Exhibit 10.1
                                 PROMISSORY NOTE

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Borrower: Bay National Corporation                  Lender: Fulton Bank
          2328 W. Joppa Road                                Main Office
          Lutherville, MD 21093                             Corporate Address
                                                            One Penn Square
                                                            Lancaster, PA 17602

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PRINCIPAL AMOUNT:   $5,000,000.00              Date of Note: September 28, 2004

PROMISE TO PAY. Bay National Corporation  ("Borrower") promises to pay to Fulton
Bank ("Lender"),  or order, in lawful money of the United States of America, the
principal amount of Five Million & 00/100 Dollars ($5,000,000.00), together with
interest on the unpaid principal  balance from September 28, 2004, until paid in
full.

PAYMENT.  Borrower will pay this loan in one principal  payment of $5,000,000.00
plus  interest on September  28, 2007.  This payment due on September  28, 2007,
will be for all  principal  and all accrued  interest not yet paid. In addition,
Borrower will pay regular quarterly  payments of all accrued unpaid interest due
as of each  payment  date,  beginning  December 28,  2004,  with all  subsequent
interest  payments to be due on the same day of each quarter after that.  Unless
otherwise  agreed or required by applicable law,  payments will be applied first
to any accrued unpaid interest; then to principal; then to any late charges; and
then to any unpaid  collection  costs. The annual interest rate for this Note is
computed  on a 365/360  basis;  that is,  by  applying  the ratio of the  annual
interest rate over a year of 360 days,  multiplied by the outstanding  principal
balance,  multiplied  by the  actual  number of days the  principal  balance  is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes  in an index  which is the Fulton  Bank Prime Rate
(the "Index"). The Index is not necessarily the lowest rate charged by Lender on
its  loans and is set by Lender  in its sole  discretion.  If the Index  becomes
unavailable  during the term of this loan,  Lender may  designate  a  substitute
index after notifying Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. The interest rate change will not occur more often than
each day.  Borrower  understands that Lender may make loans based on other rates
as well. The interest rate to be applied to the unpaid principal balance of this
Note will be at a rate equal to the Index.  NOTICE:  Under no circumstances will
the  interest  rate on this  Note be more  than  the  maximum  rate  allowed  by
applicable law.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are  earned  fully as of the date of the loan and will not be  subject to refund
upon early  payment  (whether  voluntary or as a result of  default),  except as
otherwise  required by law.  Except for the foregoing,  Borrower may pay without
penalty  all or a portion  of the  amount  owed  earlier  than it is due.  Early
payments will not,  unless agreed to by Lender in writing,  relieve  Borrower of
Borrower's  obligation to continue to make payments under the payment  schedule.
Rather,  early payments will reduce the principal  balance due.  Borrower agrees
not to send  Lender  payments  marked  "paid in full",  "without  recourse",  or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of  Lender's  rights  under  this  Note,  and  Borrower  will  remain
obligated to pay any further amount owed to Lender.  All written  communications
concerning  disputed  amounts,  including any check or other payment  instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed  amount must be mailed or delivered to: Fulton Bank,  Main Office,
Corporate Address, One Penn Square, Lancaster, PA 17602.

LATE  CHARGE.  If a payment  is 15 days or more late,  Borrower  will be charged
5.000% of the unpaid portion of the regularly scheduled payment.

INTEREST  AFTER  DEFAULT.  Upon  default,  including  failure  to pay upon final
maturity,  Lender,  at its  option,  may, if  permitted  under  applicable  law,
increase the variable interest rate on this Note to 5.000 percentage points over
the Index.  The  interest  rate will not exceed the maximum  rate  permitted  by
applicable  law. If judgment is entered in connection  with this Note,  interest
will  continue  to accrue on this  Note  after  judgment  at the  interest  rate
applicable to this Note at the time judgment is entered.

DEFAULT.  Each of the following shall  constitute an event of default ("Event of
Default") under this Note:

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                                 PROMISSORY NOTE
                                                                          Page 2
                                  (Continued)
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         Payment Default. Borrower fails to make any payment when due under this
         Note.

         Other  Defaults.  Borrower fails to comply with or to perform any other
         term,  obligation,  covenant or condition  contained in this Note or in
         any of the related  documents or to comply with or to perform any term,
         obligation,  covenant or  condition  contained  in any other  agreement
         between Lender and Borrower.

         Default in Favor of Third  Parties.  Borrower or any  Grantor  defaults
         under any loan,  extension of credit,  security agreement,  purchase or
         sales agreement, or any other agreement, in favor of any other creditor
         or person  that may  materially  affect any of  Borrower's  property or
         Borrower's ability to repay this Note or perform Borrower's obligations
         under this Note or any of the related documents.

         False  Statements.  Any warranty,  representation  or statement made or
         furnished to Lender by Borrower or on Borrower's behalf under this Note
         or the  related  documents  is  false  or  misleading  in any  material
         respect,  either now or at the time made or furnished or becomes  false
         or misleading at any time thereafter.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going  business,  the  insolvency  of Borrower,  the  appointment  of a
         receiver for any part of Borrower's  property,  any  assignment for the
         benefit of creditors, any type of creditor workout, or the commencement
         of any proceeding under any bankruptcy or insolvency laws by or against
         Borrower.

         Creditor or Forfeiture  Proceedings.  Commencement  of  foreclosure  or
         forfeiture  proceedings,  whether by  judicial  proceeding,  self-help,
         repossession or any other method, by any creditor of Borrower or by any
         governmental  agency  against any  collateral  securing the loan.  This
         includes a garnishment of any of Borrower's accounts, including deposit
         accounts,  with Lender.  However, this Event of Default shall not apply
         if there is a good faith  dispute by  Borrower  as to the  validity  or
         reasonableness  of the  claim  which is the  basis of the  creditor  or
         forfeiture  proceeding  and if Borrower  gives Lender written notice of
         the creditor or forfeiture  proceeding  and deposits with Lender monies
         or a surety  bond for the  creditor  or  forfeiture  proceeding,  in an
         amount  determined  by  Lender,  in its  sole  discretion,  as being an
         adequate reserve or bond for the dispute.

         Events  Affecting  Guarantor.  Any of the preceding  events occurs with
         respect to any guarantor,  endorser,  surety, or accommodation party of
         any  of  the  indebtedness  or  any  guarantor,  endorser,  surety,  or
         accommodation party dies or becomes incompetent, or revokes or disputes
         the validity of, or liability  under,  any guaranty of the indebtedness
         evidenced by this Note. In the event of a death, Lender, at its option,
         may, but shall not be required  to,  permit the  guarantor's  estate to
         assume  unconditionally the obligations arising under the guaranty in a
         manner  satisfactory  to Lender,  and,  in doing so,  cure any Event of
         Default.

         Change In  Ownership.  Any change in ownership of  twenty-five  percent
         (25%) or more of the common stock of Borrower.

         Adverse  Change.   A  material  adverse  change  occurs  in  Borrower's
         financial  condition,  or Lender  believes  the  prospect of payment or
         performance of this Note is impaired.

         Insecurity. Lender in good faith believes itself insecure.

         Cure  Provisions.  If any  default,  other than a default in payment is
         curable and if Borrower  has not been given a notice of a breach of the
         same provision of this Note within the preceding twelve (12) months, it
         may be cured if Borrower,  after  receiving  written notice from Lender
         demanding  cure of such default:  (1) cures the default  within fifteen
         (15) days;  or (2) if the cure  requires  more than  fifteen (15) days,
         immediately  initiates  steps  which  Lender  deems  in  Lender's  sole
         discretion  to  be  sufficient  to  cure  the  default  and  thereafter
         continues and completes all reasonable and necessary  steps  sufficient
         to produce compliance as soon as reasonably practical.

