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LOAN AND SECURITY AGREEMENT

BETWEEN

ISRAEL DISCOUNT BANK OF NEW YORK

AND

FREUNDLICH SUPPLY COMPANY, INC.

 
 March
  6
, 2008 

 

 
 
 
 
 
 

 

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This LOAN AND SECURITY AGREEMENT (“Agreement”) is entered into as of March __,
2008, and is by and among FREUNDLICH SUPPLY COMPANY, INC., as borrower,
PRECISION AEROSPACE COMPONENTS, INC., as guarantor, and ISRAEL DISCOUNT BANK OF
NEW YORK, as lender.

Section 1                      DEFINITIONS.
 
Section 1.1               All terms used herein which are defined in Article 1
or Article 9 of the Uniform Commercial Code ("UCC"), as amended from time to
time, shall have the meanings given therein, unless otherwise defined in this
Agreement and all references to the plural herein shall also mean the singular.
 
Section 1.2                “Acceptance Margin” shall mean three and three
quarter percent (3.75%) or three hundred and seventy five basis points (375
bps).
 
Section 1.3                “Acceptance Rate” shall mean annual interest rate
applicable to Bankers Acceptances which shall be the sum of: (a) the rate set
forth in Column II of the Bank’s internally prepared Discount Rate for
Acceptance Financing (as determined and updated from time to time by the Bank)
for the selected Term; plus (b) the Acceptance Margin.
 
Section 1.4                 “Account Debtor” shall mean each debtor or obligor
in any way obligated on or in connection with any Account.
 
Section 1.5                “Accounts” shall mean all of the Borrower’s present
and future accounts, contract rights, general intangibles, chattel paper
(whether tangible or electronic), documents and instruments (including
promissory notes), as such terms are defined in the UCC, including, without
limitation, all obligations for the payment of money arising out of the
Borrower’s sale, lease or other disposition of goods or other property or
rendering of services.
 
Section 1.6                 “Advance” shall mean any increase in the Total
Outstandings under the Loan, whether such increase is through a Bank Acceptance,
Credit Advance or an L/C Advance.
 
Section 1.7                 “Advance Request” shall mean a request by the
Borrower for an Advance in connection with the Loan.
 
Section 1.8                 “Advance Request Notice” shall mean that certain
notice prepared and issued by the Borrower to the Bank in the form annexed
hereto as Exhibit B, or such other form as designated or acceptable to the Bank.
 
Section 1.9                 “Agreement” shall mean this Loan and Security
Agreement.
 
Section 1.10              “BA Term Limitation” shall mean a total of one hundred
and eighty days from the date of the initial Advance in connection with a
Bankers Acceptance.  The BA Term Limitation may not be increased or extended.
 
Section 1.11               “Bank” shall mean Israel Discount Bank of New York, a
banking corporation organized and existing under the laws of the State of New
York, and its subsidiaries, affiliates and successors and assigns.
 
Section 1.12               “Bankers Acceptance” shall mean an Advance for the
purpose of paying the Borrower’s Obligations as the applicant of a Letter of
Credit drawing.
 
 
 
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Section 1.13                 “Bankers Acceptance Obligations” shall mean the
aggregate amount of all outstanding Bankers Acceptances, inclusive of principal,
interest and other fees or charges.
 
Section 1.14                 “Borrower” shall mean Freundlich Supply Company,
Inc., a corporation organized and existing under the laws of the State of
Delaware, having offices at 2200 Arthur Kill Road, Staten Island, New York 10309
and assigned tax identification number 20-5199557.
 
Section 1.15                 “Borrowing Base” shall mean, without duplication,
an amount consisting of the sum of up to: (i) seventy five percent (75%) of
Eligible Accounts, plus (ii) fifty percent (50%) of Eligible Inventory Amount;
minus Reserves.
 
Section 1.16                  “Business Day” means any day other than a
Saturday, Sunday or other day on which commercial banks are authorized to close
under the laws of, or are in fact closed in, New York.
 
Section 1.17                  “Capitals Funds” shall mean shareholder equity
plus subordinated debt, in form satisfactory to the Bank, less intangibles,
investments in other companies and loans to officers and affiliates.
 
Section 1.18                  “Checking Account” shall collectively mean the
Borrower’s demand deposit accounts opened and maintained by the Borrower with
the Bank, as set forth in further detail on Schedule 1.18.
 
Section 1.19                   “Closing Date” shall mean the first date all of
the conditions precedent described in this Agreement are satisfied or waived in
writing by the Bank.
 
Section 1.20                   “Closing Fee” shall have the meaning set forth in
Section 3, and in the amount set forth in Schedule 1.35.
 
Section 1.21                   “Closing Legal Fee” shall have the meaning set
forth in Section 3, and in the amount set forth in Schedule 1.35.
 
Section 1.22                   “Collateral” shall have the meaning set forth in
Section 4.1 hereof.
 
Section 1.23                    “Coverage Amount” shall be the minimum amount of
insurance required, as specified in Schedule 5.1.
 
Section 1.24                    “Credit Advance” shall mean an Advance in which
the Bank delivered to the Borrower or at the Borrower’s direction immediately
available funds in the Currency pursuant to Section 2.
 
Section 1.25                    “Credit Advance Obligations” shall mean the
aggregate amount of all outstanding Credit Advances, inclusive of principal,
interest and other fees and charges.
 
Section 1.26                    “Currency” means United States Dollars, the
currency of the United States of America.
 
Section 1.27                     “Default” shall mean any event or condition
which constitutes an Event of Default or which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.
 
Section 1.28                     “Default Rate” shall mean the rate of interest
per annum applicable to the principal amount of the Total Borrowings upon the
occurrence of an Event of Default and shall, be for each Bank Acceptance and
Credit Advance, the Rate then in effect plus five percent (Rate + 5%) per
annum.  The Default Rate immediately shall become effective upon the occurrence
of an Event of Default, but in no event shall the Default Rate be in excess of
the maximum rate of interest allowed by law to be charged.  In the event that
the Default Rate, based upon the formula set forth above, exceeds the maximum
rate of interest allowed to be charged by law, the Default Rate shall be
adjusted and reduced to the maximum rate allowed to be charged by law.
 
 
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Section 1.29                      “Delinquent Account” shall mean an Account
that remains uncollected for more than one hundred and twenty (120) days from
its due date.
 
Section 1.30                      “EBITDA” shall mean without duplication on a
consolidated basis for such period: (a) net income (excluding (i) income of
persons in which the Borrower has an ownership interest (other than cash
distributions from such persons), (ii) after tax gains attributable to fixed
asset dispositions and (iii) any other after tax extraordinary or non-cash
gains); plus (b) any provision for (or less any benefit from) income or
franchise taxes included in determining net income; plus (c) interest expense
deducted in determining net income; plus (d) amortization and depreciation
expense deducted in determining net income; plus (e) non-cash compensation
expense required by GAAP to be deducted in determining net income, all
determined on a consolidated basis for Borrower and its subsidiaries.
 
Section 1.31                       “Eligible Accounts” shall mean, at any time
of determination thereof, each Account created in the ordinary course of the
Borrower’s business arising out of the Borrower’s sale of goods or rendition of
services, which are and at all times shall continue to be acceptable to the Bank
in all respects.  To be eligible an Account (i) must be invoiced to, and
represent a bona fide amount due to the Borrower from, the Account Debtor, as
the purchaser of goods or services, in each case originated in the ordinary
course of the Borrower’s business and (ii) is not ineligible for inclusion in
the calculation of the Borrowing Base pursuant to any of clauses (a) through (w)
below. Without limiting the generality of the foregoing, to qualify as an
Eligible Account, an Account shall (x) indicate no other party other than the
Borrower as payee or remittance party, (y) be subject to a binding unconditional
agreement between the Borrower and such Account Debtor, and (z) be due and
payable on a date certain.  Unless otherwise approved from time to time by the
Bank, no Account shall be an Eligible Account if, without duplication (and
unless otherwise agreed to in writing by the Bank):
 
(a)                      it is a Delinquent Account;
 
(b)                      it is a Government Account, unless the Borrower assigns
its right to payment of such Account exclusively to the Bank pursuant to the
Assignment of Claims Act of 1940, as amended, and has caused all other
assignments, as applicable, of such Account to be released and terminated, or
otherwise has complied with other applicable statutes or ordinances;
 
(c)                      it is due from an Account Debtor as to which
twenty-five percent (25%) or more of the aggregate dollar amount of all
outstanding Accounts Receivable owing from such Account Debtor are Delinquent
Accounts (“Cross-Age Accounts”);
 
(d)                      it is owed by an Account Debtor or any affiliate of
such Account Debtor to which the Borrower is indebted;
 
(e)                      it is owed by any Affiliate, employee, officer,
director, agent or stockholder of the Borrower;
 
(f)                      it is not subject to the Bank’s first priority
perfected security interest;
 
(g)                     it is subject to any lien other than (i) the Bank’s
lien; and (ii) which arises by operation of law, and not by grant, and which is
not subordinate to the Bank’s lien;
 
(h)                     it has been written off of the Borrower’s books,
reserved against, discounted or otherwise designated as uncollectible;
 
 
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(i)                      the total amount of Accounts owing by an individual
Account Debtor exceeding the Permitted Account Debtor Sublimit, in which case
the Eligible Accounts allocable to such Account Debtor shall be reduced to the
Permitted Account Debtor Sublimit;
 
(j)                      it is owed by an Account Debtor for which any Accounts
have, at any time, been deemed ineligible under clause (h) above;
 
(k)                      any covenant, representation, or warranty contained in
this Agreement or in any other Loan Document with respect to such Account has
been breached in any material respect;
 
(l)                      it: (i) does not arise from the sale of goods or
performance of services in the ordinary course of the Borrower’s business, (ii)
is not evidenced by an Invoice or other documentation satisfactory to the Bank
that was sent to or acknowledged by the Account Debtor, (iii) represents a
progress billing, (iv) is contingent upon the Borrower’s completion of any
further performance, (v) represents a sale on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment, cash-on-delivery or any other
repurchase or return basis or (vi) relates to payments of interest;
 
(m)                       the services or goods giving rise to such Account have
not been performed or delivered by the Borrower;
 
(n)                       it is owed by an Account Debtor which has (i) applied
for, suffered, or consented to the appointment of any receiver, custodian,
trustee, or liquidator of its assets, (ii) has had possession of all or a
material part of its property taken by any receiver, custodian, trustee or
liquidator, (iii) filed, or had filed against it, any request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
bankrupt, winding-up, or voluntary or involuntary case under any state or
federal bankruptcy laws (other than post-petition accounts payable of an Account
Debtor that is a debtor-in-possession under the Bankruptcy Code and reasonably
acceptable to Lender), (iv) has admitted in writing its inability, or is
generally unable to, pay its debts as they become due, (v) become insolvent, or
(vi) ceased operation of its business and such fact has been made known to
Borrower;
 
(o)                      it is owed by any Account Debtor which has sold all or
a substantially all of its assets;
 
(p)                       it is owed by an Account Debtor which (i) does not
maintain an office for business within the U.S.; (ii) is not organized under
applicable law of the U.S., any state of the U.S., unless, in either case, such
Account is backed by a letter of credit or credit insurance reasonably
acceptable to Lender; or (iii) causes the Bank, in good faith and sole
discretion, to determine or suspect that such Account Debtor is, operates or
transacts with, or for the benefit of, any sanctioned individual, institution or
country, as designated by the United States government;
 
(q)                      it is owed in any currency other than the Currency;
 
(r)                      it is subject to any counterclaim, deduction, defense,
setoff or dispute, but only to the extent of any such counterclaim, deduction,
defense, setoff or dispute;
 
(s)                      it is evidenced by any promissory note, chattel paper,
or instrument;
 
(t)                      it is subject to a partial or total refund, but only to
the extent and amount of such refund;
 
(u)                      it is subject to any agreement between the Borrower and
the Account Debtor for a reduction of such Account, other than discounts and
adjustments given in the ordinary course of the Borrower’s business, or any
Account which was partially paid and the Borrower has created a new receivable
for the unpaid portion of such Account or any portion of such Account classified
by the Borrower as chargeback;
 
 
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(v)                      the Account is owed by an Account Debtor located in any
state denying creditors access to its courts in the absence of a Notice of
Business Activities Report or other similar filing, unless Borrower is
incorporated under the laws of such state or has either qualified as a foreign
corporation authorized to transact business is such state or has filed a Notice
of Business Activities Report or similar filing with the applicable state agency
for the then current year; and
 
(w)                      it is not otherwise acceptable to the Bank in the
Bank’s commercially reasonable discretion.
 
Section 1.32                     “Eligible Inventory Amount” shall mean the
lesser of: (a) Five Million Dollars ($5,000,000.00); or (b) the Borrower’s
Inventory determined at the lower cost of market value; plus (ii) face amount of
Letters of Credit issued by Lender for the account of Borrower for Inventory
which has been purchased from Borrower’s supplier and not yet delivered; (iii)
minus work in progress that is categorized as Inventory; and (iv) minus slow
moving inventory, as determined by the Bank in its reasonable discretion.  The
Bank reserves the right to make reasonable modifications and adjustments to the
Eligible Inventory Amount from time to time in its sole discretion based on the
most recent account, field and/or Collateral examinations obtained or received
by the Bank.
 
Section 1.33                     “Equipment” shall mean all equipment,
machinery, computers and computer hardware, vehicles, tools, dies, jigs,
furniture, trade fixtures and fixtures; all attachments, accessions and property
now or hereafter affixed thereto or used in connection therewith, substitutions
and replacements thereof, wherever located, whether now owned or hereafter
acquired by the Borrower.
 
Section 1.34                      “Events of Default” shall have the meaning set
forth in Section 9.
 
Section 1.35                      “Exam Fees” shall have the meaning set forth
in Section 3, and in the amount set forth in Schedule 1.35.
 
Section 1.36                     “Fee” or “Fees” individually and collectively
shall mean each of the fees and charges set forth on Schedule 1.35.
 
Section 1.37                    “GAAP” shall mean generally accepted accounting
principles in the United States of America set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, consistently applied.
 
Section 1.38                    “Government Account” shall mean an account due
from an Account Debtor which is a national, federal, state or municipal
government, including, without limitation, any instrumentality, division,
agency, body or department thereof.
 
Section 1.39                    “Guarantor” collectively shall mean Precision
Aerospace Components, Inc., a Delaware corporation having an address at having
offices at 2200 Arthur Kill Road, Staten Island, New York 10309.
 
Section 1.40                    “Guaranty” collectively shall mean the
Obligations of each Guarantor under this Agreement, as further specified in
Section 7 of this Agreement.
 
Section 1.41                    “Guaranty Obligation” shall mean the Guaranty of
each Guarantor of the payment of the Obligations.
 
 
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Section 1.42                     “Instruction Agreement” shall mean that certain
Instruction Agreement in the form annexed hereto as Exhibit E.
 
Section 1.43                     “Inventory” shall have the meaning set forth in
the UCC.
 
Section 1.44                     “Invoice” shall mean an invoice, bill or
similar document issued substantially contemporaneously with, but in no event
prior to, the delivery of goods and/or rendering of services by the Borrower to
an Account Debtor.
 
Section 1.45                      “L/C Advance” shall mean an Advance requested
by the Borrower for the purpose of issuing a Letter of Credit.
 
Section 1.46                      “L/C Credit Extension” means, with respect to
any Letter of Credit, the issuance or extension of the expiry date thereof, or
the increase of the amount thereof.
 
Section 1.47                      “L/C Fees” shall mean the fees as set forth on
Schedule 1.47.
 
Section 1.48                     “L/C Obligations” shall mean, as at any date of
determination, the aggregate undrawn amount of all outstanding Letters of
Credit.  For all purposes of this Agreement, if on any date of determination a
Letter of Credit has expired by its terms but an amount may still be drawn
thereunder, such Letter of Credit shall be deemed to be “outstanding” in the
amount so remaining available to be drawn.
 
Section 1.49                     “L/C Sublimit” shall mean an amount equal to
Five Hundred Thousand dollars ($500,000).  The L/C Sublimit is part of, and not
in addition to, the Maximum Credit available under the Loan.
 
Section 1.50                     “Late Payment Premium” shall have the meaning
set forth in Section 3.
 
Section 1.51                     “Lender” shall mean the Bank.
 
Section 1.52                    “Letters of Credit” shall mean individually an
irrevocable standby and/or documentary letter of credit and collectively all
irrevocable standby and/or documentary letters of credit issued by the Bank at
the request and benefit of the Borrower.
 
Section 1.53                    “LIBOR” shall mean the London interbank offered
rate of interest, as determined by the Bank two business days before the
beginning of each interest period, or as otherwise determined from time to time
by the Bank.  If LIBOR cannot be reasonably determined by the Bank, due to
circumstances affecting the London interbank market, the LIBOR rate utilized by
the Bank which is then in effect shall be continued until the Bank shall
determine that adequate and reasonable means exist for ascertaining
LIBOR.  LIBOR shall be set forth and determined from the Bank’s internal LIBOR
rate sheet.
 
Section 1.54                     “LIBOR Advance” shall mean a Credit Advance
under which the Borrower elects the LIBOR Advance Rate.
 
Section 1.55                     “LIBOR Advance Rate” shall mean the annual rate
of interest applicable to each LIBOR Advance, depending upon the Term selected,
and shall be the sum of the applicable LIBOR rate for the selected Term plus the
LIBOR Margin.
 
Section 1.56                     “LIBOR Margin” shall mean three and three
quarter percent (3.75%) or three hundred and seventy five basis points (375
bps).
 
Section 1.57                     “Line Fee” shall have the meaning set forth in
Section 3, and in the amount set forth in Schedule 1.35.
 
 
 
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Section 1.58                     “Loan” shall mean the subject revolving credit
facility, as further described in Section 2.
 
Section 1.59                     “Loan Account” shall have the meaning set forth
in Section 2.16 (Loan Account; Bank’s Records).
 
Section 1.60                     “Loan Documents” shall mean each and every loan
agreement, credit agreement, including this Agreement, promissory note, security
agreement, pledge agreement, financing statement, assignment, mortgage,
guaranty, opinion letters and agreements and any other document heretofore, now
or hereafter executed by any of the Obligors and/or the Bank, together with all
modifications, extensions and/or renewals thereof in connection with the
extension of credit, including but not limited to this Agreement, and each and
every other document executed by the Obligors in connection with the Loans and
the Obligations, all as amended, restated, extended, renewed, supplemented,
modified or replaced from time to time.
 
Section 1.61                      “Loan Term” shall mean the period from the
Closing Date through to the Maturity Date, except upon the occurrence of an
Event of Default, in which case the period shall be shortened to, in the Bank’s
sole and absolute discretion, the earlier of the occurrence of the Event of
Default or declaration of default by the Bank.

Section 1.62                       “Material Adverse Change”  shall mean any
event or condition that (a) has a material adverse effect on the business,
assets, properties, performance, operations or condition (financial or
otherwise) of the Obligors, (b) materially impairs the ability of the Obligors
taken as a whole to perform their obligations under any of the Loan Documents
related to the line of credit herein, or (c) materially and adversely affects
the lien granted to the Bank under any security document or materially impairs
the validity or enforceability of, or materially impairs the rights, remedies or
benefits available to the Bank under any Loan Document.
 
Section 1.63                       “Maturity Date” shall mean January 31, 2009,
unless accelerated as a result of the occurrence of an Event of Default.
 
Section 1.64                       “Maximum Credit” shall mean the lesser of (i)
Three Million Dollars ($3,000,000.00), or (ii) the Borrowing Base.
 
