EXHIBIT 10.A




                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT
                           ---------------------------



                                     between



                          NAPCO SECURITY SYSTEMS, INC.
                                   ("Debtor")

                          With a place of business at:

                               333 Bayview Avenue
                              Amityville, NY 11701

                                (Suffolk County)


                                       and


                      HSBC BANK USA, NATIONAL ASSOCIATION,
                     SUCCESSOR BY MERGER TO HSBC BANK USA,
                     FORMERLY KNOWN AS MARINE MIDLAND BANK
                                ("Secured Party")


                          With a place of business at:

                              534 Broad Hollow Road
                               Melville, NY 11747



                          Dated as of September 7, 2007


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                                TABLE OF CONTENTS
                                -----------------

1.       DEFINITIONS.................................................
         1.1.         CERTAIN SPECIFIC TERMS.........................
         1.2.         SINGULARS AND PLURALS..........................
         1.3.         U.C.C. DEFINITIONS.............................
         1.4.         ACCOUNTING TERMS...............................

2.       ADVANCES..............................................
         2.1.         REQUESTS FOR AN ADVANCE........................
         2.2.         PROCEEDS OF AN ADVANCE.........................
         2.3.         INTENTIONALLY DELETED PRIOR TO EXECUTION.......
         2.4.         INTENTIONALLY DELETED PRIOR TO EXECUTION.......

3.       COLLATERAL AND INDEBTEDNESS SECURED...................
         3.1.         SECURITY INTEREST..............................
         3.2.         OTHER COLLATERAL...............................
         3.3.         INDEBTEDNESS SECURED...........................

4.       REPRESENTATIONS AND WARRANTIES........................
         4.1.         CORPORATE EXISTENCE............................
         4.2.         CORPORATE CAPACITY.............................
         4.3.         VALIDITY OF RECEIVABLES........................
         4.4.         INVENTORY......................................
         4.5.         TITLE TO COLLATERAL............................
         4.6.         DEBTOR'S TAX PAYER ID AND ORGANIZATION NUMBER..
         4.7.         CERTAIN OTHER REPRESENTATIONS WITH
                      RESPECT TO THE COLLATERAL......................
         4.8.         PLACE OF BUSINESS..............................
         4.9.         FINANCIAL CONDITION............................
         4.10.        TAXES..........................................
         4.11.        LITIGATION.....................................
         4.12.        ERISA MATTERS..................................
         4.13.        ENVIRONMENTAL MATTERS..........................
         4.14.        VALIDITY OF TRANSACTION DOCUMENTS..............
         4.15.        NO CONSENT OR FILING...........................
         4.16.        NO VIOLATIONS..................................
         4.17.        TRADEMARKS AND PATENTS.........................
         4.18.        CONTINGENT LIABILITIES.........................
         4.19.        COMPLIANCE WITH LAWS...........................
         4.20.        LICENSES, PERMITS, ETC.........................
         4.21.        LABOR CONTRACTS................................
         4.22.        CONSOLIDATED SUBSIDIARIES......................
         4.23.        AUTHORIZED SHARES..............................

                                       i

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         4.24.        LABOR MATTERS..................................
         4.25.        MATERIALITY....................................
         4.26         NAPCO EXPORTRADORA.............................

5.       INTENTIONALLY DELETED.......................................

6.       REVOLVING CREDIT FACILITY...................................
         6.1.         COMMITMENT TO MAKE ADVANCES....................
         6.2.         ADVANCES.......................................
         6.3.         INTEREST RATE..................................
         6.4.         DEFAULT........................................
         6.5.         METHOD AND PLACE OF PAYMENT....................
         6.6.         REVOLVING CREDIT NOTE..........................

7.       PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
         EXPENSES..............................................
         7.1.         PROMISE TO PAY PRINCIPAL.......................
         7.2.         PROMISE TO PAY INTEREST........................
         7.3.         PROMISE TO PAY FEES............................
         7.4.         PROMISE TO PAY COSTS AND EXPENSES..............
         7.5.         COMMITMENT FEE/ORIGINATION FEE.......
         7.6.         ACCOUNT STATED.................................

8.       INTENTIONALLY DELETED PRIOR TO EXECUTION....................

9.       AFFIRMATIVE COVENANTS.......................................
         9.1.         FINANCIAL STATEMENTS...........................
         9.2.         GOVERNMENT AND OTHER SPECIAL RECEIVABLES.......
         9.3.         INTENTIONALLY DELETED PRIOR TO EXECUTION.......
         9.4.         BOOKS AND RECORDS..............................
         9.5.         INVENTORY IN POSSESSION OF THIRD PARTIES.......
         9.6.         EXAMINATIONS...................................
         9.7.         VERIFICATION OF COLLATERAL.....................
         9.8.         RESPONSIBLE PARTIES............................
         9.9.         TAXES..........................................
         9.10.        LITIGATION.....................................
         9.11.        INSURANCE......................................
         9.12.        GOOD STANDING; BUSINESS........................
         9.13.        PENSION REPORTS................................
         9.14.        NOTICE OF NON-COMPLIANCE.......................
         9.15.        COMPLIANCE WITH ENVIRONMENTAL LAWS.............
         9.16.        DEFEND COLLATERAL..............................
         9.17.        USE OF PROCEEDS................................
         9.18.        COMPLIANCE WITH LAWS...........................

                                       ii
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         9.19.        MAINTENANCE OF PROPERTY........................
         9.20.        LICENSES, PERMITS, ETC.........................
         9.21.        TRADEMARKS AND PATENTS.........................
         9.22.        ERISA..........................................
         9.23.        MAINTENANCE OF OWNERSHIP.......................
         9.24.        ACTIVITIES OF CONSOLIDATED SUBSIDIARIES........
         9.25.        LABOR DISPUTES.................................
         9.26.        FINANCIAL COVENANTS............................
         9.27.        CONTROL OF CERTAIN COLLATERAL..................

10.      NEGATIVE  COVENANTS.........................................
         10.1.        LOCATION OF INVENTORY, EQUIPMENT, AND
                      BUSINESS RECORDS...............................
         10.2.        BORROWED MONEY.................................
         10.3.        SECURITY INTEREST AND OTHER ENCUMBRANCES.......
         10.4.        STORING AND USE OF COLLATERAL..................
         10.5.        MERGERS, CONSOLIDATIONS OR SALES...............
         10.6.        CAPITAL STOCK..................................
         10.7.        DIVIDENDS OR DISTRIBUTIONS.....................
         10.8.        INVESTMENTS AND ADVANCES.......................
         10.9.        GUARANTIES.....................................
         10.10.       LEASES.........................................
         10.11.       CAPITAL EXPENDITURES...........................
         10.12.       FINANCIAL STATEMENTS..................
         10.13.       NAME CHANGE....................................
         10.14.       DISPOSITION OF COLLATERAL......................
         10.15.       FINANCIAL COVENANTS............................
         10.16.       NEGATIVE PLEDGE................................
         10.17        GUARANTY, SECURITY AGREEMENT OF NAPCO GULF SECURITY
                      GROUP, LLC.
         10.18        PLEDGE OF ASSETS, NEGATIVE PLEDGE OF FUTURE NON DOMESTIC
                      CONSOLIDATED SUBSIDIARIES
         10.19.       GUARANTY, SECURITY AGREEMENT OF FUTURE DOMESTIC
                      CONSOLIDATED SUBSIDIARIES OR ACQUIRED COMPANIES.
         10.20        PLEDGE OF ASSETS, NEGATIVE PLEDGE OF NAPCO CAYMAN ISLANDS
                      and NAPCO DOMINICAN REPUBLIC

11.      EVENTS OF DEFAULT...........................................
         11.1.        EVENTS OF DEFAULT..............................
         11.2.        EFFECTS OF AN EVENT OF DEFAULT.................

12.      SECURED PARTY'S RIGHTS AND REMEDIES.........................
         12.1.        GENERALLY......................................
         12.2.        INTENTIONALLY DELETED PRIOR TO EXECUTION.......

                                      iii

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         12.3.        POSSESSION OF COLLATERAL.......................
         12.4.        COLLECTION OF RECEIVABLES......................
         12.5.        INTENTIONALLY DELETED PRIOR TO EXECUTION.......
         12.6.        LICENSE TO USE PATENTS, TRADEMARKS, AND
                       TRADENAMES....................................

13.      MISCELLANEOUS...............................................
         13.1.        PERFECTING THE SECURITY INTEREST;
                         PROTECTING THE COLLATERAL...................
         13.2.        PERFORMANCE OF DEBTOR'S DUTIES.................
         13.3.        NOTICE OF SALE.................................
         13.4.        WAIVER BY SECURED PARTY........................
         13.5.        WAIVER BY DEBTOR...............................
         13.6.        SETOFF.........................................
         13.7.        ASSIGNMENT.....................................
         13.8.        SUCCESSORS AND ASSIGNS.........................
         13.9.        MODIFICATION...................................
         13.10.       COUNTERPARTS...................................
         13.11.       GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.......
         13.12.       INDEMNIFICATION................................
         13.13.       TERMINATION; PREPAYMENT PREMIUM................
         13.14.       FURTHER ASSURANCE..............................
         13.15.       HEADINGS.......................................
         13.16.       CUMULATIVE SECURITY INTEREST, ETC..............
         13.17.       SECURED PARTY'S DUTIES.........................
         13.18.       NOTICES GENERALLY..............................
         13.19.       SEVERABILITY...................................
         13.20.       INCONSISTENT PROVISIONS........................
         13.21.       ENTIRE AGREEMENT...............................
         13.22.       APPLICABLE LAW.................................
         13.23.       CONSENT TO JURISDICTION........................
         13.24.       JURY TRIAL WAIVER..............................

         EXHIBITS
           "A"  ---  Trademarks and Patents....................
           "B"  ---  Consolidated Subsidiaries.................
           "C"  ---  Authorized Shares.........................
           "D"  ---  Compliance Certificate....................
           "E"  ---  Request for Advance and Notice of Interest Rate Section....
           "F"  ---  Financial Statement Certification
           "G"  ---  Names and Tradenames
           "H"  ---  Schedule of Litigation

                                       iv

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DEBTOR AND SECURED PARTY AGREE AS FOLLOWS:

1.       DEFINITIONS:

         1.1.  CERTAIN  SPECIFIC  TERMS.  For  purposes of this  Agreement,  the
following terms shall have the following meanings:

                           (a)  ACCEPTABLE  ACQUISITION  means "any stock and/or
cash acquisition of an equity interest in, or assets
of, a  corporation,  partnership  or other  entity  engaged in a similar line of
business of the Debtor and its Consolidated Subsidiaries, which in the case of a
corporation,  has been  either (a)  approved by the board of  directors  of such
corporation  which is the subject of such  acquisition  or (b)  recommended  for
approval by such board to the  shareholders of such corporation and subsequently
approved by such shareholders as required under applicable law or by the by-laws
or the certificate of incorporation of such corporation; provided, however, that
unless approved by the Secured Party:

               o    No acquisition shall be an "acceptable acquisition" if after
                    giving effect thereto (as evidenced in a pro-forma  covenant
                    compliance  certificate,  in form and substance  approved by
                    Secured Party,  furnished by the Debtor), a Default or Event
                    of  Default  under  the  Transaction  Documents  shall  have
                    occurred and be continuing.

               o    The "Acceptable Acquisition Purchase Price" (defined below),
                    either  singly  or  in  the  aggregate,   of  an  Acceptable
                    Acquisition(s) shall not exceed $15 million.

               o    In the case of an acquisition of a non-domestic Consolidated
                    Subsidiary, the business to be acquired shall be acquired by
                    the Debtor or Guarantor.

                  (b) ACCEPTABLE ACQUISITION PURCHASE PRICE" means, with respect
to any Acceptable Acquisition,  collectively,  without duplication, (i) all cash
paid by the Debtor and any of its  Consolidated  Subsidiaries in connection with
such Acceptable Acquisition, including in respect of transaction costs, fees and
other expenses incurred by the Debtor or any of its Consolidated Subsidiaries in
connection with such Acceptable Acquisition,  (ii) all Indebtedness created, and
all Indebtedness assumed, by the Debtor or any of its Consolidated  Subsidiaries
in connection with such Acceptable Acquisition,  including,  without limitation,
the maximum  amount of any purchase  price to be paid pursuant to any "earn out"
provision  contained in the  agreements  related to any  Acceptable  Acquisition
(iii)  the  value  of all  capital  stock  issued  by the  Debtor  or any of its
Consolidated  Subsidiaries in connection  with such  Acceptable  Acquisition and
(iv) any deferred  portion of the purchase  price or any other costs paid by the
Debtor  or  any  of  its  Consolidated  Subsidiaries  in  connection  with  such
Acceptable  Acquisition,  including but not limited to consulting agreements and
non-compete  agreements.  For  purposes  of this  definition,  if any "earn out"
provision  does not provide  for a maximum  payment,  the maximum  amount of any
purchase  price  to be paid  pursuant  to any  "earn  out"  provision  shall  be
determined  by the  Secured  Party on a  reasonable  basis,  on the basis of the
Debtor's projections.

                                       2
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                  (c) ACCOUNT DEBTOR means the person, firm, or entity obligated
to pay a Receivable.

                  (d)  ADJUSTED  LIBOR  RATE  means a rate  per  annum  (rounded
upwards,  if necessary,  to the next 1/16 of 1%) equal to the product arrived at
by multiplying the Base LIBOR Rate (as hereinafter  defined) with respect to the
applicable Interest Period (as hereinafter  defined) by a fraction (expressed as
a decimal);  the numerator of which shall be the number one and the  denominator
of which  shall be the  number  one  minus  the  aggregate  reserve  percentages
(expressed as a decimal) from time to time established by the Board of Governors
of the Federal  Reserve System of the United States and other banking  authority
to which the  Secured  Party is now or  hereafter  subject,  including,  but not
limited to, any Reserve  Eurocurrency  Liabilities as defined in Regulation D of
the Board of Governors of the Federal Reserve System of the United States at the
ratios provided in such Regulation,  from time to time, it being agreed that any
portion of the Indebtedness (as hereinafter defined) bearing interest at a LIBOR
Rate shall be deemed to constitute Eurocurrency Liabilities,  as defined by such
Regulation, and it being further agreed that such Eurocurrency Liabilities shall
be deemed to be  subject  to such  reserve  requirements  without  benefit of or
credit for  prorations,  exceptions  or  offsets  that may be  available  to the
Secured  Party from time to time  under  such  Regulation  and  irrespective  of
whether the Secured Party actually maintains all or any portion of such reserve.

                  (e)  ADVANCE  means a loan made to Debtor  by  Secured  Party,
pursuant to this Agreement.

                  (f)  AGREEMENT  or  LOAN  AGREEMENT  means  this  Amended  and
Restated Loan and Security Agreement  including all exhibits hereto, as the same
may be extended,  amended, modified and/or restated from time to time; the terms
"herein",  "hereunder"  and like  terms  shall be  taken  as  referring  to this
Agreement in its entirety and shall not be limited to any particular  section or
provision thereof.

                  (g) BASE LIBOR RATE applicable to a particular Interest Period
means a rate per annum (rounded upwards, if necessary, to the next 1/16th of 1%)
equal to the rate at which dollars  approximately  equal in principal  amount to
the  applicable  portion of the  Indebtedness  and for a  maturity  equal to the
applicable  Interest  Period are offered in immediately  available  funds to the
Secured Party by leading banks in the London Interbank Market for Eurodollars at
approximately  11:00  a.m.,  London  time,  two (2)  Business  Days prior to the
commencement of such Interest Period.

                  (h)  BORROWING  means the  incurrence of an Advance on a given
date.

                  (i)  BORROWING  CAPACITY  means,  at the time of  computation,
$25,000,000.

                  (j) BUSINESS DAY means a day other than a Saturday, Sunday, or
other day on which banks are  authorized  or required to close under the laws of
New York or the State.

                                       3
<PAGE>


                  (k)  CASH  FLOW   means  Cash  Flow  of  the  Debtor  and  its
Consolidated   Subsidiaries,   on  a  consolidated   basis,  net  income,   plus
depreciation  plus  amortization,  minus  capital  expenditures,  plus or  minus
non-operating  and non-cash losses or gains,  net of tax, with accounting  terms
defined in  accordance  with GAAP,  based upon receipt of the  quarterly  and/or
annual  financial   statements,   10-K's  and  10-Q's  of  the  Debtor  and  its
Consolidated  Subsidiaries required to be submitted to Secured Party pursuant to
the terms  hereof.  To be clear,  non-operating  and non-cash  losses must occur
together to be added to the equation,  and non-operating and non-cash gains must
occur together to be subtracted from the equation.

                  (l) CLAIMS  means each  "claim" as that term is defined  under
Section 101(5) of the United States Bankruptcy Code, and any amendments  thereto
(Title 11, United States Code).

                  (m)  COLLATERAL  means  collectively  all of the  property  of
Debtor subject to the Security Interest and described in Sections 3.1 and 3.2.

                  (n)   COMMITMENT  or   COMMITMENTS   means   Secured   Party's
obligations, pursuant to the terms of this Agreement, to make Advances under the
Revolving Credit Facility.

                  (o)  CONSOLIDATED  SUBSIDIARY  means Alarm Lock Systems,  Inc.
("Alarm"),  Continental  Instruments LLC, f/k/a Continental Instruments Systems,
LLC ("Continental"),  NAPCO/Alarm Lock Grupo Internacional,  S.A.  ("NAPCO/Alarm
Lock"),  NAPCO/Alarm Lock Exportadora , S.A. ("NAPCO  Exportadora"),  NAPCO Gulf
Security  Group,  LLC,  ("NAPCO  Gulf"),  NAPCO  Group  Europe  Limited  ("NAPCO
Europe"),  NAPCO  Americas  ("NAPCO  Cayman  Islands"),  NAPCO DR, S.A.  ("NAPCO
Dominican Republic"),  and any other Person of which more than 50% of the voting
stock or membership  interest,  as the case may be, is owned by Debtor directly,
or indirectly,  through one or more Consolidated Subsidiaries, and each of their
respective successors and/or assigns.

                  (p) intentionally deleted prior to execution.

                  (q) intentionally deleted prior to execution.

                  (r) CURRENT  ASSETS shall be  determined  in  accordance  with
GAAP.

