{"id":42747,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/reseller-agreement-sony-electronics-inc-and-dragon-systems.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"reseller-agreement-sony-electronics-inc-and-dragon-systems","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/operations\/reseller-agreement-sony-electronics-inc-and-dragon-systems.html","title":{"rendered":"Reseller Agreement &#8211; Sony Electronics Inc. and Dragon Systems Inc."},"content":{"rendered":"<pre>\n                                    AGREEMENT\n\n                    SONY CONSUMER AUDIO\/VIDEO PRODUCTS GROUP\n                              SONY ELECTRONICS INC.\n                               RESELLER AGREEMENT\n\n                                    ARTICLE I\n                            PARTIES TO THIS AGREEMENT\n\nThis Agreement is entered into and effective as of May 15,1998 (\"Effective\nDate\") by and between:\n\nSony Consumer Audio\/Video Products Group                Dragon Systems, Inc.\nDiversified Markets                            and      320 Nevada Street\nSony Electronics Inc.                                   Newton, MA 02160\nOne Sony Drive\nPark Ridge, NJ 07656\n\n(hereinafter referred to as the \"SEL\")         (hereinafter referred to as the  \n                                                \"Reseller\")\n\n\n                                   ARTICLE II\n                           PREMISES OF THIS AGREEMENT\n\nWHEREAS, SEL is engaged in the sale and distribution (or, in the case of\nsoftware, license) of various kinds of electronics products and accessories;\nand,\n\nWHEREAS, the Reseller desires to purchase and\/or license certain of such\nproducts and accessories for resale to Customers (as defined below).\n\nNOW, THEREFORE, by reason of the foregoing premises, and in consideration of the\nmutual covenants set forth in this Agreement, the parties agree as follows:\n\n                                   ARTICLE III\n                    TERM\/RESELLER CLASSIFICATION\/DEFINITIONS\n\n(a) TERM: This Agreement shall commence as of the Effective Date and expire on\nMarch 31, 1999 (the \"Term\") unless earlier terminated in accordance with Section\n11.0.\n\n(b) RESELLER CLASSIFICATION: Reseller hereby represents and agrees that it will\nresell only the Products (iii) by adding value to, but not modifying, the\nProducts as described in the Product and Market Schedule attached hereto and\ndefined below.\n\n\n   2\nRESELLER HEREBY ACKNOWLEDGES THAT SEL IS RELYING ON THE ABOVE REPRESENTATION AND\nAGREEMENT AS A FACTOR IN DECIDING TO ENTER INTO THIS AGREEMENT AS WELL AS TO\nDETERMINE RESELLER'S CLASS OF TRADE, THE PRODUCTS SEL IS WILLING TO SELL THE\nRESELLER, THE PRICES FOR SAME AND THE WARRANTY APPLICABLE TO THE PRODUCTS AS TO\nTHE RESELLER AND THE END-USERS.\n\n(c) BUNDLE: Pursuant to Article III (c), \"Bundle\" shall refer to only the\ncombination of the Product and the Value-Added Component in a physical package\nwhich is sold as a single unit.\n\n(d) CUSTOMERS: The term \"Customer(s)\" is defined and limited to those third\nparty business entities not affiliated with the Reseller within a particular\ncustomer classification and\/or market as set forth in the Product and Market\nSchedule through which Reseller distributes the Bundles.\n\n(e) PRODUCT AND MARKET SCHEDULE: The Product and Market Schedule, attached\nhereto as Article VI and made a part hereof, in addition to defining the\nProducts and Customers, may contain terms and conditions in addition to or\ndifferent from the General Terms and Conditions set forth in Article IV. In the\nevent of a conflict between the terms and conditions of Article IV and the terms\nand conditions of the Product and Market Schedule, the terms and conditions of\nthe Product and Market Schedule shall control.\n\n(f) PRODUCTS: The term \"Product(s)\" shall be defined and limited to those\nproducts, accessories and software of SEL set forth in the Product and Market\nSchedule.\n\n(g) SALE\/RESALE: The term \"Sale\" or \"Resale\" (in any tense or form) whenever\nused in this Agreement shall mean license in the case of software Products. The\nterm \"Resale\" (in any tense or form) shall also mean lease.\n\n(h) THE SONY GROUP: The term \"Sony Group\" shall mean SEL, Sony Corporation of\nAmerica, Sony Corporation (Tokyo, Japan) and all subsidiaries and affiliates of\nsaid companies.\n\n(i) VALUE-ADDED COMPONENT: The term \"Value-Added Component\" shall mean the\nproduct or component created, owned and\/or obtained or licensed by Reseller that\nmust be included in the Bundle as set forth in the Product and Market Schedule.\n\n\n\n                                       -2-\n   3\n                                   ARTICLE IV\n                          GENERAL TERMS AND CONDITIONS\n\nSECTION 1.0 SCOPE OF THIS AGREEMENT\n\n1.1 RESALE LIMITATION: SEL agrees to sell, and the Reseller agrees to purchase,\nthe Products from SEL for resale only to the Customers upon the terms and\nconditions set forth in this Agreement.\n\n1.2 NON-EXCLUSIVE: The Reseller acknowledges that its right to resell the\nProducts under this Agreement is non-exclusive, and that SEL reserves the right\nto sell and distribute any of its products to any customers in the world, and to\nappoint any third party to do so, without giving the Reseller notice thereof and\nwithout incurring any liability to the Reseller therefor. Further, nothing\nherein shall be deemed to preclude the Reseller from selling brands of\nelectronics products and accessories that are competitive with the Products.\n\n1.3 STATUS AS INDEPENDENT CONTRACTOR: The relationship established between SEL\nand the Reseller by this Agreement is that of a vendor to its vendee and nothing\nherein contained shall be deemed to establish or otherwise create a relationship\nof principal and agent between SEL and the Reseller. The Reseller represents\nthat it is an independent contractor who will not be deemed an agent of SEL for\nany purpose whatsoever and neither the Reseller nor any of its agents or\nemployees will have any right or authority to assume or create any obligation of\nany kind, whether express or implied, on behalf of SEL. This Agreement is not a\nfranchise agreement and does not create a franchise relationship between the\nparties and if any provision of this Agreement is deemed to create a franchise\nbetween the parties, then this Agreement will be deemed null and void and will\nautomatically terminate as if such provision had been deemed unenforceable by a\ncourt as provided in Section 12.8.\n\nSECTION 2.0  ACCESS AND AUDIT\n\nIn order to verify the Reseller's compliance with this Agreement, the Reseller\nshall give SEL reasonable access to the Reseller's facilities during normal\nbusiness hours to make inspections of the Reseller's premises and to audit the\nbooks and records of the Reseller relating to the Products purchased by the\nReseller, including the right to make copies of or abstracts from such books and\nrecords.\n\nSECTION 3.0  SALE OF THE PRODUCTS\n\n3.1 TERMS: SEL shall sell the Products to the Reseller upon the terms and\nconditions set forth in this Agreement.\n\n\n                                       -3-\n   4\n          Confidential Materials omitted and filed separately with the\n        Securities and Exchange Commission. Asterisks denote omissions.\n\n3.2 PRICES: SEL shall sell the Products to the Reseller at the prices and\/or\nfees set forth on the Products and Market Schedule attached to the Agreement and\nmade a part hereof subject to adjustment as provided in Section 3.3. SEL may\nincrease or decrease the price of the Products by giving the Reseller notice and\nsuch new pricing will apply to all of the Reseller's orders received by SEL\nafter the effective date set forth in such notice. The Reseller may terminate\nthis Agreement by giving SEL notice within [**] days after the issuance of any\nsuch price increase to the extent of any orders not yet shipped by SEL. If SEL\noffers price, payment or promotional discounts or other special pricing or\nsimilar programs to other value-added resellers, integrators or bundlers who\ncompete with the Reseller for the Customers in the Market (as both Market and\nCustomer are described in the Product and Market Schedule), then SEL will make\nsuch offer(s) available to the Reseller. SEL will use commercially reasonable\nefforts to provide the Reseller with forty-five (45) days notice of any such\nchange.\n\n3.3 ADJUSTMENTS: If the prices at which the Products are sold hereunder\nrepresent a price which has been reduced based on a representation by the\nReseller that the Reseller would make certain volume purchases, and the Reseller\nfails to make purchases in the volumes represented, SEL may in its sole\ndiscretion adjust prices to the otherwise prevailing prices for the number of\nitems actually purchased, and the Reseller will pay SEL the difference promptly\nupon receipt of SEL's invoice therefor. If the Reseller resells any of the\nProducts to any party other than the Customers or to any party on a stand-alone\nbasis (i.e., not within a System) the Reseller shall pay SEL an adjustment\ncharge equal to the difference between the price charged the Reseller for such\nProducts and the then-current single lot list price of SEL for such Products.\n\n3.4 ALLOCATIONS: SEL may, in its sole discretion, allocate its inventory of the\nProducts.\n\n3.5 DISCONTINUATION\/CHANGES TO PRODUCTS: SEL may, in its sole discretion,\ndiscontinue the sale of any of the Products and any parts\/accessories thereto\n(except where continued availability is required by law) and make such changes\naffecting their form, fit or function as it, in its sole discretion, determines,\nby giving the Reseller prior notice thereof but without incurring any liability\nto the Reseller therefor. SEL will use commercially reasonable efforts to\nprovide such notice at least [**] days in advance. If, because of any\ndiscontinuance or change to the Products affecting their form, fit or function,\nthe Reseller does not wish to purchase same or any of the other Products covered\nby this Agreement, then the Reseller may terminate this Agreement by giving SEL\nnotice thereof within [**] days of SEL's notice to it. SEL agrees that for any\noutstanding orders of the Reseller it will provide Products which are greater\nthan or equal to the discontinued Product in form, fit and function at the same\nor lesser price subject to availability and the provisions of Section 3.4 above.\n\n\n                                       -4-\n   5\n3.6 TAXES: The Reseller shall bear the cost of any taxes (exclusive of taxes\nbased on the net income of the Sony Group), levies, duties and fees of any kind,\nnature or description whatsoever applicable to any of the Products supplied by\nSEL to the Reseller. The Reseller will pay SEL all such sums upon demand unless\nthe Reseller provides SEL, at the time of the submission of its purchase orders,\ntax exemption certificates or licenses acceptable to the appropriate taxing\nauthorities.\n\n3.7 PURCHASE ACCEPTANCE\/CONTROLLING TERMS: SEL shall have the right in the\nexercise of its sole and absolute discretion to reject any purchase order,\neither in whole or in part, placed by the Reseller, and no purchase order shall\nbe binding upon SEL unless accepted by SEL in writing or by delivery of Products\nin whole or partial fulfillment thereof.\n\nAnything herein to the contrary notwithstanding, unless otherwise expressly\nagreed to in writing by SEL, any shipment of Products to the Reseller in whole\nor partial fulfillment of any purchase order placed by the Reseller shall not be\ndeemed to constitute an acceptance by SEL of any of the terms and conditions of\nsuch purchase order, except as to the identification of the Products, and the\nquantities involved. All such purchase orders shall be governed by the\nprovisions of this Agreement.\n\nSECTION 4.0  TRADEMARKS\n\nThe Reseller acknowledges the validity of trade names and trademarks of the Sony\nGroup (\"Trademarks'\") and that it shall NOT, as a result of this Agreement, have\nany right to or interest in any tradenames or trademarks owned, used or claimed\nnow or in the future by the Sony Group. Notwithstanding the foregoing, Reseller\nshall have the right to use relevant Trademarks in conjunction with the\nauthorized sale of the Bundle, subject to SEL's prior written approval for each\nparticular use, which approval shall not be unreasonably withheld.\n\nSECTION 5.0  SHIPMENTS\n\n5.1 SHIPMENTS: The Reseller shall bear all costs and expenses incident to SEL's\nshipment of the Products to it, except in the case of any shipment which\nqualifies for prepaid freight under SEL's program then in effect. SEL shall\nselect the method of shipment and the carrier. SEL will ship the Products only\nto locations in the continental United States, including Alaska.\n\n5.2 TITLE AND RISK OF LOSE: Title to all of the Products sold by SEL to the\nReseller shall pass upon SEL's delivery thereof to the carrier. Risk of loss or\ndamage to any of the Products in transit, without regard to whether SEL paid the\nshipping charges therefor or whether any third party is designated as consignee\nthereof, is the Reseller's, whose responsibility it will be to file claims with\nthe carrier.\n\n\n                                       -5-\n   6\n          Confidential Materials omitted and filed separately with the\n        Securities and Exchange Commission. Asterisks denote omissions.\n\n5.3 TIME OF DELIVERY: Delivery dates set forth in any Reseller order or other\npurchasing documents, or any confirmation thereof by SEL, shall be deemed to be\nestimated only and subject to SEL's then current leadtimes for the Products. The\nReseller will not be excused from payment of any amounts it owes (invoices for\nProducts sold are only issued upon shipment) to SEL or from the performance of\nany of its other obligations under the terms and conditions hereof as a result\nof, and SEL will not be liable to the Reseller for damages resulting from, SEL's\nfailure to meet any of those dates. However, if SEL's delay in shipment or\ndelivery of any ordered Products exceeds by thirty (30) days such first\nestimated date, then either party may cancel any Reseller order or part thereof\nnot previously fulfilled by giving the other written notice thereof and without\nincurring any liability to the other therefor.\n\n5.4 SEPARATE TRANSACTION: Each Reseller order for the Products under this\nAgreement shall be deemed a separate transaction and each shipment of the\nProducts by SEL will constitute a separate sale, obligating the Reseller to pay\ntherefor, whether such shipment be in whole or only in partial fulfillment of\nsuch order.\n\n5.5 SHIPMENTS AFTER EXPIRATION: SEL's acceptance or shipment of any order from\nthe Reseller for Products after the termination or expiration of this Agreement\nwill not be construed as a renewal or extension of this Agreement nor as a\nwaiver of termination or expiration of this Agreement. Any such acceptance or\nshipment shall be deemed an accommodation only.\n\n5.6 STOP SHIPMENTS: SEL may, in its sole discretion, cancel any Reseller orders\npreviously accepted by SEL or delay the delivery of any of the Products covered\nthereby if the Reseller defaults in any of its obligations under this Agreement\nor if SEL reasonably believes that the Reseller may do so for or with respect to\nany past or pending Reseller order.\n\nSECTION 6.0  CREDIT; PAYMENT AND INDEBTEDNESS\n\n6.1 MAINTENANCE OF CREDIT LINE: The Reseller shall maintain a credit line\nsufficient to support its purchases of the Products and to pay any indebtedness\nto SEL when due. SEL may, in its sole discretion, either generally or with\nrespect to any specific Reseller order, vary, change or limit the amount or\nduration of credit allowed to the Reseller. The Reseller will make available to\nSEL such statements of its financial condition as SEL may, from time to time,\nreasonably request.\n\n6.2 PAYMENT TERM: Unless otherwise provided in the Product and Market Schedule,\npayment terms are net [**] days from the date of SEL's invoice; invoices are\nissued only on the date of shipment.\n\n                                       -6-\n   7\n6.3 UNAUTHORIZED DEDUCTIONS: The Reseller shall not make deductions of any kind\nfrom any monies it owes to SEL unless the Reseller has received an official\ncredit memorandum from SEL authorizing such deduction.\n\n6.4 DEFAULT; ACCELERATION OF OBLIGATIONS AND CHARGE FOR LATE PAYMENT: The\nReseller's payment for the Products shall be considered past due if it is not\nreceived by SEL by the due date shown on SEL's invoice. If any payment is past\ndue, then in addition to any other remedy available to SEL under this Agreement\nor at law therefor, SEL may declare, by giving the Reseller notice thereof, (a)\nall of the liabilities and obligations of the Reseller to SEL, whether then due\nor not, to be immediately due unless the past due payment is received by the\ntime specified in the notice; and\/or, (b) impose a finance charge on all amounts\npast due or declared due by (a) above equal to the lesser of one and one half\npercent (1-1\/2%) per month or the maximum allowed by law and charge the Reseller\nfor SEL's reasonable expenses of collection therefor, including but not limited\nto, attorneys' and experts' fees and court costs.\n\n6.5 E.D.I. TRANSACTIONS: If and to the extent that the parties elect to use\nelectronic communication lines known as Electronic Data Interchange (\"EDI\") to\nallow for the transmission of purchase orders and\/or invoices for Products,\nand\/or to undertake other EDI transaction sets as may be agreed to in writing\nbetween the parties, the terms and conditions of this Agreement shall apply to\nsuch transactions. EDI will be transmitted either directly or through a\nthird-party servicer (\"Provider\"). If a Provider's services are utilized, unless\nagreed to otherwise in writing, each party will pay the cost to set up and\nmaintain its own mailbox, the cost of all sends and receives to and from its own\nmailbox and any other costs associated with its own mailbox. Upon proper receipt\nof any EDI transmission, the receiving party shall promptly and properly\ntransmit a functional acknowledgment that an EDI transmission was received.\nNeither the receipt nor acknowledgment of an EDI transmission shall constitute\nan acceptance by the Company of any order placed by the \"J\" Account. Each party\nshall take all necessary steps to provide for reasonable security to ensure that\nall access and usage of its EDI system are properly authorized. Either party may\ndiscontinue the utilization of EDI services upon thirty (30) days' prior written\nnotice to the other party.