Section 1.65                      “Note” shall mean the Revolving Credit Note in
the principal amount of Three Million Dollars ($3,000,000.00) dated as of the
date hereof, in the form attached as Exhibit A, as amended, extended, renewed or
modified from time to time.
 
Section 1.66                     “Obligation” or “Obligations” collectively
shall mean all indebtedness, obligations and liabilities of the Obligors,
collectively and individually, to the Bank of every kind and description, direct
or indirect, secured or unsecured, joint or several, absolute or contingent, due
or to become due, whether for payment or performance, now existing or hereafter
arising, whether presently contemplated or not, regardless of how the same
arise, including, but not limited to, the Loan(s) (including modifications,
renewals or extensions of such Loan(s)) and all indebtedness including any
arising from any interest rate hedging transactions, liabilities or obligations
owing from the Obligors, collectively and individually, to others which the
Lender may have obtained by purchase, negotiation, discount, assignment or
otherwise; and all interest, taxes, fees, charges, expenses and attorney’s fees
(whether or not such attorney is a regularly salaried employee of the Lender,
any parent corporation or any subsidiary or affiliate thereof, whether now
existing or hereafter created) chargeable to the Obligors or incurred by the
Lender under the Loan Documents, this Agreement, or any other document or
instrument delivered in connection with the Loan(s) or related to the extension
of credit.
 
 
 
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Section 1.67                     “Obligor” or “Obligors” collectively shall mean
each and every Borrower and Guarantor.
 
Section 1.68                    “Overadvance” shall mean the amount by which the
Total Outstandings exceed the Maximum Credit on any given date.
 
Section 1.69                    “Permitted Account Debtor Sublimit” shall mean
the amount equal to twenty five percent (25%) of the aggregate of all Accounts
that otherwise would be deemed Eligible Accounts pursuant to the definition of
“Eligible Accounts”, excluding subsection (i) thereof.
 
Section 1.70                    “Permitted Liens” shall mean with respect to the
property of any person, (a) deposits or pledges of cash to secure obligations
under workmen’s compensation, social security or similar laws, or under
unemployment insurance; (b) deposits or pledges of cash to secure bids, tenders,
contracts (other than contracts for the payment of money or the deferred
purchase price of property or services), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
the Borrower of business; (c) carrier’s, warehousemen’s, mechanic’s, workmen’s,
materialmen’s or other like liens arising in the ordinary course of the
Borrower’s business with respect to obligations which are not due, or which are
being properly contested pursuant to appropriate proceedings and for which
adequate reserves have been established; (d) liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or which are being properly contested pursuant to appropriate
proceedings and for which adequate reserves have been established; (e) judgment
liens the existence of which would not constitute an Event of Default under this
Agreement; and (f) any lien on any equipment securing any indebtedness incurred
in connection with the purchase of such equipment permitted under this
Agreement.  All Permitted Liens are set forth on Schedule 1.70.
 
Section 1.71                      “Prime Advance” shall mean a Credit Advance
under which the Borrower elects the Prime Advance Rate.
 
Section 1.72                      “Prime Advance Rate” shall mean the annual
rate of interest applicable to each Prime Advance and shall be the sum of the
Prime Rate plus the Prime Margin.
 
Section 1.73                      “Prime Margin” shall mean one percent (1%).
 
Section 1.74                      “Prime Rate” shall mean for any day a
fluctuating rate per annum equal to the rate of interest in effect for such day
as publicly announced from time to time by the Bank as its “prime rate”.  The
“prime rate” is a rate set by the Bank based upon various factors including the
Bank’s costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate.  Any change in such rate announced by the
Bank shall take effect at the opening of business on the day specified in the
public announcement of such change.
 
Section 1.75                       “Rate” collectively shall mean the annual
rate of interest applicable to all outstanding principal due and owing under the
Loan (Total Borrowings) and shall be calculated on the basis of a 360-day year
and actual number of days elapsed during the interest period (but in no event
shall be in excess of the maximum rate permitted by applicable law).  In the
event that the Rate exceeds the maximum rate allowed by law, the Rate shall be
reduced to be the maximum rate of interest per annum allowed by law).  The Rate
applicable to the Credit Advances shall be elected by the Borrower at the time
of each Advance Requests and shall be either of the following: (a) LIBOR Advance
Rate; or (b) the Prime Advance Rate.  The Rate applicable to Bank Acceptances
shall be the Bank Acceptance Rate.  Upon the occurrence of an Event of Default,
the Rate shall immediately become the Default Rate.
 
Section 1.76                       “Rate Type” shall mean either the LIBOR
Advance Rate or the Prime Advance Rate.
 
 
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Section 1.77                       “Records” shall have the meaning set forth in
Section 4.l.
 
Section 1.78                      “Refinanced Creditor” shall mean Greater Bay
Business Funding, a division of Greater Bay Bank, N.A., 3006 Northup Way #103,
Bellevue, Washington 98004, and its successors and/or assigns, as their
interests may appear.
 
Section 1.79                      “Reserves” shall mean all Obligations then
chargeable to any account of Borrower, as well as Obligations which may, in
Bank’s sole and absolute discretion, be chargeable to Borrower thereafter, by
reason of or in connection with any of the following: Accounts which are not
Eligible Accounts; Inventory which is not Eligible Inventory; disputed items;
deductions; allowances; credits; bill and hold sales; consignment sales;
acceptances; Letters of Credit; offsets asserted by or granted to Account
Debtors; sales calling for payment in currencies other than the Currency; to
adjust for audit and or examination of Borrower’s accounts or for any
documentation correction; and such additional reserves as the Bank in its
discretion, reasonably exercised, deems appropriate, including, but not limited
to, to adjust for any condition or prospect of Borrower or Borrower’s
industry.  The Reserves shall include the full amount in dispute pursuant to
Section 2.16.
 
Section 1.80                      “Responsible Officer” shall mean the chief
executive officer, president, chief financial officer, treasurer or assistant
treasurer of the Borrower.  Any document delivered hereunder that is signed by a
Responsible Officer of the Borrower shall be conclusively presumed to have been
authorized by all necessary corporate and/or other action on the part of the
Borrower and such Responsible Officer shall be conclusively presumed to have
acted on behalf of the Borrower.
 
Section 1.81                        “Subordinated Creditor” means Nightwind
Corp.
 
Section 1.82                        “Subordinated Loan” means that certain loan
by Subordinated Creditor to the Borrower, which is being subordinated to the
Loan pursuant to the terms and conditions of the Subordination Agreement, in the
form annexed hereto as Exhibit F or such other form as may be acceptable to the
Bank in its sole discretion.
 
Section 1.83                         “Subordination Agreement” means that
certain Subordination Agreement, in the form annexed hereto as Exhibit F or such
other form as may be acceptable to the Bank in its sole discretion.
 
Section 1.84                       “Term” shall mean the following time periods
or terms elected by the Borrower: (a) for LIBOR Advances, a term of (i) one,
(ii) three or (iii) six months; and (b) for Bank Acceptances, a term of (i) one
to thirty (1-30) days, (ii) thirty-one to sixty (31-60) days, (iii) sixty-one to
ninety (61-90) days, (iv) ninety-one to one hundred and twenty (91-120) days,
(v) one hundred and twenty-one to one hundred and fifty (121-150) days, or (vi)
one hundred and fifty-one to one hundred and eighty (151-180) days.  In the
event that the Borrower does not select a Term, the Bank shall apply the
shortest Term available for such Advance.  The selection of any Term beyond the
Maturity Date shall have no effect on extending, altering or adjusting the
Maturity Date.  No Term may be selected which would result in the Term expiring
after the Maturity Date.
 
Section 1.85                     “Total Borrowings” shall mean the sum of the
aggregate amount of (a) Credit Advance Obligations, plus (b) all Bank Acceptance
Obligations, plus (c) all drawn Letters of Credit for which the Bank has not
received payment.
 
Section 1.86                     “Total Outstandings” means the sum of Total
Borrowings plus L/C Obligations.
 
Section 1.87                     “Unused Line Fee” shall have the meaning set
forth in Section 3, and as set forth in Schedule 1.35.
 
 
 
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Section 1.88                         “U.S.” shall mean the United States of
America.
 
                Section 2       LOAN.
 
Section 2.1                            Background.  The Borrower is a stocking
distributor of aerospace quality, internally threaded fasteners.  The Borrower
has requested that the Lender extend credit to the Borrower a Loan in the form
of a revolving commercial credit facility having an available principal amount
up to a limit of the Maximum Credit.  The Obligations shall be evidenced by the
Loan Documents, including the Note, in the form attached hereto as Exhibit A.
 
Section 2.2                             Purpose.  The Loan and other financial
accommodations extended by the Bank to the Borrower shall be for permitted
general corporate and business purposes, including working capital.
 
Section 2.3                            Advances.  Subject to the Borrower’s
compliance of the terms and conditions set forth in this Agreement and the Loan
Documents, the Bank shall, upon receipt of the Borrower’s Advance Requests, each
of which shall be irrevocable, binding and in the form of an Advance Request
Notice annexed as Exhibit B, make Advances provided that the Total Outstandings
do not exceed the Maximum Credit.  The Borrower may repay and re-borrow amounts
under the Loan, provided that such Advances occur during the Loan Term and the
Borrower is otherwise in compliance with the terms and conditions of the Loan
Documents.
 
Section 2.4                            Interest Elections; Interest Periods.  In
connection with each Credit Advance, the Borrower shall specify the Rate
Type.  For each Bank Acceptance and LIBOR Advance, the Borrower shall also
select a Term.  In the event that the Borrower does not select a Term, the Term
shall be the shortest Term available for such Advance.  Provided that the
Borrower is otherwise in compliance with the terms of this Agreement, any LIBOR
Advance may be extended by the Borrower by selecting a new Term upon the
expiration of the Term then applicable to such LIBOR Advance, provided that such
new Term does not continue beyond the Maturity Date.  For Bank Acceptances, the
Borrower may extend the Term of such Advances provided that the total Term of
such Banker Acceptance does not exceed one hundred and eighty (180) days from
the date of the original Advance.
 
Section 2.5                            Advance Request Procedures.  Advance
Requests shall be made as follows:
 
                         (a)   The Borrower shall provide irrevocable notice to
the Bank, which may be in the manner permitted under the Instruction
Agreement.  The Bank shall be entitled to rely upon such telephonic notice and
the Borrower agrees to indemnify the Bank against any and all claims,
liabilities, losses and expenses ensuing from such reliance in accordance with
the terms of the Instruction Agreement;
 
                          (b)  Each Advance Request must be received by the Bank
no later than: (i) for Bankers Acceptances, no later than 1:00 p.m. on the
Business Day on which the presented Letter of Credit is presented and/or is to
be paid by the Bank; (ii) for Credit Advances, 1:00 p.m. on the Business Day
before the requested date of any Advance; and (iii) for Letters of Credit, 1:00
p.m. two Business Days before the requested date for issuance of the Letter of
Credit;
 
                          (c)  Each telephonic notice by the Borrower pursuant
to this section must be confirmed promptly (no later than 2:00 p.m. on the same
day of such telephone notice) by delivering to the Bank the written Advance
Request Notice (along with the Letter of Credit application, for L/C Advances)
appropriately completed and signed by a Responsible Officer of the Borrower;
 
                          (d)  Each Advance Request shall be in a principal
amount of: (i) for Bankers Acceptances, the amount of the presented Letter of
Credit plus any L/C Fees; (ii) for Credit Advances, One Hundred Thousand Dollars
($100,000) or a whole multiple of Ten Thousand Dollars ($10,000) in excess
thereof; and (iii) for L/C Advances, in an initial face amount of not less than
One Thousand Dollars ($1,000).
 
 
 
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                          (e) Each Advance Request Notice shall specify: (i) the
requested date of the Advance (which shall be a Business Day); (ii) the
principal amount of Advance to be borrowed; (iii) the nature of the Advance
(i.e., Bankers Acceptance, Credit Advance or L/C Advance); (iv) for Credit
Advances, the Rate Type; (v) for Bankers Acceptances or LIBOR Advances, the
Term; and (vi) for Bankers Acceptances, identifying information related to the
Letter of Credit, including the amount, the beneficiary, the Letter of Credit
number, if applicable, and such other information requested by the Bank.
 
Section 2.6                     Funding of Bankers Acceptances.  For Bankers
Acceptances, following the: (a) receipt of an Advance Request Notice, (b) the
proper presentment of a Letter of Credit by the stated beneficiary to the Bank,
(c) the determination by the Bank that the presented Letter of Credit is payable
by the Bank and further provided that (d) the Total Outstandings do not exceed
the Maximum Credit, the Bank shall pay the amount of the presented Letter of
Credit, including any related charges and fees which amount shall become a
Bankers Acceptance, and shall increase the Total Borrowings under the Loan for
such Advances.  Notwithstanding the foregoing, the Bank may pay a properly
presented Letter of Credit and such amount shall become a valid Obligation of
the Borrower as a Bankers Acceptance in the full amount of such Advance (w) with
or without the Borrower’s consent, (x) with or without the Bank having received
an Advance Request Notice, (y) even if such Advance results in an Overadvance
and/or (z) even if such Advance causes the Total Outstandings or Total
Borrowings to exceed the Maximum Credit.  Barring the selection of a Term by the
Borrower, the Term shall be the shortest Term available for Bankers Acceptances.
 
Section 2.7                     Funding of Credit Advances.  For Credit
Advances, following receipt of an Advance Request Notice, and provided that (a)
the sum of the Total Outstandings plus the amount of the Advance Request does
not exceed the Maximum Credit, and (b) the Borrower is otherwise in compliance
with the Loan Documents, the Bank shall make available to the Borrower: (x)
immediately available funds in the amount in the Currency, pursuant to the
information described in the Advance Request Notice by crediting the Checking
Account of the Borrower; or (y) by remitting such amount in accordance with
other instructions (which shall be reasonably acceptable to the Bank) set forth
and provided by the Borrower to the Bank in the Advance Request Notice (which
remittance shall be subject to the Bank’s fee schedule then in effect, as may be
amended from time to time, for such services).  The amount of the Credit
Advances, including any related charges and fees, shall increase the Total
Borrowings under the Loan.  For LIBOR Advances, barring a selection of a Term by
the Borrower, the Term shall be the shortest Term available for LIBOR
Advances.  Notwithstanding any provision to the contrary in this Agreement, the
Borrower may not request a LIBOR Advance which, if made, would result in an
aggregate of more than ten (10) outstanding LIBOR Advances being outstanding
hereunder at any one time.  For purposes of the foregoing, LIBOR Advances having
Terms commencing or ending on different days shall be considered separate LIBOR
Advances.
 
Section 2.8                     Letters of Credit.  Subject to the terms and
conditions set forth herein, the Bank may (a) from time to time on any Business
Day from the Closing Date until the Maturity Date, issue Letters of Credit at
the request and for the account of the Borrower, and to amend Letters of Credit
previously issued by it, in accordance with the requirements of this section set
forth below, and (b) honor drawings under the Letters of Credit which, unless
paid by the Borrower from available funds in its Checking Account, shall become
a Bankers Acceptances thereby increasing the Total Borrowings and reducing the
L/C Advances by an amount equal to the drawing under the Letter of Credit and
L/C Fees; provided that after giving effect to any proposed L/C Advance (i.e..
adding the amount of the proposed L/C Advance to the Total Outstandings), (y)
the L/C Obligations do not exceed the L/C Sublimit, and (z) the Total
Outstandings shall not exceed the Maximum Credit.  Each request by the Borrower
for an L/C Credit Extension shall be deemed to be a representation by the
Borrower that such L/C Credit Extension requested complies with the conditions
set forth in the preceding sentence.  Within the foregoing limits, and subject
to the terms and conditions hereof, the Borrower’s ability to obtain Letters of
Credit shall be fully revolving, and the Borrower may, during the foregoing
period, obtain Letters of Credit to replace Letters of Credit that have expired
or that have been drawn upon and reimbursed, except in the following
circumstances which apply to all L/C Advances and L/C Credit Extensions:
 
 
 
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(a)                      the expiry date of such requested Letter of Credit
would occur more than twelve months after the date of issuance;
 
(b)                      the expiry date of such requested Letter of Credit
would occur on or after the Maturity Date;
 
(c)                      any order, judgment or decree of any governmental
authority or arbitrator shall, by its terms, purport to enjoin or restrain the
Bank from issuing the requested Letter of Credit, or any law applicable to the
Bank or any request or directive (whether or not having the force of law) from
any governmental authority with jurisdiction over the Bank shall prohibit, or
request that the Bank refrain from, the issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon the Bank with
respect to such Letter of Credit any restriction, reserve or capital requirement
(for which the Bank is not otherwise compensated hereunder) not in effect on the
Closing Date, or shall impose upon the Bank any unreimbursed loss, cost or
expense which was not applicable on the Closing Date and which the Bank in good
faith deems material;
 
(d)                      the issuance of such Letter of Credit would violate one
or more policies of the Bank;
 
(e)                      unless otherwise agreed to by the Bank, such Letter of
Credit is in an initial face amount less than One Thousand Dollars ($1,000);
 
(f)                      such Letter of Credit is to be denominated in a
currency other than the Currency;
 
(g)                      an Event of Default exists hereunder;  or
 
(h)                      the beneficiary of such Letter of Credit does not
accept the proposed amendment to such Letter of Credit, in the event of an L/C
Credit Extension.
 
Section 2.9                                       Information; Initial Letter of
Credit Applications.  In the case of a request for the initial issuance of a
Letter of Credit, in addition to the information contained in the Advance
Request Notice, the Letter of Credit application shall specify in form and
detail satisfactory to the Bank the following information:
 
(a)                      the proposed issuance date of the requested Letter of
Credit (which shall be a Business Day);
 
(b)                      the amount of the Letter of Credit;
 
(c)                      the expiry date thereof (which shall be prior to the
Maturity Date);
 
(d)                      the name and address of the beneficiary;
 
(e)                      the documents to be presented by such beneficiary in
case of any drawing thereunder;
 
(f)                      the full text of any certificate to be presented by
such beneficiary in case of any drawing thereunder; and
 
 
 
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(g)                      such other matters as the Bank may require.
 
Section 2.10                     Information; Amendments to Letters of
Credit.  In the case of a request for an amendment of any outstanding Letter of
Credit, such Letter of Credit Application shall specify in form and detail
satisfactory to the Bank the following information:
 
(a)                      a detailed description of the Letter of Credit to be
amended;
 
(b)                      the proposed date of amendment (which shall be a
Business Day);
 
(c)                      the nature of the proposed amendment;
 
(d)                      such other matters as the Bank may reasonably require.
 
Section 2.11                    Initial Issuances and Amendments to Letters of
Credit.  Provided that the Borrower has satisfied the terms and conditions of
this Agreement, the Bank will issue a Letter of Credit for the account of the
Borrower or enter into the applicable amendment, as the case may be, in each
case in accordance with the Bank’s usual and customary business practices.
 
Section 2.12                    Conditions Precedent to All Requests to Increase
Total Outstandings.  The request by the Borrower to increase the Total
Outstandings shall, unless otherwise waived by the Bank in advance and in
writing, constitute a representation by the Borrower that (a) no Default or
Event of Default shall have occurred and be continuing; and (b) all
representations and warranties made by any Obligor contained herein or in any
Loan Document shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as of
the date of such request (unless earlier corrected upon written notice to the
Bank in accordance with the terms hereof).
 
