Exhibit 10.1
 
ROSENTHAL & ROSENTHAL, INC.
 
Financing Agreement
 
AGREEMENT dated May 27, 2014 between Brekford Corp. ("Borrower"), a Corporation
duly organized and presently existing in good standing under the laws of the
State of Delaware whose chief executive office is at 7020 Dorsey Road, Bldg C,
Hanover, MD 21076, and ROSENTHAL & ROSENTHAL, INC. ("Lender"), a New York
corporation with an address at 1370 Broadway, New York NY 10018.
 
Borrower desires to obtain loans and other financial accommodations from Lender
on a revolving basis upon the security of the Collateral (as herein defined).
Now, therefore, Borrower and Lender agree as follows.
 
1.   DEFINITIONS
 
As used in this Agreement, these terms shall have the following meanings which
shall be applicable to both the singular and plural forms of such terms.
 
1.1 “Account  Debtor”  shall mean the account debtor with respect to a
Receivable and any other person who is obligated on such Receivable.
 
1.2 “Affiliate” of a party shall mean any entity controlling, controlled by, or
under common control with, the party, and the term "controlling" and such
variations thereof shall mean ownership of a majority of the voting power of a
party.
 
1.3 “Business Day” shall mean a day on which Lender and major banks in New York
City are open for the regular transaction of business.
 
1.4 “Closing Date” shall mean the date set forth in the first paragraph of this
Agreement.
 
1.5 “Collateral” shall have the meaning given in Section 4.1 hereof.
 
1.6 “Collateral Documents” shall mean any and all security agreements, deposit
account control agreements, mortgages and other documents executed and delivered
to Lender to secure the Obligations.
 
1.7 “Current Assets” shall mean, at a particular date, cash, accounts and
inventory of Borrower providing however, that such amounts shall not include any
amounts for any indebtedness owing by any Affiliate to Borrower.
 
1.8 “Current Liabilities”  shall mean, at a particular date, all amounts which
would, in conformity with GAAP, be included under current liabilities on a
balance sheet of Borrower, as at such date, but in any event including, without
duplications, the amounts of (a) all indebtedness payable on demand, or at the
option of the person or entity to whom such indebtedness is owed, not more than
twelve (12) months after such date, (b) any payments in respect of any
indebtedness (whether installment, serial maturity, sinking fund payment or
otherwise) required to be made not more than twelve (12) months after such date,
(c) all reserves in respect of liabilities or indebtedness payable on demand or,
at the option of the person or entity to whom such indebtedness is owed, not
more than twelve (12) months after such date, the validity which is not
contested to such date, (d) all accruals for federal or other taxes measured by
income payable within twelve (12) months of such date and (e) all outstanding
indebtedness to Lender
 
1.9 "Default" shall have the meaning provided in Section  8.1 hereof.
 
1.10 “Effective Rate” shall have the meaning provided in Section  3.1 hereof.
 
1.11 “Eligible Inventory” shall mean Inventory owned by Borrower in the ordinary
course of its business in which Lender holds a perfected security interest
pursuant to the terms hereof, ranking prior to all interests, claims and rights
of others, and has received agreements executed by any landlords and bailees
where such Inventory may be located in accordance with Section 6.15 hereof, and
which is and at all times shall continue to be acceptable to Lender in all
respects. Standards of eligibility may be fixed and revised from time to time
solely by Lender in its exclusive judgment. In determining eligibility, Lender
may, but need not, rely on certificates of inventory and reports furnished by
Borrower, but reliance thereon by Lender from time to time shall not be deemed
to limit Lender's right to revise standards of eligibility at any time. In
general, Inventory shall not be deemed eligible unless it complies in all
respects with the representations, covenants and warranties hereinafter set
forth, made by Borrower with respect thereto and meets all standards meets all
standards imposed by any governmental agency or authority.
 
 
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1.12 “Eligible Receivables” shall mean Receivables created by Borrower in the
ordinary course of its business which have been validly assigned to Lender and
in which Lender holds a perfected security interest pursuant to the terms hereof
ranking prior to and free and clear of all interests, claims, and rights of
others and which are and at all times shall continue to be acceptable to Lender
in all other respects. Standards of eligibility may be fixed and revised from
time to time solely by Lender in its exclusive judgment. In determining
eligibility Lender may, but need not, rely on ageings, reports and schedules of
Receivables furnished by Borrower, but reliance thereon by Lender from time to
time shall not be deemed to limit Lender's right to revise standards of
eligibility at any time. In general, a Receivable shall not be deemed eligible
unless the Receivable complies with the Minimum Receivable Eligibility
Requirements and the Account Debtor on such Receivable is and at all times
continues to be acceptable to Lender and unless each Receivable complies in all
respects with the representations, covenants and warranties hereinafter set
forth and meets all standards imposed by any governmental agency or authority.
 
1.13 “Equipment” shall mean equipment as defined in Article 9 of the UCC.
 
1.14 “ERISA” shall mean the Employee Retirement Income Security Act.
 
1.15 “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the elements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied.
 
1.16 “Inventory” shall mean inventory as defined in Article 9 of the UCC.
 
1.17 “Inventory Availability” shall have the meaning given in Section 2.1
hereof.
 
1.18 “Lease” and “Leased Premises” shall have the meanings given in Section 8.1
hereof.
 
1.19 “Loan Account” shall mean the Loan Account as described in Section 2.2
hereof.
 
1.20 “Loan Availability” shall have the meaning given in Section 2.1 hereof.
 
1.21 “Loan Documents”  shall mean, collectively, this Agreement, the Term Note,
the Collateral Documents, and each guaranty, certificate, agreement, or document
executed by Borrower or any of its guarantors and delivered to Lender in
connection with the foregoing.
 
1.22 “Margin” shall mean two and one half percent (2.5%) per annum.
 
1.23 “Maximum  Credit Facility” shall mean $2,500,000.
 
1.24 “Maximum  Rate” shall have the meaning provided in Section 9.2 hereof.
 
1.25 “Minimum  Receivable Eligibility Requirements” shall have the meaning given
in Section 1) hereof.
 
1.26 “Net Amount  of Eligible Receivables” shall mean the gross amount of
Eligible Receivables less sales, excise or similar taxes, returns, discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding or claimed, and less (without duplication) all amounts payable
 
by any Account Debtor on Eligible Receivables if any Eligible Receivable of such
Account Debtor is unpaid more than 90 days following its invoice date.
 
1.27 “Obligations”  shall mean all obligations, liabilities and indebtedness of
Borrower to Lender or an Affiliate of Lender, however evidenced, arising under
this Agreement, any other Loan Document (whether by reason of extension of
credit, guaranty, indemnity or otherwise), or under any other or supplemental
financing provided to Borrower by Lender or an Affiliate of Lender, or
independent hereof or thereof, whether now existing or incurred from time to
time hereafter and whether before or after termination hereof, absolute or
contingent, joint or several, matured or unmatured, direct or indirect, primary
or secondary, liquidated or unliquidated, and whether arising directly or
acquired from others (whether acquired outright, by assignment unconditionally
or as collateral security from another and including participations or interest
of Lender in obligations of Borrower to others), and including (without
limitation) all of Lender's charges, commissions, fees, interest, expenses,
costs and attorneys' fees chargeable to Borrower in connection therewith.
 
