  officer of the Borrower  stating that he or she has reviewed
         this letter agreement and the other Loan Documents and has no knowledge
         of any default by the Borrower in the  performance or observance of any
         of the provisions of this letter  agreement or of any of the other Loan
         Documents  or, if he or she has such  knowledge,  specifying  each such
         default and the nature  thereof.  Each financial  statement given as at
         the end of any fiscal  quarter of the Borrower  will also set forth the
         calculations necessary to evidence compliance with ss.ss.3.7-3.10.

                  (iv) Monthly,  within 30 days after the end of each month, (A)
         an  aging  report  in  form  satisfactory  to  the  Bank  covering  all
         Receivables  of the Borrower  outstanding  as at the end of such month,
         and (B) a certificate  of the chief  financial  officer of the Borrower
         setting  forth the Borrowing  Base as at the end of such month,  all in
         form reasonably satisfactory to the Bank.

                  (v) Promptly  after  receipt,  a copy of all audits or reports
         submitted  to  the  Borrower  by  independent   public  accountants  in
         connection  with any annual,  special or interim audits of the books of
         the Borrower and any "management letter" from such accountants.

                  (vi) As long as any  securities  of the  Borrower are publicly
         traded,  the  Borrower  will  furnish to the Bank,  promptly  upon same
         becoming  available,  one  copy of each  financial  statement,  report,
         notice or proxy  statement sent by the Borrower to  stockholders or the
         holders of debt securities  generally,  and of each regular or periodic
         report  and  any   registration   statement,   prospectus   or  listing
         application  filed by the  Borrower  with the National  Association  of
         Securities Dealers, any securities exchange or the SEC.


                                      -9-






                  (vii) As soon as possible and in any event within five days of
         the  occurrence  of any Event of Default or any event  which,  with the
         giving of notice or passage of time or both,  would constitute an Event
         of Default, the statement of the Borrower setting forth details of each
         such  Event of  Default  or event and the  action  which  the  Borrower
         proposes to take with respect thereto.

                  (viii) Promptly after the commencement thereof,  notice of all
         actions,  suits  and  proceedings  before  any  court  or  governmental
         department,  commission,  board,  bureau,  agency  or  instrumentality,
         domestic or foreign,  to which the  Borrower or any  Subsidiary  of the
         Borrower is a party.

                  (ix) Promptly upon applying for, or being  granted,  a federal
         or  state  registration  for any  copyright,  trademark  or  patent  or
         purchasing  any  registered  copyright,  trademark  or patent,  written
         notice to the Bank describing same, together with all such documents as
         may be  required  to give the  Bank a fully  perfected  first  priority
         security interest in each such copyright, trademark or patent.

                  (x) Promptly after the Borrower has knowledge thereof, written
         notice of any  development  or  circumstance  which may  reasonably  be
         expected  to have a  material  adverse  effect on the  Borrower  or its
         business,  properties,  assets, Subsidiaries or condition, financial or
         otherwise.

                  (xi) Promptly upon request, such other information  respecting
         the financial condition, operations,  Receivables, inventory, machinery
         or  equipment of the  Borrower or any  Subsidiary  as the Bank may from
         time to time reasonably request.

        3.7.  Debt to Worth.  The Borrower  will  maintain as at the end of each
fiscal  quarter  (commencing  with  its  results  as  at  June  30,  1997)  on a
consolidated  basis a Leverage  Ratio of not more than 2.0 to 1. As used herein,
"Leverage Ratio" means, as at any date when same is to be determined,  the ratio
of (x) the Adjusted  Senior Debt of the Borrower  and/or its  Subsidiaries  then
outstanding to (y) the Borrower's then consolidated Capital Base.

        3.8.  Capital  Base.  The Borrower  will  maintain as at the end of each
fiscal quarter  (commencing with its results as at June 30, 1997) a consolidated
Capital Base of not less than $2,200,000.

        3.9.  Profitability.  The  Borrower  will not prove to have  incurred  a
quarterly  consolidated  Net Loss in excess of $2,000,000 for its fiscal quarter
ended June 30, 1997.  The Borrower will not incur a quarterly  consolidated  Net
Loss in excess of $1,500,000 for its fiscal  quarter ending  September 30, 1997.
The Borrower will achieve  quarterly  consolidated  Net Income of at least $1.00
for its fiscal  quarter  ending  December  31, 1997 and for each fiscal  quarter
thereafter.

                                      -10-






        3.10. Liquidity. The Borrower will maintain as at the end of each fiscal
quarter  of the  Borrower  (commencing  with June 30,  1997) a ratio of  Current
Assets to Adjusted Current  Liabilities,  which ratio shall be not less than 1.5
to 1.

        3.11. Books and Records. The Borrower will maintain (and will cause each
of its  Subsidiaries  to  maintain)  complete and  accurate  books,  records and
accounts  which  will at all times  accurately  and  fairly  reflect  all of its
transactions  in  accordance  with  generally  accepted  accounting   principles
consistently applied. The Borrower will, at any reasonable time and from time to
time upon  reasonable  notice and during normal  business hours (and at any time
and without any  necessity for notice  following  the  occurrence of an Event of
Default), permit the Bank, and any agents or representatives thereof, to examine
and make copies of and take  abstracts from the records and books of account of,
and visit the  properties  of the Borrower and any of its  Subsidiaries,  and to
discuss its affairs,  finances and accounts with its officers,  directors and/or
independent  accountants,  all of whom are hereby  authorized  and  directed  to
cooperate  with  the Bank in  carrying  out the  intent  of this  ss.3.11.  Each
financial  statement of the Borrower hereafter delivered pursuant to this letter
agreement  will be complete and accurate and will fairly  present the  financial
condition  of the  Borrower as at the date  thereof and for the periods  covered
thereby.