                  (s) CURRENT LIABILITIES shall be determined in accordance with
GAAP.

                  (t)  DEBTOR  means the  person or entity  defined on the cover
page to this Agreement.

                  (u)  DEBT  SERVICE   COVERAGE  RATIO  means  earnings   before
interest, taxes, depreciation and amortization, less distributions,  all divided
by  current  portion  of long  term debt as of the  prior  fiscal  year end plus
interest expense.

                                       4
<PAGE>


                  (v)   DISPOSAL   means  the   intentional   or   unintentional
abandonment, discharge, deposit, injection, dumping, spilling, leaking, burning,
thermal destruction,  or placing of any Hazardous Substance so that it or any of
its constituents may enter the environment.

                  (w) ENVIRONMENT means any water including, but not limited to,
surface water and ground water or water vapor;  any land  including land surface
or subsurface;  stream sediments;  air, fish,  wildlife,  plants;  and all other
natural resources or environmental media.

                  (x)  ENVIRONMENTAL  LAWS means all federal,  state,  and local
environmental,  land use,  zoning,  health,  chemical use, safety and sanitation
laws,  statutes,  ordinances,  regulations,  codes,  and rules  relating  to the
protection of the  Environment  and/or  governing the use,  storage,  treatment,
generation,  transportation,  processing,  handling,  production, or disposal of
Hazardous Substances and the policies, guidelines, procedures,  interpretations,
decisions,  orders,  and directives of federal,  state,  and local  governmental
agencies and authorities with respect thereto.

                  (y)  ENVIRONMENTAL   PERMITS  means  all  licenses,   permits,
approvals, authorizations,  consents or registrations required by any applicable
Environmental  Laws and all  applicable  judicial and  administrative  orders in
connection with  ownership,  lease,  purchase,  transfer,  closure,  use, and/or
operation  of  any  property  owned,   leased  or  operated  by  Debtor  or  any
Consolidated  Subsidiary  and/or as may be required for the storage,  treatment,
generation,  transportation,  processing,  handling,  production, or disposal of
Hazardous Substances.

                  (z) ENVIRONMENTAL  QUESTIONNAIRE means a questionnaire and all
attachments  thereto  concerning (i)  activities  and  conditions  affecting the
Environment at any property of Debtor or any Consolidated Subsidiary or (ii) the
enforcement or possible  enforcement of any  Environmental Law against Debtor or
any Consolidated Subsidiary.

                  (aa) ENVIRONMENTAL  REPORT means a written report prepared for
Secured Party by an environmental consulting or environmental engineering firm.

                  (bb) ERISA means the Employee  Retirement  Income Security Act
of 1974, as amended from time to time.

                  (cc)  EVENT OF  DEFAULT  or EVENTS OF  DEFAULT  means an Event
of Default or Events of Default as defined in Section 11.1.

                  (dd)  FEDERAL  BANKRUPTCY  CODE  means  Title 11 of the United
States  Code,  entitled  "Bankruptcy,"  as  amended,  or any  successor  federal
bankruptcy law.

                  (ee) FUNDED DEBT means all interest bearing debt.

                  (ff) GAAP means Generally Accepted  Accounting  Principles 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  or  such  other

                                       5
<PAGE>


statements by such other entity as may be approved by a  significant  segment of
the accounting  profession,  which are applicable in the circumstances as of the
date in  question,  consistently  applied  within a period  and from  period  to
period,  provided,  however, that if employment of more than one principle shall
be permissible at such time in respect to a particular accounting matter, "GAAP"
shall  refer  to the  principle  which  is then  employed  by  Debtor  with  the
concurrence of the independent certified public accountants of Debtor.

                  (gg)  HAZARDOUS  SUBSTANCES  means,  without  limitation,  any
explosives,  radon,  radioactive  materials,  asbestos,  urea  formaldehyde foam
insulation,   polychlorinated  biphenyls,   petroleum  and  petroleum  products,
methane,  hazardous materials,  hazardous wastes, hazardous or toxic substances,
and any other material  defined as a hazardous  substance in Section  101(14) of
the  Comprehensive  Environmental  Response,  Compensation  and Liability Act of
1980, 42 U.S.C. Section 9601(14).

                  (hh)  IMPORTED  INVENTORY  means all  Inventory  of Obligor of
every description imported from outside of the United States,  including but not
limited to Inventory  consisting of parts or components  produced in whole or in
part in the United  States and sent outside of the United  States for  assembly,
completion or packaging.

                  (ii)  INDEBTEDNESS  means  the  indebtedness  secured  by  the
Security Interest and described in Section 3.3.

                  (jj) INTANGIBLE ASSETS means (1) all loans or advances to, and
other  receivable  owing from, any officers,  employees,  subsidiaries and other
affiliates, (2) goodwill, and (3) any other assets deemed intangible under GAAP.

                  (kk)  INTEREST  PERIOD means the period of time during which a
particular  LIBOR Rate Option (as  hereinafter  defined) will be applicable to a
portion of the Indebtedness, it being agreed that (i) each Interest Period shall
be of a duration of, at the option of the Borrower, one month, two months, three
months,  four months, six months,  nine months or twelve months (ii) no Interest
Period shall extend beyond the Term, (iii) the principal balance with respect to
which a particular Interest Period is applicable will bear interest at the LIBOR
Rate Option  pertaining to such Interest Period from and including the first day
of such  Interest  Period to, but not  including,  the last day of such Interest
Period.

                  (ll) INTERNAL  REVENUE CODE means the Internal Revenue Code of
1986, as amended from time to time.

                  (mm)  INVENTORY  means  inventory,  as defined in the  Uniform
Commercial Code as in effect in the State as of the date of this Agreement,  and
in any event shall include returned or repossessed Goods.

                  (nn) LIBOR RATE OPTION or LIBOR INTEREST RATE means a rate per
annum equal to the Adjusted LIBOR Rate with respect to the  applicable  Interest

                                       6
<PAGE>


Period plus the applicable LIBOR Margin, as described and defined based upon the
ratio of Funded Debt to Cash Flow, all as more specifically described in Section
7.2.(h) hereinbelow.

                  (oo)  LIEN  means  any  lien,   security   interest,   pledge,
hypothecation, encumbrance or other claim in or with respect to any property.

                  (pp) PENSION  EVENT means,  with respect to any Pension  Plan,
the  occurrence of (i) any  prohibited  transaction  described in Section 406 of
ERISA or in Section  4975 of the  Internal  Revenue  Code;  (ii) any  Reportable
Event; (iii) any complete or partial withdrawal, or proposed complete or partial
withdrawal,  of Debtor or any  Consolidated  Subsidiary  from such Pension Plan;
(iv) any  complete  or partial  termination,  or  proposed  complete  or partial
termination,  of such Pension Plan; or (v) any  accumulated  funding  deficiency
(whether or not waived), as defined in Section 302 of ERISA or in Section 412 of
the Internal Revenue Code.

                  (qq)  PENSION  PLAN  means any  pension  plan,  as  defined in
Section 3(2) or ERISA,  which is a multiemployer plan or a single employer plan,
as defined in Section 4001 of ERISA,  and subject to Title IV of ERISA and which
is (i) a plan maintained by Debtor or any Consolidated  Subsidiary for employees
or former employees of Debtor or of any Consolidated Subsidiary;  (ii) a plan to
which  Debtor or any  Consolidated  Subsidiary  contributes  or is  required  to
contribute;  (iii) a plan to which  Debtor or any  Consolidated  Subsidiary  was
required to make  contributions  at any time during the five (5) calendar  years
preceding  the date of this  Agreement;  or (iv) any other plan with  respect to
which Debtor or any Consolidated Subsidiary has incurred or may incur liability,
including,  without limitation,  contingent  liability,  under Title IV of ERISA
either to such plan or to the Pension Benefit Guaranty Corporation. For purposes
of this  definition,  and for purposes of Sections  1.1(cc),  4.12, and 11.1(i),
Debtor shall include any trade or business (whether or not incorporated)  which,
together with Debtor or any Consolidated  Subsidiary,  is deemed to be a "single
employer" within the meaning of Section 4001(b)(1) of ERISA.

                  (rr) PERSON  means any natural  person,  corporation,  limited
liability company, partnership,  trust, government or other association or legal
entity.

(ss) intentionally deleted prior to execution;

                  (tt) PRIME RATE means the rate of interest publicly  announced
by  Secured  Party  from time to time as its  prime  rate and is a base rate for
calculating  interest on certain  loans.  The rate announced by Secured Party as
its prime  rate may or may not be the most  favorable  rate  charged  by Secured
Party to its customers.

                  (uu)  RECEIVABLE  or ACCOUNT  shall have the meaning  given to
Account under the U.C.C, including without limiting the foregoing,  the right to
payment for Goods sold or leased or services rendered by the Debtor,  whether or
not earned by performance,  and may, without limitation,  in whole or in part be
in the form of any Account, Chattel Paper, Document, or Instrument.

                                       7
<PAGE>


                  (vv) RELEASE means "release", as defined in Section 101(22) of
the  Comprehensive,  Environmental  Response,  Compensation and Liability Act of
1980, 42 U.S.C. Section 9601(22), and the regulations promulgated thereunder.

                  (ww)  REPORTABLE  EVENT means any event  described  in Section
4043(b) of ERISA or in regulations  issued  thereunder  with regard to a Pension
Plan.

                  (xx)  RESPONSIBLE  PARTIES includes all Debtor and all makers,
endorsors,  acceptors, sureties and guarantors of, and all other parties to, the
Indebtedness or the Collateral.

                  (yy) REVOLVING  CREDIT  FACILITY means the Advances made or to
be made  available  to Debtor by  Secured  Party  pursuant  to the terms of this
Agreement, and as evidenced by the Revolving Credit Note.

                  (zz)  REVOLVING  CREDIT  NOTE  or  NOTE  means,  individually,
jointly,  severally,  and  collectively,  REVOLVING  CREDIT  NOTE or NOTE means,
individually, jointly, severally, and collectively, the revolving credit note #1
dated  May  12,  1997,  in the  aggregate  sum  not  to  exceed  $1,000,000,  as
reaffirmed, extended, modified, amended and/or restated from time to time and as
may be further reaffirmed, extended, modified, amended and/or restated from time
to time ("Note #1") and the revolving credit note # 2 dated May 12, 1997, in the
original  aggregate  sum not to exceed  $15,000,000,  as increased (so that such
note is in the  aggregate  sum not to exceed  $24,000,000,  as the same may have
been otherwise reaffirmed, extended, modified, amended and/or restated from time
to  time,  as the same  may be  further  extended,  amended,  reaffirmed  and/or
otherwise modified from time to time ("Note #2")).

                  (aaa)  RESPONSIBLE  PARTY means an Account  Debtor,  a general
partner of an Account  Debtor,  or any party  otherwise  in any way  directly or
indirectly liable for the payment of a Receivable.

                  (bbb) SECURED PARTY means the person or entity  defined on the
cover page of this Agreement and any successors or assigns of Secured Party.

                  (ccc) SECURITY INTEREST means the security interest granted to
Secured Party by Debtor as described in Section 3.1.

                  (ddd) STATE means New York State.

                        (eee)  TANGIBLE  NET  WORTH  means  total  stockholders'
equity minus Intangible Assets, all to be determined in
accordance with GAAP.

                  (fff)  TERM or LOAN  PERIOD  means  the  period  from the date
hereof until the Termination Date.

                                       8
<PAGE>


                  (ggg)  TERMINATION  DATE  means  the  earlier  to occur of (a)
September  1,  2011 or if  such  day  shall  not be a  Business  Day,  the  next
succeeding  Business Day, or (b) upon the occurrence of an Event of Default,  at
the option of Secured Party, in its sole discretion.

                  (hhh) THIRD PARTY means any person or entity who has  executed
and  delivered,  or who in the future may execute and deliver,  to Secured Party
any agreement,  instrument, or document, pursuant to which such person or entity
has guarantied to Secured Party the payment of the  Indebtedness  or has granted
Secured Party a security  interest in or lien on some or all of such person's or
entity's real or personal property to secure the payment of the Indebtedness.

                  (iii) TOTAL LIABILITIES shall be determined in accordance with
GAAP, but, in any event, shall exclude the principal balance of any debt that is
subordinated to Secured Party in a manner satisfactory to Secured Party.

                  (jjj)  TRANSACTION   DOCUMENTS  mean  individually,   jointly,
severally and  collectively,  the Agreement  (including all amendments to date),
and all  documents,  instruments,  notes and  agreements  by Debtor or any other
Third  Party or any  Responsible  Party in favor of  Secured  Party,  whether in
existence now or hereinafter  created,  executed and delivered to Secured Party,
as the same may be extended,  re-executed,  modified or  otherwise  amended from
time to time,  including,  without limitation,  the Note,  collateral documents,
letter of credit  agreements,  notes,  acceptance  credit  agreements,  security
agreements,  pledges, guaranties,  mortgages, title insurance,  assignments, and
subordination  agreements  required to be  executed  by Debtor,  any other Third
Party, or any Responsible Party pursuant hereto or in connection herewith, or in
connection with a letter of credit application and reimbursement agreement, each
dated as of May 12, 1997,  as may be reaffirmed or restated from time to time, a
certain  uncommitted  trade line established by Secured Party in favor of Debtor
to provide for  commercial  and standby  letters of credit,  evidenced by, among
other  documents,  a  continuing  letter of credit  agreement,  and a continuing
indemnity  agreement,  each  dated as of May 12,  1997,  as may be  re-executed,
amended,  extended or otherwise  modified from time to time, and the obligations
thereunder,  as may be extended or  otherwise  modified  from time to time,  and
uncommitted  line of credit  facility  to be used by Debtor to  finance  certain
acquisitions,  as may be executed and  delivered  to Secured  Party from time to
time to evidence and secure the obligations  under such  facilities  pursuant to
the terms  that the  Secured  Party  shall  request,  and all  other  documents,
agreements,  reaffirmations,  certificates and resolutions related thereto,  and
amendments  or  supplements  thereto,  all such other  agreements,  resolutions,
certificates,  resolutions  and  opinion  letters  executed  and/or  issued as a
condition  precedent to or in connection  with the  Agreement,  the Note and all
such other documents,  agreements,  and instruments  delivered hereunder or as a
supplement or amendment thereto or as Secured Party may reasonably  require from
time  to  time  in  order  to  evidence,  guaranty  and/or  secure  any  and all
indebtedness  of Debtor to Secured  Party or to create,  perfect,  continue  the
perfection or protect the Secured Party's security interest in the Collateral or
any of the other collateral specified in the other Transaction Documents.

                  (kkk)  VARIABLE  RATE OPTION means a  fluctuating  annual rate
equal to the Prime Rate minus 1/4 of 1%.

                                       9
<PAGE>


                  1.2.  SINGULARS  AND  PLURALS.  Unless the  context  otherwise
requires,  words in the singular  number  include the plural,  and in the plural
include the singular.

         1.3. U.C.C.  DEFINITIONS.  Unless  otherwise  defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meanings set forth
in the  Uniform  Commercial  Code as in effect  in the  State  from time to time
("U.C.C." or "UCC").  Without limiting the foregoing,  "Accessions,"  "Account,"
"Chattel  Paper,"  "Commodity  Accounts,"  "Commodity  Contracts,"  "Control," ,
"Deposit Account", "Document," "Electronic Chattel Paper," "Entitlement Holder,"
"Entitlement  Order,"  "Equipment,"  "Financial  Assets,"  "Fixtures,"  "General
Intangibles,"  "Goods,"   "Health-Care-Insurance   Receivables,"   "Instrument,"
"Inventory,"   "Investment   Property,"   "Payment   Intangibles,"   "Proceeds,"
"Promissory   Notes,"    "Securities,"    "Securities    Account,"   "Securities
Entitlements,"  "Securities  Intermediary" and "Supporting Obligations" have the
meanings assigned to those terms by the UCC.

         1.4.  ACCOUNTING  TERMS.  All other financial and accounting terms used
herein or in the other Transaction Documents not specifically defined shall have
the meanings defined under GAAP.

2.       ADVANCES.

         2.1.  REQUESTS  FOR AN  ADVANCE.  From time to time,  Debtor may make a
written or oral  request  for an  Advance,  so long as the sum of the  aggregate
principal  balance of  outstanding  advances and the requested  Advance does not
exceed the  Borrowing  Capacity as then  computed;  and Secured Party shall make
such requested Advance, provided that (i) the Borrowing Capacity would not be so
exceeded;  (ii) there has not  occurred  an Event of Default  for which a waiver
signed by a duly  authorized  Officer of Secured Party was not  obtained,  or an
event which,  with notice or lapse of time or both, would constitute an Event of
Default;  and  (iii)  all  representations  and  warranties  contained  in  this
Agreement  and in the other  Transaction  Documents  are true and correct on the
date such requested  Advance is made as though made on and as of such date. Each
oral  request  for an Advance  shall be  conclusively  presumed  to be made by a
person authorized by Debtor to do so, and the making of the Advance to Debtor as
hereinafter  provided shall conclusively  establish Debtor's obligation to repay
the Advance.

         2.2. PROCEEDS OF AN ADVANCE.  Proceeds of Advances shall be paid in the
manner  agreed by Debtor  and  Secured  Party in  writing  or,  absent  any such
agreement,  as determined by Secured Party. Without limiting the foregoing,  the
proceeds of the Revolving Credit Facility will be useable by the Debtor,  (i) to
make Acceptable Acquisition(s);  (ii) to permit the Debtor to purchase up to one
million shares,  in the aggregate,  of its own common voting stock, and (iii) to
provide  for the  Debtor's  working  capital  needs and for such other legal and
proper  corporate  purposes as are  consistent  with all  applicable  laws,  the
Debtor's governance documents and the terms of the Transaction Documents.