\n\nSECTION 7.0 REPRESENTATIONS AND WARRANTIES\n\n7.1 LIMITED WARRANTY: SEL'S WARRANTY FOR THE PRODUCTS SHALL BE AS SET FORTH IN\nTHE PRODUCT AND MARKET SCHEDULE.\n\n7.2 COMPATIBILITY: SEL HEREBY DISCLAIMS AND EXCLUDES ANY REPRESENTATIONS OR\nWARRANTIES THAT THE PRODUCTS ARE COMPATIBLE WITH ANY COMBINATION OF PRODUCTS NOT\nFURNISHED BY\n\n                                       -7-\n   8\nSEL WHICH THE RESELLER OR ANY PURCHASER OR END USER MAY CHOOSE TO CONNECT TO THE\nPRODUCT EXCEPT FOR THOSE EXPRESSLY APPROVED IN WRITING BY SEL.\n\n7.3 MUTUAL: Each party represents and warrants to the other that (i) it has the\nright and power to enter into and fully perform the obligations it has\nundertaken in this Agreement; (ii) it is not under any obligations, contractual\nor otherwise, to any other entity that might conflict, interfere, or be\ninconsistent with any of the provisions of this Agreement; and (iii) it shall\ncomply with all federal, state and local laws, rules and regulations necessary\nfor it to perform its obligations under this Agreement.\n\n7.4      INTELLECTUAL PROPERTY INDEMNIFICATION:\n\n         (a) SEL'S INDEMNITY OF THE RESELLER: SEL agrees to protect, defend,\nhold harmless and indemnify the Reseller from and against any and all\nliabilities, damages and actions arising out of any claim that the Products\ninfringe any patent, trademark or copyright of third parties. Such indemnity,\nhowever, is specifically exclusive of any such claims which arise or result from\nthe use or misuse of Products; alteration of the Products as furnished by SEL;\nuse of the Products in combination with apparatus and software not delivered or\nfurnished by SEL; processes or methods allegedly performed by the Products; use\nof the Products furnished by SEL in the manner for which the same were neither\ndesigned nor contemplated; or a patent, trademark or copyright in which the\nReseller or an affiliate or subsidiary of the Reseller has any direct or\nindirect interest by license or otherwise. This indemnification and hold\nharmless provision shall extend only to damages and costs assessed against the\nReseller embodied in a final judgment by a court of competent jurisdiction\nholding that such Products constitute a patent, trademark or copyright\ninfringement or damages and costs incurred by the Reseller as a result of a\nsettlement entered into with the prior written consent of SEL. SEL shall not be\nresponsible for any loss of profits or the Reseller's incidental or\nconsequential damages or losses.\n\nSEL will be promptly notified by The Reseller of any suit or threat of suit as\nto which SEL may have obligations under the above provisions and be given\nreasonable opportunity to defend the same. The Reseller shall reasonably\ncooperate with SEL with regard to the defense of any suit or threatened suit and\nSEL shall have authority to settle or otherwise dispose of any such suit or\nthreatened suit, and to appeal any judgment which may be entered. This indemnity\nshall be effective with respect to all Products sold by SEL to the Reseller on\nor after the date set forth above and shall continue until terminated by written\nnotice by SEL to the Reseller upon ten (10) days prior notice. Termination of\nthis indemnity shall not affect its applicability as to Products sold by SEL to\nthe Reseller prior to the termination date thereof.\n\n         (b) THE RESELLER'S INDEMNITY OF SEL: The Reseller agrees to protect,\ndefend, hold harmless and indemnify SEL from and against any and all\nliabilities,\n\n                                       -8-\n   9\n          Confidential Materials omitted and filed separately with the\n        Securities and Exchange Commission. Asterisks denote omissions.\n\ndamages and actions arising out of any claim that the software or other products\nof the Reseller bundled with or sold in conjunction with the Products or in\nconnection with this Agreement (\"Reseller Goods\") infringe any patent, trademark\nor copyright of third parties. Such indemnity, however, is specifically\nexclusive of any such claims which arise or result from the use or misuse of\nReseller Goods; alteration of the Reseller Goods as furnished by the Reseller,\nuse of the Reseller Goods in combination with apparatus and software not\ndelivered or furnished by the Reseller other than the Products; processes or\nmethods allegedly performed by the Reseller Goods; use of the Reseller Goods\nfurnished by the Reseller in the manner for which the same were neither designed\nnor contemplated; or a patent, trademark or copyright in which SEL or an\naffiliate or subsidiary of SEL has any direct or indirect interest by license or\notherwise. This indemnification and hold harmless provision shall extend only to\ndamages and costs assessed against SEL embodied in a final judgment by a court\nof competent jurisdiction holding that such Reseller Goods constitute a patent,\ntrademark or copyright infringement or damages and costs incurred by SEL as a\nresult of a settlement entered into with the prior written consent of the\nReseller. The Reseller shall not be responsible for any loss of profits or SEL's\nincidental or consequential damages or losses.\n\nThe Reseller will be promptly notified by SEL of any suit or threat of suit as\nto which the Reseller may have obligations under the above provisions and be\ngiven reasonable opportunity to defend the same. The Reseller shall reasonably\ncooperate with SEL with regard to the defense of any suit or threatened suit and\nSEL shall have authority to settle or otherwise dispose of any such suit or\nthreatened suit, and to appeal any judgment which may be entered. This indemnity\nshall be effective with respect to all Products sold by SEL to the Reseller on\nor after the date set forth above and shall continue until terminated by written\nnotice by SEL to the Reseller upon ten (10) days prior notice. Termination of\nthis indemnity shall not affect its applicability as to Products sold by SEL to\nthe Reseller prior to the termination date thereof.\n\nSECTION 8.0  PRODUCT INDEMNITIES\n\n8.1 BY THE RESELLER: The Reseller shall indemnify and hold harmless all members\nof the Sony Group and their respective officers, directors and employees from\nand against any claims, suits, liabilities, losses, fines, penalties, damages\nand expenses (including reasonable attorneys' and experts' fees and costs)\narising from or incident to the Reseller's software and\/or the Reseller's breach\nof its obligations or responsibilities under this Agreement including, without\nlimitation on the foregoing, its obligations under Section 1.3 of this Article\nIV and Article VI.\n\n8.2 BY SEL: SEL shall provide to the Reseller a Broad Form Vendors Endorsement\nCertificate of Insurance in an amount of [**] evidencing SEL's product liability\ninsurance which Certificate names the Reseller as an additional insured under\nsaid policy. Said policy will provide that the Reseller will be given ten (10)\ndays notice of\n\n                                       -9-\n   10\ntermination of said policy. In the event that SEL's insurance carrier does not\ndefend and indemnify any third party action pursuant to any obligation said\ninsurance carrier may have undertaken as a result of its issuance of such\nCertificate of Insurance, or in the event any third party claim exceeds the\ninsurance limits set forth in this paragraph, SEL agrees to protect, defend,\nhold harmless and indemnify the Reseller against any and all liabilities,\ndamages and actions, directly and solely arising out of any personal injury or\nproperty damage to a third party from its use of the Products sold by SEL to the\nReseller. SEL's obligation to defend the Reseller in connection with such\nindemnity, however, shall terminate with respect to such a claim in the event\nSEL obtains and furnishes to the Reseller information that reasonably supports\nthe conclusion that the Reseller altered the Products or made warranties or\nrepresentation not expressly permitted in writing by SEL.\n\nSECTION 9.0 LIMITATION ON LIABILITY\n\nEXCEPT AS OTHERWISE PROVIDED IN SECTIONS 7.0 AND 8.0, THE LIABILITY OF EITHER\nPARTY, IF ANY, AND THE OTHER PARTY'S SOLE AND EXCLUSIVE REMEDY FOR DAMAGES FOR\nANY CLAIM OF ANY KIND WHATSOEVER WITH RESPECT TO ANY ORDER FOR, OR DELIVERY OF,\nTHE PRODUCTS OR WITH RESPECT TO ANY OF THE PRODUCTS COVERED THEREBY, AND\nREGARDLESS OF THE LEGAL THEORY OR THE DELIVERY OR NON-DELIVERY OF THE PRODUCTS,\nSHALL NOT BE GREATER THAN THE ACTUAL PURCHASE PRICE OF THE PRODUCTS WITH RESPECT\nTO WHICH SUCH CLAIM IS MADE, WITH THE EXCEPTION OF INTEREST OR LATE PENALTIES\nDUE IN RESPECT OF PAYMENT FOR PRODUCTS SHIPPED AND DELIVERED TO RESELLER. UNDER\nNO CIRCUMSTANCES WILL SEL BE LIABLE TO THE RESELLER FOR ANY SPECIAL, INDIRECT,\nINCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, BUT NOT LIMITED TO,\nCOMPENSATION, REIMBURSEMENT OR DAMAGES ON ACCOUNT OF THE LOSS OF PRESENT OR\nPROSPECTIVE PROFITS, EXPENDITURES, INVESTMENTS OR COMMITMENTS, WHETHER MADE IN\nTHE ESTABLISHMENT, DEVELOPMENT OR MAINTENANCE OF BUSINESS REPUTATION OR\nGOODWILL, FOR LOSS OF DATA, COST OF SUBSTITUTE PRODUCTS, COST OF CAPITAL, AND\nTHE CLAIMS OF ANY THIRD PARTY, OR FOR ANY OTHER REASON WHATSOEVER.\n\nSECTION 10.0  TERMINATION\n\n10.1 TERMINATION FOR CAUSE: Either party may immediately terminate this\nAgreement by giving the other notice if such other party:\n\n         a) defaults in the payment of any monies it owes to the other when due\nand such default continues for a period of ten (10) days after notice thereof;\nor,\n\n\n                                      -10-\n   11\n         b) defaults in the performance of any of its obligations under any of\nthe terms or conditions of this Agreement other than as provided in subsection\n(a) above, which default is not remedied within thirty (30) days after notice\nthereof; or,\n\n         c) defaults in the performance of an of its obligations under the terms\nand conditions of this Agreement which default by its nature, cannot be\nremedied; or,\n\n         d) engages directly or indirectly in any attempt to defraud the party\nissuing such notice; or,\n\n         e) issues any press release, advertising, brochure or other release of\ninformation to any of the Customers, the trade or the general public concerning\nor in any way referring to this Agreement or any other agreement or relationship\nbetween the parties without the prior written approval of the party issuing such\nnotice; or,\n\n         (f) is unable to pay any and\/or all of its debts as they become due or\nbecomes insolvent or ceases to pay any and\/or all of its debts as they mature in\nthe ordinary course of business, or makes an assignment for the benefit of its\ncreditors; or,\n\n         g) is liquidated or dissolved or if any proceedings are commenced by,\nfor or against it under any bankruptcy, insolvency, reorganization of debts or\ndebtors relief law, or law providing for the appointment of a receiver or\ntrustee in bankruptcy.\n\nSEL may also immediately terminate this Agreement by notice: 1) pursuant to\nSection 10.3; or 2) upon the occurrence of, or the Reseller's failure to give\nnotice of, any of the events referenced in Section 11.1 (a) - (c).\n\n10.2 REMEDIES FOR BREACH: If the Reseller defaults in its obligations under the\nterms and conditions of this Agreement, then SEL may, in addition to any other\nremedy available to it hereunder or at law therefor, suspend or cease further\nshipments of the Products to the Reseller for a period of time specified in a\nnotice to the Reseller.\n\n10.3 SET-OFF: If the Reseller defaults with respect to this Agreement or any\nother agreement(s) with SEL including, but not limited to, the Reseller's\nfailure to pay any monies when due either pursuant to this Agreement or any\nother such agreement, then SEL may, in its sole discretion, setoff against any\nmonies due and owing the Reseller such sum or sums of money due and owing from\nthe Reseller to SEL pursuant to this Agreement or such other agreement(s),\nand\/or to terminate this Agreement.\n\n\n                                      -11-\n   12\n10.4 SURVIVING OBLIGATIONS AND LIMITATIONS: Neither the termination nor\nexpiration of this Agreement nor the termination of any of the agreements\nreferred to in this Section shall release either party from the obligation to\npay any monies that may be owing to the other party or operate to discharge any\nliability that had been incurred by either party prior to any such termination\nor expiration.\n\n10.5 ORDER PROCEDURE AFTER NOTICE OF TERMINATION: During the period between SEL\ngiving the Reseller notice of this Agreement's termination and the effective\ndate of such termination, all Reseller orders not then fulfilled and all new\nReseller orders for the Products that are accepted by SEL will be shipped to the\nReseller only on a cash in advance basis.\n\nSECTION 11.0 NOTICES\n\n11.1 CHANGE IN STATUS: The Reseller shall give SEL immediate notice in writing\nof:. (a) any transaction effecting a change in control of the Reseller or a\ntransfer of fifty (50) percent or more of the Reseller's assets if the Reseller\nis a corporation; or, (b) any change in the respective interests of the\npartners, if the Reseller is a partnership; or, (c) any transaction affecting\nthe ownership of any part of the business, if the Reseller is an individual\nproprietorship.\n\n11.2 CHANGE IN NAME OR ADDRESS OF THE RESELLER: Each party shall give the other\nprompt notice in writing of any change in the: (a) name of the party, or, (b)\naddress of the party principal office from that first set forth above.\n\n11.3 METHOD OF TRANSMISSION: Any notices given under this Agreement shall be in\nwriting and will be deemed to have been sufficiently given when delivered by\nhand or sent by facsimile transmission (which is acknowledged by the recipient),\novernight courier service or by certified or registered mail, postage and other\ncharges prepaid, to the parties at the addresses first above written or as\nsubsequently changed by notice duly given. The date of mailing any written\nnotice will be deemed the date on which such notice is given unless otherwise\nspecified in the notice.\n\nSECTION 12.0  GENERAL\n\n12.1 EXPORT: The Reseller shall not export the Products covered by this\nAgreement in violation of U.S. export laws and regulations. The Reseller will be\nsolely responsible for compliance with and the obtaining of any required export\nlicenses.\n\n12.2 ASSIGNMENT: Neither party may assign or otherwise transfer this Agreement\nor any interest or right hereunder or delegate the performance of any of its\nobligations hereunder to any third party without the prior written consent of\nthe other party, except that SEL may assign its accounts receivable generated by\nthis Agreement upon commercially reasonable notice thereof to the Reseller. Any\nsuch attempted\n\n                                      -12-\n   13\nassignment, transfer or delegation without the prior written consent of the\nother, will be deemed null and void and result in the immediate termination of\nthis Agreement without necessity of any notice.\n\n12.3 WAIVERS: Waiver by either party of any default, or either party's failure\nto enforce any of the terms and conditions of this Agreement shall not in any\nway affect, limit or waive such party's right thereafter to enforce and compel\nstrict performance of every term and condition hereof.\n\n12.4 NON-EXCLUSIVENESS; REMEDIES: Any specific right or remedy provided in this\nAgreement shall not be exclusive but will be cumulative of all other rights and\nremedies set forth herein and allowed at law.\n\n12.5 LITIGATION: In the event of any litigation between the parties with respect\nto this Agreement, the prevailing party (the party entitled to recover costs of\nsuit at such time as all appeals have been exhausted or the time for taking such\nappeals has expired) shall be entitled to recover reasonable attorneys' and\nexperts' fees, and costs in addition to such other relief as the court may\naward.\n\n12.6 HEADINGS: The headings of Articles and Sections in this Agreement are for\nconvenience and reference only, and they shall in no way define, limit, or\ndescribe the scope of the provisions or be considered in the interpretation,\nconstruction or enforcement hereof.\n\n12.7     GOVERNING LAW AND VENUE:\n\nThis Agreement shall be interpreted, construed and enforced in accordance with\nthe local law of the State of New Jersey.\n\nIf SEL initiates any litigation against the Reseller, it shall only bring such\naction or suit in the federal or state court with appropriate jurisdiction over\nthe subject matter established or sitting in the State of Massachusetts. If the\nReseller initiates any litigation against SEL, it shall only bring such action\nor suit in the federal or state court with appropriate jurisdiction over the\nsubject matter established or sitting in the State of New Jersey. The parties\nshall not raise in connection therewith, and hereby waive, and any defenses\nbased upon the venue, the inconvenience of the forum, the lack of personal\njurisdiction, or the like in any such action or suit brought in such states.\n\nTHE PARTIES HEREBY WAIVE TRIAL, BY JURY IN CONNECTION WITH ANY ACTION OR SUIT\nUNDER THIS AGREEMENT OR OTHERWISE ARISING FROM THE REIATIONSHIP OF THE PARTIES\nHERETO.\n\n\n                                      -13-\n   14\n12.8 INVALIDITY: If and to the extent that any term or condition of this\nAgreement is specifically determined by any court to be in whole or in part\ninvalid or unenforceable, then this Agreement shall be immediately terminated\nupon such determination. However, such termination will not operate to discharge\neither party from the obligation to pay the other party any sum due such other\nparty or discharge any liability that had been incurred prior thereto.\n\n12.9 SURVIVAL: Any provision herein which by its nature is indicated or intended\nto extend beyond the expiration or termination of this Agreement shall survive\nany expiration or termination of this Agreement.\n\n12.10 GOVERNMENT CONTRACTS: No provision required in any United States\ngovernment contract or subcontract related thereto shall be deemed a part of\nthis Agreement, or be imposed upon or binding upon SEL, and this Agreement will\nnot be deemed an acceptance of any government provisions that may be included or\nreferred to in any Reseller order or other purchasing document.\n\nSECTION 13.0 FORCE MAJEURE\n\nNEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY DELAY IN THE PERFORMANCE OF\nANY OF ITS OBLIGATIONS HEREUNDER DUE TO ANY CAUSE BEYOND SUCH PARTY'S REASONABLE\nCONTROL OR DUE TO ACTS OF GOD, ACTS OF CIVIL OR MILITARY AUTHORITIES, FIRES,\nLABOR DISTURBANCES, FLOODS, EPIDEMICS, GOVERNMENTAL RULES OR REGULATIONS, WAR,\nRIOT, DELAYS IN TRANSPORTATION OR SHORTAGES IN RAW MATERIALS OR OTHER PRODUCTS.