 
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1.28 “Over-advance” shall mean any portion of all loans and advances which on
any day exceeds the Loan Availability.
 
1.29 “Permitted Liens” means the liens of Lender granted under the Loan
Documents and any other liens, if any, described on the attached Exhibit A.
 
1.30 “Person” shall mean any person, firm, corporation, partnership, limited
liability company, association, company, trust, estate, custodian, nominee or
other individual or entity.
 
1.31 “Prime Rate” shall mean the prime rate from time to time publicly announced
in New York City by JPMorgan Chase Bank.
 
1.32 “Receivables” shall mean all obligations to Borrower for the payment of
money arising out of the sale of goods by Borrower, now existing or hereafter
arising, however evidenced, including all accounts, contract rights, general
intangibles, documents, chattel paper and instruments (as each of such terms is
defined in the UCC).
 
1.33 “Receivable Availability” shall have the meaning specified in Section 2.1
hereof.
 
1.34 “Tangible  Net Worth” shall mean, at a particular date (a) the aggregate
amount of all assets of Borrower as may be properly classified as such in
accordance with GAAP consistently applied excluding such other assets as are
properly classified as intangible assets under GAAP, less (b) the aggregate
amount of all liabilities of Borrower (excluding subordinated liabilities to
Lender) determined in accordance with GAAP.
 
1.35 “Term Note” shall mean that certain Term Note in the original principal
amount of $500,000 made by the Borrower in favor of Lender on or about the date
of this Agreement.
 
1.36 “Working Capital”  shall mean the excess, if any, of Current Assets less
Current Liabilities.
 
1.37 “UCC” shall mean the Uniform Commercial Code as in effect from time to time
in the State of New York, provided, however, that in the event by reason of
mandatory provisions of law, any of the attachment, perfection, or priority of
Lender’s security interest in any of the Collateral is governed by the Uniform
Commercial Code as in effect in any jurisdiction other than the State of New
York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
 
2.   LOANS; ELIGIBILITY OF RECEIVABLES
 
2.1 Lender shall, in its discretion, make loans to Borrower from time to time,
at Borrower's request, which loans in the aggregate shall not exceed the lesser
of (A) the Maximum Credit Facility; or (B) the Loan Availability, which means
the Receivable Availability equal to eighty-five percent (85%) of the Net Amount
of Eligible Receivables plus the Inventory Availability, which means, whichever
is less 1)(a) fifty percent (50%) of the lower of cost or market value of
Eligible Inventory; or (b) eighty percent (80%) of the appraised liquidation
value of Eligible Inventory, as set forth in an appraisal obtained at Borrower’s
expense and issued by an appraiser that is satisfactory to Lender; or 2) an
amount equal to the Receivable Availability; or 3) seven hundred fifty thousand
dollars ($750,000), minus such reserves as Lender may deem, in its sole
discretion, to be necessary from time to time.
 
2.2 The making of any loan in excess of the percentages set forth above shall
not be deemed to modify such percentages or create any obligation to make any
further such loan. All loans (and all other amounts chargeable to Borrower under
this Agreement or any supplement hereto) shall be charged to a Loan Account in
Borrower's name on Lender's books. Lender shall render to Borrower each month a
statement of the Loan Account (and all credits and charges thereto) which shall
be considered correct and accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender receives a
written notice by registered mail of Borrower's exceptions within 30 days after
such statement has been rendered to Borrower.
 
2.3 A Receivable meets the Minimum Receivable Eligibility Requirements if 1) the
Receivable arose from bona fide completed transactions and has not remained
unpaid for more than the number of days after the invoice date set forth in
Section 1.26; 2) the amount of the Receivable reported to Lender is absolutely
owing to Borrower and payment is not conditional or contingent, (such as
consignments, guaranteed sales or right of return or other similar terms); 3)
the Account Debtor's chief executive office or principal place of business is
located in the United States; 4) the Receivable did not arise from progress
billings, retainages or bill and hold sales; 5) there are no contra
relationships, setoffs, counterclaims or disputes existing with respect thereto
and there are no other facts existing or threatened which would impair or delay
the collectibility of all or any portion thereof; 6) the goods giving rise
thereto were not at the time of the sale subject to any liens except those
permitted in this Agreement; 7) the Account Debtor is not an Affiliate of
Borrower; 8)   there has been compliance with the Assignment of Claims Act or
similar State or local law, if applicable, if the Account Debtor is the United
States or any domestic governmental unit; 9) Borrower has delivered to Lender
such documents as Lender may have requested pursuant to Section 4.2 hereof in
connection with such Receivable and Lender shall have received verifications of
such Receivable, satisfactory to it, if sent to the Account Debtor or any other
obligors or any bailees; 10) there are no facts existing or threatened which
might result in any adverse change in the Account Debtor's financial condition;
11) not more than 50% of the Receivables of the Account Debtor or its Affiliates
owed to Borrower are more than 90 days past their invoice date 12) the total
indebtedness to Borrower of the Account Debtor does not exceed the amount of any
customer credit limits as established from time to time on notice to Borrower;
13) the Account Debtor is deemed creditworthy at all times by Lender; and 14)
all representations and warranties in this Agreement or any other Loan Document
with respect to such Receivable are true and correct.
 
 
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3.   LENDER'S CHARGES
 
3.1           Borrower agrees to pay to Lender each month interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) (a) on
that portion of the average daily balances in the Loan Account during the
preceding month that does not exceed the sum of the Receivable Availability, at
a rate per annum equal to the Prime Rate plus the Margin (the “Effective Rate”);
(b) on the Inventory Availability, at a rate per annum equal to the Prime Rate
plus three percent (3%) (the “Inventory Rate”); (c) on the amount of
Over-advances, if any, at a rate of 4% per annum in excess of the Inventory
Rate.  Any change in the effective interest rates due to a change in the Prime
Rate shall take effect on the date of such change in the Prime Rate provided,
that, with respect to Lender’s charges, no decrease in the Prime Rate below 4%
per annum shall be given any effect.
 
3.2           Borrower shall pay to Lender a facility fee payable (a) on the
Closing Date in the amount of one percent (1%) of the sum of the Maximum Credit
Facility and the original principal amount of the Term Note, and (b) on the
anniversary of such date in each succeeding year, in the amount of three fourths
(3/4) of one percent (1%) of the Maximum Credit Facility.
 
3.3      Borrower shall pay to Lender monthly an administration fee of $1,000
payable in arrears on the first day of each month with respect to the prior
month for the stated term of this Agreement.
 
3.4      A statement of all of Lender's charges shall accompany each monthly
statement of the Loan Account and such charges shall be payable by Borrower
within 5 days after receipt of such statement. In lieu of the separate payment
of charges, Lender at its option, shall have the right to debit the amount of
such charges to Borrower's Loan Account, which charges shall be deemed to be
first paid by amounts subsequently credited to the Loan Account. Borrower agrees
that the minimum charges payable by Borrower to Lender each month under Section
3.1 hereof shall be $3,000.  As more fully provided in Section 9.2 hereof, in no
event shall the interest charges hereunder exceed the Maximum Rate.
 