Section 2.13                     Break Funding Payments.  In the event of (a)
the payment of any principal of any LIBOR Advance other than on the last day of
the Term applicable thereto (including as a result of the acceleration of the
Obligations upon the occurrence of an Event of Default or at the Maturity Date,
or (b) the requested and permitted conversion of any LIBOR Advance to a Prime
Advance other than on the last day of the Term applicable to such LIBOR Advance,
then, in such event, the Borrower shall compensate the Bank for the loss, costs
and expense attributable to such event.  Such loss, cost or expense to the Bank
shall be deemed to include an amount determined by the Bank to be the excess, if
any, of (i) the amount of interest which would have accrued on the principal
amount of the LIBOR Advance at the applicable LIBOR Advance Rate had such event
not occurred for the period from the date of such event to the last day of the
applicable Term for such LIBOR Advance, over (ii) the amount of interest which
would accrue on such period for dollar deposits of a comparable amount and
period from other banks in the eurodollar market.  A certificate of any bank
setting forth any amount or amounts that the Bank is entitled to receive
pursuant to this section shall be delivered to the Borrower and shall be
conclusive absent manifest error.  The Borrower shall pay the Bank the amount
shown as due on any such certificate within ten (10) days after receipt.
 
Section 2.14                     Limitations; Overadances.  Notwithstanding
anything in this Agreement to the contrary, the Bank shall be under no
obligation to make any advances which would result in the Total Outstandings
exceeding the Maximum Credit or following the occurrence of an Event of
Default.  Without limiting the Bank’s right to demand payment of the
Obligations, or any portion thereof, in accordance with any other terms of this
Agreement, or any supplement hereto, in the event that the Total Outstandings
exceed the Maximum Credit, the Borrower nonetheless shall remain liable for all
Obligations, including resulting Overadvances which amount shall be immediately
due and payable, plus interest at the Rate or, upon the occurrence of an Event
of Default, the Default Rate.
 
 
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Section 2.15                     Payment from Checking Account.  At the Bank’s
option, all principal, interest, fees, commissions, costs, expenses or other
charges with respect to the Loan Documents, this Agreement or any supplements
thereof (all of which shall be cumulative and not exclusive) and any and all
loans and advances made by the Bank to the Borrower may be charged directly to
the Borrower’s Checking Account maintained with the Bank at any time on or after
the date any such amount is due and payable in accordance with the terms of this
Agreement and the other Loan Documents (including upon maturity or acceleration
thereof in accordance herewith and therewith).
 
Section 2.16                     Loan Account; Bank’s Records.  The Total
Borrowings shall be charged to a loan account in the Borrower’s name on the
Bank’s bookkeeping system (the “Loan Account”).  The Bank shall render to the
Borrower monthly statements of the Borrower’s Loan Account which shall be
considered correct and deemed accepted by, and conclusively binding upon the
Borrower absent manifest error as an account stated, or upon receipt by the Bank
of the Borrower’s written protest or written objection to the statement of the
Loan Account within sixty (60) days from the Bank’s issuance of such
statement.  Upon receipt of such written protest or written objection, without
affecting the Obligors’ Obligations to the Bank, the Bank shall until the
disputed amount is resolved, reduce the amount eligible to be borrowed by the
amount in dispute.
 
Section 3       INTEREST, FEES AND PAYMENTS.
 
Section 3.1                       Rate.  The annual interest accruing on Credit
Advances shall be payable at the Rate, which shall be determined by the
Borrower’s selection of the Rate Type at the time of each Advance and, in with
regard to LIBOR Advances, Term.  The annual interest accruing on Bankers
Acceptances shall be payable at the Rate, which shall be determined by the
Borrower’s selection of the Term.  At the time of execution of this Agreement,
the Borrower shall execute the Note attached hereto as Exhibit A.
 
Section 3.2                        Interest on the Loan.  Subject to the
provisions of Section 3.6 (Default Rate Interest), the Borrower shall pay
interest on the Loan in accordance with the terms of the Note and this Section:
 
(a)                Interest on the principal amount of each outstanding Credit
Advance and Bankers Acceptance shall accrue from day to day from the date of the
Advance, be prorated on the basis of a 360-day year for the actual number of
days in the month that such amounts are outstanding and be payable in arrears on
the first day of the month immediately following the end of the preceding month
for which the interest is being paid.
 
(b)               The Borrower shall pay interest on the principal amount of the
Total Borrowings, which shall be the aggregation of all interest accruing at the
Rate and applicable to each Advance under the Loan.
 
Section 3.3                     Interest Rate Types; Terms; Elections.  Provided
that the Borrower is in compliance with the terms and conditions of this
Agreement and the Loan Documents and no Event of Default exists (which shall be
subject to any written notice requirements and/or right to cure), the Borrower
shall, as applicable, be permitted to select the Rate Type and Term as follows:
 
(a)               Bankers Acceptances.  Bankers Acceptances shall bear interest
at the Acceptance Rate based upon the Term selected.  Provided that no Event of
Default exists and the Obligors are otherwise in compliance with the terms of
the Loan Documents, the Borrower may, at the expiration of any selected Term,
select another Term, provided that the aggregate Term, including all extensions
from the date of the initial Advance, shall not exceed the BA Term
Limitation.  Upon the expiration of a Term or in the event that the total length
of the Term, including all permitted extensions, is equal to (or exceeds) the BA
Term Limitation, such Bankers Acceptance must be paid in full, which payment may
be made from the Borrower’s funds, available funds in the Checking Account or
through a Credit Advance in accordance with the terms and conditions of this
Agreement, provided that the Borrower is in compliance with this Agreement and
the Loan Documents and the Total Outstandings do not exceed the Maximum
Credit.  In the event that the Bankers Acceptance is equal to or exceeds the BA
Term Limitation and the Borrower has not paid the Bankers Acceptance from
available funds or through a Credit Advance, the Bank may pay the Bankers
Acceptance in full through an Advance under the Loan (with a Rate Type and, as
applicable, Term to be selected by the Bank, in its discretion) (w) with or
without the Borrower’s consent, (x) with or without the Bank having received an
Advance Request Notice, (y) even if such Advance results in an Overadvance
and/or (z) even if such Advance causes the Total Outstandings or Total
Borrowings to exceed the Maximum Credit.
 
 
 
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(b)               Prime Advances.  Prime Advances shall bear interest at the
Prime Advance Rate until the earlier of the Maturity Date or the date on which
each such Credit Advance is paid in full.  Prime Advances do not have a Term
selection requirement.  For any Prime Advance, provided that no Event of Default
exists and the Obligors are otherwise in compliance with the terms of the Loan
Documents, the Borrower may, at any time, select another Rate Type and, if
applicable, a permitted Term available for such Rate Type.
 
(c)              LIBOR Advances.  LIBOR Advances shall bear interest at the
LIBOR Advance Rate based upon and for the Term selected until the earlier of the
Maturity Date or the date on which each such Credit Advance is paid in
full.  Provided that no Event of Default exists and the Obligors are otherwise
in compliance with the terms of the Loan Documents, the Borrower may, at the
expiration of any selected Term, select another Rate Type and, if applicable, a
permitted Term available for such Rate Type.  If the Term expires without
selection of a new Term, the Term shall be the shortest permitted Term available
for LIBOR Advances.  It is understood by all parties to the Agreement that the
continuation, through a new Terms, or conversion of any LIBOR Advance to a Prime
Advance does not and shall not constitute a payment or repayment and is solely a
mechanism for determining the Rate applicable to such Advance.
 
Section 3.4                     Repayment of Loans.  The Borrower
unconditionally promises to pay the Bank the full amount of the Total
Outstandings applicable to the Loan on the Maturity Date.  The entries made in
the Loan Account maintained by the Bank shall be prima facie evidence of the
existence and amounts of the Obligations recorded therein; provided that any
failure by the Bank to maintain such accounts or any error therein shall not
affect the Obligations of the Obligors to repay the Loan and the Obligations in
accordance with the terms of this Agreement and the Loan Documents.
 
Section 3.5                     Late Payment Premium.  If any portion of any
payments of interest or principal is paid more than ten (10) days after the date
that such payment is due, Borrower shall pay to the Bank a late payment premium
(“Late Payment Premium”), which shall be in an amount equal to the lesser of
five percent (5%) of the amount of such payment or the maximum amount permitted
under applicable law in order to defray the expenses incurred by the Bank in
handling and processing such delinquent payment and to compensate the Bank for
the loss of the use of such delinquent payment.  Any such amounts due under this
section shall be secured by a security interest in the Collateral pursuant to
Section 4 (Security Interests).  The acceptance by the Bank of a late payment or
the Late Payment Premium shall not constitute a waiver of any Default or Event
of Default then existing or arising thereafter pursuant to any Loan
Document.  The Bank’s failure to collect a Late Payment Premium at any time
shall not constitute a waiver of the Bank’s right thereafter, at any time and
from time to time (including without limitation, upon acceleration of the Note
or upon payment in full of the Loan), to collect such previously uncollected
Late Payment Premiums or to collect subsequently accruing Late Payment Premiums.
 
Section 3.6                     Default Rate Interest.  Upon the occurrence of
an Event of Default (and subject to any written notice requirements and/or right
to cure) or upon the termination of this Agreement, interest on all outstanding
unpaid Obligations shall accrue at a rate equal to five percent (5%) per annum
in excess of the pre-default Rate from the date of such Event of Default,
termination or non-renewal to the date of payment in full of all
Obligations.  All interest accruing hereunder shall thereafter be payable on
demand.  Any such amounts due under this section shall be secured by a security
interest in the Collateral pursuant to Section 4 (Security Interests).
 
 
 
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Section 3.7                    Calculation; Payment.  Interest shall be
calculated as set forth above and shall be included and set forth in each
monthly statement issued in connection with the Borrower’s Loan
Account.  Provided that sufficient funds are available on deposit, the Bank
shall have the right, at the Bank’s option, to charge all interest to any of the
Borrower’s accounts, including the Checking Account, maintained with the Bank on
the first day of each month, or such other day as the Bank may charge
thereafter, and such interest shall be deemed to be paid by the first amounts
subsequently credited thereto, or as otherwise determined in the Bank’s sole
discretion.  Any such amounts due under this section shall be secured by a
security interest in the Collateral pursuant to Section 4 (Security Interests).
 
Section 3.8                    Limitation.  In no event shall charges
constituting of interest, payable by the Borrower under this Agreement, exceed
the rate permitted under any applicable law or regulation, and if any part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended and the Rate reduced to the
maximum allowed by law for any such interest period.
 
Section 3.9                     Unused Line of Credit Fee.  So long as no Event
of Default exists, the Borrower shall pay to the Bank on a monthly basis during
the period from the Closing Date to the Maturity Date, an unused line of credit
fee (“Unused Line Fee”) in an amount set forth on Schedule 1.35.
 
Section 3.10                   Closing Fee; Closing Legal Fee.  No later than
the Closing Date the Borrower shall pay to the Bank: (a) a closing fee of
(“Closing Fee”); and (ii) legal fees (whether in-house or outside counsel) and
costs of incurred in connection with the negotiation, documentation, execution
and delivery of the loan documentation with regard to this line of credit (the
“Closing Legal Fee”) in the amounts set forth on Schedule 1.35.
 
Section 3.11                   Exam Fees.  The Borrower agrees to pay to the
Bank: (a) monthly fees in connection with the Bank’s monitoring of the
Collateral; and (b) all fees and costs incurred by the Bank in connection with
periodic examinations of the Borrower’s books and records and inspections of the
Collateral pursuant to Sections 4 and 6 (collectively, “Exam Fees”), which
amounts shall, absent an Event of Default, be in the amounts set forth in
Schedule 1.35.
 
Section 3.12                    Line Fees.  In connection with the
administration of the Loan, the Borrower shall pay to the Bank an annual line
fee (“Line Fee”) in the amount set forth in Schedule 1.35.
 
Section 3.13                   Letter of Credit and Collection Fees.  For each
Letter of Credit issued and associated services provided by the Bank in
connection therewith, the Borrower shall pay to the Bank the L/C Fees set forth
in Schedule 1.47.  Upon the Maturity Date, or the occurrence and continuation of
a Default or Event of Default, or on any date that this Agreement is terminated,
the Obligors shall cause cash, in the Currency, to be deposited and maintained
with the Bank, as additional cash collateral, in an amount equal to one
hundred  percent (100%) of the L/C Obligations and the Borrower irrevocably
authorizes the Bank to place a hold on any amounts in the Checking Accounts to
cover such additional cash collateral required.  The Borrower may not withdraw
any amounts described above except upon the payment and performance in full of
all Obligations and termination of this Agreement.
 
Section 3.14                   Place for Remittance of Payments; Promissory
Notes.  All payments shall be payable at the Bank’s office specified above or at
such other place as the Bank may hereafter designate from time to time and, at
the Bank’s option and upon the Bank’s request, the Borrower shall execute and
deliver to the Bank one or more promissory notes in form and substance
satisfactory to the Bank to further evidence such Advances.
 
 
 
 
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Section 3.15                Other Fees.  The fees described above relate
directly to the administration of the Loan and are intended to supplement, and
not limit, the various fees related to the Bank’s other financial services and
products, which are reflected on schedules that may be updated and amended from
time to time as determined by the Bank.  Further, the described fees do not
include those additional and other fees, costs and charges that shall be due and
owing upon an Event of Default., such as (without limitation to other such fees,
costs and charges) legal fees.  The Bank shall have the right, at the Bank’s
option, to charge any of the Borrower’s accounts, including the Checking
Account, maintained with the Bank on or after its due date for any of the fees
or charges described in this Section 3.
 
Section 4    SECURITY INTEREST.
 
Section 4.1                 Collateral.  As security for the prompt performance,
observance and payment in full of all Obligations, the Borrower hereby grants to
the Bank a continuing security interest in, a lien upon and a right of setoff
against, and the Borrower hereby assign, transfer, pledge and set over to the
Bank the following (which together with any of the Borrower’s other property in
which the Bank may at any time have a security interest or lien, whether
pursuant to this Agreement or any supplement hereto, or otherwise, are herein
collectively referred to as the “Collateral”): All of the Borrower’s right,
title and interest in and to all personal property, tangible and intangible,
wherever located or situated and whether now owned, presently existing or
hereafter acquired or created, including, but not limited to all: (a)
Accounts;  (b) Equipment; (c) Inventory; (d) financial assets and investment
property; (e) moneys, securities and other property and the proceeds thereof,
now or hereafter held or received by, or in transit to, the Bank from or for the
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of the Borrower’s deposits (general or special), balances,
sums and credits with or in the control of the Bank at any time existing; (f)
rights, remedies, security and liens, in, to and in respect of the Accounts and
other Collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts and other Collateral, deposits or other
security for the obligation of any Account Debtor, and credit and other
insurance; (g) goods relating to, or which by sale have resulted in, Accounts
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including without limitation, all
returned, reclaimed or repossessed goods; (h) Deposit Accounts (whether or not
maintained with the Bank); (i) books, records (whether paper, computer or
electronic), data, tapes, discs, other media, ledger cards, computer and
software programs, files, access codes, records and procedure manuals relating
thereto, together with all computer or other data processing equipment on which
any of the foregoing is stored, and other property and general intangibles
evidencing or relating to the Accounts, Equipment, Inventory and any other
Collateral or any Account Debtor, together with the file cabinets or containers
in which the foregoing are stored (“Records”); (j) general intangibles of every
kind and description, including without limitation, trade names and trademarks,
and the goodwill of the business symbolized thereby, patents, copyrights,
licenses and federal, state and local tax refund claims of all kinds; (k) letter
of credit rights; (l) commercial tort claims; and (m) supporting obligations and
products and proceeds of the foregoing, in any form, including, without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
 
Section 4.2                Records.  The Borrower shall keep and maintain, at
the Borrower’s cost and expense, satisfactory and complete books and records of
all Accounts, all payments received or credits granted thereon, and all other
dealings therewith.  At such times as the Bank may request, the Borrower shall
deliver to the Bank copies of all documents evidencing the sale and delivery of
goods or the performance of services which created any Accounts, including but
not limited to all original contracts, orders, invoices, bills of lading,
warehouse receipts, delivery tickets and shipping receipts, and after the
occurrence and during the continuance of any Event of Default, the Borrower
shall at such times as the Bank may request deliver to the Bank the originals of
all such documents, together with schedules describing the Accounts and/or
written confirmatory assignments to the Bank of each Account, in form and
substance satisfactory to the Bank and duly executed by the Borrower, together
with such other information as the Bank may request.  In no event shall the
making or the failure to make or the content of any schedule or assignment or
the Borrower’s failure to comply with the provisions hereof be deemed or
construed as a waiver, limitation or modification of the Bank’s security
interest in, lien upon and assignment of the Collateral or the Borrower’s
representations, warranties or covenants under this Agreement or any supplement
hereto.
 
 
 
 
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Section 4.3                 Further Acts.  To insure the attachment, perfection
and first priority of, and the Bank’s ability to enforce, the Bank’s security
interest in the Collateral, the Borrower agrees, in each case at the Borrower’s
own expense, to take the following actions with respect to the following
Collateral:
 
(a)                      If the Borrower shall at any time hold or acquire any
instruments, promissory notes, documents (common to a business using an outside
distribution center) or tangible chattel paper, the Borrower shall forthwith
endorse, assign and deliver the same to the Bank, accompanied by such
instruments of transfer or assignment duly executed in blank as the Bank may
from time to time specify.  The Borrower will not create any tangible chattel
paper without placing a legend on the chattel paper acceptable to the Bank
indicating that the Bank have a security interest in the chattel paper.
 
(b)                      For each deposit account that the Borrower at any time
open or maintain, the Borrower shall, at the Bank’s request and option, pursuant
to an agreement in form and substance satisfactory to the Bank, either (a) cause
the depositary bank to agree to comply at any time with instructions from the
Bank to such depositary bank directing the disposition of funds from time to
time credited to such deposit account, without the Borrower’s further
consent.  Notwithstanding anything to the contrary contained in the foregoing or
in any such agreement with any depositary bank, the Bank agrees that the Bank
shall not give any instructions to any such depositary bank concerning the
disposition of funds in any such account, or instructing any such depositary
bank to cease complying with instructions that the Borrower may provide
regarding the disposition of funds in any such account, unless an Event of
Default shall have occurred and remain continuing hereunder or an event which
would result in a Material Adverse Change.  The provisions of this Section shall
not apply to (i) any deposit account for which the Borrower, the depositary bank
and the Bank have entered into a cash collateral agreement specially negotiated
among the Borrower, the depositary bank and the Bank for the specific purpose
set forth therein, (ii) deposit accounts for which the Bank is the depositary
and (iii) deposit accounts specially and exclusively used for payroll, payroll
taxes and other employee wage and benefit payments to or for the benefit of the
Borrower’s salaried employees.
 