\nTHIS SECTION SHALL NOT RELIEVE OR RELEASE EITHER PARTY FROM ITS OBLIGATION TO\nMAKE PAYMENT WHEN DUE OF ANY MONIES WHICH EITHER PARTY MAY OWE TO THE OTHER.\n\n                                    ARTICLE V\n                      INCORPORATION\/ ENTIRETY OF AGREEMENT\n\nThis Agreement supersedes, terminates and otherwise renders null and void any\nand all prior written and\/or oral agreements between the Reseller and SEL with\nrespect to the matters herein expressly set forth, except that nothing herein\ncontained shall be construed as intended to relieve or release either party from\nits obligation to make payment of any monies which either party may owe to the\nother party. This Agreement represents and incorporates the entire understanding\nof the parties hereto with respect to the matters herein expressly set forth and\neach party acknowledges that there are no warranties, representations, covenants\nor understandings of any kind, nature or description whatsoever made by either\nparty to the other, except as are herein expressly set forth. This Agreement may\nbe modified only by a written instrument signed by the\n\n                                      -14-\n   15\nparties to this Agreement, which instrument makes specific reference to this\nAgreement and the changes to be made hereto.\n\nThe Reseller hereby warrants and represents that the individual executing this\nAgreement is duly authorized and empowered to bind the Reseller. This Agreement\nshall be subject to acceptance by SEL through its execution in the space\nprovided below by an authorized representative only.\n\nIN WITNESS WHEREOF, the parties have entered into this Agreement as of the date\nfirst above written.\n\nReseller:                                            SEL:\nDRAGON SYSTEMS, INC.                        SONY CONSUMER AUDIO\/VIDEO GROUP\n                                                     SONY ELECTRONICS INC.\n\nBy: \\s\\ Janet M. Baker                      By: \\s\\ Arthur Halloran    \n   ----------------------------                 ------------------------------\n     (Authorized Signature)                         (Authorized Signature)\n\nPrint Name: Janet M. Baker                  Print Name: Arthur Halloran \n   ----------------------------                 ------------------------------\n* Title:  President                         Title: Vice President               \n   ----------------------------                 ------------------------------\n\n*        Execution of this Agreement: If the Reseller is a corporation, indicate\n         the office of the person signing the Agreement on behalf of the\n         corporation. If the Reseller is a partnership, the same should be\n         signed by a general partner, who should so indicate by use of the word\n         \"General Partner\". If the Reseller is an individual proprietorship, the\n         same should be indicated by use of the title \"Sole Proprietor\".\n\n\n                                      -15-\n   16\n                                   ARTICLE VI\n                           PRODUCT AND MARKET SCHEDULE\n\n\nWith              DRAGON SYSTEMS, INC.                        (\"Reseller\")\n\nDated as of       May 15,1998                                 (\"Effective Date\")\n\n1. CLASSIFICATION. Pursuant to Article III (b) of this Agreement, the Reseller\nagrees that it will only sell the Products by adding value to them as described\nbelow and reselling same to Customers in the manner set forth in this Schedule.\n\n2. PRODUCTS. Pursuant to Article III (f) \"Products\" shall include and mean only\nthe following:\n\n                  MZ-R50 Minidisc recorder units and other Minidisc products as\nSEL may authorize from time to time.\n\n3. VALUE-ADDED COMPONENT. Pursuant to Article III (i), the \"Value-Added\nComponent\" shall mean only Dragon's speech recognition software utilized in\n\n         (a)      Dragon NaturallySpeaking Mobile Suite for Legal;\n\n         (b)      Dragon NaturallySpeaking Mobile Suite for Medical; and\n\n         (c)      Dragon NaturallySpeaking Mobile Suite\n\n4.       SPECIAL MARKETING REQUIREMENTS.\n\n         (a) The Reseller agrees that it shall only sell the Products as part of\nthe Bundle described above. In all instances, the packaging, MZ-R50 advertising\nand related marketing materials for the Bundle must clearly and conspicuously\nstate; (i) the then current MZ-R50 (or other Product) MSRP as provided by SEL\nand (ii) that the MZ-R50 (or other Product) is being included in the Bundle as a\nspecial promotional offer. In addition, the Reseller agrees that it shall\nsticker both the Products and the Value-Added Component in each Bundle to\nindicate that they are not to be sold separately.\n\n         (b) Notwithstanding the foregoing, the Reseller may sell the MZ-R50\nProduct to end-user customers of the Reseller who have previously purchased\nDragon NaturallySpeaking Deluxe or Professional versions, including Legal,\nMedical, Business Products and other products as our mutually agreed on a\none-for-one purchase basis.\n\n\n                                      -16-\n   17\n         (c) The Reseller may promote the availability of the Bundle on the\nInternet only on its Website, and may sell it on the Internet or its Website\n(i.e. takes orders for the Bundle via the Internet or its Website). The Reseller\nmay not promote or offer for sale the MZ-R50 by itself on the Internet or its\nWebsite, but may advise purchasers of its Dragon NaturallySpeaking Mobile\nProducts of the availability of an upgrade subject to SEL's prior review and\napproval of such upgrade offer.\n\n5. APPROVALS. Prior to distributing the Bundle, the Reseller must obtain SEL's\nwritten approval of the packaging and any representations the Reseller may wish\nto make regarding the Product. In addition, neither party will issue any press\nreleases or other publicity (including on the Internet or any on-line method)\nregarding this Agreement or the relationship between the parties without the\nprior written approval of the other party, which shall not be unreasonably\nwithheld.\n\n6.       ADDITIONAL RESELLER RESPONSIBILITIES.  The Reseller\n\n         (a) will ensure that the Value-Added Components work properly with the\nProducts prior to distributing the Bundles;\n\n         (b) will sell the Product with Product-related materials in a mutually\nacceptable manner,\n\n         (c) shall not sell the Products in any manner other than in the Bundle,\nexcept as provided in 4.(b) above. In the event the Product is sold unbundled by\nthe Reseller or any of its Customers in violation hereof, the Reseller shall be\nliable to SEL for the full retail price of the Bundle. In addition, SEL shall\nhave the, right to terminate this Agreement pursuant to Section 10.1 (b).\n\n         (d) shall not accept returns of Bundles from its Customer and shall\nrequire that its Reseller Customer not accept returns from end-users unless all\ncomponents of the Bundle are returned. Notwithstanding the foregoing, SEL shall\nnot accept any returns from the Reseller, but shall provide its limited warranty\nto end-users as per Section 10 below;\n\n         (e) will maintain and enforce on a commercially-reasonable basis, the\nReseller's Customer agreements for the Bundle that are consistent with the\nReseller's obligations hereunder, including contractual provisions that\n\n                  (i) such Customer not sell the components of the Bundle\nseparately or in any manner other than as received from the Reseller;\n\n                  (ii) such Customer shall be liable to the Reseller for the\nfull retail price of the Product plus any cost of collection in the event it is\nsold unbundled;\n\n\n                                      -17-\n   18\n          Confidential Materials omitted and filed separately with the\n        Securities and Exchange Commission. Asterisks denote omissions.\n\n\n                  (iii) such Customer shall maintain proof of bundled sale for\ntwo years;\n\n                  (iv) such Customer shall allow the Reseller and\/or SEL to\naccess an Customer's records for two years from the date of sale of Bundles to\nverify compliance;\n\n                  (v) such Customer shall bind its distributors\/resellers of the\nBundle of this Paragraph 6 (e); and\n\n                  (vi) sales of the Bundle may be suspended and Bundles recalled\nif any such reseller is in breach of these requirements;\n\n         (f) will obtain and\/or maintain customer service support functions\nsufficient to meet all reasonable inquiries and needs of end-user Bundle\npurchasers. SEL will provide a one-time training session for up to [**] people\nat [**] to the Reseller at the Reseller's facilities.\n\n7. PRICES. The price for the Products shall be as notified to the Reseller by\nSEL from time to time. All pricing is subject to increase and\/or adjustment in\naccordance with Sections 3.2 and 3.3 of Article IV of this Agreement. All\npricing is F.O.B. [**]. Current payment terms are [**] days subject to the\nprovisions of Section 6.0 of Article IV of this Agreement.\n\n\n                                      -18-\n   19\n8. CUSTOMER\/MARKET DEFINITION. Pursuant to Article III (e), the Reseller agrees\nthat it will only sell the Products to individuals, the government or resellers\nwho directly reach business\/medical\/legal professionals located in the United\nStates of America. The Reseller will require reseller customers to sell the\nBundle as such and not separately and that its end-user customers are purchasing\nsuch Bundles for their use and not for resale.\n\n9. WARRANTY\n\n         DIVISION'S LIMITED WARRANTY. SEL's warranty for each of the Products\nshall be to the end-user only as set forth in SEL's Limited Warranty Card\nenclosed with or accompanying the Products. If any Products are not accompanied\nby warranty cards, SEL's then-current warranty applicable to those Products will\napply.\n\n10. SERVICE. The Reseller will direct all of its customers and end-users of the\nBundle to contact the Reseller through the Reseller's toll-free number regarding\nall end-user Bundle performance inquiries, complaints and claims to determine\nwhether the performance problem relates to the Value-Added Component or the\nProduct. If the Product appears to be involved, the Reseller only then will\nrefer said end-user to SEL by a mechanism to be determined by the parties.\n\nDRAGON SYSTEMS, INC.                        SONY CONSUMER AUDICI\/VIDEO GP.\n(Name of Reseller)                                   SONY ELECTRONICS INC.\n\nBy: \\s\\ Janet M. Baker                      By: \\s\\ Arthur Halloran           \n   ----------------------------                 ------------------------------\n       (Authorized Signature)                        (Authorized Signature)\n\nPrint Name: Janet M. Baker                  Print Name: Arthur Halloran       \n   ----------------------------                 ------------------------------\nTitle: President                                     Title: Vice President    \n   ----------------------------                 ------------------------------\n\n\n                                      -19-\n\n\n\n\n\n<type>EX-10.20\n\n<sequence>14\n\n<description>FLEET LETTER AGREEMENT\n\n\n   1\n\n                              DRAGON SYSTEMS, INC.\n                                320 Nevada Street\n                                Newton, MA 02160\n\n                                                             December 24, 1998\n\nFleet National Bank\nOne Federal Street\nBoston, MA  02110\n\nGentlemen:\n\n     This letter agreement will set forth certain understandings between Dragon\nSystems, Inc., a Delaware corporation (the \"Borrower\") and Fleet National Bank\n(the \"Bank\") with respect to Revolving Loans (hereinafter defined) to be made by\nthe Bank to the Borrower, with respect to letters of credit which may hereafter\nbe issued by the Bank for the account of the Borrower and with respect to other\nfacilities to be provided by the Bank for the Borrower. In consideration of the\nmutual promises contained herein and in the other documents referred to below,\nand for other good and valuable consideration, receipt and sufficiency of which\nare hereby acknowledged, the Borrower and the Bank agree as follows:\n\n     I. AMOUNTS AND TERMS\n\n     1.1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain\n$6,000,000 principal amount promissory note (the \"Revolving Note\") of even date\nherewith made by the Borrower and payable to the order of the Bank, (ii) that\ncertain Inventory and Accounts Receivable Security Agreement and that certain\nSupplementary Security Agreement - Security Interest in Goods and Chattels, each\nof even date herewith, from the Borrower to the Bank (collectively, the\n\"Security Agreement\"), and (iii) a pledge agreement (the \"Pledge\") from the\nBorrower to the Bank with respect to the capital stock of Dragon Systems\nSecurities, Inc. (\"Securities Corp.\") and a related letter of representations\nfrom Securities Corp.\n\n     1.2. THE BORROWING; REVOLVING NOTE. Subject to the terms and conditions\nhereinafter set forth, the Bank will make loans (\"Revolving Loans\") to the\nBorrower, in such amounts as the Borrower may request, on any Business Day prior\nto the first to occur of (i) the Expiration Date, or (ii) the earlier\ntermination of the within-described revolving financing arrangements pursuant to\nss.5.2 or ss.6.7; provided, however, that (1) the aggregate principal amount of\nRevolving Loans advanced under this ss.1.2 and outstanding shall at no time\nexceed $4,000,000 and (2) the Aggregate Bank Liabilities (hereinafter defined)\nshall at no time exceed the Borrowing Base (hereinafter defined). Within such\nlimits, and subject to the terms and conditions hereof, the Borrower may obtain\nRevolving Loans, repay Revolving Loans and obtain Revolving Loans again on one\nor more occasions. The Revolving Loans \n\n\n   2\n\n\nshall be evidenced by the Revolving Note and interest thereon shall be payable\nat the times and at the rate provided for in the Revolving Note. Overdue\nprincipal of the Revolving Loans and, to the extent permitted by law, overdue\ninterest shall bear interest at a fluctuating rate per annum which at all times\nshall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the per\nannum rate otherwise payable under the Revolving Note (but in no event in excess\nof the maximum rate from time to time permitted by then applicable law),\ncompounded monthly and payable on demand. The Borrower hereby irrevocably\nauthorizes the Bank to make or cause to be made, on a schedule attached to the\nRevolving Note or on the books of the Bank, at or following the time of making\neach Revolving Loan and of receiving any payment of principal, an appropriate\nnotation reflecting such transaction and the then aggregate unpaid principal\nbalance of the Revolving Loans. The amount so noted shall constitute presumptive\nevidence as to the amount owed by the Borrower with respect to principal of the\nRevolving Loans. Failure of the Bank to make any such notation shall not,\nhowever, affect any obligation of the Borrower or any right of the Bank\nhereunder or under the Revolving Note. All payments of interest, principal and\nany other sum payable hereunder and\/or under the Revolving Note and\/or with\nrespect to any of the other Obligations shall be made to the Bank, in lawful\nmoney of the United States in immediately available funds, at its office at One\nFederal Street, Boston, MA 02110 or to such other address as the Bank may from\ntime to time direct. All payments received by the Bank after 2:00 p.m. on any\nday shall be deemed received as of the next succeeding Business Day. All monies\nreceived by the Bank shall be applied first to fees, charges, costs and expenses\npayable to the Bank under this letter agreement, the Revolving Note and\/or any\nof the other Loan Documents and\/or with respect to any of the other Obligations,\nnext to interest then accrued on account of any Revolving Loans or letter of\ncredit reimbursement obligations or on any of the other Obligations and only\nthereafter to principal of the Revolving Loans, the letter of credit\nreimbursement obligations and the other Obligations. All interest and fees\npayable hereunder and\/or under the Revolving Note and\/or with respect to any of\nthe other Obligations shall be calculated on the basis of a 360-day year for the\nactual number of days elapsed.\n\n     1.3. REPAYMENT; RENEWAL. The Borrower shall repay in full all Revolving\nLoans and all interest thereon upon the first to occur of: (i) the Expiration\nDate or (ii) an acceleration under ss.5.2(a) following an Event of Default. The\nBorrower may repay, at any time, without penalty or premium, the whole or any\nportion of any Revolving Loan. In addition, if at any time the Borrowing Base is\nin an amount which is less than the then outstanding Aggregate Bank Liabilities,\nthe Borrower will forthwith pay so much of the Revolving Loans as may be\nrequired (or arrange for the termination of such letters of credit as may be\nrequired) so that the Aggregate Bank Liabilities will not exceed the Borrowing\nBase. The Bank may, at its sole discretion, renew the financing arrangements\ndescribed in this letter agreement by extending the Expiration Date in a writing\nsigned by the Bank and accepted by the Borrower. Neither the inclusion in this\nletter agreement or elsewhere of covenants relating to periods of time after the\nExpiration Date, nor any other provision hereof, nor any action (except a\nwritten extension pursuant to the immediately preceding sentence), non-action or\ncourse of dealing on the part of the Bank will be deemed an extension of, or\n\n\n                                      -2-\n\n\n   3\n\n\nagreement on the part of the Bank to extend, the Expiration Date.\n\n     1.4. ADVANCES AND PAYMENTS. The proceeds of all Revolving Loans shall be\ncredited by the Bank to a general deposit account maintained by the Borrower\nwith the Bank. The proceeds of each Revolving Loan will be used by the Borrower\nsolely for working capital purposes.\n\n     The Bank may charge any general deposit account of the Borrower at the Bank\nwith the amount of all payments of interest, principal and other sums due, from\ntime to time, under this letter agreement and\/or the Revolving Note and\/or with\nrespect to any letter of credit and\/or with respect to any of the other\nObligations; and will thereafter notify the Borrower of the amount so charged.