Document:

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                                                                   Exhibit 10.18

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

     This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement")
dated as of December 28, 2001, between SILICON VALLEY BANK, a California
chartered bank, with its principal place of business at 3003 Tasman Drive, Santa
Clara, California 95054 and with a loan production office located at One Newton
Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462,
doing business under the name "Silicon Valley East" ("Bank") and SPEECHWORKS
INTERNATIONAL, INC., a Delaware corporation ("Borrower"), provides the terms on
which Bank shall lend to Borrower and Borrower shall repay Bank. This Agreement
amends and restates in its entirety a certain Loan and Security Agreement dated
as of March 26, 1999, between Borrower and Bank, as amended by a certain First
Loan Modification Agreement dated as of November 24, 1999, as further amended by
a certain Second Loan Modification Agreement dated as of June 1, 2000, as
further amended by a certain Third Loan Modification Agreement dated as of
August 6, 2001, and as further amended by a certain Fourth Loan Modification
Agreement dated as of November 13, 2001. The parties agree as follows:

     1    ACCOUNTING AND OTHER TERMS

     Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13.

     2    LOAN AND TERMS OF PAYMENT

     2.1 Promise to Pay. Subject to and upon the terms and conditions hereof,
Borrower hereby unconditionally promises to pay Bank the unpaid principal amount
of all Credit Extensions and interest on the unpaid principal amount of the
Credit Extensions as and when due in accordance with this Agreement.

     2.1.1 Revolving Advances.

          (a)  Bank shall make Advances not exceeding (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus (ii) the amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit), minus (iii) the FX Reserve, and minus (iv) the aggregate outstanding
Advances hereunder (including any Cash Management Services). Amounts borrowed
under this Section may be repaid and reborrowed during the term of this
Agreement.

          (b)  To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made. If such notification is by telephone, Borrower must promptly confirm the
notification by delivering to Bank a completed Payment/Advance Form in the form
attached as Exhibit B. Bank shall credit Advances to Borrower's deposit account.
Bank may make Advances under this Agreement based on instructions from a
Responsible Officer, as designated in writing in accordance with the terms
hereof, or his or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due. Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer,
as designated in writing in accordance with the terms hereof, or designee.
Borrower shall indemnify Bank for any loss Bank suffers due to such reliance.

          (c)  The Committed Revolving Line terminates on the Revolving Maturity
Date, when the principal amount of all Advances and the unpaid interest thereon,
shall be immediately payable.

     2.1.2 Letters of Credit.

          (a)  Bank shall issue or have issued Letters of Credit for Borrower's
account not exceeding (i) the lesser of the Committed Revolving Line or the
Borrowing Base minus (ii) the outstanding principal balance of any Advances
(including any Cash Management Services), minus (iii) the amount of all Letters
of Credit (including drawn but unreimbursed Letters of Credit), plus an amount
equal to any Letter of Credit Reserves. The face amount of

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outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed $5,000,000.00. Each
Letter of Credit shall have an expiry date no later than 364 days after the
Revolving Maturity Date provided Borrower's Letter of Credit reimbursement
obligation shall be secured by cash on terms acceptable to Bank on and after (i)
the Revolving Maturity Date if the term of this Agreement is not extended by
Bank, or (ii) the occurrence of an Event of Default hereunder. All Letters of
Credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
standard Application and Letter of Credit Agreement. Borrower agrees to execute
any further documentation in connection with the Letters of Credit as Bank may
reasonably request.

          (b)  The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with the issuance of any Letter of Credit,
or any repayment obligation arising under any Letters of Credit.

          (c)  Borrower may request that Bank issue a Letter of Credit payable
in a currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.

          (d)  Upon the issuance of any letter of credit payable in a currency
other than United States Dollars, Bank shall create a reserve (the "Letter of
Credit Reserve") under the Committed Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such letter of credit. The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such letter of
credit remains outstanding.

     2.1.3 Foreign Exchange Sublimit. If there is availability under the
Committed Revolving Line and the Borrowing Base, then Borrower may enter in
foreign exchange forward contracts with the Bank under which Borrower commits to
purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (the "FX Forward Contract"). Bank shall
subtract 10% of each outstanding FX Forward Contract from the foreign exchange
sublimit which is a maximum of $5,000,000.00 (the "FX Reserve"). The total FX
Forward Contracts at any one time may not exceed 10 times the amount of the FX
Reserve. Bank may terminate the FX Forward Contracts if an Event of Default
occurs. FX Forward Contracts shall be secured by cash on terms acceptable to
Bank on and after (i) the Revolving Maturity Date if the term of this Agreement
is not extended by Bank, or (ii) the occurrence of an Event of Default
hereunder.

     2.1.4 Cash Management Services Sublimit. Borrower may use up to
$5,000,000.00 for the Bank's Cash Management Services, which may include
merchant services, direct deposit of payroll, business credit card, and check
cashing services identified in the various cash management services agreements
related to such services Cash Management Services Agreement (the "Cash
Management Services"). Such aggregate amounts utilized under this Section 2.1.4
(the "Cash Management Services Sublimit") shall at all times reduce the amount
otherwise available for Credit Extensions under the Committed Revolving Line.
Any amounts Bank pays on behalf of Borrower or any amounts that are not paid by
Borrower for any Cash Management Services will be treated as Advances under the
Committed Revolving Line and will accrue interest at the interest rate
applicable to Advances. Outstanding amounts under the Cash Management Services
Sublimit shall be secured by cash on terms acceptable to Bank on and after (i)
the Revolving Maturity Date if the term of this Agreement is not extended by
Bank, or (ii) the occurrence of an Event of Default hereunder.

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     2.1.5 Equipment Advances.

          (a)  Subject to the terms and conditions of this Agreement, Bank
agrees to lend to Borrower, from time to time prior to December 31, 2002,
equipment advances (each an "Equipment Advance" and collectively the "Equipment
Advances") in an aggregate amount not to exceed the Committed Equipment Line.
When repaid, the Equipment Advances may not be re-borrowed. The proceeds of the
Equipment Advances shall be used solely to reimburse Borrower for the purchase
of Eligible Equipment purchased within ninety (90) days (determined based upon
the applicable invoice date of such Eligible Equipment) of the Equipment Advance
and to purchase new Eligible Equipment. Bank's obligation to lend hereunder
shall terminate on the earlier of (i) the occurrence and continuance of an Event
of Default, or (ii) December 31, 2002. For purposes of this Section, the minimum
amount of each Equipment Advance is One Hundred Thousand Dollars ($100,000.00).
Notwithstanding the foregoing, the initial Equipment Advance hereunder (the
"Initial Equipment Advance") may be used by Borrower to finance Eligible
Equipment purchased with an invoice date as of or after May 1, 2001. The Initial
Equipment Advance shall be requested by Borrower within twenty (20) days after
the Closing Date. Borrower may repay any scheduled payment hereunder.

          (b)  To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Eastern time one (1)
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed. Each Equipment Advance may not exceed 100% of the
Original Stated Cost of the Financed Equipment.

     2.1.6 Undisbursed Credit Extensions. The Bank's obligation to lend the
undisbursed portion of the Credit Extensions shall terminate if there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospects of Borrower,
whether or not arising from transactions in the ordinary course of business, or
there has been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.

     2.2 Overadvances. If Borrower's Obligations under Section 2.1.1, 2.1.2,
2.1.3 and 2.4 exceed the lesser of either (i) the Committed Revolving Line or
(ii) the Borrowing Base, Borrower must immediately pay in cash to Bank the
excess.

     2.3 Interest Rate; Payments.

     (a)  Revolving Advances.

          (i)  Interest Rate. Revolving Advances accrue interest on the
outstanding principal balance at a per annum rate equal to the Bank's Prime
Rate. After an Event of Default, Obligations shall bear interest at the lesser
of (i) three percent (3.0%) above the rate effective immediately before the
Event of Default, and (ii) the maximum interest rate allowed by applicable law.
The interest rate shall increase or decrease when the Prime Rate changes.
Interest is computed on the basis of a 360 day year for the actual number of
days elapsed.

          (ii) Payments. Interest is payable on the first Business Day of each
month. Bank may debit any of Borrower's deposit accounts including Account
Number [__________] for principal and interest payments or any amounts Borrower
owes Bank. Bank shall promptly notify Borrower when it debits Borrower's
accounts. Payments received after 12:00 noon Eastern time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment is due the next Business
Day and additional fees or interest, as applicable, shall continue to accrue.

     (b)  Equipment Advances.

          (i)  Principal and Interest Payments On Payment Dates. Borrower shall
repay each Equipment Advance pursuant to the terms herein. For each Equipment
Advance, Borrower shall make (a) equal monthly payments of principal calculated
by the Bank based upon: (1) the amount of the Equipment Advance, and (2) an
amortization

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schedule equal to the Repayment Period, plus (b) monthly payments of interest at
the Prime Rate as established by the Bank from time to time (which shall be
adjusted by the Bank with fluctuations in the Prime Rate) (individually, (a) and
(b) the "Scheduled Payment", and collectively, "Scheduled Payments"), on the
First Business Day of the month following the month in which the Funding Date
occurs with respect to such Equipment Advance and continuing thereafter during
the Repayment Period on the First Business Day of each successive calendar month
(each a "Payment Date"). All unpaid principal and accrued interest is due and
payable in full on the last Payment Date with respect to such Equipment Advance.
Payments received after 12:00 noon Eastern time are considered received at the
opening of business on the next Business Day. An Equipment Advance may only be
prepaid in accordance with Sections 2.2(b)(iii) and 2.2(b)(v).

          (ii) Interest Rate. Borrower shall pay interest on the unpaid
principal amount of each Equipment Advance until the Equipment Advance has been
paid in full, at the per annum rate of interest equal to the Prime Rate. Any
amounts outstanding during the continuance of an Event of Default shall bear
interest at a per annum rate equal to the Prime Rate plus three percent (3%)(the
"Default Rate").

          (iii) Prepayment Upon an Event of Loss. If any Financed Equipment is
subject to an Event of Loss and Borrower is required to or elects to prepay the
Equipment Advance with respect to such Financed Equipment pursuant to Section
6.9, then such Equipment Advance shall be prepaid to the extent and in the
manner provided in such section.

          (iv) Mandatory Prepayment Upon an Acceleration. If the Equipment
Advances are accelerated following the occurrence of an Event of Default or
otherwise, Borrower shall immediately pay to Bank an amount equal to the sum of:
(i) all outstanding principal plus accrued interest, plus (ii) all other sums,
if any, that shall have become due and payable, including interest at the
Default Rate with respect to any past due amounts.

