Document:

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                           LOAN AND SECURITY AGREEMENT

                                  By and among

                         Congress Financial Corporation

                                     "Agent"

                       Wachovia Bank, National Association

                                    "Lender"

                                       and

                            Optical Cable Corporation

                                   "Borrower"

                              Dated: April 18, 2002

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                                TABLE OF CONTENTS
                                -----------------

<TABLE>
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                                                                            Page
                                                                            ----
<S>                                                                         <C>
BACKGROUND ................................................................    1
SECTION 1. DEFINITIONS ....................................................    1
SECTION 2. CREDIT FACILITIES ..............................................   10
  2.1  Revolving Loans ....................................................   10
  2.2  Fixed Asset Subline ................................................   11
  2.3  Availability Reserves ..............................................   11
  2.4  Equipment Line of Credit ...........................................   12
SECTION 3. INTEREST AND FEES ..............................................   12
  3.1  Interest ...........................................................   12
  3.2  Closing Fee ........................................................   14
  3.3  Servicing Fee ......................................................   14
  3.4  Unused Line Fee ....................................................   14
  3.5  Changes in Laws and Increased Costs of Loans .......................   14
  3.6  Adjustments to Interest Rate .......................................   15
SECTION 4. CONDITIONS PRECEDENT ...........................................   15
  4.1  Conditions Precedent to Initial Loans: .............................   15
  4.2  Conditions Precedent to All Loans ..................................   16
  4.3  Lien on Real Property ..............................................   17
SECTION 5. GRANT OF SECURITY INTEREST .....................................   17
SECTION 6. COLLECTION AND ADMINISTRATION ..................................   18
  6.1  Borrower's Loan Account ............................................   18
  6.2  Statements .........................................................   18
  6.3  Collection of Accounts .............................................   18
  6.4  Payments ...........................................................   19
  6.5  Authorization to Make Loans ........................................   20
  6.6  Use of Proceeds ....................................................   20
SECTION 7. COLLATERAL REPORTING AND COVENANTS .............................   20
  7.1  Collateral Reporting ...............................................   20
  7.2  Accounts Covenants .................................................   21
  7.3  Inventory Covenants ................................................   22
  7.4  Equipment Covenants ................................................   23
  7.5  Power of Attorney ..................................................   23
  7.6  Right to Cure ......................................................   24
  7.7  Access to Premises .................................................   24
SECTION 8. REPRESENTATIONS AND WARRANTIES .................................   24
  8.1  Corporate Existence, Power and Authority; Subsidiaries .............   24
  8.2  Financial Statements; No Material Adverse ..........................   25
  8.3  Chief Executive Office; Collateral Locations .......................   25
  8.4  Priority of Liens; Title to Properties .............................   25
  8.5  Tax Returns ........................................................   25
  8.6  Litigation .........................................................   25
  8.7  Compliance with Other Agreements and Applicable Laws ...............   26
  8.8  Bank Accounts ......................................................   26
  8.9  Accuracy and Completeness of Information ...........................   26
</TABLE>

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<TABLE>
<S>                                                                                 <C>
  8.10. Environmental Compliance ................................................   26
  8.11. Solvency ................................................................   27
  8.12. Employee Benefits .......................................................   27
  8.13. Survival of Warranties; Cumulative ......................................   28
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS ...................................   28
  9.1.  Maintenance of Existence ................................................   28
  9.2.  New Collateral Locations ................................................   29
  9.3.  Compliance with Laws, Regulations, etc ..................................   29
  9.4.  Payment of Taxes and Claims .............................................   30
  9.5.  Insurance ...............................................................   30
  9.6.  Financial Statements and Other Information ..............................   30
  9.7.  Sale of Assets, Consolidation, Merger, Dissolution, Etc .................   32
  9.8.  Encumbrances ............................................................   32
  9.9.  Indebtedness ............................................................   32
  9.10. Loans, Investments, Guarantees, Etc .....................................   33
  9.11. Dividends and Redemptions ...............................................   33
  9.12. Transactions with Affiliates ............................................   34
  9.13. Additional Bank Accounts ................................................   34
  9.14. Adjusted Net Worth ......................................................   34
  9.15. Costs and Expenses ......................................................   34
  9.16. Compliance with ERISA ...................................................   35
  9.17. Further Assurances ......................................................   35
SECTION 10. EVENTS OF DEFAULT AND REMEDIES ......................................   36
  10.1. Events of Default .......................................................   36
  10.2. Remedies ................................................................   38
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW ........   39
  11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver ...   39
  11.2. Waiver of Notices .......................................................   40
  11.3. Amendments and Waivers ..................................................   40
  11.4. Waiver of Counterclaims .................................................   40
  11.5. Indemnification .........................................................   40
  11.6. Waiver and Consent ......................................................   41
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS ....................................   41
  12.1. Term ....................................................................   41
  12.2. Notices .................................................................   42
  12.3. Partial Invalidity ......................................................   43
  12.4. Successors ..............................................................   43
  12.5. Entire Agreement ........................................................   43
</TABLE>

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                                    INDEX TO

                             EXHIBITS AND SCHEDULES

         Exhibit A                 Information Certificate
         Schedule 6.5              Borrower's Authorized Representatives
         Schedule 8.4              Permitted Liens
         Schedule 8.6              Litigation
         Schedule 8.8              Bank Accounts
         Schedule 8.10             Environmental Matters
         Schedule 8.13             Commercial Tort Claims
         Schedule 8.14             Letter of Credit Right
         Schedule 9.9              Permitted Indebtedness
         Schedule 9.10             Permitted Loans, Advances and Guarantees
         Schedule 9.11             Dividends and Redemptions

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                           LOAN AND SECURITY AGREEMENT
                           ---------------------------

         This Loan and Security Agreement ("Agreement") dated April 18, 2002 is
entered into by and among Congress Financial Corporation, as agent ("Agent"),
Wachovia Bank, National Association, as lender ("Lender"), and Optical Cable
Corporation, a Virginia corporation, as borrower ("Borrower").

                                   BACKGROUND
                                   ----------

         A.   Borrower has requested that Agent and Lender enter into certain
financing arrangements pursuant to which Agent and Lender may make loans and
provide other financial accommodation to Borrower to provide additional working
capital to Borrower.

         B.   Agent and Lender are willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged and intending to be
legally bound hereby, the parties hereto agree as follows:

SECTION 1.    DEFINITIONS.
              -----------

         All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code ("UCC"), as revised and in effect from time to time
in the State of New York, shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower, Agent and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. An
Event of Default shall exist or continue or be continuing until such Event of
Default is waived in accordance with Section 11.3 or is cured in a manner
satisfactory to Agent, if such Event of Default is capable of being cured as
determined by Agent. Any accounting term used herein unless otherwise defined in
this Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:

         1.1. "Account Debtor" shall mean any person obligated on an Account.

         1.2. "Account" shall have the meaning ascribed thereto in the UCC.

         1.3. "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1.0%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international

<PAGE>

banking office of Reference Bank used to fund a Eurodollar Rate Loan or any
Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the
Reference Bank actually holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.

         1.4. "Adjusted Net Worth" shall mean as to Borrower, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to (a) the difference between: (i) the aggregate net book value of all
tangible assets of such Person and its subsidiaries, calculating the book value
of inventory for this purpose on a first-in-first-out basis, after deducting
from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence, depreciation and
amortization and excluding gains or losses from any of the retirement plans of
Borrower) and (ii) the aggregate amount of the indebtedness and other
liabilities of such Person and its subsidiaries (including tax and other proper
accruals but excluding deferred taxes and excluding non-cash charges as to stock
options); plus (b) indebtedness of such Person or its subsidiaries which is
subordinated in right of payment to the full and final payment of all of the
Obligations or terms and conditions acceptable to Agent.

         1.5. "Applicable Eurodollar Margin" shall mean a marginal rate of
interest which is added to the Adjusted Eurodollar Rate to determine the
effective Interest Rate on Eurodollar Rate Loans. The Applicable Eurodollar
Margin on Eurodollar Rate Loans shall be three and one-quarter percent (3.25%),
as may be adjusted pursuant to Section 3.6 of this Agreement.

         1.6. "Applicable Margin" shall mean a marginal rate of interest which
is added to the Base Rate to determine the effective Interest Rate on Base Rate
Loans. The Applicable Margin shall be three quarters of one percent (.75%), as
may be adjusted pursuant to Section 3.6 of this Agreement.

         1.7. "Availability Reserves" shall mean, as of any date of
determination, such amounts as Agent may from time to time establish and revise
in good faith reducing the amount of Revolving Loans which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by Agent
in good faith, do or may affect either (i) the Collateral or any other property
which is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Obligor or (iii) the security interests and other
rights of Agent in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Agent's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Obligor to Agent is or may have been incomplete, inaccurate or misleading
in any material respect or (c) in respect of any state of facts which Agent
determines in good faith constitutes an Event of Default or may, with passage of
time or giving of notice, or both, constitute an Event of Default.

         1.8. "Base Rate" shall mean the rate announced by the Reference Bank or
its successors, from time to time, as its prime rate, whether or not such
announced rate is the best rate available at such bank.

         1.9. "Base Rate Loans" shall mean loans under the Revolving Credit, or
any portion thereof, on which interest is calculated under the terms hereof
based on the Base Rate plus the Applicable Margin.

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         1.10. "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.

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

         1.12. "Capital Expenditures" shall mean, as applied to any Person for
any period, the aggregate of all expenditures (including that portion
attributable to any lease of any property, whether real, personal or mixed, by
that Person or lessee which is accounted for as a capital lease on the balance
sheet of such Person prepared in accordance with GAAP, incurred during that
period), made by that Person during such period in respect of the purchase,
construction or other acquisition of fixed or capital assets, determined in
accordance with GAAP.

         1.13. "Change of Control" shall mean, after the closing date of this
Agreement, the acquisition by any Person, either individually or acting in
concert with one or more other Persons, of beneficial ownership, directly or
indirectly, of capital stock of Borrower (or other securities convertible into
such capital stock) representing 20% or more of the combined voting power of all
capital stock of Borrower entitled to vote in the election of members of the
Board of Directors of Borrower. As used herein, the term "beneficially own" or
"beneficial ownership" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.

         1.14. "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, re-codified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.

         1.15. "Collateral" shall have the meaning set forth in Section 5
hereof.

         1.16. "Commercial Tort Claims" shall have the meaning set forth in the
UCC.

         1.17. "Deed of Trust" shall mean that certain mortgage or deed of
trust, as the same may be amended, modified, supplemented, renewed, extended,
replaced or restated from time to time, to be executed by Borrower on or prior
to the date of this Agreement under which Borrower shall grant and convey to
Agent, or to trustees for the benefit of Agent, as security for the Obligations,
a lien upon the Real Property.

         1.18. "Default Rate" shall mean with respect to any amounts payable
hereunder or under the Financing Agreements, a rate equal to (a) the sum of (i)
two percent (2.0%) per annum and (ii) the Interest Rate otherwise in effect with
respect to such amounts, or, (b) if no such Interest Rate is otherwise in effect
with respect to such amounts, a rate equal to the sum of (i) the Base Rate plus
(ii) the highest Applicable Margin thereon plus (iii) two percent (2.0%).

         1.19. "EBITDA" shall mean for any period, the sum of Borrower's (a) net
income (or deficit), plus (b) Interest Expense, plus (c) depreciation,
amortization and income tax expense, plus (d) extraordinary non-cash losses,
plus (e) accruals for stock options to the extent the same is a charge against
Borrower's net income, minus (f) extraordinary gains, all as determined in
accordance with GAAP.

         1.20. "Eligible Accounts" shall mean Accounts created by Borrower which
are and

                                        3

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continue to be acceptable to Agent (in its sole discretion) based on the
criteria set forth below. In general, Accounts shall be Eligible Accounts if:

               (a)   Such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;

               (b)   Such Accounts are not unpaid more than the earlier of sixty
(60) days from their due date or ninety (90) days after the date of the original
invoice for them;

               (c)   Such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;

               (d)   Such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the Account Debtor may be conditional or contingent;

               (e)   The chief executive office of the Account Debtor with
respect to such Accounts is located in the United States of America, or, at
Agent's option, if either: (i) the Account Debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to Agent
sufficient to cover such Account, in form and substance satisfactory to Agent
and, if required by Agent, the original of such letter of credit has been
delivered to Agent or Agent's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Agent, or (ii) such
Account is subject to credit insurance payable to Agent issued by an insurer and
on terms and in an amount acceptable to Agent, or (iii) such Account is
otherwise acceptable in all respects to Agent in its sole and absolute
discretion (subject to such lending formula with respect thereto as Agent may
determine);

               (f)   Such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices; except as to bill and hold invoices, if
Agent has received an agreement in writing from the Account Debtor, in form and
substance satisfactory to Agent, confirming the unconditional obligation of the
Account Debtor to take the goods related thereto and pay such invoice;

               (g)   The Account Debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such Account Debtor in excess of
the amount at any time and from time to time owed by Borrower to such Account
Debtor or claimed owed by such Account Debtor may be deemed Eligible Accounts);

               (h)   There are no facts, events or occurrences which would
impair the validity, enforceability or collectibility of such Accounts or reduce
the amount payable or delay payment thereunder;

               (i)   Such Accounts are subject to the first priority, valid and
perfected security interest of Agent and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;

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               (j)   Neither the Account Debtor nor any officer or employee of
the Account Debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;

               (k)   Unless approved by Agent in writing (such approval to be in
the sole and absolute discretion of Agent), the Account Debtors with respect to
such Accounts are not any foreign government, the United States of America, any
State, political subdivision, department, agency or instrumentality thereof,
unless, if the Account Debtor is the United States of America, any State,
political subdivision, department, agency or instrumentality thereof, upon
Agent's request, the Federal Assignment of Claims Act of 1940, as amended or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Agent;

               (l)   There are no proceedings or actions which are threatened or
pending against the Account Debtors with respect to such Accounts which might
result in any material adverse change in any such Account Debtor's financial
condition;

               (m)   Such Accounts of a single Account Debtor or its affiliates
(other than governmental agencies) do not constitute more than twenty percent
(20%) of all otherwise Eligible Accounts (but the portion of the Accounts not in
excess of such percentage may be deemed Eligible Accounts);

               (n)   Such Accounts are not owed by an Account Debtor who has
Accounts unpaid more than ninety (90) days after the date of the original
invoice for them or sixty (60) days past the due date, whichever is sooner,
which constitute more than fifty (50%) percent of the total Accounts of such
Account Debtor;

               (o)   Such Accounts are owed by Account Debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
Account Debtors as may be reasonably determined by Agent from time to time (but
the portion of the Accounts not in excess of such credit limit may be deemed
Eligible Accounts); and

               (p)   Such Accounts are owed by Account Debtors deemed
creditworthy at all times by Agent, as reasonably determined by Agent.

