Document:

Exhibit 10.1

 

 

 

CREDIT AGREEMENT

 

 

dated April 8, 2004

 

 

among

 

 

AXSYS TECHNOLOGIES, INC.,

as Borrower,

 

 

THE SUBSIDIARY GUARANTORS PARTY
HERETO

as Subsidiary Guarantors,

 

 

and

 

 

FLEET NATIONAL BANK

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I  DEFINITIONS AND ACCOUNTING TERMS

  	
   

  
	
  Section 1.1

  	
  Certain Defined Terms.

  	
   

  
	
  Section 1.2

  	
  Computation of Time Periods.

  	
   

  
	
  Section 1.3

  	
  Accounting Terms.

  	
   

  
	
  Section 1.4

  	
  Other Definitional Provisions.

  	
   

  
	
  Section 1.5

  	
  Conflicting Terms.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II  AMOUNTS AND TERMS OF THE LOANS

  	
   

  
	
  Section 2.1

  	
  Amounts.

  	
   

  
	
  Section 2.2

  	
  Procedure for Revolving Loans.

  	
   

  
	
  Section 2.3

  	
  Procedure for Letters of Credit; Certain
  Conditions.

  	
   

  
	
  Section 2.4

  	
  Repayment of Revolving Loans, Obligations
  Absolute.

  	
   

  
	
  Section 2.5

  	
  Method of Payment, Direct Debits, Payment
  Date Adjustments, Application of Payments.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III  INTEREST, INTEREST PERIODS,
  CONVERSIONS, LATE PAYMENTS, PREPAYMENTS, FEES AND INTEREST RATE HEDGE

  	
   

  
	
  Section 3.1

  	
  Interest and Late Payments.

  	
   

  
	
  Section 3.2

  	
  Election and Continuation of Interest
  Periods.

  	
   

  
	
  Section 3.3

  	
  Conversion of Revolving Loans.

  	
   

  
	
  Section 3.4

  	
  Late Payment.

  	
   

  
	
  Section 3.5

  	
  Repayments and Prepayments.

  	
   

  
	
  Section 3.6

  	
  Unused Line Fees.

  	
   

  
	
  Section 3.7

  	
  Commitment Fee.

  	
   

  
	
  Section 3.8

  	
  Letter of Credit Fees.

  	
   

  
	
  Section 3.9

  	
  Interest Rate Hedge with Bank.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  FUNDING AND YIELD PROTECTION

  	
   

  
	
  Section 4.1

  	
  Illegality.

  	
   

  
	
  Section 4.2

  	
  Additional Costs.

  	
   

  
	
  Section 4.3

  	
  Basis for Determining LIBOR Base Rate
  Inadequate or Unfair.

  	
   

  
	
  Section 4.4

  	
  Capital Adequacy Protection.

  	
   

  
	
  Section 4.5

  	
  Indemnity.

  	
   

  
	
  Section 4.6

  	
  Payments Free of Taxes and Other
  Deductions.

  	
   

  
	
  Section 4.7

  	
  Survival.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  Section 5.1

  	
  Representations and Warranties.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI  CONDITIONS OF LENDING

  	
   

  
	
  Section 6.1

  	
  Conditions Precedent to Initial Loans.

  	
   

  
	
  Section 6.2

  	
  Conditions Precedent to Each Loan.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII  COVENANTS

  	
   

  
	
  Section 7.1

  	
  Reporting Requirements.

  	
   

  
	
  Section 7.2

  	
  Insurance.

  	
   

  

 

i

 

	
  Section 7.3

  	
  Tax and Other Liens.

  	
   

  
	
  Section 7.4

  	
  Place of Business, Maintenance of
  Existence.

  	
   

  
	
  Section 7.5

  	
  Litigation.

  	
   

  
	
  Section 7.6

  	
  Maintenance of Books and Records, Existence
  and Compliance.

  	
   

  
	
  Section 7.7

  	
  ERISA.

  	
   

  
	
  Section 7.8

  	
  Notice of Certain Events.

  	
   

  
	
  Section 7.9

  	
  Audit and Appraisals by Bank; Fees.

  	
   

  
	
  Section 7.10

  	
  Notice of Reportable Events.

  	
   

  
	
  Section 7.11

  	
  Maintenance of Bank Accounts.

  	
   

  
	
  Section 7.12

  	
  New Subsidiary Guarantors.

  	
   

  
	
  Section 7.13

  	
  Properties.

  	
   

  
	
  Section 7.14

  	
  Defend Properties.

  	
   

  
	
  Section 7.15

  	
  Use of Proceeds.

  	
   

  
	
  Section 7.16

  	
  Further Assurances.

  	
   

  
	
  Section 7.17

  	
  Encumbrances.

  	
   

  
	
  Section 7.18

  	
  Negative Pledge.

  	
   

  
	
  Section 7.19

  	
  Limitation on Indebtedness.

  	
   

  
	
  Section 7.20

  	
  Contingent Liabilities.

  	
   

  
	
  Section 7.21

  	
  Consolidation, Merger or Acquisitions.

  	
   

  
	
  Section 7.22

  	
  Loans, Advances, Investments.

  	
   

  
	
  Section 7.23

  	
  Acquisition of Stock.

  	
   

  
	
  Section 7.24

  	
  Distributions.

  	
   

  
	
  Section 7.25

  	
  Sale and Lease of Assets.

  	
   

  
	
  Section 7.26

  	
  Name Changes; Change of State of
  Incorporation.

  	
   

  
	
  Section 7.27

  	
  Prohibited Transfers.

  	
   

  
	
  Section 7.28

  	
  Leasebacks.

  	
   

  
	
  Section 7.29

  	
  ERISA.

  	
   

  
	
  Section 7.30

  	
  Consolidated Fixed Charge Coverage Ratio.

  	
   

  
	
  Section 7.31

  	
  Consolidated Interest Coverage Ratio.

  	
   

  
	
  Section 7.32

  	
  Consolidated Funded Debt-to-Consolidated
  EBITDA Ratio.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII  EVENTS OF DEFAULT, ACCELERATION

  	
   

  
	
  Section 8.1

  	
  Events of Default, Acceleration.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX  RIGHTS AND REMEDIES OF BANK

  	
   

  
	
  Section 9.1

  	
  Remedies of Bank.

  	
   

  
	
  Section 9.2

  	
  Specific Powers.

  	
   

  
	
  Section 9.3

  	
  Cumulative Remedies.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X  TERMINATION

  	
   

  
	
  Section 10.1

  	
  Term and Termination.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI  EXPENSES

  	
   

  
	
  Section 11.1

  	
  Expenses.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII  MISCELLANEOUS

  	
   

  
	
  Section 12.1

  	
  Indemnification.

  	
   

  
	
  Section 12.2

  	
  Payment Set-Aside.

  	
   

  
	
  Section 12.3

  	
  Set-off.

  	
   

  
	
  Section 12.4

  	
  Covenants to Survive.

  	
   

  
	
  Section 12.5

  	
  Amendments and Waivers.

  	
   

  
	
  Section 12.6

  	
  Notices.

  	
   

  

 

ii

 

	
  Section 12.7

  	
  Replacement of a Note or other Financing
  Agreement

  	
   

  
	
  Section 12.8

  	
  Transfer of Bank’s Interest.

  	
   

  
	
  Section 12.9

  	
  Waivers.

  	
   

  
	
  Section 12.10

  	
  Section Headings, Severability, Entire
  Agreement.

  	
   

  
	
  Section 12.11

  	
  Governing Law.

  	
   

  
	
  Section 12.12

  	
  Counterparts.

  	
   

  

 

List of Schedules and
Exhibits

 

	
  Schedule 5.1(d)

  	
  Litigation

  
	
  Schedule 5.1(i)

  	
  Indebtedness
  of Obligors

  
	
  Schedule 5.1(j)

  	
  Permitted Liens

  
	
  Schedule 5.1(n)

  	
  ERISA Matters

  
	
  Schedule 5.1(p)(i)

  	
  Real Property Owned
  by Each Obligor

  
	
  Schedule
  5.1(p)(ii)

  	
  Real Property
  Leased by Each Obligor

  
	
  Schedule 5.1(s)

  	
  Collective Bargaining
  Agreements

  
	
  Schedule 5.1(v)

  	
  Other Affiliates of
  Each Obligor

  
	
  Schedule 5.1(dd)

  	
  Insurance

  
	
  Schedule 5.1(w)

  	
  Environmental
  Matters

  
	
   

  	
   

  
	
  Exhibit A

  	
  Revolving
  Loan Note

  
	
  Exhibit B

  	
  Term Loan Note

  
	
  Exhibit C

  	
  Joinder
  Agreement

  

 

iii

 

CREDIT AGREEMENT

 

Credit Agreement dated
and effective as of April 8, 2004 among AXSYS TECHNOLOGIES, INC., a Delaware
corporation with its chief executive office and principal place of business
located at 175 Capital Boulevard, Suite 103, Rocky Hill, Connecticut 06067 (the
“Borrower”),
the Subsidiary Guarantors (such term and each other capitalized term used by
not defined herein having the meaning given to it in Article I) and FLEET
NATIONAL BANK, a national banking institution having an office at
777 Main Street, Hartford, Connecticut 06115 (the “Bank”).

 

PREAMBLE

 

WHEREAS, Borrower,
Bifocal Acquisition Corp., a Massachusetts corporation and wholly-owned
Subsidiary of Borrower (“BAC”), Telic Optics, Inc., a Massachusetts
corporation (“Telic”), and the shareholders of Telic named therein have
entered into an Agreement and Plan of Merger, dated as of April 5, 2004 (as
amended, supplemented or otherwise modified from time to time, the “Merger
Agreement”) pursuant to which BAC will be merged with and into Telic
(the “Merger”),
with Telic being the survivor of such Merger and a wholly-owned subsidiary of
Borrower; and

 

WHEREAS, Borrower has
requested Bank, and Bank has agreed, to (a) extend to Borrower a term loan in
the principal amount of $5,000,000, the proceeds of which are to be used to
finance of portion of the merger consideration under the Merger Agreement; and
(b) extend to Borrower a revolving loan in the principal amount of up to
$5,000,000, the proceeds of which are to be used by Borrower for working
capital and general corporate purposes, including, but not limited to, the acquisition
of Capital Assets.

 

NOW, THEREFORE, for the
mutual considerations contained in this Agreement, Borrower, each Subsidiary
Guarantor and Bank agree as follows:

 

ARTICLE
I

DEFINITIONS AND ACCOUNTING TERMS

 

Section 1.1                                   Certain
Defined Terms.

 

As used herein, the
following terms shall have the following meanings:

 

“Acquisition” shall mean
an acquisition by Borrower of not less than a Controlling interest in the
outstanding capital stock or other equity interests of any corporation, partnership, joint venture,
a division of any corporation or any similar business unit (or of substantially
all the assets and business of any of the foregoing) engaged in a Related
Business.

 

“Additional Costs” shall have the
meaning assigned in Section 4.2 hereof.

 

 

“Adjustment
Date” means each date which is the first day of the first fiscal quarter of
Borrower following Bank’s actual receipt of both of (a) the applicable
quarterly Covenant Compliance Certificate under Section 7.1(a)(ii) hereof, and
(b) either (i) Borrower’s quarterly consolidated and consolidating financial
statements required under Section 7.1(a)(i) hereof for the quarterly and fiscal
year-to-date periods ending on the last day of each of the first three (3)
fiscal quarters of Borrower, or (ii) Borrower’s annual audited consolidated and
consolidating financial statements required under Section 7.1(b), as
applicable.

 

“Affiliate” shall mean, when used with
respect to a specified Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under
common Control with, the Person specified and shall include another Person who
Controls twenty percent (20%) or more (on a fully diluted basis) of the voting
securities or other equity interest of the Person specified.

 

“Agreement” shall mean
this Credit Agreement, as the same may from time to time be amended, restated
supplemented or otherwise modified.

 

“Applicable
Margin” means, with respect to the determination of pre-default interest rates
accruing from time to time on each outstanding LIBOR Loan:

 

(a)                                  for the period commencing on the date hereof
and ending on the day immediately preceding the Initial Adjustment Date, 1.00%
above the applicable LIBOR Rate.

 

(b)                                 for each period commencing on an Adjustment
Date (including, but not limited to, the Initial Adjustment Date) and ending on
the day immediately preceding the next Adjustment Date, the percentage rate set
forth below opposite the level of Borrower’s consolidated financial performance
as measured by the Consolidated Funded Debt-to-EBITDA Ratio as of the end of
Borrower’s most recent fiscal quarter for the then ended Rolling Period (as
determined on the basis of the financial statements required to be delivered in
respect of such Adjustment Date):

 

	
  Level

  	
   

  	
  Consolidated
  Funded

  Debt-to-EBITDA Ratio

  	
   

  	
  Applicable
  Margin for LIBOR Loans

  	
   

  
	
  1

  	
   

  	
  <
  1.25x

  	
   

  	
  1.00%

  	
   

  
	
  2

  	
   

  	
  >
  1.25x, but < 1.75x

  	
   

  	
  1.25%

  	
   

  
	
  3

  	
   

  	
  >
  1.75x

  	
   

  	
  1.50%

  	
   

  

 

By way of illustration, if Borrower’s Consolidated
Funded Debt-to-EBITDA Ratio as of the last day of Borrower’s second fiscal
quarter is 1.2 to 1.0, then, effective on the first day of the first fiscal
quarter immediately following the date upon which Borrower’s quarterly Covenant
Compliance Certificate and quarterly financial statements for its second fiscal
quarter are received by Bank the Applicable Margin for all LIBOR Loans shall be
adjusted (if not then the same) to 1.00%.

 

2

 

“Applicable
Unused Line Fee Percentage” shall mean, with respect to the calculation of the
Unused Line Fees due to the Bank pursuant to Section 3.6 hereof:

 

(a)                                  for the period commencing on the date hereof
and ending on the day immediately preceding the Initial Adjustment Date, 0.20%;
and

 

(b)                                 for each period commencing on an Adjustment
Date (including, but not limited to, the Initial Adjustment Date) and ending on
the day immediately preceding the next Adjustment Date, the percentage set
forth below opposite Borrower’s applicable financial performance level as
measured by Borrower’s Consolidated Funded Debt-to-EBITDA Ratio for the then
ended Rolling Period (as determined on the basis of the financial statements
required to be delivered in respect of such Adjustment Date):

 

	
  Level

  	
   

  	
  Consolidated
  Funded

  Debt-to-EBITDA Ratio

  	
   

  	
  Applicable
  Unused Line Fee Percentage

  	
   

  
	
  1

  	
   

  	
  < 1.25x

  	
   

  	
  0.20%

  	
   

  
	
  2

  	
   

  	
  >
  1.25x,
  but < 1.75x

  	
   

  	
  0.30%

  	
   

  
	
  3

  	
   

  	
  >
  1.75x

  	
   

  	
  0.40%

  	
   

  

 

By way of illustration, if Borrower’s Consolidated
Funded Debt-to-EBITDA Ratio as of the last day of Borrower’s second fiscal
quarter is 1.2 to 1.0, then, effective on the first day of the first fiscal
quarter immediately following the date upon which Borrower’s quarterly Covenant
Compliance Certificate and quarterly financial statements for its second fiscal
quarter are received by Bank, the Applicable Unused Line Fee Percentage
shall be adjusted (if not then the same) to 0.20%.

 

“Assignee” shall mean that term as
defined in Section 12.8(a) hereof.

 

“Available Amount” shall mean with
respect to any Letter of Credit, at any time, the maximum amount available to
be drawn under such Letter of Credit at such time (assuming compliance at such
time with all conditions of drawing).

 

“BAC” shall mean Bifocal
Acquisition Corp., a Massachusetts corporation and wholly-owned Subsidiary of
Borrower.

 

“Bank” shall mean Fleet
National Bank, together with its successors and assigns.

 

“Bank Swap Agreement”
shall mean the Swap Agreement entered into between Borrower and Bank on or
about the date hereof and all Confirmations relating thereto including, without
limitation the Confirmation relating to the Term Loan.

 

“Borrower” shall mean
Axsys Technologies, Inc., a Delaware corporation.

 

3

 

“Business Day” shall mean any day other
than a Saturday, Sunday, or other day on which banks in the State of
Connecticut or Commonwealth of Massachusetts are required or authorized by law
to be closed; provided, however, that when used in connection with a LIBOR
Loan, the term “Business Day” shall also exclude any day on which banks are
not open for business in London and any day on which dealings in Dollar
deposits are not carried on in the London interbank market.

 

“Capital Assets” shall mean assets that
are depreciated or amortized on Borrower’s Consolidated balance sheet in accordance
with GAAP.

 

“Capital Expenditures”
shall mean, for any period, the aggregate of all expenditures (whether paid in
cash or other consideration or accrued as a liability) of Borrower and its Subsidiaries during
such period that, in accordance with GAAP, are or should be included in
“additions to property, plant and equipment” or similar items reflected in the
consolidated balance sheet of Borrower and its Subsidiaries for such period
(including the amount of assets leased in connection with any Capital Lease); provided,
however, that Capital Expenditures shall not include Capital
Expenditures relating to the James Webb Space Telescope to the extent such
Capital Expenditures are actually funded by a Governmental Authority or a prime
contractor of a Governmental Authority.

 

“Capital Leases” shall mean capital
leases, conditional sales contracts and other title retention agreements
relating to the purchase or acquisition of assets that in accordance with GAAP
are required or permitted to be depreciated or amortized on the consolidated
balance sheet of Borrower and its Subsidiaries.

 

“Code” shall mean that term as defined
in Section 5.1(n)(i) hereto.

 

“Commitment Fee” shall mean that term
as defined in Section 3.7 hereof.

 

“Companies” shall mean that term as
defined in Section 5.1(n)(i) hereof.

 

“Consolidated
Amortization Expense” shall mean, for any period, the amortization expense of
Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with
GAAP.

 

“Consolidated Current Maturity of
Long-Term Debt” shall mean the aggregate of all Indebtedness for borrowed money
(including outstanding Indebtedness under the Loans), Indebtedness under
Capital Leases and contingent Indebtedness under undrawn letters of credit of
Borrower and its Subsidiaries paid or payable during the applicable period.

 

“Consolidated
Depreciation Expense” shall mean, for any period, the depreciation expense of
Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with
GAAP.

 

“Consolidated EBIT” shall
mean, for any period, Consolidated Net Income for such period, adjusted by adding thereto, in each case only to the extent (and in the same

 

4

 

proportion) deducted in determining such
Consolidated Net Income (and with respect to the portion of Consolidated Net
Income attributable to any Subsidiary of Borrower only if a corresponding
amount would be permitted at the date of determination to be distributed to
Borrower by such Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter documents and all agreements,
instruments, judgments, decrees, orders, statutes, rules, regulations and other
restrictions applicable to such Subsidiary or its equityholders):

 

(a)                                  Consolidated Interest Expense for such
period, and

 

(b)                                 Consolidated Tax Expense for such period;

 

provided, however, that Consolidated EBIT shall be calculated on
a Pro Forma Basis to give effect to the Merger, any Permitted Acquisition and
any asset sales (other than dispositions in the ordinary course of business)
consummated at any time on or after the first day of the relevant quarterly
testing period thereof as if the Merger or Permitted Acquisition had been
effected on the first day of such period and as if each such asset sale had
been consummated on the day prior to the first day of such period.

 

“Consolidated EBITDA” shall mean, for
any period, Consolidated Net Income for such period, adjusted by adding thereto,
in each case only to the extent (and in the same proportion) deducted in
determining such Consolidated Net Income (and with respect to the portion of
Consolidated Net Income attributable to any Subsidiary of Borrower only if a
corresponding amount would be permitted at the date of determination to be
distributed to Borrower by such Subsidiary without prior approval (that has not
been obtained), pursuant to the terms of its charter documents and all
agreements, instruments, judgments, decrees, orders, statutes, rules,
regulations and other restrictions applicable to such Subsidiary or its equityholders):

 

(a)                                  Consolidated Interest Expense for such
period,

 

(b)                                 Consolidated Amortization Expense for such
period,

 

(c)                                  Consolidated Depreciation Expense for such
period, and

 

(d)                                 Consolidated Tax Expense for such period;

 

provided, however, that Consolidated EBITDA shall be calculated
on a Pro Forma Basis to give effect to the Merger, any Permitted Acquisition
and any asset sales (other than dispositions in the ordinary course of
business) consummated at any time on or after the first day of the relevant
quarterly testing period or Rolling Period thereof, as the case may be, as if
the Merger or Permitted Acquisition had been effected on the first day of such
period and as if each such asset sale had been consummated on the day prior to
the first day of such period.

 

“Consolidated
Fixed Charge Coverage Ratio” shall mean, for any period, the ratio of (a) (i)
Consolidated EBITDA for such period, less (ii) all cash payments in respect of
income

 

5

 

taxes made during such period by Borrower and
its Subsidiaries (net of any cash refund in respect of income taxes actually
received during such period), less (iii) thirty percent (30%) of all Capital
Expenditures made during such period by Borrower and its Subsidiaries, less
(iv) all dividend payments made during such period by Borrower or any of its
Subsidiaries (other than dividend payments to Borrower or any of its
Subsidiaries), to (b) the sum of (i) Consolidated Current Maturity of
Long-Term Debt for such period, plus (ii) Consolidated Interest Expense for
such period.

 

“Consolidated Funded
Debt-to-Consolidated EBITDA Ratio” shall mean, for any Rolling Period, the
ratio of (a) the aggregate of all Indebtedness for borrowed money (including
outstanding Indebtedness under the Loans), Indebtedness under Capital Leases
and contingent Indebtedness under undrawn letters of credit of Borrower and its
Subsidiaries, in each case as of the last day of such Rolling Period, to
(b) Consolidated EBITDA for such Rolling Period.

 

“Consolidated Interest Coverage Ratio”
shall mean, for any period, the ratio of (a) Consolidated EBIT for such period,
to (b) Consolidated Interest Expense for such period.

 

“Consolidated Interest Expense” shall
mean, for any period, the total consolidated interest expense in respect of all
Indebtedness for borrowed money (including outstanding Indebtedness under the
Loans), Indebtedness under Capital Leases and contingent Indebtedness under
undrawn letters of credit of Borrower and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.

 

“Consolidated Net Income” shall mean,
for any period, the consolidated net income (or loss) for such period of
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP, provided, however, that there shall be excluded from such net
income (to the extent otherwise included therein), without duplication:

 

(a)                                  the net income (or loss) of any person (other
than a Subsidiary of Borrower) in which any person other than Borrower and its
Subsidiaries has an ownership interest, except to the extent that cash in an
amount equal to any such income has actually been received by Borrower or
(subject to clause (b) below) any of its Subsidiaries during such period;

 

(b)                                 the net income of any Subsidiary of Borrower
during such period to the extent that the declaration or payment of dividends
or similar distributions by such Subsidiary of that income is not permitted by
operation of the terms of its charter documents or any agreement, instrument,
judgment, decree, order, statute, rule, regulation or other restriction
applicable to that Subsidiary during such period, except that Borrower’s equity
in net loss of any such Subsidiary for such period shall be included in
determining Consolidated Net Income;

 

(c)                                  any gain (or loss), together with any related
provisions for taxes on any such gain (or the tax effect of any such loss),
realized during such period by Borrower or any of its Subsidiaries upon any
asset sale (other than any dispositions in the ordinary course of business) by
Borrower or any of its Subsidiaries;

 

6

 

(d)                                 gains and losses due solely to fluctuations
in currency values and the related tax effects according to GAAP for such
period;

 

(e)                                  earnings resulting from any reappraisal,
revaluation or write-up of assets;

 

(f)                                    unrealized gains and losses for such period
with respect to obligations under or with respect to any swap, cap, collar,
forward purchase or similar agreements or arrangements dealing with interest
rates, currency exchange rates or commodity prices, either generally or under
specific contingencies; and

 

(g)                                 any extraordinary gain (or extraordinary
loss), together with any related provision for taxes on any such gain (or the
tax effect of any such loss), recorded or recognized by Borrower or any of its
Subsidiaries during such period.

 

“Consolidated
Tax Expense” shall mean, for any period, the tax expense of Borrower and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.

 

“Contaminant”
means any pollutants, hazardous or toxic substances or wastes or contaminated
materials which are or may be subject to regulation under, or the Release of
which or exposure to which is prohibited, limited or regulated under, any
Environmental Law.

 

“Control” shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise, and the terms
“Controlling” and “Controlled” shall have the meanings correlative thereto.

 

“Covenant Compliance Certificate” shall
have the meaning assigned in Section 7.1(a) hereof.

 

“Defaulting Event” shall mean the
occurrence of an Event of Default or the occurrence of any condition or event
which but for the giving of notice or passage of time or both would constitute
an Event of Default.

 

“Distributions” shall mean, for any
period of measurement with respect to Borrower and each Subsidiary, the
following: (a) the declaration or payment of any dividend or distribution on or
in respect of the shares of any class of capital stock of Borrower or each such
Subsidiary, except dividends payable solely in shares of such corporation’s
capital stock; and (b) any dividend or distribution for any purpose from such
corporation (however characterized), including without limitation,
inter-company loans and guarantees, to or for the benefit of any or all of its
shareholders, whether paid on or in respect of shares of any class of the
capital stock of such corporation or otherwise.

 

7

 

“Dollar” and the sign “$” shall mean
lawful money of the United States of America.

 

“Environment” shall mean ambient air, surface water and
groundwater (including potable water, navigable water and wetlands), the land
surface or subsurface strata, the workplace or as otherwise defined in any
Environmental Law.

 

“Environmental
Claim” means any notice of violation, claim, demand, order, directive having
the force of law, cost recovery action or other cause of action by, or on
behalf of, the U.S. Environmental Protection Agency, any other Governmental
Authority or any other Person, for damages, injunctive or equitable relief,
personal injury (including sickness, disease or death), Remedial Action costs,
tangible property damage, natural resource damages, nuisance, pollution, any material
adverse effect on the Environment caused by any Contaminant, or for fines,
penalties or restrictions, resulting from or based upon (a) the existence, or
the continuance of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases) or threatened Release, (b) exposure to
any Contaminant, (c) the presence, use, handling, transportation, storage,
treatment, or disposal of any Contaminant, or (d) the violation of any
Environmental Law.

 

“Environmental Laws” shall mean any and all applicable present and
future treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
Environment, preservation or reclamation of natural resources, the management,
use, treatment, storage, disposal, transportation, transfer, generation,
processing, production, refining, control, handling, Release or threatened
Release of any Contaminant or to health and safety matters (including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. §9601 et  seq. (collectively, “CERCLA”);
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. §6901 et  seq.; the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 U.S.C. §1251 et  seq.;
the Clean Air Act of 1970, as amended, 42 U.S.C. §7401 et  seq.;
The Toxic Substances Control Act of 1976, as amended, 15 USC §2601 et  seq.;
the Emergency Planning and Community Right-to-Know Act of 1986 (also known as
SARA Title III), as amended, 42 USC § 11001 et  seq.; the Safe
Drinking Water Act of 1974, as amended, 42 USC §300(f) et  seq.;
the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 USC §136 et
seq.; the Occupational Safety and Health Act of 1970, as amended, 29 USC
§651 et  seq.; the Endangered Species Act, as amended, 16 USC
§1531 et  seq.; the National Environmental Policy Act, as amended,
42 USC §4321 et  seq.; the Rivers and Harbors Act of 1899 33 USC
§401 et  seq., and any similar or implementing state or local law,
rule or regulation); all laws, rules and regulations governing underground or
above-ground storage tanks, conditioning transfer of property upon a form of
negative declaration or other approval of a Governmental Authority of the
environmental condition of a property or requiring the disclosure of conditions
relating to Contaminants in connection with transfer of title to or interest in
property; conditions or requirements imposed in connection with any permits;
government orders and demands and judicial orders pursuant to any of the
foregoing; any and all other laws, rules and regulations of

 

8

 

any Governmental Authority relating to the
protection of human health or the Environment from Contaminants; and all
amendments or regulations promulgated under any of the foregoing.

 

“ERISA” shall mean the
Employee Retirement Income Security Act of 1974 and all rules and regulations
promulgated pursuant thereto, as the same may from time to time be supplemented
or amended.

 

“Event of Default” shall
have the meaning assigned in Section 8.1 hereof.

 

“Facility” shall mean the Revolving
Loan facility being extended to Borrower pursuant to this Agreement.

 

“Financing Agreements” shall mean this
Agreement, the Notes, the Guaranty Agreement, the Reimbursement Agreements, the
Joinder Agreements, the Bank Swap Agreement, any and all other instruments,
agreements and documents now or hereafter executed by Borrower and/or any
Subsidiary in connection herewith or therewith or related hereto or thereto,
and all amendments, supplements and modifications hereto or thereto (excluding
the Merger Documents).

 

“GAAP” shall mean in
general, generally accepted accounting principles which are (a) consistent with
the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors, consistently applied from year to year, (b)
generally accepted in the United States of America, and (c) such that certified
public accountants would, insofar as the use of accounting principles is
pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.

 

“Governmental Authority”
shall mean any government, any state or other political subdivision thereof,
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

 

“Guaranty Agreement” shall mean each
guaranty agreement executed by a Subsidiary Guarantor in favor of Bank
substantially in the form of Exhibit C attached hereto.

 

“Head Office” shall mean
the office of Bank at 777 Main Street, Hartford, Connecticut, or such other
place as Bank may designate to Borrower in writing.

 

“Indebtedness” shall mean with respect
to any Person, without duplication: (a)
all indebtedness or liability of such Person for borrowed money, or with
respect to deposits or advances of any kind; (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments; (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person; (d) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (excluding trade obligations and accrued obligations
incurred in the ordinary course of business not overdue by more than ninety
(90) days); (e) all indebtedness or liability of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the

 

9

 

obligations secured thereby have been
assumed; (f) all obligations of such Person under Capital Leases; (g) all net
obligations of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements; (h) current liabilities of such Person in respect of any Plan;
(i) obligations of such Person under letters of credit, bankers acceptances or
comparable arrangements; (j) all obligations of such Person under guaranties,
endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations of such Person to purchase, to
provide funds for payment, to supply funds to invest in any Person, or
otherwise to assure a creditor against loss; and (k) all other indebtedness of
such Person that in accordance with GAAP is classified as liabilities upon the
balance sheet of such Person or to which reference is made by footnotes
thereto.  The Indebtedness of any Person
(x) shall include the Indebtedness of any partnership in which such Person is a
general partner, and (y) in the case of any limited recourse liability, shall
not exceed the amount of such recourse.

 

“Initial
Adjustment Date” means the first day of the first fiscal quarter of Borrower
following Bank’s receipt of a Covenant Compliance Certificate and Borrower’s
quarterly consolidated and consolidating financial statements for the fiscal
quarter ended on April 3, 2004.

 

“Interest Period” shall mean

 

(a)                                  for
each Revolving Loan or any portion or portions thereof which Borrower elects to
be or continue to be a LIBOR Loan, an available period of one (1) month
commencing on the date upon which such Loan is made as a LIBOR Loan, continued
as a LIBOR Loan or converted from a Prime Rate Loan to a LIBOR Loan and ending
on the last Business Day of any such Interest Period;

 

(b)                                 for
the Term Loan, successive available periods of one (1) month, the first of
which shall commence on the date hereof and each successive period to commence
on the first day immediately following the last day of the immediately
preceding Interest Period, with the last such Interest Period ending on the
Maturity Date of the Term Loan;

 

provided, however,
that the foregoing provisions relating to Interest Periods are subject to the
following:

 

(i)                                     whenever
the last day of any Interest Period would otherwise occur on a day other than a
Business Day, such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, however, that if such extension would cause
the last day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next preceding
Business Day;

 

(ii)                                  any
Interest Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day

 

10

 

in the last calendar
month of such Interest Period) shall end on the last Business Day of a calendar
month;

 

(iii)                               with
respect to each Revolving Loan, no Interest Period shall end after the
Termination Date; and

 

(iv)                              with
respect to the Term Loan, no Interest Period shall end after (1) the next
regularly-scheduled Principal Repayment Date, and (2) the Maturity Date for the
Term Loan.