          (v)  Permitted Prepayment of Loans. Borrower shall have the option to
prepay all, but not less than all, of the Equipment Advances advanced by Bank
under this Agreement, provided Borrower (i) provides written notice to Bank of
its election to prepay the Equipment Advances at least thirty (30) days prior to
such prepayment, and (ii) pays, on the date of such prepayment (A) all
outstanding principal plus accrued interest, plus (B) all other sums, if any,
that shall have become due and payable, including interest at the Default Rate
with respect to any past due amounts.

          2.4  Fees. Borrower shall pay to Bank:

               (a)  Facility Fee. A fully earned, non-refundable Revolving Line
facility fee of Twelve Thousand Five Hundred Dollars ($12,500.00) due on the
Closing Date;

               (b)  Letter of Credit Fee. The Borrower shall pay the Bank's
customary fees and expenses for the issuance of Letters of Credit, including,
without limitation, a Letter of Credit Fee of one and one half percent (1.5%)
per annum of the face amount of each Letter of Credit issued, upon the issuance
or renewal of such Letter of Credit by the Bank;

               (c)  Foreign Exchange Fees and Cash Management Fees. The Borrower
shall pay the Bank's customary fees and expenses for foreign exchange and cash
management services; and

               (d)  Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and expenses incurred through and after the Closing Date) when
due.

          2.5  Additional Costs. If any new law or regulation increases Bank's
costs or reduces its income for any loan, Borrower shall pay the increase in
cost or reduction in income or additional expense; provided, however, that
Borrower shall not be liable for any amount attributable to any period before
180 days prior to the date Bank notifies Borrower of such increased costs. Bank
agrees that it shall allocate any increased costs among its customers similarly
affected in good faith and in a manner consistent with Bank's customary
practice.

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          3    CONDITIONS OF LOANS

          3.1  Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:

               (a) this Agreement;

               (b) a certificate of the Secretary of Borrower with respect to
          articles, bylaws, incumbency and resolutions authorizing the execution
          and delivery of this Agreement;

               (c) a legal opinion of Borrower's counsel, in form and substance
          acceptable to Bank;

               (d) guaranties by the Guarantor(s);

               (e) financing statements (Forms UCC-1);

               (f) Account Control Agreement/ Investment Account Control
          Agreement;

               (g) insurance certificate;

               (h) payment of the fees and Bank Expenses then due specified in
          Section 2.4 hereof;

               (i) Certificate of Foreign Qualification (if applicable);

               (j) Certificate of Good Standing/Legal Existence; and

               (k) such other documents, and completion of such other matters,
          as Bank may reasonably deem necessary or appropriate.

          3.2  Conditions Precedent to all Credit Extensions. Bank's obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:

               (a) timely receipt of any Payment/Advance Form; and

               (b) the representations and warranties in Section 5 shall be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true.

          4    CREATION OF SECURITY INTEREST

          4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations and the
performance of each of Borrower's duties under the Loan Documents, a continuing
security interest in the Collateral, wherever located, whether now owned or
hereafter acquired or arising, and all proceeds and products thereof. Borrower
warrants and represents that the security interest granted herein shall be a
first priority security interest in the Collateral. Bank may place a "hold" on
any deposit account pledged as Collateral.

Except as disclosed on the Schedule, Borrower is not a party to, nor is bound
by, any license or other agreement with respect to which the Borrower is the
licensee that prohibits or otherwise restricts Borrower from granting a security
interest in Borrower's interest in such license or agreement or any other
property. Without prior consent from Bank,

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Borrower shall not enter into, or become bound by, any such license or agreement
which is reasonably likely to have a material impact on Borrower's business or
financial condition. Borrower shall take such steps as Bank requests to obtain
the consent of, or waiver by, any person whose consent or waiver is necessary
for all such licenses or contract rights to be deemed "Collateral" and for Bank
to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement, whether now
existing or entered into in the future.

Borrower agrees that any disposition of the Collateral in violation of this
Agreement, by either the Borrower or any other Person, shall be deemed to
violate the rights of the Bank under the Code. If the Agreement is terminated,
Bank's lien and security interest in the Collateral shall continue until
Borrower fully satisfies its Obligations. If Borrower shall at any time, acquire
a commercial tort claim, Borrower shall promptly notify Bank in a writing signed
by Borrower of the brief details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
Bank.

          5    REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants as follows:

          5.1 Due Organization and Authorization. Borrower and each Subsidiary
is duly existing and in good standing in its state of formation and qualified
and licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change. The Borrower has previously delivered to the
Bank a certificate signed by the Borrower and entitled "Perfection Certificate".
The Borrower represents and warrants to the Bank that: (a) the Borrower's exact
legal name is that indicated on the Perfection Certificate and on the signature
page hereof; and (b) the Borrower is an organization of the type, and is
organized in the jurisdiction, set forth in the Perfection Certificate; and (c)
the Perfection Certificate accurately sets forth the Borrower's organizational
identification number or accurately states that the Borrower has none; and (d)
the Perfection Certificate accurately sets forth the Borrower's place of
business, or, if more than one, its chief executive office as well as the
Borrower's mailing address if different, and (e) all other information set forth
on the Perfection Certificate pertaining to the Borrower is accurate and
complete. If the Borrower does not now have an organizational identification
number, but later obtains it, Borrower shall forthwith notify the Bank or such
organizational identification number.

          The execution, delivery and performance of the Loan Documents have
been duly authorized, and do not conflict with Borrower's organizational
documents, nor constitute an event of default under any material agreement by
which Borrower is bound. Borrower is not in default under any agreement to which
or by which it is bound in which the default could reasonably be expected to
cause a Material Adverse Change.

          5.2 Collateral. Borrower has good title to the Collateral, free of
Liens except Permitted Liens. Borrower has no other deposit account, other than
the deposit accounts with Bank and deposit accounts described in the Perfection
Certificate delivered to the Bank in connection herewith. The Accounts are bona
fide, existing obligations, and the service or property has been performed or
delivered (or in the case of certain services, is obligated to be performed) to
the account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. The Collateral is not in the possession of any
third party bailee (such as a warehouse). In the event that Borrower, after the
date hereof, intends to store or otherwise deliver any portion of the Collateral
to a bailee, then Borrower will first receive the written consent of Bank and
such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank. Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any account debtor whose accounts are an
Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.

         5.3 Litigation. There are no actions or proceedings pending or, to the
knowledge of Borrower's Responsible Officers, threatened by or against Borrower
or any Subsidiary in which an adverse decision could reasonably be expected to
cause a Material Adverse Change.

          5.4 No Material Adverse Change in Financial Statements. All
consolidated financialstatements for Borrower and any Subsidiary delivered to
Bank fairly present in all material respects Borrower's consolidated financial

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condition and Borrower's consolidated results of operations. There has not been
any material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

          5.5 Solvency. The fair salable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions in
this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.

          5.6 Regulatory Compliance. Borrower is not an "investment company" or
a company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse
Change. None of Borrower's or any Subsidiary's properties or assets has been
used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to make
such declarations, notices or filings would not reasonably be expected to cause
a Material Adverse Change.

          5.7 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

          5.8 Full Disclosure. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank
taken together with all such written certificates and written statements given
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

          6    AFFIRMATIVE COVENANTS

          Borrower shall do all of the following:

          6.1 Government Compliance. Borrower shall maintain its and all
Subsidiaries' legal existence and good standing in its jurisdiction of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or be expected to cause a Material Adverse
Change.

          6.2 Financial Statements, Reports, Certificates.

               (a)  Borrower shall deliver to Bank: (i) as soon as available,
but no later than thirty (30) days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period certified by a Responsible Officer and
in a form acceptable to Bank; (ii) as soon as available, but no later than one
hundred twenty (120) days after the last day of Borrower's fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) within five (5) days of filing, copies of all statements, reports and
notices made available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt report of any legal actions
pending or threatened against Borrower or any

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Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of Five Hundred Thousand Dollars ($500,000.00) or more, or Two Million
($2,000,000.00) in the aggregate; and (v) budgets, sales projections, operating
plans or other financial information reasonably requested by Bank.

               (b) Within thirty (30) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable (by invoice date).

               (c) Within thirty (30) days after the last day of each month,
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.

               (d) Allow Bank to audit Borrower's Collateral at Borrower's
expense. Such audits shall be conducted no more often than once every twelve
(12) months unless an Event of Default has occurred and is continuing.

          6.3  Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from material defects. Returns and allowances between
Borrower and its account debtors shall follow Borrower's customary practices as
they exist at the Closing Date. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than Fifty Thousand
Dollars ($50,000.00).

          6.4 Taxes. Borrower shall make, and cause each Subsidiary to make,
timely payment of all material federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting in good faith,
with adequate reserves maintained in accordance with GAAP) and will deliver to
Bank, on demand, appropriate certificates attesting to such payments.

          6.5 Insurance. Borrower shall keep its business and the Collateral
insured for risks and in amounts, standard for Borrower's industry, and as Bank
may reasonably request in Bank's reasonable discretion. Insurance policies shall
be in a form, with companies, and in amounts that are satisfactory to Bank. All
property policies shall have a lender's loss payable endorsement showing Bank as
an additional loss payee and all liability policies shall show the Bank as an
additional insured and all policies shall provide that the insurer must give
Bank at least twenty (20) days notice before canceling its policy. At Bank's
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy shall, at Bank's option, be
payable to Bank on account of the Obligations. Notwithstanding the foregoing, so
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applying the proceeds of any casualty policy up to $25,000.00, in
the aggregate, toward the replacement or repair of destroyed or damaged
property; provided that (i) any such replaced or repaired property (a) shall be
of equal or like value as the replaced or repaired Collateral and (b) shall be
deemed Collateral in which Bank has been granted a first priority security
interest and (ii) after the occurrence and during the continuation of an Event
of Default all proceeds payable under such casualty policy shall, at the option
of the Bank, be payable to Bank on account of the Obligations. If Borrower fails
to obtain insurance as required under Section 6.5 or to pay any amount or
furnish any required proof of payment to third persons and the Bank, Bank may
make all or part of such payment or obtain such insurance policies required in
Section 6.5, and take any action under the policies Bank deems prudent.

          6.6 Accounts. In order to permit the Bank to monitor the Borrower's
financial performance and condition, Borrower shall maintain an operating
account with Bank. Borrower shall maintain with the Bank a minimum of Twenty
Million Dollars ($20,000,000.00) in unrestricted cash or securities administered
by the Bank. Borrower shall identify to Bank, in writing, of any bank or
securities account opened by Borrower with any institution other than Bank. In
addition, for each such account that the Borrower at any time opens or
maintains, Borrower shall, at the Bank's request and option, pursuant to an
agreement in form and substance acceptable to the Bank, cause the depositary
bank or securities intermediary to agree that such account is the collateral of
the Bank pursuant to the terms hereunder. The provisions of this paragraph shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of the Borrower's
employees.

