Document:

Exhibit 10.1

 

Termination and
Settlement Agreement

Entered into on this 2nd day of October 2005 (the “Effective Date”)

(the “Agreement”)

 

By
and Between:

Vision-Sciences, Inc., a Delaware
(U.S.A.) corporation, having its principal place of business at 9 Strathmore
Road, Natick, Massachusetts 01760, U.S.A., Fax No. +1-508-650-9976 (the “Company”);

 

And

 

Three BY Ltd., a company duly organized under
the laws of Israel and having its principal place of business at Migdal Tefen,
Israel, Fax No. + 972-4-987-2340 (the “Manufacturer”);

 

WHEREAS, the Parties have entered into a
Contract Manufacturing Agreement dated June 25th 2003, as in
effect on the date hereof, together with all related or ancillary
agreements  or instruments (the “Main Agreement”);

 

WHEREAS, the Parties have mutually agreed to
terminate the Main Agreement and settle finally any issues or disputes between
them relating to the termination of the Main Agreement or the parties
relationship prior to the date of this Agreement in accordance with the terms
and conditions of this Agreement as hereinafter stipulated;

 

1.               Capitalized
terms used herein and not otherwise defined herein shall have the meaning
ascribed thereto in the Main Agreement.

 

2.               Without
derogating from the provisions of this Agreement, the parties agree that the
Main Agreement shall be, and hereby is, mutually terminated (in accordance with
the provisions of Section 17.2 of the Main Agreement) effective on the
date that is six months from the date of this Agreement (the “Effective Termination
Date”). The termination of the Main Agreement shall be without derogation of
the provisions of Section 18 of the Main Agreement. For the sake of
clarity, it is agreed and understood that except as expressly provided in this
Agreement, neither party will be entitled to any remuneration or compensation
as a result of or by reason of the termination of the Main Agreement, except as
described in this Agreement, and that upon the Effective Termination Date, the
parties shall, and hereby agree to, release and discharge the other from any
and all claims under the Main Agreement, except for or without limitation of
the obligations of the parties under this Agreement, which shall survive the
Effective Termination Date, together with any provisions of the Main Agreement
that by their terms are designed or intended to survive the termination of the
Main Agreement.

 

3.               The
Company hereby agrees to issue, within 3 business days following the Effective
Date, its binding purchase order to the Manufacturer (the “Purchase Order”) for the
Manufacture of 180,000 ENT sheaths (the “Sheaths”) at a
price of US $1.204 per unit, Ex Works (Incoterms 2000) Manufacturer’s facility,
totaling US $216,720. The Manufacturer shall provide the Company with the
complete list of the raw materials and their costs purchased for the
manufacture of the Sheaths, prior to the first monthly shipment. Based on any
documented cost increase of raw materials purchased by the Manufacturer for the
manufacture of the Sheaths, compared to the last purchase of such raw material,
the unit price of the Sheaths will be adjusted in good faith by the Parties.

 

Notwithstanding the aforesaid,
the Company shall have the right to revise the quantity of each Sheath’s
catalog number in a given monthly shipment, by giving a written notice to the
Manufacturer, as long as the followings are met: (i) the total monthly
quantity remains 30,000; and (ii) the notice of the revision is given at
least 60 days prior to the scheduled shipment date.

 

4.               It is
recorded that the Company has shipped 675 pounds of polyurethane to the
Manufacturer for which the Manufacturer hereby confirms that it agrees to issue
its binding purchase order at a price of US $5.58 per pound, plus freight costs
to Manufacturer, payable within 30 days

 

1

 

following the receipt by 3BY of the Purchase Order.
The parties agree that this supply will allow the Manufacturer adequate time
using the Manufacturer’s best efforts to procure additional polyurethane so as
to manufacture the Sheaths without delays and comply with the terms of this
Agreement and related purchase orders for Sheaths.  It is understood that the Manufacturer will
procure all additional raw materials required for the Manufacture of the
Sheaths, except those mentioned in Section 5 below, on a best efforts
basis.

 

5.               The
Company will ship to the Manufacturer, no later than 5 business days following
the Effective Date, the windows for the first monthly shipment of Sheaths.  The Company will supply windows for
subsequent shipments at least 30 days prior to the scheduled shipment
date.  The Manufacturer will issue to the
Company a purchase order for said windows at a price of $0.005 per window
payable within 30 days from shipment by the Company.

 

6.               The
Manufacturer agrees that the Sheaths will be delivered to the Company in six (6) consecutive
monthly shipments of 30,000 Sheaths each, the first of which will be made no
later than 30 days following the receipt by the Manufacturer of all raw
materials required for the manufacture of this first shipment.  Subsequent shipments will be made at
thirty-day intervals from the first shipment with the sixth and last shipment
being made no later than one hundred fifty (150) days following the date of the
first shipment.  If the Manufacturer will
not be able to commence shipments by the later of: (i) 90 days from the
Effective Date; or (ii) within 45 days from the receipt of first shipment
of windows from the Company, or if the Manufacturer otherwise does not comply with
this Agreement and the applicable terms of the Main Agreement, then the Company
shall be entitled to cancel the order for the Sheaths, and the Effective
Termination Date will be accelerated to such date.

 

7.               For the
sake of clarity, the provisions of the Main Agreement relating to the Products
(including those contained in Sections 1, 2, 3.2, 3.3, 6, 7, 8, 11, 12, 13, 14,
15 and 16) shall apply, mutatis mutandis, with respect to the Sheaths to be
manufactured by the Manufacturer in accordance with the terms of this
Agreement. Without derogating from the generality of the aforesaid, the
Manufacturer undertakes to manufacture the Sheaths in accordance with the
applicable standards and other terms of the Main Agreement pertaining to the
Manufacture of the Products.

 

8.               The
Manufacturer hereby undertakes to return and make all the Equipment (as defined
in the Agreement between the Parties dated December 28, 2004 and listed in
Appendix “A” hereto) available to the Company, or its designee, at the premises of the
Manufacturer in Migdal Tefen. The Company shall arrange for shipment of the
Equipment from said premises at the Company’s risk and expense.  The Equipment shall be returned and made
available to the Company, as aforesaid, in the same condition as it was
originally received by the Manufacturer, normal wear and tear accepted, as
follows:

 

1.1         All the
Equipment that is not required for the Manufacture of the Sheaths - within 14
days of the date of this Agreement; and

 

2.2         The
remaining part of the Equipment, upon the earlier to occur of: (i) within
14 days of completion of the Manufacture of the last shipment of the Sheaths; (ii) June 1,
2006; or (iii) upon termination of this Agreement by the Company under any
of the circumstances set forth in Sections 17.3 or 17.4 of the Main Agreement
(which provisions are incorporated by reference to this Agreement) or in
accordance with the provisions of Section 6 above.

 

9.               Upon
completion of the manufacture and shipment of the Sheaths, the Manufacturer
shall supply the Company with a list of the Sheath’s raw materials remaining in
the Manufacturer’s possession. The Company shall purchase from the
Manufacturer, at the Manufacturer’s purchase price, said remaining raw
materials that are in a useable state within 10 business days after receipt by
the Company of said list.

 

10.         The
Company shall reimburse the Manufacturer the total sum of US $16,700, as
follows:

 

2

 

10.1                 US $7,200 – for the SIG
sealing machine – within 15 days of delivery of the machine to the Company;

 

10.2                 US $600 – for the label
printer – within 15 days of delivery of the printer to the Company;

 

10.1                 US $900 – for the Gasket
mold – within 15 days of delivery of the mold to the Company;

 

10.3                 US $6,000 – for the
Company’s share for the extra payment paid by the Manufacturer to Sheffi
engineering – within 15 days of the date of signature of this Agreement;

 

10.4                 US $2,000 – for Zvi Haim’s
expenses during his last visit to the Company – within 15 days of the date of
signature of this Agreement.

 

11            Section 21
of the Main Agreement (Miscellaneous) is incorporated by reference to this
Agreement and forms an integral part hereof.

 

12            For the
sake of clarity, Appendix
“B” shows the status of the open purchase orders for
Products, components, and services that the Company has with the Manufacturer
as of August 31, 2005.  The purchase
orders for Products are to be completed and processed as provided in the Main
Agreement.  The purchase orders for
components and services are to be completed and processed as defined on each
purchase order, or as otherwise mutually agreed to by the Parties.

 

IN
WITNESS WHEREOF, the Parties have signed this Agreement on the date first
hereinabove written.

 

	
  Vision-Sciences, Inc.

  	
  Three BY Ltd.

  
	
  By:

  	
  Ron Hadani

  	
   

  	
  By:

  	
  Zvi Haim

  	
   

  
	
  Title: President and CEO

  	
  Titles: General Manager

  
						

 

3EXHIBIT 10.2

 

CITIZENS
BANK OF MASSACHUSETTS

LOAN AND SECURITY AGREEMENT

WITH

VISION- SCIENCES, INC. AND MACHIDA, INCORPORATED

 

October 31,
2005

 

PREAMBLE.  VISION- SCIENCES, INC.,  a
Delaware corporation with offices at 9 Strathmore Road, Natick, Massachusetts
01760 and MACHIDA, INCORPORATED a
Delaware corporation with a principal place of business at 40 Ramland Road,
Orangeburg, New York 10962 (collectively, the “Borrower”) has applied to CITIZENS BANK OF MASSACHUSETTS, a banking
corporation organized under the laws of the Commonwealth of Massachusetts, with
a banking office at 53 State Street, Boston, Massachusetts(“Bank”), for certain
loans and other financial accommodations to be secured by security interests in
certain property now or hereafter owned by the Borrower, or in which the
Borrower now or hereafter has an interest. Proceeds of the financial
accommodations will refinance existing obligations of the Borrower and provide
additional working capital for the Borrower’s business.  The Bank has agreed to grant to the Borrower
the financial accommodations described in this Loan and Security Agreement
(this “Loan Agreement”) on the terms and conditions more fully set forth below.