 

“Joinder Agreement” shall mean a joinder agreement, substantially in the form of Exhibit C.

 

“Lender Parties” shall mean that term as defined in Section 12.1(a).

 

“L/C Disbursement” shall
mean a payment or disbursement made by the Bank pursuant to a Letter of Credit.

 

“Letter of Credit” shall mean each standby
commercial letter of credit issued by Bank pursuant to Section 2.1(c) hereof
for the account of the Borrower or any Subsidiary Guarantor.

 

“Letter of Credit Commitment Amount”
shall mean ONE MILLION AND NO/100 DOLLARS ($1,000,000).

 

“Letter of Credit Fees” shall mean that
term as defined in Section 3.8 hereof.

 

“LIBOR Base Rate” means, as applicable
to each LIBOR Loan, the rate per annum as determined on the basis of the
offered rates for deposits in Dollars, for a period of time comparable to the
Interest Period applicable to such LIBOR Loan, which appears on the Telerate
page 3750 as of 11:00 a.m. London time on the day that is two (2) Business Days
prior to the first day of such Interest Period; provided, however, if the
rate described above does not appear on the Telerate System on any applicable
interest determination date, the LIBOR Base Rate shall be the rate (rounded
upwards, if necessary, to the nearest one hundred-thousandth of a percentage
point) determined on the basis of the offered rates for deposits in Dollars for
a period of time comparable to the Interest Period applicable to such LIBOR
Loan which are offered by four (4) major banks in the London interbank market
at approximately 11:00 a.m. London time on the day that is two (2) Business Days
prior to the first day of such Interest Period as selected by the Bank.  The principal London office of each of the
four major London banks will be requested to provide a quotation of its Dollar
deposit offered rate.  If at least two
(2) such quotations are provided, the rate for that date will be the arithmetic
mean of the quotations.  If fewer than
two (2) quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in Dollars to leading European
banks for a period of time comparable to the Interest Period applicable to such
LIBOR Loan offered by major banks in New York City at approximately 11:00 a.m.
New York City time, on the day that is two (2) Business Days prior to the first
day of the Interest Period.  In the
event that the Bank is unable to obtain any such quotation as provided above,
it will be deemed that a LIBOR Loan is unavailable and,

 

11

 

accordingly, such LIBOR Loan shall immediately and automatically
convert, without notice, to a Prime Rate Loan.

 

“LIBOR Loan” means the Term Loan and
each Revolving Loan at such time as the same bears interest at a rate
determined with reference to the LIBOR Rate.

 

“LIBOR Rate” means, for each LIBOR Loan
for each Interest Period, an interest rate per annum determined pursuant to the
following formula, as adjusted from time to time in accordance with the
applicable provisions of this Agreement:

 

	
  LIBOR Rate  =

  	
   

  	
  LIBOR Base Rate

  
	
   

  	
   

  	
  1 - Reserve Percentage

  

 

“Lien” shall mean any mortgage, pledge,
hypothecation, assignment, security interest, lien or encumbrance, priority or
other security agreement or arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any lease (other than an operating lease) having substantially the
same economic effect as a conditional sale or other title retention agreement,
and the filing of, or agreement to give, any financing statement or other document
under the Uniform Commercial Code or comparable law of any jurisdiction).

 

“Loan” shall mean any
Revolving Loan or the Term Loan.

 

“Material Adverse Effect” shall mean
(a) a material adverse effect on the business, property, results of operations
or condition (financial or otherwise), or material agreements of Borrower or of
its Subsidiaries taken as a whole, (b) material impairment of the validity or
enforceability of this Agreement or any other Financing Agreement, (c) material
impairment of the rights of or benefits or remedies available to Bank under any
Financing Agreement, or (d) material impairment of the ability of Borrower or
of its Subsidiaries taken as a whole to fully and timely perform any of their
material obligations under any Financing Agreement to which it is or is to be a
party.

 

“Maturity Date” shall mean April 8,
2009.

 

“Merger” shall have the meaning assigned to such term in the first recital
hereto.

 

“Merger Agreement” shall have the meaning assigned to such term
in the first recital hereto.

 

“Merger Documents” shall mean the collective reference to the Merger Agreement and the
other documents executed and delivered in connection therewith.

 

“Note” shall mean the Revolving Loan
Note or the Term Loan Note.

 

“Notice of Borrowing” shall have the
meaning assigned in Section 2.2(a) hereof.

 

“Notice of Issuance” shall have the
meaning assigned in Section 2.3(a) hereof.

 

12

 

“Obligations” shall mean and include
all loans, advances, interest, Indebtedness, liabilities, obligations,
guaranties, covenants and duties at any time owing by any of the Obligors to
Bank of every kind and description, whether or not evidenced by any note or
other instrument, whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including, but not limited to, the Loans, and all other
Indebtedness, liabilities and obligations arising under this Agreement and the
other Financing Agreements, including, without limitation, all Indebtedness,
liabilities and obligations of any of the Obligors arising under any
Reimbursement Agreement and the Bank Swap Agreement, and all reasonable
out-of-pocket costs, expenses, fees, charges and attorneys’, paralegals’ and
professional fees incurred in connection with any of the foregoing, or in any
way connected with, involving or relating to the preservation, enforcement,
protection or defense of, or realization under this Agreement, any of the
Notes, the Guaranty Agreements, the Reimbursement Agreements, any of the other
Financing Agreements, any related agreement, document or instrument, and the
rights and remedies hereunder or thereunder, including without limitation, all
reasonable costs, expenses and fees incurred in connection with any “workout”
or default resolution negotiations involving legal counsel or other
professionals and further in connection with any re-negotiation or
restructuring of the Indebtedness evidenced by this Agreement, any Note, any
Guaranty Agreement, any Reimbursement Agreement and/or any of the other
Financing Agreements.

 

“Obligors” shall mean Borrower and each
of the Subsidiary Guarantors.

 

“Participant” shall mean that term as
defined in Section 12.8(b) hereof.

 

“PBGC” shall mean that term as defined
in Section 5.1(n)(i) hereof.

 

“Permitted Acquisition” shall mean an
Acquisition in respect of which (a) in the case of each Acquisition of capital
stock, such Acquisition was not preceded by an unsolicited tender offer for
such capital stock by Borrower or any of its Affiliates, and (b) Borrower shall
have delivered to Bank (i) a pro forma consolidated financial statement in
form, scope and substance satisfactory to Bank, in its sole but reasonable
discretion, reflecting the full financial effects of such Acquisition and the
projected financial effects of such Acquisition over Borrower’s immediately
succeeding period including at least the next two (2) fiscal year ends of
Borrower (or the remaining term of this Agreement, if shorter) and indicating,
after giving effect to such Acquisition (which shall include the past twelve
month operating performance of such acquired Person or business), Borrower’s
continued compliance with the Financial Covenants set forth in Article VII C.
hereof, and (ii) a certificate certifying that at the time of and immediately
after giving effect to such Acquisition, no Default or Event of Default shall
have occurred and be continuing.

 

“Permitted Liens” shall mean (a) Liens
for taxes which are not yet due and payable or which are being contested in
good faith provided that such contest stays any enforcement proceeding, (b)
materialmen’s, mechanics’, repairmen’s and other like Liens arising in the
ordinary course of business securing obligations which are not more than ninety
(90) days overdue or which are being contested in good faith or bonded to the
reasonable satisfaction of

 

13

 

Bank, (c) Liens imposed by law in connection with workers’
compensation, unemployment insurance, social security or similar legislation
which are not more than ninety (90) days overdue or which are being contested
in good faith, (d) Liens set forth on Schedule 5.1(j) attached hereto,
(e) purchase money Liens on assets (including, but not limited to, in
connection with Capital Leases) so long as (i) each such Lien attaches
concurrently or within thirty (30) days after the acquisition of the assets so
acquired, (ii) each such Lien shall attach only to the assets so acquired, and
(iii) each such Lien secures Indebtedness permitted under Section 7.19 hereof;
and (f) Liens in favor of the Bank.

 

“Person” means any natural person, sole
proprietorship, partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association, organization,
joint venture, institution, governmental authority, or other entity of any
nature whatsoever.

 

“Plan” shall mean any
employee benefit plan that is covered by Title I of ERISA sponsored or
maintained by any Obligor or any Person affiliated with any Obligor.

 

“Precision” shall mean Precision
Aerotech, Inc., a Delaware corporation.

 

“Premises” shall mean any real property
now or hereafter owned, leased or used by any Obligor.

 

“Prime Rate” shall mean
the variable per annum rate of interest so designated from time to time by Bank
as its prime rate.  The Prime Rate is a
reference rate and does not necessarily represent Bank’s lowest or best rate
being charged to any customer.

 

“Prime Rate Loan” shall
mean any Loan or a portion or portions thereof which bears interest at or with
reference to, as the case may be, the Prime Rate.

 

“Principal Repayment Date” shall mean
with respect to the Term Loan, each date set forth on the amortization schedule
attached to the Term Loan Note.

 

“Pro Forma Basis” shall mean on a basis in
accordance with GAAP and otherwise reasonably satisfactory to Bank.

 

“Reimbursement Agreement” shall mean
that term as defined in Section 2.3(a) hereof.

 

“Related Business” shall
mean any business of Borrower and its Subsidiaries as conducted on the date
hereof and any business related, ancillary or complementary thereto.

 

“Release” shall mean any spilling, leaking, migrating, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, disposing, depositing, dispersing, emanating or migrating of any
Contaminant in, into, onto or through the Environment.

 

14

 

“Remedial
Action” means (a) “remedial action” as such term is defined in CERCLA, 42
U.S.C. 9601(24), and (b) all other actions required by any Governmental
Authority or voluntarily undertaken to (i) clean up, remove, treat, abate or in
any way address any Contaminant in the Environment, (ii) prevent the Release or
threat of Release, or minimize the further Release of any Contaminant so it
does not migrate or endanger or threaten to endanger public health, welfare or
the Environment, or (iii) perform studies and investigations in connection
with, or as a precondition to, (i) or (ii) above.

 

“Reserve Percentage”
shall mean, for any Interest Period for all LIBOR Loans, the maximum aggregate
reserve requirement (including all basic, supplemental, marginal and other reserves) which is
imposed on member banks of the Federal Reserve System against “Euro-currency
Liabilities” as defined in Regulation D. 
As of the date hereof, the Reserve Percentage imposed on Bank is zero. 

 

“Revolving Loan” shall have the meaning
assigned in Section 2.1(a) hereof.

 

“Revolving Loan Account” shall have the
meaning assigned in Section 2.2(b) hereof.

 

“Revolving Loan Commitment Amount”
shall mean FIVE MILLION AND NO/100 DOLLARS ($5,000,000).

 

“Revolving Loan Note” shall mean the
revolving loan promissory note of Borrower payable to the order of Bank dated
as of the date hereof, in the form of Exhibit A attached hereto,
evidencing the Obligations arising under the Revolving Loans, and any and all
substitutions and replacements thereof, all as the same may be amended,
restated, supplemented and/or modified from time to time.

 

“Rolling Period” shall
mean, with respect to any fiscal quarter of Borrower, such fiscal quarter and
the three consecutive fiscal quarters immediately prior thereto.

 

“Solvent” shall mean as
to Borrower and each Subsidiary, that Borrower and each Subsidiary (a) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage; (b) is able to pay its debts
as they mature; and (c) owns property whose fair salable value is greater than
the amount required to pay its debts.

 

“Speedring” shall mean Speedring, Inc.,
Delaware corporation.

 

“Speedring Systems” shall mean
Speedring Systems, Inc., a Delaware corporation.

 

“Subsidiary” shall mean any
corporation, partnership, association or other business entity (a) of which
securities or other ownership interests representing more than fifty percent
(50%) of the equity or more than fifty percent (50%) of the ordinary voting
power or more than fifty percent (50%) of the general partnership interests
are, at the time any determination is being made, owned, Controlled, or held,
or (b) that is, at the time any

 

15

 

determination is made, otherwise Controlled, by Borrower or one or more
Subsidiaries of Borrower or by Borrower and one or more Subsidiaries of
Borrower, including without limitation, the Subsidiary Guarantors, each of
which is a Subsidiary of Borrower.

 

“Subsidiary Guarantors” shall mean
Speedring Systems, Speedring, Precision, BAC and each other direct or indirect
Subsidiary of Borrower that becomes a party to this Agreement and the Guaranty
Agreement pursuant to Section 7.12 hereof, including, but not limited to,
Telic, and the permitted successors and assigns of each such Subsidiary
Guarantor.

 

“Swap Agreement” shall mean the ISDA
Master Agreement or any other swap agreement (as defined in 11 United States
Code Section 101) now or hereafter entered into by Borrower with respect to any
LIBOR Loan, including the Schedules and all Confirmations related thereto (as
such terms are defined in the ISDA Master Agreement).

 

“Telic” shall mean Telic
Optics, Inc., a Massachusetts corporation.

 

“Term Loan” shall have
the meaning assigned in Section 2.1(b) hereof.

 

“Term Loan Note” shall
mean the term loan promissory note of Borrower payable to the order of Bank
dated as of the date hereof, in the form of Exhibit B attached hereto,
evidencing the Obligations arising under the Term Loan, and any and all
substitutions and replacements thereof, all as the same may be amended,
restated, supplemented and/or modified from time to time.

 

“Termination Date” shall mean April 7,
2006 and any subsequent date to which the Termination Date may be extended
pursuant to Section 10.1(a) hereof.

 

“Type”, when used in
respect of any Loan, shall refer to the Rate by reference to which interest on
such Loan is determined.  For purposes
hereof, the term “Rate” shall mean the LIBOR Rate and the Prime Rate.

 

“Unused Letter of Credit Commitment
Amount” shall mean at any time (a) the Letter of Credit Commitment Amount at
such time, minus (b) the aggregate Available Amount of all Letters of
Credit outstanding at such time, minus (c) the aggregate amount of all
unreimbursed L/C Disbursements at such time.

 

“Unused Line Fees” shall have the
meaning assigned in Section 3.6 hereof.

 

“Unused Revolving Loan Commitment
Amount” shall mean at any time (a) the Revolving Loan Commitment Amount at such
time, minus (b) the aggregate principal amount of all Revolving Loans
outstanding at such time minus (c) the aggregate Available Amount of all
Letters of Credit outstanding at such time, minus (d) the aggregate
amount of all unreimbursed L/C Disbursements at such time.

 

“Yield Maintenance Fee”
shall mean, with respect to each repayment or prepayment of principal under any
LIBOR Loan (whether such repayment or prepayment is made

 

16

 

pursuant to Section 3.5 hereof, as a result of acceleration following
an Event of Default, or for any other reason), an amount computed as follows:
the current rate for United States Treasury securities (bills on a discounted
basis shall be converted to a bond equivalent) with a maturity date closest to
the maturity date of the Interest Period in effect for such LIBOR Loan at the
time of such repayment or prepayment shall be subtracted from the LIBOR Rate
component of the interest rate in effect under such LIBOR Loan at the time of
such repayment or prepayment.  If the
result is zero or a negative number, the Yield Maintenance Fee shall be
zero.  If the result is a positive
number, then the resulting percentage shall be multiplied by the amount of the
principal balance being prepaid.  The resulting
amount shall be divided by 360 and multiplied by the number of days remaining
in such Interest Period.  Said amount
shall be reduced to present value calculated by using the above referenced
United States Treasury securities rate and the number of days remaining in such
Interest Period.

 

Section 1.2                                   Computation
of Time Periods.

 

In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word “from” shall mean “from and including” and the words “to” and “until”
each mean “to but excluding”.

 

Section 1.3                                   Accounting
Terms.

 

Unless otherwise defined,
all accounting terms shall be construed, and all computations or
classifications of assets and liabilities and of income and expenses shall be
made or determined in accordance with GAAP.

 

Section 1.4                                   Other
Definitional Provisions.

 

The definitions in
Section 1.1 shall apply equally to both the singular and plural forms of the
terms defined.  Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. All references herein to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise
require.  Except as otherwise expressly
provided herein, any reference in this Agreement to any Financing Agreement
shall mean such document as amended, restated, supplemented or otherwise
modified from time to time (subject to the restrictions on such amendments,
restatements, supplements or modifications set forth herein). The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase
“without limitation”. The words “hereof”, “herein” and “hereunder” and words of
similar import shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The phrase “upon the occurrence and
during the continuance of any Event of Default” or phrases of similar import
contained herein or in any other Financing Agreement shall not be construed, by
implication or otherwise, to mean that Borrower, any Subsidiary Guarantor or
any other Person shall have a right to cure any such Event of Default (unless
otherwise expressly provided herein or therein), and the only right Borrower,
each Subsidiary Guarantor and/or any other Person shall have upon the
occurrence of any such Event of Default is to tender payment in full of all
outstanding Obligations unless Bank shall have

 

17

 

agreed in writing to waive such Event of Default and/or otherwise
permit Borrower, any Subsidiary Guarantor and/or other Person to cure such
Event of Default.

 

Section 1.5                                   Conflicting
Terms.

 

It being the express intention and agreement of Obligors and Bank that
the provisions of this Agreement shall control and govern the Obligations, in
the event and to the extent that any term or provision of this Agreement
conflicts with a similar term or provision contained in another Financing
Agreement, the term or provision of this Agreement shall govern and control.

 

ARTICLE
II

 

AMOUNTS AND TERMS OF THE LOANS

 

Section 2.1                                   Amounts.

 

(a)                                  Revolving
Loans. Subject to the terms and conditions contained in this Agreement,
Bank agrees to make revolving loans (each a “Revolving Loan”) to Borrower
from time to time on any Business Day during the period from the date hereof
until the Termination Date in an amount for each such Revolving Loan not to
exceed the Unused Revolving Loan Commitment Amount on such Business Day. Within
the limits of the Unused Revolving Loan Commitment Amount, so long as Borrower
is in compliance with all of the terms and conditions of this Agreement and no
Defaulting Event has occurred, Borrower may borrow Revolving Loans under this
Section 2.1(a), repay all or a portion of outstanding Revolving Loans pursuant
to Section 3.5 hereof, and re-borrow Revolving Loans under this Section 2.1(a).

 

(b)                                 Term
Loan. Subject to the terms and conditions contained in this Agreement, Bank
agrees to extend to Borrower a term loan in the principal amount of $5,000,000
(the “Term
Loan”) as evidenced by, in addition to this Agreement, the Term Loan
Note.

 

(c)                                  Letters
of Credit. Subject to the terms and
conditions of this Agreement, Borrower may, from time to time on any
Business Day during the period from the date hereof until the Termination Date,
request Bank to issue Letters of Credit
for drawing in Dollars (or such other currency as shall be approved by Bank)
for the account of Borrower or any Subsidiary Guarantor or to amend, renew or
extend an existing Letter of Credit.  A
Letter of Credit shall be issued, amended, renewed or extended on any Business
Day, provided
that (i) no Letter of Credit shall be issued in an Available Amount which
exceeds the Unused Letter of Credit Commitment Amount on such Business Day, and
(ii) after giving effect to such issuance, amendment, renewal or extension, the
sum of (1) the aggregate outstanding principal amount of all Revolving Loans on
such Business Day, (2) the aggregate Available Amount of all outstanding
Letters of Credit on such Business Day, and (3) the aggregate outstanding
unpaid L/C Disbursements on such Business Day does not exceed the Revolving
Loan Commitment Amount.

 

18

 

(d)                                 Use
of Proceeds. Borrower represents that the proceeds of the Revolving Loans shall
be used by Borrower for working capital and general corporate purposes,
including, but not limited to, the acquisition of Capital Assets and the
issuance of Letters of Credit by the Bank on behalf of the Borrower or any
Subsidiary Guarantor, and Borrower represents that the Term Loan will be used
to finance the acquisition of all of the issued and outstanding capital stock
of Telic pursuant to the Merger Agreement.

 

Section 2.2                                   Procedure
for Revolving Loans.

 

(a)                                  Notices
of Borrowing. Each request for a Revolving Loan may be made only once per
Business Day and shall be made on notice, given not later than (i) 1:00 p.m.
(Hartford, Connecticut time) on the date of the proposed borrowing, in the case
of requests for Prime Rate Loans, and (ii) 1:00 p.m. (Hartford, Connecticut
time) on the second Business Day prior to the date of the proposed borrowing,
in the case of requests for LIBOR Loans, by Borrower to Bank. Each such notice
(which notice shall be irrevocable and binding on Borrower) of a proposed borrowing
(a “Notice
of Borrowing”) shall be by telephone, confirmed immediately in
writing, or by telex or telecopier, specifying the date of the proposed
borrowing (which shall be a Business Day), the amount to be borrowed and the
type of borrowing (which shall be either a Prime Rate Loan, a LIBOR Loan or any
combination thereof as Borrower may elect subject to the provisions of this
Agreement). If no election as to the Type of Revolving Loan borrowing is
specified in any such Notice of Borrowing, then Borrower shall be deemed to
have requested such Revolving Loan to be a Prime Rate Loan. All LIBOR Loans
shall have an Interest Period of one (1) month. Each borrowing under the
Facility shall be in an amount equal to $250,000 or in integral multiples of
$100,000 in excess thereof. In the event that written confirmation of a
telephonic Notice of Borrowing differs in any respect from the action taken by
Bank, the records of Bank shall be presumed correct absent manifest or
demonstrable error.

 

(b)                                 Revolving
Loan Account, Monthly Statements. Insofar as Bank shall make Revolving
Loans hereunder, Bank shall enter the amounts of such Revolving Loans as debits
on an internal ledger account (the “Revolving Loan Account”).  Bank may also record to the Revolving Loan
Account, in accordance with customary banking procedures, all fees, accrued and
unpaid interest, late fees, other fees and charges which are properly
chargeable to Borrower under this Agreement, all payments, subject to
collection, made by Borrower on account of Obligations evidenced by the
Revolving Loan Account and, to the extent amounts contained in Borrower’s main
operating concentration account maintained with Bank are insufficient to pay
the same, usual and customary bank charges for the maintenance and administration
of checking and other bank accounts maintained by Borrower. On a monthly basis,
Bank may render a statement for the Revolving Loan Account, which statement, if
rendered, shall be presumed correct unless Borrower notifies Bank to the
contrary within thirty (30) days of the receipt of said statement by Borrower.

 

(c)                                  Disbursement
of Revolving Loans. Insofar as Borrower may request and Bank shall make
Revolving Loans hereunder, Bank shall make such funds available to Borrower by
crediting Borrower’s main operating concentration account maintained with Bank
or such other account (whether or not maintained with Bank) as Borrower may
otherwise direct in writing.

 

19

 

Section 2.3                                   Procedure
for Letters of Credit; Certain Conditions.

 

(a)                                  Notices of Issuance, Amendment, Renewal,
Extension.  Requests for the issuance of Letters of
Credit (or to amend, renew or extend an existing Letter of Credit) may be made
only once per Business Day and shall be made on notice, given not later than
1:00 p.m. (Hartford, Connecticut time) three (3) Business Days prior to the
date of the proposed issuance or amendment, renewal or extension, by Borrower
to the Bank. Each such notice (which notice shall be irrevocable and binding on
Borrower) of a proposed issuance of a Letter of Credit or of an amendment,
renewal or extension of an existing Letter of Credit (each, a “Notice of
Issuance”) shall be by telephone, confirmed promptly in writing, or
by telex or telecopier, specifying therein the (i) requested date of issuance,
amendment, renewal or extension (which shall be a Business Day), (ii) requested
Available Amount of such Letter of Credit in Dollars (or other currency
approved by the Bank), (iii) requested expiration date of such Letter of Credit
(which shall comply with subsection (c) below), and (iv) the name and address
of the beneficiary of such Letter of Credit, and shall be accompanied by such
other information as shall be necessary to prepare such Letter of Credit and such
application and agreement for letter of credit as the Bank may require Borrower
and/or any other Obligor to execute in connection with such requested Letter of
Credit (each, a “Reimbursement Agreement”). 
In the event that written confirmation of a telephonic Notice of
Issuance differs in any material respect from the action taken by the Bank, the
records of the Bank shall control absent manifest or demonstrable error.  In the event and to the extent that the
provisions of a Reimbursement Agreement shall conflict with this Agreement, the
more stringent provisions of each shall govern.

 

(b)                                 Form of Letter of Credit. 
Each Letter of Credit shall, among other things, (i) be in a form
acceptable to the Bank, and (ii) be governed by, and shall be construed in accordance
with, the laws or rules designated in such Letter of Credit or the applicable
Reimbursement Agreement, or if no such laws or rules are so designated, the
Uniform Customs (in the case of commercial letters of credit) or ISP98 (in the
case of standby letters of credit) and, as to matters not governed by the
Uniform Customs or ISP98, as applicable, Article 5 of the Uniform Commercial
Code as in effect from time to time in the State of Connecticut.

 

(c)                                  Expiry Dates. 
Each Letter of Credit shall expire at the close of business on the
earlier of the date one (1) year after the date of the issuance of such Letter
of Credit or the date that is one hundred eighty (180) Business Days after the
Termination Date, unless such Letter of Credit expires by its terms on an
earlier date.

 

(d)                                 Reimbursement; L/C Disbursements as Revolving
Loans.  If the Bank shall make any L/C Disbursement
in respect of a Letter of Credit, Borrower shall pay to the Bank an amount
equal to such L/C Disbursement on the date specified for reimbursement in the
applicable Reimbursement Agreement. 
Notwithstanding the foregoing, the Bank shall have the right (but not
the obligation), in its sole and absolute discretion, to treat as Revolving
Loans any and all L/C Disbursements which are not reimbursed to the Bank on the
date specified for reimbursement in the applicable Reimbursement Agreement and,
in furtherance thereof, the Bank shall have the right (but not the obligation)
to effect payment thereof, together with payment of any of the fees, expenses
and charges due and payable in connection therewith, immediately by a

 

20

 

charge to Borrower’s Revolving Loan Account,
notwithstanding that the Bank has, at such time, exercised any right it may have
not to make Revolving Loans and further notwithstanding that additional
Revolving Loans are not available for borrowing by Borrower.  Such treatment shall not constitute a
Defaulting Event or an Event of Default. 
Any L/C Disbursement which Bank elects to treat as a Revolving Loan
shall initially be a Prime Rate Loan bearing interest at the Prime Rate, provided
that Borrower shall also have the right, subject to the terms and
conditions contained in this Agreement, to request Bank to make a Revolving Loan in accordance with Section
2.2(a) hereof, the proceeds of which Borrower intends to use to satisfy any or
all of its Obligations in connection with outstanding L/C Disbursements.

 

(e)                                  No Liability of the Bank. 
Borrower assumes all risks of the acts or omissions of any beneficiary
or transferee of any Letter of Credit with respect to the use of such Letter of
Credit, and Borrower’s obligations with respect to L/C Disbursements shall be
absolute, unconditional and irrevocable, irrespective of: (i) any lack of
validity or enforceability of any Letter of Credit, or any term or provision
therein, (ii) the existence of any dispute, claim, setoff, defense or other
right that Borrower or any other Person may have against the beneficiary under
any Letter of Credit, the Bank or any other Person, whether in connection with
this Agreement, any other Financing Agreement or any other related or unrelated
agreement or transaction; (iii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(iv) payment by the Bank under a Letter of Credit against presentation of a
draft or other documents that substantially complies in all material respects
with the terms of such Letter of Credit; and (v) any error, omission,
interruption or delay in any transmission, dispatch or delivery of any message
or advice, however transmitted, in connection with any Letter of Credit.

 

The
foregoing shall not be construed to excuse the Bank from liability to Borrower
to the extent of any direct damages (as opposed to consequential damages,
claims in respect of which are hereby waived by Borrower to the extent
permitted by law) suffered by Borrower that are caused by (x) the Bank’s
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit, or (y) the Bank’s willful failure to make lawful payment under a Letter
of Credit after presentation to it of a draft or documents strictly complying
with the terms and conditions of the Letter of Credit.  It is understood that the Bank may, subject
to the standard of gross negligence or willful misconduct, accept documents
that appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary and, in
making any payment under any Letter of Credit (1) the Bank’s exclusive reliance
on the documents presented to it under such Letter of Credit as to any and all
matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in order, and
whether or not any other statement or any other document presented pursuant to
such Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever and (2) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit with the terms thereof shall, in each case, be deemed not to
constitute willful misconduct or gross negligence of the Bank.

 

21

 

(f)                                    Interim Interest.  If
the Bank shall make any L/C Disbursement in respect of a Letter of Credit,
then, unless Borrower shall reimburse such L/C Disbursement in full on the date
specified for reimbursement in the applicable Reimbursement Agreement, the
unpaid amount thereof shall bear interest for each day from and including the
date of such L/C Disbursement to but excluding the date of payment, at a
floating rate per annum equal to the Prime Rate.

 

(g)                                 Cash Collateralization.  If
any Event of Default shall occur and be continuing, Borrower shall, on the
third Business Day after receipt of notice from the Bank of the amount to be
deposited (which notice shall also contain a description of the Event(s) of
Default which shall have occurred), deposit in an account with the Bank an
amount in cash equal to the aggregate Available Amount of all outstanding
Letters of Credit as of such date.  Such
deposit shall be held by Bank as collateral for the payment and performance of
the Obligations.  The Bank shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account.  Such deposits shall
not bear interest.  Moneys in such
account shall (i) first, automatically be applied by the Bank to reimburse
itself for L/C Disbursements for which it has not been reimbursed, (ii) second,
be held for the satisfaction of the reimbursement obligations of Borrower for
the Bank’s exposure under undrawn Letters of Credit, and (iii) third, be
applied to satisfy any other Obligations.

 

Section 2.4                                   Repayment
of Revolving Loans, Obligations Absolute.

 

(a)                                  Revolving
Loan Repayment. NOTWITHSTANDING BANK’S RIGHTS UPON THE OCCURRENCE OF A
DEFAULTING EVENT AND WHETHER OR NOT ANY SUCH DEFAULTING EVENT HAS OCCURRED,
BORROWER SHALL REPAY TO BANK THE AGGREGATE PRINCIPAL AMOUNT OF ALL OUTSTANDING
REVOLVING LOANS ON THE TERMINATION DATE.

 

(b)                                 Obligations
Absolute.

 

(i)                                     The
Obligations of Obligors under this Agreement and all other Financing Agreements
shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement and such other Financing Agreements
under all circumstances, including without limitation, the following
circumstances:

 

(A)                              any
lack of validity or enforcement of this Agreement, any other Financing
Agreement or any other agreement or instrument relating thereto;

 

(B)                                any
agreed change in the time, manner or in any other term of all or any of the
Obligations, or any change in the place of payment of any of the Obligations;

 

(C)                                any
amendment or waiver of, or consent to departure from, any of the Financing
Agreements or all or any of the Obligations;

 

22

 

(D)                               the
existence of any claim, set-off, defense or other right that any of the
Obligors may have, whether in connection with the transactions contemplated by
this Agreement or any unrelated transaction;

 

(E)                                 any
document executed and/or delivered by or on behalf of any Obligor or any other
Subsidiary proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;

 

(F)                                 any
release or amendment or waiver of or consent to departure from any Guaranty
Agreement; or

 

(G)                                any
other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, including without limitation, any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Obligor.

 

Without limiting the generality of the foregoing, it
is expressly understood and agreed that the absolute and unconditional
obligation of the Obligors set forth above shall not be construed as a waiver
by the Obligors of any claims or defenses it may have against Bank.

 

Section 2.5                                   Method
of Payment, Direct Debits, Payment Date Adjustments, Application of Payments.

