CREDIT AGREEMENT dated September __, 1997,  between BROWN BROTHERS
HARRIMAN & CO. ("Bank") and SONICS & MATERIALS, INC. ("Borrower").

                             W I T N E S S E T H:

      The Bank and the  Borrower,  in  consideration  of the  mutual  agreements
herein contained, and for other good and valuable consideration, hereby agree as
follows:


                                   ARTICLE 1

                       DEFINITIONS AND ACCOUNTING TERMS


      SECTION  1.1.  Certain  Defined  Terms.  As used in  this  Agreement,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

            "Base  Rate"  means the rate  determined  by the Bank from time to
      time as its "base rate."

            "Bridge Loan" is defined in Section 2.1(a) hereof.

            "Bridge Loan Note" means the Note described in Section 2.2(a).

            "Business  Day" means a day other than a  Saturday,  Sunday or other
      day on which banks are  authorized  or required to close under the laws of
      the State of New York.

            "Change of Control" is deemed to occur if: (i) a Person  (other than
      Robert Soloff or any member of his immediately  family or any corporation,
      partnership or trust, limited liability company or other entity controlled
      by or  established  for the benefit of Robert  Soloff or any member of his
      immediate family) is or becomes the "beneficial owner" (as defined in Rule
      13d-3  under the  Securities  Exchange  Act of 1934,  except that a person
      shall be deemed to be the  "beneficial  owner" of all securities that such
      person  has the  right to  acquire,  whether  such  right  is  exercisable
      immediately or only after the passage of time), directly or indirectly, of
      more  than 50% of the  total  voting  power of all  outstanding  shares of
      capital stock having  ordinary  power to vote in the election of directors
      of the  Borrower;  or (ii) there is a change in the board of  directors of
      the  Borrower  such  that the  individuals  who  constituted  the board of
      directors  of  the  Borrower  at the  beginning  of  the  two-year  period
      immediately  preceding  such change,  together  with any  directors  whose
      election by the board of directors of the Borrower or whose nomination for
      election by the  stockholders  of the Borrower during such two-year period
      was  approved  by a vote of a  majority  of the  directors  then in office
      (either  who were  directors  at the  beginning  of such  period  or whose
      election or nomination for election was previously so approved), cease for
      any reason to constitute a majority of the directors then in office.

            "Collateral" is defined in Section 3.1(e) hereof.

            "Construction Project" is defined in Section 2.1(a) hereof.

            "Disclosure  Schedule"  means the disclosure  schedule  prepared and
      signed by the Borrower and  attached  hereto as Exhibit "E" setting  forth
      certain information with respect to the Borrower.

            "EBITDA"  means,  for any  period,  the sum of the  amounts for such
      period of (A) Net Income, (B) provision for federal, state and local taxes
      based on income,  (C) Interest  Expense,  and (D) charges for depreciation
      and amortization and other non-cash charges, all for the Borrower, and all
      determined in accordance with GAAP.

            "Eligible Inventory" means, as at any date of determination thereof,
      the  value  (determined  at the  lower of cost or  market  on a  first-in,
      first-out  basis) of all finished  inventory or raw materials  (other than
      packaging  materials  and  supplies)  (i) which are owned by the Borrower,
      (ii) which is located in a  jurisdiction  in the United States of America,
      (iii) as to which appropriate Uniform Commercial Code financing statements
      have been filed  naming the  Borrower  as  "debtor"  and Bank as  "secured
      party" and as to which Bank has a first, perfected security interest, (iv)
      which is in good  condition  and is not obsolete or worn out, (v) which is
      either currently useable or currently saleable in the normal course of the
      Borrower's  business,  and (vi) conforms in all respects to the applicable
      representations and warranties set forth in the Security Agreement.

            "Eligible  Receivables"  means,  as at  any  date  of  determination
      thereof, the aggregate of all accounts receivable of the Borrower from the
      sale of goods or the  provision  of  services  in the  ordinary  course of
      business  ("receivables")  at said date due the  Borrower,  except for any
      such receivable which is: (a) not payable in U.S. Dollars;  (b) payable by
      its terms more than 90 days after the  earlier of the date of  shipment of
      the related inventory or the date of issuance of the invoice therefor; (c)
      due from any  affiliate of the  Borrower;  (d) due from an account  debtor
      whose  principal place of business is located outside of the United States
      of America  (unless  such  account is secured by a letter of credit from a
      financial  institution  reasonably  satisfactory  to the Bank or otherwise
      agreed in writing by the Bank);  (e) due from an account  debtor which the
      Bank  has  notified  the  Borrower  does not  have a  satisfactory  credit
      standing (as determined in the reasonable  discretion of Bank); (f) unpaid
      for more than 90 days from  earlier of the date of shipment of the related
      inventory  or the date of issuance of the invoice  therefor;  (g) from any
      account debtor if more than 25% of the aggregate  amount of receivables of
      such account debtor have at the time remained unpaid for more than 90 days
      after the earlier of the date of shipment of the related  inventory or the
      date of issuance of the invoice  therefor;  (h) subject to any  unresolved
      dispute with the respective account debtor; (i) not subject to a valid and
      perfected first priority security interest in favor of the Bank; (j) owing
      from an account debtor which is an agency,  department or  instrumentality
      of the United States or any state  thereof;  (k) an  obligation  for goods
      sold on consignment,  or approval or on a sale-or-return  basis or subject
      to any  other  repurchase  or  return  arrangement;  or (l)  owing  from a
      supplier to or creditor of the Borrower.

            "Eligible  Securities"  means  those  marketable  securities  of the
      Borrower  from time to time in the custody of the Bank which the Bank,  in
      its reasonable  discretion,  shall determine to be "Eligible  Securities."
      The amount of any Eligible  Securities shall be determined by reference to
      their market value at the time of any determination hereunder.

            "Event of Default"  has the meaning  given to such term in Section
      6.1.

            "Fiscal Year" of the Borrower  means each twelve month period ending
      June 30.

            "Fixed Charge  Coverage Ratio" means,  for any period,  the ratio of
      (i) EBITDA plus  payments  made by the Borrower  under any lease,  to (ii)
      required  principal  and  interest  payments for all  indebtedness  of the
      Borrower plus  payments made by the Borrower  under any lease plus capital
      expenditures (determined in accordance with GAAP) of the Borrower for such
      period up to $25,000.

            "GAAP" means generally accepted accounting  principles and practices
      applied on a consistent basis.

            "Intangibles"  means,  at a  particular  date,  all  assets  of  the
      Borrower that would be classified as intangible  assets in accordance with
      GAAP.

            "Interest  Calculation  Date"  means the first day of each  Interest
      Period, whether or not a Business Day.