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                                 PROMISSORY NOTE
                                                                          Page 3
                                  (Continued)
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LENDER'S RIGHTS. Upon default, Lender may, after giving such notices as required
by applicable law, declare the entire unpaid principal  balance on this Note and
all accrued  unpaid  interest  immediately  due, and then Borrower will pay that
amount.

ATTORNEYS' FEES;  EXPENSES.  Lender may hire or pay someone else to help collect
this Note if Borrower does not pay.  Borrower will pay Lender that amount.  This
includes,  subject to any limits under applicable law, Lender's  attorneys' fees
and  Lender's  legal  expenses,  whether  or not there is a  lawsuit,  including
attorneys'  fees,  expenses for  bankruptcy  proceedings  (including  efforts to
modify  or  vacate  any  automatic  stay or  injunction),  and  appeals.  If not
prohibited  by  applicable  law,  Borrower  also  will pay any court  costs,  in
addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING  LAW.  This  Note will be  governed  by,  construed  and  enforced  in
accordance with federal law and the laws of the  Commonwealth  of  Pennsylvania.
This Note has been accepted by Lender in the Commonwealth of Pennsylvania.

RIGHT OF SETOFF.  To the extent  permitted by applicable  law, Lender reserves a
right of  setoff in all  Borrower's  accounts  with  Lender  (whether  checking,
savings,  or some other  account).  This  includes all accounts  Borrower  holds
jointly  with  someone  else and all  accounts  Borrower may open in the future.
However,  this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower  authorizes Lender, to the
extent  permitted by  applicable  law, to charge or setoff all sums owing on the
debt  against  any  and  all  such  accounts,   and,  at  Lender's  option,   to
administratively  freeze all such  accounts to allow Lender to protect  Lender's
charge and setoff rights provided in this paragraph.

COLLATERAL. This loan is unsecured.

CROSS  DEFAULT.  Any event of default  under any loan due and owing to Lender by
Borrower,  at any time, shall constitute an event of default under all loans due
and owing to Lender by Borrower.

ADDENDUM. See attached Addendum to Promissory Note.

SUCCESSOR INTERESTS.  The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs,  personal  representatives,  successors and assigns,  and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL  PROVISIONS.  Lender may delay or forgo  enforcing  any of its rights or
remedies under this Note without losing them.  Borrower and any other person who
signs,  guarantees or endorses this Note,  to the extent  allowed by law,  waive
presentment,  demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise  expressly stated in writing,  no party
who signs  this  Note,  whether  as  maker,  guarantor,  accommodation  maker or
endorser,  shall be released from liability.  All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security  interest in the collateral;  and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan  without the consent of or notice to
anyone other than the party with whom the  modification is made. The obligations
under this Note are joint and  several.  If any  portion of this Note is for any
reason determined to be unenforceable,  it will not affect the enforceability of
any other provisions of this Note.

CONFESSION OF JUDGMENT.  BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY
ATTORNEY  OR THE  PROTHONOTARY  OR CLERK OF ANY  COURT  IN THE  COMMONWEALTH  OF
PENNSYLVANIA,  OR ELSEWHERE,  TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT
UNDER THIS NOTE AND WITH OR WITHOUT  COMPLAINT FILED,  CONFESS OR ENTER JUDGMENT
AGAINST BORROWER FOR THE ENTIRE  PRINCIPAL  BALANCE OF THIS NOTE AND ALL ACCRUED
INTEREST,  LATE  CHARGES AND ANY AND ALL AMOUNTS  EXPENDED OR ADVANCED BY LENDER
RELATING TO ANY COLLATERAL  SECURING THIS NOTE, TOGETHER WITH COSTS OF SUIT, AND
AN ATTORNEY'S  COMMISSION OF TEN PERCENT (10%) OF THE UNPAID  PRINCIPAL  BALANCE
AND ACCRUED INTEREST FOR COLLECTION,

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                                 PROMISSORY NOTE
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                                  (Continued)
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BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED  DOLLARS ($500) ON WHICH JUDGMENT OR
JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE  IMMEDIATELY;  AND FOR SO DOING, THIS
NOTE OR A COPY OF THIS NOTE VERIFIED BY AFFIDAVIT  SHALL BE SUFFICIENT  WARRANT.
THE AUTHORITY  GRANTED IN THIS NOTE TO CONFESS  JUDGMENT  AGAINST BORROWER SHALL
NOT BE EXHAUSTED BY ANY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME
TO TIME AND AT ALL TIMES  UNTIL  PAYMENT IN FULL OF ALL  AMOUNTS  DUE UNDER THIS
NOTE.  BORROWER  HEREBY  WAIVES  ANY RIGHT  BORROWER  MAY HAVE TO NOTICE OR TO A
HEARING IN  CONNECTION  WITH ANY SUCH  CONFESSION  OF  JUDGMENT  AND STATES THAT
EITHER A  REPRESENTATIVE  OF  LENDER  SPECIFICALLY  CALLED  THIS  CONFESSION  OF
JUDGMENT  PROVISION TO BORROWER'S  ATTENTION OR BORROWER HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL.

PRIOR TO SIGNING THIS NOTE,  BORROWER READ AND  UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE,  INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.  BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

THIS NOTE IS GIVEN  UNDER  SEAL AND IT IS  INTENDED  THAT THIS NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

BORROWER:

BAY NATIONAL CORPORATION


By: /s/ Hugh W. Mohler    (SEAL)           By: /s/ Mark A. Semanie    (SEAL)
   -----------------------                    ------------------------
   Hugh W. Mohler, President of               Mark A. Semanie, Vice President/
   Bay National Corporation                   CFO of Bay National Corporation


ATTEST:


     /s/ Mark A. Semanie                             [CORPORATE SEAL]
--------------------------------
Secretary or Assistant Secretary


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                            x
                             ------------------------
                                     Witness


<PAGE>



                           ADDENDUM TO PROMISSORY NOTE
                           ---------------------------


         THIS  ADDENDUM  is  attached  to,  and  made a  part  of  that  certain
Promissory  Note dated  September 28, 2004, in the maximum  principal  amount of
$5,000,000.00  (the "Note")  executed and delivered by Bay National  Corporation
("Borrower")  to Fulton  Bank  ("Lender").  This  Addendum  sets  forth  certain
modified or supplemental  provisions of the Note. All terms which are defined in
the Note and not  otherwise  defined in this  Addendum  shall have the  meanings
ascribed to them in the Note.

         1. Payments of Interest.  Notwithstanding  anything to the contrary set
forth in the Note, Borrower may elect to defer one or more quarterly payments of
interest  due under this Note.  The amount of any deferred  interest  payment or
payment shall be due not later than the earliest of: Borrower's early payment of
any amounts due under the Note;  Lender's  declaration,  as permitted under this
Note,  that the entire  unpaid  principal  balance on this Note and all  accrued
unpaid  interest is  immediately  due; or September 28, 2007.  The amount of any
deferred  interest  payment or payments  shall,  for purposes of calculating the
interest accrued  hereunder,  be added to the balance of principal  outstanding,
and  interest  shall be accrued at the  interest  rate  specified  herein on the
aggregate total principal outstanding,  plus the amount of any deferred interest
payment or payments.

        2.  Continuing  Effect.  Except  as  modified  or  supplemented  by this
Addendum, the Note shall continue in full force and effect.



