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	WCMA® REDUCING REVOLVERsm LOAN AND
  SECURITY AGREEMENT
	

WCMA REDUCING REVOLVERsm LOAN AND SECURITY
AGREEMENT
NO.
794-07E50 (“Loan Agreement”) dated as of May 3, 2001, between STOCKERYALE,
INC. F/K/A STOCKER & YALE, INC., a corporation organized and existing
under the laws of the State of Massachusetts having its principal office at 32
Hampshire Road, Salem, NH 03079 (“Customer”), and MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC., a corporation organized and existing under the laws
of the State of Delaware having its principal office at 222 North LaSalle
Street, Chicago, IL 60601 (“MLBFS”).

In accordance with that certain WORKING
CAPITAL MANAGEMENT® ACCOUNT AGREEMENT NO. 794-07E50
(“WCMA Agreement”) between Customer and MLBFS' affiliate, MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED (“MLPF&S”), Customer has subscribed to the
WCMA Program described in the WCMA Agreement. The WCMA Agreement is by this
reference incorporated as a part hereof. In conjunction therewith, Customer has
requested that MLBFS make a WCMA Reducing Revolver Loan (a “Reducing Revolver”)
to Customer in the amount and upon the terms hereafter specified, and, subject
to the terms and conditions hereafter set forth, MLBFS has agreed to provide a
Reducing Revolver for Customer.

A Reducing Revolver is a term credit
facility, similar to a conventional term loan, but funded out of a line of
credit under the WCMA Program (“WCMA Line of Credit”) in the amount of the
initial loan. With a Reducing Revolver: (i) interest will generally be charged
each month to Customer's WCMA account, and, so long as the WCMA Line of Credit
is in effect, paid with an additional loan under the WCMA Line of Credit (i.e.,
added to the loan balance), (ii) after an initial interest only period, the
maximum WCMA Line of Credit will be reduced each month by the amount that would
be payable on account of principal if the Reducing Revolver were a conventional
term loan amortized over the same term and in the same manner as the Reducing
Revolver, and (iii) Customer will be required to make sufficient payments on
account of the Reducing Revolver to assure that the outstanding balance of the
Reducing Revolver does not at any time exceed the Maximum WCMA Line of Credit,
as reduced each month.

Absent a prepayment by Customer, this
structure results in required monthly payments for the Reducing Revolver that
are substantially the same as the required monthly payments for a conventional
term loan with the same term and amortization. However, unlike most
conventional term loans, because it is funded out of a line of credit, the
Reducing Revolver permits both a prepayment in whole or in part at any time,
and, subject to certain conditions, the re-borrowing on a revolving basis of
any such prepaid amounts up to the Maximum WCMA Line of Credit, as reduced each
month. The structure therefore will enable Customer at its option to use any
excess or temporary cash balances that it may have from time to time to prepay
the Reducing Revolver and thereby effectively reduce interest expense on the
Reducing Revolver without impairing its working capital.

Accordingly, and in consideration of the
premises and of the mutual covenants of the parties hereto, Customer and MLBFS
hereby agree as follows:

Article I. DEFINITIONS

1.1        Specific
Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

(a)        “Account Debtor” shall mean any party who
is or may become obligated with respect to an Account or Chattel Paper.

(b)        “Additional Agreements” shall mean all
agreements, instruments, documents and opinions other than this Loan Agreement,
whether with or from Customer or any other party, which are contemplated hereby
or otherwise reasonably required by MLBFS in connection herewith, or which
evidence the creation, guaranty or collateralization of any of the Obligations
or the granting or perfection of liens or security interests upon the
Collateral or any other collateral for the Obligations.

(c)        “Bankruptcy Event” shall mean any of the
following: (i) a proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt or receivership law or statute shall be filed
or consented to by Customer; or (ii) any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer shall make a general assignment for the benefit of
creditors; or (iv) Customer shall generally fail to pay or admit in writing its
inability to pay its debts as they become due; or (v) Customer shall be
adjudicated a bankrupt or insolvent.

(d)        “Business Day” shall mean any day other than a
Saturday, Sunday, federal holiday or other day on which the New York Stock
Exchange is regularly closed.

(e)        “Closing Date” shall mean the date upon which all
conditions precedent to MLBFS' obligation to make the Loan shall have been met
to the satisfaction of MLBFS.

(f)         “Collateral” shall mean all Accounts, Chattel
Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles,
Deposit Accounts, Documents, Instruments, Investment Property and Financial
Assets of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 4.6 (b) hereof.

(g)        “Commitment Expiration Date” shall mean June 2,
2001.

(h)        “Commitment Fee” shall mean a fee of $43,750.00
due to MLBFS in connection with this Loan Agreement.

(i)         “Default” shall mean either an “Event of Default”
as defined in Section 4.5 hereof, or an event which with the giving of notice,
passage of time, or both, would constitute such an Event of Default.

(j)         “General Funding Conditions” shall mean each of
the following conditions precedent to the obligation of MLBFS to make the Loan
or any Subsequent WCMA Loan hereunder: (i) Customer shall have validly
subscribed to and continued to maintain the WCMA Account with MLPF&S, and
the WCMA Account shall then be reflected as an active “Commercial” WCMA Account
(i.e., one with line of credit capabilities) on MLPF&S' WCMA computer
system; (ii) no Default shall have occurred and be continuing or would result
from the making of the Loan or such Subsequent WCMA Loan by MLBFS; (iii) there
shall not have occurred and be continuing any material adverse change in the
business or financial condition of Customer; (iv) all representations and
warranties of Customer  herein or in any
Additional Agreements shall then be true and correct in all material respects;
(v) MLBFS shall have received this Loan Agreement and all Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (vi) the
Commitment Fee shall have been paid in full; (vii) MLBFS shall have received,
as and to the extent applicable, copies of invoices, bills of sale, loan payoff
letters and/or other evidence reasonably satisfactory to it that the proceeds
of the Loan will satisfy the Loan Purpose; (viii) MLBFS shall have received
evidence reasonably satisfactory to it as to the ownership of the Collateral
and the perfection and priority of MLBFS' liens and security interests thereon,
as well as the ownership of and the perfection and priority of MLBFS' liens and
security interests on any other collateral for the Obligations furnished
pursuant to any of the Additional Agreements; (ix) MLBFS shall have received
evidence reasonably satisfactory to it of the insurance required hereby or by
any of the Additional Agreements; and (x) any additional conditions specified
in the “WCMA Reducing Revolver Loan Approval” letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonable satisfaction of MLBFS.

(k)        “Interest Due Date” shall mean the last Business
Day of each calendar month during the term hereof (or, if Customer makes
special arrangements with MLPF&S, on the last Friday of each calendar month
during the term hereof).

(l)         “Interest Rate” shall mean a variable per annum
rate equal to the sum of (i) 2.50% per annum, and (ii) the interest rate from
time to time published in the “Money Rates” section of The Wall Street Journal as
the “Dealer Commercial Paper” rate for 30-day high-grade unsecured notes sold
through dealers by major corporations (the “30-day Dealer Commercial Paper
Rate”). The Interest Rate will change as of the date of publication in The Wall
Street Journal of a 30-day Dealer Commercial Paper Rate that is
different from that published on the preceding Business Day. In the event that The Wall
Street Journal shall, for any reason, fail or cease to publish the
30-day Dealer Commercial Paper Rate, MLBFS will choose a reasonably comparable
index or source to use as the basis for the Interest Rate.

(m)       “Loan” shall mean the specific Reducing
Revolver by MLBFS to Customer pursuant to this Agreement for the Loan Purpose
and in the Loan Amount.

(n)        “Loan Amount” shall mean an amount equal to the
lesser of: (i) 100% of the amount required by Customer to satisfy or fulfill
the Loan Purpose, (ii) the aggregate amount which Customer shall request be
advanced by MLBFS on account of the Loan Purpose on the Closing Date, or (iii)
$3,500,000.00.

(o)        “Loan Purpose” shall mean the purpose for which
the proceeds of the Loan will be used; to wit: to refinance the existing term
note at Wells Fargo Bank and to purchase additional equipment.

(p)        “Location of Tangible Collateral” shall mean the
address of Customer set forth at the beginning of this Loan Agreement, together
with any other address or addresses set forth on an exhibit hereto as being a
Location of Tangible Collateral.

(q)        “Maximum WCMA Line of Credit” shall mean the
maximum aggregate line of credit which MLBFS will extend to Customer subject to
the terms and conditions hereof, as the same shall be reduced each month in
accordance with the terms hereof. On the Closing Date, the Maximum WCMA Line of
Credit will equal the Loan Amount.

(r)         “Obligations” shall mean all liabilities,
indebtedness and other obligations of Customer to MLBFS, howsoever created,
arising or evidenced, whether now existing or hereafter arising, whether direct
or indirect, absolute or contingent, due or to become due, primary or secondary
or joint or several, and, without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under this Loan
Agreement.

(s)        “Permitted Liens” shall mean with respect to the
Collateral: (i) liens for current taxes not delinquent, other non-consensual
liens arising in the ordinary course of business for sums not due, and, if
MLBFS' rights to and interest in the Collateral are not materially and
adversely affected thereby, any such liens for taxes or other non-consensual
liens arising in the ordinary course of business being contested in good faith
by appropriate proceedings; (ii) liens in favor of MLBFS; (iii) liens which
will be discharged with the proceeds of the initial WCMA Loan; and (iv) any
other liens expressly permitted in writing by MLBFS.

(t)         “Subsequent WCMA Loan” shall mean each WCMA Loan
other than the Loan, including, without limitation, each WCMA Loan to pay
accrued interest.

(u)        “Termination Date” shall mean the first to occur
of: (i) the last Business Day of the sixty-third (63rd) full calendar month
following the Closing Date, or (ii) if earlier, the date of termination of the
WCMA Line of Credit pursuant to the terms hereof.

(v)        “WCMA Account” shall mean and refer to
the Working Capital Management Account of Customer with MLPF&S identified
as WCMA Account No. 794-07E50 and any successor Working Capital Management
Account of Customer with MLPF&S.

(w)       “WCMA Loan” shall mean each advance made
by MLBFS pursuant to the WCMA Line of Credit, including the Loan and each
Subsequent WCMA Loan.

(x)         “WCMA Loan Balance” shall mean an amount
equal to the aggregate unpaid principal balance of all WCMA Loans.

1.2        Other Terms.
Except as otherwise defined herein: (i) all terms used in this Loan Agreement
which are defined in the Uniform Commercial Code of Illinois (“UCC”) shall have
the meanings set forth in the UCC, and (ii) capitalized terms used herein which
are defined in the WCMA Agreement (including, without limitation, “Money
Accounts”, “Minimum Money Accounts Balance”, “WCMA Directed Reserve Program”
and “WCMA Program”) shall have the meanings set forth in the WCMA Agreement.

Article II. THE LOAN

2.1        Commitment.
Subject to the terms and conditions hereof, MLBFS hereby agrees to make the
Loan to Customer, and Customer hereby agrees to borrow the Loan from MLBFS.
Except as otherwise provided in Section 3.1 hereof, the entire proceeds of the
Loan will be disbursed by MLBFS out of the WCMA Line of Credit either directly
to the applicable third party or parties on account of the Loan Purpose or to
reimburse Customer for amounts directly expended by it for the Loan Purpose;
all as directed by Customer in a Closing Certificate to be executed and
delivered to MLBFS prior to the date of funding.

2.2        Conditions
of MLBFS' Obligation. The Closing Date and MLBFS' obligations to
activate the WCMA Line of Credit, as hereafter set forth, and make the Loan on
the Closing Date are subject to the prior fulfillment of each of the following
conditions: (a) not less than two Business Days prior to any requested funding
date, MLBFS shall have received a Closing Certificate, duly executed by
Customer, setting forth, among other things, the amount of the Loan and the
method of payment and payee(s) of the proceeds thereof; (b) after giving effect
to the Loan, the WCMA Loan Balance will not exceed either the Maximum WCMA Line
of Credit or the Loan Amount; (c) the Commitment Expiration Date shall not then
have occurred; and (d) each of the General Funding Conditions shall then have
been met or satisfied to the reasonable satisfaction of MLBFS.

2.3        Commitment
Fee. In consideration of the agreement by MLBFS to extend the Loan
and any Subsequent WCMA Loans to Customer in accordance with and subject to the
terms hereof, Customer has paid or shall, on or before the Closing Date pay,
the Commitment Fee to MLBFS. Customer acknowledges and agrees that the
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.

2.4        Use of Loan
Proceeds. Unless otherwise agreed by MLBFS in writing, the proceeds
of the Loan shall be used solely for the Loan Purpose. The Proceeds of each
Subsequent WCMA Loan initiated by Customer shall be used by Customer solely for
working capital in the ordinary course of its business, or, with the prior
written consent of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. Customer agrees that under no circumstances will the
proceeds of the Loan or any Subsequent WCMA Loan be used: (i) for personal,
family or household purposes of any person whatsoever, or (ii) to purchase,
carry or trade in securities, or repay debt incurred to purchase, carry or
trade in securities, whether in or in connection with the WCMA Account, another
account of Customer with MLPF&S or an account of Customer at any other
broker or dealer in securities, or (iii) unless otherwise consented to in
writing by MLBFS, to pay any amount to Merrill Lynch and Co., Inc. or any of
its subsidiaries, other than Merrill Lynch Bank USA, Merrill Lynch Bank &
Trust Co. or any subsidiary of either of them (including MLBFS and Merrill
Lynch Credit Corporation).

