Exhibit
      10.1

    
WELLS
      FARGO BUSINESS CREDIT

    CREDIT
      AND SECURITY AGREEMENT

    


    THIS
      CREDIT AND SECURITY AGREEMENT
      (the
“Agreement”) is dated September 29, 2008, and is entered into between
MERRIMAC
      INDUSTRIES, INC.,
      a
      Delaware corporation (“Company”), and Wells
      Fargo Bank, National Association
      (as more
      fully defined in Exhibit A, “Wells Fargo”), acting through its Wells Fargo
      Business Credit operating division.

    


    RECITALS

    


    Company
      has asked Wells Fargo to provide it with a $5,000,000.00 revolving line of
      credit (the “Line of Credit”) for working capital purposes. Company has also
      requested a $500,000.00 equipment Term Loan (“Term Loan I”) and a $2,500,000.00
      real estate Term Loan (“Term Loan II”) to facilitate refinancing of existing
      debt and permanent real estate financing (collectively, the “Term Loan”). Wells
      Fargo is agreeable to meeting Company’s request, provided that Company agrees to
      the terms and conditions of this Agreement.

    


    For
      purposes of this Agreement, capitalized terms not otherwise defined in the
      Agreement shall have the meaning given them in Exhibit A.

    


    1. AMOUNT
      AND TERMS OF THE LINE OF CREDIT AND TERM LOAN

    


    1.1 Line
      of Credit; Limitations on Borrowings; Termination Date; Use of
      Proceeds.

    


    (a) Line
      of Credit and Limitations on Borrowing.
      Wells
      Fargo shall make Advances to Company under the Line of Credit that shall not
      at
      any time exceed in the aggregate the lesser of (i) $5,000,000.00 (the “Maximum
      Line Amount”), or (ii) the Borrowing Base limitations described in Section 1.2.
      Within these limits, Company may periodically borrow, prepay in whole or in
      part, and reborrow. Wells Fargo has no obligation to make an Advance during
      a
      Default Period or at any time Wells Fargo reasonably believes that an Advance
      would result in an Event of Default.

    


    (b) Maturity
      and Termination Dates.
      Company
      may request Line of Credit Advances from the date that the conditions set forth
      in Section 3 are satisfied until the earlier of: (i) three (3) years from the
      date hereof (the “Maturity Date”), (ii) the date Company terminates the Line of
      Credit, or (iii) the date Wells Fargo terminates the Line of Credit following
      an
      Event of Default. (The earliest of these dates is the “Termination
      Date.”)

    


    (c) Use
      of
      Line of Credit Proceeds.
      Company
      shall use the proceeds of each Line of Credit Advance for ordinary working
      capital purposes and capital expenditures.


    
      
        
        

      

      
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    (d) Revolving
      Note.
      Company’s obligation to repay Line of Credit Advances, regardless of how
      initiated under Section 1.3, shall be evidenced by a revolving promissory note
      (as renewed, amended or replaced from time to time, the “Revolving
      Note”).

    


    1.2 Borrowing
      Base; Mandatory Prepayment.

    


    (a) Borrowing
      Base.
      The
      borrowing base (the “Borrowing Base”) is an amount equal to:

    (i) 85%
      or
      such lesser percentage of Eligible Accounts as Wells Fargo in its sole
      discretion may deem appropriate ; provided that this rate may be reduced at
      any
      time by Wells Fargo’s in its sole discretion by one (1) percent for each
      percentage point by which Dilution on the date of determination is in excess
      of
      five percent (5.0%), plus

    


    (ii) 30%
      or
      such lesser percentage of Eligible Inventory as Wells Fargo in its sole
      discretion may deem appropriate, or $400,000.00 whichever is less,
      less

    


    (iii) the
      Borrowing Base Reserve, less

    


    (iv) Indebtedness,
      other than the Term Loan, that Company owes Wells Fargo that has not been
      advanced on the Revolving Note, less

    


    (v) Indebtedness
      that is not otherwise described in Section 1, including Indebtedness that Wells
      Fargo in its sole discretion finds on the date of determination to be equal
      to
      Wells Fargo’s net credit exposure with respect to any swap, derivative, foreign
      exchange, hedge, deposit, treasury management or similar transaction or
      arrangement extended to Company by Wells Fargo and any Indebtedness owed by
      Company to Wells Fargo Merchant Services, L.L.C..

    


    (b) Mandatory
      Prepayment; Overadvances.
      If
      unreimbursed Line of Credit Advances evidenced by the Revolving Note exceed
      the
      Borrowing Base or the Maximum Line Amount at any time, then Company shall
      immediately prepay the Revolving Note in an amount sufficient to eliminate
      the
      excess, unless in each case, Wells Fargo has delivered to Company an
      Authenticated Record consenting to the Overadvance prior to its occurrence,
      in
      which event the Overadvance shall be temporarily permitted on such terms and
      conditions as Wells Fargo in its sole discretion may deem appropriate, including
      the payment of additional fees or interest, or both.

    


    1.3 Procedures
      for Line of Credit Advances.

    


    (a) Advances
      to Operating Account.
      Line of
      Credit Advances shall be credited to Company’s demand deposit account maintained
      with Wells Fargo (the “Operating Account”), unless the parties agree in a Record
      Authenticated by both of them to disburse to another account.


    
      
        
        

      

      
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    (i) Advances
      upon Company’s Request. Line of Credit Advances may be funded upon Company’s
      request. No request will be deemed received until Wells Fargo acknowledges
      receipt, and Company, if requested by Wells Fargo, confirms the request in
      an
      Authenticated Record in the form of Notice of Borrowing attached hereto as
      Exhibit 1.3. Company shall repay all Advances, even if the Person requesting
      the
      Advance on behalf of Company lacked authorization.

    


    (A) Floating
      Rate Advances.
      If
      Company wants a Floating Rate Advance, it shall make the request no later than
      11:59 a.m. Central Time on the Business Day on which it wants the Floating
      Rate
      Advance to be funded, which request shall specify the principal Advance amount
      being requested.

    


    (B) LIBOR
      Advances.
      If
      Company wants a LIBOR Advance, it shall make the request no later than 11:59
      a.m. Central Time three (3) Business Days prior to the Business Day on which
      it
      wants the LIBOR Advance to be funded, which request shall specify both the
      principal Advance amount and Interest Period being requested. No more than
      three
      (3) separate LIBOR Advance Interest Periods may be outstanding at any one time.
      Each LIBOR Advance shall be in multiples of $500,000.00 and in the minimum
      amount of at least $1,000,000.00. LIBOR Advances are not available for Advances
      made through the Loan Manager Service, and shall not be available during Default
      Periods.

    


    (ii) Advances
      through Loan Manager.
      If
      Wells Fargo has separately agreed that Company may use the Wells Fargo Loan
      Manager service (“Loan Manager”), Line of Credit (but not Term Loan) Advances
      will be initiated by Wells Fargo and credited to the Operating Account as
      Floating Rate Advances as of the end of each Business Day in an amount
      sufficient to maintain an agreed upon ledger balance in the Operating Account,
      subject only to Line of Credit availability as provided in Section 1.1(a).
      If
      Wells Fargo terminates Company’s access to Loan Manager, Company may continue to
      request Line of Credit Advances as provided in Section 1.3(a)(i). Wells Fargo
      shall have no obligation to make an Advance through Loan Manager during a
      Default Period, or in an amount in excess of Line of Credit availability, and
      may terminate Loan Manager at any time in its sole discretion.

    


    (b) Protective
      Advances; Advances to Pay Indebtedness Due.
      Wells
      Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole
      discretion for any reason at any time, without Company’s compliance with any of
      the conditions of this Agreement, and (i) disburse the proceeds directly to
      third Persons in order to protect Wells Fargo’s interest in Collateral or to
      perform any of Company’s obligations under this Agreement, or (ii) apply the
      proceeds to the amount of any Indebtedness then due and payable to Wells Fargo
      unless the basis for such disbursement is an issue being contested by Company
      in
      good faith and on terms acceptable to Wells Fargo.


    
      
        
        

      

      
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    1.3A. LIBOR
      Advances.

    


    (a) Funding
      Line of Credit Advances as LIBOR Advances for Fixed Interest
      Periods.
      Company
      may fund a Line of Credit Advance as a LIBOR Advance for one, three, six or
      twelve month periods (each period an “Interest Period”, as more fully defined in
      Exhibit A).

    


    (b) Procedure
      for Converting Floating Rate Advances to LIBOR Advances.
      Company
      may request that all or any part of an outstanding Floating Rate Advance be
      converted to a LIBOR Advance, provided that no Default Period is in effect,
      and
      that Wells Fargo receives the request no later than 11:59 a.m. Central Time
      three (3) Business Days prior to the Business Day on which Company wishes the
      conversion to become effective. Each request shall (i) specify the principal
      amount of the Floating Rate Advance to be converted, (ii) the Business Day
      of
      conversion, and (iii) the Interest Period desired. The request shall be
      confirmed in an Authenticated Record if requested by Wells Fargo. Each
      conversion to a LIBOR Advance shall be in multiples of $500,000.00 and in the
      minimum amount of at least $1,000,000.00.

    


    (c) Expiring
      LIBOR Advance Interest Periods.
      Unless
      Company requests a new LIBOR Advance, or prepays an outstanding LIBOR Advance
      at
      the expiration of an Interest Period, Wells Fargo shall convert each LIBOR
      Advance to a Floating Rate Advance on the last day of the expiring Interest
      Period. If no Default Period is in effect, Company may request that all or
      part
      of any expiring LIBOR Advance be renewed as a LIBOR Advance, provided that
      Wells
      Fargo receives the request no later than 11:59 a.m. Central Time three (3)
      Business Days prior to the Business Day that constitutes the first day of the
      new Interest Period. Each request shall specify the principal amount of the
      expiring LIBOR Advance to be continued and Interest Period desired, and shall
      be
      confirmed in an Authenticated Record if requested by Wells Fargo. Each renewal
      of a LIBOR Advance shall be in multiples of $500,000.00 and in the minimum
      amount of at least $1,000,000.00.

    


    (d) Quotation
      of LIBOR Advance Interest Rates.
      Wells
      Fargo shall, with respect to any request for a new or renewal LIBOR Advance,
      or
      the conversion of a Floating Rate Advance to a LIBOR Advance, provide Company
      with a LIBOR quote for each Interest Period identified by Company on the
      Business Day on which the request was made, if the request is received by Wells
      Fargo no later than 11:59 a.m. Central Time of the Business Day on which Company
      has requested that the LIBOR Advance be made effective. If Company does not
      immediately accept a LIBOR quote, the quoted rate shall expire and any
      subsequent request for a LIBOR quote shall be subject to redetermination by
      Wells Fargo.


    
      
        
        

      

      
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    (e) Taxes
      and Regulatory Costs.
      Company
      shall also pay Wells Fargo with respect to any LIBOR Advance all (i)
      withholdings, interest equalization taxes, stamp taxes or other taxes (except
      income and franchise taxes) imposed by any domestic or foreign governmental
      authority that are related to LIBOR, and (ii) future, supplemental, emergency
      or
      other changes in the LIBOR Reserve Percentage, the assessment rates imposed
      by
      the Federal Deposit Insurance Corporation, or similar costs imposed by any
      domestic or foreign governmental authority or resulting from compliance by
      Wells
      Fargo with any request or directive (whether or not having the force of law)
      from any central bank or other governmental authority that are related to LIBOR
      but not otherwise included in the calculation of LIBOR. In determining which
      of
      these amounts are attributable to an existing LIBOR Advance, any reasonable
      allocation made by Wells Fargo among its operations shall be deemed conclusive
      and binding.

    


    (f) Limitation
      of LIBOR Advances.
      Not
      more than seventy-five percent (75%) of the total outstanding Advances under
      the
      Line of Credit and Term Loan II shall be LIBOR Advances.

    


    1.4 Collection
      of Accounts and Application to Revolving Note.

    


    (a) The
      Collection Account.
      Company
      has granted a security interest to Wells Fargo in the Collateral, including
      all
      Accounts. Except as otherwise agreed by both parties in an Authenticated Record,
      all Proceeds of Accounts and other Collateral, upon receipt or collection,
      shall
      be deposited each Business Day into the Collection Account. Funds so deposited
      (“Account Funds”) are the property of Wells Fargo, and may only be withdrawn
      from the Collection Account by Wells Fargo.

    


    (b) Payment
      of Accounts by Company’s Account Debtors.
      Company
      shall instruct all account debtors to make payments either directly to the
      Lockbox for deposit by Wells Fargo directly to the Collection Account, or
      instruct them to deliver such payments to Wells Fargo by wire transfer, ACH,
      or
      other means as Wells Fargo may direct for deposit to the Collection Account
      or
      for direct application to the Line of Credit. If Company receives a payment
      or
      the Proceeds of Collateral directly, Company will promptly deposit the payment
      or Proceeds into the Collection Account. Until deposited, it will hold all
      such
      payments and Proceeds in trust for Wells Fargo without commingling with other
      funds or property. All deposits held in the Collection Account shall constitute
      Proceeds of Collateral and shall not constitute the payment of
      Indebtedness.

    


    (c) Application
      of Payments to Revolving Note.
      Wells
      Fargo will withdraw Account Funds deposited to the Collection Account and pay
      down borrowings on the Line of Credit by applying them to the Revolving Note
      on
      the first Business Day following the Business Day of deposit to the Collection
      Account, or, if payments are received by Wells Fargo that are not first
      deposited to the Collection Account pursuant to any treasury management service
      provided to Company by Wells Fargo, such payments shall be applied to the
      Revolving Note as provided in the Master Agreement for Treasury Management
      Services and the relevant service description.


    
      
        
        

      

      
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    1.5 Term
      Loan.

    


    (a) Term
      Loan.
      Wells
      Fargo shall extend Term Loan I to Company through a single Advance in the amount
      of $500,000.00. Wells Fargo shall extend Term Loan II to Company through a
      single Advance in an amount not in excess of the lesser of (i) $2,500,000.00,
      or
      (ii) 60 percent (60%) of the fair market value of real property located at
      41
      Fairfield Place, West Caldwell, New Jersey. The Term Loan must be advanced
      no
      later than the date hereof.

    


    (b) Term
      Note.
      Company’s obligation to repay the Term Loan and each Term Loan Advance shall be
      evidenced by an installment promissory note (as renewed, amended, or replaced
      from time to time, the “Term Note”).

    


    (c) Term
      Loan Advances and Disbursements.
      Wells
      Fargo shall deposit the proceeds of each Term Loan Advance to Company’s
      Operating Account, or disburse the proceeds in such other manner as the parties
      may agree in an Authenticated Record. Upon request, Company shall confirm its
      request for an Advance in an Authenticated Record, and agrees that it shall
      repay the Term Loan even if the Person requesting any Term Loan Advance on
      behalf of Company lacked authorization. The Term Loan II Advance may be funded
      as a LIBOR Advance through the same process as that set forth in Section 1.3
      and
      Section 1.3A.

    


    (d) Payments
      and Adjustments to Payments.
      The
      unpaid principal amount of Term Loan I shall be paid in equal monthly
      installments based upon a four (4) year amortization; the unpaid principal
      amount of Term Loan II shall be paid in equal monthly installments amortizing
      on
      a straight line basis based upon a 180 month period, both beginning on the
      first
      day of the month following the date hereof, and on the first calendar day of
      each succeeding month until the earlier of the applicable amortization or the
      Termination Date, when the unpaid principal and interest evidenced by the Term
      Note shall be fully due and payable. Installment payments may be adjusted by
      Wells Fargo from time to time to an amount that would fully amortize the Term
      Note in substantially equal payments of principal through Termination Date
      (the
“Assumed Maturity Date”). Payments shall be collected by Wells Fargo through a
      debit to the Term Note and a simultaneous Line of Credit Advance in the same
      amount, or by such other method as the parties may agree. Proceeds from the
      liquidation of Collateral acquired with Term Loan proceeds will be applied
      to
      the Term Note.