Witness:                                 Borrower:

                                         Bay National Corporation


         /s/ Mark A. Semanie             By:   /s/ Hugh W. Mohler
-------------------------------          ---------------------------------------
                                            Hugh W. Mohler, President of Bay
                                            National Corporation


         /s/ Hugh W. Mohler              By:   /s/ Mark A. Semanie
-------------------------------          ---------------------------------------
                                            Mark A. Semanie, Vice President/CFO
                                            of Bay National Corporation


                                         Lender:

                                         Fulton Bank


                                         By:      /s/ Steven B. Smith
                                         ---------------------------------------
                                         Title:  SVP

<PAGE>



                             BUSINESS LOAN AGREEMENT


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Borrower:   Bay National Corporation         Lender:    Fulton Bank
            2328 W. Joppa Road                          Main Office
            Lutherville, MD 21093                       Corporate Address
                                                        One Penn Square
                                                        Lancaster, PA 17602

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THIS  BUSINESS  LOAN  AGREEMENT  dated  September 28, 2004, is made and executed
between Bay National Corporation  ("Borrower") and Fulton Bank ("Lender") on the
following terms and  conditions.  Borrower has received prior  commercial  loans
from  Lender or has  applied to Lender for a  commercial  loan or loans or other
financial accommodations,  including those which may be described on any exhibit
or schedule attached to this Agreement ("Loan"). Borrower understands and agrees
that: (A) in granting,  renewing,  or extending any Loan, Lender is relying upon
Borrower's  representations,  warranties,  and  agreements  as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's  sole  judgment and  discretion;  and (C) all
such Loans  shall be and  remain  subject  to the terms and  conditions  of this
Agreement.

TERM.  This  Agreement  shall be effective as of September  28, 2004,  and shall
continue in full force and effect until such time as all of Borrower's  Loans in
favor of Lender have been paid in full,  including principal,  interest,  costs,
expenses, attorneys' fees, and other fees and charges, or until such time as the
parties may agree in writing to terminate this Agreement.

CONDITIONS  PRECEDENT TO EACH ADVANCE.  Lender's  obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's  satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

         Loan  Documents.   Borrower  shall  provide  to  Lender  the  following
         documents  for the  Loan:  (1) the  Note;  (2)  together  with all such
         Related  Documents as Lender may require for the Loan;  all in form and
         substance satisfactory to Lender and Lender's counsel.

         Borrower's  Authorization.  Borrower  shall have  provided  in form and
         substance satisfactory to Lender properly certified  resolutions,  duly
         authorizing the execution and delivery of this Agreement,  the Note and
         the Related Documents.  In addition,  Borrower shall have provided such
         other resolutions,  authorizations, documents and instruments as Lender
         or its counsel, may require.

         Payment of Fees and  Expenses.  Borrower  shall have paid to Lender all
         fees,  charges,  and other  expenses  which are then due and payable as
         specified in this Agreement or any Related Document.

         Representations and Warranties.  The representations and warranties set
         forth in this Agreement, in the Related Documents,  and in any document
         or  certificate  delivered to Lender under this  Agreement are true and
         correct.

         No Event of Default. There shall not exist at the time of any Advance a
         condition  which  would  constitute  an Event  of  Default  under  this
         Agreement or under any Related Document.

REPRESENTATIONS  AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the  date of this  Agreement,  as of the  date of each  disbursement  of loan
proceeds, as of the date of any renewal,  extension or modification of any Loan,
and at all times any Indebtedness exists:

         Organization. Borrower is a corporation for profit which is, and at all
         times shall be, duly organized,  validly existing, and in good standing
         under and by virtue of the laws of the State of  Maryland.  Borrower is
         duly  authorized  to  transact  business  in all other  states in which
         Borrower is doing  business,  having  obtained all  necessary  filings,
         governmental licenses and approvals for each state in which Borrower is
         doing business.  Specifically,  Borrower is, and at all times shall be,
         duly  qualified  as a foreign  corporation  in all  states in which the
         failure to so  qualify  would  have a  material  adverse  effect on its
         business  or  financial  condition.  Borrower  has the full  power  and
         authority to own its  properties  and to transact the business in which
         it is  presently  engaged or  presently  proposes  to engage.  Borrower
         maintains an office at 23 Buchanan Road,  Baltimore,  MD 21212.  Unless
         Borrower has designated otherwise in writing, the

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  2

================================================================================

         principal  office is the office at which  Borrower  keeps its books and
         records including its records concerning the Collateral.  Borrower will
         notify Lender prior to any change in the location of  Borrower's  state
         of organization or any change in Borrower's name. Borrower shall do all
         things  necessary  to preserve and to keep in full force and effect its
         existence,   rights  and   privileges,   and  shall   comply  with  all
         regulations,  rules,  ordinances,  statutes,  orders and decrees of any
         governmental  or  quasi-governmental  authority or court  applicable to
         Borrower and Borrower's business activities.

         Assumed Business Names. Borrower has filed or recorded all documents or
         filings  required by law relating to all assumed business names used by
         Borrower.  Excluding the name of Borrower,  the following is a complete
         list of all assumed  business names under which Borrower does business:
         None.

         Authorization.  Borrower's execution, delivery, and performance of this
         Agreement and all the Related  Documents  have been duly  authorized by
         all necessary action by Borrower and do not conflict with,  result in a
         violation  of, or  constitute a default  under (1) any provision of (a)
         Borrower's articles of incorporation or organization, or bylaws, or (b)
         any agreement or other instrument binding upon Borrower or (2) any law,
         governmental regulation,  court decree, or order applicable to Borrower
         or to Borrower's properties.

         Financial Information. Each of Borrower's financial statements supplied
         to Lender truly and completely disclosed Borrower's financial condition
         as of the date of the statement, and there has been no material adverse
         change in Borrower's  financial condition subsequent to the date of the
         most recent  financial  statement  supplied to Lender.  Borrower has no
         material  contingent  obligations except as disclosed in such financial
         statements.

         Legal  Effect.  This  Agreement  constitutes,  and  any  instrument  or
         agreement  Borrower  is  required  to give  under this  Agreement  when
         delivered will  constitute  legal,  valid,  and binding  obligations of
         Borrower   enforceable   against  Borrower  in  accordance  with  their
         respective terms.

         Properties.  Except as  contemplated by this Agreement or as previously
         disclosed in  Borrower's  financial  statements or in writing to Lender
         and as accepted by Lender,  and except for property tax liens for taxes
         not presently due and payable,  Borrower owns and has good title to all
         of Borrower's properties free and clear of all Security Interests,  and
         has  not  executed  any  security  documents  or  financing  statements
         relating to such properties. All of Borrower's properties are titled in
         Borrower's  legal name,  and Borrower has not used or filed a financing
         statement under any other name for at least the last five (5) years.

         Hazardous Substances. Except as disclosed to and acknowledged by Lender
         in writing,  Borrower  represents  and  warrants  that:  (1) During the
         period of Borrower's ownership of Borrower's Collateral, there has been
         no use, generation,  manufacture, storage, treatment, disposal, release
         or  threatened  release of any  Hazardous  Substance  by any person on,
         under,  about  or  from  any of the  Collateral.  (2)  Borrower  has no
         knowledge  of, or reason to believe  that there has been (a) any breach
         or  violation  of any  Environmental  Laws;  (b) any  use,  generation,
         manufacture,   storage,  treatment,  disposal,  release  or  threatened
         release  of any  Hazardous  Substance  on,  under,  about  or from  the
         Collateral  by any prior owners or occupants of any of the  Collateral;
         or (c) any actual or threatened litigation or claims of any kind by any
         person relating to such matters.  (3) Neither  Borrower nor any tenant,
         contractor,  agent or other  authorized  user of any of the  Collateral
         shall use, generate,  manufacture,  store, treat, dispose of or release
         any Hazardous Substance on, under, about or from any of the Collateral;
         and any  such  activity  shall  be  conducted  in  compliance  with all
         applicable federal, state, and local laws, regulations, and ordinances,
         including   without   limitation  all  Environmental   Laws.   Borrower
         authorizes  Lender and its agents to enter upon the  Collateral to make
         such  inspections and tests as Lender may deem appropriate to determine
         compliance of the Collateral  with this section of the  Agreement.  Any
         inspections or tests made by Lender shall be at Borrower's  expense and
         for  Lender's  purposes  only and shall not be  construed to create any
         responsibility or liability on the part of Lender to Borrower or to any
         other person. The representations  and warranties  contained herein are
         based on Borrower's due diligence in  investigating  the Collateral for
         hazardous waste and Hazardous Substances.  Borrower hereby (1) releases
         and  waives  any  future  claims   against   Lender  for  indemnity  or
         contribution in the event Borrower  becomes liable for cleanup or other
         costs  under  any such  laws,  and (2)  agrees  to  indemnify  and hold
         harmless  Lender  against  any and  all  claims,  losses,  liabilities,
         damages,   penalties,   and  expenses  which  Lender  may  directly  or
         indirectly sustain or suffer resulting from a breach of this section of
         the Agreement or as a consequence of any use, generation,  manufacture,
         storage,  disposal,  release or threatened release of a hazardous waste
         or substance on the  Collateral.  The provisions of this section of the
         Agreement,  including the  obligation  to indemnify,  shall survive the
         payment of the

