Exhibit 10.1

                                CREDIT AGREEMENT

                         Dated as of February 21, 2002

                                 by and between

                               VASOMEDICAL, INC.

                                      and

                              FLEET NATIONAL BANK

<PAGE>
                               TABLE OF CONTENTS

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS                                     1
        SECTION 1.01.   Definitions                                            1
        SECTION 1.02.   Terms Generally                                       12

ARTICLE II LOANS                                                              12
        SECTION 2.01.   Revolving Credit Loans                                12
        SECTION 2.02.   Revolving Credit Note                                 13

ARTICLE III PROVISIONS RELATING TO ALL EXTENSIONS OF
        CREDIT; FEES AND PAYMENTS                                             14
        SECTION 3.01.   Interest Rate; Continuation and Conversion of Loans   14
        SECTION 3.02.   Use of Proceeds.                                      16
        SECTION 3.03.   Prepayments                                           16
        SECTION 3.04.   Fees.                                                 16
        SECTION 3.05.   Inability to Determine Interest Rate.                 17
        SECTION 3.06.   Illegality.                                           17
        SECTION 3.07.   Increased Costs                                       17
        SECTION 3.08.   Indemnity.                                            18
        SECTION 3.09.   Taxes                                                 19
        SECTION 3.10.   Payments                                              20
        SECTION 3.11.   Disbursement of Loans                                 20

ARTICLE IV REPRESENTATIONS AND WARRANTIES                                     20
        SECTION 4.01.   Organization, Powers.                                 20
        SECTION 4.02.   Authorization of Borrowing, Enforceable Obligations   20
        SECTION 4.03.   Financial Condition.                                  21
        SECTION 4.04.   Taxes.                                                21
        SECTION 4.05.   Title to Properties                                   22
        SECTION 4.06.   Litigation                                            22
        SECTION 4.07.   Agreements.                                           22
        SECTION 4.08.   Compliance with ERISA.                                22
        SECTION 4.09.   Federal Reserve Regulations; Use of Proceeds          23
        SECTION 4.10.   Approval                                              23
        SECTION 4.11.   Subsidiaries.                                         23
        SECTION 4.12.   Hazardous Materials                                   23
        SECTION 4.13.   Investment Company Act                                24

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        SECTION 4.14.   Security Agreement.                                   24
        SECTION 4.15.   No Default.                                           24
        SECTION 4.16.   Material Contracts.                                   24
        SECTION 4.17.   Permits and Licenses.                                 24
        SECTION 4.18.   Compliance with Law.                                  24
        SECTION 4.19.   Disclosure.                                           24

ARTICLE V CONDITIONS OF LENDING                                               24
        SECTION 5.01.   Conditions to Initial Extension of Credit             24
        SECTION 5.02.   Conditions to All Extensions of Credit                27

ARTICLE VI AFFIRMATIVE COVENANTS                                              27
        SECTION 6.01.   Existence, Properties, Insurance                      27
        SECTION 6.02.   Payment of Indebtedness and Taxes.                    28
        SECTION 6.03.   Financial Statements, Reports, etc.                   28
        SECTION 6.04.   Books and Records; Access to Premises                 30
        SECTION 6.05.   Notice of Adverse Change                              30
        SECTION 6.06.   Notice of Default                                     30
        SECTION 6.07.   Notice of Litigation                                  30
        SECTION 6.08.   Notice of Default in Other Agreements.                30
        SECTION 6.09.   Notice of ERISA Event                                 31
        SECTION 6.10.   Notice of Environmental Law Violations.               31
        SECTION 6.11.   Notice Regarding Material Contracts.                  31
        SECTION 6.12.   Compliance with Applicable Laws                       31
        SECTION 6.13.   Environmental Laws.                                   32
        SECTION 6.14.   Subsidiaries                                          32
        SECTION 6.15.   Deposit Account                                       32

ARTICLE VII NEGATIVE COVENANTS                                                32
        SECTION 7.01.   Liens                                                 32
        SECTION 7.02.   Indebtedness                                          33
        SECTION 7.03.   Guaranties                                            34
        SECTION 7.04.   Sale of Assets                                        35
        SECTION 7.05.   Sales of Receivables.                                 35
        SECTION 7.06.   Loans and Investments.                                35
        SECTION 7.07.   Nature of Business.                                   36
        SECTION 7.08.   Sale and Leaseback.                                   36
        SECTION 7.09.   Federal Reserve Regulations                           36
        SECTION 7.10.   Accounting Policies and Procedures                    36
        SECTION 7.11.   Hazardous Materials                                   36

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        SECTION 7.12.   Limitations on Fundamental Changes                    36
        SECTION 7.13.   Financial Condition Covenants.                        36
        SECTION 7.14.   Subordinated Debt.                                    37
        SECTION 7.15.   Dividends                                             37
        SECTION 7.16.   Transactions with Affiliates                          37
        SECTION 7.17.   Impairment of Security Interest.                      37
        SECTION 7.18.   Inactive Subsidiary                                   37

ARTICLE VIII EVENTS OF DEFAULT                                                37
        SECTION 8.01.   Events of Default                                     37

ARTICLE IX MISCELLANEOUS                                                      40
        SECTION 9.01.   Notices                                               40
        SECTION 9.02.   Effectiveness; Survival                               40
        SECTION 9.03.   Expenses                                              41
        SECTION 9.04.   Successors and Assigns; Participations                41
        SECTION 9.05.   No Waiver; Cumulative Remedies                        43
        SECTION 9.06.   APPLICABLE LAW                                        43
        SECTION 9.07.   SUBMISSION TO JURISDICTION                            43
        SECTION 9.08.   Severability                                          44
        SECTION 9.09.   Right of Setoff                                       44
        SECTION 9.10.   Modification of Agreement                             45
        SECTION 9.11.   Lost Note.                                            45
        SECTION 9.12.   Integration.                                          45
        SECTION 9.13.   Headings                                              45
        SECTION 9.14.   Construction                                          45
        SECTION 9.15.   Counterparts                                          45

                                       iii
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SCHEDULES

Schedule I              -       Subsidiaries
Schedule II             -       Existing Liens
Schedule III            -       Existing Indebtedness
Schedule IV             -       Existing Guarantees
Schedule V              -       Material Contracts

EXHIBITS

Exhibit A               -       Form of Revolving Credit Note
Exhibit B               -       Form of Security Agreement
Exhibit C               -       Form of Guaranty
Exhibit D               -       Form of Opinion of Counsel
Exhibit E               -       Form of Borrowing Base Certificate

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<PAGE>

     CREDIT AGREEMENT dated as of February 21, 2002, by and between VASOMEDICAL,
INC., a Delaware corporation (the "Company") and FLEET NATIONAL BANK, a national
banking  association  organized  under the laws of the United States of America,
(the "Bank").


                                    RECITALS

     The Company has  requested  the Bank to extend credit from time to time and
the Bank is willing to extend such credit to the  Company,  subject to the terms
and conditions hereinafter set forth.

     Accordingly, the parties hereto agree as follows:

                                   ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION 1.01.  Definitions.  As used herein,  the following words and terms
shall have the following meanings:

     "Accounts"  shall  mean any and all rights of the  Company  to payment  for
goods sold or leased or services rendered,  including accounts, contract rights,
general  intangibles and any such right evidenced by chattel paper,  instruments
or documents.

     "Affiliate" shall mean with respect to a specified  Person,  another Person
which,  directly or indirectly,  controls or is controlled by or is under common
control  with  such  specified  Person.  For the  purpose  of  this  definition,
"control"  of a Person shall mean the power,  direct or  indirect,  to direct or
cause the direction of the management or policies of such Person whether through
the ownership of voting securities, by contract or otherwise;  provided that, in
any  event,  any  Person  who owns  directly  or  indirectly  10% or more of the
securities  having  ordinary voting power for the election of directors or other
governing  body of a  corporation  or 10% or more of the  partnership  or  other
ownership  interest of any Person (other than as a limited partner of such other
Person) will be deemed to control such corporation or other Person.

     "Agreement" shall mean this Credit Agreement dated as of February 21, 2002,
as it may hereafter be amended,  restated,  supplemented  or otherwise  modified
from time to time.

     "Bank" shall have the meaning set forth in the preamble hereto.

     "Borrowing  Base"  shall  mean an  amount  equal  to the sum of (a)  eighty
percent (80%) of the face amount of all Eligible  Accounts of the Company,  plus
(b) the  lesser of (i)  thirty  percent  (30%) of  Eligible  Inventory  and (ii)
$2,000,000,  provided,  however,  the Bank may increase such percentages and the
foregoing  inventory  limitation from time to time in its sole discretion  based
upon the results of field exams and  appraisals  to be  conducted by the Bank or
its agents from time to time.




<PAGE>


     "Borrowing Base Certificate"  shall mean a certificate  signed by the Chief
Financial  Officer in the form of Exhibit E attached hereto with such changes as
the Bank may reasonably require from time to time.

     "Borrowing  Date" shall mean,  with respect to any Loan,  the date on which
such Loan is disbursed to the Company.

     "Business  Day"  shall  mean (a) any day not a  Saturday,  Sunday  or legal
holiday,  on which  banks in New York City are open for  business  and (b) as it
relates to any payment, determination,  funding or notice to be made or given in
connection  with any LIBOR Rate Loan,  any day  specified in clause (a) on which
trading is  carried on by and  between  banks in Dollar  deposits  in the London
interbank eurodollar market.

     "Capital  Expenditures"  shall mean  additions to property and equipment of
the Company and its  Subsidiaries  which, in conformity with Generally  Accepted
Accounting  Principles,  are  included  as  "additions  to  property,  plant  or
equipment"  or  similar  items  which  would be  reflected  in the  consolidated
statement of cash flow of the Company and its  Subsidiaries,  including  without
limitation, property and equipment which are the subject of Capital Leases.

     "Capital  Lease" shall mean any lease the obligations of which are required
to be capitalized on the balance sheet of a Person in accordance  with Generally
Accepted Accounting Principles.

     "Change of Control"  shall mean any event which  results in (i) any Person,
or two or more Persons acting in concert, acquiring beneficial ownership (within
the meaning of Rule 13d-3 of the  Securities and Exchange  Commission  under the
Securities Exchange Act of 1934),  directly or indirectly,  of securities of the
Company (or other securities convertible into such securities)  representing 20%
or more of the combined  voting power of all securities of the Company  entitled
to vote in the  election  of  directors;  or (ii)  during any period of up to 12
consecutive  months,  individuals  who at the beginning of such 12-month  period
were  directors of the Company,  ceasing for any reason to constitute a majority
of the Board of Directors of the  Company's  incumbent  Board of  Directors;  or
(iii) any  Person,  or two or more  Persons  acting  in  concert,  acquiring  by
contract or  otherwise,  or entering into a contract or  arrangement  which upon
consummation  will  results in its or their  acquisition  of, or  control  over,
securities  of the  Company (or  securities  convertible  into such  securities)
representing  20% or more of the combined  voting power of all securities of the
Company entitled to vote in the election of directors.

     "Chief  Financial  Officer" shall mean the Chief  Financial  Officer of the
Company.

     "Closing Date" shall mean February 21, 2002.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time.

     "Commitments" shall mean the Revolving Credit Commitment.

                                       3
<PAGE>


     "Company" shall have the meaning set forth in the preamble hereto.

     "Consolidated  EBIT" shall mean, for the Company and its Subsidiaries,  for
any period,  Consolidated  Net Income (or consolidated net loss) for such period
plus (a) the sum, without duplication,  of (i) Consolidated Interest Expense and
(ii) all income taxes to any government or governmental instrumentality expensed
on the Company or any of its  Subsidiaries'  books  (whether  paid or  accrued),
minus  (b)  extraordinary  or  unusual  gains,  in  each  case  determined  on a
consolidated  basis for the  Company and its  Subsidiaries  in  accordance  with
Generally Accepted  Accounting  Principles applied on a consistent basis. All of
the foregoing categories shall be calculated (without duplication) over the then
most recent four fiscal quarters ended on the date of calculation thereof.

     "Consolidated EBITDA" shall mean, for the Company and its Subsidiaries, for
any period,  Consolidated Net Income (or consolidated net loss) for such period,
plus (a) the sum, without  duplication,  of (i) Consolidated  Interest  Expense,
(ii)  depreciation  and amortization  expenses or charges,  and (iii) all income
taxes  to  any  government  or  governmental  instrumentality  expensed  on  the
Company's or any of its Subsidiaries' books (whether paid or accrued), minus (b)
the sum of (i)  income  of the  Company  and its  Subsidiaries  attributable  to
interest  and/or  dividends,  and (ii)  extraordinary  or unusual gains, in each
case, determined on a consolidated basis for the Company and its Subsidiaries in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis. All of the foregoing categories shall be calculated (without duplication)
over the then most recent four fiscal  quarters ended on the date of calculation
thereof.

     "Consolidated  Funded Debt" shall mean the sum of all  Indebtedness  of the
Company and its Subsidiaries  for borrowed money having an original  maturity of
one year or more,  including the current portion thereof and including,  without
limitation, the outstanding Revolving Credit Loans, in each case determined on a
consolidated  basis for the  Company and its  Subsidiaries  in  accordance  with
Generally Accepted Accounting Principles applied on a consistent basis.

     "Consolidated  Interest Expense" shall mean the consolidated gross interest
expense of the  Company  and its  Subsidiaries  determined  in  accordance  with
Generally  Accepted  Accounting  Principles  applied on a  consistent  basis and
calculated  over the then most recent four fiscal  quarters ended on the date of
calculation thereof.

     "Consolidated  Net Income" shall mean,  for any period,  the net income (or
net loss) of the Company and its  Subsidiaries on a consolidated  basis for such
period determined in accordance with Generally  Accepted  Accounting  Principles
applied on a consistent basis.

     "Consolidated  Tangible  Net Worth"  shall  mean,  for any period (a) total
consolidated  assets  of  the  Company  and  its  Subsidiaries   (excluding  any
intangible  assets) less (b) total  consolidated  liabilities of the Company and
its Subsidiaries,  in each case determined in accordance with Generally Accepted
Accounting Principles applied on a consistent basis.


                                       3
<PAGE>


     "Customer"  shall mean and  include  the  account  debtor or  obligor  with
respect to any Account.

     "Default"  shall mean any  condition or event which upon  notice,  lapse of
time or both would constitute an Event of Default.

     "Dollar" and the symbol "$" shall mean lawful money of the United States of
America.

     "Eligible  Investments"  shall  mean (a) direct  obligations  of the United
States of America or any governmental  agency thereof which are fully guaranteed
by the United States of America,  provided that such  obligations  mature within
one  year  from the  date of  acquisition  thereof;  or (b)  dollar  denominated
certificates  of time  deposit  maturing  within  one  year  issued  by any bank
organized and existing  under the laws of the United States or any state thereof
and having  aggregate  capital and surplus in excess of  $1,000,000,000;  or (c)
money  market  mutual funds having  assets in excess of  $2,500,000,000;  or (d)
commercial  paper rated not less than P-1 or A- 1 or their equivalent by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group, respectively; or (e)
tax exempt  securities of a U.S. issuer rated A or better by Standard and Poor's
Ratings Group or Moody's Investors Service, Inc.

     "Eligible  Inventory"  shall  mean the gross  amount of the  Company's  raw
materials inventory located in the United States of America,  excluding,  in any
event, any packaging materials and supplies; work-in-process,  supplies, damaged
or  unsalable  goods,  damaged or unsalable  goods  returned or rejected by such
entity's  customers;  obsolete  goods;  goods to be  returned  to such  entity's
suppliers; goods in transit to third parties; consigned inventory;  inventory in
transit; and inventory located at facilities where the Bank has not been granted
a first priority  perfected  security interest and, if the facility is not owned
and occupied by the  Company,  landlord or  warehousemens'  waiver  letters,  as
appropriate  provided "Eligible  Inventory" shall exclude all inventory which is
otherwise  regarded  by the  Bank in its  reasonable  discretion  as  unsuitable
collateral  for  the  Loans.  The  value  of all  Eligible  Inventory  shall  be
determined at the lower of cost on a first in first out basis or market value in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis.

     Notwithstanding  anything  to the  contrary,  the Bank may at any time from
time to time, amend the above  referenced  definition upon written notice to the
Company.

     "Eligible  Accounts"  shall mean  Accounts  created  by the  Company in the
ordinary  course  of  business  arising  out of the  sale or  lease  of goods or
rendition  of services by the Company,  provided  that,  an Account  shall in no
event be deemed to be an Eligible  Account  unless:  (a) all payments due on the
Account  have  been  invoiced  and the  underlying  goods  shipped  or  services
performed,  as the case may be; (b) no more than ninety  (90) days have  elapsed
from the invoice  date;  (c) the  payments  due on more than 50% of all Accounts
from the same Customer are not more than ninety (90) days past the invoice date;




                                       4
<PAGE>


(d) the  Account  arose from a  completed  and bona fide  transaction  (and with
respect  to a sale of goods,  a  transaction  in which  title has  passed to the
Customer) which requires no further act under any  circumstances  on the part of
the  Company  in  order to  cause  such  Account  to be  payable  in full by the
Customer;  (e) the Account is in full  conformity with the  representations  and
warranties  made by the Company to the Bank with respect thereto and is free and
clear of all security  interests and Liens of any nature  whatsoever  other than
any security  interest deemed to be held by the Company or any security interest
created  pursuant to the  Security  Documents  or as  permitted  by Section 7.01
hereof;  (f) the Account  constitutes an "account" or "chattel paper" within the
meaning  of the  Uniform  Commercial  Code of the state in which the  Account is
located;  (g) the Customer has not  asserted  that the Account,  and neither the
Company is aware that the Account, arises out of a bill and hold, consignment or
progress  billing  arrangement  or is subject  to any  setoff,  contra,  net-out
contract,  offset,  deduction,  dispute,  credit,  counterclaim or other defense
arising out of the  transactions  represented  by the Accounts or  independently
thereof,  and the Customer  has finally  accepted the goods from the sale out of
which the  Account  arose  and has not  objected  to its  liability  thereon  or
returned,  rejected or repossessed any of such goods, except for complaints made
or goods returned in the ordinary  course of business for which,  in the case of
goods returned, goods of equal or greater value have been shipped in return; (h)
the Account  arose in the ordinary  course of business of the  Company;  (i) the
Customer is not (x) the United States  government or the government of any state
or political  subdivision thereof or therein, or any agency or department of any
thereof  or any  foreign  government  unless  there has been  compliance  to the
satisfaction  of the Bank with the Federal  Assignment  of Claims Act or similar
state or foreign  statutes or (y) an Affiliate of the Company or any  Subsidiary
of any thereof;  (j) the Customer is a United States Person or an obligor in the
United States unless such Account is supported to the  satisfaction  of the Bank
by a letter of credit or other  acceptable  form of  guarantee;  (k) the Account
complies with all material  requirements of all applicable laws and regulations,
whether Federal, state or local (including,  without limitation,  usury laws and
laws, rules and regulations  relating to truth in lending,  fair credit billing,
fair credit reporting, equal credit opportunity,  fair debt collection practices
and  privacy);  (1) the  Account is in full force and effect and  constitutes  a
legal,  valid and binding  obligation of the Customer  enforceable in accordance
with  its  terms,  except  as  the  enforceability  thereof  may be  limited  by
bankruptcy,   insolvency,  moratorium  and  other  similar  laws  affecting  the
enforcement of creditors' rights generally and by general equity principles; (m)
the Account is  denominated  in and provides for payment by the Customer in U.S.
dollars;  (n) the Account has not been and is not  required to be charged off or
written off as  uncollectible in accordance with Generally  Accepted  Accounting
Principles  or the  customary  business  practices of the Company;  (o) the Bank
possesses a valid, first priority perfected security interest in such Account as
security for payment of the Obligations;  (p) the Account did not arise out of a
leasing transaction; and (q) the Bank believes, in its reasonable judgment, that
collection  of such  Account is insecure or that such Account may not be paid by
reason of the Customer's  financial inability to pay the Customer in relation to
the amount of credit  extended;  provided,  that the Bank may, in its reasonable
discretion, determine that a particular Account shall not be an Eligible Account
individually, by Customer, by amount or otherwise.

     Notwithstanding  anything to the contrary,  the Bank may, at any time,  and
from time to time, amend the above-referenced  definition upon written notice to
the Company.

                                       5
<PAGE>

     "Environmental Law" shall mean any law,  ordinance,  rule,  regulation,  or
policy  having  the  force  of law of any  Governmental  Authority  relating  to
pollution  or  protection  of  the   environment   or  to  the  use,   handling,
transportation,  treatment, storage, disposal, release or discharge of Hazardous
Materials,   including,  without  limitation,  the  Comprehensive  Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections
9601,  et seq.),  the  Hazardous  Materials  Transportation  Act, as amended (49
U.S.C.  Sections 1801, et seq.) the Resource  Conservation  and Recovery Act, as
amended  (42  U.S.C.  Sections  6901,  et seq.) and the  rules  and  regulations
promulgated pursuant thereto.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time.

     "ERISA  Affiliate"  shall mean each person (as  defined in Section  3(9) of
ERISA) which  together with the Company or any Affiliate of the Company would be
deemed to be a member of the same  "controlled  group"  within  the  meaning  of
Section 414(b), (c), (m) or (o) of the Code.

     "Event of Default" shall have the meaning set forth in Article VIII.

     "Executive  Officer" shall mean any of the President,  the Chief  Executive
Officer,  Chief Financial  Officer or the Secretary of the Company or any of its
Subsidiaries, as applicable, and their respective successors, if any, designated
by the board of directors thereof.

     "Federal  Funds  Effective  Rate" shall  mean,  for any day,  the  weighted
average of the rates on overnight Federal funds transactions with members of the
Federal  Reserve  System  arranged by Federal fund brokers,  as published on the
next  succeeding  Business Day by the Federal  Reserve Bank of New York,  or, if
such rate is not so published  for any day which is a Business  Day, the average
of the  quotations  for the day of such  transactions  received by the Bank from
three Federal fund brokers of recognized standing selected by the Bank.

     "Generally  Accepted  Accounting  Principles"  shall mean  those  generally
accepted  accounting  principles in the United  States of America,  as in effect
from time to time.

     "Governmental  Authority"  shall mean any nation or government,  any state,
province,  city or municipal entity or other political  subdivision thereof, and
any governmental, executive, legislative, judicial, administrative or regulatory
agency, department,  authority,  instrumentality,  commission,  board or similar
body, whether federal, state, provincial, territorial, local or foreign.

     "Guarantors" shall mean, collectively, 180 Linden Avenue Corporation, a New
York corporation, and each Person who, from time to time, is required to execute
a Guaranty in accordance  with Section 6.14 hereof.  Guarantor shall not include
Viromedics, Inc. at any time that it shall be an Inactive Subsidiary.

                                       6
<PAGE>

     "Guaranty" shall mean the Guaranty in the form attached hereto as Exhibit C
to be  executed  and  delivered  by  each  Guarantor  on the  Closing  Date  and
thereafter by each  Subsidiary  of the Company  pursuant to Section 6.14, as the
same may hereafter be amended, restated, supplemented or otherwise modified from
time to time.

     "Hazardous Materials" shall mean any explosives,  radioactive materials, or
other  materials,  wastes,  substances,  or chemicals  which are  identified and
regulated as toxic or  hazardous,  or as a pollutant or  contaminant,  under any
applicable Environmental Law.

     "Inactive  Subsidiary"  shall  mean any  Subsidiary  of the  Company  which
conducts no business and has total  assets  (based on the higher of market value
and book value) of less than $50,000.

     "Indebtedness" shall mean, without duplication, as to any Person or Persons
(a) indebtedness for borrowed money; (b) indebtedness for the deferred  purchase
price of property or services; (c) indebtedness evidenced by bonds,  debentures,
notes or other similar instruments; (d) obligations and liabilities secured by a
Lien upon property owned by such Person, whether or not owing by such Person and
even  though  such  Person  has not  assumed or become  liable  for the  payment
thereof;  (e) obligations and liabilities  directly or indirectly  guaranteed by
such  Person;  (f)  obligations  or  liabilities  created or  arising  under any
conditional  sales contract or other title  retention  agreement with respect to
property used and/or acquired by such Person;  (g) obligations of such Person as
lessee under Capital  Leases;  (h) net  liabilities of such Person under hedging
agreements and foreign currency  exchange  agreements,  as calculated on a basis
satisfactory  to the Bank and in  accordance  with  accepted  practice;  (i) all
obligations  of such  Person in respect  of  bankers'  acceptances;  and (j) all
obligations,  contingent  or  otherwise  of such  Person as an account  party or
applicant in respect of letters of credit.

     "Interest Payment Date" shall mean (a) the first day of each calendar month
during  the term  hereof  and (b) as to any Loan,  the date such Loan is paid in
full or in part.