4.   SECURITY INTEREST IN COLLATERAL
 
4.1 As security for the prompt performance, observance and payment in full of
all of the Obligations, Borrower grants to Lender a security interest in, a
continuing lien upon and a right of setoff against, and Borrower hereby assigns,
transfers, pledges and sets over to Lender (collectively, including any other
assets of Borrower in which Lender may be granted a security interest under any
Loan Document, the "Collateral"): (i) all Receivables (whether or not Eligible
Receivables and whether or not specifically listed on any schedules, assignments
or reports furnished to Lender) (ii) all of Borrower's property, and the
proceeds thereof, now or hereafter held or received by or in transit to Lender
or held by others for Lender's account, including any and all deposits,
balances, sums and credits of Borrower with, and any and all claims of Borrower
against, Lender, at any time existing, (iii) all credit insurance policies, and
all other insurance and all guarantees relating to the Receivables or other
Collateral, (iv) all books, records and other general intangibles evidencing or
relating to Receivables or other Collateral and the computer hardware and
software and media containing such books and records; all deposits, or other
security for the obligation of any person under or relating to Receivables, all
of the Borrower's rights and remedies of whatever kind or nature it may hold or
acquire for the purpose of securing or enforcing Receivables; all right, title
and interest of the Borrower in and to all goods relating to, or which by sale
have resulted in, Receivables, including goods returned by or reclaimed or
repossessed from Account Debtors and all goods described in copies of invoices
delivered by Borrower to Lender; all rights of stoppage in transit, replevin,
repossession and reclamation and all other rights and remedies of an unpaid
vendor or lienor, and all proceeds of any Letter of Credit naming Borrower as
beneficiary and which provides for, guarantees or assures the payment of any
Receivable; (v) all accounts, instruments, chattel paper, documents, general
intangibles, deposit accounts, investment property and letter of credit rights,
whether or not arising out of the sale of goods or rendition of services, and
including choses in action, causes of action, tax refunds (and claims), and
reversions from terminated pension plans; (vi) all of Borrower’s Inventory and
Equipment; and (vii) all proceeds of such Collateral, in any form, including
cash, non-cash items, checks, notes, drafts and other instruments for the
payment of money. Such security interest in favor of Lender shall continue
during the term of this Agreement and until indefeasible payment in full of all
Obligations, whether or not this Agreement shall have sooner terminated.
 
4.2 At Lender's request, Borrower will provide Lender with confirmatory
assignment schedules in form satisfactory to Lender, copies of customers'
invoices, evidence of shipment or delivery, and such further information as
Lender may require. Borrower will take any and all steps and observe such
formalities as Lender may request from time to time to create and maintain in
Lender's favor a valid and first lien upon, security interest in and pledge of
all of Borrower's Receivables and all other Collateral, including executing all
documents that may be requested by Lender to maintain such security interest in
and pledge of the Collateral. Borrower hereby authorizes Lender to file any
Financing Statements under the UCC, and renewals and amendments thereof, naming
Borrower as debtor, that are necessary to perfect and maintain the perfection of
Lender’s security interest in the Collateral.  Borrower agrees to take all steps
necessary to allow Lender to comply with any Federal or state statute, which, in
Lender’s judgment, if not complied with,  might afford to any Person an interest
in the Collateral that would be superior to Lender’s security interest in the
Collateral.
 
5.   CUSTODY AND INSPECTION OF COLLATERAL AND RECORDS; COLLECTION AND HANDLING
OF COLLATERAL
 
5.1 Borrower shall instruct all customers to remit payments on Receivables
(“Customers”) either to (i) a lockbox controlled by Lender and maintained at
Borrower’s expense (the “Lockbox”),  or (ii) a bank account at a bank as may be
selected by you and be acceptable to us ( the “Blocked Account Bank”), which
Bank shall have entered into a deposit account control agreement with Borrower
and Lender in
form  and  substance  satisfactory  to  Lender  directing  such  Blocked  Account  Bank  to  transfer  funds
remitted by Customers to the Lockbox (the “Blocked  Account”).   All funds
remitted to such Blocked Accounts shall immediately become Lender’s property and
Borrower shall obtain the agreement by such
Blocked  Account  Bank  to  waive  any  offset  rights  against  such  funds.    We  do  not  assume  any
responsibility for such blocked account arrangement, including any claim of
accord and satisfaction or release with respect to remittances accepted by any
Blocked Account Bank thereunder.   As to all Receivables for which Borrower
receives payment by directly withdrawing funds from a joint or escrow account of
Borrower and one of its Customers (or an account of such Customer with respect
to which Borrower otherwise has withdrawal rights) (a “Direct Withdrawal
Payment”), Borrower shall as promptly as reasonably practicable, make such
withdrawal and deposit such amounts in the Blocked Account.  Borrower will, at
its own expense and on Lender's behalf, collect as Lender's property and in
trust  for  Lender  all  Direct  Withdrawal  Payments,  and  any  other  payments  and  prepayments  on
Receivables which for any reason are not remitted by Customers to the Lockbox or
Blocked Account, and shall not commingle such collections with Borrower's own
funds. As to all moneys so collected, including all Direct Withdrawal Payments
and prepayments by Customers, Borrower shall on the day received remit all such
collections to Lender in the form received by depositing such collections into
the Blocked Account. All amounts collected on Receivables when received by
Lender shall be credited to Borrower's Loan Account, adding 3 Business Days for
collection and clearance of remittances. Such credits shall be conditional upon
final payment to Lender. Nothing contained in this Section 5.1, or otherwise in
this Agreement, shall be deemed to limit Lender's rights and powers pursuant to
Section 7 of this Agreement.
 
 
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5.2 All records, ledger sheets, correspondence, contracts, documentation and
computer hardware and software and media relating to or evidencing Receivables
or containing information relating to the Receivables shall, until delivered to
Lender or removed by Lender from Borrower's premises, be kept on Borrower's
premises, without cost to Lender, in appropriate containers in safe places.
Lender shall at all reasonable times have full access to and the right to
examine and make copies of Borrower's books and records, and shall have full
access to Borrower’s computer information systems, to confirm and verify all
Receivables assigned to Lender and to do whatever else Lender deems necessary to
protect its interest. Lender may at any time remove from Borrower's premises, or
require Borrower to deliver any contracts, documentation, files and records
relating to Receivables, and any computer hardware, software and media
containing information relating to the Receivables or Lender may, without cost
or expense to Lender, use such of Borrower's personnel, supplies, computer
information systems and space at Borrower's places of business as may be
reasonably necessary for collection of Receivables.
 