            "Interest  Expense" means,  for any period,  the aggregate amount of
      interest accrued (whether or not paid) by the Borrower during such period.

            "Interest Payment Date" means the last day of each month, commencing
      October 31, 1997.

            "IRB Loan" is defined in Section 2.1 hereof.

            "LIBOR" means the London inter-bank  offered rate for the applicable
      LIBOR  Term,  determined  by the Bank by  reference  to  market  reporting
      services available to the Bank and other banks and financial institutions.

            "LIBOR  Term"  means each  period of one month,  two months or three
      months, as designated by the Borrower by notice to Bank in connection with
      the making of any LIBOR-based Loan hereunder. Each LIBOR Term shall end on
      the Interest Payment Date most closely approximating the end of the period
      designated by the Borrower.

            "Line of Credit" is defined in Section 2.1 hereof.

            "Line of Credit Note" means the Note described in Section 2.4(a)

            "Loan" is defined in Section 2.1. hereof.


            "Mortgage" means the Open-End Mortgage Deed dated September __, 1997
      from the Borrower, as mortgagor, to the Bank, as mortgagee.

            "Mortgaged  Property"  means the real property of the Borrower which
      is subject to the lien of the Mortgage.

            "Net Income" means, for any period,  the net income (or net loss) of
      the Borrower and its Subsidiaries on a consolidated  basis for such period
      excluding extraordinary items, determined in accordance with GAAP.

            "Notes"  means the Term Loan Note,  the  Bridge  Loan Note and the
      Line of Credit Note.

            "Permitted   Corporate   Transaction"   means:  (a)  any  merger  or
consolidation of Borrower with another corporation,  partnership, trust or other
entity;  (b) the  purchase by the  Borrower of assets other than in the ordinary
course of business; or (c) the acquisition by the Borrower of an interest in any
corporation,  partnership,  trust or other entity,  in each case only if (i) the
business or assets acquired are in the same or a  substantially  similar line of
business as the Borrower;  and (ii) the value of the consideration paid (whether
by cash, securities or other assets and including consideration by reason of the
assumption  of any  indebtedness  or in respect of any  noncompetition  or other
collateral agreement) in connection  therewith,  together with the consideration
paid in respect of all other prior Permitted Corporate  Transactions in the same
Fiscal  Year,  does  not  exceed  $250,000;  and  (iii)  immediately  after  the
completion of such transaction, no condition or event would exist which with the
lapse of time or the  giving  of  notice or both  would  constitute  an Event of
Default  hereunder;  and (iv) in the case of any  merger or  consolidation,  the
Borrower  shall be the  surviving  entity;  and (v) the  Bank  shall  have  been
notified of such  Permitted  Corporate  Transaction,  and provided with all such
information with respect thereto as the Bank shall reasonably  request, at least
30 days prior to its effectiveness.

            "Restricted  Payment"  means  any  dividend,   distribution,   stock
      repurchase,  other payment on account of the Borrower's outstanding stock,
      payment  in respect of any  indebtedness  subordinated  to the debt of the
      Borrower to the Bank,  and any  payment in respect of any  non-competition
      agreement.

            "Security  Agreement"  means the General  Security  Agreement  dated
      September __, 1997, from the Borrower to the Bank.

            "Tangible Net Worth"  means,  as of the date of  determination,  the
      Borrower's  net worth less  Intangibles,  all as  determined in accordance
      with GAAP.

            "Term Loan" is defined in Section 2.1 hereof.

            "Term  Loan  Note"  means the Note  described  in  Section  2.3(a)
      hereof.

            "Total  Liabilities"  means,  as of the date of  determination,  all
      liabilities  of the  Borrower  that would,  in  accordance  with GAAP,  be
      classified as liabilities of the Borrower.

      SECTION 1.2.  Accounting  Terms.  All  accounting  terms not  specifically
defined herein shall be construed,  and all financial data submitted pursuant to
this Agreement  shall be prepared,  in accordance  with GAAP applied in a manner
consistent  with the  application  of GAAP in the  preparation  of the financial
statements mentioned in Section 4.4.

                                   ARTICLE 2

                                   THE LOANS


      SECTION   2.1.   The  Loans.   Subject  to  the  terms  and   conditions
hereinafter  provided,  Bank agrees to make loans to Borrower in the aggregate
amount of $4,945,000 (collectively, the "Loans"), as follows:

            (a) a loan (the "Bridge  Loan") in the maximum  principal  amount of
      $1,600,000,  which shall be advanced  to the  Borrower  for the purpose of
      financing the acquisition and construction of a manufacturing  facility in
      Newtown,   Connecticut,   to  include   land,   building   and   equipment
      (collectively, the "Construction Project");

            (b) a loan (the "Term Loan") in the amount of $427,000,  which shall
      be advanced to the Borrower to refinance all of the amounts due in respect
      of the  Borrower's  outstanding  note  payable to  Village  Bank and Trust
      Company;

            (c) a line of credit (the "Line of Credit") in the maximum amount of
      $1,500,000  which shall be advanced to the  Borrower  from time to time to
      provide working capital to the Borrower; and

            (d) a tax-exempt industrial development loan (the "IRB Loan") in the
      aggregate  amount of  $2,945,000  to be  issued  through  the  Connecticut
      Development  Authority and applied to (a)  refinance on a permanent  basis
      amounts  due under the  Bridge  Loan,  and (b) pay all or a portion of the
      remaining costs of the Construction Project.

      SECTION 2.2.  Bridge Loan.

      (a) Bridge Loan Note. The Bank shall lend to the Borrower  pursuant to the
Bridge Loan from time to time, in accordance with the provisions hereof, up to a
maximum amount of $1,600,000 to pay initial costs of the  Construction  Project.
The  Indebtedness of the Borrower in respect of such advances shall be evidenced
by the Bridge  Loan Note  executed  by the  Borrower in favor of the Bank in the
form attached hereto as Exhibit A.

      (b) Advances under Bridge Loan. The Bank shall advance  amounts in respect
of the Bridge  Loan to pay costs of the  Construction  Project  upon the written
request of the Borrower,  which request shall be accompanied by such  additional
detail  (including  copies of  invoices,  construction  draw  requests  or other
supporting information) as the Bank shall reasonably require; provided, however,
that (1) each  advance  shall be in an amount  equal to $50,000 or any  integral
multiple of $25,000 in excess  thereof,  and (2) nothing  herein shall  obligate
Bank to advance any monies under the Bridge Loan (A) more  frequently than twice
per month, or (B) so long as any Event of Default (or any event which,  with the
passage  of time or the giving of notice or both  would  constitute  an Event of
Default)  shall  have  occurred  and be  continuing,  or (C) at any  time  after
December 31, 1997.