         2.3. INTENTIONALLY DELETED PRIOR TO EXECUTION.

         2.4. INTENTIONALLY DELETED PRIOR TO EXECUTION.

                                       10
<PAGE>


         3. COLLATERAL AND INDEBTEDNESS SECURED.

         3.1.  SECURITY  INTEREST.  Debtor  hereby  grants  to  Secured  Party a
security interest in, and a lien on, all right,  title and interest of Debtor in
all of the following property, whether now or hereafter existing or acquired and
wherever  located,  and all products and Proceeds  (including but not limited to
insurance proceeds) of such property, wherever located and in whatever form, and
all books and records  pertaining  to such  property  and all other  property of
Debtor in which  Secured  Party now or hereafter is granted a security  interest
pursuant to this Agreement or otherwise:

         (a) a first priority  perfected  security interest in all assets and
property of every  description  including,  without  limitation,  all  Accounts,
General   Intangibles,   Chattel  Paper   (whether   tangible  or   electronic),
Instruments,  Letter-of-Credit  Rights,  Investment Property,  Deposit Accounts,
Documents,  and Goods (including Inventory,  Equipment and Fixtures and embedded
software, and all Accessions to any Goods).

         (b) a  first  priority  perfected  security  interest  in  all  of  the
corporate  stock  of  Alarm  Lock  Systems,  Inc.,  and any  other  Consolidated
Subsidiary  of the  Debtor  organized  under the laws of any state of the United
States of America.

         (c) a first priority  perfected security interest in sixty-five percent
(65%) of the corporate  stock of NAPCO/Alarm  Lock,  NAPCO Europe,  NAPCO Cayman
Islands, NAPCO Dominican Republic, and any other Consolidated Subsidiary, now or
in the future,  of the Debtor that is not organized  under the laws of any state
of the United States of America.

         (d) A first mortgage lien in the principal sum of  $1,000,000.00 on the
fee  ownership  interest  of the  Debtor  in favor of the  Secured  Party on the
premises and improvements  located at 333 Bayview Avenue,  Amityville,  New York
11701 (the "Mortgaged Premises" or "Mortgaged  Property") and further secured by
an assignment of all present and future leases  covering the Mortgaged  Premises
and UCC-1 financing statements covering all fixtures and personal property to be
attached to the Mortgaged Premises,  present and future (the "Mortgage"),  which
Mortgage and  assignment of leases and rents were executed and delivered to Bank
on May 12, 1997, and which documents are still in full force and effect.

         3.2. OTHER COLLATERAL.  Nothing contained in this Agreement shall limit
the  rights  of  Secured  Party  in and to any  other  collateral  securing  the
Indebtedness  which may have been, or may hereafter be, granted to Secured Party
by Debtor or any Third Party, pursuant to any other agreement.

         3.3. INDEBTEDNESS SECURED. The Security Interest secures payment of any
and all  indebtedness,  and performance of all  obligations  and agreements,  of
Debtor to Secured Party,  whether now existing or hereafter incurred or arising,
of every kind and character,  primary or secondary, direct or indirect, absolute
or contingent,  sole,  joint or several,  and whether such  indebtedness is from
time to time reduced and  thereafter  increased,  or entirely  extinguished  and

                                       11
<PAGE>


thereafter reincurred,  including, without limitation: (a) all Advances; (b) all
interest  which  accrues  on  any  such  indebtedness,  until  payment  of  such
indebtedness in full, including,  without limitation,  all interest provided for
under  this  Agreement;  (c)  all  other  monies  payable  by  Debtor,  and  all
obligations  and  agreements  of  Debtor  to  Secured  Party,  pursuant  to  the
Transaction  Documents;  (d) all debts owed,  or to be owed, by Debtor to others
which Secured Party has obtained, or may obtain, by assignment or otherwise; (e)
all monies payable by any Third Party, and all obligations and agreements of any
Third Party to Secured Party, pursuant to any of the Transaction Documents;  and
(f) all monies due, and to become due, pursuant to Section 7.3.

4.  REPRESENTATIONS  AND WARRANTIES.  To induce Secured Party to enter into this
Agreement,  and make  Advances to Debtor  from time to time as herein  provided,
Debtor  represents and warrants,  to the best of its knowledge,  and, so long as
any Indebtedness  remains unpaid or this Agreement  remains in effect,  shall be
deemed continuously to represent and warrant as follows:

         4.1. CORPORATE  EXISTENCE.  Debtor and Alarm each is duly organized and
existing  and in good  standing  under the laws of the state of Delaware  and is
duly licensed or qualified to do business and in good standing in every state in
which the nature of its  business or ownership  of its  property  requires  such
licensing or qualification.  Each other domestic Consolidated Subsidiary is duly
organized or formed, as the case may be, and existing and in good standing under
the laws of the State and is duly  licensed or  qualified  to do business and in
good standing in every state in which the nature of its business or ownership of
its property requires such licensing or qualification.

         4.2 CORPORATE CAPACITY. The execution,  delivery and performance of the
Transaction  Documents  are within  Debtor's  corporate  powers,  have been duly
authorized by all necessary and appropriate  corporate and  shareholder  action,
and are not in  contravention  of any law or the terms of  Debtor's  articles or
certificate  of  incorporation  or by-laws or any amendment  thereto,  or of any
indenture, agreement,  undertaking, or other document to which Debtor is a party
or by which Debtor or any of Debtor's property is bound or affected.

         4.3.  VALIDITY OF RECEIVABLES.  (a) each copy of each invoice is a true
and  genuine  copy of the  original  invoice  sent to the account  debtor  named
therein and  accurately  evidences  the  transaction  from which the  underlying
Receivable  arose,  and the date  payment  is due as stated on each  Invoice  or
computed based on the information set forth on each such Invoice is correct; (b)
all Chattel Paper, and all promissory  notes,  drafts,  trade  acceptances,  and
other  instruments  for the  payment of money  relating  to or  evidencing  each
Receivable,  and each  endorsement  thereon,  are true  and  genuine  and in all
respects  what they purport to be, and are the valid and binding  obligation  of
all parties thereto,  and the date or dates stated on all such items as the date
on  which  payment  in  whole or in part is due is  correct;  (c) all  Inventory
described in each Invoice has been delivered to the Account Debtor named in such
Invoice or placed for such delivery in the  possession of a carrier not owned or
controlled directly or indirectly by Debtor; (d) all evidence of the delivery or
shipment of Inventory  is true and genuine;  (e) all services to be performed by
Debtor in connection with each Receivable have been performed by Debtor; and (f)
all evidence of the performance of such services by Debtor is true and genuine.

                                       12
<PAGE>


         4.4.  INVENTORY.  (a) All  representations  made by Debtor  to  Secured
Party,  and all  documents  and  schedules  given by  Debtor to  Secured  Party,
relating to the description,  quantity, quality, condition, and valuation of the
Inventory are true and correct;  (b) Inventory is located only at the address or
addresses of Debtor set forth at the beginning of this Agreement,  or such other
place or places as approved by Secured  Party in  writing;  (however  Debtor has
signed a lease for a location at 9/21 Prestwood,  Risley,  Warrington,  England,
where it will house  Inventory)  (c) all  Inventory  is insured as  required  by
Section 9.11,  pursuant to policies in full compliance with the  requirements of
such Section; and (d) all domesticly manufactured or produced Inventory has been
produced by Debtor in  accordance  with the Federal Fair Labor  Standards Act of
1938, as amended, and all rules, regulations and orders promulgated thereunder.

         4.5.  TITLE TO  COLLATERAL.  (a) Debtor is the owner of the  Collateral
free of all  security  interests,  liens,  and other  encumbrances,  except  the
Security  Interest;  (b) Debtor  has the  unconditional  authority  to grant the
Security  Interest to Secured Party; and (c) assuming that all necessary Uniform
Commercial Code filings have been made and, if applicable,  assuming  compliance
with the Federal Assignment of Claims Act of 1940, as amended, Secured Party has
an enforceable first lien on all Collateral.

         4.6. DEBTOR'S TAX PAYER ID AND ORGANIZATION  NUMBER.  Debtor's taxpayer
identification number is as follows: 11-2277818 and Debtor's Organization number
is as follows: Delaware File No. 0776899.

         4.7. CERTAIN OTHER REPRESENTATIONS WITH RESPECT TO THE COLLATERAL.  (a)
no  financing  statement  or  other  filing  listing  any of the  Collateral  as
collateral is on file in any  jurisdiction  (other than any financing  statement
filed on behalf of Secured  Party,  as secured party) and Debtor has not entered
into control  agreements in favor of any party except Secured Party with respect
to Collateral  constituting  Deposit  Accounts or Investment  Property,  nor has
Debtor  executed in favor of any party except Secured Party an assignment of the
proceeds of any Collateral  constituting  Letter-of-Credit  Rights or granted to
any party except Secured Party control (pursuant to Section 9-105 of the UCC) of
any Collateral  constituting  Electronic Chattel Paper; (b) Debtor has rights in
or the power to transfer the Collateral or is the legal and beneficial  owner of
the Collateral and the Collateral is free and clear of all Liens, other than the
Lien created by this Agreement in favor of Secured Party; and (c) Debtor did not
have or conduct business under any name or trade name in any jurisdiction during
the past six years other than its name and trade names,  if any, as set forth in
Exhibit G attached  hereto,  and Debtor is  entitled  to use such name and trade
names.

         4.8.  PLACE OF BUSINESS.  (a) Debtor is engaged in business  operations
which are in whole, or in part, carried on at the address or addresses specified
at the beginning of this Agreement and at no other address or addresses;  (b) if
Debtor has more than one place of business, its chief executive office is at the
address  specified as such at the beginning of this Agreement;  and (c) Debtor's
records  concerning  the  Collateral  are kept at the address  specified  at the
beginning of this Agreement.

                                       13
<PAGE>


         4.9.  FINANCIAL  CONDITION.  Debtor  has  furnished  to  Secured  Party
Debtor's most current  financial  statements,  including,  without  limiting the
foregoing,  the most  recent  interim  statements  of Debtor,  which  statements
represent correctly and fairly the results of the operations and transactions of
Debtor and the  Consolidated  Subsidiaries  as of the dates,  and for the period
referred to, and have been prepared in accordance  with GAAP applied during each
interval  involved  and  from  interval  to  interval.  Since  the  date of such
financial statements,  there have not been any materially adverse changes in the
financial condition reflected in such financial statements,  except as disclosed
in writing by Debtor to Secured Party.

         4.10. TAXES.  Except as disclosed in writing by Debtor to Secured Party
including  Debtor's  financial  statements  provided to Secured  Party:  (a) all
federal  and  other  tax  returns  required  to be  filed  by  Debtor  and  each
Consolidated  Subsidiary have been filed, and all taxes required by such returns
have been paid;  and (b)  neither  Debtor nor any  Consolidated  Subsidiary  has
received  any notice  from the  Internal  Revenue  Service  or any other  taxing
authority proposing additional taxes.

         4.11. LITIGATION. Except as set forth in Schedule H attached hereto and
incorporated  by  reference,  there  are  no  actions,  suits,  proceedings,  or
investigations pending or, to the knowledge of Debtor, threatened against Debtor
or  any  of its  Consolidated  Subsidiaries  or any  basis  therefor  which,  if
adversely  determined,  would,  in  any  case  or in the  aggregate,  materially
adversely  affect the  property,  assets,  financial  condition,  or business of
Debtor or any of its Consolidated Subsidiaries or materially impair the right or
ability  of  Debtor  or any of its  Consolidated  Subsidiaries  to  carry on its
operations substantially as conducted on the date of this Agreement.

         4.12.  ERISA  MATTERS.  (a) No  Pension  Plan has been  terminated,  or
partially  terminated,  or is  insolvent,  or in  reorganization,  nor  have any
proceedings  been  instituted to terminate or reorganize  any Pension Plan;  (b)
neither  Debtor nor any  Consolidated  Subsidiary has withdrawn from any Pension
Plan in a complete or partial withdrawal, nor has a condition occurred which, if
continued,  would result in a complete or partial withdrawal; (c) neither Debtor
nor  any  Consolidated   Subsidiary  has  incurred  any  withdrawal   liability,
including,  without limitation,  contingent withdrawal liability, to any Pension
Plan,  pursuant to Title IV of ERISA;  (d) neither  Debtor nor any  Consolidated
Subsidiary  has  incurred  any  liability  to  the  Pension   Benefit   Guaranty
Corporation other than for required insurance premiums which have been paid when
due;  (e) no  Reportable  Event  has  occurred;  (f) no  Pension  Plan or  other
"employee  pension  benefit plan" as defined in Section 3(2) of ERISA,  to which
Debtor or any  Consolidated  Subsidiary is a party has an  "accumulated  funding
deficiency"  (whether or not  waived),  as defined in Section 302 of ERISA or in
Section 412 of the Internal  Revenue Code; (g) the present value of all benefits
vested  under any  Pension  Plan does not exceed the value of the assets of such
Pension Plan allocable to such vested  benefits;  (h) each Pension Plan and each
other  "employee  benefit plan",  as defined in Section 3(3) of ERISA,  to which
Debtor or any  Consolidated  Subsidiary is a party is in substantial  compliance
with ERISA, and no such plan or any administrator, trustee, or fiduciary thereof
has engaged in a prohibited  transaction described in Section 406 of ERISA or in
Section 4975 of the Internal  Revenue Code; (i) each Pension Plan and each other
"employee  benefit plan" as defined in Section 3(2) of ERISA, to which Debtor or
any Consolidated Subsidiary is a party has received a favorable determination by
the Internal Revenue Service with respect to qualification  under Section 401(a)
of the  Internal  Revenue  Code;  and (j)  neither  Debtor nor any  Consolidated

                                       14
<PAGE>


Subsidiary has incurred any liability to a trustee or trust established pursuant
to Section 4049 of ERISA or to a trustee  appointed  pursuant to Section 4042(b)
or (c) of ERISA.

         4.13. ENVIRONMENTAL MATTERS.

                   (a) Any Environmental  Questionnaire  previously  provided to
Secured  Party was and is accurate  and  complete and does not omit any material
fact  the  omission  of  which  would  make the  information  contained  therein
materially misleading.

                  (b) No above ground or  underground  storage tanks  containing
Hazardous  Substances are, or have been located on, any property owned,  leased,
or operated by Debtor or any domestic Consolidated Subsidiary.

                  (c) No property  owned,  leased,  or operated by Debtor or any
domestic  Consolidated  Subsidiary is, or has been, used for the Disposal of any
Hazardous  Substance  or for the  treatment,  storage,  or Disposal of Hazardous
Substances.

                  (d) No Release of a Hazardous  Substance has  occurred,  or is
threatened  on, at, from,  or near any property  owned,  leased,  or operated by
Debtor or any domestic Consolidated Subsidiary.

                  (e) Neither Debtor nor any domestic Consolidated Subsidiary is
subject  to  any  existing,  pending,  or  threatened  suit,  claim,  notice  of
violation, or request for information under any Environmental Law nor has Debtor
or any domestic Consolidated Subsidiary provided any notice or information under
any Environmental Law.

                  (f) Debtor and each domestic  Consolidated  Subsidiary  are in
compliance  with, and have obtained all  Environmental  Permits required by, all
Environmental Laws.

         4.14.  VALIDITY OF TRANSACTION  DOCUMENTS.  The  Transaction  Documents
constitute  the  legal,  valid,  and  binding  obligations  of  Debtor  and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in accordance
with  their  respective  terms,  except  as  enforceability  may be  limited  by
applicable  bankruptcy and insolvency laws and laws affecting  creditors' rights
generally.

         4.15.  NO  CONSENT  OR  FILING.  No  consent,  license,   approval,  or
authorization  of, or  registration,  declaration,  or filing  with,  any court,
governmental  body or  authority,  or other  person  or entity  is  required  in
connection with the valid execution, delivery, or performance of the Transaction
Documents or for the conduct of Debtor's  business as now conducted,  other than
filings  and  recordings  to  perfect  security  interests  in or  liens  on the
Collateral in connection with the Transaction Documents.

         4.16. NO VIOLATIONS.  Neither Debtor nor any Consolidated Subsidiary is
in violation of any term of its articles,  or Certificate of  Incorporation,  or

                                       15
<PAGE>


by-laws,  or of any  mortgage,  borrowing  agreement,  or  other  instrument  or
agreement  pertaining to indebtedness for borrowed money. Neither Debtor nor any
Consolidated  Subsidiary  is in  violation  of any term of any other  indenture,
instrument,  or  agreement to which it is a party or by which it or its property
may be bound,  resulting,  or which might reasonably be expected to result, in a
material and adverse effect upon its business or assets.  Neither Debtor nor any
Consolidated   Subsidiary  is  in  violation  of  any  order,  writ,   judgment,
injunction,  or decree of any court of competent jurisdiction or of any statute,
rule or regulation of any governmental authority.  The execution and delivery of
the  Transaction  Documents and the performance of all of the same, is, and will
be, in  compliance  with the  foregoing  and will not  result  in any  violation
thereof,  or result in the creation of any mortgage,  lien,  security  interest,
charge, or encumbrance upon, any properties or assets except in favor of Secured
Party.  There exists no fact or  circumstance  (whether or not  disclosed in the
Transaction  Documents) which materially adversely affects, or in the future (so
far as Debtor can now foresee) may materially  adversely affect,  the condition,
business, or operations of Debtor or any Consolidated Subsidiary.

         4.17. TRADEMARKS AND PATENTS.  Debtor and each Consolidated  Subsidiary
possess all trademarks,  trademark rights, patents,  patent rights,  tradenames,
tradename rights and copyrights that are required to conduct its business as now
conducted  without  conflict with the rights or claimed rights of others. A list
of the foregoing as set forth in Exhibit A attached hereto.

         4.18.  CONTINGENT  LIABILITIES.  There  are no  suretyship  agreements,
guaranties,  or other  contingent  liabilities  of  Debtor  or any  Consolidated
Subsidiary  which are not  disclosed by the  financial  statements  described in
Section 4.9.

         4.19. COMPLIANCE WITH LAWS. Debtor is in compliance with all applicable
laws,  rules,  regulations,  and other legal  requirements  with  respect to its
business  and the use,  maintenance  and  operations  of the  real and  personal
property owned or leased by it in the conduct of its business.

         4.20.  LICENSES,   PERMITS,  ETC.  Each  franchise,   grant,  approval,
authorization, license, permit, easement, consent, certificate, and order of and
registration,  declaration,  and filing with,  any court,  governmental  body or
authority,  or other  person or entity  required for or in  connection  with the
conduct of Debtor's and each Consolidated Subsidiary's business as now conducted
is in full force and effect.

         4.21. LABOR CONTRACTS.  Neither Debtor nor any Consolidated  Subsidiary
is a  party  to  any  collective  bargaining  agreement  or to any  existing  or
threatened labor dispute or controversies.