5.3 Borrower will immediately upon obtaining knowledge thereof report to Lender
all reclaimed, repossessed or returned merchandise, Account Debtor claims and
any other matter affecting the value, enforceability or collectibility of
Receivables. Any merchandise reclaimed or repossessed by or returned to Borrower
will, at the cost and expense of Borrower, be set aside marked with the name of
the Lender and will be held by Borrower for the account of Lender and subject to
Lender's security interest. All claims and disputes relating to Receivables are
to be promptly adjusted by Borrower with the prior approval of Lender and within
a reasonable time, at its own cost and expense. Lender may, at its option,
settle, adjust or compromise claims and disputes relating to Receivables which
are not adjusted by Borrower within a reasonable time.  Following the occurrence
of a Default, Lender may, at its option, revoke Borrower’s authority to settle
or adjust disputes or to further communicate with Account Debtors.
 
5.4 Borrower shall reimburse Lender on demand for all costs of collection
incurred by Lender in efforts to enforce payment of Receivables, recovery of or
realization upon any other Collateral, including attorneys' fees and the fees
and commissions of collection agencies. All and any fees, costs and expenses, of
whatever kind and nature, including taxes of any kind, which Lender may incur in
filing public notices, obtaining appraisals of the Collateral, and the
reasonable charges of any attorney whom Lender may engage in preparing and
filing documents, making title or lien examinations and rendering opinion
letters, as well as all fees, costs and expenses incurred by Lender (including
all reasonable attorneys' fees and including Lender's out of pocket expenses in
conducting periodic field examinations of Borrower and the Collateral plus
Lender's prevailing per diem charge for each of its examiners in the field and
office, now
$850  per  person  per  day),  in  administering  this  Agreement,  protecting,  preserving,  enforcing  or
foreclosing  any  security  interests  or  rights  granted  to  Lender  hereunder,  whether  through  judicial
proceedings or otherwise (including advertising costs), enforcing or collecting
the Receivables, recovery of or realization upon any other Collateral, or in
defending or prosecuting any actions or proceedings arising out of or related to
its transactions with Borrower, including actions or proceedings that may
involve any person asserting a priority or claim with respect to the Collateral,
shall be borne and paid for by Borrower on demand, shall constitute part of the
Obligations and may at Lender's option be charged to Borrower's Loan Account.
Borrower’s obligations under this section shall survive termination of this
Agreement for any reason.
 
6.   REPRESENTATIONS, COVENANTS AND WARRANTIES
 
As an inducement to Lender to enter into this Agreement, Borrower represents,
covenants and warrants (which shall survive the execution and delivery of this
Agreement) that:
 
6.1 Borrower is and at all times during the term of this Agreement shall be a
Corporation duly organized and presently existing in good standing under the
laws of the State of Delaware  and is and at all times during the term of this
Agreement shall be duly qualified and existing in good standing in every other
state in which the nature of Borrower's business requires it to be qualified.
Borrower is not aware, and will upon becoming aware promptly notify Lender, of
any person organizing under its name in another state.
 
6.2 The execution, delivery and performance of this Agreement are within the
corporate powers of Borrower, have been duly authorized by appropriate corporate
action and are not in contravention of the terms of Borrower's charter or
by-laws or of any indenture, agreement or undertaking to which Borrower is a
party or by which it may be bound. Borrower is not now the subject of any
pending governmental investigation or proceeding or of any insolvency
proceeding. No receiver or custodian has been appointed for any of the property
of Borrower. No consent, approval or authorization of any person, including
stockholders of Borrower or any governmental or regulatory authority, that has
not been obtained, is required in connection with the execution, delivery and
performance by Borrower of this Agreement. Borrower warrants that all financial
statements and other reports provided to Lender prior to the Closing Date are
true and correct in all material respects.
 
6.3 There are no pending suits, Federal or state tax liens, or judgment liens
against Borrower or affecting its assets, except for Permitted Liens. No assets
of Borrower are subject to any liens or encumbrances except for Permitted Liens.
Borrower has no employee benefit plans subject to ERISA that have accumulated
funding deficiencies or liquidity shortfalls as defined and calculated under
ERISA or with respect to which Borrower presently has withdrawal liability.
 
6.4 Borrower is and shall be, with respect to all Inventory, Equipment,
intellectual property collateral, cash collateral and other Collateral, the
owner thereof free from any lien, security interest or encumbrance of any kind,
except for Permitted Liens.  No Receivable or any other Collateral has been or
shall hereafter be assigned, pledged or transferred to any person other than the
Lender or in any way encumbered or subject to a security interest except to
Lender, and except for Permitted Liens, and Borrower shall defend the same
against the claims of all persons.
 
6.5 Borrower's books and records relating to the Receivables are maintained at
the office referred to below. Except as otherwise stated below, the principal
executive office of Borrower is located at such
 
address and has been so located on a continuous basis for not less than six
months. Borrower shall not change such location without Lender's prior written
consent, and, upon making any such change, Lender shall be authorized to file
any additional financing statements or other documents or notices which may be
necessary under the UCC or other applicable law and Borrower shall execute and
deliver to Lender any such documents requiring Borrower’s signature, failing
which Lender shall be authorized to sign such documents on behalf of Borrower as
Borrower’s attorney-in-fact. The listing of offices on Schedule 6.5 hereto
represents all of Borrower’s places of business.  Borrower shall notify Lender
of the existence of any additional places of business within 5 Business Days
after any such place of business is established.
 
 
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6.6 All loans and advances requested by Borrower under this Agreement shall be
used for the general corporate and business purposes of Borrower and in no event
shall Borrower request Lender to remit a loan or advance to an account of
Borrower that is used for the specific purpose of  purchasing or carrying margin
stock (within the meaning of Regulation U of the Federal Reserve Board) or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock in contravention of Regulation T, U or X of the Federal Reserve
Board; or to the extent that any loans and advances requested by Borrower under
this Agreement shall be used for paying wages of the employees of Borrower,
Borrower hereby represents and warrants that it shall withhold .and pay over to
the applicable tax authorities any amount thereof as it shall be so required by
applicable law.
 
6.7 Borrower shall maintain its shipping forms, invoices and other related
documents in a form satisfactory to Lender and shall maintain its books, records
and accounts in accordance with sound accounting practice. Borrower shall
furnish to Lender accounts receivable agings, accounts receivable roll forward
reports (in the form attached hereto as Exhibit B) and reconciliations of
accounts receivable collateral and the loan balance on the monthly statements
provided by Lender to Borrower’s records and inventory designations, monthly,
not later than ten (10) days after the last day of the month, covering the
previous month.  Borrower shall furnish to Lender such other information
regarding the business affairs and financial condition of Borrower as Lender
may, from time to time, reasonably request, including (a) audited financial
statements as at the end of and for each fiscal year of Borrower, as soon as
practical and in any event within 90 days after the end of each such fiscal
year, in such detail and scope as Lender may require including  a balance sheet,
a statement of income, a statement of cash flows and notes, prepared by
independent Certified Public Accountants acceptable to Lender; and concurrently
with such financial statements, a written statement signed by such independent
public accountants to the effect that, (i) in making the examination necessary
for their opinion of such financial statements, they have not obtained any
knowledge of the existence of any Default, or (ii) if such independent public
accountants shall have obtained from such examination any such knowledge, they
shall disclose in such written statement the Default and the nature thereof, (b)
compilation financial statements prepared internally as at the end of and for
each fiscal  quarterly period of Borrower, as soon as practical and in any event
within 45 days after the end of each such fiscal quarter of Borrower, in such
detail and scope as Lender may require including without limitation, a balance
sheet, a statement of income, a statement of cash flows and notes, certified by
the Chief Financial Officer of Borrower (“CFO”); and concurrently with such
financial statements, a written statement signed by the CFO to the effect that,
(i) CFO has not obtained any knowledge of the existence of any Default, or (ii)
if such CFO has obtained from such examination any such knowledge, such CFO
shall disclose in such written statement the Default and the nature thereof. All
such   statements and information shall fairly present the financial condition
of Borrower, and the results of its operations as of the dates and for the
periods, for which the same are furnished.
 