Article III. THE WCMA LINE OF
CREDIT

3.1        Activation
of the WCMA Line of Credit. Subject to the terms and conditions
hereof, on the Closing Date MLBFS will activate a WCMA Line of Credit for
Customer in the Loan Amount. The Loan will be funded out of the WCMA Line of
Credit immediately after such activation (or, if and to the extent otherwise
expressly contemplated in the definition of Loan Purpose or otherwise directed
in the Closing Certificate and hereafter expressly agreed by MLBFS, all or part
of the Loan may be made available as a WCMA Line of Credit and funded by
Customer.)

3.2        Subsequent
WCMA Loans. Subject to the terms and conditions hereof, during the
period from and after the Closing Date to the Termination Date: (a) Customer
may repay the WCMA Loan Balance in whole or in part at any time without premium
or penalty (except, as hereafter set forth, upon a refinancing by another
lender), and request a re-borrowing of amounts repaid on a revolving basis, and
(b) in addition to Subsequent WCMA Loans made automatically to pay accrued
interest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans as
Customer may from time to time request or be deemed to have requested in
accordance with the terms hereof. Customer may request Subsequent WCMA Loans by
use of WCMA Checks, FTS, Visa® charges, wire transfers, or such other means of
access to the WCMA Line of Credit as may be permitted by MLBFS from time to
time; it being understood that so long as the WCMA Line of Credit shall be in
effect, any charge or debit to the WCMA Account which but for the WCMA Line of
Credit would under the terms of the WCMA Agreement result in an overdraft,
shall be deemed a request by Customer for a Subsequent WCMA Loan.

3.3        Conditions
of Subsequent WCMA Loans. Notwithstanding the foregoing, MLBFS shall
not be obligated to make any Subsequent WCMA Loan, and may without notice
refuse to honor any such request by Customer, if at the time of receipt by
MLBFS of Customer's request: (a) the making of such Subsequent WCMA Loan would
cause the Maximum WCMA Line of Credit, as reduced pursuant to the provisions of
Section 3.6 hereof, to be exceeded; or (b) the Termination Date shall have
occurred; or (c) an event shall have occurred and be continuing which shall
have caused any of the General Funding Conditions to not then be met or
satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any
Subsequent WCMA Loan (including, without limitation, the making of a Subsequent
WCMA Loan to pay accrued interest or late charges, as hereafter provided) at a
time when any one or more of said conditions shall not have been met shall not
in any event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
Subsequent WCMA Loan.

3.4        WCMA Note. Customer
hereby promises to pay to the order of MLBFS, at the times and in the manner
set forth in this Loan Agreement, or in such other manner and at such place as
MLBFS may hereafter designate in writing: (a) the WCMA Loan Balance; (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance (computed
for the actual number of days elapsed on the basis of a year consisting of 360
days), from and including the date on which the Loan is made until the date of
payment of all WCMA Loans in full; and (c) on demand, all other sums payable
pursuant to this Loan Agreement, including, but not limited to, any late
charges. Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Note and this Loan
Agreement.

3.5        Interest.
(a) An amount equal to accrued interest on the WCMA Loan Balance shall be
payable by Customer monthly on each Interest Due Date, commencing with the
Interest Due Date occurring in the calendar month in which the Closing Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the Termination Date, such interest will be automatically charged to the
WCMA Account on the applicable Interest Due Date, and, to the extent not paid
with free credit balances or the proceeds of sales of any Money Accounts then
in the WCMA Account, as hereafter provided, such interest will be paid by a
Subsequent WCMA Loan and added to the WCMA Loan Balance. All interest shall be
computed for the actual number of days elapsed on the basis of a year
consisting of 360 days.

(b)        Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law (“Excess Interest”). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (i) Customer shall not be obligated to pay any Excess
Interest; and (ii) any Excess Interest that MLBFS may have received hereunder
or under any of the Additional Agreements shall, at the option of MLBFS, be
either applied as a credit against the then WCMA Loan Balance, or refunded to
the payer thereof.

3.6        Periodic
Reduction of Maximum WCMA Line of Credit. Commencing on the last
Business Day of the fourth (4th) full calendar month following the Closing
Date, and continuing on the last Business Day of each calendar month thereafter
to and including the last Business Day of the sixty-second (62nd) such calendar
month, the Maximum WCMA Line of Credit shall be reduced by an amount equal to
one-eighty-fourth (1/84th) of the Loan Amount per month. Unless the WCMA Line
of Credit shall have been earlier terminated pursuant to the terms hereof, on
the last Business Day of the sixty-third (63rd) such calendar month, the WCMA
Line of Credit shall, without further action of either of the parties hereto,
be terminated, Customer shall pay to MLBFS the entire WCMA Loan Balance, if
any, and all other Obligations, and the WCMA Account, at the option of
Customer, will either be converted to a WCMA Cash Account (subject to any
requirements of MLPF&S) or terminated. No failure or delay on the part of
MLBFS in entering into the WCMA computer system any scheduled reduction in the
Maximum WCMA Line of Credit pursuant to this Section shall have the effect of
preventing or delaying such reduction.

3.7        Mandatory
Payments. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND,
INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS
ON ACCOUNT OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL
NOT AT ANY TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTH
PURSUANT TO SECTION 3.6 HEREOF.

3.8        Method of
Making Payments. All payments required or permitted to be made
pursuant to this Loan Agreement shall be made in lawful money of the United
States. Unless otherwise hereafter directed by MLBFS, such payments may be made
by the delivery of checks (other than WCMA Checks), or by means of FTS or wire
transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to the WCMA Account. Payments to MLBFS from funds in the WCMA
Account shall be deemed to be made by Customer upon the same basis and schedule
as funds are made available for investment in the Money Accounts in accordance
with the terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS
of a check or other payment for a lesser amount than shall be due from
Customer, regardless of any endorsement or statement thereon or transmitted
therewith, shall not be deemed an accord and satisfaction or anything other
than a payment on account, and MLBFS or anyone acting on behalf of MLBFS may
accept such check or other payment without prejudice to the rights of MLBFS to
recover the balance actually due or to pursue any other remedy under this Loan
Agreement or applicable law for such balance. All checks accepted by or on
behalf of MLBFS in connection with this Loan Agreement are subject to final
collection.

3.9        Irrevocable
Instructions to MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S,
effective on the Closing Date and continuing thereafter so long as this
Agreement shall be in effect: (a) to immediately and prior to application for
any other purpose pay to MLBFS to the extent of any WCMA Loan Balance or other
amounts payable by Customer hereunder all available free credit balances from
time to time in the WCMA Account; and (b) if such available free credit
balances are insufficient to pay the WCMA Loan Balance and such other amounts,
and there are in the WCMA Account at any time any investments in Money Accounts
(other than any investments constituting any Minimum Money Accounts Balance
under the WCMA Directed Reserve Program), to immediately liquidate such
investments and pay to MLBFS to the extent of any WCMA Loan Balance and such
other amounts the available proceeds from the liquidation of any such Money
Accounts.

3.10      Late Charge.
Any payment or deposit required to be made by Customer pursuant to this Loan
Agreement or any of the Additional Agreements not paid or made within ten (10)
days of the applicable due date shall be subject to a late charge in an amount
equal to the lesser of: (a) 5% of the overdue amount, or (b) the maximum amount
permitted by applicable law. Such late charge shall be payable on demand, or,
without demand, may in the sole discretion of MLBFS be paid by a Subsequent
WCMA Loan and added to the WCMA Loan Balance in the same manner as provided
herein for accrued interest with respect to the WCMA Line of Credit.

3.11      Prepayment. Customer
may prepay the Loan and any Subsequent WCMA Loan at any time in whole or in
part without premium or penalty; provided, however, that any refinancing of the
WCMA Loan Balance by another financial institution shall: (a) if such
refinancing shall occur prior to the first anniversary of the Closing Date, be
accompanied by a premium in an amount equal to 3% of the amount prepaid by such
refinancing; (b) if such refinancing shall occur thereafter, but prior to the
second anniversary of the Closing Date, be accompanied by a premium in an
amount equal to 2% of the amount prepaid by such refinancing; and (c) if such
refinancing shall occur on or at any time after the second anniversary of the
Closing Date, be accompanied by a premium in an amount equal to 1% of the
amount prepaid by such refinancing.

3.12      Option of
Customer to Terminate. Customer will have the option to terminate
the WCMA Line of Credit at any time upon written notice to MLBFS. Concurrently
with any such termination, Customer shall pay to MLBFS the entire WCMA Loan
Balance and all other Obligations.

3.13      Limitation
of Liability. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any
system failure, error or delay in posting or other clerical error, loss of
power, fire, Act of God or other cause beyond the reasonable control of MLBFS,
MLPF&S or any of their affiliates unless directly arising out of the
willful wrongful act or active gross negligence of MLBFS. In no event shall
MLBFS be liable to Customer or any other party for any incidental or
consequential damages arising from any act or omission by MLBFS, MLPF&S or
any of their affiliates in connection with the WCMA Line of Credit or this Loan
Agreement.

3.14      Statements. MLPF&S will
include in each monthly statement it issues under the WCMA Program information
with respect to WCMA Loans and the WCMA Loan Balance. Any questions that
Customer may have with respect to such information or the Loan should be
directed to MLBFS; and any questions with respect to any other matter in such
statements or about or affecting the WCMA Program should be directed to
MLPF&S.

Article IV. GENERAL PROVISIONS

4.1        Representations
and Warranties.

Customer represents and warrants to MLBFS
that:

(a)       Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Massachusetts
and is qualified to do business and in good standing in each other state where
the nature of its business or the property owned by it make such qualification
necessary.

(b)       Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action,
(ii) do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the provisions
of, and will not result in a default by Customer under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.

(c)       Notices and Approvals. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
of such of this Loan Agreement and the Additional Agreements to which it is a
party.

(d)       Enforceability. This Loan Agreement and such of the Additional
Agreements to which Customer is a party are the legal, valid and binding
obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.

(e)       Collateral. Except for any Permitted Liens: (i) Customer
has good and marketable title to the Collateral, (ii) none of the Collateral is
subject to any lien, encumbrance or security interest, and (iii) upon the
filing of all Uniform Commercial Code financing statements executed by Customer
with respect to the Collateral in the appropriate jurisdiction(s) and/or the
completion of any other action required by applicable law to perfect its liens
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.

(f)        Financial Statements. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim
unaudited financial statements, to normal year-end adjustments); and since the
most recent date covered by such financial statements, there has been no
material adverse change in any such financial condition or operation.

(g)       Litigation. No litigation, arbitration, administrative or
governmental proceedings are pending or, to the knowledge of Customer,
threatened against Customer, which would, if adversely determined, materially
and adversely affect the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer or
the continued operations of Customer.

(h)       Tax Returns. All federal, state and local tax returns,
reports and statements required to be filed by Customer have been filed with
the appropriate governmental agencies and all taxes due and payable by Customer
have been timely paid (except to the extent that any such failure to file or
pay will not materially and adversely affect either the liens and security
interests of MLBFS hereunder or under any of the Additional Agreements, the
financial condition of Customer, or the continued operations of Customer).

(i)        Collateral Location. All of the tangible Collateral is located at a
Location of Tangible Collateral.

(j)        No Outside Broker. Except for employees of MLBFS, MLPF&S or one
of their affiliates, Customer has not in connection with the transactions
contemplated hereby directly or indirectly engaged or dealt with, and was not
introduced or referred to MLBFS by, any broker or other loan arranger.

Each
of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan and each Subsequent WCMA
Loan, and (ii) is continuing and shall be deemed remade by Customer on the
Closing Date, and concurrently with each request by Customer for a Subsequent
WCMA Loan.

4.2        Financial
and Other Information.

(a)       Customer shall furnish or cause to be
furnished to MLBFS during the term of this Loan Agreement all of the following:

(i)        Financial Statements. Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited financial statements of
Customer, including in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and statements of profit
and loss and cash flow for such fiscal year;

(ii)       Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the interim financial statements of Customer for
such fiscal quarter (including in reasonable detail both a balance sheet as of
the close of such fiscal period, and statement of profit and loss for the
applicable fiscal period);

(iii)      A/R Agings. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the Accounts Receivable Aging of Customer as of
the end of such fiscal quarter;

(iv)      Inventory Reports. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the Inventory Report (as and to the extent
applicable, breaking out Inventory by location, and separately reporting any
work in process) of Customer as of the end of such fiscal quarter; and

(v)       Other Information. Such other information as MLBFS may from time
to time reasonably request relating to Customer or the Collateral.

(b)       General Agreements With Respect to Financial
Information. Customer agrees that except as otherwise specified
herein or otherwise agreed to in writing by MLBFS: (i) all annual financial
statements required to be furnished by Customer to MLBFS hereunder will be
prepared by either the current independent accountants for Customer or other
independent accountants reasonably acceptable to MLBFS, and (ii) all other
financial information required to be furnished by Customer to MLBFS hereunder
will be certified as correct in all material respects by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer, certified as correct by its chief financial officer.

4.3       Other Covenants. Customer further covenants
and agrees during the term of this Loan Agreement that:

(a)       Financial Records; Inspection. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.

(b)       Taxes.
Customer will pay when due all taxes, assessments and other governmental
charges, howsoever designated, and all other liabilities and obligations,
except to the extent that any such failure to pay will not materially and
adversely affect either the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer or
the continued operations of Customer.

(c)       Compliance With Laws and Agreements. Customer will not violate any law, regulation
or other governmental requirement, any judgment or order of any court or
governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of
MLBFS hereunder or under any of the Additional Agreements, or the financial
condition or the continued operations of Customer.

(d)       No Use of Merrill Lynch Name. Customer will not directly or indirectly publish, disclose or otherwise use in any
advertising or promotional material, or press release or interview, the name,
logo or any trademark of MLBFS, MLPF&S, Merrill Lynch and Co., Incorporated
or any of their affiliates.