        3.12.  Landlord's  Waiver.  Prior to the Bank making the first Revolving
Loan, the Borrower will obtain,  and will  thereafter  maintain in effect at all
times,  waivers from the owners of all premises in which any material  amount of
Collateral is located, such waivers to be in form and substance  satisfactory to
the Bank.

        IV.  NEGATIVE COVENANTS
             ------------------

        Without  limitation  of any covenants  and  agreements  contained in the
Security  Agreement  or  elsewhere,  the  Borrower  agrees  that  so long as the
financing  arrangements  contemplated hereby are in effect or any Revolving Loan
or any of the other  Obligations  shall be  outstanding  or any letter of credit
issued hereunder shall be outstanding:

        4.1. Indebtedness. The Borrower will not create, incur, assume or suffer
to exist any Indebtedness  (nor allow any of its Subsidiaries to create,  incur,
assume or suffer to exist any Indebtedness), except for:

              (i) Indebtedness owed to the Bank, including,  without limitation,
        the Indebtedness  represented by the Revolving Note and any Indebtedness
        in respect of letters of credit issued by the Bank;

              (ii)  Indebtedness  of the Borrower or any  Subsidiary  for taxes,
        assessments and governmental charges or levies not yet due and payable;


                                      -11-







              (iii)  unsecured  current  liabilities  of  the  Borrower  or  any
        Subsidiary  (other  than  for  money  borrowed  or  for  purchase  money
        Indebtedness with respect to fixed assets) incurred upon customary terms
        in the ordinary course of business;

              (iv) purchase money Indebtedness  (including,  without limitation,
        Indebtedness  in  respect  of  capitalized  equipment  leases)  owed  to
        equipment  vendors and/or  lessors for equipment  purchased or leased by
        the Borrower for use in the Borrower's business, provided that the total
        of Indebtedness permitted under this clause (iv) plus presently-existing
        equipment  financing  permitted under clause (v) of this ss.4.1 will not
        exceed $500,000 in the aggregate outstanding at any one time;

              (v) other  Indebtedness  existing at the date  hereof  (including,
        without limitation,  existing Subordinated Debt), but only to the extent
        set forth on item 4.1 of the attached Disclosure Schedule; and

              (vi) any  guaranties  or other  contingent  liabilities  expressly
        permitted pursuant to ss.4.3.

        4.2.  Liens.  The Borrower will not create,  incur,  assume or suffer to
exist (nor allow any of its Subsidiaries to create,  incur,  assume or suffer to
exist) any mortgage,  deed of trust, pledge,  lien, security interest,  or other
charge  or  encumbrance  (including  the lien or  retained  security  title of a
conditional vendor) of any nature (collectively,  "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter  acquired,  except that
the foregoing restrictions shall not apply to:

              (i) Liens for taxes, assessments or governmental charges or levies
        on property of the Borrower or any of its Subsidiaries if the same shall
        not at the time be delinquent or thereafter can be paid without interest
        or penalty;

              (ii) Liens imposed by law, such as carriers',  warehousemen's  and
        mechanics'  liens and other similar Liens arising in the ordinary course
        of business  for sums not yet due or which are being  contested  in good
        faith and by appropriate  proceedings  which serve as a matter of law to
        stay the enforcement thereof and as to which adequate reserves have been
        made;

              (iii)  pledges or  deposits  under  workmen's  compensation  laws,
        unemployment insurance, social security,  retirement benefits or similar
        legislation;

              (iv) Liens in favor of the Bank;

              (v) Liens in favor of equipment  vendors and/or  lessors  securing
        purchase money  Indebtedness  to the extent  permitted by clause (iv) of
        ss.4.1;  provided  that no such Lien will extend to any  property of the
        Borrower other than the specific items of equipment financed; or


                                      -12-






              (vi) other  Liens  existing  at the date  hereof,  but only to the
        extent  and with the  relative  priorities  set forth on item 4.2 of the
        attached Disclosure Schedule.

        4.3.  Guaranties.  The  Borrower  will not,  without  the prior  written
consent of the Bank, assume, guarantee,  endorse or otherwise become directly or
contingently liable (including,  without limitation, liable by way of agreement,
contingent or otherwise,  to purchase,  to provide funds for payment,  to supply
funds to or  otherwise  invest in any debtor or otherwise to assure any creditor
against  loss)  (and  will not  permit  any of its  Subsidiaries  so to  assume,
guaranty  or become  directly or  contingently  liable) in  connection  with any
indebtedness  of any other  Person,  except (i)  guaranties by  endorsement  for
deposit or  collection  in the ordinary  course of business and (ii)  guaranties
existing at the date hereof and described on item 4.3 of the attached Disclosure
Schedule.

        4.4. Dividends. The Borrower will not, without the prior written consent
of the Bank,  make any  distributions  to its  shareholders,  pay any  dividends
(other  than  dividends  payable  solely in capital  stock of the  Borrower)  or
redeem, purchase or otherwise acquire, directly or indirectly any of its capital
stock.

        4.5. Loans and Advances. The Borrower will not make (and will not permit
any Subsidiary to make) any loans or advances to any Person, including,  without
limitation, the Borrower's directors, officers and employees, except advances to
such directors,  officers or employees with respect to expenses incurred by them
in the ordinary course of their duties and advances against salary, all of which
advances will not exceed,  in the  aggregate,  $100,000  outstanding  at any one
time.