      (c) Interest.  The  outstanding  principal  amount of the Bridge Loan Note
shall bear interest at the Base Rate plus one-half of one percent (0.50%).

      (d) Maturity.  The entire principal  balance of the Bridge Loan Note shall
be mature and be due and payable  upon the earliest to occur of: (1) the written
demand of Bank; (2) the consummation of the IRB Loan; or (3) December 31, 1997.

      (e)  Prepayments.  The principal of the Bridge Loan Note may be prepaid in
whole  or in part  (but if in  part  only in  amounts  of  $50,000  or  integral
multiples of $25,000 in excess thereof) at any time, without premium or penalty,
by the Borrower upon three Business Days' written notice to Bank.

      SECTION 2.3.  Term Loan.

      (a) Term  Loan  Note.  On the date  hereof,  the  Bank  shall  lend to the
Borrower  pursuant to the Term Loan the aggregate sum of $500,000,  which amount
shall be applied by the Borrower on the date hereof to refinance the outstanding
indebtedness of the Borrower to Village Bank and Trust Company. The indebtedness
of the  Borrower in respect of the Term Loan shall be evidenced by the Term Loan
Note  executed by the Borrower in favor of Bank in the form  attached  hereto as
Exhibit B.

      (b) Interest.  The  outstanding  principal  amount of the Term Loan Note
shall bear interest, at the Borrower's option, at:

                  (i)   the Base Rate; or
                  (ii)  LIBOR plus 2.25%.

Borrower  shall  provide the Bank with  telephonic  notice  prior to the initial
advance of the Term Loan and, if applicable, not less than 2 Business Days prior
to the last day of each LIBOR Term, of the Borrower's selection of a rate option
and term, which telephonic notice shall be promptly confirmed in writing. In the
absence of such  notice,  the  interest  rate on the Term Loan Note shall be the
Base Rate.

      (c)  Maturity.  The  principal  of the Term Loan Note  shall be paid in 36
equal monthly  installments  of $11,861.11,  commencing on November 1, 1997, and
the entire remaining principal balance of the Term Loan Note shall be mature and
be due and payable on October 1, 2000.

      (d)  Prepayments.  The  principal  of the Term Loan Note may be prepaid in
whole  or in part  (but if in  part  only in  amounts  of  $50,000  or  integral
multiples of $25,000 in excess thereof) at any time, without premium or penalty,
by the Borrower upon three  Business  Days'  written  notice to Bank. No partial
prepayment  shall reduce the Borrower's  obligation to make  principal  payments
next  becoming  due under the Term Loan Note,  but shall  reduce such  principal
payment obligations in reverse order of due date. In the event of the prepayment
of any  portion  of the Term Loan Note  during any period in which the Term Loan
Note shall bear interest at a LIBOR-based  interest rate prior to the end of the
applicable LIBOR Term, the Borrower shall pay to Bank, concurrently therewith, a
"breakage fee" equal to the excess,  if any, of (i) the amount of interest which
otherwise  would have accrued on the  principal  amount so repaid for the period
from the date of such  repayment  to the  last  day of the  LIBOR  Term for such
amount at the  applicable  rate of interest for such amount  provided for herein
over (ii) the interest component of the amount such Lender would have bid in the
London  interbank  market for Dollar  deposits  of leading  lenders  and amounts
comparable  to such  principal  amount and with  maturities  comparable  to such
period (it being  conclusively  presumed  for such  purpose that Bank shall have
purchased funds at the applicable LIBOR  corresponding to such principal for the
applicable LIBOR Term).

      SECTION 2.4.  Line of Credit Loans.

      (a) Line of Credit Advances. The Bank shall, from time to time in its sole
discretion,  make advances  (each an "Advance")  under the Line of Credit to the
Borrower for the purpose of funding  operating or capital costs of the Borrower;
provided,  however,  that  the  aggregate  outstanding  amount  of all  Advances
hereunder  shall not  exceed the  lesser of (i)  $1,500,000,  or (ii) an amount,
determined by reference to the borrowing base reports  delivered by the Borrower
in accordance with Section 5.1(c) hereof, equal to:

                  (1)   90% of Eligible Securities; plus
                  (2)   80% of Eligible Receivables; plus
                  (3)   50% of Eligible Inventory; less
                  (4)   $427,000   (which  amount  shall  be  reduced  by  all
                        principal reductions under the Term Loan); less
                  (5)   $589,000   (which  amount  shall  be  reduced  by  all
                        principal reductions under the IRB Loan).

Subject to such limitation, the Borrower may borrow under this Section, repay or
prepay any Advances (subject to subsection (d) below),  and reborrow  hereunder.
Each Advance shall be made by the Bank hereunder upon the written request of the
Borrower in such form and upon  compliance  with such procedures as the Bank may
from time to time reasonably require.

      The  Indebtedness  of the  Borrower in respect of such  advances  shall be
evidenced  by the Line of Credit Note  executed by the Borrower in favor of Bank
in the form attached hereto as Exhibit C.

      (b) Interest.  The outstanding  principal amount of each Advance under the
Line of Credit shall bear interest in each Interest  Period,  at the  Borrower's
option, at:

                  (i)   the Base Rate; or
                  (ii)  LIBOR plus 2.25%.

Borrower  shall  provide Bank with  telephonic  notice at least 2 Business  Days
prior to the making of each  Advance,  and, if  applicable,  at least 2 Business
Days prior to the end of any LIBOR Term, of the  Borrower's  selection of a rate
option and term, which telephonic notice shall be promptly confirmed in writing.
In the absence of such notice,  the interest rate on the Line of Credit Note (or
each applicable Advance outstanding thereunder) shall be the Base Rate.

      (c)  Maturity.  The entire  principal  balance of the Line of Credit  Note
shall be mature and be due and  payable  upon the  written  demand of Bank,  and
thereafter the Bank shall have no further obligation to make any Advance.

      (d)  Prepayments.

            (i) The principal amount of the Advances  outstanding under the Line
      of Credit Note shall be prepaid by the Borrower  upon written  notice from
      the Bank to the  extent  of any  portion  thereof  exceeding  the  maximum
      permitted  Advances as reflected on the Borrower's  borrowing base reports
      delivered to the Bank in accordance with Section 5.1(c) hereof.