 

1. GRANT OF
SECURITY INTEREST.  Each  Borrower, in consideration of the foregoing,
of the undertakings of the Bank and the Borrower under this Loan Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby grants to the Bank a continuing security
interest in the Collateral owned by it or in which it may now or hereafter have
any interest or rights and in all of the products and proceeds thereof.  The security interests granted to the Bank by
the Borrower hereby are to secure payment and performance of all Obligations.
In connection with the grant of security interest made hereby, Borrower hereby
authorizes Bank to file or cause to be filed one or more financing statements,
amendments to financing statements and/or in lieu financing statements with any
filing office for the purpose of perfecting or continuing the perfection of the
security interest in the Collateral.

 

2. LOANS.  Subject to the terms and conditions set forth
herein, the Borrower has requested that the Bank make available to it a
revolving line of credit ( the “Line of Credit”) for general working capital
purposes of the Borrower and an equipment line for the acquisition of equipment
(the “Equipment Line”).  Loans and other
advances of credit under the Line of Credit are hereinafter referred to as the “Revolving
Loans” and the Equipment Line and the Revolving Loan(s) are collectively
referred to herein as the “Loans”.  The
Bank has agreed to provide the Borrower with the Loans on the terms and
conditions set forth herein, including but not limited to, the conditions
precedent set forth in Section 4 hereof; provided that the Bank shall not
be obligated to make any Loans at any time that there is a Default or an Event
of Default.

 

1

 

(a) THE LINE
OF CREDIT.  Subject to all of
the terms and conditions set forth in this Loan Agreement, the Bank hereby
establishes the Line of Credit in the Borrower’s favor pursuant to which Bank
shall, at Borrower’s request from time to time made after the date hereof until
July 31, 2006 (the “Expiration Date”), make Revolving Loans (including
Letters of Credit and Banker’s Acceptances) to Borrower in an aggregate amount
up to $250,000.00 (the “Credit Limit”). 
All Revolving Loans are due and payable on the Expiration Date and no
Letter of Credit or other extension of credit may have an expiry after the
Expiration Date.  Borrower acknowledges
that all Revolving Loans are secured by the Collateral and constitute
Obligations, whether or not evidenced by promissory notes and, by reference to
this Loan Agreement, the face amount of any promissory note evidencing a
Revolving Loan shall be deemed to have been automatically amended to conform
with any changes to the Credit Limit. 
Payments (and prepayments) of principal in full or in part may be made
at any time and from time to time without premium or penalty, and shall be made
on the Loans from time to time in accordance with the provisions of this Loan
Agreement.  Unless extended by the Bank
in writing, the Borrower’s ability to request Revolving Loans hereunder shall
expire on the Expiration Date. Until the Expiration Date or the termination of
the Line of Credit pursuant to the provisions of this Loan Agreement, principal
amounts of Revolving Loans repaid may be reborrowed hereunder in accordance
with the provisions of this Loan Agreement. 
All Revolving Loans shall be Prime Rate Loans and shall bear interest,
calculated on the basis of actual days elapsed and a 360-day year and payable
monthly in arrears on the last Business Day of each month, at a fluctuating per
annum rate of interest equal to the Prime Rate. 
The effective interest rate applicable to Borrower’s Loans shall change
on the date of each change in the Prime Rate. Borrower shall have the right to
terminate the Line of Credit at any time on 2 days’ notice to Bank upon
repayment in full of all amounts advanced under the Line of Credit.

 

(b) THE
EQUIPMENT LINE.  In addition
to the Revolving Loans, the Bank has agreed, on the terms and conditions set
forth herein to make a drawdown Equipment Line to the Borrower in the maximum
amount of up to $750,000.00 to finance the acquisition of machinery and
equipment by the Borrower.  Advances
under the Equipment Line may be requested by the Borrower from the date hereof
until July 31, 2006 (the “Conversion Date”), each advance to be in the
minimum amount of $100,000.00 and in an amount no greater than 90.0% of the
actual purchase price of machinery and Equipment purchased by Borrower.  The Bank requires that the Borrower provide
it with copies of invoices or other evidence of the purchase price acceptable
to Bank as a condition to an advance under the Equipment Line. The outstanding
principal balance of the Equipment Line shall bear interest in arrears  at a fluctuating per annum rate equal to the
Prime Rate and payable on a monthly basis on the last Business Day of each
month commencing October 31, 2005 until paid in full.  Payments of principal, each in the amount of
1/36th of the outstanding principal balance of the Equipment Line on the
Conversion Date shall be paid monthly commencing August 31, 2006 and on
the last Business Day of each month thereafter through and including July 31,
2009 (the “Maturity Date”) at which time all amounts outstanding shall be due
and payable.  The Equipment Line shall be
evidenced by the Equipment Note in the form annexed (the “Equipment Note”).  Interest shall be calculated on the basis of
actual days elapsed and a 360-day year. 
The effective interest rate applicable to Borrower’s Loans shall change
on the date of each change in the Prime Rate. Borrower shall have the right to
terminate

 

2

 

the Equipment Line at any time on 2 days’
notice to Bank upon repayment in full of all amounts advanced under the Equipment
Line.

 

(c) PLACE OF
PAYMENT.  Principal, interest
and all other amounts due to the Bank under this Loan Agreement shall be
payable at Bank’s office in Boston in lawful money of the United States of
America without set-off, deduction or counterclaim.  Borrower authorizes Bank to charge its
deposit account(s) with Bank for all payments hereunder.

 

(d) COMMITMENT
FEE- LINE OF CREDIT. In addition to all other amounts due hereunder,
so long as the Line of Credit remains available, the Borrower shall pay to the
Bank a Commitment Fee equal to one quarter percent per annum (.25%) of the
unused Line of Credit.  For purposes of
calculation of such fee, the “unused Line of Credit” shall mean the difference
between the Credit Limit and the actual daily average of Revolving Loans
(exclusive of Letters of Credit and Banker’s Acceptances) outstanding.  The Commitment Fee shall be payable in
arrears on the last Business Day of each quarter for the immediately preceding
quarter.

 

(e) COMMITMENT
FEE- EQUIPMENT LINE. In addition to all other amounts due hereunder,
so long as the Equipment Line remains available, the Borrower shall pay to the
Bank a Commitment Fee equal to one quarter percent per annum (.25%) of the
unused Equipment Line.  For purposes of
calculation of such fee, the “unused Equipment Line” shall mean the difference
between the face amount of the Equipment Line and the actual daily average
Equipment Line balance outstanding.  The
Commitment Fee shall be payable in arrears on the last Business Day of each
quarter for the immediately preceding quarter, commencing December 31,
2005 through and including the Conversion Date.

 

(f) OTHER
FEES AND CHARGES. Any Letter of Credit issued under the Line of
Credit shall be subject to a letter of credit fee in the amount of 1/4% of the
face amount of the Letter of Credit (minimum of $95.00) in addition to the Bank’s
customary set-up and processing fees. 
Any Banker’s Acceptance issued under the Line of Credit shall be subject
to a banker’s acceptance fee at the rate of 1.50% per annum above the Banker’s
Acceptance rate of the Bank (minimum of $145.00) in addition to the Bank’s
customary set-up and processing fees.

 

(g) LOAN
REQUESTS. For ease of administration of the Loans, the Bank shall
make all Loans to the Borrower based upon the written, (or at Bank’s option
oral), request in accordance with the terms and conditions of this Loan
Agreement of VISION- SCIENCES, INC. alone and each Borrower hereby confirms
that any request for Loans or other advances of credit hereunder made by
VISION- SCIENCES, INC. alone shall be binding upon all Borrowers. All Loans
shall be credited by the Bank to the deposit account of VISION- SCIENCES, INC.
unless another form of disbursement of Loans is expressly agreed in writing by
the Bank.

 

3. CERTAIN
DEFINITIONS.  Capitalized
terms used herein shall have the meanings set forth below or elsewhere in this
Loan Agreement, or if not defined herein, 
shall have the meanings ascribed to them in the Uniform Commercial Code,
except that accounting and financial terms not otherwise defined herein shall
have the meanings ascribed to them in accordance with Generally Accepted
Accounting Principles (“GAAP”).

 

3

 

“Accounts Receivable”  means all Borrower’s accounts, accounts
receivable, rental and lease payments receivable, contract rights, promissory
notes, bills, drafts, acceptances, instruments, documents, chattel paper and
all other debts, obligations and liabilities in whatever form owing to Borrower
from any Person (as defined below) for goods sold by it or for services
rendered by it, or however otherwise established or created, all guaranties and
security therefor, all right, title and interest of Borrower in the goods or
services which gave rise thereto, including rights to reclamation and stoppage in
transit and all rights of an unpaid seller of goods or services; whether any of
the foregoing be now existing or hereafter arising, now or hereafter received
by or owing or belonging to Borrower.

 

“Business Day” means a day that banks in Boston,
Massachusetts are open for the conduct of normal business. Any payments which
would otherwise be due on a non-Business Day shall be adjusted to the first
following day which is a Business Day.

 

“Capital Expenditures” means expenditures by the Borrower for the
purchase or lease of equipment and other goods which must be accounted for as
capital items, and not as expenses, pursuant to GAAP.

 

“Collateral” means all Accounts Receivable, Inventory,
Equipment and Related Collateral and all other property (other than real
property) of the Borrower or another Person, now owned or hereafter acquired,
in which Bank is granted a Lien hereunder or under an agreement executed and
delivered in connection herewith, or which is designated as Collateral or in
which Bank is granted a Lien to secure any of the Obligations hereunder, or
pursuant to an agreement supplemental hereto or otherwise (whether or not such
agreement makes reference to this Loan Agreement or obligations of Borrower
hereunder).

 

“Default” meas an event or circumstance that with the
passing of time or giving of notice or both would become an Event of Default.

 

“Disclosure Schedules” means any of the schedules and exhibits
provided by Borrower to Bank in connection with this Loan Agreement:

 

“Equipment” means Borrower’s machinery, equipment,
furnishings, fixtures and other goods (as defined in Article 9 of the
Uniform Commercial Code) whether now owned or thereafter acquired by Borrower
and wherever located, all replacements and substitutions therefor or accessions
thereto and all proceeds thereof, and including, also without limitation, all
proceeds of fire or other insurance covering the aforesaid property.