        4.6.  Investments.  The  Borrower  will not,  without  the Bank's  prior
written  consent,  invest in, hold or purchase  any stock or  securities  of any
Person  (nor will the  Borrower  permit  any of its  Subsidiaries  to invest in,
purchase or hold any such stock or  securities)  except (i)  readily  marketable
direct  obligations  of, or  obligations  guarantied  by, the  United  States of
America or any agency  thereof,  (ii) other  investment  grade debt  securities,
(iii) mutual funds,  the assets of which are primarily  invested in items of the
kind  described  in the  foregoing  clauses  (i) and (ii) of this  ss.4.6,  (iv)
deposits  with or  certificates  of  deposit  issued  by the Bank and any  other
obligations  of the Bank or the Bank's  parent,  (v)  deposits in any other bank
organized in the United States  having  capital in excess of  $100,000,000,  and
(vi) investments in any  Subsidiaries  now existing or hereafter  created by the
Borrower  pursuant to ss.4.7 below;  provided that in any event the Tangible Net
Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any
debt owed by any  Subsidiary to the  Borrower)  will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries.

        4.7.  Subsidiaries;  Acquisitions.  The Borrower  will not,  without the
prior written  consent of the Bank,  form or acquire any  Subsidiary or make any
other  acquisition  of the stock of any other Person or of all or  substantially
all of the assets of any other Person. The Borrower will not become a partner in
any partnership.

                                      -13-







        4.8. Merger. The Borrower will not, without the prior written consent of
the Bank,  merge or consolidate  with any Person,  or sell,  lease,  transfer or
otherwise  dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course.

        4.9.  Affiliate  Transactions.  The  Borrower  will not,  without  prior
written  consent of the Bank,  enter into any  transaction,  including,  without
limitation,  the purchase,  sale or exchange of any property or the rendering of
any service,  with any affiliate of the Borrower,  except in the ordinary course
of and pursuant to the reasonable  requirements  of the Borrower's  business and
upon fair and  reasonable  terms no less favorable to the Borrower than would be
obtained  in a  comparable  arms'-length  transaction  with  any  Person  not an
affiliate;  provided that nothing in this ss.4.9 shall be deemed to prohibit the
payment of salary or other  similar  payments  to any officer or director of the
Borrower at a level  consistent with the salary and other payments being paid at
the date of this letter  agreement  and  heretofore  disclosed in writing to the
Bank,  nor to  prevent  the  hiring of  additional  officers  at a salary  level
consistent with industry practice,  nor to prevent reasonable periodic increases
in salary.  For the  purposes of this letter  agreement,  "affiliate"  means any
Person which,  directly or indirectly,  controls or is controlled by or is under
common  control with the Borrower;  any officer or director or former officer or
director of the Borrower; any Person owning of record or beneficially,  directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity  interest having voting power
(under ordinary  circumstances) of any of the other Persons described above; and
any member of the  immediate  family of any of the  foregoing.  "Control"  means
possession,  directly  or  indirectly,  of the  power to  direct  or  cause  the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.

         4.10. Change of Address,  etc. The Borrower will not change its name or
legal  structure,  nor will the  Borrower  move its chief  executive  offices or
principal place of business from the address  described in the first sentence of
ss.2.1(j)  above,  nor will the  Borrower  remove any books or records from such
address,  nor will the Borrower keep any  Collateral at any location  other than
the Premises without, in each instance,  giving the Bank at least 30 days' prior
written notice and providing all such  financing  statements,  certificates  and
other  documentation as the Bank may request in order to maintain the perfection
and  priority  of the  security  interests  granted  or  intended  to be granted
pursuant to the Security Agreement. The Borrower will not change its fiscal year
or methods of financial reporting unless, in each instance, prior written notice
of such change is given to the Bank and prior to such change the Borrower enters
into amendments to this letter  agreement in form and substance  satisfactory to
the  Bank in  order  to  preserve  unimpaired  the  rights  of the  Bank and the
obligations of the Borrower hereunder.

         4.11.  Hazardous Waste. Except as provided below, the Borrower will not
dispose  of or suffer or permit to exist any  hazardous  material  or oil on any
site or vessel owned,  occupied or operated by the Borrower or any Subsidiary of
the Borrower,  nor shall the Borrower  store (or permit any Subsidiary to store)
on any site or vessel  owned,  occupied or operated by the  


                                      -14-






Borrower or any such  Subsidiary,  or transport or arrange the transport of, any
hazardous  material or oil (the terms "hazardous  material",  "oil",  "site" and
"vessel", respectively, being used herein with the meanings given those terms in
Mass.  Gen. Laws, Ch. 21E or any comparable  terms in any comparable  statute in
effect in any other relevant jurisdiction).  The Borrower shall provide the Bank
with written  notice of (i) the intended  storage or transport of any  hazardous
material or oil by the  Borrower or any  Subsidiary  of the  Borrower,  (ii) any
known release or known threat of release of any hazardous  material or oil at or
from any site or vessel  owned,  occupied  or  operated  by the  Borrower or any
Subsidiary of the Borrower,  and (iii) any  incurrence of any expense or loss by
any  government or  governmental  authority in connection  with the  assessment,
containment  or removal of any  hazardous  material or oil for which  expense or
loss  the   Borrower  or  any   Subsidiary   of  the  Borrower  may  be  liable.
Notwithstanding the foregoing,  the Borrower and its Subsidiaries may use, store
and  transport,   and  need  not  notify  the  Bank  of  the  use,   storage  or
transportation  of, (x) oil in  reasonable  quantities,  as fuel for  heating of
their  respective  facilities or for vehicles or machinery  used in the ordinary
course of their  respective  businesses  and (y)  hazardous  materials  that are
solvents,  cleaning agents or other materials used in the ordinary course of the
respective  business  operations  of  the  Borrower  and  its  Subsidiaries,  in
reasonable  quantities,  as long as in any case the  Borrower or the  Subsidiary
concerned  (as the  case  may be) has  obtained  and  maintains  in  effect  any
necessary  governmental  permits,  licenses  and  approvals,  complies  with all
requirements  of applicable  federal,  state and local law relating to such use,
storage or  transportation,  follows the protective and safety procedures that a
prudent  businessperson  conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow,  and disposes
of such  materials (not consumed in the ordinary  course) only through  licensed
providers of hazardous waste removal services.