    


    (e) Prepayments
      and Mandatory Prepayments.
      Company
      may prepay the Term Loan at any time. If Wells Fargo obtains an appraisal of
      the
      Equipment at any time as permitted under this Agreement, and the appraisal
      shows
      the aggregate unpaid principal amount of Term Loan I exceeds the lesser of
      (i)
      25% of the Net Orderly Liquidation Value of the Equipment or (ii) $2,000,000.00,
      then Company shall immediately prepay the unpaid principal of the Term Note
      in
      the amount of such excess.


    
      
        
        

      

      
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    (f) Collection
      of Prepayments and Related Fees.
      All
      Term Loan prepayments, including mandatory prepayments and prepayments due
      on
      the Termination Date, must be accompanied by any prepayment and LIBOR Advance
      breakage fees payable under this Agreement, which will be applied to the most
      remote principal installments then due and payable. Any prepayments of principal
      and any related fees shall be collected by Wells Fargo through a debit to the
      Term Note and a simultaneous Line of Credit Advance in the same amount, or
      by
      such other method as the parties may agree.

    


    1.6 Interest
      and Interest Related Matters.

    


    (a) Interest
      Rates Applicable to Line of Credit and Term Loan.
      Except
      as otherwise provided in this Agreement, the unpaid principal amount of each
      Line of Credit Advance evidenced by the Revolving Note, and each Term Loan
      Advance evidenced by the Term Note, shall accrue interest at an annual interest
      rate calculated as follows:

    


    Floating
      Rate

     

    Line
      of
      Credit Advances = Prime Rate plus one percent (1.0%),

     

    Term
      Loan
      I Advances = Prime Rate plus one percent (1.0%)

     

    Term
      Loan
      II Advances = Prime Rate plus one and one-half percent (1-1/2%)

     

    which
      interest rate shall change whenever the Prime Rate changes (the “Floating
      Rate”); or

     

    LIBOR
      Advance Rate for One, Three, Six or Twelve Month Interest Periods

     

    Line
      of
      Credit Advances = LIBOR plus three and one/quarter percent (3-1/4%)

     

    Term
      Loan
      II Advances = LIBOR plus three and one-half percent (3-1/2%);

     

    Multiple
      Advances under the Line of Credit, or, if applicable, the Term Loan, may
      simultaneously accrue interest at both the Floating Rate and at the LIBOR
      Advance Rate, subject to the limitations of Section 1.3(a)(i).

    


    (b) Intentionally
      Omitted.

    


    (c) Default
      Interest Rate. Commencing on the day an Event of Default occurs, through and
      including the date identified by Wells Fargo in a Record as the date that the
      Event of Default has been cured or waived (each such period a “Default Period”),
      or during a time period specified in Section 1.9, or at any time following
      the
      Termination Date, in Wells Fargo’s sole discretion and without waiving any of
      its other rights or remedies, the principal amount of the Revolving Note and
      the
      Term Note shall bear interest at a rate that is three percent (3.0%) above
      the
      contractual rate set forth in Section 1.6(a) (the “Default Rate”), or any lesser
      rate that Wells Fargo may deem appropriate, starting on the first day of the
      month in which the Default Period begins through the last day of that Default
      Period, or any shorter time period to which Wells Fargo may agree in an
      Authenticated Record.


    
      
        
        

      

      
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    (d) Interest
      Accrual on Payments Applied to Revolving Note.
      Payments received by Wells Fargo shall be applied to the Revolving Note as
      provided in Section 1.4(c), but the principal amount paid down shall continue
      to
      accrue interest through the end of the first Business Day following the Business
      Day that the payment was applied.

    


    (e) Usury.
      No
      interest rate shall be effective which would result in a rate greater than
      the
      highest rate permitted by law. Payments in the nature of interest and other
      charges made under any Loan Documents or any other document or agreement
      described in or related to this Agreement that are later determined to be in
      excess of the limits imposed by applicable usury law will be deemed to be a
      payment of principal, and the Indebtedness shall be reduced by that amount
      so
      that such payments will not be deemed usurious.

    


    1.7 Fees.

    


    (a) Origination
      Fee.
      Company
      shall pay Wells Fargo a one time origination fee of $60,000.00 which shall
      be
      fully earned and payable upon the execution of this Agreement.

    


    (b) Unused
      Line Fee.
      Company
      shall pay Wells Fargo an annual unused line fee of three-eighths of one percent
      (3/8%) of the daily average of the Maximum Line Amount reduced by outstanding
      Advances (the “Unused Amount”), from the date of this Agreement to and including
      the Termination Date, which unused line fee shall be payable monthly in arrears
      on the first day of each month and on the Termination Date.

    


    (c) Intentionally
      Omitted.

    


    (d) Collateral
      Exam Fees.
      Company
      shall pay Wells Fargo fees in connection with any Collateral exams (typically
      conducted quarterly), audits or inspections conducted by or on behalf of Wells
      Fargo (both prior and subsequent to the date hereof) at the current rates
      established from time to time by Wells Fargo as its collateral exam fees (which
      fees are currently $1,000.00 per eight-hour day per collateral examiner),
      together with all actual out-of-pocket costs and expenses incurred in conducting
      any collateral examination or inspection A minimum of two (2) Collateral exams
      will be conducted by Wells Fargo each year.

    


    (e) Collateral
      Monitoring Fees.
      Company
      shall pay Wells Fargo a fee at the rates established from time to time by Wells
      Fargo as its Collateral monitoring fees (which fees are currently $500.00 per
      month), due and payable monthly in arrears on the first day of the month and
      on
      the Termination Date.


    
      
        
        

      

      
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    (f) Line
      of Credit Termination and/or Reduction Fees.
      If (i)
      Wells Fargo terminates the Line of Credit during a Default Period, or if (ii)
      Company terminates the Line of Credit on a date prior to the Maturity Date,
      or
      if (iii) Company and Wells Fargo agree to reduce the Maximum Line Amount, then
      Company shall pay Wells Fargo as liquidated damages a termination or reduction
      fee in an amount equal to a percentage of the Maximum Line Amount (or the
      reduction of the Maximum Line Amount, as the case may be) calculated as follows:
      (A) two percent (2.0%) if the termination occurs on or before the first
      anniversary of the first Line of Credit Advance; (B) one percent (1.0%) if
      the
      termination or reduction occurs after the first anniversary of the first Line
      of
      Credit Advance, but on or before the second anniversary of the first Line of
      Credit Advance; and (C) one percent (1.0%) if the termination or reduction
      occurs after the second anniversary of the first Line of Credit
      Advance.

    


    (g) Overadvance
      Fees.
      Company
      shall pay a $500.00 Overadvance fee for each day that an Overadvance exists
      which was not agreed to by Wells Fargo in an Authenticated Record prior to
      its
      occurrence; provided that Wells Fargo’s acceptance of the payment of such fees
      shall not constitute either consent to the Overadvance or waiver of the
      resulting Event of Default. Company shall pay additional Overadvance fees and
      interest in such amounts and on such terms as Wells Fargo in its sole discretion
      may consider appropriate for any Overadvance to which Wells Fargo has
      specifically consented in an Authenticated Record prior to its
      occurrence.

    


    (h) Treasury
      Management Fees.
      Company
      will pay service fees to Wells Fargo for treasury management services provided
      pursuant to the Master Agreement for Treasury Management Services or any other
      agreement entered into by the parties, in the amount prescribed in Wells Fargo’s
      current service fee schedule.

    


    (i) Intentionally
      Omitted.

    


    (j) Intentionally
      Omitted.

    


    (k) Other
      Fees and Charges.
      Wells
      Fargo may impose additional fees and charges during a Default Period for (i)
      waiving an Event of Default, or for (ii) the administration of Collateral by
      Wells Fargo. All such fees and charges shall be imposed at Wells Fargo’s sole
      discretion following oral notice to Company on either an hourly, periodic,
      or
      flat fee basis, and in lieu of or in addition to imposing interest at the
      Default Rate, and Company’s request for an Advance following such notice shall
      constitute Company’s agreement to pay such fees and charges.

    


    (l) Termination
      and Prepayment Fees Following Transfer Between Wells Fargo Operating
      Divisions.
      If the
      Loan Documents, following Company’s request and the consent of Wells Fargo
      Business Credit (which consent may be withheld by Wells Fargo Business Credit
      in
      its sole discretion), are transferred to an operating division of Wells Fargo
      other than Wells Fargo Business Credit, the transfer will not be deemed a
      termination or prepayment resulting in the payment of termination and/or
      prepayment fees, provided that Company agrees, at the time of transfer, to
      the
      payment of comparable fees in an amount not less than that set forth in this
      Agreement, in the event that any facilities extended under this Agreement are
      terminated early or prepaid after the transfer. In no event, however, may
      Company seek to transfer the Loan Documents to another operating division prior
      to the date which is eighteen (18) months following the date
      hereof.


    
      
        
        

      

      
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    (m) LIBOR
      Advance Breakage Fees.
      Company
      may prepay any Revolving Note or Term Note LIBOR Advance at any time in any
      amount, whether voluntarily or by acceleration, provided, however, that if
      the
      LIBOR Advance is prepaid, Company shall pay Wells Fargo upon demand a LIBOR
      Advance breakage fee equal to the sum of the discounted monthly differences
      for
      each month from the month of prepayment through the month in which such Interest
      Period matures, calculated as follows for each such month:

    


    (i) Determine
      the amount of interest which would have accrued each month on the amount prepaid
      at the interest rate applicable to such amount had it remained outstanding
      until
      the last day of the applicable Interest Period.

     

    (ii) Subtract
      from the amount determined in (i) above the amount of interest which would
      have
      accrued for the same month on the amount prepaid for the remaining term of
      such
      Interest Period at LIBOR in effect on the date of prepayment for new loans
      made
      for such term in a principal amount equal to the amount prepaid.

     

    (iii) If
      the
      result obtained in (ii) for any month is greater than zero, discount that
      difference by LIBOR used in (ii) above.

     

    Company
      acknowledges that prepayment of the Revolving Note or the Term Note may result
      in Wells Fargo incurring additional costs, expenses or liabilities, and that
      it
      is difficult to ascertain the full extent of such costs, expenses or
      liabilities. Company agrees to pay the above-described LIBOR Advance breakage
      fees and agrees that this amount represents a reasonable estimate of the LIBOR
      Advance breakage costs, expenses and/or liabilities of Wells Fargo.

    


    (n) Term
      Loan Prepayment Fees.
      Company
      may prepay the principal amount of the Term Note at any time in any amount,
      whether voluntarily or by acceleration, subject to the payment of a prepayment
      fee in an amount equal to (i) two percent (2.0%) of the amount prepaid, if
      prepayment occurs on or before the first anniversary of the first Term Loan
      Advance; (ii) one percent (1.0%) of the amount prepaid, if prepayment occurs
      after the first anniversary of the first Term Loan Advance but on or before
      the
      second anniversary of the first Term Loan Advance; and (iii) one percent (1.0%)
      of the amount prepaid, if prepayment occurs after the second anniversary of
      the
      first Term Loan Advance.


    
      
        
        

      

      
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    1.8 Interest
      Accrual; Principal and Interest Payments; Computation.

    


    (a) Interest
      Payments and Interest Accrual.
      Accrued
      and unpaid interest under the Revolving Note and the Term Note on Floating
      Rate
      Advances shall be due and payable on the first day of each month (each an
“Interest Payment Date”) and on the Termination Date, and shall be paid in the
      manner provided in Section 1.4(c) and Section 1.5(d). Interest shall accrue
      from
      the most recent date to which interest has been paid or, if no interest has
      been
      paid, from the date of Advance to the Interest Payment Date. Interest accruing
      on any LIBOR Advance shall be due and payable on the last day of the applicable
      Interest Period and on the Termination Date; provided, however, for Interest
      Periods in excess of one month, interest shall nevertheless be due and payable
      monthly on the last day of each month, and on the last day of the Interest
      Period.

    


    (b) Payment
      of Revolving Note and Term Note Principal.
      The
      principal amount of the Revolving Note and the Term Note shall be paid from
      time
      to time as provided in this Agreement, and shall be fully due and payable on
      the
      Termination Date.

    


    (c) Payments
      Due on Non Business Days.
      If an
      Interest Payment Date or the Termination Date falls on a day which is not a
      Business Day, payment shall be made on the next Business Day, and interest
      shall
      continue to accrue during that time period.

    


    (d) Computation
      of Interest and Fees.
      Interest accruing on the unpaid principal amount of the Revolving Note and
      fees
      payable under this Agreement shall be computed on the basis of the actual number
      of days elapsed in a year of 360 days.

    


    (e) Liability
      Records.
      Wells
      Fargo shall maintain accounting and bookkeeping records of all Advances and
      payments with respect to the Indebtedness in such form and content as Wells
      Fargo in its sole discretion deems appropriate. Wells Fargo’s calculation of the
      amount of the Indebtedness shall be presumed correct unless proven otherwise
      by
      Company. Upon request, Company will admit and certify to Wells Fargo in a Record
      the exact unpaid principal amount of Indebtedness that Company then believes
      to
      be due and payable to Wells Fargo. Any billing statement or accounting provided
      by Wells Fargo shall be conclusive and binding unless Company notifies Wells
      Fargo in a detailed Record of its intention to dispute the billing statement
      or
      accounting within 30 days of receipt.

    


    1.9 Termination,
      Reduction or Non-Renewal of Line of Credit by Company;
      Notice.

    


    (a) Termination
      by Company after Advance Notice.
      Company
      may terminate or reduce the Line of Credit at any time prior to the Maturity
      Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of its
      intentions at least 60 days prior to the proposed Termination Date, (ii) pays
      Wells Fargo the termination fee set forth in Section 1.7(f), and (iii) pays
      the
      Indebtedness in full or down to the reduced Maximum Line
      Amount.


    
      
        
        

      

      
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          11
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    (b) Termination
      by Company without Advance Notice.
      If
      Company fails to deliver Wells Fargo timely notice of its intention to terminate
      the Line of Credit or reduce the Maximum Line Amount as provided in Section
      1.9(a), Company may nevertheless terminate the Line of Credit or reduce the
      Maximum Line Amount and pay the Indebtedness in full or down to the reduced
      Maximum Line Amount if it (i) pays the termination fee set forth in Section
      1.7(f), and (ii) pays the Default Rate on the Revolving Note commencing on
      the
      60th day prior to the proposed Termination Date and continuing through the
      date
      that Wells Fargo receives delivery of an Authenticated Record giving it actual
      notice of Company’s intention to terminate.

    


    (c) Non-Renewal
      by Company; Notice.
      If
      Company does not wish Wells Fargo to consider renewal of the Line of Credit
      on
      the next Maturity Date, Company shall deliver an Authenticated Record to Wells
      Fargo at least 60 days prior to the Maturity Date notifying Wells Fargo of
      its
      intention not to renew. If Company fails to deliver to Wells Fargo such timely
      notice, then the Revolving Note shall accrue interest at the Default Rate
      commencing on the 60th day prior to the Maturity Date and continuing through
      the
      date that Wells Fargo receives delivery of an Authenticated Record giving it
      actual notice of Company’s intention not to renew.

    


    2. SECURITY
      INTEREST AND OCCUPANCY OF COMPANY’S PREMISES

    


    2.1 Grant
      of Security Interest.
      Company
      hereby pledges, assigns and grants to Wells Fargo, for the benefit of Wells
      Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and
      security interest (collectively referred to as the “Security Interest”) in the
      Collateral, as security for the payment and performance of all Indebtedness.
      Following request by Wells Fargo, Company shall grant Wells Fargo , for the
      benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C.,
      a
      Lien and security interest in all commercial tort claims that it may have
      against any Person.