 

(a)                                  Method
of Payment. The Obligors shall make each payment due under this Agreement
and under the Notes to the Bank at the Head Office (or such other place as the
Bank may from time to time specify in writing) not later than 3:00 P.M.,
Hartford, Connecticut time, on the date when due in Dollars in immediately available
funds, without setoff, defense or counterclaim and free and clear of, and
without any deduction or withholding for, any taxes or other payments as
contemplated under Section 4.6 hereof.

 

(b)                                 Direct
Debits. Notwithstanding subsection (a) above, Obligors hereby agree that
the Bank may directly debit any demand deposit account of any Obligor held by
the Bank for any amount due and payable under this Agreement, any of the Notes,
any Guaranty Agreement, any Reimbursement Agreement and/or the Bank Swap Agreement,
including, without limitation, principal, interest, fees and charges, provided
that Bank shall only debit Borrower’s main operating concentration account
maintained with Bank so long as amounts contained therein are sufficient to pay
such amount or amounts then due and payable.

 

(c)                                  Payment
Date Adjustments. Whenever any payment of principal of, or interest on, any
Prime Rate Loan shall be due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day. Whenever any payment of
principal of, or interest on, any LIBOR Loan shall be due on a day which is not
a Business Day, such payment shall be made on the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding

 

23

 

Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest and fees thereon shall be payable for such
extended time.

 

(d)                                 Application
of Payments. All payments (including prepayments) by or on behalf of
Borrower hereunder and under any of the other Financing Agreements shall be
applied first to the payment of all fees, expenses and other amounts due to the
Bank (excluding principal and interest), then to accrued interest, and the
balance on account of outstanding principal; provided, however, that after
the occurrence of an Event of Default, payments will be applied to the
Obligations in such manner and order of priority as the Bank determines in its
sole discretion.

 

ARTICLE
III

 

INTEREST, INTEREST PERIODS, CONVERSIONS,

LATE PAYMENTS, PREPAYMENTS, FEES AND INTEREST RATE HEDGE

 

Section 3.1                                   Interest
and Late Payments.

 

(a)                                  Pre-default
Rates.

 

(i)                                     Revolving
Loans. Subject to the provisions of Section 3.1(b) hereof, during the
period from the date made through and including the date of payment in full,
each Revolving Loan shall bear interest on the outstanding principal amount
thereof at a rate per annum equal to, at the election of Borrower subject to
the terms of this Agreement: (A) the Prime Rate, or (B) the LIBOR Rate (as
determined for each available Interest Period) plus the Applicable Margin for
available Interest Periods of one (1) month.

 

(ii)                                  Term
Loan. Subject to the provisions of Sections 3.1(b), 4.1 and 4.3 hereof, the
Term Loan shall bear interest at a rate per annum (as determined for each
available Interest Period) equal to the LIBOR Rate plus the Applicable Margin
for available Interest Periods of one (1) month.

 

(b)                                 Default
Interest. Notwithstanding the foregoing, at all times after the occurrence
and during the continuance of an Event of Default (whether or not Bank has
accelerated payment of the Obligations) or after maturity (by acceleration or
otherwise) or after judgment, Borrower’s right to select pricing options shall
cease and interest on all Loans shall, at the option of the Bank, accrue at a
rate per annum equal to two percent (2.0%) above the Prime Rate.

 

(c)                                  Calculation
of Interest, Interest Rate Changes. Interest on the Loans shall be
calculated on the basis of a 360 day year and the actual number of days
elapsed. With respect to each Prime Rate Loan, any change in the interest rate
because of a change in the Prime Rate shall become effective, without notice or
demand, immediately upon any change in the Prime Rate. With respect to each
LIBOR Loan, any change in the interest rate because of a change in the Reserve
Percentage shall become effective, without notice or demand, on the date on
which such change in the Reserve Percentage becomes effective.

 

24

 

(d)                                 Payment
of Interest.

 

(i)                                     Prime
Rate Loans. Interest on each Prime Rate Loan shall be payable monthly in
arrears, in Dollars and in immediately available funds beginning on the first
Business Day of the month immediately succeeding the month in which such Loan
was made or converted into such Prime Rate Loan and continuing on the first
Business Day of each and every month thereafter, without notice or demand, so
long such Loan remains outstanding or until such Loan is converted to a LIBOR
Loan in accordance with the provisions of this Agreement.

 

(ii)                                  LIBOR
Loans. Interest on each LIBOR Loan shall be payable in Dollars and in
immediately available funds on the last Business Day of each applicable
Interest Period.

 

(e)                                  Lawful
Interest. All agreements between Borrower, each Subsidiary Guarantor and
Bank are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of any of the
Obligations or otherwise, shall the amount paid or agreed to be paid to Bank
for the use or the forbearance of the Obligations exceed the maximum
permissible under applicable law.  As
used herein, “applicable law” shall mean the law in effect as of the date
hereof provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Agreement, the
Notes and the other Financing Agreements shall be governed by such new law as
of its effective date. In this regard, it is expressly agreed that it is the
intent of the Obligors and Bank in the execution, delivery and acceptance of
the Financing Agreements to contract in strict compliance with the laws of the
State of Connecticut from time to time in effect. If, under or from any
circumstances whatsoever, fulfillment of any provision hereof or of any of the
other Financing Agreements at the time of performance of such provision shall
be due, shall involve transcending the limit of such validity prescribed by
applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limits of such validity, and if under for from circumstances
whatsoever Bank should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance of the Loans and not to the
payment of interest. This provision shall control every other provision of all
agreements between Borrower, each Subsidiary Guarantor and Bank.

 

Section 3.2                                   Election
and Continuation of Interest Periods.

 

(a)                                  Election.  The only Interest Period available for
Revolving Loans and the Term Loan shall be an Interest Period of one (1) month.

 

(b)                                 Continuation.

 

(i)                                     Revolving
Loans.  Any Revolving Loan which is
a LIBOR Loan shall be automatically continued as a LIBOR Loan (unless repaid in
full) upon the expiration of the then current Interest Period with respect
thereto without further notice to or from Borrower, provided that no Revolving
Loan may be continued as a LIBOR Loan: (A) at a time when any

 

25

 

Event of Default has occurred and is continuing, or (B) at a time when
a LIBOR Loan is unavailable pursuant to Sections 4.1 or 4.3 hereof.

 

(ii)                                  Term
Loan.  The Term Loan shall be a
LIBOR Loan with available Interest Periods of one (1) month only, and shall be
automatically continued as a LIBOR Loan upon the expiration of the then current
Interest Period with respect thereto without further notice from or to
Borrower, provided
that the Term Loan may not be continued as a LIBOR Loan: (A) at a time when any
Event of Default has occurred and is continuing, or (B) at a time when a LIBOR
Loan is unavailable pursuant to Sections 4.1 or 4.3 hereof.

 

Section 3.3                                   Conversion
of Revolving Loans.

 

Borrower may elect from
time to time, subject to the provisions of this Agreement, to convert any
outstanding Revolving Loan, or a portion or portions thereof, into a Revolving
Loan of another available Type by giving Bank not less than two (2) Business
Days’ prior irrevocable written notice of such election, provided that any such
conversion of a LIBOR Loan to a Prime Rate Loan may only be made on the last
Business Day of an Interest Period with respect thereto. Any such notice of
conversion to a LIBOR Loan shall specify the amount of the Revolving Loan being
converted and, in the case of a conversion to a LIBOR Loan, the length of the
initial available Interest Period.  All
or any part of outstanding Revolving Loans may be converted as provided herein,
provided that no Prime Rate Loan may be converted to a LIBOR Loan: (a) at a
time when any Event of Default has occurred and is continuing, or (b) in the
event a LIBOR Loan is unavailable pursuant to Sections 4.1 or 4.3 hereof.  Borrower shall have no ability to convert
all or any portion of the Term Loan to a Prime Rate Loan.

 

Section 3.4                                   Late
Payment.

 

If
the entire amount of any required principal and/or interest is not paid in full
within ten (10) days after the same is due and payable (other than as a result
of being accelerated after the occurrence of an Event of Default), without in
any way affecting Bank’s right to declare an Event of Default to have occurred,
Borrower shall pay to Bank a late charge equal to five percent (5%) of the
required payment and such late charge shall be immediately due and payable
without demand or notice of any kind.

 

Section 3.5                                   Repayments
and Prepayments.

 

(a)                                  Revolving
Loans. Borrower may, at its option, repay any Revolving Loan at any time
and from time to time, in whole or in part, on the following conditions: (i)
Borrower shall pay all accrued interest on the principal being paid to the date
of the repayment and, in the case of repayments in full, all fees, charges,
costs, expenses and other amounts then due under any of the Revolving Loans;
and (ii) if such Revolving Loan (or portion thereof being repaid) is then a
LIBOR Loan, such LIBOR Loan shall only be repaid on the last Business Day of
the then current Interest Period with respect thereto (unless such repayment is
accompanied by the required Yield Maintenance Fee and breakage and/or other
make-whole amounts, if any, as provided in subsections (c) and (e) below). In its
notice, Borrower shall specify the date and

 

26

 

amount of the prepayment, whether the Revolving Loan being repaid is a
Prime Rate Loan, a LIBOR Loan or a combination thereof, and, if a combination
thereof, the amount allocable to each.

 

(b)                                 Term
Loan. Borrower may, at its option, prepay the Term Loan, in whole or in
part, on the following conditions: (i) Borrower shall pay all accrued interest
on the principal being paid to the date of the prepayment and, in the case of
prepayments in full, all fees, charges, costs, expenses and other amounts then
due under the Term Loan; (ii) if the Term Loan (or portion thereof being
prepaid) is then a LIBOR Loan, such LIBOR Loan shall only be prepaid on the
last Business Day of the then current Interest Period with respect thereto
(unless such repayment is accompanied by the required Yield Maintenance Fee and
breakage and/or other make-whole amounts, if any, as provided in subsections
(c) and (e) below); and (iii) any partial prepayment of the Term Loan shall be
applied to principal installments due thereunder in the inverse order of
maturity and shall not relieve Borrower’s obligation to make regularly
scheduled principal payments thereunder. In its notice, Borrower shall specify
the date and amount of the prepayment.

 

(c)                                  Indemnity
for Repayment or Prepayment of LIBOR Loans; Payment of Yield Maintenance Fee.  In the event that a repayment or prepayment
of a LIBOR Loan is made, required or permitted on a date other than the last
Business Day of the then current Interest Period with respect thereto, Borrower
shall indemnify Bank therefor in accordance with Section 4.5 hereof, including but not limited to, paying to
Bank the applicable Yield Maintenance Fee, if any.

 

(d)                                 Prepayment
of Loans. In the event Borrower makes, at any time, a repayment or
prepayment of a Loan, such repayment or prepayment shall be made without
penalty or premium to Borrower (other than, in the case of LIBOR Loans, the
payment of the applicable Yield Maintenance Fee and breakage and/or other
make-whole amounts, if any).

 

(e)                                  Effect
of Prepayments on Bank Swap Agreement.

 

(i)                                     The
prepayment by Borrower of all or any portion of the Term Loan shall not affect
Borrower’s obligation to continue to make payments to Bank under the Bank Swap
Agreement (and, if applicable, to pay any breakage or other make-whole amounts
with respect thereto), and the Bank Swap Agreement and Borrower’s obligations
thereunder shall remain in full force and effect notwithstanding any such
prepayment so long as the Bank Swap Agreement remains in full force and effect.

 

(ii)                                The
prepayment in full of the Term Loan at a time when the Bank Swap Agreement is in effect with respect thereto but prior
to the Maturity Date of the Term Loan shall, at Bank’s option, be deemed an
“Additional Termination Event” (as such term is defined in the Bank Swap
Agreement), the occurrence of which shall entitle Bank, at its option, to
terminate the transaction entered into under the Bank Swap Agreement relating
to such Term Loan. Upon any such termination of the Bank Swap Agreement,
Borrower shall be liable to Bank for all indebtedness and obligations arising
under or in connection with such termination, including

 

27

 

without limitation, all amounts due to Bank, as swap counterparty, as a
result of the occurrence of such an “Additional Termination Event”.

 

(f)                                    Application
of Prepayments.

 

Any
and all prepayments shall be applied in accordance with Section 2.5(d)
hereof.  All partial prepayments, to the
extent applied to principal, shall be applied to the principal installments due
under the applicable Loan in the inverse order of maturity and shall not
relieve Borrower’s obligation to make regularly scheduled principal payments
thereunder.

 

Section 3.6                                   Unused Line Fees.

 

No later than five (5)
Business Days after Borrower’s receipt of an invoice or other notice as to the
amount of such fee, Borrower shall pay to Bank fees based upon the average
daily Unused Revolving Loan Commitment Amount for each calendar quarter of
Borrower (the “Unused Line Fees”). The Unused Line Fees shall be calculated
as of the end of each calendar quarter of Borrower and on the Termination Date
(or such earlier date on which the Revolving Loan has been terminated and all
Obligations under the Revolving Loan are fully and finally paid) and shall be
determined by multiplying (i) the Applicable Unused Line Fee Percentage for
such calendar quarter (or portion thereof) by (ii) the Unused Revolving Loan
Commitment Amount for each day during such calendar quarter (or portion
thereof).

 

Section 3.7                                   Commitment Fee.

 

On or before the date
hereof, Borrower shall pay to Bank a one-time non-refundable commitment fee
with respect to the Term Loan in an amount equal to $40,000 (the “Commitment
Fee”).

 

Section 3.8                                   Letter
of Credit Fees.

 

In connection with the
issuance, extension or renewal of each Letter of Credit, Borrower shall pay to
the Bank all standard negotiation and administrative fees and charges
imposed by the Bank (collectively, the “Letter of Credit Fees”), in each case
payable upon issuance, extension or renewal.

 

Section 3.9                                   Interest
Rate Hedge with Bank.

 

Borrower acknowledges and affirms its election to
enter into the Bank Swap Agreement with Bank in order to hedge the floating
interest expense under the Term Loan for the entire term thereof.

 

28

 

ARTICLE
IV

 

FUNDING AND YIELD PROTECTION

 

Section 4.1                                   Illegality.

 

Notwithstanding any other
provisions herein, if, after the date hereof, any applicable law, regulation or
directive, or any change therein or in the interpretation or application
thereof after the date hereof shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for Bank to make
or maintain any LIBOR Loan as contemplated by this Agreement, then (a) the
obligation of Bank to make such LIBOR Loan, continue such LIBOR Loan as such
and convert a Prime Rate Loan to such LIBOR Loan shall forthwith be suspended
until Bank shall notify Borrower that Bank has determined that the
circumstances causing such suspension no longer exist, and (b) all such Loans
then outstanding as unlawful LIBOR Loans, if any, shall be converted
automatically, without notice on the last day of the then current Interest
Periods with respect thereto (or within such earlier period as required by law)
to a loan bearing interest at a floating rate per annum equal to the Prime
Rate. If any such conversion of a LIBOR Loan is made or required on a day that
is not the last Business Day of the then current Interest Period applicable
thereto, Borrower shall pay Bank such amount or amounts as may be required
pursuant to Sections 3.5 and 4.5 hereof, including, without limitation, the
applicable Yield Maintenance Fee, if any.

 

Section 4.2                                   Additional
Costs.

 

In the event that
applicable law, treaty or regulation or directive from any government,
governmental agency or regulatory authority enacted after the date hereof, or
any change therein or in the interpretation or application thereof, or
compliance by Bank with any request or directive having the force of law
enacted after the date hereof from any central bank or government, governmental
agency or regulatory authority, shall:

 

(a)                                  subject
Bank to any tax of any kind whatsoever (except taxes on the overall net income,
franchise or gross receipts of Bank) with respect to this Agreement, the Notes
or any of the Loans made by it, or any of the Letters of Credit issued by it,
or change the basis of taxation of payments to Bank of principal, interest or
any other amount payable hereunder or thereunder (except for changes in the
rate or calculation of tax on the overall net income of Bank);

 

(b)                                 impose,
modify or hold applicable any reserve, special deposit, compulsory loan or
similar requirements against assets held by, or deposits or other liabilities
in or for the account of, advances or loans or other extensions of credit by,
or any other acquisition of funds by, any office of Bank, including (without
limitation) pursuant to Regulations of the Board of Governors of the Federal
Reserve System; or

 

29

 

(c)                                  in
the opinion of Bank, cause any Note, any Loan, any Letter of Credit or this
Agreement to be included in any calculations used in the computation of
regulatory capital standards; or

 

(d)                                 impose
on Bank any other condition;

 

and the result of any of
the foregoing is to increase the cost to Bank of making, converting into,
continuing and/or maintaining the Loans (or any part thereof) or issuing
Letters of Credit by an amount that Bank deems to be material, or to reduce the
amount of any payment (whether of principal, interest or otherwise) with
respect of any of the Loans or any of the Reimbursement Agreements by an amount
that Bank deems material, then, in any case, Borrower shall promptly pay Bank,
upon its demand, such additional amounts necessary, in the reasonable judgment
of Bank, to compensate Bank for such additional costs or such reduction, as the
case may be (collectively the “Additional Costs”). Bank shall give
Borrower notice of any such determination as soon as practicable and shall
certify the amount of such Additional Costs to Borrower, and such
certification, absent manifest or demonstrable error, shall be presumed
conclusive.

 

Section 4.3                                   Basis
for Determining LIBOR Base Rate Inadequate or Unfair.

 

In the event that Bank
shall have determined (which determination shall be conclusive and binding upon
Borrower) that (a) by reason of circumstances affecting the interbank LIBOR
market in which Bank regularly participates, adequate and reasonable means do
not exist for determining the LIBOR Rate, or (b) Dollar deposits in the
relevant amount and for the relevant maturity are no longer available to Bank
in the interbank LIBOR market in which Bank regularly participates, or
(c) the making or continuation of LIBOR Loans has been made impractical or
unlawful by the occurrence of a contingency that materially and adversely
affects the interbank LIBOR market in which Bank regularly participates, or (d)
the LIBOR Base Rate will not adequately and fairly reflect the cost to Bank of
making, funding or maintaining LIBOR Loans, or (e) the LIBOR Base Rate shall no
longer represent the effective cost to Bank of U.S. Dollar deposits in the
relevant market for deposits in which it regularly participates, Bank shall
give Borrower notice of such determination as soon as practicable. If such
notice is given (i) any requested LIBOR Loan shall be made as a Prime Rate
Loan, unless Borrower gives Bank two (2) Business Days’ prior written notice
that its request for such borrowing is cancelled, (ii) any Revolving Loan that
was to have been converted to a LIBOR Loan shall be converted into or continued
as, as the case may be, a Prime Rate Loan, and (iii) any outstanding LIBOR Loan
shall be automatically converted, without notice, on the last Business Day of
the then current Interest Period applicable thereto: (v) to, in the case of all
LIBOR Loans which are Revolving Loans, Prime Rate Loans; (w) to, with respect
to the Term Loan, a loan with an interest rate equal to the Prime Rate. Until
such notice has been withdrawn, the obligation of Bank to make LIBOR Loans,
continue LIBOR Loans as such and convert Revolving Loans to LIBOR Loans shall
forthwith be suspended.

 

30

 

Section 4.4                                   Capital
Adequacy Protection.

 

If
Bank shall have determined that the adoption of any applicable law,
governmental rule, regulation or order regarding capital adequacy of banks or
bank holding companies, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Holder with any request or directive regarding
capital adequacy (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful, so long as Bank believes in good
faith that such has the force of law or that the failure to so comply would be
unlawful) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on any of Bank’s capital
as a consequence of Bank’s obligations hereunder to a level below that which
Bank could have achieved but for such adoption, change or compliance (taking
into consideration Holder’s policies with respect to capital adequacy
immediately before such adoption, change or compliance and assuming that Bank’s
capital was fully utilized prior to such adoption, change or compliance) by an
amount deemed by Bank in its reasonable judgment to be material, then, upon
demand, Borrower shall promptly pay to Bank, from time to time as specified by
Bank, such additional amounts as shall be sufficient to compensate Bank for
such reduced return, together with interest on each such amount from the date
of such specification by Bank until payment in full thereof at the highest rate
of interest (other than the default rate of interest) due on the Loans. A
certificate of Bank setting forth the amount to be paid to Bank shall, in the
absence of manifest error, be presumed conclusive. In determining such amount,
Bank shall use any reasonable averaging and attribution methods generally
employed by the banking industry under such circumstances.

 

Section 4.5                                   Indemnity.

 

In the event of (a) a
default by Borrower in the payment of principal of or interest on any LIBOR
Loan, (b) the failure by Borrower to complete a borrowing of, conversion into
or continuation of a LIBOR Loan after notice thereof has been given, or (c) the
making of a repayment or prepayment of a LIBOR Loan (whether such repayment or
prepayment is made pursuant to Sections 3.5 or 4.1 hereof, as a result of termination
and/or acceleration following an Event of Default, or for any other reason) on
a day which is not the last day of the then current Interest Period applicable
thereto, Borrower agrees to pay to Bank, in addition to and not in lieu of
Additional Costs and any other amount due hereunder (but without duplication as
to amounts paid in respect of the required Yield Maintenance Fee), on demand
such amount or amounts as shall be sufficient in the reasonable opinion of Bank
to compensate Bank for any loss, cost or expense (including, without
limitation, costs or losses associated with prepaying or redeploying deposits,
whether or not Bank shall have actually funded the Loan with corresponding
deposits) incurred as a result of the occurrence of any of the foregoing
conditions (a), (b) or (c).  Any demand
by Bank for payment pursuant to this Section 4.5 shall be accompanied by a
schedule in reasonable detail setting forth its computation of any such loss,
cost or expense, such schedule to be conclusive and binding on Borrower absent
manifest or demonstrable error.

 

31

 

Section 4.6                                   Payments
Free of Taxes and Other Deductions.

 

Any
and all payments by or on behalf of Obligors hereunder and under any of the
other Financing Agreements shall be made without setoff or counterclaim and
free and clear of and without deduction for any and all current and future
taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
liabilities, compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political subdivision
thereof or taxing or other authority therein (collectively or individually
called “Taxes”).
The parties hereto acknowledge that Obligors shall not be responsible for the
payment of any taxes on the overall net income of Bank which may arise as a
result of the Loans.  If any such
obligation is imposed upon any of the Obligors with respect to any amount payable
by it hereunder or under any of the other Financing Agreements, Obligors will
pay to Bank on demand after notice from the Bank (if not otherwise paid to the
appropriate taxing authority), such additional amount in Dollars as shall be
necessary to enable Bank to receive the same net amount which Bank would have
received on such due date had no such obligation been imposed upon
Obligors.  Obligors will deliver
promptly to Bank certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by Obligors
hereunder or under such other Financing Agreements.  Obligors will indemnify Bank for the full amount of Taxes paid by
Bank and any liability (including penalties, interest and expenses (including
reasonable attorneys’ fees and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted by the
relevant Government Authority.  A
certificate as to the amount of such payment or liability prepared by Bank, absent
manifest or demonstrable error, shall be final, conclusive and binding for all
purposes.  Such indemnification shall be
made within ten (10) days after the date Bank makes written demand therefor.

 

Section 4.7                                   Survival.

 

All claims by Bank under
this Article IV shall be brought within one hundred eighty (180) days of Bank’s
actual knowledge of the basis for such claims (which may be after the
termination of this Agreement and the payment of the Loans and other
Obligations).

 

ARTICLE
V

 

REPRESENTATIONS AND WARRANTIES

 

Section 5.1                                   Representations
and Warranties.

 

In order to induce Bank
to enter into this Agreement and the other Financing Agreements and to make the
Loans and to issue the Letters of Credit, each of the Obligors makes the
following representations and warranties to Bank, which shall be deemed made as
of the date hereof and as of the date of each Revolving Loan (except to the
extent such representation or warranty relates to a specified date, in which
case such representation or warranty shall be true and correct as of such date),
and shall survive the execution and delivery hereof and each performance
hereunder. Any knowledge acquired by Bank shall not diminish Bank’s rights to
rely upon such representations and warranties.

 

32

 

(a)                                  Incorporation,
Good Standing and Due Qualification.

 

(i)                                     Borrower
(i) is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (ii) has all requisite power and
authority necessary to own its properties and assets and to carry on the
business in which it is now engaged or proposed to be engaged; and (iii) is
duly qualified and in good standing to do business as a foreign corporation
under the laws of each jurisdiction in which such qualification is required
except to the extent such failure to be so qualified would not reasonably be
expected to result in a Material Adverse Effect.

 

(ii)                                  Each
Subsidiary Guarantor (i) is a corporation duly organized, validly existing and
in good standing under the laws of their respective jurisdictions of
incorporation; (ii) has all requisite power and authority necessary to own its
properties and assets and to carry on the business in which it is now engaged
or proposed to be engaged; and (iii) is duly qualified and in good standing to
do business as a foreign corporation under the laws of each jurisdiction in
which such qualification is required except to the extent such failure to be so
qualified would not reasonably be expected to result in a Material Adverse
Effect.

 

(b)                                 Corporate
Authority. Each Obligor has full power and authority to enter into this
Agreement and the other Financing Agreements, to make the borrowings and
guaranties contemplated herein, to execute and deliver the Notes and the other
Financing Agreements as to which they are a party, and to incur the obligations
provided for herein and therein, all of which have been duly authorized by all
necessary corporate action. No other consent or approval or the taking of any
other action in respect of shareholders or of any public authority is required
as a condition to the validity or enforceability of this Agreement, the Notes,
the Guaranty Agreements, the other Financing Agreements, or any other
instrument, document or agreement delivered in connection herewith or
therewith, except in each case as would not reasonable be expected to result in
a Material Adverse Effect.

 

(c)                                  Binding
Agreements. This Agreement constitutes, and the Notes, the Guaranty
Agreements and the other Financing Agreements executed and/or delivered in
connection herewith or therewith, when issued and delivered pursuant hereto for
value received shall constitute, the valid and legally binding obligations of
each of the Obligors which are a party thereto, enforceable in accordance with
their respective terms, except as enforcement may be limited by principles of
equity, bankruptcy, insolvency, or other laws affecting the enforcement of
creditors’ rights generally.

 

(d)                                 Litigation.
Except as set forth in Schedule 5.1(d), as of the date hereof, there are
no actions, suits or proceedings pending against any Obligor or any of their
properties or assets before any court, Governmental Authority, board of
arbitration, or arbitrator, nor to the best of any Obligor’s knowledge, are any
actions, suits or proceedings threatened, which, either in any case or in the
aggregate, would have a Material Adverse Effect, nor are there any such
actions, suits or proceedings which question the validity of this Agreement,
the Notes, the Guaranty Agreements,  any
of the other Financing Agreements, or any action to be taken in connection with
the transactions contemplated hereby or thereby. Without limiting the
generality

 

33

 

of the foregoing, there are no proceedings now pending nor threatened
with respect to the operation of the business of any of the Obligors before the
National Labor Relations Board, State Commission on Human Rights and
Opportunities, State Department of Labor, U.S. Department of Labor or any other
Governmental Authority having jurisdiction of employee rights with respect to
hiring, tenure and conditions of employment. No Obligor has received any summons, citation, directive,
letter, or other communication from any Governmental Authority concerning any
intentional or unintentional violation or alleged violation of any
Environmental Laws which may, in any one case or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

 

(e)                                  No
Conflicting Law or Agreements. The execution, delivery and performance by
each of the Obligors of this Agreement, the Notes, the Guaranty Agreements and
the other Financing Agreements to which they are a party: (i) do not
violate any provision of the charter documents or By-laws of any Obligor,
(ii) do not violate any order, decree or judgment, or any provision of any
statute, rule or regulation, (iii) do not violate or conflict with, result
in a breach of or constitute (with notice or lapse of time, or both) a default
under any material shareholder agreement, stock preference agreement, mortgage,
indenture or other contract or undertaking to which any Obligor is a party, or
by which any of their properties is bound, and (iv) do not result in the
creation or imposition of any Lien, charge or encumbrance of any nature
whatsoever upon any property or assets of any Obligor in favor of any Person.

 

(f)                                    Taxes.
With respect to all taxable periods of each Obligor that remain open and
subject to adjustment under applicable statutes of limitation, each Obligor has
filed all tax returns which are required to be filed and all federal, state,
municipal, franchise and other taxes shown on such filed returns have been paid
or are being diligently contested, in good faith, by appropriate proceedings
and have been reserved against as required by GAAP.

 

(g)                                 Financial
Information. All factual written data, reports and information which any
Obligor has heretofore delivered or caused to be so delivered to Bank in
connection with this Agreement are complete and correct in all material respects,
contain no material omission or misstatement and fairly present the
Consolidated and consolidating financial condition of the Obligors as of the
dates and for the periods referred to and have been prepared in accordance with
GAAP consistently applied by the Obligors throughout the periods involved
(other than any forecasts, projections or other forward-looking information, as
to which no representation is being made hereunder). All financial and other
information submitted by any Obligor to Bank, whether previously or in the
future, is and will be true and correct in all material respects, and is and
will be complete insofar as may be necessary to give Bank a true and accurate
knowledge of the subject matter.

 

(h)                                 Adverse
Developments. Since the date of the most recent financial statements of the
Obligors delivered to Bank, there has occurred no event or condition which
would have a Material Adverse Effect.

 

(i)                                     Existence
of Indebtedness. As of the date hereof, set forth on Schedule 5.1(i)
is a complete and accurate list of all existing Indebtedness of the Obligors
(other than Indebtedness owing to trade creditors) to any Person or entity
(except Bank), including without

 

34

 

limitation, all Indebtedness owing to any officer, director,
shareholder and employee (in the aggregate) of each of the Obligors, showing as
of the date hereof the principal amount outstanding thereunder and all Liens
and security interests of any nature given or agreed to be given as security
therefor.

 

(j)                                     Existence
of Assets and Title Thereto. Each Obligor has good title to or rights in
its properties and assets, including the properties and assets reflected in the
financial statements referred to above. As of the date hereof, such properties
and assets are not subject to any mortgage, pledge, Lien, lease, encumbrance or
charge except as set forth on Schedule 5.1(j).

 

(k)                                  Regulations
T, U and X. No portion of the proceeds of the borrowings hereunder are
being used and will not be used, directly or indirectly, for the purposes of
purchasing or carrying any margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) in violation, or which would
cause Bank to be in violation, of Regulations T, U or X promulgated by the
Board of Governors of the Federal Reserve System.

 

(l)                                     Compliance.
No Obligor is in default with respect to any order, writ, injunction or decree
of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency, authority or official and no
Obligor is in violation of any material law, statute, rule or regulation to
which it or its properties is subject, where such default or violation would
have a Material Adverse Effect. Each Obligor further represents that it has not
received notice of any such default from any party; and is not in default in
the payment or performance of any of its obligations to any third parties or in
the performance of any mortgage, indenture, lease, contract or other agreement
to which it is a party or by which any of its assets or properties is bound,
where, in any such case, such default or violation would have a Material
Adverse Effect.

 

(m)                               Leases.
Each Obligor enjoys quiet and undisturbed possession under all material leases
under which it is operating, and all of such material leases are valid and
subsisting and to is knowledge not in default.

 

(n)                                 Pension
Plans.