         4.22.   CONSOLIDATED   SUBSIDIARIES.   Debtor   has   no   Consolidated
Subsidiaries  other  than  those  listed in  Exhibit B  attached  hereto and the
percentage ownership of Debtor in each such Consolidated Subsidiary is specified
in such Exhibit B.

         4.23.  AUTHORIZED SHARES.  Debtor's total authorized common shares, the
par value of such shares,  and the number of such shares issued and outstanding,
are set forth in  Exhibit  C. All of such  shares are of one class and have been
validly issued in full  compliance  with all applicable  federal and state laws,

                                       16
<PAGE>


and are fully  paid and  non-assessable.  No other  shares of the  Debtor of any
class or type are authorized or outstanding.

         4.24. LABOR MATTERS.

                  (a) Debtor is not engaged in any unfair labor practice. Debtor
is in compliance in all material respects with all applicable federal, state and
local laws,  regulations,  rules, orders or other requirements  respecting terms
and conditions of employment, employment practices, and wages and hours,

                  (b)  No  strike,  walkout  or  similar  business  interruption
resulting  from any labor  dispute has been  suffered by Debtor  during the last
five years nor is any state of facts known to Debtor which would  indicate  that
such event or circumstance is likely to occur in the next twelve months.

                  (c)  There  is no  pending,  or to the  knowledge  of  Debtor,
threatened unfair labor practice  complaint against Debtor,  before the National
Labor Relations Board.

                  (d) There is no strike,  labor  dispute,  slowdown or stoppage
actually pending or, to the knowledge of Debtor, threatened against them.

                  (e) No union  representation  question  exists  respecting the
employees, or any group of employees, of Debtor.

                  (f) No grievance which might have a material adverse effect on
Debtor or the conduct of their business nor any arbitration  proceeding  arising
out of or under  collective  bargaining  agreements  is  pending,  and no claims
therefor exist.

                  (g) No  collective  bargaining  agreement  which is binding on
Debtor restricts Debtor from relocating or closing any office,  warehouse or any
other facility presently being used by Debtor.

                  (h) Debtor has not  experienced  any material work stoppage or
other material labor difficulty at any office, warehouse or other facility.

                  (i) There are no claims,  complaints or charges pending before
any state or federal agency concerning employment  penalties,  including without
limitation,  employment discrimination,  retaliatory discharge and wage and hour
claims.

         4.25 MATERIALITY. Notwithstanding anything to the contrary contained in
Section 4 hereof, no representation or warranty  contained in Section 4 shall be
deemed false or cause an Event of Default to the extent that the falsity of such
representation  or warranty is not material,  would not have a material  adverse
effect on Debtor and/or any domestic Consolidated Subsidiary, would not cause an

                                       17
<PAGE>


untrue  statement  of material  fact,  and/or would not result in an omission to
state a  material  fact in order to make the  statements  contained  herein  not
misleading,  and/or would not materially  adversely  affect the financial and/or
business condition of Debtor and/or any domestic Consolidated Subsidiary.

         4.26 NAPCO EXPORTRADORA. NAPCO Exportadora, although duly formed, is an
inactive  corporation  and does not and will  not hold any  assets  without  the
Secured Party's prior written consent.

5. INTENTIONALLY DELETED PRIOR TO EXECUTION.

6. REVOLVING CREDIT FACILITY.

         6.1. COMMITMENT TO MAKE ADVANCES.

         (a) Secured Party agrees, subject to the terms and conditions contained
herein,  to make  Advances  from the date  hereof  until but not  including  the
Termination Date (the "Commitment  Period"),  provided that (i) each request for
an Advance be in writing and specify the Interest Rate Option selected,  as more
specifically  described in Section  7.2.  herein and shall be  accompanied  by a
Compliance  Certificate,  in the form  attached  hereto as  Exhibit  D; (ii) all
representations and warranties  contained in this Agreement are true and correct
in all respects on the date of the Advance;  (iii) all covenants and  agreements
contained in this  Agreement  and the other Loan  Documents  have been  complied
with;  and (iv) no Event of Default has  occurred  and be  continuing  under the
Transaction Documents.

         6.2. ADVANCES.  Debtor's obligation to pay the principal,  and interest
on, the  obligations  under the Revolving  Credit Loan Credit  Facility shall be
evidenced by the Revolving Credit Note.  Availability under the Revolving Credit
Loan Credit  Facility is subject to the terms and conditions  contained  herein,
including but not limited to, those set forth herein.

         6.3. INTEREST RATE. For each Advance, the Interest Rate shall be as set
forth in Section 7 herein and be evidenced by the Revolving Credit Note.

         6.4.  DEFAULT.  The Note shall  provide that upon the  happening of any
"Event of  Default"  hereunder  and/or  under  the  Transaction  Documents,  the
principal  sum hereof,  together with accrued  interest and all other  expenses,
including,  but not limited to  reasonable  attorneys'  fees for legal  services
incurred by the holder  hereof in  connection  with the  collection  of the Note
and/or the enforcement of payment hereof whether or not suit is brought,  and if
suit is brought,  then through all appellate  actions,  shall immediately become
due and  payable at the option of the  holder of the Note,  notwithstanding  the
Termination Date set forth herein. In the Event of Default,  whether the Secured
Party exercises any of its rights and remedies  contained herein,  including the
right to declare all  Indebtedness  hereunder to be immediately due and payable,
the Borrower shall pay interest on the unpaid principal  balance  hereunder at a
rate equal to the Default  Rate.  The unpaid  principal  balance  under the Note
shall  bear  the  Default  Rate of  Interest  until  the  first  to occur of the

                                       18
<PAGE>


following: (i) all Indebtedness under the Note are paid in full; (ii) Debtor has
cured said Event of Default to the  satisfaction  of the Secured Party; or (iii)
the  Secured  Party,  in  writing,  has waived  said Event of  Default.  Without
limiting the foregoing,  or any provision  contained in the Note, in the event a
representation or warranty  contained in Article 4 proves to be materially false
or misleading when made, the unpaid principal  balance under the Note shall bear
the Default Rate of Interest from the date such  representation  or warranty was
made and the Default Rate of Interest shall continue until the first to occur of
the  following:  (i) all  Indebtedness  under  this Note are paid in full;  (ii)
Debtor,  to the  satisfaction  of the  Secured  Party,  has taken such  remedies
necessary to make such representation or warranty true in all material respects;
or (iii) the Secured Party,  in writing,  has waived said  misrepresentation  or
warranty.  Notwithstanding  anything to the contrary  contained in the Revolving
Credit Note, the Revolving Credit Note is subject to the express  condition that
at no time shall  Debtor be  obligated  to be  required  to pay  interest on the
principal  balance of the  Revolving  Credit Note at a rate which could  subject
Secured Party either to civil or criminal penalty as a result of being in excess
of the maximum  rate which  Debtor is  permitted  by law to contract or agree to
pay.  If by the  terms of the  Revolving  Credit  Note,  Debtor  at any time are
required or obligated to pay interest on the principal balance of such note at a
rate in excess of such  maximum  rate then the rate of interest  under such note
shall be deemed to be  immediately  reduced to such  maximum  rate and  interest
payable  hereunder shall be computed at such maximum rate and any prior interest
payments  made in excess of such  maximum  rate  shall be  applied  and shall be
deemed to have been payments made in reduction of the principal  balance of such
note.

         6.5.  METHOD AND PLACE OF PAYMENT.  All  payments  under the  Revolving
Credit Note and this Agreement shall be made by debiting the checking account of
Debtor  required  to be  maintained  with  Secured  Party  pursuant to the terms
hereof.

         6.6.  REVOLVING  CREDIT  NOTE.  The  amount of  Indebtedness  under the
Revolving Credit Facility may increase and decrease from time to time as Secured
Party advances, Debtor repays, and Secured Party readvances,  sums on account of
the Revolving  Credit  Facility.  It is hereby agreed that all Advances,  first,
shall be deemed  evidenced by Note #1 up to the principal amount of $1,000,000.,
so that the first sums  advanced by Secured Party shall be evidenced by Note #1.
Note #1, and the Indebtedness evidenced by Note #1, shall be reduced only by the
last and final sums that Debtor  repays  with  respect to the  Revolving  Credit
Facility and shall not be reduced by any  intervening  repayments of Advances by
Secured Party until all Indebtedness under Note #2 has been repaid. All Advances
(including  readvances)  shall  first be deemed  borrowed  under Note #1 (to the
extent of $1,000,000.)  and all repayments of Advances shall first be applied to
Note #2.


7. PAYMENT OF PRINCIPAL, INTEREST, FEES AND COSTS AND EXPENSES- Revolving Credit
Facility.

         7.1. PROMISE TO PAY PRINCIPAL.  Debtor promises to pay to Secured Party
the outstanding  principal of Advances in full upon termination of the Revolving
Credit  Facility  pursuant to Section  13.13,  or  acceleration  of the time for

                                       19
<PAGE>


payment of the Indebtedness,  pursuant to Section 11.2. Whenever the outstanding
principal  balance of Advances  exceeds the  Borrowing  Capacity,  Debtor  shall
immediately pay to Secured Party the excess of the outstanding principal balance
of Advances over the Borrowing Capacity.

         7.2. PROMISE TO PAY INTEREST.

                  (a) Debtor  promises to pay to Secured  Party  interest on the
outstanding  principal  of  Advances  from time to time unpaid at either (a) the
Variable  Rate  Option,  or (b) the LIBOR Rate  Option for the  Interest  Period
selected  by Debtor.  The amount of  principal  based upon the LIBOR Rate Option
shall be minimum  amounts of  $50,000.00  for the  Interest  Period  selected by
Debtor.  From the date of the occurrence of, and during the  continuance  of, an
Event of Default,  Debtor,  as additional  compensation to Secured Party for its
increased credit risk promises to pay interest on (i) the principal of Advances,
whether or not past due;  and (ii) past due  interest  and any other amount past
due under the Transaction Documents, at a per annum rate equal to the Prime Rate
plus three percent per annum ("Default Rate" or "Default Rate of Interest").

                  (b) Interest  shall be paid (i) on the first day of each month
in arrears,  (ii) on the Termination Date, (iii) on acceleration of the time for
payment of the Indebtedness,  pursuant to Section 11.2, and (iv) on the date the
Indebtedness is paid in full.

                  (c) Any change in the interest rate resulting from a change in
the Prime Rate shall take  effect  simultaneously  with such change in the Prime
Rate.  Whether  the  Variable  Rate  Option or LIBOR  Rate  Option is in effect,
interest  shall be computed on the daily unpaid  principal  balance of Advances.
Interest  shall be calculated for each calendar day at 1/360th of the applicable
per annum rate which will result in an effective  per annum rate higher than the
rate specified herein. In no event shall the rate of interest exceed the maximum
rate  permitted by applicable  law. If Debtor pays to Secured Party  interest in
excess of the amount  permitted by applicable  law, such excess shall be applied
in reduction of the principal of Advances  under the Revolving  Credit  Facility
made  pursuant to this  Agreement,  and any  remaining  excess  interest,  after
application thereof to the principal of Advances, shall be refunded to Debtor.

                  (d) At Debtor's  option,  Debtor may elect to pay  interest on
one or more  Advances for one or more  Interest  Periods or for the term of this
Note, or any period of time, so long as such period is made available by Secured
Party and does not extend beyond the Term,  subject to the provisions  contained
herein,  by giving notice of such election to the Secured Party by 11:00 a.m. at
least  three (3)  Business  Days  before the first day of such  Advance.  If the
Debtor  does not elect an Interest  Rate Option for an Advance,  or prior to the
expiration  of an Interest  Period,  the Variable Rate Option shall be deemed to
have been chosen by Debtor.

                  (e) At the option of Debtor,  Debtor may elect to pay interest
on the  Indebtedness  herein  or  portion(s)  thereof,  in  minimum  amounts  of
$50,000.00  at the LIBOR Rate  Option for the  Interest  Period  selected by the
Debtor by giving  notice of such  election by the Secured Party by 11:00 a.m. at
least three (3) Business Days before the first day of such Interest Period.

                                       20
<PAGE>


                  (f) All written  notices of  Interest  Rate  Selection  and/or
Requests  for Advances  shall be  substantially  in the form  annexed  hereto as
Exhibit E, attached hereto and incorporated herein by this reference.

                  (g) At any time  while the  LIBOR  Rate  Option is in  effect,
Debtor agrees to pay to Secured  Party and hold Secured Party  harmless from any
loss or expense  ("breakage  fees" or "breakage  costs") which Secured Party may
sustain or incur as a consequence of such  prepayment.  Such breakage fees shall
equal the amount of the  Indebtedness  being prepaid,  multiplied by a per annum
interest rate equal to the  difference  between the then  applicable  Base LIBOR
Rate and the 360-day equivalent interest yield (hereinafter the "Bank Bid Rate")
reasonably  selected by the Secured  Party in its sole and absolute  discretion,
for an aggregate amount  comparable to the then remaining  principal  balance of
the  Indebtedness,  and with  maturities  comparable  to the  Rollover  Date (as
hereinafter  defined)  applicable to the principal  balance of the Indebtedness,
calculated  over a period of time from and including the date of prepayment  to,
but not including,  the Rollover Date applicable to the then remaining principal
balance of the Indebtedness being prepaid.  If the Base LIBOR Rate applicable to
the principal balance of the portion of the Indebtedness  being prepaid is equal
to or less than the Bank Bid Rate,  no LIBOR Rate breakage fee shall be due. The
term "Rollover Date" applicable to a particular LIBOR Interest Period shall mean
the last  day of  LIBOR  Interest  Period.  The  Secured  Party  shall  submit a
certificate to the Debtor  setting forth in reasonable  detail the amount of the
breakage costs, which certificate shall be conclusive in the absence of manifest
error.  The breakage costs shall also apply to prepayments  due as a result of a
default.  There shall be no breakage  costs for any portion of the  indebtedness
being prepaid bearing interest at the Variable Rate Option.

                  (h) At any time while the LIBOR Rate Option is in effect,  the
applicable LIBOR Interest Rate will equal the Adjusted LIBOR Rate plus the LIBOR
Margin,  based upon the ratio of Funded Debt to Cash Flow,  as described  herein
with respect to the applicable  Interest Period.  Each  determination of a LIBOR
Interest Rate shall be made by Secured Party 60 days after the end of Borrower's
first, second and third fiscal quarters, and 120 days after the end of Borrowers
fiscal year end (provided however that the financial  statements  required to be
delivered to Secured Party has in fact been timely delivered, with time being of
the  essence),  and shall be  conclusive  and  binding  upon the  Debtor  absent
manifest  error.  Secured Party will adjust the LIBOR Margin,  and the resulting
LIBOR Interest Rate  quarterly,  with Funded Debt to Cash Flow tested by Secured
Party  quarterly  based upon a rolling  four quarter  ratio of "Funded  Debt" to
"Cash Flow" of the Debtor and its Consolidated Subsidiaries, as follows:

        "Funded Debt" to "Cash Flow"            "LIBOR Margin"
        ----------------------------            --------------
                  < 5:1                             1.25%
                  > 5:1                             1.50%
                  -

Secured  Party will make its  determination  of the LIBOR  Margin based upon the
quarterly  and/or annual financial  statements,  10-K's and 10-Q's of the Debtor
and its  Consolidated  Subsidiaries  required to be submitted  to Secured  Party
pursuant to the terms of Section 9.1.  hereinbelow.  If the Debtor shall fail to

                                       21
<PAGE>


deliver to Secured Party the required  financial  statements  and other required
reports,  the Revolving Credit Facility shall bear interest at the Variable Rate
Option until such  statements and reports have been  received,  provided that no
Event of Default has occurred and is continuing, in which case, the Default Rate
shall apply.

         7.3.  PROMISE TO PAY FEES.  Debtor  promises  to pay to  Secured  Party
monthly,  on the first day of each  calendar  month,  an unused fee equal to one
quarter of one  percent  (.25%) of  $25,000,000.00  less the  aggregate  average
principal  balance of all Advances  outstanding  during the calendar  month just
ended under the Revolving Credit  Facility,  calculated for each calendar day at
1/360th of the  applicable  per annum rate which will result in an effective per
annum rate higher than the rate specified herein.

         7.4. PROMISE TO PAY COSTS AND EXPENSES.

                  (a) Debtor  agrees to pay to  Secured  Party,  on demand,  all
costs and  expenses as provided in this  Agreement,  and all costs and  expenses
incurred by Secured Party from time to time in connection  with this  Agreement,
including,  without limitation,  those incurred in: (i) preparing,  negotiating,
amending,  waiving,  or granting consent with respect to the terms of any or all
of the Transaction Documents;  (ii) enforcing the Transaction  Documents;  (iii)
performing,  pursuant to Section  13.2,  Debtor's  duties under the  Transaction
Documents  upon  Debtor's   failure  to  perform  them;  (iv)  filing  financing
statements,  assignments,  or other documents  relating to the Collateral (e.g.,
filing fees,  recording taxes, and documentary stamp taxes);  (v) realizing upon
or protecting any Collateral;  (vi) enforcing or collecting any  Indebtedness or
guaranty  thereof;  and  (vii)  upon the  occurrence  of an  Event  of  Default,
employing  collection  agencies  or other  agents to  collect  any or all of the
Receivable.

                  (b) Without limiting Section 7.4(a), Debtor also agrees to pay
to Secured  Party,  on  demand,  the actual  reasonable  fees and  disbursements
incurred by Secured  Party for  attorneys  retained by Secured Party for advice,
suit,  appeal, or insolvency or other  proceedings under the Federal  Bankruptcy
Code or  otherwise  upon the  occurrence  of an Event of  Default  specified  in
Section 13.13.