            (ii)  All or  any  portion  of  the  principal  amount  of  Advances
      outstanding  under the Line of Credit Note may be prepaid by the  Borrower
      in whole or in part (but if in part only in amounts of $50,000 or integral
      multiples of $25,000 in excess  thereof) at any time,  provided,  however,
      that, in the event of the optional  prepayment of all or any portion of an
      Advance  under the Line of Credit Note bearing  interest at a  LIBOR-based
      interest rate prior to the end of any applicable  LIBOR Term, the Borrower
      shall pay to Bank,  concurrently  therewith, a "breakage fee" equal to the
      excess,  if any, of (i) the amount of interest which  otherwise would have
      accrued on the principal  amount so repaid for the period from the date of
      such  repayment  to the last day of the LIBOR Term for such  amount at the
      applicable  rate of interest for such amount provided for herein over (ii)
      the  interest  component  of the amount such Lender  would have bid in the
      London interbank market for Dollar deposits of leading lenders and amounts
      comparable to such principal amount and with maturities comparable to such
      period (it being  conclusively  presumed  for such purpose that Bank shall
      have  purchased  funds  at the  applicable  LIBOR  corresponding  to  such
      principal for the applicable LIBOR Term).

      SECTION  2.5.  IRB Loan.  The Bank shall make the IRB Loan upon the terms,
and subject in all respects to the conditions, set forth in the Bank's financing
commitment dated July 18, 1997.

      SECTION 2.6.  Other Provisions.

      (a) Interest on each of the Notes shall be calculated based upon a 360-day
year for the actual number of days elapsed.

      (b) Whenever  any payment to be made  hereunder or under the Note shall be
stated to be due on a day that is not a Business  Day,  such payment may be made
on the next  succeeding  Business Day, and such  extension of time shall in such
case be included in the  computation  of payment of interest  hereunder or under
the Note, as the case may be.


                                   ARTICLE 3

                              CONDITIONS OF LOANS


      SECTION 3.1. Conditions Precedent to Loans. The obligation of Bank to make
any part of the Loans is subject to the conditions precedent that the Bank shall
have received on or before the date hereof,  all of the  following,  in form and
substance satisfactory to the Bank:

            (a) A copy,  certified  in writing by the  Secretary or an Assistant
      Secretary of the Borrower, of (1) resolutions of the Board of Directors of
      the  Borrower  evidencing  approval  of this  Agreement,  the  Notes,  the
      Mortgage,  the Security Agreement,  and other matters  contemplated hereby
      and, (2) each document evidencing any other necessary corporate action and
      any required approvals from governmental  authorities with respect to this
      Agreement,  the Note,  the  Mortgage,  the Security  Agreement,  and other
      matters contemplated hereby.

            (b)   An opinion or opinions  of counsel for the  Borrower in form
      and substance satisfactory to the Bank.

            (c) A written certificate by the Secretary or an Assistant Secretary
      of the  Borrower  as to the names and  signatures  of the  officers of the
      Borrower  authorized to sign this Agreement,  the Note, the Mortgage,  the
      Security  Agreement,  and  the  other  documents  or  certificates  of the
      Borrower  to be  executed  and  delivered  pursuant  hereto.  The Bank may
      conclusively  rely on, and be protected in acting upon,  such  certificate
      until it shall  receive  a  further  certificate  by the  Secretary  or an
      Assistant Secretary of the Borrower amending the prior certificate.

            (d)   The Notes.

            (e) The Security  Agreement granting to the Bank a security interest
      in  substantially  all of the accounts,  inventory,  general  intangibles,
      equipment,  investment  property  and  financial  assets of the  Borrower,
      whether  existing  or  hereafter   acquired,   and  all  proceeds  thereof
      (collectively, the "Collateral").

            (f)   Financing   statements   of  the   Borrower   covering   the
      Collateral.

            (g) The  Mortgage,  together with a title report with respect to the
      Mortgaged Property in form and substance satisfactory to the Bank.

            (h)  Evidence of the  Borrower's  insurance  coverage as required by
      Section 5.4 hereof and by the provisions of the Security Agreement and the
      Mortgage.

            (i)   Such other  certificates,  instruments  or agreements as the
      Bank may reasonably require.

      SECTION 3.2.  Additional  Conditions  Precedent.  The  obligation of the
Bank to make any Loan,  including  any  Advance,  is  subject  to the  further
conditions precedent that:

            (a) The  representations  and  warranties  contained  in  Article IV
      hereof shall be accurate on and as of the date of  disbursement  as though
      made on and as of such date;

            (b) No Event of Default  shall have  occurred and be  continuing  or
      will result from the making of the Loan,  and no event shall have occurred
      and be  continuing  that with  notice or lapse of time or both  would,  if
      unremedied, be an Event of Default; and

            (c) No material  adverse  change,  as  determined by the Bank in its
      reasonable  discretion,  shall  have  occurred  since  the  date  of  this
      Agreement  in the  financial  condition,  results of operation or business
      prospects of the Borrower.

The request for, and  acceptance  of, any Loan,  including  any Advance,  by the
Borrower shall be deemed a representation and warranty by the Borrower that each
of the conditions specified in this subsection has been satisfied.


                                   ARTICLE 4

                        REPRESENTATIONS AND WARRANTIES


      Borrower represents and warrants to Bank as follows:

      SECTION 4.1.  Existence.  The Borrower is a corporation duly incorporated,
validly  existing and in good  standing  under the laws of the State of Delaware
and is  qualified  to do  business  as a  foreign  corporation  in the  State of
Connecticut.  The Borrower has all requisite power and authority,  corporate and
otherwise,  to  conduct  its  business  and to own  its  properties  and is duly
qualified as a foreign  corporation  in good  standing in all  jurisdictions  in
which its  failure so to qualify  could  have a material  adverse  effect on its
financial condition or business.

      SECTION 4.2. Authorization. The execution, delivery and performance by the
Borrower of this Agreement,  the Note, and the Security Agreement have been duly
authorized by all necessary  corporate  action,  and do not and will not violate
any current  provision of any government  regulation or statute  material to the
on-going  operation of the  Borrower's  business or of the charter or by-laws of
the  Borrower  or  result  in a breach  of or  constitute  a  default  under any
indenture,  instrument  or other  material  agreement to which the Borrower is a
party or by which it or its properties may be bound or affected.

      SECTION 4.3.  Validity of Agreement,  Note, and Security  Agreement.  This
Agreement  constitutes,  and the Note and Security  Agreement when duly executed
and delivered  will  constitute,  valid and legally  binding  obligations of the
Borrower,  enforceable in accordance with their respective terms, except as such
enforceability  may be limited by  bankruptcy,  insolvency or other similar laws
affecting the enforcement of creditors' rights generally.

      SECTION  4.4.  Financial   Information.   There  has  been  no  material
adverse  change in the financial  condition of the Borrower from that shown in
its most recent financial statements furnished to the Bank.

      SECTION  4.5.  Litigation.  There  are no  actions,  suits or  proceedings
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any of its properties before any court or governmental  department,  commission,
board,  bureau,  agency  or  instrumentality  (domestic  or  foreign)  that,  if
determined  adversely to the Borrower,  would have a material  adverse effect on
the financial condition, operations or business prospects of the Borrower.