 

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended.

 

“Event of Default” shall have the meaning ascribed to it in Section 12.

 

“Indebtedness”  means,
with respect to any Person: (i) all indebtedness for borrowed money or for
the deferred purchase price of property or services, and all obligations under
leases

 

4

 

which are or should be, under GAAP, recorded
as capital leases, in respect of which such Person is directly or contingently
liable as obligor, guarantor, endorser or otherwise, or in respect of which
such Person otherwise assures a creditor against loss, (ii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by (or for which the holder has an existing right,
contingent or otherwise, to be secured by) any Lien upon property (including
without limitation accounts receivable and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
thereof, and (iii) all other liabilities or obligations which would, in
accordance with GAAP, be classified as liabilities of such Person.

 

“Intangible Assets” means intangible assets as defined in
accordance with GAAP.

 

“Intellectual Property” means any patents, trademarks and copyrights
and applications and pending registrations for any of the foregoing.

 

“Inventory” means all inventory of whatever name,
nature, kind or description, all goods held for sale or lease or to be
furnished under contracts of service, finished goods, work in process, raw
materials, materials used or consumed by 
Borrower, parts, supplies, all wrapping, packaging, advertising,
labeling, and shipping materials, devices, names and marks, all contracts
rights and documents relating to any of the foregoing, whether any of the
foregoing be now existing or hereafter arising, wherever located, now owned or
hereafter acquired by  Borrower.

 

“Lien” means any mortgage, pledge, assignment, lien,
charge, encumbrance or security interest of any kind whatsoever, or the
interest of a vendor or lessor under a conditional sale, title retention or
capital lease agreement.

 

“Obligations” means all loans, advances, debts,
liabilities, obligations (including without limitation for reimbursement in
connection with guaranties and letters of credit), agreements, undertakings,
covenants and duties owing or to be performed or observed by Borrower  to or in favor of Bank, of every kind and
description (whether or not evidenced by any note or other instrument; for the
payment of money; arising out of this Loan Agreement or any other agreement
between Bank and Borrower, or any other instrument of Borrower in favor of
Bank; arising out of or relating to transactions described herein), direct or
indirect, absolute or contingent, due or to become due, now existing or hereafter
arising, including without limitation all interest, fees, charges, and amounts
chargeable to Borrower under Section 14; 
“Obligations” includes any swap transaction or other interest rate
protection transaction involving the Bank and the Borrower and all obligations
of the Borrower under any credit card line of credit or facility made available
to the Borrower and its employees and agents by the Bank.

 

“PBGC”  means the Pension Benefit Guaranty Corporation.

 

“Permitted Indebtedness” means (i) Indebtedness of Borrower to
the Bank, (ii) subordinated debt, (iii) trade Indebtedness, customer
deposits and other unsecured liabilities, not including borrowed money,
incurred in accordance with Borrower’s historical practices for goods and
services provided to the Borrower in the ordinary course of Borrower’s
business, (iv)

 

5

 

Indebtedness for tax payments in the ordinary
course, and accrued payroll items and reimbursable business expenses, (v) Indebtedness
on account of borrowed money not to exceed at any time an aggregate amount of
$250,000.00 (inclusive of Indebtedness described in (vi) of this
paragraph), and (vi) Indebtedness secured by Permitted Liens.

 

“Permitted Liens” means (i) landlord’s, carriers’, warehousemen’s,
mechanics and other similar Liens arising by operation of law in the ordinary
course of Borrower’s business and Liens arising by operation of law for taxes
not yet due and payable; (ii) Liens arising out of pledges or deposits
under workmen’s compensation, unemployment insurance, old age pension, social
security, retirement benefits or other similar legislation; (iii) Liens in
favor of the Bank in accordance with this Loan Agreement, (iv) purchase
money Liens arising in the ordinary course of business up to an aggregate of
$150,000.00 outstanding at any time (so long as the Indebtedness secured
thereby does not exceed the lesser of the cost or fair market value of the
property subject thereto and such Lien extends to no other property); and (v) Liens
in existence on the date of this Loan Agreement to which the Bank has consented
and which are set forth in Schedule 5(g).

 

“Person” means any individual, partnership, firm,
association, business enterprise, trust, estate, company, joint venture,
limited liability company, governmental authority, corporation or other entity.

 

“Plan” means any employee plan subject to
provisions of Title IV of ERISA maintained for employees of Borrower, any
subsidiary of Borrower or any other trade or business under common control with
Borrower within the meaning of Section 414(c)) of the Internal Revenue
Code or the regulations thereunder.

 

“Prime Rate” means the rate per annum from time to time
announced by Citizens Bank as its Prime Rate, it being understood that such rate
is a reference rate, not necessarily the lowest, established from time to time
which serves as the basis upon which effective interest rates are calculated
for loans making reference thereto.

 

“Related Collateral” means all Borrower’s payment intangibles and general intangibles;
(other than Intellectual Property); customer lists; goodwill; cash; deposit
accounts; tax refunds, claims under insurance policies (whether or not proceeds
of other Collateral); letter of credit rights; securities entitlements and
investment property; rights of setoff; rights under judgments; commercial tort
claims and choses in action; computer programs and software; books and records,
(including without limitation all electronically recorded data); contract
rights; and all contracts and agreements to or of which it is a party or
beneficiary, whether any of the foregoing be now existing or hereafter arising,
now or hereafter received by or belonging to Borrower.

 

“Reportable Event” means any reportable event as defined in Section 4043(c) of
ERISA, other than an event as to which the 30 day notice period is waived by
PBGC.

 

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in
effect in Massachusetts from time to time.

 

6

 

4. CONDITIONS PRECEDENT TO THE LOANS.  The financing arrangements described in this
Loan Agreement shall not be effective and the Bank will have no obligation to
make any Loan until satisfaction by the Borrower and/or waiver in writing by
the Bank of the following conditions precedent:

 

(a)  Borrower shall have executed and delivered
this Loan Agreement and the other loan documents and agreements contemplated
hereby and shall have opened its principal operating deposit accounts with the
Bank and executed.

 

(b) Borrower shall have executed and delivered
to the Bank a Revolving Note in the face amount of Two Hundred Fifty Thousand
and 00/100 ($250,000.00) Dollars and an Equipment Note in the face amount of
$750,000.00,each in form acceptable to the Bank.

 

(c) Borrower shall have provided the Bank with
a listing of each of its business locations. 
Bank shall have confirmed the recording of UCC-1 financing statements in
each location where filing is required.

 

(d) Borrower shall have provided the Bank with
evidence satisfactory to the Bank of the proper authorization of the financing
transactions and approval of the financing arrangements with the Bank by each
Borrower.

 

(e) Borrower shall have satisfied the
requirements of this Loan Agreement with respect to maintenance of appropriate
insurance coverage.

 

(f) Borrower shall have provided the Bank with
an Officer’s Certificate in form acceptable to the Bank confirming that all
conditions precedent to the funding of the Loan have been satisfied and that
all of the representations and warranties in the Loan Agreement continue to be
true, correct and complete.

 

(g) Borrower shall have provided the Bank with
an opinion as to the due existence of and authorization by each Borrower and
enforceability of the Loan Documents against each Borrower from each Borrower’s
counsel in form and substance acceptable to the Bank and its counsel.

 

5. REPRESENTATIONS
AND WARRANTIES.  Each Borrower
represents and warrants (and at the time of each Loan hereunder shall be deemed
to represent and warrant) to Bank that, except as provided in the Disclosure
Schedules attached hereto:

 

(a) Borrower is a corporation duly organized
and validly existing in corporate good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business and is
in good standing in every other state in which such qualification may be
necessary by reason of the nature or location of Borrower’s assets or
operations, except where the failure to so qualify would not materially adversely
affect the Borrower’s business or financial condition;

 

7

 

(b) Borrowers’ exact legal names are as set
forth in the preamble to this Loan Agreement. 
Borrower has not operated under any other name or used any other trade
name in the last six years;

 

(c) The execution, delivery and performance
hereof are within each Borrower’s corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing (except for financing statements to be filed in connection with this
Loan Agreement) with, any governmental authority, and do not contravene or
constitute a default under any provision of applicable law or regulation or of
the charter, by-laws or other constituent documents of such Borrower or of any
judgment, order, decree, injunction or material agreement, except as to which
required waivers or consents have been received, or by which it or any of its
properties may be bound, or result in creation or imposition of any Lien on any
of its assets except in favor of Bank;

 

(d) This Loan Agreement has been duly executed
and delivered by and constitutes a valid and binding agreement of each
Borrower, enforceable against it in accordance with its terms, except as
enforceability may be limited by (i) bankruptcy, insolvency or other
similar law affecting creditors’ rights generally, or (ii) laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies;

 

(e) Each Borrower’s audited financial
statements as of March 31, 2005 and interim financial statements through June 30,
2005 which have been provided to the Bank have been prepared in accordance with
GAAP; since the date of the interim financial statements, there has occurred no
material adverse change in the business or financial condition of the Borrower
or its assets which would make the financial statements inaccurate or
misleading in any material manner;

 

(f) Each Borrower’s projections which have been
provided to the Bank have been prepared by the Borrower based upon reasonable
financial and business assumptions and in accordance with sound accounting
practices.  Since the date of the
projections, there has occurred no material adverse change in the assumptions
underlying the projections or otherwise which would make the projections
inaccurate or misleading in any material manner;

 

(g) Each Borrower’s financial statements which
shall be from time to time furnished to Bank have been and will be prepared in
accordance with GAAP applied on a basis consistent with that of prior financial
periods and are true and correct and fairly present in all material respects
its financial position as at the close of business for the date(s) thereof and
the results of its operations during the period(s) covered thereby, except for
unaudited financial statements prepared by the Borrower where certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with GAAP have been omitted and where year-end
adjustments may be necessary.  Borrower
has no liabilities, contingent or otherwise, involving material amounts which
are not disclosed in said statements or the notes thereto, or described in Schedule 5(g);