                                       8

<PAGE>

          6.7  Financial Covenant. Borrower shall maintain at all times, to be
tested as of the last day of each month:

               (a) Tangible Net Worth. A Tangible Net Worth of at least Fifty
Five Million Dollars ($55,000,000.00).

          6.8  Further Assurances. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank's security interest in the Collateral or to effect the purposes of
this Agreement.

          6.9  Loss; Destruction; or Damage. Borrower shall bear the risk of the
Financed Equipment being lost, stolen, destroyed, or damaged. If during the term
of this Agreement any item of Financed Equipment becomes obsolete or is lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or
seized by a governmental authority for any reason for a period equal to at least
the remainder of the term of this Agreement (an "Event of Loss"), then in each
case, Borrower:

               (a) prior to the occurrence of an Event of Default, at Borrower's
option, shall (i) pay to Bank on account of the Obligations all accrued interest
to the date of the prepayment, plus all outstanding principal, or (ii) repair or
replace any Financed Equipment subject to an Event of Loss provided the repaired
or replaced Financed Equipment is of equal or like value to the Financed
Equipment subject to an Event of Loss and provided further that Bank has a first
priority perfected security interest in such repaired or replaced Financed
Equipment.

               (b) during the continuance of an Event of Default, on or before
the next Payment Date following such Event of Loss, for each such item of
Financed Equipment subject to such Event of Loss, Borrower shall, at Bank's
option, pay to Bank an amount equal to the sum of: (i) all outstanding principal
plus accrued interest, plus (ii) all other sums, if any, that shall have become
due and payable, including interest at the Default Rate with respect to any past
due amounts.

          7    NEGATIVE COVENANTS

          Borrower shall not do any of the following without the Bank's prior
written consent which shall not be unreasonably withheld.

          7.1  Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, except for Transfers (i) of
Inventory in the ordinary course of business; (ii) of licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.

          7.2  Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto), or suffer a change in
Borrower's ownership of more than fifty percent (50%) in the aggregate (other
than by the sale of Borrower's equity securities in a public offering or to
venture capital or similar institutional investors so long as Borrower
identifies to Bank the venture capital or similar institutional investors prior
to the closing of the investment), or have a material change in its management.
Borrower shall not, without prior written notice to Bank: (i) relocate its chief
executive office, or add any new offices or business locations, with the
exception of: (a) new offices or business locations containing less than Ten
Thousand Dollars ($10,000.00) in Borrower's assets or property, and (b) sales
offices which do not issue invoices for accounts, or contain any Equipment or
Inventory, or (ii) change its jurisdiction of organization, or (iii) change its
organizational structure or type, or (iv) change its legal name, or (v) change
any organizational number (if any) assigned by its jurisdiction of organization.

          7.3  Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, unless: (i) there is no Event of
Default hereunder, and (ii) such merger,

                                       9

<PAGE>

consolidation or acquisition will not result, on a prospective basis, in the
breach of any of the covenants, terms and conditions hereunder, and (iii) such
merger, consolidation or acquisition is in the same or similar line of business
as the Borrower, and (iv) the Borrower is the surviving legal entity.

          7.4 Indebtedness. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.

          7.5 Encumbrance. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.

          7.6 Distributions; Investments. (i) Directly or indirectly acquire or
own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock.

          7.7 Transactions with Affiliates. Directly or indirectly enter or
permit any material transaction with any Affiliate, except transactions that are
in the ordinary course of Borrower's business, upon fair and reasonable terms
that are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.

          7.8 Subordinated Debt. Make or permit any payment on any Subordinated
Debt, except under the terms of the Subordinated Debt, or amend any provision in
any document relating to the Subordinated Debt, without Bank's prior written
consent.

          7.9 Compliance. Become an "investment company" or a company controlled
by an "investment company", under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or
carry margin stock, or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower's business or operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.

          8    EVENTS OF DEFAULT

          Any one of the following is an Event of Default:

          8.1  Payment Default. Borrower fails to pay any of the Obligations
within three (3) days after their due date. During the additional period the
failure to cure the default is not an Event of Default (but no Credit Extension
shall be made during the cure period);

          8.2  Covenant Default. Borrower does not perform any obligation in
Section 6 or violates any covenant in Section 7 or does not perform or observe
any other material term, condition or covenant in this Agreement, any Loan
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within thirty (30) days after it occurs, or if the default cannot be cured
within thirty (30) days or cannot be cured after Borrower's attempts in the
thirty (30) day period, and the default may be cured within a reasonable time,
then Borrower shall have additional time, (of not more than thirty (30) days) to
attempt to cure the default. Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants that
are required to be satisfied, completed or tested by a date certain. During the
additional period the failure to cure the default is not an Event of Default
(but no Credit Extensions shall be made during the cure period);

          8.3  Material Adverse Change. A Material Adverse Change occurs;

                                       10

<PAGE>

          8.4  Attachment. (i) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (ii) the
service of process upon the Borrower seeking to attach, by trustee or similar
process any funds of the Borrower on deposit with the Bank; (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iv) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (v) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within thirty (30) days after Borrower receives notice. These are
not Events of Default if stayed or if a bond is posted pending contest by
Borrower (but no Credit Extensions shall be made during the cure period);

          8.5 Insolvency. (i) Borrower becomes insolvent; (ii) Borrower begins
an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within forty-five (45) days (but no Credit
Extensions shall be made before any Insolvency Proceeding is dismissed);

          8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could result in a Material Adverse Change;

          8.7 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Five Hundred Thousand
Dollars ($500,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);

          8.8 Misrepresentations. If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any writing delivered to
Bank or to induce Bank to enter this Agreement or any Loan Document.

          8.9 Guaranty. (i) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force; or (ii) any Guarantor does not perform any
obligation under any guaranty of the Obligations; or (iii) any material
misrepresentation or material misstatement exists now or later in any warranty
or representation in any guaranty of the Obligations or in any certificate
delivered to Bank in connection with the guaranty; or (iv) any circumstance
described in Section 7, or Sections 8.4, 8.5 or 8.7 occurs to any Guarantor, or
(v) the death of any Guarantor.

          9    BANK'S RIGHTS AND REMEDIES

          9.1  Rights and Remedies. When an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:

               (a) Declare all Obligations immediately due and payable (but if
          an Event of Default described in Section 8.5 occurs all Obligations
          are immediately due and payable without any action by Bank);

               (b) Stop advancing money or extending credit for Borrower's
          benefit under this Agreement or under any other agreement between
          Borrower and Bank;

               (c) Settle or adjust disputes and claims directly with account
          debtors for amounts, on terms and in any order that Bank considers
          advisable;

               (d) Make any payments and do any acts it considers necessary or
          reasonable to protect its security interest in the Collateral.
          Borrower shall assemble the Collateral if Bank requests and make it
          available as Bank designates. Bank may enter premises where the
          Collateral is located, take and maintain possession of any part of the
          Collateral, and pay, purchase, contest, or compromise any Lien which
          appears to be prior or superior to its security interest and pay all
          expenses incurred. Borrower grants Bank a license to enter and occupy
          any of its premises, without charge, to exercise any of Bank's rights
          or remedies;

                                       11

<PAGE>

               (e) Apply to the Obligations any (i) balances and deposits of
          Borrower it holds, or (ii) any amount held by Bank owing to or for the
          credit or the account of Borrower;

               (f) Ship, reclaim, recover, store, finish, maintain, repair,
          prepare for sale, advertise for sale, and sell the Collateral. Subject
          to and to the extent limited by agreements with or rights of third
          parties and applicable law, Bank is granted a non-exclusive,
          royalty-free license or other right to use, without charge, Borrower's
          labels, patents, copyrights, mask works, rights of use of any name,
          trade secrets, trade names, trademarks, service marks, and advertising
          matter, or any similar property as it pertains to the Collateral, in
          completing production of, advertising for sale, and selling any
          Collateral and, in connection with Bank's exercise of its rights under
          this Section and subject to and to the extent limited by agreements
          with or rights of third parties and applicable law, Borrower's rights
          under all licenses and all franchise agreements inure to Bank's
          benefit; and

               (g) Dispose of the Collateral according to the Code.

          9.2  Power of Attorney. Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, to be effective upon the occurrence and during the
continuance of an Event of Default, to: (i) endorse Borrower's name on any
checks or other forms of payment or security; (ii) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against account debtors;
(iii) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; (iv) make,
settle, and adjust all claims under Borrower's insurance policies; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred
until all Obligations have been satisfied in full and Bank is under no further
obligation to make Credit Extensions hereunder. Bank's foregoing appointment as
Borrower's attorney in fact, and all of Bank's rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.

          9.3  Accounts Collection. In the event that an Event of Default occurs
and is continuing, Bank may notify any Person owing Borrower money of Bank's
security interest in the funds and verify and/or collect the amount of the
Account. Any amounts received by Borrower shall be held in trust by Borrower for
Bank, and, if requested by Bank, Borrower shall immediately deliver such
receipts to Bank in the form received from the account debtor, with proper
endorsements for deposit.

          9.4  Bank Expenses. Any amounts paid by Bank as provided herein are
Bank Expenses and are immediately due and payable, and shall bear interest at
the then applicable rate and be secured by the Collateral. No payments by Bank
shall be deemed an agreement to make similar payments in the future or Bank's
waiver of any Event of Default.

          9.5  Bank's Liability for Collateral. So long as the Bank complies
with reasonable banking practices regarding the safekeeping of collateral, the
Bank shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral.

          9.6  Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other loan documents are cumulative. Bank
has all rights and remedies provided under the Code, by law, or in equity.
Bank's exercise of one right or remedy is not an election, and Bank's waiver of
any Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.

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<PAGE>

          9.7  Demand Waiver. Except as otherwise provided herein, Borrower
waives demand, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Bank on which Borrower is liable.

          10   NOTICES

          All notices or demands by any party to this Agreement or any other
     related agreement must be in writing and be personally delivered or sent by
     an overnight delivery service, by certified mail, postage prepaid, return
     receipt requested, or by telefacsimile at the addresses listed below.
     Either Bank or Borrower may change its notice address by giving the other
     written notice.

                  If to Borrower: Speechworks International, Inc. 695
                                  Atlantic Avenue Boston,
                                  Massachusetts 02111
                                  Attn: Corporate Controller FAX: (617) 757-2243

                  with a copy to: Speechworks International, Inc.
                                  695 Atlantic Avenue Boston,
                                  Massachusetts 02111 Attn:
                                  General Counsel
                                  FAX: (617) 757-2211

                      If to Bank: Silicon Valley Bank
                                  One Newton Executive Park,
                                  Suite 200 2221 Washington Street
                                  Newton, Massachusetts 02462
                                  Attn: Michael Tramack Fax: (617) 969-5962

                  with a copy to: Riemer & Braunstein LLP
                                  Three Center Plaza
                                  Boston, Massachusetts 02108
                                  Attn: David A. Ephraim, Esquire
                                  FAX: (617) 880-3456

          11   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

          Massachusetts law governs the Loan Documents without regard to
principles of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Massachusetts; provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and
venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, THE BANK
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR
ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK DEEMS
NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE
ENFORCE THE BANK'S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND

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<PAGE>

ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

          12   GENERAL PROVISIONS

          12.1 Successors and Assigns. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.

          12.2 Indemnification. Borrower hereby indemnifies, defends and holds
the Bank and its officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.