      SECTION 4.6. Contingent Liabilities. Except as set forth on the Disclosure
Schedule, there are no suretyship agreements,  guarantees or, to the best of the
Borrower's  knowledge and belief,  other contingent  liabilities of the Borrower
that are not disclosed on the financial  statements  mentioned in Section 4.4 or
as otherwise disclosed in writing to the Bank.

      SECTION 4.7.  Investment  Company  Act4.7.  Investment  Company Act. The
Borrower  is not an  "investment  company",  or a company  "controlled"  by an
"investment  company",  within the  meaning of the  Investment  Company Act of
1940, as amended.

      SECTION 4.8. Federal Reserve Regulations4.8.  Federal Reserve Regulations.
No indebtedness  that is required to be, or will be, reduced or retired from the
proceeds of the Loans was incurred for the purpose of purchasing or carrying any
"margin  stock"  within the meaning of Regulation U of the Board of Governors of
the Federal  Reserve System (12 C.F.R.  221, as amended),  and the Borrower does
not own or have any present intention to acquire any such margin stock.

      SECTION  4.9.  Taxes.  The  Borrower has filed all tax returns and reports
required to be filed before the date of this Agreement and,  except as set forth
on the Disclosure Schedule, has paid all taxes,  assessments and charges imposed
upon it or its property, or that it is required to withhold and pay over, to the
extent that they were required to be paid before the date of this Agreement.

      SECTION  4.10.  Encumbrances.  The  Collateral  is  not  subject  to any
lien,  encumbrance  or  security  interest  except in favor of Bank  under the
Security Agreement.

      SECTION 4.11.  Consents.  No authorization,  consent,  approval,  license,
exemption  by  or  filing  or  registration   with  any  court  or  governmental
department,  commission,  board (including the Board of Governors of the Federal
Reserve System),  bureau,  agency or instrumentality is or will be necessary for
the valid execution,  delivery or performance by the Borrower of this Agreement,
the Note, or the Security Agreement.

      SECTION  4.12.  Compliance  with Laws.  The  Borrower  is in  compliance
with all laws  and  regulations  applicable  to it that  are  material  to the
operation of its business.


                                   ARTICLE 5

                             COVENANTS OF BORROWER


      So long as any amount due Bank hereunder remains unpaid, unless Bank shall
otherwise consent in writing:

      SECTION  5.1.   Books  and  Records;   Financial   Statements   and  Other
Information.  The Borrower  covenants  that it shall keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions  of or in relation to the business and financial  affairs of the
Borrower,   in  accordance  with  generally  accepted   accounting   principles,
consistently applied. The Borrower shall furnish to Bank the following:

            (a)  within 90 days  after the last day of each  fiscal  year of the
      Borrower,  (i)  a  copy  of  the  annual  consolidated  and  consolidating
      financial  statements of the Borrower  prepared in  accordance  with GAAP,
      which  shall  be  accompanied  by  an  unqualified  audit  report  of  the
      Borrower's   certified  public   accountants,   who  shall  be  reasonably
      acceptable  to  Bank,  and  (ii) a letter  of the  Vice  President,  Legal
      Affairs-Investor  Relations of the Borrower to the effect that to the best
      of his or her knowledge, no event has occurred which constitutes or would,
      with the  passage of time or the giving of notice or both,  constitute  an
      Event of Default hereunder,  or otherwise  describing any such event known
      to such officer,  which letter shall include,  in reasonable  detail,  the
      calculations   demonstrating  the  compliance  or  non-compliance  by  the
      Borrower, on a consolidated basis, as of the end of such fiscal year, with
      each applicable financial covenant set forth in Section 5.12 hereof;

            (b)  within  45 days of the end of each  quarter,  (i) a copy of the
      Borrower's  unaudited  consolidated  financial statements for such quarter
      and for the  fiscal  year to  date,  including  a  balance  sheet,  income
      statement  and  statement  of cash  flows,  and (ii) a letter  of the Vice
      President,  Legal Affairs-Investor Relations of the Borrower to the effect
      that,  in the  opinion  of  such  officer  (A)  such  unaudited  financial
      statements  have been  prepared  in  accordance  with GAAP and reflect all
      eliminations   and  adjustments   (consisting  only  of  normal  recurring
      adjustments,  except  as  noted  in  such  letter)  necessary  for a  fair
      presentation of the Borrower's financial position and results of operation
      of the Borrower, on a consolidated basis, for such quarter and the year to
      date, and (B) no event has occurred which  constitutes or would,  with the
      passage  of time or the giving of notice or both,  constitute  an Event of
      Default  hereunder,  or otherwise  describing any such event known to such
      officer,   which  letter  shall  include,   in  reasonable   detail,   the
      calculations   demonstrating  the  compliance  or  non-compliance  by  the
      Borrower,  as of the end of such quarter,  with each applicable  financial
      covenant set forth in Section 5.12 hereof;

            (c) within  fifteen (15) days of the end of each month,  a borrowing
      base report  demonstrating  the amount of  availability  under the Line of
      Credit in accordance  with Section  2.4(a) above,  in the form attached as
      Exhibit D hereto.

            (d) as soon as practicable, but in any event within ten (10) days of
      such occurrence,  notice of any material adverse change in the business or
      financial condition of the Borrower;

            (e) as soon as practicable, but in any event within ten (10) days of
      the time the  Borrower  becomes  aware  thereof  (or should have become so
      aware  with  the  exercise  of  reasonable   diligence),   notice  of  the
      institution of, or of any material  adverse  development  with respect to,
      any suit or  proceeding,  against  the  Borrower  in which  the  amount of
      damages which is sought, or which in the Borrower's reasonable opinion may
      be at controversy, shall exceed $100,000;

            (f) as soon as possible, but in any event within ten (10) days after
      the Borrower  becomes  aware  thereof (or should have become so aware with
      the exercise of  reasonable  diligence),  notice of the  occurrence of any
      Event of Default or of any act,  omission,  thing or condition  which upon
      the giving of notice or lapse of time, or both,  would or might constitute
      an Event of Default,  which notice shall  describe the Event of Default or
      other act, omission, thing or condition in question and shall set forth in
      detail what action the Borrower proposes to take with respect thereto;

            (g) as soon as possible, but in any event within ten (10) days after
      the Borrower  becomes  aware  thereof (or should have become so aware with
      the exercise of  reasonable  diligence),  notice of the  occurrence of any
      "reportable  event" or  "prohibited  transaction"  (as each is  defined in
      ERISA) with respect to any employee benefit plan;

            (h) upon request, or within a reasonable time thereafter, such other
      information  concerning  the Borrower  and its  operations  and  financial
      condition and results as the Bank may reasonably request; and

            (i) as soon as possible, but in any event within ten (10) days after
      the Borrower  becomes  aware  thereof (or should have become so aware with
      the exercise of  reasonable  diligence),  notice of the  occurrence of any
      event or condition  with respect to the Mortgaged  Premises (as defined in
      the Mortgage) described in Section 11 of the Mortgage.