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  3

================================================================================

         Indebtedness  and the  termination,  expiration or satisfaction of this
         Agreement  and shall not be  affected by  Lender's  acquisition  of any
         interest in any of the Collateral, whether by foreclosure or otherwise.

         Litigation   and   Claims.   No   litigation,   claim,   investigation,
         administrative proceeding or similar action (including those for unpaid
         taxes) against  Borrower is pending or  threatened,  and no other event
         has occurred which may materially adversely affect Borrower's financial
         condition  or  properties,  other  than  litigation,  claims,  or other
         events,  if any, that have been disclosed to and acknowledged by Lender
         in writing.

         Taxes.  To the best of  Borrower's  knowledge,  all of  Borrower's  tax
         returns and reports  that are or were  required to be filed,  have been
         filed, and all taxes,  assessments and other governmental  charges have
         been paid in full,  except those  presently being or to be contested by
         Borrower in good faith in the ordinary course of business and for which
         adequate reserves have been provided.

         Lien  Priority.  Unless  otherwise  previously  disclosed  to Lender in
         writing,  Borrower  has  not  entered  into  or  granted  any  Security
         Agreements,  or  permitted  the filing or  attachment  of any  Security
         Interests on or affecting any of the Collateral  directly or indirectly
         securing  repayment of Borrower's Loan and Note, that would be prior or
         that may in any way be  superior  to Lender's  Security  Interests  and
         rights in and to such Collateral.

         Binding Effect.  This Agreement,  the Note, all Security Agreements (if
         any), and all Related  Documents are binding upon the signers  thereof,
         as well as upon their successors,  representatives and assigns, and are
         legally enforceable in accordance with their respective terms.

AFFIRMATIVE  COVENANTS.  Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

         Notices of Claims and Litigation.  Promptly inform Lender in writing of
         (1) all material adverse changes in Borrower's financial condition, and
         (2) all existing and all threatened litigation, claims, investigations,
         administrative proceedings or similar actions affecting Borrower or any
         Guarantor  which could  materially  affect the  financial  condition of
         Borrower or the financial condition of any Guarantor.

         Financial  Records.  Maintain its books and records in accordance  with
         GAAP,  applied on a consistent  basis, and permit Lender to examine and
         audit Borrower's books and records at all reasonable times.

         Financial Statements. Furnish Lender with the following:

                  Annual Statements. As soon as available, but in no event later
                  than  one-hundred-twenty  (120)  days  after  the  end of each
                  fiscal year, Borrower's balance sheet and income statement for
                  the year  ended,  compiled by a  certified  public  accountant
                  satisfactory to Lender.

                  Tax Returns. As soon as available,  but in no event later than
                  one-hundred-twenty (120) days after the applicable filing date
                  for  the  tax  reporting  period  ended,   Federal  and  other
                  governmental  tax  returns,  prepared  by a  certified  public
                  accountant satisfactory to Lender.

         All  financial  reports  required to be provided  under this  Agreement
         shall be  prepared in  accordance  with GAAP,  applied on a  consistent
         basis, and certified by Borrower as being true and correct.

         Additional   Information.   Furnish  such  additional  information  and
         statements, as Lender may request from time to time.

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  4

================================================================================


         Insurance.  Maintain fire and other risk  insurance,  public  liability
         insurance,  and such other insurance as Lender may require with respect
         to Borrower's  properties and operations,  in form, amounts,  coverages
         and with  insurance  companies  acceptable  to Lender.  Borrower,  upon
         request  of  Lender,  will  deliver  to  Lender  from  time to time the
         policies or certificates  of insurance in form  satisfactory to Lender,
         including   stipulations  that  coverages  will  not  be  cancelled  or
         diminished  without at least thirty (30) days prior  written  notice to
         Lender.  Each  insurance  policy  also  shall  include  an  endorsement
         providing  that coverage in favor of Lender will not be impaired in any
         way by any act, omission or default of Borrower or any other person. In
         connection  with all policies  covering assets in which Lender holds or
         is offered a security  interest  for the Loans,  Borrower  will provide
         Lender with such lender's loss payable or other  endorsements as Lender
         may require.

         Insurance Reports.  Furnish to Lender, upon request of Lender,  reports
         on each existing  insurance  policy showing such  information as Lender
         may reasonably request, including without limitation the following: (1)
         the name of the insurer;  (2) the risks insured;  (3) the amount of the
         policy;  (4) the  properties  insured;  (5) the then  current  property
         values  on the  basis of which  insurance  has been  obtained,  and the
         manner of determining those values;  and (6) the expiration date of the
         policy.  In addition,  upon  request of Lender  (however not more often
         than   annually),   Borrower   will  have  an   independent   appraiser
         satisfactory to Lender determine, as applicable,  the actual cash value
         or replacement cost of any Collateral. The cost of such appraisal shall
         be paid by Borrower.

         Other  Agreements.  Comply with all terms and  conditions  of all other
         agreements, whether now or hereafter existing, between Borrower and any
         other party and notify Lender  immediately in writing of any default in
         connection with any other such agreements.

         Loan Proceeds.  Use all Loan proceeds  solely for  Borrower's  business
         operations,  unless specifically consented to the contrary by Lender in
         writing.

         Taxes,  Charges  and  Liens.  Pay  and  discharge  when  due all of its
         indebtedness  and  obligations,   including   without   limitation  all
         assessments,  taxes,  governmental charges,  levies and liens, of every
         kind and nature,  imposed upon Borrower or its properties,  income,  or
         profits,  prior to the date on which  penalties  would attach,  and all
         lawful claims that,  if unpaid,  might become a lien or charge upon any
         of Borrower's properties, income, or profits.

         Performance.  Perform and comply,  in a timely manner,  with all terms,
         conditions,  and provisions set forth in this Agreement, in the Related
         Documents, and in all other instruments and agreements between Borrower
         and Lender.  Borrower shall notify Lender immediately in writing of any
         default in connection with any agreement.

         Operations.   Maintain   executive  and   management   personnel   with
         substantially  the same  qualifications  and  experience as the present
         executive and management personnel; provide written notice to Lender of
         any change in executive and management personnel;  conduct its business
         affairs in a reasonable and prudent manner.

         Environmental  Studies.  Promptly  conduct and complete,  at Borrower's
         expense,  all such investigations,  studies,  samplings and testings as
         may be requested by Lender or any  governmental  authority  relative to
         any substance,  or any waste or by-product of any substance  defined as
         toxic or a hazardous  substance  under  applicable  federal,  state, or
         local law, rule,  regulation,  order or directive,  at or affecting any
         property or any facility owned, leased or used by Borrower.