General criteria for Eligible Accounts may be established and revised from time
to time by Agent in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.

         1.21. "Eligible Equipment" shall mean Equipment which is acceptable to
Agent based on the criteria set forth below. In general, Eligible Equipment
shall not include: (a) obsolete or worn out Equipment; (b) spare parts for
Equipment; (c) Equipment at premises other than those owned and controlled by
Borrower, unless Agent shall have received a Waiver from the owner or operator
of such premises in form and substance satisfactory to Agent; (d) Equipment
located at any affiliate of Borrower, unless Agent has received a Waiver from
such affiliate; (e) Equipment subject to a security interest or lien in favor of
any person other than Agent except those permitted in this Agreement; (f)
Equipment which is not subject to the first priority, valid and perfected
security interest of Agent; and (g) damaged and/or defective Equipment. General
criteria for Eligible Equipment may be established and revised from time to time
by Agent in good faith. Any

                                        5

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Equipment which is not Eligible Equipment shall nevertheless be part of the
Collateral.

         1.22. "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods which are acceptable to Agent based on the
criteria set forth below. In general, Eligible Inventory shall not include: (a)
work-in-process; (b) spare parts for Equipment; (c) packaging and shipping
materials; (d) supplies used or consumed in Borrower's business; (e) Inventory
at premises other than those owned and controlled by Borrower, unless Agent
shall have received a Waiver from the person in possession of such Inventory
and/or the owner or operator of such premises in form and substance satisfactory
to Agent; (f) Inventory located at any affiliate of the Borrower, unless Agent
has received a Waiver from such affiliate; (g) Inventory subject to a security
interest or lien in favor of any person other than Agent except those permitted
in this Agreement; (h) bill and hold goods; (i) stale, spoiled, obsolete or slow
moving Inventory; (j) Inventory which is not subject to the first priority,
valid and perfected security interest of Agent; (k) returned, damaged and/or
defective Inventory; (l) Inventory purchased or sold on consignment; and (m)
Inventory commingled with material or inventory of any of Borrower's customers
or any other third party. General criteria for Eligible Inventory may be
established and revised from time to time by Agent in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.

         1.23. "Environmental Laws" shall mean any federal or state statute,
ordinance, law, rule or regulation at any time enacted or adopted by any
federal, state or local government, governmental agency or other governmental or
quasi-governmental entity pertaining to environmental matters, including,
without limitation, the Federal Comprehensive Environmental Response
Compensation Liability Act ("CERCLA"), Environmental Cleanup Responsibility Act
("ECRA"), and the Federal Resource Conservation Recovery Act ("RCRA"), or to the
releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping or
otherwise disposing of Hazardous Waste (as defined in 12 U.S.C. (S)6903(5)) or
Hazardous Materials.

         1.24. "Equipment" shall have the meaning ascribed thereto in the UCC
and shall include all of Borrower's now owned and hereafter acquired equipment,
machinery, computers, computer hardware and software (whether owned or
licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.

         1.25. "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, re-codified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.

         1.26. "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.

         1.27. "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1.0%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Agent) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in

                                        6

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amounts substantially equal to the principal amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance with this Agreement, with a
maturity of comparable duration to the Interest Period selected by Borrower.

     1.28.  "Eurodollar Rate Loans" shall mean loans under the Revolving Credit,
or any portion thereof, on which interest is calculated under the terms hereof
based on the Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin.

     1.29.  "Event of Default" shall have the meaning set forth in Section 10.1
hereof.

     1.30.  "Excess Availability" shall mean the amount, as determined by Agent,
calculated at any time, equal to: (a) the lesser of (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formula, and subject to the sublimits and Availability Reserves from
time to time established by Agent hereunder or (ii) the Maximum Credit, minus
(b) the sum of (i) the amount of all then outstanding and unpaid Revolving Loans
and (ii) the aggregate amount of all trade payables of Borrower which are more
than sixty (60) days past due as of such time.

     1.31.  "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

     1.32.  "Fixed Charge Coverage Ratio" shall mean, as of the last day of each
fiscal quarter of Borrower, the ratio of (a) EBITDA to (b) Fixed Charges, all as
calculated for the four fiscal quarterly periods then ended and all determined
on a consolidated basis in accordance with GAAP.

     1.33.  "Fixed Charges" shall mean, for any applicable period of
computation, without duplication, the sum of (a) all Interest Expense for the
applicable period, plus (b) all income tax expense for the applicable period,
plus (c) scheduled principal payments on account of long-term Indebtedness made
during the applicable period, plus (d) cash dividends or other cash
distributions paid by Borrower during the applicable period, plus (e) Capital
Expenditures made during the applicable period, all as determined in accordance
with GAAP.

     1.34.  "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.

     1.35.  "Free Cash Flow" shall mean, for the prior annual period, the
greater of (a) Zero Dollars ($0) or (b) without duplication, net income, plus
depreciation, minus Capital Expenditures.

     1.36.  "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous

                                        7

<PAGE>

constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any
Environmental Law).

     1.37.  "Information Certificate" shall mean the Information Certificate of
Borrower attached hereto as Exhibit A containing material information with
respect to Borrower, its business and assets, provided by or on behalf of
Borrower to Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.

     1.38.  "Interest Expense" shall mean for any period, the aggregate amount
of interest expense required to be paid or accrued during such period for all
indebtedness of Borrower outstanding during all or any part of such period, as
determined in accordance with GAAP.

     1.39.  "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2) or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.

     1.40.  "Interest Rate" shall mean (a) as to Base Rate Loans, a rate per
annum equal to the Base Rate plus the Applicable Margin, and (b) as to
Eurodollar Rate Loans, a rate per annum equal to the Applicable Eurodollar
Margin plus the Adjusted Eurodollar Rate (based on the Eurodollar Rate
applicable for the Interest Period selected by Borrower as in effect three (3)
Business Days after the date of receipt by Agent of the request of Borrower for
such Eurodollar Rate Loans in accordance with the terms hereof, whether such
rate is higher or lower than any rate previously quoted to Borrower).

     1.41.  "Inventory" shall have the meaning ascribed thereto in the UCC and
shall include all of Borrower's now owned and hereafter existing or acquired raw
materials, work in process, finished goods and all other inventory of whatsoever
kind or nature, wherever located.

     1.42.  "Investment Property" shall have the meaning ascribed thereto in the
UCC.

     1.43.  "Letter of Credit Rights" shall have the meaning ascribed thereto in
the UCC.

     1.44.  "Loans" shall mean the Revolving Loans.

     1.45.  "Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets or prospects of Borrower or Borrower and its
subsidiaries, considered as a whole, (ii) the ability of Borrower to perform its
obligations under the Financing Agreements or (iii) the ability of Agent to
enforce any of the Obligations or to realize upon any Collateral.

     1.46.  "Maximum Credit" shall mean the amount of Twenty Five Million
Dollars ($25,000,000).

     1.47.  "MERE Adjustment Date" shall mean for the purposes of Section 2.3,
the date that Agent has adjusted the MERE Sublimit pursuant to Section 2.3(b).

                                        8

<PAGE>

     1.48.  "MERE Adjustment Period" shall mean the period commencing on a MERE
Adjustment Date and ending on the next MERE Adjustment Date, but in no event
shall a MERE Adjustment Period be less than one hundred eighty days (180).

     1.49.  "MERE Sublimit" shall mean an amount equal to the lesser of (a) the
sum of eighty percent (80%) of the net orderly liquidation value (as reasonably
determined by Agent) of Eligible Equipment plus sixty percent (60%) of the fair
market value (as reasonably determined by Agent) of the Real Property and (b)
Five Million Dollars ($5,000,000), subject to the adjustments as provided in
Section 2.3.

     1.50.  "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.

     1.51.  "Obligations" shall mean any and all Revolving Loans, and all other
obligations, liabilities and indebtedness of every kind, nature and description
owing by Borrower to Agent and/or Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Agent and/or
Lender.

     1.52.  "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.

     1.53.  "Payment Account" shall have the meaning set forth in Section 6.3
hereof.

     1.54.  "Person" or "person" shall mean any individual, sole proprietorship,
partnership, limited liability company or partnership, corporation (including
any corporation which elects subchapter S status under the Internal Revenue Code
of 1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.

     1.55.  "Real Property" shall mean that certain real property of Borrower
located at 5290 Concourse Drive, Roanoke, Virginia 24019.

     1.56.  "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any Account
Debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are

                                        9

<PAGE>

stored (including any rights of Borrower with respect to the foregoing
maintained with or by any other person).

     1.57.  "Reference Bank" shall mean Wachovia Bank, National Association or
such other bank as Agent may from time to time designate in its sole discretion.

     1.58.  "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (including
advances, repayments and readvances) as set forth in Section 2.1 hereof.

     1.59.  "Settlements" shall mean the settlements of litigation listed on
Schedule 8.6 attached hereto.

     1.60.  "Value" shall mean, as determined by Agent its sole discretion, the
lower of cost computed on a first in-first out basis in accordance with GAAP or
market value.

     1.61.  "Waiver" shall mean an agreement in writing from a Person in
possession of Collateral and/or the owner or operator of premises other than
those owned and controlled by Borrower on or in which Collateral is located, in
form and substance satisfactory to Agent acknowledging Agent's first priority
security interest in the Collateral, waiving security interests and claims by
such Person against the Collateral and permitting Agent access to, and the
rights to remain on, the premises so as to exercise Agent's rights and remedies
and otherwise deal with the Collateral including removal of the Collateral from
the premises.

SECTION 2.  CREDIT FACILITIES.
            -----------------

     2.1.   Revolving Loans.
            ----------------

            (a)   Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time through the
Maturity Date pursuant to the terms hereof in amounts requested by Borrower up
to the amount equal to the sum of:

                    (i)   eighty-five percent (85%) of the Net Amount of
Eligible Accounts, plus

                    (ii)  (A) until such time as Borrower conducts and receives
an Inventory appraisal that is acceptable to Agent (which Agent agrees to review
within thirty (30) days of receipt), the lower of (1) up to 10% of the Value of
Eligible Inventory, or (2) Seven Million Five Hundred Thousand Dollars
($7,500,000); and (B) thereafter the lowest of: (1) eighty-five percent (85%) of
the net orderly liquidation value (as reasonably determined by Agent) of
Eligible Inventory; (2) the sum of fifty percent (50%) of the Value of Eligible
Inventory consisting of raw materials plus sixty percent (60%) of the Value of
Eligible Inventory consisting of finished goods; or (3) Seven Million Five
Hundred Thousand Dollars ($7,500,000); plus

                    (iii) the MERE Sublimit; minus

                    (iv)  any Availability Reserves.

            (b)   Agent may, in its sole discretion, from time to time, upon not
less than five (5)

                                       10

<PAGE>

days prior notice to Borrower: (i) reduce the lending formula with respect to
Eligible Accounts to the extent that Agent determines in good faith that: (A)
the dilution with respect to the Accounts for any period (based on the ratio of
the (i) aggregate amount of reductions in Accounts other than as a result of
payments in cash to (ii) the aggregate amount of total sales) has increased in
any material respect or may be reasonably anticipated to increase in any
material respect above historical levels, or (B) the general creditworthiness of
Account Debtors has declined or (ii) reduce the lending formula(s) with respect
to Eligible Inventory to the extent that Agent determines that: (A) the number
of days of the turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible Inventory, or any
category thereof, has decreased, or (C) the nature and quality of the Inventory
has deteriorated. In determining whether to reduce the lending formula(s), Agent
may consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.

            (c)   Except in Agent's sole discretion the aggregate amount of
Loans outstanding at any time shall not exceed the Maximum Credit. In the event
that the aggregate amount of the outstanding Loans exceed the amounts available
under the lending formulas, such event shall not limit, waive or otherwise
affect any rights of Agent in that circumstance or on any future occasions and
Borrower shall, upon demand by Agent, which may be made at any time or from time
to time, immediately repay to Agent and/or Lender the entire amount of any such
excess(es) for which payment is demanded.