     "Interest Period" shall mean with respect to any LIBOR Rate Loan:

     (a)  initially,  the period  commencing on the date such LIBOR Rate Loan is
made and ending one,  two,  three or six months  thereafter,  as selected by the
Company in its Notice of Borrowing or in its notice of  conversion  from a Prime
Rate Loan to a LIBOR Rate Loan  provided,  in each case, in accordance  with the
terms of Articles II and III hereof; and

     (b)  thereafter,  each  period  commencing  on the  last  day  of the  next
preceding  Interest  Period  applicable  to such LIBOR Rate Loan and ending one,
two, three or six months  thereafter,  as selected by the Company by irrevocable
written notice to the Bank not later than 11:00 a.m. New York, New York time two
(2) Business Days prior to the last day of the then current Interest Period with
respect to such LIBOR Rate Loan;  provided,  however,  that all of the foregoing
provisions relating to Interest Periods are subject to the following:

                                       7
<PAGE>

          (i) if any Interest Period would otherwise end on a day which is not a
     Business Day, such Interest Period shall be extended to the next succeeding
     Business  Day unless the  result of such  extension  would be to carry such
     Interest  Period into another  calendar  month in which event such Interest
     Period shall end on the immediately preceding Business Day;

          (ii) if the  Company  shall fail to give  notice as provided in clause
     (b) above, the Company shall be deemed to have requested  conversion of the
     affected  LIBOR  Rate Loan to a Prime Rate Loan on the last day of the then
     current Interest Period with respect thereto;

          (iii) any  Interest  Period that begins on the last  Business Day of a
     calendar month (or on a day for which there is no numerically corresponding
     day in the calendar month at the end of such Interest  Period) shall end on
     the last Business Day of a calendar month; and

          (iv) the Company shall select Interest  Periods so as not to require a
     payment or prepayment of any LIBOR Rate Loan during an Interest  Period for
     such LIBOR Rate Loan.

     "LIBOR Rate Election"  shall mean the meaning set forth in Section  2.01(b)
hereof.

     "LIBOR  Rate  Loans"  shall mean Loans at such time as they are made and/or
being maintained at a rate of interest based upon Reserve Adjusted Libor.

     "Lien" shall mean any lien  (statutory or  otherwise),  security  interest,
mortgage,  deed of trust,  pledge,  charge,  conditional  sale,  title retention
agreement, Capital Lease or other encumbrance or similar right of others, or any
agreement to give any of the foregoing.

     "Loans" shall mean the Revolving Credit Loans.

     "Loan Documents" shall mean,  collectively,  this Agreement,  the Note, the
Security  Documents,   the  Guaranty,  and  each  other  agreement  executed  in
connection with the transactions  contemplated hereby or thereby, as each of the
same may hereafter be amended, restated, supplemented or otherwise modified from
time to time.

     "Material Adverse Effect" shall mean a material adverse effect upon (a) the
business, operations,  property, prospects or condition (financial or otherwise)
of the Company and its Subsidiaries,  taken as a whole or (b) the ability of the
Company  or any of its  Subsidiaries  to  perform in any  material  respect  any
material obligations under any Loan Document to which it is a party.

     "Material  Contract" shall mean each contract,  instrument or agreement (a)
to which the Company or any of its  Subsidiaries is a party which is material to
the business,  operations or condition (financial or otherwise),  prospects,  or
properties of the Company and its  Subsidiaries,  taken as a whole, or (b) which
requires the payment during the term thereof in excess of $100,000.

                                       8
<PAGE>

     "Note" shall mean the Revolving Credit Note.

     "Notice of  Borrowing"  shall mean the Bank's  form of notice of  borrowing
substantially in the form of Exhibit F attached hereto.

     "Obligations"  shall mean all obligations,  liabilities and indebtedness of
the Company to the Bank, whether now existing or hereafter created,  absolute or
contingent, direct or indirect, due or not, whether created directly or acquired
by  assignment or otherwise,  arising under or relating to this  Agreement,  the
Note or any other Loan Document, including, without limitation, all obligations,
liabilities and indebtedness of the Company with respect to the principal of and
interest on the Loans, and obligations arising under Hedging Agreements with the
Bank  (including  the  payment  of  amounts  that  would  become due but for the
operation  of the  automatic  stay under  Section  362(a) of the  United  States
Bankruptcy  Code,  and  interest  that  but  for the  filing  of a  petition  in
bankruptcy  with  respect  to the  Company,  would  accrue on such  obligations,
whether or not a claim is allowed  against such Company for such interest in the
related  bankruptcy  proceeding),  and all fees,  costs,  expenses and indemnity
obligations of the Company hereunder, under any other Loan Document or under any
Hedging Agreement.

     "Payment  Office" shall mean the Bank's office  located at 300 Broad Hollow
Road,  Melville,  New York 11747 or such other office as the Bank may  designate
from time to time.

     "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation  established
pursuant to Section 4002 of ERISA, or any successor thereto.

     "Permitted Liens" shall mean the Liens specified in clauses (a) through (h)
of Section 7.01.

     "Person"  shall mean any natural  person,  corporation,  limited  liability
company,   limited  liability   partnership,   business  trust,  joint  venture,
association, company, partnership or Governmental Authority.

     "Plan" shall mean any  multi-employer  or  single-employer  plan defined in
Section 4001 of ERISA,  which  covers,  or at any time during the five  calendar
years  preceding the date of this Agreement  covered,  employees of the Company,
any  Subsidiary  of the  Company  or an  ERISA  Affiliate  on  account  of  such
employees'  employment by the Company, any Subsidiary of the Company or an ERISA
Affiliate.

     "Prime  Rate"  shall  mean the  variable  per  annum  rate of  interest  so
designated from time to time by the Bank as its "prime rate".  The Prime Rate is
a  reference  rate and does not  necessarily  represent  the lowest or best rate
being charged to any customer.  Changes in the rate of interest  resulting  from
changes in the Prime Rate shall take place immediately  without notice or demand
of any kind.
                                       9
<PAGE>

     "Prime Rate  Loans"  shall mean Loans at such as they are being made and/or
maintained at a rate of interest based on the Prime Rate.

     "Regulation  D" shall mean  Regulation  D of the Board of  Governors of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time.

     "Reportable  Event"  shall mean an event  described  in Section  4043(c) of
ERISA with respect to a Plan as to which the 30 day notice  requirement  has not
been waived by the PBGC.

     "Reserve  Adjusted  Libor" shall mean,  with respect to the Interest Period
pertaining  to a LIBOR Rate Loan,  the rate per annum as determined on the basis
of the offered rates for deposits in Dollars for a period of time  comparable to
such Interest Period for such LIBOR Loan (rounded upward,  if necessary,  to the
nearest one hundred-thousandth of a percentage point) as determined on the basis
of the  offered  rates  for  deposits  in  U.S.  dollars  for a  period  of time
comparable  to such  LIBOR Loan which  appears on the  Telerate  page 3750 as of
11:00 a.m.  London time on the day that is two (2) Business  Days  preceding the
first day of such LIBOR Loan;  provided,  however,  if the rate described  above
does not appear on the Telerate System on any applicable interest  determination
date,  the LIBOR Rate shall be the rate (rounded  upward,  if necessary,  to the
nearest one hundred-thousandth of a percentage point) determined on the basis of
the offered rates for deposits in Dollars for a period of time comparable to the
Interest Period for such LIBOR Loan which are offered by four major banks in the
London interbank market at approximately 11:00 a.m. London time, on the day that
is two (2) Business Days  preceding the first day of such LIBOR Loan as selected
by the Bank. The principal  London office of each of the four major London banks
will be requested to provide a quotation of its Dollar deposit  offered rate. If
at least two such  quotations  are provided,  the rate for that date will be the
arithmetic mean of the quotations.  If fewer than two quotations are provided as
requested,  the LIBOR Rate for that date will be  determined on the basis of the
rates quoted for loans in Dollars to leading European banks for a period of time
comparable  to such  LIBOR  Loan  offered  by major  banks  in New York  City at
approximately 11:00 a.m. New York City time, on the day that is two (2) Business
Days  preceding  the first day of such LIBOR Loan. In the event that the Bank is
unable to obtain any such  quotation as provided  above,  it will be deemed that
LIBOR,  pursuant to a LIBOR Loan,  cannot be  determined.  In the event that the
Board of  Governors  of the  Federal  Reserve  System  shall  impose  a  Reserve
Percentage  with  respect  to LIBOR  deposits  of the Bank,  then for any period
during which such Reserve  Percentage  shall apply,  LIBOR shall be equal to the
amount  determined  above  divided by an amount  equal to one minus the  Reserve
Percentage.  "Reserve  Percentage"  shall  mean the  maximum  aggregate  reserve
requirement  (including all basic,  supplemental,  marginal and other  reserves)
which  is  imposed  on  member  banks  of the  Federal  Reserve  System  against
"Eurocurrency Liabilities" as defined in Regulation D.

     "Revolving  Credit  Commitment"  shall mean the Bank's  obligation  to make
Revolving  Credit  Loans to the  Company  in an  aggregate  amount not to exceed
$15,000,000, as such amount may be adjusted in accordance with the terms of this
Agreement.

                                      10
<PAGE>

     "Revolving  Credit  Commitment  Period"  shall  mean  the  period  from and
including  the  Closing  Date  to,  but  not  including,  the  Revolving  Credit
Commitment  Termination  Date  or such  earlier  date  as the  Revolving  Credit
Commitment shall terminate as provided herein.

     "Revolving  Credit  Commitment  Termination  Date" shall mean  February 21,
2005.

     "Revolving  Credit  Loans"  shall  have the  meaning  set forth in  Section
2.01(a).

     "Revolving Credit Note" shall have the meaning set forth in Section 2.02.

     "Security Agreements" shall mean, collectively,  the Security Agreement, in
the form attached as Exhibit B, to be executed and delivered on the Closing Date
by the  Company  and  each  Guarantor,  as the same may  hereafter  be  amended,
restated, supplemented or otherwise modified, from time to time.

     "Security  Documents"  shall mean the  Security  Agreements  and each other
collateral security document delivered to the Bank hereunder.

     "Solvent"  shall  mean  with  respect  to  any  Person  as of the  date  of
determination  thereof that (a) the amount of the "present fair saleable  value"
of the assets of such  Person  will,  as of such date,  exceed the amount of all
"liabilities of such Person,  contingent or otherwise," as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing  determinations  of the  insolvency  of debtors,  (b) the present fair
saleable  value of the assets of such Person will,  as of such date,  be greater
than the amount that will be required on its debts as such debts become absolute
and  matured,  (c) such  Person will not have as of such date,  an  unreasonably
small amount of capital with which to conduct its business,  and (d) such Person
will be able to pay its debts as they mature.

     "Subordinated  Debt" or  "Subordinated  Indebtedness"  shall  mean all debt
which is  subordinated  in right of payment to the prior final and  indefeasible
payment in full of the obligations of the Company and/or of its  Subsidiaries to
the Bank  hereunder and under any other Loan Document on terms  satisfactory  to
and approved in writing by the Bank.

     "Subsidiaries"  shall mean with  respect  to any  Person  any  corporation,
association or other business  entity more than 50% of the voting stock or other
ownership interests  (including,  without limitation,  membership interests in a
limited liability company) of which is at the time owned or controlled, directly
or  indirectly,  by  such  Person  or  one or  more  of  its  Subsidiaries  or a
combination thereof.

     "Taxes" shall have the meaning set forth in Section 3.09.

     "Type" shall mean as to any Loan its status as a Prime Rate Loan or a LIBOR
Rate Loan.

                                       11
<PAGE>
     "Unfunded Capital  Expenditures" shall mean Capital  Expenditures which are
not financed with the proceeds from any Indebtedness.

     "Unfunded Current  Liability" of any Plan shall mean the amount, if any, by
which the present value of the accrued  benefits  under the Plan as of the close
of its most  recent  plan  year  exceeds  the fair  market  value of the  assets
allocable thereto, determined in accordance with Section 412 of the Code.

     SECTION 1.02. Terms Generally.  The definitions of terms herein shall apply
equally to the  singular  and plural  forms of the terms  defined.  Whenever the
context may require, pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and the neuter. Except as otherwise herein
specifically  provided,  each accounting term used herein shall have the meaning
given to it under Generally Accepted Accounting Principles. The term "including"
shall  not  be  limited  or  exclusive,  unless  specifically  indicated  to the
contrary.  The word "will" shall be construed to have the same meaning in effect
as the word "shall".  The words  "herein",  "hereof" and  "hereunder"  and other
words of  similar  import  refer to this  Agreement  as a whole,  including  the
exhibits and schedules hereto,  all of which are by this reference  incorporated
into this Agreement.

                                   ARTICLE II
                                     LOANS

     SECTION  2.01.  Revolving  Credit  Loans.  (a)  Subject  to the  terms  and
conditions,  and relying  upon the  representations  and  warranties,  set forth
herein,  and  subject  to the next  sentence,  the  Bank  agrees  to make  loans
(individually a "Revolving Credit Loan" and, collectively, the "Revolving Credit
Loans") to the Company from time to time during the Revolving Credit  Commitment
Period,  up to but not exceeding at any one time  outstanding  the amount of its
Revolving Credit Commitment;  provided,  however,  that no Revolving Credit Loan
shall be made if,  after  giving  effect  to such  Revolving  Credit  Loan,  the
aggregate  outstanding  principal  amount of all Revolving  Credit Loans at such
time would exceed the lesser of (i) the Revolving Credit Commitment in effect at
such time or (ii) if,  after giving  effect to the  requested  Revolving  Credit
Loan, the aggregate  outstanding  principal amount of the Revolving Credit Loans
would  equal  or  exceed   $4,000,000,   the  then   current   Borrowing   Base.
Notwithstanding  anything to the contrary herein,  until such time that the Bank
shall have received a satisfactory  field exam of the Company's  Accounts and an
appraisal of the Company's  raw material  inventory,  the aggregate  outstanding
principal amount of the Revolving  Credit Loans shall not, in any event,  exceed
$4,000,000;  provided,  however,  the Bank  shall  conduct  such  field exam and
appraisal as soon as practicable  and, in any event,  within thirty (30) days of
the Closing Date. During the Revolving Credit Commitment Period, the Company may
from time to time  borrow,  repay and  reborrow  hereunder  on or after the date
hereof and prior to the Revolving Credit Commitment Termination Date, subject to
the terms,  provisions and  limitations set forth herein.  The Revolving  Credit
Loans may be (A) LIBOR Rate Loans,  (B) Prime Rate Loans,  or (C) a  combination
thereof.

     (b) The  Company  shall  give  the  Bank  irrevocable  written  notice  (or
telephonic notice promptly  confirmed in writing) not later than 11:00 a.m. (New
York, New York time), two Business Days prior to the date of each proposed LIBOR
Rate Loan under this  Section  2.01 or prior to 11:00 a.m.  (New York,  New York
time) on the date of each proposed Prime Rate Loan under this Section 2.01. Such
notice (a "LIBOR Rate Election")  shall be irrevocable and shall specify (i) the
amount and Type of the  proposed  borrowing,  (ii) the  proposed use of the loan


                                       12
<PAGE>

proceeds,  (iii) the initial  Interest Period if a LIBOR Rate Loan, and (iv) the
proposed  Borrowing Date. Except for borrowings which utilize the full remaining
amount of the Revolving Credit  Commitment,  each borrowing of a Prime Rate Loan
shall be in an amount not less than $100,000 or, if greater,  whole multiples of
$100,000  in excess  thereof.  Each  borrowing  of a LIBOR Rate Loan shall be an
amount not less than $100,000 or whole  multiples of $100,000 in excess thereof.
Funding  of all Loans  shall be made in  accordance  with  Section  3.12 of this
Agreement.

     (c) The  Company  shall have the right,  upon not less than three  Business
Days'  prior  written  notice  to the Bank to  terminate  the  Revolving  Credit
Commitment  or from  time  to  time to  permanently  reduce  the  amount  of the
Revolving  Credit  Commitment;  provided,  however,  that no such termination or
reduction  shall  be  permitted  if,  after  giving  effect  thereto  and to any
prepayments  of the Revolving  Credit Loans made on the effective  date thereof,
the aggregate  outstanding  principal amount of all Revolving Credit Loans would
exceed the Revolving Credit Commitment as then reduced; provided,  further, that
any such  termination or reduction  requiring  prepayment of any LIBOR Rate Loan
shall be made only on the last day of the Interest  Period with respect  thereto
or on the date of payment in full of all amounts owing  pursuant to Section 3.08
as a result of such termination or reduction. Any such reduction shall be in the
amount of $100,000 or whole multiples of $100,000 in excess  thereof,  and shall
reduce permanently the amount of the Revolving Credit Commitment then in effect.

     (d) The agreement of the Bank to make  Revolving  Credit Loans  pursuant to
this  Section  2.01  shall  automatically  terminate  on  the  Revolving  Credit
Commitment   Termination  Date.  Upon  such   termination,   the  Company  shall
immediately  repay in full the principal  amount of the  Revolving  Credit Loans
then  outstanding,  together  with all  accrued  interest  thereon and all other
amounts due and payable hereunder.

     SECTION 2.02. Revolving Credit Note. The Revolving Credit Loans made by the
Bank shall be evidenced by a promissory note of the Company substantially in the
form attached hereto as Exhibit A (the "Revolving  Credit Note"),  appropriately
completed,  duly  executed and delivered on behalf of the Company and payable to
the  order of the Bank in a  principal  amount  equal  to the  Revolving  Credit
Commitment of the Bank. The Revolving Credit Note shall (a) be dated the Closing
Date,  (b) be stated to mature on the Revolving  Credit  Commitment  Termination
Date,  and (c) bear  interest  from the date  thereof  until paid in full on the
unpaid  principal  amount  thereof from time to time  outstanding as provided in
Section 3.01. The Bank is authorized to record the date, Type and amount of each
Revolving  Credit Loan and the date and amount of each payment or  prepayment of
principal  of each  Revolving  Credit Loan in the Bank's  records or on the grid
schedule  annexed to the  Revolving  Credit Note;  provided,  however,  that the
failure of the Bank to set forth each such  Revolving  Credit Loan,  payment and
other  information  shall not in any manner affect the obligation of the Company
to repay each  Revolving  Credit  Loan made by the Bank in  accordance  with the
terms of its Revolving  Credit Note and this  Agreement.  The  Revolving  Credit
Note,  the grid schedule and the books and records of the Bank shall  constitute
conclusive evidence of the information so recorded absent manifest error.

                                       13
<PAGE>

                                  ARTICLE III
                PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT;
                               FEES AND PAYMENTS

     SECTION 3.01. Interest Rate; Continuation and Conversion of Loans.

     (a) Each Prime Rate Loan shall bear  interest  for the period from the date
thereof on the unpaid  principal  amount thereof at a fluctuating rate per annum
equal to the Prime Rate.

     (b) Each  LIBOR  Rate Loan  shall bear  interest  for the  Interest  Period
applicable  thereto on the unpaid  principal  amount thereof at a rate per annum
equal to the Reserve  Adjusted Libor determined for each Interest Period thereof
in  accordance  with the terms hereof plus a margin of one and one-half  percent
(1.5%) per annum.

     (c) Upon the occurrence and during the continuance of a Default or an Event
of Default,  each  Revolving  Credit Loan  outstanding  (excluding any defaulted
payment of principal  accruing  interest in  accordance  with clause (d) below),
shall,  at the option of the Bank,  bear interest at a rate of interest which is
four percent (4%) greater than the interest rate otherwise then in effect or, if
no rate is in effect, four percent (4%) per annum greater than the Prime Rate.

     (d) If the Company  shall fail to make any  required  principal or interest
payment on any portion of any Loan or any other amount  becoming  due  hereunder
whether with respect to interest,  fees, expenses or otherwise,  in full, within
ten (10) days after the same is due,  the  Company  shall pay to the Bank a late
fee equal to five (5%) percent of the required payment.

     (e) The  Company may elect from time to time to convert  outstanding  Loans
from  LIBOR  Rate  Loans to Prime  Rate  Loans by  giving  the Bank at least two
Business Day's prior irrevocable written notice of such election,  provided that
any such conversion of LIBOR Rate Loans shall only be made on the last day of an
Interest  Period with respect thereto or upon the date of payment in full of any
amounts  owing  pursuant  to Section  3.08 as a result of such  conversion.  The
Company may elect from time to time to convert outstanding Loans from Prime Rate
Loans to LIBOR Rate Loans by giving the Bank irrevocable  written notice of such
election not later than 11:00 a.m. (New York, New York time),  two Business Days
prior to the date of the  proposed  conversion.  All or any part of  outstanding
Prime  Rate  Loans may be  converted  as  provided  herein,  provided  that each
conversion  shall be in the principal  amount of $100,000 or whole  multiples of
$100,000 in excess  thereof,  and further  provided  that no Default or Event of
Default shall have occurred and be continuing. Any conversion to or from a LIBOR
Rate  Loan  hereunder  shall be in such  amounts  and be made  pursuant  to such
elections so that, after giving effect thereto,  the aggregate  principal amount
of all LIBOR Rate Loans having the same  Interest  Period shall not be less than
$100,000.

     (f) Any LIBOR Rate Loan in a minimum  principal  amount of $100,000  may be
continued as such upon the expiration of an Interest Period with respect thereto
by  compliance  by the  Company  with the  notice  provisions  contained  in the


                                       14
<PAGE>

definition  of  Interest  Period;  provided,  that no  LIBOR  Rate  Loan  may be
continued  as such when any  Default or Event of  Default  has  occurred  and is
continuing,  but shall be  automatically  converted  to a Prime Rate Loan on the
last  day of the  Interest  Period  in  effect  when the  Bank is  notified,  or
otherwise has actual knowledge, of such Default or Event of Default.

     (g) If the Company shall fail to select the duration of any Interest Period
for any LIBOR Rate Loan in accordance  with the definition of "Interest  Period"
set forth in Section  1.01,  the  Company  shall be deemed to have  selected  an
Interest Period of one month.

     (h) No Loan  may be  funded  as a  LIBOR  Rate  Loan,  or  converted  to or
continued as a LIBOR Rate Loan,  with an Interest Period that extends beyond the
Revolving Credit Commitment Termination Date.

     (i)   Anything  in  this   Agreement   or  in  any  Note  to  the  contrary
notwithstanding,  if any time,  the rate of interest,  together with all amounts
which constitute  interest and which are reserved,  charged or taken by the Bank
as  compensation  for fees,  services  or  expenses  incidental  to the  making,
negotiating or collection of the Loan evidenced  hereby,  shall be deemed by any
competent  court of law,  governmental  agency or tribunal to exceed the maximum
rate of  interest  permitted  to be  charged  by the Bank to the  Company  under
applicable law, then,  during such time as such rate of interest would be deemed
excessive,  that portion of each sum paid  attributable  to that portion of such
interest  rate that exceeds the maximum  rate of interest so permitted  shall be
deemed a voluntary  prepayment of principal.  Any such  prepayment  shall not be
subject to the terms of  Sections  3.03(b),  3.03(c)  and 3.08  hereof.  As used
herein,  the term  "applicable  law" shall mean the law in effect as of the date
hereof;  provided,  however, that in the event that there is a change in the law
which results in a higher maximum allowable rate of interest being applicable to
this Agreement and the Note,  then this Agreement and the Note shall be governed
by such new law as of its effective date.

     (j)  Interest  on each Loan shall be  payable  in arrears on each  Interest
Payment Date and shall be  calculated on the basis year of 360 days and shall be
payable for the actual days elapsed.  Any rate of interest on the Loans or other
Obligations  which is computed on the basis of the Prime Rate shall  change when
and as the Prime Rate changes in accordance  with the definition  thereof.  Each
determination  by the Bank of an interest  rate or fee hereunder  shall,  absent
manifest error, be conclusive and binding for all purposes.

     SECTION 3.02. Use of Proceeds.  The proceeds of the Revolving  Credit Loans
shall  be used  solely  for the  working  capital  needs of the  Company  in the
ordinary course of its business.

                                       15
<PAGE>
     SECTION 3.03. Prepayments.

     (a) To the extent that the  outstanding  principal  amount of the Revolving
Credit Loans  exceeds the Borrowing  Base as in effect at any time,  the Company
shall  immediately  prepay the Revolving Credit Loans to the extent necessary to
cause compliance with the Borrowing Base, provided that prepayment of LIBOR Rate
Loans  shall be  subject to  payment  by the  Company  of any costs or  expenses
required pursuant to Section 3.08 hereof.

     (b) The Company  may on the last day of an Interest  Period if the Loans to
be  prepaid  are LIBOR Rate  Loans,  or at any time and from time to time if the
Loans to be prepaid are Prime Rate Loans,  prepay the then outstanding Loans, in
whole or in part, without premium or penalty, except as provided in Section 3.08
hereof, upon written notice to the Bank (or telephonic notice promptly confirmed
in writing) not later than 11:00 a.m. (New York, New York time),  three Business
Days before the date of  prepayment  with respect to  prepayments  of LIBOR Rate
Loans,  or 11:00 a.m. (New York, New York time) one Business Day before the date
of prepayment with respect to Prime Rate Loans. Each notice shall be irrevocable
and shall specify the date and amount of prepayment and whether such  prepayment
is of LIBOR Rate Loans or Prime Rate Loans, or a combination  thereof,  and if a
combination  thereof, the amount of prepayment allocable to each. If such notice
is given,  the Company shall make such  prepayment,  and the amount specified in
such  notice  shall be due and  payable,  on the date  specified  therein.  Each
partial prepayment  pursuant to this Section 3.03 shall be in a principal amount
of $100,000 or whole multiples of $100,000 in excess thereof.

     (c) Each  prepayment  of principal of a Loan  pursuant to this Section 3.03
shall be  accompanied  by  accrued  interest  to the date  prepaid on the amount
prepaid.  Partial  prepayments of any Loan shall be applied first to outstanding
Prime  Rate  Loans and then to LIBOR  Rate Loans in such order as the Bank shall
determine in its sole and absolute discretion.

     SECTION 3.04. Fees.