         Compliance  with  Governmental  Requirements.  Comply  with  all  laws,
         ordinances,  and  regulations,  now  or  hereafter  in  effect,  of all
         governmental  authorities  applicable  to  the  conduct  of  Borrower's
         properties,  businesses and operations,  and to the use or occupancy of
         the  Collateral,  including  without  limitation,  the  Americans  With
         Disabilities  Act.  Borrower  may  contest  in good faith any such law,
         ordinance, or regulation and withhold compliance during any proceeding,
         including  appropriate appeals, so long as Borrower has notified Lender
         in writing  prior to doing so and so long as, in Lender's sole opinion,
         Lender's  interests in the Collateral are not  jeopardized.  Lender may
         require Borrower to post adequate security or a surety bond, reasonably
         satisfactory to Lender, to protect Lender's interest.

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  5

================================================================================


         Inspection. Permit employees or agents of Lender at any reasonable time
         to inspect any and all  Collateral for the Loan or Loans and Borrower's
         other  properties and to examine or audit Borrower's  books,  accounts,
         and records  and to make  copies and  memoranda  of  Borrower's  books,
         accounts,  and  records.  If  Borrower  now  or at any  time  hereafter
         maintains any records (including without limitation  computer generated
         records and  computer  software  programs  for the  generation  of such
         records) in the possession of a third party, Borrower,  upon request of
         Lender,  shall  notify such party to permit  Lender free access to such
         records at all  reasonable  times and to provide  Lender with copies of
         any records it may request, all at Borrower's expense.

         Compliance  Certificates.  Unless waived in writing by Lender,  provide
         Lender at least  annually,  with a  certificate  executed by Borrower's
         chief  financial  officer,  or other  officer or person  acceptable  to
         Lender, certifying that the representations and warranties set forth in
         this  Agreement are true and correct as of the date of the  certificate
         and further  certifying  that,  as of the date of the  certificate,  no
         Event of Default exists under this Agreement.

         Environmental  Compliance  and  Reports.  Borrower  shall comply in all
         respects with any and all  Environmental  Laws;  not cause or permit to
         exist,  as a  result  of an  intentional  or  unintentional  action  or
         omission  on  Borrower's  part or on the part of any  third  party,  on
         property owned and/or occupied by Borrower,  any environmental activity
         where damage may result to the environment,  unless such  environmental
         activity is  pursuant to and in  compliance  with the  conditions  of a
         permit issued by the appropriate  federal,  state or local governmental
         authorities;  shall furnish to Lender  promptly and in any event within
         thirty (30) days after receipt  thereof a copy of any notice,  summons,
         lien,  citation,  directive,  letter  or other  communication  from any
         governmental  agency or  instrumentality  concerning any intentional or
         unintentional  action or omission on Borrower's part in connection with
         any  environmental  activity  whether  or not  there is  damage  to the
         environment and/or other natural resources.

         Additional  Assurances.  Make,  execute  and  deliver  to  Lender  such
         promissory  notes,  mortgages,  deeds of  trust,  security  agreements,
         assignments,  financing  statements,  instruments,  documents and other
         agreements  as  Lender  or its  attorneys  may  reasonably  request  to
         evidence and secure the Loans and to perfect all Security Interests.

LENDER'S  EXPENDITURES.  If any action or  proceeding  is  commenced  that would
materially  affect  Lender's  interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents,  including
but not limited to  Borrower's  failure to discharge or pay when due any amounts
Borrower is required to  discharge  or pay under this  Agreement  or any Related
Documents,  Lender on Borrower's behalf may (but shall not be obligated to) take
any  action  that  Lender  deems  appropriate,  including  but  not  limited  to
discharging or paying all taxes,  liens,  security  interests,  encumbrances and
other  claims,  at any time  levied or placed on any  Collateral  and paying all
costs  for  insuring,  maintaining  and  preserving  any  Collateral.  All  such
expenditures  incurred  or paid by  Lender  for such  purposes  will  then  bear
interest at the rate  charged  under the Note from the date  incurred or paid by
Lender to the date of  repayment by Borrower.  All such  expenses  will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned  among and be payable
with any  installment  payments to become due during  either (1) the term of any
applicable  insurance  policy;  or (2) the remaining term of the Note; or (C) be
treated  as a  balloon  payment  which  will be due and  payable  at the  Note's
maturity.

NEGATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

         Indebtedness  and Liens.  (1) Except  for trade  debt  incurred  in the
         normal course of business and  indebtedness  to Lender  contemplated by
         this  Agreement,  create,  incur or assume  indebtedness  for  borrowed
         money, including capital leases, (2) sell, transfer,  mortgage, assign,
         pledge,  lease,  grant a  security  interest  in,  or  encumber  any of
         Borrower's  assets (except as allowed as Permitted  Liens), or (3) sell
         with recourse any of Borrower's accounts, except to Lender.

         Continuity  of  Operations.  (1)  Engage  in  any  business  activities
         substantially  different  than  those in which  Borrower  is  presently
         engaged, (2) cease operations,  liquidate,  merge, transfer, acquire or
         consolidate  with any  other  entity,  change  its  name,  dissolve  or
         transfer or sell Collateral out of the ordinary course of business,  or
         (3) pay any dividends on Borrower's stock (other than dividends payable
         in its stock),  provided,  however that  notwithstanding the foregoing,
         but only so long as no Event of Default has occurred and is  continuing
         or would  result  from the  payment  of  dividends,  if  Borrower  is a
         "Subchapter S Corporation"  (as defined in the Internal Revenue Code of
         1986, as amended),  Borrower may pay cash dividends on its stock to its
         shareholders  from time to time in  amounts  necessary  to  enable  the
         shareholders to pay income taxes and make estimated income tax payments
         to satisfy  their  liabilities  under

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  6

================================================================================


         federal  and  state  law  which  arise  solely  from  their  status  as
         Shareholders  of a Subchapter S Corporation  because of their ownership
         of shares of Borrower's  stock, or purchase or retire any of Borrower's
         outstanding shares or alter or amend Borrower's capital structure.

         Loans,  Acquisitions  and  Guaranties.  (1) Loan,  invest in or advance
         money  or  assets  to any  other  person,  enterprise  or  entity,  (2)
         purchase,  create or acquire any  interest in any other  enterprise  or
         entity,  or (3) incur any obligation as surety or guarantor  other than
         in the ordinary course of business.

         Agreements.  Borrower will not enter into any agreement  containing any
         provisions  which would be violated or breached by the  performance  of
         Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF  ADVANCES.  If Lender has made any  commitment  to make any Loan to
Borrower,  whether  under this  Agreement or under any other  agreement,  Lender
shall have no  obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the  Related  Documents  or any  other  agreement  that  Borrower  or any
Guarantor  has  with  Lender;  (B)  Borrower  or  any  Guarantor  dies,  becomes
incompetent  or becomes  insolvent,  files a petition in  bankruptcy  or similar
proceedings,  or is adjudged a  bankrupt;  (C) there  occurs a material  adverse
change in Borrower's  financial  condition,  in the  financial  condition of any
Guarantor,  or in the value of any  Collateral  securing  any  Loan;  or (D) any
Guarantor seeks,  claims or otherwise  attempts to limit,  modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems  itself  insecure,  even though no Event of Default  shall have
occurred.

RIGHT OF SETOFF.  To the extent  permitted by applicable  law, Lender reserves a
right of  setoff in all  Borrower's  accounts  with  Lender  (whether  checking,
savings,  or some other  account).  This  includes all accounts  Borrower  holds
jointly  with  someone  else and all  accounts  Borrower may open in the future.
However,  this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower  authorizes Lender, to the
extent  permitted by  applicable  law, to charge or setoff all sums owing on the
debt  against  any  and  all  such  accounts,   and,  at  Lender's  option,   to
administratively  freeze all such  accounts to allow Lender to protect  Lender's
charge and setoff rights provided in this paragraph.


DEFAULT.  Each of the following shall  constitute an Event of Default under this
Agreement:

         Payment Default.  Borrower fails to make any payment when due under the
         Loan.