     2.2.   Availability Reserves. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Agent's continuing right
to establish and revise Availability Reserves. Without limiting any other rights
or remedies of Agent under this Agreement or any of the other Financing
Agreements with respect to the establishment of Availability Reserves or
otherwise, Agent may establish and revise Availability Reserves to reflect: (a)
Inventory shrinkage; (b) the aggregate amount of deposits, if any, received by
Borrower from its customers in respect of unfilled orders for merchandise; and
(c) amounts due or to become due in respect of sales, use and/or withholding
taxes.

     2.3.   MERE Sublimit.
            -------------

            (a)   Commencing on June 1, 2002, and continuing on the first day of
each calendar month thereafter until the first MERE Adjustment Date, the MERE
Sublimit shall be decreased by an amount equal to Eighty Three Thousand Three
Hundred Thirty Three Dollars ($83,333).

            (b)   On or after October 18, 2002, Borrower may request that Agent
reset the MERE Sublimit based upon a Collateral appraisal of Eligible Equipment
and the Real Property conducted by Agent, subject to the terms hereof. So long
as (a) Borrower's average Excess Availability for the most recently ended fiscal
quarter exceeds Two Million Dollars ($2,000,000), (b) no Event of Default has
occurred, or event which, with the passage of time or giving of notice, or both,
would constitute an Event of Default has occurred and is continuing and (c)
Borrower's Fixed Charge Coverage Ratio is greater than 1.20 to 1, on the first
day of the calendar month following such determinations (each a "MERE Adjustment
Date") Agent shall, at the request of Borrower, increase the MERE Sublimit to an
amount equal to the lesser of (i) the sum of eighty percent (80%)

                                       11

<PAGE>

of the then net orderly liquidation value of Eligible Equipment (as reasonably
determined by Agent) plus sixty percent (60%) of the then fair market value of
the Real Property (as reasonably determined by Agent) and (ii) Five Million
Dollars ($5,000,000). Agent shall reset the MERE Sublimit within a reasonable
period of time after Agent's receipt of such appraisals and receipt of such
information required by Agent, in its reasonable discretion.

     (c)    (i)  Commencing the first day of the first month after each MERE
Adjustment Date, the MERE Sublimit, as adjusted from time to time, shall be
reduced on the first day of each calendar month during the applicable MERE
Adjustment Period by an amount equal to one sixtieth (1/60) of the MERE Sublimit
as determined on the MERE Adjustment Date of such MERE Adjustment Period; and

            (ii) On an annual basis, upon Agent's receipt of the annual audited
financial statements of Borrower, the MERE Sublimit shall be further reduced by
an amount equal to twenty percent (20%) of Free Cash Flow.

     (d)    For purposes of this Section 2.3, Agent shall not be required to
rely upon an Equipment appraisal greater than thirty (30) days old or a Real
Property appraisal greater that one (1) year old and if Borrower has requested
that the MERE Sublimit be reset pursuant to this Section 2.3, Borrower shall
deliver to Agent, at Agent's reasonable request, a written statement from the
appraiser of the Real Property that it is not aware of any circumstances which
would materially and adversely affect its most recent appraisal.

SECTION 3.  INTEREST AND FEES.
            -----------------

    3.1.    Interest.
            --------

            (a) Borrower shall pay to Agent for Lender interest on the
outstanding principal amount of the Obligations at the Interest Rate, except
that Borrower shall pay to Agent for Lender interest, at Agent's option, without
notice, at the Default Rate: (i) on the Obligations for the period from and
after the date of termination or non-renewal hereof, or the date of the
occurrence of an Event of Default, and for so long as such Event of Default is
continuing as determined by Agent and until such time as Agent and Lender have
received full and final payment of all Obligations (notwithstanding any entry of
judgment against the Borrower); and (ii) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Agent's or
Lender's knowledge or consent and whether made before or after an Event of
Default). Borrower acknowledges that: (i) such additional rate is a material
inducement to Agent and Lender to extend the Revolving Loans; (ii) neither Agent
nor Lender would have extended the Revolving Loans in the absence of the
agreement of Borrower to pay such additional rate; (iii) such additional rate
represents compensation for increased risk to Lender that the Revolving Loans
will not be repaid; and (iv) such rate is not a penalty and represents a
reasonable estimate of (a) the cost to Agent and Lender in allocating their
resources (both personnel and financial) to the ongoing review, monitoring,
administration and collection of the Revolving Loans and (b) compensation to
Agent and Lender for losses that are difficult to ascertain. All interest
accruing hereunder on and after the occurrence of any of the events referred to
in Sections 3.1(a)(i) and 3.1 (a)(ii) above shall be payable in demand.

            (b)  Borrower may from time to time request that a Loan be a
Eurodollar Rate Loan,

                                       12

<PAGE>

that a Base Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional Interest Period. Such
request from Borrower shall specify the amount of a Eurodollar Rate Loan, or of
the Base Rate Loans which will be converted to Eurodollar Rate Loans (subject to
the limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Loans. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Agent of such a request from Borrower,
such Base Rate Loans shall be converted to Eurodollar Rate Loans or such
Eurodollar Rate Loans shall continue as Eurodollar Rate Loans as of the end of
such Interest Period, as the case may be, provided, that, (i) no Event of
Default exists, or event which with passage of time would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures as are established
by Agent and specified by Agent to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iv) no more than five (5) Interest Periods
may be in effect at any one time, (v) the aggregate amount of the Eurodollar
Rate Loans must be in an amount not less than One Million Dollars ($1,000,000)
or an integral multiple of Five Hundred Thousand Dollars ($500,000) in excess
thereof, (vi) the maximum amount of the Eurodollar Rate Loans at any time
requested by Borrower shall not exceed the amount equal to ninety percent (90%)
of the lowest principal amount of the Revolving Loans which it is anticipated
will be outstanding during the applicable Interest Period, in each case as
determined by Agent (but with no obligation of Lender to make such Revolving
Loans); and (vii) Agent shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the Reference Bank and
can be readily determined as of the date of the request for such Eurodollar Rate
Loan by Borrower. Any request by Borrower to convert Base Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.

     (c)    Any Eurodollar Rate Loans shall automatically convert to Base Rate
Loans upon the last day of the applicable Interest Period, unless Agent has
received and approved a request to continue such Eurodollar Rate Loan at least
three (3) Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by Agent
to Borrower, convert to Base Rate Loans in the event that (i) an Event of
Default exists or event which, with the passage of time or giving of notice, or
both, would constitute an Event of Default, shall exist, (ii) this Agreement
shall terminate or not be renewed, or (iii) the aggregate principal amount of
the Base Rate Loans which have previously been converted to Eurodollar Rate
Loans or existing Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such Interest Period
exceed (A) the aggregate principal amount of the Loans then outstanding, or (B)
the sum of the then outstanding principal amount of the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay to Agent for
Lender, upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate Agent, the Reference
Bank or any participant with Agent and/or Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Base Rate Loans pursuant to any of
the foregoing.

     (d)    Interest shall be payable by Borrower to Agent for Lender monthly in
arrears not

                                       13

<PAGE>

later than the first day of each calendar month and shall be calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on Obligations shall increase or decrease by an amount equal to
each increase or decrease in the Base Rate effective on the first day of the
month after any change in such Base Rate is announced based on the Base Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any such part or provision of this Agreement is in contravention of any such
law or regulation, such part or provision shall be deemed amended to conform
thereto.

     3.2.   Closing Fee Borrower shall pay to Agent for Lender as a non-
refundable closing fee the amount of One Hundred Fifty Six Thousand Two Hundred
Fifty Dollars ($156,250), which shall be fully earned on and payable on and as
of the date hereof.

     3.3.   Servicing Fee. Borrower shall pay to Agent, for Agent's own account,
monthly a servicing fee in an amount equal to One Thousand Dollars ($1,000) in
respect of Agent's services for each month (or part thereof) while this
Agreement remains in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be fully earned as of and payable in advance on
the date hereof and on the first day of each month hereafter.

     3.4.   Unused Line Fee. Borrower shall pay to Agent for Lender monthly an
unused line fee at a rate equal to one-quarter of one percent (0.25%) per annum
calculated upon the amount by which $13,000,000 exceeds the average daily
principal balance of the outstanding Revolving Loans during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.

     3.5.   Changes in Laws and Increased Costs of Loans.
            --------------------------------------------

            (a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Agent to Borrower, convert to Base
Rate Loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Reference Bank or any participant to make or maintain Eurodollar
Rate Loans or to comply with the terms hereof in connection with the Eurodollar
Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any Eurodollar Rate
Loans by an amount deemed by Lender to be material, or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount deemed by
Lender to be material or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender to be material. Borrower shall pay to
Agent for Lender, upon demand by Agent (or Agent may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Lender setting forth the basis for the
determination of such amount necessary to compensate Lender as aforesaid shall
be delivered to Borrower and shall be conclusive, absent manifest error.

                                       14

<PAGE>

            (b)  If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Agent for Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Agent for Lender upon demand by Agent (or Agent may, at
its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
additional loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof.

     3.6.   Adjustments to Interest Rate. At the request of Borrower at any time
after October 18, 2002, and so long as (a) Borrower's average Excess
Availability for the most recently ended fiscal quarter exceeds Two Million
Dollars ($2,000,000), (b) no Event of Default has occurred and is continuing or
event which, with the passage of time or giving of notice, or both, constitutes
an Event of Default has occurred and is continuing, and (c) Borrower's Fixed
Charge Coverage Ratio is greater than 1.20 to 1, effective on the first day of
calendar month following the determination the Applicable Margin shall equal one
half of one percent (0.50%) and the Applicable Eurodollar Margin shall equal
three percent (3.0%) (except with respect to any Eurodollar Rate Loans then
outstanding).

SECTION 4.  CONDITIONS PRECEDENT.
            --------------------

     4.1.   Conditions Precedent to Initial Loans. Each of the following is a
condition precedent to Agent and Lender entering into this Agreement:

            (a)  Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has valid perfected and first priority, and
only security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of any
Obligor in respect thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;

            (b)  All requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Agent, and Agent shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Agent may have requested in connection therewith, such
documents where requested by Agent or its counsel to be certified by appropriate
corporate officers or governmental authorities;

            (c)  No material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Agent's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Agent to
enforce the Obligations or realize upon the Collateral;

            (d)  Agent shall have completed a field review of the Records and
such other

                                       15

<PAGE>

information with respect to the Collateral as Agent may require to determine
the amount of Revolving Loans available to Borrower, the results of which shall
be satisfactory to Agent, not more than three (3) business days prior to the
date hereof;

            (e)  Agent shall have received, in form and substance satisfactory
to Agent, all consents, waivers, acknowledgments and other agreements from third
persons which Agent may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including acknowledgments by lessors, mortgagees and warehousemen of
Agent's security interests in the Collateral, waivers by such persons of any
security interests, liens or other claims by such persons to the Collateral and
agreements permitting Agent access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral;

            (f)  Agent shall have received evidence of insurance and lender loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Agent, and certificates of insurance
policies and/or endorsements naming Agent as lender loss payee;

            (g)  Agent shall have received, in form and substance satisfactory
to Agent, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Agent may request;

            (h)  The Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Agent,
in form and substance satisfactory to Agent;

            (i)  Agent shall have received management letter from the
independent outside public accounting firm of Borrower for the fiscal year
ending October 31, 2001;

            (j)  The Excess Availability, as determined by Agent on and as of
the date hereof, shall be not less than One Million Five Hundred Thousand
Dollars ($1,500,000) after giving effect to any Revolving Loans and Availability
Reserves made on the date hereof.

      4.2.  Conditions Precedent to All Loans. Each of the following is an
additional condition precedent to Agent and Lender entering into this
Agreement and Lender making Loans to Borrower, including the initial Loans and
any future Loans:

            (a)  All representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan and after giving effect
thereto, except to the extent that any representation or warranty was made with
reference to a specific date, in which case such representation and warranty
shall have been true and correct in all material respects as of such date; and

            (b)  No Event of Default shall exist and no event or condition
which, with passage of time or giving of notice, or both, would constitute an
Event of Default, shall exist or have occurred and be continuing on and as of
the date of the making of such Loan and after giving effect thereto.

                                       16

<PAGE>

      4.3.  Lien on Real Property. The Deed of Trust securing prompt payment and
performance of all of the Obligations shall be executed by Borrower in favor of
Agent and shall be duly recorded, at Borrower's expense, in each office where
such recording is required to constitute a fully perfected lien on the Real
Property covered thereby. Borrower shall deliver to Agent, at Borrower's
expense, mortgagee title insurance policies issued by a title insurance company
satisfactory to Agent, which policies shall be in form and substance
satisfactory to Agent and shall insure a valid first lien in favor of Agent on
the Real Property covered thereby, subject only to those exceptions acceptable
to Agent and its counsel. Borrower shall also deliver to Agent such other
documents and assurances, including, without limitation, existing survey prints
and flood plain certificates of the Real Property, as Agent and its counsel may
request relating to the Real Property subject to the Deed of Trust.

SECTION 5.  GRANT OF SECURITY INTEREST.