 

(i)                                     No fact, including but not limited to any
“reportable event”, as that term is defined in Section 4043 of ERISA exists in
connection with any Plan of any Obligor or of and Person affiliated with any
Obligor (collectively, the “Companies”), under Sections 414(b), (c),
(m), (n) and (o) of the Internal Revenue Code of 1986, as amended (the “Code”)
which might constitute grounds for termination of any such Plan by the Pension
Benefit Guaranty Corporation (the “PBGC”), or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Plan;

 

(ii)                                  No “prohibited transaction” within the
meaning of Section 406 of ERISA or Section 4975 of the Code exists or will
exist upon the execution and delivery of this Agreement and the other Financing
Agreements, or the performance by the parties hereto or thereto of their
respective duties and obligations hereunder and thereunder;

 

35

 

(iii)                               Each of the Companies have made or accrued
all contributions due under the terms of the Plans, and no application for a
funding waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any “pension plan”, as defined in
Section 3 of ERISA, that is subject to Title IV of ERISA, and the present fair
market value of all Plan assets exceeds the present value of all vested
benefits under each Plan on a plan termination basis (using PBGC actuarial
assumptions), as determined on the most recent valuation date of the Plan and
in accordance with ERISA and each of the Companies agrees to do all acts, including,
but not limited to, timely making all contributions necessary to maintain
compliance with ERISA or the Code, and agrees not to terminate any such Plan in
a manner or do or fail to do any act which could result in the imposition of a
Lien on any of its properties pursuant to Section 4068 of ERISA;

 

(iv)                              None of the Companies sponsors or maintains,
and has never contributed to, and has not incurred any withdrawal liability
under a “multi-employer plan” as defined in Section 3 of ERISA and none of the
Companies has any written or verbal commitment of any kind to establish,
maintain or contribute to any “multi-employer plan” under the Multi-employer
Pension Plan Amendment Act of 1980;

 

(v)                                 None of the Companies has any unfunded
liability in contravention of ERISA and the Code;

 

(vi)                              Each Plan that is intended to be a qualified
plan under Section 401(a) of the Code has received a determination letter from
the Internal Revenue Service (the “IRS”) stating that the Plan is so qualified
and such determination continues to be in full force and effect.  All amendments requested by the IRS in
connection with the issuance of a favorable determination action letter have
been adopted by the Plan on or before the date prescribed by the regulations
under Section 401(b) of the Code;

 

(vii)                           Each of the Plans complies currently, and has
complied in the past, both as to form and operation, in all material respects,
with its terms and with the applicable provisions of the Code and ERISA, and
all applicable regulations thereunder and all applicable rules issued by the
Internal Revenue Service, U.S. Department of Labor and the PBGC, and each Plan
intended to qualify under Section 401(a) of the Code is and remains a
“qualified” plan under the Code;

 

(viii)                        No actions, suits or claims are pending
(other than routine claims for benefits) against any Plan, or the assets of any
such Plan;

 

(ix)                                The Companies have performed all obligations
required to be performed by it under any Plan and the Companies are not in
default, or in violation of any Plan, and have no knowledge of any such default
or violation by any other party to any and all Plans;

 

(x)                                   No liability has been incurred by any of the
Companies to the PBGC or to participants or beneficiaries on account of any
termination of a Plan subject to Title IV of ERISA, no notice of intent to
terminate a Plan has been filed by (or on behalf of) any of the

 

36

 

Companies pursuant to Section 4041 of ERISA
and no proceeding has been commenced by the PBGC pursuant to Section 4042 of
ERISA;

 

(xi)                                No Plan has entered into a loan to acquire
“qualifying employer securities” (as defined in Section 4975(e)(8) of the Code)
and, accordingly, the Companies are under no obligation to make contributions
to such Plan to satisfy any debt obligation of the Plan;

 

(xii)                             No Plan has acquired securities of any of the
Companies after December 31, 1986 and the Companies have not contributed
securities to a Plan after December 31, 1986;

 

(xiii)                          The reporting and disclosure provisions of
the Securities Act of 1933 and Securities Exchange Act of 1934, to the extent
applicable, have been complied with for all such Plans;

 

(xiv)                         None of the Companies maintains a Plan that is a welfare benefit plan,
as that term is defined in Section 3(l) of ERISA, that provides coverage for
any period of time beyond termination of employment (except to the extent
required by Section 4980B of the Code);

 

(xv)                            All Plans that are health plans, as that term is defined in the Health
Insurance Portability Act of 1996 (“HIPAA”), comply with all applicable
provisions of HIPAA;

 

(xvi)                         Except as set forth on Schedule
5.1(n), no Plan that is a welfare
plan, as that term is defined in Section 3(1) of ERISA, is self-funded;

 

(xvii)                      None of the Companies maintains a Plan that is a cash balance plan; and

 

(xviii)                 Except
as set forth on Schedule 5.1(n),
no Plan assets of a Plan described in paragraph (vi) above are invested in
insurance products.

 

(o)                                 Office.
The chief executive office and principal place of business of each of the
Obligors is at the address set forth in the first paragraph of this Agreement,
or at such other place as may from time to time be designated by any of the
Obligors in accordance with Section 7.4(a) hereof.

 

(p)                                 Places
of Business.

 

(i)                             Schedule
5.1(p)(i) lists completely and correctly as of the date hereof all real
property owned by each of the Obligors and the addresses thereof.

 

(ii)                          Schedule
5.1(p)(ii) lists completely and correctly as of the date hereof all real
property leased by each of the Obligors and the addresses thereof. Each Obligor
has valid leases in all of the real property that it leases as set forth on Schedule
5.1(p)(ii).

 

37

 

(q)                                 Contingent
Liabilities. Other than in the ordinary course of its business and except
for the Guaranty Agreements, no Obligor is a party to any suretyship,
guarantyship, or other similar type agreement; nor has it offered its
endorsement to any individual, concern, corporation or other entity or, to the
best of each Obligor’s knowledge, acted or failed to act in any manner which
would in any way create a contingent liability that does not appear in the
financial statements referred to hereinbefore.

 

(r)                                    Contracts.
No contract, governmental or otherwise, to any Obligor is a party, is subject
to renegotiation of any material terms, nor is any Obligor in default of any
material contract where such default would have a Material Adverse Effect.

 

(s)                                  Unions,
Labor Disputes and Acts of God. No Obligor is a party to any collective
bargaining or union agreement. No Obligor knows of any threatened work stoppage
by any members of its work force. As of
the date hereof, there are no strikes, lockouts or slowdowns against any
Obligor pending or, to the knowledge of each Obligor, threatened.  To each Obligor’s knowledge, the hours
worked by and payments made to employees of the Obligors have not been in
violation of the Fair Labor Standards Act or any other applicable Federal,
state, local or foreign law dealing with such matters.  The business and Premises and other assets
of the Obligors have not been affected by any fire, explosion, accident,
drought, storm, hail, earthquake, embargo, act of God, or other casualty (whether
or not covered by insurance) which could, in any one case or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(t)                                    Licenses.
To the best of each Obligor’s knowledge, each Obligor has all licenses, permits
and other permissions required by any Government Authority, or from any
licensing entity necessary for the conduct of its business, all of which each
such Obligor represents to be in good standing and in full force and effect,
except as would not reasonably be expected to result in a Material Adverse
Effect.

 

(u)                                 Assets.
Each Obligor is and shall continue to be the legal and beneficial owner of its
properties and assets free and clear of all Liens, encumbrances, security
interests and claims, except for Permitted Liens.

 

(v)                                 Parent,
Affiliate or Subsidiary Corporations, Shareholders of each Obligor.
Borrower has no parent corporation; Precision, Telic and BAC are each a wholly
owned Subsidiary of Borrower; Speedring and Speedring Systems are each a wholly
owned Subsidiary of Precision; Borrower has no direct or indirect Subsidiaries
other than the Subsidiary Guarantors and, except as set forth on Schedule
5.1(v), Borrower has no other Affiliates.

 

(w)                               Environmental
Matters. Except as disclosed on Schedule 5.1(w) hereto:

 

38

 

(i)                                     None of the Premises contain any Contaminants
in amounts or concentrations which (A) constitute, or constituted a violation
of, (B) require Remedial Action under, or (C) could give rise to liability
under, Environmental Laws, which violations, Remedial Actions and liabilities,
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect.

 

(ii)                                  The Premises and all operations of Obligors
are in compliance, and in the last five years have been in compliance, with all
Environmental Laws and all necessary environmental permits have been obtained
and are in effect, except to the extent that such non-compliance or failure to
obtain any necessary permits, in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

 

(iii)                               There have been no Releases or threatened Releases at, from, under or
proximate to any of the Premises or otherwise in connection with the operations
of any Obligor, which Releases or threatened Releases, in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.

 

(iv)                              No Obligor has received any notice of an Environmental Claim, and to
Obligors’ knowledge no Environmental Claims are pending, in connection with any
of the Premises or the operations of any Obligor which, in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.

 

(v)                                 Contaminants have not been transported from
any of the Premises, nor have Contaminants been generated, treated, stored or
disposed of at, on or under any of the Premises in a manner that could give
rise to liability under any Environmental Law which, in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.

 

(x)                                   Material
Judgments. No Obligor has any unsatisfied material judgment.

 

(y)                                 No
Defaulting Event. No Defaulting Event has occurred and is continuing, and
there has not occurred since the date hereof any event or circumstance that has
resulted or could reasonably be expected to result in a Material Adverse
Effect.

 

(z)                                   Solvency.
Each Obligor is and shall at all times continue to be Solvent.

 

(aa)                            Fiscal
Year.  The fiscal year of each
Obligor for financial accounting purposed ends on December 31 of each calendar
year.

 

(bb)                          No
Broker’s Fees, etc.                           
No Obligor is obligated to pay any brokerage commissions, finder’s fees or
appraisal fees in connection with the transactions contemplated by this
Agreement.

 

(cc)                            Investment
Company Act, Public Utility Holding Company Act. No Obligor is (a) an
“investment company” as defined in, or subject to regulation under, the
Investment Company Act of 1940, or (b) a “holding company” as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.

 

39

 

(dd)                          Insurance.  Schedule 5.1(dd) sets
forth a true, complete and correct description of all insurance maintained by
the Obligors as of the date hereof. As of such date, such insurance is in full
force and effect and all premiums have been duly paid. Each Obligor has
insurance in such amounts and covering such risks and liabilities as are in
accordance with normal industry practice.

 

(ee)                            Merger Documents; Representations and
Warranties in Merger Agreement.

 

(i)                                   Bank has been furnished true and complete
copies of each Merger Document to the extent executed and delivered on or prior
to the date hereof.

 

(ii)                                All representations and warranties of
Borrower set forth in the Merger Agreement were true and correct in all
material respects as of the time such representations and warranties were made
and shall be true and correct in all material respects as of the date hereof as
if such representations and warranties were made on and as of such date, unless
stated to relate to a specific earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date.

 

(ff)                                Foreign Assets Control Regulations. 
None of the requesting or borrowing of the Loans or the use of the
proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C.
§ 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control
Regulations”) or any enabling legislation or executive order relating thereto
(which for the avoidance of doubt shall include, but shall not be limited to
(a) Executive Order 13224 of September 21, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)).  Furthermore, no Obligor nor any of their
Subsidiaries or other Affiliates (a) is or will become a “blocked person” as
described in the Executive Order, the Trading With the Enemy Act or the Foreign
Assets Control Regulations or (b) engages or will engage in any dealings or
transactions, or be otherwise associated, with any such “blocked person”.

 

ARTICLE
VI

 

CONDITIONS OF LENDING

 

Section 6.1                                   Conditions
Precedent to Initial Loans.

 

Subject to the further
conditions set forth in Section 6.2 hereof, the effectiveness of this Agreement
and the obligation of Bank to make the Loans and to extend any Letter of Credit
under this Agreement is subject to the prior satisfaction of the following
conditions:

 

40

 

(a)                                  Agreement,
Notes, Bank Swap Agreement. Bank shall have received this Agreement, the
Notes drawn to its order in the forms of Exhibit A and Exhibit B
and the Bank Swap Agreement, all duly executed by Borrower and the Subsidiary
Guarantors, as applicable.

 

(b)                                 Evidence
of Corporate Action; Incumbency; Good Standing. Bank shall have received:
(i) certified copies of all corporate action (in form, scope and substance
reasonably satisfactory to Bank) taken by Borrower and each Subsidiary
Guarantor to authorize the execution, delivery and performance of this
Agreement, the Notes, the Guaranty Agreements, the Bank Swap Agreement, and the
other Financing Agreements, and the borrowings and guaranties to be made
hereunder and thereunder, together with such other papers as Bank or its
counsel may require; (ii) without limiting the generality of the foregoing,
Bank shall have received certificates,
dated as of the date of this Agreement, of the Secretary of Borrower and each
Subsidiary Guarantor, certifying the names and true signatures of each officer
of Borrower and each Subsidiary Guarantor who has been authorized to sign the
Financing Agreements and the other documents to be delivered by Borrower or any
of the Subsidiary Guarantors under this Agreement; (iii) copies of the
certificate of incorporation (certified by the Secretary of the State of the
state of organization with respect to Borrower and each Subsidiary Guarantor)
and bylaws of Borrower and each Subsidiary Guarantor; and (iv) Certificates of
Good Standing or Legal Existence, as the case may be, issued by the Secretary
of State of the states of organization and qualification of Borrower and each
Subsidiary Guarantor, evidencing that Borrower and each Subsidiary Guarantor
are corporations legally existing in their respective states of their
organization and in each state where they are qualified to do business.

 

(c)                                  Guaranty
Agreements. Bank shall have received a Guaranty Agreement duly executed by
each of the Subsidiary Guarantors.

 

(d)                                 Merger.
Bank shall have reviewed, and be
reasonably satisfied with, the final terms and conditions of the Merger
Documents and the Merger shall be consummated on the date hereof in all
material respects in accordance with the terms hereof and of the Merger
Documents (as so reviewed and approved by Bank), without waiver or amendment of
any such terms that has not been previously approved by Bank unless and to the
extent that any such waiver or amendment could not reasonably be deemed to be
materially adverse to the interests of Bank.

 

(e)                                  Opinion
of Counsel. Bank shall have received a favorable written opinion of
independent counsel for Borrower and each Subsidiary Guarantor and accompanied
by such supporting documents as Bank or its counsel reasonably may require.

 

(f)                                    Commitment
Fee. The $40,000 Commitment Fee shall have been paid in full in Dollars.

 

(g)                                 Further
Documents.  Bank shall have received
such further documents, instruments and agreements as Bank may reasonably
request.

 

41

 

Section 6.2                                   Conditions
Precedent to Each Loan.

 

The obligation of Bank to
make a Loan (including, without limitation, the initial Revolving Loan) and to
extend any Letter of Credit (including, without limitation, the initial Letter
of Credit ) on the occasion of each request therefore shall be subject to the
further conditions precedent that on the date of such Loan or extension of
Letter of Credit (a) the following statements shall be true (and each of the
giving of the applicable Notice of Borrowing and the acceptance by Borrower of
the proceeds of such Revolving Loan and/or the giving of the applicable Notice
of Issuance and issuance by Bank of the Letter of Credit shall constitute a
representation and warranty by Borrower that both on the date of such notice
and on the date of such borrowing or issuance, as the case may be, such
statements are true):

 

(i)                                     Absence
of Termination or Defaulting Event. Neither Bank nor Borrower shall have
terminated the Facility, nor shall a Defaulting Event exist or have occurred,
or would exist or occur as a result of such borrowing or issuance or from the
application of the proceeds thereof;

 

(ii)                                  No
Material Adverse Effect. No Material Adverse Effect shall have occurred and
be continuing; and

 

(iii)                               Truth
of Representations and Warranties. All of the representations and
warranties set forth in Article V hereof are true and correct in all material
respects on and as of such date, before and after giving effect to such
borrowing or issuance and to the application of proceeds therefrom, as though
made on and as of such date other than any such representations or warranties
that, by their terms, refer to a specific date other than the date of such
borrowing or issuance, in which case as of such specific date;

 

and (b) Bank shall have
received such further documents, instruments and agreements as Bank may
reasonably request.

 

ARTICLE VII

 

COVENANTS

 

A.                                    Affirmative
Covenants.

 

Each Obligor covenants
and agrees that from the date hereof until payment and performance in full of
all Obligations (other than contingent indemnity Obligations for which no claim
has been asserted), and until the termination of this Agreement and the Bank
Swap Agreement, unless Bank otherwise consents in writing, which consent shall
not be unreasonably withheld or delayed, each Obligor shall:

 

Section 7.1                                   Reporting
Requirements.

 

Deliver or cause to be
delivered to Bank:

 

42

 

(a)                                  as
soon as practicable and, in any event, within forty-five (45) days after the
close of each of the first three (3) fiscal quarters of Borrower: (i)
internally prepared Consolidated and consolidating financial statements of
Borrower, including a balance sheet as of the end of each such quarter and
statements of income, expense and cash flows for such quarter and for the
portion of Borrower’s fiscal year to date then ended, prepared in conformity
with GAAP, applied on a basis consistent with that of the preceding period, and
certified by the chief financial officer as being accurate and fairly
presenting the financial position of Borrower, and (ii) a certificate (a “Covenant
Compliance Certificate”) executed by its president or chief
financial officer which shall state, among other things, that:
(A) Borrower has complied, and is then in compliance, with all the terms,
covenants and conditions of this Agreement and the other Financing Agreements
which are binding upon it, including without limitation, the Financial
Covenants set forth in Article VII C. hereof; (B) there exists no Defaulting
Event; and (C) the representations and warranties contained herein and in the
other Financing Agreements are true and correct in all material respects with
the same effect as though such representations and warranties had been made at the
time of the delivery of such Covenant Compliance Certificate, other than any
such representations or warranties that, by their terms, refer to a specific
date, in which case as of such specific date, and which shall set forth, in
sufficient detail, Borrower’s calculation of the Financial Covenants set forth
in Article VII C. hereof;

 

(b)                                 as
soon as practicable and, in any event, within ninety (90) days after the close
of each fiscal year of Borrower (i) audited Consolidated and internally
prepared consolidating financial statements of Borrower, including a balance
sheet and statements of income, expense, retained earnings and cash flows for
the year then ended, prepared in conformity with GAAP, applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on financial position or results of operations of any change in the
application of accounting principles during the year accompanied by a report
thereon containing an opinion of a firm of independent certified public accountants
selected by Borrower and acceptable to Bank, and (ii) a Covenant Compliance
Certificate;

 

(c)                                  promptly
upon Bank’s written request, such other information about the financial
condition and operations of Borrower and any other Obligor as Bank reasonably
may, from time to time, request; and

 

(d)                                 promptly
upon becoming aware of the occurrence of any Defaulting Event, written notice
of such occurrence signed by the president or chief financial officer of
Borrower describing such occurrence and the steps, if any, being taken to cure
the Defaulting Event.

 

Section 7.2                                   Insurance.

 

Keep its properties
insured against fire and other hazards (so-called “All Risk” coverage) in
amounts and with companies reasonably satisfactory to Bank to the same extent
and covering such risks as is customary in the same or a similar business;
maintain public liability coverage, including without limitation, products
liability coverage, against claims for personal injuries or death; and maintain
all worker’s compensation, employment or similar insurance as may be required
by applicable law. Each Obligor hereby
indemnifies Bank against any loss or damage to any assets or properties of the
Obligors which are not insured by Borrower or any of the other

 

43

 

Obligors and for any deficiency in any effective insurance coverage
required to be maintained by any Obligor pursuant to this Section, which
indemnification obligation shall constitute part of the Obligations.

 

Section 7.3                                   Tax
and Other Liens.

 

Comply with all statutes
and government regulations and pay all taxes, assessments, governmental charges
or levies, or claims for labor, supplies, rent and other obligations made
against it or its property which, if unpaid, might become a Lien or charge
against it or its properties, except liabilities being contested in good faith
and against which Borrower and/or the applicable Subsidiary Guarantor shall set
up adequate reserves in accordance with GAAP.

 

Section 7.4                                   Place
of Business, Maintenance of Existence.

 

(a)                                  Maintain
its principal place of business and chief executive offices at the address set
forth in the first paragraph of this Agreement, unless the applicable Obligor
shall have given Bank ten (10) days prior written notice of any change in such
places of business.

 

(b)                                 Preserve
and maintain its existence in its current form of organization in the
jurisdiction of its organization, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is required,
except where the failure to remain so qualified would not have a Material
Adverse Effect.

 

Section 7.5                                   Litigation.

 

Promptly advise Bank of
the commencement of any action, suit, proceeding or investigation of any kind
pending against any Obligor before any court, tribunal or administrative agency
or board which, if adversely determined, would reasonably be expected to,
either in any case or in the aggregate, have a Material Adverse Effect on
Borrower or on its Subsidiaries taken as a whole, or materially impair the
right of Borrower or of its Subsidiaries taken as a whole to carry on business
substantially as now conducted, or which questions the validity of any of the
Financing Agreements or any action taken or to be taken pursuant hereto or
thereto.

 

Section 7.6                                   Maintenance
of Books and Records, Existence and Compliance.

 

Maintain accurate current
and complete books and records of all financial affairs and transactions,
maintain and preserve its corporate existence, comply with all valid and
applicable statutes, rules and regulations binding upon it.

 

44

 

Section 7.7                                   ERISA.

 

Maintain each Plan in
compliance in all material respects with the applicable provisions of ERISA,
the Code and other federal or state law; cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; and make all
required contributions to any Plan subject to Section 412 of the Code.
Additionally, each Obligor shall immediately notify Bank of:

 

(a)                                  any event which causes it to fail to comply
in all material respects with ERISA or any event or condition with respect to a
Plan that could reasonably be expected to result in a Material Adverse Effect;

 

(b)                                 the adoption of any amendment to a Plan that
would require the provision of security pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA;

 

(c)                                  the filing pursuant to Section 412(d) of the
Code or Section 303 of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan;

 

(d)                                 any notice from the IRS with respect to any
defect relating to the qualification of any Plan;

 

(e)                                  the voluntary or involuntary correction of
any material form or operational defect with respect to any Plan or the failure
to correct any known material defect;

 

(f)                                    the imposition of any retroactive rate
increase or other charge with respect to any Plan that is a welfare benefit
plan, as that term is defined in Section 3(l) of ERISA;

 

(g)                                 a material increase in the unfunded pension
liability of any Plan that is a qualified plan under Section 401(a) of the
Code;

 

(h)                                 the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code; or

 

(i)                                     the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in a material
increase in contributions or unfunded pension liability.

 

Section 7.8                                   Notice
of Certain Events.

 

Give prompt written
notice to Bank of:

 

(a)                                  any
material dispute that arises between any Obligor and any governmental
regulatory body or law enforcement agency;

 

(b)                                 any
labor controversy resulting in a strike or work stoppage against any Obligor;

 

45

 

(c)                                  any
proposal by any public authority to acquire a material portion of the assets or
business of any Obligor;

 

(d)                                 any
change of the name, identity or corporate structure of any Obligor;

 

(e)                                  any
event, other than as disclosed in this Agreement, by virtue of which or in
connection with which any Obligor has received written notice of an
Environmental Claim reasonably expected to have a Material Adverse Effect; and

 

(f)                                    any
other matter which has or is reasonably likely to have a Material Adverse
Effect.

 

Section 7.9                                   Audit
and Appraisals by Bank; Fees.

 

Permit Bank or its agents
to audit the books and records of each of the Obligors and to conduct or cause
to be conducted audits of each Obligor’s assets at such times during normal
business hours, upon reasonable notice, and in such manner and detail as Bank
deems reasonably necessary, in Bank’s discretion, provided that so long as no
Event of Default has occurred and is continuing, such audits shall be conducted
no more frequently than once per year and shall be conducted without material
disruption to Obligors. In the event any such audit is conducted at a time when
an Event of Default has occurred and is then continuing, Borrower shall
promptly pay or reimburse to Bank reasonable audit fees per man per day and any
out of pocket expenses incurred in connection with any such audit. Bank may
charge any such audit and out-of-pocket expenses to the Revolving Loan Account.

 

Section 7.10                            Notice
of Reportable Events.

 

Upon the occurrence of
any “Reportable Event” as defined in Section 4043 of the Code, with respect to
any Plan now or hereafter maintained by any Obligor to which such statute may
be applicable, whether or not notice thereof is required to be given to any
Person, governmental agency or the PBGC, give prompt written notice of such
occurrence to Bank signed by the president or chief financial officer of
Borrower describing such occurrence and the steps, if any, being taken to cure
the Reportable Event.

 

Section 7.11                            Maintenance
of Bank Accounts.

 

Maintain at least one (1)
operating account with the Bank at all times.

 

Section 7.12                            New
Subsidiary Guarantors.

 

Cause
each Subsidiary of Borrower, including, but not limited to, Telic, to become a
party to this Agreement and to become a Subsidiary Guarantor by executing and
delivering to Bank a Joinder Agreement or such comparable documentation in form
and substance reasonably satisfactory to the Bank.

 

46

 

Section 7.13                            Properties.

 

Maintain its assets and
properties necessary for the operation of its business in good repair, working
order and operating condition (ordinary wear and tear and obsolete assets no
longer used in its business excepted) and not knowingly permit any of same to
be abused or misused.

 

Section 7.14                            Defend
Properties.

 

Defend
all of its material assets and properties necessary for the operation of
its business against all claims
and demands of all Persons (other than holders of Permitted Liens) at any time
claiming the same or any interest therein.

 

Section 7.15                            Use
of Proceeds.

 

Use
the proceeds of the Loans only for the purposes and subject to the limitations
specified herein.

 

Section 7.16                            Further
Assurances.

 

Execute
any and all further documents, agreements and instruments, and take all further
action that may be required under applicable law, or that Bank may reasonably
request, in order to effectuate the transactions contemplated by the Financing
Agreements.

 

B.                                    Negative
Covenants

 

Each Obligor covenants
and agrees that from the date hereof until payment and performance in full of
all Obligations, and until the termination of this Agreement and the Bank Swap
Agreement, unless Bank otherwise consents in writing, which consent shall not
be unreasonably withheld or delayed, no Obligor shall:

 

Section 7.17                            Encumbrances.

 

Except for Permitted
Liens, incur or permit to exist any Lien, mortgage, charge or other encumbrance
against any of its real or personal property assets , whether now owned or
hereafter acquired.

 

Section 7.18                            Negative
Pledge.

 

Make or enter into any
agreement with any lender (other than Bank) which prohibits, restricts or in
any way limits any Obligor’s ability to incur or permit to exist any Lien,
mortgage, charge or other encumbrance against any of its real or personal
property assets (other than assets which are then subject to Permitted Liens),
whether now owned or hereafter acquired, in favor of Bank.

 

47

 

Section 7.19                            Limitation
on Indebtedness.

 

Create, incur or
guarantee any Indebtedness or obligation for borrowed money (including without
limitation, any reimbursement obligations for any letter of credit issued by
any financial institution) from, or issue or sell any of its obligations to,
any lender other than Bank, provided that so long as no Defaulting Event has
occurred and is then continuing and, after giving effect to any such borrowing
or guarantee, no Defaulting Event would occur and be continuing, the Obligors
shall be relieved from the restrictions of this covenant with respect to: (a)
unsecured Indebtedness and/or purchase money Indebtedness for borrowed money or
Capital Leases secured by purchase money Liens permitted under clause (e) of
the definition of the term “Permitted Liens” contained in Section 1.1 hereof,
provided that the aggregate principal amount of all Indebtedness permitted
under this subsection (a) shall not exceed Two Million Five Hundred Thousand
Dollars ($2,500,000) at any time outstanding; (b) Indebtedness arising from
endorsement of negotiable instruments for collection in the ordinary course of
business; (c) accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money), in each case
incurred in the ordinary course of business; and (d) subordinated debt which is
permitted by the Bank in its reasonable discretion.

 

Section 7.20                            Contingent
Liabilities.

 

Assume, guarantee,
endorse or otherwise become liable upon the obligations of any Person, firm or
corporation other than Bank, or enter into any purchase or option agreement or
other arrangement having substantially the same effect as such a guarantee,
except by the endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business and except that any
Obligor may do so with respect to Indebtedness of another Obligor which is
permitted under Section 7.19 hereof.

 

Section 7.21                            Consolidation,
Merger or Acquisitions.

 

Except for the Merger,
enter into any transaction of merger or consolidation or acquire by purchase or
otherwise all or substantially all of the business, property or assets of, or
stock or other evidence of beneficial ownership of, any Person or entity, provided
that the Borrower shall be relieved from the restrictions of this covenant with
respect to a Permitted Acquisition so long as (a) no Defaulting Event has
occurred and is then continuing, (b) after giving effect to such Permitted
Acquisition, no Defaulting Event would occur and be continuing, and (c) in
connection with such Permitted Acquisition, Borrower shall have complied with
each of the conditions set forth in the definition of “Permitted Acquisitions”
contained in Section 1.1 hereof.

 

Section 7.22                            Loans,
Advances, Investments.

 

Make or permit to exist
any loans or advances to, or purchase any stock, other securities or evidences
of Indebtedness of, or make or permit to exist any investment or acquire any
other interest whatsoever in, any Affiliate (including without limitation, any
partnership, joint venture, joint stock corporation or parent or Subsidiary) or
any other Person, except (a) with respect to the Merger, (b) to the extent
otherwise permitted pursuant to Section 7.21 hereof, and (c)

 

48

 

intercompany transactions among Obligors, and except that any Obligor may own,
purchase or acquire (i) prime commercial paper due within one (1) year from the
date of purchase and payable in United States dollars, (ii) certificates of
deposit in United States commercial banks (having capital resources in excess
of $20,000,000.00) due within one (1) year from the date of purchase and
payable in United States dollars, (iii) obligations of the United States
government or any agency thereof, (iv) obligations guaranteed directly by the
United States government, (v) repurchase agreements of United States commercial
banks (having capital resources in excess of $20,000,000.00) for terms of less
than one (1) year, and/or (vi) eurodollar deposits with maturities of ninety
(90) days or less.

 

Section 7.23                            Acquisition
of Stock.

 

Except with respect to
the Merger, purchase, acquire, redeem or retire, or make any commitment to
purchase, acquire, redeem or retire any capital stock of any Obligor, whether
now or hereafter outstanding; provided that Borrower may do so with respect to
its capital stock in open market transactions so long as (a) no Defaulting
Event has occurred and is continuing, and (b) after giving effect to any such
payment or declaration, no Defaulting Event would occur and be continuing.

 

Section 7.24                            Distributions.

 

Declare or pay or permit
any Subsidiary to declare, pay or make any Distribution,  provided that so long
as (a) no Defaulting Event has occurred and is continuing, and (b) after giving
effect to any such payment or declaration, no Defaulting Event would occur and be
continuing, Borrower and each Subsidiary may declare or pay dividends to its
shareholders.

 

Section 7.25                            Sale
and Lease of Assets.

 

Sell, lease or otherwise
dispose of any of its assets, except for (a) sales of inventory in the ordinary
course of its business, (b) the disposal of assets no longer used in its
business, (c) sales of other assets (including, but not limited to, the stock
of a Subsidiary) provided that immediately prior to such sale Borrower delivers
to the Bank a Covenant Compliance Certificate which includes financial covenant
calculations on a Pro Forma Basis for the four fiscal quarters immediately
following such sale, and (d) intercompany transfers among Obligors.

 

Section 7.26                            Name
Changes; Change of State of Incorporation.

 

Change its corporate
name, conduct its business under any trade name or style other than as set
forth in this Agreement or change the State or Country of its incorporation or
formation, unless in each case Borrower or such Subsidiary shall have given
Bank ten (10) days prior written notice thereof.

 

49

 

Section 7.27                            Prohibited
Transfers.

 

Except as otherwise
permitted pursuant to Section 7.23 and Section 7.25 hereof, transfer, in any
manner, either directly or indirectly, any cash, property, or other assets to
any parent or Affiliate, other than (i) transactions made in the ordinary
course of business and for fair consideration on terms no less favorable
(considered as a whole) than if such transactions had been an arms-length
transaction between such Obligor and an unaffiliated entity, and (ii)
intercompany transactions among Obligors.

 

Section 7.28                            Leasebacks.

 

Lease any real estate or
other Capital Asset from any lessor who shall have acquired such property from
Borrower or such Subsidiary.

 

Section 7.29                            ERISA.

 

Knowingly engage in a
violation of ERISA’s fiduciary responsibility rules with respect to any Plan or
knowingly engage in a prohibited transaction within the meaning of Section 406
of ERISA or Section 4975 of the Code.