(c)                      If the Borrower shall at any time hold or acquire any
certificated securities, the Borrower shall forthwith endorse, assign and
deliver the same to the Bank, accompanied by such instruments of transfer or
assignment duly executed in blank as the Bank may from time to time specify. If
any securities now or hereafter acquired by the Borrower are uncertificated and
are issued to the Borrower or the Borrower’s nominee directly by the issuer
thereof, the Borrower shall immediately notify the Bank thereof and, at the
Bank’s request and option, pursuant to an agreement in form and substance
satisfactory to the Bank, cause the issuer to agree to comply with instructions
from the Bank as to such securities, without the Borrower’s further consent or
the consent of such nominee. Notwithstanding anything to the contrary contained
in the foregoing or in any such agreement with such issuer, the Bank agrees that
the Bank shall not give any instructions as to any such securities unless an
Event of Default shall have occurred and remain continuing hereunder or an event
which would result in a Material Adverse Change.  If any securities, whether
certificated or uncertificated, for unsecured assets or other investment
property now or hereafter acquired by the Borrower are held by the Borrower or
the Borrower’s nominee through a securities intermediary or commodity
intermediary, the Borrower shall immediately notify the Bank thereof and, at the
Bank’s request and option, pursuant to an agreement in form and substance
satisfactory to the Bank, cause such securities intermediary or (as the case may
be) commodity intermediary to agree to comply with entitlement orders or other
instructions from the Bank to such securities intermediary as to such
securities, financial assets or other investment property, or (as the case may
be) to apply any value distributed on account of any commodity contract as
directed by the Bank to such commodity intermediary, in each case without the
Borrower’s further consent or the consent of such nominee.  Notwithstanding
anything to the contrary contained in the foregoing or in any such agreement
with any such securities intermediary or (as the case may be) commodity
intermediary, the Bank agrees that the Bank shall not give any entitlement
orders or other instructions to any such securities intermediary or (as the case
may be) commodity intermediary unless an Event of Default shall have occurred
and remain continuing hereunder or an event which would result in a Material
Adverse Change.   The provisions of this paragraph shall not apply to any
financial assets credited to a securities account for which the Bank and/or its
affiliate are the securities intermediary.
 
 
 
 
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(d)                     If any goods are at any time in the possession of a
bailee, the Borrower shall promptly notify the Bank thereof and, if requested by
the Bank, shall promptly obtain an acknowledgment from the bailee, in form and
substance satisfactory to the Bank, that the bailee holds such Collateral for
the Bank’s benefit (but not as an agent of the Bank) and shall act upon the
Bank’s instructions, without the Borrower’s further consent.
 
(e)                      If the Borrower at any time holds or acquires an
interest in any electronic chattel paper or any “transferable record,” as that
term is defined in Section 201 of the federal Electronic Signatures in Global
and National Commerce Act, or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction, the Borrower shall
promptly notify the Bank thereof and, at  the Bank’s request, shall take such
action as the Bank may reasonably request to vest in  the Bank’s control, under
the UCC, of such electronic chattel paper or control under Section 201 of the
federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record.
 
(f)                      If the Borrower is at any time a beneficiary under a
letter of credit now or hereafter issued in the Borrower’s favor, the Borrower
shall promptly notify the Bank thereof and, at the Bank’s request and option
following the occurrence and continuation of a Default, the Borrower shall,
pursuant to an agreement in form and substance satisfactory to the Bank, either
arrange for the issuer and any confirmer of such letter of credit to consent to
an assignment to the Bank of the proceeds of any drawing under the letter of
credit; or  arrange for the Bank to become the transferee beneficiary of the
letter of credit, with the Bank agreeing, in each case, that the proceeds of any
drawing under the letter to credit are to be applied in reduction of the
Obligations, or to be held as Collateral, as the Bank in its sole discretion
shall deem appropriate.
 
(g)                      If the Borrower shall at any time hold or acquire a
commercial tort claim, the Borrower shall immediately notify the Bank in a
writing signed by the Borrower of the details thereof and grant to the Bank in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to the Bank.
 
Section 5    CLOSING AND CONDITIONS PRECEDENT.
 
Section 5.1                Closing and Execution of Loan Documents.  Closing
under this Agreement is subject to the following conditions precedent (all
instruments, documents and agreements to be in form and substance satisfactory
to the Bank and the Bank’s counsel):
 
(a)                      Delivery of Documents.  The Borrower shall have
delivered, or caused to be delivered, to the Bank the following:
 
(i)                                this Agreement, the Note and each of the
other Loan Documents all properly executed by Responsible Officers of the
Obligors;
 
 
 
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(ii)                                certified copies of (A) resolutions of the
Borrower’s board of director’s (or equivalent governing body) authorizing the
execution, delivery and performance of this Agreement, the Note to be issued
hereunder and each of the other Loan Documents required to be delivered by any
Section hereof, (B) the Borrower’s articles of incorporation and by-laws and (C)
the Borrower’s certification of good standing issued by the Secretary of State
of the jurisdiction of its incorporation which shall be dated no earlier than
sixty (60) days from the Closing Date;
 
(iii)                                an incumbency certificate identifying all
persons authorized to sign on the Borrower’s behalf, with specimen signatures;
 
(iv)                                such financial statements, reports,
certifications and other operational information as the Bank may reasonably
require, satisfactory in all respects to the Bank, including but not limited to
the most recent: (A) quarterly accounts receivable aging report, (B) quarterly
inventory report, (C) internally prepared quarterly financial statement, (D)
audited financial statement for the prior year and (E) field examination report;
 
(v)                                payment by the Borrower of all fees
including, without limitation, associated with the Loan;
 
(vi)                                a fully executed pay-off letter, confirming
that the repayment in full of, and the termination of any commitments to make
extensions of credit under, all of the outstanding indebtedness owing to the
Refinanced Lender, including satisfactory language that upon payment of the
amount listed therein that the Refinanced Lender shall terminate or grant
necessary authority to terminate and release all of its financings statements,
mortgages, assignments of leases and rents, security interests in all assets and
other instruments in order to release all of the assets of the Borrower,
including the Collateral;
 
(vii)                              subordination agreement in the form attached
hereto as Exhibit F providing for the subordination of the outstanding loan by
the Borrower to the referenced subordinating creditor;
 
(viii)                             searches and certificates required under
Section 4; and
 
(ix)                                such other documents reasonably required by
the Bank.
 
(b)                      As of the Closing Date, no Default or Event of Default
under the Loan Documents, which includes this Agreement, shall have occurred or
be continuing.
 
(c)                      The Bank shall have received and be satisfied in all
respects with the field examination of the Borrower’s books and records.
 
(d)                      A financing statement and any necessary assignments of
Government Accounts having been filed and acknowledged by the U.S. within a
reasonable period of time following the Closing Date.
 
(e)                      The warranties and representations contained in Section
6 as well as any other Section of this Agreement shall be true and correct in
all respects on the Closing Date with the same effect as though made on and as
of that date.  The Borrower shall not have taken any action or permitted any
condition to exist which would have been prohibited by any Section of this
Agreement.
 
 
 
 
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(f)                      The Borrower shall have performed and complied with all
agreements, covenants and conditions contained herein including, without
limitation, the provisions of Section 6 hereof, which are required to be
performed or complied with by the Borrower before or at the Closing Date.
 
(g)                     The Bank shall have completed and be satisfied in all
respects with a due diligence investigation of the Borrower’s business.
 
(h)                     In accordance with the language in Section 6 applicable
to insurance, the Bank shall have received evidence of insurance coverage for
the Borrower’s inventory, which shall be in an amount of no less than the
Coverage Amount, and shall be issued from an acceptable insurer and in form,
scope and substance satisfactory to the Bank and either (i) the Bank shall be
named as the loss payee or sole beneficiary under such policy, or (ii) the
Borrower shall have provided the Bank with evidence that no less than the
Coverage Amount of the proceeds of such policy shall have been collaterally
assigned to the Bank pursuant to the insurer’s standard form of collateral
assignment.  The Borrower consents to the Bank contacting the insurer to
confirm, in its discretion, the foregoing.
 
(i)                       The Bank shall not have become aware prior to the
Closing Date of any material adverse condition or Material Adverse Change in or
affecting the Borrower’s business, operations, property or condition (financial
or otherwise).
 
(j)                       Except for financing statements described and
identified in connection with Permitted Liens, no financing statement or
assignments pursuant to the Assignment of Claims Act of 1940, as amended,
covering any of the Collateral or any proceeds thereof is on file in any public
office.
 
Section 5.2                The making of Advances under this Agreement in any
form following the Closing Date is subject to the following conditions precedent
(all instruments, documents and agreements to be in form and substance
satisfactory to Lender and its counsel) following the Closing Date:

(a)                      This Agreement and each of the other Loan Documents
shall be effective;

(b)                      No event or condition shall have occurred or become
known to the Borrower since the Closing Date, or would result from the making of
any requested Advance, which could have a material adverse effect;

(c)                      No Default or Event of Default then exists or after
giving effect to the making of the Advance would exist;

(d)                      Each Advance is within and complies with the terms and
conditions of this Agreement including; and

(e)                      Each representation and warranty set forth in Section 6
and any other Loan Document in effect at such time (as amended or modified from
time to time) is then true and correct in all material respects as if made on
and as of such date except to the extent such representations and warranties are
made only as of a specific earlier date.

Section 6     REPRESENTATIONS, WARRANTIES AND COVENANTS.
 
Section 6.1               The Borrower represents, warrants and covenants to the
Bank the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with, being a
continuing condition of the making of the Loan hereunder by the Bank or under
any supplement hereto:
 
 
 
 
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(a)                      Perfection Certificate.  The Borrower have delivered to
the Bank a certificate signed by the Borrower and entitled "Perfection
Certificate" (the "Perfection Certificate") annexed hereto as Exhibit C.  The
Borrower represent and warrant to the Bank as follows:  the Borrower’s exact
legal name is that indicated on the Perfection Certificate and on the first and
signature pages hereof;  the Borrower is  an organization of the type and
organized in the jurisdiction set forth in the Perfection Certificate;  the
Perfection Certificate accurately sets forth the Borrower’s organizational
identification number or accurately states that the Borrower have none;  the
Perfection Certificate accurately sets forth the Borrower’s place of business
or, if more than one, the Borrower’s chief executive office as well as the
Borrower’s mailing address if different;  the Perfection Certificate accurately
sets forth the location of all Collateral; and  all other information set forth
in the Perfection Certificate pertaining to the Borrower is accurate and
complete.  The Borrower shall promptly notify the Bank in writing if any of the
information set forth in the Perfection Certificate has changed and the nature
of such change.
 
(b)             Name; Address; Organization.  Without the prior written notice
to and consent from the Bank, the Borrower will not: (i) change the Borrower’s
name, the Borrower’s place of business or, if more than one, chief executive
office; (ii) change the Borrower’s mailing address or organizational
identification number if it has one; and (iii) the Borrower will not change the
Borrower’s type of organization, jurisdiction of organization or other legal
structure.  If the Borrower does not have an organizational identification
number and later obtains one, the Borrower shall forthwith notify the Bank of
such organizational identification number.
 
(c)             Collateral.  The Borrower is the owner of the Collateral, which
shall be free from any lien following funding and payment of such indebtedness
secured by prior liens on the Closing Date, security interest or other
encumbrance, except for the security interest created by this Agreement, set
forth in the Perfection Certificate or any Permitted Lien set forth on Schedule
1.70; none of the Collateral constitutes, or is the proceeds of, "farm products"
as defined under the UCC; none of the Account Debtors or other persons obligated
on any of the Collateral is a governmental authority subject to the Federal
Assignment of Claims Act or like federal, state or local statute or rule in
respect of such Collateral; the Borrower hold no commercial tort claim, except
as indicated in the Perfection Certificate; the Borrower have at all times
operated the Borrower’s business in compliance with all applicable provisions of
the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances;
and  all other information set forth in the Perfection Certificate pertaining to
the Collateral is accurate and complete.  The Borrower shall, upon the Bank’s
request, cause the holder of any security interest (except for any Permitted
Liens) other than the Bank to terminate same or enter into a subordination
agreement acceptable to the Bank.
 
(d)             Access to Collateral; Records.  The Borrower agrees that so long
as any Obligations to the Bank remain outstanding the Bank or the Borrower’s
representatives shall have free access to and right of inspection of the
Collateral and have full access to and the right to examine and make copies of
the Borrower’s Records, to confirm and verify all Accounts, to perform general
examinations and to do whatever else the Bank deems necessary to protect the
Bank’s interests.  The Borrower further agrees that the Bank may at any time
after the occurrence and during the continuation of an Event of Default or an
event which would result in a Material Adverse Change remove from the Borrower’s
premises or require the Borrower or any accountants and auditors employed by the
Borrower to deliver any Records and the Bank may, without cost or expense to the
Bank, be provided with access to the Borrower’s personnel, supplies, computer
equipment and space at the Borrower’s places.
 
 
 
 
 
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(e)             Collateral Location.  The Collateral, to the extent not
delivered to the Bank pursuant to Section 4.3, will be kept at those locations
listed on the Perfection Certificate and the Borrower will not, except in the
ordinary course of business, remove the Collateral from such locations, without
providing at least thirty (30) days’ prior written notice to the Bank; except
for the security interest herein granted, the Borrower shall be the owner of the
Collateral free from any lien, security interest or other encumbrance, except
for the security interest created by this Agreement or as set forth in the
Perfection Certificate or any Permitted Lien, and the Borrower shall defend the
same against all claims and demands of all persons at any time claiming the same
or any interests therein adverse to the Bank;  the Borrower shall not pledge,
mortgage or create, or suffer to exist a security interest in the Collateral in
favor of any person other than the Bank;  the Borrower will keep the Collateral
in good order and repair, ordinary wear and tear excepted, and will not use the
same in violation of law or any policy of insurance thereon; the Borrower will
pay promptly when due all taxes, assessments, governmental charges and levies
upon the Collateral or incurred in connection with the use or operation of such
Collateral or incurred in connection with this Agreement; the Borrower will
continue to operate the Borrower’s business in material compliance with all
applicable provisions of the federal Fair Labor Standards Act, as amended, and
with all applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal of hazardous
materials or substances;  the Borrower will not sell or otherwise dispose, or
offer to sell or otherwise dispose, of the Collateral or any interest therein,
except for (i) sales of inventory in the ordinary course of the Borrower’s
business and (ii) sales of Borrower’s obsolete or worn-out  equipment or
equipment that has been fully depreciated and which in any such case is no
longer needed or useful in the conduct of the Borrower’s business; the Borrower
will permit the Bank’s representatives, upon reasonable notice (and at any time
following the occurrence of an Event of Default or the Maturity Date) to inspect
the tangible Collateral and to review and make copies of the Borrower’s Records
pertaining to the Collateral, all at the Borrower’s expense, which shall be
deemed part of the Obligations; and  the Borrower agrees, upon the Bank’s demand
after (i) an Event of Default shall have occurred and remain continuing
hereunder, or (ii) an event which would result in a Material Adverse Change in
the Collateral, to deliver to the Bank additional Collateral satisfactory to the
Bank and/or to make such payment on account of the Obligations as will be
satisfactory to the Bank, in the event the market value of any of the Collateral
declines and/or any change occurs in the marketability thereof and/or any of the
Collateral shall, for any reason, be deemed unsatisfactory to the Bank.
 
(f)              Location of Records.  The Borrower’s Records and chief
executive office are maintained at the address referred to in the Perfection
Certificate.  The Borrower shall not change such location without providing
prior written notice to and receiving written consent from the Bank prior to
making any such change.  The Borrower further agrees to execute any additional
documents and consent to the filing of financing statements or other documents
or notices which the Bank may require.
 
(g)            Maintenance of Records.  The Borrower shall maintain the
Borrower’s Records, which shall include but not be limited to shipping forms,
invoices and other related documents in a form satisfactory and the books,
records and accounts, in accordance with generally accepted accounting
principles consistently applied.
 
(h)           Financial Reporting.  The Borrower agrees to furnish the Bank the
following financial information:
 
(1)             audited financial statements for the Guarantor and its
subsidiaries, including the Borrower, on a consolidated basis on an annual basis
audited by independent public accountants. Such statements shall be without
material exception or qualification. All such statements and information shall
fairly present in all material respects the Guarantor’s and Borrower’s financial
condition as of the dates and the results of the Guarantor’s and Borrower’s
operations for the periods, for which the same are furnished and shall be
delivered to the Bank as soon as available and in any event within: (a) one
hundred and twenty (120) days after the Guarantor’s and Borrower’s fiscal year
end; and internally prepared statements observed by independent public
accountants (b) sixty (60) days following the end of each fiscal quarter ;
 
 
 
 
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(2)             within twenty (20) days after each month quarter end, monthly
accounts receivable reports with agings;
 
(3)              within ten (10) days after each month end, a current Borrowing
Base and Certificate in the form attached hereto as Exhibit D, executed by a
Responsible Person denoting Eligible Accounts and Eligible Inventory Amount
along with an accounts receivable aging;
 
(4)             copies of the Borrower’s annual tax return within sixty (60)
days of filing;and
 
(5)             at any time or from time to time with such other information
regarding the Borrower’s business affairs and financial condition as the Bank
may reasonably request, including, without limitation, balance sheets,
statements of profit and loss, financial statements, cash flow and other
projections, earnings forecasts, schedules, agings and reports.  The Borrower
hereby irrevocably authorizes and directs (and agrees to indemnify such parties
for their reliance upon this section) all accountants, auditors or other third
parties to deliver to the Bank, at the Borrower’s expense, copies of the
Borrower’s financial statements, papers related thereto, and other accounting
records of any nature in their possession and to disclose to the Bank any
information they may have regarding the Borrower’s business affairs and
financial conditions.   Any documents, schedules, invoices or other papers
delivered to the Bank may, in the Bank’s sole discretion, be destroyed or
otherwise disposed of by the Bank in accordance with its record retention
policies or practices.
 
(i)                      Eligible Accounts.  Each of the Eligible Accounts
represents a valid and legally enforceable indebtedness based upon an actual and
bona fide sale and delivery of goods or rendition of services in the ordinary
course of the Borrower’s business which has been 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 Eligible Account in accordance with the terms thereof, without offset,
defense or counterclaim and will be paid in full at maturity.  All statements
made and all unpaid balances appearing in the invoices, documents and
instruments evidencing each Eligible Account 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 and each Account Debtor is solvent and financially able to pay in full
the Eligible Account when it matures.  None of the transactions underlying or
giving rise to any Account shall violate any state or federal laws or
regulations, and all documents relating to the Accounts shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms and all recording, filing and other requirements of
giving public notice under any applicable law have been duly complied with.
 
(j)                      Insurance.  The Borrower shall at all times maintain,
with financially sound and reputable insurers, casualty and hazard insurance
with respect to the Collateral for not less than its full market value and
against all risks to which it may be exposed.  All such insurance policies shall
be in such form, substance, amounts and coverage as may be satisfactory to the
Bank and shall provide for ten (10) days minimum prior cancellation notice in
writing to the Bank.  At any time after the occurrence and during the
continuance of an Event of Default hereunder or an event which would result in a
Material Adverse Change, the Bank may act as attorney for the Borrower in
obtaining, adjusting, settling, amending and canceling such insurance.  The
Borrower shall promptly (a) obtain endorsements to all existing and future
insurance policies with respect to the Collateral specifying that the proceeds
of such insurance shall be payable to the Bank and the Borrower as the
Borrower’s interests may appear and further specifying that the Bank shall be
paid regardless of any act, omission or breach of warranty by the Borrower, (b)
deliver to the Bank an original executed copy of the certificate of the
insurance carrier with respect to such endorsement and, at the Bank’s request,
the original or a certified duplicate copy of the underlying insurance policy,
and (c) deliver to the Bank such other evidence which is satisfactory to the
Bank of compliance with the provisions hereof.
 
 
 
 
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(k)                      Notification of Loss, Damages or Claims.  The Borrower
shall promptly notify the Bank in writing of the details of any loss, damage,
investigation, action, suit, proceeding or claim relating to the Collateral
resulting in a loss or damage to the Collateral or seeking damages in excess of
$250,000.00 or which would result in any Material Adverse Change in the
Borrower’s business, properties, assets, goodwill or condition, financial or
otherwise.
 
(l)                      Application of Insurance Proceeds.  At the Bank’s
option, the Bank may apply any insurance monies received at any time to the cost
of repairs to or replacement of the Collateral and/or to payment of any of the
Obligations, whether or not due, in any order and in such manner as the Bank, in
the Bank’s sole discretion, may determine, provided that, in the case of any
insurance monies received in connection with any one casualty event that do not
exceed $250,000.00 and further provided that an Event of Default does not exist,
the Bank shall return any such insurance moneys to the Borrower and the Borrower
will use such moneys to repair or replace the Collateral that was the subject of
such casualty event.
 