(e)       Notification By Customer. Customer shall provide MLBFS with prompt
written notification of: (i) any Default; (ii) any materially adverse change in
the business, financial condition or operations of Customer; (iii) any
information which indicates that any financial statements of Customer fail in
any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements; and (iv) any change in
Customer's outside accountants. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy
such event or information.

(f)        Notice of Change. Customer shall give MLBFS not less than 30 days
prior written notice of any change in the name (including any fictitious name)
or principal place of business or residence of Customer.

(g)       Continuity. Except upon the prior written consent of MLBFS,
which consent will not be unreasonably withheld: (i) Customer shall not be a
party to any merger or consolidation with, or purchase or otherwise acquire all
or substantially all of the assets of, or any material stock, partnership,
joint venture or other equity interest in, any person or entity, or sell,
transfer or lease all or any substantial part of its assets, if any such action
would result in either: (A) a material change in the principal business,
ownership or control of Customer, or (B) a material adverse change in the
financial condition or operations of Customer; (ii) Customer shall preserve its
existence and good standing in the jurisdiction(s) of establishment and
operation; (iii) Customer shall not engage in any material business
substantially different from its business in effect as of the date of
application by Customer for credit from MLBFS, or cease operating any such
material business; (iv) Customer shall not cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer;
and (v) Customer shall not cause or permit any material change in its
controlling ownership.

(h)       Minimum Tangible Net Worth. As of December 31, 2000, Customer's “tangible
net worth” shall at all times exceed $7,750,000.00. For the purposes hereof,
the term “tangible net worth” shall mean Customer's net worth as shown on
Customer's regular financial statements prepared in a manner consistent with
the terms hereof, but excluding an amount equal to (i) any assets which are
ordinarily classified as “intangible” in accordance with generally accepted accounting
principles, and (ii) any amounts now or hereafter directly or indirectly owing
to Customer by officers, shareholders or affiliates of Customer.

4.4       Collateral

(a)       Pledge of Collateral. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS first liens and security interests in and upon all
of the Collateral, subject only to Permitted Liens.

(b)       Liens.
Except upon the prior written consent of MLBFS, Customer shall not create or
permit to exist any lien, encumbrance or security interest upon or with respect
to any Collateral now owned or hereafter acquired other than Permitted Liens.

(c)       Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement
or otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.

(d)       Sales and Collections. So long as no Event of Default shall have
occurred and be continuing, Customer may in the ordinary course of its
business: (i) sell any Inventory normally held by Customer for sale, (ii) use
or consume any materials and supplies normally held by Customer for use or
consumption, and (iii) collect all of its Accounts. Customer shall take such
action with respect to protection of its Inventory and the other Collateral and
the collection of its Accounts as MLBFS may from time to time reasonably
request.

(e)       Account Schedules. Upon the request of MLBFS, made now or at any
reasonable time or times hereafter, Customer shall deliver to MLBFS, in
addition to the other information required hereunder, a schedule identifying,
for each Account and all Chattel Paper subject to MLBFS' security interests
hereunder, each Account Debtor by name and address and amount, invoice or
contract number and date of each invoice or contract. Customer shall furnish to
MLBFS such additional information with respect to the Collateral, and amounts
received by Customer as proceeds of any of the Collateral, as MLBFS may from
time to time reasonably request.

(f)        Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid
all obligations arising from the repair and maintenance of such Collateral, as
well as all obligations with respect to each Location of Tangible Collateral,
except for any such obligations being contested by Customer in good faith by
appropriate proceedings.

(g)       Location.
Except for movements required in the ordinary course of Customer's business,
Customer shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.

(h)       Insurance. Customer shall insure all of the tangible Collateral
under a policy or policies of physical damage insurance providing that losses
will be payable to MLBFS as its interests may appear pursuant to a Lender's
Loss Payable Endorsement and containing such other provisions as may be
reasonably required by MLBFS. Customer shall further provide and maintain a
policy or policies of comprehensive public liability insurance naming MLBFS as
an additional party insured. Customer shall maintain such other insurance as
may be required by law or is customarily maintained by companies in a similar
business or otherwise reasonably required by MLBFS. All such insurance policies
shall provide that MLBFS will receive not less than 10 days prior written
notice of any cancellation, and shall otherwise be in form and amount and with
an insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish
MLBFS with a copy or certificate of each such policy or policies and, prior to
any expiration or cancellation, each renewal or replacement thereof.

(i)        Event of Loss. Customer shall at its expense promptly repair
all repairable damage to any tangible Collateral. In the event that any
tangible Collateral is damaged beyond repair, lost, totally destroyed or
confiscated (an “Event of Loss”) and such Collateral had a value prior to such
Event of Loss of $25,000.00 or more, then, on or before the first to occur of
(i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business
Days after the date on which either Customer or MLBFS shall receive any
proceeds of insurance on account of such Event of Loss, or any underwriter of
insurance on such Collateral shall advise either Customer or MLBFS that it
disclaims liability in respect of such Event of Loss, Customer shall, at
Customer's option, either replace the Collateral subject to such Event of Loss
with comparable Collateral free of all liens other than Permitted Liens (in
which event Customer shall be entitled to utilize the proceeds of insurance on
account of such Event of Loss for such purpose, and may retain any excess
proceeds of such insurance), or permanently prepay the Loan by an amount equal
to the actual cash value of such Collateral as determined by either the
insurance company's payment (plus any applicable deductible) or, in absence of
insurance company payment, as reasonably determined by MLBFS; it being further
understood that any such permanent prepayment shall be accompanied by a like
permanent reduction in the Maximum WCMA Line of Credit. Notwithstanding the
foregoing, if at the time of occurrence of such Event of Loss or any time
thereafter prior to replacement or line reduction, as aforesaid, an Event of
Default shall have occurred and be continuing hereunder, then MLBFS may at its
sole option, exercisable at any time while such Event of Default shall be
continuing, require Customer to either replace such Collateral or prepay the
Loan and reduce the Maximum WCMA Line of Credit, as aforesaid.

(j)        Notice of Certain Events. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.

(k)       Indemnification. Customer shall indemnify, defend and save MLBFS
harmless from and against any and all claims, liabilities, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) of any nature whatsoever which may be asserted against or incurred by
MLBFS arising out of or in any manner occasioned by (i) the ownership,
collection, possession, use or operation of any Collateral, or (ii) any failure
by Customer to perform any of its obligations hereunder; excluding, however,
from said indemnity any such claims, liabilities, etc. arising directly out of
the willful wrongful act or active gross negligence of MLBFS. This indemnity shall
survive the expiration or termination of this Loan Agreement as to all matters
arising or accruing prior to such expiration or termination.

4.5       Events of
Default.

The occurrence of any of the following
events shall constitute an “Event of Default” under this Loan Agreement:

(a)       Failure to Pay. (i) Customer shall fail to
deposit into the WCMA Account an amount sufficient to assure that the WCMA Loan
Balance does not exceed the Maximum WCMA Line of Credit, as reduced in
accordance with the provisions hereof, or (ii) Customer shall fail to pay to
MLBFS or deposit into the WCMA Account when due any other amount owing or
required to be paid or deposited by Customer under this Loan Agreement, or
(iii) Customer shall fail to pay when due any other Obligations; and any such
failure shall continue for more than five (5) Business Days after written
notice thereof shall have been given by MLBFS to Customer.

(b)       Failure to Perform. Customer shall default
in the performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.

(c)       Breach of Warranty. Any representation or
warranty made by Customer or any other party providing collateral for the
Obligations contained in this Loan Agreement or any of the other Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.

(d)       Default Under Other Agreement. A default or
Event of Default by Customer shall occur under the terms of any other
agreement, instrument or document with or intended for the benefit of MLBFS,
MLPF&S or any of their affiliates, and any required notice shall have been
given and required passage of time shall have elapsed.

(e)       Bankruptcy Event. Any Bankruptcy Event
shall occur.

(f)        Material Impairment. Any event shall occur
which shall reasonably cause MLBFS to in good faith believe that the prospect
of full payment or performance by Customer of its liabilities or obligations
under this Loan Agreement or any of the Additional Agreements to which Customer
is a party has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of
Section 1-208 of the UCC.

(g)       Acceleration of Debt to Other Creditors.
Any event shall occur which results in the acceleration of the maturity of any
indebtedness of $100,000.00 or more of Customer to another creditor under any
indenture, agreement, undertaking, or otherwise.

(h)       Seizure or Abuse of Collateral. The
Collateral, or any material part thereof, shall be or become subject to any
material abuse or misuse, or any levy, attachment, seizure or confiscation
which is not released within ten (10) Business Days.

4.6       Remedies.

(a)          Remedies Upon Default. Upon the occurrence
and during the continuance of any Event of Default, MLBFS may at its sole
option do any one or more or all of the following, at such time and in such
order as MLBFS may in its sole discretion choose:

(i)           Termination. MLBFS may without notice
terminate its obligation to make the Loan (if the Loan has not then been
funded), terminate the WCMA Line of Credit, and terminate any obligation to
make any Subsequent WCMA Loan (including, without limitation, any Subsequent
WCMA Loan to pay accrued interest) or otherwise extend any credit to or for the
benefit of Customer (it being understood that upon the occurrence of any
Bankruptcy Event the WCMA Line of Credit and all such obligations shall
automatically terminate without any action on the part of MLBFS); and upon any
such termination MLBFS shall be relieved of all such obligations.

(ii)          Acceleration. MLBFS may declare the WCMA
Loan Balance and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event the WCMA
Loan Balance and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.

(iii)         Exercise Other Rights. MLBFS may exercise
any or all of the remedies of a secured party under applicable law, including,
but not limited to, the UCC, and any or all of its other rights and remedies
under this Loan Agreement and the Additional Agreements.

(iv)        Possession. MLBFS may require Customer to
make the Collateral and the records pertaining to the Collateral available to MLBFS
at a place designated by MLBFS which is reasonably convenient to Customer, or
may take possession of the Collateral and the records pertaining to the
Collateral without the use of any judicial process and without any prior notice
to Customer.

(v)         Sale. MLBFS may sell any or all of the
Collateral at public or private sale upon such terms and conditions as MLBFS
may reasonably deem proper. MLBFS may purchase any Collateral at any such
public sale. The net proceeds of any such public or private sale and all other
amounts actually collected or received by MLBFS pursuant hereto, after
deducting all costs and expenses incurred at any time in the collection of the
Obligations and in the protection, collection and sale of the Collateral, will
be applied to the payment of the Obligations, with any remaining proceeds paid
to Customer or whoever else may be entitled thereto, and with Customer
remaining liable for any amount remaining unpaid after such application.

(vi)        Delivery of Cash, Checks, Etc. MLBFS may
require Customer to forthwith upon receipt, transmit and deliver to MLBFS in
the form received, all cash, checks, drafts and other instruments for the
payment of money (properly endorsed, where required, so that such items may be
collected by MLBFS) which may be received by Customer at any time in full or
partial payment of any Collateral, and require that Customer not commingle any
such items which may be so received by Customer with any other of its funds or
property but instead hold them separate and apart and in trust for MLBFS until
delivery is made to MLBFS.

(vii)       Notification of Account Debtors. MLBFS may
notify any Account Debtor that its Account or Chattel Paper has been assigned
to MLBFS and direct such Account Debtor to make payment directly to MLBFS of
all amounts due or becoming due with respect to such Account or Chattel Paper;
and MLBFS may enforce payment and collect, by legal proceedings or otherwise,
such Account or Chattel Paper.

(viii)      Control of Collateral. MLBFS may otherwise
take control in any lawful manner of any cash or non-cash items of payment or
proceeds of Collateral and of any rejected, returned, stopped in transit or
repossessed goods included in the Collateral and endorse Customer's name on any
item of payment on or proceeds of the Collateral.

(b)         Set-Off. MLBFS shall have the further right
upon the occurrence and during the continuance of an Event of Default to
set-off, appropriate and apply toward payment of any of the Obligations, in
such order of application as MLBFS may from time to time and at any time elect,
any cash, credit, deposits, accounts, financial assets, investment property,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S. Customer hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional Collateral.

(c)          Power of Attorney. Effective upon the
occurrence and during the continuance of an Event of Default, Customer hereby
irrevocably appoints MLBFS as its attorney-in-fact, with full power of
substitution, in its place and stead and in its name or in the name of MLBFS,
to from time to time in MLBFS' sole discretion take any action and to execute
any instrument which MLBFS may deem necessary or advisable to accomplish the
purposes of this Loan Agreement, including, but not limited to, to receive,
endorse and collect all checks, drafts and other instruments for the payment of
money made payable to Customer included in the Collateral.

(d)         Remedies are Severable and Cumulative. All
rights and remedies of MLBFS herein are severable and cumulative and in
addition to all other rights and remedies available in the Additional
Agreements, at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively.

(e)          Notices. To the fullest extent permitted by
applicable law, Customer hereby irrevocably waives and releases MLBFS of and
from any and all liabilities and penalties for failure of MLBFS to comply with
any statutory or other requirement imposed upon MLBFS relating to notices of
sale, holding of sale or reporting of any sale, and Customer waives all rights
of redemption or reinstatement from any such sale. Any notices required under
applicable law shall be reasonably and properly given to Customer if given by
any of the methods provided herein at least 5 Business Days prior to taking
action. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Customer further irrevocably waives
to the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession, and any demand for possession prior to the
commencement of any suit or action.

4.7         Miscellaneous.

(a)        Non-Waiver. No failure or delay on the part
of MLBFS in exercising any right, power or remedy pursuant to this Loan
Agreement or any of the Additional Agreements shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this Loan
Agreement or any of the Additional Agreements, nor any consent to any departure
by Customer therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any
of the Additional Agreements and any consent to any departure by Customer from
the terms thereof shall be effective only in the specific instance and for the
specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer
to any other or further notice or demand in similar or other circumstances.