        4.12. No Margin Stock.  No proceeds of any Revolving  Loan shall be used
directly or indirectly to purchase or carry any margin security.

        4.13.  Subordinated  Debt.  The Borrower will not directly or indirectly
make any optional or voluntary  prepayment or purchase of  Subordinated  Debt or
modify,  alter or add any  provisions  with  respect to payment of  Subordinated
Debt.  In any event,  the Borrower will not make any payment of any principal of
or interest on any Subordinated  Debt at any time when there exists, or if there
would result therefrom, any Event of Default hereunder.

V.  DEFAULT AND REMEDIES
    --------------------

        5.1.  Events of  Default.  The  occurrence  of any one of the  following
events shall constitute an Event of Default hereunder:

         (a) The  Borrower  shall fail to make any  payment of  principal  of or
interest on the  Revolving  Note on or before the date when due; or the Borrower
shall fail to pay when due any amount  owed to the Bank in respect of any letter
of credit now or hereafter issued by the Bank; or


                                      -15-







         (b) Any  representation  or warranty of the Borrower  contained  herein
shall at any time prove to have been incorrect in any material respect when made
or any  representation  or warranty made by the Borrower in connection  with any
Revolving  Loan or  letter  of  credit  shall  at any time  prove  to have  been
incorrect in any material respect when made; or

         (c) The Borrower shall default in the  performance or observance of any
agreement or obligation under any of ss.ss.3.1,  3.3, 3.6, 3.7, 3.8, 3.9 or 3.10
or Article IV; or

         (d) The Borrower  shall default in the  performance  of any other term,
covenant or agreement  contained in this letter agreement and such default shall
continue  unremedied  for 30 days after notice  thereof shall have been given to
the Borrower; or

         (e) Any default on the part of the  Borrower or any  Subsidiary  of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any  applicable  notice  and/or  grace  period,  under  any  other  contract,
agreement or undertaking now existing or hereafter  entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or

         (f) Any default shall exist and remain unwaived or uncured with respect
to any  Subordinated  Debt of the  Borrower  or with  respect to any  instrument
evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or
any such  Subordinated  Debt  shall not have been  paid  when  due,  whether  by
acceleration  or  otherwise,  or shall have been  declared to be due and payable
prior to its stated  maturity,  or any event or  circumstance  shall occur which
permits, or with the lapse of time or the giving of notice or both would permit,
the  acceleration  of the  maturity  of any  Subordinated  Debt by the holder or
holders thereof; or

         (g) Any default shall exist and remain unwaived or uncured with respect
to any other  Indebtedness  of the Borrower or any Subsidiary of the Borrower in
excess  of  $100,000  in  aggregate  principal  amount  or with  respect  to any
instrument evidencing,  guaranteeing, securing or otherwise relating to any such
Indebtedness,  or any such  Indebtedness  in excess  of  $100,000  in  aggregate
principal  amount shall not have been paid when due,  whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity,  or any event or circumstance  shall occur which permits,  or with the
lapse of time or the giving of notice or both would permit,  the acceleration of
the maturity of any such Indebtedness by the holder of holders thereof; or

         (h) The Borrower shall be dissolved,  or the Borrower or any Subsidiary
of the  Borrower  shall  become  insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an  assignment  for the benefit of creditors,
or a trustee,  receiver or liquidator shall be appointed for the Borrower or any
Subsidiary  of the  Borrower or for a  substantial  part of the  property of the
Borrower or any such  Subsidiary,  or bankruptcy,  reorganization,  arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any  such  Subsidiary  under  the  laws of any  jurisdiction  (except  for an
involuntary  proceeding  filed  against the  Borrower or any  Subsidiary  of the
Borrower which is dismissed  within 60 days following the institution  thereof);
or

                                      -16-






         (i) Any  attachment,  execution or similar  process  shall be issued or
levied  against any of the property of the Borrower or any  Subsidiary  and such
attachment,  execution or similar process shall not be paid,  stayed,  released,
vacated or fully bonded within 10 days after its issue or levy; or

         (j) Any final uninsured judgment in excess of $100,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction; or

         (k) The Borrower or any  Subsidiary of the Borrower  shall fail to meet
its  minimum  funding  requirements  under  ERISA with  respect to any  employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or  involuntary)  and there shall  result from such  termination  proceedings  a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable  opinion of the Bank may have a material  adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or

         (l) The  Security  Agreement or any other Loan  Document  shall for any
reason  (other than due to payment in full of all amounts  secured or  evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or

         (m) The security  interests  and liens of the Bank in and on any of the
Collateral  shall  for any  reason  (other  than due to  payment  in full of all
amounts secured thereby or due to written release by the Bank or other action by
the Bank or the failure of the Bank to file timely continuation  statements) not
be fully perfected liens and security interests; or

         (n) At any time, 50% or more of the outstanding  shares of any class of
equity securities of the Borrower shall be owned by any Person or by any "group"
(as  defined  in the  Securities  Exchange  Act of  1934,  as  amended,  and the
regulations thereunder), other than by one or more of the Persons listed on item
5.1(n) of the attached Disclosure Schedule; or

         (o) Lorrin Gale shall for any reason not be an executive officer of the
Borrower  actively  involved in the  management  of the  Borrower,  unless he is
promptly  replaced  in such  position  by  another  individual  selected  by the
Borrower's  Board of Directors and having  experience and skill comparable to or
greater than that of Mr. Gale; or

         (p)  There  shall  occur  any  other  material  adverse  change  in the
condition (financial or otherwise),  operations, properties, assets, liabilities
or earnings of the Borrower.