(m)                      Periodic Collateral Examinations. The Borrower shall
deliver to the Bank each year, or upon the Bank’s request, at any time and from
time to time, if an Event of Default shall have occurred and remain continuing
hereunder or a Material Adverse Change shall have occurred, an examination
report of the Collateral from an independent examiner selected by the Bank and
paid by the Borrower, provided that nothing contained in the foregoing shall
limit the Bank’s rights to obtain an appraisal of the value of the Collateral
the Bank’s own cost and expense from time to time and at any time.
 
Section 6.2                 Equipment; Maintenance; Use; Prohibitions.  The
Borrower shall, at the Borrower’s own expense, keep the Equipment in first class
order, repair, running and marketable condition ordinary wear and tear
excepted.  The Borrower shall (a) use, store and maintain the Equipment with all
reasonable care and caution, and (b) use the Equipment for lawful purposes only
and in conformity with applicable laws, ordinances and regulations.  The
Equipment is and shall be used in the Borrower’s business and not for personal,
family, household or farming use.  The Equipment is now and shall remain
personal property and the Borrower shall not permit any of the Equipment to be
or become a part of or affixed to real property without (a) prior written notice
to the Bank and  the Bank’s written consent and (b) first making all
arrangements, and delivering or causing to be delivered to the Bank, such
agreements and other documentation requested by the Bank for the protection and
preservation of the Bank’s security interests and liens, in form and
satisfactory to the Bank, including, without limitation, waivers and
subordination agreements by any landlords or mortgagees of statutory and
non-statutory liens and rights of distraint.  The Borrower assumes all
responsibility and liability arising from or relating to the use, sale or other
disposition of the Equipment.
 
Section 6.3                  Payment of Taxes, Assessments, Charges.  The
Borrower shall duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against the Borrower or the Borrower’s properties
or assets prior to the date on which penalties attach thereto unless such taxes,
assessments, contributions or charges are being properly contested pursuant to
appropriate proceedings and for which adequate reserves have been
established.  The Borrower shall be liable for any tax or penalty imposed upon
any transaction under this Agreement or any supplement hereto or giving rise to
the Accounts or any other Collateral or which the Bank may be required to
withhold or pay for any reason and the Borrower agrees to indemnify and hold the
Bank harmless with respect thereto, and to repay to the Bank on demand the
amount thereof, and until paid by the Borrower such amount shall be added to and
deemed part of the Obligations owed to the Bank by the Borrower.
 
 
 
 
 
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Section 6.4                  Investigations, Actions, Proceedings and
Claims.  Except as otherwise disclosed to the Bank in writing, there is no
present investigation by any governmental agency pending or threatened against
the Borrower and there is no action, suit, proceeding or claim pending or
threatened against the Borrower or the Borrower’s assets or goodwill, or
affecting any transactions contemplated by this Agreement, or any supplement
hereto, or any agreements, instruments or documents delivered in connection
herewith or therewith before any court, tribunal, arbitrator, or governmental or
administrative body or agency which if adversely determined with respect to the
Borrower would result in any Material Adverse Change in the Borrower’s business,
properties, assets, goodwill, or condition, financial or otherwise.
 
Section 6.5                 Authorization; Compliance with Laws.  The execution,
delivery and performance of this Agreement, any supplement hereto, or any
agreements, instruments and documents executed and delivered in connection
herewith, are within the Borrower’s powers, have been duly authorized, are not
in contravention of law or the terms of the Borrower’s Charter, By-Laws,
Certificate of Formation, Operating Agreement, or other
incorporation/organizational papers, or of any indenture, agreement or
undertaking to which the Borrower are a party or by which the Borrower are
bound.
 
Section 6.6                Determination that LIBOR Rate Lending Unlawful.  If
the Bank shall determine (which determination shall, upon notice to the Obligors
be conclusive and binding on the Obligors) that the introduction of or any
change in or in the interpretation of any law, rule, regulation or guideline
(whether or not having the force of law) makes it unlawful, or any central bank
or other governmental authority assets that it is unlawful, for the Bank to
make, continue or maintain any LIBOR Loan as, or to convert any loan into, a
LIBOR Loan of a certain duration, (a) the Bank promptly shall given written
notice of such circumstance to the Borrower (which notice may be withdrawn
whenever such circumstances no longer exist), (b) the obligations of the Bank to
make, continue, maintain or convert into any such LIBOR Loans shall, upon such
determination, be suspended until the Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist, and (c) upon such notice,
all LIBOR Advances shall automatically convert into Prime Advances at the end of
the then current Term for each such Advance or sooner, if required by law or as
determined by the Bank, in its discretion.
 
Section 6.7                Further Acts.  The Borrower shall, at the Borrower’s
expense, duly execute and deliver, or shall cause to be duly executed and
delivered, such further agreements, instruments and documents, including,
without limitation, additional security agreements, mortgages, deeds of trust,
deeds to secure debt, collateral assignments, Uniform Commercial Code financing
statements or amendments or continuations thereof, landlord's or mortgagee's
waivers of liens and consents to the exercise by the Bank of all the Bank’s
rights and remedies hereunder, under any supplement hereto or applicable law
with respect to the Collateral, and do or cause to be done such further acts as
may be necessary or proper in the Bank’s opinion to evidence, perfect, maintain
and enforce the Bank’s security interest and the priority thereof in the
Collateral and to otherwise effectuate the provisions or purposes of this
Agreement or any supplement hereto.  Where permitted by law, the Borrower hereby
authorizes the Bank to execute and file one or more financing statements and
amendments thereto signed only by the Bank.
 
Section 6.8               Minimum Capital Funds.  The Borrower agrees that so
long as any Obligations to the Bank remain outstanding to maintain minimum
Capital Funds of not less than Two Million Two Hundred Thousand Dollars
($2,200,000.00).
 
Section 6.9               Omitted.
 
 
 
 
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Section 6.10            Leverage Ratio.  The Borrower agrees that, so long as
any Obligations to the Bank remain outstanding, total unsubordinated liabilities
divided by tangible capital funds (defined as net worth plus subordinated debt
minus intangible assets) shall at no time exceed 2.0:1
 
Section 6.11             Additional Indebtedness; Investments or Loans to
Affiliates.  The Borrower agrees that so long as any Obligations to the Bank
remain outstanding that the Borrower shall not, without the Bank’s prior written
consent (which consent will not be unreasonably withheld), incur additional
indebtedness other than (i) for the purchase of equipment in the normal course
of the Borrower’s business, (ii) invest or extend loans in or to affiliated
companies, subsidiaries, and/or officers, directors or shareholders or (iii)
other than for the business operations of the Guarantor.  The Borrower
represents and warrants that, other than the Obligations contemplated by this
Agreement, the outstanding indebtedness owing by the Borrower and its affiliated
companies and subsidiaries is set forth on Schedule 6.11.
 
Section 6.12             Net Loss.  The Borrower agrees that so long as any
Obligations to the Bank remain outstanding that the Borrower shall not incur a
net loss (on a combined basis) in any fiscal year determined for Borrower and
its subsidiaries on a consolidated basis.
 
Section 6.13              Other Investments.  The Borrower agrees that so long
as any Obligations to the Bank remain outstanding that the Borrower shall not,
without the Bank’s prior written consent, make, or allow to remain outstanding
any investment (whether such investment shall be of character of investment in
shares of stock, evidences of indebtedness or other securities or otherwise) in,
or any loans or advances to, any individual or entity.
 
Section 6.14             Checking Accounts.  The Borrower agrees that so long as
any Obligations to the Bank remain outstanding that  the Borrower shall (i)
maintain with the Bank the Checking Account, and (ii) not maintain any bank
accounts at financial institutions (other than with the Bank) without the Bank’s
prior written approval and, in the case where the Bank grants such prior written
approval, subject to such financial institution entering into a Deposit Account
Control Agreement in form and substance satisfactory to the Bank in its sole
absolute discretion.
 
Section 6.15              Dividends; Distributions. The Borrower agrees that, so
long as any Obligations to the Bank remain outstanding, commencing with fiscal
year 2008 the Borrower shall not pay, declare, make or become obligated to make
any dividend or distribution to any of the Borrower’s subsidiaries, parent or
shareholders, except that the Borrower may: (i) continue to repay the quarterly
installments of $75,000.00 to Subordinated Creditor in connection with the
Subordinated Loan and (ii) payment of the Guarantor’s presently existing
convertible debt and Guarantor’s income taxes plus such other payments that are
no greater than $50,000 per item and $500,000 per fiscal year in the aggregate,
provided that with regard to the payments described in subsections as noted on
Schedule 6.11 (i) and (ii): (x) no uncured or Event of Default exists; (y) the
Borrower is in compliance with the minimum capital funds requirement set forth
in Section 6.8;
 
Section 6.16             Prohibited Transactions.  The Borrower agrees that so
long as any of the Obligations to the Bank remain outstanding that the Borrower
shall not without the Bank’s prior written consent, which consent shall not be
unreasonably withheld, (i) acquire all or a material portion of the shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, or any and all other ownership interests in an entity
(other than a corporation) in any one transaction or series of related
transactions or enter into any sale and leaseback transaction, or (ii) merge or
consolidate with any other entity or commence a dissolution or liquidation.
 
Section 6.17            No Material Adverse Change.  The Borrower represents and
warrants that there has been no Material Adverse Change with respect to the
business, operations, performance, assets, properties, condition (financial or
otherwise) or prospects of the business of Borrower.  Both before and after
making the Loan hereunder, the Borrower will be solvent, able to pay the
Borrower’s debts as they mature, the Borrower will have capital sufficient to
carry on the Borrower’s business and all businesses in which the Borrower is
engaged, and both as of and subsequent to the Closing Date, the fair present
saleable value of the Borrower’s assets, calculated on a going concern basis, is
in excess of the amount of the Borrower’s liabilities.
 
 
 
 
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Section 6.18            Regulations T, U and X.  The Borrower is not engaged
principally, or as one of the Borrower’s important activities, in the business
of extending credit for the purpose of purchasing or carrying any margin
stock.  No part of the proceeds of the Loan will be used, directly or
indirectly, whether immediately, incidentally or ultimately (a) to purchase or
carry any margin stock or to extend credit to others for the purpose, in each
case, violative of or inconsistent with any of the provisions of any regulation
of the Board of Governors of the Federal Reserve System, including, with out
limitation, Regulations T, U and X.
 
Section 6.19            The Borrower is not, nor will the Borrower during the
term of this  Agreement be, (a) an “investment company”, within the meaning of
the Investment Company Act of 1940, as amended, or (b) subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act or
any foreign, federal or local stature or any other applicable law of the United
States of America or any other jurisdiction, in each case limiting its ability
to incur indebtedness for money borrowed as contemplated hereby or by any other
Loan Document.
 
Section 6.20             The Borrower represents that neither the Borrower nor
any shareholder of the Borrower is (i) a person whose property or interest in
property is blocked or subject to blocking pursuant to section 1 of Executive
Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg.
49079 (2001), (ii) engaged in any dealings or transactions prohibited by section
2 of such executive order, or is otherwise associated with any such person in
any manner violative of section 2 of such executive order, or (iii) a person on
the list of Specially Designated Nationals and Blocked Persons or subject to the
limitations or prohibitions under any other U.S. Department of Treasury’s Office
of Foreign Assets Control regulation or executive order.
 
Section 6.21              The Borrower is not involved in any activity, directly
or indirectly, which would constitute a violation of applicable laws concerning
money laundering, the funding of terrorism or similar activities.  No part of
the proceeds of the Loan will be used to fund activities which would constitute
a violation of the United States Bank Secrecy Act, the United States Money
Laundering Control Act of 1986, the United States International Money Laundering
Abatement and Anti-terrorist Financing Act of 2001.
 
Section 7    GUARANTY.
 
Section 7.1                 Guaranty.  Each Guarantor hereby, jointly and
severally, irrevocably, absolutely and unconditionally guarantees to the Bank,
its successors, endorsees, transferees and assigns the prompt and complete
payment by the Borrower, as and when due and payable (whether at stated Maturity
or by required prepayment, acceleration, demand or otherwise), of all
Obligations and agrees to pay on demand any and all expenses (including counsel
fees and expenses, whether incurred by outside counsel or the equivalent market
rate of counsel that are employees of the Bank) which may be paid or incurred by
any Bank in connection with the administration of the Loan, collecting any or
all of the Obligations and/or enforcing any rights under any of the Loan
Documents or under the Obligations.
 
Section 7.2                 Guarantor’s Guaranty Obligations Unconditional.
 
(a) Each Guarantor hereby guarantees that the Obligations will be paid strictly
in accordance with the terms of the Loan Documents, regardless of any law now or
hereafter in effect in any jurisdiction affecting any such terms or, the rights
of the Bank with respect thereto. The Obligations and liabilities of each
Guarantor under this Guaranty shall be to the extent permitted by applicable law
absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of any of the Obligations, any Loan Documents, or any agreement
or instrument relating thereto; (ii) any change in the time, manner or place of
payment of, or in any other term in respect of, all or any of the Obligations,
or any other amendment or waiver of or consent to any departure from any Loan
Documents or any other documents or instruments executed in connection with or
related to the Obligations; (iii) any exchange or release of, or non-perfection
of any Lien on or in, any Collateral, or any release or amendment or waiver of
or consent to any departure from any other Guaranty, for all or any of the
Obligations; or (iv) any other circumstances which might otherwise constitute a
defense (other than indefeasible payment in full) available to, or a discharge
of, Borrower or any other Guarantor in respect of the Obligations of any
Guarantor in respect of this Guaranty.
 
 
 
 
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(b)                 This Guaranty is a continuing guaranty and shall remain in
full force and effect until: (i) the payment in full of all the Obligations and
the termination of the Agreement; and (ii) the payment of the other expenses to
be paid by the Guarantors pursuant hereto. This Guaranty shall continue to be
effective or shall be reinstated, as the case may be, if, at any time, any
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be returned by the Bank upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Borrower and/or any Guarantor or otherwise, all
as though such payment had not been made, but in no event shall the Guaranty
continue beyond the later of four years from the last of any payments made
pursuant to subsections (i) or (ii) set forth immediately above.
 
(c)                 The Obligations and liabilities of each Guarantor under this
Guaranty shall not be conditioned or contingent upon the pursuit by the Bank or
any other person at any time of any right or remedy against Borrower or any
other Obligors which may be or become liable in respect of all or any part of
the Obligations or against any Collateral, security, Guaranty or right of setoff
with respect thereto.
 
(d)                 Each Guarantor hereby consents that, without the necessity
of any reservation of rights against any Guarantor and without notice to or
further assent by any Guarantor, any demand for payment of any of the
Obligations made by the Bank may be rescinded by the Bank and any of the
Obligations continued after such rescission.
 
Section 7.3               Waivers.    To the extent permitted by applicable law,
each Guarantor hereby waives: (a) promptness and diligence; (b) notice of or
proof of reliance by the Bank upon this Guaranty or acceptance of this Guaranty;
(c) notice of the incurrence of any Obligation by Borrower or the renewal,
extension or accrual of any Obligation; (d) notice of any actions taken by the
Bank, Borrower, any Obligor or any other party under any Loan Document, or any
other agreement or instrument relating to the Obligations; (e) all other
notices, demands and protests, and all other formalities of every kind other
than such as are provided for in the Loan Documents in connection with the
enforcement of the Obligations or of the Guaranty Obligations of any Guarantor,
the omission of or delay or which, but for the provisions of this Section, might
constitute grounds for relieving any Guarantor of its obligations hereunder; and
(f) any requirement that the Bank protect, secure, perfect or insure any lien on
any Collateral or property subject thereto or exhaust any right or take any
action against Borrower, any Obligor, any other person or party or any
Collateral.
 
Section 7.4               Subrogation; Subordination.   Each Guarantor agrees
that it defers any rights which it may acquire by way of subrogation under this
Guaranty, whether acquired by any payment made hereunder, by any setoff or
application of funds of such Guarantor by the Bank or otherwise until the
Obligations have been paid in full.  Further, each Guarantor agrees and
acknowledges that any right to payment, and any liens securing such payments,
that such Guarantor has or shall have against the Borrower and any other
Guarantor shall be , at all times, subordinate in all aspects, including extent,
validity and priority, to the rights of the Bank.
 
Section 8    SPECIFIC POWERS.
 
Section 8.1                The Borrower hereby constitutes the Bank and any
agent or designee of the Bank, as the Borrower’s attorney-in-fact, at the
Borrower’s own cost and expense, to exercise at any time all or any of the
following powers (provided that, in the case of the powers described in clauses
(b), (d) and (e), such powers may only be exercised after the occurrence and
during the continuance of an Event of Default following notice to cure or an
event which would result in a Material Adverse Change) 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 the
Bank’s or the Borrower’s name, any and all checks, notes, drafts, remittances
and other instruments and documents relating to the Collateral; (b) to receive,
open and dispose of all mail addressed to the Borrower and to notify postal
authorities to change the address for delivery thereof to such address as the
Bank may designate; (c) to transmit to Account Debtors notice of the Bank’s
interest therein and to request from such Account Debtors at any time, in the
Bank’s or the Borrower’s name or that of the Bank’s designee, information
concerning the Accounts and the amounts owing thereon; (d) to notify Account
Debtors to make payment directly to the Bank; (e) to take or bring, in the
Bank’s or the Borrower’s name, all steps, actions, suits or proceedings deemed
by the Bank necessary or desirable to effect collection of the Collateral; and
(f) to execute in the Borrower’s name and on the Borrower’s behalf and file any
UCC financing statements or amendments thereto, including without limitation UCC
financing statements with broader collateral description than that provided in
this Agreement, including a description of Collateral as “all assets” or words
of similar meaning.  The Borrower also ratifies the Borrower’s authorization to
the Bank to have filed one or more financing statements or amendments thereto if
filed prior to the date of this Agreement.  The Borrower hereby releases the
Bank and the Bank’s officers, employees, agents, professionals and designees,
from any liability arising from any act or acts under this Agreement or in
furtherance thereof, whether of omission or commission, and whether based upon
any error of judgment or mistake of law or fact, except in the case of the
Bank’s gross negligence or willful misconduct.
 
 
 
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Section 9    EVENTS OF DEFAULT AND REMEDIES.
 