          12.3 Right of Set-Off. Borrower and any guarantor hereby grant to
Bank, a lien, security interest and right of setoff as security for all
Obligations to Bank, whether now existing or hereafter arising upon and against
all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the
control of the Bank or in transit to any of them. At any time after the
occurrence and during the continuance of an Event of Default, without demand or
notice, Bank may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower and any guarantor even though unmatured and
regardless of the adequacy of any other collateral securing the loan. ANY AND
ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER
OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

          12.4 Time of Essence. Time is of the essence for the performance of
all Obligations in this Agreement.

          12.5 Severability of Provision. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.

          12.6 Amendments in Writing; Integration. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter,
and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

          12.7 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, constitute
one Agreement.

          12.8 Survival. All covenants, representations and warranties made in
this Agreement continue in full force while any Obligations remain outstanding.
The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until
the statute of limitations with respect to such claim or cause of action shall
have run.

          12.9 Confidentiality. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their business with Borrower; (ii)
to prospective transferees or purchasers of any interest in the Credit
Extensions (provided, however, Bank shall use commercially reasonable efforts in
obtaining such prospective transferee's or purchaser's agreement to the terms of
this provision); (iii) as required by law,

                                       14

<PAGE>

regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit; and (v) as Bank considers appropriate in exercising
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.

          12.10 Amended and Restated Loan and Security Agreement. This Agreement
amends and restates in its entirety a certain Loan and Security Agreement dated
as of March 26, 1999, between Borrower and Bank, as amended by a certain First
Loan Modification Agreement dated as of November 24, 1999, as further amended by
a certain Second Loan Modification Agreement dated as of June 1, 2000, as
further amended by a certain Third Loan Modification Agreement dated as of
August 6, 2001, and as further amended by a certain Fourth Loan Modification
Agreement dated as of November 13, 2001.

          12.11 Confirmations and Ratifications. Borrower hereby ratifies,
confirms and reaffirms, all and singular, the terms and conditions of a certain
Negative Pledge Agreement dated as of March 26, 1999 between Borrower and Bank,
and acknowledges, confirms and agrees that said Negative Pledge Agreement shall
remain in full force and effect.

          13   DEFINITIONS

          13.1 Definitions.

          "Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, as such definition may be amended from time to time according to the
Code.

          "Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.

          "Affiliate" of a Person is a Person that owns or Controls (as defined
below) directly or indirectly the Person, any Person that Controls or is
Controlled by or is under common Control with the Person, and each of that
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person's managers and members.

          "Bank Expenses" are all audit fees and expenses and reasonable costs
or expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

          "Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

          "Borrowing Base" means an amount equal to eighty percent (80.0%) of
Eligible Accounts, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower; provided, however, that Bank
may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral.

          "Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

          "Cash Management Services" are defined in Section 2.1.4.

          "Cash Management Services Sublimit" is defined in Section 2.1.4.

          "Closing Date" is the date of this Agreement.

                                       15

<PAGE>

          "Code" is the Uniform Commercial Code as adopted in Massachusetts, as
amended and as may be amended and in effect from time to time.

          "Collateral" is any and all properties, rights and assets of the
Borrower granted by the Borrower to Bank or arising under the Code, now, or in
the future, in which the Borrower obtains an interest, or the power to transfer
rights, including, without limitation, the property described on Exhibit A.

          "Committed Equipment Line" is an Equipment Advance or Equipment
Advances of up to Six Million Dollars ($6,000,000.00).

          "Committed Revolving Line" is an Advance or Advances of up to
$5,000,000.00.

          "Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

          "Control" Person(s) shall be deemed to Control another Person if such
Person(s) directly or indirectly possess the power to direct or cause the
direction of the management and policies of such other Person, whether through
ownership of voting securities, by contract, or otherwise.

          "Credit Extension" is each Advance (including Cash Management Services
advances), Equipment Advance, Letter of Credit, FX Forward Contract or any other
extension of credit by Bank for Borrower's benefit.

          "Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower thirty (30) days
prior written notice. Unless Bank agrees otherwise in writing, Eligible Accounts
shall not include:

               (a) Accounts that the account debtor has not paid within ninety
          (90) days of invoice date;

               (b) Accounts for an account debtor, fifty percent (50%) or more
          of whose Accounts have not been paid within ninety (90) days of
          invoice date;

               (c) Credit balances over ninety (90) days from invoice date;

               (d) Accounts for an account debtor, including Affiliates, whose
          total obligations to Borrower exceed twenty-five (25%) of all
          Accounts, for the amounts that exceed that percentage, unless Bank
          approves in writing;

               (e) Accounts for which the account debtor does not have its
          principal place of business in the United States;

               (f) Accounts for which the account debtor is a federal, state or
          local government entity or any department, agency, or instrumentality
          thereof except for Accounts of the United States if the payee has
          assigned its payment rights to Bank and the assignment has been
          acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C.
          3727);

                                       16

<PAGE>

               (g) Accounts for which Borrower owes the account debtor, but only
          up to the amount owed (sometimes called "contra" accounts, accounts
          payable, customer deposits or credit accounts);

               (h) Accounts for demonstration or promotional equipment, with
          respect to which payment is conditional, or in which goods are
          consigned, sales guaranteed, sale or return, sale on approval, bill
          and hold, or other terms if account debtor's payment may be
          conditional;

               (i) Accounts for which the account debtor is Borrower's
          Affiliate, officer, employee, or agent;

               (j) Accounts in which the account debtor disputes liability or
          makes any claim and Bank believes there may be a basis for dispute
          (but only up to the disputed or claimed amount), or if the Account
          Debtor is subject to an Insolvency Proceeding, or becomes insolvent,
          or goes out of business;

               (k) Accounts for which Bank reasonably determines after inquiry
          and consultation with Borrower collection to be doubtful.

          "Eligible Equipment" is (a) general purpose computer equipment, office
equipment, test and laboratory equipment, furnishings, subject to the
limitations set forth herein, and (b) Other Equipment that complies with all of
Borrower's representations and warranties to Bank and which is reasonably
acceptable to Bank in all respects.

          "Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

          "Equipment Advance" is defined in Section 2.1.5.

          "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

          "Event of Loss" is defined in Section 6.9.

          "Financed Equipment" is all present and future Eligible Equipment in
which Borrower has any interest, the purchase of which is financed by an
Equipment Advance.

          "Funding Date" is any date on which an Equipment Advance is made to or
on account of Borrower.

          "FX  Forward Contract" is defined in Section 2.1.3.

          "FX  Reserve" is defined in Section 2.1.3.

          "GAAP" is generally accepted accounting principles.

          "Guarantor" is any present or future guarantor of the Obligations,
including SPEECHWORKS INTERNATIONAL HOLDINGS, INC., SPEECHWORKS SECURITIES CORP.
and SPEECHWORKS ACQUISITION CORP.

          "Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

          "Initial Equipment Advance" is defined in Section 2.1.5.

                                       17

<PAGE>

          "Insolvency Proceeding" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

          "Intellectual Property" is any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, now owned or
later acquired; any patents, trademarks, service marks and applications
therefor; any trade secret rights, including any rights to unpatented
inventions, now owned or hereafter acquired.

          "Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

          "Investment" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

          "Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.

          "Letter of Credit Reserve" has the meaning set forth in Section 2.1.2.

          "Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

          "Loan Amount" in respect of each Equipment Advance is the original
principal amount of such Equipment Advance.

          "Loan Documents" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

          "Material Adverse Change" is: (i) A material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral; (ii) a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower; (iii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iv) Bank determines, based upon information available to it and
in its reasonable judgment, that there is a reasonable likelihood that Borrower
shall fail to comply with one or more of the financial covenants in Section 6
during the next succeeding financial reporting period.

          "Maturity Date" is the Revolving Maturity Date with respect to the
Committed Revolving Line and is, with respect to each Equipment Advance, the
last day of the Repayment Period for such Equipment Advance, or if earlier, the
date of prepayment or the date of acceleration of such Equipment Advance by Bank
following an Event of Default.

          "Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank pursuant to this Agreement (including any Letters of
Credit) or any other agreement executed in connection with this Agreement, now
or later, including letters of credit, cash management services, and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.

          "Original Stated Cost" is (i), the original cost to the Borrower of
the item of new Equipment net of any and all freight, installation, tax, or (ii)
the fair market value assigned to such item of used Equipment by mutual
agreement of Borrower and Bank at the time of making of the Equipment Advance.

                                       18

<PAGE>

          "Other Equipment" is leasehold improvements, intangible property such
as computer software and software licenses, and soft costs approved by the Bank,
including sales tax, freight and installation expenses. Unless otherwise agreed
to by Bank, not more than 25% of the proceeds of the Committed Equipment Line
shall be used to finance Other Equipment.

          "Payment Date" is defined in Section 2.3(b)(i).

          "Permitted Indebtedness" is:

               (a) Borrower's indebtedness to Bank under this Agreement or the
          Loan Documents;

               (b) Indebtedness existing on the Closing Date and shown on the
          Schedule;

               (c) Subordinated Debt;

               (d) Indebtedness to trade creditors incurred in the ordinary
          course of business;

               (e) Indebtedness secured by Permitted Liens; and

               (f) Extensions, refinancings, modifications, amendments and
          restatements of any items ofPermitted Indebtedness are: (a) through
          (e) above, provided that the principal amount thereof is not increased
          or the terms thereof are not modified to impose more burdensome terms
          upon Borrower or its Subsidiary, as the case may be.

          "Permitted Investments"

               (a) Borrower's existing investment in AgileTV Corp.;

               (b) Joint ventures, strategic alliances, or investments in the
          ordinary course of Borrower's business, and approved by the Borrower's
          Board of Directors, up to the maximum of $5,000,000 in the aggregate,
          provided that such joint ventures, strategic alliances, or investments
          will not cause or result in an Event of Default, whether as a result
          of the passage of time or otherwise; and

               (c) (i) marketable direct obligations issued or unconditionally
          guaranteed by the United States or its agency or any state maturing
          within 1 year from its acquisition, (ii) commercial paper maturing no
          more than 1 year after its creation and having the highest rating from
          either Standard & Poor's Corporation or Moody's Investors Service,
          Inc., (iii) Bank's certificates of deposit issued maturing no more
          than 1 year after issue, (iv) any other investments administered
          through the Bank.