      SECTION 5.2.  ERISA.  Each employee  benefit plan as to which the Borrower
may have any liability  complies in all material  respects  with all  applicable
provisions  of  ERISA,  including  minimum  funding  requirements,  and  (i)  no
Prohibited Transaction (as defined under ERISA) has occurred with respect to any
such plan, (ii) no Reportable Event (as defined under Section 4043 of ERISA) has
occurred  with  respect to any such plan which would  cause the Pension  Benefit
Guaranty Corporation to institute proceedings under Section 4042 of ERISA, (iii)
the Borrower has not withdrawn  from any such plan or initiated  steps to do so,
and (iv) no steps have been taken to terminate any such plan.

      SECTION 5.3. Payment of Taxes and Claims5.3.  Payment of Taxes and Claims.
The Borrower  will pay all taxes,  assessments  and other  governmental  charges
imposed upon it or any of its  properties  or assets or in respect of any of its
franchises,  business,  income or profits before any penalty or interest accrues
thereon,  and all  claims  (including,  without  limitation,  claims  for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or might become a lien upon any of its  properties  or assets,
provided  that no such charge or claim need be paid if being  contested  in good
faith by appropriate proceedings promptly initiated and diligently conducted and
if such reserve or other appropriate provision,  if any, as shall be required by
GAAP  shall  have  been  made  therefor  and,  if the  filing of a bond or other
indemnity is necessary to avoid the creation of a lien against any of the assets
of the Borrower, such bond shall have been filed or indemnity provided.

      SECTION 5.4. Insurance5.4.  Insurance. The Borrower will maintain or cause
to be maintained with financially sound and reputable insurers acceptable to the
Bank,  insurance  with  respect to the  properties  and business of the Borrower
against loss or damage of the kinds  customarily  insured against by entities of
established  reputation  engaged in the same or similar businesses and similarly
situated,  of such types and in such amounts as are  customarily  carried  under
similar  circumstances  by other such  persons and  otherwise  as is prudent for
persons  engaged in  conducting  business  similar in character  and size to the
business of the  Borrower.  Annually  (and from time to time upon request of the
Bank),  the Borrower will promptly  furnish or cause to be furnished to the Bank
evidence, in form and substance  satisfactory to the Bank, of the maintenance of
all  insurance,  indemnities or bonds required by this Section or by any permit,
license, or other agreement to be maintained, including copies thereof and proof
of premium payments.

      The  provisions  of this  Section  shall  be in  addition  to any  similar
requirements set forth in the Security Agreement and the Mortgage.

      SECTION 5.5. Maintenance of Properties5.5.  Maintenance of Properties. The
Borrower will maintain or cause to be maintained  its properties in good repair,
working  order and condition  and make or cause to be made all  appropriate  and
proper repairs, renewals, replacements,  additions and improvements thereto, and
keep all  systems  and  equipment  which may now or in the  future be subject to
compliance  with any  material  standards or rules  imposed by any  governmental
agency or authority.  The Borrower  shall install and maintain its equipment and
systems in  compliance in all material  respects  with any material  requirement
imposed  under  an  governmental  regulations,  permits,  or  licenses  or under
agreements  affecting the Borrower.  The Borrower shall  maintain,  preserve and
protect,  and, when  necessary,  renew,  all  franchises  and all service marks,
trademarks and tradenames held by any of them and all agreements to which any of
them are parties which are  necessary or useful to conduct its business,  except
where the failure to do any of the foregoing  could not have a material  adverse
effect, individually or in the aggregate, upon the financial condition,  results
of operation or business prospects of the Borrower.

      SECTION  5.6.  Maintenance  of  Records5.6.  Maintenance  of Records.  The
Borrower will keep at all times books of record and account in which full,  true
and correct  entries will be made of all dealings or transactions in relation to
its respective business and affairs.

      SECTION  5.7.  Inspection5.7.   Inspection.  Upon  reasonable  notice  the
Borrower will allow any  representative  of the Bank to visit and inspect any of
their properties, to examine the books of account and other records and files of
the Borrower (including,  without limitation,  the financial statements (audited
and  unaudited,  to the extent  prepared)  and  information  with respect to the
Borrower), to make copies thereof and to discuss the affairs, business, finances
and accounts of the Borrower  with its personnel  and  accountants,  all at such
reasonable  times (and to the extent feasible,  during ordinary  business hours)
and as often the Bank may reasonably request.

      SECTION   5.8.   Change   in   Organizational   Documents5.8.   Change  in
Organizational  Documents.  The  Borrower  will not amend,  or  consent  to, any
amendment or supplement to, its articles or certificate of incorporation, bylaws
or other  organization  document  without the prior written consent of the Bank,
which consent shall not be unreasonably withheld.

      SECTION  5.9.  Subsidiaries5.9.  Subsidiaries.  The  Borrower  will  not
form or acquire any subsidiary  without the written consent of the Bank, which
consent shall not be unreasonably withheld.

      SECTION 5.10. Compliance with Federal Reserve Regulations5.10.  Compliance
with Federal Reserve Regulations.  No proceeds of the Loans shall be used by the
Borrower,  directly or  indirectly  to purchase or carry any margin  stock or to
extend  credit to others for the purpose of  purchasing  or carrying  any margin
stock. The Borrower will not,  directly or indirectly,  otherwise take or permit
to be taken any action  which would  result in the Loans or the  carrying out of
any of the other transactions contemplated by this Agreement, being violative of
such  Regulation  U or of  Regulation  T  (12  C.F.R.  220,  as  amended)  or of
Regulation X (12 C.F.R. 224, as amended) or any other regulation of the Board of
Governors of the Federal Reserve System.

      SECTION 5.11.  Additional Negative  Covenants.  So long as any part of the
Loans remains  unpaid,  the Borrower shall not,  without the written  consent of
Bank which consent shall not be unreasonably withheld:

            (a) Corporate Transactions.  (1) Merge or consolidate with any other
      corporation, partnership, trust or other entity, (2) sell, lease, transfer
      or otherwise  dispose of all or any  material  portion of its assets other
      than in the  ordinary  course of  business,  (3)  directly  or through any
      entity  consolidated with the Borrower for financial  reporting  purposes,
      purchase any assets other than in the ordinary course of business,  or (4)
      acquire any equity interest in any other corporation,  partnership,  trust
      or other entity,  except,  in each case,  in  connection  with a Permitted
      Corporate Transaction.