         7.5.  COMMITMENT  FEE.  Without  limiting  any other  provision of this
Article 7, as a condition to Secured Party  extending the  Termination  Date and
increasing the aggregate principal amount of Advances under the Revolving Credit
Facility,  Debtor  will  have paid a  commitment  fee of  Twenty  Five  Thousand
($25,000.00)  Dollars,  plus such other costs and  expenses  incurred by Secured
Party or attributable to the Revolving  Credit  facility,  including  reasonable
legal fees of Secured Party's counsel and disbursements thereof;

         7.6. ACCOUNT STATED. Debtor agrees that each monthly or other statement
of account  mailed or delivered  by Secured  Party to Debtor  pertaining  to the
outstanding balance of Advances,  the amount of interest due thereon,  fees, and
costs and expenses shall be final,  conclusive,  and binding on Debtor and shall
constitute  an "account  stated" with respect to the matters  contained  therein
unless,  within thirty (30) calendar days from when such statement is mailed or,

                                       22
<PAGE>


if not  mailed,  delivered  to Debtor,  Debtor  shall  deliver to Secured  Party
written  notice  of any  objections  which it may have as to such  statement  of
account,  and in such event, only the items to which objection is expressly made
in such notice shall be considered to be disputed by Debtor.

         7.7. ARRANGER FEE. Without limiting any other provision of this Article
7, as a condition to Secured Party extending the Termination Date and increasing
the aggregate  principal amount of Advances under the Revolving Credit Facility,
Debtor will have paid an arranger fee of Fifty Thousand ($50,000.00) Dollars.

8. INTENTIONALLY DELETED PRIOR TO EXECUTION.

9.  AFFIRMATIVE  COVENANTS.  So long as any  part  of the  Indebtedness  remains
unpaid,  or this  Agreement  remains in effect,  Debtor  shall  comply  with the
covenants contained  elsewhere in this Agreement,  and with the covenants listed
below:

         9.1. FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:

                  (a) Annual Audited Financial Statements of Debtor.  Within one
hundred  twenty  (120)  days  after  the  end  of  each  fiscal  year,   audited
consolidated financial statements of Debtor and its Consolidated Subsidiaries as
of the  end of such  year,  fairly  presenting  Debtor's  and  its  Consolidated
Subsidiaries'  financial  position,  which statements shall consist of a balance
sheet  and  related  statements  of  income,  retained  earnings,  and cash flow
covering the period of Debtor's  immediately  preceding  fiscal year,  and which
shall be  prepared  by  Debtor  and  audited  by  independent  certified  public
accountants  satisfactory  to  Secured  Party  in  the  form  submitted  to  the
Securities  and Exchange  Commission,  and in accordance  with GAAP. At the same
time,  Debtor shall  deliver to Secured  Party (i) a copy of the Form 10-K filed
with  the  Securities   and  Exchange   Commission,   and  internally   prepared
consolidating financial statements of Debtor and its Consolidated  Subsidiaries,
and (ii) a covenant compliance certificate certifying that there are no defaults
to the Transaction Documents in the form of Exhibit D attached hereto and made a
part hereof and  otherwise  in form and  substance  reasonably  satisfactory  to
Secured Party, executed by the chairman, president or chief financial officer of
Debtor or other financial officer  satisfactory to Secured Party. in the form of
Exhibit E attached hereto and made a part hereof. All such financial  statements
and other  documents  delivered to Secured Party are to be certified as accurate
by the chief financial officer of Debtor.

                  (b)  Quarterly  10-Q  Reports.  Within sixty (60) days of each
first,  second and third fiscal quarter of each fiscal year,  consolidated  10-Q
report  filed with the  Securities  and  Exchange  Commission  of Debtor and its
Consolidated  Subsidiaries  as of the  end of  such  period,  fairly  presenting
Debtor's and its Consolidated  Subsidiaries'  financial position, and internally
prepared  consolidating  financial  statements  of Debtor  and its  Consolidated
Subsidiaries.  At the same time, the Debtor shall deliver to the Secured Party a
covenant  compliance  certificate  certifying  that there are no defaults to the
Transaction  Documents in the form of Exhibit D attached  hereto and made a part
hereof and otherwise in form and substance  reasonably  satisfactory  to Secured
Party, executed by the chairman,  president or chief financial officer of Debtor
or other financial officer satisfactory to Secured Party. All such reports shall

                                       23
<PAGE>


be in such detail as the Securities and Exchange Commission shall request and in
accordance  with GAAP and shall be signed  and  certified  to be  correct by the
chief financial officer of Debtor or such other financial  officer  satisfactory
to Secured Party.

                  (c) Management Letters.  In addition,  Debtor shall deliver to
Secured Party, as soon as available,  a true copy of any "Management  Letter" or
other communication to Debtor,  from its certified public accountants  regarding
matters  which arose or were  ascertained  during the course of their review and
which such accountants determined ought to be brought to management's attention.

                  (d) Other  Reporting.  Within  forty five days of each  fiscal
quarter of each fiscal year concerning Debtor and all Consolidated Subsidiaries,
all such reports to be in form and  substance  satisfactory  to Secured Party in
its reasonable discretion:

                  (i) accounts receivable aging reports; and

                  (ii) inventory designation reports.

                  (e) Other Information. Copies of any and all proxy statements,
financial  statements,  and reports which Debtor sends to its shareholders,  and
copies of any and all periodic and special reports and  registration  statements
which  Debtor  files  with the  Securities  and  Exchange  Commission,  and such
additional information as Secured Party may from time to time reasonably request
regarding  the  financial  and  business  affairs of Debtor or any  Consolidated
Subsidiary.

         9.2.  GOVERNMENT AND OTHER SPECIAL  RECEIVABLES.  Debtor shall promptly
notify  Secured Party in writing of the existence of any  Receivable as to which
the perfection, enforceability, or validity of Secured Party's Security Interest
in such Receivable, or Secured Party's right or ability to obtain direct payment
to Secured Party of the Proceeds of such Receivable,  is governed by any federal
or state statutory requirements other than those of the Uniform Commercial Code,
including,  without limitation, any Receivable subject to the Federal Assignment
of Claims Act of 1940, as amended.

         9.3. INTENTIONALLY DELETED PRIOR TO EXECUTION.

         9.4.  BOOKS AND  RECORDS.  Debtor shall  maintain,  at its own cost and
expense, accurate and complete books and records with respect to the Collateral,
in form  satisfactory  to Secured  Party,  and  including,  without  limitation,
records of all  payments  received and all Credits and  Extensions  granted with
respect to the Receivables, of the return, rejection, repossession,  stoppage in
transit,  loss,  damage,  or  destruction  of any  Inventory,  and of all  other
dealings  affecting the Collateral.  Debtor shall deliver such books and records
to Secured  Party or its  representative  upon  reasonable  request.  At Secured
Party's  request,  Debtor shall mark all or any records to indicate the Security
Interest.  Debtor shall further indicate the Security  Interest on all financial
statements  issued by it or shall cause the Security Interest to be so indicated
by its accountants.

                                       24
<PAGE>


         9.5. INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory remains
in the hands or control of any of Debtor's agents,  finishers,  contractors,  or
processors,  or any other third party,  Debtor,  if requested by Secured  Party,
shall notify such party of Secured  Party's  Security  Interest in the Inventory
and shall  instruct such party to hold such Inventory for the account of Secured
Party and subject to the instructions of Secured Party.

         9.6.  EXAMINATIONS.  Debtor shall at all reasonable times and from time
to time permit  Secured Party or its agents upon  reasonable  advance  notice to
Debtor to inspect the  Collateral  and to examine  and make  extracts  from,  or
copies of, any of Debtor's books, ledgers,  reports,  correspondence,  and other
records.

         9.7. VERIFICATION OF COLLATERAL.  Secured Party shall have the right to
verify all or any  Collateral in any manner and through any medium Secured Party
may  consider  appropriate  and Debtor  agrees to  furnish  all  assistance  and
information  and perform any acts which  Secured Party may require in connection
therewith.

         9.8.  RESPONSIBLE  PARTIES.  Debtor shall notify  Secured  Party of the
occurrence  of any event  specified in Section  11.1(v)(iv)  with respect to any
Responsible Party promptly after receiving notice thereof.

         9.9.  TAXES.  Debtor shall promptly pay and discharge all of its taxes,
assessments, and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payment of such taxes,
assessments,  and other governmental  charges, make all required withholding and
other tax deposits,  and, upon request,  provide  Secured Party with receipts or
other proof that such taxes,  assessments,  and other governmental  charges have
been paid in a timely fashion; provided,  however, that nothing contained herein
shall require the payment of any tax,  assessment,  or other governmental charge
so long as its  validity is being  contested in good faith,  and by  appropriate
proceedings diligently conducted,  and adequate reserves for the payment thereof
have been established.

         9.10. LITIGATION.

                  (a) Debtor shall  promptly  notify Secured Party in writing of
any litigation, proceeding, or counterclaim against, or of any investigation of,
Debtor or any  Consolidated  Subsidiary if: (i) the outcome of such  litigation,
proceeding,  counterclaim,  or investigation may materially and adversely affect
the finances or operations of Debtor or any Consolidated Subsidiary or title to,
or  the  value  of,  any  Collateral;  or  (ii)  such  litigation,   proceeding,
counterclaim,  or  investigation  questions  the  validity  of  any  Transaction
Document  or any  action  taken,  or to be taken,  pursuant  to any  Transaction
Document.

                  (b) Debtor  shall  furnish to Secured  Party such  information
regarding any such  litigation,  proceeding,  counterclaim,  or investigation as
Secured Party shall request.

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<PAGE>


         9.11. INSURANCE.

                  (a) Debtor shall at all times carry and maintain in full force
and effect  such  insurance  as Secured  Party may from time to time  reasonably
require, in coverage, form, and amount, and issued by insurers,  satisfactory to
Debtor and Secured Party, including,  without limitation:  workers' compensation
or  similar  insurance;   public  liability  insurance;   business  interruption
insurance; and insurance against such other risks as are usually insured against
by business  entities of established  reputation  engaged in the same or similar
businesses as Debtor and similarly situated.

                  (b) Debtor  shall  deliver to Secured  Party the  policies  of
insurance required by Secured Party, with appropriate  endorsements  designating
Secured Party as an additional insured, mortgagee and loss payee as requested by
Secured  Party.  Each policy of insurance  shall  provide that if such policy is
cancelled for any reason  whatsoever,  if any substantial  change is made in the
coverage which affects  Secured Party, or if such policy is allowed to lapse for
nonpayment  of  premium,  such  cancellation,  change,  or  lapse  shall  not be
effective as to Secured  Party until  thirty (30) days after  receipt by Secured
Party of written notice thereof from the insurer issuing such policy.

         9.12. GOOD STANDING; BUSINESS.

                  Debtor  shall  take  all  necessary   steps  to  preserve  its
corporate existence and its right to conduct business in all states in which the
nature of its business or ownership of its property requires such qualification.
Debtor shall take all necessary steps to preserve the legal existence of each of
its Consolidated  Subsidiaries  and each of their  respective  rights to conduct
business  in all states in which the nature of their  respective  businesses  or
ownership of properties requires such qualification.

         9.13. PENSION REPORTS. Upon the occurrence of any Pension Event, Debtor
shall furnish to Secured  Party,  as soon as possible and, in any event,  within
thirty (30) days after Debtor knows, or has reason to know, of such  occurrence,
the  statement of the  president or chief  financial  officer of Debtor  setting
forth the details of such Pension Event and the action which Debtor  proposes to
take with respect thereto.

         9.14.  NOTICE OF  NON-COMPLIANCE.  Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any provision
of  any  Transaction   Document  within  ten  (10)  days  of  learning  of  such
non-compliance,   or  if  any   representation  or  warranty  contained  in  any
Transaction Document is no longer true.

         9.15. COMPLIANCE WITH ENVIRONMENTAL LAWS.

                  (a) Debtor shall comply with all Environmental Laws.

                  (b) Debtor shall not suffer,  cause, or permit the Disposal of
Hazardous  Substances at any property  owned,  leased,  or operated by it or any
domestic Consolidated Subsidiary.

                  (c) Debtor shall promptly notify Secured Party in the event of
the Disposal of any domestic Hazardous Substance at any property owned,  leased,

                                       26
<PAGE>


or operated by Debtor or any domestic Consolidated  Subsidiary,  or in the event
of any Release, or threatened Release, of a Hazardous  Substance,  from any such
property.

                  (d) Debtor shall,  at Secured  Party's  request,  provide,  at
Debtor's expense, updated Environmental  Questionnaires  concerning any property
owned, leased, or operated by Debtor or any domestic Consolidated Subsidiary.

                  (e) Debtor shall deliver  promptly to Secured Party (i) copies
of any documents received from the United States Environmental Protection Agency
or any state,  county,  or municipal  environmental or health agency  concerning
Debtor's or any domestic Consolidated Subsidiary's operations and (ii) copies of
any documents submitted by Debtor or any domestic Consolidated Subsidiary to the
United States Environmental Protection Agency or any state, county, or municipal
environmental or health agency concerning its operations.

         9.16. DEFEND COLLATERAL. Debtor shall defend the Collateral against the
claims and demands of all other parties (other than Secured  Party),  including,
without limitation, defenses, setoffs, and counterclaims asserted by any Account
Debtor against Debtor or Secured Party.

         9.17. USE OF PROCEEDS. Debtor shall use the proceeds of Advances solely
for  Debtor's  working  capital  and for such other  legal and proper  corporate
purposes  as are  consistent  with all  applicable  laws,  Debtor's  articles or
certificate  of  incorporation  and by-laws,  resolutions  of Debtor's  Board of
Directors, and the terms of this Agreement.

         9.18.  COMPLIANCE  WITH LAWS.  Debtor shall comply with all  applicable
laws,  rules,  regulations,  and other legal  requirements  with  respect to its
business  and the use,  maintenance,  and  operations  of the real and  personal
property owned or leased by it in the conduct of its business.

         9.19.  MAINTENANCE  OF PROPERTY.  Debtor shall  maintain its  property,
including,  without limitation, the Collateral, in good condition and repair and
shall prevent the  Collateral,  or any part  thereof,  from being or becoming an
accession to other goods not constituting Collateral.

         9.20  LICENSES,   PERMITS,  ETC.  Debtor  shall  maintain  all  of  its
franchises,  grants,  authorizations,  licenses, permits,  easements,  consents,
certificates,  and  orders,  if any,  in  full  force  and  effect  until  their
respective expiration dates.

         9.21.  TRADEMARKS  AND  PATENTS.  Debtor  shall  maintain  all  of  its
trademarks,   trademark  rights,  patents,  patent  rights,  licenses,  permits,
tradenames,  tradename rights,  and approvals,  if any, in full force and effect
until their respective expiration dates.

         9.22.  ERISA.  Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.

         9.23.  MAINTENANCE  OF  OWNERSHIP.  Debtor shall at all times  maintain
ownership of the  percentages  of issued and  outstanding  capital stock of each

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<PAGE>


Consolidated  Subsidiary  set forth in  Exhibit B and  notify  Secured  Party in
writing prior to the incorporation of any new Consolidated Subsidiary.

         9.24. ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions of
this Section 9.24 are expressly waived by Secured Party in writing, Debtor shall
cause each  domestic  Consolidated  Subsidiary to comply with Sections 9.1, 9.9,
9.11,  9.12,  9.15,  9.26  and  9.18  through  9.22,  inclusive,  and any of the
provisions  contained in Schedule,  and shall cause each  domestic  Consolidated
Subsidiary to refrain from doing any of the acts  proscribed  by Sections  10.2,
10.3, and 10.5 through 10.14, inclusive.

         9.25.  LABOR  DISPUTES.  Debtor shall notify the Secured Party promptly
upon Debtor's  learning of any material labor dispute to which Debtor may become
a party to, any strikes or walkouts  relating to any of its plants or any of its
facilities  and/or the  expiration  of any labor  contract to which  Debtor is a
party to or by which Debtor is bound.

         9.26.  FINANCIAL  COVENANTS.  The  financial  covenants  to include the
following:

         (a) The Debtor and its Consolidated  Subsidiaries shall maintain,  on a
consolidated  basis,  a ratio of Total  Liabilities to Tangible Net Worth of not
greater  than  1.5  to 1 (to  be  tested  quarterly  based  upon  the  financial
statements  required  to be  presented  to Secured  Party  pursuant to the terms
hereof).

         (b) The Debtor and its Consolidated  Subsidiaries shall maintain,  on a
consolidated  basis, a minimum  Tangible Net Worth (to be tested quarterly based
upon the financial statements required to be presented to Secured Party pursuant
to the terms hereof) of not less than:

                           (i) at June 30, 2007,  the actual  Tangible Net Worth
                           at June 30, 2006 plus $1,000,000, and

                           (ii) at June 30, 2008, the actual  Tangible Net Worth
                           at June 30, 2007 plus $1,000,000, and

                           (iii) at June 30, 2009, the actual Tangible Net Worth
                           at June 30, 2008 plus $1,000,000, and

                           (iv) at June 30, 2010, the actual  Tangible Net Worth
                           at June 30, 2009 plus $1,000,000, and

                           (v) at June 30, 2011,  the actual  Tangible Net Worth
                           at June 30, 2010 plus $1,000,000.

         (c) At all times,  the Debtor and its Consolidated  Subsidiaries  shall
maintain,  on a  consolidated  basis,  a ratio  of  Current  Assets  to  Current
Liabilities  of not less than 4.00 to 1, to be tested each fiscal quarter end of

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<PAGE>


each fiscal year, based upon the financial  statements  required to be presented
to Secured Party pursuant to Section 9.1. hereinabove.

         (d) The Debtor and its Consolidated  Subsidiaries shall maintain,  on a
consolidated  basis, a minimum "Debt Service Coverage Ratio" of 1.25 to 1, to be
tested at the end of each  fiscal  year,  based  upon the  financial  statements
required to be presented to Secured Party  pursuant to Section 9.1  hereinabove.
"Debt  Service  Coverage  Ratio" shall mean  earnings  before  interest,  taxes,
depreciation  and  amortization,  less  distributions,  all  divided  by current
portion of long term debt as of the prior fiscal year end plus interest expense.

         (e) At all times,  the Debtor and its Consolidated  Subsidiaries  shall
maintain,  on a  consolidated  basis,  a ratio  of the  aggregate  of cash  plus
Receivables to Current Liabilities of not less than 1.25 to 1, to be tested each
fiscal  quarter end of each fiscal  year,  based upon the  financial  statements
required to be presented to Secured Party pursuant to Section 9.1. hereinabove.

         (f) At all times,  the Debtor and its Consolidated  Subsidiaries  shall
maintain, on a consolidated basis, not less than forty (40%) of the value of all
of their  identifiable  assets (as disclosed in the 10K statement) in the United
States, to be tested at each fiscal year end.