(b)        Disclosure. Customer hereby irrevocably
authorizes MLBFS and each of its affiliates, including without limitation
MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and
other information about Customer.

(c)        Communications. All notices and other
communications required or permitted hereunder or in connection with any of the
Additional Agreements shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission or
actual delivery of certified mail, or one Business Day after delivery to an
express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other communications
in writing shall be given to the parties hereto at their respective addresses
set forth at the beginning of this Loan Agreement, or, in the case of facsimile
transmission, to the parties at their respective regular facsimile telephone
number.

(d)        Fees,
Expenses
and Taxes. Customer shall pay or reimburse MLBFS for: (i) all
Uniform Commercial Code filing and search fees and expenses incurred by MLBFS
in connection with the verification, perfection or preservation of MLBFS'
rights hereunder or in the
Collateral or any other collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and fees payable
or determined to be payable in connection with the execution, delivery and/or
recording of this Loan Agreement or any of the Additional Agreements; and
(iii) all reasonable fees and out-of-pocket
expenses (including, but not limited to, reasonable fees and expenses of
outside counsel) incurred by MLBFS in connection with the collection of any sum
payable hereunder or under any of the Additional Agreements not paid when due,
the enforcement of this Loan Agreement or any of the Additional Agreements and
the protection of MLBFS' rights hereunder or thereunder, excluding, however,
salaries and normal overhead attributable to MLBFS' employees. Customer hereby
authorizes MLBFS, at its option, to either cause any and all such fees,
expenses and taxes to be paid with a WCMA Loan, or invoice Customer therefor
(in which event Customer shall pay all such fees, expenses and taxes within 5
Business Days after receipt of such invoice). The obligations of Customer under
this paragraph shall survive the expiration or termination of this Loan
Agreement and the discharge of the other Obligations.

(e)        Right to Perform Obligations. If Customer
shall fail to do any act or thing which it has covenanted to do under this Loan
Agreement or any representation or warranty on the part of Customer contained
in this Loan Agreement shall be breached, MLBFS may, in its sole discretion,
after 5 Business Days written notice is sent to Customer (or such lesser
notice, including no notice, as is reasonable under the circumstances), do the
same or cause it to be done or remedy any such breach, and may expend its funds
for such purpose. Any and all reasonable amounts so expended by MLBFS shall be
repayable to MLBFS by Customer upon demand, with interest at the Interest Rate
during the period from and including the date funds are so expended by MLBFS to
the date of repayment, and all such amounts shall be additional Obligations.
The payment or performance by MLBFS of any of Customer's obligations hereunder
shall not relieve Customer of said obligations or of the consequences of having
failed to pay or perform the same, and shall not waive or be deemed a cure of
any Default.

(f)         Further Assurances. Customer agrees to do
such further acts and things and to execute and deliver to MLBFS such
additional agreements, instruments and documents as MLBFS may reasonably
require or deem advisable to effectuate the purposes of this Loan Agreement or
any of the Additional Agreements, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it
is required by local law, causing the owners and/or mortgagees of the real
property on which any Collateral may be located to execute and deliver to MLBFS
waivers or subordinations reasonably satisfactory to MLBFS with respect to any
rights in such Collateral.

(g)        Binding Effect. This Loan Agreement and the
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement or any of the Additional Agreements without the prior written consent
of MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS, no
such consent shall in any event relieve Customer of any of its obligations
under this Loan Agreement or any of the Additional Agreements.

(h)        Headings. Captions and section and
paragraph headings in this Loan Agreement are inserted only as a matter of
convenience, and shall not affect the interpretation hereof.

(i)         Governing Law. This Loan Agreement and,
unless otherwise expressly provided therein, each of the Additional Agreements,
shall be governed in all respects by the laws of the State of Illinois.

(j)         Severability of Provisions. Whenever
possible, each provision of this Loan Agreement and the Additional Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Loan Agreement or any of the Additional
Agreements which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Loan
Agreement and the Additional Agreements or affecting the validity or enforceability
of such provision in any other jurisdiction.

(k)        Term. This Loan Agreement shall become
effective on the date accepted by MLBFS at its office in Chicago, Illinois,
and, subject to the terms hereof, shall continue in effect so long thereafter
as: (i) MLBFS shall be obligated to make the Loan, (ii) the WCMA Line of Credit
shall be in effect, (iii) there shall be any moneys outstanding under this Loan
Agreement, or (iv) there shall be any other Obligations outstanding.

(l)         Counterparts. This Loan Agreement may be
executed in one or more counterparts which, when taken together, constitute one
and the same agreement.

(m)       Jurisdiction; Waiver.   CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER
IRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE
IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND
THE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION
FROM STATE TO FEDERAL COURT. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY
ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE
OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO,
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, ANY
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY
NON-COMPULSORY COUNTERCLAIMS.

(n)        Integration.   THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS, CONSTITUTES
THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER
ACKNOWLEDGES THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS,
MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO
MAKE THE LOAN OR ANY SUBSEQUENT WCMA LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY
SET FORTH HEREIN, OR TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND ANY OTHER
CREDIT TO CUSTOMER OR ANY OTHER PARTY; AND (II) EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL
PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO
CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO
AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS
TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND CUSTOMER.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of
the day and year first above written.

	STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.
	 
	By:	/s/
  Mark W. Blodgett	/s/
  Gary B. Godin
	 	

	

	 	Signature
  (1)	Signature
  (2)
	 	Mark
  W. Blodgett	Gary
  B. Godin
	 	

	

	 	Printed
  Name	Printed
  Name
	 	CEO	CFO
	 	

	

	 	Title	Title
	 	 	 

Accepted at Chicago, Illinois:

	MERRILL LYNCH BUSINESS FINANCIAL
	SERVICES INC.
	 
	By:	/s/ Julie Ellman
	 	

	 	 
	 

 

EXHIBIT A

 

ATTACHED TO AND HEREBY MADE A PART OF WCMA REDUCING REVOLVERsm
LOAN AND SECURITY AGREEMENT NO. 794-07E50 BETWEEN MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC. AND STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.

Additional Locations of Tangible Collateral:

                15935 Sturgeon Street

                Roseville, Michigan

 

	
	CLOSING CERTIFICATE
	

The undersigned, STOCKERYALE, INC. F/K/A STOCKER &
YALE, INC., a corporation organized and existing under the laws of
the State of Massachusetts (“Customer”), as a primary inducement to MERRILL
LYNCH BUSINESS FINANCIAL SERVICES INC. (“MLBFS”) to make a loan to
Customer (the “Loan”) pursuant to that certain WCMA REDUCING REVOLVERsm LOAN
AND SECURITY AGREEMENT No. 794-07E50 between Customer and MLBFS
dated as of May 3, 2001 (the “Loan Agreement”) DOES HEREBY REPRESENT, WARRANT AND AGREE
AS FOLLOWS:

1.             All of Customer's representations
and warranties in the Loan Agreement are true and correct and remade as of the
date hereof, and, without limiting the foregoing: (i) subject only to
“Permitted Liens” (as defined in the Loan Agreement), MLBFS has a first lien
and security interest upon all of the “Collateral” under the Loan Agreement
(including any Collateral financed or refinanced with the proceeds of the
Loan), and (ii) the Loan is being applied on account of and will satisfy the
“Loan Purpose” under the Loan Agreement.

2.             There has not occurred any event
which constitutes a “Default” under the Loan Agreement.

3.             There has not occurred any material
adverse change in the business or financial condition of Customer since the
date of the last financial statements submitted to MLBFS.

4.          MLBFS
is hereby authorized and directed to disburse the proceeds of the Loan, in the
amount of $3,500,000.00 by:

             o check          ý wire transfer           odeposit
         as follows:

1.)            Payoff Wells Fargo Bank per their payoff letter
and instructions.

2.)

 

Dated
this 14 day of May, 2001

STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.

	By:	/s/
  Mark W. Blodgett	/s/
  Gary B. Godin
	 	

	

	 	Signature
  (1)	Signature
  (2)
	 	Mark
  W. Blodgett	Gary
  B. Godin
	 	

	

	 	Printed
  Name	Printed
  Name
	 	CEO	CFO
	 	

	

	 	Title	Title

 

	
	   	Private Client Group

Merrill Lynch Business

  Financial Services Inc.
222 North LaSalle Street

  17th Floor

  Chicago, Illinois 60601

  (312) 269-1348

  FAX: (312) 201-0210
	

May
16, 2001

StockerYale, Inc. f/k/a Stocker &
Yale, Inc.

32 Hampshire Road

Salem, NH 03079

             Re: Amendment to Loan Documents

Ladies & Gentlemen:

This Letter Agreement will serve to
confirm certain agreements of Merrill Lynch Business Financial Services Inc.
("MLBFS") and StockerYale, Inc. f/k/a Stocker & Yale, Inc.
("Customer") with respect to: (i) that certain WCMA REDUCING REVOLVER LOAN AND SECURITY AGREEMENT NO.
794-07E50 between MLBFS and Customer (including any previous
amendments and extensions thereof), and (ii) all other agreements between MLBFS
and Customer in connection therewith (collectively, the "Loan
Documents"). Capitalized terms used herein and not defined herein shall
have the meaning set forth in the Loan Documents.

Subject to the terms hereof, effective as
of the "Effective Date" (as defined below), the Loan Documents are
hereby amended as follows:

(a) The term "Interest Rate"
shall mean a variable per annum rate of interest equal to the sum of 2.50% and
the One-Month LIBOR. "One-Month LIBOR" shall mean, as of the date of
any determination, the interest rate then most recently published in the
"Money Rates" section of The
Wall Street Journal as the one-month
London Interbank Offered Rate. The Interest Rate will change as of the date of
publication in The Wall Street Journal of a One-Month LIBOR
that is different from that published on the preceding Business Day. In the
event that The Wall Street Journal shall, for any reason,
fail or cease to publish the One-Month LIBOR, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate.

Except as expressly amended hereby, the
Loan Documents shall continue in full force and effect upon all of their terms
and conditions.

Customer acknowledges, warrants and
agrees, as a primary inducement to MLBFS to enter into this Agreement, that:
(a) no Default or Event of Default has occurred and is continuing under the
Loan Documents; (b) each of the warranties of Customer in the Loan Documents
are true and correct as of the date hereof and shall be deemed remade as of the
date hereof; (c) Customer does not have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter whatsoever; and (d) Customer does not have any defense to payment of any
amounts owing, or any right of counterclaim for any reason under, the Loan
Documents.

Provided that no Event of Default, or
event which with the giving of notice, passage of time, or both, would
constitute an Event of Default, shall then have occurred and be continuing
under the terms of the Loan Documents, the amendments and agreements in this
Letter Agreement will become effective on the date (the "Effective
Date") upon which: (a) Customer shall have executed and returned the
duplicate copy of this Letter Agreement and the other document enclosed
herewith; and (b) an officer of MLBFS shall have reviewed and approved this
Letter Agreement and said other document as being consistent in all respects
with the original internal authorization hereof.

Notwithstanding the foregoing, if
Customer does not execute and return the duplicate copy of this Letter
Agreement and said other document within 14 days from the date hereof, or if
for any other reason (other than the sole fault of MLBFS) the Effective Date
shall not occur within said 14-day period, then all of said amendments and
agreements will, at the sole option of MLBFS, be void.

Very truly yours,

Merrill Lynch Business
Financial Services, Inc.

	By:	/s/ Stephanie Sparks
	 	

	 	 	Stephanie Sparks
	 	 	Senior Documentation Manager

Accepted:

StockerYale, Inc. f/k/a Stocker
& Yale, Inc. 

	By:	/s/ Gary B. Godin
	 	

	Printed Name:	Gary B. Godin
	 	

	Title:	CFOPrepared by MerrillDirect

 

	
	WCMA® LOAN AND
  SECURITY AGREEMENT	 
	

WCMA LOAN AND SECURITY
AGREEMENT
NO.  794-07E49 (“Loan Agreement”)
dated as of May 3, 2001, between STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.,
a corporation organized and existing under the laws of the State of Massachusetts
having its principal office at 32 Hampshire Road, Salem, NH 03079 (“Customer”),
and MERRILL
LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
222 North LaSalle Street, Chicago, IL 60601 (“MLBFS”).

In accordance
with that certain WORKING CAPITAL MANAGEMENT® ACCOUNT
AGREEMENT NO.  794-07E49
(“WCMA Agreement”) between Customer and MLBFS' affiliate, MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED (“MLPF&S”), Customer has subscribed to the
WCMA Program described in the WCMA Agreement. The WCMA Agreement is by this
reference incorporated as a part hereof. In conjunction therewith and as part
of the WCMA Program, Customer has requested that MLBFS provide, and subject to
the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the “WCMA Line of Credit”).

Accordingly,
and in consideration of the premises and of the mutual covenants of the parties
hereto, Customer and MLBFS hereby agree as follows:

Article
I. DEFINITIONS

1.1        Specific Terms. In addition to terms
defined elsewhere in this Loan Agreement, when used herein the following terms
shall have the following meanings:

(a)        “Account Debtor” shall mean any party who
is or may become obligated with respect to an Account or Chattel Paper.

(b)        “Activation Date” shall mean the date
upon which MLBFS shall cause the WCMA Line of Credit to be fully activated
under MLPF&S' computer system as part of the WCMA Program.

(c)        “Additional Agreements” shall mean all
agreements, instruments, documents and opinions other than this Loan Agreement,
whether with or from Customer or any other party, which are contemplated hereby
or otherwise reasonably required by MLBFS in connection herewith, or which
evidence the creation, guaranty or collateralization of any of the Obligations
or the granting or perfection of liens or security interests upon the
Collateral or any other collateral for the Obligations.