         Other  Defaults.  Borrower fails to comply with or to perform any other
         term, obligation,  covenant or condition contained in this Agreement or
         in any of the  Related  Documents  or to comply  with or to perform any
         term,  obligation,   covenant  or  condition  contained  in  any  other
         agreement between Lender and Borrower.

         Default in Favor of Third  Parties.  Borrower or any  Grantor  defaults
         under any loan,  extension of credit,  security agreement,  purchase or
         sales agreement, or any other agreement, in favor of any other creditor
         or person that may materially affect any of Borrower's or any Grantor's
         property or Borrower's  or any Grantor's  ability to repay the Loans or
         perform their respective obligations under this Agreement or any of the
         Related Documents.

         False  Statements.  Any warranty,  representation  or statement made or
         furnished  to Lender by Borrower  or on  Borrower's  behalf  under this
         Agreement  or the  Related  Documents  is  false or  misleading  in any
         material  respect,  either  now or at the  time  made or  furnished  or
         becomes false or misleading at any time thereafter.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going  business,  the  insolvency  of Borrower,  the  appointment  of a
         receiver for any part of Borrower's  property,  any  assignment for the
         benefit of creditors, any type of creditor workout, or the commencement
         of any proceeding under any bankruptcy or insolvency laws by or against
         Borrower.

         Defective  Collateralization.  This  Agreement  or any  of the  Related
         Documents ceases to be in full force and effect  (including  failure of
         any  collateral  document  to  create a valid  and  perfected  security
         interest or lien) at any time and for any reason.

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  7

================================================================================


         Creditor or Forfeiture  Proceedings.  Commencement  of  foreclosure  or
         forfeiture  proceedings,  whether by  judicial  proceeding,  self-help,
         repossession or any other method, by any creditor of Borrower or by any
         governmental  agency  against any  collateral  securing the Loan.  This
         includes a garnishment of any of Borrower's accounts, including deposit
         accounts,  with Lender.  However, this Event of Default shall not apply
         if there is a good faith  dispute by  Borrower  as to the  validity  or
         reasonableness  of the  claim  which is the  basis of the  creditor  or
         forfeiture  proceeding  and if Borrower  gives Lender written notice of
         the creditor or forfeiture  proceeding  and deposits with Lender monies
         or a surety  bond for the  creditor  or  forfeiture  proceeding,  in an
         amount  determined  by  Lender,  in its  sole  discretion,  as being an
         adequate reserve or bond for the dispute.

         Events  Affecting  Guarantor.  Any of the preceding  events occurs with
         respect to any  Guarantor of any of the  Indebtedness  or any Guarantor
         dies or becomes incompetent, or revokes or disputes the validity of, or
         liability  under, any Guaranty of the  Indebtedness.  In the event of a
         death, Lender, at its option, may, but shall not be required to, permit
         the  Guarantor's  estate  to  assume  unconditionally  the  obligations
         arising under the guaranty in a manner  satisfactory to Lender, and, in
         doing so, cure any Event of Default.

         Change in  Ownership.  Any change in ownership of  twenty-five  percent
         (25%) or more of the common stock of Borrower.

         Adverse  Change.   A  material  adverse  change  occurs  in  Borrower's
         financial  condition,  or Lender  believes  the  prospect of payment or
         performance of the Loan is impaired.

         Insecurity. Lender in good faith believes itself insecure.

         Right to Cure. If any default, other than a default on Indebtedness, is
         curable and if  Borrower  or Grantor,  as the case may be, has not been
         given a notice of a similar  default  within the preceding  twelve (12)
         months,  it may be cured if Borrower  or  Grantor,  as the case may be,
         after  receiving  written  notice  from Lender  demanding  cure of such
         default:  (1) cure the default  within fifteen (15) days; or (2) if the
         cure requires more than fifteen (15) days,  immediately  initiate steps
         which Lender deems in Lender's sole discretion to be sufficient to cure
         the default and  thereafter  continue and complete all  reasonable  and
         necessary steps sufficient to produce  compliance as soon as reasonably
         practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related  Documents,  all commitments
and  obligations of Lender under this Agreement or the Related  Documents or any
other  agreement  immediately  will terminate  (including any obligation to make
further  Loan  Advances  or   disbursements),   and,  at  Lender's  option,  all
Indebtedness  immediately will become due and payable, all without notice of any
kind to  Borrower,  except  that in the case of an Event of  Default of the type
described in the  "Insolvency"  subsection  above,  such  acceleration  shall be
automatic  and not optional.  In addition,  Lender shall have all the rights and
remedies  provided in the Related  Documents or available at law, in equity,  or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and  remedies   shall  be  cumulative   and  may  be  exercised   singularly  or
concurrently.  Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy,  and an election to make  expenditures or to take action to
perform an obligation  of Borrower or of any Grantor  shall not affect  Lender's
right to declare a default and to exercise its rights and remedies.

CROSS  DEFAULT.  Any event of default  under any loan due and owing to Lender by
Borrower,  at any time, shall constitute an event of default under all loans due
and owing to Lender by Borrower.

DEPOSIT ACCOUNTS. The Borrower shall maintain its deposit accounts with Lender.

ADDENDUM. See attached Addendum to Business Loan Agreement.

MISCELLANEOUS  PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:

         Amendments.  This  Agreement,  together  with  any  Related  Documents,
         constitutes the entire understanding and agreement of the parties as to
         the matters set forth in this Agreement.  No alteration of or amendment
         to this Agreement shall be effective unless given in writing and signed
         by the party or parties sought to be charged or bound by the alteration
         or amendment.

         Attorneys'  Fees;  Expenses.  Borrower agrees to pay upon demand all of
         Lender's costs and expenses,  including  Lender's  attorneys'  fees and
         Lender's legal expenses, incurred in connection with the enforcement of
         this  Agreement.  Lender may hire or pay someone

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  8

================================================================================

         else to help enforce this  Agreement,  and Borrower shall pay the costs
         and expenses of such  enforcement.  Costs and expenses include Lender's
         attorneys'  fees and legal expenses  whether or not there is a lawsuit,
         including attorneys' fees and legal expenses for bankruptcy proceedings
         (including   efforts  to  modify  or  vacate  any  automatic   stay  or
         injunction),  appeals,  and any  anticipated  post-judgment  collection
         services.  Borrower also shall pay all court costs and such  additional
         fees as may be directed by the court.

         Caption   Headings.   Caption   headings  in  this  Agreement  are  for
         convenience purposes only and are not to be used to interpret or define
         the provisions of this Agreement.

         Consent to Loan Participation. Borrower agrees and consents to Lender's
         sale or transfer,  whether now or later,  of one or more  participation
         interests  in the Loan to one or more  purchasers,  whether  related or
         unrelated  to  Lender.  Lender  may  provide,  without  any  limitation
         whatsoever, to any one or more purchasers, or potential purchasers, any
         information  or knowledge  Lender may have about  Borrower or about any
         other  matter  relating to the Loan,  and  Borrower  hereby  waives any
         rights to  privacy  Borrower  may have with  respect  to such  matters.
         Borrower   additionally   waives  any  and  all   notices  of  sale  of
         participation  interests,  as well as all notices of any  repurchase of
         such participation interests.  Borrower also agrees that the purchasers
         of any such participation  interests will be considered as the absolute
         owners  of such  interests  in the Loan and  will  have all the  rights
         granted under the participation  agreement or agreements  governing the
         sale of such  participation  interests.  Borrower  further  waives  all
         rights of offset or counterclaim  that it may have now or later against
         Lender or against any  purchaser of such a  participation  interest and
         unconditionally agrees that either Lender or such purchaser may enforce
         Borrower's  obligation  under the Loan  irrespective  of the failure or
         insolvency of any holder of any interest in the Loan.  Borrower further
         agrees  that the  purchaser  of any such  participation  interests  may
         enforce its interests  irrespective  of any personal claims or defenses
         that Borrower may have against Lender.