          "Permitted Liens" are:

               (a) Liens existing on the Closing Date and shown on the Schedule
          or arising under this Agreement or other Loan Documents;

               (b) Liens for taxes, fees, assessments or other government
          charges or levies, either not delinquent or being contested in good
          faith and for which Borrower maintains adequate reserves on its Books,
          if they have no priority over any of Bank's security interests;

               (c) Purchase money Liens (i) on Equipment acquired or held by
          Borrower incurred for financing the acquisition of the Equipment, or
          (ii) existing on equipment when acquired, if the Lien is confined to
          the property and improvements and the proceeds of the equipment;

                                       19

<PAGE>

               (d) Leases or subleases and non-exclusive licenses or sublicenses
          granted in the ordinary course of Borrower's business, if the leases,
          subleases, licenses and sublicenses permit granting Bank a security
          interest; and

               (e) Liens incurred in the extension, renewal or refinancing of
          the indebtedness secured by Liens described in (a) through (c), but
          any extension, renewal or replacement Lien must be limited to the
          property encumbered by the existing Lien and the principal amount of
          the indebtedness may not increase.

          "Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

          "Prime Rate" is Bank's most recently announced "prime rate," even if
it is not Bank's lowest rate.

          "Repayment Period" as to each Equipment Advance, is a period of time
equal to thirty six (36) consecutive months commencing on the First Business Day
of the month following the month in which the Funding Date occurs (or commencing
on the Funding Date if the Funding Date is the First Business Day of the month).

          "Responsible Officer" is each of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.

          "Revolving Maturity Date" is November 30, 2002. "Schedule" is any
ttached schedule of exceptions. "Scheduled Payment" is defined in Section
2.2(b)(i).

          "Schedule" is any attached schedule of exceptions

          "Scheduled Payment" is defined in Section 2.2 (b)(i).

          "Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (pursuant to a subordination agreement entered into
between the Bank, the Borrower and the subordinated creditor), on terms
acceptable to Bank.

          "Subsidiary" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.

          "Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, without duplication, (i) any amounts
attributable to (a) goodwill, (b) intangible items including unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, investments, joint
ventures or strategic alliances, and (c) reserves not already deducted from
assets, minus (ii) Total Liabilities.

          "Total Liabilities" is on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all Indebtedness, and current portion of Subordinated Debt permitted
to be paid by Bank, but excluding all other Subordinated Debt.

            [the remainder of this page is intentionally left blank]

                                       20

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.

BORROWER:

SPEECHWORKS INTERNATIONAL, INC.

By /s/ Richard Westelman
   ---------------------

Name: Richard Westelman
      ------------------

Title: Treasurer and CFO
       -----------------

BANK:

SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST

By /s/ Michael Tramack
   -------------------

Name: Michael Tramack
      ----------------

Title: Vice President
       ---------------

SILICON VALLEY BANK

By /s/ Maggie Garcia
   ------------------

Name: Maggie Garcia
      ---------------

Title: Loan Admin. Team Leader
       -----------------------
    (Signed in Santa Clara County, California)

                                       21

<PAGE>

                                    EXHIBIT A

     The Collateral consists of all right, title and interest of Borrower in and
to the following:

     All goods, equipment, inventory, contract rights or rights to payment of
money, license agreements, franchise agreements, general intangibles (including
payment intangibles), accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and

     All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

     Notwithstanding the foregoing, the Collateral does not include in any
event:

     Any copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work, whether
published or unpublished, now owned or later acquired; any patents, trademarks,
service marks and applications therefor; any trade secret rights, including any
rights to unpatented inventions, now owned or hereafter acquired.
Notwithstanding the foregoing, the Collateral shall include all accounts,
license and royalty fees and other revenues, proceeds, or income arising out of
or relating to any of the foregoing intellectual property. To the extent a court
of competent jurisdiction holds that a security interest in any Intellectual
Property is necessary to have a security interest in any accounts, license and
royalty fees and other revenues, proceeds, or income arising out of or relating
to any of the foregoing Intellectual Property, then the Collateral shall,
effective as of the Closing Date, include the Intellectual Property, to the
extent necessary to permit perfection of the Bank's security interest in such
accounts, license and royalty fees and other revenues, proceeds, or income
arising out of or relating to any of the Intellectual Property, and to the
extent such inclusion is not violative of, prohibited by, or would trigger an
adverse consequence under any material agreement relating to such Intellectual
Property or applicable law.

                                       22

<PAGE>

                                    EXHIBIT B

                        Loan Payment/Advance Request Form
                 DEADLINE FOR SAME DAY PROCESSING IS 3:00 E.S.T.

Fax To: (617) 969-5965                                        Date:_____________
--------------------------------------------------------------------------------
LOAN PAYMENT:

                    Sample documents Client Name (Borrower)

From Account #_____________________________
                         (Deposit Account #

To Account # (Deposit Account #)_______________________________
                                                (Loan Account #)

Principal $_____________ and/or Interest $_____________

All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

Authorized Signature:_____________________________

Phone Number:_____________________________

--------------------------------------------------------------------------------
LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

From Account #_________________             To Account #______________________
                (Loan Account #)                            (Deposit Account #)

Amount of Advance $______________________

All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

Authorized Signature:_____________________________

Phone Number:_____________________________

--------------------------------------------------------------------------------
OUTGOING WIRE REQUEST

Complete only if all or a portion of funds from the loan advance above are to be
wired.

Deadline for same day processing is 3:00pm, E.S.T.

Beneficiary Name:_________________              Amount of Wire:$________________

Beneficiary Bank:_________________              Account Number:_________________

City and State:_________________

Beneficiary Bank Transit (ABA) #:_________________
Beneficiary Bank Code (Swift, Sort, Chip,etc.):

(For International Wire Only)

Intermediary Bank:_____________________________

Transit (ABA) #:_____________________________

For Further Credit to:__________________________________________________________

Special Instruction:____________________________________________________________

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

Authorized Signature:_____________________________

Print Name/Title:_____________________________

Telephone #_____________________________

2nd Signature (If Required):_____________________________

Print Name/Title:_____________________________

Telephone #_____________________________

--------------------------------------------------------------------------------

                                       23

<PAGE>

                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE

--------------------------------------------------------------------------------

Borrower: Speechworks International, Inc.            Lender: Silicon Valley Bank

Commitment Amount: $5,000,000.00

--------------------------------------------------------------------------------

ACCOUNTS RECEIVABLE

1.   Accounts Receivable Book Value as of                           $___________
2.   Additions (please explain on reverse)                          $___________
3.   TOTAL ACCOUNTS RECEIVABLE                                      $___________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.   Amounts over 90 days due                                       $___________
5.   Balance of 50% over 90 day accounts                            $___________
6.   Credit balances over 90 days                                   $___________
7.   Concentration Limits                                           $___________
8.   Foreign Accounts                                               $___________
9.   Governmental Accounts                                          $___________
10.  Contra Accounts                                                $___________
11.  Promotion or Demo Accounts                                     $___________
12.  Intercompany/Employee Accounts                                 $___________
13.  Other (please explain on reverse)                              $___________
14.  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                           $___________
15.  Eligible Accounts (#3 minus #14)                               $___________
16.  LOAN VALUE OF ACCOUNTS (80% of #15)                            $___________

BALANCES
17.  Maximum Loan Amount                                            $___________
18.  Total Funds Available (Lesser of #17 or #16)                   $___________
19.  Present balance owing on Line of Credit                        $___________
20.  Outstanding under Sublimits                                    $___________
21.  RESERVE POSITION (#18 minus #19 and #20)                       $___________

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

COMMENTS:

By: ______________________________
                 Authorized Signer

                                              ----------------------------------

                                                          BANK USE ONLY

                                              Received by: _____________________

                                                               AUTHORIZED SIGNER

                                              Date: ____________________________

                                              Verified: ________________________

                                                               AUTHORIZED SIGNER

                                              Date: ____________________________

                                              ----------------------------------

                                       24

<PAGE>

                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE

TO:  SILICON VALLEY BANK

FROM: SPEECHWORKS INTERNATIONAL, INC.

      The undersigned authorized officer of SPEECHWORKS INTERNATIONAL, INC.
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.

Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>

Reporting Covenant                            Required                                Complies
------------------                            --------                                --------
<S>                                        <C>                                     <C>
Monthly financial statements with CC          Monthly within 30 days                   Yes No
Annual (CPA Audited)                          FYE within 120 days                      Yes No
10-Q, 10-K and 8-K                            Within 5 days after filing with SEC      Yes No
BBC & A/R Agings                              Monthly within 30 days                   Yes No

Financial Covenant                            Required                    Actual      Complies
------------------                            --------                    ------      --------
Maintain at all times (tested Monthly):
   Minimum Tangible Net Worth                  $55,000,000              $_______       Yes No

</TABLE>

Comments Regarding Exceptions: See Attached.

Sincerely,                                    ----------------------------------

                                                          BANK USE ONLY
_____________________
SIGNATURE                                     Received by: _____________________

                                                               AUTHORIZED SIGNER

_____________________________                 Date: ____________________________
TITLE

                                              Verified: ________________________

                                                               AUTHORIZED SIGNER
_____________________________
DATE
                                              Date: ____________________________

                                              ----------------------------------

                                       25<PAGE>

                                                                     EXHIBIT 4.1

                            BOSTON ACOUSTICS, INC.

                          1997 STOCK PLAN, AS AMENDED

     1.  Purpose.  The purpose of this plan (the "Plan") is to secure for Boston
         -------
Acoustics, Inc. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors and consultants of
the Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success.  This Plan is intended to
provide incentives: (i) to employees, officers, directors and consultants of the
Company by providing them with opportunities to purchase shares of the Company's
Common Stock, $0.01 par value ("Common Stock"), pursuant to options granted
hereunder ("Options") and (ii) to directors of the Company by providing them
with the opportunity to purchase shares of Common Stock directly from the
Company ("Purchases").  Except where the context otherwise requires, the term
"Company" shall include the parent and all present and future subsidiaries of
the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to ISOs (as that term is defined in the Plan).