(d)        “Bankruptcy Event” shall mean any of the
following: (i) a proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt or receivership law or statute shall be filed
or consented to by Customer; or (ii) any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer shall make a general assignment for the benefit of
creditors; or (iv) Customer shall generally fail to pay or admit in writing its
inability to pay its debts as they become due; or (v) Customer shall be
adjudicated a bankrupt or insolvent.

(e)        “Business Day” shall mean any day other
than a Saturday, Sunday, federal holiday or other day on which the New York
Stock Exchange is regularly closed.

(f)         “Collateral” shall mean all Accounts,
Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General
Intangibles, Deposit Accounts, Documents, Instruments, Investment Property and
Financial Assets of Customer, howsoever arising, whether now owned or existing
or hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 3.6 (b) hereof.

(g)        “Commitment Expiration Date” shall mean
June 2, 2001.

(h)        “Default” shall mean either an “Event of
Default” as defined in Section 3.5 hereof, or an event which with the giving of
notice, passage of time, or both, would constitute such an Event of Default.

(i)         “Default Interest Rate” shall mean a rate
equal to the sum of the “Interest Rate”, as determined below, plus two percent
(2%) per annum.

(j)         “General Funding Conditions” shall mean
each of the following conditions to any WCMA Loan by MLBFS hereunder: (i) no
Default shall have occurred and be continuing or would result from the making
of any WCMA Loan hereunder by MLBFS; (ii) there shall not have occurred and be
continuing any material adverse change in the business or financial condition
of Customer; (iii) all representations and warranties of Customer herein or in
any Additional Agreements shall then be true and correct in all material
respects; (iv) MLBFS shall have received this Loan Agreement and all of the
Additional Agreements, duly executed and filed or recorded where applicable,
all of which shall be in form and substance reasonably satisfactory to MLBFS;
(v) MLBFS shall have received evidence reasonably satisfactory to it as to the
ownership of the Collateral and the perfection and priority of MLBFS' liens and
security interests thereon, as well as the ownership of and the perfection and
priority of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (vi) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (vii) any
additional conditions specified in the “WCMA Line of Credit Approval” letter
executed by MLBFS with respect to the transactions contemplated hereby shall
have been met to the reasonable satisfaction of MLBFS.

(k)        “Initial Maturity Date” shall mean the
first date upon which the WCMA Line of Credit will expire (subject to renewal
in accordance with the terms hereof); to wit: February 28, 2002.

(l)         “Interest Due Date” shall mean the last
Business Day of each calendar month during the term hereof (or, if Customer
makes special arrangements with MLPF&S, the last Friday of each calendar
month during the term hereof).

(m)       “Interest Rate” shall mean a variable per
annum rate of interest equal to the sum of 2.50% and the 30-day Dealer
Commercial Paper Rate. The “30-day Dealer Commercial Paper Rate” shall mean, as
of the date of any determination, the interest rate from time to time published
in the “Money Rates” section of The Wall Street Journal as the “Dealer Commercial
Paper” rate for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The Wall
Street Journal of a 30-day Dealer Commercial Paper Rate that is
different from that published on the preceding Business Day. In the event that The Wall
Street Journal shall, for any reason, fail or cease to publish the
30-day Dealer Commercial Paper Rate, MLBFS will choose a reasonably comparable
index or source to use as the basis for the Interest Rate. Upon the occurrence
and during the continuance of a Default, the Interest Rate with respect the
WCMA Line of Credit may be increased to the “Default Interest Rate”, as herein
provided.

(n)        “Line Fee” shall mean a fee of $25,000.00
payable periodically by Customer to MLBFS in accordance with the provisions of
Section 2.2 (k) hereof.

(o)        “Location of Tangible Collateral” shall
mean the address of Customer set forth at the beginning of this Loan Agreement,
together with any other address or addresses set forth on an exhibit hereto as
being a Location of Tangible Collateral.

(p)        “Maturity Date” shall mean the date of
expiration of the WCMA Line of Credit.

(q)        “Maximum WCMA Line of Credit” shall mean
$2,500,000.00.

(r)         “Obligations” shall mean all liabilities,
indebtedness and other obligations of Customer to MLBFS, howsoever created,
arising or evidenced, whether now existing or hereafter arising, whether direct
or indirect, absolute or contingent, due or to become due, primary or secondary
or joint or several, and, without limiting the foregoing, shall include
interest accruing after the filing of any petition in bankruptcy, and all
present and future liabilities, indebtedness and obligations of Customer under
this Loan Agreement.

(s)        “Permitted Liens” shall mean with respect
to the Collateral: (i) liens for current taxes not delinquent, other
non-consensual liens arising in the ordinary course of business for sums not
due, and, if MLBFS' rights to and interest in the Collateral are not materially
and adversely affected thereby, any such liens for taxes or other
non-consensual liens arising in the ordinary course of business being contested
in good faith by appropriate proceedings; (ii) liens in favor of MLBFS; (iii)
liens which will be discharged with the proceeds of the initial WCMA Loan; and
(iv) any other liens expressly permitted in writing by MLBFS.

(t)         “Renewal Year” shall mean and refer to
the 12-month period immediately following the Initial Maturity Date and each
12-month period thereafter.

(u)        “WCMA Account” shall mean and refer to
the Working Capital Management Account of Customer with MLPF&S identified
as Account No.  794-07E49 and any
successor Working Capital Management Account of Customer with MLPF&S.

(v)        “WCMA
Loan” shall mean each advance made by MLBFS pursuant to this Loan Agreement.

(w)       “WCMA
Loan Balance” shall mean an amount equal to the aggregate unpaid principal
amount of all WCMA Loans.

1.2        Other Terms. Except as otherwise defined
herein: (i) all terms used in this Loan Agreement which are defined in the
Uniform Commercial Code of Illinois (“UCC”) shall have the meanings set forth
in the UCC, and (ii) capitalized terms used herein which are defined in the
WCMA Agreement shall have the meanings set forth in the WCMA Agreement.

ARTICLE
II. THE WCMA LINE OF CREDIT

2.1        WCMA PROMISSORY NOTE. FOR
VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at the
times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, or if earlier, on the date of termination
of the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the Interest
Rate (or, if applicable, at the Default Interest Rate) on the outstanding WCMA
Loan Balance, from and including the date on which the initial WCMA Loan is
made until the date of payment of all WCMA Loans in full; and (c) on demand,
all other sums payable pursuant to this Loan Agreement, including, but not limited
to, the periodic Line Fee. Except as otherwise expressly set forth herein,
Customer hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection with this WCMA
Promissory Note and this Loan Agreement.

2.2        WCMA LOANS

(a)         Activation Date. Provided that: (i) the
Commitment Expiration Date shall not then have occurred, and (ii) Customer
shall have subscribed to the WCMA Program and its subscription to the WCMA
Program shall then be in effect, the Activation Date shall occur on or promptly
after the date, following the acceptance of this Loan Agreement by MLBFS at its
office in Chicago, Illinois, upon which each of the General Funding Conditions
shall have been met or satisfied to the reasonable satisfaction of MLBFS. No
activation by MLBFS of the WCMA Line of Credit for a nominal amount shall be
deemed evidence of the satisfaction of any of the conditions herein set forth,
or a waiver of any of the terms or conditions hereof. Customer hereby
authorizes MLBFS to pay out of and charge to Customer's WCMA Account on the
Activation Date any and all amounts necessary to fully pay off any bank or
other financial institution having a lien upon any of the Collateral other than
a Permitted Lien.

(b)        WCMA Loans. Subject to the terms and
conditions hereof, during the period from and after the Activation Date to the
first to occur of the Maturity Date or the date of termination of the WCMA Line
of Credit pursuant to the terms hereof, and in addition to WCMA Loans
automatically made to pay accrued interest, as hereafter provided: (i) MLBFS
will make WCMA Loans to Customer in such amounts as Customer may from time to
time request in accordance with the terms hereof, up to an aggregate
outstanding amount not to exceed the Maximum WCMA Line of Credit, and (ii)
Customer may repay any WCMA Loans in whole or in part at any time, and request
a re-borrowing of amounts repaid on a revolving basis. Customer may request
such WCMA Loans by use of WCMA Checks, FTS, Visa® charges, wire
transfers, or such other means of access to the WCMA Line of Credit as may be
permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.

(c)         Conditions of WCMA Loans. Notwithstanding
the foregoing, MLBFS shall not be obligated to make any WCMA Loan, and may
without notice refuse to honor any such request by Customer, if at the time of
receipt by MLBFS of Customer's request: (i) the making of such WCMA Loan would
cause the Maximum WCMA Line of Credit to be exceeded; or (ii) the Maturity Date
shall have occurred, or the WCMA Line of Credit shall have otherwise been
terminated in accordance with the terms hereof; or (iii) Customer's
subscription to the WCMA Program shall have been terminated; or (iv) an event
shall have occurred and be continuing which shall have caused any of the
General Funding Conditions to not then be met or satisfied to the reasonable
satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any
one or more of said conditions shall not have been met shall not in any event
be construed as a waiver of said condition or conditions or of any Default, and
shall not prevent MLBFS at any time thereafter while any condition shall not
have been met from refusing to honor any request by Customer for a WCMA Loan.

(d)        Limitation of Liability. MLBFS shall not be
responsible, and shall have no liability to Customer or any other party, for
any delay or failure of MLBFS to honor any request of Customer for a WCMA Loan
or any other act or omission of MLBFS, MLPF&S or any of their affiliates
due to or resulting from any system failure, error or delay in posting or other
clerical error, loss of power, fire, Act of God or other cause beyond the reasonable
control of MLBFS, MLPF&S or any of their affiliates unless directly arising
out of the willful wrongful act or active gross negligence of MLBFS. In no
event shall MLBFS be liable to Customer or any other party for any incidental
or consequential damages arising from any act or omission by MLBFS, MLPF&S
or any of their affiliates in connection with the WCMA Line of Credit or this
Loan Agreement.

(e)         Interest.
(i) An amount equal to accrued interest on the WCMA Loan Balance shall be
payable by Customer monthly on each Interest Due Date, commencing with the
Interest Due Date occurring in the calendar month in which the Activation Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by
a WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed
for the actual number of days elapsed on the basis of a year consisting of 360
days.

(ii)         Upon the occurrence and during the
continuance of any Default, but without limiting the rights and remedies
otherwise available to MLBFS hereunder or waiving such Default, the interest
payable by Customer hereunder shall at the option of MLBFS accrue and be payable
at the Default Interest Rate. The Default Interest Rate, once implemented,
shall continue to apply to the Obligations under this Loan Agreement and be
payable by Customer until the date such Default is either cured or waived in
writing by MLBFS.

(iii)        Notwithstanding
any provision to the contrary in this Agreement or any of the Additional
Agreements, no provision of this Agreement
or any of the Additional Agreements shall require the payment or permit the
collection of any amount in excess of the maximum amount of interest permitted
to be charged by law (“Excess Interest”). If any Excess Interest is provided
for, or is adjudicated as being provided for, in this Agreement or any of the
Additional Agreements, then: (A) Customer shall not be obligated to pay any
Excess Interest; and (B) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (1) applied as a credit against the then unpaid WCMA Loan Balance,
(2) refunded to the payer thereof, or (3) any combination of the foregoing.

(f)         Payments. All payments required or
permitted to be made pursuant to this Loan Agreement shall be made in lawful
money of the United States. Unless otherwise directed by MLBFS, payments on
account of the WCMA Loan Balance may be made by the delivery of checks (other
than WCMA Checks), or by means of FTS or wire transfer of funds (other than
funds from the WCMA Line of Credit) to MLPF&S for credit to Customer's WCMA
Account. Notwithstanding anything in the WCMA Agreement to the contrary,
Customer hereby irrevocably authorizes and directs MLPF&S to apply
available free credit balances in the WCMA Account to the repayment of the WCMA
Loan Balance prior to application for any other purpose. Payments to MLBFS from
funds in the WCMA Account shall be deemed to be made by Customer upon the same
basis and schedule as funds are made available for investment in the Money
Accounts in accordance with the terms of the WCMA Agreement. All funds received
by MLBFS from MLPF&S pursuant to the aforesaid authorization shall be
applied by MLBFS to repayment of the WCMA Loan Balance. The acceptance by or on
behalf of MLBFS of a check or other payment for a lesser amount than shall be
due from Customer, regardless of any endorsement or statement thereon or
transmitted therewith, shall not be deemed an accord and satisfaction or
anything other than a payment on account, and MLBFS or anyone acting on behalf
of MLBFS may accept such check or other payment without prejudice to the rights
of MLBFS to recover the balance actually due or to pursue any other remedy
under this Loan Agreement or applicable law for such balance. All checks
accepted by or on behalf of MLBFS in connection with the WCMA Line of Credit
are subject to final collection.

(g)        Irrevocable Instructions to MLPF&S. In
order to minimize the WCMA Loan Balance, Customer hereby irrevocably authorizes
and directs MLPF&S, effective on the Activation Date and continuing
thereafter so long as this Agreement shall be in effect: (i) to immediately and
prior to application for any other purpose pay to MLBFS to the extent of any
WCMA Loan Balance or other amounts payable by Customer hereunder all available
free credit balances from time to time in the WCMA Account; and (ii) if such
available free credit balances are insufficient to pay the WCMA Loan Balance
and such other amounts, and there are in the WCMA Account at any time any
investments in Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance under the WCMA Directed Reserve Program), to
immediately liquidate such investments and pay to MLBFS to the extent of any
WCMA Loan Balance and such other amounts the available proceeds from the
liquidation of any such Money Accounts.