     (a) The Company agrees to pay to the Bank an unused line fee on the average
daily unused portion of the Revolving  Credit  Commitment  from the date of this
Agreement until the Revolving Credit  Commitment  Termination Date at a rate per
annum equal to  two-fifths of one percent  (.40%),  based on a year of 360 days,
payable in arrears on the last day of March,  June,  September,  and December of
each  year  commencing  March  31,  2002,  on the  Revolving  Credit  Commitment
Termination Date and on each date the Revolving Credit Commitment is permanently
reduced in whole or in part.

     (b) The Company agrees to pay to the Bank a non-refundable  origination fee
of $25,000 which shall be paid in full on the Closing Date.

     SECTION 3.05.  Inability to Determine  Interest Rate. In the event that the
Bank shall have determined (which  determination shall be conclusive and binding
upon the  Company)  that,  by  reason  of  circumstances  affecting  the  London
interbank  market,  adequate and reasonable  means do not exist for ascertaining
the  Reserve  Adjusted  Libor  applicable  pursuant  to Section  3.01(b) for any
requested  Interest  Period with respect to (a) the making of a LIBOR Rate Loan,
(b) a LIBOR Rate Loan that will result from the requested  conversion of a Prime
Rate Loan into a LIBOR Rate Loan, or (c) the  continuation of an LIBOR Rate Loan


                                       16
<PAGE>

beyond the expiration of the then current  Interest Period with respect thereto,
the Bank  shall  forthwith  give  notice  by  telephone  of such  determination,
promptly confirmed in writing, to the Company of such  determination.  Until the
Bank notifies the Company that the  circumstances  giving rise to the suspension
described  herein  no  longer  exist,  the  Company  shall not have the right to
request or continue a LIBOR Rate Loan or to convert a Prime Rate Loan to a LIBOR
Rate Loan.

     SECTION 3.06.  Illegality.  Notwithstanding any other provisions herein, if
any introduction of or change in any law, regulation,  treaty or directive or in
the interpretation or application thereof shall make it unlawful for the Bank to
make or maintain LIBOR Rate Loans as contemplated  by this  Agreement,  the Bank
shall  forthwith  give  notice  by  telephone  of such  circumstances,  promptly
confirmed in writing,  and (a) the  commitment  of the Bank to make and to allow
conversion to or  continuations of LIBOR Rate Loans shall forthwith be cancelled
for the duration of such illegality and (b) the Loans then  outstanding as LIBOR
Rate Loans, if any, shall be converted  automatically to Prime Rate Loans on the
next succeeding  last day of each Interest Period  applicable to such LIBOR Rate
Loans or within such earlier period as may be required by law. The Company shall
pay to the  Bank,  upon  demand,  any  additional  amounts  required  to be paid
pursuant to Section 3.08 hereof.

     SECTION 3.07. Increased Costs. (a) In the event that any introduction of or
change in, on or after the date hereof, any applicable law, regulation,  treaty,
order,  directive or in the  interpretation or application  thereof  (including,
without limitation,  any request, guideline or policy, whether or not having the
force of law,  of or from any  central  bank or  other  governmental  authority,
agency or instrumentality and including,  without limitation,  Regulation D), by
any authority charged with the  administration  or interpretation  thereof shall
occur, which:

          (i)  shall  subject  the Bank to any tax of any kind  whatsoever  with
     respect to this  Agreement,  any Note,  or any Loan, or change the basis of
     taxation of payments to the Bank of principal,  interest, fees or any other
     amount payable  hereunder (other than any tax that is measured with respect
     to the  overall  net income of the Bank or  lending  office of the Bank and
     that  is  imposed  by the  United  States  of  America,  or  any  political
     subdivision or taxing authority thereof or therein,  or by any jurisdiction
     in which the Bank's lending office is located,  or by any  jurisdiction  in
     which the Bank is  organized,  has its  principal  office or is managed and
     controlled); or

          (ii) shall  impose,  modify or hold  applicable  any reserve,  special
     deposit,  compulsory loan or similar requirement (whether or not having the
     force of law) against  assets held by, or deposits or other  liabilities in
     or for the account of,  advances or loans by, or other credit  extended by,
     or any other acquisition of funds by, any office of the Bank; or

          (iii) shall impose on the Bank any other condition, or change therein;
     and the result of any of the  foregoing is to increase the cost to the Bank
     of  making,  renewing  or  maintaining  or  participating  in  advances  or
     extensions  of  credit  hereunder  or  to  reduce  any  amount   receivable
     hereunder,  in each case by an amount which the Bank deems material,  then,
     in any such  case,  the  Company  shall pay the  Bank,  upon  demand,  such
     additional  amount  or  amounts  as the Bank  shall  have  determined  will
     compensate the Bank for such increased costs or reduction.

                                       17
<PAGE>

     (b) If the Bank shall have  determined  that the adoption of any applicable
law, rule or regulation  regarding capital adequacy,  or any change therein,  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 (or any lending office of the
Bank) or the Bank's  holding  company,  with any request or directive  regarding
capital  adequacy  (whether  or not  having  the  force  of the law) of any such
authority,  central bank or comparable  agency,  has or would have the effect of
reducing  the rate of return on the  Bank's  capital  or on the  capital  of the
Bank's holding company as a consequence of its obligations  hereunder to a level
below that which the Bank could have achieved but for such  adoption,  change or
compliance  (taking into  consideration  the Bank's policies and the policies of
the Bank's holding company with respect to capital adequacy) by an amount deemed
by the Bank to be material, then from time to time, the Company shall pay to the
Bank, the additional  amount or amounts as the Bank shall have  determined  will
compensate the Bank or the Bank's holding company for such reduction. The Bank's
determination  of such amounts  shall be  conclusive  and binding on the Company
absent manifest error.

     (c) A certificate  of the Bank setting forth the amount or amounts  payable
pursuant to  Sections  3.07(a) and  3.07(b)  above  shall be  conclusive  absent
manifest  error.  The Company  shall pay the Bank the amount shown as due on any
such certificate within 10 Business Days after receipt thereof.

     SECTION 3.08.  Indemnity.  The Company  agrees to indemnify the Bank and to
hold the Bank harmless from any loss, cost or expense which the Bank may sustain
or incur,  including,  without  limitation,  such  amount or amounts as shall be
sufficient  (in the  reasonable  opinion of the Bank) to  compensate  it for any
loss,  cost,  or expense  incurred as a result of: (a) any payment or prepayment
(whether  mandatory or optional) of a LIBOR Rate Loan,  or the  conversion  of a
LIBOR Rate Loan to a Prime  Rate Loan,  on a date other than the last day of the
Interest  Period for such  Loan;  (b) any  failure  by the  Company to accept or
borrow a LIBOR Rate Loan,  or to convert into or continue a LIBOR Rate Loan,  on
the date specified in the Borrower's written Notice of Borrowing,  conversion or
continuation;  or (c) any failure by the Company to pay a LIBOR Rate Loan on the
date for payment  specified in the Borrower's  written notice.  Without limiting
the foregoing, the Company shall pay to the Bank a "yield maintenance fee" in an
amount  computed  as  follows:  the  current  rate for  United  States  Treasury
securities (bills on a discounted basis shall be converted to a bond equivalent)
with a maturity date closest to the term of the Interest  Period chosen pursuant
to the  LIBOR  Rate  Election  as to which  the  prepayment  is  made,  shall be
subtracted from the Reserve  Adjusted Libor in effect at the time of prepayment.
If the result is zero or a negative number,  there shall be no yield maintenance
fee. If the result is a positive number, then the resulting  percentage shall be
multiplied by the amount of the principal  balance being prepaid.  The resulting
amount shall be divided by 360 and multiplied by the number of days remaining in
the Interest  Period chosen  pursuant to the LIBOR Rate Election as to which the
prepayment is made. Said amount shall be reduced to present value  calculated by
using the above referenced United States Treasury securities rate and the number
of days  remaining  in the  Interest  Period  chosen  pursuant to the LIBOR Rate


                                       18
<PAGE>

Election as to which  prepayment  is made.  The  resulting  amount  shall be the
"yield  maintenance  fee" due to the Bank upon the  prepayment  of a LIBOR  Rate
Loan.  If by reason of an Event of Default,  the Bank elects to declare the Note
to be immediately due and payable,  then any yield  maintenance fee with respect
to a LIBOR Rate Loan shall  become due and  payable in the same manner as though
the Company had exercise such right of prepayment.

     A  certificate  of the Bank setting  forth such amounts shall be conclusive
absent manifest error. The Company shall pay the Bank the amount shown as due on
any certificate within ten Business Days after receipt thereof.

     SECTION  3.09.  Taxes.  Except as required by law, all payments made by the
Company  under  this  Agreement  shall be made free and clear  of,  and  without
reduction  for or on account of, any present or future taxes,  levies,  imposts,
duties,  charges,  fees,  deductions or withholdings,  now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
income and  franchise  taxes  imposed  on the Bank by (i) the  United  States of
America or any political  subdivision  or taxing  authority  thereof or therein,
(ii) the jurisdiction  under the laws of which the Bank is organized or in which
it has its  principal  office or is  managed  and  controlled  or any  political
subdivision or taxing authority thereof or therein, or (iii) any jurisdiction in
which the  Bank's  lending  office is located or any  political  subdivision  or
taxing  authority  thereof or therein  (such  non-excluded  taxes  being  called
"Taxes").  If any Taxes are required to be withheld from any amounts  payable to
the Bank  hereunder,  or under the Note, the amount so payable to the Bank shall
be increased to the extent  necessary to yield to the Bank (after payment of all
Taxes and free and clear of all liability in respect of such Taxes)  interest or
any  such  other  amounts  payable  hereunder  at the  rates  or in the  amounts
specified in this Agreement and the Note.  Whenever any Taxes are payable by the
Company, as promptly as possible thereafter,  the Company shall send to the Bank
a certified copy of an original official receipt showing payment thereof. If the
Company fails to pay Taxes when due to the appropriate taxing authority or fails
to remit  to the  Bank the  required  receipts  or  other  required  documentary
evidence,  the  Company  shall  indemnify  the Bank for any  incremental  taxes,
interest  or  penalties  that may become  payable by the Bank as a result of any
such  failure  together  with any  expenses  payable  by the Bank in  connection
therewith.

     SECTION 3.10. Payments. All payments (including  prepayments) to be made by
the  Company on  account  of  principal,  interest,  fees shall be made  without
set-off or counterclaim  and shall be made to the Bank, at the Payment Office of
the Bank in Dollars in immediately  available  funds.  The Bank may, in its sole
discretion,  directly charge  principal and interest  payments due in respect of
the Loans to the Company's accounts at the Payment Office or other office of the
Bank. Except as otherwise  provided in the definition of "Interest  Period",  if
any  payment  hereunder  becomes  due and payable on a day other than a Business
Day,  such payment shall be extended to the next  succeeding  Business Day, and,
with respect to payments of principal,  interest thereon shall be payable at the
then applicable rate during such extension.  All payments shall be applied first
to the  payment  of  all  fees,  expenses  and  other  amounts  due to the  Bank
(excluding principal and interest), then to accrued interest, and the balance on
account of outstanding principal, provided, however, that upon the occurrence of
an Event of Default,  payments  will be applied to the  Obligations  as the Bank
shall determine in its sole discretion.

                                       19
<PAGE>

     SECTION 3.11.  Disbursement  of Loans.  The Bank shall make each Loan to be
made by it hereunder available to the Company at the Payment Office by crediting
the  account  of the  Company  with such  amount  and in like  funds;  provided,
however,  that if the proceeds of any Loan or any portion thereof are to be used
to prepay  outstanding  Loans,  then the Bank shall apply such proceeds for such
purpose to extent  necessary  and credit the balance,  if any, to the  Company's
account.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

     In order to induce the Bank to enter into this  Agreement and to extend the
credit  herein  provided  for, the Company  represents  and warrants to the Bank
that:

     SECTION 4.01. Organization, Powers. The Company and each Guarantor (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation or formation,  (b) has the power and authority
to own its properties and to carry on its business as now being  conducted,  (c)
is duly  qualified to do business in every  jurisdiction  wherein the conduct of
its  business or the  ownership  of its  properties  are such as to require such
qualification except those jurisdictions in which the failure to be so qualified
could not reasonably be expected to have a Material Adverse Effect,  and (d) has
the power to execute, deliver and perform each of the Loan Documents to which it
is a party,  including,  without  limitation,  with respect to the Company,  the
power to obtain  extensions  of credit  hereunder and to execute and deliver the
Note.

     SECTION 4.02.  Authorization  of Borrowing,  Enforceable  Obligations.  The
execution,  delivery and performance by the Company of this  Agreement,  and the
other  Loan  Documents  to which it is a party,  the  borrowings  and the  other
extensions of credit to the Company hereunder,  and the execution,  delivery and
performance  by each of its  Subsidiaries  of the Loan  Documents  to which such
Subsidiary is a party, (a) have been duly authorized by all requisite corporate,
limited partnership or limited liability action, (b) will not violate or require
any consent  (other than consents as have been made or obtained and which are in
full force and effect) under (i) any provision of law  applicable to the Company
or any  Subsidiary of the Company,  any rule or  regulation of any  Governmental
Authority,  or the Certificate of Incorporation or By-laws of the Company or the
Certificate of Incorporation,  By-Laws, or other  organizational  documents,  as
applicable,  of any  Subsidiary of the Company or (ii) any order of any court or
other  Governmental  Authority  binding on the Company or any  Subsidiary of the
Company or any indenture,  agreement or other instrument to which the Company or
any  Subsidiary  of the  Company  is a party,  or by which  the  Company  or any
Subsidiary  of the Company or any of its property is bound,  and (c) will not be
in conflict  with,  result in a breach of or constitute  (with due notice and/or
lapse  of  time) a  default  under,  any  such  indenture,  agreement  or  other
instrument,  or result in the creation or  imposition of any Lien, of any nature
whatsoever  upon any of the property or assets of the Company or any  Subsidiary
of the Company other than as  contemplated  by this  Agreement or the other Loan
Documents.  This  Agreement and each other Loan Document to which the Company or
any of its  Subsidiaries  is a party  constitutes  a legal,  valid  and  binding
obligation of the Company and each such  Subsidiary of the Company,  as the case
may be, enforceable against the Company and each such Subsidiary of the Company,
as the case may be, in accordance with its terms.

                                       20
<PAGE>

     SECTION 4.03. Financial Condition. (a) The Company has heretofore furnished
to the Bank (i) the audited  consolidated  balance  sheet of the Company and its
Subsidiaries and the related consolidated statement of income, retained earnings
and cash flow of the Company  and its  Subsidiaries,  audited by Grant  Thornton
LLP, independent certified public accountants, for the fiscal year ended May 31,
2001, and (ii) the unaudited  consolidated  balance sheet of the Company and its
Subsidiaries  and  the  related  consolidated  statements  of  income,  retained
earnings  and cash flow of the  Company and its  Subsidiaries  for the six month
period ended  November 30, 2001.  Such  financial  statements  were  prepared in
conformity  with  Generally  Accepted  Accounting   Principles,   applied  on  a
consistent  basis, and fairly present the consolidated  financial  condition and
consolidated results of operations of the Company and its Subsidiaries as of the
date of such  financial  statements and for the periods to which they relate and
since May 31, 2001, no Material  Adverse Effect has occurred.  The Company shall
deliver to the Bank a certificate of the Chief Financial  Officer of the Company
to that effect on the  Closing  Date.  Other than  obligations  and  liabilities
arising in the  ordinary  course of business  since May 31,  2001,  there are no
material obligations or liabilities  contingent or otherwise,  of the Company or
any of its  Subsidiaries  which are not  reflected  or disclosed on such audited
statements other than  obligations of the Company and its Subsidiaries  incurred
in  the  ordinary   course  of  business  (which  shall  be  deemed  to  exclude
acquisitions  by the Company or any Subsidiary of the Company of the business or
assets (including, without limitation stock) of any Person).

     (b) The Company,  individually and together with the Guarantors, is Solvent
and  immediately  after giving  effect to each Loan and each other  extension of
credit  contemplated  by this Agreement and the execution of each Loan Document,
will be Solvent.

     SECTION 4.04.  Taxes.  All assessed  deficiencies  resulting  from Internal
Revenue Service examinations of the federal income tax returns of the Company or
any of its  Subsidiaries  have been discharged or reserved against in accordance
with  Generally  Accepted  Accounting  Principles.  The  Company and each of its
Subsidiaries  has filed or caused to be filed all  federal,  state and local tax
returns  which are  required to be filed,  and has paid or has caused to be paid
all taxes required to be paid by it and all  assessments  received by it, to the
extent that such taxes have become due,  except taxes which are being  contested
in good  faith and which are  reserved  against  in  accordance  with  Generally
Accepted Accounting Principles.

     SECTION 4.05. Title to Properties. The Company and each of its Subsidiaries
has good  title to their  respective  properties  and  assets,  except  for such
properties  and assets as have been disposed of since the date of such financial
statements  as no  longer  used or  useful in the  conduct  of their  respective
businesses or as have been disposed of in the ordinary  course of business,  and
all such  properties  and  assets  are free and  clear of all Liens  other  than
Permitted Liens.

                                       21
<PAGE>

     SECTION 4.06.  Litigation.  (a) There are no actions,  suits or proceedings
(whether or not purportedly on behalf of the Company or any of its Subsidiaries)
pending or, to the knowledge of the Company, threatened against or affecting the
Company  or any of its  Subsidiaries  at law or in  equity  or  before or by any
Governmental  Authority,  which  involve  any of the  transactions  contemplated
herein or which, if adversely determined against the Company or such Subsidiary,
could  reasonably be expected to result in a Material  Adverse  Effect;  and (b)
neither the Company nor any of its  Subsidiaries  is in default  with respect to
any judgment,  writ, injunction,  decree, rule or regulation of any Governmental
Authority  which could  reasonably  be expected to result in a Material  Adverse
Effect.

     SECTION 4.07.  Agreements.  Neither the Company nor any of its Subsidiaries
is a party to any  agreement  or  instrument  or subject to any charter or other
corporate  restriction  or any  judgment,  order,  writ,  injunction,  decree or
regulation which could reasonably be expected to have a Material Adverse Effect.
Neither  the  Company  nor  any  of  its  Subsidiaries  is  in  default  in  the
performance,  observance or fulfillment of any of the obligations,  covenants or
conditions  contained  in any  agreement or  instrument  to which it is a party,
which default could reasonably be expected to have a Material Adverse Effect.

     SECTION 4.08. Compliance with ERISA. Each Plan is in compliance with ERISA,
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect; no Plan is insolvent or in  reorganization,  no Plan or
Plans have an Unfunded  Current  Liability,  and no Plan has an  accumulated  or
waived  funding  deficiency;  neither the Company,  any  Guarantor nor any ERISA
Affiliate  has  incurred any  liability  to or on account of a Plan  pursuant to
Section 515,  4062,  4063,  4064,  4201 or 4204 of ERISA or expects to incur any
liability  under  any  of  the  foregoing  sections  on  account  of  the  prior
termination  of   participation  in  or  contributions  to  any  such  Plan;  no
proceedings  have been  instituted to terminate  any Plan;  no condition  exists
which  could  reasonably  be  expected  to  present a risk to the  Company,  any
Guarantor or any ERISA  Affiliate of incurring a liability to or on account of a
Plan pursuant to the foregoing provisions of ERISA and the Code; no lien imposed
under the Code or ERISA on the assets of the Company, any Guarantor or any ERISA
Affiliates  exists or is likely to arise on account of any Plan and the  Company
and each  Guarantor,  as applicable,  may terminate  contributions  to any other
employee benefit plans maintained by it without incurring any material liability
to any Person interested therein.


     SECTION 4.09. Federal Reserve Regulations; Use of Proceeds.

     (a) Neither the Company nor any of its Subsidiaries is engaged  principally
in, nor has as one of its important activities, the business of extending credit
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 of the
United States, as amended from time to time).

     (b) No part of the  proceeds of any Loan and no other  extension  of credit
hereunder will be used, whether directly or indirectly, and whether immediately,
incidentally  or  ultimately,  (i) to  purchase or to carry  margin  stock or to


                                       22
<PAGE>

extend credit to others for the purpose of purchasing or carrying  margin stock,
or to refund indebtedness originally incurred for such purposes, or (ii) for any
purpose which violates or is inconsistent with the provisions of Regulation T,U,
or X of the Board of Governors of the Federal Reserve System.

     (c) The proceeds of each Loan, and each other extension of credit hereunder
shall be used solely for the purposes permitted under Section 3.02.

     SECTION 4.10. Approvals. No registration with or consent or approval of, or
other action by, any  Governmental  Authority or any other Person is required in
connection with the execution, delivery and performance of this Agreement by the
Company or any of its Subsidiaries,  or with the execution and delivery of other
Loan  Documents  to which it is a party or,  with  respect to the  Company,  the
borrowings and each other extension of credit hereunder.

     SECTION 4.11. Subsidiaries.  Attached hereto as Schedule I is a correct and
complete  list of each of the  Company's  Subsidiaries  as of the  Closing  Date
showing as to each Subsidiary,  its name, the jurisdiction of its incorporation,
its  shareholders  or other  owners of an  interest in each  Subsidiary  and the
number  of  outstanding  shares  or  other  ownership  interest  owned  by  each
shareholder or other owner of an interest.

     SECTION 4.12. Hazardous Materials. The Company and each of its Subsidiaries
are in compliance in all material  respects  with all  applicable  Environmental
Laws and  neither the Company  nor any of its  Subsidiaries  has used  Hazardous
Materials  on,  from,  or  affecting  any  property  now  owned or  occupied  or
previously  owned or occupied by the Company or its  Subsidiaries  in any manner
which violates in any material respects any applicable Environmental Law. To the
Company's knowledge,  no prior owner, tenant,  subtenant,  prior tenant or prior
subtenant of any property formerly owned or occupied,  or currently owned by the
Company,  has used  Hazardous  Materials on, from, or affecting such property in
any manner which violates any applicable Environmental Law.

     SECTION 4.13.  Investment  Company Act.  Neither the Company nor any of its
Subsidiaries  is  an  "investment  company",  or a  company  "controlled"  by an
"investment company",  within the meaning of the Investment Company Act of 1940,
as amended.

     SECTION 4.14. Security Agreement. The Security Agreement shall, pursuant to
its terms,  constitute a valid and continuing  lien on and security  interest in
the  collateral  referred to in such  Security  Agreement  in favor of the Bank,
which shall be prior to all other Liens,  claims and rights of all other Persons
in such collateral.

                                       23
<PAGE>
     SECTION 4.15.  No Default.  No Default or Event of Default has occurred and
is continuing.

     SECTION 4.16. Material  Contracts.  All Material Contracts are disclosed on
Schedule V hereto.  Each such Material  Contract is in full force and effect and
is binding upon and enforceable  against the Company and any Guarantor,  in each
case, to the extent they are a party thereto,  and, to the Company's  knowledge,
all other  parties  thereto in  accordance  with its terms,  and there exists no

default  under any Material  Contract by the Company or any Guarantor or, to the
knowledge of the Company,  by any other party thereto,  which has not been fully
cured or waived which  default  could  reasonably be expected to have a Material
Adverse Effect.

     SECTION  4.17.   Permits  and  Licenses.   The  Company  and  each  of  its
Subsidiaries each has all permits, licenses, certifications,  authorizations and
approvals  required  for  it  lawfully  to  own  and  operate  their  respective
businesses, except those the failure of which to have could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

     SECTION 4.18. Compliance with Law. The Company and each of its Subsidiaries
are each in compliance,  with all laws, rules,  regulations,  orders and decrees
which are  applicable  to the Company or any of its  Subsidiaries,  or to any of
their  respective  properties,  except  where the  failure  to comply  could not
reasonably be expected to have a Material Adverse Effect.

     SECTION 4.19. Disclosure.  Neither this Agreement, any other Loan Document,
nor any other document,  certificate or written statement  furnished to the Bank
by or on behalf of the Company or any of its  Subsidiaries for use in connection
with  the  transactions  contemplated  by this  Agreement  contains  any  untrue
statement of material fact or omits to state a material fact  necessary in order
to make the  statements  contained  herein or therein not misleading in light of
the circumstances in which they were made.

                                   ARTICLE V
                             CONDITIONS OF LENDING

     SECTION 5.01.  Conditions to Initial Extension of Credit. The obligation of
the  Bank to make  its  initial  Loan  hereunder  is  subject  to the  following
conditions precedent:

     (a) Note. On or prior to the Closing Date, the Bank shall have received the
Revolving Credit Note duly executed by the Company.

     (b) Guaranty. On or prior to the Closing Date, the Bank shall have received
a Guaranty duly executed by each Guarantor.

     (c) Security  Agreement.  On or prior to the Closing  Date,  the Bank shall
have  received  the  Security  Agreement  duly  executed by the Company and each
Guarantor.

                                       24
<PAGE>
     (d) Opinion of Counsel.  On or prior to the  Closing  Date,  the Bank shall
have  received a written  opinion of counsel for the Company and the  Guarantors
dated the Closing Date and addressed to the Bank,  substantially  in the form of
Exhibit D attached hereto.