            (b)   Nature of Business.  Make any material  change in the nature
      of its business as conducted at the date hereof.

            (c)  Borrowings.  Create,  incur,  assume,  guarantee,  endorse,  or
      otherwise  become  liable for, or permit to exist any direct or contingent
      obligation  for  borrowed  money  (including   obligations  under  capital
      leases), except:

                  (1)   obligations   with  respect  to  the  Notes  and  this
            Agreement; and

                  (2)   any other  indebtedness  to the Bank  (including  with
            respect to the IRB Loan).

            (d)   Guarantees.   Assume,   guarantee,   endorse,  or  otherwise
      become  directly  or  contingently  liable for the  indebtedness  of any
      other Person.

            (e)  Encumbrances.  Create,  incur,  assume  or  suffer to exist any
      mortgage, lien, security interest, restriction or encumbrance with respect
      to any of its property,  including, but not limited to, the Collateral and
      the Mortgaged Property, other than:

                  (1)   liens and security  interests  granted in favor of the
            Bank;

                  (2)  utility,  access or other  easements  and  rights of way,
            restrictions  and  exceptions  which do not  materially  impair  the
            operation or value thereof;

                  (3) deposits under  workers'  compensation,  unemployment  and
            social  security or similar laws, or to secure  performance of bids,
            tenders,  contracts (other than for the repayment of borrowed money)
            or leases to secure  indemnity,  performance or similar bonds in the
            ordinary course of business;

                  (4) liens  imposed by law (whether or not  inchoate),  such as
            carriers',   warehousemen's,   materialmen's  or  mechanics'  liens,
            incurred in good faith in the ordinary course of business, and which
            are not  delinquent,  and liens  arising  out of a judgment or award
            with  respect  to which an  appeal  is being  prosecuted,  a stay of
            execution pending such appeal having been secured or applied for and
            not denied or rendered ineffective;

                  (5) liens for taxes,  assessments or  governmental  charges or
            levies on property if the same shall not at the time be  delinquent,
            or are being contested in good faith and by appropriate proceedings;
            and

                  (6) other  liens and  security  interests  on the  property of
            Borrower  listed  on the  Disclosure  Schedule  attached  hereto  as
            Exhibit "E";  provided that no such lien or security  interest shall
            be extended, replaced, modified or enlarged.

            (f)  Restricted   Payments.   Directly  or  indirectly,   declare,
      order,  pay,  make or set apart any sum or property  for any  Restricted
      Payment, without the written consent of the Bank.

            (g) Leasebacks.  Directly or indirectly sell or otherwise  transfer,
      in one or more related transactions,  any property (whether real, personal
      or mixed)  and  thereafter  rent or lease  such  transferred  property  or
      substantially identical property.

Transactions with Shareholders and Affiliates. Directly or indirectly, engage in
      any  transaction  with (a) any  holder  of 5% or more of any  class of the
      capital  stock  or  ownership  interest  of  the  Borrower,   or  (b)  any
      corporation  controlling,  controlled by, or under common control with the
      Borrower  or any such  holder,  on terms  that are less  favorable  to the
      Borrower than those which might be obtained at the time from Persons which
      are not such a holder or affiliated corporation.

            (i)  Fiscal Year.  Change its Fiscal Year.

      SECTION  5.12.  Financial  Covenants.  So  long as any  part of the  Loans
remains unpaid,  the Borrower shall comply with each of the following  financial
covenants.  As used in this Section (and in each definition  applicable hereto),
the term "Borrower" means the Borrower and each of its consolidated subsidiaries
on a consolidated basis.

      (a)  Tangible  Net  Worth.  The  Borrower  shall  maintain,  at all times,
Tangible Net Worth in an amount which is not less than (i)  $6,500,000  from the
date of this  Agreement  through  June 30,  1998,  and (ii) for each Fiscal Year
thereafter,  an amount which is equal to the minimum Tangible Net Worth required
hereunder  for the prior  Fiscal  Year,  plus 50% of Net  Income  for such prior
Fiscal Year.

      (b) Fixed Charge  Coverage  Ratio.  The Borrower  shall maintain in each
Fiscal Year a Fixed Charge Coverage Ratio of:

                                                Minimum Fixed Charge
            Period                                       Coverage Ratio

      Fiscal Year ending June 30, 1998                      1.2:1
      Each Fiscal Year thereafter                           1.5:1


      (c)  Leverage  Ratio.  The  Borrower  shall  maintain,  at all times,  a
ratio of Total  Liabilities  to Tangible  Net Worth of not greater than 1.5 to
1.0.


                                   ARTICLE 6

                                    DEFAULT


      SECTION  6.1.  Events  of  Default.  Each of the  following  shall be an
event of default ("Event of Default"):

            (a)  Failure  to pay any  interest  on any Note  prior to the  tenth
      (10th) Business Day following any Interest Payment Date; or failure to pay
      any principal of any Note when due  (including  upon demand in the case of
      the Bridge Loan Note and the Line of Credit Note); or

            (b)  Failure  to  perform  or  observe  any other of the  covenants,
      agreements  or  conditions  on  its  part   contained  in  this  Agreement
      including,  without limitation, the failure of the Borrower to observe its
      covenants  contained in Section 5.12 hereunder and such failure  continues
      (except as provided in Section 6.1(a),  (d) or (e) hereof) for thirty (30)
      days following written notice from Bank; or

            (c)   The  occurrence of any default under the Security  Agreement
      or the Mortgage; or

            (d) The Borrower or any  subsidiary of the Borrower shall commence a
      voluntary case or other proceeding seeking liquidation,  reorganization or
      other  relief with  respect to itself or its debts  under any  bankruptcy,
      insolvency  or other similar law now or hereafter in effect or seeking the
      appointment of a trustee, receiver, liquidator, custodian or other similar
      official of it or any substantial  part of its property,  or shall consent
      to any such relief or to the appointment of or taking position by any such
      official in an involuntary case or other proceeding  commenced against it,
      or shall make a general assignment for the benefit of creditors,  or shall
      fail  generally  to pay its debts as they  become  due,  or shall take any
      corporate action to authorize any of the foregoing; or

            (e) An  involuntary  case or other  proceeding  shall  be  commenced
      against  the  Borrower  or  any   subsidiary   of  the  Borrower   seeking
      liquidation,  reorganization  or other  relief  with  respect to it or its
      debts  under  any  bankruptcy,  insolvency  or  other  similar  law now or
      hereafter  in effect or seeking the  appointment  of a trustee,  receiver,
      liquidator,  custodian or other similar  official of it or any substantial
      part of its property,  and such involuntary case or other proceeding shall
      remain  undismissed  and unstayed for a period of 60 days; or an order for
      relief shall be entered  against the Borrower or any subsidiary  under the
      Federal bankruptcy laws as now or hereafter in effect; or