\nThe failure of the Bank so to charge any account or to give any such notice\nshall not affect the obligation of the Borrower to pay interest, principal or\nother sums as provided herein or in the Revolving Note or with respect to any\nletter of credit or with respect to any of the other Obligations.\n\n     Whenever any payment to be made to the Bank hereunder or under the\nRevolving Note or with respect to any letter of credit or with respect to any of\nthe other Obligations shall be stated to be due on a day which is not a Business\nDay, such payment may be made on the next succeeding Business Day, and interest\npayable on each such date shall include the amount thereof which shall accrue\nduring the period of such extension of time. All payments by the Borrower\nhereunder and\/or in respect of the Revolving Note and\/or with respect to any\nletter of credit or any of the other Obligations shall be made net of any\nimpositions or taxes and without deduction, set-off or counterclaim,\nnotwithstanding any claim which the Borrower may now or at any time hereafter\nhave against the Bank.\n\n     1.5. LETTERS OF CREDIT. At the Borrower's request, the Bank may from time\nto time, in its sole discretion, issue one or more letters of credit for the\naccount of the Borrower; provided that at the time of such issuance and after\ngiving effect thereto (A) the aggregate stated amounts of all letters of credit\nissued under this paragraph will not exceed $2,000,000 and (B) the Aggregate\nBank Liabilities will not exceed the then effective Borrowing Base. Any such\nletter of credit will be issued for such fee and upon such terms and conditions\nas may be agreed to by the Bank and the Borrower at the time of issuance. The\nBorrower hereby authorizes the Bank, without further request from the Borrower,\nto cause the Borrower's liability to the Bank for reimbursement of funds drawn\nunder any such letter of credit to be repaid from the proceeds of a Revolving\nLoan to be made hereunder. The Borrower hereby irrevocably requests that such\nRevolving Loans be made, and same will be deemed advanced at the discretion of\nthe Bank and applied to repayment of the Borrower's reimbursement obligations\neven if the conditions to advance contained in ss.1.8 are not then met and even\nif the aggregate Revolving Loans outstanding would thereupon exceed $4,000.000.\n\n     1.6. ACH TRANSACTIONS. The Bank may from time to time prior the Expiration\n\n\n                                      -3-\n\n\n   4\n\n\nDate, at the request of the Borrower, initiate automated clearinghouse (\"ACH\")\ntransactions for the Borrower; provided that the Bank's total ACH Exposure shall\nnot (unless otherwise agreed by the Bank in its sole discretion) exceed\n$3,000,000 at any one time. ACH transactions will bear such fees and charges and\nas may be agreed upon by the Bank and the Borrower and will be governed by the\nBank's then current documentation and practices with respect to such\ntransactions. As used herein, \"ACH Exposure\" as determined at any date means the\nsum of (i) all amounts then owed by the Borrower to the Bank in connection with\nany ACH transaction pursuant to which the Bank has advanced funds on behalf of\nthe Borrower PLUS (ii) the maximum amount which could be owed by the Borrower\n(assuming settlement within two (2) Business Days of each date when funds are\nadvanced) to the Bank in connection with all ACH transactions then authorized by\nthe Borrower but as to which the Bank has not yet advanced funds.\n\n     1.7. FOREIGN EXCHANGE CONTRACTS. During the term of this letter agreement\nand subject to the terms and conditions hereof, the Bank may from time to time\nprior to the Expiration Date, at the Borrower's request, provide to the Borrower\none or more forward contracts (\"Foreign Exchange Contracts\") for the purchase by\nthe Borrower of foreign currency from the Bank; provided that (i) each such\nForeign Exchange Contract will be at such pricing as the Bank and the Borrower\nmay agree at the time of execution of such Foreign Exchange Contract, (ii) the\ndocumentation for each such Foreign Exchange Contract will be in such form as is\nthen customarily used by the Bank for transactions of this type, (iii) the\nForeign Exchange Contracts will be used by the Borrower to minimize its exposure\nto the fluctuation of the value of those foreign currencies in which payments\nare expected to be made to the Borrower by customers or in which the Borrower is\nrequired to make payments to suppliers, (iv) the United States Dollar equivalent\nof all amounts subject to the Foreign Exchange Contracts will not exceed\n$2,000,000 in the aggregate and (v) the F\/X Exposure will at no time exceed\n$300,000. As used herein, \"F\/X Exposure\" as determined at any date means the sum\nof (i) all amounts then owed by the Borrower to the Bank in connection with\nsettlement of any Foreign Exchange Contract, PLUS (ii) the maximum two-day\nsettlement amount for all then outstanding Foreign Exchange Contracts.\n\n     1.8. CONDITIONS TO ADVANCE. Prior to the making of the initial Revolving\nLoan or the issuance of any letter of credit hereunder or the initiation of any\nACH transaction or the issuance of any Foreign Exchange Contract hereunder, the\nBorrower shall deliver to the Bank duly executed copies of this letter\nagreement, the Security Agreement, the Revolving Note and the documents and\nother items listed on the Closing Agenda delivered herewith by the Bank to the\nBorrower, all of which shall be satisfactory in form and substance to the Bank\nand its counsel.\n\n     Without limiting the foregoing, any Revolving Loan or letter of credit\nissuance or ACH transaction or the issuance of a Foreign Exchange Contract\n(including the initial Revolving Loan, letter of credit issuance, ACH\ntransaction or the issuance of a Foreign Exchange Contract) is subject to the\nfurther conditions precedent (listed in clauses (a) - (d) \n\n\n                                      -4-\n\n\n   5\n\n\nbelow) that on the date on which such Revolving Loan is made or such letter of\ncredit is issued or such ACH transaction is initiated or such Foreign Exchange\nContract is issued (and after giving effect thereto):\n\n     (a) All statements, representations and warranties of the Borrower made in\nthis letter agreement and\/or in the Security Agreement shall continue to be\ncorrect in all material respects as of the date of such Revolving Loan or the\ndate of issuance of such letter of credit or the date of such ACH transaction or\nthe date of issuance of such Foreign Exchange Contract, as the case may be,\nexcept any such statements, representations and warranties which are\nspecifically stated herein as being made as of a particular date.\n\n     (b) All covenants and agreements of the Borrower contained herein and\/or in\nany of the other Loan Documents shall have been complied with in all material\nrespects on and as of the date of such Revolving Loan or the date of issuance of\nsuch letter of credit or the date of such ACH transaction or the date of\nissuance of such Foreign Exchange Contract, as the case may be.\n\n     (c) No event which constitutes, or which with notice or lapse of time or\nboth could constitute, an Event of Default shall have occurred and be\ncontinuing.\n\n     (d) No material adverse change shall have occurred in the financial\ncondition of the Borrower from that disclosed in the financial statements then\nmost recently furnished to the Bank.\n\n     Each request by the Borrower for any Revolving Loan or for the issuance of\nany letter of credit or for any ACH transaction or for the issuance of any\nForeign Exchange Contract, and each acceptance by the Borrower of the proceeds\nof any Revolving Loan or delivery of a letter of credit or delivery of a Foreign\nExchange Contract, will be deemed a representation and warranty by the Borrower\nthat at the date of any such event, and after giving effect thereto, all of the\nconditions set forth in the foregoing clauses (a)-(d) of this ss.1.8 will be\nsatisfied. Each request for a Revolving Loan or letter of credit issuance will\nbe accompanied by a Borrowing Base certificate on a form satisfactory to the\nBank, executed by the chief financial officer of the Borrower, unless such a\ncertificate shall have been previously furnished as required by clause (iv) of\nss.3.6 setting forth the Borrowing Base as at the most recent month-end prior to\nthe date of the requested borrowing or the requested letter of credit issuance,\nas the case may be.\n\n     II. REPRESENTATIONS AND WARRANTIES\n\n     2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter\ninto this letter agreement and to make Revolving Loans hereunder and\/or issue\nletters of credit hereunder and\/or engage in ACH transactions for the Borrower\nand\/or issue Foreign Exchange Contracts, the Borrower warrants and represents to\nthe Bank as follows:\n\n\n                                      -5-\n\n\n   6\n\n\n     (a) The Borrower is a corporation duly organized, validly existing and in\ngood standing under the laws of Delaware. The Borrower has full corporate power\nto own its property and conduct its business as now conducted, to grant the\nsecurity interests contemplated by the Security Agreement and to enter into and\nperform this letter agreement and the other Loan Documents. The Borrower is duly\nqualified to do business and is in good standing in Massachusetts and is also\nduly qualified to do business in and is in good standing in each other\njurisdiction in which the Borrower maintains any facility, sales office,\nwarehouse or other location, and in each other jurisdiction where the failure so\nto qualify could (singly or in the aggregate with all other such failures) have\na material adverse effect on the financial condition, business or prospects of\nthe Borrower, all such jurisdictions being listed on item 2.1(a) of the attached\nDisclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,\nexcept as shown on said item 2.1(a) of the attached Disclosure Schedule. The\nBorrower is not a member of any partnership or joint venture.\n\n     (b) At the date of this letter agreement, all of the outstanding capital\nstock of the Borrower is owned, of record and beneficially, as set forth on item\n2.1(b) of the attached Disclosure Schedule.\n\n     (c) The execution, delivery and performance by the Borrower of this letter\nagreement and each of the other Loan Documents have been duly authorized by all\nnecessary corporate and other action and do not and will not:\n\n          (i) violate any provision of, or require (as a prerequisite to\n     effectiveness) any filings (other than filings under the Uniform Commercial\n     Code), registration, consent or approval under, any law, rule, regulation,\n     order, writ, judgment, injunction, decree, determination or award presently\n     in effect having applicability to the Borrower;\n\n          (ii) violate any provision of the charter or by-laws of the Borrower,\n     or result in a breach of or constitute a default or require any waiver or\n     consent under any indenture or loan or credit agreement or any other\n     material agreement, lease or instrument to which the Borrower is a party or\n     by which the Borrower or any of its properties may be bound or affected or\n     require any other consent of any Person; or\n\n          (iii) result in, or require, the creation or imposition of any lien,\n     security interest or other encumbrance (other than in favor of the Bank)\n     upon or with respect to any of the properties now owned or hereafter\n     acquired by the Borrower.\n\n     (d) This letter agreement and each of the other Loan Documents has been\nduly executed and delivered by the Borrower and each is a legal, valid and\nbinding obligation of the Borrower, enforceable against the Borrower in\naccordance with its respective terms.\n\n     (e) Except as described on item 2.1(e) of the attached Disclosure Schedule,\nthere are no actions, suits, proceedings or investigations pending or, to the\nknowledge of the \n\n\n                                      -6-\n\n\n   7\n\n\nBorrower, threatened by or against the Borrower or any Subsidiary before any\ncourt or governmental department, commission, board, bureau, agency or\ninstrumentality, domestic or foreign, which could hinder or prevent the\nconsummation of the transactions contemplated hereby or call into question the\nvalidity of this letter agreement or any of the other Loan Documents or any\naction taken or to be taken in connection with the transactions contemplated\nhereby or thereby or which in any single case or in the aggregate might result\nin any material adverse change in the business, prospects, condition, affairs or\noperations of the Borrower or any Subsidiary.\n\n     (f) The Borrower is not in violation of any term of its charter or by-laws\nas now in effect. Neither the Borrower nor any Subsidiary of the Borrower is in\nmaterial violation of any term of any mortgage, indenture or judgment, decree or\norder, or any other instrument, contract or agreement to which it is a party or\nby which any of its property is bound which in any single case or in the\naggregate might result in any material adverse change in the business,\nprospects, condition, affairs or operations of the Borrower or any Subsidiary.\n\n     (g) The Borrower has filed (and has caused each of its Subsidiaries to\nfile) all federal, state and local tax returns, reports and estimates required\nto be filed by the Borrower and\/or by any such Subsidiary. All such filed\nreturns, reports and estimates are proper and accurate and the Borrower or the\nrelevant Subsidiary has paid all taxes, assessments, impositions, fees and other\ngovernmental charges required to be paid in respect of the periods covered by\nsuch returns, reports or estimates. No deficiencies for any tax, assessment or\ngovernmental charge have been asserted or assessed, and the Borrower knows of no\nmaterial tax liability or basis therefor.\n\n     (h) The Borrower is in compliance (and each Subsidiary of the Borrower is\nin compliance) with all requirements of law, federal, state and local, and all\nrequirements of all governmental bodies or agencies having jurisdiction over it,\nthe conduct of its business, the use of its properties and assets, and all\npremises occupied by it, failure to comply with any of which could (singly or in\nthe aggregate with all other such failures) have a material adverse effect upon\nthe assets, business, financial condition or prospects of the Borrower or any\nsuch Subsidiary. Without limiting the foregoing, the Borrower has all the\nfranchises, licenses, leases, permits, certificates and authorizations needed\nfor the conduct of its business and the use of its properties and all premises\noccupied by it, as now conducted, owned and used.\n\n     (i) The audited financial statements of the Borrower as at December 31,\n1997 and the management-generated statements of the Borrower as at September 30,\n1998, each heretofore delivered to the Bank, are complete and accurate and\nfairly present the financial condition of the Borrower as at the respective\ndates thereof and for the periods covered thereby, except that the\nmanagement-generated statements do not have footnotes and thus do not present\nthe information which would normally be contained in footnotes to financial\nstatements. Neither the Borrower nor any of the Borrower's Subsidiaries has any\nliability, contingent or otherwise, not disclosed in the aforesaid financial\nstatements or in any notes \n\n\n                                      -7-\n\n\n   8\n\n\nthereto that could materially affect the financial condition of the Borrower.\nSince December 31, 1997, there has been no material adverse development in the\nbusiness, condition or prospects of the Borrower, and the Borrower has not\nentered into any transaction other than in the ordinary course, other than the\nsale of its interest in Articulate Systems, Inc.\n\n     (j) The principal place of business and chief executive office of the\nBorrower are located at 320 Nevada Street, Newton, MA 02160. All of the books\nand records of the Borrower are located at said address. Except as described on\nitem 2.1(j) of the attached Disclosure Schedule, no assets of the Borrower are\nlocated at any other address. Said item 2.1(j) of the attached Disclosure\nSchedule sets forth the names and addresses of all record owners of any premises\nwhere any material amount of Collateral is located.\n\n     (k) The Borrower owns or has a valid right to use all of the patents,\nlicenses, copyrights, trademarks, trade names and franchises now being used to\nconduct its business. The conduct of the Borrower's business as now operated\ndoes not conflict with valid patents, licenses, copyrights, trademarks, trade\nnames or franchises of others in any manner that could materially adversely\naffect the business, prospects, assets or condition, financial or otherwise, of\nthe Borrower.\n\n     (l) None of the executive officers or key employees of the Borrower is\nsubject to any agreement in favor of anyone other than the Borrower which limits\nor restricts that person's right to engage in the type of business activity\nconducted or proposed to be conducted by the Borrower or which grants to anyone\nother than the Borrower any rights in any inventions or other ideas susceptible\nto legal protection developed or conceived by any such officer or key employee.\n\n     (m) The Borrower is not a party to any contract or agreement which now has\nor, as far as can be foreseen by the Borrower at the date hereof, may have a\nmaterial adverse effect on the financial condition, business, prospects or\nproperties of the Borrower.\n\n     (n) The Borrower has reviewed the software which it uses in its business\nfor \"Year 2000\" compliance and has determined that such software will continue\nto function in the manner intended without material interruption of service or\nother difficulty resulting from the \"Year 2000 problem\". The Borrower will, at\nthe request of the Bank, provide such reports and other information as the Bank\nmay reasonably request in order to evidence such Year 2000 compliance.