 

8

 

(h) Each Borrower owns, or at the closing shall
own, all of the assets reflected in the financial statements provided to the
Bank and such assets together with any assets acquired since such date,
including without limitation the Collateral, are subject to no Liens except
Permitted Liens;

 

(i) Each Borrower’s charter documents have been
duly filed and are in proper order.  All
capital stock issued by it and outstanding has been duly issued and is fully
paid and non-assessable. All such capital stock is owned by those individuals
and entities listed in the Disclosure Schedules. All its books and records are
accurate and up-todate in all material respects;

 

(j) Each Borrower has made or filed all tax returns,
reports and declarations relating to any material tax liability, or required by
any jurisdiction to which they are subject; has paid all taxes shown or
determined to be due thereon through the date of this Loan Agreement; and each
Borrower shall make adequate provision for the payment of all taxes and
preparation and filing of all tax returns in respect of subsequent periods;

 

(k) Each Borrower is (i) subject to no charter
or other legal restriction, or any judgment, award, decree, order, governmental
rule or regulation or contractual restriction which could have a material
adverse effect on its financial condition, business or prospects, and (ii) in
compliance with its charter documents, all material contracts by which it or
any of its properties are, or may be bound and all applicable laws, rules and
regulations (including without limitation those relating to environmental
protection) other than laws, rules and regulations, the validity or
applicability of which it is contesting in good faith or provisions of any of
the foregoing the failure to comply with which cannot reasonably be expected to
materially adversely affect its financial condition, business or prospects or
the value of the Collateral;

 

(l) Except as disclosed in the financial statements
previously provided to the Bank, there is no action, suit, proceeding or
investigation pending or, to its knowledge, threatened against or affecting
either Borrower, or any of its  assets
before or by any court or other governmental authority which, if determined
adversely to such Borrower, would have a material adverse effect on its
financial condition, business or prospects or the value, title or extent of any
Collateral;

 

(m) Each Borrower is in compliance with ERISA in all
material respects and  maintains no
tax-qualified defined benefit plans which would give rise to any material
unfunded vested liability;

 

(n) Each Borrower’s principal executive office and
the office where it keeps its records concerning its Accounts Receivable and
other assets is as set forth in the Preamble hereto.  It has no other office or place of business
or place where its tangible or intangible personal property is located;

 

(o) Each Borrower’s Inventory is (and has been since
the date of this Loan Agreement) valued at the lower of its cost or market
value (i) for annual financial reporting purposes, on the basis of first
in first out consistent with the basis applied for prior financial periods, and
(ii) for

 

9

 

purposes of interim financial reporting, on
the basis of first in first out (adjusted to reflect the interim character of
the information reported);

 

(p) Each Borrower has disclosed to the Bank its
current credit and refund policies, and it does now and will continue to apply
such policies consistently in the conduct of its business and agrees that it
shall provide the Bank with prior written notice of any change in such policy
or its implementation; and

 

(q) After giving effect to the transactions
contemplated hereby,  the aggregate value
of all assets and properties of each Borrower, at a fair valuation, will be
greater than the total amount of its liability on claims, and the aggregate
present fair salable value of its assets will be greater than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and mature; each Borrower has (and has no reason to believe
they will not have) sufficient capital for the conduct of its businesses;
neither Borrower intends to incur and does not believe it has incurred, debts
beyond its ability to pay as they mature.

 

6.  BORROWER’S REPORTS AND NOTICES.

 

(a)  
Borrower shall provide the Bank with copies of the Borrower’s 10-Q
reports within 45 days of each fiscal quarter end of the Borrower and will
provide the Bank with a copy of its 10-K report within 90 days of Borrower’s
fiscal year end, together with a compliance certificate at each quarter end
certifying Borrower’s compliance with the financial covenants and other
provisions of this Loan Agreement and ancillary documents.

 

(b)   Borrower
will deliver to Bank promptly, such other information concerning each Borrower
and guarantor, the Collateral, the operation of Borrower’s business or its
financial condition and copies of such governmental filings and other
documentation as Bank may from time to time reasonably request;

 

(c)   Borrower
will deliver to Bank immediately, notice of: (i)  any Event of Default or
any event which with the passage of time or giving of notice or both would
constitute an Event of Default as defined herein; (ii) any change of its
key officers or directors, change of location of its principal offices, change
of Borrower’s name or business structure, any sale or purchase out of the
ordinary course of  Borrower’s business
and any other material adverse change in the business or financial affairs of
Borrower or any change in the legal status of Borrower;  (iii) a change in a basis for valuing
Inventory from that shown herein; (iv) the institution or commencement of
any action, suit, proceeding or investigation against or affecting Borrower or
any of its assets which, if determined adversely to Borrower, could have a
material adverse effect on the financial condition, business or prospects of
Borrower or the value, title or extent of the Collateral;  (v) any judgment, award, decree, order
or determination relating thereto against Borrower in excess of $50,000.00 for
which no insurance is available; (vi) the imposition or creation of any
Lien, other than Permitted Liens against any asset of Borrower;  (vii) any known material release or
threat of material release of hazardous or toxic chemicals, materials or oil
from any site owned or operated by Borrower or the incurrence of any expense or
loss in connection therewith or upon Borrower’s obtaining knowledge of any
investigation, action or the

 

10

 

incurrence of any expense or loss by any
governmental authority in connection with the containment or removal of any
hazardous or toxic chemical, material or oil for which expense or loss Borrower
may be liable or potentially responsible; (viii) any material loss or
destruction of Collateral or other assets whether or not covered by insurance;
and  (ix) any dispute with respect
to or acceleration of Indebtedness involving an amount in excess of $50,000.00.

 

(d)  
Borrower will deliver to Bank immediately after receipt or filing, a
copy of (i) any notice Borrower may receive from the PBGC relating to the
PBGC’s intention to terminate or appoint a trustee to administer any Plan and (ii) any
report or notice relating to any Reportable Event which Borrower may file under
ERISA with the PBGC;

 

(e ) if requested by Bank, Borrower will deliver to
Bank within five (5) days after the accrual in accordance with applicable
law of Borrower’s obligation to make deposits for FICA and withholding taxes,
evidence satisfactory to Bank that such deposits have been made as required.

 

7. BANK’S REPORTS.
After the end of each month,  Bank will
render to Borrower a statement of Borrower’s Loan accounts in accordance with
the Bank’s customary practices.  Absent
manifest error, each such statement shall be considered to be correct and to
have been accepted by Borrower and shall be presumptively binding upon Borrower
in respect of all charges, debits and credits of whatever nature contained
therein under this Loan Agreement, and the closing balance shown therein,
unless Borrower notifies Bank in writing of any discrepancy within sixty (60)
days from the date of any such statement.

 

8. BORROWER’S
AFFIRMATIVE COVENANTS.  Each
Borrower will, and will cause each of its subsidiaries to:

 

(a)  maintain property and liability insurance
with responsible insurance companies (and with deductibles) reasonably
satisfactory to Bank in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar
properties in the same general areas as Borrower operates;

 

(b) maintain insurance naming Bank as loss
payee with responsible insurance companies (and with deductibles) reasonably
satisfactory to Bank covering Borrower’s Inventory, Equipment and other
insurable Related Collateral, in such amounts as is usually carried by
companies engaged in similar businesses, and deliver to Bank copies of such
insurance policies (and all renewals thereof) together with lender’s loss
payable endorsements naming Bank as secured party, executed by the insurer(s),
such policies to provide that coverage may not be decreased or terminated
without prior notice to the Bank;

 

(c) maintain its  existence in good standing, and its
qualification to do business in good standing in every state in which such
qualification is necessary by reason of the nature or location of its assets or
operations, except where the failure to so qualify would not have a material
adverse effect upon the Borrower’s business or financial condition, and comply
with its charter documents, all contractual requirements by which it or any of
its properties may be bound and all

 

11

 

applicable laws, rules and regulations
(including without limitation ERISA and those relating to environmental
protection) other than laws, rules or regulations the validity or
applicability of which the Borrower shall contest in good faith or provisions
of any of the foregoing the failure to comply with which cannot reasonably be
expected to materially adversely affect the financial condition, business or
prospects of Borrower or the value, title or extent of the Collateral;

 

(d) continue to engage primarily in its present
business and maintain and preserve all of its properties necessary for the
conduct thereof in good working order and condition, ordinary wear and tear
excepted;

 

(e) maintain current and accurate stock, cost
and sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, type and quantities of Inventory and the cost and selling
prices, all of which records shall be continuously available to Bank for
inspection;

 

(f) pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or property,
including without limitation taxes, assessments, charges or levies relating to
real and personal property, the Collateral, franchises, income, unemployment,
old age benefits, withholding, sales or use, prior to the date on which
penalties attach thereto, and all lawful claims (whether or not relating to the
foregoing), which if unpaid,  might give
rise to a Lien upon any material property of Borrower, except any of the
foregoing which is being contested in good faith and by appropriate proceedings
and for which Borrower has established adequate reserves; and

 

(g) maintain cash in deposit or
interest-bearing deposit accounts with the Bank in the amount of the greater of
$2.0 million or 50% of Borrower’s total cash, cash equivalents and marketable
securities.