Section 9.1               All Obligations shall be, at the Bank’s option,
immediately due and payable without notice or demand (notwithstanding any
deferred or installment payments allowed, if any, by any instrument evidencing
or relating to the Obligations) and any provision of this Agreement or any
supplement hereto, as to future loans and advances by the Bank shall, at the
Bank’s option, terminate forthwith, upon the termination or non-renewal of this
Agreement or upon the occurrence and continuation following written notice
thereof by the Bank to the Borrower of any one or more of the following ("Events
of Default"):
 
(a)                      if the Borrower shall (i) fail to pay to the Bank when
due any amounts owing to the Bank under any Obligation, and in the case of any
amount other than an amount of principal or interest in respect of any Advance
and any such amounts remain unpaid for more than ten (10) days from the due
date, (ii) shall breach any of the terms, covenants, conditions or provisions of
this Agreement, any supplement hereto or any other Loan Document and such
failure shall continue for more than ten (10) days, or (iii) shall breach any of
the terms, covenants, conditions or provisions of any document evidencing or
governing any indebtedness between any other third person or entity and the
Borrower and as a result of such breach, such third party shall and has or shall
be entitled to accelerate such indebtedness and Borrower has not cured such
events, or (iv) Borrower shall breach any of the terms, covenants, conditions or
provisions of any other agreement between any other third person or entity and
the Borrower and as a result of such breach, such third party shall or shall be
entitled to terminate such agreement and the termination of such agreement would
result in a Material Adverse Change;
 
(b)                      the occurrence and continuation of an Overadvance for
more than ten (10) days following the Bank’s written notice to Borrower of such
Overadvance;
 
(c)                      if any representation, warranty, or statement of fact
made to the Bank at any time by the Borrower or on the Borrower’s behalf is
false or misleading in any material respect;
 
(d)                      if (i) the Borrower or Guarantor shall become
insolvent, fail to meet the their debts as they mature, call a meeting of
creditors or have a creditors' committee appointed, make an assignment for the
benefit of creditors, commence or have commenced against the Borrower or them
any action or proceeding for relief under any bankruptcy law (and, in the case
of any such action or proceeding commenced against the Borrower such action or
proceeding shall not be dismissed within 60 days), or (ii) a lien or encumbrance
of any type or nature attaches to the assets of the Borrower or the Collateral
and is not released or removed within fifteen (15) days; or (iii) a judgment is
rendered against the Borrower or Guarantor in excess of $250,000.00 that is not
fully covered by insurance or which is not satisfied and paid within thirty (30)
days after entry thereof or the execution or other enforcement thereof stayed,
or (iv) the Borrower suspends or discontinues doing business for any reason, or
if a receiver, custodian or trustee of any kind is appointed for the Borrower or
any of the Borrower’s or assets or properties;
 
 
 
 
 
 
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(e)                      if there shall be a Material Adverse Change from the
date hereof; or
 
(f)                       if at any time the Bank shall, in the Bank’s
commercially reasonable discretion, consider the Obligations insecure or any
part of the Collateral unsafe, insecure or insufficient and the Borrower shall,
on the Bank’s demand, be unable to furnish other Collateral or make payment on
account, satisfactory to the Bank.
 
Section 9.2               Upon the occurrence and continuation of any Event of
Default and at any time thereafter during the continuance of such Event of
Default, the Bank shall have the right (in addition to any other rights the Bank
may have under this Agreement, any supplement hereto or otherwise available
under applicable law) without notice to the Borrower, at any time and from time
to time, in the Bank’s discretion, with or without judicial process or the aid
or assistance or others and without cost to the Bank to appropriate, set off and
apply to the payment of any or all of the Obligations, any or all Collateral, in
such manner as the Bank shall in the Bank’s sole discretion determine; to
enforce payment of any Collateral; to settle, compromise or release in whole or
in part, any amounts owing on the Collateral; to prosecute any action, suit or
proceeding with respect to the Collateral; to extend the time of payment of any
and all Collateral; to make allowances and adjustments with respect thereto; to
issue credits in the Bank’s or the Borrower’s name; to sell, assign and deliver
the Collateral (or any part thereof) at public or private sale, at broker's
board, for cash, upon credit or otherwise, at the Bank’s sole option and
discretion, and the Bank may bid or become purchaser at any such sale, if
public, free from any right of redemption which is hereby expressly waived; and,
with respect to the Inventory or Equipment, to enter upon any premises on or in
which any of the Inventory or Equipment may be located and, without resistance
or interference by the Borrower, take possession of the Inventory and the
Equipment; to complete processing, manufacturing and repair of all or any
portion of the Inventory; to sell, foreclose or otherwise dispose of any part or
all of the Inventory and the Equipment on or in any of the Borrower’s premises
or premises of any other party; to require the Borrower, at the Borrower’s
expense, to assemble and make available to the Bank any part or all of the
Inventory and the Equipment at any place and time designated by the Bank; and to
remove any or all of the Inventory and the Equipment from any premises on or in
which the same may be located, for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose.
 
Section 9.3                In the event the Bank seeks to take possession of all
or any portion of the Collateral by judicial process, the Borrower irrevocably
waive: (a) the posting of any bond, surety or security with respect thereto
which might otherwise be required, (b) any demand for possession prior to the
commencement of any suit or action to recover the Collateral, and (c) any
requirement that the Bank retain possession and not dispose of any Collateral
until after trial or final judgment.
 
Section 9.4                 If notice of the intended disposition of Collateral
is required by law, the Borrower agrees that the giving of seven (7) days notice
by the Bank (unless a shorter period of time is permitted under the UCC), sent
by ordinary mail, postage prepaid, to the Borrower’s address set forth herein,
designating the place and time of any public sale or of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be deemed to be reasonable notice thereof and the Borrower waive any other
notice with respect thereto.
 
 
 
 
 
 
 
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Section 9.5                The Bank shall have no obligation to clean-up or
otherwise prepare the Collateral for sale.
 
Section 9.6                The Bank may sell the Collateral without giving any
warranties as to the Collateral.  The Bank may disclaim any warranties of title
or the like.
 
Section 9.7                To the extent that applicable law imposes duties on
the Bank to exercise remedies in a commercially reasonable manner, the Borrower
acknowledges and agrees that it is not commercially unreasonable for the Bank
(a) to fail to incur expenses reasonably deemed significant by the Bank to
prepare Collateral for disposition or otherwise to complete raw material or work
in process into finished goods or other finished products for disposition, (b)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against Account Debtors or other persons obligated on Collateral or to
remove liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against Account Debtors and other persons obligated
on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (f) to contact other persons, whether or not in the
same business as the undersigned, for expressions of interest in acquiring all
or any portion of the Collateral, (g) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (h) to dispose of Collateral by utilizing
Internet sites that provide for the auction of assets of the types included in
the Collateral or that have the reasonable capability of doing so, or that match
buyers and sellers of assets, (i) to dispose of assets in wholesale rather than
retail markets, (j) to disclaim disposition warranties, (k) to purchase
insurance or credit enhancements to insure the Bank against risks of loss,
collection or disposition of Collateral or to provide the Bank a guaranteed
return from the collection or disposition of Collateral, or (l) to the extent
deemed appropriate by the Bank, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist the Bank in
the collection or disposition of any of the Collateral. The Borrower
acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by the Bank would not be commercially
unreasonable in the Bank’s exercise of remedies against the Collateral and that
other actions or omissions by the Bank shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section. Without
limitation upon the foregoing, nothing contained in this Section shall be
construed to grant any rights to the Borrower or to impose any duties on the
Bank that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section.
 
Section 9.8               The Bank shall not be required to marshal any present
or future collateral security (including but not limited to the Collateral) for,
or other assurances of payment of, the Obligations or any of them or to resort
to such collateral security or other assurances of payment in any particular
order, and all of its rights hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights, however existing or arising. To the extent that the Borrower
lawfully may, the Borrower hereby agrees that the Borrower will not invoke any
law relating to the marshaling of collateral which might cause delay in or
impede the enforcement of the Bank’s rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that the
Borrower lawfully may, the Borrower hereby irrevocably waives the benefits of
all such laws.
 
Section 9.9                 The net cash proceeds resulting from the exercise of
any of the foregoing rights or remedies shall be applied by the Bank to the
payment of the Obligations in such order as the Bank may elect, and the Borrower
shall remain liable to the Bank for any deficiency.  Without limiting the
generality of the foregoing, if the Bank enters into any credit transaction,
directly or indirectly, in connection with the disposition of any Collateral,
the Bank shall have the option, at any time, in the Bank’s sole discretion, to
reduce the Obligations by the principal amount of such credit transaction or to
defer the reduction thereof until actual receipt by the Bank of cash or other
immediately available funds in connection therewith.
 
 
 
 
 
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Section 9.10                 The enumeration of the foregoing rights and
remedies is not intended to be exclusive, and such rights and remedies are in
addition to and not by way of limitation of any other rights or remedies the
Bank may have under the UCC or other applicable law.  The Bank shall have the
right, in the Bank’s sole discretion, to determine which rights and remedies,
and in which order any of the same, are to be exercised, and to determine which
Collateral is 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.
 
Section 9.11                  No act (other than a waiver in writing), failure
or delay by the Bank shall constitute a waiver of any of the Bank’s rights and
remedies.  No single or partial waiver by the Bank of any provision of this
Agreement or any supplement hereto, or breach or default thereunder, or of any
right or remedy which the Bank 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.
 
Section 9.12                   Upon the occurrence and continuation of an Event
of Default and following issuance by the Bank of a written notice with right to
cure, all or any one or more of the rights, powers, privileges and other
remedies available to the Bank against the Obligors under this Agreement or any
of the other Loan Documents executed and delivered by, or applicable to, the
Obligors or at law, equity or otherwise may be exercised by the Bank at any time
and from time to time, whether or not the Bank shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan documents with respect to the Collateral.  Any
such actions taken by the Bank may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as the Bank
may determine in its sole and absolute discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of the Bank permitted by law, equity or contract or as set forth herein
or in the other Loan Documents.  Without limiting the generality of the
foregoing, the Obligors agree that if an Event of Default exists (a) the Bank is
not subject to any “one action” or “election of remedies” law or rule, and (b)
all liens and other rights, remedies or privileges provided to the Bank shall
remain in full force and effect until the Bank has exhausted all of its remedies
resulting in the satisfaction and payment in full of all Obligations.
 
Section 9.13                    The Borrower waives presentment, notice of
dishonor, protest and notice of protest of all instruments included in or
evidencing any of the Obligations or the Collateral and any and all notices or
demands whatsoever (except as expressly provided herein).  The Bank may, at all
times, proceed directly against the Borrower to enforce payment of the
Obligations and shall not be required to take any action of any kind to
preserve, collect or protect the Bank’s or the Borrower’s rights in the
Collateral.
 
Section 10    EFFECTIVE DATE; TERMINATION; COSTS.
 
Section 10.1                     This Agreement shall become effective upon
acceptance by the Bank and shall continue in full force and effect until
Maturity Date.  The Bank shall have the right to terminate this Agreement
immediately at any time upon the occurrence of an Event of Default.  No
termination of this Agreement, however, shall relieve or discharge the Borrower
of the Borrower’s duties, Obligations and covenants hereunder until all
Obligations have been paid in full, and the Bank’s continuing security interest
in the Collateral shall remain in effect until such time that the Obligations
have been fully discharged.
 
Section 10.2                      This Agreement, any supplement hereto, and any
agreements, instruments or documents delivered or to be delivered in connection
herewith represent the Borrower’s entire agreement and understanding concerning
the subject matter hereof and thereof, and supersede all other prior and
contemporaneous agreements, understandings, negotiations and discussions,
representations, warranties, commitments, offers, contracts, whether oral or
written.
 
 
 
 
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Section 10.3                        No provision hereof shall be modified or
amended orally or by the Bank’s conduct but only by a written instrument
expressly referring hereto signed by both parties.
 
Section 10.4                       Upon the Bank’s request, the Borrower shall
pay to the Bank, or reimburse the Bank for, all sums, costs and expenses which
the Bank may pay or incur in connection with or related to the negotiation,
preparation, consummation, administration and enforcement of this Agreement, any
supplement hereto, and all other agreements, instruments and documents in
connection herewith and therewith, and the transactions contemplated hereunder
and thereunder, together with any amendments, supplements, consents or
modifications which may be hereafter made or entered into in respect hereof or
thereof, and all efforts made to defend, protect or enforce the security
interest granted herein or therein or in enforcing payment of the Obligations,
including without limitation, appraisal fees, filing fees and taxes, title
insurance premiums, recording taxes, expenses for searches, expenses heretofore
incurred by the Bank and from time to time hereafter during the Bank’s periodic
field examinations of the Collateral and the Borrower’s operations, wire
transfer fees, check dishonor fees, the fees and disbursements of counsel to the
Bank, all fees and expenses for the service and filing of papers, premiums on
bonds and undertakings, fees of marshals, sheriffs, custodians, auctioneers and
others, travel expenses and all the Bank’s costs and collection charges, all of
which shall be part of the Obligations and shall accrue interest after demand
thereof at a rate equal to the highest rate then payable on any of the
Obligations.
 
Section 11      NOTICES.
 
Section 11.1                       All notices, requests and demands to or upon
the respective parties hereto shall be given either by hand delivery, facsimile
or by Federal Express, UPS, DHL, Express Mail or any other recognized overnight
delivery service, and in any such case shall be deemed to have been given and
received (i) in the case of any notice given by hand delivery or overnight
delivery service, upon delivery thereof during normal business hours to the
Borrower (or, if after normal business hours of the Borrower, on the next
business day) and (ii) in the case of an notice given by facsimile, upon
transmission thereof confirmed by electronic confirmation from the sending
facsimile machine during normal business hours of the Borrower (or, if after
normal business hours of the Borrower, on the next business day).  All notices,
requests and demands are to be given or made to the respective parties at the
address (or to such other addresses as either party may designate by notice in
accordance with the provisions of this section) set forth herein.
 
Section 12     WAIVER OF JURY TRIAL; JURISDICTION; CHOICE OF LAW.
 
Section 12.1                     JURY WAIVER.  THE BORROWER AND THE BANK EACH
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY
KIND ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND SUPPLEMENT HERETO, THE
OBLIGATIONS, THE COLLATERAL OR ANY SUCH OTHER TRANSACTION.
 
Section 12.2                     Waiver of Setoff and Counterclaims.  The
Borrower hereby waives its rights to object to setoff and to interpose
counterclaims in the event of any litigation with respect to any matter
connected with this Agreement, any supplement hereto, the Obligations, the
Collateral or any other transaction between the parties.
 
Section 12.3                     Consent to Non-Exclusive Jurisdiction.  The
Borrower hereby irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York, New York County and
the United States District Court for the Southern District of New York in
connection with any action or proceeding of any kind arising out of or relating
to this Agreement, any supplement hereto, the Obligations, the Collateral or any
such other banking transaction involving the Obligors and the Bank.
 
Section 12.4                      Service.  With respect to any such action,
proceeding or claim the Borrower consents to accept service of process and any
legal summons, complaint or other process to be served upon the Borrower and
consent that same may be served by mailing a copy by certified mail directed to
the Borrower at the Borrower’s address set forth below.  Such mailing shall be
deemed personal service upon the Borrower effective on delivery thereof and
shall be legal and binding upon the Borrower in any such action, proceeding or
claim.  Within thirty (30) days after such mailing, the Borrower shall appear,
answer, or otherwise move in respect of such summons, complaint or other
process.  If the Borrower fails to appear or answer within the thirty (30) day
period, the Borrower shall be deemed in default and judgment may be entered by
the Bank against the Borrower for the amount of the claim and other relief
requested therein.
 
 
 
 
 
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Section 12.5                     Applicable Law.  This Agreement and all
transactions thereunder shall be deemed to be consummated in the State of New
York and shall be governed by and interpreted in accordance with the internal
laws of that State.  If any part or provision of this Agreement is invalid or in
contravention of any applicable law or regulation, such part or provision shall
be severable without affecting the validity of any other part or provision of
this Agreement.
 
Section 13   MISCELLANEOUS.
 
Section 13.1                    This Agreement may be executed in several
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute one and the same Agreement.
 
Section 13.2                    Delivery of an executed counterpart of a
signature page to this Agreement by facsimile shall be effective as delivery of
an executed counterpart of this Agreement.
 
Section 13.3                   The USA Patriot Act of 2001 (Public Law 107-56)
and federal regulations issued with respect thereto require all financial
institutions to obtain, verify and record certain information that identifies
individuals or business entities which open an “account” with such financial
institution.  Consequently, the Bank, may from time-to-time request, and
Borrower shall provide to the Bank, Borrower’s name, address, tax identification
number and/or such other identification information as shall be necessary for
the Bank to comply with federal law.  An “account” for this purpose may include,
without limitation, a deposit account, cash management service, a transaction or
asset account, a credit account, a loan or other extension of credit, and/or
other financial services product.
 
[signatures on the following page]
 

 
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the day and
year first written above.
 
BORROWER:
 
FREUNDLICH SUPPLY COMPANY, INC.

By: ________________________________________
                                                                                                      
Andrew Prince, President and Chief Executive Officer

GUARANTOR:

PRECISION AEROSPACE COMPONENTS, INC.

By: ________________________________________
                                                                                                     
Andrew Prince, President and Chief Executive Officer

Accepted on this _____ day of _______________, 2008

ISRAEL DISCOUNT BANK OF NEW YORK

By:  _____________________________________
Name:  Leon Terrano
Title:    Senior Vice President

By:  _____________________________________
Name:
Title:

 
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SCHEDULE 1.18

SCHEDULE OF CHECKING ACCOUNTS

Description of Account
Account No.
Signature Bank – Lockbox Account
1500852638
Signature Bank – Checking
1500852611
Wachovia – Payroll
2000012549667

 
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SCHEDULE 1.35

SCHEDULE OF LOAN FEES1

Description of Fee, Charge or Premium
Amount
   
Closing Fee
$0.00
Closing Legal Fee
$0.00
Field Exam Fee (Daily) (to be paid directly to field examiner)
Actual Fees
Exam Fee (Monthly Collateral monitoring fee)
$500.00
Late Payment Premium
5% of Late Payment Amount
Line Fee
$5,000.00
Unused Line Fee
$0.00
   

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

 
1           As noted in Section 3, this Schedule of Fees is applicable to the
subject Loan and supplements all other schedules of fees and charges, as may be
amended and updated by the Bank from time to time, for financial services and
products offered by Bank.  The Schedule does not include additional fees that
may become due and payable upon a Default or Event of Default.

 
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SCHEDULE 1.47

SCHEDULE OF LETTER OF CREDIT AND COLLECTION CHARGES2

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

 
2           As noted in Section 3, this Schedule of Fees may be amended and
updated by the Bank from time to time.  This Schedule does not include
additional fees that may become due and payable upon a Default or Event of
Default.

 
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 SCHEDULE 1.70

SCHEDULE OF PERMITTED LIENS

Full UCC Filing on assets of Borrower by Subordinated Creditor

 
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SCHEDULE 5.1

SCHEDULE OF COVERAGE AMOUNT

No less than $3,000,000.00

 
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SCHEDULE 6.11

SCHEDULE OF OTHER INDEBTEDNESS

1.
$750,000 Note Payable to Subordinated Creditor, which had an outstanding
principal balance of $375,000.00 as of March 1, 2008

2.
$1,000,000 Unsecured Convertible Note Payable by Guarantor to Barron Partners

 
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EXHIBIT A
[image1.jpg]

PROMISSORY NOTE

$3,000,000.00
                 March __ , 2008

FOR VALUE RECEIVED, the undersigned promises to pay to the order of ISRAEL
DISCOUNT BANK OF NEW YORK (“Bank”) at its principal office, located at 511 Fifth
Avenue, New York, NY 10017, the principal sum of THREE MILLION ($3,000,000.00),
or, if less, the aggregate unpaid principal amount of all advances (including,
but not limited to those  arising  out  of  letters  of  credit issued by the
Bank, acceptances and other indebtedness, each an “Advance” and collectively,
the “Advances”) made by the Bank, in its sole discretion, to the undersigned
from time to time, as set forth on the Bank’s computer system on the Loan
Enquiry Page(s) (“Loan Enquiry Page(s)”) on the maturity date of each such
Advance either as shown on the Loan Enquiry Page(s) or by acceleration, or on
demand. The undersigned shall also pay to the Bank interest, fees and costs as
set forth in that certain Loan and Security Agreement (“Agreement”) executed by
and between the Borrower and the Bank contemporaneously herewith.

Each Advance hereunder shall bear interest on the unpaid principal amount
thereof for the interest period applicable thereto at the interest rate (“Rate”)
(as set forth and defined in the Agreement).