         (g) The  above  ratios  of this  Section  9.26.  are  being  calculated
assuming  that in the last year of the Loan  Agreement,  the Advances  under the
Revolving Credit Facility are viewed as long term debt, unless there is an event
of default which is continuing under the Revolving Credit Facility.

         9.27.  Control  of  Certain  Collateral.  In  respect  of any  security
interest  granted  under  this  Agreement  by  Debtor  in any  Collateral  which
constitutes  Investment Property,  or Deposit Accounts,  Debtor shall enter into
one or more control agreements ("Control Agreement") among Debtor, Secured Party
and the  Securities  Intermediary  with respect to any  Investment  Property and
among Debtor, Secured Party and the depository bank with respect to each Deposit
Account,  on terms  satisfactory  to Bank,  giving Control over such property to
Secured Party. With respect to such property  constituting  Securities Accounts,
Debtor  may at any time  make a request  to  Secured  Party to permit  trades of
certain specified  Investment Property held in such Securities Account for other
specified  Investment  Property which shall be held in such Securities  Account.
Secured Party shall be under no  obligation  whatsoever to honor such request or
to permit or effect, through the Securities Intermediary, or otherwise, any such
trades and Secured  Party may in its sole and absolute  discretion  refuse to do
so. In no event is Debtor permitted to, and Debtor agrees that Debtor shall not,
withdraw  any  money or  property  from  such  Securities  Account  or modify or
terminate any Control  Agreement or any customer  agreement  with the Securities
Intermediary under which such Securities Account was established.  If any of the
Collateral constitutes  Letter-of-Credit Rights, Debtor shall at Secured Party's
request,  enter into an  assignment in favor of Secured Party of the proceeds of
the letters of credit  involved,  on terms  satisfactory  to Secured Party,  and
cause the issuer of each such letter of credit now existing or hereafter  issued
to consent to such assignment.  If any of the Collateral  constitutes Electronic
Chattel Paper,  Debtor shall, at Secured Party's request,  grant control of such
Electronic  Chattel Paper to Secured  Party in accordance  with Section 9-105 of

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<PAGE>


the  UCC.  Debtor  agrees  that all  items of  income,  gain,  expense  and loss
recognized in any such Securities Account or Deposit Account,  or any Securities
Account  holding  Collateral  or in  respect  of any other  Investment  Property
constituting  Collateral,  shall be reported to the Internal Revenue Service and
all  state  and  local   taxing   authorities   under  the  name  and   taxpayer
identification number of Debtor.

         9.28. GUARANTIES.  All future domestic Consolidated  Subsidiaries shall
execute  and  deliver to Secured  Party  payment  guaranties,  general  security
agreements  and  such  other   Transaction   Documents  that  current   domestic
Consolidated  Subsidiaries  have heretofore  delivered to Secured Party,  all in
form and substance  comparable to what has previously  been delivered to Secured
Party by existing domestic Consolidated Subsidiaries.

         10. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid  or this  Agreement  remains  in  effect,  Debtor  and  its  Consolidated
Subsidiaries,  without the written  consent of Secured Party,  shall not violate
any  covenant  contained  otherwise  herein and shall not,  and Debtor shall not
permit its Consolidated Subsidiaries to:

         10.1. LOCATION OF INVENTORY,  EQUIPMENT, AND BUSINESS RECORDS. Move the
Inventory,  Equipment or the records concerning the Collateral from the location
where  they are kept as  specified  herein,  except  in the  ordinary  course of
business.

         10.2.  BORROWED MONEY.  Create,  incur,  assume, or suffer to exist any
liability for borrowed  money,  except to Secured Party and except for permitted
Capital Expenditures.

         10.3. SECURITY INTEREST AND OTHER ENCUMBRANCES.  Create, incur, assume,
or suffer to exist any mortgage,  security interest,  other encumbrance or other
Lien upon any of its  properties  or  assets,  whether  now  owned or  hereafter
acquired (a) except in favor of Secured  Party,  (b) except all existing  liens,
mortgages,  or  encumbrances,  and (c) except in connection  with the grant of a
security  interest in Equipment in  connection  with  financing  the purchase of
Equipment or in connection with the leasing of Equipment in an aggregate  amount
not to exceed  $500,000.00  per fiscal year,  so long as Debtor is in compliance
with Sections 10.10 and 10.11. herein.

         10.4.  STORING  AND USE OF  COLLATERAL.  Place  the  Collateral  in any
warehouse which may issue a negotiable  Document with respect thereto or use the
Collateral in violation of any provision of the  Transaction  Documents,  of any
applicable  statute,  regulation,  or ordinance,  or of any policy  insuring the
Collateral.

         10.5. MERGERS, CONSOLIDATIONS, OR SALES.

                  (a) Merge or  consolidate  with or into any  corporation;  (b)
enter  into  any  joint  venture  or  partnership  with  any  person,  firm,  or
corporation;  (c)  convey,  lease,  or sell all or any  material  portion of its
property or assets or business to any other person,  firm, or corporation except
for the  sale  of  Inventory  in the  ordinary  course  of its  business  and in

                                       30
<PAGE>


accordance with the terms of this Agreement;  or (d) convey,  lease, or sell any
of its assets to any person,  firm or corporation  for less than the fair market
value thereof.

         10.6.  CAPITAL  STOCK.  Purchase or retire any of its capital  stock or
issue any capital stock, except (1) in connection with its employee stock option
plan and its  non-employee  stock  option  plan and (2) pro rata to its  present
stockholders,  or otherwise change the capital structure of Debtor or change the
relative  rights,  preferences,  or  limitations  relating to any of its capital
stock, and (iii) Debtor may purchase up to one million shares, in the aggregate,
of  its  own  common  voting  stock,  as  expressly  permitted  in  Section  2.2
hereinabove.

         10.7.  DIVIDENDS  OR  DISTRIBUTIONS.  Pay or declare  any cash or other
dividends or distributions  (other than stock dividends or stock  distributions)
on any of its corporate  stock,  or permit a  Consolidated  Subsidiary to pay or
declare any cash or other dividends or distributions (other than stock dividends
or  stock  distribution)  on any  of the  corporate  stock  of any  Consolidated
Subsidiary  other than cash or other dividends or other  distributions to Debtor
or any other Consolidated Subsidiary.

         10.8. INVESTMENTS AND ADVANCES. Make any investment in, or advances to,
any other person, firm, or corporation,  except (a) advance payments or deposits
against purchases made in the ordinary course of Debtor's regular business;  (b)
direct  obligations  of the  United  States of  America,  money-market  funds or
certificates  of  deposit;  or (c) any  existing  investments  in,  or  existing
advances to, the Consolidated Subsidiaries.

         10.9. GUARANTIES. Become a guarantor, a surety, or otherwise liable for
the  debts or other  obligations  of any other  person,  firm,  or  corporation,
whether by guaranty or suretyship agreement, agreement to purchase indebtedness,
agreement  for  furnishing  funds  through the purchase of goods,  supplies,  or
services (or by way of stock purchase,  capital contribution,  advance, or loan)
for the purpose of paying or discharging indebtedness,  or otherwise,  except as
an  endorser  of  instruments  for the  payment of money  deposited  to its bank
account for collection in the ordinary course of business.

         10.10.  LEASES.  Enter,  as lessee,  into any lease of real or personal
property (whether such lease is classified on Debtor's financial statements as a
capital lease or operating lease) in excess of $500,000 per fiscal year.

         10.11.  CAPITAL  EXPENDITURES.  During any fiscal  year during the Loan
Period,   cause  the  Capital   Expenditures  of  Debtor  and  its  Consolidated
Subsidiaries to exceed, on a combined basis, $2,500,000.

         10.12.  FINANCIAL STATEMENTS.  Fail to deliver the financial statements
and reports set forth in Section 9.1. hereof within the time frames specified.

         10.13. NAME CHANGE. Change its name without giving at least thirty (30)
days prior written  notice of its proposed new name to Secured  Party,  together


                                       31
<PAGE>


with delivery to Secured Party of UCC-1 Financing Statements reflecting Debtor's
new name, all in form and substance satisfactory to Secured Party.

         10.14. DISPOSITION OF COLLATERAL.  Sell, assign, or otherwise transfer,
dispose of, or encumber  the  Collateral  or any  interest  therein,  or grant a
security  interest  therein,  or license  thereof,  except to Secured  Party and
except the sale or lease of  Inventory  in the  ordinary  course of  business of
Debtor and in accordance with the terms of this Agreement.

         10.15. FINANCIAL COVENANTS. Fail to comply with the financial covenants
set forth in Section 9.26. hereinabove.

         10.16.  NEGATIVE  PLEDGE.  Encumber  or cause to  encumber  the  assets
(personal  property,  fixtures or real  property)  of  NAPCO/Alarm  Lock,  NAPCO
Europe, NAPCO Cayman Islands, NAPCO Dominican Republic or any other non domestic
Consolidated Subsidiary.

         10.17. GUARANTY,  SECURITY AGREEMENT OF NAPCO GULF SECURITY GROUP, LLC.
Fail to execute and deliver to Secured Party the unlimited  continuing  guaranty
and continuing  general security  agreement of NAPCO Gulf, in the same format as
those guaranties and security  agreements of Alarm Lock and Continental in favor
of Secured  Party upon such time as NAPCO Gulf's sales or assets  exceeds 10% of
the Debtor's consolidated sales or assets, as the case may be.

         10.18  PLEDGE  OF  ASSETS,  NEGATIVE  PLEDGE  OF  FUTURE  NON  DOMESTIC
CONSOLIDATED SUBSIDIARIES. Except with respect to NAPCO Cayman Islands and NAPCO
Dominican  Republic,  the obligations as to which are set forth in Section 10.20
hereof,  fail to (i) execute  and deliver to Secured  Party the pledge of 65% of
the stock of any future  acquired non domestic  Consolidated  Subsidiary,  along
with the negative pledge of such non domestic  Consolidated  Subsidiary,  in the
same  format as those  pledge  agreements  and  negative  pledge  agreements  of
NAPCO/Alarm  Lock and NAPCO Europe,  and (ii) deliver to Secured Party the stock
pledges and  original  stock  certificates,  and such other  documents as may be
necessary to perfect the pledge of stock in favor of Secured Party.

         10.19.  GUARANTY,  SECURITY  AGREEMENT OF FUTURE DOMESTIC  CONSOLIDATED
SUBSIDIARIES OR ACQUIRED COMPANIES. Fail to execute and deliver to Secured Party
the unlimited  continuing  guaranty and continuing general security agreement of
any future  acquired  domestic  Consolidated  Subsidiary,  in the same format as
those guaranties and security  agreements of Alarm Lock and Continental in favor
of Secured Party.

         10.20 PLEDGE OF ASSETS,  NEGATIVE  PLEDGE OF NAPCO  Cayman  Islands and
NAPCO  Dominican  Republic.  Fail to,  prior to the  transfer  of  assets or the
funding of NAPCO Cayman Islands and/or NAPCO Dominican Republic,  (i) notify the
Secured  Party in writing of such  transfer  and/or  funding,  (ii)  execute and
deliver  to the  Secured  Party the  pledge of 65% of the stock of NAPCO  Cayman
Islands and/or NAPCO Dominican Republic,  along with the negative pledge of such
non domestic Consolidated  Subsidiary,  in the same format and on the same terms
as the documents presented to Debtor prior to the date hereof, and (iii) deliver

                                       32
<PAGE>


to Secured Party the stock pledges and original  stock  certificates  to Secured
Party in the same  format in the same  format  as those  pledge  agreements  and
negative pledge agreements of NAPCO/Alarm Lock and NAPCO Europe,  and such other
documents as may be necessary to perfect the pledge of stock in favor of Secured
Party.

11. EVENTS OF DEFAULT.

         11.1.  EVENTS  OF  DEFAULT.  The  occurrence  of any one or more of the
following events shall constitute an event of default (individually, an Event of
Default and, collectively, Events of Default):

                  (a)   Nonpayment.   Nonpayment  when  due  of  any  principal,
interest,  premium,  fee, cost, or expense due under the Transaction  Documents,
and such  nonpayment  is not cured within ten (10) days after notice  thereof by
Secured Party to Debtor.

                  (b)  Negative  Covenants.  Default  in the  observance  of any
covenant or agreement of Debtor contained in Article 10, and any such default is
not cured by Debtor or waived by Secured Party within ten (10) days after notice
thereof by Secured Party to Debtor.

                  (c) intentionally deleted prior to execution.

                  (d) Other  Covenants.  Default in the observance of any of the
covenants or agreements of Debtor contained in the Transaction Documents,  other
than in Article 10 or Sections 7.1, 7.2, 7.3, or 7.4, or in any other  agreement
with Secured Party which is not remedied  within the earlier of thirty (30) days
after (i) notice thereof by Secured Party to Debtor, or (ii) ten (10) days after
date Debtor was required to give notice to Secured Party under Section 9.14.

                  (e) Cessation of Business or Voluntary Insolvency Proceedings.
The (i) cessation of operations of Debtor's business as conducted on the date of
this Agreement;  (ii) filing by Debtor of a petition or request for liquidation,
reorganization,  arrangement, adjudication as a bankrupt, relief as a debtor, or
other relief  under the  bankruptcy,  insolvency,  or similar laws of the United
States of America or any state or territory thereof or any foreign  jurisdiction
now or hereafter in effect;  (iii) making by Debtor of a general  assignment for
the benefit of  creditors;  (iv) consent by the Debtor to the  appointment  of a
receiver or trustee, including, without limitation, a "custodian," as defined in
the Federal Bankruptcy Code, for Debtor or any of Debtor's assets; (v) making of
any,  or sending of any,  notice of any  intended  bulk sale by Debtor;  or (vi)
execution  by Debtor of a consent  to any other  type of  insolvency  proceeding
(under the  Federal  Bankruptcy  Code or  otherwise)  or any formal or  informal
proceeding  for the  dissolution  or  liquidation  of, or settlement  of, claims
against or winding up of affairs of, Debtor.

                  (f) Involuntary Insolvency Proceedings. (i) The appointment of
a  receiver,  trustee,  custodian,  or  officer  performing  similar  functions,
including,  without  limitation,  a  "custodian,"  as  defined  in  the  Federal
Bankruptcy  Code,  for Debtor or any of Debtors  assets;  or the filing  against
Debtor of a request or petition for  liquidation,  reorganization,  arrangement,

                                       33
<PAGE>


adjudication as a bankrupt, or other relief under the bankruptcy, insolvency, or
similar laws of the United States of America, any state or territory thereof, or
any foreign  jurisdiction  now or hereafter  in effect;  or of any other type of
insolvency  proceeding  (under the Federal  Bankruptcy Code or otherwise) or any
formal or informal  proceeding for the dissolution or liquidation of, settlement
of claims  against,  or  winding up of  affairs  of Debtor  shall be  instituted
against Debtor; and (ii) such appointment shall not be vacated, or such petition
or  proceeding  shall  not be  dismissed,  within  sixty  (60) days  after  such
appointment, filing, or institution.

                  (g) Other  Indebtedness  and Agreements.  Failure by Debtor to
pay, when due, (or, if permitted by the terms of any  applicable  documentation,
within any applicable grace period) any indebtedness  owing by Debtor to Secured
Party or any other  person  or entity  (other  than the  Indebtedness  incurred,
pursuant to this  Agreement,  and including,  without  limitation,  indebtedness
evidencing a deferred purchase price),  whether such  indebtedness  shall become
due by scheduled maturity, by required prepayment,  by acceleration,  by demand,
or  otherwise,  or  failure  by the Debtor to  perform  any term,  covenant,  or
agreement on its part to be performed  under any agreement or instrument  (other
than  a  Transaction  Document)  evidencing  or  securing  or  relating  to  any
indebtedness owing by Debtor when required to be performed if the effect of such
failure is to permit the holder to accelerate the maturity of such indebtedness,
and such failure is not cured within  thirty (30) days after such failure to pay
when due.

                  (h) Judgments. Any judgment or judgments against Debtor (other
than any  judgment  for which  Debtor is fully  insured)  shall  remain  unpaid,
unstayed  on appeal,  undischarged,  unbonded,  or  undismissed  for a period of
thirty (30) days.

                  (i) Pension Default.  Any Reportable Event which Secured Party
shall  determine in good faith  constitutes  grounds for the  termination of any
Pension Plan by the Pension Benefit Guaranty Corporation, or for the appointment
by an  appropriate  United States  district court of a trustee to administer any
Pension  Plan,  shall occur and shall  continue  thirty (30) days after  written
notice  thereof to Debtor by Secured  Party;  or the  Pension  Benefit  Guaranty
Corporation  shall  institute  proceedings  to terminate  any Pension Plan or to
appoint a  trustee  to  administer  any  Pension  Plan;  or a  trustee  shall be
appointed by an  appropriate  United States  district  court to  administer  any
Pension  Plan;  or any  Pension  Plan  shall be  terminated;  or  Debtor  or any
Consolidated  Subsidiary  shall  withdraw  from a  Pension  Plan  in a  complete
withdrawal  or a  partial  withdrawal;  or there  shall  arise  vested  unfunded
liabilities  under any Pension Plan that,  in the good faith  opinion of Secured
Party,  have or will or might have a material  adverse effect on the finances or
operations of Debtor; or Debtor or any Consolidated Subsidiary shall fail to pay
to any Pension  Plan any  contribution  which it is  obligated  to pay under the
terms of such  plan or any  agreement  or which is  required  to meet  statutory
minimum  funding  standards,  and such pension  default is not  remedied  within
thirty (30) days of default;

                  (j) Collateral;  Impairment. There shall occur with respect to
the Collateral any (i) misappropriation,  conversion,  diversion, or fraud; (ii)
levy, seizure, or attachment; or (iii) material loss, theft, or damage, and such
impairment is not cured to the reasonable  satisfaction  of Secured Party within
ten (10) days of written notice by Secured Party to Debtor.

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<PAGE>


                  (k) Insecurity; Change. Secured Party shall reasonably believe
in good  faith  that  the  prospect  of  payment  of all,  or any  part,  of the
Indebtedness  or  performance  of  Debtor's  obligations  under the  Transaction
Documents or any other  agreement  between Secured Party and Debtor is impaired;
or there shall occur any materially  adverse change in the business or financial
condition of Debtor.