    


    2.2 Notifying
      Account Debtors and Other Obligors; Collection of
      Collateral.
      Wells
      Fargo may at any time (whether or not a Default Period then exists) deliver
      a
      Record giving an account debtor or other Person obligated to pay an Account,
      a
      General Intangible, or other amount due, notice that the Account, General
      Intangible, or other amount due has been assigned to Wells Fargo for security
      and must be paid directly to Wells Fargo. Company shall join in giving such
      notice and shall Authenticate any Record giving such notice upon Wells Fargo’s
      request. After Company or Wells Fargo gives such notice, Wells Fargo may, but
      need not, in Wells Fargo’s or in Company’s name, demand, sue for, collect or
      receive any money or property at any time payable or receivable on account
      of,
      or securing, such Account, General Intangible, or other amount due, or grant
      any
      extension to, make any compromise or settlement with or otherwise agree to
      waive, modify, amend or change the obligations (including collateral
      obligations) of any account debtor or other obligor. Wells Fargo may, in Wells
      Fargo’s name or in Company’s name, as Company’s agent and attorney-in-fact,
      notify the United States Postal Service to change the address for delivery
      of
      Company’s mail to any address designated by Wells Fargo, otherwise intercept
      Company’s mail, and receive, open and dispose of Company’s mail, applying all
      Collateral as permitted under this Agreement and holding all other mail for
      Company’s account or forwarding such mail to Company’s last known
      address.


    
      
        
        

      

      
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    2.3 Assignment
      of Insurance.
      As
      additional security for the Indebtedness, Company hereby assigns to Wells Fargo
      and to Wells Fargo Merchant Services, L.L.C., all rights of Company under every
      policy of insurance covering the Collateral and all business records and other
      documents relating to it, and all monies (including proceeds and refunds) that
      may be payable under any policy, and Company hereby directs the issuer of each
      policy to pay all such monies directly to Wells Fargo. At any time, whether
      or
      not a Default Period then exists, Wells Fargo may (but need not), in Wells
      Fargo’s or Company’s name, execute and deliver proofs of claim, receive payment
      of proceeds and endorse checks and other instruments representing payment of
      the
      policy of insurance, and adjust, litigate, compromise or release claims against
      the issuer of any policy. Any monies received under any insurance policy
      assigned to Wells Fargo, other than liability insurance policies, or received
      as
      payment of any award or compensation for condemnation or taking by eminent
      domain, shall be paid to Wells Fargo and, as determined by Wells Fargo in its
      sole discretion, either be applied to prepayment of the Indebtedness or
      disbursed to Company under staged payment terms reasonably satisfactory to
      Wells
      Fargo for application to the cost of repairs, replacements, or restorations
      which shall be effected with reasonable promptness and shall be of a value
      at
      least equal to the value of the items or property destroyed.

    


    2.4 Company’s
      Premises

    


    (a) Wells
      Fargo’s Right to Occupy Company’s Premises.
      Company
      hereby grants to Wells Fargo the right, at any time during a Default Period
      and
      without notice or consent, to take exclusive possession of all locations where
      Company conducts its business or has any rights of possession, including the
      locations described on Exhibit B (the “Premises”), until the earlier of (i)
      payment in full and discharge of all Indebtedness and termination of the Line
      of
      Credit, or (ii) final sale or disposition of all items constituting Collateral
      and delivery of those items to purchasers.

    


    (b) Wells
      Fargo’s Use of Company’s Premises.
      Wells
      Fargo may use the Premises to store, process, manufacture, sell, use, and
      liquidate or otherwise dispose of items that are Collateral, and for any other
      incidental purposes deemed appropriate by Wells Fargo in good
      faith.

    


    (c) Company’s
      Obligation to Reimburse Wells Fargo.
      Wells
      Fargo shall not be obligated to pay rent or other compensation for the
      possession or use of any Premises, but if Wells Fargo elects to pay rent or
      other compensation to the owner of any Premises in order to have access to
      the
      Premises, then Company shall promptly reimburse Wells Fargo all such amounts,
      as
      well as all taxes, fees, charges and other expenses at any time payable by
      Wells
      Fargo with respect to the Premises by reason of the execution, delivery,
      recordation, performance or enforcement of any terms of this
      Agreement.


    
      
        
        

      

      
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          13
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    2.5 License.
      Without
      limiting the generality of any other Security Document, Company hereby grants
      to
      Wells Fargo a non-exclusive, worldwide and royalty-free license to use or
      otherwise exploit all Intellectual Property Rights of Company for the purpose
      of: (a) completing the manufacture of any in-process materials during any
      Default Period so that such materials become saleable Inventory, all in
      accordance with the same quality standards previously adopted by Company for
      its
      own manufacturing and subject to Company’s reasonable exercise of quality
      control; and (b) selling, leasing or otherwise disposing of any or all
      Collateral during any Default Period.

    


    2.6 Financing
      Statements.
      Company
      authorizes Wells Fargo to file financing statements describing Collateral to
      perfect Wells Fargo’s Security Interest in the Collateral, and Wells Fargo may
      describe the Collateral as “all personal property” or “all assets” or describe
      specific items of Collateral including commercial tort claims as Wells Fargo
      may
      consider necessary or useful to perfect the Security Interest. All financing
      statements filed before the date of this Agreement to perfect the Security
      Interest were authorized by Company and are hereby re-authorized. Following
      the
      termination of the Line of Credit and payment of all Indebtedness, Wells Fargo
      shall, at Company’s expense and within the time periods required under
      applicable law, release or terminate any filings or other agreements that
      perfect the Security Interest.

    


    2.7 Setoff.
      Wells
      Fargo may at any time, in its sole discretion and without demand or notice
      to
      anyone, setoff any liability owed to Company by Wells Fargo against any then
      due
      Indebtedness.

    


    2.8 Collateral
      Related Matters.
      This
      Agreement does not contemplate a sale of Accounts or chattel paper, and, as
      provided by law, Company is entitled to any surplus and shall remain liable
      for
      any deficiency. Wells Fargo’s duty of care with respect to Collateral in its
      possession (as imposed by law) will be deemed fulfilled if it exercises
      reasonable care in physically keeping such Collateral, or in the case of
      Collateral in the custody or possession of a bailee or other third Person,
      exercises reasonable care in the selection of the bailee or third Person, and
      Wells Fargo need not otherwise preserve, protect, insure or care for such
      Collateral. Wells Fargo shall not be obligated to preserve rights Company may
      have against prior parties, to liquidate the Collateral at all or in any
      particular manner or order or apply the Proceeds of the Collateral in any
      particular order of application. Wells Fargo has no obligation to clean-up
      or
      prepare Collateral for sale. Company waives any right it may have to require
      Wells Fargo to pursue any third Person for any of the Indebtedness.

    


    2.9 Notices
      Regarding Disposition of Collateral.
      If
      notice to Company of any intended disposition of Collateral or any other
      intended action is required by applicable law in a particular situation, such
      notice will be deemed commercially reasonable if given in the manner specified
      in Section 7.4 at least ten calendar days before the date of intended
      disposition or other action.


    
      
        
        

      

      
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    3. CONDITIONS
      PRECEDENT

    


    3.1 Conditions
      Precedent to Initial Advance.
      Wells
      Fargo’s obligation to make the initial Advance shall be subject to the condition
      that Wells Fargo shall have received this Agreement and each of the Loan
      Documents, and any document, agreement, or other item described in or related
      to
      this Agreement, and all fees and information described in Exhibit C, executed
      and in form and content satisfactory to Wells Fargo.

    


    3.2 Additional
      Conditions Precedent to All Advances.
      Wells
      Fargo’s obligation to make any Advance (including the initial Advance) shall be
      subject to the further additional conditions: (a) that the representations
      and
      warranties described in Exhibit D are correct on the date of the Advance, except
      to the extent that such representations and warranties relate solely to an
      earlier date; and (b) that no event has occurred and is continuing, or would
      result from the requested Advance that would result in an Event of
      Default.

    


    4. REPRESENTATIONS
      AND WARRANTIES

    


    To
      induce
      Wells Fargo to enter into this Agreement, Company makes the representations
      and
      warranties described in Exhibit D. Any request for an Advance will be deemed
      a
      representation by Company that all representations and warranties described
      in
      Exhibit D are true, correct and complete as of the time of the request, unless
      they relate exclusively to an earlier date. Company shall promptly deliver
      a
      Record notifying Wells Fargo of any change in circumstance that would affect
      the
      accuracy of any representation or warranty, unless the representation and
      warranty specifically relates to an earlier date.

    


    5. COVENANTS

    


    So
      long
      as the Indebtedness remains unpaid, or the Line of Credit has not been
      terminated, Company shall comply with each of the following covenants, unless
      Wells Fargo shall consent otherwise in an Authenticated Record delivered to
      Company.

    


    5.1 Reporting
      Requirements.
      Company
      shall deliver to Wells Fargo the following information, compiled where
      applicable using GAAP consistently applied, in form and content reasonably
      acceptable to Wells Fargo:

    


    (a) Annual
      Financial Statements.
      As soon
      as available and in any event within 120 days after Company’s fiscal year end,
      Company’s audited financial statements with the unqualified opinion of an
      independent certified public accountant reasonably acceptable to Wells Fargo,
      which shall include Company’s balance sheet, income statement, and statement of
      retained earnings and cash flows prepared, if requested by Wells Fargo, on
      a
      consolidated and consolidating basis to include Company’s Affiliates. The annual
      financial statements shall be accompanied by a certificate (the “Compliance
      Certificate”) in the form of Exhibit E that is signed by Company’s chief
      financial officer.

    


    Each
      Compliance Certificate that accompanies an annual financial statement shall
      also
      be accompanied by copies of all management letters prepared by Company’s
      accountants.


    
      
        
        

      

      
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          15
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    (b) Quarterly
      Financial Statements.
      As soon
      as available and in any event within 45 days after the end of each quarter
      except the final (or within sixty [60] days after the end of each quarter if
      otherwise in accordance with applicable regulatory guidelines of the Securities
      & Exchange Commission), a Company prepared balance sheet, income statement,
      and statement of retained earnings prepared for that quarter and for the
      year-to-date period then ended, prepared, if requested by Wells Fargo, on a
      consolidated and consolidating basis to include Company’s Affiliates, and
      stating in comparative form the figures for the corresponding date and periods
      in the prior fiscal year, subject to quarterly adjustments. The financial
      statements shall be accompanied by a Compliance Certificate in the form of
      Exhibit E that is signed by Company’s chief financial officer. Wells Fargo
      acknowledges the period closing dates utilized by Company as set forth on
      Schedule 5.1(b) attached hereto.

    


    (c) Collateral
      Reports.
      No
      later than 15 days after each month end (or more frequently if Wells Fargo
      shall
      request it), detailed agings of Company’s accounts receivable and accounts
      payable and a calculation of Company’s Accounts, Eligible Accounts, Inventory
      and Eligible Inventory as of the end of that month or shorter time period
      requested by Wells Fargo. Not later than 5 days after each two-week period
      (or
      more frequently if Wells Fargo shall request it) a detailed Inventory report,
      Inventory Certificate report and Eligible Inventory Report.

    


    (d) Projections.
      No
      later than 30 days prior to each fiscal year end, Company’s projected balance
      sheet and income statement and statement of cash flows and statement of retained
      earnings and cash flows for each quarter of the next fiscal year, certified
      as
      being the most accurate projections available by Company’s chief financial
      officer and accompanied by a statement of assumptions and supporting schedules
      and information.

    


    (e) Supplemental
      Reports.
      Weekly,
      or more frequently if Wells Fargo requests, Company’s standard form of “daily
      collateral report”, together with receivables schedules, collection reports, and
      copies of invoices in excess of $30,000.00, shipment documents and delivery
      receipts for goods sold to account debtors in excess of $30,000.00.

    


    (f) Litigation.
      No
      later than five days after discovery, a Record notifying Wells Fargo of any
      litigation or other proceeding before any court or governmental agency which
      seeks a monetary recovery against Company in excess of $100,000.00.

    


    (g) Intellectual
      Property.
      (i) No
      later than 30 days before it acquires material Intellectual Property Rights,
      a
      Record notifying Wells Fargo of Company’s intention to acquire such rights; (ii)
      except for transfers permitted under Section 5.18, no later than 30 days before
      it disposes of material Intellectual Property Rights, a Record notifying Wells
      Fargo of Company’s intention to dispose of such rights, along with copies of all
      proposed documents and agreements concerning the disposal of such rights as
      requested by Wells Fargo; (iii) promptly upon discovery, a Record notifying
      Wells Fargo of (A) any Infringement of Company’s Intellectual Property Rights by
      any Person, (B) claims that Company is Infringing another Person’s Intellectual
      Property Rights and (C) any threatened cancellation, termination or material
      limitation of Company’s Intellectual Property Rights; and (iv) promptly upon
      receipt, copies of all registrations and filings with respect to Company’s
      Intellectual Property Rights.


    
      
        
        

      

      
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    (h) Defaults.
      No
      later than three days after learning of the probable occurrence of any Event
      of
      Default, a Record notifying Wells Fargo of the Event of Default and the steps
      being taken by Company to cure the Event of Default.

    


    (i) Disputes.
      Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes
      or
      claims by Company’s customers exceeding $5,000.00 individually or $10,000.00 in
      the aggregate during any fiscal year; (ii) credit memos not previously reported
      in Section 5.1(e); and (iii) any goods returned to or recovered by Company
      outside of the ordinary course of business or in the ordinary course of business
      but with a value in an amount in excess of $100,000.00.

    


    (j) Changes
      in Officers and Directors.
      Promptly following occurrence, a Record notifying Wells Fargo of any change
      in
      the persons constituting Company’s Officers and Directors.

    


    (k) Collateral.
      Promptly upon discovery, a Record notifying Wells Fargo of any loss of or
      material damage to any Collateral or of any substantial adverse change in any
      Collateral or the prospect of its payment.

    


    (l) Commercial
      Tort Claims.
      Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort
      claims brought by Company against any Person, including the name and address
      of
      each defendant, a summary of the facts, an estimate of Company’s damages, copies
      of any complaint or demand letter submitted by Company, and such other
      information as Wells Fargo may request.

    


    (m) Reports
      to Owners.
      Promptly upon distribution, copies of all financial statements, reports and
      proxy statements which Company shall have sent to its Owners.

    


    (n) Tax
      Returns of Company.
      No
      later than ten days after they are required to be filed (giving account to
      properly filed extensions), copies of Company’s signed and dated state and
      federal income tax returns and all related schedules, and copies of any
      extension requests.

    


    (o) Intentionally
      Omitted.

    


    (p) Violations
      of Law.
      No
      later than three days after discovery of any violation, a Record notifying
      Wells
      Fargo of Company’s violation of any law, rule or regulation, the non-compliance
      with which is reasonably likely to have a Material Adverse Effect on
      Company.


    
      
        
        

      

      
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          17
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    (q) Pension
      Plans.
      (i)
      Promptly upon discovery, and in any event within 30 days after Company knows
      or
      has reason to know that any Reportable Event with respect to any Pension Plan
      has occurred, a Record authenticated by Company’s chief financial officer
      notifying Wells Fargo of the Reportable Event in detail and the actions which
      Company proposes to take to correct the deficiency, together with a copy of
      any
      related notice sent to the Pension Benefit Guaranty Corporation; (ii) promptly
      upon discovery, and in any event within 10 days after Company fails to make
      a
      required quarterly Pension Plan contribution under Section 412(m) of the IRC,
      a
      Record authenticated by the Company’s chief financial officer notifying Wells
      Fargo of the failure in detail and the actions that Company will take to cure
      the failure, together with a copy of any related notice sent to the Pension
      Benefit Guaranty Corporation; and (iii) promptly upon discovery, and in any
      event within 10 days after Company knows or has reason to know that it may
      be
      liable or may be reasonably expected to have liability for any withdrawal,
      partial withdrawal, reorganization or other event under any Multiemployer Plan
      under Sections 4201 or 4243 of ERISA, a Record authenticated by Company’s chief
      financial officer notifying Wells Fargo of the details of the event and the
      actions that Company proposes to take in response.