 

C.                                    Financial
Covenants.

 

Borrower covenants and
agrees that from the date hereof until payment and performance in full of all
Obligations, and until the termination of this Agreement and the Bank Swap
Agreement, unless Bank otherwise consents in writing, Borrower shall not:

 

Section 7.30                            Consolidated
Fixed Charge Coverage Ratio.

 

Permit its Consolidated
Fixed Charge Coverage Ratio to be less than 1.50-to-1.0 as of the end of each
fiscal quarter of Borrower for the then ended Rolling Period.

 

Section 7.31                            Consolidated
Interest Coverage Ratio.

 

Permit its Consolidated
Interest Coverage Ratio to be less than 2.0-to-1.0 as of the end of each fiscal
quarter of Borrower.

 

Section
7.32                            Consolidated
Funded Debt-to-Consolidated EBITDA Ratio.

 

Permit the ratio of its
Consolidated Funded Debt-to-Consolidated EBITDA Ratio to be greater than
2.0-to-1.0 as of the end of each fiscal quarter of Borrower.

 

50

 

ARTICLE VIII

 

EVENTS OF DEFAULT, ACCELERATION

 

Section 8.1                                   Events
of Default, Acceleration.

 

If any one or more of the
following events (herein each called an “Event of Default”) shall occur and be
continuing: (a) failure of Borrower to pay principal, interest or any
other sum due hereunder or under any of the Notes or the Bank Swap Agreement
within five (5) days after the date it is otherwise due and payable;
(b) failure of Borrower to pay the outstanding Obligations arising under
the Facility immediately upon termination of the Facility by Bank or Borrower;
(c) failure of any Obligor to pay any other Obligation within five (5)
days after the date it is otherwise due and payable; (d) breach of any
covenant or agreement contained in, or failure by any Obligor to perform any
act, duty or Obligation as required by, this Agreement which continues uncured
for a period of thirty (30) days, whether or not consecutive; (e) the
making by any Obligor of any misrepresentation of a material fact to Bank;
(f) if there shall remain in force, undischarged, unsatisfied and unstayed,
for more than ninety (90) days, whether or not consecutive, any final judgment
(after all applicable appeals have been exhausted) against any Obligor, which
individually or together with other undischarged, unsatisfied and unstayed
final judgments against any Obligor, exceeds $500,000; (g) the filing,
making or issuance of any material levy, seizure, attachment, judgment or
injunction upon or against any Obligor or any material part of its assets which
is not released, dissolved, stayed or bonded to the reasonable satisfaction of
Bank within ninety (90) days thereafter; (h) insolvency (inability to pay
its debts as they mature or where its assets are not in excess of its
liabilities as determined in accordance with GAAP) of any Obligor, or dissolution,
business failure, appointment of a receiver or custodian, assignment for the
benefit of creditors or the commencement of any proceedings under any
bankruptcy or insolvency law by, against or of any Obligor, which, in the case
of an involuntary proceeding, is not dismissed within sixty (60) days after the
date of the filing thereof; (i) calling of a meeting of creditors,
appointment of a committee of creditors or liquidating banks, or offering of a
composition extension to creditors by, for or of any Obligor; (j) the
loss, revocation or failure to renew any regulatory license and/or permit now
held or hereafter acquired by any Obligor which has a Material Adverse Effect;
(k) the occurrence of a default or event of default (howsoever defined)
under any of other Financing Agreements or under any other instrument, document
or agreement evidencing, governing and/or securing any other Indebtedness owing
by any Obligor to Bank, whether now existing or hereafter arising; (l) if
any Obligor shall default (as principal or guarantor or other surety) in the
payment of any principal or interest, regardless of the amount, due in respect
of Indebtedness in the principal amount in excess of $500,000, or shall default
in the performance of or compliance with any other obligation contained in any
agreement or instrument evidencing or securing such Indebtedness, and such
default gives to the holder of such Indebtedness the right to accelerate the
Indebtedness (whether or not the holder has, in fact, accelerated such
Indebtedness), and such default shall continue for longer than the period of
grace, if any, specified therein; (m) the service of any process upon Bank
seeking to attach or garnish by mesne or trustee process any funds of any
Obligor in excess of $500,000 which are on deposit with Bank, except where the
enforcement of such attachment or garnishment is contested by such Obligor and
such funds continue to remain on deposit, or such attachment or garnishment is
Bank bonded to the reasonable satisfaction of Bank; (n) any

 

51

 

Subsidiary Guarantor shall revoke or attempt to revoke its Guaranty
Agreement, or any Guaranty Agreement is otherwise terminated for any reason
whatsoever (other than in connection with a permitted sale of the capital stock
of any Subsidiary Guarantor); (o) the PBGC makes a determination that there has
occurred an event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or for the appointment of a Trustee to administer,
any Plan of any Obligor; and (p) except for Permitted Liens, any Lien shall
exist on any of the properties or assets of any Obligor,

 

then, (1) upon the
happening of any Event of Default set forth in subsections (h) and (i) above,
any requirement upon Bank to make further Loans and to extend or renew further
Letters of Credit shall, notwithstanding any time or credit allowed by any note
or agreement, automatically and immediately terminate and any and all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest or other notice or requirements
of any kind, all of which are expressly waived by each of the Obligors, and (2)
upon the happening of any one or more of the other Events of Default, any
requirement upon Bank to make further Loans and to extend or renew further
Letters of Credit shall, at the option of Bank and notwithstanding any time or
credit allowed by any note or agreement, terminate and any and all Obligations
shall, at the option of Bank, become immediately due and payable, without
presentment, demand, protest, notice of protest or other notice or requirements
of any kind, all of which are expressly waived by each of the Obligors. In
addition to the foregoing, upon (x) the occurrence of any Event of Default and
at any time thereafter during the continuance of such event, or (y) the
prepayment in full of the Term Loan for any reason whatsoever, Bank may, at its
option, terminate the Bank Swap Agreement, whereupon Borrower shall be liable
to Bank for all Obligations arising under or in connection with such terminated
Bank Swap Agreement, including without limitation, all amounts due to Bank as a
result of the early termination thereof.

 

ARTICLE IX

 

RIGHTS
AND REMEDIES OF BANK

 

Section 9.1                                   Remedies
of Bank.

 

Upon the occurrence and
during the continuance of any Event of Default, Bank shall have in any
jurisdiction where enforcement hereof is sought, all rights and remedies which
Bank may have under law and equity and Bank may proceed to enforce any such
rights and exercise any such remedies, whether by suit in equity or by action
at law, whether for specific performance of any covenant or agreement contained
in this Agreement, the Notes or the other Financing Agreements, or in aid of the
exercise of any power granted in either this Agreement or the Notes or any
other Financing Agreement, or it may proceed to obtain judgment or any other
relief whatsoever appropriate to the enforcement of such rights, or proceed to
enforce any legal or equitable right which Bank may have by reason of the
occurrence of such Event of Default.

 

52

 

Section 9.2                                   Specific
Powers.

 

Bank may at any time
after the occurrence of an Event of Default, at Bank’s sole discretion: (a)
exercise all rights granted in this Agreement and the other Financing
Agreements; and (b) do any and all things necessary and proper to carry out the
purposes contemplated in this Agreement, the other Financing Agreements and any
other agreement between the parties.

 

Section 9.3                                   Cumulative
Remedies.

 

The enumeration of Bank’s
rights and remedies set forth in this Agreement is not intended to be
exhaustive and the exercise by Bank of any right or remedy shall not preclude
the exercise of any other rights or remedies, all of which shall be cumulative
and shall be in addition to any other right or remedy given hereunder or under
any other agreement between the parties or which may now or hereafter exist in
law or at equity or by suit or otherwise. No delay or failure to take action on
the part of Bank in exercising any right, power or privilege hereunder or under
any of the other Financing Agreements shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or privilege
preclude other or further exercise thereof or the exercise of any other right,
power or privilege or shall be construed to be a waiver of any Defaulting
Event.

 

ARTICLE X

 

TERMINATION

 

Section 10.1                            Term
and Termination.

 

(a)                                  The
Facility. Unless sooner terminated as a result of (i) the occurrence
of an Event of Default and termination by Bank, or (ii) payment of all
Obligations and termination of the Facility prior to the Termination Date, the
obligation of Bank to make Revolving Loans and to extend or renew Letters of
Credit shall terminate on the Termination Date. Bank may, in its sole and
absolute discretion, upon written notice to Borrower and Borrower’s written
acceptance of such renewal, elect to renew the Facility for an additional period
of time and on such other terms and conditions as Bank shall determine in its
sole discretion, in which case the Termination Date shall be extended for a
corresponding period. Upon any termination of the Facility (A) Borrower shall
pay the entire balance of the Revolving Loans without demand or notice, and (B)
all of the rights, interests and remedies of Bank and Obligations of Borrower
shall survive (until, except as otherwise expressly provided herein, payment of
all Obligations in full in Dollars and in immediately available funds) and
Borrower shall have no right to receive or request, and Bank shall have no
obligation to make or extend any further Revolving Loans or extend or renew any
Letters of Credit.

 

(b)                                 Term
Loan. Unless payment is accelerated as a result of the occurrence of an
Event of Default, the Term Loan shall be repaid in accordance with the terms of
the Term Loan Note.

 

53

 

ARTICLE XI

 

EXPENSES

 

Section 11.1                            Expenses.

 

Each
Obligor agrees to jointly and severally pay on demand all reasonable
out-of-pocket expenses of Bank in connection with the preparation,
administration, default, collection, waiver or amendment of loan terms, or in
connection with Bank’s exercise, preservation or enforcement of any of its
rights, remedies or options hereunder, under the Bank Swap Agreement or under
any of the other Financing Agreements, including, without limitation, fees of
outside counsel, accounting, consulting and other similar professional fees or
expenses, and any fees or expenses associated with travel or other costs
relating to any examinations conducted in connection with the Loans, the Bank
Swap Agreement or any collateral therefore (if any), and the amount of all such
expenses shall after demand, until paid, bear interest at the highest rate
applicable to the Loans (including any default rate, if applicable) and be an
obligation secured by any collateral (if any). In addition, each Obligor shall
jointly and severally pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing,
and recording of any of the Financing Agreements and the other documents to be
delivered under any of the Financing Agreements, and agree to hold and save
Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or failure to pay such taxes and fees.

 

ARTICLE XII

 

MISCELLANEOUS

 

Section 12.1                            Indemnification.

 

(a)                                  To the fullest extent permitted by applicable
law, each Obligor agrees to defend, indemnify and hold harmless Bank, any other
holder of the Obligations and each of the present and future shareholders,
partners, directors, officers, employees, agents, counsel and successors and
assigns of each of them (collectively with Bank, the “Lender Parties”) from and
against any and all loss, cost, expense, claim, liability (including strict
liability) or asserted liability incurred from or out of, in any manner
whatsoever, the Loans, the execution, delivery or performance of this
Agreement, the Bank Swap Agreement, any of the other Financing Agreements or
any of the other documents or instruments to be executed and delivered
hereunder by either Obligor, or otherwise arising out of the debtor/creditor
relationship between Obligors, Bank or Lender Parties relating to the Loans,
the Bank Swap Agreement or any of the other Obligations, the exercise of any of
Bank’s rights under the Loans, the Bank Swap Agreement or any of the other
Obligations, any litigation or proceeding instituted or conducted by any
Governmental Authority, any act or omission of Bank or otherwise, except to the
extent (and only to the extent) that the same arises from the gross negligence
or willful misconduct of Bank.  Each
Obligor shall have the right to choose counsel to defend any such action,
provided that none

 

54

 

of the Obligors nor such counsel shall settle
or compromise any such claim with respect to Bank without the prior written
consent of Bank.

 

(b)                                 Without limiting the generality of the
preceding subparagraph (b), each Obligor agrees to defend, protect, indemnify
and hold harmless Lender Parties from and against, and to reimburse Lender
Parties on demand with respect to, any and all matters of any and every kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by Lender Parties at any time and from time to time by reason of or arising out
of any violation of any Environmental Laws, the presence, disposal, escape,
seepage, leakage, spillage, discharge, emission, Release or threatened Release
of any Contaminant or any action, suit, proceeding or investigation brought or
threatened with respect to any Contaminant (including, but not limited to,
claims with respect to wrongful death, personal injury or damage to property),
in each case, including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding.  Each Obligor shall have the right to choose
counsel to defend any such action, provided that such counsel is acceptable to
Bank and provided further that none of the Obligors nor such counsel shall
settle or compromise any such claim with respect to Bank without the prior
written consent of Bank.

 

(c)                                  The obligations of each Obligor described in
this Section 12.1 shall survive the closing of the transactions described
in this Agreement, including the making of the Loans and the payment and
satisfaction of the Notes and the other Obligations and the expiration or
termination of the Bank Swap Agreement and the Facility.

 

Section 12.2                            Payment
Set-Aside.

 

To the extent that any
Obligor or any other Person makes a payment or payments to Bank (whether
hereunder, under the Notes, under any Guaranty Agreement or under the other
Financing Agreements) with respect to the Obligations, or Bank enforces its
security interests or rights or exercises its right of setoff, and such payment
or payments or the proceeds of such enforcement or setoff or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to any such Obligor or such other Person, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action)
in each case in connection with any bankruptcy or similar proceeding involving
any such Obligor or such other Person, then to the extent of any such
restoration, the Obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred, whereupon this
Agreement shall be automatically reinstated without any further action by any
Obligor and Bank and continue to be fully applicable to such Obligation to the
same extent as though the payment so repaid or recovered had never been
originally made on such Obligation.

 

55

 

Section 12.3                            Set-off.

 

Each Obligor hereby
grants to Bank a continuing lien, security interest and right of setoff for all
of its Obligations and other liabilities to Bank, whether now existing or
hereafter arising, upon and against all its deposits (general or special, time
or demand, provisional or final), credits, collateral and property now or
hereafter in the possession, custody, safekeeping or control of Bank or any
entity under common control of FleetBoston Financial Corporation and its
successors and assigns, or in transit to any of them.  Bank may, at any time and from time to time, without demand or
notice (any such notice being expressly waived by each Obligor), apply or set
off the same, or any part thereof, to any Obligation or liability of any such
Obligor to Bank, even though unmatured and regardless of the adequacy of any
other collateral securing such Obligations and liabilities.  ANY AND ALL RIGHTS TO REQUIRE BANK TO MARSHAL OR
OTHERWISE EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
(IF ANY) WHICH SECURES ANY OR ALL OF SUCH OBLIGATIONS AND LIABILITIES PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF ANY OF THE OBLIGORS ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.  The
rights of Bank under this Section 12.3 are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which Bank may
have.

 

Section 12.4                            Covenants
to Survive.

 

All
covenants, agreements, representations and warranties made by any Obligor in
this Agreement and in the certificates or other instruments prepared or
delivered by it or on its behalf in connection with or pursuant to this
Agreement or any other Financing Agreement shall be considered to have been
relied upon by Bank and shall survive the making by Bank of the Loans and
delivery of this Agreement and the other Financing Agreements, regardless of
any investigation made by Bank or on its behalf, and shall continue in full
force and effect as long as any Obligation (other than contingent
indemnity Obligations for which no claim has been asserted) is outstanding and so long as the Facility
and/or the Bank Swap Agreement has not been terminated.  The provisions of Sections 11.1, 12.1, 12.2
and 12.9 hereof shall remain operative and in full force and effect regardless
of the expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of the Obligations, the
expiration or termination of the Facility or the Bank Swap Agreement, the
invalidity or unenforceability of any term or provision of this Agreement or
any other Financing Agreement, or any investigation made by or on behalf of
Bank. All covenants, agreements, warranties and representations shall be
binding upon and inure to the benefit of Bank, the Obligors and their
respective successors and assigns, whether or not so expressed, except that no
Obligor shall have the right to assign its rights hereunder or under any of the
other Financing Agreements or any interest herein or therein without the prior
written consent of Bank.

 

56

 

Section 12.5                            Amendments
and Waivers.

 

Neither this Agreement,
the Notes, the other Financing Agreements, nor any term, covenant or condition
hereof or thereof may be changed, waived, discharged, modified or terminated
except by a writing executed by the parties hereto or thereto and no failure on the part of Bank to exercise, and no delay
in exercising, any right, power, or remedy under any of the Financing
Agreements shall operate as a waiver of such right, power, or remedy, nor shall
any single or partial exercise of any right, power, or remedy under any of the
Financing Agreements, or any abandonment or discontinuance of steps to enforce
such a right, power or remedy, preclude any other or further exercise thereof
or the exercise of any other right, power, or remedy. No course of
dealing between any Obligor and Bank or its employees shall be effective to
change, modify or discharge any provision of this Agreement or to constitute a
waiver of any Defaulting Event or Event of Default and no notice or demand on
Obligors in any case shall entitle Obligors or other Persons to any other or
further notice or demand in similar or other circumstances.

 

Section 12.6                            Notices.

 

All
notices, demands, requests, and other communications given under this Agreement
shall only be effective if they are (a) in writing, (b) sent by hand delivery,
by facsimile transmission, by reputable express delivery service, or by
certified or registered mail, postage prepaid, and (c) actually received
by the addressee (if delivered by hand or express delivery service, or sent by
facsimile transmission), or on the date five (5) Business Days after dispatch
(if mailed or certified by register mail):

 

(i)                                     If to Bank, to it at:

 

Fleet National Bank

777 Main Street

Mail Stop: CT EH 40224E

Hartford, Connecticut 06115

Attn:   Matthew E. Hummel, Senior
Vice President

Telephone No: (860) 952-7483

Telecopier No.: (860) 952-7515

 

With a copy to:

 

Robinson & Cole LLP

280 Trumbull Street

Hartford, Connecticut 06103-3597

Attn:   Michael F. Maglio, Esq.

Telephone No.: (860) 275-8274

Telecopier No.: (860)275-8299

 

57

 

 

(ii)                                  If to Borrower, to it at:

 

Axsys Technologies, Inc.

175 Capital Blvd., Suite 103

Rocky Hill, CT 06067

Attn: David Almeida

Telephone No.: (860) 257-0200

Telecopier No.: (860) 594-5750

 

With a copy to:

 

Jones Day

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114

Attn: Christopher Hewitt, Esq.

Telephone No.: (216) 586-7254

Telecopier No.: (216) 579-0212

 

(iii)                               If to any Subsidiary Guarantor, to it at:

 

c/o Axsys Technologies, Inc.

175 Capital Blvd., Suite 103

Rocky Hill, CT 06067

Attn: David Almeida

Telephone No.: (860) 257-0200

Telecopier No.: (860) 594-5750

 

With a copy to:

 

Jones Day

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114

Attn: Christopher Hewitt, Esq.

Telephone No.: (216) 586-7254

Telecopier No.: (216) 579-0212

 

or
to such other address (and/or facsimile transmission number) as the applicable
Obligor or Bank, as the case may be, shall have specified in the latest unrevoked
notice sent to the other in accordance with this Section 12.6.

 

58

 

Section 12.7                            Replacement of a Note or
other Financing Agreement.

 

Upon receipt by Obligors
of an affidavit and indemnity agreement of an officer of Bank as to the loss,
theft, destruction, or mutilation of any Note or any other Financing Agreement
to which any Obligor is a party which is not of public record, and, in the case
of loss, theft, destruction, or mutilation, upon surrender and cancellation of
such Note or other Financing Agreement, the applicable Obligor will execute and
deliver, in lieu thereof, a replacement Note or other Financing Agreement in
the same principal amount thereof and otherwise of like tenor.

 

Section 12.8                            Transfer
of Bank’s Interest.

 

(a)                                  Assignments.  Each Obligor hereby agrees
that Bank, in its sole discretion, shall have the unrestricted right at any
time and from time to time, upon thirty (30) days’ prior written notice to
Borrower but without the consent of Borrower and any other Obligor, to assign
all or a portion of its rights and obligations hereunder to one or more banks
or other financial institutions (each, an “Assignee”), and in the event of any such
assignment to an Assignee, each Obligor agrees that it shall execute, or cause
to be executed, such documents, including without limitation, amendments to
this Agreement and to any other Financing Agreements, as Bank shall deem
necessary to effect the foregoing.  In
addition, at the request of Bank and any such Assignee, Borrower shall issue
one or more new Notes, as applicable, to any such Assignee and, if Bank has
retained any of its rights and obligations following such assignment, to Bank,
which new Notes shall be issued in replacement of, but not in discharge of, the
Obligations evidenced by the Notes held by Bank prior to such assignment which
are being replaced and shall reflect the amount of any Loan held by such
Assignee and Bank after giving effect to such assignment.  Upon the execution and delivery of
appropriate assignment documentation, amendments and any other documentation
required by Bank in connection with such assignment, and the payment by
Assignee of the purchase price agreed to by Bank and such Assignee, such
Assignee shall be a party to this Agreement and shall have all of the rights
and obligations of Bank hereunder (and under any and all other Financing
Agreements) to the extent that such rights and obligations have been assigned
by Bank pursuant to the assignment documentation between Bank and such
Assignee, and Bank shall be released from its obligations hereunder and
thereunder to a corresponding extent. Bank may furnish any information
concerning any Obligor in its possession from time to time to Assignees and
prospective Assignees, provided that Bank shall require any such
Assignees and prospective Assignees to agree in writing to maintain the
confidentiality of such information, except as required by applicable laws or
Governmental Authorities.

 

(b)                                 Participations. Each Obligor hereby agrees that Bank, in
its sole discretion, shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to any Obligor, to grant
participating interests in all or any part of the Obligations to one or more banks
or other financial institutions (each, a “Participant”). In the event of any such
grant by Bank of a participating interest to a Participant, Bank shall remain
responsible for the performance of its obligations hereunder and each Obligor
shall continue to deal solely and directly with Bank in connection with Bank’s
rights and obligations hereunder.  Bank
may furnish any information concerning any Obligor in its possession from time
to time to Participants and prospective Participants, provided that Bank shall
require any such Participants

 

59

 

and prospective Participants to agree in
writing to maintain the confidentiality of such information, except as required
by applicable laws or Governmental Authorities.

 

(c)                                  Pledge to Federal Reserve Banks. Bank and each Assignee shall have the
unrestricted right at any time and from time to time, and without the consent
of or notice to any Obligor, to pledge or assign all or any portion of its
rights under this Agreement, the Notes or any other Financing Agreement to any
of the twelve (12) Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341, provided that no such pledge
or assignment or enforcement thereof shall release Bank or such Assignee from
its obligations hereunder or thereunder.

 

Section 12.9                            Waivers.

 

(a)                                  Prejudgment
Remedy, Etc.. TO INDUCE BANK TO ENTER INTO
THE COMMERCIAL LOAN TRANSACTIONS EVIDENCED BY THIS AGREEMENT, THE NOTES, AND
ANY OTHER FINANCING AGREEMENTS, EACH OBLIGOR AGREES THAT THESE ARE COMMERCIAL
TRANSACTIONS AND NOT CONSUMER
TRANSACTIONS,
AND WAIVES ANY RIGHT TO NOTICE AND A HEARING UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES, AS AMENDED, OR UNDER ANY OTHER FEDERAL OR STATE
STATUTE OR STATUTES OR FOREIGN LAWS AFFECTING PREJUDGMENT REMEDIES, AND
AUTHORIZES BANK’S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT
COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER, AND
WAIVES ANY CLAIM IN TORT, CONTRACT OR OTHERWISE AGAINST BANK’S ATTORNEY WHICH
MAY ARISE OUT OF SUCH ISSUANCE OF A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT
ORDER.  FURTHER, IN THE EVENT BANK SEEKS
TO TAKE POSSESSION OF ANY OR ALL OF ANY OBLIGOR’S PROPERTY OR OTHER ASSETS BY
COURT PROCESS OR OTHER METHOD AVAILABLE UNDER THE LAW, EACH OBLIGOR IRREVOCABLY
WAIVES ANY BOND AND ANY SURETY OR SECURITY RELATING THERETO REQUIRED BY ANY
STATUTE, COURT RULE OR OTHERWISE AS AN INCIDENT TO SUCH POSSESSION, AND WAIVES
ANY DEMAND FOR POSSESSION PRIOR TO THE COMMENCEMENT OF ANY SUIT OR ACTION TO
RECOVER WITH RESPECT THERETO. SPECIFICALLY, EACH OBLIGOR RECOGNIZES AND
UNDERSTANDS THAT THE EXERCISE OF BANK’S RIGHTS DESCRIBED ABOVE MAY RESULT IN
THE ATTACHMENT OF OR LEVY AGAINST SUCH OBLIGOR’S PROPERTY, AND SUCH WRIT FOR A
PREJUDGMENT REMEDY WILL NOT HAVE THE PRIOR WRITTEN APPROVAL OR SCRUTINY OF A
COURT OF LAW OR OTHER JUDICIAL OFFICER AND NO OBLIGOR WILL HAVE THE RIGHT TO
ANY NOTICE OR PRIOR HEARING WHERE SUCH OBLIGOR MIGHT CONTEST SUCH A PROCEDURE.  THE INTENT OF EACH OBLIGOR IS TO GRANT TO
BANK FOR GOOD AND VALUABLE CONSIDERATION THE RIGHT TO OBTAIN SUCH A PREJUDGMENT
REMEDY AND TO EXPRESS ITS BELIEF THAT ANY SUCH PREJUDGMENT REMEDY OBTAINED IS
VALID AND CONSTITUTIONAL UNLESS A COURT OF COMPETENT JURISDICTION SHOULD DETERMINE
OTHERWISE.  FURTHER, TO

 

60

 

THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR
HEREBY WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST, NOTICE OF PROTEST,
NOTICE OF DISHONOR, DILIGENCE IN COLLECTION, NOTICE OF NONPAYMENT OF THIS
AGREEMENT AND THE NOTES AND ANY AND ALL NOTICES OF A LIKE NATURE.  FURTHER, TO THE EXTENT NOT OTHERWISE
EXPRESSLY PROVIDED HEREIN, EACH OBLIGOR EXPRESSLY WAIVES ALL DEFENSES OF
SURETYSHIP OR IMPAIRMENT OF COLLATERAL.

 

(b)                                 Jury
Waiver. EACH OBLIGOR AND THE BANK (BY ACCEPTANCE OF THE NOTES) MUTUALLY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENTS OR ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS OR ACTIONS OF THE BANK RELATING TO THE ADMINISTRATION OF
ANY OF THE LOANS OR ENFORCEMENT OF THE FINANCING AGREEMENTS, AND AGREE THAT NO
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER. EACH OBLIGOR ACKNOWLEDGES AND STIPULATES
THAT THE WAIVERS GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY AND AFTER FULL CONSULTATION WITH COUNSEL AND CONSTITUTE A
MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THE NOTES AND MAKE THE LOANS.

 

(c)                                  Voluntary Nature of Waivers. EACH OBLIGOR ACKNOWLEDGES THAT IT MAKES THE FOREGOING
WAIVERS IN SUBSECTIONS (a) AND (b) ABOVE, KNOWINGLY, WILLINGLY, WITHOUT DURESS
AND VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF SUCH
WAIVERS WITH ITS ATTORNEYS, AND THAT SUCH WAIVERS CONSTITUTE A MATERIAL
INDUCEMENT FOR BANK TO ENTER INTO THE FINANCING AGREEMENTS AND MAKE THE LOANS.

 

Section 12.10                     Section
Headings, Severability, Entire Agreement.

 

(a)                                  Section
and subsection headings have been inserted herein for convenience only and
shall not be construed as part of this Agreement.

 

61

 

(b)                                 This Agreement and the other Financing
Agreements are intended by the parties as the final, complete and exclusive
statement of the transactions evidenced by this Agreement and the other
Financing Agreements and all Exhibits and Schedules to this Agreement
shall be annexed hereto and shall be deemed to be part of this Agreement. All prior or contemporaneous promises,
agreements and understandings, whether oral or written, are deemed to be
superceded by this Agreement and the other Financing Agreements, and no party
is relying on any promise, agreement or understanding not set forth in this
Agreement and/or the other Financing Agreements. This Agreement and the other
Financing Agreements may not be amended or modified except by a written
instrument describing such amendment or modification executed by each Obligor
and Bank. Nothing in this Agreement or in the other Financing Agreements,
express or implied, is intended to confer upon any party other than the parties
hereto and thereto, any rights, remedies, obligations or liabilities under or
by reason of this Agreement or the other Financing Agreements.

 

(c)                                  If any one or more terms or provisions
contained in this Agreement or in any of the other Financing Agreements or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be held invalid, illegal or unenforceable, such terms or provisions
shall be ineffective as to such jurisdiction only to the extent of such invalidity,
illegality or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions hereof or thereof or the application of such
term or provision to circumstances other than those as to which it is held
invalid, illegal or unenforceable.  The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

 

Section 12.11                     Governing
Law.

 

This Agreement and the
other Financing Agreements, and all transactions, assignments and transfers
hereunder and thereunder, and all the rights of the parties, shall be governed
as to validity, construction, enforcement and in all other respects by the laws
of the State of Connecticut (but not its conflicts of law provisions). It is
the express intention of Bank and the Obligors that the laws of the State of
Connecticut (but not its conflicts of law provisions) apply to the entirety of
the transactions evidenced by the Financing Agreements. Each Obligor agrees
that the Superior Court for the Judicial District of Hartford or the United
States District Court for the District of Connecticut at Hartford shall have jurisdiction
to hear and determine any claims, disputes or suits pertaining to the financing
transactions of which this Agreement is a part and/or to any matter arising or
in any way related to this Agreement or any other agreement between Bank and
any Obligor expressly submits and consents in advance to the nonexclusive
jurisdiction of such court and service of process in any such suit or dispute
being made upon the Obligors by mail at the address set forth in the first
paragraph of this Agreement. Each Obligor hereby waives an objection that it
may now or hereafter have to the venue of any such suit or dispute or any such
court or that such suit is brought in an inconvenient forum.

 

62

 

Section 12.12                     Counterparts.

 

This
Agreement may be executed and delivered in any number of counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute
but one and the same agreement. 
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.

 

 

REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

THE NEXT PAGE IS THE SIGNATURE PAGE

 

63

 

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

 

	
   

  	
  AXSYS TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ David A. Almeida

  	
   

  
	
   

  	
  Its CFO & VP of
  Finance

  
	
   

  	
   

  
	
   

  	
  SPEEDRING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ David A. Almeida

  	
   

  
	
   

  	
  Its Secretary and
  Treasurer

  
	
   

  	
   

  
	
   

  	
  SPEEDRING, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ David A. Almeida

  	
   

  
	
   

  	
  Its Secretary and
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BIFOCAL ACQUISITION CORP.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ David A. Almeida

  	
   

  
	
   

  	
  Its President

  
	
   

  	
   

  
	
   

  	
  PRECISION AEROTECH, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ David A. Almeida

  	
   

  
	
   

  	
  Its Secretary and
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FLEET NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Matthew E. Hummel

  	
   

  
	
   

  	
   

  	
  Matthew E. Hummel

  
	
   

  	
   

  	
  Its Senior Vice
  President

  

 

64

 

Exhibit A

 

Revolving
Loan Note

REVOLVING LOAN PROMISSARY NOTE

 

	
  $5,000,000

  	
   

  	
  April 8, 2004

  

 

FOR VALUE RECEIVED, the undersigned, AXSYS
TECHNOLOGIES, INC., a Delaware corporation (“Maker”), does hereby promise
to pay to the order of FLEET NATIONAL BANK (“Lender”), at its office at
777 Main Street, Hartford, Connecticut 06115 (or such other place as the holder
hereof (including Lender, hereinafter referred to as “Holder”) may from time to
time specify in writing), the principal sum of FIVE MILLION AND NO/100 DOLLARS
($5,000,000), or, if less, the aggregate unpaid principal amount of
all Revolving Loans which shall have been made by Holder to Maker pursuant to
the terms of that certain Credit Agreement between Maker and Lender dated of
even date herewith, as amended from time to time (as amended, the “Credit
Agreement”), together with interest on the unpaid principal amount
of this Note beginning as of the date hereof, before or after maturity or
judgment (subject, however, to the applicability of a default rate of interest
as described below), payable at the per annum rates, at the times and in the
manner as provided in the Credit Agreement, and together with all taxes levied
or assessed on this Note or the debt evidenced hereby against Holder (other
than taxes on the overall net income, franchise or gross receipts of Holder),
and together with all reasonable out-of-pocket costs, expenses and attorneys’
and other professional fees incurred in any action to collect this Note or to
enforce, defend, protect, preserve, foreclose or realize upon any mortgage,
lien, security interest or other collateral securing this Note or to enforce,
foreclose, defend, preserve, protect or sustain any such mortgage, lien or
security interest or guaranty or other agreement or in any litigation or
controversy arising from or connected with any of the foregoing.  Capitalized terms used in this Note and not
otherwise defined herein shall have the meanings assigned in the Credit
Agreement.