6.8 Borrower shall duly pay and discharge all taxes, assessments, contributions
and governmental charges upon or against it or its properties or assets prior to
the date on which penalties attach thereto. Borrower shall be liable for any tax
(excluding a tax imposed on the overall net income of Lender) imposed upon any
transaction under this Agreement or giving rise to the Receivables or which
Lender may be required to withhold or pay for any reason and Borrower agrees to
indemnify and hold Lender harmless with respect thereto, and to repay Lender on
demand the amount thereof.   Until paid by Borrower, Borrower’s liability under
this paragraph shall be added to the Obligations secured hereunder, and may at
Lender's option be charged to Borrower's Loan Account but shall nonetheless be
independent hereof and continue notwithstanding any termination hereof.
 
6.9 With respect to each Receivable, Borrower hereby represents and warrants
that: each Receivable represents a valid and legally enforceable indebtedness
based upon an actual and bona fide sale and delivery of property in the ordinary
course of Borrower's business which has been completed and finally accepted by
the Account Debtor and for which the Account Debtor is unconditionally liable to
make payment of the amount stated in each invoice, document or instrument
evidencing the Receivable in accordance with the terms thereof, without offset,
defense or counterclaim; each Receivable will be paid in full at maturity; no
Receivables have arisen from sales on bill and hold terms; all statements made
and all unpaid balances appearing in any invoices, documents, instruments and
statements of account describing or evidencing the Receivables are true and
correct and are in all respects what they purport to be and all signatures and
endorsements that appear thereon are genuine and all signatories and endorsers
have full capacity to contract; the Account Debtor owing the Receivable and each
guarantor, endorser or surety of such Receivable is solvent and financially able
to pay in full the Receivable when it matures; and all recording, filing and
other requirements of giving public notice under any applicable law have been
duly complied with.
 
6.10 Borrower shall until payment in full of all Obligations to Lender and
termination of this Agreement cause to be maintained at the end of each of its
fiscal quarters, Tangible Net Worth in an amount not less than $750,000 and
Working Capital of not less than negative $250,000.
 
6.11 Prior to the making of any loans hereunder: 1) Lender shall have received
an opinion of Borrower’s counsel in the form, and as to the matters, required by
Lender; 2) Lender shall have received Goodstanding Certificates and other
certifications with respect to Borrower and any other Person liable on the
Obligations from such governmental authorities as Lender shall require; 3)
Lender or its agents shall have completed such examinations and appraisals of
the Collateral and such searches with regard to Borrower and its assets, as
Lender shall require, all at Borrower’s expense; 4) Lender shall have received a
payoff letter duly executed and delivered by PNC Bank N.A. and Borrower or other
evidence  of such termination in form and substance satisfactory to Lender, and
any other evidence Lender may require that on the Closing Date there shall be no
Liens on the Collateral other than Permitted Liens; 5) a lockbox or deposit
account complying with Section 5.1 shall have been established which is
satisfactory to Lender;
 
6) Lender shall have received evidence, in form satisfactory to Lender, that
Borrower has obtained such insurance policies, in such form, with such issuers
and covering such risks, as Lender shall require, with endorsements, naming
Lender as loss payee, that are acceptable to Lender; and 7) the Loan
Availability shall be in an amount equal to or greater than $250,000 plus the
sum of all amounts required to be disbursed at closing for the purpose of paying
Lender’s expenses chargeable to Borrower hereunder and all amounts required to
be paid to creditors to induce them to release any liens in the Collateral that
are not Permitted Liens.
 
 
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6.12 During the term of this Agreement, Borrower shall not make any sales to
customers by accepting a credit card issued to such customers unless Borrower
has prior thereto entered into a merchant agreement with a processor, relating
to sales made using such credit card, on terms that are acceptable to Lender,
and such processor has agreed to remit the proceeds of such sales to an account
of Borrower with respect to which Lender has control in accordance with Section
9-104 of the UCC.
 
6.13 Attached as Exhibit C is a listing of all of Borrower’s patents, trademarks
and copyrights. So long as any Obligations remain outstanding, Lender is hereby
irrevocably authorized to use any of Borrower’s patents, trademarks and
copyrights for the purpose of enforcing Lender’s security interest in the
Collateral and disposing of any of the Collateral.
 
6.14 So long as any Obligations remain outstanding, Borrower shall (i) advise
Lender of the existence of any commercial tort claims in favor of Borrower,
which advice shall be given to Lender in writing no later than 10 days after
Borrower becomes aware of existence of such a claim in its favor; (ii) within 5
Business Days after Lender’s request therefor, provide Lender with a listing of
all deposit accounts and securities accounts maintained by Borrower and a
listing of all letters of credit issued and outstanding in favor of Borrower as
beneficiary and, if requested by Lender, arrange for the execution by each
depository bank and financial intermediary of a control agreement in Lender’s
favor with respect to such accounts, and by each letter of credit issuer of a
consent to an assignment of the proceeds of such letter of credit to Lender, in
each case in form and content satisfactory to Lender; (iii) maintain in effect
in favor of Lender, agreements (in form satisfactory to Lender) executed by the
landlords of Borrower’s places of business and the bailees of its property,
pursuant to which Lender is granted access to such places of business and such
bailees are directed to honor Lender’s instructions with respect to the
disposition of such property.
 
6.15 Until indefeasible payment in full of the Obligations, Borrower shall not
(i) make any loans to officers, directors, shareholders or Affiliates; (ii)
engage in any other transactions with Affiliates except on terms similar to
those that would be in effect in transactions between unrelated parties (iii)
incur or repay indebtedness for borrowed money or guaranty the obligations of
Affiliates or other Persons; (iv) sell, transfer or otherwise dispose of any
assets except for sales of Inventory in the normal course; (v) declare any
dividends, redeem or repurchase any stock, or make any other distributions in
respect of its stock; or (vi) enter into any agreements to sell goods on
consignment terms; or (vi) merge with or into any entity or undergo any other
restructuring or reorganization including reorganizations that would result in
Borrower being organized under the laws of a state other than Delaware.
 