\n\n\n                                      -8-\n\n\n   9\n\n\n     III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS\n\n     Without limitation of any other covenants and agreements contained herein\nor elsewhere, the Borrower agrees that so long as the financing arrangements\ncontemplated hereby are in effect or any Revolving Loan or any of the other\nObligations shall be outstanding or any letter of credit issued hereunder shall\nbe outstanding or any Foreign Exchange Contract shall be outstanding or any\namount shall be owed by the Borrower in respect of any ACH transaction or any\nForeign Exchange Contract:\n\n     3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will maintain\n(and will cause each Subsidiary of the Borrower to maintain) its corporate\nexistence and good standing in the jurisdiction of its incorporation. The\nBorrower will remain qualified to do business and in good standing in\nMassachusetts. The Borrower will qualify to do business and will remain\nqualified and in good standing (and the Borrower will cause each Subsidiary of\nthe Borrower to qualify and remain qualified and in good standing) in each\njurisdiction where the Borrower or such Subsidiary, as the case may be,\nmaintains any plant, sales office, warehouse or other facility and in each other\njurisdiction in which the failure so to qualify could (singly or in the\naggregate with all other such failures) have a material adverse effect on the\nfinancial condition, business or prospects of the Borrower or any such\nSubsidiary. The Borrower will comply (and will cause each Subsidiary of the\nBorrower to comply) with its charter documents and by-laws, to the extent\napplicable. The Borrower will comply with (and will cause each Subsidiary of the\nBorrower to comply with) all applicable laws, rules and regulations (including,\nwithout limitation, ERISA and those relating to environmental protection) other\nthan (i) laws, rules or regulations the validity or applicability of which the\nBorrower or such Subsidiary shall be contesting in good faith by proceedings\nwhich serve as a matter of law to stay the enforcement thereof and (ii) those\nlaws, rules and regulations the failure to comply with any of which could not\n(singly or in the aggregate) have a material adverse effect on the financial\ncondition, business or prospects of the Borrower or any such Subsidiary.\n\n     3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain and\npreserve (and will cause each Subsidiary of the Borrower to maintain and\npreserve) all of its fixed assets in good working order and condition, making\nall necessary repairs thereto and replacements thereof. The Borrower will\nmaintain all such insurance as may be required under the Security Agreement and\nwill also maintain, with financially sound and reputable insurers, insurance\nwith respect to its property and business against such liabilities, casualties\nand contingencies and of such types and in such amounts as shall be reasonably\nsatisfactory to the Bank from time to time and in any event all such insurance\nas may from time to time be customary for companies conducting a business\nsimilar to that of the Borrower in similar locales, with the Bank named as loss\npayee with respect to all Collateral.\n\n     3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and discharge (and\nwill cause each Subsidiary of the Borrower to pay and discharge) all taxes,\nassessments and \n\n\n                                      -9-\n\n\n   10\n\n\ngovernmental charges or levies imposed upon it or upon its income or property,\nincluding, without limitation, taxes, assessments, charges or levies relating to\nreal and personal property, franchises, income, unemployment, old age benefits,\nwithholding, or sales or use, prior to the date on which penalties would attach\nthereto, and all lawful claims (whether for any of the foregoing or otherwise)\nwhich, if unpaid, might give rise to a lien upon any property of the Borrower or\nany such Subsidiary, except any of the foregoing which is being contested in\ngood faith and by appropriate proceedings which serve as a matter of law to stay\nthe enforcement thereof and for which the Borrower (or such Subsidiary, as the\ncase may be) has established and is maintaining adequate reserves. The Borrower\nwill pay, and will cause each of its Subsidiaries to pay, in a timely manner,\nall lease obligations, all material trade debt, purchase money obligations,\nequipment lease obligations and all of its other material Indebtedness. The\nBorrower will perform and fulfill all material covenants and agreements under\nany leases of real estate, agreements relating to purchase money debt, equipment\nleases and other material contracts. The Borrower will maintain in full force\nand effect, and comply with the terms and conditions of, all permits,\npermissions and licenses necessary or desirable for its business.\n\n     3.4. ACCOUNTS. The Borrower will maintain its principal depository and\noperating accounts with the Bank; provided that the Borrower may take up to 90\ndays from the date of this letter agreement to transition its accounts to the\nBank.\n\n     3.5. CONDUCT OF BUSINESS. The Borrower will conduct, in the ordinary\ncourse, the business in which it is presently engaged. The Borrower will not,\nwithout the prior written consent of the Bank, directly or indirectly (itself or\nthrough any Subsidiary) enter into any other lines of business, businesses or\nventures which are not substantially related to the Borrower's core business at\nthe date of the letter agreement.\n\n     3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank:\n\n          (i) Within 90 days after the end of each fiscal year of Borrower, a\n     copy of the annual audit report for such fiscal year for the Borrower,\n     including therein the consolidated balance sheet of the Borrower and\n     Subsidiaries as at the end of such fiscal year and related consolidated\n     statements of income, stockholders' equity and cash flow for the fiscal\n     year then ended. The annual consolidated financial statements shall be\n     certified by independent public accountants selected by the Borrower and\n     reasonably acceptable to the Bank, such certification to be in such form as\n     is generally recognized as \"unqualified\". The audited consolidated\n     statements will be accompanied by unaudited consolidating balance sheets,\n     income statements and cash flow statements for the relevant fiscal periods.\n\n          (ii) Within 45 days after the end of each fiscal quarter of the\n     Borrower, consolidated balance sheets of the Borrower and its Subsidiaries\n     and related consolidated statements of income and stockholders' equity and\n     cash flow, unaudited \n\n\n                                      -10-\n\n\n   11\n\n\n     but complete and accurate and prepared in accordance with generally\n     accepted accounting principles consistently applied fairly presenting the\n     financial condition of the Borrower as at the dates thereof and for the\n     periods covered thereby (except that such quarterly statements need not\n     contain footnotes) and certified as accurate (subject to normal year-end\n     audit adjustments, which shall not be material) by the chief financial\n     officer of the Borrower, such balance sheets to be as at the end of such\n     fiscal quarter and such statements of income and stockholders' equity and\n     cash flow to be for such fiscal quarter and for the fiscal year to date, in\n     each case together with a comparison to budget.\n\n          (iii) At the time of delivery of each annual or quarterly statement of\n     the Borrower, a certificate executed by the chief financial officer of the\n     Borrower stating that he or she has reviewed this letter agreement and the\n     other Loan Documents and has no knowledge of any default by the Borrower in\n     the performance or observance of any of the provisions of this letter\n     agreement or of any of the other Loan Documents or, if he or she has such\n     knowledge, specifying each such default and the nature thereof. Each\n     financial statement given as at the end of any fiscal quarter of the\n     Borrower will also set forth the calculations necessary to evidence\n     compliance with ss.ss.3.7-3.10.\n\n          (iv) Monthly, within 15 days after the end of each month, (A) an aging\n     report in form satisfactory to the Bank covering all Receivables of the\n     Borrower outstanding as at the end of such month, and (B) a certificate of\n     the chief financial officer of the Borrower setting forth the Borrowing\n     Base as at the end of such month, all in form reasonably satisfactory to\n     the Bank.\n\n          (v) Promptly after receipt, a copy of all audits or reports submitted\n     to the Borrower by independent public accountants in connection with any\n     annual, special or interim audits of the books of the Borrower and any\n     \"management letter\" prepared by such accountants. The management letter for\n     each fiscal year will be delivered within 90 days after the close of such\n     fiscal year.\n\n          (vi) As soon as possible and in any event within five days of the\n     occurrence of any Event of Default or any event which, with the giving of\n     notice or passage of time or both, would constitute an Event of Default,\n     the statement of the Borrower setting forth details of each such Event of\n     Default or event and the action which the Borrower proposes to take with\n     respect thereto.\n\n          (vii) Promptly after the commencement thereof, notice of all actions,\n     suits and proceedings before any court or governmental department,\n     commission, board, bureau, agency or instrumentality, domestic or foreign,\n     in which the Borrower or any Subsidiary of the Borrower is a defendant;\n     provided that nothing in this clause (vii) will be deemed to require the\n     Borrower to give notice of any such action, suit or \n\n\n                                      -11-\n\n\n   12\n\n\n     proceeding in which only monetary damages are sought and the damages so\n     sought are less than $100,000.\n\n          (viii) Promptly upon filing any registration statement or listing\n     application (or any supplement or amendment to any registration statement\n     or listing application) with the Securities and Exchange Commission (\"SEC\")\n     or any successor agency or with any stock exchange or with the National\n     Association of Securities Dealers quotations system, a copy of same.\n\n          (ix) If the Borrower becomes a publicly-traded company, a copy of each\n     periodic or current report filed with the SEC or any successor agency and\n     each annual report, proxy statement and other communication sent to\n     shareholders or other securityholders generally, such copy to be provided\n     to the Bank promptly upon such filing with the SEC or such communication\n     with shareholders or securityholders, as the case may be.\n\n          (x) Promptly after the Borrower has knowledge thereof, written notice\n     of any development or circumstance which may reasonably be expected to have\n     a material adverse effect on the Borrower or its business, properties,\n     assets, Subsidiaries or condition, financial or otherwise.\n\n          (xi) Promptly upon request, such other information respecting the\n     financial condition, operations, Receivables, inventory, machinery or\n     equipment of the Borrower or any Subsidiary as the Bank may from time to\n     time reasonably request.\n\n     3.7. DEBT TO WORTH. The Borrower will maintain as at the last day of each\nfiscal quarter of the Borrower (each, a \"Determination Date\") (commencing with\nDecember 31, 1998) on a consolidated basis a Leverage Ratio which is equal to or\nless than 1.0 to 1. As used herein, \"Leverage Ratio\" means, as at any\nDetermination Date, the ratio of (x) the total consolidated Senior Liabilities\nof the Borrower and\/or its Subsidiaries then outstanding to (y) the Borrower's\nthen consolidated Capital Base.\n\n     3.8. CAPITAL BASE. The Borrower will maintain as at each Determination Date\n(commencing December 31, 1998) a consolidated Capital Base which shall be equal\nto or greater than the then-effective Capital Base Requirement. As used herein,\nthe \"Capital Base Requirement\" will be deemed to have been $19,000,000 as at\nSeptember 30, 1998; and, as at each Determination Date thereafter, the Capital\nBase Requirement will be deemed to become an amount equal to the sum of: (i)\nthat Capital Base Requirement which had been in effect at the last day of the\nimmediately preceding fiscal quarter, PLUS (ii) 80% of the net proceeds of any\nequity securities sold by the Borrower during the fiscal quarter ending at such\nDetermination Date and 80% of the proceeds of any Subordinated Debt issued by\nthe Borrower and\/or its Subsidiaries during the fiscal quarter ending at such\nDetermination Date (nothing contained herein being deemed to approve the\nissuance of any such Subordinated \n\n\n                                      -12-\n\n\n   13\n\n\nDebt), PLUS (iii) 80% of the consolidated Net Income of the Borrower and\nSubsidiaries during the fiscal quarter ending at such Determination Date (but\nwithout giving effect to any Net Income which is less than zero for any fiscal\nquarter).\n\n     3.9. PROFITABILITY. The Borrower will achieve consolidated quarterly Net\nIncome of at least $500,000 for its fiscal quarter ending December 31, 1998 and\nfor each fiscal quarter thereafter.\n\n     3.10. LIQUIDITY. The Borrower will maintain as at each Determination Date\n(commencing with December 31, 1998) a ratio of Net Quick Assets to Current\nLiabilities, which ratio shall be equal to or greater than 1.4 to 1.\n\n     3.11. BOOKS AND RECORDS. The Borrower will maintain (and will cause each of\nits Subsidiaries to maintain) complete and accurate books, records and accounts\nwhich will at all times accurately and fairly reflect all of its transactions in\naccordance with generally accepted accounting principles consistently applied.\nThe Borrower will, at any reasonable time and from time to time upon reasonable\nwritten notice and during normal business hours (and at any time and without any\nnecessity for notice following the occurrence of an Event of Default), permit\nthe Bank, and any agents or representatives thereof, to examine and make copies\nof and take abstracts from the records and books of account of, and visit the\nproperties of the Borrower and any of its Subsidiaries, and to discuss its\naffairs, finances and accounts with its officers, directors and\/or independent\naccountants, all of whom are hereby authorized and directed to cooperate with\nthe Bank in carrying out the intent of this ss.3.11. Each financial statement of\nthe Borrower hereafter delivered pursuant to this letter agreement will be\ncomplete and accurate and will fairly present the financial condition of the\nBorrower as at the date thereof and for the periods covered thereby.\n\n     IV. NEGATIVE COVENANTS\n\n     Without limitation of any other covenants and agreements contained herein\nor elsewhere, the Borrower agrees that so long as the financing arrangements\ncontemplated hereby are in effect or any Revolving Loan or any of the other\nObligations shall be outstanding or any letter of credit issued hereunder shall\nbe outstanding or any Foreign Exchange Contract shall be outstanding or any\namount shall be owed by the Borrower in respect of any ACH transaction or any\nForeign Exchange Contract:\n\n     4.1. INDEBTEDNESS. The Borrower will not create, incur, assume or suffer to\nexist any Indebtedness (nor allow any of its Subsidiaries to create, incur,\nassume or suffer to exist any Indebtedness), except for:\n\n          (i) Indebtedness owed to the Bank, including, without limitation, the\n     Indebtedness represented by the Revolving Note and any Indebtedness in\n     respect of letters of credit issued by the Bank or in respect of any ACH\n     transactions or in respect \n\n\n                                      -13-\n\n\n   14\n\n\n     of any Foreign Exchange Contracts;\n\n          (ii) Indebtedness of the Borrower or any Subsidiary for taxes,\n     assessments and governmental charges or levies not yet due and payable;\n\n          (iii) unsecured current liabilities of the Borrower or any Subsidiary\n     (other than for money borrowed or for purchase money Indebtedness with\n     respect to fixed assets) incurred upon customary terms in the ordinary\n     course of business;\n\n          (iv) purchase money Indebtedness (including, without limitation,\n     Indebtedness in respect of capitalized equipment leases) owed to equipment\n     vendors and\/or lessors for equipment purchased or leased by the Borrower\n     for use in the Borrower's business, provided that the total of Indebtedness\n     permitted under this clause (iv) plus presently-existing equipment\n     financing permitted under clause (v) of this ss.4.1 will not exceed\n     $500,000 in the aggregate outstanding at any one time;\n\n          (v) other Indebtedness existing at the date hereof (including, without\n     limitation, any existing Subordinated Debt), but only to the extent set\n     forth on item 4.1 of the attached Disclosure Schedule;\n\n          (vi) any guaranties or other contingent liabilities expressly\n     permitted pursuant to ss.4.3; and\n\n          (vii) borrowings by Securities Corp. in an aggregate amount not in\n     excess of $3,500,000.\n\n     4.2. LIENS. The Borrower will not create, incur, assume or suffer to exist\n(nor allow any of its Subsidiaries to create, incur, assume or suffer to exist)\nany mortgage, deed of trust, pledge, lien, security interest, or other charge or\nencumbrance (including the lien or retained security title of a conditional\nvendor) of any nature (collectively, \"Liens\"), upon or with respect to any of\nits property or assets, now owned or hereafter acquired, except that the\nforegoing restrictions shall not apply to:\n\n          (i) Liens for taxes, assessments or governmental charges or levies on\n     property of the Borrower or any of its Subsidiaries if the same shall not\n     at the time be delinquent or thereafter can be paid without interest or\n     penalty;\n\n          (ii) Liens imposed by law, such as carriers', warehousemen's and\n     mechanics' liens and other similar Liens arising in the ordinary course of\n     business for sums not yet due or which are being contested in good faith\n     and by appropriate proceedings which serve as a matter of law to stay the\n     enforcement thereof and as to which adequate reserves have been made;\n\n\n                                      -14-\n\n\n   15\n\n\n          (iii) pledges or deposits under workmen's compensation laws,\n     unemployment insurance, social security, retirement benefits or similar\n     legislation;\n\n          (iv) Liens in favor of the Bank;\n\n          (v) Liens in favor of equipment vendors and\/or lessors securing\n     purchase money Indebtedness to the extent permitted by clause (iv) of\n     ss.4.1; provided that no such Lien will extend to any property of the\n     Borrower other than the specific items of equipment financed; or\n\n          (vi) other Liens existing at the date hereof, but only to the extent\n     and with the relative priorities set forth on item 4.2 of the attached\n     Disclosure Schedule.