 

This Note is the “Revolving Loan Note” referred to in,
evidences Revolving Loans under, and has been issued by Maker in accordance
with the terms of, the Credit Agreement. Payments on this Note may be evidenced
by a grid (if any) attached to this Note or similar certificates or documents,
or by the internal computerized records of Holder, provided that any failure of
Holder to make any such notation shall not affect the unconditional obligation
of Maker to pay all amounts due hereunder as and when due. Holder shall be
entitled to the benefits of the Credit Agreement and the other Financing
Agreements and may enforce the agreements of Maker contained therein, and
Holder may exercise the respective remedies provided for thereby or otherwise
available in respect thereof, all in accordance with the terms thereof. Holder
shall have the right (but not the obligation), in its sole discretion, to
charge any amounts due hereunder to accounts maintained by Maker with Holder as
provided in the Credit Agreement.

 

All computations of interest with respect to this Note
shall be made on the basis of a 360-day year and the actual number of days
elapsed.  Interest shall be due and
payable at the times and in the manner provided in the Credit Agreement.  Unless sooner accelerated as a result of the
occurrence and continuance of an Event of Default, principal, accrued and
unpaid interest and any other sums due hereunder shall be due and payable in
full, in Dollars and in immediately available funds on the Maturity Date.
Whenever any payment of principal of, or interest on, any

 

 

Prime Rate Loan shall be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day. Whenever any payment
of principal of, or interest on, any LIBOR Loan shall be due on a day which is
not a London Business Day, such payment shall be made on the next succeeding
London Business Day unless such London Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
London Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest and fees thereon shall be payable for
such extended time.

 

Maker has the right under certain circumstances to
prepay in whole or in part the principal of this Note on the terms and
conditions specified in the Credit Agreement without penalty or premium.

 

Maker agrees that: (i) if any installment of interest
or any other sum due under this Note shall not be paid within five (5) days
after the date it is otherwise due and payable; or (ii) if any other Event of
Default shall occur, then, upon the happening of any such event, the entire
indebtedness with accrued interest thereon due under this Note shall,
automatically or at the option of Holder, as the case may be as provided in the
Credit Agreement, accelerate and become immediately due and payable without
notice. Failure to exercise such option shall not constitute a waiver of the
right to exercise the same in the event of any subsequent Event of Default.
Notwithstanding anything to the contrary contained herein, upon the occurrence
and during the continuance of such an Event of Default or after maturity or
judgment, the interest rate on this Note shall automatically increase without
notice or demand to a per annum rate equal to two percent (2.0%) above the
Prime Rate.

 

If the entire amount of any required principal and/or
interest due under this Note is not paid in full within ten (10) days after the
same is due, without in any way affecting Holder’s right to declare an Event of
Default to have occurred, Maker shall pay a late fee equal to five percent (5%)
of the required payment and such late charge shall be immediately due and
payable without demand or notice of any kind.

 

Maker agrees that no delay or failure on the part of
Holder in exercising any power, privilege, remedy, option or right hereunder
shall operate as a waiver thereof or of any other power, privilege, remedy or
right; nor shall any single or partial exercise of any power, privilege,
remedy, option or right hereunder preclude any other or future exercise thereof
or the exercise of any other power, privilege, remedy, option or right. The
rights and remedies expressed herein and in the Credit Agreement are
cumulative, and may be enforced successively, alternatively, or concurrently
and are not exclusive of any rights or remedies which Holder may or would
otherwise have under the provisions of all applicable laws, and under the
provisions of all agreements between Maker and Holder or between any endorser
or guarantor and Holder.

 

All agreements between Maker and Holder are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of any of the Obligations or otherwise,
shall the amount paid or agreed to be paid to Holder for the use or the
forbearance of the Obligations exceed the maximum permissible under applicable
law.  As used herein, “applicable
law” shall mean the law in effect as of the date hereof; provided,
however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then the Credit Agreement,
this Note and the other Financing Agreements shall be governed by

 

2

 

such new law as of its effective date. In this regard, it is expressly
agreed that it is the intent of Maker and Holder in the execution, delivery and
acceptance of the Financing Agreements to contract in strict compliance with
the laws of the State of Connecticut from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or of
any of the other Financing Agreements at the time of performance of such
provision shall be due, shall involve transcending the limit of such validity prescribed
by applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limits of such validity, and if under or from circumstances
whatsoever Holder should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance of the Revolving Loans in
such manner and order of priority as Holder shall determine, in its sole
discretion, and not to the payment of interest. This provision shall control
every other provision of all agreements between Maker and Holder.

 

Maker hereby grants to Holder a continuing lien,
security interest and right of setoff as security for all of its Obligations
and other liabilities to Holder, whether now existing or hereafter arising,
upon and against all of its deposits, credits, collateral and property now or
hereafter in the possession, custody, safekeeping or control of Holder or, if
Holder is Lender, any entity under the control of FleetBoston Financial
Corporation and its successors and assigns or in transit to any of them. At any
time and from time to time, without demand or notice (any such demand or notice
being expressly waived by Maker), Holder may setoff the same or any part thereof
and apply the same to any indebtedness, Obligation or liability of Maker to
Holder, even though unmatured, irrespective of whether or not Holder shall have
made any demand under the Credit Agreement or any other Financing Agreement and
regardless of the adequacy of any other collateral securing such Obligations
and liabilities. ANY AND ALL RIGHTS TO REQUIRE HOLDER TO MARSHAL OR OTHERWISE EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OR
ALL OF SUCH OBLIGATIONS AND LIABILITIES PRIOR TO EXERCISING ITS RIGHT OF SETOFF
WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF MAKER ARE HEREBY
KNOWINGLY, VOLUNTARILY OR IRREVOCABLY WAIVED.  The rights of Holder under this paragraph
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which Holder may have.

 

Failure by Holder to insist upon the strict
performance by Maker of any terms and provisions herein shall not be deemed to
be a waiver of any terms and provisions herein, and Holder shall retain the
right thereafter to insist upon strict performance by Maker of any and all
terms and provisions of this Note or any document securing the repayment of
this Note.

 

MAKER AND HOLDER (BY ACCEPTANCE OF THIS NOTE) MUTUALLY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR ANY OTHER FINANCING AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT,

 

3

 

COURSE
OF DEALINGS, STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION
OF ANY OF THE LOANS OR ENFORCEMENT OF THE FINANCING AGREEMENTS, AND AGREE THAT
NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY
LAW, MAKER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. MAKER CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF HOLDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS. MAKER ACKNOWLEDGES AND STIPULATES THAT THE WAIVERS
GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AND AFTER FULL CONSULTATION
WITH COUNSEL AND CONSTITUTE A MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS
NOTE AND MAKE REVOLVING LOANS.

 

TO INDUCE LENDER TO ENTER INTO THE LOAN TRANSACTIONS
EVIDENCED BY THE CREDIT AGREEMENT, THIS NOTE AND THE OTHER FINANCING
AGREEMENTS, MAKER AGREES THAT THE LOAN TRANACTIONS ARE COMMERCIAL TRANSACTIONS
AND NOT CONSUMER  TRANSACTIONS, AND WAIVES ANY RIGHT TO NOTICE AND A
HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, OR
UNDER ANY OTHER FEDERAL OR STATE STATUTE OR STATUTES OR FOREIGN LAWS AFFECTING
PREJUDGMENT REMEDIES, AND AUTHORIZES HOLDER’S ATTORNEY TO ISSUE A WRIT FOR A
PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH
A COPY OF THIS WAIVER, AND WAIVES ANY CLAIM IN TORT, CONTRACT OR OTHERWISE
AGAINST HOLDER’S ATTORNEY WHICH MAY ARISE OUT OF SUCH ISSUANCE OF A WRIT FOR A
PREJUDGMENT REMEDY WITHOUT COURT ORDER. 
FURTHER, IN THE EVENT HOLDER SEEKS TO TAKE POSSESSION OF ANY OR ALL OF
THE COLLATERAL BY COURT PROCESS OR OTHER METHOD AVAILABLE UNDER THE LAW, MAKER
IRREVOCABLY WAIVES ANY BOND AND ANY SURETY OR SECURITY RELATING THERETO
REQUIRED BY ANY STATUTE, COURT RULE OR OTHERWISE AS AN INCIDENT TO SUCH
POSSESSION, AND WAIVES ANY DEMAND FOR POSSESSION PRIOR TO THE COMMENCEMENT OF
ANY SUIT OR ACTION TO RECOVER WITH RESPECT THERETO.  SPECIFICALLY, MAKER RECOGNIZES AND UNDERSTANDS THAT THE EXERCISE
OF HOLDER’S RIGHTS DESCRIBED ABOVE MAY RESULT IN THE ATTACHMENT OF OR LEVY
AGAINST MAKER’S PROPERTY, AND SUCH WRIT FOR A PREJUDGMENT REMEDY WILL NOT HAVE
THE PRIOR WRITTEN APPROVAL OR SCRUTINY OF A COURT OF LAW OR OTHER JUDICIAL
OFFICER AND  MAKER WILL NOT HAVE THE
RIGHT TO ANY NOTICE OR PRIOR HEARING WHERE MAKER MIGHT CONTEST SUCH A
PROCEDURE.  THE INTENT OF MAKER IS TO
GRANT TO HOLDER FOR GOOD AND VALUABLE

 

4

 

CONSIDERATION
THE RIGHT TO OBTAIN SUCH A PREJUDGMENT REMEDY AND TO EXPRESS ITS BELIEF THAT
ANY SUCH PREJUDGMENT REMEDY OBTAINED IS VALID AND CONSTITUTIONAL UNLESS A COURT
OF COMPETENT JURISDICTION SHOULD DETERMINE OTHERWISE.  FURTHER, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, MAKER
HEREBY WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST, NOTICE OF PROTEST,
NOTICE OF DISHONOR, DILIGENCE IN COLLECTION, NOTICE OF NONPAYMENT OF THE THIS
NOTE AND ANY AND ALL NOTICES OF A LIKE NATURE. 
FURTHER, TO THE EXTENT NOT OTHERWISE EXPRESSLY PROVIDED HEREIN, MAKER
EXPRESSLY WAIVES ALL DEFENSES BASED UPON SURETYSHIP OR IMPAIRMENT OF
COLLATERAL.  MAKER CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF HOLDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS. MAKER ACKNOWLEDGES AND STIPULATES THAT THE WAIVERS
GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AND AFTER FULL
CONSULTATION WITH COUNSEL AND CONSTITUTE A MATERIAL INDUCEMENT FOR HOLDER TO
ACCEPT THIS NOTE AND MAKE REVOLVING LOANS.

 

This Note shall be governed by the laws of the State
of Connecticut (excluding the laws applicable to conflicts or choice of law).

 

 

	
   

  	
  AXSYS
  TECHNOLOGIES, INC.

  
	
   

  
	
   

  	
  By

  	
   

  
	
   

  
	
   

  	
   

  	
  Its

  

 

5

 

Exhibit B

 

Term
Loan Note

TERM
LOAN PROMISSARY NOTE

 

	
  $5,000,000

  	
   

  	
  April 8, 2004

  

 

FOR VALUE RECEIVED, the undersigned, AXSYS
TECHNOLOGIES, INC., a Delaware corporation (“Maker”), does hereby promise
to pay to the order of FLEET NATIONAL BANK (“Lender”), at its office at
777 Main Street, Hartford, Connecticut 06115, (or such other place as the
holder hereof (including Lender, hereinafter referred to as “Holder”)
may from time to time specify in writing):

 

(a)                     the principal
sum of
FIVE MILLION AND NO/100 DOLLARS ($5,000,000), payable in sixty (60)
monthly installments in the amounts and on the dates set forth on Schedule 1
hereto; together with

 

(b)                    interest on
the unpaid principal amount of this Note beginning as of the date hereof,
before or after maturity or judgment (subject, however, to the applicability of
a default rate of interest as described below), payable at the per annum rates,
at the times and in the manner as provided in that certain Credit Agreement
between Maker and Lender dated of even date herewith, as amended from time to
time (as amended, the “Credit Agreement”); and together with

 

(c)                     all taxes
levied or assessed on this Note or the debt evidenced hereby against the Holder
(other than taxes on the overall net income, franchise or gross receipts of
Holder) and all reasonable out-of-pocket costs, expenses and attorneys’ and
other professional fees incurred in any action to collect this Note or to
enforce, defend, protect, preserve, foreclose or realize upon any mortgage,
lien, security interest or other collateral securing this Note or to enforce,
foreclose, defend, preserve, protect or sustain any such mortgage, lien or
security interest or guaranty or other agreement or in any litigation or
controversy arising from or connected with any of the foregoing.

 

Capitalized terms used in this Note and not otherwise
defined herein shall have the meanings assigned n the Credit Agreement.

 

This Note is the “Term Loan Note” referred to in, evidences
the Term Loan under, and has been issued by Maker in accordance with the terms
of, the Credit Agreement. Payments on this Note may be evidenced by a grid (if
any) attached to this Note or similar certificates or documents, or by the
internal computerized records of Holder, provided that any failure of Holder to make
any such notation shall not affect the unconditional obligation of Maker to pay
all amounts due hereunder as and when due. Holder shall be entitled to the
benefits of the Credit Agreement and the other Financing Agreements and may
enforce the agreements of Maker contained therein, and Holder may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the terms thereof. Holder shall have the right
(but not the obligation), in its sole discretion, to charge any amounts due
hereunder to accounts maintained by Maker with Holder as provided in the Credit
Agreement.

 

 

All computations of interest with respect to this Note
shall be made on the basis of a 360-day year and the actual number of days
elapsed. Whenever any payment of principal of, or interest on, any Prime Rate
Loan shall be due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day. Whenever any payment of principal of,
or interest on, any LIBOR Loan shall be due on a day which is not a London
Business Day, such payment shall be made on the next succeeding London Business
Day unless such London Business Day falls in another calendar month, in which
case the date for payment thereof shall be the next preceding London Business
Day. If the date for any payment of principal is extended by operation of law
or otherwise, interest and fees thereon shall be payable for such extended
time.

 

Maker has the right under certain circumstances to
prepay in whole or in part the principal of this Note on the terms and
conditions specified in the Credit Agreement without penalty or premium.

 

Maker agrees that: (i) if any installment of interest
or any other sum due under this Note shall not be paid within five (5) days
after the date it is otherwise due and payable; or (ii) if any other Event of
Default shall occur, then, upon the happening of any such event, the entire
indebtedness with accrued interest thereon due under this Note shall,
automatically or at the option of Holder, as the case may be as provided in the
Credit Agreement, accelerate and become immediately due and payable without
notice. Failure to exercise such option shall not constitute a waiver of the
right to exercise the same in the event of any subsequent Event of Default.
Notwithstanding anything to the contrary contained herein, upon the occurrence
and during the continuance of such an Event of Default or after maturity or
judgment, the interest rate on this Note shall automatically increase without
notice or demand to a per annum rate equal to two percent (2.0%) above the
Prime Rate.

 

If the entire amount of any required principal and/or
interest due under this Note is not paid in full within ten (10) days after the
same is due, without in any way affecting Holder’s right to declare an Event of
Default to have occurred, Maker shall pay a late fee equal to five percent (5%)
of the required payment and such late charge shall be immediately due and
payable without demand or notice of any kind.

 

Maker agrees that no delay or failure on the part of
Holder in exercising any power, privilege, remedy, option or right hereunder
shall operate as a waiver thereof or of any other power, privilege, remedy or
right; nor shall any single or partial exercise of any power, privilege,
remedy, option or right hereunder preclude any other or future exercise thereof
or the exercise of any other power, privilege, remedy, option or right. The
rights and remedies expressed herein and in the Credit Agreement are
cumulative, and may be enforced successively, alternatively, or concurrently
and are not exclusive of any rights or remedies which Holder may or would otherwise
have under the provisions of all applicable laws, and under the provisions of
all agreements between Maker and Holder or between any endorser or guarantor
and Holder.

 

All agreements between Maker and Holder are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of any of the Obligations or otherwise,
shall the amount paid or agreed to be paid to Holder for the use or the
forbearance of the Obligations exceed the maximum permissible under applicable
law.  As used

 

2

 

herein, “applicable law” shall mean the law in effect as of the date
hereof; provided,
however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then the Credit Agreement,
this Note and the other Financing Agreements shall be governed by such new law
as of its effective date. In this regard, it is expressly agreed that it is the
intent of Maker and Holder in the execution, delivery and acceptance of the
Financing Agreements to contract in strict compliance with the laws of the
State of Connecticut from time to time in effect. If, under or from any
circumstances whatsoever, fulfillment of any provision hereof or of any of the
other Financing Agreements at the time of performance of such provision shall
be due, shall involve transcending the limit of such validity prescribed by
applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limits of such validity, and if under or from circumstances
whatsoever Holder should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance of the Revolving Loans in
such manner and order of priority as Holder shall determine, in its sole
discretion, and not to the payment of interest. This provision shall control
every other provision of all agreements between Maker and Holder.

 

Maker hereby grants to Holder a continuing lien,
security interest and right of setoff as security for all of its Obligations
and other liabilities to Holder, whether now existing or hereafter arising,
upon and against all of its deposits, credits, collateral and property now or
hereafter in the possession, custody, safekeeping or control of Holder or, if
Holder is Lender, any entity under the control of FleetBoston Financial
Corporation and its successors and assigns or in transit to any of them. At any
time and from time to time, without demand or notice (any such demand or notice
being expressly waived by Maker), Holder may setoff the same or any part
thereof and apply the same to any indebtedness, Obligation or liability of
Maker to Holder, even though unmatured, irrespective of whether or not Holder
shall have made any demand under the Credit Agreement or any other Financing
Agreement and regardless of the adequacy of any other collateral securing such
Obligations and liabilities. ANY AND ALL RIGHTS TO REQUIRE HOLDER TO MARSHAL OR
OTHERWISE EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES ANY OR ALL OF SUCH OBLIGATIONS AND LIABILITIES PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF MAKER ARE HEREBY KNOWINGLY, VOLUNTARILY OR IRREVOCABLY WAIVED.  The rights of Holder under this paragraph
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which Holder may have.

 

Failure by Holder to insist upon the strict
performance by Maker of any terms and provisions herein shall not be deemed to
be a waiver of any terms and provisions herein, and Holder shall retain the
right thereafter to insist upon strict performance by Maker of any and all terms
and provisions of this Note or any document securing the repayment of this
Note.

 

MAKER AND HOLDER (BY ACCEPTANCE OF THIS NOTE) MUTUALLY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR ANY

 

3

 

OTHER
FINANCING AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT
LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF
THE LENDER RELATING TO THE ADMINISTRATION OF ANY OF THE LOANS OR ENFORCEMENT OF
THE FINANCING AGREEMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE
ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS
NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, MAKER HEREBY WAIVES ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE
OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. MAKER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF HOLDER
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT HOLDER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. MAKER ACKNOWLEDGES AND
STIPULATES THAT THE WAIVERS GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY AND AFTER FULL CONSULTATION WITH COUNSEL AND CONSTITUTE A
MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE AND THE TERM LOAN.

 

TO INDUCE LENDER TO ENTER INTO THE
LOAN TRANSACTIONS EVIDENCED BY THE CREDIT AGREEMENT, THIS NOTE AND THE OTHER
FINANCING AGREEMENTS, MAKER AGREES THAT THE LOAN TRANACTIONS ARE COMMERCIAL
TRANSACTIONS AND NOT CONSUMER  TRANSACTIONS, AND WAIVES ANY RIGHT TO
NOTICE AND A HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS
AMENDED, OR UNDER ANY OTHER FEDERAL OR STATE STATUTE OR STATUTES OR FOREIGN
LAWS AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES HOLDER’S ATTORNEY TO ISSUE
A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT
SHALL SET FORTH A COPY OF THIS WAIVER, AND WAIVES ANY CLAIM IN TORT, CONTRACT
OR OTHERWISE AGAINST HOLDER’S ATTORNEY WHICH MAY ARISE OUT OF SUCH ISSUANCE OF
A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER.  FURTHER, IN THE EVENT HOLDER SEEKS TO TAKE POSSESSION OF ANY OR
ALL OF THE COLLATERAL BY COURT PROCESS OR OTHER METHOD AVAILABLE UNDER THE LAW,
MAKER IRREVOCABLY WAIVES ANY BOND AND ANY SURETY OR SECURITY RELATING THERETO
REQUIRED BY ANY STATUTE, COURT RULE OR OTHERWISE AS AN INCIDENT TO SUCH
POSSESSION, AND WAIVES ANY DEMAND FOR POSSESSION PRIOR TO THE COMMENCEMENT OF
ANY SUIT OR ACTION TO RECOVER WITH RESPECT THERETO.  SPECIFICALLY, MAKER RECOGNIZES AND UNDERSTANDS THAT THE EXERCISE
OF HOLDER’S RIGHTS DESCRIBED ABOVE MAY RESULT IN THE ATTACHMENT OF OR LEVY
AGAINST MAKER’S PROPERTY, AND SUCH WRIT FOR A PREJUDGMENT REMEDY WILL NOT HAVE
THE PRIOR WRITTEN APPROVAL OR SCRUTINY OF A COURT OF LAW OR OTHER JUDICIAL
OFFICER

 

4

 

AND MAKER WILL NOT HAVE THE RIGHT TO ANY NOTICE OR PRIOR
HEARING WHERE MAKER MIGHT CONTEST SUCH A PROCEDURE.  THE INTENT OF MAKER IS TO GRANT TO HOLDER FOR GOOD AND VALUABLE
CONSIDERATION THE RIGHT TO OBTAIN SUCH A PREJUDGMENT REMEDY AND TO EXPRESS ITS
BELIEF THAT ANY SUCH PREJUDGMENT REMEDY OBTAINED IS VALID AND CONSTITUTIONAL
UNLESS A COURT OF COMPETENT JURISDICTION SHOULD DETERMINE OTHERWISE.  FURTHER, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, MAKER HEREBY WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST,
NOTICE OF PROTEST, NOTICE OF DISHONOR, DILIGENCE IN COLLECTION, NOTICE OF
NONPAYMENT OF THE THIS NOTE AND ANY AND ALL NOTICES OF A LIKE NATURE.  FURTHER, TO THE EXTENT NOT OTHERWISE EXPRESSLY
PROVIDED HEREIN, MAKER EXPRESSLY WAIVES ALL DEFENSES BASED UPON SURETYSHIP OR
IMPAIRMENT OF COLLATERAL.  MAKER
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF HOLDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVERS. MAKER ACKNOWLEDGES AND STIPULATES THAT THE
WAIVERS GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AND
AFTER FULL CONSULTATION WITH COUNSEL AND CONSTITUTE A MATERIAL INDUCEMENT FOR
HOLDER TO ACCEPT THIS NOTE AND MAKE THE TERM LOAN.

 

This Note shall be
governed by the laws of the State of Connecticut (excluding the laws applicable
to conflicts or choice of law).

 

 

	
   

  	
  AXSYS
  TECHNOLOGIES, INC.

  
	
   

  
	
   

  	
  By

  	
   

  
	
   

  
	
   

  	
   

  	
  Its

  

 

5

 

SCHEDULE
1

 

	
  Payment Date

  	
   

  	
  Payment
  Amount

  	
   

  	
  Payment
  Date

  	
   

  	
  Payment
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  May 10, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  June 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  June 8, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  July 9, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  July 8, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  August 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  August 9, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  September 10, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  September 8,
  2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  October 9, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  October 8, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  November 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  November 8, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  December 10, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  December 8, 2004

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  January 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  January 10, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  February 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  February 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  March 10, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  March 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  April 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  April 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  May 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  May 9, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  June 9, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  June 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  July 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  July 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  August 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  August 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  September 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  September 8,
  2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  October 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  October 11, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  November 10, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  November 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  December 8, 2008

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  December 8, 2005

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  January 8, 2009

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  January 9, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  February 9, 2009

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  February 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  March 9, 2009

  	
   

  	
  $

  	
  83,333.33

  	
   

  
	
  March 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
  April 8, 2009

  	
   

  	
  $

  	
  83,333.53

  	
   

  
	
  April 10, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  May 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  June 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  July 10, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  August 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 8,
  2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  October 10, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  November 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 8, 2006

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  January 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  February 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  March 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  April 10, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  May 8, 2007

  	
   

  	
  $

  	
  83,333.33

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Exhibit C

 

Joinder
Agreement

JOINDER AGREEMENT

 

Reference is made to the Credit Agreement dated as of
April 8, 2004 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the “Credit
Agreement”) among AXSYS
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”), the
Subsidiary Guarantors (such term and each other capitalized term used but not
defined herein having the meaning given it in Article I of the Credit
Agreement) and FLEET NATIONAL BANK
(the “Bank”).

 

W I T N E S S E T H:

 

WHEREAS, the Subsidiary Guarantors have entered into
the Credit Agreement and the Guaranty Agreement in order to induce Bank to make
the Loans to Borrower; and

 

WHEREAS, pursuant to Section 7.12 of the Credit
Agreement, each Subsidiary that was not in existence or not yet a Subsidiary on
the date of the Credit Agreement is required to become a Subsidiary Guarantor
under the Credit Agreement and a Guarantor under the Guaranty Agreement by
executing a Joinder Agreement. The undersigned Subsidiary (the “New Guarantor”) is executing this joinder
agreement (“Joinder Agreement”) to
the Credit Agreement and the Guaranty Agreement in order to induce Bank to make
additional Revolving Loans and as consideration for the Loans previously made.

 

NOW, THEREFORE, Bank and the New Guarantor hereby
agree as follows:

 

A.                                    Guarantee.  In accordance with Section 7.12 of the
Credit Agreement, the New Guarantor, by its signature below, confirms that it
has become as of the date hereof a Subsidiary Guarantor and Obligor under the Credit
Agreement and a Guarantor under the Guaranty Agreement, in each case with the
same force and effect as if originally named therein as a Subsidiary Guarantor
and Obligor and a Guarantor, respectively, by operation of the Merger.

 

B.                                    Representations
and Warranties. The New Guarantor hereby (a) agrees to all the terms and
provisions of the Credit Agreement and the Guaranty Agreement applicable to it
as a Subsidiary Guarantor and Obligor and a Guarantor, respectively, thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Subsidiary Guarantor and Obligor and a Guarantor, respectively,
thereunder are true and correct in all material respects (except that any
representation and warranty that is (1) qualified as to “materiality” or
“Material Adverse Effect” shall be true and correct in all respects, and (2)
made as of a specified date shall be reaffirmed as of such date) on and as of
the date hereof. Each reference to a Subsidiary Guarantor or Obligor (other
than Borrower) in the Credit Agreement and a Guarantor in the Guaranty
Agreement shall be deemed to include the New Guarantor. The New Guarantor
hereby attaches supplements to each of the schedules to the Credit Agreement
and the Guaranty Agreement applicable to it.

 

C.                                    Severability.  Any provision of this Joinder Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions

 

 

hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.

 

D.                                    Counterparts.  This Joinder Agreement may be executed in
counterparts, each of which shall constitute an original. Delivery of an
executed signature page to this Joinder Agreement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Joinder Agreement.

 

E.                                    No
Waiver.  Except as expressly
supplemented hereby, the Credit Agreement and the Guaranty Agreement shall
remain in full force and effect.

 

F.                                      Notices.  All notices, requests and demands to or upon
the New Guarantor or Bank shall be governed by the terms of Section 12.6 of the
Credit Agreement.

 

G.                                  Governing
Law.  THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AN) GOVERNED BY THE LAW OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.

 

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

 

 

	
   

  	
  TELIC OPTICS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  c/o Axsys Technologies, Inc.

  
	
   

  	
  175 Capital Blvd., Suite 103

  
	
   

  	
  Rocky Hill, CT 06067

  
	
   

  	
  Attn: David Almeida

  
	
   

  	
  Telephone No.: (860) 257-0200

  
	
   

  	
  Telecopier No.: (860) 594-5750

  
	
   

  	
   

  
	
   

  	
  FLEET NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Matthew E. Hummel

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
						

 

2

 

Schedule 5.1(d)

 

Litigation

 

Except
for the items described below, Axsys is unaware of any pending or threatened litigation
(where the potential liability is not covered by insurance), proceedings,
investigations, audits and other claims brought by a person, entity or
government agency.

 

Gale v. Bershad:

 

On May 30, 1997, an action was filed in the Court of Chancery in the
State of Delaware against Axsys and three of the directors on behalf of a
purported class of persons who purchased Axsys’ preferred stock. The plaintiff
has challenged our decision to redeem all of our outstanding shares of the
preferred stock. The plaintiff claimed that the defendants (1) breached
fiduciary duties in setting the redemption price too low and unfairly seeking
to advantage holders of common stock and (2) breached contractual duties as set
forth in the Certificate of Designation governing the preferred stock, as well
as an implied covenant of good faith and fair dealing.   In March 1998, the Court dismissed the
plaintiff’s claim of breach of fiduciary duties but declined to dismiss the
plaintiff’s claims concerning the purported breach of contract and implied
covenant of good faith and fair dealing. In January of 2001, the plaintiff
filed an amended complaint asserting the same causes of action raised in the
original complaint. We filed an answer, in January of 2001, denying the
material substantive allegations of the amended complaint and asserting, as
affirmative defenses, the failure to state a claim and the defense that
plaintiff is not an adequate class representative. As of December 31, 2003, we
have reached an agreement with the plaintiff in principle to settle the action,
although definitive documentation of the settlement has not been filed with the
Court. The settlement hearing is planned for May 2004.

 

Parker v. Brush Wellman

 

On January 29, 2004, we were served with a complaint in a matter
entitled Neal Parker et al v. Brush Wellman, Inc., et al, in which we, as
successors-in-interest to Speedring, Inc. is names as a defendant. The case was
filed in the Superior Court of Fulton County in the State of Georgia. No answer
has yet been filed by us. We obtained a 30-day extension of time to file a
responsive pleading from plaintiff’s counsel. Our answer to the complaint is
due in the end of March of 2004. The matter is a potential class-action lawsuit
against multiple defendants for unspecified damages relating to beryllium
exposure to employees of Lockheed Martin Corporation at its Marietta, Georgia
facility.   We are named as a defendant
as Speedring, Inc. allegedly was a fabricator of a beryllium-containing product
that was sold to and used at the Lockheed Martin facility. While we are denying
any liability and intend to vigorously defend the matter, we are researching
insurance coverage for this type of claim.