    


    (r) Other
      Reports.
      From
      time to time, with reasonable promptness, all receivables schedules, inventory
      reports, collection reports, deposit records, equipment schedules, invoices
      to
      account debtors, shipment documents and delivery receipts for goods sold, and
      such other materials, reports, records or information as Wells Fargo may
      reasonably request.

    


    (s) Environmental.
      At any
      time, in the sole discretion of Wells Fargo, not more than one Phase II
      environmental report on the Premises, including such Premises subject to the
      Mortgage at the expense of Company.

    


    5.2 Financial
      Covenants.
      Company
      agrees to comply with the financial covenants described below, which shall
      be
      calculated using GAAP consistently applied, except as they may be otherwise
      modified by the following capitalized definitions:

    


    (a) Maximum
      due from Costa Rica Affiliate.
      Company
      shall not permit during each period described below the amount due from its
      Costa Rica Affiliate, Multi-Mix® Microtechnology S.R.L. to exceed the amount
      below determined as of the end of each quarter:

    


    
      	Period	 	
              Maximum
                Due

            	 
	
              Through
                January 3, 2009

            	 	
              $

            	
              4,250,000.00

            	 
	 	 	 	 	 
	
              Through
                April 4, 2009

            	 	
              $

            	
              4,500,000.00

            	 
	 	 	 	 	 
	
              Through
                July 4, 2009

            	 	
              $

            	
              4,750,000.00

            	 
	 	 	 	 	 
	
              Through
                October 3, 2009, and each fiscal quarter thereafter

            	 	
              $

            	
              5,000,000.00

            	 


    


    
      
        
        

      

      
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          18
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    (b) Minimum
      Net Income.
      Company
      shall achieve for each period described below, Net Income (net of any impairment
      adjustments, write-downs and non-cash items) of not less or more than the amount
      set forth for each such period (numbers appearing between “< >“ are
      negative):

    


    
      	
              Period

            	 	
              Minimum
                Net Income

            
	 	 	 
	
              Through
                January 3, 2009

            	 	
              Net
                Loss of not more than <$265,000.00>

            
	 	 	 
	
              Through
                April 4, 2009, and each fiscal quarter thereafter

            	 	
              Not
                less than 75% of Company’s projection of Net Income or not more than 100%
                of Company’s projection of Net Loss measured
                cumulatively

            


    

    


    (c) Intentionally
      Omitted

    


    (d) Intentionally
      Omitted

    


    (e) Minimum
      Debt Service Coverage Ratio.
      Company
      shall maintain as of each fiscal quarter end, a Debt Service Coverage Ratio
      of
      not less than 1.10 to 1.0 commencing September 27, 2008 and for each fiscal
      quarter end thereafter.

    


    (f) Intentionally
      Omitted.

    


    (g) Capital
      Expenditures.
      Company
      shall not incur or contract to incur Capital Expenditures of more than (i)
      $1,000,000.00 in the aggregate during Company’s fiscal year ending December 31,
      2008, and (ii) $600,000.00 for each subsequent year end. 

    


    (h) Intentionally
      Omitted.

    


    (i) Intentionally
      Omitted.

    


    (j) Intentionally
      Omitted.

    


    (k) Minimum
      Availability.
      At all
      times after the date hereof, after taking account of all outstanding Advances,
      availability under Line of Credit shall be not less than
      $500,000.00.


    
      
        
        

      

      
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          19
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    (l)
       Capital
      Expenditures under Borrowing Base.
      Company
      may use not more than $500,00.00 of its availability under the Borrowing Base
      for Capital Expenditures during fiscal year ending January 3, 2009
      only.

    


    5.3 Other
      Liens and Permitted Liens.

    


    (a) Other
      Liens; Permitted Liens.
      Company
      shall not create, incur or suffer to exist any Lien upon any of its assets,
      now
      owned or later acquired, as security for any indebtedness, with the exception
      of
      the following (each a “Permitted Lien”; collectively, “Permitted Liens”): (i) In
      the case of real property, covenants, restrictions, rights, easements and minor
      irregularities in title which do not materially interfere with Company’s
      business or operations as presently conducted; (ii) Liens in existence on the
      date of this Agreement that are described in Exhibit F and secure indebtedness
      for borrowed money permitted under Section 5.4; (iii) The Security Interest
      and
      Liens created by the Security Documents; (iv) Purchase money Liens relating
      to
      the acquisition of Equipment not exceeding the lesser of cost or fair market
      value, not exceeding $100,000.00 in the aggregate during any fiscal year and
      so
      long as no Default Period is then in existence and none would exist immediately
      after such acquisition; (v) such security as Company may post in the ordinary
      course of business to obtain performance bonds upon prior notice to Wells Fargo
      and subject to the prior consent of Wells Fargo (which consent shall not be
      unreasonably withheld) provided that such security will not otherwise cause
      a
      Default Period; (vi) statutory liens of landlords, carriers, warehousers,
      bailees, mechanics, materialmen and other like liens imposed by law in the
      ordinary course of business for amounts not yet due or being contested in good
      faith, and with respect to which adequate reserves or appropriate provisions
      are
      being maintained by the Company in accordance with GAAP; and (vii) liens for
      taxes which are not yet due and payable or which are being contested in good
      faith by the Company on terms acceptable to Wells Fargo.

    


    (b) Financing
      Statements.
      Company
      shall not authorize the filing of any financing statement by any Person as
      Secured Party with respect to any of Company’s assets, other than Wells Fargo.
      Company shall not amend any financing statement filed by Wells Fargo as Secured
      Party except as permitted by law.

    


    5.4 Indebtedness.
      Company
      shall not incur, create, assume or permit to exist any indebtedness or liability
      on account of deposits or letters of credit issued on Company’s behalf, or
      advances or any indebtedness for borrowed money of any kind, whether or not
      evidenced by an instrument, except: (a) Indebtedness described in this
      Agreement; (b) indebtedness of Company described in Exhibit F; and (c)
      indebtedness secured by Permitted Liens.

    


    5.5 Guaranties.
      Company
      shall not assume, guarantee, endorse or otherwise become directly or
      contingently liable for the obligations of any Person, except: (a) the
      endorsement of negotiable instruments by Company for deposit or collection
      or
      similar transactions in the ordinary course of business; and (b) guaranties,
      endorsements and other direct or contingent liabilities in connection with
      the
      obligations of other Persons in existence on the date of this Agreement and
      described in Exhibit F.


    
      
        
        

      

      
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    5.6 Investments
      and Subsidiaries.
      Company
      shall not make or permit to exist any loans or advances to, or make any
      investment or acquire any interest whatsoever in, any Person or Affiliate,
      including any partnership or joint venture, nor purchase or hold beneficially
      any stock or other securities or evidence of indebtedness of any Person or
      Affiliate, except:

    


    (a) Investments
      in direct obligations of the United States of America or any of its political
      subdivisions whose obligations constitute the full faith and credit obligations
      of the United States of America and have a maturity of one year or less,
      commercial paper issued by U.S. corporations rated “A 1” or “A 2” by Standard
& Poor’s Ratings Services or “P 1” or “P 2” by Moody’s Investors Service or
      certificates of deposit or bankers’ acceptances having a maturity of one year or
      less issued by members of the Federal Reserve System having deposits in excess
      of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully
      insured by the Federal Deposit Insurance Corporation);

    


    (b) Travel
      advances or loans to Company’s Officers and employees not exceeding at any one
      time an aggregate of $20,000.00;

    


    (c) Prepaid
      rent not exceeding one month or security deposits; and

    


    (d) Current
      investments in those Subsidiaries in existence on the date of this Agreement
      which are identified on Exhibit D and advances consistent with Section 5.2(a)
      hereof.

    


    5.7 Dividends
      and Distributions.
      Company
      shall not declare or pay any dividends (other than dividends payable solely
      in
      stock of Company) on any class of its stock, or make any payment on account
      of
      the purchase, redemption or retirement of any shares of its stock, or other
      securities or evidence of its indebtedness or make any distribution regarding
      its stock, either directly or indirectly if there then exists or as a result
      thereof there occurs a Default Period.

    


    5.8 Salaries.
      Company
      shall not pay excessive or unreasonable salaries, bonuses, commissions,
      consultant fees or other compensation. Company shall not increase the salary,
      bonus, commissions, consultant fees or other compensation of any Director,
      Officer or consultant, or any member of their families, by more than 10% in
      any
      one year, either individually or for all such Persons in the aggregate, or
      pay
      such an increase from any source other than profits earned in the year of
      payment if there then exists or as a result of such increase in payment there
      occurs a Default Period.

    


    5.9 Intentionally
      Omitted.


    
      
        
        

      

      
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    5.10 Books
      and Records; Collateral Examination; Inspection and
      Appraisals.

    


    (a) Books
      and Records; Inspection.
      Company
      shall keep complete and accurate books and records with respect to the
      Collateral and Company’s business and financial condition and any other matters
      that Wells Fargo may request, in accordance with GAAP. Company shall permit
      any
      employee, attorney, accountant or other agent of Wells Fargo to audit, review,
      make extracts from and copy any of its books and records at any time during
      ordinary business hours, and to discuss Company’s affairs with any of its
      Directors, Officers, employees or agents.

    


    (b) Authorization
      to Company’s Agents to Make Disclosures to Wells Fargo.
      Company
      authorizes all accountants and other Persons acting as its agent to disclose
      and
      deliver to Wells Fargo’s employees, accountants, attorneys and other Persons
      acting as its agent, at Company’s expense, all financial information, books and
      records, work papers, management reports and other information in their
      possession regarding Company.

    


    (c) Collateral
      Exams and Inspections.
      Company
      shall permit Wells Fargo’s employees, accountants, attorneys or other Persons
      acting as its agent, to examine and inspect any Collateral or any other property
      of Company at any time during ordinary business hours.

    


    (d) Collateral
      Appraisals.
      Wells
      Fargo may also obtain, from time to time, but no more than 4 times each calendar
      year, at Company’s expense, an appraisal of Company’s Collateral, by an
      appraiser acceptable to Wells Fargo in its sole discretion.

    


    5.11 Account
      Verification; Payment of Permitted Liens.

    


    (a) Account
      Verification.
      Wells
      Fargo or its agents may (i) contact account debtors and other obligors at any
      time to verify Company’s Accounts; and (ii) require Company to send requests for
      verification of Accounts or send notices of assignment of Accounts to account
      debtors and other obligors.

    


    (b) Covenant
      to Pay Permitted Liens.
      Company
      shall pay when due each account payable due to any Person holding a Permitted
      Lien (as a result of such payable) on any Collateral unless contested by Company
      in good faith.

    


    5.12 Compliance
      with Laws.

    


    (a) General
      Compliance with Applicable Law; Use of Collateral.
      Company
      shall (i) comply and cause each Subsidiary to comply, with the requirements
      of
      applicable laws and regulations, the non compliance with which would have a
      Material Adverse Effect on its business or its financial condition and (ii)
      use
      and keep the Collateral, and require that others use and keep the Collateral,
      only for lawful purposes, without violation of any federal, state or local
      law,
      statute or ordinance.


    
      
        
        

      

      
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    (b) Compliance
      with Federal Regulatory Laws.
      Company
      shall (i) prohibit, and cause each Subsidiary to prohibit, any Person that
      is an
      Owner or Officer from being listed on the Specially Designated Nationals and
      Blocked Person List or other similar lists maintained by the Office of Foreign
      Assets Control (“OFAC”), the Department of the Treasury or included in any
      Executive Orders, (ii) not permit the proceeds of the Line of Credit or any
      other financial accommodation extended by Wells Fargo to be used in any way
      that
      violates any foreign asset control regulations of OFAC or other applicable
      law,
      (iii) comply, and cause each Subsidiary to comply, with all applicable Bank
      Secrecy Act laws and regulations, as amended from time to time, and (iv)
      otherwise comply with the USA Patriot Act and Wells Fargo’s related policies and
      procedures.

    


    (c) Compliance
      with Environmental Laws.
      Company
      shall (i) comply, and cause each Subsidiary to comply, with the requirements
      of
      applicable Environmental Laws and obtain and comply in all material respects
      with all permits, licenses and similar approvals required by them, and (ii)
      not
      generate, use, transport, treat, store or dispose of any Hazardous Substances
      in
      such a manner as to create any material liability or obligation under the common
      law of any jurisdiction or any Environmental Law.

    


    5.13 Payment
      of Taxes and Other Claims.
      Company
      shall pay or discharge, when due, and cause each Subsidiary to pay or discharge,
      when due, (a) all taxes, assessments and governmental charges levied or imposed
      upon it or upon its income or profits, upon any properties belonging to it
      (including the Collateral) or upon or against the creation, perfection or
      continuance of the Security Interest, prior to the date on which penalties
      attach, (b) all federal, state and local taxes required to be withheld by it,
      and (c) all lawful claims for labor, materials and supplies which, if unpaid,
      might by law become a Lien upon any properties of Company, although Company
      shall not be required to pay any such tax, assessment, charge or claim whose
      amount, applicability or validity is being contested in good faith by
      appropriate proceedings and for which proper reserves have been
      made.

    


    5.14 Maintenance
      of Collateral and Properties.

    


    (a) Company
      shall keep and maintain the Collateral and all of its other properties necessary
      or useful in its business in good condition, repair and working order (normal
      wear and tear excepted) and will from time to time replace or repair any worn,
      defective or broken parts, although Company may discontinue the operation and
      maintenance of any properties if Company believes that such discontinuance
      is
      desirable to the conduct of its business and not disadvantageous in any material
      respect to Wells Fargo. Company shall take all commercially reasonable steps
      necessary to protect and maintain its Intellectual Property Rights.

    


    (b) Company
      shall defend the Collateral against all Liens, claims and demands of all third
      Persons claiming any interest in the Collateral. Company shall keep all
      Collateral free and clear of all Liens except Permitted Liens. Company shall
      take all commercially reasonable steps necessary to prosecute any Person
      Infringing its Intellectual Property Rights and to defend itself against any
      Person accusing it of Infringing any Person’s Intellectual Property
      Rights.


    
      
        
        

      

      
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    5.15 Insurance.
      Company
      shall at all times maintain insurance with insurers acceptable to Wells Fargo,
      in such amounts, on such terms (including any deductibles) and against such
      risks as Wells Fargo may require, in such amounts and against such risks as
      is
      usually carried by companies engaged in similar business and owning similar
      properties in the same geographical areas in which Company operates. Company
      shall also, at all times and without limitation maintain business interruption
      insurance (including force majeure coverage) and keep all tangible Collateral
      insured against risks of fire (including so-called extended coverage), theft,
      collision (for Collateral consisting of motor vehicles) and such other risks
      and
      in such amounts as Wells Fargo may reasonably request, with any loss payable
      to
      Wells Fargo to the extent of its interest, and all such policies of insurance
      shall contain a lender’s loss payable endorsement for the benefit of Wells
      Fargo. All policies of liability insurance shall name Wells Fargo as an
      additional insured. Notwithstanding the foregoing, Company may select any
      insurance carrier with AM Best’s rating of A- VII+ or better and maintain such
      insurance policies with insurance coverages comparable to such policies and
      coverages existing as of the date hereof.

    


    5.16 Preservation
      of Existence.
      Company
      shall preserve and maintain its existence and all of its rights, privileges
      and
      franchises necessary or desirable in the normal conduct of its business and
      shall conduct its business in an orderly, efficient and regular manner, the
      failure of which would cause a Material Adverse Effect.

    


    5.17 Delivery
      of Instruments, etc.
      Upon
      request by Wells Fargo, Company shall promptly deliver to Wells Fargo in pledge
      all instruments, documents and chattel paper constituting Collateral, endorsed
      or assigned by Company.