         5.2.  Rights and Remedies on Default.  Upon the occurrence of any Event
of Default,  in addition to any other rights and remedies  available to the Bank
hereunder or  otherwise,  the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):


                                      -17-






         (a) Declare the entire unpaid  principal  amount of the Revolving  Note
then outstanding,  all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement,  and all other Indebtedness of the Borrower
to the Bank,  to be forthwith  due and payable,  whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.

         (b) Terminate the revolving financing arrangements provided for by this
letter agreement.

         (c)  Exercise all rights and remedies  hereunder,  under the  Revolving
Note, under the Security Agreement,  under the Intellectual Property Assignments
and under each and any other  agreement  with the Bank;  and  exercise all other
rights and remedies which the Bank may have under applicable law.

        5.3.  Set-off.  In addition to any rights now or hereafter granted under
applicable  law  and not by way of  limitation  of any  such  rights,  upon  the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment,  demand,  protest or other notice of any
kind to the Borrower or to any other Person,  all of which are hereby  expressly
waived,  to set off and to  appropriate  and apply any and all  deposits and any
other  Indebtedness  at any time  held or  owing  by the  Bank or any  affiliate
thereof  to or for the  credit or the  account of the  Borrower  against  and on
account of the  obligations  and  liabilities  of the Borrower to the Bank under
this letter  agreement  or  otherwise,  irrespective  of whether or not the Bank
shall have made any demand hereunder and although said obligations,  liabilities
or claims,  or any of them,  may then be  contingent  or  unmatured  and without
regard for the availability or adequacy of other collateral. As further security
for the  Obligations,  the Borrower also grants to the Bank a security  interest
with  respect to all its deposits and all  securities  or other  property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the  occurrence  of any Event of Default,  the Bank may  exercise all rights and
remedies of a secured party under the Uniform Commercial Code.

        5.4. Letters of Credit.  Without limitation of any other right or remedy
of the Bank,  (i) if an Event of Default  shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving  financing  arrangements  described herein shall have expired or shall
have been earlier  terminated by either the Bank or the Borrower for any reason,
the  Borrower  will  forthwith  deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.

        VI.  MISCELLANEOUS
             -------------

        6.1. Costs and Expenses.  The Borrower agrees to pay on demand all costs
and expenses (including, without limitation,  reasonable legal fees) of the Bank
in  connection  with the  preparation,  execution  and  delivery  of this letter
agreement,  the Security Agreement, the Revolving Note and all other instruments
and  documents to be  delivered in  connection  with any  


                                      -18-






Revolving  Loan or any letter of credit issued  hereunder and any  amendments or
modifications  of any of the  foregoing,  as  well  as the  costs  and  expenses
(including,  without  limitation,  the  reasonable  fees and  expenses  of legal
counsel)  incurred  by the Bank in  connection  with  preserving,  enforcing  or
exercising,  upon default,  any rights or remedies under this letter  agreement,
the  Security  Agreement,  the  Revolving  Note and all  other  instruments  and
documents delivered or to be delivered hereunder or in connection herewith,  all
whether or not legal action is  instituted.  In addition,  the Borrower shall be
obligated to pay any and all stamp and other taxes  payable or  determined to be
payable in connection with the execution and delivery of this letter  agreement,
the  Security  Agreement,  the  Revolving  Note and all  other  instruments  and
documents to be delivered in connection with any Obligation.  Any fees, expenses
or other charges  which the Bank is entitled to receive from the Borrower  under
this Section shall bear interest from the date of any demand  therefor until the
date when paid at a rate per annum equal to the per annum rate otherwise payable
under  the  Revolving  Note  (but in no  event in  excess  of the  maximum  rate
permitted by then applicable law).

        6.2.  Capital  Adequacy.  If the Bank  shall  have  determined  that the
adoption  or  phase-in  after the date  hereof of any  applicable  law,  rule or
regulation  regarding capital  requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or  administration  thereof  by any  governmental  authority,  central  bank  or
comparable agency charged with the interpretation or administration  thereof, or
compliance  by the Bank with any request or directive  of such entity  regarding
capital adequacy  (whether or not having the force of law) has or would have the
effect of  reducing  the  return  on the  Bank's  capital  with  respect  to the
Revolving Loans, the within-described  revolving loan facility and/or letters of
credit  issued for the  account of the  Borrower to a level below that which the
Bank could have achieved  (taking into  consideration  the Bank's  policies with
respect to capital adequacy immediately before such adoption,  phase-in,  change
or compliance and assuming that the Bank's capital was then fully  utilized) but
for such  adoption,  phase-in,  change or compliance by any amount deemed by the
Bank to be material: (i) the Bank shall promptly after its determination of such
occurrence give notice thereof to the Borrower;  and (ii) the Borrower shall pay
forthwith to the Bank as an additional  fee such amount as the Bank certifies to
be the amount that will  compensate  it for such  reduction  with respect to the
Revolving  Loans,  the  within-described  revolving  loan  facility  and/or such
letters of credit.

         A  certificate  of the Bank  claiming  compensation  under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth  the  nature  of the  occurrence  giving  rise to such  compensation,  the
additional  amount or amounts to be paid to it hereunder and the method by which
such amounts were determined.  In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand  compensation  on any one  occasion  shall  constitute a waiver of its
right to demand such  compensation  on any other  occasion and no failure on the
part of the Bank to deliver any  certificate in a timely manner shall in any way
reduce any obligation of the Borrower to the Bank under this Section.