      To secure payment and performance of all Obligations, Borrower hereby
grants to Agent, for the benefit of Lender, a continuing security interest in, a
lien upon, and a right of set off against, and hereby assigns to Agent, for the
benefit of Lender, as security, the following property and interests in property
of Borrower, whether now owned or hereafter acquired or existing, and wherever
located (collectively, the "Collateral"):

      5.1.  Accounts;

      5.2.  All present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action, payment
intangibles and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, electronic chattel paper,
commercial tort claims, documents, instruments, securities and other investment
property, letters of credit, bankers' acceptances and guaranties;

      5.3.  All present and future monies, securities, credit balances,
deposits, deposit accounts, certificates of deposit and other property of
Borrower now or hereafter held or received by or in transit to Agent or Lender
or its affiliates or at any other depository or other institution from or for
the account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed goods, and (d) deposits by and property of Account Debtors or other
persons securing the obligations of Account Debtors;

      5.4.  Equipment;

      5.5.  Inventory;

                                       17

<PAGE>

     5.6.  Investment Property;

     5.7.  Records;

     5.8.  Commercial Tort Claims;

     5.9.  Letter of Credit Rights; and

     5.10. All products and cash and non-cash proceeds of the foregoing, in any
form, including, without limitation, insurance policies and proceeds (including,
without limitation, business interruption insurance) and all claims against
third parties for loss or damage to or destruction of any or all of the
foregoing.

SECTION 6. COLLECTION AND ADMINISTRATION.
           -----------------------------

     6.1.  Borrower's Loan Account. Agent shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Agent's customary practices
as in effect from time to time.

     6.2.  Statements. Agent shall render to Borrower each month a statement
setting forth the balance in Borrower's loan account(s) maintained by Agent for
Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Agent but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Agent receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Agent.
Until such time as Agent shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Agent and/or Lender by Borrower.

     6.3. Collection of Accounts.
          -----------------------

     (a)  Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Agent may specify, with such banks as are acceptable to Agent
into which Borrower shall promptly deposit and direct its Account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Agent, providing that all items received or deposited in the
Blocked Accounts are the property of Agent, that the depository bank has no lien
upon, or right to setoff against, the Blocked Accounts, the items received for
deposit therein, or the funds from time to time on deposit therein and that the
depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Agent as Agent may from time to time designate
for such purpose ("Payment Account"). Borrower agrees that all payments made to
such Blocked Accounts or other funds received and collected by Agent, whether on
the Accounts or as proceeds

                                       18

<PAGE>

of Inventory or other Collateral or otherwise shall be the property of Agent for
so long as any of the Obligations remain outstanding and shall be held or
applied in accordance with the terms of this Agreement.

          (b)  For purposes of calculating the amount of the Loans available to
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Agent of immediately available
funds in the Payment Account provided such payments and notice thereof are
received in accordance with Agent's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's loan account
on such day, and if not, then on the next Business Day. For the purposes of
calculating interest on the Obligations, such payments or other funds received
will be applied (conditional upon final collection) to the Obligations one (1)
Business Day following the date of receipt of immediately available funds by
Agent in the Payment Account provided such payments or other funds and notice
thereof are received in accordance with Agent's usual and customary practices as
in effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day.

          (c)  Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Agent, receive, as
the property of Agent, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Agent. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Agent and Lender on demand for any amounts owed or paid to any bank at
which a Blocked Account is established or any other bank or person involved in
the transfer of funds to or from the Blocked Accounts arising out of Agent's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Agent and Lender for such amounts pursuant to the prior
sentence of this Section 6.3 shall survive the termination or non-renewal of
this Agreement.

          (d)  At Agent's request, Borrower shall cause that portion of the
proceeds of Collateral representing sales and/or use taxes payable in connection
with sales or otherwise, to be deposited into a separate bank account or
accounts established for such purpose. In no event shall the same be commingled
with Borrower's own funds. Borrower shall provide Agent on a monthly basis with
evidence of collection and remittance of sales and/or use taxes.

     6.4. Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Agent may designate from time to
time. Agent may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations
under this Agreement, whether or not then due, in such order and manner as Agent
determines. At Agent's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrower. Borrower
shall make all payments to Agent on the Obligations free and clear of, and
without deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Obligations, Agent
is required to surrender or return such payment or proceeds to any Person

                                       19

<PAGE>

for any reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Agent. Borrower shall be liable to pay to Agent and Lender, and does hereby
indemnify and hold Agent and Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Agent and/or Lender in
reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.

     6.5. Authorization to Make Loans. Agent and Lender are authorized to make
the Loans based upon telephonic or other instructions received from anyone
purporting to be any of the authorized officers or representatives of Borrower
identified on Schedule 6.5 hereto (as said Schedule 6.5 may be amended or
revised from time to time) or, at the discretion of Agent, if such Loans are
necessary to satisfy any Obligations. All requests for Loans hereunder shall
specify the date on which the requested advance is to be made (which day shall
be a Business Day) and the amount of the requested Loan. Requests received after
11:00 a.m. (Eastern Time) on any day shall be deemed to have been made as of the
opening of business on the immediately following Business Day. All Loans under
this Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.

     6.6. Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Agent on or about the date hereof and (b) costs, expenses and fees in connection
with the preparation, negotiation, execution and delivery of this Agreement and
the other Financing Agreements. All other Loans made by Lender to Borrower
pursuant to the provisions hereof shall be used by Borrower only for general
operating, working capital and other proper corporate purposes of Borrower not
otherwise prohibited by the terms hereof. Borrower may not use the proceeds of
the Loans for Settlements without the prior written consent of Agent and Lender,
in their exclusive and sole discretion. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security or for the purposes of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Loans to be considered a "purpose credit"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended.

SECTION 7. COLLATERAL REPORTING AND COVENANTS.
           ----------------------------------

     7.1  Collateral Reporting. Borrower shall provide Agent with the following
documents in a form satisfactory to Agent: (a) on a regular basis as required by
Agent, a schedule of Accounts, sales made, credits issued and cash received; (b)
on a bi-weekly basis or more frequently as Agent may request, (i) perpetual
inventory reports, (ii) inventory reports by category and (iii) agings of
accounts payable; (c) upon Agent's request, (i) copies of customer statements
and credit memos, remittance advices and reports, copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower; (d) on a monthly basis or more frequently as
Agent may request, an aging of accounts receivable, reports on sales and use tax
collections, deposits

                                       20

<PAGE>

and payments, including monthly sales and use tax accruals; and (e) such other
reports as to the Collateral as Agent shall request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent at any time
that an Event of Default exists or has occurred and is continuing to deliver
such records, reports, and related documents to Agent and to follow Agent's
instructions with respect to further services.

     7.2. Accounts Covenants.
          ------------------

          (a) Borrower shall notify Agent promptly of: (i) any material delay in
Borrower's performance of any of its obligations to any Account Debtor or the
assertion of any claims, offsets, defenses or counterclaims by any Account
Debtor, or any disputes with Account Debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any Account Debtor and (iii) any event or circumstance
which, to Borrower's knowledge would cause Agent to consider any then existing
Accounts as no longer constituting Eligible Accounts. No credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any Account Debtor without Agent's consent, except in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed in writing to Agent. So long as no Event of Default exists or has
occurred and is continuing, Borrower shall settle, adjust or compromise any
claim, offset, counterclaim or dispute with any Account Debtor. At any time that
an Event of Default exists or has occurred and is continuing, Agent shall, at
its option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with Account Debtors or grant any credits,
discounts or allowances.

          (b) Without limiting the obligation of Borrower to deliver any other
information to Agent, Borrower shall promptly report to Agent any return of
Inventory by any one Account Debtor if the inventory so returned in such case
has a sales price in excess of Fifty Thousand Dollars ($50,000). At any time
that Inventory is returned, reclaimed or repossessed, the related Account shall
not be deemed an Eligible Account. In the event any Account Debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Agent's request, (i) hold the returned Inventory in trust
for Agent, (ii) segregate all returned Inventory from all of its other property,
(iii) dispose of the returned Inventory solely according to Agent's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Agent's prior written consent.

          (c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Agent or Lender or schedule thereof delivered to Agent or Lender
shall be true and complete, (ii) no payments shall be made thereon except
payments immediately delivered to Agent or Lender pursuant to the terms of this
Agreement, (iii) no credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any Account Debtor except as reported
to Agent in accordance with this Agreement and except for credits, discounts,
allowances or extensions made or given in the ordinary course of Borrower's
business in accordance with practices and policies previously disclosed to
Agent, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Agent in accordance with the terms of this Agreement, (v) none of
the transactions giving rise thereto will violate any applicable State or
Federal laws or regulations, all documentation relating thereto will be legally
sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms.

                                       21

<PAGE>

          (d) Agent shall have the right at any time or times, in Agent's name
or in the name of a nominee of Agent, to verify the validity, amount, offsets,
chargebacks and claims and any other matter relating to any Account or other
Collateral, by mail, telephone, facsimile transmission or otherwise.

          (e) Borrower shall deliver or cause to be delivered to Agent, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Agent may otherwise
agree.

          (f) Agent may, at any time or times that an Event of Default exists or
has occurred and is continuing, (i) notify any or all Account Debtors that the
Accounts have been assigned to Agent and that Agent has a security interest
therein and Agent may direct any or all accounts debtors to make payment of
Accounts directly to Agent, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the Account Debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Agent shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Agent may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Agent's request, all invoices and statements sent to any
Account Debtor shall state that the Accounts and such other obligations have
been assigned to Agent and are payable directly and only to Agent and Borrower
shall deliver to Agent such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Agent may require.

     7.3. Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Agent,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals and drawdowns therefrom and additions thereto; (b) Borrower shall
conduct a physical count of the Inventory at least once each year, but at any
time or times as Agent may request on or after an Event of Default, and promptly
following such physical inventory shall supply Agent with a report in the form
and with such specificity as may be reasonably satisfactory to Agent concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein (other than Inventory received for
testing or delivered as samples with a Value not to exceed $100,000 in the
aggregate per annum), without the prior written consent of Agent, except for
sales of Inventory in the ordinary course of Borrower's business and except to
move Inventory directly from one location set forth or permitted herein to
another such location; (d) subject to limitation on expenses set forth in
Section 9.15 hereof, Borrower shall, at its expense, at least once every six (6)
months, but at any time or times as Agent may request on or after an Event of
Default, deliver or cause to be delivered to Agent written reports or appraisals
as to the Inventory in form, scope and methodology acceptable to Agent and by an
appraiser acceptable to Agent, addressed to Agent or upon which Agent is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all

                                       22

<PAGE>

rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; (i) Borrower
shall not, without prior written notice to Agent, acquire or accept any
inventory on consignment or approval except pursuant to processing or tolling
agreements; and (j) Borrower shall not commingle Inventory with goods or
materials of customers or other third parties.

     7.4. Equipment and Real Property Covenants. With respect to the Equipment:
(a) subject to limitation on expenses set forth in Section 9.15 hereof, upon
Agent's request, Borrower shall, at its expense, at any time or times as Agent
may request, deliver or cause to be delivered to Agent written reports or
appraisals as to the Equipment and the Real Property in form, scope and
methodology acceptable to Agent and by an appraiser acceptable to Agent; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not remove any Equipment
from the locations set forth or permitted herein, except to the extent necessary
to have any Equipment repaired or maintained in the ordinary course of the
business of Borrower or to move Equipment directly from one location set forth
or permitted herein to another such location and except for the movement of
motor vehicles used by or for the benefit of Borrower in the ordinary course of
business; (f) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrower assumes all responsibility and
liability arising from the use of the Equipment.

     7.5. Power of Attorney. Borrower hereby irrevocably designates and appoints
Agent (and all persons designated by Agent) as Borrower's true and lawful
attorney-in-fact, and authorizes Agent, in Borrower's or Agent's name, to: (a)
at any time an Event of Default exists or has occurred or event which, with
passage of time or giving of notice, or both, would constitute an Event of
Default exists or has occurred and is continuing (i) demand payment on Accounts
or other proceeds of Inventory or other Collateral, (ii) enforce payment of
Accounts by legal proceedings or otherwise, (iii) exercise all of Borrower's
rights and remedies to collect any Account or other Collateral, (iv) sell or
assign any Account upon such terms, for such amount and at such time or times as
Agent deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other similar document
against an Account Debtor, (viii) notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Agent,
and open and dispose of all mail addressed to Borrower, and (ix) do all acts and
things which are necessary, in Agent's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in Agent's account for application to the
Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to Account Debtors and (vi)
execute in

                                       23

<PAGE>

Borrower's name (if applicable law requires such signature) and otherwise file
any UCC financing statements or amendments thereto. Borrower hereby releases
Agent and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Agent's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction.

     7.6. Right to Cure. Agent may, at its option, (a) after the occurrence and
continuance of an Event of Default, cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower or liens permitted pursuant to Section 9.8, (b) at any other
time, except for liens permitted pursuant to Section 9.8, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and (c) pay any amount, incur any
expense or perform any act which, in Agent's judgment, is necessary or
appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Agent and Lender with respect thereto. Agent may add any amounts so
expended to the Obligations and charge Borrower's account therefor, such amounts
to be repayable by Borrower on demand. Agent shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so, be deemed to
have assumed any obligation or liability of Borrower. Any payment made or other
action taken by Agent under this Section shall be without prejudice to any right
to assert an Event of Default hereunder and to proceed accordingly.

     7.7. Access to Premises. From time to time as requested by Agent, at the
cost and expense of Borrower, (a) Agent or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Agent such copies of such books and records or extracts therefrom as Agent may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.