 

Axsys Technologies, Inc. v. Mitchell Dutton

 

On July 20, 2003, the Company filed a complaint on an order to show
cause seeking temporary restraint against Mitchell Dutton, formerly the general
manager of our Distributed Products Group (“AST”). Our lawsuit sought
injunctive relief, including the return of confidential and propriety
information and money damages for conversion, breach of fiduciary

 

 

duty,
breach of duty of loyalty, tortuous interference with AST’s business
relationship with certain of its customer and suppliers and for
misappropriation of trade secrets, confidential and proprietary information
(the “Action”). On August 5, 2003, the Court entered an order granting in part
and denying in part our application for a temporary restraining order, finding
that Dutton’s conduct in taking certain proprietary information was wrongful
and unjustifiable and ordering its return to us. The Court also ordered certain
expedited discovery pending the preliminary injunction hearing. On August 26,
2003, after the completion of the expedited discovery, we filed an amended
complaint. The amended complaint restructured the allegations in the original
complaint and added detailed facts supporting these allegations. On September
9, 2003, the Court denied the Company’s application for preliminary restraints
against Dutton.

 

On
October 22, 203, Dutton filed an answer, affirmative defenses and counterclaim
against us. The counterclaim filed by Dutton against the Company alleged
tortuous interference and defamation, claiming that Axsys improperly contacted
customers and suppliers of Axsys in an effort to keep Dutton from competing
with us. The counterclaim also alleged tat the continuation of the Action by
the Company against Dutton after the proprietary information had been returned,
was frivolous. The counterclaim sought compensatory and punitive damages from
Axsys in an unspecified amount.

 

In November 2003, Axsys and Dutton reached a settlement of all claims
in the Action, subject to Dutton’s negotiation and entry into a separate
agreement with one of AST’s Japanese suppliers. The settlement provided for no
payment of money damages by any party and included a restriction on Dutton and
related entities from selling or offering to sell certain products to our
existing customers.

 

It appears that Dutton has reached an agreement with the Japanese supplier
and will document this agreement. Whether the settlement will in fact be
consummated, however, is still uncertain. All parties had consented to extend
the time for us to file a response to the counterclaim filed by Dutton until
March 26, 2004, in order to permit the parties to consummate the anticipated
settlement of this matter. In the event the settlement is not consummated, we
plan to file an answer to the counterclaim by March 26, 2004, denying Dutton’s
allegations.

 

McDowell vs. Axsys Technologies

 

AST Bearings, a division of Axsys Technologies, hired Tracy McDowell as
a shipping clerk in 1966. In October 2001, McDowell was notified he was being
terminated. He was offered a severance package including 6 months salary. On
October 26, 2001, McDowell’s attorney, Samuel J. Halpern, wrote demanding more
severance (2.5 weeks per year of service). No agreement on severance was
reached. McDowell left as of December 31, 2001 without severance.

 

On June 20, 2002, McDowell filed a complaint with the Equal Employment
Opportunity Commission (EEOC) charging age and ERISA discrimination against
Axsys and Mitchell Dutton, the former general manager of AST Bearings.  AST maintains that McDowell was terminated
for performance. The EEOC issued a right to sue notice. An initial pretrial
scheduling conference was held with the judge to conduct discovery. Discovery
was filed by the January 9, 2004 deadline.

 

 

In December 2003, Chubb, Axsys’ insurance company was notified of the
suit. The age discrimination claims of the suit are covered under Axsys’
D&O policy; the ERISA claims are covered by Axsys’ fiduciary liability
insurance. Chubb has appointed its own council, Klett, Rooney, as Chubb has a
duty to defend the claim. Any settlement or judgment would have to be allocated
between the two policies, with the age discrimination portion attributed to the
D&O policy and the ERISA portion attributed to the fiduciary policy.

 

 

Schedule 5.1(i)

 

Indebtedness of Obligors

 

1.                                       Axsys has capitalized leases with Wachovia
Securities (formerly First Union Commercial Corporation). Axsys entered into a
master lease agreement with Wachovia Securities on August 21, 2001, to finance
the purchase of new production equipment. These leases were funded between
October 1, 2001 and October 31, 2002. All of these leases have a 48 month term.
The total amount financed was $1,667,000. $182,000 of that amount was used for
equipment located at Speedring Systems, Inc., an Axsys subsidiary located in
Rochester Hills, MI and the remainder was for equipment located at Speedring,
Inc, an Axsys subsidiary located in Cullman, AL, The leases are in the name of
“Axsys Technologies, Inc.” The outstanding balance on these leases as of March
6, 2004 (Axsys’ fiscal February month end) was $923,000.

 

2.                                       Axsys has two letters of credit with Fleet
Bank that serve as security deposits for two leased facilities for two
discontinued operations. One letter of credit is in the amount of $23,469. It
was originally issued on November 28, 2001, with an initial expiration date of
December 31, 2002. This letter of credit has been renewed each year and now is
scheduled to expire on December 31, 2004. The other letter of credit is in the
amount of $207,000. This second letter of credit was originally issued on May
7, 2001, with an initial expiration date of April 30, 2002. This second letter
of credit has been renewed each year and is now scheduled to mature on April
30, 2004. Axsys intends to renew this second letter of credit for another year.
No draws have been made on either letter of credit.

 

 

Schedule 5.1(j)

 

Permitted Liens

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  First Union Commercial Corporation

  	
   

  	
  UCC No: 20231013

  File Date: 12/31/01

  	
   

  	
  All equipment, fixtures and furnishings and other
  personal property and all modifications and additions thereto, and
  replacements and substitutions therefore in whole or in part, now or
  hereafter covered by that Equipment Lease dated August 21, 2001, and all
  schedules now or hereafter referencing said Lease between Secured Party, as
  Lessor, and Debtor, as Lessee. Secured Party and Debtor have entered into a
  valid lessor-lessee relationship and this is a precautionary filing only.
  Proceeds of collateral are also covered, but Debtor does not have the power
  of sale.

  
	
  Axsys Technologies, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 31226326

  File Date: 4/30/03

  	
   

  	
  Yr 1998, Model 1200, SN 980034, Optimum Flycutting
  Machine System including: HD Bridge Type, Upper Enclosures, Tool/Air Lube
  System

  

  Yr 1998, Model MiniFIZ-100P-HR, SN 55-602 & 86-261, Phase Measuring
  Interferometer including Transmission Flat 

  

  Yr 1998, Model 1600CM, SN USB-9303906, Hewlett Packard Printer

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 32103607

  File Date: 8/13/03

  	
   

  	
  (1) Nanoform 600 with Ultrapath CNC, Serial number:

  980035 with various features

  (1) Enviromental Temperature Control

  (1) Ultracomp, Amplifier & Probe

  (1) Ultracomp Mount, Diamond Turning

  (1) Auto Balancing Software

  (1) Integrated Gage Amp., UPIL, ISA

  (1) Tool Air/Lube System, BIJUR

  
	
  Axsys Technologies, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 32642695

  File Date: 10/9/03

  	
   

  	
  (1) One Planer Type Horizontal Boring & Milling
  Machine with Tosnuc 888, s/ns: P025286,130263, mfg.#: 415H29

  (6) Six Support Plate 1/2" x 2" x 10.8"

  (22) Twenty-two 0.7" x 4.9" x 7.1" Plate

  (22) Twenty-two Foundation Collar 1.6" Dia.

  (10) Ten Support Bar 2.6" x 15.7"

  (2) Two Support Plate 1/2" x 14" x 16.8"

  (1) One 6288-8176 (6298-8763)

  (22) Twenty-two LL-22 Level Line Mounts

  (1) One Spindle Coolant Tank

  (1) One Primary Spindle Coolant Tank

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  Inter-Tel Leasing, Inc.

  	
   

  	
  UCC No: 9819060118

  File Date: 7/6/98

  	
   

  	
  1 Inter-Tel Axxess Telephone System with Voice Mail

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 9918960896

  File Date: 7/2/99

  Amend: 01009C0537

  File Date: 7/4/01

  	
   

  	
  (1) 1999 Tschuden61170 1989 Model 610 Cylindrical
  Grinder equipped with (1) 5-C Drawbar, (2) Diamond Dressers, (3) Chucks, (1) Small
  Mag Chuck, (40) Assorted Centers, (1) Wheel Blancey w/ (2) Arbors, (10)
  Grinding Wheels w/ (1) I.D. Spindle, Mandrels & Collets, (2) Extra Belts,
  (1) Box Assorted Tooling

  

  (1) 1999 Machining Time Savers 17128 1999 30"xl6"x20" Vertical
  Maching Center, (1) Rotary Table Hrt 160, (1) 4th Axis Drive and
  Wiring, (1) Programmable Coolant Nozzle, (1) Expanded Memory to 8,250 ft, (1)
  3.5 Floppy Disc Drive & Interface, (1) Chip Conveyor, auger Style

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  Copelco Capital, Inc.

  	
   

  	
  UCC No: 9929460827

  File Date: 10/12/99

  	
   

  	
  Lease 1670710, 1 Xerox 8825 Engineering Copier

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 0100960943

  File Date: 1/4/01

  	
   

  	
  Collateral listed on Schedule No. 10

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  Telogy, Inc.

  	
   

  	
  UCC No: 0114960877

  File Date: 5/23/01

  	
   

  	
  Together with all attachments and replacements
  thereof provided under lease accommodations by Telogy Inc. This financing
  statement is filed in connection with a lease of goods between the Secured
  Party as Lessor, and the Debtor as Lessee. RA #401 894^^

  (1) HP E44208 S/N: MY4 1000107

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  SOS

  	
   

  	
  Manufacturer and Dealer
  Services LLC

  	
   

  	
  UCC No: 0118060133

  File Date: 6/25/01

  	
   

  	
  1 Genie GS-1930 Scissor
  Lift

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CA

  	
   

  	
  San Diego

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 1997-0382861

  File Date: 8/11/97

  Amend: 2001 0025747

  File Date: 1/17/01

  State: none

  Fed: none

  Judg: none

  Fixt: none

  

  NOTE: Filing appears to have
  lapsed, however an amendment was accepted for it after lapse date.

  	
   

  	
  All electronic
  manufacturing equipment more fully described on Collateral Schedule No. 003
  attached hereto and made a part hereof. Including all other attachments,
  accessories, additions, replacements and substitutions and proceeds now or
  hereafter attached hereto. Equipment currently located at: Vernitron
  Corporation, 1601 Precision Park Lane, San Diego, CA 92173 (See Collateral
  Schedule No. 003)

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CT

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 0002043692

  File Date: 1/3/01

  	
   

  	
  Collateral listed in
  Schedule No. 10

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CT

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 0002044443

  File Date: 1/8/01

  	
   

  	
  (1) One Republic Lagun Five PT 70X120 30HP Manual
  Lathe

  (1) One Variable Speed Headstock

  (1) One Constant Surface Speed w/ Anilam Wizard 450-L/IO 2 with 2 Axis
  Digital Readout

  (1) One P4 Bearings

  (1) One Special Gearing to Allow for .0009 IPR Crossfeed

  (1) One Face Plarte

  
	
  Axsys Technologies, Inc.

  	
   

  	
  CT

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 0002051290

  File Date: 2/14/01

  	
   

  	
  See Collateral Schedule Nos. 1, 2, and 3

  
	
  Axsys Technologies, Inc.

  	
   

  	
  NJ

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 1869786

  File Date: 11/2/98

  	
   

  	
  Yr 1998, Model 1200, SN 980034, Optimum Flycutting
  Machine System including: HD Bridge Type, Upper Enclosures, Tool/Air Lube
  System

  

  Yr 1998, Model MiniFIZ-100P-HR, SN 55-602 & 86-261, Phase Measuring
  Interferometer including Transmission Flat

  

  Yr 1998, Model 1600CM, SN USB-9303906, Hewlett Packard Printer

  
	
  Axsys Technologies, Inc.

  	
   

  	
  NJ

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 1891389

  File Date: 2/6/99

  	
   

  	
  (1) Nanoform 600 with Ultrapath CNC, Serial number:
  980035 with various features

  (1) Enviromental Temperature Control

  (1) Ultracomp, Amplifier & Probe

  (1) Ultracomp Mount, Diamond Turning

  (1) Auto Balancing Software

  (1) Integrated Gage Amp., UPIL, ISA

  (1) Tool Air/Lube System, BIJUR

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  NJ

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 1898193

  File Date: 4/6/99

  	
   

  	
  (1) One Planer Type Horizontal Boring & Milling
  Machine with Tosnuc 888, s/ns: P025286, 130263, mfg.#: 4I5H29

  (6) Six Support Plate 1/2" x 2" x 10.8"

  (22) Twenty-two 0.7" x 4.9" x 7.1" Plate

  (22) Twenty-two Foundation Collar 1.6" Dia.

  (10) Ten Support Bar 2.6" x 15.7"

  (2) Two Support Plate 1/2" x 14" x 16.8"

  (1) One 6288-8176 (6298-8763)

  (22) Twenty-two LL-22 Level Line Mounts

  (1) One Spindle Coolant Tank

  (1) One Primary Spindle Coolant Tank

  
	
  Axsys Technologies, Inc.

  	
   

  	
  NJ

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 1916014

  File Date: 7/2/99

  	
   

  	
  (l)1999 Tschuden 61170  1989 Model 610 Cylindrical Grinder equipped with (1) 5-  C Drawbar, (2) Diamond Dressers, (3)
  Chucks, (1) Small Mag Chuck, (40) Assorted Centers, (1) Wheel Blancey w/ (2)
  Arbors, (10) Grinding Wheels w/ (1) I.D. Spindle,  Mandrels & Collets, (2) Extra Belts, (1) Box Assorted  Tooling

  

  (1) 1999 Machining Time Savers 17128 1999 30"x l6"x20"
  Vertical Maching Center, (1) Rotary Table Hrt 160, (1) 4th Axis
  Drive and Wiring, (1) Programmable Coolant Nozzle, (1) Expanded Memory to
  8,250 ft, (1) 3.5 Floppy Disc Drive & Interface, (1) Chip Conveyor, auger
  Style

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Axsys Technologies, Inc.

  	
   

  	
  NJ

  	
   

  	
  SOS

  	
   

  	
  Newcourt Leasing Corporation

  	
   

  	
  UCC No: 2034982

  File Date: 4/4/01

  	
   

  	
  (1) Ricoh 550 Copier, Model 550, SN A9049120463

  

  Note: This transaction is a true lease and is not intended by the parties as
  a secured transaction. Filing is only intended to make the true lease a
  matter of public record. The lessor is the owner of such property including
  all accessories, attachments, additions and any substitutions of similar
  equipment types, and the lessee has no rights, express or implied to sell,
  exchange, emcumber or otherwise dispose of such property

  Equipment/Lease No: 300-0010958-000

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  The Cit Group/Equipment
  Financing, Inc.

  	
   

  	
  UCC No: B94-19866

  File Date: 6/1/94

  State: none

  Fed: none

  Judg:

  	
   

  	
  I Mazak MP 625 w/Gantry
  SN-110730

  With all attachments, replacement parts, substitutions, additions, repairs
  and accessories incorporated therein and/or affixed thereto

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  The Cit Group/Equipment
  Financing, Inc.

  

  Mazak Corporation

  	
   

  	
  UCC No: B94-19867

  File Date: 2/23/99

  State: none

  Fed: none

  	
   

  	
  1-Monarch NC Mill SN 80630

  1 Sonic Mill SN-SM4364

  Including all substitutions, additions, attachments, replacements, accessions
  and the proceeds of all of the foregoing.

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  M&I First National Leasing Corporation

  	
   

  	
  UCC No: B96-28509

  File Date: 3/5/01

  State: none

  Fed: none

  	
   

  	
  One (1) new Mori Seiki Vertical Machining Center
  model MV-55/50 with Fanuc MF-MG CNC Control.

  

 

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: B99- 14773

  File Date: 4/7/99

  State: none

  Fed: none

  	
   

  	
  (1) One Planer Type
  Horizontal Boring & Milling

  Machine with Tosnuc 888, s/ns: P025286, 130263, mfg.#: 415H29

  (6) Six Support Plate 1/2" x 2" x 10.8"

  (22) Twenty-two 0.7" x 4.9" x 7.1" Plate

  (22) Twenty-two Foundation Collar 1.6" Dia.

  (10) Ten Support Bar 2.6" x 15.7"

  (2) Two Support Plate 1/2" x 14" x 16.8"

  (1) One 6288-8376 (6298-8763)

  (22) Twenty-two LL-22 Level Line Mounts

  (1) One Spindle Coolant Tank

  (1) One Primary Spindle Coolant Tank

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  CNC Design & Electronics, Inc.

  	
   

  	
  UCC No: B 1999-

  23651

  File Date: 6/2/99

  State: none

  Fed: none

  	
   

  	
  B6FC Bedmill - S/N B6FC-317 w/ Centroid Control

  #6477 and Accessories

  Purchase Money Security Interest

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No:B2001-

  00488

  File Date: 1/5/01

  State: none

  Fed: none

  	
   

  	
  (1) One Republic Lagun Five
  PT 70X120 30HP Manual

  Lathe s/ns: 70122905205

  (1) One Variable Speed Headstock

  (1) One Constant Surface Speed w/ Anilam Wizard 450-L/IO 2 with 2 Axis
  Digital Readout

  (1) One P4 Bearings

  (1) One Special Gearing to Allow for .0009 IPR Crossfeed

  (1) One Face Plarte

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  Cullman

  	
   

  	
  First Union Commercial
  Corporation

  	
   

  	
  UCC No: 222541

  File Date: 3/28/02

  	
   

  	
  See Exhibit A

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  Cullman

  	
   

  	
  First Union Commercial
  Corporation

  	
   

  	
  UCC No: 222766

  File Date: 5/29/02

  	
   

  	
  See Exhibit A

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Speedring, Inc.

  	
   

  	
  AL

  	
   

  	
  Cullman

  	
   

  	
  First Union Commercial Corporation

  	
   

  	
  UCC No:2239l3

  File Date: 5/1/03

  	
   

  	
  See Exhibit A

  
	
  Speedring Systems, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 31226292

  File Date: 4/30/03

  	
   

  	
  Yr 1998, Model 1200, SN 980034, Optimum Flycutting
  Machine System including: HD Bridge Type, Upper Enclosures, Tool/Air Lube
  System

  

  Yr 1998, Model MiniFlZ-lOOP-HR, SN 55-602 & 86-261, Phase Measuring
  Interferometer including Transmission Flat

  

  Yr 1998, Model 1600CM, SN USB-9303906, Hewlett Packard Printer

  
	
  Speedring Systems, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital Corporation

  	
   

  	
  UCC No: 32103516

  File Date: 8/13/03

  	
   

  	
  (1) Nanoform 600 with Ultrapath CNC, Serial number:
  980035 with various features

  (1) Enviromental Temperature Control

  (1) Ultracomp, Amplifier & Probe

  (1) Ultracomp Mount, Diamond Turning

  (1) Auto Balancing Software

  (1) Integrated Gage Amp., UPIL, ISA

  (1) Tool Air/Lube System, BIJUR

  
	
  Speedring Systems, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  The Cit Group/Equipment Financing, Inc.

  	
   

  	
  UCC No: 32185109

  File Date: 8/21/03

  	
   

  	
  Collateral listed on
  Financing Statement Addendum

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Speedring Systems, Inc.

  	
   

  	
  DE

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 32642745

  File Date: 10/9/03

  	
   

  	
  (1) One Planer Type
  Horizontal Boring & Milling Machine with Tosnuc 888, s/ns: P025286,
  130263, mfg.#: 415H29

  (6) Six Support Plate 1/2" x 2" x 10.8"

  (22) Twenty-two 0.7" x 4.9" x 7.1" Plate

  (22) Twenty-two Foundation Collar 1.6" Dia.

  (10) Ten Support Bar 2.6" x 15.7"

   (2) Two Support Plate 1/2" x 14" x 16.8"

  (1) One 6288-8176 (6298-8763)

  (22) Twenty-two LL-22 Level Line Mounts

  (1) One Spindle Coolant Tank
(1) One Primary Spindle Coolant Tank

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCC No: 98574B

  File Date: 11/2/98

  State: none

  Fed: none

  	
   

  	
  Yr 1998, Model 1200, SN
  980034, Optimum Frycutting Machine System including: HD Bridge Type, Upper
  Enclosures, Tool/Air Lube System

  

  Yr 1998, Model MiniFIZ-100P-HR, SN 55-602 & 86-261, Phase Measuring
  Interferometer including Transmission Flat

  

  Yr 1998, Model 1600CM, SN USB-9303906, Hewlett Packard Printer

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  General Electric Capital
  Corporation

  	
   

  	
  UCCNo:01466C

  File Date: 2/26/99

  State: none

  Fed: none

  	
   

  	
  (1) Nanoform 600 with
  Ultrapath CNC, Serial number:  980035 with various features

  (1) Enviromental Temperature Control

  (1) Ultracomp, Amplifier & Probe

  (1) Ultracomp Mount, Diamond Turning

  (1) Auto Balancing Software

  (1) Integrated Gage Amp., UP1L, ISA

  (1) Tool Air/Lube System, BIJUR

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Speedring Systems, Inc.

  	
   

  	
  Ml

  	
   

  	
  SOS

  	
   

  	
  Newcourt Financial
  Technology Rentals & Services

  	
   

  	
  UCC No: D516346

  File Date: 5/11/99

  	
   

  	
  (1) Tek/TDS3034 - 4CH, 300
  MHZ DPO SN# 913513/B010211

  (1) Tek/TDS3GM - RS232 GPIB Module SN# 905976/NSN

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Newcourt Financial
  Technology Rentals & Services

  	
   

  	
  UCC No: D529779

  File Date: 6/11/99

  	
   

  	
  (1) Tek/TDS794D - 4CH,
  2GZ, Scope W/ 2)P5339A,

  1)P6217, 1)P6247, 1M, R5, C5

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: D605483

  File Date: 1/6/00

  	
   

  	
  1 Konica 7150 Copier - SN
  55NE09142

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: D733082

  File Date: 1/16/01

  	
   

  	
  1 Konica 7020 w/ Finisher
  SN 26NE07967

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: D734204

  File Date: 1/18/01

  	
   

  	
  1 Konica 7020 Copier with
  Finisher SN 26NE02025

  
	
  Speedring Systems, Inc.

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: D745076

  File Date: 2/16/01

  	
   

  	
  1 Konica 9660 Fax Machine
  SN 004C1016956

  
	
  Speedring Systems, Inc.

  

  Additional Debtor:

  Axsys Technologies Imaging Systems

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: 2003162513-0

  File Date: 8/26/03

  	
   

  	
  1 Konica 7022 Copier S/N
  26WE13865

  

 

 

	
  NAME

  	
   

  	
  STATE

  	
   

  	
  JURISDICTION

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  UCC FILE
  NO.

  FILE DATE

  	
   

  	
  COLLATERAL
  DESCRIPTION

  
	
  Speedring Systems, Inc.

  

  Additional Debtor:

  Axsys Technologies Imaging Systems

  	
   

  	
  MI

  	
   

  	
  SOS

  	
   

  	
  Ervin Leasing Company

  	
   

  	
  UCC No: 2003211192-8

  File Date: 11/4/03

  	
   

  	
  1 Konica 8020 Copier S/N
  65FE00793

  
	
  Telic Optics, Inc.

  	
   

  	
  MA

  	
   

  	
  SOS

  	
   

  	
  Middlesex Savings Bank

  	
   

  	
  UCC No: 506754

  File Date: 10/28/97

  Cont: 200211235400 File Date: 5/1/02

  State: none

  	
   

  	
  One Zygo Growth Potential
  Interferometer 4" Horizontal System - #6500-0434-06

  
	
  Telic Optics, Inc.

  	
   

  	
  MA

  	
   

  	
  SOS

  	
   

  	
  Middlesex Savings Bank

  	
   

  	
  UCC No: 563828

  File Date: 7/13/98

  Cont: 200317698280

  File Date: 1/16/03

  State: none

  	
   

  	
  (1) Nanoform 200 - P/N
  A02173 - S/N 980-032

  

 

 

Schedule 5.1(n)(xvi)

 

Self-funded Welfare Plans

 

1.                                       None.

 

 

Schedule 5. l(n)(xvi)

 

Plans investing in Insurance Products

 

1.                                       None.

 

 

Schedule 5.1(p)(i)

 

Real Property Owned by
Each Obligor

 

1.                                       Speeding, Inc. (d/b/a Axsys Technologies
Precision Machined Products)

6717 AL Highway 157

Cullman, AL 35057

 

 

Schedule 5.1(p)(ii)

 

Real Property Leased by
Each Obligor

 

See attached.

 

 

Axsys Technologies, Inc.

March 19, 2004

 

Re:                               Fleet National Bank Loan

Documents request dated: March 16, 2004

 

Item
# 7:

 

	
  Location:

  	
   

  	
  Axsys Technologies, Inc.

  175 Capital Blvd, Suite 103

  Rocky Hill, CT 06067

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Leased

  
	
   

  	
   

  	
   

  
	
  Owner & Lessor:

  	
   

  	
  New Boston 175 Capital
  Boulevard, LLC

  c/o New Boston Management Services, Inc.

  100 Pearl Street

  Hartford, CT  06103

  
	
   

  	
   

  	
   

  
	
  Location:

  	
   

  	
  Axsys Technologies Motion
  Control Products

  7603 Saint Andrews Ave, Suite H

  San Diego, CA 92154

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Leased

  
	
   

  	
   

  	
   

  
	
  Owner & Lessor:

  	
   

  	
  ARI San Diego Distribution
  Center LLC and

  CB Richard Ellis, Inc

  4365 Executive Drive, Suite 900

  San Diego, CA 92121

  
	
   

  	
   

  	
   

  
	
  Location:

  	
   

  	
  AST Bearings

  115 Main Road

  Montville, NJ 07045

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Leased

  
	
   

  	
   

  	
   

  
	
  Owner & Lessor:

  	
   

  	
  Woodmont Properties Main
  Road LLC

  119 Cherry Hill Road, Suite 110

  Parsippany, NJ 07054

  

 

 

	
  Location:

  	
   

  	
  AST Bearings

  3A Farraday

  Irvine, CA  92618

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Leased

  
	
   

  	
   

  	
   

  
	
  Owner & Lessor:

  	
   

  	
  John C. Thomson

  c/o Stadium Properties

  3151 Airway Ave H-3

  Costa Mesa, CA  92626

  
	
   

  	
   

  	
   

  
	
  Location:

  	
   

  	
  Speedring, Inc

  d/b/a  Axsys Technologies Precision
  Machined Products

  6717 AL Highway 157

  Cullman, AL  35057

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Owned

  
	
   

  	
   

  	
   

  
	
  Lessor:

  	
   

  	
  N/A

  
	
   

  	
   

  	
   

  
	
  Location:

  	
   

  	
  Speedring Systems, Inc.

  d/b/a Axsys Technologies Imaging Systems

  2909 Waterview Drive

  Rochester Hills, MI 48306

  
	
   

  	
   

  	
   

  
	
  Status:

  	
   

  	
  Leased

  
	
   

  	
   

  	
   

  
	
  Owner & Lessor:

  	
   

  	
  Joel Nosanchuk

  P.O. Box 668

  Bloomfield Hills, MI 48303-0668

  

 

 

Schedule 5.1(s)

 

Collective Bargaining
Agreements

 

None.

 

 

Schedule 5.1(v)

 

Other Affiliates of each
Obligor

 

1.                                       Stephen Bershad, Chief Executive Officer of
Axsys.

 

 

Schedule 5.1(dd)

 

Insurance

 

See attached.

 

 

AXSYS TECHNOLOGIES, INC.

 

Summary of
Insurance Coverages in Effect as of March 19, 2004

RC Knox &
Company

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
  Liberty
  Mutual Insurance Company

  	
   

  	
  FLCZ91430844013

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  103,722

  	
   

  
	
   

  	
   

  
	
  PROPERTY COVERAGE

  	
   

  
	
   

  	
   

  
	
  Principal
  Limits:

  	
   

  	
  $

  	
  68,873,000

  	
   

  	
  Buildings and Business
  Personal Property

  	
   

  
	
   

  	
   

  	
  38,392,000

  	
   

  	
  Loss of Income

  	
   

  
	
   

  	
   

  	
  2,500,000

  	
   

  	
  Additional Expense

  	
   

  
	
   

  	
   

  	
  50,000,000

  	
   

  	
  Flood except as noted
  in policy

  	
   

  
	
   

  	
   

  	
  50,000,000

  	
   

  	
  Earthquake excluding
  any location in California

  	
   

  
	
   

  	
   

  	
  2,500,000

  	
   

  	
  Real & Personal
  Property at each New Location

  	
   

  
	
   

  	
   

  	
  2,500,000

  	
   

  	
  Real & Personal
  Property at each Unscheduled Location

  	
   

  
	
   

  	
   

  	
  100,000

  	
   

  	
  Deductible

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equipment Breakdown Including Production Machinery)
  

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  100,000,000

  	
   

  	
  Property
  Damage and Loss of Income

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2,500,000

  	
   

  	
  Additional
  Expense

  	
   

  
	
   

  	
   

  	
  100,000

  	
   

  	
  Deductible

  	
   

  
															

 

THIS SUMMARY OF INSURANCE
IS AN OVERVIEW OF YOUR INSURANCE PROGRAM AND DOES NOT CHANGE THE FORMS OR
CONDITIONS OF THE ACTUAL POLICIES. YOU MUST REFER TO YOUR POLICIES FOR FULL
TERMS, CONDITIONS AND EXCLUSIONS.

 

 

AXSYS
Technologies, Inc.