 

9. BORROWER’S
NEGATIVE COVENANTS.  Each
Borrower will not, and will not permit its subsidiaries or guarantors to,
without the prior written consent of Bank at any time:

 

(a) Sell, assign, exchange or otherwise dispose
of any of the Collateral or any interest therein to any other Person (other
than Collateral consisting of (i) scrap, waste, defective goods and the
like; (ii) obsolete goods; (iii) finished goods sold or leased in the
ordinary course of business; and (iv) other personal property of the
Borrower, except in good faith, arm’s length, transactions in the ordinary and
usual course of Borrower’s business in accordance with Borrower’s past
practices);

 

(b) Create, permit to be created or suffer to
exist any Lien upon any of the Collateral or any other property of Borrower
(including without limitation thereof any Lien or other encumbrance of its
Intellectual Property) , now owned or hereafter acquired, except for Permitted
Liens;

 

(c) Pay any dividends on or make any
distribution on account of any class of Borrower’s capital stock in cash or in
property; or redeem, purchase or otherwise acquire, directly or indirectly, any
of such shares or equity interests;

 

12

 

(d) Enter into any lease or other transaction
with any shareholder, officer or affiliate on terms any less favorable than
those which might be obtained at the time from Persons who are not such a
shareholder, officer or affiliate;

 

(e) Make any loans or advances to any Person
other than advances to employees and officers for reimbursable business
expenses in the ordinary course of business;

 

(f) Assume, guaranty, endorse or otherwise
become directly or indirectly liable in respect of (including without
limitation, by way of agreement, contingent or otherwise, to purchase, provide
funds to or otherwise invest in a debtor or otherwise to assure a creditor
against loss), any Indebtedness (except guaranties by endorsement of
instruments for deposit or collection in the ordinary course of business) of
any Person;

 

(g) Use any loan proceeds to purchase or carry
any “margin stock” (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) or invest in or purchase any stock or securities of any
Person, except: (i) readily marketable direct obligations of, or
obligations guarantied by, the United States of America or any agency thereof, (ii) time
deposits with the Bank, (iii) certificates of deposit issued by the Bank, (iv) other
investments made available to the Borrower through the Bank;

 

(h) Incur any material contingent liabilities
other than contingent liabilities in existence on the date of this Loan
Agreement and disclosed in writing to the Bank

 

(i) Sell, transfer or otherwise dispose of any
stock or other equity interests of, or all or any material portion of the
assets of Borrower or of any subsidiary of Borrower;

 

(j) Merge or consolidate with or into any
corporation, or enter into any joint venture or partnership with any person,
firm or corporation; convey, lease or transfer or otherwise dispose of any
substantial part of its assets or business, other than sales and leases of
property in the ordinary course of business (whether in one or more transactions),
or enter into any agreement to acquire the assets of business of any other
Person;

 

(k) Incur any Indebtedness other than Permitted
Indebtedness; or

 

(l) Create or organize any subsidiary or affiliate
corporation or other affiliated business entity to which the Borrower’s
business, property, resources, employees or directly related business
opportunities are loaned, diverted or otherwise transferred; or permit any
change of more than thirty (30.0%) percent in the equity ownership of either
Borrower from the equity ownership on the date of this Loan Agreement; provided
that if Bank consents to the formation of any subsidiary, Bank may as a
condition to such consent require that such subsidiary become a guarantor of
the Obligations.

 

10. FINANCIAL
COVENANTS.  None

 

13

 

11. ADDITIONAL
COVENANTS AS TO FURTHER SECURITY AND ASSURANCES.

 

(a) Borrower will notify Bank, at least thirty
(30) days prior to any such event, of any change in Borrower’s exact legal
name, any change in its place(s) of business or locations(s) of Inventory,
Equipment or other Related Collateral as set forth in Section 5 or
Borrower’s establishment of any new place of business or location of Inventory,
Equipment or other Related Collateral or office where Borrower’s records
concerning Accounts Receivable and other assets are kept.

 

(b) At Bank’s request, each Borrower at its
expense (i) will promptly and duly execute and deliver such documents and
assurances and take such actions as may be necessary or desirable or as Bank
may reasonably request in order to correct any defect, error or omission which
may at any time be discovered or in order to more effectively carry out the
intent and purpose of this Loan Agreement and to establish, perfect and protect
Bank’s security interest, rights and remedies created or intended to be created
hereunder and (ii) without limiting the generality of the above, will join
with Bank in executing notices appropriate under applicable Federal, state or
applicable foreign law in form reasonably satisfactory to Bank and filing same
in all public offices and jurisdictions wherever and whenever reasonably
requested by Bank. Each Borrower expressly authorizes the Bank to prepare and
file in any appropriate filing office Uniform Commercial Code financing
statements, continuation statements and amendments reflecting the security
interests granted to the Bank hereunder or under any other documents,
instrument or agreement.

 

(c) Each Borrower shall maintain all of its principal
depository accounts with the Bank and, if the Bank so requires after occurrence
of an Event of Default, shall enter into a lockbox agreement with the
Bank.  If a lockbox is required, all
remittances and payments to the Borrower shall be made through the
lockbox.  In addition, each Borrower
will, immediately upon receipt of all checks, drafts, cash and other
remittances in payment of any Inventory sold or on account of such Borrower’s
Accounts Receivable (including without limitation tax refunds, insurance
proceeds and notes), hold the same in trust for Bank and deliver the same to
Bank in the form received together with such 
Borrower’s endorsement thereon where necessary to permit collection
thereof.  Bank will credit all such
payments (conditional upon final collection) against interest accrued on or
principal of loans outstanding hereunder. 
The order and method of application shall be in Bank’s sole discretion
and proceeds which in Bank’s discretion are not so applied shall be credited to
Borrower’s deposit account(s) with Bank.

 

(d) Bank will, at any time after an Event of
Default have the right to take physical possession of the Collateral and to
maintain such possession on Borrower’s premises or to remove the Collateral or
any part thereof to such other places as Bank may desire.  If Bank exercises such right, each Borrower
shall upon Bank’s request assemble the same and make it available to Bank at a
place reasonably convenient to Bank.  If
any Inventory or Equipment is in the possession or control of any of Borrower’s
agents or processors, Borrower shall at Bank’s request at any time whether
before or after an Event of Default notify them of Bank’s security interest
therein and, at Bank’s request, instruct them to hold the same for Bank’s account
and subject to Bank’s instructions.

 

14

 

(e) Each Borrower shall perform any and all
further steps reasonably requested by Bank to perfect Bank’s security interest
in Inventory or Equipment, such as placing and maintaining signs, appointing
custodians, maintaining stock records and transferring Inventory to
warehouses.  A physical listing of all
Inventory, wherever located, shall be taken by each Borrower at least annually
and whenever requested by Bank.

 

(f) Bank may (i) at any time, using its
customary practices and procedures with respect to secured loans, in its own
name or in the name of others communicate with account debtors in order to
verify with them to Bank’s satisfaction the existence, amount and terms of any
Accounts Receivable and the absence of any reductions, discounts, defenses or
offsets with respect thereto or (ii) after an Event of Default, notify
account debtors that Collateral has been assigned to Bank and that payments by
such debtors shall be made directly to Bank; at Bank’s request each Borrower
will notify any or all such debtors of such assignment, give instructions
and/or indicate on billings to such debtors that its Accounts Receivable shall
be paid to Bank and/or supply such debtors with a copy of this Loan Agreement.

 

(g) Bank shall, after an Event of Default have
full power, in its own name or that of either 
Borrower, to collect, endorse, compromise, settle, sell or otherwise
deal with any or all of the Collateral or proceeds thereof.  Each Borrower hereby makes, constitutes and
appoints any officer or agent of the Bank as its true and lawful
attorney-in-fact, with power of substitution, to endorse the name of Borrower
or any of its officers or agents upon any notes, checks, drafts, money orders,
or other instruments of payment (including under any policy of insurance on
Collateral) or Collateral that may come into possession of Bank in full or part
payment of any amounts owing to Bank; to sign and endorse its name or any of its
officers or agents upon any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts Receivable, and any
instruments or documents relating thereto or to such Borrower’s rights therein;
to give written notice to such offices and officials of the United States
Postal Service to effect such change or changes of address so that all mail
addressed to Borrower may be delivered directly to Bank; to take any and all
other actions necessary or appropriate to collect, compromise, settle, sell or
otherwise deal with any or all of the Collateral or proceeds thereof; and to
obtain, adjust, settle and cancel any insurance referred to herein; hereby
granting to each said attorney-in-fact or his substitute full power to do any
and all things necessary or appropriate to be done in and about the premises as
fully and effectually as either Borrower might or could do, and hereby
ratifying all that any said attorney-in-fact or his substitute shall lawfully
do or cause to be done by virtue hereof; provided, however, that except to the
extent reasonably necessary in connection with Bank’s usual and good faith
administration of the Loans, the foregoing powers and appointment shall not be
exercised until after the occurrence and during the continuance of an Event of
Default.

 

(h) Each Borrower hereby assigns to Bank all
sums, including without limitation return of premiums, which may become payable
under any policy of insurance on Collateral and shall direct each insurance
company issuing any such policy to make payment thereof directly to Bank;
provided that in the case of insurance proceeds as a result of a casualty
loss,  in the absence of a

 

15

 

continuing Event of Default by the Bank, and
provided that such proceeds are adequate in the Bank’s judgment to repair or
replace the property damaged, each Borrower may use such proceeds to replace or
restore such property.

 

(i)  If any Accounts Receivable arise from
contracts with the United States or any department, agency or instrumentality
thereof, each Borrower will immediately notify Bank thereof and execute any
instruments and take any steps requested by Bank in order that all monies due
and to become due thereunder shall be assigned to Bank and notice thereof given
to the Federal authorities under the Federal Assignment of Claims Act.

 

(j)  In its
sole discretion, Bank may: (i) if either Borrower shall fail to do so,
discharge taxes and Liens levied or placed on Collateral; (ii) if either
Borrower shall fail to do so, pay for insurance thereon or the maintenance and
preservation thereof; or (iii) if either Borrower shall fail to make
deposits in respect of FICA and withholding taxes referred to in Section 5(j),
make such deposits or pay such taxes, in whole or in part, or set up such
reserves as Bank shall in its sole discretion deem necessary in respect of such
Borrower’s liability therefor.  Any
amount so paid, deposited or reserved for shall constitute a Loan for all
purposes hereunder.  Nothing herein shall
be deemed to obligate Bank to do any of the foregoing and the making of any one
or more such payments, deposits or reserves shall not constitute an agreement
by Bank to take any further or similar action or a waiver of any right of Bank
hereunder.