         Governing  Law.  This  Agreement  will be governed  by,  construed  and
         enforced  in   accordance   with  federal  law  and  the  laws  of  the
         Commonwealth  of  Pennsylvania.  This  Agreement  has been  accepted by
         Lender in the Commonwealth of Pennsylvania.

         No Waiver by  Lender.  Lender  shall not be deemed to have  waived  any
         rights under this Agreement  unless such waiver is given in writing and
         signed  by  Lender.  No delay or  omission  on the  part of  Lender  in
         exercising  any right  shall  operate  as a waiver of such right or any
         other right. A waiver by Lender of a provision of this Agreement  shall
         not  prejudice or  constitute a waiver of Lender's  right  otherwise to
         demand strict  compliance with that provision or any other provision of
         this  Agreement.  No prior waiver by Lender,  nor any course of dealing
         between Lender and Borrower,  or between Lender and any Grantor,  shall
         constitute a waiver of any of Lender's  rights or of any of  Borrower's
         or any Grantor's  obligations as to any future  transactions.  Whenever
         the consent of Lender is required under this Agreement, the granting of
         such consent by Lender in any instance shall not constitute  continuing
         consent to subsequent  instances  where such consent is required and in
         all  cases  such  consent  may be  granted  or  withheld  in  the  sole
         discretion of Lender.

         Notices.  Unless  otherwise  provided  by  applicable  law,  any notice
         required  to be given under this  Agreement  shall be given in writing,
         and shall be effective when actually delivered,  when actually received
         by  telefacsimile  (unless  otherwise  required by law), when deposited
         with a nationally  recognized  overnight courier,  or, if mailed,  when
         deposited  in the United  States  mail,  as first  class,  certified or
         registered mail postage  prepaid,  directed to the addresses shown near
         the beginning of this  Agreement.  Any party may change its address for
         notices  under this  Agreement by giving formal  written  notice to the
         other parties,  specifying  that the purpose of the notice is to change
         the  party's  address.  For notice  purposes,  Borrower  agrees to keep
         Lender  informed at all times of  Borrower's  current  address.  Unless
         otherwise  provided  by  applicable  law,  if  there  is more  than one
         Borrower,  any notice  given by Lender to any  Borrower is deemed to be
         notice given to all Borrowers.

         Severability.  If a court of competent jurisdiction finds any provision
         of this Agreement to be illegal,  invalid,  or  unenforceable as to any
         circumstance,  that  finding  shall  not make the  offending  provision
         illegal,  invalid,  or unenforceable as to any other  circumstance.  If
         feasible,  the offending provision shall be considered modified so that
         it becomes legal,  valid and  enforceable.  If the offending  provision
         cannot  be so  modified,  it  shall be  considered  deleted  from  this
         Agreement.   Unless   otherwise   required  by  law,  the   illegality,
         invalidity,  or  unenforceability  of any  provision of this  Agreement
         shall not affect the legality,  validity or enforceability of any other
         provision of this Agreement.

         Subsidiaries  and Affiliates of Borrower.  To the extent the context of
         any  provisions  of this  Agreement  makes  it  appropriate,  including
         without limitation any representation,  warranty or covenant,  the word
         "Borrower"  as used in this  Agreement  shall include all

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page  9

================================================================================

         of  Borrower's   subsidiaries  and  affiliates.   Notwithstanding   the
         foregoing  however,  under no  circumstances  shall this  Agreement  be
         construed  to  require  Lender  to make  any  Loan or  other  financial
         accommodation to any of Borrower's subsidiaries or affiliates.

         Successors and Assigns. All covenants and agreements by or on behalf of
         Borrower  contained in this  Agreement or any Related  Documents  shall
         bind  Borrower's  successors and assigns and shall inure to the benefit
         of Lender and its successors and assigns.  Borrower shall not, however,
         have the right to assign  Borrower's rights under this Agreement or any
         interest therein, without the prior written consent of Lender.

         Survival of Representations  and Warranties.  Borrower  understands and
         agrees   that  in  making   the  Loan,   Lender  is   relying   on  all
         representations,  warranties,  and  covenants  made by Borrower in this
         Agreement  or in any  certificate  or  other  instrument  delivered  by
         Borrower  to Lender  under this  Agreement  or the  Related  Documents.
         Borrower  further agrees that regardless of any  investigation  made by
         Lender, all such representations, warranties and covenants will survive
         the making of the Loan and delivery to Lender of the Related Documents,
         shall be  continuing  in  nature,  and shall  remain in full  force and
         effect  until  such time as  Borrower's  Indebtedness  shall be paid in
         full,  or until  this  Agreement  shall  be  terminated  in the  manner
         provided above, whichever is the last to occur.

         Time is of the Essence.  Time is of the essence in the  performance  of
         this Agreement.

         Waive Jury. All parties to this Agreement hereby waive the right to any
         jury trial in any action,  proceeding,  or counterclaim  brought by any
         party against any other party.

DEFINITIONS.  The following capitalized words and terms shall have the following
meanings  when  used  in  this  Agreement.  Unless  specifically  stated  to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the  plural,  and the plural  shall  include  the  singular,  as the context may
require.  Words and terms not otherwise defined in this Agreement shall have the
meanings  attributed to such terms in the Uniform  Commercial  Code.  Accounting
words and terms not otherwise  defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting  principles as
in effect on the date of this Agreement:

         Advance. The word "Advance" means a disbursement of Loan funds made, or
         to be made, to Borrower or on Borrower's  behalf on a line of credit or
         multiple   advance  basis  under  the  terms  and  conditions  of  this
         Agreement.

         Agreement.  The word "Agreement" means this Business Loan Agreement, as
         this  Business  Loan  Agreement may be amended or modified from time to
         time,  together  with  all  exhibits  and  schedules  attached  to this
         Business Loan Agreement from time to time.

         Borrower.  The word  "Borrower"  means  Bay  National  Corporation  and
         includes all co-signers and co-makers signing the Note.

         Collateral. The word "Collateral" means all property and assets granted
         as collateral  security for a Loan,  whether real or personal property,
         whether granted  directly or indirectly,  whether granted now or in the
         future,  and  whether  granted  in the  form  of a  security  interest,
         mortgage, collateral mortgage, deed of trust, assignment,  pledge, crop
         pledge, chattel mortgage,  collateral chattel mortgage,  chattel trust,
         factor's lien, equipment trust,  conditional sale, trust receipt, lien,
         charge, lien or title retention contract, lease or consignment intended
         as  a  security  device,   or  any  other  security  or  lien  interest
         whatsoever, whether created by law, contract, or otherwise.

         Environmental  Laws.  The words  "Environmental  Laws" mean any and all
         state, federal and local statutes,  regulations and ordinances relating
         to the protection of human health or the environment, including without
         limitation the Comprehensive Environmental Response,  Compensation, and
         Liability  Act of 1980,  as amended,  42 U.S.C.  Section  9601, et seq.
         ("CERCLA"),  the Superfund  Amendments and Reauthorization Act of 1986,
         Pub. L. No. 99-499  ("SARA"),  the Hazardous  Materials  Transportation
         Act, 49 U.S.C.  Section 1801, et seq.,  the Resource  Conservation  and
         Recovery Act, 42 U.S.C.  Section  6901,  et seq.,  or other  applicable
         state or federal laws, rules, or regulations adopted pursuant thereto.

         Event of Default.  The words "Event of Default"  mean any of the events
         of default set forth in this  Agreement in the default  section of this
         Agreement.

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                        Page  10

================================================================================


         GAAP. The word "GAAP" means generally accepted accounting principles.

         Grantor.  The  word  "Grantor"  means  each and all of the  persons  or
         entities  granting a Security  Interest in any Collateral for the Loan,
         including  without  limitation  all Borrowers  granting such a Security
         Interest.