(h)        Statements. MLPF&S will include in each
monthly statement it issues under the WCMA Program information with respect to
WCMA Loans and the WCMA Loan Balance. Any questions that Customer may have with
respect to such information should be directed to MLBFS; and any questions with
respect to any other matter in such statements or about or affecting the WCMA
Program should be directed to MLPF&S.

(i)          Use of WCMA Loan Proceeds. The proceeds of
each WCMA Loan initiated by Customer shall be used by Customer solely for
working capital in the ordinary course of its business, or, with the prior
written consent of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. Customer agrees that under no circumstances will the
proceeds of any WCMA Loan be used: (i) for personal, family or household
purposes of any person whatsoever, or (ii) to purchase, carry or trade in
securities, or repay debt incurred to purchase, carry or trade in securities,
whether in or in connection with the WCMA Account, another account of Customer
with MLPF&S or an account of Customer at any other broker or dealer in
securities, or (iii) unless otherwise consented to in writing by MLBFS, to pay
any amount to Merrill Lynch and Co., Inc. or any of its subsidiaries, other
than Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co. or any
subsidiary of either of them (including MLBFS and Merrill Lynch Credit
Corporation).

(j)          Renewal at Option of MLBFS; Right of Customer to
Terminate. MLBFS may at any time, in its sole discretion and at its
sole option, renew the WCMA Line of Credit for one or more Renewal Years; it
being understood, however, that no such renewal shall be effective unless set
forth in a writing executed by a duly authorized representative of MLBFS and
delivered to Customer. Unless any such renewal is accompanied by a proposed
change in the terms of the WCMA Line of Credit (other than the extension of the
Maturity Date), no such renewal shall require Customer's approval. Customer
shall, however, have the right to terminate the WCMA Line of Credit at any time
upon written notice to MLBFS.

(k)         Line Fees. (i) In consideration of the
extension of the WCMA Line of Credit by MLBFS to Customer during the period
from the Activation Date to the Initial Maturity Date, Customer has paid or
shall pay the Line Fee to MLBFS. If the Line Fee has not heretofore been paid
by Customer, Customer hereby authorizes MLBFS, at its option, to either cause
the Line Fee to be paid on the Activation Date with a WCMA Loan, or invoice
Customer for such Line Fee (in which event Customer shall pay said fee within 5
Business Days after receipt of such invoice). No delay in the Activation Date,
howsoever caused, shall entitle Customer to any rebate or reduction in the Line
Fee or to any extension of the Initial Maturity Date.

(ii)         Customer shall pay an additional Line
Fee for each Renewal Year. In connection therewith, Customer hereby authorizes
MLBFS, at its option, to either cause each such additional Line Fee to be paid
with a WCMA Loan on or at any time after the first Business Day of such Renewal
Year or invoiced to Customer at such time (in which event Customer shall pay
such Line Fee within 5 Business Days after receipt of such invoice). Each Line
Fee shall be deemed fully earned by MLBFS on the date payable by Customer, and
no termination of the WCMA Line of Credit, howsoever caused, shall entitle
Customer to any rebate or refund of any portion of such Line Fee; provided,
however, that if Customer shall terminate the WCMA Line of Credit not later
than 5 Business Days after the receipt by Customer of notice from MLBFS of a
renewal of the WCMA Line of Credit, Customer shall be entitled to a refund of
any Line Fee charged by MLBFS for the ensuing Renewal Year.

Article
III. GENERAL PROVISIONS

3.1        REPRESENTATIONS AND WARRANTIES

Customer
represents and warrants to MLBFS that:

(a)       Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Massachusetts
and is qualified to do business and in good standing in each other state where
the nature of its business or the property owned by it make such qualification
necessary.

(b)       Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action,
(ii) do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.

(c)       Notices and Approvals. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
of such of this Loan Agreement and the Additional Agreements to which it is a
party.

(d)       Enforceability. This Loan Agreement and such of the Additional
Agreements to which Customer is a party are the legal, valid and binding
obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general principles
of equity.

(e)       Collateral. Except for any Permitted Liens: (i) Customer
has good and marketable title to the Collateral, (ii) none of the Collateral is
subject to any lien, encumbrance or security interest, and (iii) upon the
filing of all Uniform Commercial Code financing statements executed by Customer
with respect to the Collateral in the appropriate jurisdiction(s) and/or the
completion of any other action required by applicable law to perfect its liens
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.

(f)        Financial Statements. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim
unaudited financial statements, to normal year-end adjustments); and since the
most recent date covered by such financial statements, there has been no
material adverse change in any such financial condition or operation.

(g)       Litigation. No litigation, arbitration, administrative or
governmental proceedings are pending or, to the knowledge of Customer,
threatened against Customer, which would, if adversely determined, materially
and adversely affect the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer or
the continued operations of Customer.

(h)       Tax Returns. All federal, state and local tax returns,
reports and statements required to be filed by Customer have been filed with
the appropriate governmental agencies and all taxes due and payable by Customer
have been timely paid (except to the extent that any such failure to file or
pay will not materially and adversely affect either the liens and security interests
of MLBFS hereunder or under any of the Additional Agreements, the financial
condition of Customer, or the continued operations of Customer).

(i)        Collateral Location. All of the tangible Collateral is located at a
Location of Tangible Collateral.

(j)        No Outside Broker. Except for employees of MLBFS, MLPF&S or one
of their affiliates, Customer has not in connection with the transactions
contemplated hereby directly or indirectly engaged or dealt with, and was not
introduced or referred to MLBFS by, any broker or other loan arranger.

Each of the
foregoing representations and warranties: (i) has been and will be relied upon
as an inducement to MLBFS to provide the WCMA Line of Credit, and (ii) is
continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.

3.2        FINANCIAL
AND OTHER INFORMATION

(a)         Customer shall furnish or cause to be
furnished to MLBFS during the term of this Loan Agreement all of the following:

(i)          Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited financial statements of
Customer, including in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and statements of profit
and loss and cash flow for such fiscal year;

(ii)         Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the interim financial statements of Customer for
such fiscal quarter (including in reasonable detail both a balance sheet as of
the close of such fiscal period, and statement of profit and loss for the
applicable fiscal period);

(iii)        A/R Agings. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the Accounts Receivable Aging of Customer as of
the end of such fiscal quarter;

(iv)       Inventory Reports. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the Inventory Report (as and to the extent
applicable, breaking out Inventory by location, and separately reporting any
work in process) of Customer as of the end of such fiscal quarter; and

(v)        Other Information. Such other information as MLBFS may from time
to time reasonably request relating to Customer or the Collateral.

(b)        General Agreements With Respect to Financial
Information. Customer agrees that except as otherwise specified
herein or otherwise agreed to in writing by MLBFS: (i) all annual financial
statements required to be furnished by Customer to MLBFS hereunder will be
prepared by either the current independent accountants for Customer or other
independent accountants reasonably acceptable to MLBFS, and (ii) all other
financial information required to be furnished by Customer to MLBFS hereunder
will be certified as correct in all material respects by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer, certified as correct by its chief financial officer.

3.3        OTHER COVENANTS

Customer
further covenants and agrees during the term of this Loan Agreement that:

(a)       Financial Records; Inspection. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements heretofore
furnished to MLBFS, or prepared on such other basis as may be approved in
writing by MLBFS; and (ii) permit MLBFS or its duly authorized representatives,
upon reasonable notice and at reasonable times, to inspect its properties (both
real and personal), operations, books and records.

(b)       Taxes.
Customer will pay when due all taxes, assessments and other governmental
charges, howsoever designated, and all other liabilities and obligations,
except to the extent that any such failure to pay will not materially and
adversely affect either the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer or
the continued operations of Customer.

(c)       Compliance With Laws and Agreements. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any
court or governmental agency or authority, or any agreement, instrument or
document to which it is a party or by which it is bound, if any such violation
will materially and adversely affect either the liens and security interests of
MLBFS hereunder or under any of the Additional Agreements, or the financial
condition or the continued operations of Customer.

(d)       No Use of Merrill Lynch Name. Customer will not directly or indirectly publish, disclose or otherwise use in any
advertising or promotional material, or press release or interview, the name,
logo or any trademark of MLBFS, MLPF&S, Merrill Lynch and Co., Incorporated
or any of their affiliates.

(e)       Notification By Customer. Customer shall provide MLBFS with prompt
written notification of: (i) any Default; (ii) any materially adverse change in
the business, financial condition or operations of Customer; (iii) any
information which indicates that any financial statements of Customer fail in
any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements; and (iv) any change in
Customer's outside accountants. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy
such event or information.

(f)        Notice of Change. Customer shall give MLBFS not less than 30 days
prior written notice of any change in the name (including any fictitious name)
or principal place of business or residence of Customer.

(g)       Continuity. Except upon the prior written consent of MLBFS,
which consent will not be unreasonably withheld: (i) Customer shall not be a
party to any merger or consolidation with, or purchase or otherwise acquire all
or substantially all of the assets of, or any material stock, partnership,
joint venture or other equity interest in, any person or entity, or sell,
transfer or lease all or any substantial part of its assets, if any such action
would result in either: (A) a material change in the principal business,
ownership or control of Customer, or (B) a material adverse change in the
financial condition or operations of Customer; (ii) Customer shall preserve its
existence and good standing in the jurisdiction(s) of establishment and
operation; (iii) Customer shall not engage in any material business
substantially different from its business in effect as of the date of
application by Customer for credit from MLBFS, or cease operating any such
material business; (iv) Customer shall not cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer;
and (v) Customer shall not cause or permit any material change in its
controlling ownership.

(h)       Minimum Tangible Net Worth. As of December 31, 2000, Customer's “tangible
net worth” shall at all times exceed $7,750,000.00. For the purposes hereof,
the term “tangible net worth” shall mean Customer's net worth as shown on
Customer's regular financial statements prepared in a manner consistent with
the terms hereof, but excluding an amount equal to (i) any assets which are
ordinarily classified as “intangible” in accordance with generally accepted
accounting principles, and (ii) any amounts now or hereafter directly or
indirectly owing to Customer by officers, shareholders or affiliates of
Customer.

3.4       COLLATERAL

(a)       Pledge of Collateral. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS first liens and security interests in and upon all
of the Collateral, subject only to Permitted Liens.

(b)       Liens.
Except upon the prior written consent of MLBFS, Customer shall not create or
permit to exist any lien, encumbrance or security interest upon or with respect
to any Collateral now owned or hereafter acquired other than Permitted Liens.

(c)       Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement
or otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.

(d)       Sales and Collections. So long as no Event of Default shall have
occurred and be continuing, Customer may in the ordinary course of its
business: (i) sell any Inventory normally held by Customer for sale, (ii) use
or consume any materials and supplies normally held by Customer for use or
consumption, and (iii) collect all of its Accounts. Customer shall take such
action with respect to protection of its Inventory and the other Collateral and
the collection of its Accounts as MLBFS may from time to time reasonably
request.

(e)       Account Schedules. Upon the request of MLBFS, made now or at any
reasonable time or times hereafter, Customer shall deliver to MLBFS, in
addition to the other information required hereunder, a schedule identifying,
for each Account and all Chattel Paper subject to MLBFS' security interests
hereunder, each Account Debtor by name and address and amount, invoice or
contract number and date of each invoice or contract. Customer shall furnish to
MLBFS such additional information with respect to the Collateral, and amounts
received by Customer as proceeds of any of the Collateral, as MLBFS may from
time to time reasonably request.

(f)        Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid
all obligations arising from the repair and maintenance of such Collateral, as
well as all obligations with respect to any Location of Tangible Collateral,
except for any such obligations being contested by Customer in good faith by
appropriate proceedings.

(g)       Location.
Except for movements required in the ordinary course of Customer's business,
Customer shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.

(h)       Insurance. Customer shall insure all of the tangible
Collateral under a policy or policies of physical damage insurance providing
that losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable Endorsement and containing such other provisions as may
be reasonably required by MLBFS. Customer shall further provide and maintain a
policy or policies of comprehensive public liability insurance naming MLBFS as
an additional party insured. Customer shall maintain such other insurance as
may be required by law or is customarily maintained by companies in a similar
business or otherwise reasonably required by MLBFS. All such insurance policies
shall provide that MLBFS will receive not less than 10 days prior written
notice of any cancellation, and shall otherwise be in form and amount and with
an insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish
MLBFS with a copy or certificate of each such policy or policies and, prior to
any expiration or cancellation, each renewal or replacement thereof.

(i)        Event of Loss. Customer shall at its expense promptly repair
all repairable damage to any tangible Collateral. In the event that any
tangible Collateral is damaged beyond repair, lost, totally destroyed or
confiscated (an “Event of Loss”) and such Collateral had a value prior to such
Event of Loss of $25,000.00 or more, then, on or before the first to occur of
(i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business
Days after the date on which either Customer or MLBFS shall receive any
proceeds of insurance on account of such Event of Loss, or any underwriter of
insurance on such Collateral shall advise either Customer or MLBFS that it
disclaims liability in respect of such Event of Loss, Customer shall, at
Customer's option, either replace the Collateral subject to such Event of Loss
with comparable Collateral free of all liens other than Permitted Liens (in
which event Customer shall be entitled to utilize the proceeds of insurance on
account of such Event of Loss for such purpose, and may retain any excess
proceeds of such insurance), or deposit into the WCMA Account an amount equal
to the actual cash value of such Collateral as determined by either the
insurance company's payment (plus any applicable deductible) or, in absence of
insurance company payment, as reasonably determined by MLBFS; it being further
understood that any such deposit shall be accompanied by a like permanent
reduction in the Maximum WCMA Line of Credit. Notwithstanding the foregoing, if
at the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or line reduction, as aforesaid, an Event of Default shall have
occurred and be continuing hereunder, then MLBFS may at its sole option,
exercisable at any time while such Event of Default shall be continuing,
require Customer to either replace such Collateral or make a deposit into the
WCMA Account and reduce the Maximum WCMA Line of Credit, as aforesaid.