 

(k) Each Borrower will at all times keep accurate
records of the Collateral and will permit Bank or its agents or representatives
at any reasonable time during normal business hours and upon reasonable notice
to the Borrower (other than during and after occurrence of an Event of
Default  in which case no notice shall be
required), and from time to time to visit Borrower’s places of business,
without hindrance or unreasonable delay, to inspect Inventory and examine,
check, audit and make copies and abstracts from each Borrower’s records and
books of account (including without limitation minutes, and records, journals,
orders, receipts and correspondence relating to Collateral, account debtors,
transactions unrelated to Collateral and each Borrower’s general financial
condition, business and affairs); to immediately provide Bank with copies and
extracts of information from its books and records; to remove any of such books
and records temporarily for the purpose of having copies made, if either
Borrower fails to promptly provide Bank with copies and extracts of information
from its books and records; and to discuss with any of either Borrower’s
appropriate directors, officers and employees the Collateral and each Borrower’s
general financial condition, business and affairs.  In connection with any such audits by Bank or
its representatives, each Borrower agrees to pay Bank its current audit fee,
plus travel and other reasonable out of pocket expenses.

 

(1) Subject to the rights of landlords of any
premises occupied by Borrower, each Borrower hereby grants to Bank, for a term
commencing on the date of entry upon the premises of the Borrower for purposes
of disposition of its Collateral following an Event of Default and continuing
so long as any of the Obligations remain outstanding, at a rental of $1.00 for
such entire term, the right to the use of all premises or places of business of
each Borrower where any Collateral may be located. Borrower agrees to use
commercially reasonable efforts (but not including any obligation to pay money
therefor) to obtain landlord’s consents and waivers

 

16

 

(“Landlord Waivers”) for the premises at 40
Ramloand Road, Orangeburg, New York and 9 Strathmore Road, Natick,
Massachusetts; provided however, that the failure to obtain such Landlord
Waivers after exercising such efforts shall not constitute an Event of Default
hereunder.

 

(m) Each Borrower hereby grants to Bank for a term
to commence on the date of this Loan Agreement and continuing thereafter until
all Obligations of any kind or character owed to Bank are fully paid and
discharged, a non-exclusive, irrevocable, royalty-free (to each Borrower and
its affiliates) license in connection with the Bank’s exercise of its rights
hereunder, to use, apply or affix any trademark, serviceman, tradename, logo or
the like and to use any patents, franchises, licenses, and goodwill in which
either  Borrower now or hereafter has
rights, which license may be used by Bank, only after an Event of Default.  This license shall be in addition to, and not
in lieu of, the inclusion of all of each Borrower’s trademarks, servicemarks,
tradenames, logos, goodwill, patents, franchises and licenses in the Related
Collateral.

 

(n) If any Accounts Receivable are at any time
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, Borrower will immediately deliver the same to Bank
appropriately endorsed to Bank’s order and, regardless of the form of such
endorsement, each Borrower hereby waive presentment, demand, notice of
dishonor, protest, notice of protest and all other notices with respect
thereto.

 

(o) If any of either Borrower’s Inventory is held by
any customer on consignment, then such Borrower will promptly so notify the
Bank and will protect its (and Bank’s) interest therein by filing financing
statements against such customer and sending prior notification of the
consignment to such customer’s secured lenders (if any) and will furnish Bank
with copies of such filings and notices. 
Each Borrower shall make certain that any such consigned Inventory is
segregated from such customer’s other property and is clearly designated as the
property of the Borrower.  Each Borrower
shall assign any such financing statements to the Bank promptly upon request of
the Bank.

 

(p) In the event of the sale, exchange or
disposition of any of the Collateral or any interest therein (and no such sale,
exchange or other disposition is hereby authorized or consented to, except as
provided in Section 9(a)), Bank’s security interest shall nevertheless
continue in such Collateral and in
all proceeds thereof and the proceeds shall be paid over to Bank immediately,
and shall be applied at Bank’s option to the payment of the Obligations; and
Bank’s receipt of any such proceeds shall not be deemed or construed to be an
authorization of or consent to any such sale, exchange or other disposition.

 

(q) Any and all deposits or other sums at anytime
credited by or due from Bank to either 
Borrower (other than accounts used for payroll purposes) shall at all
times constitute security for obligations and may be set-off against the  Obligations at any time whether or not they
are then due or other security held by Bank is considered by Bank to be
adequate.   Bank shall be entitled to
presume, in the absence of clear and specific written notice to the contrary
hereinafter provided by Borrower  to Bank
that any and all deposits maintained by each Borrower with Bank (other than
accounts used for payroll purposes) are general accounts as to which no person
or entity other than Borrower or has any legal or equitable interest
whatsoever.

 

17

 

(r)  It is
expressly understood and agreed that all of the rights of Bank contained in
this Loan Agreement shall likewise apply, insofar as applicable, to any
modification of or supplement to this Loan Agreement and to any other
agreements between Bank and Borrower. 
Any default of this Loan Agreement by either Borrower or failure to cure
such default beyond any applicable grace or cure period, shall constitute,
likewise, a default by either Borrower and/of any other existing agreement with
Bank, and any default by Borrower and/of any other agreement with Bank and
failure to cure such default beyond any applicable grace or cure period, shall
constitute a default of this Loan Agreement. 
All Obligations of each  Borrower
to Bank shall, at the option of the Bank,  become due and payable when payments become
due and payable hereunder or upon termination of the Loan Agreement for any
reason.

 

12. EVENTS OF
DEFAULT.  Each Borrower and
Bank acknowledge and agree that, in the discretion of the Bank, all Loans shall
be immediately due and payable after an Event of Default.  After the occurrence of one or more Events of
Default, the Bank shall have all of the other rights and remedies set forth in
this Loan Agreement in addition to remedies otherwise available to a secured
party at law or in equity, provided that all Obligations shall automatically
become immediately due and payable without demand or notice on occurrence of
one of the events described in 12(f) or 12(g):

 

(a) non-payment when due of any of the
Obligations which continues for two (2) days;

 

(b) failure by 
Borrower to perform, discharge, observe or comply with any Obligation
(other than payment Obligations and the other separately enumerated Events of
Default contained in this Section 12) in accordance with the terms thereof
and continuation of such failure for fifteen (15) days after sending of written
notice by Bank;

 

(c) if any representation, warranty or
statement of  Borrower to Bank
heretofore, now or hereafter made in connection with any Obligation (including
without limitation any made in any document, certificate or reporting provided
by  Borrower hereunder) is found to have
been false or misleading in any material respect as of the time when made;

 

(d) occurrence of any event of default beyond
any applicable grace or cure period, under any other instrument evidencing or
governing Indebtedness of  Borrower
(other than Obligations) now or hereafter outstanding;

 

(e)  Borrower’s liquidation, termination,
dissolution or ceasing to carry on actively any substantial part of its current
business;

 

(f) commencement by  Borrower of a voluntary proceeding seeking
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law, or seeking appointment of a trustee, receiver, liquidator or
other similar official for it or any substantial part of its assets; or its
consent to any of the foregoing in an involuntary proceeding against it; or if
Borrower shall generally not be paying its debts as they become due or admit in
writing its inability to do so; or an assignment for the benefit of, or the
offering to or entering into by  Borrower
of any composition, extension, reorganization or other agreement or arrangement
with, its creditors;

 

18

 

(g) commencement of an involuntary proceeding
against  Borrower seeking relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law, or seeking appointment of a trustee, receiver, liquidator or other similar
official for it or any substantial part of its assets, which proceeding remains
undismissed and unstayed for forty-five (45) days; or entry of an order for
relief against  Borrower in any such
proceeding;

 

(h) service upon Bank of a writ naming Bank as
trustee for  Borrower or of any other
similar process of attachment in an amount in excess of $100,000.00;

 

(i) entry of any uninsured judgment or
judgments against  Borrower in an amount
in excess of $100,000.00;

 

(j) attachment of any Lien, other than a Permitted
Lien, upon property of  Borrower without
Bank’s prior written consent, which Lien is not discharged or bonded over
within thirty (30) days of its attachment in an amount in excess of
$100,000.00;

 

(k) entry of any court order which enjoins,
restrains or in any way prevents 
Borrower from conducting all or any material part of its business;

 

(l) any loss, theft, damage or destruction to or of
any material asset(s) of Borrower in an aggregate amount in excess of
$100,000.00 not covered by insurance(above customary deductibles);

 

(m) 
reclamation or repossession of, or any action by a creditor to reclaim
or repossess, any material asset(s) of 
Borrower in an aggregate amount in excess of $100,000.00 not dismissed
or stayed within thirty (30) days;

 

(n) if there shall occur and be continuing for more
than sixty (60) days any Reportable Event which constitutes grounds for
termination of, or for appointment by a United States district court of a
trustee to administer, any Plan; if the PBGC shall institute proceedings to terminate
or to appoint a trustee to administer any Plan; if a United States district
court shall appoint a trustee to administer any Plan; or if any Plan shall be
terminated, in each of the foregoing circumstances, giving rise to liabilities
having a material adverse effect on 
Borrower’s financial condition;

 

(o) termination of, failure to make any payment
required under or any other default under any guaranty of or other instrument
or agreement securing any of the Obligations, after expiration of any applicable
grace or cure periods; or

 

(p) if  there
shall occur a material adverse change in the business or financial condition
of  Borrower, its subsidiaries and/or
properties resulting in  the Bank’s good
faith determination that the prospects for timely or full payment or
performance of any Obligation have been materially impaired or that the value
of its Collateral has been materially diminished.