    


    5.18 Sale
      or Transfer of Assets; Suspension of Business Operations.
      Company
      shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock
      of
      any Subsidiary, (b) all or a substantial part of its assets, or (c) any
      Collateral or any interest in Collateral (whether in one transaction or in
      a
      series of transactions) to any other Person other than the sale of Inventory
      in
      the ordinary course of business and shall not liquidate, dissolve or suspend
      business operations. Company shall not transfer any part of its ownership
      interest in any Intellectual Property Rights and shall not permit its rights
      as
      licensee of Licensed Intellectual Property to lapse, except that Company may
      transfer such rights or permit them to lapse if it has reasonably determined
      that such Intellectual Property Rights are no longer useful in its business.
      If
      Company transfers any Intellectual Property Rights for value, Company shall
      pay
      the Proceeds to Wells Fargo for application to the Indebtedness. Company shall
      not license any other Person to use any of Company’s Intellectual Property
      Rights, except that Company may grant licenses in the ordinary course of its
      business in connection with sales of Inventory or the provision of services
      to
      its customers.


    
      
        
        

      

      
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    5.19 Consolidation
      and Merger; Asset Acquisitions.
      Company
      shall not consolidate with or merge into any other entity, or permit any other
      entity to merge into it, or acquire (in a transaction analogous in purpose
      or
      effect to a consolidation or merger) all or substantially all of the assets
      of
      any other entity.

    


    5.20 Sale
      and Leaseback.
      Company
      shall not enter into any arrangement, directly or indirectly, with any other
      Person pursuant to which Company shall sell or transfer any real or personal
      property, whether owned now or acquired in the future, and then rent or lease
      all or part of such property or any other property which Company intends to
      use
      for substantially the same purpose or purposes as the property being sold or
      transferred.

    


    5.21 Restrictions
      on Nature of Business.
      Company
      will not engage in any line of business materially different from that presently
      engaged in by Company, and will not purchase, lease or otherwise acquire assets
      not related to its business.

    


    5.22 Accounting.
      Company
      will not adopt any material change in accounting principles except as required
      by GAAP, consistently applied. Company will not change its fiscal
      year.

    


    5.23 Discounts,
      etc.
      After
      notice from Wells Fargo, Company will not grant any discount, credit or
      allowance to any customer of Company or accept any return of goods sold. Company
      will not at any time modify, amend, subordinate, cancel or terminate any
      Account.

    


    5.24 Pension
      Plans.
      Except
      as disclosed to Wells Fargo in a Record prior to the date of this Agreement,
      neither Company nor any ERISA Affiliate will (a) adopt, create, assume or become
      party to any Pension Plan, (b) become obligated to contribute to any
      Multiemployer Plan, (c) incur any obligation to provide post-retirement medical
      or insurance benefits with respect to employees or former employees (other
      than
      benefits required by law) or (d) amend any Plan in a manner that would
      materially increase its funding obligations.

    


    5.25 Place
      of Business; Name.
      Company
      will not transfer its chief executive office or principal place of business,
      or
      move, relocate, close or sell any business Premises. Company will not permit
      any
      tangible Collateral or any records relating to the Collateral to be located
      in
      any state or area in which, in the event of such location, a financing statement
      covering such Collateral would be required to be, but has not in fact been,
      filed in order to perfect the Security Interest. Company will not change its
      name or jurisdiction of organization.

    


    5.26 Constituent
      Documents.
      Company
      will not amend its Constituent Documents if such amendment will have a Material
      Adverse Effect; Company will provide Wells Fargo with prior notice of Company’s
      intent to so amend.


    
      
        
        

      

      
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          25
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    5.27 Performance
      by Wells Fargo.
      If
      Company fails to perform or observe any of its obligations under this Agreement
      at any time, Wells Fargo may, but need not, perform or observe them on behalf
      of
      Company and may, but need not, take any other actions which Wells Fargo may
      reasonably deem necessary to cure or correct this failure; and Company shall
      pay
      Wells Fargo upon demand the amount of all costs and expenses (including
      reasonable attorneys’ fees and legal expense) incurred by Wells Fargo in
      performing these obligations, together with interest on these amounts at the
      Default Rate.


    


    5.28 Wells
      Fargo Appointed as Company’s Attorney in Fact.

    To
      facilitate Wells Fargo’s performance or observance of Company’s obligations
      under this Agreement, Company hereby irrevocably appoints Wells Fargo and Wells
      Fargo’s agents, as Company’s attorney in fact (which appointment is coupled with
      an interest) with the right (but not the duty) to create, prepare, complete,
      execute, deliver, endorse or file on behalf of Company any instruments,
      documents, assignments, security agreements, financing statements, applications
      for insurance and any other agreements or any Record required to be obtained,
      executed, delivered or endorsed by Company in accordance with the terms of this
      Agreement.


    


    6. EVENTS
      OF DEFAULT AND REMEDIES


    


    6.1 Events
      of Default.
      An
“Event of Default” means any of the following:

    


    (a) Company
      fails to pay the amount of any Indebtedness on the date that it becomes due
      and
      payable;

    


    (b) Company
      fails to observe or perform any covenant or agreement of Company set forth
      in
      this Agreement, or in any of the Loan Documents, or in any other document or
      agreement described in or related to this Agreement or to any
      Indebtedness;

    


    (c) An
      Overadvance arises as the result of any reduction in the Borrowing Base, or
      arises in any manner or on terms not otherwise approved of in advance by Wells
      Fargo in a Record that it has Authenticated;

    


    (d) An
      event
      of default or termination event (however defined) occurs under any swap,
      derivative, foreign exchange, hedge or any similar transaction or arrangement
      entered into between Company and Wells Fargo;

    


    (e) A
      Change
      of Control shall occur;

    


    (f) Company
      becomes insolvent or admits in a Record an inability to pay debts as they
      mature, or Company makes an assignment for the benefit of creditors; or Company
      applies for or consents to the appointment of any receiver, trustee, or similar
      officer for the benefit of Company, or for any of their properties; or any
      receiver, trustee or similar officer is appointed without the application or
      consent of Company; or any judgment, writ, warrant of attachment or execution
      or
      similar process is issued or levied against a substantial part of the property
      of Company;


    
      
        
        

      

      
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          26
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    (g) Company
      files a petition under any chapter of the United States Bankruptcy Code or
      under
      the laws of any other jurisdiction naming Company as debtor; or any such
      petition is instituted against Company; or Company institutes (by petition,
      application, answer, consent or otherwise) any bankruptcy, insolvency,
      reorganization, debt arrangement, dissolution, liquidation or similar proceeding
      under the laws of any jurisdiction; or any such proceeding is instituted (by
      petition, application or otherwise) against Company not dismissed within sixty
      (60) days following institution.

    


    (h) Intentionally
      Omitted.

    


    (i) Any
      representation or warranty made by Company in this Agreement, or by Company
      (or
      any of its Officers) in any agreement, certificate, instrument or financial
      statement or other statement delivered to Wells Fargo in connection with this
      Agreement is untrue or misleading in any material respect when delivered to
      Wells Fargo;

    


    (j) A
      final,
      non-appealable arbitration award, judgment, or decree or order for the payment
      of money in an amount in excess of $100,000.00 which is not insured or subject
      to indemnity, is entered against Company which is not immediately stayed or
      appealed;

     

    (k) Company
      is in default with respect to any bond, debenture, note or other evidence of
      material indebtedness issued by Company that is held by any third Person other
      than Wells Fargo, or under any instrument under which any such evidence of
      indebtedness has been issued or by which it is governed, or under any material
      lease or other contract, and the applicable grace period, if any, has expired,
      regardless of whether such default has been waived by the holder of such
      indebtedness;

    


    (l) Company
      liquidates, dissolves, terminates or suspends its business operations or
      otherwise fails to operate its business in the ordinary course, or merges with
      another Person; or sells or attempts to sell all or substantially all of its
      assets;

    


    (m) Company
      fails to pay any indebtedness or obligation owed to Wells Fargo which is
      unrelated to the Line of Credit or this Agreement as it becomes due and
      payable;

    


    (n) Intentionally
      Omitted;

    


    (o) Intentionally
      Omitted;


    
      
        
        

      

      
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    (p) Any
      event
      or circumstance occurs that Wells Fargo in good faith believes may impair the
      prospect of payment of all or part of the Indebtedness, or Company’s ability to
      perform any of its material obligations under any of the Loan Documents, or
      any
      other document or agreement described in or related to this Agreement, or there
      occurs any material adverse change in the business or financial condition of
      Company.

    


    (q) Any
      Director or Officer of Company is indicted for a felony offence under state
      or
      federal law, or Company hires an Officer or appoints a Director who has been
      convicted of any such felony offense, or a Person becomes an Owner of at least
      20% of the issued and outstanding common stock of Company who has been convicted
      of any such felony offense.

    


    (r) Any
      Reportable Event, which Wells Fargo in good faith believes to constitute
      sufficient grounds for termination of any Pension Plan or for the appointment
      of
      a trustee to administer any Pension Plan, has occurred and is continuing 30
      days
      after Company gives Wells Fargo a Record notifying it of the Reportable Event;
      or a trustee is appointed by an appropriate court to administer any Pension
      Plan; or the Pension Benefit Guaranty Corporation institutes proceedings to
      terminate or appoint a trustee to administer any Pension Plan; or Company or
      any
      ERISA Affiliate files for a distress termination of any Pension Plan under
      Title
      IV of ERISA; or Company or any ERISA Affiliate fails to make any quarterly
      Pension Plan contribution required under Section 412(m) of the IRC, which Wells
      Fargo in good faith believes may, either by itself or in combination with other
      failures, result in the imposition of a Lien on Company’s assets in favor of the
      Pension Plan; or any withdrawal, partial withdrawal, reorganization or other
      event occurs with respect to a Multiemployer Plan which could reasonably be
      expected to result in a material liability by Company to the Multiemployer
      Plan
      under Title IV of ERISA.

    


    6.2 Rights
      and Remedies.
      During
      any Default Period, Wells Fargo may in its discretion exercise any or all of
      the
      following rights and remedies:

    


    (a) Wells
      Fargo may terminate the Line of Credit and decline to make Advances including
      any unfunded Term Loan Advances, if any, and terminate any services extended
      to
      Company under the Master Agreement for Treasury Management
      Services;

    


    (b) Wells
      Fargo may declare the Indebtedness to be immediately due and payable and
      accelerate payment of the Revolving Note and the Term Note, and all Indebtedness
      shall immediately become due and payable, without presentment, notice of
      dishonor, protest or further notice of any kind, all of which Company hereby
      expressly waives;

    


    (c) Wells
      Fargo may, without notice to Company, apply any money owing by Wells Fargo
      to
      Company to payment of the Indebtedness;

    


    (d) Wells
      Fargo may exercise and enforce any rights and remedies available upon default
      to
      a secured party under the UCC, including the right to take possession of
      Collateral, proceeding with or without judicial process (without a prior hearing
      or notice of hearing, which Company hereby expressly waives) and sell, lease
      or
      otherwise dispose of Collateral for cash or on credit (with or without giving
      warranties as to condition, fitness, merchantability or title to Collateral,
      and
      in the event of a credit sale, Indebtedness shall be reduced only to the extent
      that payments are actually received), and Company will upon Wells Fargo’s demand
      assemble the Collateral and make it available to Wells Fargo at any place
      designated by Wells Fargo which is reasonably convenient to both
      parties;


    
      
        
        

      

      
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    (e) Wells
      Fargo may exercise and enforce its rights and remedies under any of the Loan
      Documents and any other document or agreement described in or related to this
      Agreement;

    


    (f) Intentionally
      Omitted;

    


    (g) Wells
      Fargo may for any reason apply for the appointment of a receiver of the
      Collateral, to which appointment Company hereby consents; and

    


    (h) Wells
      Fargo may exercise any other rights and remedies available to it by law or
      agreement.

    


    6.3 Immediate
      Default and Acceleration.
      Following the occurrence of an Event of Default described in Section 6.1(f)
      or
      (g), the Line of Credit shall immediately terminate and all of Company’s
      Indebtedness shall immediately become due and payable without presentment,
      demand, protest or notice of any kind.

    


    7. MISCELLANEOUS

    


    7.1 No
      Waiver; Cumulative Remedies.
      No delay
      or any single or partial exercise by Wells Fargo of any right, power or remedy
      under the Loan Documents, or under any other document or agreement described
      in
      or related to this Agreement, shall constitute a waiver of any other right,
      power or remedy under the Loan Documents or granted by Company to Wells Fargo
      under other agreements or documents that are unrelated to the Loan Documents.
      No
      notice to or demand on Company in any circumstance shall entitle Company to
      any
      additional notice or demand in any other circumstances. The remedies provided
      in
      the Loan Documents or in any other document or agreement described in or related
      to this Agreement are cumulative and not exclusive of any remedies provided
      by
      law. Wells Fargo may comply with applicable law in connection with a disposition
      of Collateral, and such compliance will not be considered to adversely affect
      the commercial reasonableness of any sale of the Collateral.

    


    7.2 Amendments;
      Consents and Waivers; Authentication.
      No
      amendment or modification of any Loan Documents, or any other document or
      agreement described in or related to this Agreement, or consent to or waiver
      of
      any Event of Default, or consent to or waiver of the application of any covenant
      or representation set forth in any of the Loan Documents, or any other document
      or agreement described in or related to this Agreement, or any release of Wells
      Fargo’s Security Interest in any Collateral, shall be effective unless it has
      been agreed to by Wells Fargo and memorialized in a Record that: (a)
      specifically states that it is intended to amend or modify specific Loan
      Documents, or any other document or agreement described in or related to this
      Agreement, or waive any Event of Default or the application of any covenant
      or
      representation of any terms of specific Loan Documents, or any other document
      or
      agreement described in or related to this Agreement, or is intended to release
      Wells Fargo’s Security Interest in specific Collateral; and (b) is Authenticated
      by the signature of an authorized employee of both parties, or by an authorized
      employee of Wells Fargo with respect to a consent or waiver. The terms of an
      amendment, consent or waiver memorialized in any Record shall be effective
      only
      to the extent, and in the specific instance, and for the limited purpose to
      which Wells Fargo has agreed.


    
      
        
        

      

      
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    7.3 Execution
      in Counterparts; Delivery of Counterparts.
      This
      Agreement and all other Loan Documents, or any other document or agreement
      described in or related to this Agreement, and any amendment or modification
      to
      them may be Authenticated by the parties in any number of counterparts, each
      of
      which, once authenticated and delivered in accordance with the terms of this
      Section 7.3, will be deemed an original, and all such counterparts, taken
      together, shall constitute one and the same instrument. Delivery by fax or
      by
      encrypted e-mail or e-mail file attachment of any counterpart to any Loan
      Document Authenticated by an authorized signature will be deemed the equivalent
      of the delivery of the original Authenticated instrument. Company shall send
      the
      original Authenticated counterpart to Wells Fargo by first class U.S. mail
      or by
      overnight courier, but Company’s failure to deliver a Record in this form shall
      not affect the validity, enforceability, and binding effect of this Agreement
      or
      the other Loan Documents, or any other document or agreement described in or
      related to this Agreement.

    


    7.4 Notices,
      Requests, and Communications; Confidentiality.
      Except
      as otherwise expressly provided in this Agreement:

    


    (a) Delivery
      of Notices, Requests and Communications.
      Any
      notice, request, demand, or other communication by either party that is required
      under the Loan Documents, or any other document or agreement described in or
      related to this Agreement, to be in the form of a Record (but excluding any
      Record containing information Company must report to Wells Fargo under Section
      5.1) may be delivered (i) in person, (ii) by first class U.S. mail, (iii) by
      overnight courier of national reputation, or (iv) by fax, or the Record may
      be
      sent as an Electronic Record and delivered (v) by an encrypted e-mail, or (vi)
      through Wells Fargo’s Commercial Electronic Office® (“CEO®”) portal or other
      secure electronic channel to which the parties have agreed.