SECTION 8.  REPRESENTATIONS AND WARRANTIES.
            ------------------------------

     Borrower hereby represents and warrants to Agent and Lender the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which are a continuing condition of the making of Loans by Agent
to Borrower:

     8.1. Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Agent in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or

                                       24

<PAGE>

any indenture, agreement or undertaking to which such Borrower is a party or by
which Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrower
enforceable in accordance with their respective terms. Borrower does not have
any non-Borrower subsidiaries other than Optical Cable Foreign Sales
Corporation, a corporation organized under the laws of the U.S. Virgin Islands.

     8.2. Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Agent have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Agent prior to the date of this
Agreement, there has been no material adverse change as of the date of this
Agreement in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Agent prior to the date of this Agreement.

     8.3. Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below on the signature page hereof and its only other
places of business, subject to the right of Borrower to establish new locations
in accordance with Section 9.2 below. The Information Certificate correctly
identifies any of such locations which are not owned by Borrower and sets forth
the owners and/or operators thereof and the holders of any mortgages on such
locations.

     8.4. Priority of Liens; Title to Properties. The security interests and
liens granted to Agent under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens shown on Schedule 8.4 attached
hereto and made part hereof and the other liens permitted under Section 9.8
hereof. Borrower has good and marketable title to all of its properties and
assets subject to no liens, mortgages, pledges, security interests, encumbrances
or charges of any kind, except those granted to Agent and such others as are
specifically listed on Schedule 8.4 or permitted under Section 9.8 hereof.

     8.5. Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Agent) except where the failure to file the same could not be reasonably
expected to have a Material Adverse Effect. All information in such tax returns,
reports and declarations is complete and accurate in all material respects.
Borrower has paid or caused to be paid all taxes due and payable or claimed due
and payable in any assessment received by it, except taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books except where the failure to pay the same could not be
reasonably expected to have a Material Adverse Effect. Adequate provision has
been made for the payment of all accrued and unpaid federal, state, county,
local, foreign and other taxes whether or not yet due and payable and whether or
not disputed.

     8.6. Litigation. Except as set forth on the Information Certificate or
Schedule 8.6 hereto, there is no present investigation by any governmental
agency pending, or to the best of Borrower's knowledge threatened, against or
affecting Borrower, its assets or business and there is no action, suit,
proceeding or claim by any Person pending, or to the best of Borrower's
knowledge

                                       25

<PAGE>

threatened, against Borrower or its assets or goodwill, or against or affecting
any transactions contemplated by this Agreement, which if adversely determined
against Borrower would result in a Material Adverse Effect.

     8.7.  Compliance with Other Agreements and Applicable Laws. Borrower is not
in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, federal, state or local governmental authority.

     8.8.  Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are shown on Schedule 8.8 attached hereto and made
part hereof, subject to the right of Borrower to establish new accounts in
accordance with Section 9.13 below.

     8.9.  Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrower in writing to Agent in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a Material Adverse Effect which has not been fully and accurately
disclosed to Agent in writing.

     8.10. Environmental Compliance.
           ------------------------

           (a) Except as shown on Schedule 8.10 attached hereto and made a part
hereof or in the Phase One environmental site assessment report prepared for
Agent in connection with the Loans (the "Phase One Report"), Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operation of Borrower complies in all respects
with all Environmental Laws and all licenses, permits, certificates, approvals
and similar authorizations thereunder.

           (b) Except as shown on Schedule 8.10 attached hereto and made a part
hereof or the Phase One Report, there has been no investigation, proceeding,
complaint, order, directive, claim, citation or notice by any governmental
authority or any other person nor is any pending or to the best of Borrower's
knowledge threatened, with respect to any non-compliance with or violation of
the requirements of any Environmental Law by Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter, which affects Borrower or its business, operations or assets or any
properties at which Borrower has transported, stored or disposed of any
Hazardous Materials.

           (c) Except as shown on Schedule 8.10 attached hereto and made a part
hereof or the Phase One Report, Borrower has no liability, contingent or
otherwise for violation of

                                       26

<PAGE>

Environmental Laws, in connection with a release, spill or discharge, threatened
or actual, of any Hazardous Materials or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials.

           (d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.

           (e) Borrower has no actual knowledge of:

                  (i)   the presence of any Hazardous Materials on any of the
Real Property or on which the Collateral is located in violation of
Environmental Laws, or

                  (ii)  any on-site spills, releases, discharges, disposal or
storage of Hazardous Materials that have occurred or are presently occurring on
any of such real property, or

                  (iii) any spills, releases, discharges or disposal of
Hazardous Materials in violation of Environmental Laws that have occurred or are
presently occurring on such real properties as a result of the activities of
Borrower, or

                  (iv)  except as shown on Schedule 8.10 attached hereto and
made a part hereof, any notice, summons, citation or other communication sent to
Borrower from any state or federal agency concerning any intentional or
unintentional action or conduct, inaction or omission, past or present which is
or may be in violation of Environmental Laws.

     8.11. Solvency. Borrower is able to pay its debts as they become due, has
sufficient capital to carry on its business operations, and presently owns
property having a fair salable value which is greater than the amount required
to pay all of Borrower's debts as they become due, after giving effect to the
application of the initial Loan proceeds as provided in Section 6.6 hereof.

     8.12. Employee Benefits.
           -----------------

           (a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.12(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.12(d) hereof.

           (b) No liability to the Pension Benefit Guaranty Corporation (other
than routine premium payments due from time to time in accordance with 4007(a)
of ERISA) has been or is expected by Borrower to be incurred with respect to any
employee benefit plan of Borrower or any of its ERISA Affiliates. There has been
no reportable event (within the meaning of Section 4043(c) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.

           (c) Full payment has been made of all amounts which Borrower or any
of their ERISA Affiliates is required under Section 302 of ERISA and Section 412
of the Code to have paid

                                       27

<PAGE>

under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists with respect
to any employee benefit plan, including any penalty or tax described in Section
8.12(a) hereof and any deficiency with respect to vested accrued benefits
described in Section 8.12(d) hereof.

           (d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrower that are subject to Title IV of
ERISA does not exceed the current value of the assets of such plans allocable to
such vested accrued benefits, including any penalty or tax described in Section
8.12(a) hereof and any accumulated funding deficiency described in Section
8.12(c) hereof. The terms "current value" and "accrued benefit" have the
meanings specified in ERISA.

           (e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.

     8.13. Commercial Tort Claims. Borrower has no Commercial Tort Claims in
which Borrower is the claimant except as shown on Schedule 8.13 attached hereto
and made a part hereof or as disclosed in writing to Agent from time to time.

     8.14. Letter of Credit Rights. Borrower has no Letter of Credit Rights
except as shown on Schedule 8.14 attached hereto and made a part hereof or as
disclosed in writing to Agent from time to time.

     8.15. Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Agent and Lender on the date of each additional
borrowing or other credit accommodation hereunder, except to the extent that any
representation or warranty was made with reference to a specific date, in which
case such representation and warranty shall have been true and correct in all
material respects as of such date, and shall be conclusively presumed to have
been relied on by Agent and Lender regardless of any investigation made or
information possessed by Agent and/or Lender. The representations and warranties
set forth herein shall be cumulative and in addition to any other
representations or warranties which Borrower shall now or hereafter give, or
cause to be given, to Agent and Lender.

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.
           ----------------------------------

     9.1.  Maintenance of Existence. Borrower shall at all times preserve, renew
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Agent thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Agent a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.

                                       28

<PAGE>

     9.2. New Collateral Locations. Borrower shall not directly or indirectly
open any new location or place, or store or warehouse Inventory, in any new
location, or enter into any lease for any new location, within the continental
United States or otherwise unless Borrower shall give Agent thirty (30) days
prior written notice of any such new location and first executes and delivers,
or causes to be executed and delivered, to Agent such agreements, documents, and
instruments, as Agent may deem reasonably necessary or desirable to protect its
interests in the Collateral at such location, including UCC financing
statements.

     9.3. Compliance with Laws, Regulations, etc.
          ---------------------------------------

          (a) Borrower shall, at all times, comply in all respects with all
laws, rules, regulations, licenses, permits, approvals and orders applicable to
it and duly observe all requirements of any federal, state or local governmental
authority, including ERISA, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all Environmental Laws.

          (b) Borrower shall monitor its continued compliance with all
Environmental Laws in all of its operations. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by
Borrower to Agent. Borrower shall take prompt and appropriate action to respond
to any non-compliance with any of the Environmental Laws and shall regularly
report to Agent on such response.

          (c) Borrower shall give written notice to Agent promptly upon
Borrower's receipt of any notice of, or Borrower's otherwise obtaining knowledge
of, (i) the occurrence of any event involving the release, spill or discharge,
threatened or actual, of any Hazardous Material relating to Borrower, the
Collateral or Borrower's premises in violation of any Environmental Laws or (ii)
any investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to any non-compliance with or violation of any Environmental
Law by Borrower, or any other environmental, health or safety matter, which
affects Borrower or its business and operations.

          (d) Without limiting the generality of the foregoing, whenever Agent
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any
non-compliance, with any Environmental Law, Borrower shall, at Agent's request
and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Agent to conduct such tests of the site where Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Agent a report as
to such non-compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Agent a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any respect.

          (e) Borrower shall indemnify and hold harmless Agent and Lender, their
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,

                                       29

<PAGE>

reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.

     9.4. Payment of Taxes and Claims. Borrower shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Agent and/or Lender as a result of the financing arrangements provided for
herein and Borrower agrees to indemnify and hold Agent and Lender harmless with
respect to the foregoing, and to repay to Agent and Lender on demand the amount
thereof, and until paid by Borrower such amount shall be added and deemed part
of the Loans, provided, that, nothing contained herein shall be construed to
require Borrower to pay any income or franchise taxes attributable to the income
of Agent and Lender from any amounts charged or paid hereunder to Agent and
Lender. The foregoing indemnity shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.

     9.5. Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Agent as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Agent as Agent
shall require as proof of such insurance, and, if Borrower fails to do so, Agent
is authorized, but not required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least thirty (30) days prior written
notice to Agent of any cancellation or reduction of coverage and that Agent may
act as attorney for Borrower in obtaining, and at any time an Event of Default
exists or has occurred and is continuing, adjusting, settling, amending and
canceling such insurance. Borrower shall cause Agent and Lender to be named as a
lender loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Agent. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent as its interests may appear and further specify that Agent shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Agent may apply any insurance proceeds received by Agent at any time
to the cost of repairs or replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and in such manner as Agent
may determine or hold such proceeds as cash collateral for the Obligations.

     9.6. Financial Statements and Other Information.
          ------------------------------------------

          (a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Agent: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, (including balance sheets,
statements

                                       30

<PAGE>

of income and loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as of the end of
and through such fiscal month subject to such revisions as may be reflected on
the quarterly unaudited consolidated financial statements filed by Borrower with
the Securities and Exchange Commission; and (ii) within ninety (90) days after
the end of each fiscal year, audited consolidated financial statements
(including balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as of the end of
and for such fiscal year, together with the unqualified opinion of independent
certified public accountants, which accountants shall be an independent
accounting firm selected by Borrower and reasonably acceptable to Agent, that
such financial statements have been prepared in accordance with GAAP, and
present fairly the results of operations and financial condition of Borrower and
its subsidiaries as of the end of and for the fiscal year then ended.

          (b) Borrower shall promptly notify Agent in writing of the details of
(i) any loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations or
which would result in any Material Adverse Effect and (ii) the occurrence of any
Event of Default or event which, with the passage of time or giving of notice,
or both, would constitute an Event of Default.

          (c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Agent copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.

          (d) Borrower shall furnish or cause to be furnished to Agent such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Agent may, from time to time, reasonably
requests. Agent is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrower to any
court or other government agency if required by law or order or to any
participant or assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and directs all accountants or auditors to deliver to
Agent, at Borrower's expense, copies of the financial statements of Borrower and
any reports or management letters prepared by such accountants or auditors on
behalf of Borrower and to disclose to Agent such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Agent may be destroyed or otherwise disposed of by Agent one
(1) year after the same are delivered to Agent, except as otherwise designated
by Borrower to Agent in writing.

          (e) Along with the set of financial statements delivered to Agent
pursuant to Section 9.6(a)(ii) hereof, Borrower shall deliver to Agent a
certificate from its chief financial officer or treasurer setting forth that the
signer has reviewed the relevant terms of this Agreement, and has made (or
caused to be made under his supervision) a review of the transactions and
condition of Borrower from the beginning of the fiscal year covered by the
statement being delivered therewith to the date of the certificate, and that
such review has not disclosed the existence during such period of any condition
or event which constitutes an Event of Default or if any such condition or event
existed or exists, specifying the nature and period of existence thereof and
what action Borrower has

                                       31

<PAGE>

taken or proposes to take with respect thereto.

          (f) Agent acknowledges its execution of that certain Non-Disclosure
and Confidentiality Agreement dated December 5, 2001 and Lender acknowledges
that Agent has delivered a copy of same to Lender, which agrees to be bound as
if it were a signatory thereto.