 

19

 

13. BANK’S RIGHTS
AND REMEDIES AFTER AN EVENT OF DEFAULT.  (a) Following the occurrence and during
the continuance of a Default or an Event of Default, Bank may decline to make
any additional Loans or other credits hereunder.  After an Event of Default, (i) all
Obligations shall become immediately due and payable at Bank’s option upon
notice to Borrower, except that such acceleration shall be automatic and shall
not require action or notice of any kind after occurrence of an Event of
Default described in Section 12(f) or 12(g); (ii) each Borrower
shall be obligated to deliver to Bank cash collateral in an amount equal to the
aggregate amounts then undrawn on all letters of credit or outstanding on
acceptances issued by Bank for such Borrower’s account; (iii) Bank may
proceed to enforce payment of any of the foregoing and shall have and may
exercise any and all rights under the Uniform Commercial Code or which are
afforded to Bank herein or otherwise; and (iv) all Obligations shall bear
interest payable on demand at the rate per annum which is the sum of the Prime
Rate plus Two percent (2.0%) (the “Default Rate”); and (v) Bank may sell
all or any part of the Collateral in one or more public or private sales, at
such times and prices and upon such terms as Bank deems advisable in its sole
discretion.  Any requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to each
Borrower at its address set forth herein at least ten (10) days before the
time of sale or other disposition.  Bank
may be the purchaser at any such sale, if it is public, and in such event Bank
shall have all rights of a good faith, bona fide purchaser for value from a
secured party after default.  The
proceeds of any sale may be applied (in whatever order and manner Bank elects
in its sole discretion) to all costs and expenses of sale (including without
limitation reasonable attorneys’ fees and disbursements) and to the payment of
Obligations, and any remaining proceeds shall be applied in accordance with Article 9
of the Uniform Commercial Code.  Each
Borrower shall remain jointly and severally liable to Bank for any deficiency.

 

(b)   In addition to all of the other rights and
remedies available to the Bank, each Borrower expressly consents to the
appointment of a receiver as requested by the Bank in its sole discretion for its
properties and business in any state or federal court proceeding or
administrative proceeding, subject to court approval.  No Borrower will take action to contest,
object to or otherwise interfere with the request for or appointment of a
receiver (except that each Borrower will respond to questions of the Court and
will respond to lawful process in connection with any request to appoint a
receiver) and each Borrower shall cooperate fully in making all of its books
and records available to a receiver and in giving such receiver dominion and
control over all of its properties, business records and business which are
subject to appointment of a receiver.  If
the Bank requests the appointment of a receiver for any Borrower, such Borrower
will promptly execute all documents required by the Bank to evidence its
consent to such appointment.

 

(c)   In
the event that any Borrower shall: (i) file with any bankruptcy court of
competent jurisdiction or be the subject of any petition under the Bankruptcy
Code; or (ii) be the subject of any order for relief issued under the
Bankruptcy Code or similar relief under any present or future federal or state
act or law relating to bankruptcy, insolvency or other relief for debtors,
then, subject to court approval, on two business days notice Bank shall
thereupon, upon Bankruptcy Court approval and, subject to the right of other
creditors of such Borrower to object, be entitled to, and each Borrower
irrevocably consents to, relief from any automatic stay imposed by Section 362
of the Bankruptcy Code, or otherwise, on or against the exercise of the rights
and remedies

 

20

 

otherwise available to the Bank and each
Borrower hereby irrevocably waives its rights to object to such relief.

 

14. ATTORNEYS
FEES, INDEMNIFICATION, ETC. (a) Borrower shall pay to Bank on
demand any and all reasonable counsel fees and other expenses incurred by the
Bank in connection with the preparation, interpretation, enforcement,
administration, or amendment of this Loan Agreement, documents relating thereto
or modifications thereof, and any and all expenses, including, but not limited
to, a collection charge on all Accounts collected, all reasonable attorneys’
fees and expenses, and all other expenses of like or unlike nature which may be
expended by the Bank to obtain or enforce payment of any Account Receivable
either as against the account debtor, any Borrower or any guarantor or surety
of any Borrower or in the prosecution or defense of any action or concerning
any matter growing out of or connected with the subject matter of this Loan
Agreement, the Obligations or the Collateral or any of Bank’s rights or
interests therein or thereto, including, without limiting the generality of the
foregoing, any counsel fees or expenses incurred in any bankruptcy or
insolvency proceedings, and all costs and expenses incurred or paid by Bank in
connection with the administration, supervision, protection or realization on
any security held by Bank for the debt secured hereby, whether such security
was granted by Borrower or by any other person primarily or secondarily liable
(with or without recourse) with respect to such debt, and all costs and
expenses incurred by Bank in connection with the defense, settlement or satisfaction
of any action, claim or demand asserted against Bank in connection with the
debt secured hereby, all of which amounts shall be considered advances to
protect Bank’s security, and shall be secured hereby.  At its option, and without limiting any other
rights or remedies, Bank may at any time, if either Borrower  fails to do so, pay or discharge any taxes,
liens, security interests or other encumbrances at any time levied against or
placed on any of the Collateral, and may procure and pay any premiums on any
insurance required to be carried by any Borrower and provide for the
maintenance and preservation of any of the Collateral, and otherwise take any
action reasonably deemed necessary to Bank to protect its security, and all
amounts expended by Bank in connection with any of the foregoing matters,
including reasonable attorneys, fees, shall be considered Obligations of
each  Borrower and shall be secured
hereby.

 

(b) Bank shall be authorized to make Loans
hereunder by deposit of Loan proceeds into the Borrower’s operating account
with the Bank, upon the written request in the name of Borrower by any of the
Persons whom Borrower may from time to time designate in appropriate
certificates or resolutions delivered to the Bank.  All Loans shall be conclusively deemed to
have been authorized by each Borrower and to have been made pursuant to duly
authorized requests therefor on its behalf. 
Bank shall be further entitled to rely on any communication, instrument
or document believed by it in good faith 
to be genuine and correct and to have been signed, sent or made by the
proper Person(s), and with respect to all legal matters shall be entitled to
rely on advice of legal counsel.

 

(c) In the absence of the gross negligence of
or willful misconduct by the Bank as finally determined by a court of competent
jurisdiction, neither Bank nor any attorney-in-fact appointed by any Borrower
pursuant to this Loan Agreement shall be liable to any Borrower or any other

 

21

 

Person for any act or omission, any mistake
of fact or any error of judgment in exercising any right or remedy granted
herein.

 

(d) Bank shall be entitled to retain Collateral
or require substitution therefor to the extent required to assure Bank of
satisfaction of each Borrower’s Obligations under this Section 14.

 

15. CAPITAL
ADEQUACY.  If after the date
hereof, Bank determines in good faith that (i) the adoption, after the
date hereof, of any applicable law, rule, or regulation regarding capital
requirements for banks or bank holding companies or the subsidiaries thereof, (ii) any
change, after the date hereof, in the interpretation or administration of any
such law, rule or regulation by any governmental authority, central bank,
or comparable agency charged with the interpretation or administration thereof,
or (iii) compliance by Bank or its holding company with any request or
directive of any such governmental authority, central bank or comparable agency
regarding capital adequacy (whether or not having the force of law), has the
effect of reducing  by any material
amount the return on Bank’s capital to a level below that which Bank could have
achieved (taking into consideration Bank’s and its holding company’s policies
with respect to capital adequacy immediately before such adoption, change, or
compliance and assuming that Bank’s capital was fully utilized prior to such
adoption, change, or compliance) but for such adoption, change, or compliance
solely as a consequence of Bank’s making advances pursuant hereto:

 

(a) Bank shall promptly, after Bank’s
determination of such occurrence, give notice thereof to Borrower.

 

(b) Provided that similar pricing adjustments
are made by the Bank to other loans in 
the Bank’s loan portfolio, Borrower shall: (i) pay to Bank as an
additional fee from time to time, within thirty (30) days of demand therefor,
such amount as Bank certifies to be the amount that will compensate Bank for
such reduction, or (ii) pay all of its Obligations (except for the
additional fee referenced herein) within ninety (90) days of such notice.

 

(c) A certificate of Bank claiming entitlement
to compensation as set forth above will be conclusive in the absence of
manifest error in calculation.  Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to Bank, and the
method by which such amounts were determined. 
In determining such amount, Bank may use any reasonable averaging and attribution
method.

 

16. MISCELLANEOUS
PROVISIONS.

 

 (a) Notices
by Bank under Section 2 may be in writing or by telephone (confirmed in
writing).  Unless otherwise specified
herein, all notices hereunder shall be in writing; if to Borrower, addressed to
Borrower at its address shown in the preamble to this Loan Agreement, and if to
Bank, at 53 State Street, Boston, Massachusetts, 02109, Attn: Mr. Scott
Haskell, Sr. Vice President. 
Written notices and communications shall be effective and shall be
deemed received on the Business Day when delivered by hand or sent by confirmed
facsimile transmission; on the next Business Day, if by commercial courier, and
on the third Business Day after sending, if by registered or certified mail,
postage prepaid, return receipt requested.

 

22

 

(b) No failure to exercise and no delay in
exercising on the part of Bank, any 
right or remedy  hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right or remedy.  Waiver by Bank of any
right or remedy on any one occasion shall not be construed as a bar to or
waiver thereof or of any other right or remedy on any future occasion.  Without limiting the generality of the
foregoing, each Borrower expressly agrees that no failure by Bank to detect or
to communicate with any Borrower or take action in response to any failure by
any Borrower to perform or observe any Obligation shall operate as a waiver of
any right or remedy of Bank; Bank’s rights and remedies hereunder, under any
agreement or instrument supplemental hereto or under any other agreement or
instrument shall be cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.

 

(c) This Loan Agreement shall be binding upon
and shall inure to the benefit of each Borrower and Bank and their respective
successors and assigns; PROVIDED THAT Borrower may not assign or transfer any
rights or obligations hereunder without Bank’s prior written consent. Bank may
at any time pledge all or any portion of its rights under this Loan Agreement
to any of the Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act.  No such pledge or
enforcement thereof shall release the Bank from its obligations under this Loan
Agreement.  Bank shall also have the
right from time to time without consent of any Borrower or any guarantor to
assign all or any portion of its rights hereunder to one or more banks or
financial institutions having a combined capital and surplus of at least $100
million  (any of the foregoing, an “Assignee”)
and each Borrower and each guarantor agrees to execute such documents as Bank
shall require to effect such assignment. 
In addition, at the request of the Bank and such Assignee, each Borrower
shall execute and deliver one or more new promissory notes in replacement of,
but not in discharge of, the liability evidenced by the promissory notes held
by the Bank prior to such assignment and shall reflect the amount of the
respective commitments and loans held by such Assignee and Bank after giving
effect to such assignment. Upon the execution and delivery of appropriate
assignment documentation, amendments and other documentation required by the Bank
in connection with such assignment, and the payment by the Assignee of the
purchase price agreed to by Bank and such Assignee, such Assignee shall become
a party to this Loan Agreement and shall have all of the rights and obligations
of Bank hereunder and under all related documents 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 Bank shall be
released from its future obligations hereunder and thereunder to a
corresponding extent.