            (f)   If any Change of Control shall occur; or

            (g) If the Borrower shall fail to pay any obligation for the payment
      of  borrowed  money or the  installment  purchase  price of property or on
      account of a lease of property (a "Credit Obligation") owing by it, or any
      interest or premium  thereon,  when due,  whether  such Credit  Obligation
      shall  become  due by  scheduled  maturity,  by  required  prepayment,  by
      acceleration,  by demand  or  otherwise,  or the  Borrower  shall  fail to
      perform any term,  covenant or agreement on its part to be performed under
      any agreement or instrument evidencing or securing or relating to any such
      Credit  Obligation  when required to be  performed,  if the effect of such
      failure  is to  accelerate,  or to permit  the  holder or  holders of such
      Credit Obligation to accelerate,  the maturity of such Credit  Obligation,
      whether or not such  failure  to perform  shall be waived by the holder or
      holders of such  Credit  Obligation,  unless such waiver has the effect of
      terminating the right of such holder or holders to accelerate the maturity
      of such Credit Obligation as a result of such failure; or

            (h)  If  any  representation  or  warranty  by or on  behalf  of the
      Borrower made herein or in any report, certificate, financial statement or
      other  instrument  delivered  to the  Bank  shall  prove  to be  false  or
      misleading in any material respect when made; or

            (i)  If  any  default   shall  occur  with   respect  to  any  other
      indebtedness of the Borrower to the Bank,  subject to Borrower's  right to
      notice  and  opportunity  to cure,  if any,  under the  instruments  which
      evidence or secure such indebtedness.

      SECTION  6.2.  Acceleration.  If any Event of Default  shall  occur and be
continuing,  the Bank may, by notice to Borrower,  (a) declare the entire unpaid
principal  amount of the Notes,  all interest accrued and unpaid thereon and all
other amounts payable  hereunder to be forthwith due and payable,  whereupon the
Notes,  all such  accrued  interest  and all such  amounts  shall  become and be
forthwith  due and  payable,  without  presentment,  demand,  protest or further
notice of any kind,  all of which are hereby  expressly  waived by the Borrower;
(b) exercise its rights under the Security  Agreement and the Mortgage;  and (c)
exercise  all of the rights and  remedies  of a secured  party under the Uniform
Commercial  Code or any other  applicable  law or agreement  with respect to all
collateral then held for the Loans.


                                   ARTICLE 7

                                 MISCELLANEOUS


      SECTION 7.1. No Waiver;  Cumulative  Remedies.  No failure or delay on the
part of the Bank or Borrower in exercising any right,  power or remedy hereunder
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any such right,  power or remedy preclude any other or further  exercise thereof
or the exercise of any other right, power or remedy hereunder.  No waiver of any
provision  hereof  shall be  effective  unless the same shall be in writing  and
signed by the Bank and Borrower.

      SECTION 7.2.  Set-Off.  The Bank shall have a right of setoff  against,  a
lien upon and a security  interest in all property of the Borrower now or at any
time in the  possession of the Bank any capacity  whatever,  including,  but not
limited to, the Borrower's  interest in any deposit account, as security for all
liabilities of the Borrower to the Bank.

      SECTION  7.3.  Notices.   Unless  this  Agreement   specifically  provides
otherwise,  all notices and other communications that this Agreement requires or
permits either party to give to the other shall be in writing and shall be given
to such party at its address or telecopy number specified on the signature pages
of this  Agreement  or at such  other  address  or  telecopy  number as shall be
designated by such party in a notice to the other party complying with the terms
of this Section 7.3. Unless this Agreement specifically provides otherwise,  all
notices and other  communications  will be effective (a) if given by mail,  when
received,  (b) if given by telecopy,  when such telecopy is  transmitted  to the
appropriate telecopy number and the sender receives confirmation of transmission
during normal business hours, or (c) if given by any other means, when delivered
at the  appropriate  address,  except that notices from the Borrower to the Bank
pursuant to any of the  provisions  of Article II hereof  shall not be effective
until received by the Bank.

      SECTION  7.4.  Governing  Law.  This  Agreement  and the  Note  shall be
governed in all respects by the law of the State of New York.

      SECTION 7.5.  Judicial Proceedings.

      (a) The  Borrower  consents  and  agrees  that  any  judicial  proceedings
relating in any way to this  Agreement  may be brought in any court of competent
jurisdiction in the State of New York or in the United States District Court for
the Southern  District of New York. The Borrower hereby accepts,  for itself and
its properties,  the  non-exclusive  jurisdiction  of such courts,  agrees to be
bound by any judgments  rendered by them in connection with this Agreement,  and
will not move to  transfer  any such  proceeding  to any  different  court.  The
Borrower  waives  the  defense  of forum non  conveniens  in any such  action or
proceeding.

      (b)  Service of process in any  proceeding  arising  out of or relating to
this  Agreement may be made by any means  permitted by the  applicable  rules of
court as then in force,  or may be made by any form of mail  requiring  a signed
receipt.

      (c) Nothing herein shall limit the right of the Bank to bring  proceedings
against  the  Borrower in the courts of any other  jurisdiction  or be deemed to
constitute  a consent  to  jurisdiction  by any party  hereto as to  persons  or
entities  not parties to this  Agreement  or as to matters not  relating to this
Agreement.

      (d) THE BORROWER HEREBY  EXPRESSLY  WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY SUCH SUIT,  ACTION OR  PROCEEDING.  THE BORROWER  FURTHER  ACKNOWLEDGES  AND
AGREES  THAT  WAIVER OF JURY TRIAL IS A  SPECIFIC  AND  MATERIAL  ASPECT OF THIS
AGREEMENT  AND THAT THE BANK WOULD NOT HAVE  AGREED TO MAKE ANY LOAN  (INCLUDING
ANY ADVANCE) OR ACCEPT THIS AGREEMENT OR ANY NOTE WITHOUT SUCH AGREEMENT.

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized,  as of the date
first above written.


SONICS & MATERIALS, INC.                      Address:
                                              West Kenosia Avenue
                                              Danbury, CT  06810

By:__________________________________         Telecopier: (203)798-8350
   President                                  Attention:  Lauren H. Soloff, Esq.


per pro. BROWN BROTHERS HARRIMAN & CO.          Address:

                                                59 Wall Street
By:___________________________________          New York, New York
                         Telecopier No.: (212) 493-7280
                         Attention: Chief Credit Officer