\n\n     Without limitation of the foregoing, the Borrower covenants and agrees that\nit will not enter into (and will not suffer or permit any of its Subsidiaries to\nenter into) any agreement or understanding (each, a \"Restrictive Agreement\")\nwith any Person other than the Bank which could prohibit or restrict in any\nmanner the right of the Borrower or any such Subsidiary to grant to the Bank any\nLien on any of its assets. The Borrower represents and warrants that, at the\ndate of this letter agreement, neither the Borrower nor any such Subsidiary is\nparty to any such Restrictive Agreement.\n\n     4.3. GUARANTIES. The Borrower will not, without the prior written consent\nof the Bank, assume, guarantee, endorse or otherwise become directly or\ncontingently liable (including, without limitation, liable by way of agreement,\ncontingent or otherwise, to purchase, to provide funds for payment, to supply\nfunds to or otherwise invest in any debtor or otherwise to assure any creditor\nagainst loss) (and will not permit any of its Subsidiaries so to assume,\nguaranty or become directly or contingently liable) in connection with any\nindebtedness of any other Person, except (i) guaranties by endorsement for\ndeposit or collection in the ordinary course of business and (ii) guaranties\nexisting at the date hereof and described on item 4.3 of the attached Disclosure\nSchedule.\n\n     4.4. DIVIDENDS. The Borrower will not, without the prior written consent of\nthe Bank, make any distributions to its shareholders, pay any dividends (other\nthan dividends payable solely in capital stock of the Borrower) or redeem,\npurchase or otherwise acquire, directly or indirectly any of its capital stock.\n\n     4.5. LOANS AND ADVANCES. The Borrower will not make (and will not permit\nany Subsidiary to make) any loans or advances to any Person, including, without\nlimitation, the Borrower's directors, officers and employees, except (i)\nexisting loans described in item 4.5 of the attached Disclosure Schedule, (ii)\nloans made to the Borrower by Securities Corp. which give rise to Indebtedness\npermitted by clause (vii) of ss.4.1; and (iii) advances to such directors,\nofficers or employees with respect to expenses incurred by them in the ordinary\ncourse of their duties and advances against salary, all of which advances will\nnot exceed, in \n\n\n                                      -15-\n\n\n   16\n\n\nthe aggregate, $100,000 outstanding at any one time.\n\n     4.6. INVESTMENTS. The Borrower will not, without the Bank's prior written\nconsent, invest in, hold or purchase any stock or securities of any Person (nor\nwill the Borrower permit any of its Subsidiaries to invest in, purchase or hold\nany such stock or securities) except (i) readily marketable direct obligations\nof, or obligations guarantied by, the United States of America or any agency\nthereof, (ii) other investment grade debt securities, (iii) mutual funds, the\nassets of which are primarily invested in items of the kind described in the\nforegoing clauses (i) and (ii) of this ss.4.6, (iv) deposits with or\ncertificates of deposit issued by the Bank and any other obligations of the Bank\nor the Bank's parent, (v) deposits in any other bank organized in the United\nStates having capital in excess of $100,000,000, (vi) deposits with foreign\nbanks to the extent reasonably necessary to support the foreign operations of\nthe Borrower and\/or any of its Subsidiaries, and (vii) investments in any\nSubsidiaries now existing or hereafter created by the Borrower pursuant to\nss.4.7 below; provided that in any event the Tangible Net Worth of the Borrower\nalone (exclusive of its investment in Subsidiaries and any debt owed by any\nSubsidiary to the Borrower) will not be less than 90% of the consolidated\nTangible Net Worth of the Borrower and Subsidiaries.\n\n     4.7. SUBSIDIARIES; ACQUISITIONS. Neither the Borrower nor any of its\nSubsidiaries will, without the prior written consent of the Bank (such consent\nnot to be unreasonably withheld) form or acquire any Subsidiary or make any\nother acquisition of the stock of any other Person or of all or substantially\nall of the assets of any other Person; except that after the Borrower has closed\nan initial public offering and is a publicly traded company, the Borrower may,\nwithout having to obtain such consent, make one or more Permitted Acquisitions.\nThe Borrower will not become a partner in any partnership.\n\n     4.8. MERGER. The Borrower will not, without the prior written consent of\nthe Bank, merge or consolidate with any Person, or sell, lease, transfer or\notherwise dispose of any material portion of its assets (whether in one or more\ntransactions), other than sale of inventory in the ordinary course.\n\n     4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without the prior\nwritten consent of the Bank, enter into any transaction, including, without\nlimitation, the purchase, sale or exchange of any property or the rendering of\nany service, with any affiliate of the Borrower, except in the ordinary course\nof and pursuant to the reasonable requirements of the Borrower's business and\nupon fair and reasonable terms no less favorable to the Borrower than would be\nobtained in a comparable arms-length transaction with any Person not an\naffiliate; provided that nothing in this ss.4.9 shall be deemed to prohibit the\npayment of salary or other similar payments to any officer or director of the\nBorrower at a level consistent with the salary and other payments being paid at\nthe date of this letter agreement and heretofore disclosed in writing to the\nBank, nor to prevent the hiring of additional officers at a salary level\nconsistent with industry practice, nor to prevent reasonable periodic increases\nin salary. For the purposes of this letter agreement, \"affiliate\" means any\nPerson which, directly or \n\n\n                                      -16-\n\n\n   17\n\n\nindirectly, controls or is controlled by or is under common control with the\nBorrower; any officer or director or former officer or director of the Borrower;\nany Person owning of record or beneficially, directly or indirectly, 5% or more\nof any class of capital stock of the Borrower or 5% or more of any class of\ncapital stock or other equity interest having voting power (under ordinary\ncircumstances) of any of the other Persons described above; and any member of\nthe immediate family of any of the foregoing. \"Control\" means possession,\ndirectly or indirectly, of the power to direct or cause the direction of the\nmanagement or policies of any Person, whether through ownership of voting\nequity, by contract or otherwise.\n\n     4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its name or\nlegal structure, nor will the Borrower move its chief executive offices or\nprincipal place of business from the address described in the first sentence of\nss.2.1(j) above, nor will the Borrower remove any books or records from such\naddress, nor will the Borrower keep any Collateral at any location other than\nthe premises described in ss.2.1(j), without, in each instance, giving the Bank\nat least 30 days' prior written notice and providing all such financing\nstatements, certificates and other documentation as the Bank may request in\norder to maintain the perfection and priority of the security interests granted\nor intended to be granted pursuant to the Security Agreement. The Borrower will\nnot change its fiscal year or methods of financial reporting unless, in each\ninstance, prior written notice of such change is given to the Bank and prior to\nsuch change the Borrower enters into amendments to this letter agreement in form\nand substance satisfactory to the Bank in order to preserve unimpaired the\nrights of the Bank and the obligations of the Borrower hereunder.\n\n     4.11. HAZARDOUS WASTE. Except as provided below, the Borrower will not\ndispose of or suffer or permit to exist any hazardous material or oil on any\nsite or vessel owned, occupied or operated by the Borrower or any Subsidiary of\nthe Borrower, nor shall the Borrower store (or permit any Subsidiary to store)\non any site or vessel owned, occupied or operated by the Borrower or any such\nSubsidiary, or transport or arrange the transport of, any hazardous material or\noil (the terms \"hazardous material\", \"oil\", \"site\" and \"vessel\", respectively,\nbeing used herein with the meanings given those terms in Mass. Gen. Laws, Ch.\n21E or any comparable terms in any comparable statute in effect in any other\nrelevant jurisdiction). The Borrower shall provide the Bank with written notice\nof (i) the intended storage or transport of any hazardous material or oil by the\nBorrower or any Subsidiary of the Borrower, (ii) any release or known threat of\nrelease of any hazardous material or oil at or from any site or vessel owned,\noccupied or operated by the Borrower or any Subsidiary of the Borrower, and\n(iii) any incurrence of any expense or loss by any government or governmental\nauthority in connection with the assessment, containment or removal of any\nhazardous material or oil for which expense or loss the Borrower or any\nSubsidiary of the Borrower may be liable. Notwithstanding the foregoing, the\nBorrower and its Subsidiaries may use, store and transport and arrange for the\ntransport or disposal of, and need not notify the Bank of the use, storage,\ntransport, arrangement for transport or disposal of, (x) oil as fuel for their\nrespective facilities or for vehicles or machinery used in the ordinary course\nof their respective businesses and (y) hazardous materials that are solvents,\ncleaning agents or other \n\n\n                                      -17-\n\n\n   18\n\n\nmaterials used in the ordinary course of the respective\nbusiness operations of the Borrower and its Subsidiaries, as long as in each\ncase the Borrower or the Subsidiary concerned (as the case may be) has obtained\nand maintains in effect any necessary governmental permits, licenses and\napprovals, complies with all requirements of applicable federal, state and local\nlaw relating to such use, storage, transportation, arrangement for transport or\ndisposal, follows the protective and safety procedures that a prudent\nbusinessperson conducting a business the same as or similar to that of the\nBorrower or such Subsidiary (as the case may be) would follow, and in any event\ndisposes of such materials (not consumed in the ordinary course) only through\nlicensed providers of hazardous waste removal services.\n\n     4.12. NO MARGIN STOCK. No proceeds of any Revolving Loan shall be used\ndirectly or indirectly to purchase or carry any margin security.\n\n     4.13. SUBORDINATED DEBT. The Borrower will not directly or indirectly make\nany optional or voluntary prepayment or purchase of Subordinated Debt or modify,\nalter or add any provisions with respect to payment of Subordinated Debt. In any\nevent, the Borrower will not make any payment of any principal of or interest on\nany Subordinated Debt at any time when there exists, or if there would result\ntherefrom, any Event of Default hereunder.\n\n     V. DEFAULT AND REMEDIES\n\n     5.1. EVENTS OF DEFAULT. The occurrence of any one of the following events\nshall constitute an Event of Default hereunder:\n\n     (a) The Borrower shall fail to make any payment of principal of or interest\non the Revolving Note on or before the date when due; or the Borrower shall fail\nto pay when due any amount owed to the Bank in respect of any letter of credit\nnow or hereafter issued by the Bank or in respect of any Foreign Exchange\nContract or in respect of any ACH transaction; or\n\n     (b) Any representation or warranty of the Borrower contained herein shall\nat any time prove to have been incorrect in any material respect when made or\nany representation or warranty made by the Borrower in connection with any\nRevolving Loan or letter of credit or any ACH transaction or any Foreign\nExchange Contract shall at any time prove to have been incorrect in any material\nrespect when made; or\n\n     (c) The Borrower shall default in the performance or observance of any\nagreement or obligation under any of ss.ss.3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or 3.10\nor Article IV; or\n\n     (d) The Borrower shall default in the performance of any other term,\ncovenant or agreement contained in this letter agreement and such default shall\ncontinue unremedied for 30 days after notice thereof shall have been given to\nthe Borrower; or\n\n \n                                      -18-\n\n\n   19\n\n\n     (e) Any default on the part of the Borrower or any Subsidiary of the\nBorrower shall exist, and shall remain unwaived or uncured beyond the expiration\nof any applicable notice and\/or grace period, under any other contract,\nagreement or undertaking now existing or hereafter entered into with or for the\nbenefit of the Bank (or any affiliate of the Bank); or\n\n     (f) Any default shall exist and remain unwaived or uncured with respect to\nany Subordinated Debt of the Borrower or with respect to any instrument\nevidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or\nany such Subordinated Debt shall not have been paid when due, whether by\nacceleration or otherwise, or shall have been declared to be due and payable\nprior to its stated maturity, or any event or circumstance shall occur which\npermits, or with the lapse of time or the giving of notice or both would permit,\nthe acceleration of the maturity of any Subordinated Debt by the holder or\nholders thereof; or\n\n     (g) Any default shall exist and remain unwaived or uncured with respect to\nany other Indebtedness of the Borrower or any Subsidiary of the Borrower in\nexcess of $100,000 in aggregate principal amount or with respect to any\ninstrument evidencing, guaranteeing, securing or otherwise relating to any such\nIndebtedness, or any such Indebtedness in excess of $100,000 in aggregate\nprincipal amount shall not have been paid when due, whether by acceleration or\notherwise, or shall have been declared to be due and payable prior to its stated\nmaturity, or any event or circumstance shall occur which permits, or with the\nlapse of time or the giving of notice or both would permit, the acceleration of\nthe maturity of any such Indebtedness by the holder or holders thereof; or\n\n     (h) The Borrower shall be dissolved, or the Borrower or any Subsidiary of\nthe Borrower shall become insolvent or bankrupt or shall cease paying its debts\nas they mature or shall make an assignment for the benefit of creditors, or a\ntrustee, receiver or liquidator shall be appointed for the Borrower or any\nSubsidiary of the Borrower or for a substantial part of the property of the\nBorrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,\ninsolvency or similar proceedings shall be instituted by or against the Borrower\nor any such Subsidiary under the laws of any jurisdiction (except for an\ninvoluntary proceeding filed against the Borrower or any Subsidiary of the\nBorrower which is dismissed within 60 days following the institution thereof);\nor\n\n     (i) Any attachment, execution or similar process shall be issued or levied\nagainst any of the property of the Borrower or any Subsidiary and such\nattachment, execution or similar process shall not be paid, stayed, released,\nvacated or fully bonded within 10 days after its issue or levy; or\n\n     (j) Any final uninsured judgment in excess of $100,000 shall be entered\nagainst the Borrower or any Subsidiary of the Borrower by any court of competent\njurisdiction; provided that any such judgment shall not be deemed to constitute\nan Event of Default under this clause (j) so long as enforcement of same is\neffectively stayed on appeal with adequate reserves having been established and\nmaintained; and further provided that no such judgment \n\n\n                                      -19-\n\n\n   20\n\n\nwill be deemed to constitute an Event of Default under this clause (j) if such\njudgment is paid in full within 30 days after the date it is entered (or, if\nappealed pursuant to the preceding PROVISO clause, upheld on appeal) and such\npayment would not cause any default under any of ss.ss.3.7, 3.8 and\/or 3.10,\nwith compliance being determined on a PRO FORMA basis as at the date of such\npayment, whether or not a fiscal quarter-end; or\n\n     (k) The Borrower or any Subsidiary of the Borrower shall fail to meet its\nminimum funding requirements under ERISA with respect to any employee benefit\nplan (or other class of benefit which the PBGC has elected to insure) or any\nsuch plan shall be the subject of termination proceedings (whether voluntary or\ninvoluntary) and there shall result from such termination proceedings a\nliability of the Borrower or any Subsidiary of the Borrower to the PBGC which in\nthe reasonable opinion of the Bank may have a material adverse effect upon the\nfinancial condition of the Borrower or any such Subsidiary; or\n\n     (l) The Security Agreement or any other Loan Document shall for any reason\n(other than due to payment in full of all amounts secured or evidenced thereby\nor due to discharge in writing by the Bank) not remain in full force and effect;\nor\n\n     (m) The security interests and liens of the Bank in and on any of the\nCollateral shall for any reason (other than due to payment in full of all\namounts secured thereby or due to written release by the Bank) not be fully\nperfected liens and security interests; or\n\n     (n) At any time, 50% or more of the outstanding shares of any class of\nequity securities of the Borrower shall be owned by any Person or by any \"group\"\n(as defined in the Securities Exchange Act of 1934, as amended, and the\nregulations thereunder), other than by one or more of the Persons listed on item\n5.1(n) of the attached Disclosure Schedule; or\n\n     (o) There shall occur any other material adverse change in the condition\n(financial or otherwise), operations, properties, assets, liabilities or\nearnings of the Borrower.\n\n     5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of\nDefault, in addition to any other rights and remedies available to the Bank\nhereunder or otherwise, the Bank may exercise any one or more of the following\nrights and remedies (all of which shall be cumulative):\n\n     (a) Declare the entire unpaid principal amount of the Revolving Note then\noutstanding, all interest accrued and unpaid thereon and all other amounts\npayable under this letter agreement, and all other Indebtedness of the Borrower\nto the Bank, to be forthwith due and payable, whereupon the same shall become\nforthwith due and payable, without presentment, demand, protest or notice of any\nkind, all of which are hereby expressly waived by the Borrower.