         Guarantor.  The  word  "Guarantor"  means  any  guarantor,  surety,  or
         accommodation party of any or all of the Loan.

         Guaranty.  The word  "Guaranty"  means the guaranty  from  Guarantor to
         Lender,  including without  limitation a guaranty of all or part of the
         Note.

         Hazardous Substances.  The words "Hazardous  Substances" mean materials
         that, because of their quantity, concentration or physical, chemical or
         infectious  characteristics,  may cause or pose a present or  potential
         hazard  to  human  health  or the  environment  when  improperly  used,
         treated, stored, disposed of, generated,  manufactured,  transported or
         otherwise handled.  The words "Hazardous  Substances" are used in their
         very  broadest  sense  and  include  without  limitation  any  and  all
         hazardous  or toxic  substances,  materials  or waste as  defined by or
         listed under the  Environmental  Laws. The term "Hazardous  Substances"
         also includes, without limitation,  petroleum and petroleum by-products
         or any fraction thereof and asbestos.

         Indebtedness.  The word "Indebtedness" means the indebtedness evidenced
         by the Note or Related Documents,  including all principal and interest
         together with all other  indebtedness  and costs and expenses for which
         Borrower  is  responsible  under  this  Agreement  or under  any of the
         Related Documents.

         Lender.  The word  "Lender"  means  Fulton  Bank,  its  successors  and
         assigns.

         Loan.   The  word  "Loan"  means  any  and  all  loans  and   financial
         accommodations  from  Lender  to  Borrower  whether  now  or  hereafter
         existing,  and however  evidenced,  including without  limitation those
         loans and financial accommodations described herein or described on any
         exhibit or schedule attached to this Agreement from time to time.

         Note.  The  word  "Note"  means  the  Note  executed  by  Bay  National
         Corporation in the principal  amount of  $5,000,000.00  dated September
         28, 2004,  together with all renewals of, extensions of,  modifications
         of, refinancings of,  consolidations of, and substitutions for the note
         or credit agreement.

         Permitted  Liens.  The  words  "Permitted  Liens"  mean (1)  liens  and
         security  interests  securing  Indebtedness owed by Borrower to Lender;
         (2) liens for taxes, assessments, or similar charges either not yet due
         or being contested in good faith; (3) liens of materialmen,  mechanics,
         warehousemen,  or carriers, or other like liens arising in the ordinary
         course  of  business  and  securing   obligations  which  are  not  yet
         delinquent;  (4)  purchase  money  liens  or  purchase  money  security
         interests  upon or in any property  acquired or held by Borrower in the
         ordinary course of business to secure  indebtedness  outstanding on the
         date of this  Agreement or permitted to be incurred under the paragraph
         of this  Agreement  titled  "Indebtedness  and  Liens";  (5)  liens and
         security  interests which, as of the date of this Agreement,  have been
         disclosed to and approved by the Lender in writing; and (6) those liens
         and security interests which in the aggregate  constitute an immaterial
         and  insignificant  monetary  amount  with  respect to the net value of
         Borrower's assets.

         Related  Documents.  The words "Related  Documents" mean all promissory
         notes, credit agreements,  loan agreements,  environmental  agreements,
         guaranties,  security agreements,  mortgages,  deeds of trust, security
         deeds, collateral mortgages, and all other instruments,  agreements and
         documents,  whether now or hereafter  existing,  executed in connection
         with the Loan.

         Security  Agreement.  The words  "Security  Agreement" mean and include
         without limitation any agreements,  promises, covenants,  arrangements,
         understandings or other agreements,  whether created by law,  contract,
         or  otherwise,  evidencing,  governing,  representing,  or  creating  a
         Security Interest.

         Security  Interest.   The  words  "Security   Interest"  mean,  without
         limitation,  any and all  types of  collateral  security,  present  and
         future, whether in the form of a lien, charge,  encumbrance,  mortgage,
         deed of trust, security deed, assignment,  pledge, crop pledge, chattel
         mortgage,  collateral chattel mortgage,  chattel trust,  factor's lien,
         equipment  trust,  conditional  sale,  trust  receipt,  lien  or  title
         retention

<PAGE>

                             BUSINESS LOAN AGREEMENT
                                   (Continued)
                                                                         Page 11

================================================================================


         contract,  lease or consignment  intended as a security device,  or any
         other  security or lien  interest  whatsoever  whether  created by law,
         contract, or otherwise.

BORROWER  ACKNOWLEDGES  HAVING READ ALL THE  PROVISIONS  OF THIS  BUSINESS  LOAN
AGREEMENT AND BORROWER  AGREES TO ITS TERMS.  THIS  BUSINESS  LOAN  AGREEMENT IS
DATED SEPTEMBER 28, 2004.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.


BORROWER:

BAY NATIONAL CORPORATION


By: /s/ Hugh W. Mohler (SEAL)          By:   /s/ Mark A. Semanie (SEAL)
   --------------------                      --------------------
    Hugh W. Mohler, President                Mark A. Semanie, Vice President/CFO
    of Bay National Corporation              of Bay National Corporation


ATTEST:


 /s/ Mark A. Semanie                               [Corporate Seal]
--------------------------------
Secretary or Assistant Secretary


LENDER:

FULTON BANK



By: /s/ Steven B. Smith (SEAL)
   ---------------------
   Authorized Signer


================================================================================


                            x________________________
                                     Witness

<PAGE>


                       ADDENDUM TO BUSINESS LOAN AGREEMENT
                       -----------------------------------

         THIS ADDENDUM is attached to, and made a part of that certain  Business
Loan Agreement  dated  September 28, 2004 (the  "Agreement")  by and between Bay
National Corporation ("Borrower") and Fulton Bank ("Lender"). This Addendum sets
forth  certain  modified  or  supplemental  provisions  of  the  Agreement.  All
capitalized  terms which are defined in the Agreement and not otherwise  defined
in this Addendum shall have the meanings ascribed to them in the Agreement.

         1. Additional  Covenants.  The Borrower agrees that the Borrower shall,
so long as this  Agreement  remains in effect,  maintain,  and cause  Borrower's
subsidiary,  Bay National Bank, to maintain, as of the date of each Consolidated
Report of Condition,  or similar successor federal  regulatory  financial report
("Call Report") submitted by Bay National Bank:

                  a. A minimum  Total  Risk-Based  Capital Ratio (as reported on
the Call Report filed with respect to Bay National  Bank,  and calculated in the
same manner with respect to Borrower) of not less than 10.00%;

                  b. A minimum Tier 1 Risk-Based  Capital  Ratio (as reported on
the Call Report filed with respect to Bay National  Bank,  and calculated in the
same manner with respect to Borrower) of not less than 6.00%; and

                  c.  A  Loan  Loss  Reserve  at a  level  required  by  federal
regulatory  agencies,  provided  that such Loan Loss Reserve also equal not less
than  three  hundred  percent  (300.00%)  of  the  sum of  the  balances  of the
following:  loans  on  non-accrual,  loans  more  than 90  days  past  due,  and
renegotiated loans.

         2.  Continuing  Effect.  Except as  modified  or  supplemented  by this
Addendum, the Agreement shall continue in full force and effect.


Witness:                                  Borrower:

                                          Bay National Corporation


/s/ Mark A. Semanie                       By: /s/ Hugh W. Mohler
-------------------                       ----------------------
                                          Hugh W. Mohler, President of Bay
                                          National Corporation


/s/ Hugh W. Mohler                        By: /s/ Mark A. Semanie
------------------                        -----------------------
                                          Mark A. Semanie, Vice President/CFO
                                          of Bay National Corporation



                                          LENDER:

                                          Fulton Bank


                                          By: /s/ Steven B. Smith
                                          -----------------------
                                          Title: SVP


<PAGE>