     (e) Supporting  Documents.  On or prior to the Closing Date, the Bank shall
have  received  (i) a  certificate  of good  standing  for the  Company and each
Guarantor  from the  secretary  of state of the  states of their  organizational
jurisdiction  dated as of a recent date;  (ii)  certified  copies of the charter
documents  of  the  Company  and  each  Guarantor,  (iii)  a  certificate  of an

authorized  officer of the Company and each Guarantor dated the Closing Date and
certifying:  (x) that the charter documents of such Person have not been amended
since the date of their  certification (or if there has been any such amendment,
attaching a certified  copy  thereof);  (y) that attached  thereto is a true and
complete  copy of  resolutions  adopted by the Board of Directors of the Company
and each  Guarantor,  as applicable,  authorizing  the  execution,  delivery and
performance  of each Loan  Document to which it is a party and,  with respect to
the Company,  the borrowings and other extensions of credit  hereunder;  and (z)
the incumbency and specimen signature of each officer of the Company and of each
officer of each  Guarantor  executing each Loan Document to which the Company or
each Guarantor is a party and any certificates or instruments furnished pursuant
hereto or thereto,  and a  certification  by another  officer of the Company and
each  Guarantor as to the incumbency and signature of the Secretary or Assistant
Secretary of the Company and each  Guarantor;  and (iv) such other  documents as
the Bank may reasonably request.

     (f)  Insurance.  On or prior to the  Closing  Date,  the  Bank  shall  have
received  a  certificate  or  certificates  of  insurance  from  an  independent
insurance broker or brokers  confirming the insurance  required to be maintained
pursuant to Section 6.01 hereof,  and evidence that the Bank has been named loss
payee and additional insured with respect to each policy of such insurance.

     (g) Assets Free from Liens.  Prior to the Closing Date, the Bank shall have
received UCC-1 financing  statement,  tax and judgment lien searches  evidencing
that  the  Company's  and  each  Guarantor's  accounts  receivable,   inventory,
equipment  and all other assets of the Company and each  Guarantor  are free and
clear of all Liens except Permitted Liens.

     (h) Fees and Expenses. On or prior to the Closing Date, the Bank shall have
received the fees payable on the Closing  Date  pursuant to Section  3.04(b) and
reimbursement of expenses in accordance with Section 9.03(b).

     (i) No  Litigation.  There  shall  exist no  action,  suit,  investigation,
litigation or proceeding  affecting the Company or any Guarantor  pending or, to
the knowledge of the Company,  threatened before any court,  governmental agency
or arbiter that could reasonably be expected to be adversely  determined against
the Company or any Guarantor and, if so adversely  determined,  could reasonably
be  expected  to have,  individually  or in the  aggregate,  a Material  Adverse
Effect.

     (j) Consents and Approvals.  All  governmental and third party consents and
approvals  necessary in connection  with the  transactions  contemplated by this
Agreement and the other Loan  Documents  shall have been  obtained  (without the
imposition  of any  conditions  that are not  acceptable  to the Bank) and shall
remain in effect,  and no law or regulation  shall be applicable in the judgment
of the Bank that imposes  materially  adverse  conditions upon the  transactions
contemplated hereby.

                                       25
<PAGE>

     (k) No Material Adverse Changes. There shall not have occurred any material
adverse change in the business, operations,  properties,  prospects or condition
(financial  or otherwise) of the Company or the  Guarantors  since  November 30,
2001.

     (l)  Material  Contracts.  The  Bank  shall  have  received  a copy of each
Material  Contract  and shall be satisfied  with the form and  substance of each
thereof.

     (m) Due  Diligence.  The Bank shall have  completed its due diligence  with
respect to the Company and each Guarantor  including,  without limitation,  bank
checkings, trade checkings,  customer checkings and litigation checkings and the
Bank shall be satisfied with the results thereof.

     (n)  Officer's  Certificate.  On the  Closing  Date,  the Bank  shall  have
received a certificate dated the Closing Date,  executed by an Executive Officer
confirming  compliance with the conditions set forth in clauses (a), (b) and (c)
of Section 5.02.

     (o) Financial Statements. The Bank shall have received, with respect to the
Company and its Subsidiaries on a consolidated  basis,  the  management-prepared
financial statements (including balance sheets, income statements and statements
of cash flows) for the fiscal quarter ended November 30, 2001,  which statements
shall have been prepared in good faith by the management of the Company based on
reasonable assumptions, and the Bank shall have been satisfied with the form and
substance thereof.

     (p)  Landlord  Waivers.  The Bank  shall have  received  on or prior to the
Closing Date landlord waivers required pursuant to the Security Agreement.

     (q) Credit  References.  The Bank shall have  received and reviewed  credit
references  from  the  Company's  suppliers  representing  at  least  60% of the
Company's  accounts  payable,  and the Bank shall be satisfied  with the results
thereof.

     (r) Other  Information,  Documentation.  The Bank shall have  received such
other and further  information and  documentation as it may reasonably  require,
including,  but not limited to, any  information  or  documentation  relating to
compliance by the Company and each of its Subsidiaries  with the requirements of
all Environmental Laws.

     (s) Completion of Proceedings. All corporate and other proceedings, and all
documents,   instruments   and  other  legal  matters  in  connection  with  the
transactions   contemplated   by  the  Loan   Documents,   shall  be  reasonably
satisfactory in form and substance to the Bank, and its counsel.

                                       26
<PAGE>
     SECTION 5.02. Conditions to All Extensions of Credit. The obligation of the
Bank to make each Loan hereunder,  including,  without  limitation,  the initial
Loan, is subject to the  conditions  precedent set forth in Section 5.01 and the
following conditions precedent:

     (a) Representations  and Warranties.  The representations and warranties by
the Company and each of its  Subsidiaries  pursuant  to this  Agreement  and the
other Loan  Documents  to which each is a party shall be true and correct in all
material respects on and as of the Borrowing Date with the same effect as though
such  representations and warranties had been made on and as of such date unless
such representation is as of a specific date, in which case, as of such date.

     (b) No Default.  No Default or Event of Default  shall have occurred and be
continuing on the Borrowing  Date or will result after giving effect to the Loan
requested.

     (c) Notice of Borrowing. The Bank shall have received a Notice of Borrowing
duly executed by an Executive Officer with respect to the requested Loan.

     (d)  Availability.  After giving effect to any requested  Revolving  Credit
Loan, the outstanding  principal  amount of the Revolving Credit Loans shall not
exceed the lesser of (i) the then current  Borrowing Base and (ii) the Revolving
Credit Commitment then in effect.

     Each borrowing  hereunder shall constitute a representation and warranty of
the Company that the  statements  contained in clauses (a),  (b), (c) and (d) of
Section 5.02 are true and correct on and as of the Borrowing Date as though such
representation and warranty had been made on and as of such date.

                                   ARTICLE VI
                             AFFIRMATIVE COVENANTS

     The  Company  covenants  and  agrees  with  the  Bank  that  so long as the
Commitments remain in effect, or any of the principal of or interest on the Note
or any other Obligations  hereunder shall be unpaid it will, and will cause each
of its Subsidiaries to:

     SECTION 6.01. Existence, Properties,  Insurance. Do or cause to be done all
things  necessary to preserve  and keep in full force and effect its  corporate,
partnership or limited liability company  existence,  as applicable,  rights and
franchises and comply in all material  respects with all laws  applicable to it;
at all times  maintain,  preserve and protect all franchises and trade names and
preserve all of its  property,  in each case,  used or useful in and material to
the conduct of its business and keep the same in good repair,  working order and
condition  and from time to time  make,  or cause to be made,  all  needful  and
proper repairs, renewals, replacements,  betterments and improvements thereto so
that the  business  carried  on in  connection  therewith  may be  properly  and
advantageously  conducted in the ordinary course at all times;  and at all times
maintain insurance covering its assets and its businesses with financially sound
and reputable  insurance  companies or  associations in such amounts and against
such risks (including, without limitation, hazard, business interruption, public
liability and product  liability) as are usually carried by companies engaged in
the same or similar  business.  Each such policy of insurance of the Company and
each Guarantor shall name the Bank as loss payee and additional  insured thereof
and shall  provide for at least  thirty (30) days' prior  written  notice to the
Bank of any  modification or  cancellation  of such policies.  The Company shall
provide to the Bank promptly upon receipt thereof evidence of the annual renewal
of each such policy.

                                       27
<PAGE>

     SECTION 6.02.  Payment of Indebtedness  and Taxes. (a) Pay all indebtedness
and obligations, now existing or hereafter arising, as and when due and payable,
and (b) pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and government  charges or levies imposed upon it or upon its income
and profits,  or upon any of its property,  real, personal or mixed, or upon any
part  thereof,  before the same shall  become in default,  as well as all lawful
claims for labor,  materials and supplies or otherwise  which, if unpaid,  might
become a lien or charge  upon such  properties  or any part  thereof;  provided,
however,  that neither the Company nor any  Subsidiary  of the Company  shall be
required to pay and discharge or cause to be paid and  discharged  any such tax,
assessment,  charge,  levy or claim  so long as the  validity  thereof  shall be
contested  in good faith by  appropriate  proceedings,  and the  Company or such
Subsidiary,  as the case may be,  shall  have set  aside on its  books  adequate
reserves determined in accordance with Generally Accepted Accounting  Principles
with respect to any such tax,  assessment,  charge,  levy or claim so contested;
further,  provided that, subject to the foregoing proviso,  the Company and each
of its  Subsidiaries  will pay or cause to be paid all such taxes,  assessments,
charges,  levies or claims upon the commencement of proceedings to foreclose any
lien which has attached as security therefor.

     SECTION 6.03. Financial Statements, Reports, etc. Furnish to the Bank:

     (a) as soon as available, but in any event within 120 days after the end of
each fiscal year of the Company, a copy of Company's Form 10K, as filed with the
Securities  and Exchange  Commission,  including  the audited  consolidated  and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such  year  and  the  related   audited   consolidated   statements  of  income,
shareholders  equity and cash flow for such year,  setting forth in each case in
comparative  form the  respective  figures as of the end of and for the previous
fiscal year, and  accompanied by a report thereon of Grant Thornton LLP or other
independent  certified public accountants of recognized standing selected by the
Company and  satisfactory  to the Bank (the  "Auditor"),  which  report shall be
unqualified,  setting forth in comparative form the respective figures as of the
end of and  for the  previous  fiscal  year  and  which  support  the  financial
statements  delivered  pursuant  to  clause  (i),  in each  case of (i) and (ii)
prepared in accordance with Generally Accepted Accounting Principles, applied on
a consistent  basis,  and with respect to the  statements  referred to in clause
(ii) accompanied by a certificate to that effect executed by the Chief Financial
Officer;

     (b) as soon as available, but in any event not later than 60 days after the
end of each quarterly  period of each fiscal year of the Company,  a copy of the
Company's  Form 10Q,  as filed  with the  Securities  and  Exchange  Commission,
including the unaudited interim consolidated and consolidating  balance sheet of
the  Company  and its  Subsidiaries  as of the end of each such  quarter and the
related unaudited interim  consolidated and consolidating  statements of income,
shareholders equity and cash flow for such quarter and the portion of the fiscal
year through such date and setting  forth in each case in  comparative  form the
respective  figures for the corresponding date and period in the previous fiscal
year, in each case prepared by the Chief  Financial  Officer in accordance  with
Generally  Accepted  Accounting  Principles,  applied on a consistent basis, and
accompanied  by a  certificate  to that effect  executed by the Chief  Financial
Officer;

                                       28
<PAGE>

     (c) a  certificate  prepared and signed by the Auditor  with each  delivery
required  by clause  (a),  and a  certificate  prepared  and signed by the Chief
Financial  Officer with each delivery  required by (a) and (b), as to whether or
not,  as of the close of such  preceding  period  and at all times  during  such
preceding period,  the Company or each of its Subsidiaries,  as the case may be,
was in compliance with all the provisions in this Agreement, showing computation
of financial covenants and quantitative  negative covenants,  and if the Auditor
or Chief Financial Officer, as the case may be, shall have obtained knowledge of
any default in such  compliance or notice of such default,  it shall disclose in
such  certificate  such  default or  defaults  or notice  thereof and the nature
thereof,  whether  or not the same  shall  constitute  a Default  or an Event of
Default hereunder;

     (d) at all times  indicated  in clause  (a) above a copy of the  management
letter, if any, prepared by the Auditor;

     (e) as soon as  available,  and in any event within twenty (20) days of the
end of each fiscal quarter, accounts receivable agings summaries of the Company,
provided  that in the  event  that  the  outstanding  principal  balance  of the
Revolving  Credit Loans  equals or exceed  $4,000,000  at any time,  the Company
shall provide to the Bank monthly accounts  receivables agings summaries,  along
with a monthly Borrowing Base Certificate, within twenty (20) days of month end;

     (f)  promptly  after  filing  thereof,  copies of all regular and  periodic
financial  information,  proxy materials and other information and reports which
the  Company  or any of its  Subsidiaries  shall  file with the  Securities  and
Exchange Commission;

     (g) promptly after submission to any government or regulatory  agency,  all
documents and  information  furnished to such  government  or regulatory  agency
other than such  documents  and  information  prepared  in the normal  course of
business and which could not  reasonably be expected to result in any materially
adverse action to be taken by such agency; and

     (h)  promptly,  from time to time,  such other  information  regarding  the
operations,  business  affairs and  condition  (financial  or  otherwise) of the
Company or any of its Subsidiaries as the Bank may reasonably request.

     SECTION  6.04.  Books and Records;  Access to Premises.  (a) Keep  adequate
records and proper books of record and account in which complete entries will be
made in a manner to enable the preparation of financial statements in accordance
with  Generally  Accepted  Accounting  Principles,  and which shall  reflect all
financial transactions of the Company and each of its Subsidiaries.

                                       29
<PAGE>
     (b) At any time,  and from time to time  permit  the Bank or any  agents or
representatives  thereof,  to examine and make copies of and abstracts  from the
books and  records  of such  information  which the Bank deems is  necessary  or
desirable (including,  without limitation,  the financial records of the Company
and its  Subsidiaries)  and to visit the properties of the Company or any of its
Subsidiaries and to discuss the affairs, finances and accounts of the Company or
any of its Subsidiaries with any of their respective  Executive  Officers or the
Company's independent accountants.

     SECTION 6.05. Notice of Adverse Change. Promptly notify the Bank in writing
of (a) any  change in the  business  or the  operations  of the  Company  or any
Guarantor which could  reasonably be expected to have a Material Adverse Effect,
and (b) any information which indicates that any financial  statements which are
the subject of any  representation  contained  in this  Agreement,  or which are
furnished to the Bank pursuant to this Agreement, fail, in any material respect,
to present  fairly,  as of the date thereof and for the period covered  thereby,
the  financial  condition  and results of  operations  purported to be presented
therein, disclosing the nature thereof.

     SECTION 6.06. Notice of Default. Promptly notify the Bank of any Default or
Event of Default which shall have occurred, which notice shall include a written
statement as to such  occurrence,  specifying  the nature thereof and the action
(if any) which is proposed to be taken with respect thereto.

     SECTION 6.07. Notice of Litigation. Promptly notify the Bank of any action,
suit  or  proceeding  at law  or in  equity  or by or  before  any  governmental
instrumentality  or other  agency  which,  if adversely  determined  against the
Company or any  Subsidiary  of the Company on the basis of the  allegations  and
information  set forth in the complaint or other notice of such action,  suit or
proceeding,  or in the amendments  thereof, if any, could reasonably be expected
to have a Material Adverse Effect.

     SECTION 6.08.  Notice of Default in Other  Agreements.  Promptly notify the
Bank of any default in the performance,  observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to
which the Company or any  Subsidiary  of the  Company is a party  which  default
could reasonably be expected to have a Material Adverse Effect.

     SECTION  6.09.  Notice  of  ERISA  Event.  Promptly  deliver  to the Bank a
certificate of the Chief Financial  Officer of the Company setting forth details
as to such occurrence and such action, if any, which a Company, any Guarantor or
an ERISA  Affiliate is required or proposes to take,  together  with any notices
required  or  proposed  to be  given  to or filed  with or by the  Company,  any
Guarantor,  such  ERISA  Affiliate,  the PBGC,  a Plan  participant  or the Plan
administrator,  with respect thereto:  that a Reportable Event has occurred with
respect to a Plan, that an accumulated  funding  deficiency has been incurred or
an  application  may be or has been made to the  Secretary of the Treasury for a
waiver or modification of the minimum funding  standard  (including any required
installment  payments) or an extension of any amortization  period under Section


                                       30
<PAGE>

412 of the  Code  with  respect  to a  Plan,  that a  Plan  has  been  or may be
terminated,  reorganized,  partitioned or declared  insolvent  under Title IV of
ERISA,  that one or more Plans have an Unfunded Current Liability giving rise to
a Lien under ERISA, that proceedings may be or have been instituted to terminate
a Plan, that a proceeding has been  instituted  pursuant to Section 515 of ERISA
to  collect  a  delinquent  contribution  to a Plan,  or that the  Company,  any
Guarantor or any ERISA Affiliate will or may incur any liability  (including any
contingent  or secondary  liability) to or on account of the  termination  of or
withdrawal  from a Plan under Section 4062,  4063,  4064, 4201 or 4204 of ERISA.
The Company will deliver to the Bank a complete  copy of the annual report (Form
5500) of each Plan required to be filed with the Internal  Revenue  Service.  In
addition to any  certificates  or notices  delivered to the Bank pursuant to the
first sentence  hereof,  copies of annual reports and any other notices received
by the Company required to be delivered to the Bank hereunder shall be delivered
to the Bank no later  than ten days  after the later of the date such  report or
notice has been filed with the Internal  Revenue  Service or the PBGC,  given to
Plan participants or received by the Company or any Guarantor.

     SECTION 6.10. Notice of Environmental  Law Violations.  Promptly notify the
Bank of the receipt of any notice of an action,  suit, and proceeding before any
court  or  governmental  department,   commission,   board,  bureau,  agency  or
instrumentality,  domestic  or  foreign,  pending  against  the  Company  or any
Subsidiary of the Company relating to any alleged violation of any Environmental
Law which could reasonably be expected to have a Material Adverse Effect.

     SECTION 6.11. Notice Regarding Material Contracts. Promptly notify the Bank
of (a)  any  termination,  material  amendment,  material  supplement  or  other
material  modification  of any  Material  Contract and (b) the  occurrence  of a
default  by the  Company  or any  Guarantor,  or by any  party  to any  Material
Contract of which the Company is aware.

     SECTION 6.12. Compliance with Applicable Laws. Comply with the requirements
of all  applicable  laws,  rules,  regulations  and  orders of any  Governmental
Authority,  the breach of which could  reasonably be expected to have a Material
Adverse Effect.

     SECTION 6.13.  Environmental Laws. Comply in all material respects with the
requirements of all Environmental Laws, provide to the Bank all documentation in
connection  with  such  compliance  that the Bank may  reasonably  request,  and
defend,  indemnify,  and hold  harmless the Bank and its  respective  employees,
agents,  officers,  and  directors,   from  and  against  any  claims,  demands,
penalties,  fines,  liabilities,  settlements,  damages,  costs,  or expenses of
whatever kind or nature, known or unknown, contingent or otherwise,  arising out
of, or in any way  related  to, (a) the  presence,  disposal,  or release of any
Hazardous Materials on any property at any time owned or occupied by the Company
or any Subsidiary of the Company;  (b) any personal injury  (including  wrongful
death) or property  damage (real or personal)  arising out of or related to such
Hazardous Materials; (c) any lawsuit brought or threatened,  settlement reached,
or  government  order  relating  to such  Hazardous  Materials,  and/or  (d) any
violation of  applicable  Environmental  Laws,  including,  without  limitation,
reasonable  attorney and consultant  fees,  investigation  and laboratory  fees,
court costs, and litigation expenses.

     SECTION  6.14.  Subsidiaries.  Give the Bank prompt  written  notice of the
creation,  establishment or acquisition, in any manner, of any Subsidiary of the
Company  not  existing  on the Closing  Date and cause each such  Subsidiary  to

                                       31
<PAGE>
execute a Guaranty and such Security  Documents  that the Lender shall  require,
including,  but not  limited  to, a Security  Agreement,  concurrently  with the
creation, establishment or acquisition of such Subsidiary and, concurrently with
the delivery of each  Security  Document  and Guaranty  pursuant to this Section
6.14,  provide to the Bank the supporting  documents  identified in clauses (i),
(ii), and (iii) of Section 5.01(e) in each case with respect to such Subsidiary;
together  with a  favorable  written  opinion  of  counsel  to  such  Subsidiary
addressed to the Bank, in the form attached  hereto as Exhibit D with respect to
such  Subsidiary  and with respect to the  documents  required to be executed by
such Subsidiary pursuant to this Section 6.14.  Notwithstanding  anything to the
contrary herein, Viromedics, Inc., a Delaware corporation, shall not be required
to execute a Guaranty and Security Agreement and deliver the documents described
in this  Section  6.14,  until such time that it shall no longer be an  Inactive
Subsidiary.

     SECTION 6.15. Deposit Account. Maintain a deposit account at the offices of
the Bank.

                                  ARTICLE VII
                               NEGATIVE COVENANTS

     The  Company  covenants  and  agrees  with  the  Bank  that  so long as the
Commitments  remain in effect or any of the principal of or interest on any Note
or any other  Obligations  hereunder shall be unpaid,  it will not, and will not
cause or permit any Subsidiary of the Company, directly or indirectly, to:

     SECTION 7.01. Liens. Incur,  create,  assume or suffer to exist any Lien on
any of their respective assets now or hereafter owned, other than:

     (a) Liens  existing on the date hereof as set forth on Schedule II attached
hereto including any renewals or extensions thereof;  provided that no such Lien
is extended to cover any additional property and that the amount of Indebtedness
secured thereby is not increased;

     (b) Liens for taxes,  assessments or other  governmental  charges or levies
not yet  delinquent  or which are being  contested in good faith by  appropriate
proceedings,  provided, however, that adequate reserves with respect thereto are
maintained on the books of the Company or its  Subsidiaries  in accordance  with
Generally Accepted Accounting Principles;

     (c) Carriers',  warehousemens',  mechanics', suppliers' or other like Liens
arising in the ordinary  course of business and not overdue for a period of more
than 30 days  or  which  are  being  contested  in  good  faith  by  appropriate
proceedings  in a manner which will not  jeopardize  or diminish the interest of
the Bank in any of the collateral subject to the Security Documents;

                                       32
<PAGE>

     (d) Liens incurred or deposits to secure the performance of tenders,  bids,
trade contracts (other than for borrowed money), leases,  statutory obligations,
surety,  performance and appeal bonds,  and other  obligations of similar nature
incurred in the ordinary course of business;

     (e) Easements,  rights of way,  restrictions  and other similar  charges or
encumbrances  which in the  aggregate do not  interfere in any material  respect
with the occupation, use and enjoyment by the Company or any of its Subsidiaries
of the  property  or assets  encumbered  thereby in the  normal  course of their
respective  business  or  materially  impair the value of the  property  subject
thereto;

     (f) Deposits  under  workmen's  compensation,  unemployment  insurance  and
social security laws;

     (g) Liens  granted  to the Bank  under  this  Agreement  or any other  Loan
Document;

     (h)  Purchase  money  liens for fixed  assets  including  obligations  with
respect  to  Capital  Leases;  provided  in each case (i) no Default or Event of
Default shall have occurred and be continuing or shall occur after giving effect
to such lien, (ii) such purchase money lien does not exceed 100% of the purchase
price of, and encumbers  only,  the property  acquired,  and (iii) such purchase
money  Lien does not  secure  any  Indebtedness  other  than in  respect  of the
purchase price of the asset acquired; and

     (i) Liens with respect to the real property and improvements located at 180
Linden Avenue, Westbury, New York securing the Indebtedness described in Section
7.02(g) below.

     SECTION 7.02.  Indebtedness.  Incur,  create,  assume or suffer to exist or
otherwise become liable in respect of any Indebtedness, other than:

     (a) Indebtedness incurred prior to the date hereof as described in Schedule
III attached hereto, including any renewals or extensions thereof; provided such
renewal or extension  does not result in an increase in the aggregate  principal
amount of such Indebtedness;

     (b)  Indebtedness to the Bank under this  Agreement,  the Note or any other
Loan Document;

     (c)  Indebtedness  for trade  payables  incurred in the ordinary  course of
business; provided such payables shall be paid or discharged when due;

     (d)  Indebtedness  consisting of guarantees  permitted  pursuant to Section
7.03;

     (e) Subordinated Indebtedness;  provided, however, that no Default or Event
of Default  shall have  occurred and be  continuing  or would occur after giving
effect to the incurrence of such Subordinated Indebtedness;

                                       33
<PAGE>

     (f) Indebtedness secured by purchase money liens as permitted under Section
7.01(h);  provided such Indebtedness  incurred in any fiscal year of the Company
shall not exceed $500,000, and, further, provided no Default or Event of Default
shall have  occurred and be continuing or would occur after giving effect to the
incurrence of such Indebtedness;

     (g) Indebtedness owing by 180 Linden Avenue Corporation to the Empire State
Development Corporation and the New York Business Development Corporation,  with
respect to the purchase of the premises located at 180 Linden Avenue,  Westbury,
New York,  pursuant to: (i) that certain Loan  Agreement  dated as of January 9,
2002 between the Company, 180 Linden Avenue Corporation and New York State Urban
Development Corporation d/b/a Empire State Development Corporation and (ii) that
certain Promissory Note and Mortgage,  each dated August 30, 2001, by 180 Linden
Avenue  Corporation to New York Business  Development  Corp.,  provided that the
aggregate amount of such Indebtedness shall not exceed $1,132,230.12; and

     (h)  Indebtedness  in  connection  with any  investment,  joint  venture or
acquisition  permitted  by Section 7.06  hereto,  provided  that (i) no Event of
Default has occurred and is continuing or would occur after giving effect to the
incurrence of such Indebtedness (including,  without limitation, a breach of any
financial  covenant set forth in Section 7.13 hereof) and (ii) such Indebtedness
is and remains unsecured.