     2.  Administration and Types of Options.
         -----------------------------------

         (a)   Administration.  Except as otherwise provided in Section 24, the
               --------------
     Plan shall be administered by a compensation committee (the "Committee") of
     not less than two directors of the Company appointed by the Board of
     Directors of the Company (the "Board") each of whom is not an employee of
     the Company and who qualifies as a "disinterested person" within the
     meaning of Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange
     Act of 1934, as amended (the "Act").  Subject to ratification of the grant
     or authorization of each Option by the Board (if so required by applicable
     state law), and subject to the terms of the Plan, the Committee, shall have
     the authority to (i) determine the employees of the Company (from among the
     class of employees eligible under Section 3 to receive ISOs (as such term
     is defined below)) to whom ISOs may be granted, and to determine (from
     among the class of individuals and entities eligible under Section 3 to
     receive Non-Qualified Options(as such term is defined below)) to whom Non-
     Qualified Options may be granted; (ii) determine the time or times at which
     Options may be granted; (iii) determine the option price of shares subject
     to each Option, which price shall not be less than the minimum price
     specified in Section 6(a); (iv) determine whether each Option granted shall
     be an ISO or a Non-Qualified Option; (v) determine (subject to Section 8)
     the time or times when each Option shall become exercisable and the
     duration of the exercise period; (vi) determine whether restrictions such
     as repurchase options are to be imposed on shares subject to Options and
     the nature of such restrictions, if any, and (vii) interpret the Plan and
     prescribe and rescind rules and regulations relating to it.   If the
     Committee determines to issue a Non-Qualified Option, it shall take
     whatever actions it deems necessary, under Section 422 of the Code and the
     regulations promulgated thereunder, to ensure that such Option is not
     treated as an ISO.  The interpretation and construction by the Committee of
     any provisions of the Plan or of any
<PAGE>

     Option granted under it shall be final unless otherwise determined by the
     Board. The Committee may from time to time adopt such rules and regulations
     for carrying out the Plan as it may deem best. No member of the Board or
     the Committee shall be liable for any action or determination made in good
     faith with respect to the Plan or any Option or any Purchase granted under
     it.

         (b)   Compensation Committee.  The Committee may select one of its
               ----------------------
     members as its chairman, and shall hold meetings at such times and places
     as it may determine.  Acts by a majority of the Committee, or acts reduced
     to or approved in writing by a majority of the members of the Committee,
     shall be valid acts of the Committee.

         (c)   Applicability of Rule 16b-3.  Those provisions of the Plan which
               ---------------------------
     make express reference to Rule 16b-3 shall apply only to such persons as
     are required to file reports under Section 16(a) of the Exchange Act (a
     "Reporting Person").

         (d)   Types of Options.  Options granted pursuant to the Plan may be
               ----------------
     either incentive stock options ("ISOs") meeting the requirements of Section
     422 of the Code or non-qualified stock options ("Non-Qualified Options")
     which are not intended to meet the requirements of Section 422 of the Code.

     3.  Eligibility.
         -----------

         (a)   Options.  ISOs may be granted to any employee of the Company.
               -------
     Those officers and directors of the Company who are not employees of the
     Company may not be granted ISOs under the Plan.  Non-Qualified Options may
     be granted to any director, officer, employee or consultant of the Company.
     The Committee may take into consideration a recipient's individual
     circumstances in determining whether to grant an ISO or a Non-Qualified
     Option.  Granting an Option to any individual or entity shall neither
     entitle that individual or entity to, nor disqualify him, her or it from,
     participation in any other grant of an Option.

         (b)   Purchases.  Eligibility for Purchases under the Plan shall be
               ---------
     determined in accordance with Section 24 of the Plan.

     4.  Stock Subject to Plan.
         ---------------------

         (a)   Options.  Subject to adjustment as provided in Section 15 below,
               -------
     the maximum number of shares of Common Stock of the Company which may be
     issued and sold pursuant to Options issued under the Plan is 950,000
     shares.  The shares may be authorized, but unissued, or reacquired Common
     Stock.  If an Option granted under the Plan shall expire or terminate for
     any reason without having been exercised in full, the unpurchased shares
     subject to such Option shall again be available for subsequent Option
     grants under the Plan.  No shares issued upon exercise of any Option shall
     be returned to the Plan nor become available under the Plan for future
     distribution.

         (b)   Purchases. Subject to adjustment as provided in Section 15 below,
               ---------
     the maximum number of shares of Common Stock of the Company which may be
     issued and sold under Section 24 of the Plan is 20,000 shares. The shares
     may be authorized, but

                                      -2-
<PAGE>

     unissued, or reacquired Common Stock. No shares issued and sold under
     Section 24 of the Plan shall be returned to the Plan nor become available
     under the Plan for future distribution.

     5.  Forms of Option Agreements.  As a condition to the grant of an Option
         --------------------------
under the Plan, each recipient of an Option shall execute an option agreement in
such form not inconsistent with the Plan as may be approved by the Committee.
Such option agreements may differ among recipients.

     6.  Exercise Price.
         --------------

         (a)   General.  The price per share of stock deliverable upon the
               -------
     exercise of an Option shall be determined by the Committee, but it shall
     not be less than the par value per share of the stock; provided, that in
     the case of an ISO, the exercise price shall not be less than 100% of the
     fair market value of such stock, as determined by the Committee, at the
     time of grant of such Option, or less than 110% of such fair market value
     in the case of Options described in Section 11(b).

         (b)   Fair Market Value. If, at the time an Option is granted under the
               -----------------
     Plan or Common Stock is delivered to the Company, the Company's Common
     Stock is publicly traded, the "fair market value" shall be determined as of
     the last business day for which the prices or quotes discussed in this
     sentence are available prior to the date such Option is granted or Common
     Stock is delivered to the Company and shall mean (i) the last reported sale
     price (on that date) of the Common Stock on the principal national
     securities exchange on which the Common Stock is traded, if the Common
     Stock is then traded on a national securities exchange; or (ii) the last
     reported sale price (on that date) of the Common Stock on the NASDAQ
     National Market System, if the Common Stock is not then traded on a
     national securities exchange; or (iii) the closing bid price (or average of
     bid prices) last quoted (on that date) by an established quotation service
     for over-the-counter securities, if the Common Stock is not reported on the
     NASDAQ National Market System. However, if the Common Stock is not publicly
     traded at the time an Option is granted or the Common Stock is delivered,
     the "fair market value" shall be deemed to be the fair market value of the
     Common Stock as determined by the Committee after it takes into
     consideration all factors which it deems appropriate.

         (c)   Payment of Exercise Price.  Payment of the exercise price of
               -------------------------
     Options granted under the Plan may be  made (i) by delivery of cash or a
     check to the order of the Company in an amount equal to the exercise price
     of such Options, (ii) if authorized by the applicable option agreement or
     at the discretion of the Committee, by delivery to the Company of shares of
     Common Stock of the Company beneficially owned by the optionee for more
     than six months and which the optionee may freely transfer having a fair
     market value equal in amount to the exercise price of the options being
     exercised, (ii) by any other means (including, without limitation, by
     delivery of a promissory note of the optionee payable on such terms as are
     specified by the Committee) which the Committee determines are consistent
     with the purpose of the Plan and with then applicable laws and regulations
     (including, without limitation, the provisions of Rule 16b-3, to the extent
     that the Common Stock is registered under the Exchange Act, and Regulation
     T promulgated

                                      -3-
<PAGE>

     by the Federal Reserve Board) or (iii) by any combination of such methods
     of payment. The fair market value of any shares of the Company's Common
     Stock or other non-cash consideration which may be delivered upon exercise
     of an Option shall be determined by the Committee.

     7.  Option Period.  Each Option and all rights thereunder shall expire on
         -------------
such date as shall be set forth in the applicable option agreement, except that,
in the case of an ISO, such date shall not be later than ten years after the
date on which the Option is granted and, in all cases, Options shall be subject
to earlier termination as provided in the Plan.

     8.  Exercise of Options.  Each Option granted under the Plan shall be
         -------------------
exercisable either in full or in installments at such time or times and during
such period as shall be set forth in the agreement evidencing such option,
subject to the provisions of the Plan.  Notwithstanding the foregoing, Options
granted under the Plan to the Reporting Persons shall not be exercisable in any
part until at least six months  after the date of grant.

     9.  Nontransferability.
         ------------------

         (a)   Nontransferability of Options. ISOs and Non-Qualified Options
               -----------------------------
     granted to Reporting Persons shall not be assignable or transferable 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 optionee, shall be exercisable only by the optionee; provided,
     that Non-Qualified Options held by Reporting Persons may be transferred
     pursuant to a qualified domestic relations order (as defined in Rule 16b-
     3).  Non-Qualified Options held by persons other than Reporting Persons
     shall be subject to restrictions on transferability in the Plan or provided
     in the applicable option agreement.

         (b)   Nontransferability of Rights Under Purchase Elections.  Any right
               -----------------------------------------------------
     under a Purchase Election shall not be assignable or transferable by the
     director who made such Purchase Election, either voluntarily or by
     operation of law, except by will or the laws of descent and distribution or
     pursuant to a qualified domestic relations order (as defined in Rule 16b-
     3).

     10. Effect on Option of Termination of Employment or Other Relationship.
         -------------------------------------------------------------------
Except as provided in Section 11(d) with respect to ISOs, and subject to the
provisions of the Plan, the Committee shall determine the period of time during
which an optionee may exercise an Option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee.  Such periods shall be set forth in the agreement
evidencing such Option.

     11. ISOs.  Options granted under the Plan which are intended to be ISOs
         ----
shall be subject to the following additional terms and conditions:

         (a)   Express Designation.  All ISOs granted under the Plan shall, at
               -------------------
     the time of grant, be specifically designated as such in the option
     agreement covering such ISOs.

         (b)   10% Shareholder.  If any employee to whom an ISO is to be granted
               ---------------
     under the Plan is, at the time of the grant of such Option, the owner of
     stock possessing more

                                      -4-
<PAGE>

     than 10% of the total combined voting power of all classes of stock of the
     company (after taking into account the attribution of stock ownership rules
     of Section 424(d) of the Code), then the following special provisions shall
     be applicable to the ISO granted to such an individual:

               (i)    the purchase price per share of the Common Stock subject
                      to such ISO shall not be less than 110% of the fair market
                      value of one share of Common Stock at the time of grant;
                      and

               (ii)   the exercise period of such ISO shall not exceed five
                      years from the date of grant.

         (c)   Dollar Limitation.   For so long as the Code shall so provide,
               -----------------
     Options granted to any employee under the Plan (and any other stock option
     plans of the Company) which are intended to constitute ISOs shall not
     constitute ISOs to the extent that such options, in the aggregate, become
     exercisable for the first time in any one calendar year for shares of
     Common Stock with an aggregate fair market value (determined as of the
     respective date or dates of grant) of more than $100,000.