Summary
of Insurance Coverages in Effect as of 3/19/2004

RC
Knox & Company

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The
  Travelers

  	
   

  	
  TJ-GLSA-473D8575-TIL-03

  	
   

  	
  11/1/03-04

  	
   

  	
  $

  	
  98,882

  	
  *

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GENERAL LIABILITY

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  15,000

  	
   Loss Fund

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  13,882

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $

  	
   1,000,000

  	
   

  	
  Each Occurrence

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1,000,000

  	
   

  	
  Personal & Advertising Injury

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100,000

  	
   

  	
  Fire Damage

  	
   

  
	
   

  	
   

  	
  5,000

  	
   

  	
  Medical Expense

  	
   

  
	
   

  	
   

  	
  2,000,000

  	
   

  	
  General Aggregate “Per
  Project”

  	
   

  
	
   

  	
   

  	
  2,000,000

  	
   

  	
  Products &
  Completed Operations

  	
   

  
	
   

  	
   

  	
  1,000,000

  	
   

  	
  Employee Benefits -
  1,000 Deductible (Each Employee)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
																

	
   

  	
   

  	
  *subject
  to retrospective adjustment

  	
   

  

 

2

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Travelers

  	
   

  	
  TJ-CAP-473D8587-TIL-03

  	
   

  	
  11/1/03-04

  	
   

  	
  $

  	
   12,461

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COMMERCIAL AUTO

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Composite Rate – Based - on 4 Units

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $

  	
   1,000,000

  	
   

  	
  Liability (Including
  Hired/Non-Owned)

  	
   

  
	
   

  	
   

  	
  500

  	
   

  	
  Comprehensive
  Deductible

  	
   

  
	
   

  	
   

  	
  500

  	
   

  	
  Collision Deductible

  	
   

  
	
   

  	
   

  	
  1,000,000

  	
   

  	
  Uninsured Motorists

  	
   

  
	
   

  	
   

  	
  Included

  	
   

  	
  Drive Other Car

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (All Employee-Assigned
  Autos)

  	
   

  
	
   

  	
   

  	
  5,000

  	
   

  	
  Auto Medical Payments

  	
   

  
	
   

  	
   

  	
  $ 40 Per Day/30 Days
  Rental Reimbursement

  	
   

  
	
   

  	
   

  	
  Hired Car Physical
  Damage:

  	
   

  
	
   

  	
   

  	
  $

  	
   30,000

  	
   

  	
  Comprehensive / $500
  Deductible

  	
   

  
	
   

  	
   

  	
  $

  	
   30,000

  	
   

  	
  Collision / $500
  Deductible

  	
   

  
														

 

3

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  Travelers

  	
   

  	
  TRJUB-186K594-8-03

  	
   

  	
  11/01/03-04

  	
   

  	
  $

  	
  245,367

  	
  *

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  WORKERS’ COMPENSATION (RETROSPECTIVE RATING PLAN)

  	
   

  	
  207,000 

  	
   Loss Fund

  	
   

  	 

	
   

  	
   

  	
  $

  	
  455,893

  	
   

  	
   

  
														

 

	
  Coverage
  A:

  	
   

  	
  Statutory

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Coverage
  B:

  	
   

  	
  Employer’s Liability Limits

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $1,000,000

  	
   

  	
  Bodily Injury by Accident (Each Accident)

  	
   

  
	
   

  	
   

  	
  1,000,000

  	
   

  	
  Bodily Injury by Disease (Policy Limit)

  	
   

  
	
   

  	
   

  	
  1,000,000

  	
   

  	
  Bodily Injury by Disease (Each Employee)

  	
   

  

 

	
   

  	
   

  	
  *subject to
  retrospective adjustment  

  	
   

  

 

	
  National Union (AIG)

  	
   

  	
  BE4916630

  	
   

  	
  11/01/03-11/01/04

  	
   

  	
  $

  	
  84,465

  	
   

  	
   

  

 

EXCESS LIABILITY

 

	
  Limits:

  	
   

  	
  $25,000,000

  	
   

  	
  Each Occurrence

  	
   

  
	
   

  	
   

  	
  25,000,000

  	
   

  	
  Other Aggregate

  	
   

  
	
   

  	
   

  	
  25,000,000

  	
   

  	
  Products Aggregate

  	
   

  
	
   

  	
   

  	
  $10,000

  	
   

  	
  Retention

  	
   

  

 

4

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Executive Risk

  	
   

  	
  8168-2703

  	
   

  	
  6/17/03-04

  	
   

  	
  $115,000

  	
   

  

 

DIRECTORS
& OFFICERS LIABILITY

 

	
  Limits:

  	
   

  	
  $7,500,000

  	
   

  	
  Maximum Aggregate for
  All Claims

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  Each Insured Person
  Retention

  	
   

  
	
   

  	
   

  	
  100,000

  	
   

  	
  Each Claim Retention

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Retroactive
  Date:

  	
   

  	
  12/17/82

  	
   

  	
   

  	
   

  

 

	
  Travelers Insurance Company

  	
   

  	
  104065914

  	
   

  	
  6/17/03-04

  	
   

  	
  $20,000

  	
   

  

 

EXCESS D&O – PART A only

 

	
  Limit:

  	
   

  	
  $2,500,000

  	
   

  	
  Maximum Aggregate for
  All Claims but only for loss not indemnified by Axsys

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Retroactive
  Date:

  	
   

  	
  06/17/03

  	
   

  	
   

  	
   

  

 

5

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Executive Risk

  	
   

  	
  81516096

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  6,500

  	
   

  
									

 

PENSION WELFARE BENEFIT PLAN FIDUCIARIES & PLAN
ADMINISTRATORS INSURANCE

 

	
  Limits:

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  Aggregate

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  Retention

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Retroactive
  Date:

  	
   

  	
  Existing Date of
  Incorporation Sponsor Organization

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Crime Section

  	
   

  	
   

  	
   

  	
  $

  	
  15,070

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
  Employee Theft

  	
   

  
	
   

  	
   

  	
  5,000,000

  	
   

  	
  Depositors Forgery

  	
   

  
	
   

  	
   

  	
  5,000,000

  	
   

  	
  Loss on Premise/Loss
  Outside Premises

  	
   

  
	
   

  	
   

  	
  5,000,000

  	
   

  	
  Transit

  	
   

  
	
   

  	
   

  	
  5,000,000

  	
   

  	
  Computer Fraud &
  Funds Transfer

  	
   

  
	
   

  	
   

  	
  100,000

  	
   

  	
  Credit Card Forgery ($0
  deductible)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deductibles:

  	
   

  	
  $

  	
  25,000

  	
   

  	
  Applies to Above Except
  Credit Card Forgery

  	
   

  
											

 

	
  Pacific insurance Company Ltd.

  	
   

  	
  ZG0021266

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  27,844

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIC COVERAGE (Including California Earthquake and Flood)

  	
   

  	
   

  	
   

  	
  (Including Tax
  & Fees)

  	
   

  
																

 

	
  Limit:

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
  Per Occurrence and
  Aggregate

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deductibles:

  	
   

  	
  5

  	
  %

  	
  Per Schedule (on
  file with company)

  	
   

  
	
   

  	
   

  	
  25,000

  	
   

  	
  All Other Perils

  	
   

  

 

6

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy
  Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  United National Insurance Company

  	
   

  	
  IMZ 30050

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  6,545

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Including Tax & Fees)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIC COVERAGE (Including California Earthquake and Flood)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $2,500,000
  Excess of    $5,000,000

  	
   

  
	
   

  	
   

  	
  Follow
  Form of Pacific Insurance Company Policy

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Sirius International

  	
   

  	
  NLC 20586

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  6,545

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Including Tax & Fees)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIC COVERAGE

  	
   

  	
  $2,500,000
  part of $5,000,000 and excess of Pacific Insurance  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hudson Insurance Company

  	
   

  	
  HD1326

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  11,320

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (including Tax
  & Fees)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIC COVERAGE

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $5,500,000
  Part of $8,500,000 and Excess of United National Insurance Company

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Ace Syndicate

  	
   

  	
  ACE20373

  	
   

  	
  6/17/03-04

  	
   

  	
  $

  	
  6,288

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIC COVERAGE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $3,000,000
  Part of $8,500,000 Excess of United National Insurance Company

  	
   

  
														

 

7

 

	
  Company

  	
   

  	
  Policy
  Number

  	
   

  	
  Policy Period

  	
   

  	
  Annual
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Associated Aviation Underwriters

  	
   

  	
  APG607718AAAU

  	
   

  	
  1/28/04-05

  	
   

  	
  $

  	
  59,860

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AVIATION PRODUCTS – COMPLETED OPERATIONS & GROUNDING
  LIABILITY COVERAGE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Limits:

  	
   

  	
  $ 25,000,000

  	
   

  	
  Aggregate

  	
   

  
	
  Products/Completed

  	
   

  	
  25,000,000

  	
   

  	
  Each
  Occurrence & Aggregate

  	
   

  
	
  Operations:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Grounding:

  	
   

  	
  25,000,000

  	
   

  	
  Each
  Grounding & Aggregate

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hartford Life Insurance Co.

  	
   

  	
  ETB111812

  	
   

  	
  10/15/02-05

  	
   

  	
  $

  	
  5,648

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GROUP TRAVEL ACCIDENT POLICY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Officers, President,

  	
   

  	
  $ 500,000

  	
   

  	
  Benefit
  Accidental Death

  	
   

  
	
  General Managers  (Class I)

  	
   

  	
   

  	
   

  	
  Dismemberment

  	
   

  
	
  Active Full Time

  	
   

  	
  250,000

  	
   

  	
  Benefit
  Accidental Death

  	
   

  
	
  Employees

  	
   

  	
   

  	
   

  	
  Dismemberment

  	
   

  
	
  Salaried $50,000 & above (Class II)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Active Full Time 

  	
   

  	
  100,000

  	
   

  	
  Benefit
  Accidental Death

  	
   

  
	
  Employees

  	
   

  	
   

  	
   

  	
  Dismemberment

  	
   

  
	
  Salaried Less than $50,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
														

 

8

 

 

Schedule 5.1(w)

 

Environmental Matters

 

Environmental Claims/Remediation

 

Axsys
has been identified as a potentially responsible party (“PRP”) under the
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
with respect to third-party waste disposal sites.

 

Pursuant
to a remedial plan approved by the Ohio Environmental Protection Agency (“Ohio
EPA”) in 1993, Axsys investigated soils and groundwater at a site formerly
owned by a division of Axsys, and has conducted certain remedial work at this
site including soil removal. Axsys has incurred costs of $182,000 in 2003 and
approximately $782,000 to date. We received the approval of the Ohio EPA for an
alternate closure plan related to this site. As of September 7, 2003,
installation of the remediation system was in progress. We anticipate that
actual expenditures will be incurred over a period of several years. As of
December 31, 2003, Axsys has accrued $280,000 for expenses related to this
site.

 

During
1999, Axsys sold the land and building of a previously discontinued Sensor
Systems division in St. Petersburg, Florida. We conducted investigations of
soil and groundwater at the former facility and received approval of the
remedial action plan from the Florida Department of Environmental Protection.
During the second quarter of 2003, we installed the remediation systems and
have begun the clean up of the site. In 2003, we spent $276,000 on the clean up
of this facility and have incurred approximately $629,000 to date. As of
December 2003, Axsys has accrued $436,000 for expenses related to this
site.

 

On
December 21, 2001, Axsys received a letter from the United States Environmental
Protection Agency (“EPA”) notifying us that we are considered to be a
potentially responsible party at a site located in Prospect, Connecticut, which
until 1978 was owned by a former subsidiary. The letter also demanded payment
of approximately $25,000 in past response costs and unspecified future costs.
Although we may be obligated under CERCLA for contributions towards response
costs incurred as a result of alleged releases of hazardous substances at the
site, we are still investigating our responsibilities to the site. In addition,
it is our policy to accrue environmental cleanup related costs when those costs
are believed to be probable and can be reasonably estimated. The quantification
of environmental exposure, if any, with respect to this site requires an
assessment of many factors, including the quality of information available, the
assessment stage of each investigation, preliminary findings and the length of
time involved in remediation. As Axsys has not determined if any liability exists,
a meaningful range of exposure cannot be estimated. Axsys has responded to the
EPA’s demand and received a response in March of 2004 requesting
additional information. Axsys intends to reply to the EPA in April 2004.

 

On
February 12, 1991, the EPA commenced an action against Axsys (formerly
Vernitron), EDO Corporation and two other defendants. The EPA determined that
the

 

 

defendants were liable
under CERCLA for costs incurred by the EPA in response to environmental
conditions at the Kellogg-Deering well Field Superfund site in Norwalk,
Connecticut and ordered the defendants to remediate the site.

 

It was determined that EDO Corporation was the primary responsible
party with Axsys’ pro rata share being 6.25% of the costs. The remediation of
the site was completed between 1995-2000 and monitoring and maintenance
continuing until 2025. Based on estimates received from EDO Corporate in
February of 2004, the total costs for 2004-2025 are estimated to be
$1,845,000 with Axsys’ pro rata share being approximately $115,000.

 

 

Schedule A

 

List of Selling
Shareholders

 

1.                                       James
W. Howard

 

2.                                       Ronald
D. Stern

 

3.                                       Irving
LoweSUBSCRIPTION AGREEMENT

      THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of March ___,
2004, by and among Tissera, Inc., a Washington corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").

      WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").

      WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, $5,500,000 (the "Purchase Price") of the Company's common stock,
$.0001 par value (the "Common Stock" or "Shares"), and share purchase warrants
in the forms attached hereto as EXHIBIT A, EXHIBIT B, AND EXHIBIT C
(collectively, the "Warrants"), to purchase shares of Common Stock (the "Warrant
Shares"). The per Share Purchase Price shall be $1.75, subject to adjustment as
described in this Agreement ("Per Share Purchase Price"). The Purchase Price
shall be payable to the Company on the Closing Date, as defined in Section 13(b)
hereof. The Common Stock, the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and

      WHEREAS, the aggregate proceeds of the sale of the Common Stock and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT D (the "Escrow Agreement").

      NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:

            1. Purchase and Sale of Shares and Warrants. Subject to the
satisfaction (or waiver) of the conditions to Closing set forth in this
Agreement and the Escrow Agreement, each Subscriber shall purchase the Shares
and Warrants for the portion of the Purchase Price indicated on the signature
page hereto, and the Company shall sell such Shares and Warrants to the
Subscriber. The Purchase Price for the Shares and Warrants shall be paid in
cash. The entire Purchase Price shall be allocated to the Shares.

            2. Escrow Arrangements; Form of Payment. Upon execution hereof by
the parties and pursuant to the terms of the Escrow Agreement, each Subscriber
agrees to make the deliveries required of such Subscriber as set forth in the
Escrow Agreement and the Company agrees to make the deliveries required of the
Company as set forth in the Escrow Agreement.

            3. Warrants.

                  (a) A Warrants. On the Closing Date the Company will issue A
Warrants to the Subscribers. One (1) A Warrant will be issued for each one (1)
Share issued on the Closing Date. The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of an A Warrant shall be $3.75. The A
Warrants shall be exercisable until one (1) year after the actual effective date
of the registration statement described in Section 11.1(iv) of this Agreement
("Actual Effective Date").

                                       1
<PAGE>

                  (b) B Warrants. On the Closing Date the Company will issue B
Warrants to the Subscribers. One (1) B Warrant will be issued for each one (1)
Share issued on the Closing Date. The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of a B Warrant shall be $4.50. The B
Warrants shall be exercisable until two (2) years after the Closing Date.

                  (c) C Warrants. On the Closing Date the Company will issue C
Warrants to the Subscribers. One (1) C Warrant will be issued for each one (1)
Share issued on the Closing Date. The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of a C Warrant shall be $6.00. The C
Warrants shall be exercisable until three (3) years after the Closing Date.

            4. Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:

                  (a) Information on Company. The Subscriber has been furnished
with or has had access at the EDGAR Website of the Commission to the Company's
Form 10-KSB for the year ended July 31, 2003 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the EDGAR website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.

                  (b) Information on Subscriber. The Subscriber is, and will be
at the time of the conversion of the Common Stock and exercise of any of the
Warrants, an "accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the 1933 Act, is experienced in investments
and business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.

                  (c) Purchase of Common Stock and Warrants. On each closing
date, the Subscriber will purchase the Common Stock and Warrants as principal
for its own account and not with a view to any distribution thereof.

                  (d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.

                                       2
<PAGE>

                  (e) Shares Legend. The Shares and the Warrant Shares shall
bear the following or similar legend:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
                  SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
                  HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
                  SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
                  SATISFACTORY TO TISSERA, INC. THAT SUCH REGISTRATION IS NOT
                  REQUIRED."

                  (f) Warrants Legend. The Warrants shall bear the following or
similar legend:

                  "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
                  THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
                  ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
                  OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
                  EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
                  ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
                  COUNSEL REASONABLY SATISFACTORY TO TISSERA, INC. THAT SUCH
                  REGISTRATION IS NOT REQUIRED."

                  (g) Communication of Offer. The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

                  (h) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.

                  (i) Correctness of Representations. Each Subscriber represents
as to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date (as hereinafter defined), shall be true
and correct as of the Closing Date.

                                       3

<PAGE>

                  (j) Survival. The foregoing representations and warranties
shall survive the Closing Date for a period of two years.

            5. Company Representations and Warranties. The Company represents
and warrants to and agrees with each Subscriber that:

                  (a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or financial condition of the
Company.

                  (b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.

                  (c) Authority; Enforceability. This Agreement, the Common
Stock, the Warrants, the Escrow Agreement and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"Transaction Documents") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations.

                  (d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d), or the Reports.

                  (e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the American Stock Exchange, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC
Bulletin Board ("Bulletin Board") nor the Company's shareholders is required for
the execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities.

                  (f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:

                                       4
<PAGE>

                        (i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a material
adverse effect on the Company; or

                        (ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates; or

                        (iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or

                        (iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.

                  (g) The Securities. The Securities upon issuance:

                        (i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;

                        (ii) have been, or will be, duly and validly authorized
and on the date of issuance of the Shares and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each Subscriber complies with the prospectus delivery requirements
of the 1933 Act);

                        (iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company; and

                        (iv) will not subject the holders thereof to personal
liability by reason of being such holders.

                  (h) Litigation. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports, there is no pending or, to the best knowledge of the
Company, basis for or threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates which litigation if adversely
determined could have a material adverse effect on the Company.

                                       5
<PAGE>

                  (i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(b) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.

                  (j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.

                  (k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.

                  (l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.

                  (m) Defaults. The Company is not in violation of its articles
of incorporation or bylaws. The Company is (i) not in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default or
violation would have a material adverse effect on the Company, (ii) not in
default with respect to any order of any court, arbitrator or governmental body
or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
material adverse effect on the Company.

                  (n) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offer of the
Securities to be integrated with other offerings. The Company will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Securities.

                                       6
<PAGE>

                  (o) No General Solicitation. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of the Securities.

                  (p) Listing. The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies and as of the Closing
Date, the Company will satisfy all the requirements for the continued quotation
of its common stock on the Bulletin Board.

                  (q) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since July 31, 2003
and which, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the Company's financial condition, other than
as set forth in SCHEDULE 5(Q).

                  (r) No Undisclosed Events or Circumstances. Since July 31,
2003, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.

                  (s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Initial Closing
Date are set forth on SCHEDULE 5(S). Except as set forth in the Reports and
Other Written Information and SCHEDULE 5(D), there are no options, warrants, or
rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.

                  (t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Securities is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.

                  (u) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.

                  (v) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the 1933 Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

                                       7
<PAGE>

                  (w) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to the Closing Date, shall be true and correct in all
material respects as of the Closing Date.

                  (x) Survival. The foregoing representations and warranties
shall survive the Closing Date for a period of two years.

            6. Regulation D Offering. The offer and issuance of the Securities
to the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as EXHIBIT E. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the resale of the Common Stock and exercise of the Warrants and
resale of the Warrant Shares.

            7. Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a
fee of $10,000 ("Legal Fees") as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of the
Shares and Warrants (the "Offering") and acting as Escrow Agent for the
Offering. The Legal Fees will be payable on the Closing Date out of funds held
pursuant to the Escrow Agreement.

            8. Finder.

                  (a) Finder's Fee. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees other than Burstein & Lindsay
Security Corp. ("Finder") on account of services purported to have been rendered
on behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
Anything to the contrary in this Agreement notwithstanding, each Subscriber is
providing indemnification only for such Subscriber's own actions and not for any
action of any other Subscriber. Each Subscriber's liability hereunder is several
and not joint. The Company agrees that it will pay the Finder a cash finder's
fee of nine percent (9%) of the Purchase Price but not to exceed $495,000
("Finder's Fees") directly out of the funds held pursuant to the Escrow
Agreement. The Company represents that there are no other parties entitled to
receive fees, commissions, or similar payments in connection with the Offering
except the Finder. The Finder will also be paid by the Company nine percent (9%)
of the cash proceeds received by the Company from Warrant exercise ("Warrant
Exercise Compensation"). The Warrant Exercise Compensation must be paid by the
Company to the Finder within five (5) days after each receipt by the Company of
Warrant Exercise cash proceeds.

                  (b) Finder's Warrants. On the Closing Date, the Company will
issue to the Finder Warrants identical to and carrying the same rights as the
Warrants issuable to the Subscribers except that the exercise price to purchase
one Warrant Share shall be $1.75 and the Warrants shall be exercisable until
three years after the Closing Date ("Finder's Warrants"). The Finder will
receive one (1) Warrant for each ten (10) Shares issued to the Subscribers. All
the representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
registration rights made or granted to or for the benefit of the Subscribers are
hereby also made and granted to the Finder in respect of the Finder's Warrants.

                                       8
<PAGE>

            9. Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:

                  (a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

                  (b) Listing. The Company shall promptly secure the listing of
the shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Warrants are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.

                  (c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.

                  (d) Reporting Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all respects with its reporting and filing obligations under the 1934
Act, (y) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Common Stock and the Warrant Shares by each
Subscriber or at least two (2) years after the Warrants have been exercised, the
Company will use its best efforts to continue the listing or quotation of the
Common Stock on the Principal Market or other market with the reasonable consent
of Subscribers holding a majority of the Shares and Warrant Shares, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.

                  (e) Use of Proceeds. The Company undertakes to use the
proceeds of the Subscribers' funds for the purposes set forth on SCHEDULE 9(E)
hereto. A deviation from the use of proceeds set forth on SCHEDULE 9(E) of more
than 10% per item or more than 20% in the aggregate shall be deemed a material
breach of the Company's obligations hereunder. Except as set forth on SCHEDULE
9(E), the Purchase Price may not and will not be used for accrued and unpaid
officer and director salaries, payment of financing related debt, redemption of
outstanding redeemable notes or equity instruments of the Company nor non-trade
obligations outstanding on the Closing Date.

                                       9
<PAGE>

                  (f) Reservation. The Company undertakes to reserve, pro rata
on behalf of each Subscriber and holder of a Warrant, from its authorized but
unissued common stock, a number of common shares equal to the amount of Warrant
Shares issuable upon exercise of the Warrants. Failure to have sufficient shares
reserved pursuant to this Section 9(f) for three (3) consecutive business days
or ten (10) days in the aggregate shall be a material default of the Company's
obligations under this Agreement.

                  (g) Taxes. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.

                  (h) Insurance. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.

                  (i) Books and Records. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.

                  (j) Governmental Authorities. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.

                                       10
<PAGE>

                  (k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.

                  (l) Properties. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all necessary and proper repairs, renewals, replacements, additions
and improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.

                  (m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that it will not
disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by a Subscriber or only to the extent required by law and
then only upon ten days prior notice to Subscriber. The Company may identify the
Subscribers in any registration statement filed pursuant to Section 11 of this
Agreement. In any event and subject to the foregoing, the Company undertakes to
file a form 8-K or make a public announcement describing the Offering not later
than the Closing Date. In the form 8-K or public announcement, the Company will
specifically disclose the amount of common stock outstanding immediately after
the Closing.

                  (n) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement, the Company will not file any registration statements, including but
not limited to Form S-8, with the Commission or with state regulatory
authorities without the consent of the Subscriber until one hundred and eighty
(180) days after the Actual Effective Date during which such Registration
Statement shall be current and available for use in connection with the public
resale of the Shares and Warrant Shares ("Exclusion Period").

                  (o) Blackout. The Company undertakes and covenants that until
the first to occur of (i) the end of the Exclusion Period, or (ii) until all the
Shares and Warrant Shares have been resold pursuant to such registration
statement, the Company will not enter into any acquisition, merger, exchange or
sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current.

            10. Covenants of the Company and Subscriber Regarding
Indemnification.

                  (a) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.

                                       11
<PAGE>

                  (b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribes relating hereto.

                  (c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).

                  (d) The procedures set forth in Section 11.6 shall apply to
the indemnifications set forth in Sections 10(a) and 10(b) above.

            11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.

                  (i) On one occasion, for a period commencing one hundred and
twenty-one (121) days after the Closing Date, but not later than two (2) years
after the Closing Date ("Request Date"), upon a written request therefor from
any record holder or holders of more than 50% of the Shares and Warrant Shares
actually issued upon exercise of the Warrants, the Company shall prepare and
file with the Commission a registration statement under the 1933 Act registering
the Shares and Warrant Shares including Warrant Shares issuable upon exercise of
the Finder's Warrants (collectively "Registrable Securities") which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include Securities which are registered for resale in an effective registration
statement or included for registration in a pending registration statement, or
which have been issued without further transfer restrictions after a sale or
transfer pursuant to Rule 144 under the 1933 Act. Upon the receipt of such
request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten (10) days after the
Company gives such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
11.1(i).

                  (ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.

                                       12
<PAGE>

                  (iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).

                  (iv) The Company shall file with the Commission not later than
thirty (30) days after the Closing Date (the "Filing Date"), and cause to be
declared effective within one hundred and twenty (120) days after the Closing
Date (the "Effective Date"), a Form SB-2 registration statement (the
"Registration Statement") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to all
of the Shares and Warrant Shares issuable pursuant to this Agreement. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as disclosed on Schedule 11.1.

            11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:

                  (a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;

                  (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;

                                       13
<PAGE>

                  (c) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;

                  (d) use its best efforts to register or qualify the Sellers'
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;

                  (e) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;

                  (f) immediately notify the Sellers when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and

                  (g) provided same would not be in violation of the provision
of Regulation FD under the 1934 Act, make available for inspection by the
Sellers, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.

            11.3. Provision of Documents. In connection with each registration
described in this Section 11, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

            11.4. Non-Registration Events. The Company and the Subscribers agree
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 11.1(i) or 11.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement is not filed on or before the Filing Date or is
not declared effective on or before the sooner of the Effective Date, or within
three (3) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed, (ii) if the registration statement described in Sections 11.1(i) or
11.1(ii) is not filed within 60 days after such written request, or is not
declared effective within 120 days after such written request, or (iii) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded within ten (10) business days by an effective replacement or
amended registration statement) for a period of time which shall exceed 30 days
in the aggregate per year (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) or more than 20
consecutive days (each such event referred to in clauses (i), (ii) and (iii) of
this Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to one percent (1%) for each thirty days or part
thereof of the Purchase Price of the Shares and actually paid "Purchase Price"
(as defined in the Warrants) of Warrant Shares issued or issuable upon actual
exercise of the Warrants, for the Registrable Securities owned of record by such
holder as of and during the pendency of such Non-Registration Event which are
subject to such Non-Registration Event. The Company must pay the Liquidated
Damages in cash within ten (10) days after the end of each thirty (30) day
period or shorter part thereof for which Liquidated Damages are payable. In the
event a Registration Statement is filed by the Filing Date but is withdrawn
prior to being declared effective by the Commission, then such Registration
Statement will be deemed to have not been filed.

                                       14
<PAGE>

            11.5. Expenses. All expenses incurred by the Company in complying
with Section 11, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including reasonable
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fee of one counsel for all Sellers (in an amount not to exceed $5,000) are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any fees
and disbursements of any additional counsel to the Seller, are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

            11.6. Indemnification and Contribution.

                  (a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.

                                       15
<PAGE>

                  (b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.

                  (c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.

                                       16
<PAGE>

                  (d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.

            11.7. Delivery of Unlegended Shares.

                  (a) Within three (3) business days (such third business day,
the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Registrable Securities have been sold
either pursuant to the Registration Statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144 customary representation
letters of the Subscriber and Subscriber's broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver, to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including the legends set forth in Sections 4(e) and 4(f) above, issuable
pursuant to any effective and current registration statement described in
Section 11 of this Agreement or pursuant to Rule 144 under the 1933 Act (the
"Unlegended Shares"); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the unsold shares of Common Stock, if any, to the
Subscriber at the address specified in the notice of sale, via express courier,
by electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. Transfer fees shall be the responsibility of the Seller.

                  (b) In lieu of delivering physical certificates representing
the Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.

                                       17
<PAGE>

                  (c) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 11 hereof beyond the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to purchase all or any portion
of the Shares and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Common Stock and Warrant Shares. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.

                  (d) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within ten (10) calendar days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber anticipated
receiving from the Company (a "Buy-In"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

                  (e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7(a), the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 130% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.

            12. (a) Right of First Refusal. During the Exclusion Period, the
Subscribers shall be given not less than seven (7) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) employee stock
options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, or (iii) as has
been described in the Reports or Other Written Information filed or delivered
prior to the Initial Closing Date (collectively "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the seven (7) business days following receipt of the notice to
purchase all of such offered common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in the
same proportion to each other as their purchase of Shares in the Offering. In
the event such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have the
right during the original notice period or for a period of seven (7) business
days following the notice of modification, whichever is longer, to exercise such
right.

                                       18
<PAGE>

                  (b) Offering Restrictions. During the Exclusion Period except
in connection with the Excepted Issuances or the Offering, the Company will not
enter into any agreement to, nor issue any equity, convertible debt or other
securities convertible into common stock without the prior written consent of
Subscribers holding not less than a majority of the Shares and, if issued,
Warrant Shares, which consent may be withheld for any reason.

                  (c) Favored Nations Provision. At any time during the
Exclusion Period, if the Company shall offer, issue or agree to issue any common
stock or securities convertible into or exercisable for shares of common stock
(or modify any of the foregoing which may be outstanding at any time prior to
the Closing Date) to any person or entity at a price per share or conversion or
exercise price per share which shall be less than the Per Share Purchase Price,
without the consent of each Subscriber holding Shares, then the Company shall
issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average Per Share Purchase Price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares still
owned by the Subscriber) is equal to such other lower price per share. The
delivery to the Subscriber of the additional shares of Common Stock shall be not
later than the closing date of the transaction giving rise to the requirement to
issue additional shares of Common Stock. The Subscriber is granted the
registration rights described in Section 11 hereof in relation to such
additional shares of Common Stock except that the Filing Date and Effective Date
vis-a-vis such additional common shares shall be, respectively, the sixtieth
(60th) and one hundred and twentieth (120th) date after the closing date giving
rise to the requirement to issue the additional shares of Common Stock. For
purposes of the issuance and adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the issuance of such convertible security, warrant, right or
option and again upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the then Per Share Purchase Price. The rights of the Subscriber set
forth in this Section 12 are in addition to any other rights the Subscriber has
pursuant to this Agreement and any other agreement referred to or entered into
in connection herewith.

                  (d) Maximum Exercise of Rights. In the event the exercise of
the rights described in Sections 12(a) and 12(c) would result in the issuance of
an amount of common stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
10 of the Warrant, then the issuance of such additional shares of common stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 10 of the Warrant. The determination of when such common
stock may be issued shall be made by each Subscriber as to only such Subscriber.

            13. Miscellaneous.

                  (a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Tissera, Inc., 65 Yigal
Alon Street, Tel Aviv 67443, Israel, Attn: Dr. Vicki Rabenou, Chief Executive
Officer, telecopier: 011-972-3-5628155, with a copy by telecopier only to:
Sichenzia, Ross, Friedman & Ference LLP, 1065 Avenue of the Americas, New York,
NY 10018, Attn: Gregory Sichenzia, Esq., telecopier: (212) 930-9725, (ii) if to
the Subscribers, to: the one or more addresses and telecopier numbers indicated
on the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575, and (iii) if to the Finder, to: Burstein &
Lindsay Security Corp., c/o Mosi Kraus, 8003 Zurich, Switzerland, telecopier:
011-411-451-0946.

                                       19
<PAGE>

                  (b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of all
conditions to Closing set forth in this Agreement, but not later than March 18,
2004 ("Closing Date").

                  (c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.

                  (d) Counterparts/Execution. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.

                  (e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. THE PARTIES AND THE INDIVIDUALS
EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

                                       20
<PAGE>

                  (f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(e) hereof, each of the Company, Subscriber and any
signator hereto in his personal capacity hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction in New York of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.

                  (g) Independent Nature of Subscribers' Obligations and Rights.
The obligations of each Subscriber hereunder are several and not joint with the
obligations of any other Subscriber hereunder, and no such Subscriber shall be
responsible in any way for the performance of the obligations of any other
hereunder.

                  (h) Equitable Adjustment. The Securities and the purchase
prices of Securities shall be equitably adjusted to offset the effect of stock
splits, stock dividends, and distributions of property or equity interests of
the Company to its shareholders.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       21
<PAGE>

                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

                                  TISSERA, INC.
                                  a Washington corporation

                                  By:_________________________________
                                     Name: Dr. Vicki Rabenou
                                     Title: Chief Executive Officer

                                  Dated: March _____, 2004

AGREED AND ACCEPTED:

SUBSCRIBER:

PRINT NAME:______________________________________

ADDRESS:_________________________________________

________________________________________________

FAX:____________________________________________

By:_____________________________________________
         (Signature)

Title:____________________________________________

PURCHASE PRICE: $_____________
SHARES: _____________
CLASS A WARRANTS: ____________
CLASS B WARRANTS: ____________
CLASS C WARRANTS: ____________

<PAGE>

                         LIST OF EXHIBITS AND SCHEDULES

         Exhibit A                  Form of A Warrant

         Exhibit B                  Form of B Warrant

         Exhibit C                  Form of C Warrant

         Exhibit D                  Escrow Agreement

         Exhibit E                  Form of Legal Opinion

         Schedule 5(d)              Additional Issuances

         Schedule 5(q)              Undisclosed Liabilities

         Schedule 5(s)              Capitalization

         Schedule 9(e)              Use of Proceeds

         Schedule 11.1              Other Securities to be Registered

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