(j)        Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.

(k)       Indemnification. Customer shall indemnify, defend and save MLBFS
harmless from and against any and all claims, liabilities, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) of any nature whatsoever which may be asserted against or incurred by
MLBFS arising out of or in any manner occasioned by (i) the ownership,
collection, possession, use or operation of any Collateral, or (ii) any failure
by Customer to perform any of its obligations hereunder; excluding, however,
from said indemnity any such claims, liabilities, etc. arising directly out of
the willful wrongful act or active gross negligence of MLBFS. This indemnity
shall survive the expiration or termination of this Loan Agreement as to all
matters arising or accruing prior to such expiration or termination.

3.5        EVENTS OF DEFAULT

The occurrence
of any of the following events shall constitute an “Event of Default” under
this Loan Agreement:

(a)         Exceeding the Maximum WCMA Line of Credit.
If the WCMA Loan Balance shall at any time exceed the Maximum WCMA Line of
Credit and Customer shall fail to deposit sufficient funds into the WCMA Account
to reduce the WCMA Loan Balance below the Maximum WCMA Line of Credit within
five (5) Business Days after written notice thereof shall have been given by
MLBFS to Customer.

(b)        Other Failure to Pay. Customer shall fail to pay
to MLBFS or deposit into the WCMA Account when due any other amount owing or
required to be paid or deposited by Customer under this Loan Agreement, or
shall fail to pay when due any other Obligations, and any such failure shall
continue for more than five (5) Business Days after written notice thereof
shall have been given by MLBFS to Customer.

(c)         Failure to Perform. Customer shall default
in the performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.

(d)        Breach of Warranty. Any representation or
warranty made by Customer contained in this Loan Agreement or any of the
Additional Agreements shall at any time prove to have been incorrect in any
material respect when made.

(e)         Default Under Other Agreement. A default or
Event of Default by Customer or any other party providing collateral for the
Obligations shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.

(f)         Bankruptcy Event. Any Bankruptcy Event
shall occur.

(g)        Material Impairment. Any event shall occur
which shall reasonably cause MLBFS to in good faith believe that the prospect
of full payment or performance by Customer of its liabilities or obligations
under this Loan Agreement or any of the Additional Agreements to which Customer
is a party has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of
Section 1-208 of the UCC.

(h)        Acceleration of Debt to Other Creditors.
Any event shall occur which results in the acceleration of the maturity of any
indebtedness of $100,000.00 or more of Customer to another creditor under any
indenture, agreement, undertaking, or otherwise.

(i)          Seizure or Abuse of Collateral. The
Collateral, or any material part thereof, shall be or become subject to any
material abuse or misuse, or any levy, attachment, seizure or confiscation
which is not released within ten (10) Business Days.

3.6        REMEDIES

(a)         Remedies Upon Default. Upon the occurrence
and during the continuance of any Event of Default, MLBFS may at its sole
option do any one or more or all of the following, at such time and in such
order as MLBFS may in its sole discretion choose:

(i)          Termination. MLBFS may without notice
terminate the WCMA Line of Credit and all obligations to provide the WCMA Line
of Credit or otherwise extend any credit to or for the benefit of Customer (it
being understood, however, that upon the occurrence of any Bankruptcy Event the
WCMA Line of Credit and all such obligations shall automatically terminate
without any action on the part of MLBFS); and upon any such termination MLBFS
shall be relieved of all such obligations.

(ii)         Acceleration. MLBFS may declare the
principal of and interest on the WCMA Loan Balance, and all other Obligations
to be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for payment, protest
and notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate or other notice or formality of any kind, all of which are
hereby expressly waived; provided, however, that upon the occurrence of any
Bankruptcy Event all such principal, interest and other Obligations shall
automatically become due and payable without any action on the part of MLBFS.

(iii)        Exercise Other Rights. MLBFS may exercise
any or all of the remedies of a secured party under applicable law, including,
but not limited to, the UCC, and any or all of its other rights and remedies
under this Loan Agreement and the Additional Agreements.

(iv)       Possession. MLBFS may require Customer to
make the Collateral and the records pertaining to the Collateral available to
MLBFS at a place designated by MLBFS which is reasonably convenient to
Customer, or may take possession of the Collateral and the records pertaining
to the Collateral without the use of any judicial process and without any prior
notice to Customer.

(v)        Sale. MLBFS may sell any or all of the
Collateral at public or private sale upon such terms and conditions as MLBFS
may reasonably deem proper. MLBFS may purchase any Collateral at any such
public sale. The net proceeds of any such public or private sale and all other
amounts actually collected or received by MLBFS pursuant hereto, after
deducting all costs and expenses incurred at any time in the collection of the
Obligations and in the protection, collection and sale of the Collateral, will
be applied to the payment of the Obligations, with any remaining proceeds paid
to Customer or whoever else may be entitled thereto, and with Customer
remaining liable for any amount remaining unpaid after such application.

(vi)       Delivery of Cash, Checks, Etc. MLBFS may
require Customer to forthwith upon receipt, transmit and deliver to MLBFS in
the form received, all cash, checks, drafts and other instruments for the
payment of money (properly endorsed, where required, so that such items may be
collected by MLBFS) which may be received by Customer at any time in full or
partial payment of any Collateral, and require that Customer not commingle any
such items which may be so received by Customer with any other of its funds or
property but instead hold them separate and apart and in trust for MLBFS until
delivery is made to MLBFS.

(vii)      Notification of Account Debtors. MLBFS may
notify any Account Debtor that its Account or Chattel Paper has been assigned
to MLBFS and direct such Account Debtor to make payment directly to MLBFS of
all amounts due or becoming due with respect to such Account or Chattel Paper;
and MLBFS may enforce payment and collect, by legal proceedings or otherwise,
such Account or Chattel Paper.

(viii)     Control of Collateral. MLBFS may otherwise
take control in any lawful manner of any cash or non-cash items of payment or
proceeds of Collateral and of any rejected, returned, stopped in transit or
repossessed goods included in the Collateral and endorse Customer's name on any
item of payment on or proceeds of the Collateral.

(b)        Set-Off. MLBFS shall have the further right
upon the occurrence and during the continuance of an Event of Default to
set-off, appropriate and apply toward payment of any of the Obligations, in
such order of application as MLBFS may from time to time and at any time elect,
any cash, credit, deposits, accounts, financial assets, investment property,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S. Customer hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional Collateral.

(c)         Power of Attorney. Effective upon the
occurrence and during the continuance of an Event of Default, Customer hereby
irrevocably appoints MLBFS as its attorney-in-fact, with full power of
substitution, in its place and stead and in its name or in the name of MLBFS,
to from time to time in MLBFS' sole discretion take any action and to execute
any instrument which MLBFS may deem necessary or advisable to accomplish the
purposes of this Loan Agreement, including, but not limited to, to receive,
endorse and collect all checks, drafts and other instruments for the payment of
money made payable to Customer included in the Collateral.

(d)        Remedies are Severable and Cumulative. All
rights and remedies of MLBFS herein are severable and cumulative and in
addition to all other rights and remedies available in the Additional
Agreements, at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively.

(e)         Notices. To the fullest extent permitted by
applicable law, Customer hereby irrevocably waives and releases MLBFS of and
from any and all liabilities and penalties for failure of MLBFS to comply with
any statutory or other requirement imposed upon MLBFS relating to notices of
sale, holding of sale or reporting of any sale, and Customer waives all rights
of redemption or reinstatement from any such sale. Any notices required under
applicable law shall be reasonably and properly given to Customer if given by
any of the methods provided herein at least 5 Business Days prior to taking
action. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Customer further irrevocably waives
to the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession, and any demand for possession prior to the commencement
of any suit or action.

3.7        MISCELLANEOUS

(a)         Non-Waiver. No failure or delay on the part
of MLBFS in exercising any right, power or remedy pursuant to this Loan
Agreement or any of the Additional Agreements shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this Loan
Agreement or any of the Additional Agreements, nor any consent to any departure
by Customer therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any
of the Additional Agreements and any consent to any departure by Customer from
the terms of this Loan Agreement or any of the Additional Agreements shall be
effective only in the specific instance and for the specific purpose for which
given. Except as otherwise expressly provided herein, no notice to or demand on
Customer shall in any case entitle Customer to any other or further notice or
demand in similar or other circumstances.

(b)        Disclosure. Customer hereby irrevocably
authorizes MLBFS and each of its affiliates, including without limitation
MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and
other information about Customer. In connection with said authorization, the
parties recognize that in order to provide a WCMA Line of Credit certain
information about Customer is required to be made available on a computer
network accessible by certain affiliates of MLBFS, including MLPF&S.

(c)         Communications. All notices and other
communications required or permitted hereunder shall be in writing, and shall
be either delivered personally, mailed by postage prepaid certified mail or
sent by express overnight courier or by facsimile. Such notices and
communications shall be deemed to be given on the date of personal delivery, facsimile
transmission or actual delivery of certified mail, or one Business Day after
delivery to an express overnight courier. Unless otherwise specified in a
notice sent or delivered in accordance with the terms hereof, notices and other
communications in writing shall be given to the parties hereto at their
respective addresses set forth at the beginning of this Loan Agreement, or, in
the case of facsimile transmission, to the parties at their respective regular
facsimile telephone number.

(d)        Fees, Expenses and Taxes. Customer
shall pay or reimburse MLBFS for: (i) all Uniform Commercial Code filing and
search fees and expenses incurred by MLBFS in connection with the verification,
perfection or preservation of MLBFS' rights hereunder or in the Collateral or any other collateral for the Obligations; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Loan Agreement
or any of the Additional Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including, but not
limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS
in connection with the collection of any sum payable hereunder or under any of
the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal
overhead attributable to MLBFS' employees. Customer hereby authorizes MLBFS, at
its option, to either cause any and all such fees, expenses and taxes to be
paid with a WCMA Loan, or invoice Customer therefor (in which event Customer
shall pay all such fees, expenses and taxes within 5 Business Days after receipt
of such invoice). The obligations of Customer under this paragraph shall
survive the expiration or termination of this Loan Agreement and the discharge
of the other Obligations.

(e)         Right to Perform Obligations. If Customer
shall fail to do any act or thing which it has covenanted to do under this Loan
Agreement or any representation or warranty on the part of Customer contained
in this Loan Agreement shall be breached, MLBFS may, in its sole discretion,
after 5 Business Days written notice is sent to Customer (or such lesser
notice, including no notice, as is reasonable under the circumstances), do the
same or cause it to be done or remedy any such breach, and may expend its funds
for such purpose. Any and all reasonable amounts so expended by MLBFS shall be
repayable to MLBFS by Customer upon demand, with interest at the Interest Rate
during the period from and including the date funds are so expended by MLBFS to
the date of repayment, and all such amounts shall be additional Obligations.
The payment or performance by MLBFS of any of Customer's obligations hereunder
shall not relieve Customer of said obligations or of the consequences of having
failed to pay or perform the same, and shall not waive or be deemed a cure of
any Default.

(f)         Further Assurances. Customer agrees to do
such further acts and things and to execute and deliver to MLBFS such
additional agreements, instruments and documents as MLBFS may reasonably
require or deem advisable to effectuate the purposes of this Loan Agreement or
any of the Additional Agreements, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS
it is required by local law, causing the owners and/or mortgagees of the real
property on which any Collateral may be located to execute and deliver to MLBFS
waivers or subordinations reasonably satisfactory to MLBFS with respect to any
rights in such Collateral.

(g)        Binding
Effect. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent shall
in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.

(h)        Headings. Captions and section and
paragraph headings in this Loan Agreement are inserted only as a matter of
convenience, and shall not affect the interpretation hereof.

(i)          Governing Law. This Loan Agreement, and,
unless otherwise expressly provided therein, each of the Additional Agreements,
shall be governed in all respects by the laws of the State of Illinois.

(j)          Severability of Provisions. Whenever
possible, each provision of this Loan Agreement and the Additional Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Loan Agreement or any of the Additional
Agreements which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Loan
Agreement and the Additional Agreements or affecting the validity or
enforceability of such provision in any other jurisdiction.

(k)         Term. This Loan Agreement shall become
effective on the date accepted by MLBFS at its office in Chicago, Illinois,
and, subject to the terms hereof, shall continue in effect so long thereafter
as the WCMA Line of Credit shall be in effect or there shall be any Obligations
outstanding.

(l)          Counterparts. This Loan Agreement may be
executed in one or more counterparts which, when taken together, constitute one
and the same agreement.

(m)        Jurisdiction; Waiver.   CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT (INCLUDING THE WCMA NOTE
SET FORTH HEREIN) AND THE ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS
OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE
OBLIGATIONS MAY BE LOCATED. CUSTOMER IRREVOCABLY SUBMITS ITSELF TO JURISDICTION
IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY
OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST
SAID JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND
ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. CUSTOMER FURTHER
WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION
EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL
AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS
LOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY
COUNTERCLAIMS.

(n)        Integration.   THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS, CONSTITUTES
THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER
ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISE
OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE
EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA
LINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF
CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY;
(II) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA
LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID
OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS;
AND (III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS,
LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER,
NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR
MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH
CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS
AND CUSTOMER.

IN WITNESS WHEREOF, this Loan Agreement has been executed
as of the day and year first above written.

	STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.
	 
	By:	/s/ Mark W. Blodgett	/s/ Gary B. Godin
	 	

	

	 	 	Signature (1)	Signature (2)
	 	Mark W. Blodgett	Gary B. Godin
	 	

	

	 	 	Printed Name	Printed Name
	 	CEO	CFO
	 	

	

	 	 	Title	Title

 

	Accepted at Chicago, Illinois:
	MERRILL LYNCH BUSINESS FINANCIAL
	SERVICES INC.
	 