                  (l) Third Party Default. There shall occur with respect to any
Third Party or any Consolidated Subsidiary,  including,  without limitation, any
guarantor or Consolidated Subsidiary (i) any event described in Section 11.1(e),
11.1(f),  11.1(g), or 11.1(h);  (ii) any pension default event such as described
in Section  11.1(i) with respect to any pension  plan  maintained  by such Third
Party or such  Consolidated  Subsidiary;  or (iii) any failure by Third Party or
such  Consolidated  Subsidiary  to perform in  accordance  with the terms of any
agreement  between  such Third  Party and  Secured  Party,  and such Third Party
default remains unremedied within thirty (30) days of default.

                  (m)    Representations.     Any    certificate,     statement,
representation,  warranty, or financial statement furnished by, or on behalf of,
Debtor or any Third Party,  pursuant to, or in connection  with,  this Agreement
(including, without limitation, representations and warranties contained herein)
or as an inducement  to Secured Party to enter into this  Agreement or any other
lending  agreement  with Debtor  shall prove to have been false in any  material
respect at the time as of which the facts therein set forth were certified or to
have  omitted any  substantial  contingent  or  unliquidated  liability or claim
against  Debtor or any such Third Party,  or if on the date of the  execution of
this Agreement there shall have been any materially adverse change in any of the
facts  disclosed by any such statement or certificate  which shall not have been
disclosed  in  writing  to  Secured  Party  at,  or prior  to,  the time of such
execution.

                  (n) Challenge to Validity. Debtor or any Third Party commences
any action or  proceeding  to contest  the  validity  or  enforceability  of any
Transaction  Document or any lien or security  interest  granted or  obligations
evidenced by any Transaction Document.

                  (o) Death or Incapacity;  Termination. Any Third Party dies or
becomes  incapacitated,  or terminates  or attempts to terminate,  in accordance
with its terms or otherwise, any guaranty or other Transaction Document executed
by such Third Party.

                  (p)  Control   Agreements/Letters  of  Credit.  If  a  Control
Agreement has been entered into with respect to  Investment  Property or Deposit
Accounts,   or  Secured  Party  has  control  of  Electronic  Chattel  Paper  or
Letter-of-Credit  Rights,  the  termination  or  purported  termination  of such
Control  Agreement  without  the  consent of Secured  Party,  or the  Securities
Intermediary  thereto or the custodian or issuer of the property  subject to the
Control  Agreement or the issuer of a letter of credit that has been assigned to
Secured  Party or the  custodian of  Electronic  Chattel  Paper in which Secured
Party has been granted a security interest hereunder  challenges the validity of
or its liability under the Control  Agreement,  or any default occurs thereunder
or disputes the assignment of such property to Secured Party or Secured  Party's
control of such property.

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<PAGE>


                  (q) Location of Collateral  within the United  States.  If, at
any time during the Loan Period, Debtor and its Consolidated  Subsidiaries shall
fail to  maintain,  on a  consolidated  basis,  not less than fifty (50%) of the
value of all of their identifiable assets (as disclosed in the 10K statement) in
the United States, to be tested at each fiscal year end.

                  (r) The occurrence of any of the following events with respect
to Debtor or any Responsible  Party, or any guarantor of the  Indebtedness:  (i)
the  occurrence  of an event of default  in  respect  of any other  liabilities,
obligations or agreements,  present future,  absolute or contingent,  secured or
unsecured,  matured or unmatured, several or joint, original or acquired, of any
of the  Responsible  Parties to or with Secured  Party;  (ii)  suspension of the
usual business  activities of any member of any partnership or limited liability
company included in the term "the Responsible Parties"; (iii) making, or sending
a notice of, an intended bulk  transfer;  (iv)  granting a security  interest to
anyone other than Secured Party in any property  including,  without limitation,
the rights of any of the  Responsible  Parties in the  Collateral  or permitting
such security  interest to exist;  (iv) suspension of payment;  (v) the whole or
partial  suspension or  liquidation  of its usual  business;  (vi)  commencement
against any of the  Responsible  Parties of any proceeding for  enforcement of a
money  judgment under Article 52 of the New York Civil Practice Law and Rules or
amendments  thereto;  (vii) if any of the  Responsible  Parties or if any of the
Indebtedness  or Collateral at any time fails to comply with Regulation U of the
Federal  Reserve  Board or any  amendments  thereto;  (viii) the issuance of any
warrant, process or order of attachment,  garnishment or lien, and/or the filing
of a Lien as a result  thereof  against  any of the  property  of  Debtor or any
Responsible Party whether or not Collateral; (ix) any of the Responsible Parties
challenges or institutes any  proceeding,  or any  proceedings  are  instituted,
which  challenge  the  validity,   binding  effect  or  enforceability  of  this
Agreement;  (x) any of the  Responsible  Parties makes,  receives or retains any
payment on account of indebtedness subordinated to the Indebtedness in violation
of the terms of such subordination; or(xi) any of the Responsible Parties or any
partnership or limited liability company of which any of the Responsible Parties
is a member is expelled from or suspended by any stock or securities exchange or
other exchange.

         11.2. EFFECTS OF AN EVENT OF DEFAULT.

                  (a)  Upon  the  happening  of one or more  Events  of  Default
(except an Event of Default under either  Section  11.1(e) or 11.1(f)),  Secured
Party may declare any obligations it may have hereunder to be cancelled, and the
principal  of the  Indebtedness  then  outstanding  to be  immediately  due  and
payable,  together  with all interest  thereon and costs and  expenses  accruing
under the Transaction Documents. Upon such declaration,  any obligations Secured
Party may have hereunder shall be immediately  cancelled,  and the  Indebtedness
then outstanding shall become immediately due and payable without  presentation,
demand, or further notice of any kind to Debtor.

                  (b) Upon the  happening of one or more Events of Default under
Section  11.1(e) or 11.1(f),  Secured  Party's  obligations  hereunder  shall be
cancelled immediately,  automatically,  and without notice, and the Indebtedness
then outstanding shall become immediately due and payable without  presentation,
demand, or notice of any kind to the Debtor.

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<PAGE>


12. SECURED PARTY'S RIGHTS AND REMEDIES.

         12.1.  GENERALLY.  Secured  Party's rights and remedies with respect to
the  Collateral,  in addition to those  rights  granted  herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect,  shall be
those of a secured party under the Uniform  Commercial  Code as in effect in the
State and under any other applicable law.

         12.2. INTENTIONALLY DELETED PRIOR TO EXECUTION.

         12.3.  POSSESSION  OF  COLLATERAL.  Whenever  Secured  Party  may  take
possession of the Collateral,  pursuant to Section 12.1,  Secured Party may take
possession of the Collateral on Debtor's  premises or may remove the Collateral,
or any part thereof,  to such other places as the Secured Party may, in its sole
discretion,  determine. If requested by Secured Party, Debtor shall assemble the
Collateral and deliver it to Secured Party at such place as may be designated by
Secured Party.

         12.4.  COLLECTION OF  RECEIVABLES.  Upon the  occurrence of an Event of
Default  or an  event  which  with  notice  or lapse  of  time,  or both,  would
constitute an Event of Default,  Secured Party may demand,  collect, and sue for
all monies and  proceeds  due, or to become due, on the  Receivables  (in either
Debtor's  or Secured  Party's  name at the  latter's  option)  with the right to
enforce,  compromise,  settle,  or discharge any or all Receivables.  If Secured
Party  takes  any  action  contemplated  by this  Section  with  respect  to any
Receivable, Debtor shall not exercise any right that Debtor would otherwise have
had to take such action with respect to such Receivable.

         12.5. INTENTIONALLY DELETED PRIOR TO EXECUTION

         12.6. LICENSE TO USE PATENTS, TRADEMARKS AND TRADENAMES.  Debtor grants
to Secured Party a royalty-free license to use any and all patents,  trademarks,
and  tradenames  now or  hereafter  owned by, or  licensed  to,  Debtor  for the
purposes of manufacturing  and disposing of Inventory after the occurrence of an
Event of Default. All Inventory shall at least meet quality standards maintained
by Debtor prior to such Event of Default.

13.      MISCELLANEOUS.

         13.1.  PERFECTING THE SECURITY  INTEREST;  PROTECTING  THE  COLLATERAL.
Debtor  hereby  authorizes  Secured  Party  to file  such  financing  statements
relating to the Collateral  without Debtor's  signature thereon as Secured Party
may deem  appropriate,  and appoints Secured Party as Debtor's  attorney-in-fact
(without  requiring  Secured Party) to execute any such  financing  statement or
statements  in Debtor's  name and to perform all other acts which  Secured Party
deems  appropriate to perfect and continue the Security Interest and to protect,
preserve, and realize upon the Collateral.

         13.2.  PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to perform
any  of  its  duties  under  the  Transaction  Documents,   including,   without

                                       37
<PAGE>


limitation,  the duty to obtain insurance as specified in Section 9.11,  Secured
Party may, but shall not be obligated to, perform any or all such duties.

         13.3.  NOTICE OF SALE.  Without in any way requiring notice to be given
in the following manner, Debtor agrees that any notice by Secured Party of sale,
disposition,  or other intended  action  hereunder,  or in connection  herewith,
whether  required  by the Uniform  Commercial  Code as in effect in the State or
otherwise, shall constitute reasonable notice to Debtor if such notice is mailed
by regular or certified mail,  postage prepaid,  at least five (5) days prior to
such action,  to Debtor's  address or addresses  specified above or to any other
address which Debtor has specified in writing to Secured Party as the address to
which notices hereunder shall be given to Debtor.

         13.4.  WAIVER BY SECURED PARTY. No course of dealing between Debtor and
Secured Party and no delay or omission by Secured Party in exercising  any right
or remedy under the  Transaction  Documents or with respect to any  Indebtedness
shall operate as a waiver thereof or of any other right or remedy, and no single
or partial exercise thereof shall preclude any other or further exercise thereof
or the exercise of any other right or remedy. All rights and remedies of Secured
Party are cumulative.

         13.5. WAIVER BY DEBTOR. Secured Party shall have no obligation to take,
and Debtor shall have the sole  responsibility  for taking, any and all steps to
preserve  rights  against  any and all  Account  Debtors and against any and all
prior  parties to any note,  Chattel  Paper,  draft,  trade  acceptance or other
instrument for the payment of money covered by the Security Interest, whether or
not in Secured  Party's  possession.  Secured Party shall not be  responsible to
Debtor for loss or damage  resulting from Secured Party's failure to enforce any
Receivables or to collect any moneys due, or to become due,  thereunder or other
Proceeds constituting  Collateral hereunder.  Debtor waives protest of any note,
check,  draft,  trade  acceptance,  or other instrument for the payment of money
constituting  Collateral at any time held by Secured Party on which Debtor is in
any way liable and waives  notice of any other  action  taken by Secured  Party,
including,  without  limitation,  notice of Secured Party's intent to accelerate
the Indebtedness or any part thereof.

         13.6.  SETOFF.  Without  limiting  any other  right of  Secured  Party,
whenever  Secured  Party  has  the  right  to  declare  any  Indebtedness  to be
immediately due and payable (whether or not it has so declared),  Secured Party,
at its sole  election,  may setoff against the  Indebtedness  any and all monies
then or thereafter  owed to Debtor by Secured Party in any capacity,  whether or
not the  Indebtedness or the obligation to pay such monies owed by Secured Party
is then due, and Secured Party shall be deemed to have  exercised  such right of
setoff  immediately at the time of such election even though any charge therefor
is made or entered on Secured Party's records subsequent thereto.

         13.7.  ASSIGNMENT.  The rights and benefits of Secured Party  hereunder
shall, if Secured Party so agrees,  inure to any party acquiring any interest in
the  Indebtedness  or any part thereof.  Prior to the  occurrence of an Event of
Default  hereunder,  Secured  Party  shall give  Debtor  ninety  (90) days prior
written  notice of an  assignment  in full of its interest in the  Indebtedness,
with the exception of  assignments  of its interest in the  Indebtedness  due to
acquisition, merger, consolidation, takeover or such other like activity.

                                       38
<PAGE>


         13.8. SUCCESSORS AND ASSIGNS. Secured Party and Debtor, as used herein,
shall  include the  successors or assigns of those  parties,  except that Debtor
shall not have the right to assign its rights hereunder or any interest herein.

         13.9. MODIFICATION.  No modification,  rescission,  waiver, release, or
amendment of any  provision of this  Agreement  shall be made,  except as may be
provided in a written  agreement signed by Debtor and a duly authorized  officer
of Secured Party.

         13.10.  COUNTERPARTS.  This  Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor on separate counterparts,  each of
which,  when so executed and delivered,  shall be an original,  but all of which
shall together constitute one and the same Agreement.

         13.11.   GENERALLY  ACCEPTED  ACCOUNTING   PRINCIPLES.   Any  financial
calculation to be made, all financial statements and other financial information
to be  provided,  and all books and  records to be kept in  connection  with the
provision  of this  Agreement,  shall be in  accordance  with GAAP  consistently
applied during each interval and from interval to interval;  provided,  however,
that in the event changes in GAAP shall be mandated by the Financial  Accounting
Standards Board or any similar accounting body of comparable standing, or should
be  recommended by Debtor's  certified  public  accountants,  to the extent such
changes  would  affect  any  financial  calculations  to be made  in  connection
herewith,  such changes shall be  implemented in making such  calculations  only
from and after such date as Debtor and  Secured  Party shall have  amended  this
Agreement to the extent  necessary to reflect such changes in the  financial and
other covenants to which such calculations relate.

         13.12. INDEMNIFICATION.

                  (a) If after  receipt of any  payment of all,  or any part of,
the Indebtedness,  Secured Party is, for any reason, compelled to surrender such
payment to any person or entity because such payment is determined to be void or
voidable as a  preference,  an  impermissible  setoff,  or a diversion  of trust
funds, or for any other reason, the Transaction Documents shall continue in full
force and Debtor shall be liable,  and shall  indemnify  and hold Secured  Party
harmless  for, the amount of such payment  surrendered.  The  provisions of this
Section shall be and remain effective  notwithstanding any contrary action which
may have been taken by Secured Party in reliance upon such payment, and any such
contrary  action so taken shall be without  prejudice to Secured  Party's rights
under the  Transaction  Documents  and shall be deemed to have been  conditioned
upon such payment  having become final and  irrevocable.  The provisions of this
Section  13.12(a)  shall  survive  the  termination  of this  Agreement  and the
Transaction Documents.

                  (b)  Debtor  agrees to  indemnify,  defend  and hold  harmless
Secured  Party from,  and against,  any and all  liabilities,  claims,  damages,
penalties,  expenditures, losses, or charges, including, but not limited to, all
costs of investigation,  monitoring,  legal representations,  remedial response,
removal, restoration or permit acquisition,  which may now, or in the future, be
undertaken,  suffered, paid, awarded, assessed, or otherwise incurred by Secured

                                       39
<PAGE>


Party or any other person or entity as a result of the presence of,  Release of,
or  threatened  Release  of  Hazardous  Substances  on, in,  under,  or near the
property owned, leased or operated by Debtor or any Consolidated Subsidiary. The
liability of Debtor under the covenants of this Section  13.12(b) is not limited
by any exculpatory  provisions in this Agreement or any other documents securing
the Indebtedness and shall survive repayment of the Indebtedness or any transfer
or  termination  of this  Agreement  regardless of the means of such transfer or
termination. Debtor agrees that Secured Party shall not be liable in any way for
the  completeness  or accuracy of any  Environmental  Report or the  information
contained therein.  Debtor further agrees that Secured Party has no duty to warn
Debtor or any other person or entity about any actual or potential environmental
contamination  or other  problem that may have become  apparent,  or will become
apparent, to Secured Party.

                  (c) Debtor  agrees to pay,  indemnify,  and hold Secured Party
harmless  from,  and  against,  any and all  liabilities,  obligations,  losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever  (including,  without  limitation,  counsel and
special  counsel  fees and  disbursements  in  connection  with any  litigation,
investigation,  hearing,  or  other  proceeding)  with  respect,  or in any  way
related, to the existence,  execution, delivery,  enforcement,  performance, and
administration of this Agreement and any other Transaction  Document (all of the
foregoing,  collectively, the "Indemnified Liabilities"). The agreements in this
Section 13.12(c) shall survive repayment of the Indebtedness.

         13.13. TERMINATION.

                   This  Agreement  is,  and is  intended  to be,  a  continuing
Agreement  and shall  remain in full  force and  effect for the Term and for any
renewal term, if any; provided,  however,  that Secured Party may terminate this
Agreement by giving  Debtor  notice to terminate in writing at least one hundred
twenty (120) days prior to the end of the Term  whereupon at the end of the Term
all Indebtedness shall be due and payable in full without presentation,  demand,
or  further  notice  of any  kind,  whether  or not  all or  any  part  of  such
Indebtedness  is  otherwise  due  and  payable  pursuant  to  the  agreement  or
instrument  evidencing  same.  Notwithstanding  the  above,  Secured  Party  may
terminate  this  Agreement  immediately  and without  further  notice (except as
specifically provided for herein or in the other Transaction Documents) upon the
occurrence of an uncured or unremedied  Event of Default  herein or under any of
the Transaction  Documents.  In addition, the one hundred twenty (120) day prior
notice provision  contained in this Section 13.13.  does not apply and shall not
be  enforceable  in the  event  that an  uncured  default  has  occurred  and is
continuing  under the Transaction  Documents with respect to payment  covenants,
bankruptcy  covenants  or  bankruptcy  events of  default,  financial  covenants
contained in Section 9.26. herein, the negative covenants  contained in Sections
10.11, 10.15 and 10.16 herein, the cross-default with other creditors covenants,
and the event of default  specified in Section 11.1.  (q).  Notwithstanding  the
foregoing  or anything in this  Agreement  or  elsewhere  to the  contrary,  the
Security  Interest,  Secured  Party's rights and remedies under the  Transaction
Documents  and  Debtor's  obligations  and  liabilities  under  the  Transaction
Documents,  shall survive any  termination of this Agreement and shall remain in
full force and effect until all of the Indebtedness  outstanding,  or contracted
or committed for (whether or not outstanding), before the receipt of such notice
by Secured Party, and any extensions or renewals thereof (whether made before or
after receipt of such notice),  together  with interest  accruing  thereon after

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<PAGE>


such notice,  shall be finally and irrevocably paid in full. No Collateral shall
be  released  or  financing  statement  terminated  until:  (i) such  final  and
irrevocable  payment in full of the  Indebtedness  as described in the preceding
sentence;  and (ii) Debtor and Secured Party execute a mutual  general  release,
subject to Section 13.12 of this Agreement,  in form and substance  satisfactory
to the Secured Party and Debtor and their counsel.