\n\n     (b) Terminate the revolving financing arrangements provided for by this\nletter \n\n\n                                      -20-\n\n\n   21\n\n\nagreement; and the Bank may also terminate all facilities provided for herein\nfor letters of credit, ACH transactions and\/or Foreign Exchange Contracts.\n\n     (c) Exercise all rights and remedies hereunder, under the Revolving Note,\nunder the Security Agreement, under the Pledge and under each and any other\nagreement with the Bank; and exercise all other rights and remedies which the\nBank may have under applicable law.\n\n     5.3. SET-OFF. In addition to any rights now or hereafter granted under\napplicable law and not by way of limitation of any such rights, upon the\noccurrence of any Event of Default, the Bank is hereby authorized at any time or\nfrom time to time, without presentment, demand, protest or other notice of any\nkind to the Borrower or to any other Person, all of which are hereby expressly\nwaived, to set off and to appropriate and apply any and all deposits and any\nother Indebtedness at any time held or owing by the Bank or any affiliate\nthereof to or for the credit or the account of the Borrower against and on\naccount of the obligations and liabilities of the Borrower to the Bank under\nthis letter agreement or otherwise, irrespective of whether or not the Bank\nshall have made any demand hereunder and although said obligations, liabilities\nor claims, or any of them, may then be contingent or unmatured and without\nregard for the availability or adequacy of other collateral. As further security\nfor the Obligations, the Borrower also grants to the Bank a security interest\nwith respect to all its deposits and all securities or other property in the\npossession of the Bank or any affiliate of the Bank from time to time, and, upon\nthe occurrence of any Event of Default, the Bank may exercise all rights and\nremedies of a secured party under the Uniform Commercial Code. ANY AND ALL\nRIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO\nANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE\nBY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,\nVOLUNTARILY AND IRREVOCABLY WAIVED.\n\n     5.4. LETTERS OF CREDIT. Without limitation of any other right or remedy of\nthe Bank, (i) if an Event of Default shall have occurred and the Bank shall have\naccelerated the Revolving Loans or (ii) if this letter agreement and\/or the\nrevolving financing arrangements described herein shall have expired or shall\nhave been earlier terminated by either the Bank or the Borrower for any reason,\nthe Borrower will forthwith deposit with the Bank in cash a sum equal to the\ntotal of all then undrawn amounts of all outstanding letters of credit issued by\nthe Bank for the account of the Borrower. Upon the occurrence of any event\ndescribed in clause (i) or clause (ii) of the immediately preceding sentence,\nthe Bank may also require the Borrower to cash collateralize the outstanding F\/X\nExposure and ACH Exposure.\n\n\n                                      -21-\n\n\n   22\n\n\n     VI. MISCELLANEOUS\n\n     6.1. COSTS AND EXPENSES. The Borrower agrees to pay on demand all costs and\nexpenses (including, without limitation, reasonable legal fees) of the Bank in\nconnection with the preparation, execution and delivery of this letter\nagreement, the Security Agreement, the Revolving Note and all other instruments\nand documents to be delivered in connection with any Revolving Loan or any\nletter of credit issued hereunder and\/or any of the other Obligations and any\namendments or modifications of any of the foregoing, as well as the reasonable\ncosts and expenses (including, without limitation, the reasonable fees and\nexpenses of legal counsel) incurred by the Bank in connection with preserving,\nenforcing or exercising, upon default, any rights or remedies under this letter\nagreement, the Security Agreement, the Revolving Note and all other instruments\nand documents delivered or to be delivered hereunder or in connection herewith\nor in connection with any other Obligation, all whether or not legal action is\ninstituted. In addition, the Borrower shall be obligated to pay any and all\nstamp and other taxes payable or determined to be payable in connection with the\nexecution and delivery of this letter agreement, the Security Agreement, the\nRevolving Note and all other instruments and documents to be delivered in\nconnection with any Obligation. Any fees, expenses or other charges which the\nBank is entitled to receive from the Borrower under this Section shall bear\ninterest from the date of any demand therefor until the date when paid at a rate\nper annum equal to the sum of (i) four (4%) percent PLUS (ii) the per annum rate\notherwise payable under the Revolving Note (but in no event in excess of the\nmaximum rate permitted by then applicable law).\n\n     6.2. CAPITAL ADEQUACY. If the Bank shall have determined that the adoption\nor phase-in after the date hereof of any applicable law, rule or regulation\nregarding capital requirements for banks or bank holding companies, or any\nchange therein after the date hereof, or any change in the interpretation or\nadministration thereof by any governmental authority, central bank or comparable\nagency charged with the interpretation or administration thereof, or compliance\nby the Bank with any request or directive of such entity regarding capital\nadequacy (whether or not having the force of law) has or would have the effect\nof reducing the return on the Bank's capital with respect to the Revolving\nLoans, the within-described revolving loan facility and\/or letters of credit\nissued for the account of the Borrower and\/or any of the other Obligations to a\nlevel below that which the Bank could have achieved (taking into consideration\nthe Bank's policies with respect to capital adequacy immediately before such\nadoption, phase-in, change or compliance and assuming that the Bank's capital\nwas then fully utilized) but for such adoption, phase-in, change or compliance\nby any amount deemed by the Bank to be material: (i) the Bank shall promptly\nafter its determination of such occurrence give notice thereof to the Borrower;\nand (ii) the Borrower shall pay forthwith to the Bank as an additional fee such\namount as the Bank certifies to be the amount that will compensate it for such\nreduction with respect to the Revolving Loans, the within-described revolving\nloan facility and\/or such letters of credit and\/or any of the other Obligations.\n\n\n                                      -22-\n\n\n   23\n\n\n     A certificate of the Bank claiming compensation under this Section shall be\nconclusive in the absence of manifest error. Such certificate shall set forth\nthe nature of the occurrence giving rise to such compensation, the additional\namount or amounts to be paid to it hereunder and the method by which such\namounts were determined. In determining such amounts, the Bank may use any\nreasonable averaging and attribution methods. No failure on the part of the Bank\nto demand compensation on any one occasion shall constitute a waiver of its\nright to demand such compensation on any other occasion and no failure on the\npart of the Bank to deliver any certificate in a timely manner shall in any way\nreduce any obligation of the Borrower to the Bank under this Section.\n\n     6.3. COMMITMENT FEES. The Borrower agrees to pay to the Bank with respect\nto the within arrangements for Revolving Loans and letters of credit, on the\nlast day of each calendar quarter (commencing on December 31, 1998) as long as\nthe within Revolving Loan and\/or letter of credit arrangements are in effect and\non the Expiration Date or date of earlier termination of such Revolving Loan\nand\/or letter of credit arrangements, a non-refundable commitment fee computed\nquarterly in arrears on the daily average unused portion of the Bank's total\nrevolving commitment during the calendar quarter (or partial calendar quarter)\nthen ended. Such commitment fee will be payable at a rate of 0.375% per annum\nbased on such unused portion of the Bank's total revolving commitment and will\nbe appropriately prorated for any partial calendar quarter. As used herein, the\nBank's \"total revolving commitment\" will be deemed to be $6,000,000 and the\n\"unused portion\" on any day means that amount by which (x) said $6,000,000\nexceeds (y) the total of (1) the aggregate principal amounts of the Revolving\nLoans outstanding at that day and (2) the then total undrawn amounts of all\nletters of credit issued hereunder and then outstanding, whether such excess\nresults from the Bank not making Revolving Loans or issuing letters of credit up\nto said $6,000,000 amount, from the repayment of Revolving Loans or the\ntermination of letters of credit or from any other circumstance. In addition, if\nthe within-described arrangements for Revolving Loans and\/or letters of credit\nare canceled or terminated prior to the first anniversary of the date of this\nletter agreement, by the Borrower for any reason or by the Bank due to the\nBorrower's default, the Borrower shall forthwith upon such cancellation or\ntermination pay to the Bank a sum equal to all of the commitment fees which\nwould have become due, absent such cancellation or termination, pursuant to the\nimmediately preceding three sentences with respect to the period beginning on\nthe date of such cancellation or termination and continuing through such first\nanniversary, assuming, for the purposes of this calculation, that no Revolving\nLoans or letters of credit would be outstanding during such period. Fees\ndescribed in this Section are in addition to any balances and fees required by\nthe Bank or any of its affiliates in connection with any other services now or\nhereafter made available to the Borrower.\n\n     6.4. OTHER AGREEMENTS. The provisions of this letter agreement are not in\nderogation or limitation of any obligations, liabilities or duties of the\nBorrower under any of the other Loan Documents or any other agreement with or\nfor the benefit of the Bank. No inconsistency in default provisions between this\nletter agreement and any of the other Loan \n\n\n                                      -23-\n\n\n   24\n\n\nDocuments or any such other agreement will be deemed to create any additional\ngrace period or otherwise derogate from the express terms of each such default\nprovision. No covenant, agreement or obligation of the Borrower contained\nherein, nor any right or remedy of the Bank contained herein, shall in any\nrespect be limited by or be deemed in limitation of any inconsistent or\nadditional provisions contained in any of the other Loan Documents or in any\nsuch other agreement.\n\n     6.5. GOVERNING LAW. This letter agreement and the Revolving Note shall be\ngoverned by, and construed and enforced in accordance with, the laws of The\nCommonwealth of Massachusetts.\n\n     6.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and other\ncommunications provided for hereunder shall be in writing and shall be mailed or\ndelivered to the applicable party at the address indicated below:\n\n          If to the Borrower:\n\n          Dragon Systems, Inc.\n          320 Nevada Street\n          Newton, MA  02160\n          Attention:  Diane M. Hudson, Chief Financial Officer\n\n          with a copy to:\n\n          Janet M. Baker, Chief Executive Officer\n          Dragon Systems, Inc.\n          320 Nevada Street\n          Newton, MA  02160\n\n          If to the Bank:\n\n          Fleet National Bank\n          High Technology Group\n          Mail Code:  MA OF D07A\n          One Federal Street\n          Boston, MA  02110\n          Attention:  Lucie Burke, Vice President\n\nor, as to each of the foregoing, at such other address as shall be designated by\nsuch Person in a written notice to the other party complying as to delivery with\nthe terms of this Section. All such notices, requests, demands and other\ncommunications shall be deemed delivered on the earlier of (i) the date received\nor (ii) the date of delivery, refusal or non-delivery indicated on the return\nreceipt if deposited in the United States mails, sent postage prepaid, certified\nor \n\n\n                                      -24-\n\n\n   25\n\n\nregistered mail, return receipt requested, addressed as aforesaid.\n\n     6.7. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement shall\nbe binding upon the Borrower, its successors and assigns and shall inure to the\nbenefit of the Borrower and the Bank and their respective permitted successors\nand assigns. The Borrower may not assign this letter agreement or any rights\nhereunder without the express written consent of the Bank. The Bank may, in\naccordance with applicable law, from time to time assign or grant participations\nin this letter agreement, the Revolving Loans, the Revolving Note and\/or the\nletters of credit issued hereunder and\/or any of the other Obligations. Without\nlimitation of the foregoing generality:\n\n          (i)  The Bank may at any time pledge all or any portion of its rights\n               under the Loan Documents (including any portion of the Revolving\n               Note) to any of the 12 Federal Reserve Banks organized under\n               Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No\n               such pledge or the enforcement thereof shall release the Bank\n               from its obligations under any of the Loan Documents.\n\n          (ii) The Bank shall have the unrestricted right at any time and from\n               time to time, and without the consent of or notice to the\n               Borrower, to grant to one or more banks or other financial\n               institutions (each, a \"Participant\") participating interests in\n               the Bank's obligation to lend hereunder and\/or any or all of the\n               Revolving Loans held by the Bank hereunder. In the event of any\n               such grant by the Bank of a participating interest to a\n               Participant, whether or not upon notice to the Borrower, the Bank\n               shall remain responsible for the performance of its obligations\n               hereunder and the Borrower shall continue to deal solely and\n               directly with the Bank in connection with the Bank's rights and\n               obligations hereunder. The Bank may furnish any information\n               concerning the Borrower in its possession from time to time to\n               prospective assignees and Participants; provided that the Bank\n               shall require any such prospective assignee or Participant to\n               agree in writing to maintain the confidentiality of such\n               information to the same extent as the Bank would be required to\n               maintain such confidentiality.\n\n     The Borrower may terminate this letter agreement and the financing\narrangements made herein by giving written notice of such termination to the\nBank together with payment of the sum described in the penultimate sentence of\nss.6.3; provided that no such termination will release or waive any of the\nBank's rights or remedies or any of the Borrower's obligations under this letter\nagreement or any of the other Loan Documents unless and until the Borrower has\npaid in full the Revolving Loans and all interest thereon and all fees and\ncharges payable in connection therewith and all letters of credit issued\nhereunder have been terminated.\n\n\n                                      -25-\n\n\n   26\n\n\n     6.8. CONSENT TO JURISDICTION. Each of the Bank and the Borrower irrevocably\nsubmits to the exclusive jurisdiction of any Massachusetts court or any federal\ncourt sitting within The Commonwealth of Massachusetts over any suit, action or\nproceeding arising out of or relating to this letter agreement and\/or the\nRevolving Note and\/or any of the other Obligations. Each of the Bank and the\nBorrower irrevocably waives, to the fullest extent permitted by law, any\nobjection which it may now or hereafter have to the laying of venue of any such\nsuit, action or proceeding brought in such a court and any claim that any such\nsuit, action or proceeding has been brought in an inconvenient forum. Each of\nthe Bank and the Borrower agrees that final judgment in any such suit, action or\nproceeding brought in such a court shall be enforced in any court of proper\njurisdiction by a suit upon such judgment, provided that service of process in\nsuch action, suit or proceeding shall have been effected upon the Borrower in\none of the manners specified in the following paragraph of this ss.6.8 or as\notherwise permitted by law.\n\n     The Borrower hereby consents to process being served in any suit, action or\nproceeding of the nature referred to in the preceding paragraph of this ss.6.8\neither (i) by mailing a copy thereof by registered or certified mail, postage\nprepaid, return receipt requested, to it at its address set forth in ss.6.6 (as\nsuch address may be changed from time to time pursuant to said ss.6.6) or (ii)\nby serving a copy thereof upon it at its address set forth in ss.6.6 (as such\naddress may be changed from time to time pursuant to said ss.6.6).\n\n     6.9. SEVERABILITY. In the event that any provision of this letter agreement\nor the application thereof to any Person, property or circumstances shall be\nheld to any extent to be invalid or unenforceable, the remainder of this letter\nagreement, and the application of such provision to Persons, properties or\ncircumstances other than those as to which it has been held invalid and\nunenforceable, shall not be affected thereby, and each provision of this letter\nagreement shall be valid and enforced to the fullest extent permitted by law.\n\n     6.10. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer of the\nBank as to the loss, theft, destruction or mutilation of the Revolving Note or\nof any other Loan Document which is not of public record and, in the case of any\nsuch mutilation, upon surrender and cancellation of such Revolving Note or other\nLoan Document, the Borrower will issue, in lieu thereof, a replacement Revolving\nNote or other Loan Document in the same principal amount (as to the Revolving\nNote) and in any event of like tenor.