     SECTION  7.03.  Guaranties.  Guarantee,  endorse,  become  surety  for,  or
otherwise  in  any  way  become  or  be  responsible  for  the  Indebtedness  or
obligations of any Person,  whether by agreement to maintain  working capital or
equity capital or otherwise  maintain the net worth or solvency of any Person or
by agreement to purchase the Indebtedness of any other Person,  or agreement for
the furnishing of funds, directly or indirectly,  through the purchase of goods,
supplies or services  for the purpose of  discharging  the  Indebtedness  of any
other Person or  otherwise,  or enter into or be a party to any contract for the
purchase of merchandise,  materials, supplies or other property if such contract
provides  that  payment  for  such  merchandise,  materials,  supplies  or other
property  shall be made  regardless  of whether  delivery  of such  merchandise,
supplies or other property is ever made or tendered except:

     (a)  guaranties  executed prior to the date hereof as described on Schedule
IV attached hereto  including any renewals or extension  thereof,  provided that
the indebtedness or obligations therein guaranteed are not increased;

     (b) endorsements of negotiable instruments for collection or deposit in the
ordinary course of business;

     (c) guaranties of any  Indebtedness  under this Agreement or any other Loan
Document;

     (d)  guaranties by the Company of any  Indebtedness  permitted  pursuant to
Section 7.02 hereof of its  Subsidiaries  or  guaranties by any of the Company's
Subsidiaries of such  Indebtedness  of the Company,  provided that the aggregate


                                       34
<PAGE>

amount of all  Indebtedness  secured by such  guaranties  (but not including the
Indebtedness  described in Section 7.02(g) hereof), plus all investments,  joint
venture and acquisitions (as permitted  pursuant to Section 7.06 hereof),  shall
not exceed $3,000,000 during the term of this Agreement.

     SECTION 7.04. Sale of Assets.  Sell, assign,  lease,  transfer or otherwise
dispose of any of their now owned or hereafter  acquired  respective  properties
and  assets,  whether  or not  pursuant  to an  order  of a  federal  agency  or
commission,  except for (a) the sale of  inventory  disposed of in the  ordinary
course of business  and (b) so long as no Event of Default  shall have  occurred
and is  continuing  or  would  occur  as a  result  thereof,  the  sale or other
disposition  of  properties or assets no longer used or useful in the conduct of
their respective businesses.

     SECTION 7.05. Sales of Receivables.  Sell, transfer,  discount or otherwise
dispose of notes,  accounts receivable or other obligations owing to the Company
or any of its Subsidiaries,  with or without recourse,  except for collection in
the ordinary course of business.

     SECTION 7.06.  Loans and  Investments.  Make or commit to make any advance,
loan,  extension  of credit,  or capital  contribution  to, or  purchase or hold
beneficially  any stock or other  securities,  or evidence of  Indebtedness  of,
purchase or acquire all or a  substantial  part of the assets of, make or permit
to exist any  interest  whatsoever  in,  any  other  Person  except  for (a) the
ownership of stock of its  Subsidiaries  as existing as of the Closing Date, (b)
Eligible  Investments,  and (c)  investments,  joint ventures or acquisitions of
assets or stock,  provided  that the aggregate  amount of all such  investments,
joint ventures,  and acquisitions  plus the aggregate amount of all Indebtedness
incurred in connection with such investments, joint ventures and acquisitions as
permitted  pursuant to Section  7.02(h) hereof plus the aggregate  amount of all
Indebtedness secured by guaranties permitted pursuant to Section 7.03(d) hereof,
shall not exceed $3,000,000  during the term of this Agreement.  Notwithstanding
anything  to the  contrary  herein,  no  loans or  investments  shall be made to
Viromedics,  Inc.,  a  Delaware  corporation,  at any  time  that it shall be an
Inactive Subsidiary.

     SECTION 7.07. Nature of Business. Change or alter, in any material respect,
the nature of its business  from the nature of the business  engaged in by it on
the date hereof.

     SECTION 7.08. Sale and Leaseback.  Enter into any arrangement,  directly or
indirectly,  with any Person  whereby it shall sell or  transfer  any  property,
whether real or personal,  used or useful in its business,  whether now owned or
hereafter  acquired,  of it or any of its  Subsidiaries,  if at the time of such
sale or disposition it intends to lease or otherwise acquire the right to use or
possess  (except by purchase) such property or like property for a substantially
similar purpose.

     SECTION 7.09. Federal Reserve Regulations.  Permit any Loan or the proceeds
of any Loan to be used for any purpose which  violates or is  inconsistent  with
the  provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System.

     SECTION 7.10. Accounting Policies and Procedures.  Permit any change in the
accounting  policies and  procedures of the Company or any of its  Subsidiaries,
including  a change  in  fiscal  year,  provided,  however,  that any  policy or
procedure required to be changed by the Financial Accounting Standards Board (or
other board or  committee  thereof) in order to comply with  Generally  Accepted
Accounting Principles may be so changed.


                                       35
<PAGE>
     SECTION 7.11. Hazardous Materials. Cause or permit any of its properties to
be used to generate,  manufacture,  refine,  transport,  treat,  store,  handle,
dispose  of,  transfer,  produce  or  process  Hazardous  Materials,  except  in
compliance with all applicable federal, state and local laws or regulations,  or
cause or permit,  as a result of any intentional or negligent act or omission on
the part of the  Company  or any of its  Subsidiaries,  a release  of  Hazardous
Materials onto such property or onto any other property.

     SECTION  7.12.   Limitations   on  Fundamental   Changes,   Limitations  on
Consideration.  Merge or consolidate with, or sell,  assign,  lease or otherwise
dispose of (whether in one  transaction or in a series of  transactions)  all or
substantially  all of its assets  (whether  now or hereafter  acquired)  to, any
Person,  acquire all of the stock or all or  substantially  all of the assets or
the  business  of any Person or  liquidate,  wind up or  dissolve  or suffer any
liquidation or dissolution;  provided that a Subsidiary may merge or consolidate
with and into the Company.

     SECTION 7.13. Financial Condition Covenants.

     (a)  Leverage  Ratio.  Permit  the  ratio of  Consolidated  Funded  Debt to
Consolidated  EBITDA to be greater than the 2.25:1.00,  at the end of any fiscal
quarter.

     (b)  Interest  Coverage  Ratio.  Permit the ratio of  Consolidated  EBIT to
Consolidated  Interest  Expense  to be less  than  5.00:1.00,  at the end of any
fiscal quarter.

     (c) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth
to be less than the  amount  set forth  below  opposite  the  applicable  fiscal
quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending           Consolidated Tangible Net Worth
---------------------           -------------------------------
<S>                      <C>
February 28, 2002 and    $16,791,000 (the "Reference Amount")
May 31, 2002

Each fiscal quarter      The  Reference  Amount plus 50% of  Consolidated  Net Income
thereafter               (but not net loss) for the period  commencing on the Closing
                         Date through and including the fiscal quarter then ended
</TABLE>
     (d) Consolidated Net Income. Permit Consolidated Net Income to be less than
$1.00, at the end of any fiscal quarter.

     (e) Capital  Expenditures.  Permit Capital  Expenditures of the Company and
its Subsidiaries, on a consolidated basis, to exceed $750,000, in the aggregate,
in any twelve month period,  as tested on a quarterly  basis,  all from the most
recent four fiscal quarters then ended.


                                       36
<PAGE>
     SECTION  7.14.  Subordinated  Debt.  (a)  Directly  or  indirectly  prepay,
defease,  purchase or redeem any Subordinated  Debt or (b) amend,  supplement or
otherwise modify any of the provisions governing such subordination, without the
prior written consent of the Bank.

     SECTION  7.15.  Dividends.  Declare any dividend on, or make any payment on
account of, or set apart  assets for a sinking or other  analogous  fund for the
purchase, redemption, defeasance, retirement or other acquisition of, any shares
of any class of stock of the Company or any of its  Subsidiaries  or any warrant
to  purchase  any  class  of stock of the  Company  or any of its  Subsidiaries,
whether now or hereafter outstanding,  or make any other distribution in respect
thereof, either directly or indirectly,  whether in cash, securities or property
or in  obligations  of  the  Company  or  any  of  its  Subsidiaries  or in  any
combination  thereof (other than  dividends  payable solely in shares of its own
common  stock),  or permit any  Affiliate  to make any payment on account of, or
purchase  or  otherwise  acquire,  any  shares  of any class of the stock of the
Company or any of its Subsidiaries or any warrant to purchase any class of stock
of the Company or any of its Subsidiaries from any Person.

     SECTION 7.16.  Transactions  with  Affiliates.  Enter into any transaction,
including,  without limitation,  the purchase,  sale, or exchange of property or
the rendering of any service, with any Affiliate,  except in the ordinary course
of, and pursuant to the reasonable  requirements of, the Company's or any of its
Subsidiaries'  business and upon fair and reasonable  terms no less favorable to
the  Company  or  such  Subsidiary  than  they  would  obtain  in  a  comparable
arms-length transaction with a Person not an Affiliate.

     SECTION  7.17.  Impairment of Security  Interest.  Take or omit to take any
action which could  reasonably  be expected to have the result of impairing  the
security interest in any property subject to a security interest in favor of the
Bank or grant to any person any interest  whatsoever  in any  property  which is
subject to a security interest in favor of the Bank.

     SECTION 7.18.  Inactive  Subsidiary.  Permit  Viromedics,  Inc., a Delaware
corporation  to cease to be an  Inactive  Subsidiary,  except  as a result  of a
merger or dissolution thereof as permitted hereby.

                                  ARTICLE VIII
                               EVENTS OF DEFAULT

     SECTION 8.01. Events of Default. In the case of the happening of any of the
following events (each an "Event of Default"):

                                       37
<PAGE>

     (a) failure to pay (i) the  principal  of, or interest on, any Loan, as and
when due and payable or (ii) any fee or other amount (other than interest on any
Loan) due under this Agreement,  within five days after the same becomes due and
payable;

     (b)  default  shall be made in the due  observance  or  performance  of any
covenant,  condition  or  agreement  of the  Company or any of its  Subsidiaries
(other than those  specified in clause (a) of this Section 8.01) to be performed
(i) pursuant to Article 6 of this Agreement (other than Section 6.03 and Section
6.04(b)  thereof) and in the case of this  subclause (i) only such default shall
continue  unremedied for a period of ten (10)  consecutive days or (ii) pursuant
to any other provision of this Agreement or any other Loan Document;

     (c) any representation or warranty made or deemed made in this Agreement or
any other Loan  Document  shall prove to be false or  misleading in any material
respect when made or given or when deemed made or given;

     (d) any  report,  certificate,  financial  statement  or  other  instrument
furnished in  connection  with this  Agreement or any other Loan Document or the
borrowings  hereunder,  shall prove to be false or  misleading  in any  material
respect when made or given or when deemed made or given;

     (e) default in the performance or compliance in respect of any agreement or
condition relating to any Indebtedness of the Company or any of its Subsidiaries
in excess of $500,000,  individually or in the aggregate  (other than the Note),
if the effect of such default is to accelerate the maturity of such Indebtedness
or to permit  the  holder or  obligee  thereof  (or a trustee  on behalf of such
holder or obligee) to cause such  Indebtedness to become due prior to the stated
maturity thereof, or, any such Indebtedness shall not be paid when due;

     (f) the Company or any of its Subsidiaries  shall (i) voluntarily  commence
any proceeding or file any petition  seeking relief under Title 11 of the United
States Code or any other federal or state bankruptcy, insolvency or similar law,
(ii)  consent  to the  institution  of, or fail to  controvert  in a timely  and
appropriate  manner,  any such  proceeding  or the filing of any such  petition,
(iii) apply for or consent to the employment of a receiver,  trustee, custodian,
sequestrator or similar  official for the Company or any of its  Subsidiaries or
for a  substantial  part of its  property;  (iv)  file an answer  admitting  the
material allegations of a petition filed against it in such proceeding, (v) make
a general  assignment for the benefit of creditors,  (vi) take corporate  action
for the purpose of effecting  any of the  foregoing;  or(vii)  become  unable or
admit in writing its inability or fail generally to pay its debts as they become
due;

     (g) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed  in a court of  competent  jurisdiction  seeking  (i)  relief  in
respect of the Company or any of its  Subsidiaries  or of a substantial  part of
their respective property, under Title 11 of the United States Code or any other
federal or state bankruptcy insolvency or similar law, (ii) the appointment of a
receiver, trustee,  custodian,  sequestrator or similar official for the Company
or any of its Subsidiaries or for a substantial part of their property, or (iii)
the winding-up or liquidation of the Company or any of its Subsidiaries and such


                                       38
<PAGE>

proceeding or petition  shall  continue  undismissed  for 30 days or an order or
decree approving or ordering any of the foregoing shall continue unstayed and in
effect for 30 days;

     (h) one or more  orders,  judgments  or decrees for the payment of money in
excess of $500,000 in the aggregate shall be rendered against the Company or any
of its  Subsidiaries  and the same shall not have been paid in  accordance  with
such  judgment,  order or decree or  settlement  and either  (i) an  enforcement
proceeding  shall have been commenced by any creditor upon such judgment,  order
or decree,  or (ii) there  shall have been a period of thirty  (30) days  during
which a stay of  enforcement  of such  judgment,  order or decree,  by reason of
pending appeal or otherwise, was not in effect;

     (i) any Plan shall fail to maintain the minimum funding  standard  required
for any Plan year or part  thereof or a waiver of such  standard or extension of
any amortization period is applied for or granted under Section 412 of the Code,
any Plan is terminated  by the Company or any ERISA  Affiliate or the subject of
termination  proceedings  under ERISA,  any Plan shall have an Unfunded  Current
Liability,  a Reportable Event shall have occurred with respect to a Plan or the
Company,  any of its  Subsidiaries  or any ERISA Affiliate shall have incurred a
liability to or on account of a Plan under Section 515, 4062, 4063, 4201 or 4204
of ERISA, and there shall result from any such event or events the imposition of
a lien upon the assets of the Company or any of its Subsidiaries or the granting
of a security interest on such assets, or a liability to the PBGC or a Plan or a
trustee appointed under ERISA or a penalty under Section 4971 of the Code;

     (j) any material  provision of any Loan Document shall for any reason cease
to be in full force and effect in  accordance  with its terms or the  Company or
any of its Subsidiaries shall so assert in writing;

     (k) a Change of Control shall have occurred;

     (l) any  material  or  adverse  change in the  financial  condition  of the
Company or of the Company  and its  Subsidiaries,  taken as a whole,  shall have
occurred; or

     (m) any of the Liens  purported  to be  granted  pursuant  to any  Security
Document shall fail or cease for any reason to be legal,  valid and  enforceable
liens on the collateral  purported to be covered  thereby or shall fail or cease
to have the priority purported to be created thereby;

then, at any time thereafter  during the continuance of any such event, the Bank
may, in its sole  discretion,  by written or  telephonic  notice to the Company,
take either or both of the following  actions,  at the same or different  times,
(a) terminate the Commitments and (b) declare (i) the Note, both as to principal
and interest,  and (ii) all other  Obligations,  to be forthwith due and payable
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby  expressly  waived,  anything  contained herein or in the Note to the
contrary  notwithstanding;  provided,  however,  that if an event  specified  in
Section 8.01(f) or (g) shall have occurred,  the Commitments shall automatically


                                       39
<PAGE>

terminate  and  interest,  principal  and amounts  referred to in the  preceding
clauses  (i),  (ii),  and (iii) shall be  immediately  due and  payable  without
presentment,  demand,  protest,  or other  notice of any kind,  all of which are
expressly  waived,  anything  contained  herein  or in the Note to the  contrary
notwithstanding.


                                   ARTICLE IX
                                 MISCELLANEOUS

     SECTION  9.01.  Notices.  All notices,  requests and demands to or upon the
respective  parties  hereto  to be  effective  shall  be in  writing  (including
telecopy), and unless otherwise expressly provided herein, shall be conclusively
deemed to have been received by a party hereto and to be effective on the day on
which  delivered  by hand to such party or one  Business Day after being sent by
overnight  mail to the  address  set forth  below,  or, in the case of  telecopy
notice,  when  acknowledged  as received,  or if sent by registered or certified
mail,  three  (3)  Business  Days  after the day on which  mailed in the  United
States, addressed to such party at such address:

(a)     if to the Bank, at

        Fleet National Bank
        300 Broad Hollow Road
        Melville, New York 11747
        Attention: Jeffrey A. Morris, Senior Vice President
        Telecopy: 631-547-7701

(b)     if to the Company, at

        Vasomedical, Inc.
        180 Linden Avenue
        Westbury, New York 11590
        Attention:      Joseph A. Giacolone, Chief Financial Officer
        Telecopy:       (516) 997-2299

With a copy to

        Blau, Kramer, Wactlar & Lieberman, P.C.
        100 Jericho Quadrangle
        Jericho, New York 11753
        Attention:      David Lieberman, Esq.
        Telecopy:       (516) 824-4824


                                    - and -

     (c) as to each such  party at such other  address as such party  shall have
designated  to the other in a written  notice  complying as to delivery with the
provisions of this Section 9.01.

     SECTION  9.02.   Effectiveness;   Survival.  This  Agreement  shall  become
effective  on the  date  on  which  all  parties  hereto  shall  have  signed  a
counterpart  copy  hereof and shall  have  delivered  the same to the Bank.  All

                                       40
<PAGE>
representations  and warranties  made herein and in the other Loan Documents and
in the  certificates  delivered  pursuant  hereto or thereto  shall  survive the
making by the Bank of the Loans as herein  contemplated  and the  execution  and
delivery to the Bank of the Note evidencing the Loans and shall continue in full
force and effect so long as the Obligations hereunder are outstanding and unpaid
and the  Commitments are in effect.  The obligations of the Company  pursuant to
Section  3.07,  Section  3.08,  Section  3.10 and  Section  9.03  shall  survive
termination of this Agreement and payment of the Obligations.

     SECTION 9.03.  Expenses.  The Company  agrees (a) to indemnify,  defend and
hold harmless the Bank and its officers,  directors,  employees,  and affiliates
(each,  an  "indemnified  person") from and against any and all losses,  claims,
damages,  liabilities or judgments to which any such  indemnified  person may be
subject  and  arising  out of or in  connection  with  the Loan  Documents,  the
financings  contemplated  hereby,  the use of any proceeds of such financings or
any related  transaction or any claim,  litigation,  investigation or proceeding
relating to any of the foregoing, whether or not any of such indemnified persons
is a party  thereto,  and to  reimburse  each of such  indemnified  persons upon
demand for any reasonable,  legal or other expenses  incurred in connection with
the investigation or defending any of the foregoing; provided that the foregoing
indemnity  will not,  as to any  indemnified  person,  apply to losses,  claims,
damages,  liabilities,  judgments or related expenses to the extent arising from
the wilful misconduct or gross negligence of such indemnified person, (b) to pay
or reimburse  the Bank,  on demand,  for all expenses of the Bank in  connection
with the preparation,  administration,  default, collection, waiver or amendment
of the loan terms or any other provisions herein or any other Loan Document, and
any  other  documents  prepared  in  connection  herewith  or  therewith,  or in
connection with the Bank's  exercise,  preservation or enforcement of any of its
rights,  remedies or options under this Agreement,  or the other Loan Documents,
and any other documents prepared in connection herewith or therewith, including,
without  limitation,   fees  of  outside  legal  counsel   (including,   without
limitation,  Farrell Fritz,  P.C.) or the allocated  costs of in-house  counsel,
accounting,   consulting,  brokerage  or  other  similar  professional  fees  or
expenses,  and any fees or  expenses  associated  with  travel  or  other  costs
relating to any appraisals or examinations conducted in connection with the Loan
or any collateral  therefor,  and the amount of all such expenses  shall,  until
paid, bear interest at the rate applicable to principal hereunder (including any
default rate) and be an Obligation  secured by any  collateral.  Notwithstanding
anything to the contrary herein, the fees of Farrell Fritz, P.C. with respect to
the  drafting,  negotiating  and  review  of the  documents  and  agreements  in
connection with the closing of the transactions  contemplated by this Agreement,
incurred on or before the Closing Date, shall not exceed $35,000.

     SECTION 9.04. Successors and Assigns; Participations.

     (a) This  Agreement  shall be binding  upon and inure to the benefit of the
Company,  the  Bank,  all  future  holders  of the  Note  and  their  respective
successors  and assigns,  except that the Company may not assign or transfer any
of its rights or  obligations  under this  Agreement  without the prior  written
consent of the Bank.

     (b) The Bank  reserves the right to sell  participations  in or to sell and
assign  its  rights,  duties or  obligations  with  respect  to the Loans or the
Commitments  to such  banks,  lending  institutions  or other  parties as it may

                                       41
<PAGE>
choose  and  without  the  consent  of the  Company.  The Bank may  furnish  any
information  concerning the Company or any of its Subsidiaries in its possession
from time to time to any  assignee  or  participant  (or  proposed  assignee  or
participant).  The Bank may at any time  pledge or  assign  or grant a  security
interest in all or any part of its rights under this Agreement and its Note to a
Federal  Reserve  Bank,  provided  that no such  assignment  shall  release  the
transferor Bank from its Commitments or its obligations  hereunder or substitute
any such pledgee or assignee for the Bank as a party to this Agreement.

     (b) The Bank shall have the unrestricted right at any time and from time to
time, and without the consent of or notice to the Company or any  Guarantor,  to
grant  to  one  or  more  banks  or  other   financial   institutions   (each  a
"Participant")  participating  interests  in any  Loan,  the  Note or any  other
interest  of the Bank  hereunder.  In the  event of any such sale by the Bank of
participating  interests  to a  Participant,  whether or not upon  notice to the
Company, the Bank's obligations under this Agreement shall remain unchanged, the
Bank shall remain solely responsible for the performance thereof, the Bank shall
remain the holder of the Note for all  purposes  under this  Agreement,  and the
Company  shall  continue to deal solely and directly with the Bank in connection
with the Bank's rights and obligations under this Agreement.  The Company agrees
that each  Participant  shall be entitled to the benefits of Sections 3.07, 3.08
and 3.09 with respect to its  participation  in the Commitments and in the Loans
outstanding from time to time; provided,  however,  that no Participant shall be
entitled to receive any greater  amount  pursuant to such sections than the Bank
would  have  been   entitled  to  receive  in  respect  of  the  amount  of  the
participation  transferred by the Bank to such  Participant had no such transfer
occurred.  The Bank may furnish any  information  concerning  the Company in its
possession from time to time to prospective Participants, provided that the Bank
shall require any such  prospective  Participant to agree in writing to maintain
the confidentiality of such information.

     (c) The Bank shall have the unrestricted  right at any time or from time to
time, and without the Company's or any Guarantor's consent, to assign all or any
portion of its rights and  obligations  hereunder  to one or more banks or other
financial institution (each, an "Assignee"),  and the Company and each Guarantor
agrees  that  it  shall  execute,  or  cause  to be  executed,  such  documents,
including,  without  limitation,  amendments to this  Agreement and to any other
Loan  Documents  as the Bank shall deem  necessary to effect the  foregoing.  In
addition,  at the request of the Bank and any such  Assignee,  the Company shall
issue one or more new promissory notes, as applicable, to any such Assignee and,


                                       42
<PAGE>

if the Bank has retained  any of the Loans and  Commitment  hereunder  following
such  assignment,  to the Bank,  which new  promissory  notes shall be issued in
replacement  of, but not in discharge of, the  liability  evidenced by the Notes
prior  to such  assignment  and  shall  reflect  the  amount  of the  respective
Commitment  and Loans held by such  Assignee and the Bank after giving effect to
such  assignment.  Upon the  execution  and delivery of  appropriate  assignment
documentation,  amendments and any other  documentation  required by the Bank in
connection with such assignment, and the payment by the Assignee of the purchase
price agreed to by the Bank, such Assignee shall be a party to the Agreement and
the other Loan Documents and shall have all of the rights and obligations of the
Bank  hereunder and  thereunder  to the extent that such rights and  obligations
have been assigned by the Bank pursuant to the assignment  documentation between
the Bank and such Assignee,  and the Bank shall be released from its obligations
hereunder  and  thereunder  to a  corresponding  extent (and,  in the case of an
assignment and acceptance agreement covering all or the remaining portion of the
Bank's rights and obligations under this Agreement, the Bank shall cease to be a
party  hereto  except as to Sections  3.07,  3.08,  3.09 and 9.03 for the period
prior to the effective  date).  The Bank may furnish any information  concerning
the  Company  in its  possession  from  time to time to  prospective  Assignees,
provided that the Bank shall require any such  prospective  Assignee to agree in
writing to maintain the confidentiality of such information.

     (d) The Bank may at any time pledge or assign or grant a security  interest
in all or any  part of its  rights  under  this  Agreement  and the  other  Loan
Documents,  including any portion of its Note, to any of the twelve (12) Federal
Reserve Banks  organized  under Section 4 of the Federal  Reserve Act, 12 U.S.C.
Section 341,  provided that no such  assignment  shall release the Bank from its
Commitment  or its  obligations  hereunder  or  substitute  any such  pledgee or
assignee for the Bank as a party to this Agreement.