6.16 Borrower shall not (i) conduct any business or engage in any transaction or
dealing with any Blocked Person (as hereafter defined), including the making or
receiving of any contribution of funds, goods or services to or for the benefit
of any Blocked Person; (ii) deal in, or otherwise engage in any transaction
relating to any property or interests in property blocked pursuant to Executive
Order No. 13224; or (iii) engage in or conspire to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in Executive Order No. 13224, the USA
Patriot Act or any other Anti-Terrorism Law.  Borrower shall deliver to Lender
any certification or other evidence requested from time to time by Lender in its
sole discretion, confirming Borrower’s compliance with this Section.  Borrower
is not in violation of any Anti-Terrorism Law  and Borrower is not a Person (a
“Blocked Person”) that (a) is listed in the annex to, or is otherwise subject to
the provisions of, Executive Order No. 13224; (b) is owned or controlled by, or
acting for or on behalf of, any Person that is listed in the annex to, or is
otherwise subject to the provisions of, Executive Order No. 13224; (c) any
financial institution is prohibited from dealing or otherwise engaging in any
transaction by any Anti-Terrorism Law;  (d) commits, threatens or conspires to
commit or supports “terrorism” as defined in Executive Order No. 13224; (e) is
named as a “specially designated national” on the most current list published by
the U.S. Treasury Department Office of Foreign Asset Control at its official
website or any replacement website or other replacement official publication of
such list, or is affiliated or associated with a person or entity listed
above;   (f) conducts any business or engages in making or receiving any
contribution of funds, goods or services to or for the benefit of any Blocked
Person, or deals in, or otherwise engages in any transaction relating to, any
property or interests in property blocked pursuant to Executive Order No. 13224.
 
6.17 For purposes of this Section 6.17, (i) “Anti-Terrorism Laws” shall mean any
laws, regulations, rules, orders and directives relating to terrorism or money
laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws
comprising or implementing the Bank Secrecy Act, and the Law administered by the
United States Treasury Department’s Office of Foreign Asset Control (as any of
the foregoing laws, regulations, rules, orders and directives may from time to
time be amended, renewed, extended, or replaced); (ii) “Executive  Order No.
13224” shall mean Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced; and (iii) “USA Patriot Act”  shall mean the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has
been, or shall hereafter be, renewed, extended, amended or replaced.
 
6.18  Borrower  shall  deliver  to  Lender  within  5  days  of  any  of  Borrower’s  senior  officers
obtaining knowledge of any condition or event which constitutes, or might
reasonably be expected to constitute, a Default or that any Person has given
notice to Borrower or any Affiliates of Borrower or taken any other action with
respect to a claimed Default, Borrower shall deliver to Lender an officer’s
certificate describing the same and the period of existence thereof and
specifying what action Borrower has taken, are taking and propose to take with
respect thereto
 
7.   SPECIFIC POWERS OF LENDER
 
7.1 Borrower hereby constitutes Lender or its agent, or any other person whom
Lender may designate, as Borrower's attorney, at Borrower's own cost and expense
to exercise at any time all or any of the following powers which, being coupled
with an interest, shall be irrevocable until all Obligations have
been  paid  in  full:  (a)  to  receive,  take,  endorse,  assign,  deliver,  accept  and  deposit,  in  Lender's  or
Borrower's name, any and all checks, notes, drafts, remittances and other
instruments and documents relating to Receivables and proceeds thereof; (b) to
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate; (c) to transmit to Account Debtors indebted on Receivables notice
of Lender's interest therein and to request from such Account Debtors at any
time, in Borrower's name or in Lender's or that of Lender's designee,
information concerning the Receivables and the amounts owing thereon; (d) to
notify Account Debtors to make payment directly to Lender; and  (e) to take or
bring, in Borrower's name or Lender's, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of the Receivables.
In addition, to the extent permitted by law, Lender may file one or more
financing statements, naming Borrower as debtor and Lender as secured party and
indicating therein the types or describing the items of Collateral. Without
limitation of any of the powers enumerated above, Lender is hereby authorized to
accept and to deposit all collections in any form, relating to Receivables,
received from or for the account of Account Debtors (whether such collections
are remitted directly to Lender by Account Debtors or are forwarded to Lender by
Borrower), including remittances  which may reflect deductions taken by Account
Debtors, regardless of amount, the Loan Account of Borrower to be credited only
with amounts actually collected on Receivables in accordance with Section 5.1.
Borrower hereby releases (i) any bank, trust company or other firm receiving or
accepting such collections in any form, and (ii) Lender and its officers,
employees and designees, from any liability arising from any act or acts
hereunder or in furtherance hereof, whether of omission or commission, and
whether based upon any error of judgment or mistake of law or fact.
 
 
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8.   LENDER'S REMEDIES
 
8.1 Borrower agrees that all of the loans and advances made by Lender under the
terms of this Agreement, together with all Obligations of Borrower as defined
herein (unless otherwise provided in any instrument evidencing the same or
agreement relating thereto), shall be payable by Borrower at Lender's demand at
the office of Lender in New York, New York. In addition, all Obligations shall
be, at Lender's option, due and payable without notice or demand upon
termination of this Agreement or upon the occurrence of any one or more of the
following events of default ("Default"): (1) if Borrower shall fail to pay to
Lender when due any amounts owing to Lender under any Obligation, or if there
shall occur a breach by Borrower or any Affiliate of Borrower of any of the
terms, covenants, conditions or provisions of this Agreement or any other
agreement between Borrower or any of its Affiliates and Lender or any of its
Affiliates or if Borrower shall fail to pay when due any indebtedness for
borrowed money; (2) if any guarantor, endorser or other person liable on the
Obligations or who has pledged or granted collateral security for the
Obligations, shall die, terminate or attempt to terminate its guaranty or pledge
agreement or shall breach any of the terms, covenants, conditions or provisions
of any guarantee, endorsement or other agreement of such person with, or in
favor of, Lender or if a material portion of any tangible
Collateral  for  the  Obligations  is  destroyed  or  lost  or  rendered  valueless;  (3)  if  any  representation,
 