\n\n     6.11. USURY. All agreements between the Borrower and the Bank are hereby\nexpressly limited so that in no contingency or event whatsoever, whether by\nreason of acceleration of maturity of the Revolving Note or otherwise, shall the\namount paid or agreed to be paid to the Bank for the use or the forbearance of\nthe Indebtedness represented by the Revolving Note exceed the maximum\npermissible under applicable law. In this regard, it is expressly agreed that it\nis the intent of the Borrower and the Bank, in the execution, delivery and\nacceptance of the Revolving Note, to contract in strict compliance with the laws\nof The \n\n\n                                      -26-\n\n\n   27\n\n\nCommonwealth of Massachusetts. If, under any circumstances whatsoever,\nperformance or fulfillment of any provision of the Revolving Note or any of the\nother Loan Documents at the time such provision is to be performed or fulfilled\nshall involve exceeding the limit of validity prescribed by applicable law, then\nthe obligation so to be performed or fulfilled shall be reduced automatically to\nthe limits of such validity, and if under any circumstances whatsoever the Bank\nshould ever receive as interest an amount which would exceed the highest lawful\nrate, such amount which would be excessive interest shall be applied to the\nreduction of the principal balance evidenced by the Revolving Note and not to\nthe payment of interest. The provisions of this ss.6.11 shall control every\nother provision of this letter agreement and of the Revolving Note.\n\n     6.12. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,\nVOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN\nRESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH\nTHIS LETTER AGREEMENT, THE REVOLVING NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF\nANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)\nOR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE\nBANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE REVOLVING LOANS AND EXTEND\nOTHER CREDIT AS CONTEMPLATED HEREIN.\n\n     VII. DEFINED TERMS\n\n     7.1. DEFINITIONS. In addition to terms defined elsewhere in this letter\nagreement, as used in this letter agreement, the following terms have the\nfollowing respective meanings:\n\n     \"ACH Exposure\" - As defined in ss.1.6.\n\n     \"Acquisition\" - Any purchase or other acquisition made by the Borrower of\nall or substantially all of the business or assets of any other corporation or\nother entity or any line of business of another corporation or entity, all\nwhether through the acquisition of stock or assets or otherwise.\n\n     \"Aggregate Bank Liabilities\" - At any time, the sum of (i) the principal\namount of all Revolving Loans then outstanding, PLUS (ii) all then undrawn\namounts of letters of credit issued by the Bank for the account of the Borrower,\nPLUS (iii) all amounts then drawn on any such letter of credit which at said\ndate shall not have been reimbursed to the Bank by the Borrower.\n\n     \"Borrowing Base\" - As determined at any date, 80% of the aggregate\nprincipal amount of the Qualified Receivables of the Borrower then outstanding.\n\n\n                                      -27-\n\n\n   28\n\n\n     \"Business Day\" - Any day which is not a Saturday, nor a Sunday nor a public\nholiday under the laws of the United States of America or The Commonwealth of\nMassachusetts applicable to a national bank.\n\n     \"Capital Base\" - At any time, the sum of (i) the consolidated Tangible Net\nWorth of the Borrower and Subsidiaries then existing, PLUS (ii) the principal\namount of Subordinated Debt of the Borrower then outstanding (nothing contained\nherein being deemed to authorize the incurrence of any additional Subordinated\nDebt).\n\n     \"Collateral\" - All property now or hereafter owned by the Borrower or in\nwhich the Borrower now or hereafter has any interest which is described as\n\"Collateral\" in the Security Agreement or in the Pledge or in ss.7.2(b) below.\n\n     \"Current Liabilities\" - All liabilities of the Borrower and\/or any\nSubsidiary of the Borrower which would properly be shown as current liabilities\non a consolidated balance sheet of the Borrower prepared in accordance with\ngenerally accepted accounting principles consistently applied. Further, \"Current\nLiabilities\" will in any event be deemed to include all Revolving Loans.\n\n     \"Default\" - Any event or circumstance which, with the giving of notice or\nthe passage of time or both, could become an Event of Default.\n\n     \"Determination Date\" - As defined in ss.3.7.\n\n     \"ERISA\" - The Employee Retirement Income Security Act of 1974, as amended.\n\n     \"Event of Default\" - As defined in ss.5.1.\n\n     \"Expiration Date\" - June 30, 2000, unless extended pursuant to ss.1.3,\nwhich extension may be given or withheld by the Bank in its sole discretion.\n\n     \"F\/X Exposure\" - As defined in ss.1.7.\n\n     \"Indebtedness\" - All obligations of a Person, whether current or long-term,\nsenior or subordinated, which in accordance with generally accepted accounting\nprinciples would be included as liabilities upon such Person's balance sheet at\nthe date on which Indebtedness, is to be determined, and shall also include\nguaranties, endorsements (other than for collection in the ordinary course of\nbusiness) or other arrangements whereby responsibility is assumed for the\nobligations of others, whether by agreement to purchase or otherwise acquire the\nobligations of others, including any agreement, contingent or otherwise, to\nfurnish funds through the purchase of goods, supplies or services for the\npurpose of payment of the obligations of others.\n\n\n                                      -28-\n\n\n   29\n\n\n     \"Liabilities\" - All Indebtedness of the Borrower and\/or any of its\nSubsidiaries which would properly be shown as liabilities on the face of a\nconsolidated balance sheet of the Borrower prepared in accordance with generally\naccepted accounting principles consistently applied, and not merely in the\nfootnotes to such balance sheet.\n\n     \"Loan Documents\" - Each of this letter agreement, the Revolving Note, the\nSecurity Agreement, the Pledge and each other instrument, document or agreement\nevidencing, securing, guaranteeing or relating in any way to any of the\nRevolving Loans or any of the letters of credit issued hereunder or to any\nForeign Exchange Contract or ACH transaction, all whether now existing or\nhereafter arising or entered into.\n\n     \"Net Income\" (or \"Net Loss\") - The book net income (or book net loss, as\nthe case may be) of a Person for any period, after all taxes actually paid or\naccrued and all expenses and other charges determined in accordance with\ngenerally accepted accounting principles consistently applied.\n\n     \"Net Quick Assets\" - Such current assets of the Borrower as consist of\ncash, cash-equivalents, Receivables (less an allowance for bad debt consistent\nwith the Borrower's prior experience) and Unbilled Revenue (\"Unbilled Revenue\"\nbeing used herein in a manner consistent with the use of that term in the\nBorrower's financial statements as at December 31, 1997 heretofore delivered to\nthe Bank).\n\n     \"Obligations\" - All Indebtedness, covenants, agreements, liabilities and\nobligations, now existing or hereafter arising, made by the Borrower with or for\nthe benefit of the Bank or owed by the Borrower to the Bank in any capacity.\n\"Obligations\" includes, without limitation, the Revolving Loans and obligations\nwith respect to ACH transactions, letters of credit and Foreign Exchange\nContracts issued hereunder.\n\n     \"PBGC\" - The Pension Benefit Guaranty Corporation or any successor thereto.\n\n     \"Permitted Acquisition\" - Any Acquisition made by the Borrower after an\ninitial public offering which meets all of the following criteria: (1) at the\ntime of such Acquisition and after giving effect thereto, there is no Default or\nEvent of Default hereunder; (2) such Acquisition is not opposed by the Board of\nDirectors of the Person sought to be acquired; (3) after giving effect to such\nAcquisition, the Company is in PRO FORMA compliance with each of ss.3.7\n(leverage ratio), ss.3.8 (capital base) and ss.3.10 (liquidity), with compliance\nwith each of said Sections being determined on a PRO FORMA basis as at the date\nof such Acquisition, even if not a fiscal quarter-end; (4) such Acquisition\nrelates to a Person primarily engaged in (or assets primarily used in) the same\nline of business as the Borrower; (5) the total amount of cash or other property\n(other than stock of the Borrower) expended as consideration for such\nAcquisition (taken together with all such other amounts theretofore expended for\nthe purposes of any Acquisition from and after the date of this letter\nagreement) will not exceed an aggregate of $5,000,000; and (6) the value of the\ntotal amount of the shares of stock of the \n\n\n                                      -29-\n\n\n   30\n\n\nBorrower issued as consideration for such Acquisition (taken together with all\nother such shares of stock issued for the purposes of any Acquisition from and\nafter the date of this letter agreement) will not exceed an aggregate of\n$20,000,000.\n\n     \"Person\" - An individual, corporation, limited liability company,\npartnership, joint venture, trust or unincorporated organization, or a\ngovernment or any agency or political subdivision thereof.\n\n     \"Pledge\" - As defined in ss.1.1 above.\n\n     \"Qualified Receivables\" - Only those billed Receivables of the Borrower\n(determined on the basis of generally accepted accounting principles,\nconsistently applied) the payment of which is not in dispute which arise out of\nBONA FIDE sales made to customers of the Borrower (which customers are located\nin the United States and are unrelated to the Borrower) in the ordinary course\nof the Borrower's business, which remain unpaid no more than 90 days past the\nrespective invoice dates of such Receivables and which represent product that\nhas been shipped to the end-users (including OEMs); provided that the 90-day\nperiod described above will be deemed extended to 120 days with respect to\nReceivables arising from product that has been purchased by [Ingram-Micro] or\n[Tech Data] and has been shipped by such purchaser to one of its customers to\nfulfill a pending order. Unless the Bank in its sole discretion otherwise\ndetermines with respect to any Receivable, a Receivable which would otherwise be\na Qualified Receivable shall be deemed not to be a Qualified Receivable (i) if\nthe Bank does not have a fully perfected first priority security interest in\nsuch Receivable; (ii) if such Receivable is not free and clear of all interests\nin favor of any Person other than the Bank; (iii) if such Receivable is subject\nto any deduction, off-set, contra account, counterclaim or condition; (iv) if a\nfield examination made by the Bank fails to confirm that such Receivable exists\nand satisfies all of the criteria set forth herein to be a Qualified Receivable;\n(v) if such Receivable is not properly invoiced at the date of sale; (vi) if the\ncustomer or account debtor has disputed liability or made any claim with respect\nto the Receivable or the merchandise covered thereby or with respect to any\nother Receivable due from said customer to the Borrower; (vii) if the customer\nor account debtor has filed a petition for bankruptcy or any other application\nfor relief under the Bankruptcy Code or has effected an assignment for the\nbenefit of creditors, or if any petition or any other application for relief\nunder the Bankruptcy Code has been filed against said customer or account\ndebtor, or if the customer or account debtor has suspended business, become\ninsolvent, ceased to pay its debts as they become due, or had or suffered a\nreceiver or trustee to be appointed for any of its assets or affairs; (viii) if\nthe customer or account debtor has failed to pay other Receivables so that an\naggregate of 25% of the total Receivables owing to the Borrower by such customer\nor account debtor has been outstanding for more than 90 days past their\nrespective due dates; (ix) if such Receivable is owed by the United States\ngovernment or any agency or department thereof (unless assigned to the Bank\nunder the Federal Assignment of Claims Act); or (x) if the Bank reasonably\nbelieves that collection of such Receivable is insecure or that it may not be\npaid by reason of financial inability to pay or otherwise, or that \n\n\n                                      -30-\n\n\n   31\n\n\nsuch Receivable is not for any reason suitable for use as a basis for borrowing\nhereunder. Notwithstanding the first sentence of this definition, the Borrower\nmay include within \"Qualified Receivables\" any Receivable which meets all of the\ncriteria set forth above to be a Qualified Receivable except that the relevant\ncustomer is located outside the United States; provided that such Receivable is\nsecured by a letter of credit in form and substance satisfactory to the Bank and\nissued by a financial institution satisfactory to the Bank or is insured by\nEximbank credit insurance or other credit insurance satisfactory to the Bank.\n\n     \"Receivables\" - All of the Borrower's present and future accounts and\naccounts receivable representing a right to payment for goods sold or for\nservices rendered.\n\n     \"Revolving Note\" - As defined in ss.1.1.\n\n     \"Senior Liabilities\" - All Liabilities which are not Subordinated Debt.\n\n     \"Subordinated Debt\" - Any Indebtedness of the Borrower which is expressly\nsubordinated, pursuant to a subordination agreement in form and substance\nsatisfactory to the Bank, to all Indebtedness now or hereafter owed by the\nBorrower to the Bank.\n\n     \"Subsidiary\" - Any corporation or other entity of which the Borrower and\/or\nany of its Subsidiaries, directly or indirectly, owns, or has the right to\ncontrol or direct the voting of, fifty (50%) percent or more of the outstanding\ncapital stock or other ownership interest having general voting power (under\nordinary circumstances).\n\n     \"Tangible Net Worth\" - An amount equal to the total assets of any Person\n(excluding (i) the total intangible assets of such Person and (ii) any assets\nrepresenting amounts due from any officer or employee of such Person or from any\nSubsidiary of such Person) minus the total liabilities of such Person. Total\nintangible assets shall be deemed to include, but shall not be limited to, the\nexcess of cost over book value of acquired businesses accounted for by the\npurchase method, formulae, trademarks, trade names, patents, patent rights and\ndeferred expenses (including, but not limited to, unamortized debt discount and\nexpense, organizational expense, capitalized software costs and experimental and\ndevelopment expenses).\n\n     Any defined term used in the plural preceded by the definite article shall\nbe taken to encompass all members of the relevant class. Any defined term used\nin the singular preceded by \"any\" shall be taken to indicate any number of the\nmembers of the relevant class.\n\n     7.2. SECURITY AGREEMENT. (a) The Borrower acknowledges and agrees that the\n\"Obligations\" described in and secured by the Security Agreement include,\nwithout limitation, all of the obligations of the Borrower under the Revolving\nNote and\/or this letter agreement and\/or with respect to any letter of credit\nwhich may be issued by the Bank for the account of the Borrower, as well as\nobligations in respect of ACH transactions and Foreign Exchange Contracts.\n\n\n                                      -31-\n\n\n   32\n\n\n          (b)  The Security Agreement is hereby modified to provide as follows:\n\n               (i) That the \"Collateral\" subject thereto includes, without\n          limitation and in addition to the Collateral described therein, all of\n          the Borrower's files, books and records (including, without\n          limitation, all electronically recorded data) all whether now owned or\n          existing or hereafter acquired, created or arising. The Borrower\n          hereby grants to the Bank a security interest in all such Collateral\n          in order to secure the full and prompt payment and performance of all\n          of the Obligations.\n\n               (ii) That, upon the occurrence of any Event of Default (as\n          defined in ss.5.1 of this letter agreement), the Bank may, at any\n          time, notify account debtors that the Collateral has been assigned to\n          the Bank and that payments by such account debtors shall be made\n          directly to the Bank. At any time after the occurrence of an Event of\n          Default, the Bank may collect the Borrower's Receivables, or any of\n          same, directly from account debtors and may charge the collection\n          costs and expenses to the Borrower.\n\n          This letter agreement is executed, as an instrument under seal, as of \nthe day and year first above written.\n\n                                             Very truly yours,\n\n                                             DRAGON SYSTEMS, INC.\n\n                                             By\n                                               --------------------------------\n                                                Name:\n                                                Title:\n\nAccepted and agreed:\n\nFLEET NATIONAL BANK\n\nBy                                                          \n   ----------------------------------\n   Its\n\n\n                                      -32-\n\n\n   33\n\n\n                               DISCLOSURE SCHEDULE\n\nItem 2.1(a)         Jurisdictions in which Borrower is qualified; Subsidiaries\n\nItem 2.1(b)         Stock ownership\n\nItem 2.1(e)         Litigation\n\nItem 2.1(j)         Collateral locations; record owners\n\nItem 4.1            Existing Indebtedness\n\nItem 4.2            Existing Liens\n\nItem 4.3            Existing Guaranties\n\nItem 4.5            Existing Loans\n\nItem 5.1(n)         Permitted 50% Stockholders\n\n\n<\/description><\/sequence><\/type><\/pre>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[7354,8866],"corporate_contracts_industries":[9394,9513],"corporate_contracts_types":[9613,9619],"class_list":["post-42747","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-dragon-systems-inc","corporate_contracts_companies-sony-corp","corporate_contracts_industries-consumer__audio","corporate_contracts_industries-technology__software","corporate_contracts_types-operations","corporate_contracts_types-operations__sales"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/42747","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=42747"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=42747"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=42747"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=42747"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}