	By:	/s/ Julie Ellman	 
	 	

	 
	 
	 

 

EXHIBIT
A

ATTACHED TO AND HEREBY MADE A PART OF WCMA LOAN AND SECURITY
AGREEMENT NO.  794-07E49 BETWEEN MERRILL
LYNCH BUSINESS FINANCIAL SERVICES INC. AND STOCKERYALE, INC. F/K/A STOCKER
& YALE, INC.

 

Additional Locations of
Tangible Collateral:

             15935 Sturgeon Street

             Roseville, Michigan

	
	SECRETARY'S CERTIFICATE
	

The undersigned hereby
certifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. that the undersigned is the duly
appointed and acting Secretary (or Assistant Secretary) of STOCKERYALE, INC. F/K/A STOCKER &
YALE, INC., a corporation duly organized, validly existing and in
good standing under the laws of the State of Massachusetts; and that the
following is a true, accurate and compared transcript of resolutions duly,
validly and lawfully adopted on the 19 day of March, 2001 by the Board of
Directors of said Corporation acting in accordance with the laws of the state
of incorporation and the charter and by-laws of said Corporation:

“RESOLVED, that this Corporation is authorized and
empowered, now and from time to time hereafter, to borrow and/or obtain credit
from, and/or enter into other financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. (“MLBFS”), and in connection therewith to grant to
MLBFS liens and security interests on any or all property belonging to this
Corporation; all such transactions to be on such terms and conditions as may be
mutually agreed from time to time between this Corporation and MLBFS; and

“FURTHER RESOLVED, that the President, any Vice President,
Treasurer, Secretary or other officer of this Corporation, or any one or more
of them, be and each of them hereby is authorized and empowered to: (a) execute
and deliver to MLBFS on behalf of this Corporation any and all loan agreements,
promissory notes, security agreements, pledge agreements, financing statements,
mortgages, deeds of trust, leases and/or all other agreements, instruments and
documents required by MLBFS in connection therewith, and any present or future
extensions, amendments, supplements, modifications and restatements thereof;
all in such form as any such officer shall approve, as conclusively evidenced
by his or her signature thereon, and (b) do and perform all such acts and
things deemed by any such officer to be necessary or advisable to carry out and
perform the undertakings and agreements of this Corporation in connection
therewith; and any and all prior acts of each of said officers in these
premises are hereby ratified and confirmed in all respects; and

“FURTHER RESOLVED, that MLBFS is authorized to rely upon
the foregoing resolutions until it receives written notice of any change or
revocation from an authorized officer of this Corporation, which change or
revocation shall not in any event affect the obligations of this Corporation
with respect to any transaction conditionally agreed or committed to by MLBFS
or having its inception prior to the receipt of such notice by MLBFS.”

The undersigned further
certifies
that: (a) the foregoing resolutions have not been rescinded, modified or
repealed in any manner, are not in conflict with any agreement of said
Corporation and are in full force and effect as of the date of this
Certificate, and (b) the following individuals are now the duly elected and acting
officers of said Corporation and the signatures set forth below are the true signatures
of said officers:

	 	President:	/s/ Mark W. Blodgett
	 	 	

	 	Vice President:	 
	 	 	

	 	Treasurer:	/s/ Gary B. Godin
	 	 	

	 	Secretary:	/s/ Gary B. Godin
	 	 	

	 	 	:	 
	 	

	 	

	 	Additional Title	 
	 	 	 
							

IN WITNESS WHEREOF, the undersigned has executed this
Certificate and has affixed the seal of said Corporation hereto, pursuant to
due authorization, all as of this 14 day of May, 2001.

	(Corporate Seal)	 
	 	/s/ Gary B. Godin
	 	

	 	Secretary
	 	Gary B. Godin
	 	Printed Name:	

			

 

May 3, 2001

To: WELLS FARGO BANK

	Attention:	Patricia P.
  Trayers
	 	

	Phone Number:
	 	

			

Ladies and Gentlemen:

You are hereby authorized and
directed to furnish to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., 222
North LaSalle Street, 17th Floor, Chicago, IL 60601 (“MLBFS”):

1. A payoff letter in the form
attached hereto setting forth the amounts necessary to pay off all loans and
obligations of the undersigned to you and the other information set forth on said
form; and

2. Such information about the
undersigned's loans and obligations, credit history and the relationship
between you and the undersigned as may be requested by MLBFS.

If and when all of the
undersigned's said loans and obligations have been fully paid and satisfied,
please forward UCC and/or other applicable lien terminations directly to MLBFS.

Very truly yours,

STOCKERYALE, INC. F/K/A STOCKER
& YALE, INC.

	By:	/s/ Gary B.
  Godin
	 	

	Title:	CFO
	 	

			

 

WELLS
FARGO BANK

PAYOFF LETTER

	Date:	May 17, 2001
	 	

Merrill Lynch Business
Financial Services Inc.

222 North LaSalle Street, 17th Floor

Chicago, IL 60601

Ladies and Gentlemen:

In accordance with the request
of STOCKERYALE, INC. F/K/A STOCKER & YALE, INC. (“Customer”), the following
are the amounts necessary to fully pay off all loans and other obligations of
Customer to WELLS FARGO BANK:

	Loan No(s): 	 
	 	

Balance of Principal & Interest as of May 17, 2001:  $1,349,535.42

Per Diem Interest: $356.16

Funds to pay off said loan(s)
should be wire transferred to:

	 	WELLS FARGO BANK	 
	 	 	 
	 	Bank's Address:
	 	 	

	 	 
	 	

	 	Routing #: 091000019
	 	 	

	 	Account Name: Wells Fargo Business Credit
	 	 	

	 	Attention: Rosemary Rosano
	 	 	

	 	Phone #:
	 	 	

								

 

Upon our receipt of the
above-referenced wire transfer, Wells Fargo Bank will immediately terminate and
release all security interests, mortgages, deeds of trust and other liens or
encumbrances that it may have with respect to property of Stockeryale, Inc.
F/K/A Stocker & Yale, Inc., and remit appropriate evidence of such
termination and release directly to Merrill Lynch Business Financial Services
Inc. at the above address.

Very truly yours,

WELLS FARGO BANK

	By:	/s/ Patricia P. Trayers
	 	

	Title:	Vice President
	 	

			

 

	
	COLLATERAL REMOVAL AGREEMENT
	

The undersigned
Landlord
is the record owner and lessor to STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.
(“Tenant”) of the real property commonly known as 32 Hampshire Road, Salem, NH
03079 (the “Premises”).

Landlord has
been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
(“MLBFS”) has or is about to extend or continue to extend credit to or for the
benefit of Tenant, or for the benefit of a third party based upon the credit
and/or collateral of Tenant, and in connection therewith that Tenant has
granted or is about to grant to MLBFS a security interest in, among other
collateral, the following property of Tenant (“MLBFS' Collateral”):

All equipment, inventory, removable trade
fixtures and other tangible and intangible personal property now and hereafter
owned by Tenant.

Among other
conditions thereof, MLBFS has required that Landlord execute and deliver this
Agreement.

Accordingly,
and for valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord hereby agrees that in the event that MLBFS shall at any
time seek to take possession of or remove all or any part of MLBFS' Collateral
from the Premises, Landlord will not hinder the same or interfere or object
thereto, and Landlord hereby consents to MLBFS' entry upon the Premises for
such purposes; provided, however, that: (i) any such removal shall be made
during reasonable business hours; (ii) MLBFS shall not, without the prior
written consent of Landlord, conduct any public or auction sale on the
Premises; and (iii) MLBFS shall promptly at its expense repair any damage to
the Premises directly caused by any such removal by MLBFS or its agents of
MLBFS' Collateral from the Premises.

This Agreement
shall be binding upon and shall inure to the benefit of Landlord and it
successors, assigns, heirs and/or personal representatives, as applicable, and
MLBFS and its successors and assigns.

Dated as of May
3, 2001.

	Landlord:	 	 
	 	

	By:	 
	 	

	 	(Signature 1)	(Signature 2)
	 	 	 
	

	 	(Printed Name)	(Printed Name)
	 	 	 
	

	 	(Title)	(Title)
					

 

	
	COLLATERAL REMOVAL AGREEMENT
	

The undersigned
Landlord
is the record owner and lessor to STOCKERYALE, INC. F/K/A STOCKER & YALE, INC.
(“Tenant”) of the real property commonly known as 15935 Sturgeon Street,
Roseville, MI (the “Premises”).

Landlord has been
advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. (“MLBFS”) has
or is about to extend or continue to extend credit to or for the benefit of
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant (“MLBFS' Collateral”):

All equipment, inventory, removable trade
fixtures and other tangible and intangible personal property now and hereafter
owned by Tenant.

Among other
conditions thereof, MLBFS has required that Landlord execute and deliver this
Agreement.

Accordingly,
and for valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord hereby agrees that in the event that MLBFS shall at any
time seek to take possession of or remove all or any part of MLBFS' Collateral
from the Premises, Landlord will not hinder the same or interfere or object
thereto, and Landlord hereby consents to MLBFS' entry upon the Premises for
such purposes; provided, however, that: (i) any such removal shall be made
during reasonable business hours; (ii) MLBFS shall not, without the prior
written consent of Landlord, conduct any public or auction sale on the
Premises; and (iii) MLBFS shall promptly at its expense repair any damage to
the Premises directly caused by any such removal by MLBFS or its agents of
MLBFS' Collateral from the Premises.

This Agreement
shall be binding upon and shall inure to the benefit of Landlord and it
successors, assigns, heirs and/or personal representatives, as applicable, and
MLBFS and its successors and assigns.

Dated as of May
3, 2001.

	Landlord:	 	 
	 	

	By:	 
	 	

	 	(Signature 1)	(Signature 2)
	 	 	 
	

	 	(Printed Name)	(Printed Name)
	 	 	 
	

	 	(Title)	(Title)
					

 

	
	   	Private Client Group

Merrill Lynch Business

  Financial Services Inc.
222 North LaSalle Street17th Floor

  Chicago, Illinois 60601

  (312) 269-1348

  FAX: (312) 201-0210

May
16, 2001

StockerYale,
Inc. f/k/a Stocker & Yale, Inc.

32 Hampshire Road

Salem, NH 03079

             Re: Amendment to Loan Documents

Ladies & Gentlemen:

This Letter Agreement will serve to
confirm certain agreements of Merrill Lynch Business Financial Services Inc.
("MLBFS") and StockerYale, Inc. f/k/a Stocker & Yale, Inc.
("Customer") with respect to: (i) that certain WCMA LOAN AND SECURITY AGREEMENT NO. 794-07E49
between MLBFS and Customer (including any previous amendments and extensions
thereof), and (ii) all other agreements between MLBFS and Customer in
connection therewith (collectively, the "Loan Documents").
Capitalized terms used herein and not defined herein shall have the meaning set
forth in the Loan Documents.

Subject to the terms hereof, effective as
of the "Effective Date" (as defined below), the Loan Documents are
hereby amended as follows:

(a) "Initial Maturity Date"
shall mean the first date upon which the WCMA Line of Credit will expire
(subject to renewal in accordance with the terms hereof); to wit: May 31, 2002.

(b) The term "Interest Rate"
shall mean a variable per annum rate of interest equal to the sum of 2.50% and
the One-Month LIBOR. "One-Month LIBOR" shall mean, as of the date of
any determination, the interest rate then most recently published in the
"Money Rates" section of The
Wall Street Journal as the
one-month London Interbank Offered Rate. The Interest Rate will change as of
the date of publication in The Wall Street Journal of a One-Month LIBOR
that is different from that published on the preceding Business Day. In the
event that The Wall Street Journal shall, for any reason,
fail or cease to publish the One-Month LIBOR, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate.

Except as expressly amended hereby, the
Loan Documents shall continue in full force and effect upon all of their terms
and conditions.

Customer acknowledges, warrants and
agrees, as a primary inducement to MLBFS to enter into this Agreement, that:
(a) no Default or Event of Default has occurred and is continuing under the
Loan Documents; (b) each of the warranties of Customer in the Loan Documents
are true and correct as of the date hereof and shall be deemed remade as of the
date hereof; (c) Customer does not have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter whatsoever; and (d) Customer does not have any defense to payment of any
amounts owing, or any right of counterclaim for any reason under, the Loan
Documents.

Provided that no Event of Default, or
event which with the giving of notice, passage of time, or both, would
constitute an Event of Default, shall then have occurred and be continuing
under the terms of the Loan Documents, the amendments and agreements in this
Letter Agreement will become effective on the date (the "Effective
Date") upon which: (a) Customer shall have executed and returned the
duplicate copy of this Letter Agreement and the other document enclosed
herewith; and (b) an officer of MLBFS shall have reviewed and approved this
Letter Agreement and said other document as being consistent in all respects
with the original internal authorization hereof.

Notwithstanding the foregoing, if
Customer does not execute and return the duplicate copy of this Letter
Agreement and said other document within 14 days from the date hereof, or if
for any other reason (other than the sole fault of MLBFS) the Effective Date
shall not occur within said 14-day period, then all of said amendments and
agreements will, at the sole option of MLBFS, be void.

Very truly yours,

Merrill Lynch Business
Financial Services, Inc.

	By:	/s/ Stephanie Sparks
	 	

	 	 	Stephanie Sparks
	 	 	Senior Documentation Manager
	 	 
	 	 

 

Accepted:

StockerYale, Inc. f/k/a Stocker
& Yale, Inc. 

	By:	/s/ Gary B. Godin
	 	

	Printed Name:	Gary B. Godin
	 	

	Title:	CFO

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