 

(d) Bank shall have the unrestricted right at
any time and from time to time, and without consent of or notice to any
Borrower or any guarantor or other surety, to grant to one or more banks or
other financial institutions (each, a “Participant”), participating interests
in Bank’s agreement to make Loans hereunder and/or any of the Loans made by
Bank hereunder.  In the event of any such
grant by the Bank of a participating interest to a Participant, whether or not
upon notice to any Borrower, Bank shall remain responsible for the performance
of its agreements hereunder and each Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank’s rights and agreements
hereunder.  Bank may furnish any

 

23

 

information concerning any Borrower in its
possession from time to time to prospective Assignees and Participants,
provided that Bank shall require such Assignee or Participant to agree in
writing to maintain the confidentiality of such information.

 

(e) The headings contained herein are for
convenience only and shall not affect the construction hereof.  If one or more provisions of this Loan
Agreement (or the application thereof) shall be invalid, illegal or
unenforceable in any respect in any jurisdiction, the same shall not, to the
fullest extent permitted by applicable law, invalidate or render illegal or
unenforceable such provision (or its application) in any other jurisdiction or
any other provision of this Loan Agreement (or its application).  This Loan Agreement, together with all
Schedules and Exhibits hereto and the other documents, instruments and
agreements delivered in connection therewith, are the entire agreement of the
parties with respect to the subject matter hereof and supersede any prior
written or verbal communications or instruments relating to the Loans.

 

(f) All Agreements between each Borrower and
Bank are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of the maturity of the
Obligations or otherwise, shall the amount paid or agreed to be paid to the
Bank for the use or the forbearance of the Obligations evidenced hereby or by
the Notes, exceed the maximum permissible under applicable law.  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
permissible rate of interest, then this agreement and the Notes shall be
governed by such new law as of its effective date.  In this regard, it is expressly agreed that
it is the intent of each Borrower and Bank in the execution, delivery and
acceptance of this agreement and the Notes to contract in strict compliance
with the laws of the Commonwealth of Massachusetts from time to time in
effect.  If under or from any
circumstances whatsoever, fulfillment of any provision hereof or of any of the
loan documents at the time of performance of such provision shall be due, shall
involve exceeding the limit of such validity prescribed by applicable law, then
the obligation to be fulfilled shall automatically be reduced to the limits of
such validity, and if under any circumstances whatsoever Bank should ever receive
as interest an amount which would exceed the highest lawful rate, such amount
which would be excessive interest shall be applied to the reduction of
principal and not to the payment of interest. 
This provision shall control every other provision of all documents,
instruments and agreements between each Borrower and the Bank.

 

(g) This Loan Agreement shall continue in full
force and effect so long as any of the Obligations remains outstanding or has
not been fully and finally paid, performed or satisfied. Upon final payment and
full satisfaction of the Obligations and termination of the Bank’s agreement to
make Loans under this Loan Agreement, the Bank agrees to promptly provide to
each Borrower appropriate terminations of security interests, discharges of
mortgages, reassignments of trademarks and such other documents, instruments
and agreements as are necessary to terminate the Bank’s interests in property
of such Borrower.

 

(h) Each Borrower acknowledges that the
transactions contemplated hereby are commercial transactions and waives, to the
fullest extent it may do so under applicable law, such rights as it may have or
hereafter have to notices and/or hearings (except to the extent required

 

24

 

under the Uniform Commercial Code) relating
to exercise of any of Bank’s rights under this Loan Agreement or under
applicable law.

 

17. GOVERNING LAW;
JURISDICTION; WAIVER OF JURY TRIAL.

 

(a) This Loan Agreement shall take effect as a
sealed instrument and shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.

 

(b) Each Borrower irrevocably submits to the
non-exclusive jurisdiction of any federal or state court sitting in Boston,
Massachusetts over any suit, action or proceeding arising out of or relating to
this Loan Agreement.  Each Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may have or hereafter have to the laying of
the venue of any such suit, action or proceeding brought in any such court and
any claim that the same has been brought in an inconvenient forum.  Each Borrower agrees that any and all legal
process which may be served in any suit, action or proceeding may be served by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to such Borrower’s address shown herein and agrees that such
service shall in every respect be deemed effective service upon such Borrower.

 

(c) EACH BORROWER AND BANK EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS LOAN AGREEMENT. 
Each Borrower hereby certifies that neither Bank nor any of its
representatives, agents or counsel has represented, expressly or otherwise,
that Bank would not, in the event of any such suit, action or proceeding, seek
to enforce this waiver of right to trial by jury.  Each Borrower acknowledges that Bank has been
induced to enter into this Loan Agreement by, among other things, this
waiver.  Each Borrower acknowledges that
it has read the provisions of this Loan Agreement and in particular, this Section 17,
has consulted legal counsel; understands the rights it is granting in this Loan
Agreement and is making the waiver set forth in this Section 17 knowingly,
voluntarily and intentionally.

 

25

 

This Loan Agreement is
executed as an agreement under seal within the Commonwealth of Massachusetts as
of the date set forth on page one of this Loan Agreement.

 

	
  WITNESS

  	
  VISION- SCIENCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/Barbara G. Mork

  	
   

  	
  By:

  	
  /s/ James A. Tracy

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MACHIDA, INCORPORATED

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/Barbara G. Mork

  	
   

  	
  By:

  	
  /s/ James A. Tracy

  	
   

  
	
   

  	
   

  
	
   

  	
  CITIZENS BANK OF MASSACHUSETTS

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ William F. Granchelli

  	
   

  	
  By:

  	
  /s/ R. Scott Haskell

  	
   

  
											

 

26

 

ACKNOWLEDGMENT

 

Suffolk,
ss:

 

On this          
day of October, 2005 before me appeared                          
and                                
to me personally known, who, being by me duly sworn, did say that he is the
                        
of VISION- SCIENCES, INC. and the                        
of MACHIDA, INCORPORATED (the
Borrower referred to in the foregoing instrument), and acknowledged said
instrument to be his free act and deed and the free act and deed of said
Borrower.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  
	
  My
  commission expires:

  

 

27

 

VISION-
SCIENCES, INC.

MACHIDA, INCORPORATED

SCHEDULE 5 (n)

TO LOAN AND SECURITY AGREEMENT

BUSINESS AND INVENTORY LOCATIONS

 

Locations

 

9
Strathmore Road, Natick, Massachusetts 01760

 

40
Ramland Road, Orangeburg, New York 10962

 

28

 

VISION-
SCIENCES, INC.

MACHIDA, INCORPORATED

SCHEDULE 5 (k)

TO LOAN AND SECURITY AGREEMENT

EXCEPTIONS TO COMPLIANCE, REGULATIONS AND LIABILITIES

 

None.

 

29

 

VISION- SCIENCES, INC.

 

MACHIDA,
INCORPORATED

EXHIBIT 5

TO LOAN AND SECURITY AGREEMENT

COMPLIANCE CERTIFICATE

 

Mr. R.
Scott Haskell

Sr.
Vice President

Technology
Division

Citizens
Bank of Massachusetts

53
State Street MBS 830

Boston,
MA 02109

 

RE:                              COMPLIANCE CERTIFICATE AS OF
October 28, 2005

 

The undersigned authorized
officer of VISION- SCIENCES, INC. and
of MACHIDA, INCORPORATED
(collectively, the “Borrower”) hereby certifies, on behalf of the Borrower,
that in accordance with the  Loan and
Security Agreement between the Borrower and Citizens Bank of Massachusetts (“Citizens”),
dated October 31, 2005,  as amended
from time to time (the “Loan Agreement”), (i) all financial statements
delivered or caused to be delivered to Citizens in the Loan Agreement through
the date of this Certificate have been prepared in accordance with Generally
Accepted Accounting Principles (“GAAP”) and fairly present the consolidated
financial condition of Borrower as of such dates, (ii) the representations
and warranties of the Borrower contained in the Loan Agreement and any other
Loan Documents are true and correct in all material respects on and as of the
date of this Certificate, (iii) Borrowers are in compliance with all of
the required covenants set forth the Loan Agreement, except as set forth below,
and (iv) on the date of this Certificate, and except as disclosed herein,
there does not exist any condition or event that would constitute an Event of
Default under the Loan Agreement.

 

AFFIRMATIVE COVENANTS

 

	
  I. Total Cash,
  Cash Equivalents and Marketable Securities

  	
   

  	
   

  	
  $

  	
  7,499,190.43

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  II. Cash in CBM
  Demand Deposit Accounts

  	
   

  	
   

  	
  $

  	
  7,811.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  III. Cash in CBM
  Interest-Bearing Deposit Accounts

  	
   

  	
   

  	
  $

  	
  3,741,784.21

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IV. Total Cash
  in CBM Deposit Accounts

  	
   

  	
   

  	
  $

  	
  3,749,595.21

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  V. % of Cash in
  CBM Deposit Accounts (Item IV / Item I above)

  	
   

  	
   

  	
  50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  VI. Covenant
  Requirement

  	
   

  	
  Greater of $2.0 million or 50% of total cash, cash
  equivalents and marketable securities

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VII. Compliance
  (Yes / No)

  	
   

  	
  Yes

  	
   

  

 

30

 

Comments Regarding Exceptions:

 

The undersigned certifies,
on behalf of the Borrower, that the foregoing Certificate is true and correct
as of October 28, 2005.

 

 

	
   

  	
  VISION- SCIENCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A. Tracy

  	
   

  
	
   

  	
   

  
	
   

  	
  MACHIDA, INCORPORATED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James A. Tracy

  	
   

  

 

31

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