The undersigned shall provide the Bank with prior notification of each Advance
requested hereunder in accordance with the terms of Section 2 of the
Agreement.  All requests for Advances shall be irrevocable and shall be in
accordance with the terms and conditions set forth in the Agreement.

The Bank may act without liability upon the basis of telephonic notice believed
by the Bank in good faith to be from the undersigned.  The undersigned shall
immediately confirm to the Bank, in writing, each telephonic notice.  All
Advances are made in accordance with the Agreement and the Bank, in accordance
with the conditions of the Agreement and without notice to the undersigned, may
decline to make any Advance requested by the undersigned.  The undersigned
hereby expressly authorizes the Bank to record in its computer system the amount
and date of each Advance, the applicable rate of interest, the applicable Term
for each Advance, the maturity date, and each payment of principal and interest
thereon.  In the event of any discrepancy between any such notation by the Bank
and any records of the undersigned, the records of the Bank shall be controlling
and conclusive.

Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed (but in no event in excess of the maximum rate permitted
by law).  Interest on Advances hereunder shall be payable in accordance with the
terms of the Agreement.

 In accordance with the terms of the Agreement, the undersigned authorizes the
Bank to charge any of the undersigned’s deposit accounts for payments of
principal, interest or other amounts due and owing.  Any payment of principal or
interest payable hereunder, which is not paid when due, shall be subject to a
Late Payment Premium (as described in the Agreement) and shall bear interest
from the date due until paid in full at a rate per annum equal to five percent
(5%) above the interest rate in effect with respect thereto.  Additional amounts
may be due in accordance with the Agreement.

Subject to the terms and conditions of the Agreement, the undersigned may
borrow, repay in whole or in part, and re-borrow on a revolving basis up to the
maximum amount of this Note.
 
 
 
 
 
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Any Advance may be prepaid in full or in part, on any Business Day, upon five
(5) days prior written notice to the Bank of such prepayment, subject to a
prepayment premium equal to the amount of interest which the Bank would have
earned on the principal amount so prepaid at the then current Rate from the date
of such prepayment to the last day of the then current Interest Period for such
Advance.  The Bank shall not be obligated to accept any prepayment of an Advance
unless it is accompanied by the prepayment premium.
 

If any amount payable on any Obligations (as defined in the Agreement) of the
undersigned to the Bank shall not be paid when due, then this Note and the
principal of and accrued interest on each Advance evidenced hereby shall, unless
the Bank shall otherwise elect, become forthwith due and payable in full,
without protest, presentment, notice or demand, all of which are expressly
waived by the undersigned.

As security for the payment of all the Obligations, the undersigned has granted
to the Bank a security interest in, and a general lien upon and/or right of
set-off of, the Collateral, as further described in the Agreement.

The Bank, at its discretion, whether any Obligations be due may, in its name or
in the name of the undersigned or otherwise, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of or in
exchange for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but shall be under no obligation so to do, or the
Bank may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the Collateral, without
thereby incurring responsibility to, or discharging or otherwise affect­ing any
liability of, the undersigned.  The Bank shall not be required to take any steps
necessary to preserve any rights of prior parties to any of the
Collateral.  Upon default hereunder or in connection with any of the Obligations
(whether such default be that of the undersigned or of any other party obligated
thereon), the Bank shall have the rights and remedies provided by law; and the
Bank may sell or cause to be sold in such places as it may determine, in its
sole discretion, in one or more sales or parcels, at such price as the Bank may
deem best, and for cash or on credit or for future delivery, without assumption
of any credit risk, all or any of the Collateral, at any brokers’ board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived), and the Bank or anyone else may be the
pur­chaser of any or all of the Collateral so sold and thereafter hold the same,
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption, of the undersigned, any such demand, notice or right and equity
being hereby waived and released.  The undersigned will pay to the Bank all
reasonable out of pocket expenses (including reasonable expense for legal
services of every kind) of, or incidental to, the enforcement of any of the
provisions hereof or of any of the Obligations, or any actual or attempted sale,
or any exchange, enforcement, collection, compromise or settlement of any of the
Collateral or receipt of the proceeds thereof, and for the care of the
Collateral and defending or asserting the rights and claims of the Bank in
respect thereof, by litigation or otherwise, including expense of insurance, and
all such expenses shall be indebtedness within the terms of this Note.  The
Bank, at any time, at its option, may apply the net cash receipts from the
Collateral to the payment of principal of and/or interest on any of the
Obligations, whether or not then due, making proper rebate of interest or
discount.  Notwithstanding that the Bank, whether in its own behalf and/or in
behalf of another and/or of others, may continue to hold Collateral and
regardless of the value thereof, the under­signed shall be and remain liable for
the payment in full, principal and interest, of any balance of the Obligations
and expenses at any time unpaid.
 

The undersigned represents and warrants that:  it is a corporation duly
organized and validly existing under the laws of the state of its incorporation
and is duly qualified to do business and is in good standing in every state
where the failure to qualify would materially and adversely affect the financial
condition of the undersigned, and the execution, issuance and delivery of this
Note by the undersigned are within its corporate powers and have been duly
authorized by all necessary corporate action, and this Note is valid, binding
and enforceable in accordance with its terms, and is not in violation of law or
of the terms of the undersigned's Articles or Certificate of Incorporation or
By-Laws and does not result in the breach of or constitute a default under any
indenture, agreement or undertaking to which the undersigned is a party or by
which it or its property may be bound or affected.
 
 
 
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Upon the occurrence of any of the following specified events of default (each an
“Event of Default) set forth in the Agreement; THEN, in any such event, and at
any time thereafter, unless and to the extent that the Bank shall otherwise
elect, if any Event of Default shall then be continuing, the principal and the
accrued interest in respect of each Advance under this Note shall become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are expressly waived by the undersigned.

Notwithstanding anything to the contrary contained elsewhere in this Note, if
any change after the date hereof in law, rule, regulation, guideline or order or
in the interpretation thereof by any governmental authority charged with the
administration thereof, shall make it unlawful for the Bank to make or maintain
any Advance based upon LIBOR, then, by written notice to the undersigned, the
Bank may require that such Advance be converted to an Advance based on the Prime
Rate, whereupon such Advance shall be automatically converted as of the date of
such notice to the undersigned.
 

In the event that any change in applicable law or regulation, or in the
interpretation thereof by any governmental authority charged with the
administration thereof, shall impose on or deem applicable to the Bank any
reserve requirements against this Note or impose upon the Bank any other costs
or assessments (the “Additional Costs”), the undersigned shall pay to the Bank,
on demand (which demand shall be in writing and which will set forth a
calculation of such Additional Costs), an amount sufficient to compensate the
Bank for the Additional Cost resulting from the maintenance or imposition of
such reserves, costs or assessments.  The calculation of amount of the
Additional Costs shall, absent manifest error, be presumed correct.

Any consents, agreements, instructions or requests pertaining to any matter in
connection with this Note, signed by any one of the undersigned, shall be
binding upon all of the undersigned. This Note shall not be assigned by the
undersigned without the Bank’s prior written consent.

THE UNDERSIGNED IN ANY LITIGATION (WHETHER OR NOT ARISING OUT OF OR RELATING TO
THIS NOTE OR ANY OTHER OBLIGATIONS OR LIABILITY OF THE UNDERSIGNED TO THE BANK)
IN WHICH THE BANK AND THE UNDERSIGNED SHALL BE ADVERSE PARTIES, WAIVES TRIAL BY
JURY AND THE RIGHT TO INTERPOSE ANY DEFENSE, SET-OFF OR COUNTERCLAIM OF ANY
NATURE OR DESCRIPTION.  THE UNDERSIGNED AGREES TO PAY ON DEMAND ALL OF THE
BANK'S ACTUAL COSTS AND EXPENSES, INCLUDING REASONABLE COUNSEL FEES, IN
CONNECTION WITH COLLECTION OF ANY AMOUNTS DUE TO THE BANK AND ENFORCEMENT OF ITS
RIGHTS UNDER THIS NOTE.

The undersigned agrees that the action, proceeding or claim against it arising
out of, or relating in any way to, this Note may be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and hereby irrevocably submits to each such
jurisdiction, which jurisdiction shall be non-exclusive.  With respect to any
such action, proceeding or claim, the undersigned consents to accept service of
process pursuant to the terms of the Agreement.

No modification or waiver of any provision of this note and no consent by the
Bank to any departure therefrom by the undersigned shall be effective unless
such modification or waiver shall be in writing and signed by a duly authorized
officer of the Bank, and the same shall then be effective only for the period
and on the conditions and for the specific instances specified in such writing.
No failure or delay by the Bank in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other rights, power or
privilege.
 
 
 
 
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The rights, remedies, and benefits herein expressly specified are cumulative and
not exclusive of any rights, remedies or benefits which the Bank may otherwise
have.  The undersigned hereby waives demand, presentment, notice of dishonor and
protest of all instruments included in or evidencing the Note and any
Obligations and any and all other notices.

The undersigned acknowledges that this Note is an instrument for the payment of
money only within the meaning of Section 3213 of the New York Civil Practice Law
& Rules.

In the event any one or more of the provisions in this Note should be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

This Note and the provisions hereof are to be binding upon the respective heirs,
estate, administrators, executors, assigns or successors of the undersigned; and
they are to be construed according to and governed by the internal laws of the
State of New York.
 

FREUNDLICH SUPPLY COMPANY,
INC.                                                                                                                     Attest:
 

By:  ______________________________                                                                                                                     _____________________________
Name: Andrew
Prince                                                                                                                         Name:
Title: President and Chief Executive
Officer                                                                                                               Title:
Corporate Secretary

CORPORATE ACKNOWLEDGMENT
(FREUNDLICH SUPPLY COMPANY, INC.)

 
STATE OF NEW YORK
)
   )ss.

COUNTY OF
)

I certify that on the date set forth below, the duly appointed corporate officer
of the referenced corporation personally came before me, a notary public, and
acknowledged under oath, to my satisfaction, that s/he is an officer of the
referenced corporation, and that as such, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing on behalf
of the corporation and that this document was signed and delivered by the
corporation as its voluntary and authorized act.

Signed and sworn to before me on
this ______ day of March, 2008.

____________________________
Notary Public
Name:
My Commission Expires
________                                                                                                (seal)

 
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EXHIBIT B
FORM OF ADVANCE REQUEST NOTICE

Date:  ___________, _____
To:
Israel Discount Bank of New York

 
Ladies and Gentlemen:

Reference is made to that certain Loan and Security Agreement (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the “Agreement;” the terms defined therein being used herein as therein
defined), among FREUNDLICH SUPPLY COMPANY, INC., a New York corporation (the
“Borrower”) and Israel Discount Bank of New York, as lender (“Bank”).  The
undersigned hereby requests (select one):
  

 

 [  ]  Advance of Funds (Prime Advance)

 
  [  ]
  Advance of Funds (LIBOR Advance)

   
(Select term:   [  ] 1 month,  [  ] 3 months or  [  ] 6 months)

  [  ]
  Extension of Prior LIBOR Advance: Amount $__________ Current Term Exp. Date
___ / ___ / ___

 
(Select extension term:  [  ] 1 month,  [  ] 3 months or [  ] 6 months)

  [  ]
  Bankers Acceptance for Letter of Credit No.__________________ dated issued
____ /____ /_____

 
Beneficiary________________ Original Amount ____________ Amount of Draw
___________

 
(Select term:  [  ] 1-30 days, [  ] 31-60 days, [  ] 61-90 days,  [  ] 91-120
days,  [  ] 121-150 days or  [  ] 121-150 days)

  [  ]
  Bankers Acceptance Extension: Amount $____________ Bankers Acceptance Issue
Date ___ / ___ / ___

 
(Select term:  [  ] 1-30 days, [  ] 31-60 days, [  ] 61-90 days, [  ] 91-120
days, [  ] 121-150 days or [  ] 121-150 days)

 

 [  ]   Issuance of a Letter of Credit (Please attached the necessary forms,
including the Letter of Credit Application)

 
 

Please take the requested action on ___________ (a Business Day), in the amount
of $________________.  The undersigned certifies that the requested Advance will
not cause the Total Outstandings to exceed the Maximum Amount available under
the Loan (as those terms are defined in the Agreement).  The Borrower further
certifies that it is in compliance with the Agreement and no Event of Default
exists.

 

 

   FREUNDLICH SUPPLY COMPANY, INC.            By: 
__________________________________________      Name: 
________________________________________      Title: 
_________________________________________  

 
 
                                                            

 
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EXHIBIT C
 
PERFECTION CERTIFICATE
 

 
FREUNDLICH SUPPLY COMPANY, INC. ("Obligor"), by and through the below named
officer, hereby certifies, with reference to the attached Loan Agreement (the
"Loan Agreement") with Israel Discount Bank of New York ("Bank"), as follows:
All capitalized terms not otherwise defined herein shall have the meaning set
forth in the Loan and Security Agreement.
 
1.
Name.
The exact legal name of the Obligor as that name appears on its Articles /
Certificate of Incorporation  is as follows:

 
FREUNDLICH SUPPLY COMPANY, INC.
 
2.                               Other Identifying Factors.
 

 
(a)                                           The following is the mailing
address of the Obligor:
 
2200 Arthur Kill Road, Staten Island, New York 10309
 
(b)
If different from its mailing address, the Obligor's place of business or, if
more than one, its chief executive office is located at the following address:

 
Address                                County                                State
 
Not applicable
 

 
(c)                                           The following is the type of
organization of the Obligor:
 
Corporation
 
(d)                                           The following is the jurisdiction
of the Obligor's organization:
 
Delaware
 
(e)
The following are the Obligor's federal taxpayer identification number and state
issued organizational identification number [state “None" if the state does not
issue such a number]:

 
20-5199557
 
3.                                Other Names, Etc.
 
 
 
 
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(a)
The following is a list of all other names (including trade names used by the
Obligor), or any other business or organization to which the Obligor became the
successor by merger, consolidation, acquisition, change in form, nature or
jurisdiction of organization or otherwise, now or at any time during the past
five years:

 
None
 
4.                                Other Current Locations.
 
(a)
The following are all other locations in the United States of America in which
the Obligor maintains any books or records relating to any of the Collateral
consisting of accounts, instruments, chattel paper, general intangibles or
mobile goods:

 
Address                                County                                State
 
None
 
(b)
The following are all other places of business of the Obligor in the United
States of America:

 
Address                                County                                State
 
None
 
(c)
The following are all other locations in the United States of America where any
of the Collateral consisting of inventory or equipment is located:

 
Address                                County                                State
 
None
 
(d)
The following are the names and addresses of all persons or entities other than
the Obligor, such as lessees, consignees, warehousemen or purchasers of chattel
paper, which have possession or are intended to have possession of any of the
Collateral consisting of instruments, chattel paper, inventory or equipment:

 
Name                                Mailing
Address                                                      County                      State
 
None
 
5.                                Prior Locations.
 
(a)
Set forth below is the information required by §4(a) or (b) with respect to each
location or place of business previously maintained by the Obligor at any time
during the past five years in a state in which the Obligor has previously
maintained a location or place of business at any time during the past four
months:

 
Address                                County                                State
 
None
 
(b)
Set forth below is the information required by §4(c) or (d) with respect to each
other location at which, or other person or entity with which, any of the
Collateral consisting of inventory or equipment has been previously held at any
time during the past twelve months:

 
Address                                County                                State
 
None
 
 
 
 
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6.                                Existing Liens, If Any.

Collateral                                           Secured Party (name and
address)
                                                                                                            
                                                                                                            Greater
Bay Business Funding, a division of Greater Bank, N.A., which shall be released
simultaneously with funding under this facility

7.                                Commercial Tort Claims, If Any.  (brief
description of claim and party)
 
                                                                     None

 
IN WITNESS WHEREOF, we have hereunto signed this Certificate on March _____,
2008.
 
 
                                                                                                       
FREUNDLICH SUPPLY COMPANY, INC.
 

 
By:  ______________________________
Andrew Prince, President and Chief Executive Officer

 
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EXHIBIT D

BORROWING BASE CERTIFICATE

Calculated as of ___________  _____, 200__

The undersigned DOES HEREBY CERTIFY, pursuant to that certain Loan and Security
Agreement (as such agreement may be amended, restated, supplemented or otherwise
modified from time to time, the “Agreement”; capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Agreement), among FREUNDLICH SUPPLY COMPANY, INC. (the “Borrower”) and
ISRAEL DISCOUNT BANK OF NEW YORK (the “Bank”), as follows:
 
(a)           attached as Schedule 1 (or such other form as the Bank agrees to
accept in connection with this Agreement) hereto is a true and correct
calculation of the Borrowing Base as of the date set forth above; and
 
(b)           the Borrower has no reason to believe that the sum of the Total
Outstandings as of the date hereof would exceed the Borrowing Base if such
Borrowing Base was computed as of the date of this certificate; and
 
(c)           as of the date hereof, the Borrower has no knowledge of an Event
of Default and that no event that, with the giving of notice or lapse of time or
both, will constitute an Event of Default, has occurred and is continuing; and
 
(d)           the representations and warranties contained in the Agreement and
in the other Loan Documents are true and correct in all material respects on and
as of the date hereof with the same effect as if made on and as of the date
hereof;
 
(e)           as of the date hereof, the Borrower has no knowledge of a material
adverse change with respect to the business, operations, performance, assets,
properties, condition (financial or otherwise) or prospects (other than general
economic conditions).
 

 
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed
this ______________ day of ____, 20___.
 

 
                                                                                              
FREUNDLICH SUPPLY COMPANY, INC.
 

 
By:  ______________________________
Name:
Title:

 
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SCHEDULE 1
BORROWING BASE CERTIFICATE

TO:                      Israel Discount Bank of New York

FROM:                      FREUNDLICH SUPPLY COMPANY, INC. ("Borrower")
This Collateral report as of  is submitted pursuant to that certain Loan and
Security Agreement between Borrower and Israel Discount Bank of New York , the
“Agreement”.