                                      -19-






        6.3.  Facility  Fees.  With  respect  to  the  within  arrangements  for
Revolving  Loans,  the  Borrower  will pay to the Bank,  on the last day of each
calendar   quarter   (commencing   on  September   30,  1997)  as  long  as  the
within-described revolving loan arrangements are in effect and on the Expiration
Date or earlier  date of  termination  of the within  revolving  loan  facility,
non-refundable  commitment  fees,  computed  quarterly  in  arrears on the daily
average  unused  portion of the  revolving  credit  amount  during the  calendar
quarter for which such commitment fees are to be determined. As used herein, the
"unused portion of the revolving  credit amount" as at any date means the amount
by which (x)  $3,000,000  exceeds (y) the sum of the Aggregate  Revolving  Loans
plus the aggregate  undrawn  amounts of all letters of credit then  outstanding.
Such commitment fees will be payable, based on such daily average unused portion
of the revolving credit amount, at the rate of 0.75% per annum. In addition,  if
the  within-described  revolving  financing  arrangements  are terminated by the
Borrower for any reason or by the Bank as the result of the Borrower's  default,
the Borrower shall  forthwith upon such  termination pay to the Bank a sum equal
to all of the  commitment  fees which  would have  become due  pursuant  to this
Section for the period from the date of such termination  through the Expiration
Date  assuming  that no  Revolving  Loans  and no  letters  of  credit  would be
outstanding  during such period.  Fees described in this Section are in addition
to any  balances  and  fees  required  by the Bank or any of its  affiliates  in
connection  with any other  services  now or  hereafter  made  available  to the
Borrower.

        6.4. Other  Agreements.  The provisions of this letter agreement are not
in derogation or limitation  of any  obligations,  liabilities  or duties of the
Borrower  under any of the other Loan  Documents or any other  agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise  derogate from
the express  terms of each such default  provision.  No  covenant,  agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein,  shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional  provisions contained in any of the other Loan
Documents or any such other agreement.

        6.5.  Governing Law. This letter  agreement and the Revolving Note shall
be governed by, and construed and enforced in accordance  with,  the laws of The
Commonwealth of Massachusetts.

        6.6.  Addresses  for Notices,  etc. All notices,  requests,  demands and
other  communications  provided for  hereunder  shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:


                                      -20-







                   If to the Borrower:

                   Augment Systems, Inc.
                   2 Robbins Road
                   Westford, MA  01886
                   Attention:  Duane A. Mayo, Chief Financial Officer

                   If to the Bank:

                   Fleet National Bank
                   High Technology Group
                   75 State Street
                   Boston, MA  02109
                   Attention:  Kimberly A. Martone, Vice President

or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the  terms of this  Section.  All such  notices,  requests,  demands  and  other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery,  refusal or  non-delivery  indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.

        6.7.  Binding Effect;  Assignment;  Termination.  This letter  agreement
shall be binding upon the Borrower,  its  successors and assigns and shall inure
to the  benefit  of the  Borrower  and the Bank and their  respective  permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder  without the express written consent of the Bank. The Bank may,
in  accordance   with  applicable  law,  from  time  to  time  assign  or  grant
participation in this letter agreement,  the Revolving Loans, the Revolving Note
and/or the letters of credit issued  hereunder.  The Borrower may terminate this
letter  agreement and the financing  arrangements  made herein by giving written
notice  of  such  termination  to the  Bank  together  with  payment  of the sum
described in the fourth  sentence of ss.6.3;  provided that no such  termination
will  release  or waive  any of the  Bank's  rights  or  remedies  or any of the
Borrower's  obligations  under this  letter  agreement  or any of the other Loan
Documents unless and until the Borrower has paid in full the Revolving Loans and
all interest  thereon and all fees and charges  payable in connection  therewith
and all letters of credit issued hereunder have been terminated.

        6.8. Consent to Jurisdiction.  The Borrower  irrevocably  submits to the
non-exclusive  jurisdiction  of any  Massachusetts  court or any  federal  court
sitting  within  The  Commonwealth  of  Massachusetts  over any suit,  action or
proceeding  arising  out of or  relating  to this  letter  agreement  and/or the
Revolving Note. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection  which it may now or hereafter have to the laying of venue
of any such  suit,  action or  proceeding  brought in such a court and any claim
that any such suit,  action or  proceeding  has been brought in an  inconvenient
forum.  The  Borrower  agrees that final  judgment  in any such suit,  action or
proceeding  brought  in such a court  shall be  enforced  in any court of 


                                      -21-







proper  jurisdiction  by a suit upon such  judgment,  provided  that  service of
process in such action,  suit or  proceeding  shall have been  effected upon the
Borrower in one of the manners  specified  in the  following  paragraph  of this
ss.6.8 or as otherwise permitted by law.

         The  Borrower  hereby  consents  to process  being  served in any suit,
action or  proceeding of the nature  referred to in the  preceding  paragraph of
this ss.6.8  either (i) by mailing a copy  thereof by  registered  or  certified
mail, postage prepaid,  return receipt requested, to it at its address set forth
in ss.6.6 (as such  address  may be changed  from time to time  pursuant to said
ss.6.6) or (ii) by serving a copy  thereof  upon it at its  address set forth in
ss.6.6  (as such  address  may be  changed  from time to time  pursuant  to said
ss.6.6).

        6.9.  Severability.  In the  event  that any  provision  of this  letter
agreement or the application  thereof to any Person,  property or  circumstances
shall be held to any extent to be invalid or  unenforceable,  the  remainder  of
this  letter  agreement,  and the  application  of such  provision  to  Persons,
properties  or  circumstances  other  than  those as to  which it has been  held
invalid and unenforceable,  shall not be affected thereby, and each provision of
this  letter  agreement  shall be  valid  and  enforced  to the  fullest  extent
permitted by law.