         (d)   Termination of Employment, Death or Disability.   No ISO may be
               ----------------------------------------------
     exercised unless, at the time of such exercise, the optionee is, and has
     been continuously since the date of grant of his or her Option, employed by
     the Company, except that:

               (i)    an ISO may be exercised within the period of three months
                      after the date the optionee ceases to be an employee of
                      the Company (or within such lesser period as may be
                      specified in the applicable option agreement); provided
                      that the agreement with respect to such Option may
                      designate a longer exercise period and that the exercise
                      after such three-month period shall be treated as the
                      exercise of a Non-Qualified Option under the Plan;

               (ii)   if the optionee dies while in the employ of the Company,
                      or within three months after the optionee ceases to be
                      such an employee, the ISO may be exercised by the person
                      to whom it is transferred by will or the laws of descent
                      and distribution within the period of one year after the
                      date of death (or within such lesser period as may be
                      specified in the applicable option agreement); and

               (iii)  if the optionee becomes disabled (within the meaning of
                      Section 22(e)(3) of the Code or any successor provision
                      thereto) while in the employ of the Company, the ISO may
                      be exercised within the period of one year after the date
                      the optionee ceases to be such an employee because of such
                      disability (or within such lesser period as may be
                      specified in the applicable option agreement).

     For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations

                                      -5-
<PAGE>

(or any successor regulations). Notwithstanding the foregoing provisions, no ISO
may be exercised after its expiration date.

     12.  Additional Option Provisions
          ----------------------------

          (a)  Additional Option Provisions.  The Committee may, in its sole
               ----------------------------
     discretion, include additional provisions in Option agreements covering
     options granted under the Plan, including without limitation restrictions
     on transfer, repurchase rights, commitments to pay cash bonuses, to make,
     arrange for or guaranty loans or to transfer other property to optionees
     upon exercise of Options, or such other provisions as shall be determined
     by the Committee; provided that such additional provisions shall not be
     inconsistent with any other term or condition of the Plan and such
     additional provisions shall not cause any ISO granted under the Plan to
     fail to qualify as an ISO within the meaning of Section 422 of the Code.

          (b)  Option Acceleration, Extension, Etc.  The Committee may, in its
               -----------------------------------
     sole discretion, (i) accelerate the date or dates on which all or any
     particular Option or Options granted under the Plan may be exercised or
     (ii) extend the dates during which all, or any particular, Option or
     Options granted under the Plan may be exercised; provided that no such
     extension shall be permitted if it would cause the Plan to fail, to comply
     with Section 422 of the Code or with Rule 16b-3 as then in effect, to the
     extent that the Common Stock is registered under the Exchange Act.

     13.  General Restrictions.
          --------------------

          (a)  Investment Representations.  The Company may require any person
               --------------------------
     to whom an Option is granted or shares are to be sold hereunder, as a
     condition of exercising such Option or purchasing shares pursuant to
     Section 24, to give written assurances in substance and form satisfactory
     to the Company to the effect that such person is acquiring the Common Stock
     for his or her own account for investment and not with any present
     intention of selling or otherwise distributing the same, and to such other
     effect as the Company deems necessary or appropriate in order to comply
     with federal and applicable state securities laws, or with covenants or
     representations made by the Company in connection with any public offering
     of its Common Stock.

          (b)  Compliance with Securities Laws.  Each Option shall be subject to
               -------------------------------
     the requirement that if, at any time, counsel to the Company shall
     determine that the listing, registration or qualification of the shares
     subject to such Option upon any securities exchange or under any state or
     federal law, or the consent or approval of any governmental or regulatory
     body, or that the disclosure of non-public information or the satisfaction
     of any other condition is necessary as a condition of, or in connection
     with, the issuance or purchase of shares thereunder, such Option may not be
     exercised, in whole or in part, unless such listing, registration,
     qualification, consent or approval, or satisfaction of such condition shall
     have been effected or obtained on conditions acceptable to the Committee.
     Nothing herein shall be deemed to require the Company to apply for or to
     obtain such listing, registration or qualification, or to satisfy such
     condition.

                                      -6-
<PAGE>

     14.  Rights as a Shareholder.  Neither a holder of an Option nor a director
          -----------------------
having made a Purchase Election shall have any rights as a shareholder with
respect to any shares covered by the Option or Purchase Election (including,
without limitation, any rights to receive dividends or non-cash distributions
with respect to shares subject thereto) until the date of issue of a stock
certificate to him or her for such shares.  No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.

     15.  Adjustment Provisions for Recapitalizations and Related Transactions.
          --------------------------------------------------------------------

          (a)  Adjustments Relating to Options.  If, through or as a result of
               -------------------------------
     any merger, consolidation, sale of all or substantially all of the assets
     of the Company, reorganization, recapitalization, reclassification, stock
     dividend, stock split, reverse stock split or other similar transaction,
     (i) the outstanding shares of Common Stock are increased, decreased or
     exchanged for a different number or kind of shares or other securities of
     the Company, or (ii) additional shares or new or different shares or other
     securities of the Company or other non-cash assets are distributed with
     respect to such shares of Common Stock or other securities, an appropriate
     and proportionate adjustment may be made in (x) the maximum number and kind
     of shares reserved for issuance pursuant to Options issued under the Plan,
     (y) the number and kind of shares or other securities subject to any then
     outstanding Options under the Plan, and (z) the price for each share
     subject to any then outstanding Options, without changing the aggregate
     purchase price as to which such Options remain exercisable. Notwithstanding
     the foregoing, no adjustment shall be made pursuant to this Section 15 to
     the extent  such adjustment would cause any ISO issued under the Plan to
     fail to comply with Section 422 of the Code or the Plan to fail to comply
     with Rule 16b-3 as then in effect, to the extent that the Common Stock is
     registered under the Exchange Act.

          (b)  Committee Authority to Make Adjustments.  Any adjustments under
               ---------------------------------------
     Section 15(a) will be made by the Committee, whose determination as to what
     adjustments, if any, will be made and the extent thereof will be final,
     binding and conclusive.  No fractional shares will be issued under the Plan
     on account of any such adjustments.

          (c)  Adjustments Relating to Purchasers.  If, through or as a result
               ----------------------------------
     of any merger, consolidation, sale of all or substantially all of the
     assets of the Company, reorganization, recapitalization, reclassification,
     stock dividend, stock split, reverse stock split or other similar
     transaction, (i) the outstanding shares of Common Stock are increased,
     decreased or exchanged for a different number or kind of shares or other
     securities of the Company, or (ii) additional shares or new or different
     shares or other securities of the Company or other non-cash assets are
     distributed with respect to such shares of Common Stock or other
     securities, an appropriate and proportionate adjustment may be made in (x)
     the maximum number and kind of shares reserved for issuance pursuant to
     Section 24 of the Plan, (y) the number and kind of shares or other
     securities subject to any then outstanding Purchase Elections, and (z) the
     price for each share subject to any then outstanding Purchase Election,
     without changing the aggregate purchase price as to such Purchases which
     have not yet occurred. Notwithstanding the foregoing, no adjustment shall
     be made pursuant to this Section 15(c) to the extent such

                                      -7-
<PAGE>

     adjustment would cause any ISO issued under the Plan to fail to comply with
     Section 422 of the Code or the Plan to fail to comply with Rule 16b-3 as
     then in effect, to the extent that the Common Stock is registered under the
     Exchange Act.

          (d)  Board Authority to Make Adjustments.  Any adjustment under
               -----------------------------------
     Section 15(c) will be made by the Board, whose determination as to what
     adjustments, if any, will be made and the extent thereof will be final,
     binding and conclusive. No fractional shares will be issued under the Plan
     on account of any such adjustments.

     16.  Merger, Consolidation, Asset Sale, Liquidation, etc.
          ---------------------------------------------------

          (a)  Options.   In the event of a consolidation or merger or sale of
               -------
     all or substantially all of the assets of the Company in which outstanding
     shares of Common Stock are exchanged for securities, cash or other property
     of any other corporation or business entity or in the event of a
     liquidation of the Company, the Committee, or the board of directors of any
     corporation assuming the obligations of the Company may in its discretion,
     take any one or more of the following actions, as to outstanding Options:
     (i) provide that such Options shall be assumed, or equivalent options shall
     be substituted, by the acquiring or succeeding corporation (or an affiliate
     thereof), provided that any such options substituted for ISOs shall meet
     the requirements of Section 424(a) of the Code, (ii) upon written notice to
     the optionees, provide that all unexercised Options will terminate
     immediately prior to the consummation of such transaction unless exercised
     by the optionee within a specified period following the date of such
     notice, (iii) in the event of a merger under the terms of which holders of
     the Common Stock of the Company will receive upon consummation thereof a
     cash payment for each share surrendered in the merger (the "Merger Price"),
     make or provide for a cash payment to the optionees equal to the difference
     between (A) the Merger Price times the number of shares of Common Stock
     subject to such outstanding Options (to the extent then exercisable at
     prices not in excess of the Merger Price) and (B) the aggregate exercise
     price of all such outstanding Options in exchange for the termination of
     such options, and (iv) provide that all or any outstanding Options shall
     become exercisable in full immediately prior to such event; provided that
     notwithstanding anything to the contrary in this Section 16(a), any action
     taken by the Committee hereunder shall be in compliance with Rule 16b-3 as
     in effect at the time of such action and the conditions thereof necessary
     to maintain qualification of the Plan under Rule 16b-3, to the extent that
     the Common Stock is registered under the Exchange Act.   In the case of any
     Option which by the terms of the grant thereof (or the agreement or
     instrument governing such grant) or pursuant to a decision by the Committee
     under this Section 16(a) provides for such option becoming exercisable in
     full upon a Change in Control or otherwise under this Section 16, such
     option shall be deemed vested on the day immediately prior to the day on
     which such Change in Control occurs and such optionee shall be given prior
     written notice of such Change in Control sufficient to permit such optionee
     to exercise such Options.  For purposes of this Plan, a "Change in Control"
     occurs if the Company (i) ceases operations; (ii) merges or consolidates
     with another entity and is not the surviving entity; (iii) sells or
     otherwise transfers all or substantially all of its operating assets; or
     (iv) if more than 50% of the capital stock of the Company is transferred in
     a single transaction or in a series of related

                                      -8-
<PAGE>

     transactions other than a public offering of stock of the Company to a
     single person, entity or group of persons acting in concert.

          (b)  Substitute Options.  The Company may grant Options under the Plan
               ------------------
     in substitution for options held by employees of another corporation who
     become employees of the Company, or of a subsidiary of the Company, as the
     result of a merger or consolidation of the employing corporation with the
     Company or a subsidiary of the Company, or as a result of the acquisition
     by the Company, or one of its subsidiaries, of property or stock of the
     employing corporation.  The Company may direct that substitute Options be
     granted on such terms and conditions as the Committee considers appropriate
     in the circumstances.