    


    (b) Addresses
      for Delivery.
      Delivery of any Record under this Section 7.4 shall be made to the appropriate
      address set forth on the last page of this Agreement (which either party may
      modify by a Record sent to the other party), or through Wells Fargo’s CEO portal
      or other secure electronic channel to which the parties have
      agreed.


    
      
        
        

      

      
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    (c) Date
      of Receipt.
      Each
      Record sent pursuant to the terms of this Section 7.4 will be deemed to have
      been received on (i) the date of delivery if delivered in person, (ii) the
      date
      deposited in the mail if sent by mail, (iii) the date delivered to the courier
      if sent by overnight courier, (iv) the date of transmission if sent by fax,
      or
      (v) the date of transmission, if sent as an Electronic Record by electronic
      mail
      or through Wells Fargo’s CEO portal or similar secure electronic channel to
      which the parties have agreed; except that any request for an Advance or any
      other notice, request, demand or other communication from Company required
      under
      Section 1, and any request for an accounting under Section 9-210 of the UCC,
      will not be deemed to have been received until actual receipt by Wells Fargo
      on
      a Business Day by an authorized employee of Wells Fargo.

    


    (d) Confidentiality
      of Unencrypted E-mail.
      Company
      acknowledges that if it sends an Electronic Record to Wells Fargo without
      encryption by e-mail or as an e-mail file attachment, there is a risk that
      the
      Electronic Record may be received by unauthorized Persons, and that by so doing
      it will be deemed to have accepted this risk and the consequences of any such
      unauthorized disclosure.

    


    7.5 Company
      Information Reporting; Confidentiality.
      Except
      as otherwise expressly provided in this Agreement:

    


    (a) Delivery
      of Company Information Records.
      Any
      information that Company is required to deliver under Section 5.1 in the form
      of
      a Record may be delivered to Wells Fargo (i) in person, or by (ii) first class
      U.S. mail, (iii) overnight courier of national reputation, or (iv) fax, or
      the
      Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi)
      through the file upload service of Wells Fargo’s CEO portal or other secure
      electronic channel to which the parties have agreed.

    


    (b) Addresses
      for Delivery.
      Delivery of any Record to Wells Fargo under this Section 7.5 shall be made
      to
      the appropriate address set forth on the last page of this Agreement (which
      Wells Fargo may modify by a Record sent to Company), or through Wells Fargo’s
      CEO portal or other secure electronic channel to which the parties have
      agreed.

    


    (c) Date
      of Receipt.
      Each
      Record sent pursuant to this Section will be deemed to have been received on
      (i)
      the date of delivery to an authorized employee of Wells Fargo, if delivered
      in
      person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the date
      of
      transmission, if sent as an Electronic Record through Wells Fargo’s CEO portal
      or similar secure electronic channel to which the parties have
      agreed.

    


    (d) Authentication
      of Company Information Records.
      Company
      shall Authenticate any Record delivered (i) in person, or by U.S. mail,
      overnight courier, or fax, by the signature of the Officer or employee of
      Company who prepared the Record; (ii) as an Electronic Record sent via encrypted
      e-mail, by the signature of the Officer or employee of Company who prepared
      the
      Record by any file format signature that is acceptable to Wells Fargo, or by
      a
      separate certification signed and sent by fax; or (iii) as an Electronic Record
      via the file upload service of Wells Fargo’s CEO portal or similar secure
      electronic channel to which the parties have agreed, through such credentialing
      process as Wells Fargo and Company may agree to under the CEO
      agreement.


    
      
        
        

      

      
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    (e) Certification
      of Company Information Records.
      Any
      Record (including any Electronic Record) Authenticated and delivered to Wells
      Fargo under this Section 7.5 will be deemed to have been certified as materially
      true, correct, and complete by Company and each Officer or employee of Company
      who prepared and Authenticated the Record on behalf of Company, and may be
      legally relied upon by Wells Fargo without regard to method of delivery or
      transmission.

    


    (f) Confidentiality
      of Company Information Records Sent by Unencrypted E-mail.
      Company
      acknowledges that if it sends an Electronic Record to Wells Fargo without
      encryption by e-mail or as an e-mail file attachment, there is a risk that
      the
      Electronic Record may be received by unauthorized Persons, and that by so doing
      it will be deemed to have accepted this risk and the consequences of any such
      unauthorized disclosure. Company acknowledges that it may deliver Electronic
      Records containing Company information to Wells Fargo by e-mail pursuant to
      any
      encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo’s
      CEO portal file upload service without risk of unauthorized
      disclosure.

    


    7.6 Further
      Documents.
      Company
      will from time to time execute, deliver, endorse and authorize the filing of
      any
      instruments, documents, conveyances, assignments, security agreements, financing
      statements, control agreements and other agreements that Wells Fargo may
      reasonably request in order to secure, protect, perfect or enforce the Security
      Interest or Wells Fargo’s rights under the Loan Documents, or any other document
      or agreement described in or related to this Agreement (but any failure to
      request or assure that Company executes, delivers, endorses or authorizes the
      filing of any such item shall not affect or impair the validity, sufficiency
      or
      enforceability of the Loan Documents, or any other document or agreement
      described in or related to this Agreement, and the Security Interest, regardless
      of whether any such item was or was not executed, delivered or endorsed in
      a
      similar context or on a prior occasion).

    


    7.7 Costs
      and Expenses.
      Company
      shall pay on demand all costs and expenses, including reasonable attorneys’
fees, incurred by Wells Fargo in connection with the Indebtedness, this
      Agreement, the Loan Documents, or any other document or agreement described
      in
      or related to this Agreement, and the transactions contemplated by this
      Agreement, including all such costs, expenses and fees incurred in connection
      with the negotiation, preparation, execution, amendment, administration,
      performance, collection and enforcement of the Indebtedness and all such
      documents and agreements and the creation, perfection, protection, satisfaction,
      foreclosure or enforcement of the Security Interest.

    


    7.8 Indemnity.
      In
      addition to its obligation to pay Wells Fargo’s expenses under the terms of this
      Agreement, Company shall indemnify, defend and hold harmless Wells Fargo, its
      parent Wells Fargo & Company, and any of its affiliates and successors, and
      all of their present and future Officers, Directors, employees, attorneys and
      agents (the “Indemnitees”) from and against any of the following (collectively,
“Indemnified Liabilities”):


    
      
        
        

      

      
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    (a) Any
      and
      all transfer taxes, documentary taxes, assessments or charges made by any
      governmental authority by reason of the execution and delivery of the Loan
      Documents, or any other document or agreement described in or related to this
      Agreement, or the making of the Advances;

    


    (b) Any
      claims, loss or damage to which any Indemnitee may be subjected if any
      representation or warranty contained in Exhibit D proves to be incorrect in
      any
      respect or as a result of any violation of the covenants contained in Section
      5.12; and

    


    (c) Any
      and
      all other liabilities, losses, damages, penalties, judgments, suits, claims,
      costs and expenses of any kind or nature whatsoever (including the reasonable
      fees and disbursements of counsel) in connection with this Agreement and any
      other investigative, administrative or judicial proceedings, whether or not
      such
      Indemnitee shall be designated a party to such proceedings, which may be imposed
      on, incurred by or asserted against any such Indemnitee, in any manner related
      to or arising out of or in connection with the making of the Advances and the
      Loan Documents, or any other document or agreement described in or related
      to
      this Agreement, or the use or intended use of the proceeds of the Advances,
      with
      the exception of any Indemnified Liability caused by the gross negligence or
      willful misconduct of an Indemnitee.

    


    If
      any
      investigative, judicial or administrative proceeding described in this Section
      is brought against any Indemnitee, Company, or counsel designated by Company
      and
      satisfactory to the Indemnitee, will resist and defend the action, suit or
      proceeding at Company’s sole cost and expense, and at all times Company shall
      advise Indemnitee of the status of its defense - the disposition thereof to
      be
      subject to the approval of Indemnitee. Each Indemnitee will use its best efforts
      to cooperate in the defense of any such action, suit or proceeding. If this
      agreement to indemnify is held to be unenforceable because it violates any
      law
      or public policy, Company shall nevertheless make the maximum contribution
      to
      the payment and satisfaction of each of the Indemnified Liabilities to the
      extent permissible under applicable law. Company’s obligations under this
      Section shall survive the termination of this Agreement and the discharge of
      Company’s other obligations under this Agreement.

    


    7.9 Retention
      of Company’s Records.
      Wells
      Fargo shall have no obligation to maintain Electronic Records or retain any
      documents, schedules, invoices, agings, or other Records delivered to Wells
      Fargo by Company in connection with the Loan Documents, or any other document
      or
      agreement described in or related to this Agreement for more than 30 days after
      receipt by Wells Fargo. If there is a special need to retain specific Records,
      Company must notify Wells Fargo of its need to retain or return such Records
      with particularity, which notice must be delivered to Wells Fargo in accordance
      with the terms of this Agreement at the time of the initial delivery of the
      Record to Wells Fargo.


    
      
        
        

      

      
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    7.10 Binding
      Effect; Assignment; Complete Agreement.
      The Loan
      Documents, or any other document or agreement described in or related to this
      Agreement, shall be binding upon and inure to the benefit of Company and Wells
      Fargo and their respective successors and assigns, except that Company shall
      not
      have the right to assign its rights under this Agreement or any interest in
      this
      Agreement without Wells Fargo’s prior consent, which must be confirmed in a
      Record Authenticated by Wells Fargo. To the extent permitted by law, Company
      waives and will not assert against any assignee any claims, defenses or set-offs
      which Company could assert against Wells Fargo. This Agreement shall also bind
      all Persons who become a party to this Agreement as a borrower. This Agreement,
      together with the Loan Documents, or any other document or agreement described
      in or related to this Agreement, comprises the complete and integrated agreement
      of the parties on the subject matter of this Agreement and supersedes all prior
      agreements, whether oral or evidenced in a Record. To the extent that any
      provision of this Agreement contradicts other provisions of the Loan Documents
      other than this Agreement, or any other document or agreement described in
      or
      related to this Agreement, this Agreement shall control.

    


    7.11 Sharing
      of Information.
      Wells
      Fargo may share any information that it may have regarding Company and its
      Affiliates with its accountants, lawyers, and other advisors, and Wells Fargo
      and each direct and indirect subsidiary of Wells Fargo & Company may also
      share any information that they have with each other, and Company waives any
      right of confidentiality it may have with respect to the sharing of all such
      information.

    


    7.12 Severability
      of Provisions.
      Any
      provision of this Agreement which is prohibited or unenforceable shall be
      ineffective to the extent of such prohibition or unenforceability without
      invalidating the remaining terms of this Agreement.

    


    7.13 Headings.
      Section
      and subsection headings in this Agreement are included for convenience of
      reference only and shall not constitute a part of this Agreement for any other
      purpose.

    


    7.14 Governing
      Law; Jurisdiction, Venue; Waiver of Jury Trial.
      The Loan
      Documents (other than real estate related documents, if any) shall be governed
      by and construed in accordance with the substantive laws (other than conflict
      laws) of the State of New York. The parties to this Agreement (a) consent to
      the
      personal jurisdiction of the state and federal courts located in the State
      of
      New York in connection with any controversy related to this Agreement; (b)
      waive
      any argument that venue in any such forum is not convenient; (c) agree that
      any
      litigation initiated by Wells Fargo or Company in connection with this Agreement
      or the other Loan Documents may be venued in either the state or federal courts
      located in the City of New York, County of New York and State of New York;
      and
      (d) agree that a final judgment in any such suit, action or proceeding shall
      be
      conclusive and may be enforced in other jurisdictions by suit on the judgment
      or
      in any other manner provided by law.

    


    [REMAINDER
      OF PAGE LEFT INTENTIONALLY BLANK]


    
      
        
        

      

      
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    COMPANY
      AND WELLS FARGO
      WAIVE
      ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW OR IN EQUITY OR IN ANY OTHER
      PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN
      DOCUMENT.

    


    
      	
              MERRIMAC
                INDUSTRIES, INC.

            	 	
              WELLS
                FARGO BANK,

            
	 	 	
              NATIONAL
                ASSOCIATION

            
	 	 	 	 	 
	
              By:
                

            	
              /s/
                Robert V. Condon

            	 	
              By:

            	
              /s/
                Sabato Mutone

            
	 	
              Robert
                V. Condon

            	 	 	
              Sabato
                Mutone

            
	 	
              Its
                Chief Financial Officer

            	 	 	
              Its
                Vice President

            


    

    


    COMPANY
      AND WELLS FARGO
      HAVE
      EXECUTED THIS AGREEMENT THROUGH THEIR AUTHORIZED OFFICERS AS OF THE DATE SET
      FORTH ABOVE.

    


    
      	
              WELLS
                FARGO BANK,

            	 	
              MERRIMAC
                INDUSTRIES, INC.

            
	
              NATIONAL
                ASSOCIATION

            	 	 
	 	 	 	 	 
	
              By:
                

            	
              /s/
                Sabato Mutone

            	 	
              By:

            	
              /s/
                Robert V. Condon

            
	 	
              Sabato
                Mutone

            	 	 	
              Robert
                V. Condon

            
	 	
              Its
                Vice President

            	 	 	
              Its
                Chief Financial Officer

            


    

     

    
      	
              Wells
                Fargo Bank, National Association

            	 	
              Merrimac
                Industries, Inc.

            
	
              MAC-
                N2697-160

            	 	
              41
                Fairfield Place

            
	
              119
                West 40th Street, 16th
                Floor

            	 	
              West
                Caldwell, New Jersey 07006

            
	
              New
                York, New York 10018

            	 	 
	
              Fax:
                (646) 728-3205

            	 	
              Fax:
                (973) 882-5981

            
	
              Attention:
                Sabato Mutone, 

            	 	
              Attention:
                Robert V. Condon

            
	
              Vice
                President

            	 	
              Chief
                Financial Officer

            
	
              e-mail:sabato.mutone@wellsfargo.com

            	 	
              Email:
                rvc@merrimacind.com

            


    


    
      
        
        

      

      
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    Exhibit
      A to Credit and Security Agreement

    


    DEFINITIONS

    


    “Account
      Funds” is defined in Section 1.4(a).

     

    “Accounts”
      shall have the meaning given it under the UCC.

     

    “Advance”
      and “Advances” means an advance or advances under the Line of Credit or the Term
      Loan.

     

    “Affiliate”
      or “Affiliates” means Multi-Mix® Microtechnology S.R.L. and any other Person
      controlled by, controlling or under common control with Company, including
      any
      Subsidiary of Company. For purposes of this definition, “control,” when used
      with respect to any specified Person, means the power to direct the management
      and policies of such Person, directly or indirectly, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Agreement”
      means this Credit and Security Agreement.

     

    “Assumed
      Maturity Date” is defined in Section 1.5(d).

     

    “Authenticated”
      means (a) to have signed; or (b) to have executed or to have otherwise adopted
      a
      symbol, or have encrypted or similarly processed a Record in whole or in part,
      with the present intent of the authenticating Person to identify the Person
      and
      adopt or accept a Record.

     

    “Borrowing
      Base” is defined in Section 1.2(a).

     

    “Borrowing
      Base Reserve” means, as of any date of determination, an amount or a percent of
      a specified category or item that Wells Fargo establishes in its sole discretion
      from time to time to reduce availability under the Borrowing Base (a) to reflect
      events, conditions, contingencies or risks which affect the assets, business
      or
      prospects of Company, or the Collateral or its value, or the enforceability,
      perfection or priority of Wells Fargo’s Security Interest in the Collateral, as
      the term “Collateral” is defined in this Agreement, or (b) to reflect Wells
      Fargo’s judgment that any collateral report or financial information relating to
      Company and furnished to Wells Fargo may be incomplete, inaccurate or misleading
      in any material respect.

     

    “Business
      Day” means a day on which the Federal Reserve Bank of New York is open for
      business and, if such day relates to a LIBOR Advance, a day on which dealings
      are carried on in the London interbank eurodollar market.