warranty, or statement of fact made to Lender or an Affiliate of Lender at any
time by or on behalf of Borrower or an Affiliate of Borrower is or becomes false
or misleading in any material respect; (4) if Borrower shall become insolvent,
is generally unable to pay its debts as they mature, files or has filed against
it a petition in bankruptcy, liquidation or reorganization, or if a judgment
against Borrower remains unpaid, unstayed or undismissed for a period of more
than five days, or if Borrower discontinues doing business for any reason, or if
a custodian, receiver or trustee of any kind is appointed for it or any
of  its  property;  (5)  if  there  is  a  change  (by  voluntary  transfer,  death  or  otherwise)  in  Borrower's
controlling stockholders or owners; (6) if at any time Lender shall, in its sole
discretion, reasonably exercised, consider the Obligations insecure or any part
of the Receivables unsafe, insecure or insufficient and Borrower shall not on
demand furnish other collateral or make payment on account, satisfactory to
Lender; (7) if (x) Borrower shall default under or breach the terms of any
present or future lease (each a "Lease") of any premises now or hereafter leased
by Borrower ("Leased Premises") or (y) Lender shall receive notice from any
lessor of any Leased Premises that a default has occurred under any Lease, or
that
any  Lease  has  been  terminated;  (8)  any  employee  benefit  plan  of  Borrower  subject  to  ERISA  is
completely or partially terminated or the Pension Benefit Guaranty Corporation
commences proceedings for the purpose of effecting any such termination or an
event or circumstance occurs which could result in any such termination; (9) if
a claim is made or threatened, or a proceeding is commenced, by any governmental
agency or authority against Borrower or any Affiliate of Borrower under any
environmental protection laws. Upon the occurrence of any Default, (i) Borrower
shall pay to Lender, as liquidated damages and as part of the Obligations, in
addition to amounts payable under Section 9.1 hereof, a charge at the rate of
two percent per month upon the outstanding balance of the Obligations from the
date of Default until the date of full payment of the Obligations, which charge
shall be in lieu of compensation payable under Section 3.1 from such date;
provided, that in no event shall such rate exceed the Maximum Rate and (ii)
Lender shall have the right (in addition to any other rights Lender may have
under this Agreement or otherwise) without further notice to Borrower, to
enforce payment of any Receivables, to settle, compromise, or release in whole
or in part, any amounts owing on Receivables, to prosecute any action, suit or
proceeding with respect to Receivables, to extend the time of payment of any and
all Receivables, to make allowances and adjustments with respect thereto, to
issue credits in Lender's name or Borrower's, to sell, assign and deliver the
Receivables (or any part thereof) and any returned, reclaimed or repossessed
merchandise or other property held by Lender or by Borrower for Lender's
account, at public or private sale, at broker's board, for cash, upon credit or
otherwise, at Lender's sole option and discretion, and Lender may bid or become
purchaser at any such sale if public, free from any right of redemption which is
hereby expressly waived. Borrower agrees that the giving of five days' notice by
Lender, sent by ordinary mail, postage prepaid, to the mailing address of
Borrower set forth in this Agreement, designating the place and time of any
public sale or the time after which any private sale or other intended
disposition of the Receivables or any other security held by Lender is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice with respect thereto. The net cash proceeds resulting from the
exercise of any of the foregoing rights or remedies shall be applied by Lender
to the payment of the Obligations in such order as Lender may elect, and
Borrower shall remain liable to Lender for any deficiency. Notwithstanding
anything to the contrary contained in this section, (i) to the extent that an
event or occurrence described in this section consists of Borrower’s failure to
take, do or perform an act or action, then such failure shall not constitute a
Default if no other Default has occurred and if such act or action is taken,
done or performed by Borrower within 5 Business Days after Borrower’s receipt of
written notice from Lender that the act or action is required to be taken, done
or performed by Borrower and has not been taken, done or performed; and (ii) to
the extent that an event or occurrence described in this section consists of the
commencement of a proceeding against Borrower under Federal or state law or the
appointment of a receiver or custodian under Federal or state law, then the
commencement of such proceeding or the appointment of such receiver or custodian
shall not constitute a Default if no other Default has occurred and if such
proceeding or appointment is contested by Borrower within the time period and in
the manner required by law and is dismissed, terminated or vacated within ten
(10) Business Days after such commencement or appointment.
 
8.2 The enumeration of the foregoing rights and remedies is not intended to be
exhaustive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies
 
Lender  may
have  under  the  UCC  or  other  applicable  law.  Lender  shall  have  the  right,  in  its  sole
discretion, to determine which rights and remedies, and in which order any of
the same, are to be exercised, and to determine which Receivables are to be
proceeded against and in which order, and the exercise of any right or remedy
shall not preclude the exercise of any others, all of which shall be cumulative.
No act, failure or delay by Lender shall constitute a waiver of any of its
rights and remedies. No single or partial waiver by Lender of any provision of
this Agreement, or breach or default thereunder, or of any right or remedy which
Lender may have shall operate as a waiver of any other provision, breach,
default, right or remedy or of the same provision, breach, default, right or
remedy on a future
occasion.  Borrower  waives  presentment,  notice  of  dishonor,  protest  and  notice  of  protest  of  all
instruments included in or evidencing any of the Obligations or the Receivables
and any and all notices or demands whatsoever (except as expressly provided
herein). Lender may, at all times, proceed directly against Borrower to enforce
payment of the Obligations and shall not be required to first enforce its rights
in the Receivables or any other security granted to it. Lender shall not be
required to take any action of any kind to preserve, collect or protect its or
Borrower's rights in the Receivables or any other security granted to it.
 
8.3 BORROWER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE
OBLIGATIONS, THE RECEIVABLES, OR ANY OTHER TRANSACTION BETWEEN THE PARTIES AND
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE OBLIGATIONS. IN ANY SUCH LITIGATION BORROWER WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE
THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO BORROWER AT ITS
PLACE OF BUSINESS SET FORTH ABOVE. WITHIN 30 DAYS AFTER SUCH MAILING, BORROWER
SHALL APPEAR IN ANSWER TO SUCH SUMMONS, COMPLAINT OR OTHER PROCESS, FAILING
WHICH BORROWER SHALL BE DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY LENDER
AGAINST BORROWER FOR THE AMOUNT OF THE CLAIM AND OTHER RELIEF REQUESTED THEREIN.
 
 
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8.4 Borrower hereby agrees to indemnify Lender and hold Lender harmless from and
against any liability, loss, damage, suit or proceeding ever suffered or
incurred by Lender (including reasonable attorneys’ fee) as a result of
Borrower’s failure to observe, perform or discharge Borrower’s duties hereunder
or as a result of Borrower’s breach of any of the representations, warranties
and covenants of this Agreement. This indemnity shall survive termination of
this Agreement for any reason.
 
9.   EFFECTIVE DATE, CONTROLLING LAW AND TERMINATION
 
9.1 This Agreement shall become effective upon acceptance by Lender at its
office in the State of New York, and shall continue in full force and effect
until April 30, 2016 (the "Renewal  Date"), and from year to year thereafter,
unless sooner terminated as herein provided. Borrower may terminate this
Agreement on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving Lender at least sixty (60) days' prior written notice by
registered or certified mail, return receipt requested, and in addition to its
other rights hereunder, Lender shall have the right to terminate this Agreement
at any time by giving Borrower sixty (60) days' prior written notice.   Should a
Default occur hereunder, this Agreement will be terminable by Lender at any time
and Borrower shall, upon any such termination by Lender, or upon termination of
this Agreement effective prior to the end of its current term for any reason
other than termination by Lender in the absence of a Default, pay to Lender, as
liquidated damages and as part of the Obligations, in addition to amounts
payable under Section 8.1 hereof, an amount equal to (a) three percent of the
Maximum Credit Facility then in effect, if such termination occurs prior to the
first anniversary of the Closing Date; and (b) one percent of the Maximum Credit
Facility then in effect if such termination occurs on or after the first
anniversary of the Closing Date. In the event that Lender shall permit
termination of this Agreement by Borrower other than as provided herein, as a
condition to such termination, Borrower shall pay to Lender such additional
liquidated damages in addition to performance of any other conditions to such
termination.  No termination of this Agreement, however, shall relieve or
discharge Borrower of its duties, obligations and covenants hereunder until such
time as all Obligations have been paid in full, and the continuing security
interest in Receivables and other Collateral granted to Lender hereunder or
under any other agreement shall remain in effect until such Obligations have
been indefeasibly paid and performed in full and any provision hereof that by
its terms survives termination of this Agreement  shall survive pursuant to such
terms. No provision hereof shall be modified or amended orally or by course of
conduct but only by a written instrument expressly referring hereto signed by
both parties. This Agreement embodies the entire agreement between Lender and
Borrower as to the subject matter hereof and supersedes all prior agreements
(whether oral or written) as to the subject matter hereof.
This  Agreement  shall  be binding upon and inure to  the  benefit  of  Borrower
and Lender and their respective heirs, executors, administrators, successors and
assigns, provided, however, that Borrower may not assign this Agreement or its
rights hereunder without Lender’s prior written consent.  Borrower consents to
Lender’s sale of participations in the loans made under this Agreement.
 