         13.14.  FURTHER  ASSURANCES.  From time to time, Debtor shall take such
action and  execute  and  deliver to Secured  Party such  additional  documents,
instruments,  certificates,  and  agreements  as  Secured  Party may  reasonably
request to effectuate the purposes of the Transaction Documents.

         13.15.  HEADINGS.  Article and Section  headings used in this Agreement
are  for  convenience  only  and  shall  not  affect  the  construction  of this
Agreement.

         13.16. CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery of
this  Agreement  shall in no  manner  impair or affect  any other  security  (by
endorsement or otherwise) for payment or performance of the Indebtedness, and no
security  taken  hereafter  as  security  for  payment  or  performance  of  the
Indebtedness  shall  impair  in any  manner  or affect  this  Agreement,  or the
security  interest  granted  hereby,  all such  present  and  future  additional
security to be considered as cumulative security.

         13.17. SECURED PARTY'S DUTIES.  Without limiting any other provision of
this Agreement:  (a) the powers  conferred on Secured Party hereunder are solely
to protect  its  interests  and shall not impose any duty to  exercise  any such
powers; and (b) except as may be required by applicable law, Secured Party shall
not have any duty as to any  Collateral  or as to the  taking  of any  necessary
steps to preserve  rights against any parties or any other rights  pertaining to
any Collateral.

         13.18. NOTICE GENERALLY. All notices and other communications hereunder
shall be made by telegram, telex, electronic transmitter, overnight air courier,
or certified or registered mail, return receipt  requested,  and shall be deemed
to be received by the party to whom sent one Business Day after sending, if sent
by telegram,  telex,  electronic transmitter or overnight air courier, and three
Business Days after mailing,  if sent by certified or registered  mail. All such
notices and other  communications  to a party  hereto shall be addressed to such
party at the address set forth on the cover page hereof or to such other address
as such party may  designate  for itself in a notice to the other party given in
accordance  with this  Section  13.18.  Notices  to Debtor  shall be sent to the
attention of the Senior Vice President for  Operations  and Finance.  As of this
date the Senior Vice President for Operations and Finance is Kevin Buchel.

         13.19.  SEVERABILITY.  The provisions of this Agreement are independent
of, and separable from,  each other,  and no such provision shall be affected or
rendered  invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part. If any
provision of this Agreement is prohibited or unenforceable in any  jurisdiction,
such provision shall be ineffective in such  jurisdiction  only to the extent of
such prohibition or  unenforceability,  and such prohibition or unenforceability

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<PAGE>


shall not  invalidate  the  balance  of such  provision  to the extent it is not
prohibited  or  unenforceable  nor  render  prohibited  or  unenforceable   such
provision in any other jurisdiction.

         13.20.  INCONSISTENT  PROVISIONS.  The terms of this  Agreement and the
other  Transaction  Documents shall be cumulative except to the extent that they
are specifically  inconsistent  with each other, in which case the terms of this
Agreement shall prevail.

         13.21.  ENTIRE  AGREEMENT.  This  Agreement  and the other  Transaction
Documents constitute the entire agreement and understanding  between the parties
hereto with respect to the  transactions  contemplated  hereby and supersede all
prior  negotiations,  understandings,  and agreements  between such parties with
respect to such transactions,  including, without limitation, those expressed in
any commitment letter delivered by Secured Party to Debtor.

         13.22.  APPLICABLE LAW. THIS AGREEMENT,  AND THE TRANSACTIONS EVIDENCED
HEREBY,  SHALL BE GOVERNED BY, AND  CONSTRUED  UNDER,  THE INTERNAL  LAWS OF THE
STATE,  WITHOUT  REGARD TO  PRINCIPLES OF CONFLICTS OF LAW, AS THE SAME MAY FROM
TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN THE STATE.

         13.23. CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT ANY
ACTION OR PROCEEDING TO ENFORCE,  OR ARISING OUT OF, THE  TRANSACTION  DOCUMENTS
MAY BE  COMMENCED  IN ANY COURT OF THE STATE IN ANY COUNTY,  OR IN THE  DISTRICT
COURT OF THE  UNITED  STATES  IN ANY  DISTRICT,  IN WHICH  SECURED  PARTY HAS AN
OFFICE,  AND DEBTOR WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS
AND  COMPLAINT  COMMENCING  AN ACTION OR  PROCEEDING  IN ANY SUCH COURT SHALL BE
PROPERLY SERVED AND SHALL CONFER  PERSONAL  JURISDICTION IF SERVED BY REGISTERED
OR CERTIFIED MAIL TO DEBTOR,  OR AS OTHERWISE  PROVIDED BY THE LAWS OF THE STATE
OR THE UNITED STATES.

         13.24.  JURY TRIAL WAIVER.  DEBTOR AND SECURED PARTY HEREBY  KNOWINGLY,
VOLUNTARILY,  AND  INTENTIONALLY  WAIVE  ANY  RIGHT TO TRIAL BY JURY  DEBTOR  OR
SECURED  PARTY MAY HAVE IN ANY ACTION OR  PROCEEDING,  IN LAW OR IN  EQUITY,  IN
CONNECTION WITH THE TRANSACTION  DOCUMENTS OR THE TRANSACTIONS  RELATED THERETO.
DEBTOR  REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY
HAS  REPRESENTED,  EXPRESSLY OR  OTHERWISE,  THAT SECURED PARTY WILL NOT, IN THE
EVENT OF  LITIGATION,  SEEK TO ENFORCE THIS RIGHT TO JURY TRIAL  WAIVER.  DEBTOR
ACKNOWLEDGES  THAT SECURED  PARTY HAS BEEN INDUCED TO ENTER INTO THIS  AGREEMENT
BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION 13.24.



                                       42
<PAGE>

Accepted at Garden City, New York by:

                                     NAPCO SECURITY SYSTEMS, INC.


                                     By:
                                        ----------------------------------------
                                                   Kevin Buchel
                                                   Senior Vice President



                                     HSBC BANK USA,  NATIONAL  ASSOCIATION,
                                     SUCCESSOR BY MERGER TO HSBC BANK USA,
                                     FORMERLY KNOWN AS MARINE MIDLAND BANK


                                     By:
                                        ----------------------------------------
                                          Christopher J. Mendelsohn
                                          First Vice President


<PAGE>


STATE OF NEW YORK          )
                           ) SS:
COUNTY OF NASSAU           )

                  On  this  ____  day  of  ___________,  2007,  before  me,  the
undersigned,  a Notary  Public  in and for said  State,  personally  came  Kevin
Buchel,  personally  known to me or proved  to me on the  basis of  satisfactory
evidence to be the person, whose name is subscribed to the within instrument and
acknowledged  to me that he executed  the same in his  capacity  and that by his
signature  on the  instrument,  the  person or entity  upon  behalf of which the
person acted executed the instrument.

                                               ---------------------------
                                               NOTARY PUBLIC






STATE OF NEW YORK  )
                   ) SS:
COUNTY OF NASSAU   )

                  On this ____ day of _______, 2007, before me, the undersigned,
a  Notary  Public  in  and  for  said  State,  personally  came  Christopher  J.
Mendelsohn,  personally known to me or proved to me on the basis of satisfactory
evidence to be the person, whose name is subscribed to the within instrument and
acknowledged  to me that he executed  the same in his  capacity  and that by his
signature  on the  instrument,  the  person or entity  upon  behalf of which the
person acted executed the instrument.


                                               ---------------------------
                                               NOTARY PUBLIC

<PAGE>


                                             As of September 7, 2007

HSBC Bank USA, National Association
534 Broad Hollow Road
Melville, New York  11747


Re:     Revolving  Credit  Note  #1  by  NAPCO  Security   Systems,   Inc.  (the
        "Borrower") to Marine Midland Bank, now known as HSBC Bank USA, National
        Association,  successor  by merger to HSBC  Bank USA  ("Lender")  in the
        aggregate  principal sum of up to $1,000,000.00,  dated May 12, 1997, as
        the same may be extended or otherwise  modified from time to time ("Note
        #1" or "Revolving Credit Note #1")

Ladies and Gentlemen:

        The undersigned hereby reaffirms and ratifies all the terms, conditions,
representations  and  covenants  contained in Note #1 and  certifies  that (i)no
default,  nor events which with notice and/or passage of time would constitute a
default,  has  occurred  and is  continuing  under  Note #1 or any of the  other
instruments  executed and  delivered  to evidence  and/or  secure the  revolving
credit facility or under any other note, loan or security agreement to which the
Borrower is a party, (ii) there are no offsets, defenses or counterclaims to the
Borrower's  obligations  under Note #1 and the other  Transaction  Documents and
(iii) the  Borrower  has not entered  into any  agreement  with  creditors  that
expressly or otherwise prohibit the Borrower from entering into any extension or
modification of Note #1 as of the date hereof.

        The undersigned  further  covenants and agrees that Lender has agreed to
extend the  Termination  Date pursuant to and in accordance with the amended and
restated  loan and  security  agreement  dated as of even  date  hereof,  by and
between the  Borrower  and Lender,  as may be amended,  extended,  or  otherwise
modified  or  restated  from  time  to  time  (the   "Agreement"  or  the  "Loan
Agreement").  Note #1 is governed by the terms of the Agreement,  with the terms
of the Agreement incorporated herein by this reference.

        Note # 1 continues to be secured by and the parties  hereto are entitled
to the benefits of that certain  Second  Mortgage and Security  Agreement in the
principal  amount  of  $1,000,000,  dated  as May 12,  1997,  as the same may be
extended or otherwise  modified from time to time (the "Mortgage"),  made by the
Borrower to the Lender,  encumbering,  among other things, certain real property
and improvements now or hereafter located on said real property,  situate at 333
Bayview Avenue,  a/k/a 359 Bayview Avenue,  Amityville,  in the Town of Babylon,
County of Suffolk,  State of New York,  as more  particularly  described  in the
Mortgage  ("Mortgaged  Premises" or "Mortgaged  Property") and the Assignment of
Leases and Rents dated as of May 12, 1997 by the Borrower in favor of the Lender
covering the Mortgaged  Property,  as the same may be modified from time to time
(the  "Assignment  of Leases and Rents").  The Mortgage  and the  Assignment  of

                                       1
<PAGE>


Leases were each executed and delivered pursuant to the Loan Agreement, with all
of the  covenants,  conditions and agreements of the Mortgage and the Assignment
of Leases and Rents being made a part of Note # 1 by the references contained in
Note # 1 and  herein  to the  Mortgage  and  other  Transaction  Documents.  The
Borrower   hereby   reaffirms   and   ratifies   all  the   terms,   conditions,
representations  and covenants  contained in the Mortgage and the  Assignment of
Leases and Rents, hereby reaffirms and ratifies the grant of the mortgage on and
security  interest  in the  Mortgaged  Property  pursuant  to the  terms  of the
Mortgage,  hereby  reaffirms  and  ratifies the  assignment  of leases and rents
pursuant  to the  terms of the  Assignment  of  Leases  and  Rents,  and  hereby
certifies that there are no defenses,  offsets or  counterclaims to the Mortgage
and/or the Assignment of Leases and Rents of the date hereof.

        Note # 1 also is secured by the Collateral of the Borrower  described in
the  Loan  Agreement,   the  pledged  collateral  described  in  certain  pledge
agreements  dated as of May 17,  1997,  July 27,  2000,  and/or  as of even date
hereof,  as the case may be, as may have been  reaffirmed from time to time, and
the  collateral  of the  domestic  Consolidated  Subsidiaries  described  in the
amended  and  restated  continuing  general  security  agreements  executed  and
delivered to the Lender by each of the domestic Consolidated  Subsidiaries as of
even date hereof, as the same may be reaffirmed,  modified or restated from time
to time,  and the Lender is  entitled to the  benefits of all of the  collateral
described  therein  and  the  collateral  described  in  the  other  Transaction
Documents.

        Note # 1 is the  Note # 1  referred  to in the Loan  Agreement,  and the
Lender  shall be  entitled  to the  benefit of all of the  provisions  contained
therein and in the other Transaction Documents. The Loan Agreement,  among other
things, contains provisions for payment of principal, interest, fees and charges
in connection  with the  Revolving  Credit  Facility as well as  provisions  for
acceleration  of Note # 1 upon the happening of certain stated events.  The Loan
Agreement also contains  representations,  warranties,  covenants and conditions
precedent to Advances  under the  Revolving  Credit  Facility,  all of which are
hereby  made part of Note # 1 to the same  extent and with the same effect as if
set forth herein at length. The Loan Agreement, among other provisions,  extends
the Termination Date, which extension is expressly made part of Note # 1 by this
reference.

        Each of the Transaction  Documents remain in full force and effect.  All
capitalized terms not otherwise  specifically defined herein or in Note #1 shall
have the meanings ascribed to such terms in the Loan Agreement.



                                       2
<PAGE>


                                            Very truly yours,

                                            NAPCO Security Systems, Inc.

                                    By:
                                            ------------------------------------
                                            Kevin Buchel
                                            Senior Vice President



Accepted and Agreed:

        HSBC Bank USA, National Association

By:
        -------------------------------------------
        Christopher J. Mendelsohn
        First Vice President




                                       3
<PAGE>


                                                         As of September 7, 2007

HSBC Bank USA, National Association
534 Broad Hollow Road
Melville, New York  11747


Re:     Revolving  Credit  Note  #2  by  NAPCO  Security   Systems,   Inc.  (the
        "Borrower") to Marine Midland Bank, now known as HSBC Bank USA, National
        Association,  successor  by merger to HSBC  Bank USA  ("Lender")  in the
        original aggregate principal sum of up to $15,000,000.00,  dated May 12,
        1997, as the same may be increased,  extended or otherwise modified from
        time to time ("Note #2" or "Revolving Credit Note #2")

Ladies and Gentlemen:

        The undersigned hereby reaffirms and ratifies all the terms, conditions,
representations  and  covenants  contained in Note #2 and  certifies  that (i)no
default,  nor events which with notice and/or passage of time would constitute a
default,  has  occurred  and is  continuing  under  Note #2 or any of the  other
instruments  executed and  delivered  to evidence  and/or  secure the  revolving
credit facility or under any other note, loan or security agreement to which the
Borrower is a party, (ii) there are no offsets, defenses or counterclaims to the
Borrower's  obligations  under Note #2 and the other  Transaction  Documents and
(iii) the  Borrower  has not entered  into any  agreement  with  creditors  that
expressly or otherwise prohibit the Borrower from entering into any extension or
modification of Note #2 as of the date hereof.

        The first  paragraph  of Note #2 contained at page 2 of Note #2, and all
amendments of such first paragraph,  the first paragraph of Note #2 contained at
page 2 is herein replaced in its entirety as follows:

                    FOR VALUE RECEIVED, the Borrower does hereby covenant
         and  promise  to pay to the order of the Lender at its office at
         534 Broad Hollow Road; Melville, New York 11747 or at such other
         place or places as the Lender may  designate  to the Borrower in
         writing  from time to time,  in check,  coin or  currency of the
         United  States  which is then legal  tender  for the  payment of
         public or private debts,  in immediately  available  funds,  the
         lesser  of (a)  the  principal  amount  of  Twenty-Four  Million
         ($24,000,000.00)  Dollars; or (b) the aggregate unpaid principal
         amount  of all  loans (or  Advances)  made by the  Lender to the
         Borrower from time to time hereunder  (collectively the "Loans",
         or if used in the singular, the "Loan").


                                       1
<PAGE>


        The undersigned  further  covenants and agrees that Lender has agreed to
extend the  Termination  Date pursuant to and in accordance with the amended and
restated loan and security agreement dated as of even date hereof by and between
the Borrower and Lender, as may be amended,  extended,  or otherwise modified or
restated from time to time (the "Agreement" or the "Loan Agreement"). Note #2 is
governed  by the  terms  of the  Agreement,  with  the  terms  of the  Agreement
incorporated herein by this reference.

        Note #2 also is secured by the  Collateral of the Borrower  described in
the  Loan  Agreement,   the  pledged  collateral  described  in  certain  pledge
agreements  dated as of May 17,  1997,  July 27,  2000,  and/or  as of even date
hereof,  as the case may be, as may have been  reaffirmed from time to time, and
the  collateral  of the  domestic  Consolidated  Subsidiaries  described  in the
amended  and  restated  continuing  general  security  agreements  executed  and
delivered to the Lender by each of the domestic Consolidated  Subsidiaries as of
even date hereof, as the same may be reaffirmed,  modified or restated from time
to time,  and the Lender is  entitled to the  benefits of all of the  collateral
described  therein  and  the  collateral  described  in  the  other  Transaction
Documents.

        Note #2 is the Note #2 referred to in the Loan Agreement, and the Lender
shall be entitled to the benefit of all of the provisions  contained therein and
in the other  Transaction  Documents.  The Loan  Agreement,  among other things,
contains  provisions  for payment of  principal,  interest,  fees and charges in
connection  with  the  Revolving  Credit  Facility  as  well as  provisions  for
acceleration  of Note #2 upon the happening of certain stated  events.  The Loan
Agreement also contains  representations,  warranties,  covenants and conditions
precedent to Advances  under the  Revolving  Credit  Facility,  all of which are
hereby  made part of Note #2 to the same  extent and with the same  effect as if
set forth herein at length. The Loan Agreement, among other provisions,  extends
the Termination Date, which extension is expressly made part of Note # 2 by this
reference.

        Each of the Transaction  Documents remain in full force and effect.  All
capitalized terms not otherwise  specifically defined herein or in Note #1 shall
have the meanings ascribed to such terms in the Loan Agreement.


                                       2
<PAGE>



                                            Very truly yours,

                                            NAPCO Security Systems, Inc.

                                    By:
                                            ---------------------------------
                                            Kevin Buchel
                                            Senior Vice President



Accepted and Agreed:

        HSBC Bank USA, National Association

By:
        -------------------------------------------
        Christopher J. Mendelsohn
        First Vice President





                                       3