     9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any indebtedness to any other Person or any of its assets to any other Person
(except for (i) sales of Inventory in the ordinary course of business, (ii)
dispositions expressly permitted by Agent's written consent, and (iii) the
disposition of worn-out or obsolete Equipment or Equipment no longer used in the
business of Borrower so long as (A) if an Event of Default exists or has
occurred and is continuing, any proceeds are paid to Agent and (B) such sales do
not involve Equipment having an aggregate fair market value in excess of Fifty
Thousand Dollars ($50,000) for all such Equipment disposed of in any fiscal year
of Borrower), or (c) form or acquire any subsidiaries, or (d) wind up, liquidate
or dissolve or (e) agree to do any of the foregoing. Notwithstanding the
foregoing restrictions, Borrower may issue capital stock in the aggregate par or
stated value not to exceed twenty percent (20%) of the market capitalization of
Borrower as of the close of business on the closing date of this Agreement.

     9.8. Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) the liens and security interests of Agent; (b) liens
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower's
business to the extent: (i) such liens secure indebtedness which is not overdue
or (ii) such liens secure indebtedness relating to claims or liabilities which
are fully insured and being defended at the sole cost and expense and at the
sole risk of the insurer or being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower, in each case prior to
the commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with the
use of such real property or ordinary conduct of the business of Borrower as
presently conducted thereon or materially impair the value of the real property
which may be subject thereto; (e) purchase money liens and security interests as
permitted in Section 9.9(c) below; and (f) the security interests and liens set
forth on Schedule 8.4 hereto.

     9.9. Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:

          (a) The Obligations;

          (b) Trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with

                                       32

<PAGE>

respect to which adequate reserves have been set aside on its books;

           (c) Purchase money indebtedness (including capital leases) hereafter
incurred by Borrower to finance fixed assets provided that (A) such indebtedness
when incurred shall not exceed the purchase price of the asset(s) financed or
the lesser of the purchase price or the value of the asset(s) if subsequently
financed; and (B) no such indebtedness shall be refinanced for a principal
amount in excess of the principal balance outstanding thereon at the time of
such refinancing;

           (d) Obligations or indebtedness set forth in Schedule 9.9 hereto;
provided, that: (i) Borrower may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date of the execution thereof, (ii) Borrower
shall not, directly or indirectly, (A) make any prepayments or other
non-mandatory payments in respect of such indebtedness, or (B) amend, modify,
alter or change the terms of such indebtedness or any agreement, document or
instrument related thereto, or (C) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) Borrower shall furnish to Agent all
notices, demands or other materials in connection with such indebtedness either
received by Borrower or on their behalf, promptly after the receipt thereof, or
sent by Borrower or on their behalf, concurrently with the sending thereof, as
the case may be; and

           (e) Unsecured indebtedness at any time not exceeding Two Hundred
Thousand Dollars ($200,000) in the aggregate.

     9.10. Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any Person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: short-term direct obligations of the United States
Government, negotiable certificates of deposit issued by any bank satisfactory
to Agent, payable to the order of Borrower or to bearer and delivered to Agent,
and commercial paper rated A1 or P1; provided, that, as to any of the foregoing,
unless waived in writing by Agent, Borrower shall take such actions as are
deemed necessary by Agent to perfect the security interest of Agent in such
investments; and (c) the loans, advances and guarantees set forth on Schedule
9.10 hereto; provided, that, as to such loans, advances and guarantees set forth
on Schedule 9.10, Borrower shall not, directly or indirectly, amend, modify,
alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or as to such guarantees,
redeem, retire, defease, purchase or otherwise acquire the obligations arising
pursuant to such guarantees, or set aside or otherwise deposit or invest any
sums for such purpose, and Borrower shall furnish to Agent all notices or
demands in connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.

     9.11. Dividends and Redemptions. Except as set forth on Schedule 9.11
hereto, Borrower shall not, directly or indirectly, declare or pay any cash
dividends on account of any shares

                                       33

<PAGE>

of class of capital stock of Borrower now or hereafter outstanding, or set aside
or otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, but nothing herein contained shall
prevent Borrower from declaring and completing stock splits or reverse stock
splits.

     9.12. Transactions with Affiliates. Borrower shall not, directly or
indirectly, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, any officer, director, agent or other person affiliated
with Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to Borrower than Borrower would obtain in a comparable arm's length
transaction with an unaffiliated person or make any payments of management,
consulting or other fees for management or similar services, or of any
indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Borrower except reasonable compensation to officers,
employees and directors for services rendered to Borrower in the ordinary course
of business.

     9.13. Additional Bank Accounts. Borrower shall not, directly or indirectly,
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 8.8 except: as to any new or
additional Blocked Accounts and other such new or additional accounts which
contain any Collateral or proceeds thereof, with the prior written consent of
Agent and subject to such conditions thereto as Agent may establish and as to
any accounts used by Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Agent.

     9.14. Adjusted Net Worth. Borrower shall, at all times, maintain Adjusted
Net Worth of not less than Twenty Five Million Dollars ($25,000,000).

     9.15. Costs and Expenses. Borrower shall pay to Agent and Lender on demand
all costs, expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Agent's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all title and other
insurance premiums, appraisal fees and search fees; (c) costs and expenses of
remitting loan proceeds, collecting checks and other items of payment, and
establishing and maintaining the Blocked Accounts, together with Agent's and
Lender's customary charges and fees with respect thereto; (d) costs and expenses
of preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Agent, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Agent and/or Lender arising out of the transactions contemplated hereby and
thereby (including, without limitation, preparations for and consultations
concerning any

                                       34

<PAGE>

such matters); (f) all out-of-pocket expenses and costs heretofore and from time
to time hereafter incurred by Agent and/or Lender during the course of periodic
field examinations of the Collateral and Borrower's operations, plus a per diem
charge at the rate of Seven Hundred Fifty Dollars ($750) per person per day for
Agent's examiners in the field and office; and (g) the fees and disbursements of
counsel (including legal assistants) to Agent and/or Lender in connection with
any of the foregoing. Notwithstanding the foregoing or anything in this
Agreement to the contrary, so long as no Event of Default has occurred or event
which, with the passage of time or giving of notice, or both, would constitute
an Event of Default has occurred and is continuing, Borrower shall be
responsible for the costs associated with no more than one (1) Equipment
appraisal during any six (6) month period, one (1) Inventory appraisal during
any six (6) month period and one (1) Real Estate appraisal during any twelve
(12) month period plus at Agent's reasonable request if Borrower has requested
that the MERE Sublimit be reset pursuant to Section 2.3, a written statement
from the appraiser of the Real Property that it is not aware of any
circumstances which would materially and adversely affect its most recent
appraisal. In addition, so long as no Event of Default has occurred and no event
which, with the passage of time or giving of notice, or both, would constitute
an Event of Default has occurred and is continuing, Borrower shall not be
responsible for the costs associated with an Inventory appraisal if the average
amount calculated under Section 2.1(a)(ii) of this Agreement during the
preceding six month period does not exceed One Million Five Hundred Thousand
Dollars ($1,500,000).

     9.16.  Compliance with ERISA.
            ---------------------

            (a)   Borrower shall not with respect to any "employee benefit
plans" maintained by Borrower or any of its ERISA Affiliates: (i) terminate any
of such employee benefit plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer
to exist any prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or under ERISA, (iii) fail to pay to any
such employee benefit plan any contribution which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.

            (b)   As used in this Section 9.16, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and in ERISA.

     9.17.  Further Assurances. At the request of Agent at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Agent may
at any time and from time to

                                       35

<PAGE>

time request a certificate from an officer of Borrower representing that all
conditions precedent to the making of Loans contained herein are satisfied. In
the event of such request by Agent, Agent and Lender may, at Agent's option,
cease to make any further Loans until Agent has received such certificate and,
in addition, Agent has determined that such conditions are satisfied. Borrower
hereby authorizes Agent to file one or more UCC financing statements.

     9.18.  Commercial Tort Claims. Borrower shall provide written notice to
Agent of any Commercial Tort Claim to which Borrower is or becomes a party or
which otherwise inures to the benefit of Borrower. Such notice shall contain a
sufficient description of the Commercial Tort Claim including the parties, the
court in which the claim was commenced (if applicable), the docket number
assigned to the case (if applicable) and a detailed explanation of the events
giving rise to such claim. Borrower shall grant Agent a security interest in
such Commercial Tort Claim to secure payment of the Obligations. Borrower shall
execute and deliver such instruments, documents and agreements as Agent may
reasonably require in order to obtain and perfect such security interest
including, without limitation, a security agreement or amendment to this
Agreement all in form and substance satisfactory to Agent. Borrower authorizes
Agent to file (without Borrower's signature), financing statements or amendments
to existing financing statements as Agent deems necessary to perfect the
security interest.

     9.19.  Letter of Credit Rights. Borrower shall provide Agent with written
notice of any Letters of Credit for which Borrower is the beneficiary. Borrower
shall execute and deliver such instruments, documents and agreements and take
such actions as Agent reasonably may require in order to obtain and perfect its
security interest in such Letter of Credit Rights.

SECTION 10.  EVENTS OF DEFAULT AND REMEDIES.
             ------------------------------

     10.1.  Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":

            (a)   Borrower fails to pay when due any of the Obligations, or
fails to perform any of the terms, covenants, conditions or provisions contained
in this Agreement or any of the other Financing Agreements within ten (10) days
after the earlier of any of the executive management of Borrower or any officer
listed on Schedule 6.5 hereto becoming aware of such failure or Agent has given
Borrower notice of such event (except that these shall be no requirement of
notice and there shall be no cure period with respect to the provisions of
Sections 9.1, 9.4, 9.6, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, and 9.14);

            (b)   Any representation, warranty or statement of fact made by
Borrower to Agent and/or Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;

            (c)   Any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Agent and/or Lender;

            (d)   Any judgment for the payment of money is rendered against
Borrower or any

                                       36

<PAGE>

Obligor in excess of One Hundred Thousand Dollars ($100,000) in any one case or
in excess of Two Hundred Thousand Dollars ($200,000) in the aggregate and shall
remain undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets;

            (e)   Any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower, or any Obligor which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;

            (f)   Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;

            (g)   A case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;

            (h)   A case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or

            (i)   Any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Agent and/or Lender, or any capitalized lease obligations,
contingent indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person other than Agent
and/or Lender, in any case in an amount in excess of One Hundred Thousand
Dollars ($100,000), which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by Borrower or any Obligor
under any contract, lease, license or other obligation to any person other than
Agent and/or Lender, which default continues for more than the applicable cure
period, if any, with respect thereto;

            (j)   The occurrence of a Change in Control;

            (k)   The indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;

            (l)   There shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof; or

            (m)   There shall be an Event of Default under, and as defined in,
any of the other

                                       37

<PAGE>

Financing Agreements.

     10.2.  Remedies.
            --------

            (a)   At any time an Event of Default exists or has occurred and is
continuing, Agent shall have all rights and remedies provided in this Agreement,
the other Financing Agreements, the Uniform Commercial Code and other applicable
law, all of which rights and remedies may be exercised without notice to or
consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Agent hereunder, under any of the other Financing
Agreements, the Uniform Commercial Code or other applicable law, are cumulative,
not exclusive and enforceable, in Agent's discretion, alternatively,
successively, or concurrently on any one or more occasions, and shall include,
without limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Borrower of this Agreement or any of
the other Financing Agreements. Agent may, at any time or times, proceed
directly against Borrower or any Obligor to collect the Obligations without
prior recourse to the Collateral.

            (b)   Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Agent may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Agent (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Agent any part or all of the Collateral at any
place and time designated by Agent, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Agent or elsewhere) at such prices or terms as Agent may deem
reasonable, for cash, upon credit or for future delivery, with Agent having the
right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Agent and/or Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefore is finally collected by Agent and/or Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Agent to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Agent institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.

            (c)   Agent may apply the cash proceeds of Collateral actually
received by Agent and/or Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in part
and in such order as Agent may elect, whether or not then due.

                                       38

<PAGE>

Borrower shall remain liable to Agent and Lender for the payment of any
deficiency with interest at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including attorneys' fees and legal
expenses.

            (d)   Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with passage of time would constitute an
Event of Default, Agent may, at its option, without notice, (i) cease making
Loans or reduce the lending formulas or amounts of Revolving Loans available to
Borrower and/or terminate any provision of this Agreement providing for any
future Loans to be made by Lender to Borrower.

SECTION 11.  JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.
             ------------------------------------------------------------

     11.1.  Governing Law; Choice of Forum; Service of Process; Jury Trial
            --------------------------------------------------------------
Waiver.
------

            (a)   The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).

            (b)   Borrower, Agent and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the state courts of New York County and the
United States District Court for the Southern District of New York and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Agent and Lender shall
have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Agent deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Borrower or its property).

            (c)   Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Agent's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Agent and/or Lender against Borrower
for the amount of the claim and other relief requested.

            (d)   BORROWER, AGENT AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE

                                       39

<PAGE>

TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER,
AGENT AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT BORROWER, AGENT OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

            (e)   Neither Agent nor Lender shall have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by Borrower
in connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Agent and/or Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Agent and Lender shall be entitled
to the benefit of the rebuttable presumption that it acted in good faith and
with the exercise of ordinary care in the performance by it of the terms of this
Agreement.

     11.2.  Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Agent and/or Lender may elect to give shall
entitle Borrower to any other or further notice or demand in the same, similar
or other circumstances.

     11.3.  Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Agent and Lender (subject to Section 13.14 hereof), and as to amendments, as
also signed by an authorized officer of Borrower. Neither Agent nor Lender
shall, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Agent and Lender. Any
such waiver shall be enforceable only to the extent specifically set forth
therein. A waiver by Agent and/or Lender of any right, power and/or remedy on
any one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Agent and Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.