        VII.  DEFINED TERMS
              -------------

        7.1. Definitions.  In addition to terms defined elsewhere in this letter
agreement,  as used in this  letter  agreement,  the  following  terms  have the
following respective meanings:

        "Adjusted Current Liabilities" - All Current Liabilities of the Borrower
and/or any of its  Subsidiaries,  other than any such Current  Liabilities which
represent the current portion of Deferred Revenue.

        "Adjusted  Senior Debt" - All Indebtedness of the Borrower and/or any of
its  Subsidiaries,  other  than  (i) any such  Indebtedness  which  consists  of
Deferred Revenue and (ii) any such Indebtedness  which constitutes  Subordinated
Debt.

        "Aggregate Bank Liabilities" - At any time, the sum of (i) the principal
amount of all  Revolving  Loans  then  outstanding,  plus (ii) all then  undrawn
amounts of letters of credit issued by the Bank for the account of the Borrower,
plus (iii) all  amounts  then drawn on any such  letter of credit  which at said
date shall not have been reimbursed to the Bank by the Borrower.

        "Borrowing  Base" - As  determined  at any  date,  75% of the  aggregate
principal amount of the Qualified Receivables of the Borrower then outstanding.

        "Business  Day" - Any day which is not a  Saturday,  nor a Sunday  nor a
public  holiday  under  the  laws  of  the  United  States  of  America  or  The
Commonwealth of Massachusetts applicable to a national bank.


                                      -22-







        "Capital Base" - At any time, the sum of (i) the  consolidated  Tangible
Net  Worth  of the  Borrower  and  Subsidiaries  then  existing,  plus  (ii) the
principal amount of Subordinated Debt of the Borrower then outstanding  (nothing
contained  herein being deemed to authorize  the  incurrence  of any  additional
Subordinated Debt).

        "Collateral" - All property now or hereafter owned by the Borrower or in
which the  Borrower  now or  hereafter  has any  interest  which is described as
"Collateral" in the Security Agreement or in ss.7.2(b) below.

        "Current Assets" - All assets of the Borrower and its Subsidiaries which
are properly  shown as current  assets on a  consolidated  balance  sheet of the
Borrower prepared in accordance with generally  accepted  accounting  principles
consistently  applied;  excluding,   however,  any  and  all  amounts  due  from
affiliated entities.

        "Current  Liabilities"  - All  liabilities  of the  Borrower  and/or any
Subsidiary of the Borrower which are properly shown as current  liabilities on a
consolidated balance sheet of the Borrower prepared in accordance with generally
accepted  accounting   principles   consistently  applied.   Further,   "Current
Liabilities" will in any event be deemed to include all Revolving Loans.

        "Deferred  Revenue" - Any  liabilities of the Borrower  which  represent
sums  actually  received by the Borrower  under  hardware,  software and service
maintenance   contracts  and  which,  in  accordance  with  generally   accepted
accounting  principles  consistently  applied,  are properly  shown as "deferred
revenue" on the Borrower's balance sheet.

        "ERISA"  - The  Employee  Retirement  Income  Security  Act of 1974,  as
amended.

        "Expiration  Date" - July 31, 1998,  unless extended by the Bank,  which
extension may be given or withheld by the Bank in its sole discretion.

        "Indebtedness"  -  All  obligations  of a  Person,  whether  current  or
long-term,  senior or subordinated,  which in accordance with generally accepted
accounting  principles  would be  included  as  liabilities  upon such  Person's
balance sheet at the date as of which  Indebtedness,  is to be  determined,  and
shall also include  guaranties,  endorsements  (other than for collection in the
ordinary course of business) or other  arrangements  whereby  responsibility  is
assumed  for the  obligations  of others,  whether by  agreement  to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or  otherwise,  to furnish  funds  through the  purchase  of goods,  supplies or
services for the purpose of payment of the obligations of others.

        "Loan  Documents" - Each of this letter  agreement,  the Revolving Note,
the Security  Agreement,  the Intellectual  Property  Assignments and each other
instrument, document or agreement evidencing, securing, guaranteeing or relating
in any way to any of the Revolving  Loans or any of the letters of credit issued
hereunder, all whether now existing or hereafter arising or entered into.


                                      -23-






        "Maximum  Revolving  Amount"  - At any  date as of  which  same is to be
determined,  the amount by which (x)  $3,000,000  exceeds (y) the sum of (i) all
then undrawn  amounts of letters of credit issued by the Bank for the account of
the Borrower plus (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.

        "Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period,  after all taxes  actually  paid or
accrued  and all  expenses  and other  charges  determined  in  accordance  with
generally accepted accounting principles consistently applied.

        "Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank in any capacity.

        "PBGC" - The  Pension  Benefit  Guaranty  Corporation  or any  successor
thereto.

        "Person"  - An  individual,  corporation,  company,  partnership,  joint
venture, trust or unincorporated organization,  or a government or any agency or
political subdivision thereof.