     

    “Capital
      Expenditures” means for a period, any expenditure of money during such period
      for the lease, purchase or other acquisition of any capital asset, or for the
      lease of any other asset whether payable currently or in the
      future.


    
      
        
        

      

      
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    “CEO”
is
      defined in Section 7.4(a).

     

    “Change
      of Control” means the occurrence of any of the following events:

    


    
      	
              (a)

            	
              Any
                Person or “group” (as such term is used in Sections 13(d) and 14(d) of the
                Securities Exchange Act of 1934) who does not have an ownership interest
                in Company on the date of the initial Advance, is or becomes the
                “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
                Securities Exchange Act of 1934, except that any such Person, entity
                or
                group will be deemed to have “beneficial ownership” of all securities that
                such Person, entity or group has the right to acquire, whether such
                right
                is exercisable immediately or only after the passage of time), directly
                or
                indirectly, of more than 25 percent (25%) of the voting power of
                all
                classes of ownership of Company; or

            


    

    


    
      	
              (b)

            	
              During
                any consecutive two-year period, individuals who at the beginning
                of such
                period constituted the board of Directors of Company (together with
                any
                new Directors whose election to such board of Directors, or whose
                nomination for election by the Owners of Company, was approved by
                a vote
                of a majority of the Directors then still in office who were either
                Directors at the beginning of such period or whose election or nomination
                for election was previously so approved) cease for any reason to
                constitute a majority of the board of Directors of Company then in
                office.

            


    

    


    “Collateral”
      means all of Company’s Accounts, chattel paper and electronic chattel paper,
      deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
      Inventory, Investment Property, letter-of-credit rights, letters of credit,
      all
      sums on deposit in any Collection Account, and any items in any Lockbox;
      together with (a) all substitutions and replacements for and products of such
      property; (b) in the case of all goods, all accessions; (c) all accessories,
      attachments, parts, Equipment and repairs now or subsequently attached or
      affixed to or used in connection with any goods; (d) all warehouse receipts,
      bills of lading and other documents of title that cover such goods now or in
      the
      future; (e) all collateral subject to the Lien of any of the Security Documents;
      (f) any money, or other assets of Company that come into the possession,
      custody, or control of Wells Fargo now or in the future; (g) Proceeds of any
      of
      the above Collateral; (h) books and records of Company, including all mail
      or
      e-mail addressed to Company; and (i) all of the above Collateral, whether now
      owned or existing or acquired now or in the future or in which Company has
      rights now or in the future.

     

    “Collection
      Account” means “Collection Account” as defined in the Master Agreement for
      Treasury Management Services and related Lockbox and Collection Account Service
      Description or Collection Account Service Description, whichever is
      applicable.

     

    “Compliance
      Certificate” is defined in Section 5.1(a) and is in the form of Exhibit
      E.


    
      
        
        

      

      
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    “Constituent
      Documents” means with respect to any Person, as applicable, that Person’s
      certificate of incorporation, articles of incorporation, by-laws, certificate
      of
      formation, articles of organization, limited liability company agreement,
      management agreement, operating agreement, shareholder agreement, partnership
      agreement or similar document or agreement governing such Person’s existence,
      organization or management or concerning disposition of ownership interests
      of
      such Person or voting rights among such Person’s owners.

     

    “Current
      Maturities of Long Term Debt” means, during a period beginning and ending on
      designated dates, the amount of Company’s long-term debt and capitalized leases
      which become due during that period.

     

    “Debt”
      means of a Person as of a given date, all items of indebtedness or liability
      which in accordance with GAAP would be included in determining total liabilities
      as shown on the liabilities side of a balance sheet for such Person and shall
      also include the aggregate payments required to be made by such Person at any
      time under any lease that is considered a capitalized lease under
      GAAP.

     

    “Debt
      Service Coverage Ratio” means (a) the sum of (i) Funds from Operations and (ii)
      Interest Expense minus (iii) unfinanced Capital Expenditures divided by (b)
      the
      sum of (i) Current Maturities of Long Term Debt and (ii) Interest
      Expense.

     

    “Default
      Period” is defined in Section 1.6(c).

     

    “Default
      Rate” is defined in Section 1.6(c).

     

    “Dilution”
      means, as of any date of determination, a percentage, based upon the prior
      six
      (6) months, which is the result of dividing (a) actual bad debt write-downs,
      discounts, advertising allowances, credits, and any other items with respect
      to
      the Accounts determined to be dilutive by Wells Fargo in its sole discretion
      during this period, by (b) Company’s net sales during such period (excluding
      extraordinary items) plus the amount of clause (a).

     

    “Director”
      means a director if Company is a corporation, or a governor or manager if
      Company is a limited liability company.

     

    “Earnings
      Before Taxes” means pretax earnings from operations, excluding extraordinary
      gains, but including extraordinary losses.

     

    “Electronic
      Record” means a Record that is created, generated, sent, communicated, received,
      or stored by electronic means, but does not include any Record that is sent,
      communicated, or received by fax.

     

    “Eligible
      Accounts” means all unpaid Accounts of Company arising from the sale or lease of
      goods or the performance of services, net of any credits and excluding all
      deposits or other prepayments, but further excluding any Accounts having any
      of
      the following characteristics:

     

    
      	
              (a)

            	
              That
                portion of Accounts unpaid 90 days or more after the invoice date
                or, if
                Wells Fargo in its sole discretion has determined that a particular
                dated
                Account may be eligible, that portion of such Account which is unpaid
                more
                than 30 days past the stated due date or more than 60 days past the
                invoice date;

            


    


    
      
        
        

      

      
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          -

        
          

        

      

      
        
        

      

    


    
      	
              (b)

            	
              That
                portion of Accounts related to goods or services with respect to
                which
                Company has received notice of a claim or dispute, which are subject
                to a
                claim of offset or a contra account, or which reflect a reasonable
                reserve
                for warranty claims or returns;

            


    

    


    
      	
              (c)

            	
              That
                portion of Accounts not yet earned by the final delivery of goods
                or that
                portion of Accounts not yet earned by the final rendition of services
                by
                Company to the account debtor, including with respect to both goods
                and
                services, progress billings, and that portion of Accounts for which
                an
                invoice has not been sent to the applicable account
                debtor;

            


    

    


    
      	
              (d)

            	
              Accounts
                constituting (i) Proceeds of copyrightable material unless such
                copyrightable material shall have been registered with the United
                States
                Copyright Office, or (ii) Proceeds of patentable inventions unless
                such
                patentable inventions have been registered with the United States
                Patent
                and Trademark Office;

            


    

    


    
      	
              (e)

            	
              Accounts
                owed by any unit of government, whether foreign or domestic (except
                that
                there shall be included in Eligible Accounts that portion of Accounts
                owed
                by such units of government for which Company has provided evidence
                satisfactory to Wells Fargo that (i) Wells Fargo’s Security Interest
                constitutes a perfected first priority Lien in such Accounts, and
                (ii)
                such Accounts may be enforced by Wells Fargo directly against such
                unit of
                government under all applicable
                laws);

            


    

    


    
      	
              (f)

            	
              Accounts
                denominated in any currency other than United States
                Dollars;

            


    

    


    
      	
              (g)

            	
              Accounts
                owed by an account debtor located outside the United States or Canada
                which are not (i) backed by a bank letter of credit naming Wells
                Fargo as
                beneficiary or assigned to Wells Fargo, in Wells Fargo’s possession or
                control, and with respect to which a control agreement concerning
                the
                letter-of-credit rights is in effect, and acceptable to Wells Fargo
                in all
                respects, in its sole discretion, or (ii) covered by a foreign receivables
                insurance policy acceptable to Wells Fargo in its sole
                discretion;

            


    

    


    
      	
              (h)

            	
              Accounts
                owed by an account debtor who is insolvent or is the subject of bankruptcy
                proceedings or who has gone out of
                business;

            


    

    


    
      	
              (i)

            	
              Accounts
                owed by an Owner, Subsidiary, Affiliate, Officer or employee of
                Company;

            


    

    


    
      	
              (j)

            	
              Accounts
                not subject to the Security Interest or which are subject to any
                Lien in
                favor of any Person other than Wells
                Fargo;

            


    


    
      
        
        

      

      
        -
          39
          -

        
          

        

      

      
        
        

      

    


    
      	
              (k)

            	
              That
                portion of Accounts that has been restructured, extended, amended
                or
                modified;

            


    

    


    
      	
              (l)

            	
              That
                portion of Accounts that constitutes advertising, finance charges,
                service
                charges or sales or excise taxes;

            


    

    


    
      	
              (m)

            	
              Accounts
                owed by an account debtor, regardless of whether otherwise eligible,
                to
                the extent that the aggregate balance of such Accounts exceeds 25%
                of the
                aggregate amount of all Accounts; except that with respect to SS/Loral,
                to
                the extent that the aggregate balance of its Accounts exceeds 15%
                of the
                aggregate amount of all Accounts;

            


    

    


    
      	
              (n)

            	
              Accounts
                owed by an account debtor, regardless of whether otherwise eligible,
                if
                33% or more of the total amount of Accounts due from such debtor
                is
                ineligible under clauses (a), (b), or (k) above;
                and

            


    

    


    
      	
              (o)

            	
              Accounts,
                or portions of Accounts, otherwise deemed ineligible by Wells Fargo
                in its
                sole discretion.

            


    

    


    “Eligible
      Inventory” means all raw material and parts Inventory of Company, valued at the
      lower of cost or market in accordance with GAAP; but excluding Inventory having
      any of the following characteristics:

    


    
      	
              (a)

            	
              Inventory
                that is: in-transit; located at any Premises of Borrower outside
                of United
                States; located at any warehouse, job site or other premises not
                approved
                by Wells Fargo in an Authenticated Record delivered to Company; not
                subject to a perfected first priority Lien in Wells Fargo’s favor; subject
                to any Lien or encumbrance that is subordinate to Wells Fargo’s first
                priority Lien; covered by any negotiable or non-negotiable warehouse
                receipt, bill of lading or other document of title; on consignment
                from
                any consignor; or on consignment to any consignee or subject to any
                bailment unless the consignee or bailee has executed an agreement
                with
                Wells Fargo;

            


    

    


    
      	
              (b)

            	
              Supplies,
                packaging, maintenance parts, fabricated parts, or sample Inventory,
                or
                customer supplied parts or
                Inventory;

            


    

    


    
      	
              (c)

            	
              Work-in-process
                Inventory;

            


    

    


    
      	
              (d)

            	
              Inventory
                that is damaged, defective, obsolete, slow moving or not currently
                saleable in the normal course of Company’s operations, or the amount of
                such Inventory that has been reduced by
                shrinkage;

            


    

    


    
      	
              (e)

            	
              Inventory
                that Company has returned, has attempted to return, is in the process
                of
                returning or intends to return to the vendor of the
                Inventory;

            


    

    


    
      	
              (f)

            	
              Inventory
                that is perishable or live;

            


    


    
      
        
        

      

      
        -
          40
          -

        
          

        

      

      
        
        

      

    


    
      	
              (g)

            	
              Inventory
                manufactured by Company pursuant to a license unless the applicable
                licensor has agreed in a Record that has been Authenticated by licensor
                to
                permit Wells Fargo to exercise its rights and remedies against such
                Inventory;

            


    

    


    
      	
              (h)

            	
              Inventory
                that is subject to a Lien in favor of any Person other than Wells
                Fargo;

            


    

    


    
      	
              (i)

            	
              Inventory
                stored at locations holding less than 10% of the aggregate value
                of
                Company’s Inventory; and

            


    

    


    
      	
              (j)

            	
              Inventory
                otherwise deemed ineligible by Wells Fargo in its sole
                discretion.

            


    

    


    “Environmental
      Law” means any federal, state, local or other governmental statute, regulation,
      law or ordinance dealing with the protection of human health and the
      environment.

     

    “Equipment”
      shall have the meaning given it under the Uniform Commercial Code in effect
      in
      the state whose laws govern this Agreement.

     

    “ERISA”
      means the Employee Retirement Income Security Act of 1974, as amended from
      time
      to time.

     

    “ERISA
      Affiliate” means any trade or business (whether or not incorporated) that is a
      member of a group which includes Company and which is treated as a single
      employer under Section 414 of the IRC.

     

    “Event
      of
      Default” is defined in Section 6.1.

     

    “Floating
      Rate” means an annual interest rate equal to (a) the Prime Rate plus one percent
      (1.0%) for a Line of Credit Advance, and (b) the Prime Rate plus one percent
      (1.0%) for a Term Loan I Advance, and (c) the Prime Rate plus one-half percent
      (1/2%) for a Term Loan II Advance.

     

    “Floating
      Rate Advance” means an Advance bearing interest at the Floating
      Rate.

     

    “Funds
      from Operations” means for a given period, the sum of (a) Net Income, (b)
      depreciation and amortization, (c) any increase (or decrease) in deferred income
      taxes, (d) any increase (or decrease) in life reserves, and (e) other non-cash
      items, each as determined for such period in accordance with GAAP.

     

    “GAAP”
      means generally accepted accounting principles, applied on a basis consistent
      with the accounting practices applied in the financial statements described
      on
      Exhibit D.

     

    “General
      Intangibles” shall have the meaning given it under the UCC.

     

    “Hazardous
      Substances” means pollutants, contaminants, hazardous substances, hazardous
      wastes, petroleum and fractions thereof, and all other chemicals, wastes,
      substances and materials listed in, regulated by or identified in any
      Environmental Law.


    
      
        
        

      

      
        -
          41
          -

        
          

        

      

      
        
        

      

    


    “Indebtedness”
      is used in its most comprehensive sense and means any debts, obligations and
      liabilities of Company to Wells Fargo, whether incurred in the past, present
      or
      future, whether voluntary or involuntary, and however arising, and whether
      due
      or not due, absolute or contingent, liquidated or unliquidated, determined
      or
      undetermined, and including without limitation all obligations arising under
      any
      swap, derivative, foreign exchange, hedge, deposit, treasury management or
      similar transaction or arrangement however described or defined that Company
      may
      enter into at any time with Wells Fargo or with Wells Fargo Merchant Services,
      L.L.C., whether or not Company may be liable individually or jointly with
      others, or whether recovery upon such Indebtedness may subsequently become
      unenforceable.

     

    “Indemnified
      Liabilities” is defined in Section 7.8.

     

    “Indemnitees”
      is defined in Section 7.8.

     

    “Infringement”
      or “Infringing” when used with respect to Intellectual Property Rights means any
      infringement or other violation of Intellectual Property Rights.

     

    “Intellectual
      Property Rights” means all actual or prospective rights arising in connection
      with any intellectual property or other proprietary rights, including all rights
      arising in connection with copyrights, patents, service marks, trade dress,
      trade secrets, trademarks, trade names or mask works.

     

    “Interest
      Expense” means for a fiscal year-to-date period, Company’s total gross interest
      expense during such period (excluding interest income), and shall in any event
      include (a) interest expensed (whether or not paid) on all Debt, (b) the
      amortization of debt discounts, (c) the amortization of all fees payable in
      connection with the incurrence of Debt to the extent included in interest
      expense, and (d) the portion of any capitalized lease obligation allocable
      to
      interest expense.

     

    “Interest
      Payment Date” is defined in Section 1.8(a).

     

    “Interest
      Period” means the period that commences on (and includes) the Business Day on
      which either a LIBOR Advance is made or continued or on which a Floating Rate
      Advance is converted to a LIBOR Advance, and ending on (but excluding) the
      Business Day numerically corresponding to that date that falls the number of
      months afterward as selected by Company pursuant to Section 1.3A, during which
      period the outstanding principal amount of the LIBOR Advance shall bear interest
      at the LIBOR Advance Rate; provided, however, that:

     

    
      	
              (a)

            	
              If
                an Interest Period would otherwise end on a day which is not a Business
                Day, then it shall end on the next Business Day, unless that day
                is the
                first Business Day of a month, in which case the Interest Period
                shall end
                on the last Business Day of the preceding
                month;

            


    

     

    
      	
              (b)

            	
              No
                Interest Period applicable to an Advance may end later than the Maturity
                Date; and

            


    


    
      
        
        

      

      
        -
          42
          -

        
          

        

      

      
        
        

      

    


    
      	
              (c)

            	
              In
                no event shall Company select Interest Periods with respect to LIBOR
                Advances which would result in the payment of a LIBOR Advance breakage
                fee
                in order to make a required principal
                payment.