     SECTION 9.05. No Waiver;  Cumulative Remedies.  Neither any failure nor any
delay  on the part of the  Bank in  exercising  any  right,  power or  privilege
hereunder or under any Note or any other Loan Document shall operate as a waiver
thereof,  nor shall a single or partial  exercise  thereof preclude any other or
further exercise of any other right, power or privilege.  The rights,  remedies,
powers and  privileges  herein  provided or provided in the other Loan Documents
are cumulative and not exclusive of any rights,  remedies  powers and privileges
provided by law.

     SECTION  9.06.  APPLICABLE  LAW.  THIS  AGREEMENT  AND THE  NOTE  SHALL  BE
CONSTRUED IN ACCORDANCE  WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.

     SECTION 9.07.  SUBMISSION TO JURISDICTION;  JURY WAIVER. THE COMPANY HEREBY
IRREVOCABLY  SUBMITS TO THE  JURISDICTION  OF ANY  FEDERAL OR STATE COURT IN THE
STATE OF NEW YORK,  COUNTY OF NEW YORK,  COUNTY OF QUEENS OR COUNTY OF NASSAU IN
ANY  ACTION,  SUIT  OR  PROCEEDING  BROUGHT  AGAINST  IT  AND  RELATED  TO OR IN
CONNECTION  WITH  THIS  AGREEMENT  OR  ANY  OTHER  LOAN  DOCUMENT  OR ANY OF THE
TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY,  AND TO THE EXTENT  PERMITTED  BY
APPLICABLE  LAW,  THE COMPANY  HEREBY  WAIVES AND AGREES NOT TO ASSERT BY WAY OF
MOTION,  AS A DEFENSE OR OTHERWISE,  IN ANY SUCH SUIT,  ACTION OR PROCEEDING ANY
CLAIM THAT IT IS NOT PERSONALLY  SUBJECT TO THE  JURISDICTION OF SUCH FEDERAL OR


                                       43
<PAGE>

STATE COURTS,  THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM,  THAT THE VENUE OF THE SUIT,  ACTION OR PROCEEDING  IS IMPROPER,  OR THAT
THIS  AGREEMENT OR ANY OTHER LOAN  DOCUMENT OR ANY OTHER  DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR THEREIN OR THE SUBJECT  MATTER  HEREOF  THEREOF MAY NOT BE
LITIGATED  IN OR BY SUCH  FEDERAL OR STATE  COURTS.  TO THE EXTENT  PERMITTED BY
APPLICABLE  LAW, THE COMPANY AGREES NOT TO ASSERT ANY  COUNTERCLAIM  IN ANY SUCH
SUIT,  ACTION OR PROCEEDING  COMPANY  AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT BY CERTIFIED OR REGISTERED  MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN
THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE COMPANY AND
THE BANK EACH MUTUALLY HEREBY KNOWINGLY,  VOLUNTARILY AND  INTENTIONALLY  WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED  HEREON,  ARISING OUT
OF,  UNDER OR IN  CONNECTION  WITH THIS  AGREEMENT,  THE NOTE OR ANY OTHER  LOAN
DOCUMENT  OR ANY COURSE OF  CONDUCT,  COURSE OF  DEALINGS,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING,  WITHOUT LIMITATION,  ANY
COURSE OF  CONDUCT,  COURSE  OF  DEALINGS,  STATEMENTS  OR  ACTIONS  OF THE BANK
RELATING TO THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF THE LOAN DOCUMENTS,
AND AGREE THAT NEITHER PARTY WILL SEEK TO  CONSOLIDATE  ANY SUCH ACTION WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL  CANNOT BE OR HAS NOT BEEN WAIVED.  EXCEPT AS
PROHIBITED  BY LAW, THE COMPANY  HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY  LITIGATION  ANY SPECIAL,  EXEMPLARY,  PUNITIVE OR  CONSEQUENTIAL
DAMAGES OR ANY  DAMAGES  OTHER THAN,  OR IN ADDITION  TO,  ACTUAL  DAMAGES.  THE
COMPANY  CERTIFIES  THAT NO  REPRESENTATIVE,  AGENT OR  ATTORNEY OF THE BANK HAS
REPRESENTED,  EXPRESSLY OR  OTHERWISE,  THAT THE BANK WOULD NOT, IN THE EVENT OF
LITIGATION,  SEEK TO ENFORCE THE  FOREGOING  WAIVER.  THIS WAIVER  CONSTITUTES A
MATERIAL  INDUCEMENT  FOR THE BANK TO ENTER INTO THIS  AGREEMENT AND TO MAKE THE
LOANS.

     SECTION  9.08.  Severability.  In case  any  one or more of the  provisions
contained  in this  Agreement,  any Note or any other  Loan  Document  should be
invalid,  illegal or  unenforceable in any respect,  the validity,  legality and
enforceability  of the remaining  provisions  contained herein and therein shall
not in any way be affected or impaired thereby.

     SECTION 9.09. Right of Setoff.  The Company and each Guarantor hereby grant
to the  Bank,  a  continuing  lien,  security  interest  and  right of setoff as
security for all liabilities  and obligations to the Bank,  whether now existing
or hereafter  arising,  upon and against all deposits,  credits,  collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
the Bank or any entity under the control of FleetBoston  Financial  Corporation,
its  successors  or assigns or in transit to any of them.  At any time,  without
demand or notice, the Bank may setoff the same or any part thereof and apply the
same to any liability or obligation of the Company or any Guarantor  even though


                                       44
<PAGE>

unmatured and regardless of the adequacy of any other  collateral  securing this
Agreement.  ANY AND ALL RIGHTS TO  REQUIRE  THE BANK TO  EXERCISE  ITS RIGHTS OR
REMEDIES  WITH RESPECT TO ANY OTHER  COLLATERAL  WHICH  SECURES THIS  AGREEMENT,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH  DEPOSITS,  CREDITS
OR OTHER  PROPERTY  OF THE  COMPANY OR THE  GUARANTORS,  ARE  HEREBY  KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.

     SECTION 9.10.  Modification  of Agreement.  No  modification,  amendment or
waiver of any provision of this Agreement or any Loan  Document,  nor consent to
any departure by the Company or any Guarantor  therefrom,  shall in any event be
effective  unless the same  shall be in writing  and signed by the Bank and such
waiver or consent shall be effective  only in the specific  instance and for the
purpose for which given. No notices to or demand on the Company or any Guarantor
in any case shall entitle the Company or the Guarantors,  as the case may be, to
any  other  or  further  notice  or  demand  in  the  same,   similar  or  other
circumstances.

     SECTION 9.11.  Lost Note. Upon receipt of an affidavit of an officer of the
Bank as to the loss,  theft,  destruction or mutilation of the Note or any other
document in connection  herewith which is not of public record, and, in the case
of  any  such  loss,  theft,  destruction  or  mutilation,  upon  surrender  and
cancellation  of the Note or any document in  connection  herewith,  the Company
will issue,  in lieu thereof,  a replacement  Note or other document in the same
principal amount thereof and otherwise of like tenor.

     SECTION 9.12. Integration.  This Agreement and the other Loan Documents are
intended by the parties as the final,  complete and  exclusive  statement of the
transactions   evidenced  hereby  and  thereby.  All  prior  or  contemporaneous
promises,  agreements and understandings  whether oral or written, are deemed to
be  superceded by this  Agreement  and the other Loan  Documents and no party is
relying on any  promise,  agreement  or  understanding  not set forth  herein or
therein.

     SECTION 9.13. Headings. Section headings used herein are for convenience of
reference  only and are not to  affect  the  construction  of or be  taken  into
consideration in interpreting this Agreement.

     SECTION 9.14.  Construction.  This Agreement is the result of  negotiations
between,  and has been  reviewed  by,  each of the  Company,  the Bank and their
respective  counsel.  Accordingly,  this  Agreement  shall be  deemed  to be the
product of each party hereto, and no ambiguity shall be construed in favor of or
against either the Company or the Bank.

     SECTION 9.15.  Counterparts.  This Agreement may be executed in two or more
counterparts,  each of which shall  constitute  an  original,  but all of which,
taken together, shall constitute one and the same instrument.

                                       45
<PAGE>


     IN WITNESS WHEREOF,  the Company and the Bank have caused this Agreement to
be duly executed by their duly authorized officers, as of the day and year first
above written.


                                VASOMEDICAL, INC.


                                By:     /s/
                                        -------------------------
                                Name:   Joseph A. Giacalone
                                Title:  Chief Financial Officer


                                FLEET NATIONAL BANK


                                By:     /s/
                                        -------------------------
                                Name:   Jeffrey A. Morris
                                Title:  Senior Vice President


                                       46
<PAGE>

                                                                       EXHIBIT A

                                    FORM OF
                             REVOLVING CREDIT NOTE

$15,000,000                                                  Uniondale, New York
                                                               February 21, 2002

     FOR  VALUE  RECEIVED,   VASOMEDICAL,  INC.,  a  Delaware  corporation  (the
"Company"), promises to pay to the order of FLEET NATIONAL BANK (the "Bank"), on
or before the Revolving Credit Commitment Termination Date, the principal amount
of FIFTEEN  MILLION  DOLLARS  ($15,000,000)  or, if less,  the unpaid  principal
amount of all  Revolving  Credit Loans made by the Bank to the Company under the
Credit Agreement referred to below.

     The Company also  promises to pay interest on the unpaid  principal  amount
hereof  from the date  hereof  until  paid in full at the rates and at the times
which shall be determined,  and to make principal repayments on this Note at the
times which shall be determined, in accordance with the provisions of the Credit
Agreement referred to below.

     This  Note  is the  "Revolving  Credit  Note"  referred  to in  the  Credit
Agreement dated as of February 21, 2002, by and between the Company and the Bank
(as the same may be amended,  modified or  supplemented  from time to time,  the
"Credit  Agreement")  and is issued  pursuant to and entitled to the benefits of
the Credit  Agreement  to which  reference  is hereby  made for a more  complete
statement of the terms and  conditions  under which the  Revolving  Credit Loans
evidenced hereby were made and are to be repaid.  Capitalized  terms used herein
without definition shall have the meanings set forth in the Credit Agreement.



<PAGE>

Each of the Bank and any subsequent holder of this Note agrees, by its
acceptance hereof, that before transferring this Note it shall record the date,
Type and amount of each Revolving Credit Loan and the date and amount of each
payment or prepayment of principal of each Revolving Credit Loan previously made
hereunder on the grid schedule annexed to this Note; provided, however, that the
failure of the Bank or holder to set forth such Revolving Credit Loans, payments
and other information on the attached grid schedule shall not in any manner
affect the obligation of the Company to repay the Revolving Credit Loans made by
the Bank in accordance with the terms of this Note.

     This Note is subject to  optional  and  mandatory  prepayments  pursuant to
Section 3.03 of the Credit Agreement.

     Upon the  occurrence  of an Event of  Default,  the  unpaid  balance of the
principal  amount of this Note  together  with all accrued  but unpaid  interest
thereon,  may  become,  or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.

     All  payments of  principal  and  interest in respect of this Note shall be
made in lawful money of the United  States of America in  immediately  available
funds at the office of Fleet  National  Bank,  located at 300 Broad Hollow Road,
Melville,  New York  11747 or at such  other  place  as shall be  designated  in
writing for such purpose in accordance with the terms of the Credit Agreement.

     No reference  herein to the Credit  Agreement and no provision of this Note
or the Credit  Agreement  shall alter or impair the  obligation  of the Company,
which is absolute  and  unconditional,  to pay the  principal of and interest on
this Note at the place,  at the  respective  times,  and in the currency  herein
prescribed.

     The  Company  and  endorsers  of this Note  waive  presentment,  diligence,
demand, protest, and notice of any kind in connection with this Note.

     THIS NOTE SHALL BE  GOVERNED  BY, AND SHALL BE  CONSTRUED  AND  ENFORCED IN
ACCORDANCE  WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.

     IN WITNESS  WHEREOF,  the Company  has caused this Note to be executed  and
delivered  by its  duly  authorized  officer,  as of the day and year and at the
place first above written.


                                VASOMEDICAL, INC.


                                By:__________________________
                                Name:   Joseph A. Giacalone
                                Title:  Chief Financial Officer


                                       2
<PAGE>

                                    SCHEDULE


Date     Principal     Type                Applicable    Amount of      Notation
 of      Amount of      of     Interest     Interest     Principal        Made
Loan       Loan        Loan      Rate        Period        Paid            By
----     ---------     ----    --------    ----------    ---------      --------


<PAGE>

                                                                       EXHIBIT B

                                    FORM OF
                               SECURITY AGREEMENT


     SECURITY AGREEMENT, dated as of February 21, 2002, by and among each of the
entities  identified  on the signature  page hereto under the heading  "Grantor"
(each a "Grantor" and,  collectively,  the  "Grantors")  and FLEET NATIONAL BANK
(the "Secured Party").

                                    RECITALS

     A.  VASOMEDICAL,  INC.,  a Delaware  corporation  (the  "Company")  and the
Secured Party have entered into a Credit Agreement,  dated as of the date hereof
(as the same may be hereafter amended,  modified,  restated or supplemented from
time to time, the "Credit Agreement") pursuant to which the Company will receive
loans and other financial  accommodations  from the Secured Party and will incur
Obligations (as hereinafter defined).

     B. To induce the Secured Party to extend credit to the Company on and after
the date hereof as provided in the Credit  Agreement,  each  Grantor  desires to
grant the Secured  Party  security and  assurance in order to secure the payment
and performance of all Obligations and to that effect to grant the Secured Party
a first priority  perfected  security  interest in its assets and, in connection
therewith, to execute and deliver this Agreement.

     Accordingly, the parties hereto hereby agree as follows:

                                  DEFINITIONS

     (a)  Capitalized  terms used herein and not otherwise  defined herein shall
have the meanings  assigned to such terms in the Uniform  Commercial  Code as in
effect in the State of New York (the "UCC").

     (b) Capitalized  terms used herein and not otherwise defined shall have the
following meanings:


<PAGE>

     "Agreement": this Agreement and shall include all amendments, modifications
and  supplements  hereto and shall refer to this Agreement as the same may be in
effect at the time such reference becomes operative.

     "Business Day" the meaning assigned to such term in the Credit Agreement.

     "Collateral":  all personal property of each Grantor, wherever located, and
whether  now  owned  or  hereafter  acquired  or  arising,  including,   without
limitation, all:

          (i)  Accounts;

          (ii) Chattel paper, including Electronic Chattel Paper;

          (iii)Goods,  including all Inventory and Equipment and any  accessions
               thereto;

          (iv) Instruments, including Promissory Notes;

          (v)  Investment Property;

          (vi) Documents;

          (vii) Deposit Accounts;

          (viii)  Commercial  Tort  Claims,  if any,  identified  on  Schedule A
               annexed hereto;

          (ix) Letter-of-Credit Rights;

          (x)  General  Intangibles,  including Payment Intangibles and Software
               (but excluding any trademarks, trade names, copyrights, copyright
               applications,  patents,  patent  applications,  trade secrets and
               know-how);

          (xi) Supporting Obligations; and

          (xii)to the extent not listed above as original  collateral,  proceeds
               and products of the foregoing.

     "Default" the meaning assigned to such term in the Credit Agreement.

     "Event  of  Default"  the  meaning  assigned  to such  term  in the  Credit
Agreement.

     "Liens" the meaning assigned to such term in the Credit Agreement.

     "Loan Documents" the meaning assigned to such term in the Credit Agreement.

                                       2
<PAGE>

     "Loans" the meaning assigned to such term in the Credit Agreement.

     "Obligations" all obligations, liabilities and indebtedness of each Grantor
to the Bank, whether now existing or hereafter created,  absolute or contingent,
direct  or  indirect,  due or not,  whether  created  directly  or  acquired  by
assignment  or  otherwise,  arising  under or relating to this  Agreement or any
other Loan Document to which it is a party (including,  without limitation, with
respect to the Company,  all  obligations,  liabilities  and  indebtedness  with
respect to the principal of and interest on the Loans)  including the payment of
amounts that would become due but for the operation of the automatic  stay under
Section 362(a) of the Bankruptcy Code, and interest that but for the filing of a
petition  in  bankruptcy  with  respect  to any  Grantor  would  accrue  on such
obligations,  whether or not a claim is allowed  against  such  Grantor for such
interest in the related bankruptcy  proceeding),  and all fees, costs,  expenses
and indemnity  obligations of the Grantors to the Bank  hereunder,  or under any
other Loan Document.

     "Person" the meaning assigned to such term in the Credit Agreement.

     (c) Terms Generally. The definitions of terms herein shall apply equally to
the  singular and plural  forms of the terms  defined.  Whenever the context may
require,  pronouns  stated in the  masculine,  feminine or neuter  gender  shall
include the  masculine,  feminine  and the neuter.  Except as  otherwise  herein
specifically  provided,  each accounting term used herein shall have the meaning
given to it under Generally Accepted Accounting Principles. The term "including"
shall  not  be  limited  or  exclusive,  unless  specifically  indicated  to the
contrary.  The word "will" shall be construed to have the same meaning in effect
as the word "shall".  The words  "herein",  "hereof" and  "hereunder"  and other
words of  similar  import  refer to this  Agreement  as a whole,  including  the
exhibits and schedules hereto,  all of which are by this reference  incorporated
into this Agreement.

     I. SECURITY

     SECTION  1.01.  Grant of Security.  As security for the  Obligations,  each
Grantor  hereby  transfers,  assigns and grants to the Secured  Party a security
interest in the Collateral.

     SECTION  1.02.  Release  and  Satisfaction.  Upon the  termination  of this
Agreement and the indefeasible  payment in full of the Obligations,  the Secured
Party shall deliver to each Grantor, upon request therefor and at such Grantor's
expense,  releases and  satisfactions  of all financing  statements,  notices of
assignment and other registrations of security.

     II. REPRESENTATIONS AND WARRANTIES

     SECTION 2.01. Representations and Warranties With Respect to Security. Each
Grantor  hereby  represents  and  warrants to the Secured  Party for the ratable
benefit of the Banks as follows:

     (a) Name.  Each  Grantor's  exact legal  name,  state of  incorporation  or
organization  and  organizational  number  is set  forth on  Schedule  A annexed
hereto.

                                       3
<PAGE>

     (b) Ownership of Collateral. Each Grantor owns all of its personal property
and assets, including, without limitation, the Collateral, free and clear of all
Liens,  other  than  the  Liens  permitted  under  Section  7.01  of the  Credit
Agreement.

     (c) Accounts.  Annexed hereto as Schedule A is a list identifying the chief
executive  office  or  principal  place  of  business  of each  Grantor  and all
addresses  at which each  Grantor  maintains  books or records  relating  to its
Accounts as of the date of this Agreement.

     (d)  Inventory.  Annexed  hereto as  Schedule A is a list  identifying  all
addresses  where each  Grantor  maintains  its  Inventory as of the date of this
Agreement.  No Grantor's Inventory is currently maintained or will be maintained
with any bailee that issues  negotiable  warehouse  receipts or other negotiable
instruments therefore.

     (e) Equipment.  Annexed hereto as Schedule A is a list  identifying all the
addresses where the Equipment of each Grantor is located.

     (f) Trade  Names.  Except as set forth on Schedule A annexed  hereto,  each
Grantor has not done during the five years prior to this Agreement, and does not
currently  do,  business  under  fictitious  business  names or trade names.  No
Grantor has been known under any other name during such five year  period.  Each
Grantor  will only  change its name or do  business  under any other  fictitious
business names or trade names during the term of this Agreement after giving not
less than thirty (30) Business Days' prior written notice to the Secured Party.

     (g) Acquired Collateral.  Except as set forth on Schedule A annexed hereto,
the  Collateral  has been acquired or originated by each Grantor in the ordinary
course  of  such  Grantor's  business  and  was  not  acquired  pursuant  to any
acquisition of all or a portion of the business of any Person whether by merger,
acquisition of assets or otherwise.

     (h)  Third  Party  Locations.  Except as set  forth on  Schedule  A annexed
hereto,  no  Collateral  is in the  possession  of, or under the control of, any
Person other than a Grantor or the Secured Party.

     (i)  Commercial  Tort  Claims.  Except to the extent  identified  under the
definition of Collateral above, no Grantor holds any Commercial Tort Claim.

     (j)  Enforceability  of  Security  Interests.  Upon the  execution  of this
Agreement  by each  Grantor  and the  filing of  financing  statements  properly
describing the Collateral and identifying  such Grantor and the Secured Party in
the applicable jurisdiction required pursuant to the UCC, security interests and
liens granted to the Secured  Party under  Section 1.01 hereof shall  constitute
valid,  perfected and first priority security  interests and liens in and to the
Collateral of such Grantor,  other than Collateral which may not be perfected by
filing under the Uniform  Commercial  Code,  and subject to the Liens  permitted
pursuant  to Section  7.01 of the  Credit  Agreement,  in each case  enforceable
against all third parties and securing the payment of the Obligations.

     III. COVENANTS OF GRANTORS

     SECTION 3.01. Records;  Location of Collateral.  So long as a Grantor shall
have any  Obligation  to the Secured Party (a) such Grantor shall not change the
jurisdiction  of its  incorporation  or organization or move its chief executive
office,  principal  place of  business  or office at which is kept its books and

                                       4
<PAGE>
records (including  computer printouts and programs) from the locations existing
on the date hereof and listed on Schedule A annexed hereto;  (b) a Grantor shall
not establish any offices or other places of business at any other location; (c)
a Grantor shall not move any of the  Collateral to any location other than those
locations  existing on the date hereof and listed on Schedule A annexed  hereto;
or (d) a Grantor shall not change its corporate name in any respect,  unless, in
each case of clauses (a), (b) (c) and (d) above,  (i) a Grantor shall have given
the  Secured  Party  thirty (30)  Business  Days'  prior  written  notice of its
intention  to do so,  identifying  the new  location  and  providing  such other
information as the Secured Party deems necessary,  and (ii) a Grantor shall have
delivered  to the  Secured  Party  such  documentation,  in form  and  substance
satisfactory  to the Secured  Party and as required  by the  Secured  Party,  to
preserve the Secured Party's security interest in the Collateral.

     SECTION 3.02.  Commercial  Tort Claims.  Each Grantor shall promptly notify
the Secured Party upon obtaining any Commercial Tort Claim after the date hereof
against any third party and, upon request of the Secured  Party,  shall promptly
enter into an  amendment to this  Agreement  and do such other acts or things as
may be requested by the Secured Party to give the Secured Party a first priority
perfected security interest in any such Commercial Tort Claim.

     SECTION 3.03.  Other  Collateral.  Each Grantor shall  promptly  notify the
Secured Party upon  acquiring or otherwise  obtaining any  Collateral  after the
date   hereof   consisting   of   Deposit   Accounts,    Investment    Property,
Letter-of-Credit Rights, Electronic Chattel Paper, Documents or instruments.

     SECTION 3.04. Further Actions.

     (a) Promissory  Notes and Tangible  Chattel Paper.  If any Grantor shall at
any time hold or acquire any Promissory  Notes or Tangible  Chattel Paper,  such
Grantor shall forthwith endorse, assign or deliver the same to the Secured Party
accompanied by  instruments of transfer or assignment  duly executed in blank as
the Secured Party may from time to time specify.

     (b) Deposit  Accounts.  At the request of the Secured  Party,  each Grantor
will cause each depository  bank where such Grantor  maintains a Deposit Account
to execute an agreement  pursuant to which the depository bank agrees to comply,
without the further consent of such Grantor, at any time, with instructions from
the Secured Party to such  depository  bank  directing the  disposition of funds
from time to time credited to such deposit account or agree to the Secured Party
becoming  the  customer  of the  depository  bank with  respect to such  deposit
accounts,  with such  Grantor  being  permitted,  only with the  consent  of the
Secured Party, to exercise rights to withdraw funds from such deposit account.

                                       5
<PAGE>

     (c) Investment  Property.  If any Grantor shall at any time hold or acquire
any  Certificated  Securities,  such Grantor shall forthwith  endorse,  sign and
deliver  the  same to the  Secured  Party  accompanied  by such  instruments  of
transfer  assignment  duly  executed in blank as Secured  Party may from time to
time  specify.  If any security is now or hereafter  acquired by any Grantor are
uncertificated  and are issued to the  Grantor or its  nominee  directly  by the
issuer thereof,  such Grantor shall immediately notify the Secured Party thereof
and at the Secured Party's request and option,  pursuant to an agreement in form
and substance  satisfactory  to the Secured Party either (a) cause the issuer to
agree to comply without further consent of such Grantor or such nominee,  at any
time with  instructions  from the  Secured  Party as to such  Securities  or (b)
arrange for the Secured Party to become the registered  owner of the securities.
If any Securities,  whether  certificated or  uncertificated or other Investment
Property now or hereafter acquired by the Grantor are held by any Grantor or its
nominee through a Securities Intermediary or Commodity Intermediary, the Grantor
shall  immediately  notify the Secured Party thereof and at the Secured  Party's
request and option,  pursuant to an agreement in form and substance satisfactory
to the Secured Party either (i) cause such Securities  Intermediary or Commodity
Intermediary,  as the case may be, to agree to  comply,  in each  case,  without
further  consent of such Grantor or such nominee,  at any time with  Entitlement
Orders  or  other  instructions  from  the  Secured  Party  to  such  Securities
Intermediary as to such Securities or other Investment Property, or to apply any
value  distributed  on account of any  Commodity  Contract  as  directed  by the
Secured Party to such  Commodity  Intermediary  or (ii) in the case of Financial
Assets or other  Investment  Property  held through a  Securities  Intermediary,
arrange for this Secured Party to become the Entitlement  Holder with respect to
such Investment Property after the occurrence of an Event of Default,  with such
Grantor being permitted, only with the consent of the Secured Party, to exercise
rights to withdraw or otherwise deal with such Investment Property.  The Secured
Party shall not give any such Entitlement Order or instructions or directions to
any such issuers,  Securities  Intermediary or Commodity  Intermediary and shall
not withhold its consent to the exercise of any  withdrawal or dealing rights by
the Grantor, unless an Event of Default has occurred and is continuing.