          (c)  Purchases.  In the event of a consolidation or merger or sale of
               ---------
     all or substantially all of the assets of the Company in which outstanding
     shares of Common Stock are exchanged for securities, cash or other property
     of any other corporation or business entity or in the event of a
     liquidation of the Company, any election to Purchase shares of Common Stock
     pursuant to Section 24 of the Plan shall automatically be cancelled and any
     Fee Deductions shall be paid to the appropriate directors promptly,
     together with interest on such Fee Deductions, calculated in accordance
     with Section 24(e) of the Plan.

     17.  No Special Employment Rights.  Nothing contained in the Plan or in any
          ----------------------------
Option shall confer upon any optionee any right with respect to the continuation
of his or her employment by the Company or interfere in any way with the right
of the Company at any time to terminate such employment or to increase or
decrease the compensation of the optionee.

     18.  Other Employee Benefits.  Except as to plans which by their terms
          -----------------------
include such amounts as compensation, the amount of any compensation deemed to
be received by an employee as a result of the exercise of an Option or the sale
of shares received upon such exercise will not constitute compensation with
respect to which any other employee benefits of such employee are determined,
including, without limitation, benefits under any bonus, pension, profit-
sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Committee or required by law.

     19.  Amendment of the Plan.
          ---------------------

          (a)  The Board of Directors may at any time, and from time to time,
     modify or amend the Plan in any respect, except that if at any time the
     approval of the shareholders of the Company is required under Section 422
     of the Code or any successor provision with respect to ISOs, or under Rule
     16b-3 as then in effect, to the extent that the Common Stock is registered
     under the Exchange Act, the Board of Directors may not effect such
     modification or amendment without such approval.

          (b)  The termination or any modification or amendment of the Plan
     shall not, without the consent of an optionee, affect his or her rights
     under an Option previously granted to him or her. With the consent of the
     optionee affected, the Board of Directors may amend outstanding option
     agreements in a manner not inconsistent with the Plan.

                                      -9-
<PAGE>

     The Board of Directors shall have the right to amend or modify (i) the
     terms and provisions of the Plan and of any outstanding ISOs granted under
     the Plan to the extent necessary to qualify any or all such Options for
     such favorable federal income tax treatment (including deferral of taxation
     upon exercise) as may be afforded incentive stock options under Section 422
     of the Code and (ii) the terms and provisions of the Plan and of any
     outstanding option to the extent necessary to ensure the qualification of
     the Plan under Rule 16b-3 as then in effect, to the extent that the Common
     Stock is registered under the Exchange Act.

     20.  Withholding.
          -----------

          (a)  The Company shall have the right to deduct from payments of any
     kind otherwise due to the optionee any federal, state or local taxes of any
     kind required by law to be withheld with respect to any shares issued upon
     exercise of Options under the Plan. Subject to the prior approval of the
     Company, which may be withheld by the Company in its sole discretion, the
     optionee may elect to satisfy such obligations, in whole or in part, (i) by
     causing the Company to withhold shares of Common Stock otherwise issuable
     pursuant to the exercise of an option or (ii) by delivering to the Company
     shares of Common Stock already owned by the optionee.  The shares so
     delivered or withheld shall have a fair market value equal to such
     withholding obligation.  The fair market value of the shares used to
     satisfy such withholding obligation shall be determined by the Company as
     of the date that the amount of tax to be withheld is to be determined. Such
     determination of the fair market value shall be made in accordance with
     Section 6(b).  An optionee who has made an election pursuant to this
     Section 20(a) may only satisfy his or her withholding obligation with
     shares of Common Stock which are not subject to any repurchase, forfeiture,
     unfulfilled vesting or other similar requirements.

          (b)  Notwithstanding the foregoing, in the case of a Reporting Person,
     no election to use shares for the payment of withholding taxes shall be
     effective unless made in compliance with any applicable requirements of
     Rule 16b-3 as then in effect.

     21.  Cancellation and New Grant of Options, etc.  The Board of Directors
          ------------------------------------------
shall have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan or the Company's 1986 Incentive Stock Option
Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock and having an
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an exercise price per share
which is higher or lower than the then current exercise price per share of such
outstanding Options.

     22.  Effective Date and Duration of the Plan.
          ---------------------------------------

          (a)  Effective Date.  The Plan shall become effective when adopted by
               --------------
     the Board of Directors, but no ISO granted under the Plan shall become
     exercisable unless and until the Plan shall have been approved by the
     Company's shareholders. If such shareholder approval is not obtained within
     twelve months after the date of the Board's

                                      -10-
<PAGE>

     adoption of the Plan, no Options previously granted under the Plan shall be
     deemed to be ISOs and no ISOs shall be granted thereafter. Amendments to
     the Plan not requiring shareholder approval shall become effective when
     adopted by the Board of Directors; amendments requiring shareholder
     approval (as provided in Section 19) shall become effective when adopted by
     the Board of Directors, but no ISO granted after the date of such amendment
     shall become exercisable (to the extent that such amendment to the Plan was
     required to enable the Company to grant such ISO to a particular optionee)
     unless and until such amendment shall have been approved by the Company's
     shareholders. If such shareholder approval is not obtained within twelve
     months of the Board's adoption of such amendment, any ISOs granted on or
     after the date of such amendment shall terminate to the extent that such
     amendment to the Plan was required to enable the Company to grant such
     Option to a particular optionee. Subject to this limitation, Options may be
     granted under the Plan at any time after the effective date and before the
     date fixed for termination of the Plan.

          (b)  Termination.  Unless sooner terminated in accordance with Section
               -----------
     16, the Plan shall terminate, with respect to ISOs, upon the earlier of (i)
     the close of business on the day next preceding the tenth anniversary of
     the date of its adoption by the Board of Directors, or (ii) the date on
     which all shares available for issuance pursuant to Options issued under
     the Plan shall have been issued pursuant to the exercise or cancellation of
     Options granted under the Plan.  Unless sooner terminated in accordance
     with Section 16, the Plan shall terminate with respect to Non-Qualified
     Options on the date specified in (ii) above and with respect to Purchases
     on the date on which all shares available for issuance pursuant to Section
     24 of the Plan shall have been issued. If the date of termination is
     determined under (i) above, then Options outstanding on such date shall
     continue to have force and effect in accordance with the provisions of the
     instruments evidencing such Options.

     23.  Provision for Foreign Participants.  The Board of Directors may,
          ----------------------------------
without amending the Plan, modify awards or options granted to participants who
are foreign nationals or employed outside the United States to recognize
differences in laws, rules, regulations or customs of such foreign jurisdictions
with respect to tax, securities, currency, employee benefit or other matters.

     24.  Purchases of Stock by Directors Who are not Officers or Employees.
          -----------------------------------------------------------------

          (a)  The Company will issue shares of Common Stock on the last day of
     the fiscal year (the "Purchase Date") to any director of the Company who is
     not an officer or an employee of the Company (an "Eligible Director") and
     has made a then effective Purchase Election pursuant Section 24(b).

     (b)  An Eligible Director may elect to purchase shares (a "Purchase
     Election") by submitting an election form to the Vice President-Finance on
     or before the 20th of August in the fiscal year in which he or she intends
     to participate.  On such election form, a director shall (i) state the
     percentage to be deducted from the fee earned by such Eligible Director for
     service as a director of the Company (a "Fee"), (ii) authorize the purchase
     of Common Stock for him or her in accordance with the terms of the Plan,
     (iii)

                                      -11-
<PAGE>

     agree to hold any shares of Common Stock purchased pursuant to this Section
     24 for at least six months from the date of acquisition and (iv) consent to
     the placement of a stop order on the books of the Company with regard to
     such shares for a period of at least six months from the date of
     acquisition.

          (c)  Unless an Eligible Director files a new election form which
     either changes the rate of deduction from his or her Fee or indicates his
     or her withdrawal from the Plan, his or her deductions and purchases will
     continue at the same rate, provided he or she remains an Eligible Director.
     During a fiscal year, an Eligible Director may change the rate of deduction
     from his or her Fee or withdraw from the Plan at any time prior to the last
     Saturday in September. Any change or withdrawal indicated on a new election
     form received by the Vice President-Finance on or after the last Saturday
     in September will be effective as of the first day of the following fiscal
     year.

          (d)  On the date on which cash payments of Fees are made, or would
     have been made (the "Deduction Date"), the Company will deduct from cash
     payments of Fees to each Eligible Director such amount indicated on his or
     her then effective Purchase Election, if any (a "Fee Deduction"). Any Fee
     Deduction made pursuant to this Section 24 will be held in the general
     funds of the Company. The maximum amount an Eligible Director may have
     deducted in a fiscal year is $8,500.

          (e)  All Fee Deductions shall accrue interest at the prime rate
     reported in the Wall Street Journal at the Deduction Date from the
     Deduction Date through the last day of the Company's fiscal year.

          (f)  Each Eligible Director who has elected to participate pursuant to
     a then effective Purchase Election and is a director of the Company as of
     the last day of the fiscal year shall acquire from the Company such whole
     number of shares of Common Stock which his or her Fee Deductions during the
     fiscal year and interest accrued thereon will purchase at the Purchase
     Price (as such term is defined below).  Any balance of the Fee Deductions
     and interest accrued thereon will be refunded to the Eligible Director
     promptly.

          (g) The purchase price (the "Purchase Price") of Common Stock to be
     issued to any Eligible Director pursuant to this Section 24 shall be the
     fair market value of the Common Stock on the Purchase Date.  "Fair market
     value" shall  mean (i) the last reported sale price of the Common Stock on
     the Purchase Date on the principal national securities exchange on which
     the Common Stock is traded, if the Common Stock is then traded on a
     national securities exchange; or (ii) the last reported sale price on the
     Purchase Date of the Common Stock on the NASDAQ National Market System, if
     the Common Stock is not then traded on a national securities exchange; or
     (iii) the closing bid price (or average of bid prices) last quoted on the
     Purchase Date by an established quotation service for over-the-counter
     securities, if the Common Stock is not reported on the NASDAQ National
     Market System.  If no prices or quotes discussed in the preceding sentence
     are available on the Purchase Date, such quotes or prices shall be
     determined as of the last business day for which such prices or quotes are
     available prior to the Purchase Date. However, if the Common Stock is not
     publicly traded at the Purchase Date, the

                                      -12-
<PAGE>

     "fair market value" shall be deemed to be the fair market value of the
     Common Stock as determined by the Board of Directors after it takes into
     consideration all factors which it deems appropriate.

          (h)  Purchases pursuant to this Section 24 shall be generally
     administered by the Board of Directors.  The provisions of this Section 24
     are to be construed as a "formula plan" as defined by Rule 16b-3.  As such,
     the provision of Section 24 shall not be amended more than once every six
     (6) months, other than to comply with changes in the Code, the Employee
     Retirement Income Security Act, or the rules thereunder.

                                    Adopted by the Board of Directors on
                                    May 28, 1997

                                    Amended by the Board of Directors
                                    May 15, 2001

                                      -13-

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