9.2 ALL LOANS SHALL BE DISBURSED BY LENDER FROM ITS OFFICE IN THE STATE OF NEW
YORK, SHALL BE PAYABLE BY BORROWER AT SUCH OFFICE, AND THIS AGREEMENT AND ALL
TRANSACTIONS THEREUNDER SHALL BE DEEMED TO BE CONSUMMATED IN SUCH STATE AND
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THAT
STATE.  If any part or provision of this Agreement is invalid or in
contravention of the applicable laws or regulations of any controlling
jurisdiction, such part or provision shall be severable without affecting the
validity of any other part or provision of this Agreement. Notwithstanding any
provision herein or in any related document, Lender shall never be entitled to
receive, collect, or apply, as interest on the Loan Account, any amount in
excess of the maximum rate of interest ("Maximum  Rate")  permitted to be
charged from time to time by applicable law (if such law imposes any maximum
rate), and in the event Lender ever receives, collects, or applies as interest,
any amount in excess of the Maximum Rate, such amount shall be deemed and
treated as a partial prepayment of the principal of the Loan Account; and, if
the principal of the Loan Account and all other of Lender's charges other than
interest are paid in full, any remaining excess shall be paid to Borrower.
 
10. MISCELLANEOUS
 
10.1 Unless otherwise specifically provided in this Agreement, any notices,
requests, demands or other communications permitted or required to be given
under this Agreement shall be in writing and shall be sent by facsimile, hand
delivery or by a nationally recognized overnight delivery service, to the
addresses and facsimile numbers of the parties set forth below (or to such other
address or facsimile number as a party may hereafter designate by a notice to
the other that complies with this section) and shall be deemed given (a) in the
case of a notice sent by facsimile, when received by the recipient if the
sending party receives a confirmation of delivery from its own facsimile
machine; and (b) in the case of a notice that is hand delivered or sent by such
overnight courier, when delivered (provided that the sending party retains a
confirmation of delivery).  Any notice which, pursuant to the terms hereof must
be sent by Borrower by certified or registered mail shall be deemed given and
effective when received by Lender, or Borrower, as the case may be.
 

If to Lender     If to Borrower ROSENTHAL & ROSENTHAL, INC.   Brekford Corp.
1370 Broadway   7020 Dorsey Road, Bldg C Hanover, MD 21076 New York NY 10018  
Attn: Rodney Hillman Attn: David Flaxman, Esq., with a copy to James
Occhiogrosso   Facsimile: Facsimile: (212) 356-0989    

 
10.2  Nothing  contained  herein  shall  impose  on  Lender  any  liability  for  any  contracts,
undertakings  or  other  obligations  of  Borrower  to  others,  including  obligations  of  Borrower  to  any
Account Debtor for breach of the terms of any contract of sale between Borrower
and the Account Debtor.
 
10.3 Wherever in this Agreement (i) the term “including” appears, such term
shall be deemed to mean “including without limitation”; (ii) the term
“satisfactory” or “acceptable” to Lender appears, such terms shall be deemed to
mean “acceptable” or “satisfactory” to Lender and its counsel in their sole  and
absolute discretion; and (iii) the terms “in the opinion” or “in the judgment”
of Lender appear, such terms shall be deemed to mean “in the sole opinion” and
“in the sole judgment” of Lender and its counsel.
 
 
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10.4 Terms used in this Agreement that are not defined in this Agreement but are
defined in the
 
UCC shall have the meanings given in the UCC.
 
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
executed by their respective corporate officers thereto duly authorized as of
the day and year first above written.
 

 
BREKFORD CORP.
         
 
By:
/s/ Rodney Hillman           Rodney Hillman, President/COO  
Attest:
          Accepted:  
Secretary
       
ROSENTHAL & ROSENTHAL, INC.
            By: /s/ Robert Martucci           Robert Martucci, Senior Vice
President          

 
 
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Exhibit A
 
PERMITTED LIENS
 
(a) the security interests and liens of Lender;
 
(b) liens securing the payment of taxes, assessments or other governmental
charges or levies either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower, or Guarantor or Subsidiary, as the case may be and
with respect to which adequate reserves have been set aside on its books;
 
(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of such Borrower's or Guarantor’s business
to the extent: (i) such liens secure indebtedness which is not overdue or (ii)
such liens secure indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower or Guarantor, in each case
prior to the commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its books;
 
(d) zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of such Borrower as presently conducted thereon or materially impair the value
of the real property which may be subject thereto;
 
(e) purchase money security interests in machinery and equipment (including
capital leases where the landlord has signed a subordination agreement/waiver
acceptable to Lender);
 
(f) pledges and deposits of cash by any Borrower or Guarantor after the date
hereof in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security benefits
consistent with the current practices of such Borrower or Guarantor as of the
date hereof;
 
(g) pledges and deposits of cash by Borrower after the date hereof to secure the
performance of tenders, bids, leases, trade contracts (other than for the
repayment of indebtedness), statutory obligations and other similar obligations
in each case in the ordinary course of business consistent with the current
practices of Borrower as of the date hereof; provided, that, in connection with
any performance bonds issued by a surety or other person, the issuer of such
bond shall have waived in writing any rights in or to, or other interest in, any
of the Collateral in an agreement, in form and substance satisfactory to Lender;
 
(h) liens arising from (i) operating leases and the precautionary UCC financing
statement filings (satisfactory to Lender) in respect thereof and (ii) equipment
or other materials which are not owned by Borrower located on the premises of
such Borrower (but not in connection with, or as part of, the financing thereof)
from time to time in the ordinary course of business and consistent with current
practices of such Borrower or Guarantor and the precautionary UCC financing
statement filings (satisfactory to Lender) in respect thereof; and
 
(i) judgments and other similar liens arising in connection with court
proceedings that do not constitute a Default, provided, that, (i) such liens are
being contested in good faith and by appropriate proceedings diligently pursued,
(ii) adequate reserves or other appropriate provision, if any, as are required
by GAAP have been made therefor, and (iii) a stay of enforcement of any such
liens is in effect.
 
 
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Schedule 6.3
 
Litigation
 
 
 
 
 
 
 
 
 
 
 
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Schedule 6.5
 
Other locations of Borrower
 
2408 Peppermill Dr. Glen Burnie. MD 21061
 
 
 
 
 
 
 
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