     11.4.  Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.

     11.5.  Indemnification. Borrower shall indemnify and hold Agent and Lender,
and their directors, agents, employees and counsel, harmless from and against
any and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of

                                       40

<PAGE>

this Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the fees and expenses of counsel. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
Borrower shall pay the maximum portion which it is permitted to pay under
applicable law to Agent and Lender in satisfaction of indemnified matters under
this Section. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.

         11.6. Waiver and Consent. Borrower waives notice of and hereby consents
to, (i) extensions of time of payment of or increase or decrease in the amount
of any of the Obligations, interest rate, fees, other charges, or the
Collateral, (ii) the taking, exchange, surrender and releasing of the Collateral
or guarantees now or at any time held by or available to Agent and/or Lender for
the Obligations of any other party at any time liable on or in respect of the
Obligations, (iii) the exercise of, or refraining from the exercise of any
rights against any Borrower or the Collateral, (iv) the settlement, compromise
or release of, or the waiver of an Event of Default with respect to, any of the
Obligations and (v) any other act, event or condition that may, in law or
equity, constitute a defense under applicable law to the obligation of a surety
or guarantor. Borrower hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against Agent and/or Lender for subrogation, reimbursement, exoneration,
contribution, indemnification, setoff or other recourse in respect to sums paid
or payable to Agent and/or Lender by Borrower hereunder.

SECTION 12.  TERM OF AGREEMENT; MISCELLANEOUS.
             --------------------------------

         12.1. Term.
               ----

               (a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Initial Maturity Date"), and from year to year
thereafter (said Initial Maturity Date and any anniversary thereof being
referred to herein as the "Maturity Date"), unless sooner terminated pursuant to
the terms hereof; provided, that, Agent and Lender may, at their option, extend
the Maturity Date to the date four (4) years from the date hereof by giving
Borrower notice at least sixty (60) days prior to the third anniversary of this
Agreement. Agent and Lender or Borrower (subject to Agent's and Lender's right
to extend the Maturity Date as provided above) may terminate this Agreement and
the other Financing Agreements effective on the Maturity Date or on the
anniversary of the Maturity Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Agent for Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Agent in such amounts as Agent
determines are reasonably necessary to secure Agent and Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including any checks or other payments
provisionally credited to the Obligations and/or as to which Agent and/or Lender
has not yet received final and indefeasible payment. Such payments in respect of
the Obligations and cash collateral shall be remitted by wire transfer in
federal funds to such bank account of Agent, as Agent may, in its sole
discretion, designate in writing to Borrower for such purpose. Interest shall be
due until and including the next Business

                                       41

<PAGE>

Day, if the amounts so paid by Borrower to the bank account designated by Agent
are received in such bank account later than 12:00 noon, Eastern time.

         (b) Borrower may terminate this Agreement at any time before the
Maturity Date upon not less than sixty (60) days prior written notice and
compliance with the other requirements of this Section 12.1 (including payment
of the fee described in Section 12.1(c)). No termination of this Agreement or
the other Financing Agreements shall relieve or discharge Borrower of its
respective duties, obligations and covenants under this Agreement or the other
Financing Agreements until all Obligations have been fully and finally
discharged and paid, and Agent's continuing security interest in the Collateral
and the rights and remedies of Agent and Lender hereunder, under the other
Financing Agreements and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid.

         (c) If for any reason this Agreement is terminated prior to the
Maturity Date, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof, Borrower
agrees to pay to Agent for Lender, upon the effective date of such termination,
an early termination fee in the amount set forth below if such termination is
effective in the period indicated:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------------
                           Amount                                          Period
                           ------                                          ------

      ----------------------------------------------------------------------------------------------------
      <S>      <C>                                       <C>
      (i)      2.0% of the Maximum Credit.               From the date hereof to and including the first
                                                         anniversary of this Agreement.
      ----------------------------------------------------------------------------------------------------
      (ii)     1.0% of the Maximum Credit.               From the first anniversary of this Agreement to
                                                         and including the second anniversary of this
                                                         Agreement.
      ----------------------------------------------------------------------------------------------------
      (iii)    .5% of the Maximum Credit                 Any time after the second anniversary of this
                                                         Agreement and prior to the then applicable
                                                         Maturity Date.
      ----------------------------------------------------------------------------------------------------
</TABLE>

Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Agent and Lender do not exercise their right to terminate this Agreement, but
elects, at its option, to provide financing to Borrower or permit the use of
cash collateral under the United States Bankruptcy Code. The early termination
fee provided for in this Section 12.1 shall be deemed included in the
Obligations. Notwithstanding the foregoing, Agent and Lender shall waive the
early termination fee if Borrower refinances the Credit Facilities under this
Agreement with Lender.

      12.2.  Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Agent and Lender at its respective address set forth
below and to Borrower at its chief executive office set forth below, or to such
other address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next Business Day, one (1) Business Day after

                                       42

<PAGE>

sending; and if by certified mail, return receipt requested, five (5) days after
mailing.

         12.3. Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

         12.4. Successors. This Agreement, the other Financing Agreements and
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Agent and Lender, Borrower and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Agent. Agent and Lender may, after notice to Borrower, assign its respective
rights and delegate its respective obligations under this Agreement and the
other Financing Agreements and further may assign, or sell participations in,
all or any part of the Loans, or any other interest herein to another financial
institution or other person, in which event, the assignee or participant shall
have, to the extent of such assignment or participation, the same rights and
benefits as it would have if it were Agent or Lender, as applicable, hereunder,
except as otherwise provided by the terms of such assignment or participation.

         12.5. Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.

SECTION 13.    AGENT
               -----

         As between Agent, on one hand, and Lender, on the other hand, Agent and
Lender agree as follows (with the consent and approval of Borrower):

         13.1. Appointment and Authorization. Lender hereby irrevocably appoints
and authorizes Agent to take such action on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. Subject to the
provisions of this Agreement, Agent will handle all transactions relating to the
Loans and all other Obligations, including, without limitation, all transactions
with respect to this Agreement, the Financing Agreements and all related
documents in accordance with its usual banking practices. Except as otherwise
expressly provided herein, Borrower is hereby authorized by Lender to deal
solely with Agent in all transactions which affect Lender under this Agreement
and the Financing Agreements. The rights, privileges and remedies accorded to
Agent hereunder shall be exercised by Agent on behalf of Lender.

         13.2. General Immunity. In performing its duties as Agent hereunder,
Agent will take the same care as it takes in connection with loans in which it
alone is interested. Subject to Section 13.6

                                       43

<PAGE>

of this Agreement, neither Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them hereunder or in connection herewith except as such action or omission are
caused solely from its or their own gross negligence or willful misconduct
unless such action was taken or omitted to be taken by Agent at the direction of
Lender.

         13.3. Consultation with Counsel. Agent may consult with legal counsel
and any other professional advisors or consultants deemed necessary or
appropriate and selected by Agent and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.

         13.4. Documents. Agent shall not be under a duty to examine into or
pass upon the effectiveness, genuineness or validity of this Agreement or any of
the Financing Agreements or any other instrument or document furnished pursuant
hereto or in connection herewith, and Agent shall be entitled to assume that the
same are valid, effective and genuine and what they purport to be. In addition
Agent shall not be liable for failing to make any inquiry concerning the
accuracy, performance or observance of any of the terms, provisions or
conditions of such instrument or document.

         13.5. Rights as a Lender. Agent shall have the same rights and powers
hereunder as a Lender and may exercise the same as though it were not Agent. The
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include Agent in its individual capacity.

         13.6. Responsibility of Agent. It is expressly understood and agreed
that the obligations of Agent hereunder are only those expressly set forth in
this Agreement and that Agent shall be entitled to assume that no Event of
Default has occurred and is continuing, unless Agent has actual knowledge of
such fact. Except to the extent Agent is required by Lender pursuant to the
express terms hereof to take a specific action, Agent shall be entitled to use
its discretion with respect to exercising or refraining from exercising any
rights which may be vested in it by, or with respect to taking or refraining
from taking any action or actions that it may be able to take under or in
respect of, this Agreement and the Financing Agreements. Agent shall incur no
liability under or in respect of this Agreement and the Financing Agreements by
acting upon any notice, consent, certificate, warranty or other paper or
instrument believed by it to be genuine or authentic or to be signed by the
proper party or parties, or with respect to anything that it may do or refrain
from doing in the reasonable exercise of its judgment, or that may seem to it to
be necessary or desirable under the circumstances. It is agreed among Agent and
Lender that Agent shall have no responsibility to carry out audits or otherwise
examine the books and records or properties of Borrower, except as Agent in its
sole discretion deems appropriate or as otherwise expressly required hereunder.
The relationship between Agent and each Lender is and shall be that of agent and
principal only and nothing herein shall be construed to constitute Agent a joint
venturer with Lender, a trustee or fiduciary for Lender or for the holder of a
participation therein nor impose on Agent duties and obligations other than
those set forth herein.

         13.7. Collections and Disbursements.
               -----------------------------

               (a) Agent will have the right to collect and receive all payments
of the Obligations, together with all fees, charges or other amounts due under
this Agreement and the Financing Agreements, and Agent will remit to Lender all
such payments actually received by Agent (subject to any required clearance
procedures) in accordance with the settlement procedures established by

                                       44

<PAGE>

Agent from time to time.

          (b)   If any such payment received by Agent is rescinded or otherwise
required to be returned for any reason at any time, whether before or after
termination of this Agreement and the Financing Agreements, Lender will, upon
written notice from Agent, promptly pay over to Agent the amount so rescinded or
returned, together with interest and other fees thereon if also required to be
rescinded or returned.

          (c)   All payments by Agent and Lender to each other hereunder shall
be in immediately available funds. Agent will at all times maintain proper books
of account and records reflecting the interest of Lender in the Loans, in a
manner customary to Agent's keeping of such records, which books and records
shall be available for inspection by Lender at reasonable times during normal
business hours, at Lender's sole expense.

     13.8.   Indemnification. Lender hereby indemnifies Agent (and any issuer
with respect to letters of credit) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against Agent (or issuer, as the case may be) in any
way relating to or arising out of this Agreement or any other Financing
Agreements or any action taken or omitted by Agent (or issuer, as the case may
be) under or related to this Agreement or the Loans, provided that Lender shall
not be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from Agent's (or issuer's, as the case may be) gross negligence or
willful misconduct. Agent shall have the right to deduct, from any amounts to be
paid by Agent to any Lender hereunder, any amounts owing to Agent by Lender by
virtue of this paragraph.

     13.9.   Expenses. (a) All out-of-pocket costs and out-of-pocket expenses
incurred by Agent and not reimbursed on demand by Borrower, in connection with
the analysis, negotiation, preparation, consummation, creation, amendment,
administration, termination, work-out, forbearance and enforcement of the
Obligations (including, without limitation, audit expenses, counsel fees and
expenditures to protect, preserve and defend Agent's and Lender's rights and
interest under the Financing Agreements) shall be shared and paid on demand by
Lender; (b) Agent may deduct from payments or distributions to be made to Lender
such funds as may be necessary to pay or reimburse Agent for such costs or
expenses.

     13.10.  No Reliance By execution of or joining in this Agreement, each
Lender acknowledges that it has entered into this Agreement and the Financing
Agreements solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrower. Agent makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any Obligor or any Account debtor of Borrower;
the accuracy, sufficiency or currency of any information concerning the
financial condition, prospects or results of operations of Borrower; or for
sufficiency, authenticity, legal effect, validity or enforceability of the
Financing Agreements. Agent assumes no responsibility or liability with respect
to the collectibility of the Obligations or the performance by Borrower under
the Financing Agreements.

     13.11.  Reporting. During the term of this Agreement, and subject to
Section 9.6, Agent will

                                       45

<PAGE>

promptly furnish each Lender with copies of all financial statements of Borrower
to be delivered or obtained hereunder and such other financial statements and
reports as Lender may reasonably request. Agent will immediately notify Lender
when it receives actual knowledge of any Event of Default under the Financing
Agreements.

     13.12.  Removal of Agent. Agent may resign at any time upon giving
forty-five (45) days prior written notice thereof to Lender and Borrower. Agent
may be removed as Agent hereunder upon the written consent of all Lenders
exclusive of Agent upon the following: (i) willful misconduct in the performance
of Agent's duties or responsibilities under this Agreement; or (ii) if a
receiver, trustee or conservator is appointed for Agent or any state or federal
regulatory authority assumes management or control of Agent or if, under
applicable law, the administrative or discretionary duties and responsibilities
of Agent hereunder become controlled by or subject to the approval of any state
or federal regulatory authority. Upon any resignation or permitted removal of
Agent, Lender may appoint a successor agent. Upon the acceptance of the
appointment as a successor agent hereunder by such successor agent, such
successor agent shall thereupon succeed to and become vested with all rights,
powers, obligations and duties of the retiring Agent and the retiring Agent
shall be discharged from its duties and obligations hereunder.

     13.13.  Action on Instructions of Lender. With respect to any provision of
this Agreement, or any issue arising thereunder, concerning which Agent is
authorized to act or withhold action by direction of Lender, Agent shall in all
cases be fully protected in so acting, or in so refraining from acting,
hereunder in accordance with written instructions signed by Lender. Such
instructions and any action taken or failure to act pursuant thereto shall be
binding on Lender.