        "Qualified  Receivables" - Only those  Receivables of the Borrower which
arise out of bona fide sales made to customers of the Borrower (which  customers
are  located in the United  States and are  unrelated  to the  Borrower)  in the
ordinary course of the Borrower's  business and which remain unpaid no more than
90 days past the respective  invoice dates of such  Receivables,  the payment of
which  is not in  dispute.  Unless  the Bank in its  sole  discretion  otherwise
determines with respect to any Receivable, a Receivable which would otherwise be
a Qualified  Receivable shall be deemed not to be a Qualified  Receivable (i) if
the Bank does not have a fully  perfected  first priority  security  interest in
such  Receivable;  (ii) if such  Receivable is not free and clear of all adverse
interests in favor of any Person other than the Bank;  (iii) if such  Receivable
is subject to any deduction, off-set, contra account, counterclaim or condition;
(iv)  if a field  examination  made by the  Bank  fails  to  confirm  that  such
Receivable  exists and  satisfies  all of the  criteria set forth herein to be a
Qualified  Receivable;  (v) if such  Receivable is not properly  invoiced at the
date of sale;  (vi) if the customer or account debtor has disputed  liability or
made any claim with respect to the Receivable or the merchandise covered thereby
or with respect to any other  Receivable due from said customer to the Borrower;
(vii) if the customer or account  debtor has filed a petition for  bankruptcy or
any other  application  for relief under the Bankruptcy  Code or has effected an
assignment  for the  benefit  of  creditors,  or if any  petition  or any  other
application  for relief under the  Bankruptcy  Code has been filed  against said
customer or account  debtor,  or if the customer or account debtor has suspended
business,  become insolvent,  ceased to pay its debts as they become due, or had
or  suffered a receiver  or  trustee  to be  appointed  for any of its assets or
affairs;  (viii) if the  customer  or  account  debtor  has  failed to pay other
Receivables  so that an aggregate of 25% of the total  Receivables  owing to the
Borrower by such customer or account debtor has been  outstanding  for more than
90 days past their respective due dates;  (ix) if 


                                      -24-








such  Receivable  is owed by the  United  States  government  or any  agency  or
department  thereof (unless assigned to the Bank under the Federal Assignment of
Claims Act);  or (x) if the Bank  reasonably  believes  that  collection of such
Receivable  is  insecure  or that it may not be  paid  by  reason  of  financial
inability to pay or  otherwise,  or that such  Receivable  is not for any reason
suitable for use as a basis for borrowing hereunder.

        "Receivables"  - All of the  Borrower's  present  and  future  accounts,
accounts  receivable  and  notes,  drafts,  acceptances  and  other  instruments
representing  or  evidencing  a right to payment for goods sold or for  services
rendered.

        "SEC" - The Securities and Exchange Commission or any successor agency.

        "Subordinated  Debt"  -  Any  Indebtedness  of  the  Borrower  which  is
expressly  subordinated,  pursuant  to a  subordination  agreement  in form  and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.

        "Subsidiary"  - Any  corporation  or other  entity of which the Borrower
and/or any of its Subsidiaries,  directly or indirectly,  owns, or has the right
to  control  or  direct  the  voting  of,  fifty  (50%)  percent  or more of the
outstanding  capital stock or other  ownership  interest  having  general voting
power (under ordinary circumstances).

        "Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding  (i) the total  intangible  assets of such Person and (ii) any assets
representing amounts due from any officer or employee of such Person or from any
Subsidiary of such Person)  minus the total  liabilities  of such Person.  Total
intangible  assets shall be deemed to include,  but shall not be limited to, the
excess of cost over  book  value of  acquired  businesses  accounted  for by the
purchase method, formulae,  trademarks,  trade names, patents, patent rights and
deferred expenses (including,  but not limited to, unamortized debt discount and
expense, organizational expense, capitalized software costs and experimental and
development expenses).

        Any defined  term used in the plural  preceded by the  definite  article
shall be taken to encompass all members of the relevant class.  Any defined term
used in the singular  preceded by "any" shall be taken to indicate any number of
the members of the relevant class.

        7.2. Security Agreement.  (a) The Borrower  acknowledges and agrees that
the "Obligations"  described in and secured by the Security  Agreement  include,
without  limitation,  all of the obligations of the Borrower under the Revolving
Note and/or this letter  agreement  and/or with  respect to any letter of credit
which may be issued by the Bank for the account of the Borrower.

        (b) The Security Agreement is hereby modified to provide as follows:

                  (i) That the "Collateral"  subject thereto  includes,  without
         limitation and in addition to the Collateral  described therein, all of
         the Borrower's files, books and records 


                                      -25-






         (including,  without limitation,  all electronically recorded data) all
         whether  now  owned or  existing  or  hereafter  acquired,  created  or
         arising.  The Borrower hereby grants to the Bank a security interest in
         all such  Collateral in order to secure the full and prompt payment and
         performance of all of the Obligations.

                  (ii) That,  upon the  occurrence  of any Event of Default  (as
         defined in ss.5.1 of this letter agreement), the Bank may, at any time,
         notify  account  debtors that the  Collateral  has been assigned to the
         Bank and that  payments by such account  debtors shall be made directly
         to the Bank.  At any time after the  occurrence of an Event of Default,
         the  Bank  may  collect  the  Borrower's  Receivables,  or any of same,
         directly from account  debtors and may charge the collection  costs and
         expenses to the Borrower.

         This letter  agreement is executed,  as an instrument under seal, as of
the day and year first above written.

                                                   Very truly yours,

                                                   AUGMENT SYSTEMS, INC.


                                                   By
                                                      --------------------------
                                                        Name:
                                                        Title:
Accepted and agreed:

FLEET NATIONAL BANK


By
  --------------------------
    Its


By
  --------------------------
    Its


                                      -26-







                               DISCLOSURE SCHEDULE



Item 2.1(a)        Jurisdictions in which Borrower is qualified; Subsidiaries

Item 2.1(b)        Existing 5% stock ownership

Item 2.1(e)        Litigation

Item 2.1(j)        Location of Collateral; record owners of Premises

Item 2.1(k)        Intellectual Property

Item 4.1           Existing Indebtedness

Item 4.2           Existing Liens

Item 4.3           Existing Guaranties

Item 5.1(n)        Permitted 50% Stockholders