     (d) Collateral in the Possession of Third Parties.  If any Collateral is at
any time in the  possession  of any person or entity other than a Grantor or the
Secured Party (a "Third  Party"),  the Grantor shall promptly notify the Secured
Party thereof,  and at the Secured  Party's  request and option,  shall promptly
obtain an acknowledgment from the Third Party, in form and substance  reasonably
satisfactory to the Secured Party that the Third Party holds such collateral for
the benefit of the Secured  Party and such Third  Party's  agreement  to comply,
without further consent of the Grantor, at any time with the instructions of the
Secured Party as to such Collateral.

     (e) Electronic  Chattel Paper. If any Grantor at any time holds or acquired
an interest in any Electronic  Chattel Paper, such Grantor shall promptly notify
the Secured Party  thereof and, at the request and option of the Secured  Party,
shall take such action as the Secured  Party may  reasonably  request to vest in
the Secured Party  control  under  Section  9-105 of the UCC of such  Electronic
Chattel Paper.

                                       6
<PAGE>

     (f) Letter-of-Credit  Rights. If any Grantor is at any time the beneficiary
under a Letter of Credit,  such Grantor shall promptly  notify the Secured Party
thereof and, at the request and option of the Secured Party, such Grantor shall,
pursuant to an  arrangement  in form and substance  satisfactory  to the Secured
Party,  either (i) arrange for the Issuer and any  confirmed or other  nominated
person of such Letter of Credit to consent to an assignment to the Secured Party
of the proceeds of the Letter of Credit or (ii) arrange for the Secured Party to
become the  transferee  beneficiary  of the Letter of Credit,  with the  Secured
Party  agreeing in each case that,  upon the  occurrence of an Event of Default,
the  proceeds of the Letter of Credit are to be applied to  satisfaction  of the
Obligations in such order as the Secured Party may determine.

     (g) Commercial Tort Claims.  Each Grantor shall at any time hold or acquire
commercial tort claim, the Grantor shall immediately notify the Secured Party in
a writing  signed by the  Grantor of the  particulars  thereof  and grant to the
Secured  Party in such  writing a security  interest  therein  and all  proceeds
thereof,  all upon the terms of this  Agreement  with such writing to be in form
and substance to the Secured Party.

     (h) General.  Each Grantor further agrees,  upon the request of the Secured
Party and at the Secured  Party's  option,  to take any and all other actions as
the Secured  Party may  determine to be necessary or useful for the  attachment,
perfection  and first  priority  of,  and the  ability of the  Secured  Party to
enforce, the Secured Party's security interest in any and all of the Collateral,
including  without  limitation,  executing and delivering and where  appropriate
filing financing statements and amendments relating thereto under the UCC to the
extent,  if any, that such  Grantor's  signature  thereon is required  therefor,
causing the Secured Party's name to be noted as Secured Party on any certificate
of title  for a titled  good if such  notation  is a  condition  to  attachment,
perfection or priority of, or the ability of the Secured  Party to enforce,  the
Secured  Party's  security  interest  in such  Collateral,  (c) comply  with any
provision of any statute,  regulation  or treaty of the United  States as to any
Collateral  if  compliance  with such  provision is a condition  to  attachment,
perfection  or  priority  of, or ability  of the  Secured  Party to enforce  the
Secured Party's security interest in such Collateral, (d) obtaining governmental
and other third party  waivers,  consents and  approvals  in form and  substance
satisfactory to the Secured Party, including, without limitation, any consent of
any licensor,  lessor or other persons obligated on Collateral and (e) obtaining
waivers from mortgagees and landlords in form and substance  satisfactory to the
Secured Party.

     SECTION  3.05.  Insurance and  Assessments.  In the event any Grantor shall
fail to purchase or maintain insurance,  or pay any tax, assessment,  government
charge or levy, except as the same may be otherwise permitted hereunder or under
the Credit  Agreement,  or in the event that any lien,  encumbrance  or security
interest  prohibited  hereby shall not be paid in full or discharged,  or in the
event such  Grantor  shall fail to  perform or comply  with any other  covenant,
promise  or  obligation  to the  Secured  Party  hereunder,  or under the Credit
Agreement or any other Loan  Document,  the Secured  Party may, but shall not be
required to, perform,  pay, satisfy,  discharge or bond the same for the account
of  such  Grantor,  and  all  money  so paid  by the  Secured  Party,  including
reasonable attorney's fees, shall be deemed to be Obligations.

     SECTION 3.06. Inspection.  Upon reasonable notice to a Grantor, the Secured
Party may, during such Grantor's normal business hours,  examine and inspect any
Collateral and may examine,  inspect and copy all books and records with respect
thereto or relevant to the Obligations.

     SECTION 3.07.  Personal  Property.  The  Collateral  shall remain  personal
property  at all times.  No Grantor  shall affix any of the  Collateral  to real
property  in any manner  which  would  change its nature  from that of  personal
property to real property or to a fixture.


                                       7
<PAGE>
     SECTION  3.08.  Maintenance  of Corporate  Existence.  Each  Grantor  shall
preserve and maintain its  corporate  existence and shall not merge with or into
or consolidate with any other entity other than expressly  permitted pursuant to
the Credit Agreement.

     SECTION 3.09. Indemnification. Each Grantor agrees to indemnify the Secured
Party  and hold it  harmless  from and  against  any and all  injuries,  claims,
damages,  judgments,   liabilities,   costs  and  expenses  (including,  without
limitation,   reasonable  fees  and  disbursements  of  counsel),   charges  and
encumbrances  which may be incurred by or asserted  against the Secured Party in
connection  with or arising out of any assertion,  declaration or defense of the
Secured  Party's  rights  or  security  interest  under the  provisions  of this
Agreement or any other Loan Document, permitting it to collect, settle or adjust
Accounts or to deal with account  debtors in any way or in  connection  with the
realization,  repossession,  safeguarding,  insuring or other  protection of the
Collateral or in connection  with the  collecting,  perfecting or protecting the
Secured Party's liens and security  interests  hereunder or under any other Loan
Document.

     IV. POWER OF ATTORNEY; NOTICES

     SECTION  4.01.   Power  of  Attorney.   Each  Grantor  hereby   irrevocably
constitutes  and  appoints the Secured  Party and any officer or agent  thereof,
with full power of substitution,  as its true and lawful  attorneys-in-fact with
full  irrevocable  power and authority in the place and stead of such Grantor or
in the Secured  Party's own name,  for the purpose of carrying  out the terms of
this Agreement,  to take any and all  appropriate  action and to execute any and
all documents and instruments  that may be necessary or useful to accomplish the
purposes  of  this  Agreement  and,  without  limiting  the  generality  of  the
foregoing,  hereby  give said  attorneys  the power and right,  on behalf of the
Grantor,  without notice to or assent by the Grantor, to (a) upon the occurrence
of an Event of Default,  endorse the names of such Grantor on any checks, notes,
drafts or other forms of payment or security  that may come into the  possession
of the  Secured  Party  or any  affiliate  of the  Secured  Party,  to sign  the
Grantor's name on invoices or bills-of-lading, drafts against customers, notices
of assignment,  verifications and schedules, (b) upon the occurrence of an Event
of Default,  sell,  transfer,  pledge,  make any arrangement  with respect to or
otherwise dispose of or deal with any of the Collateral consistent with the UCC,
and (c) do acts and things which the Secured Party deems  necessary or useful to
protect,  preserve  or  realize  upon the  Collateral  and the  Secured  Party's
security  interest  therein.  The powers granted  herein,  being coupled with an
interest,  are irrevocable until all of the Obligations are indefeasibly paid in
full and this Agreement is terminated. The powers conferred on the Secured Party
hereunder  are solely to protect its interests in the  Collateral  and shall not
impose any duty upon it to exercise any such powers.  Neither the Secured  Party
nor any  attorney-in-fact  shall be  liable  for any act or  omission,  error in
judgment  or  mistake  of law  provided  the  same is not the  result  of  gross
negligence or willful misconduct.

     SECTION 4.02.  Notices.  Upon the  occurrence  of an Event of Default,  the
Secured Party may notify account  debtors and other persons  obligated on any of
the Collateral that the Collateral have been assigned to the Secured Party or of
its  security  interest  therein  and to direct such  account  debtors and other

                                       8
<PAGE>
persons obligated on any of the Collateral to make payment of all amounts due or
to  become  due to a  Grantor  directly  to the  Secured  Party  and  upon  such
notification  and at such  Grantor's  expense to enforce  collection of any such
Collateral,  and to adjust,  compromise or settle for cash,  credit or otherwise
upon any terms the amount of payment thereof. The Secured Party may, at any time
following  the  occurrence  of an Event of  Default,  notify the Postal  Service
authorities  to change the address of delivery of mail to an address  designated
by the Secured  Party.  After making of such a request or the giving of any such
notification,  each Grantor  shall hold any proceeds of  collection of accounts,
Chattel Paper, general intangibles, instruments and other Collateral received by
it as trustee for the Bank  without  commingling  the same with such Grantor and
shall turn the same over to the Secured  Party in the identical  form  received,
together with any necessary endorsements or assignments. The Secured Party shall
apply the  proceeds of  collection  of such  Collateral  received by the Secured
Party to the  Obligations,  in such  order  as the  Secured  Party,  in its sole
discretion,  shall  determine,  such proceeds to be  immediately  credited after
final payment in cash or other  immediately  available funds of the items giving
rise to them.

     V. REMEDIES OF SECURED PARTY

     SECTION 5.01. Enforcement.  Upon the occurrence of an Event of Default, the
Secured  Party shall have,  in  addition to all of its other  rights  under this
Agreement and the other Loan  Documents by operation of law or otherwise  (which
rights shall be  cumulative),  all of the rights and remedies of a secured party
under the UCC and shall have the right, to the extent  permitted by law, without
charge, to enter any Grantor's premises,  and until it completes the enforcement
of its rights in the Collateral  subject to its security interest  hereunder and
the sale or other  disposition of any property subject thereto,  take possession
of such premises  without charge,  rent or payment  therefor  (through self help
without  judicial  process and without  having first given notice or obtained an
order of any court),  or place  custodians  in control  thereof,  remain on such
premises  and use the same for the purpose of  completing  any work in progress,
preparing any Collateral for  disposition,  and disposition of or collecting any
Collateral.  Without limiting the foregoing,  upon the occurrence of an Event of
Default,  the Secured  Party may, on  commercially  reasonably  notice,  without
demand or  advertising,  all of which such Grantor  hereby waives (except as the
same may be required by law), sell,  lease,  license or otherwise dispose of and

                                       9
<PAGE>

grant options to a third party to purchase,  lease, license or otherwise dispose
of any and all Collateral  held by it or for its account at any time or times in
one or more public or private sales or other  dispositions,  for cash, on credit
or otherwise,  at such prices and upon such terms as the Secured  Party,  in its
sole discretion, deems advisable. At any such sale the Collateral or any portion
thereof  may be sold in one lot as an  entirety  or in  separate  parcels as the
Secured Party in its sole discretion deems  advisable.  Each Grantor agrees that
such notice of sale shall be  commercially  reasonable if such notice is mailed,
postage  prepaid,  to such  Grantor at its address set forth above or such other
address as it may have, in writing, provided to the Secured Party, at least five
(5) Business Days before the time of such sale or disposition. The Secured Party
may  postpone  or  adjourn  any sale of any  Collateral  from time to time by an
announcement  at the time and place of the sale to be so postponed or adjourned,
without being  required to give a new notice of sale.  Notice of any public sale
shall be sufficient if it describes the security of the Collateral to be sold in
general terms,  stating the amounts thereof, the nature of the business in which
such  Collateral  was  created  and the  location  and nature of the  properties
covered  by the other  security  interests  or  mortgages  and the  prior  liens
thereof.  The  Secured  Party  may be the  purchaser  at any such  sale if it is
public,  free from any right of redemption,  which such Grantor also waives, and
payment may be made, in whole or in part,  in respect of such purchase  price by
the  application  of the  Obligations  by the Secured  Party.  Each Grantor with
respect to its property  constituting  such Collateral,  shall be obligated for,
and the  proceeds  of sale  shall be  applied  first to,  the  costs of  taking,
assembling,  finishing, collecting,  refurbishing,  storing, guarding, insuring,
preparing  for  sale,  and  selling  the  Collateral,  including  the  fees  and
disbursements of auctioneers, appraisers and accountants and the reasonable fees
and  disbursements  of attorneys  employed by the Secured Party.  Proceeds shall
then be applied to the payment,  in whatever  order the Secured Party may elect,
of all of the  Obligations.  The Secured  Party shall  return any excess to such
Grantor or to whomever  may be fully  entitled to receive the same or as a court
of competent jurisdiction may direct. In the event that the proceeds of any sale
or other  disposition  of the  Collateral  are  insufficient  to pay in full the
Obligations, such Grantor shall remain liable for any deficiency.

     SECTION 5.02.  Standards for Exercising Rights and Remedies.  To the extent
that applicable law imposes duties on the Secured Party to exercise  remedies in
a commercially  reasonable manner, each Grantor  acknowledges and agrees that it
is not  commercially  unreasonable  for the  Secured  Party (a) to fail to incur
expenses   reasonably  deemed  significant  by  the  Secured  Party  to  prepare
Collateral for disposition or otherwise to fail to complete raw material or work
in process into finished goods or other finished  products for disposition,  (b)
to fail to obtain third party  consents for access to  Collateral to be disposed
of,  or to  obtain  or,  if not  required  by  other  law,  to  fail  to  obtain
governmental  or third party  consents  for the  collection  or  disposition  of
Collateral  to be collected  or disposed of, (c) to fail to exercise  collection
remedies against account debtors or other persons  obligated on Collateral or to
fail  to  remove  liens  or  encumbrances  on  or  any  adverse  claims  against
Collateral,  (d) to exercise  collection  remedies  against  account debtors and
other persons obligated on Collateral  directly or through the use of collection
agencies and other collection  specialists,  (e) to the extent permitted by law,
to advertise dispositions of Collateral through publications or media of general
circulation,  whether or not the Collateral is of a specialized  nature,  (f) to
contact other  persons,  whether or not in the same  business each Grantor,  for


                                       10
<PAGE>


expressions of interest in acquiring all or any portion of the  Collateral,  (g)
to hire one or more  professional  auctioneers  to assist in the  disposition of
Collateral,  whether or not the  collateral is of a specialized  nature,  (h) to
dispose of Collateral by utilizing  Internet  sites that provide for the auction
of assets of the types  included in the  Collateral or that have the  reasonable
capability  of doing so, or that  match  buyers and  sellers  of assets,  (i) to
dispose of assets in  wholesale  rather  than  retail  markets,  (j) to disclaim
disposition  warranties,  (k) to purchase  insurance or credit  enhancements  to
insure the Secured Party  against risk of loss,  collection  or  disposition  of
Collateral  or to provide to the  Secured  Party a  guaranteed  return  from the
collection or disposition of Collateral, or (l) to the extent deemed appropriate
by the  Secured  Party,  to obtain the  services  of other  brokers,  investment
bankers,  consultants and other professionals to assist the Secured Party in the
collection or disposition of any of the  Collateral.  Each Grantor  acknowledges
that the purpose of this Section 5.02 is to provide  non-exhaustive  indications
of what  actions or  omissions  by the Secured  Party would  fulfill the Secured
Party's duties under the UCC of the State or any other relevant  jurisdiction in
the Secured Party's  exercise of remedies  against the Collateral and that other
actions or omissions by the Secured Party shall not be deemed to fail to fulfill
such  duties  solely on account of not being  indicated  in this  Section  5.02.
Without  limitation upon the foregoing,  nothing  contained in this Section 5.02
shall be  construed  to grant any rights to each Grantor or to impose any duties
on the  Secured  Party  that  would not have been  granted  or  imposed  by this
Agreement or by applicable law in the absence of this Section 5.02.

     SECTION 5.03.  Waiver.  Except as otherwise  provided herein,  each Grantor
waives any right, to the extent applicable law permits,  to receive prior notice
of, or a judicial or other  hearing with  respect to, any action or  prejudgment
remedy or proceeding by the Secured Party to take  possession,  exercise control
over, or dispose of any item of the  Collateral in any instance  (regardless  of
where such  Collateral may be located) where such action is permitted  under the
terms of this Agreement or any other Loan Document,  or by applicable law, or of
the time,  place or terms of sale in connection with the exercise of the Secured
Party's rights  hereunder and such Grantor also waives,  to the extent permitted
by law,  any  bond,  security  or  sureties  required  by any  statute,  rule or
otherwise by law as an incident to any taking of possession by the Secured Party
of property subject to the Secured Party's Lien. Each Grantor further waives any
damages (direct,  consequential  or otherwise)  occasioned by the enforcement of
the Secured  Party's  rights under this  Agreement  and any other Loan  Document
including the taking of possession of any Collateral all to the extent that such
waiver is permitted by law and to the extent that such damages are not caused by
the Secured Party's gross  negligence or willful  misconduct.  These waivers and
all other waivers  provided for in this  Agreement and any other Loan  Documents
have been  negotiated by the parties and each Grantor  acknowledges  that it has
been  represented  by counsel of its own choice and has  consulted  such counsel
with respect to its rights hereunder.

     SECTION  5.04.  Other  Rights.  Each Grantor  agrees that the Secured Party
shall not have any obligation to preserve rights to any Collateral against prior
parties or to proceed first against any Collateral or to Marshall any Collateral
of any kind for the benefit of any other  creditors of such Grantor or any other
Person. The Secured Party is hereby granted,  to the extent that such Grantor is
permitted  to grant a license or right of use, a license or other  right to use,
without charge, labels, patents,  copyrights,  rights of use, of any name, trade
secrets,  trade names,  trademarks and advertising  matter, or any property of a
similar nature of such Grantor as it pertains to the  Collateral,  in completing
production  of,  advertising  for sale,  and  selling  any  Collateral  and such
Grantor's  rights under all licenses and any  franchise,  sales or  distribution
agreements shall inure to the Secured Party's benefit.

     SECTION  5.05.  Expenses.  Each Grantor  agrees that it shall pay on demand
therefor all costs and expenses incurred in amending, implementing,  perfecting,
collecting,  defending,  declaring and enforcing the Secured  Party's rights and
security interests in the Collateral  hereunder or under the Credit Agreement or
any other Loan Document or other instrument or agreement delivered in connection
herewith or therewith,  including, but not limited to, searches and filings, and
the  Secured  Party's  reasonable  attorneys'  fees  (regardless  of whether any
litigation is commenced, whether a default is declared hereunder, and regardless
of tribunal or jurisdiction).

                                       11
<PAGE>
     VI. GENERAL PROVISIONS

     SECTION 6.01.  Termination.  This Agreement  shall remain in full force and
effect until all the  Obligations  shall have been  indefeasibly  fully paid and
satisfied and the Credit  Agreement  shall have expired or been  terminated and,
until such time, the Secured Party shall retain all security in and title to all
existing and future Collateral held by it hereunder.

     SECTION 6.02. Remedies Cumulative.  The Secured Party's rights and remedies
under this Agreement shall be cumulative and  non-exclusive  of any other rights
or  remedies  which it may have  under the  Credit  Agreement,  any  other  Loan
Document or any other agreement or instrument,  by operation of law or otherwise
and may be exercised alternatively,  successively or concurrently as the Secured
Party may deem expedient.

     SECTION  6.03.  Binding  Effect.  This  Agreement  is entered  into for the
benefit of the parties  hereto and their  successors  and  assigns.  It shall be
binding  upon  and  shall  inure  to the  benefit  of the  said  parties,  their
successors and assigns. No Grantor shall assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Secured Party and
any attempted assignment shall be null and void.

     SECTION  6.04.  Notices.  Wherever  this  Agreement  provides for notice to
either party  (except as  expressly  provided to the  contrary),  it shall be in
writing  and  given  in the  manner  specified  in  Section  9.01 of the  Credit
Agreement.  Such notices to each  Grantor  shall be delivered to the address for
notices set forth on Schedule A annexed hereto.

     SECTION 6.05.  Waiver. No delay or failure on the part of the Secured Party
in exercising any right, privilege,  remedy or option hereunder shall operate as
a waiver of such or any other right, privilege,  remedy or option, and no waiver
shall be valid  unless in writing and signed by an officer of the Secured  Party
and only to the extent therein set forth.

     SECTION 6.06.  Modifications  and Amendments.  This Agreement and the other
agreements  to which it refers  constitute  the complete  agreement  between the
parties  with  respect to the  subject  matter  hereof  and may not be  changed,
modified,  waived, amended or terminated orally, but only by a writing signed by
the party to be charged.

     SECTION 6.07.  Several  Agreements.  This  Agreement  shall  constitute the
several obligations and agreements of each Grantor and may be amended, restated,
supplemented  or  otherwise  modified  from time to time,  with  respect  to any
Grantor  without  the  consent or  approval  of any other  Grantor,  and no such
amendment,  restatement,  supplement or  modification  shall be deemed to amend,
restate, supplement or modify the obligations of any other Grantor hereunder.

     SECTION   6.08.   Survival   of   Representations   and   Warranties.   The
representations  and warranties of each Grantor made or deemed made herein shall
survive the execution and delivery of this Agreement.


                                       12
<PAGE>

     SECTION  6.09.  Severability.  Any provision of this  Agreement  held to be
invalid,   illegal  or  unenforceable   in  any  jurisdiction   shall,  in  such
jurisdiction,  be  ineffective to the extent of such  invalidity,  illegality or
unenforceability without affecting the validity,  legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a  particular  jurisdiction  shall not  invalidate  such  provision in any other
jurisdiction.

     SECTION  6.10.  Applicable  Law;  Consent to  Jurisdiction;  Waiver of Jury
Trial.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OR
CHOICE OF LAWS. EACH GRANTOR HEREBY  IRREVOCABLY  SUBMITS TO THE JURISDICTION OF
ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK,  COUNTY OF NEW YORK, COUNTY
OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST
IT AND  RELATED TO OR IN  CONNECTION  WITH THIS  AGREEMENT  OR THE  TRANSACTIONS
CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR
HEREBY  WAIVES  AND  AGREES  NOT TO ASSERT  BY WAY OF  MOTION,  AS A DEFENSE  OR
OTHERWISE  IN ANY SUCH  SUIT,  ACTION OR  PROCEEDING,  ANY CLAIM  THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT  IN AN  INCONVENIENT  FORUM,  THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER,  OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY
INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED
IN OR BY SUCH COURTS.  TO THE EXTENT  PERMITTED BY APPLICABLE  LAW, EACH GRANTOR
AGREES (i) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT
OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION  WHICH MAY BE
CALLED UPON TO GRANT AN  ENFORCEMENT OF SUCH JUDGMENT AND (ii) NOT TO ASSERT ANY
COUNTERCLAIM  IN ANY SUCH SUIT,  ACTION OR PROCEEDING.  EACH GRANTOR AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT BY  CERTIFIED OR  REGISTERED  MAIL TO THE
ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD  AUTHORIZED BY THE
LAWS OF NEW YORK. EACH GRANTOR AND THE SECURED PARTY EACH IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR  RELATING TO THIS  AGREEMENT,  ANY OTHER LOAN  DOCUMENT  OR THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

     SECTION 6.11.  Counterparts.  This Agreement may be executed in two or more
counterparts,  each of which shall constitute an original but all of which taken
together shall constitute one and the same agreement.

                     [THE NEXT PAGE IS THE SIGNATURE PAGE]


                                       13
<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by their officers hereunto duly authorized as of the day and year first
above written.


                                FLEET NATIONAL BANK


                                By: _____________________________
                                Name: Jeffrey A. Morris
                                Title:  Senior Vice President


                                GRANTORS:

                                VASOMEDICAL, INC.