     13.14.  Consent of Lender.
             -----------------

          (a)   Except as expressly provided herein, Agent shall have the sole
and exclusive right to service, administer and monitor the Loans and the
Financing Agreements, including without limitation, the right to exercise all
rights, remedies, privileges and options under the Financing Agreements, and
including without limitation the credit judgment with respect to the making of
advances and the determination as to the basis on which and extent to which
advances may be made.

          (b)   Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior consent of Lender:
(i) extend the Maturity Date, (ii) except as contemplated under this Agreement,
reduce any interest rate applicable to the Loans, any fee payable hereunder or
any fee for any letter of credit, (iii) increase the Maximum Credit, (iv)
compromise or settle all or a portion of the Obligations, (v) release any
Obligor from the Obligations except in connection with termination of the this
Agreement and full payment and satisfaction of all Obligations, (vi) amend this
Section 13.14(b), (vii) enter into any written amendment to any of the Financing
Agreements; (viii) waive Borrower's compliance with the terms and conditions of
the Financing Agreements or any Event of Default hereunder or thereunder, or
(ix) consent to Borrower's taking any action which, if taken, would constitute
an Event of Default under this Agreement or under any of the Financing
Agreements.

          (c)   After an acceleration of the Obligations, Agent shall have the
sole and exclusive right, after consultation (to the extent reasonably
practicable under the circumstances) with Lender, and, unless otherwise directed
by the Lender, to exercise or refrain from exercising any and all right,

                                       46

<PAGE>

remedies, privileges and options under the Financing Agreements and actions,
including, without limitation, instituting and pursuing all legal actions
brought against Borrowers or to collect the Obligations, or defending any and
all actions brought by Borrower or other Person; or incurring expenses or
otherwise making expenditures to protect the Loans, the Collateral or Lenders'
rights or remedies.

          (d)   To the extent Agent is required to obtain or otherwise elects to
seek the consent of Lenders to an action Agent desires to take, if Lender fails
to notify Agent, in writing, of its consent or dissent to any request of Agent
hereunder within five (5) days of Lender's receipt of such request, Lender shall
be deemed to have given its consent thereto.

                          SIGNATURES ON FOLLOWING PAGE

                                       47

<PAGE>

     IN WITNESS WHEREOF, Agent, Lender and Borrower have caused these presents
to be duly executed as of the day and year first above written.

BORROWER:                               OPTICAL CABLE CORPORATION

Address for Notices:
-------------------
5290 Concourse Drive                    By:      _______________________________
Roanoke, VA 24019                       Name:    _______________________________
Attn: Mr. Neil D. Wilkin                Title:   _______________________________
Facsimile:________________

AGENT:                                  CONGRESS FINANCIAL CORPORATION,
                                        AS AGENT

Address for Notices:
-------------------
1133 Avenue of the Americas             By:      _______________________________
New York, New York 10036                         Thomas Ennis, Vice President
Attn: Ms. Terese Gatto
Facsimile: 212.545.4283

LENDER:                                 WACHOVIA BANK, NATIONAL ASSOCIATION

Address for Notices:
-------------------
Wachovia Bank, National Association     By:      _______________________________
One First Union Center                  Name:    _______________________________
301 South College Street                Title:   _______________________________
Charlotte, NC 28288-0658
Attn: Mr. Forest Steele
Facsimile: 704-374-6249<PAGE>

                                                                    EXHIBIT 10.1

                                   CMGI, INC.

                 2002 NON-OFFICER EMPLOYEE STOCK INCENTIVE PLAN

1.   Purpose

     The purpose of this 2002 Non-Officer Employee Stock Incentive Plan (the
"Plan") of CMGI, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future parent or subsidiary corporations as
defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code"), and any other
business venture (including, without limitation, joint venture or limited
liability company) in which the Company has a significant interest, as
determined by the Board of Directors of the Company (the "Board").

2.   Eligibility

     All of the Company's employees (and any individuals who have accepted an
offer for employment), other than those who are also officers (within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder) or
directors of the Company, are eligible to be granted options or restricted stock
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant."

3.   Administration and Delegation

     (a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.

     (b) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or

                                       -1-

<PAGE>

subcommittees of the Board (a "Committee"). All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officers referred to in Section 3(c) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officers.

     (c) Delegation to Executive Officers. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the Company the
power to grant Awards to employees or officers of the Company or any of its
present or future subsidiary corporations and to exercise such other powers
under the Plan as the Board may determine, provided that the Board shall fix the
terms of the Awards to be granted by such executive officers (including the
exercise price of such Awards, which may include a formula by which the exercise
price will be determined) and the maximum number of shares subject to Awards
that the executive officers may grant; provided further, however, that no
executive officer shall be authorized to grant Awards to any "executive officer"
of the Company (as defined by Rule 3b-7 under the Exchange Act) or to any
"officer" of the Company (as defined by Rule 16a-1 under the Exchange Act).

4.   Stock Available for Awards

     Subject to adjustment under Section 7, Awards may be made under the Plan
for up to 4,150,000 shares of common stock, $.01 par value per share, of the
Company (the "Common Stock"). If (i) any Award expires or is terminated,
surrendered or canceled without having been fully exercised, (ii) any Award is
forfeited in whole or in part, (iii) any Award results in any shares of Common
Stock not being issued or (iv) the shares of Common Stock issued pursuant to any
Award are repurchased by the Company (including without limitation shares of
Common Stock issued upon exercise of an Option (as hereinafter defined) that are
subsequently repurchased by the Company pursuant to a contractual repurchase
right or otherwise), the unused shares of Common Stock covered by such Award or
the shares of Common Stock so repurchased, as the case may be, shall again be
available for the grant of Awards under the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.

5.   Non-Statutory Stock Options

     (a) General. The Board may grant non-statutory stock options to purchase
Common Stock (each, an "Option") and determine the number of shares of Common
Stock to be covered by each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each Option, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable. No Option granted under the Plan shall be
intended to be an "incentive stock option" as defined in Section 422 of the
Code.

     (b) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable instrument
evidencing the grant of the Option.

                                       -2-

<PAGE>

     (c)  Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable instrument evidencing the grant of the Option.

     (d)  Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(e) for the number of
shares for which the Option is exercised and payment in full as specified in
Section 8(e) of any tax withholding.

     (e)  Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:

          (1)  in cash or by check, payable to the order of the Company;

          (2)  except as the Board may, in its sole discretion, otherwise
provide in an instrument evidencing the grant of the Option, by (i) delivery of
an irrevocable and unconditional undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the exercise price and any
required tax withholding or (ii) delivery by the Participant to the Company of a
copy of irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price and any required tax withholding;

          (3)  except as the Board may, in its sole discretion, otherwise
provide in an instrument evidencing the grant of the Option, when the Common
Stock is registered under the Exchange Act, by delivery of shares of Common
Stock owned by the Participant valued at their fair market value as determined
by (or in a manner approved by) the Board in good faith ("Fair Market Value"),
provided (i) such method of payment is then permitted under applicable law and
(ii) such Common Stock, if acquired directly from the Company, was owned by the
Participant at least six months prior to such delivery;

          (4)  to the extent permitted by the Board, in its sole discretion, by
(i) delivery of a full recourse promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or

          (5)  by any combination of the above-permitted forms of payment.

     (f)  Substitute Options. In connection with a merger or consolidation of an
entity with and into the Company or the acquisition by the Company of property
or stock of an entity, the Board may grant Options in substitution for any
options or other stock or stock-based awards granted by such entity or an
affiliate thereof. Substitute Options may be granted on such terms as the Board
deems appropriate in the circumstances, notwithstanding any limitations on
Options contained in the other sections of this Section 5 or in Section 2
hereof.

                                       -3-

<PAGE>

6.   Restricted Stock.

     (a)  Grants. The Board may grant Awards entitling Participants to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the Participant in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").

     (b)  Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.

     (c)  Stock Certificates. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.

7.   Adjustments for Changes in Common Stock and Certain Other Events

     (a)  Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the number and class of securities and exercise price per share subject to
each outstanding Option, and (iii) the repurchase price per share subject to
each outstanding Restricted Stock Award shall be appropriately adjusted by the
Company (or substituted Awards may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 7(a) applies and Section 7(c) also
applies to any event, Section 7(c) shall be applicable to such event, and this
Section 7(a) shall not be applicable.

     (b)  Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least ten business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award granted under the Plan at the time of
the grant of such Award.

                                       -4-

<PAGE>

     (c)  Reorganization Events

          (1) Definition. A "Reorganization Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of which
all of the Common Stock is converted into or exchanged for the right to receive
cash, securities or other property or (b) any exchange of all of the Common
Stock for cash, securities or other property pursuant to a share exchange
transaction; provided, however, that, unless the Board determines otherwise, a
"Reorganization Event" shall not include any transaction that involves the
Company, on the one hand, and any Company Subsidiary (as defined below), on the
other hand. "Company Subsidiary" shall mean any corporation or other entity that
is controlled, directly or indirectly, by the Company.

          (2) Consequences of a Reorganization Event on Options. Upon the
occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Reorganization Event, the Option confers the right
to purchase, for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the consideration
(whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock
held immediately prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
shares of Common Stock as a result of the Reorganization Event.

     Notwithstanding the foregoing, if the acquiring or succeeding corporation
(or an affiliate thereof) does not agree to assume, or substitute for, such
Options, then the Board shall, upon written notice to the Participants, provide
that all then unexercised Options will become exercisable in full as of a
specified time prior to the Reorganization Event and will terminate immediately
prior to the consummation of such Reorganization Event, except to the extent
exercised by the Participants before the consummation of such Reorganization
Event; provided, however, that in the event of a Reorganization Event under the
terms of which holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant to such
Reorganization Event (the "Acquisition Price"), then the Board may instead
provide that all outstanding Options shall terminate upon consummation of such
Reorganization Event and that each Participant shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options. To the extent all or any portion of an
Option becomes exercisable solely as a result of the first

                                       -5-

<PAGE>

sentence of this paragraph, upon exercise of such Option the Participant shall
receive shares subject to a right of repurchase by the Company or its successor
at the Option exercise price. Such repurchase right (1) shall lapse at the same
rate as the Option would have become exercisable under its terms and (2) shall
not apply to any shares subject to the Option that were exercisable under its
terms without regard to the first sentence of this paragraph.

     If any Option provides that it may be exercised for shares of Common Stock
which remain subject to a repurchase right in favor of the Company, upon the
occurrence of a Reorganization Event, any shares of restricted stock received
upon exercise of such Option prior to such Reorganization Event shall be treated
in accordance with Section 7(c)(3) as if they were a Restricted Stock Award.

          (3) Consequences of a Reorganization Event on Restricted Stock Awards.
Upon the occurrence of a Reorganization Event, the repurchase and other rights
of the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Reorganization Event in the same manner and to the same extent
as they applied to the Common Stock subject to such Restricted Stock Award.

8.   General Provisions Applicable to Awards

     (a)  Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.

     (b)  Documentation. Each Award shall be evidenced by an instrument in such
form (written, electronic or otherwise) as the Board shall determine. Each Award
may contain terms and conditions in addition to those set forth in the Plan.

     (c)  Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.

     (d)  Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

     (e)  Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law,

                                       -6-

<PAGE>

satisfy such tax obligations in whole or in part by delivery of shares of Common
Stock, including shares retained from the Award creating the tax obligation,
valued at their Fair Market Value; provided, however, that the total tax
withholding where stock is being used to satisfy such tax obligations cannot
exceed the Company's minimum statutory withholding obligations (based on minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, that are applicable to such supplemental taxable income). The
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to a Participant.

     (f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type and changing the date of exercise or
realization, provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.

     (g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

     (h) Acceleration. The Board may at any time provide that any Award shall
become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.

9.   Miscellaneous

     (a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

     (b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then a Participant who exercises an Option between the record date
and the distribution date for such stock dividend shall be entitled to receive,
on

                                       -7-

<PAGE>

the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.

     (c) Effective Date and Term of Plan. The Plan is effective as of March 13,
2002 (the "Effective Date"). No Awards shall be granted under the Plan after the
completion of ten years from the Effective Date, but Awards previously granted
may extend beyond that date.

     (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.

     (e) Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.

                                    * * * * *

                                       -8-

<PAGE>

                                   CMGI, INC.

                               AMENDMENT NO. 1 TO
                 2002 NON-OFFICER EMPLOYEE STOCK INCENTIVE PLAN

     The 2002 Non-Officer Employee Stock Incentive Plan (the "Plan") of CMGI,
Inc., a Delaware corporation (the "Corporation"), is hereby amended as follows:

     Section 4 of the Plan is hereby amended and restated in its entirety to
read as follows:

"4.  Stock Available for Awards

     Subject to adjustment under Section 7, Awards may be made under the Plan
for up to 19,150,000 shares of common stock, $.01 par value per share, of the
Company (the "Common Stock"). If (i) any Award expires or is terminated,
surrendered or canceled without having been fully exercised, (ii) any Award is
forfeited in whole or in part, (iii) any Award results in any shares of Common
Stock not being issued or (iv) the shares of Common Stock issued pursuant to any
Award are repurchased by the Company (including without limitation shares of
Common Stock issued upon exercise of an Option (as hereinafter defined) that are
subsequently repurchased by the Company pursuant to a contractual repurchase
right or otherwise), the unused shares of Common Stock covered by such Award or
the shares of Common Stock so repurchased, as the case may be, shall again be
available for the grant of Awards under the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares."

                                              * * * * *

                                              Adopted by the Board of Directors
                                              on May 20, 2002.

                                       -9-

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