1.           Total Eligible Receivables &
Reconciliation:                                                                                                                                           
Amount

a.  Accounts Receivable (A/R) from prior aging dated
____________                                                                                            
$__________

 
b.  Add A/R created since date of Prior Aging (Sales for the
month)                                                                                          
+   $__________

c.  Deduct reductions in A/R since Prior Aging:
i.           Collections                                                                                                                                                 
-    $__________
ii.           Credit
Memos                                                                                                                                           
-    $__________
iii.          Discounts and
Allowances                                                                                                                     -   
$__________
iv.          Other
Adjustments                                                                                                                                  
-    $__________

d.   Total Current Receivables (Current A/R aging
attached)                                                                                                                $
                                                                                                                                                                                                                                           
===========

e.  Less Ineligible
Receivable                                                      
 Delinquent Accounts (> 90 days from due date
)                                                                                             
-  $___________
Cross-Aged                                                                                                                                                              
-  $___________
Affiliates                                                                                                                                                                    - 
$___________
Foreign
A/R's                                                                                                                                                           
-  $___________
Bill & Hold/ Pre-Billing (goods not get
delivered)                                                                                             
-  $___________
Concentration over
25%                                                                                                                                        
-  $___________
Contras-$
                               All other
(chargebacks/disputes/insolvents/etc.)                                                                                               - 
$___________
COD / Return of
Goods                                                                                                                                           - 
$___________
Add:            Unapplied Credits (add back credits <90 days, capped at O/S
>90)                                                            + $___________
Less:          Credits in Prior (subtract credits in >90 days, capped at O/S
<90)                                                                -
$___________

 
f.  Total Ineligible
Receivables                                                                                                                                                                   -
$__________

g.  Total Eligible Receivables ( 1d less 1f
)                                                                                                                                               
$
                                                                                                                                                                                                                                            
==========

2.           Eligible
Inventory:                                                                                                                                                                                                Amount

Total Inventory (at the lower of cost or market
value)                                                                                                         
$___________
Add back:    Pre-Billed Inventory (Cost
Value)                                                                                                  
+ $___________
Add:             Inventory under L/C not yet paid+$

a.  Total
Inventory                                                                                                                                                                                          $
                                                                                                                                                                                                                                           
==========

b.  Less Ineligible Inventory
 
 
 
 
 
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WIP                                                                                                                                                           
- $____________
                                                Slow Moving,
Obsolete                                                                                                                         
- $____________
Outside the
U.S.                                                                                                                                      
- $____________
Supplies, other
ineligibles                                                                                                                     
- $____________
Inventory Reserve  
                                                                                                                               +
$____________

c.  Total Ineligible
Inventory                                                                                                                                                                      - 
 $____________

d.  Total Eligible Inventory (2a less
2c)                                                                                                                                                        $
                                                                                                                                                                                                                                              
============

3.           Availability:

a. 75% of line
1g.                                                                                                                                                                    
- $____________
b. 50% of line 2d (capped at
$2,500,000)                                                                                                                             
+$____________

c. Total Availability (3a plus
3b)                                                                                                                                                                  
$
                                                                                                                                                                                                                                             
============
    (capped at Maximum Credit of $3,000,000)

4.           Debt:

a. Outstanding Revolving Loan
Balance                                                                                                                             +$___________
b. Outstanding Letters of
Credit                                                                                                                                          
+$___________
c. Outstanding Standby Letters of
Credit                                                                                                                          
+$___________

d. Total Debt (4a plus 4b plus
4c)                                                                                                                                                                 $
(capped at Maximum Credit of
$3,000,000)                                                                                                                                                   
============
                                                                                                                                                                                                                                            

5.           Net Availability (3c minus
4d)                                                                                                                                                                        $
                                                                                                                                                                                                                                             
============

The Borrower, by and through its officer signing on its behalf below, certifies
that:
1.  The information set forth above as well as all representations and
warranties of Borrower to Lender set forth herein or in any of the Documents (as
defined in the Agreements) remain accurate and complete in all respects;
 
2.  There does not now exist an Event of Default (as defined in the Agreement)
or an event or condition which, with the giving of notice of passage of time, or
both, would be or become an Event of Default.

FREUNDLICH SUPPLY COMPANY, INC.

By:                                                      
Name:
Title:                                                                                                                                                                
Dated:

 
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EXHIBIT E

AGREEMENT REGARDING INSTRUCTIONS GIVEN BY TELEPHONE,  FACSIMILE, EMAIL, TELEX
AND CABLE

Israel Discount Bank of New York
511 Fifth Avenue
New York, NY 10017

From time to time in the course of its business and banking relations, the
undersigned borrower (“Borrower”), through its officers and agents, may transmit
to Israel Discount Bank of New York (“IDB Bank”) instructions by telephone,
facsimile, email, telex or cable (collectively, the “Instructions”) regarding
the Loan being extended contemporaneously herewith, related loans and/or deposit
accounts including, without limitation, (a) IDB Bank’s acceptance or renewal of
the time or savings deposits of the undersigned; (b) the withdrawal or transfer
of funds from deposit accounts of the Borrower; (c) obtaining advances under the
Loan or additional loans; and (d) requesting issuance of letters of credit,
including amendments or waivers of discrepancies of such letters of
credit.  With regard to all such Instructions, the Borrower agrees, pursuant to
this instructions agreement (“Instructions Agreement”) as follows:

1.           IDB Bank is under no obligation to accept such Instructions and, by
accepting any such Instructions in any instance, IDB Bank is under no obligation
to accept subsequent Instructions.
 

2.           IDB Bank is under no obligation to verify Instructions and IDB Bank
may act upon Instructions it believes to be given by anyone authorized to give
Instructions.

3.           If after receiving Instructions, IDB Bank determines in its sole
judgment that (i) IDB Bank cannot for any reason comply with or fulfill the
Instructions, in whole or in part; or (ii) the request is unclear or additional
details or information is required in order for IDB Bank to comply with the
Instructions in whole or in part, then IDB Bank may, in its sole discretion: (A)
comply with or fulfill the Instructions in part only or not at all; (B) delay in
complying with or fulfilling the Instructions in whole or in part until
additional details or information are received by IDB Bank; (C) take such other
action as in IDB Bank’s sole discretion it may deem advisable in order to give
effect to the Instructions as IDB Bank understands them.

4.           Notwithstanding any oral acceptance by any of IDB Bank’s employees
of any Instructions, IDB Bank may nevertheless, for any reason, including but
not limited to commercial or policy considerations or changes, reject such
Instructions, in whole or in part, whereupon IDB Bank shall be entitled, in its
sole discretion, to comply with or fulfill such Instructions in part only or not
at all.

5.           IDB Bank shall not be liable for any damages (including special,
consequential or indirect damages) caused by any action taken or omitted to be
taken by IDB Bank in accordance with the terms of this Instructions Agreement,
regardless of the fact that such action or inaction arises from a
misunderstanding, incorrect transmission or multiple transmission of the same
Instructions, IDB Bank’s receipt of forged or fraudulent Instructions, or from
improper identification of the person giving the Instructions on the Borrower’s
behalf.  Further, IDB Bank shall not be liable for any damages caused by the
manner of taking such action, except for IDB Bank’s willful misconduct.

6.           The Borrower will indemnify and hold IDB Bank harmless from and
against all loss or damage to IDB Bank and any claims and actions against IDB
Bank arising out of or in connection with any Instructions given pursuant to
this Instructions Agreement, or any actions taken by IDB Bank or which IDB Bank
refrains from taking in connection therewith, and all costs and expenses,
including without limitation, attorney’s fees, incurred by IDB Bank in respect
thereof.

7.           If the undersigned comprises more than one person or entity, each
of the undersigned shall be jointly and severally liable hereunder.  This
Instructions Agreement shall be binding upon and shall inure to the benefit of
the Borrower and its successors and assigns, and IDB Bank and its successors and
assigns.
 
 
 
 
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 8.           The Borrower acknowledges by signing below that the procedures
utilized and implemented in connection with this Instructions Agreement for
accepting the Instructions are reasonable and acceptable security procedures for
the types of activities contemplated.

9.           This Instructions Agreement shall be interpreted and all the rights
and obligations arising hereunder shall be determined, in accordance with the
laws of the State of New York, United States of America and the parties agree
that in any litigation in which they shall be adverse parties, to WAIVE TRIAL BY
JURY and that the exclusive location for jurisdiction and venue for the
resolution of any disputes arising hereunder shall be either the State or
Federal Court located in New York, NY.

 
Date:  March ____, 2008

 
FREUNDLICH SUPPLY COMPANY, INC.
 

 

By:                                                                           
Andrew Prince, President and Chief Executive Officer

 
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EXHIBIT F
 
SUBORDINATION AGREEMENT
 

THIS SUBORDINATION AGREEMENT (this “Agreement”) made this _____ day of March,
2008 between FREUNDLICH SUPPLY COMPANY, INC., a New York corporation (“Debtor”),
and NIGHTWIND CORP., and its successors and assigns (“Creditor” or “Creditors”),
a corporation organized and existing under the laws of the State of
__________________________ and having offices at
_____________________________________________________________________________.

In order to induce ISRAEL DISCOUNT BANK OF NEW YORK (hereinafter called the
“Bank”), from time to time, to extend credit to Debtor, and in consideration of
advances, loans, discounts, extensions of credit or renewals, heretofore or
hereafter made to or in reliance upon the obligations of, Debtor by the Bank,
and of the acquisition by the Bank, heretofore or hereafter, of notes or other
instruments for payment of money and any security agreements relative thereto,
or conditional contracts of sale, chattel mortgages, leases or other liens or
security agreements heretofore or hereafter made by Debtor, or an interest or
participation therein as the Bank may have deemed or may deem advisable and for
other good and valuable consideration, the parties do hereby agree, jointly and
severally, as follows:

1.           That all claims and demands and all interest accrued or that may
hereafter accrue thereon (except those representing bona fide claims for current
and future salaries due Creditors as an officer or employee of Debtor) which
Creditors now has or may hereafter have or acquire against Debtor (including the
Subordinated Loan described below) (the same being hereafter called “Claims”)
are hereby subordinated to any obligations (as hereinafter defined) owed to the
Bank and such Claims shall not be payable, and that no payment on account
thereof, nor any security therefore, shall be received, accepted or retained by
Creditors, unless and until Debtor has paid and satisfied in full all of its
obligations and liabilities to the Bank of every kind and description, whether
or not represented by negotiable instruments or other writings, whether direct
or indirect, absolute or contingent, due or not due, secured or unsecured,
original, renewed or extended, now in existence or hereafter incurred,
originally contracted with the Bank alone or with another or others, and
assigned or transferred to or otherwise acquired by the Bank, or in which the
Bank may acquire a participation, and whether contracted by Debtor alone or
jointly and/or severally with another or others (all of which are hereafter
referred to as “Obligations”).  Debtor agrees not to make payment of, or give
any security for, said Claims to Creditors.  Notwithstanding the foregoing,
until a default occurs under any of the Obligations or until written notice from
the Bank to Debtor, Debtor may pay and Creditor may receive, accept and retain,
the quarterly installments of $75,000.00 owing to Creditor in connection with
that certain subordinated loan by Creditor to the Debtor (“Subordinated Loan”),
provided that: (i) no Default or Event of Default exists under the Loan and
Security Agreement between the Debtor and the Bank; (ii) the Borrower is in
compliance with the minimum capital funds requirement set forth in Section 6.8
of the Loan and Security Agreement; and (iii) Creditor has entered into this
Subordination Agreement.

2.           Should any payment or distribution or collateral security or
proceeds of any collateral security be received or collected by Creditors for or
on account of said Claims, prior to the satisfaction of all of said Obligations,
Creditors will forthwith deliver same to the Bank in precisely the form received
(except for such Creditor's endorsement where necessary), for application on
account of said Obligations, and Creditors agree that until so delivered, same
shall be deemed received by each Creditor as an agent for the Bank and shall be
held in trust by Creditors as the property of the Bank. In the event of the
failure of any Creditor to endorse any instrument for the payment of money so
received by such Creditor, payable to such Creditor’s order, the Bank, or any
officer or employee thereof, is hereby irrevocably constituted and appointed
attorney in fact for Creditors with full power to make any such endorsement and
with full power of substitution.
 
 
 
 
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3.           Creditors represent and warrant to the Bank that each Creditor is
solvent and has granted no security interest in, and has made no prior transfer
or assignment of, said Claims, and the Creditors will grant no security interest
therein and will not transfer or assign said Claims (except to the Bank) unless
and until Debtor has paid and satisfied said Obligations.

4.           Creditors and Debtor represent to Bank that Debtor now owes each
Creditor the principal sum of Three Hundred and Seventy Five Thousand Dollars
($375,000.00), without counterclaim, defense or offset and that said
indebtedness is not represented by any negotiable instruments or other writings,
except such negotiable instruments or other writings, if any, as have been
endorsed and/or assigned and delivered by Creditor to the Bank simultaneously
with the execution of this agreement.  Creditors and Debtor further agree that
at no time hereafter will any part of said indebtedness be represented by any
negotiable instruments or other writings, except such negotiable instruments or
other writings, if any, as the Bank shall request to be executed and delivered
to it for the purpose of evidencing said indebtedness or any part thereof, and
in that case negotiable instruments or other writings shall either be payable to
the Bank or delivered to the Bank or, if payable to any Creditor, shall be
endorsed and/or assigned by such Creditor and delivered to the Bank.  In the
event of the failure of Creditors to endorse said negotiable instruments or
other writings, if payable to such Creditor or to Creditor's order, the Bank, or
any officer or employee thereof, is hereby irrevocably constituted and appointed
attorney in fact for Creditors with full power to make such endorsement.

5.           Creditors waive any and all notice of the acceptance of this
Agreement and of the creation or accrual of any said Obligations, or of any
renewals or extensions thereof from time to time, or of the reliance of the Bank
on this Agreement, and consents that the liability of Debtor or of any other
party for or upon said Obligations may, from time to time, in whole or in part,
be renewed, extended, modified, accelerated, compromised, settled or released by
the Bank, and that any collateral security and liens for said Obligations may,
from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, settled or released by the Bank, and that any
collateral security and liens for said Obligations may, from time to time, in
whole or in part, be exchanged, sold, released or surrendered by the Bank, and
that any deposit balance or balances to the credit of Debtor with the Bank may,
from time to time, in whole or in part, be surrendered or released by the Bank,
all as the Bank may deem advisable, and all without impairing the subordination
contained in this Agreement.

6.           Creditors and Debtor agree that if, after the satisfaction of all
of said Obligations and prior to the termination of this Agreement as
hereinafter provided, Debtor thereafter becomes liable to the Bank on account of
any new Obligations, the Bank may presume that Claims have not been paid nor
reduced, nor has any Creditor received any security therefore, and this
Agreement of subordination and security agreement shall thereupon become
effective with respect to any Claims then in existence or thereafter created,
without the necessity of any further act, agreement or writing by or between
Creditors or Debtor or the Bank, the intent being that this be a continuing
agreement of subordination and security agreement.  Additionally, should
Creditors have received any payment or security on account and before the
termination of this Agreement as hereinafter provided, Creditors will notify the
Bank, in writing, of the receipt thereof.  In the event that Creditors fail if a
default occurs with respect to the payment or performance of any of the terms of
such new Obligations, Creditors will immediately pay to the Bank an amount
equivalent to any such payment or the value of such security received.
 
 
 
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7.           This Agreement shall continue in full force and effect
notwithstanding the death or incapacity of Creditors and shall be binding upon
each Creditor and such Creditor’s estate and the personal representatives, heirs
and successors and assigns of each Creditor, and the Bank may continue to act in
reliance upon this Agreement until actual receipt by the Bank of written notice
from such Creditor, or, in the event of Creditor’s death, from the legal
representative or representatives of such deceased Creditor, of the termination
of this Agreement.  Creditor or Creditor’s estate shall nevertheless remain
bound hereunder with respect to such obligations and any renewals, extensions or
liabilities arising out of same and this Agreement shall continue in full force
and effect and the Bank shall have all of the rights herein provided for as if
no such termination had occurred.

8.           Debtor hereby agrees that it will render to the Bank, upon demand,
from time to time, a statement of the account of each Creditor with Debtor; that
the Bank shall have access, from time to time, to its books and records in order
that the Bank may make full and free examination of the state of the accounts of
each Creditor with Debtor, (with the right to make copies thereof); and that
Debtor will duly comply with and perform each and every term of this Agree­ment
on its part required to be performed.  Debtor and Creditors agree that their
books and records will appropriately show that said Claims are subject to this
Agreement of subordination and security agreement.

9.           In the event of a breach by either Debtor or a Creditor in the
performance of any of the terms of this Agreement, all of said Obligations to
the Bank shall, without notice or demand, become immediately due and
payable.  Upon the happening of any such event and at any time thereafter, the
Bank shall have, in addition to all other rights and remedies, the remedies of a
secured party under the Uniform Commercial Code.

10.           It is understood and further agreed by all of the parties hereto
and by the Bank that this Agreement shall supersede and take the place of any
and all prior agreements of subordination and/or assignment relating to said
Claims executed by Debtor and Creditors in favor of the Bank.

11.           Creditors and Debtor, in any litigation (whether or not arising
out of or relating to said Claims or any of the matters contained in this
Agreement) in which the Bank and Creditors and/or Debtor shall be adverse
parties, WAIVE TRIAL BY JURY and Creditors and Debtor in addition, waive the
right to interpose any defense based upon any Statute of Limitations or any
claim of laches and any set-off or counterclaim of any nature or
description.  Creditors and Debtor agree that whenever any attorney is used to
collect or enforce Claims, or to enforce, declare or adjudicate any rights of
Obligations under this agreement, whether by suit or by any other means
whatsoever, an attorney’s fee of 15% of the principal and interest then due on
Claims shall be payable by each of Creditors or Debtor against whom this
agreement, or any Obligation or right hereunder, is sought to be enforced,
declared or adjudicated.
 
 
 
 
 
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12.           The term “Debtor” or the terms “Creditor” or “Creditors” as used
throughout this instrument shall include the individual or individuals,
association, partnership or corporation named herein as Debtor or Creditors and
(a) any successor individual or individuals, associa­tion, partnership or
corporation to which all or substantially all of the business or assets of
either of them shall have been transferred; (b) in case of a partnership Debtor
or Creditors, any general or limited partnership which shall have been created
by reason of, or continued after dissolution, the admission of any new partner
or partners therein, or the death, resignation, or other withdrawal of any
partner, and (c) in the case of a corporate Debtor or Creditors, any other
corporation into or with which either Debtor or Creditors shall have been
merged, consolidated, reorganized or absorbed.

13.           No waiver shall be deemed to be made by the Bank of any of its
rights hereunder unless same shall be in writing, and each waiver, if any, shall
be a waiver only with respect to the specific instance involved, and no such
waiver shall be deemed to establish a course of conduct.

14.           This Agreement may not be changed orally and no executory
agreement shall be effective to change or modify or to discharge, in whole or in
part, this Agreement unless such executory agreement is in writing and is signed
by the Bank.

15.           Any notice to the Bank shall be deemed effective only if sent to
and received by the Bank at its address at 511 Fifth Avenue, New York, NY
10017.  Any notice to Creditors or Debtor shall be deemed sufficient if sent to
Creditor or Debtor to the last known address of Creditors or Debtor, as the case
may be, appearing on the records of the Bank.

16.           Any provision hereof which may prove unenforceable under any law
shall not affect the validity of any other provision hereof.

17.           This Agreement shall be binding upon the undersigned and the legal
representatives, successors and assigns of the undersigned and shall be governed
by and construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, each of the undersigned has caused these presents to be
properly executed in one or more counterparts the day and year first above
written, intending and declaring this to be a duly sealed instrument.

DEBTOR:                                                                                                                                                                                                     CREDITOR:

FREUNDLICH SUPPLY COMPANY,
INC.                                                                                                                                          NIGHTWIND
CORP.

By:
_________________________________________                                                                                                                By________________________
Andrew Prince, President and Chief Executive
Officer                                                                                                                        Name:
              Title:

 
 
 
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ACCEPTED:

ISRAEL DISCOUNT BANK OF NEW YORK

By: _________________________________
Leon Terrano, Senior Vice President

By: _________________________________
Name:
Title:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
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ACKNOWLEDGMENT OF DEBTOR
(Freundlich Supply Company, Inc.)

STATE OF NEW YORK                                                      )
) ss.:
COUNTY OF                                 _______________   )

On the ______ day of ___________________, 2008, before me, the undersigned,
personally appeared _________________________________, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity(ies), and that by
his/her/their signature(s) on the instrument, the individual(s), or the
person(s) on behalf of which the individual(s) acted, executed the instrument.

_____________________________
Name:
Address:
Notary Public, State of ____________
My Commission Expires ____ / _____ / ____

ACKNOWLEDGMENT OF CREDITOR
(Nightwind Corp.)

STATE OF NEW YORK                                                      )
) ss.:
COUNTY OF                                 _______________   )

On the ______ day of ___________________, 2008, before me, the undersigned,
personally appeared _________________________________, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity(ies), and that by
his/her/their signature(s) on the instrument, the individual(s), or the
person(s) on behalf of which the individual(s) acted, executed the instrument.

_____________________________
Name:
Address:
Notary Public, State of ____________
My Commission Expires ____ / _____ / ____

 
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