                                By:__________________________
                                Name:   Joseph A. Giacalone
                                Title:  Chief Financial Officer


                                180 LINDEN AVENUE CORPORATION


                                By:__________________________
                                Name:   Joseph A. Giacalone
                                Title:  Chief Financial Officer



                                       14
<PAGE>


                                                                      Schedule A
                                                           to Security Agreement

1.   Name of Grantor: VASOMEDICAL, INC.

2.   State of Incorporation: Delaware

3.   Organizational Number: 2132775

4.   Chief Executive  Office or Principal  Place of Business:  180 Linden Avenue
     Westbury, New York 11590

5.   Other  offices at which  books or records  with  respect  to  Accounts  are
     maintained: None

6.   Inventory Locations:       180 Linden Avenue, Westbury, NY  11590
                                155 Sullivan Lane, Westbury, NY  11590
                                463 Union Avenue, Westbury, NY  11590

7.   Equipment Locations:       180 Linden Avenue, Westbury, NY  11590
                                155 Sullivan Lane, Westbury, NY  11590
                                463 Union Avenue, Westbury, NY  11590

8.   Trade Names:               Vaso

9.   Non-Ordinary Course Collateral Acquisitions:              Not Applicable

10.  Collateral in the possession or control of third parties: Not Applicable

11.  Commercial Tort Claims:                                   None

12.  Address for Notices:       180 Linden Avenue
                                Westbury, New York 11590
                                Attention:      Joseph A. Giacalone
                                Telecopy:       (516) 997-2299

         With a copy to         Blau, Kramer, Wactlar & Lieberman, P.C.
                                100 Jericho Quadrangle
                                Jericho, New York 11753
                                Attention:      David Lieberman, Esq.
                                Telecopy:       (516) 822-4824

                                       15
<PAGE>

                                                                      Schedule A
                                                           to Security Agreement

1.   Name of Grantor: 180 LINDEN AVENUE CORPORATION

2.   State of Incorporation: New York

3.   Organizational Number: Not applicable

4.   Chief Executive  Office or Principal  Place of Business:  180 Linden Avenue
     Westbury, New York 11590

5.   Other  offices at which  books or records  with  respect  to  Accounts  are
     maintained: None

6.   Inventory Locations: Not Applicable

7.   Equipment Locations: Not Applicable

8.   Trade Names: None

9.   Non-Ordinary Course Collateral Acquisitions: None

10.  Collateral in the possession or control of third parties: None

11.  Commercial Tort Claims: None

12.  Address for Notices:            180 Linden Avenue
                                     Westbury, New York 11590
                                     Attention:      Joseph A. Giacolone
                                     Telecopy:       (516) 997-2299

        With a copy to               Blau, Kramer, Wactlar & Lieberman, P.C.
                                     100 Jericho Quadrangle
                                     Jericho, New York 11753
                                     Attention:      David Lieberman, Esq.
                                     Telecopy:       (516) 822-4824

<PAGE>

                                                                       EXHIBIT C

                                    FORM OF
                                    GUARANTY

     THIS  GUARANTY is entered into as of the 21st day of February  2002, by 180
LINDEN AVENUE  CORPORATION (the  "Guarantor") in favor of and for the benefit of
FLEET NATIONAL BANK.

                                    RECITALS

     A. Pursuant to a Credit  Agreement,  dated the date hereof,  by and between
Vasomedical,  Inc. (the  "Company") and Fleet National Bank (the "Bank") (as the
same may be amended,  restated,  modified or supplemented from time to time, the
"Credit  Agreement"),  the  Company  will  receive  loans  and  other  financial
accommodations from the Bank and will incur Obligations.

     B. The Guarantor,  being  affiliated with the Company,  will receive direct
and indirect benefits from such loans and financial accommodations.

     C. The  Guarantor  wishes to grant the Bank security and assurance in order
to secure the payment and  performance  by the Company of all of its present and
future  Obligations,  and, to that effect,  to guaranty the  Obligations  as set
forth herein.

     Accordingly, the Guarantor hereby agrees as follows:

     1. Guaranty.

     (a) The  Guarantor,  jointly  and  severally  with  any  other  guarantors,
unconditionally  and  irrevocably  guarantees  to the Bank the full and punctual
payment  by  the  Company,  when  due,  whether  at  the  stated  due  date,  by
acceleration or otherwise, of all Obligations of the Company, howsoever created,
arising or  evidenced,  voluntary or  involuntary,  whether  direct or indirect,
absolute  or  contingent  now  or  hereafter  existing  or  owing  to  the  Bank
(collectively,  the  "Guaranteed  Obligations").  This  Guaranty is an absolute,
unconditional,  continuing  guaranty  of payment  and not of  collection  of the
Guaranteed   Obligations  and  includes  Guaranteed   Obligations  arising  from
successive  transactions which shall either continue such Guaranteed Obligations
or from time to time renew such Guaranteed  Obligations after the same have been
satisfied.  This Guaranty is in no way  conditioned  upon any attempt to collect
from the  Company or upon any other event or  contingency,  and shall be binding
upon and  enforceable  against the Guarantor  without  regard to the validity or
enforceability of the Credit  Agreement,  the Note or any other Loan Document or
of any term of any  thereof.  If for any  reason  the  Company  shall fail or be
unable duly and punctually to pay any of the Guaranteed Obligations  (including,
without  limitation  amounts that would become due but for the  operation of the
automatic stay under Section 362(a) of the Bankruptcy  Code, 11 U.S.C.  362(a)),
each Guarantor will forthwith pay the same, in cash, immediately upon demand.

     (b) In the event the Credit Agreement,  any Note or any other Loan Document
shall be  terminated  as a  result  of the  rejection  thereof  by any  trustee,


<PAGE>

receiver or  liquidating  agent of the Company or any of its  properties  in any
bankruptcy, insolvency, reorganization,  arrangement, composition, readjustment,
liquidation,  dissolution or similar  proceeding,  the  Guarantor's  obligations
hereunder  shall  continue to the same extent as if the Credit  Agreement,  such
Note or such other Loan Document had not been so rejected.

     (c) The  Guarantor  shall pay all costs,  reasonable  expenses  (including,
without  limitation,  reasonable  attorneys' fees and disbursements) and damages
incurred in connection with the enforcement of the Guaranteed Obligations of the
Company under the Credit Agreement or the Note or any other Loan Document to the
extent  that  such  costs,  expenses  and  damages  are not paid by the  Company
pursuant to the respective documents.

     (d) The Guarantor further agrees that if any payment made by the Company or
the  Guarantor to the Bank on any  Obligation is  rescinded,  recovered  from or
repaid  by the  Bank,  in whole or in part,  in any  bankruptcy,  insolvency  or
similar proceeding  instituted by or against the Company or the Guarantor,  this
Guaranty shall continue to be fully applicable to such Guaranteed  Obligation to
the same  extent  as  though  the  payment  so  recovered  or  repaid  had never
originally been made on such Guaranteed Obligation.

     (e) If any Event of Default shall have occurred and be continuing, the Bank
and any Affiliate of the Bank is hereby  authorized at any time and from time to
time, to the fullest  extent  permitted by law, to set off and apply any and all
deposits (general or special, time or demand,  provisional or final) at any time
held and other  indebtedness  at any time owing by the Bank, or any Affiliate of
the Bank to or for the credit or the account of the Guarantor against any of and
all the  obligations  of the  Guarantor  now or  hereafter  existing  under this
Guaranty,  irrespective  of  whether  or not the Bank shall have made any demand
hereunder and although such obligations may be unmatured.  The rights under this
paragraph  1(e) are in addition to other  rights and remedies  (including  other
rights of set off) which the Bank may have.

     2. Guaranty Continuing, Absolute, Unlimited.

     The obligations of the Guarantor  hereunder shall be continuing,  absolute,
irrevocable,   unlimited  and  unconditional,   shall  not  be  subject  to  any
counterclaim,  set-off,  deduction or defense based upon any claim the Guarantor
may have against the Bank or the Company or any other  person,  and shall remain
in full force and effect without regard to, and, to the fullest extent permitted
by applicable law, shall not be released,  discharged or in any way affected by,
any  circumstance  or  condition  (whether or not the  Guarantor  shall have any
knowledge  or notice  thereof)  whatsoever  which  might  constitute  a legal or
equitable discharge or defense including, but not limited to, (a) any express or
implied amendment, modification or supplement to the Credit Agreement, any Note,
or any other Loan Document or any other agreement referred to in any thereof, or
any other  instrument  applicable  to the  Company or to the Loans,  or any part
thereof;  (b) any  failure on the part of the  Company to perform or comply with
the Credit Agreement,  any Note or any other Loan Document or any failure of any
other  person to perform or comply  with any term of the Credit  Agreement,  any
Note,  or any other Loan Document or any other  agreement as aforesaid;  (c) any
waiver, consent, change, extension,  indulgence or other action or any action or
inaction  under or in respect of the Credit  Agreement,  any Note,  or any other
Loan Document or any other agreement as aforesaid,  whether or not the Bank, the

                                       2
<PAGE>

Company or the  Guarantor has notice or knowledge of any of the  foregoing;  (d)
any   bankruptcy,   insolvency,   reorganization,   arrangement,   readjustment,
composition,  liquidation or similar proceeding with respect to the Company,  or
its properties or its creditors,  or any action taken by any trustee or receiver
or by any court in any such  proceeding;  (e) any  furnishing  or  acceptance of
additional  security or any release of any security;  (f) any  limitation on the
liability or obligations of the Company under the Credit Agreement,  any Note or
any  other  Loan  Document  or  any  termination,   cancellation,   frustration,
invalidity or  unenforceability,  in whole or in part, of the Credit  Agreement,
any Note,  this  Guaranty or any other Loan Document or any term of any thereof;
(g) any lien,  charge or encumbrance  on or affecting the  Guarantor's or any of
the Company's respective assets and properties;  (h) any act, omission or breach
on the part of the Bank under the Credit  Agreement,  any Note or any other Loan
Document or any other  agreement at any time  existing  between the Bank and the
Company or any law, governmental regulation or other agreement applicable to the
Bank or any Loan;  (i) any claim as a result  of any  other  dealings  among the
Bank, the Guarantor or the Company;  (j) the  assignment of this  Guaranty,  the
Credit  Agreement,  any Note or any other Loan Document by the Bank to any other
Person;  or (k) any  change in the name of the Bank,  the  Company  or any other
Person referred to herein.

     3. Waiver.

     The Guarantor  unconditionally  waives,  to the fullest extent permitted by
applicable  law:  (a)  notice of any of the  matters  referred  to in  Section 2
hereof;  (b) all  notices  which  may be  required  by  statute,  rule of law or
otherwise to preserve any rights  against the  Guarantor  hereunder,  including,
without limitation,  notice of the acceptance of this Guaranty, or the creation,
renewal,  extension,  modification  or accrual of the Guaranteed  Obligations or
notice of any other matters relating thereto, any presentment, demand, notice of
dishonor,  protest, nonpayment of any damages or other amounts payable under the
Credit Agreement,  any Note or any other Loan Documents; (c) any requirement for
the enforcement,  assertion or exercise of any right, remedy, power or privilege
under  or in  respect  of the  Credit  Agreement,  any  Note or any  other  Loan
Documents, including, without limitation,  diligence in collection or protection
of or  realization  upon the  Guaranteed  Obligations or any part thereof or any
collateral thereof; (d) any requirement to mitigate the damages resulting from a
default by the Company  under the Credit  Agreement,  any Note or any other Loan
Documents;  (e) the occurrence of every other  condition  precedent to which the
Guarantor or the Company may otherwise be entitled; (f) the right to require the
Bank to proceed against the Company or any other person liable on the Guaranteed
Obligations,  to proceed  against or exhaust any security held by the Company or
any other person,  or to pursue any other remedy in the Bank's power whatsoever,
and (g) the right to have the  property  of the  Company  first  applied  to the
discharge of the Guaranteed Obligations.

     The Bank may,  at its  election,  exercise  any right or remedy it may have
against the Company  without  affecting or impairing in any way the liability of
the  Guarantor  hereunder  and  the  Guarantor  waives,  to the  fullest  extent
permitted by applicable law, any defense arising out of the absence,  impairment

                                       3
<PAGE>

or loss of any right of reimbursement,  contribution or subrogation or any other
right or remedy of the Guarantor  against the Company,  whether  resulting  from
such election by the Bank or otherwise. The Guarantor waives any defense arising
by reason of any  disability or other defense of the Company or by reason of the
cessation for any cause whatsoever of the liability, either in whole or in part,
of the Company to the Bank for the Guaranteed Obligations.

     The Guarantor assumes the  responsibility for being and keeping informed of
the financial  condition of the Company and of all other  circumstances  bearing
upon the risk of nonpayment of the  Guaranteed  Obligations  and agrees that the
Bank shall not have any duty to advise the  Guarantor of  information  regarding
any condition or circumstance  or any change in such condition or  circumstance.
The Guarantor acknowledges that the Bank has not made any representations to the
Guarantor concerning the financial condition of the Company.

     4. Representations and Covenants of each Guarantor.

     (a) The  representations  and  warranties  contained  in  Article IV of the
Credit  Agreement,  to the extent  they  relate to the  Guarantor,  are true and
correct  as of the  date  hereof  and  the  Bank  is  entitled  to  rely on such
representations  and  warranties  to the same extent as though the same were set
forth in full herein.

     (b) The  Guarantor  hereby  agrees to perform the  covenants  contained  in
Article VI and Article VII of the Credit Agreement, to the extent they relate to
the  Guarantor,  and the Bank is entitled to rely on such  agreement  to perform
such  covenants  to the same  extent as  though  the same were set forth in full
herein.

     5. Payments.

     Each payment by the Guarantor to the Bank under this Guaranty shall be made
in the time,  place and manner  provided  for  payments in the Credit  Agreement
without set-off or counterclaim to the account at which such payment is required
to be paid by the Company under the Credit Agreement.

     6. Parties.

     This  Guaranty  shall inure to the benefit of the Bank and its  successors,
assigns  or  transferees,  and  shall  be  binding  upon the  Guarantor  and its
successors  and assigns.  The Guarantor may not delegate any of its duties under
this Guaranty without the prior written consent of the Bank.

     7. Notices.

     Any notice shall be  conclusively  deemed to have been  received by a party
hereto and to be  effective  on the day on which  delivered to such party at the
address set forth below,  or if sent by  registered  or certified  mail,  on the
third Business Day after the day on which mailed in the United States, addressed
to such party at said address:


                                       4
<PAGE>
     (a) if to the Bank,

        Fleet National Bank
        300 Broad Hollow Road
        Melville, New York 11747
        Attention: Jeffrey A. Morris, Senior Vice President
        Telecopy: 631-547-7701

    (b) if to the Guarantor,

        180 Linden Avenue Corporation
        180 Linden Avenue
        Westbury, New York 11590
        Attention:      Joseph A. Giacalone
        Telecopy:       (516) 997-2299

        With a copy to

        Blau, Kramer, Wactlar & Lieberman, P.C.
        100 Jericho Quadrangle
        Jericho, New York 11753
        Attention:      David Lieberman, Esq.
        Telecopy:       (516) 822-4824

                                    - and -

     (c) as to each such  party at such other  address as such party  shall have
designated  to the other in a written  notice  complying as to delivery with the
provisions of this Section 7.

     8. Remedies.

     The Guarantor stipulates that the remedies at law in respect of any default
or threatened  default by the Guarantor in the performance of or compliance with
any of the terms of this Guaranty are not and will not be adequate, and that any
of such terms may be specifically  enforced by a decree for specific performance
or by an injunction against violation of any such terms or otherwise.

     9. Rights to Deal with the Company.

     At any time  and  from  time to time,  without  terminating,  affecting  or
impairing  the validity of this  Guaranty or the  obligations  of the  Guarantor
hereunder, the Bank may deal with the Company in the same manner and as fully as
if this  Guaranty did not exist and shall be entitled,  among other  things,  to
grant  the  Company,   without  notice  or  demand  and  without  affecting  the
Guarantor's  liability  hereunder,  such  extension  or  extensions  of  time to
perform, renew, compromise,  accelerate or otherwise change the time for payment

                                       5
<PAGE>

of or otherwise  change the terms of indebtedness or any part thereof  contained
in or arising under the Credit Agreement,  any Note or any other Loan Documents,
or to waive any  obligation  of the Company to  perform,  any act or acts as the
Bank may deem advisable.

     10. Subrogation.

     (a) Upon any payment made or action taken by the Guarantor pursuant to this
Guaranty,  the Guarantor shall,  subject to the provisions of Sections 10(b) and
(c)  hereof,  be fully  surrogate  to all of the rights of the Bank  against the
Company  arising  out of the action or  inaction  of the  Company for which such
payment was made or action taken by the Guarantor.

     (b) Any claims of the Guarantor  against the Company  arising from payments
made or  actions  taken by the  Guarantor  pursuant  to the  provisions  of this
Guaranty shall be in all respects  subordinate to the full and complete or final
and  indefeasible  payment or performance and discharge,  as the case may be, of
all  amounts,  obligations  and  liabilities,  the payments or  performance  and
discharge of which are guaranteed by this Guaranty,  and no payment hereunder by
the Guarantor shall give rise to any claim of the Guarantor against the Bank.

     (c) Notwithstanding  anything to the contrary contained in this Section 10,
the  Guarantor  shall be surrogate to the rights of the Bank against the Company
until  all  of the  Obligations  of the  Company  have  been  paid  finally  and
indefeasibly  in  full,  and  that  subrogation  shall  be  suspended  upon  the
occurrence  of  the  events   described  in  Section  1(d)  until  the  Bank  is
indefeasibly paid in full.

     11. Survival of Representations, Warranties, etc.

     All  representations,  warranties,  covenants and  agreements  made herein,
including  representations and warranties deemed made herein,  shall survive any
investigation  or inspection made by or on behalf of the Bank and shall continue
in full force and effect until all of the  obligations  of the  Guarantor  under
this Guaranty shall be fully performed in accordance with the terms hereof,  and
until the payment in full of the Guaranteed Obligations.

     12.  GOVERNING LAW;  CONSENT TO  JURISDICTION;  WAIVER OF JURY TRIAL.  THIS
GUARANTY  SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE
STATE OF NEW YORK. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY  FEDERAL  OR STATE  COURT IN THE STATE OF NEW  YORK,  COUNTY OF NEW YORK,
COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION,  SUIT OR PROCEEDING BROUGHT
AGAINST  IT  AND  RELATED  TO  OR  IN  CONNECTION  WITH  THIS  GUARANTY  OR  THE
TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH  GUARANTOR  HEREBY  WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION,  AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT

                                       6
<PAGE>

IS NOT PERSONALLY  SUBJECT TO THE  JURISDICTION OF SUCH FEDERAL OR STATE COURTS,
THAT THE SUIT,  ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT  FORUM,  THAT
THE VENUE OF THE SUIT,  ACTION OR PROCEEDING IS IMPROPER,  OR THAT THIS GUARANTY
OR ANY  DOCUMENT OR ANY  INSTRUMENT  REFERRED  TO HEREIN OR THE  SUBJECT  MATTER
THEREOF MAY NOT BE LITIGATED IN OR BY SUCH  COURTS.  TO THE EXTENT  PERMITTED BY
APPLICABLE  LAW,  EACH  GUARANTOR  AGREES (i) NOT TO SEEK AND HEREBY  WAIVES THE
RIGHT TO ANY REVIEW OF THE  JUDGMENT  OF ANY SUCH  FEDERAL OR STATE COURT BY ANY
FEDERAL OR STATE COURT OF ANY OTHER NATION OR  JURISDICTION  WHICH MAY BE CALLED
UPON TO GRANT AN  ENFORCEMENT  OF SUCH  JUDGMENT  AND  (ii)  NOT TO  ASSERT  ANY
COUNTERCLAIM, IN ANY SUCH SUIT, ACTION OR PROCEEDING. EACH GUARANTOR AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT BY  CERTIFIED OR  REGISTERED  MAIL TO THE
ADDRESS FOR NOTICES SET FORTH IN THIS  GUARANTY OR ANY METHOD  AUTHORIZED BY THE
LAWS OF NEW YORK.  THE BANK AND EACH  GUARANTOR  IRREVOCABLY  WAIVE ALL RIGHT TO
TRIAL  BY JURY IN ANY  ACTION,  PROCEEDING  OR  COUNTERCLAIM  ARISING  OUT OF OR
RELATING TO THIS GUARANTY,  THE LOAN DOCUMENTS OR THE TRANSACTIONS  CONTEMPLATED
HEREBY OR THEREBY.

     13. Miscellaneous.

     (a) All capitalized terms used herein and not defined herein shall have the
meanings specified in the Credit Agreement.

     (b) This Guaranty may be enforced against the Guarantor separately, whether
or not enforcement of any right or remedy  hereunder has been sought against any
other guarantor.  The Guarantor acknowledges that its obligations hereunder will
not be released or affected by the failure of any other  guarantor  to execute a
guaranty or by a  determination  that all or a part of any guaranty with respect
to any other guarantor is invalid or unenforceable.

     (c) If any  term of this  Guaranty  or any  application  thereof  shall  be
invalid  or  unenforceable,  the  remainder  of  this  Guaranty  and  any  other
application of such term shall not be affected thereby.

     (d)  Any  term of this  Guaranty  may be  amended,  waived,  discharged  or
terminated  only by an  instrument  in writing  signed by the  Guarantor and the
Bank.

     (e) The headings in this  Guaranty  are for purposes of reference  only and
shall not limit or define the meaning hereof.


                                       7
<PAGE>
     (f) No delay or  omission  by the Bank in the  exercise  of any right under
this  Guaranty  shall  impair any such right,  nor shall it be  construed  to be
waiver thereof;  nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise of any other right.

     IN WITNESS  WHEREOF,  the  undersigned  have  caused  this  Guaranty  to be
executed and delivered as of the day and year first above written.

                                180 LINDEN AVENUE CORPORATION


                                By:__________________________
                                Name:   Joseph A. Giacalone
                                Title:  Chief Financial Officer


                                       8
<PAGE>

                                                                       EXHIBIT D



                         [LETTERHEAD OF COUNSEL TO THE
                          COMPANY AND THE GUARANTORS]

                                 [See attached]

<PAGE>
                                   EXHIBIT E

FLEET
-----
                           Borrowing Base Certificate

Company:  Vasomedical, Inc.
          for the ________ Period Ending ________

Accounts Receivable
-------------------
        1.      Gross Accounts Receivable                          __________

        2.      Less:
                A.      Ineligible (over 60 days)     __________
                B.      50% Factor                    __________
                C.      Contra Accounts               __________
                D.      Foreign Accounts              __________
                E.      Government Accounts           __________
                F.      Lease Transactions            __________
                G.      Intercompany Accounts         __________
                H.      Other Ineligibles [describe]  __________

        3.      Total Ineligible (add A through I     __________

        4.      Total Net A/R Collateral (1 minus 3)               __________

        5.      Advance Rate (line 4 X 80%)                        __________

Inventory
---------
        6.      Raw Materials Inventory                            __________

        7.      Less:  Ineligibles

        8.      Total Inventory Collateral
                (6 minus 7)                           __________

        9.      Advance Rate (lesser of line 8 X 30%
                or $2,000,000)                        __________

Collateral
----------
       10.      Total Discounted Collateral (5 plus 9)             __________

       ll.      Total Availability (the lesser of line 10
                or $15,000,000*)                                   __________

Loans
-----
        12.     Revolving Credit Loans Outstanding                 __________

        13.     Availability (line 11 minus line 12)               __________

The undersigned  hereby represents and warrants to the Bank that all information
set forth herein, including,  without limitation,  the information regarding the
status of the accounts  receivable  and the  inventory,  are true,  complete and
accurate.  The undersigned  further  acknowledges that the Bank will rely on the
information  contained  herein in making Loans to the Company.  The  undersigned
certifies that (i) no Default or Event of Default has occurred and is continuing
under the Credit Agreement and (ii) the Company has performed all agreements and
satisfied all conditions under the Credit Agreement  required to be performed by
it on or  prior to the date  hereof.  Capitalized  terms  used  herein  and not
otherwise  defined  shall  have  the  meanings  ascribed  to them in the  Credit
Agreement.

Date____________     Signature____________________   Name_______________________

*For the period  through  March __, 2001,  the aggregate  outstanding  principal
amount of the  Revolving  Credit Loans shall not exceed  $4,000,000  if the Bank
shall not have received a satisfactory  field exam of the Company's Accounts and
an appraisal of the Company's Raw Materials Inventory.
<PAGE>


                                                                       EXHIBIT F

                          FORM OF NOTICE OF BORROWING

                                                        [Date]

Fleet National Bank
300 Broad Hollow Road
Melville, New York 11747
Attention:   Jeffrey A. Morris,
             Senior Vice President

                Re:     Vasomedical, Inc.

Gentlemen:

     Pursuant to the Credit  Agreement  dated as of February 21,  2002,  (as the
same may have been and may hereafter be amended,  modified or  supplemented  the
"Credit  Agreement") by and among Vasomedical,  Inc. and Fleet National Bank, we
hereby give you  irrevocable  notice that we request a Revolving  Credit Loan as
follows:

1.      Amount of Loan:         $____________
2.      Borrowing Date:         _____________
3.      Type of Loan:          [Prime Rate Loan] [LIBOR Rate Loan]
4.      Interest Period:       [Specify 1, 2, 3, or 6 months]

     We hereby certify that (i) the representations and warranties  contained in
the Credit Agreement and the other Loan Documents are true, correct and complete
on and as of the date  hereof to the same extent as though made on and as of the
date hereof;  (ii) no Default or Event of Default has occurred and is continuing
under the  Credit  Agreement  or will  result  after  giving  effect to the Loan
requested  hereunder;  (iii)  the  Company  has  performed  all  agreements  and
satisfied all conditions under the Credit Agreement  required to be performed by
it on or before the date hereof;  and (iv) after giving  effect to the requested
Revolving Credit Loan, the outstanding  principal amount of the Revolving Credit
Loans shall not exceed the lesser of (a) the current  Borrowing Base and (b) the
Revolving Credit Commitment currently in effect..

     Capitalized  terms used  herein but not defined  shall have the  respective
meanings given to them in the Credit Agreement.


     IN WITNESS WHEREOF, the Company has caused this document to be executed and
delivered by its Executive Officer as of the date written above.


                                VASOMEDICAL, INC.



                                By: ________________________
                                Title:  Chief Financial Officer