            


    

     

    “Inventory”
      shall have the meaning given it under the UCC.

     

    “Investment
      Property” shall have the meaning given it under the UCC.

     

    “LIBOR”
      means the rate per annum (rounded upward, if necessary, to the nearest whole
      1/8th of one percent (1%)) determined pursuant to the following
      formula:

     

    
      	
              LIBOR = 

            	
              Base
                LIBOR

            	 
	 	
              100%
                - LIBOR Reserve Percentage

            	 


    

    


    
      	
              (a)

            	
              “Base
                LIBOR” means the rate per annum for United States dollar deposits quoted
                by Wells Fargo as the Inter-Bank Market Offered Rate, with the
                understanding that such rate is quoted by Wells Fargo for the purpose
                of
                calculating effective rates of interest for loans making reference
                to it,
                on the first day of an Interest Period for delivery of funds on that
                date
                for a period of time approximately equal to the number of days in
                that
                Interest Period and in an amount approximately equal to the principal
                amount to which that Interest Period applies. Company understands
                and
                agrees that Wells Fargo may base its quotation of the Inter-Bank
                Market
                Offered Rate upon such offers or other market indicators of the Inter-Bank
                Market as Wells Fargo in its discretion deems appropriate including
                the
                rate offered for U.S. dollar deposits on the London Inter-Bank
                Market.

            


    

     

    
      	
              (b)

            	
              “LIBOR
                Reserve Percentage” means the reserve percentage prescribed by the Board
                of Governors of the Federal Reserve System (or any successor) for
                “Eurocurrency Liabilities” (as defined in Regulation D of the Federal
                Reserve Board, as amended), adjusted by Wells Fargo for expected
                changes
                in such reserve percentage during the applicable Interest
                Period.

            


    

     

    “LIBOR
      Advance” means an Advance bearing interest at the LIBOR Advance
      Rate.

     

    “LIBOR
      Advance Rate” means an annual interest rate equal to (a) LIBOR plus three and
      one-quarter percent (3-1/4%) for a Line of Credit Advance, and (b) LIBOR plus
      three and one-half percent (3-1/2%) for a Term Loan II Advance

     

    “Lien”
      means any security interest, mortgage, deed of trust, pledge, lien, charge,
      encumbrance, title retention agreement or analogous instrument or device,
      including the interest of each lessor under any capitalized lease and the
      interest of any bondsman under any payment or performance bond, in, of or on
      any
      assets or properties of a Person, whether now owned or subsequently acquired
      and
      whether arising by agreement or operation of law.

     

    “Line
      of
      Credit” is defined in the Recitals.


    
      
        
        

      

      
        -
          43
          -

        
          

        

      

      
        
        

      

    


    “Loan
      Documents” means this Agreement, the Revolving Note, the Term Note, the Master
      Agreement for Treasury Management Services and the Security Documents, together
      with every other agreement, note, document, contract or instrument to which
      Company now or in the future may be a party and which may be required by Wells
      Fargo in connection with, or as a condition to, the execution of this Agreement.
      Any documents or other agreements entered into between Company and Wells Fargo
      that relate to any swap, derivative, foreign exchange, hedge, or similar product
      or transaction, or which are entered into with an operating division of Wells
      Fargo other than Wells Fargo Business Credit, shall not be included in this
      definition.

     

    “Loan
      Manager” means the treasury management service defined in the Master Agreement
      for Treasury Management Services and related Loan Manager Service
      Description.

     

    “Lockbox”
      means “Lockbox” as defined in the Master Agreement for Treasury Management
      Services and related Lockbox and Collection Account Service
      Description.

     

    “Master
      Agreement for Treasury Management Services” means the Master Agreement for
      Treasury Management Services, the related Acceptance of Services, and the
      Service Description governing each treasury management service used by
      Company.

     

    “Material
      Adverse Effect” means any of the following:

     

    
      	
              (a)

            	
              A
                material adverse effect on the business, operations, results of
                operations, prospects, assets, liabilities or financial condition
                of
                Company;

            


    

     

    
      	
              (b)

            	
              A
                material adverse effect on the ability of Company to perform its
                obligations under the Loan Documents, or any other document or agreement
                related to this Agreement; or

            


    

     

    
      	
              (c)

            	
              A
                material adverse effect on the ability of Wells Fargo to enforce
                the
                Indebtedness or to realize the intended benefits of the Security
                Documents, including a material adverse effect on the validity or
                enforceability of any Loan Document or of any rights against any
                Guarantor, or on the status, existence, perfection, priority (subject
                to
                Permitted Liens) or enforceability of any Lien securing payment or
                performance of the Indebtedness.

            


    

     

    “Maturity
      Date” is defined in Section 1.1(b).

     

    “Maximum
      Line Amount” is defined in Section 1.1(a).

     

    “Mortgage”
      means a first priority and exclusive real estate mortgage in favor of Wells
      Fargo on otherwise marketable and insurable premises located at 41 Fairfield
      Place, West Caldwell, New Jersey which is subject to a title insurance policy
      acceptable to Wells Fargo and secures that part of the Indebtedness determined
      by Wells Fargo.


    
      
        
        

      

      
        -
          44
          -

        
          

        

      

      
        
        

      

    


    “Multiemployer
      Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to
      which Company or any ERISA Affiliate contributes or is obligated to
      contribute.

     

    “Net
      Cash
      Proceeds” means the cash proceeds of any asset sale (including cash proceeds
      received as deferred payments pursuant to a note, installment receivable or
      otherwise, but only upon actual receipt) net of (a) attorney, accountant, and
      investment banking fees, (b) brokerage commissions, (c) amounts required to
      be
      applied to prior Liens the repayment of debt secured by a Lien not prohibited
      by
      this Agreement on the asset being sold, and (c) taxes paid or reasonably
      estimated to be payable as a result of such asset sale.

     

    “Net
      Income” means fiscal year-to-date after-tax net income from continuing
      operations, as determined in accordance with GAAP, but excluding (a) any
      extraordinary gains as determined in accordance with GAAP, (b) any change in
      the
      valuation of goodwill made in accordance with FASB Accounting Standard 142,
      and
      (c) any non-cash effects of accounting for stock based compensation in
      accordance with FASB pronouncement SFAS 123(r).

     

    “Net
      Loss” means fiscal year-to-date after-tax net loss from continuing operations as
      determined in accordance with GAAP.

     

    “Net
      Orderly Liquidation Value” means a professional opinion of the probable Net Cash
      Proceeds that could be realized at a properly advertised and professionally
      conducted liquidation sale, conducted under orderly sale conditions for an
      extended period of time (usually six to nine months), under the economic trends
      existing at the time of the appraisal.

     

    “OFAC”
is
      defined in Section 5.12(b).

     

    “Officer”
      means with respect to Company, an officer if Company is a corporation, a manager
      if Company is a limited liability company, or a partner if Company is a
      partnership.

     

    “Operating
      Account” is defined in Section 1.3(a), and maintained in accordance with the
      terms of Wells Fargo’s Commercial Account Agreement in effect for demand deposit
      accounts.

     

    “Overadvance”
      means the amount, if any, by which the unpaid principal amount of the Revolving
      Note is in excess of the then-existing Borrowing Base.

     

    “Owned
      Intellectual Property” is defined in Exhibit D.

     

    “Owner”
      means with respect to Company, each Person having legal or beneficial title
      to
      an ownership interest in Company or a right to acquire such an
      interest.

     

    “Patent
      and Trademark Security Agreement” means each Patent and Trademark Security
      Agreement entered into between Company and Wells Fargo.


    
      
        
        

      

      
        -
          45
          -

        
          

        

      

      
        
        

      

    


    “Pension
      Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for
      employees of Company or any ERISA Affiliate and covered by Title IV of
      ERISA.

     

    “Permitted
      Lien” and “Permitted Liens” are defined in Section 5.3(a).

     

    “Person”
      means any individual, corporation, partnership, joint venture, limited liability
      company, association, joint stock company, trust, unincorporated organization
      or
      government or any agency or political subdivision of a governmental
      entity.

     

    “Plan”
      means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained
      for employees of Company or any ERISA Affiliate.

     

    “Premises”
      is defined in Section 2.4(a).

     

    “Prime
      Rate” means at any time the rate of interest most recently announced by Wells
      Fargo at its principal office as its Prime Rate, with the understanding that
      the
      Prime Rate is one of Wells Fargo’s base rates, and serves as the basis upon
      which effective rates of interest are calculated for those loans making
      reference to it, and is evidenced by its recording in such internal publication
      or publications as Wells Fargo may designate. Each change in the rate of
      interest shall become effective on the date each Prime Rate change is announced
      by Wells Fargo. In
      no
      event, however, shall the annual rate of interest represented by the Prime
      Rate
      be less than five (5%) percent.

     

    “Proceeds”
      shall have the meaning given it under the UCC.

     

    “Record”
      means information that is inscribed on a tangible medium or that is stored
      in an
      electronic or other medium and is retrievable in perceivable form, and includes
      all information that is required to be reported by Company to Wells Fargo
      pursuant to Section 5.1.

     

    “Reportable
      Event” means a reportable event (as defined in Section 4043 of ERISA), other
      than an event for which the 30-day notice requirement under ERISA has been
      waived in regulations issued by the Pension Benefit Guaranty
      Corporation.

     

    “Revolving
      Note” is defined in Section 1.1(d).

     

    “Security
      Documents” means this Agreement, the Patent and Trademark Security Agreement(s),
      the Mortgage, Deposit Account Control Agreement executed by Capital One, N.A.,
      and any other document delivered to Wells Fargo from time to time to secure
      the
      Indebtedness.

     

    “Security
      Interest” is defined in Section 2.1.

     

    “Subsidiary”
      means any Person of which more than 50% of the outstanding ownership interests
      having general voting power under ordinary circumstances to elect a majority
      of
      the board of directors or the equivalent of such Person, irrespective of whether
      or not at the time ownership interests of any other class or classes shall
      have
      or might have voting power by reason of the happening of any contingency, is
      at
      the time directly or indirectly owned by Company, by Company and one or more
      other Subsidiaries, or by one or more other Subsidiaries.


    
      
        
        

      

      
        -
          46
          -

        
          

        

      

      
        
        

      

    


    “Termination
      Date” is defined in Section 1.1(b).

     

    “Term
      Loan” is defined in the Recitals.

     

    “Term
      Note” is defined in Section 1.5(b).

     

    “UCC”
      means the Uniform Commercial Code in effect in the state designated in this
      Agreement as the state whose laws shall govern this Agreement, or in any other
      state whose laws are held to govern this Agreement or any portion of this
      Agreement.

     

    “Unused
      Amount” is defined in Section 1.7(b).

     

    “Wells
      Fargo” means Wells Fargo Bank, National Association in its broadest and most
      comprehensive sense as a legal entity, and is not limited in its meaning to
      the
      Wells Fargo Business Credit operating division, or to any other operating
      division of Wells Fargo.


    
      
        
        

      

      
        -
          47
          -

        
          

        

      

      
        
        

      

    

     

    Exhibit
      B to Credit and Security Agreement

    


    Premises

    


    The
      Premises referred to in the Credit and Security Agreement have an address of
      41
      Fairfield Place, West Caldwell, New Jersey, and are legally described as


    follows:

    


    D
      E S C R
      I P T I O N

     

    ALL
      that
      certain lot, parcel or tract of land, situate and lying in the Township of
      West
      Caldwell, County of Essex, State of New Jersey, and being more particularly
      described as follows:

    


    


    BEGINNING
      in the southerly line of Fairfield Place 2,455.67 feet measured along the same
      westerly from the west side of Fairfield Avenue and running;
      thence.

    


    
      	 	
              (1)

            	
              Along
                the westerly line of Lot 2P-3 South 53 degrees 47 minutes 40 seconds
                West
                512.67 feet to the line of lands of Mountain Ridge Country Club,
                thence

            


    

    


    
      	 	
              (2)

            	
              Along
                the lands of Mountain Ridge Country Club North 44 degrees 02 minutes
                West
                399.84 feet; thence

            


    

    


    
      	 	
              (3)

            	
              Through
                lands of Anthony Pio Costa North 53 degrees 47 minutes 40 seconds
                East
                511.49 feet to the southerly side of proposed extension of Fairfield
                Place; thence

            


    

    


    
      	 	
              (4)

            	
              Running
                along the southerly side of Fairfield Place and the proposed extension
                of
                Fairfield Place South 44 degrees 12 minutes East 400 feet to the
                point and
                place of BEGINNING.

            


    

    


    Being
      also know and designated as Lot 2Q on a certain map entitled “Map of Property of
      A. Pio Costa - Fairfield Place Section 4” and filed in the Essex County
      Register’s Office on March 22, 1966 as Filed Map No. 2886.

    


    The
      above description is drawn in accordance with a survey made by G.C. Stewart
      Associates, Inc., dated September 25, 2003.

    


    LOT
      3
      IN BLOCK
1402
      ON THE
      TAX MAP.

    (Said
      Lot
      and Block reported for informational purposes only)

    


    In
      the
      event of any conflict between the address and the legal description, the legal
      description shall control.


    
      
        
        

      

      
        -
          48 -

        
          

        

      

      
        
        

      

    


    


    Exhibit
      C to Credit and Security Agreement

    


    CONDITIONS
      PRECEDENT

    


    Wells
      Fargo’s obligation to make an initial Advance shall be subject to the condition
      that Wells Fargo shall have received the following, executed and in form and
      content satisfactory to Wells Fargo. The following descriptions are limited
      descriptions for reference purposes only and should not be construed as limiting
      in any way the subject matter that Wells Fargo requires each document to
      address.

    


    A. Loan
      Documents to be Executed by Company:

     

    
      	
              (1)

            	
              The
                Revolving Note and the Term Note.

            


    

     

    
      	
              (2)

            	
              The
                Credit and Security Agreement.

            


    

     

    
      	
              (3)

            	
              The
                Master Agreement for Treasury Management Services, the Acceptance
                of
                Services, and the related Service Description for each deposit or
                treasury
                management related product or service that Company will subscribe
                to,
                including without limitation the Loan Manager Service Description
                and the
                Lockbox and Collection Account Service Description, Collection Account
                Service Description.

            


    

     

    
      	
              (4)

            	
              The
                Patent and Trademark Security
                Agreement.

            


    

     

    
      	
              (5)

            	
              The
                Mortgage.

            


    

     

    
      	
              (6)

            	
              The
                Daily Collateral Report.

            


    

     

    B. Loan
      Documents to be Executed by Third Parties:

    


    
      	
              (1)

            	
              Waiver
                of Setoff Rights from each account debtor to Company pursuant to
                which the
                account debtor waives its rights to exercise its rights to setoff
                against
                such Account any amounts owed by Company to the account
                debtor.

            


    

     

    
      	
              (2)

            	
              Certificates
                of Insurance required under this Agreement, with all hazard insurance
                containing a lender’s loss payable endorsement in Wells Fargo’s favor and
                with all liability insurance naming Wells Fargo as additional
                insured.

            


    

     

    
      	
              C.

            	
              Documents
                Related to the Premises

            


    

     

    
      	
              (1)

            	
              Any
                mortgages or deeds of trust pursuant to which Company or the landlord
                to
                Company has encumbered the
                Premises.

            


    

     

    
      
        
        

      

      
        -
          49 -

        
          

        

      

      
        
        

      

    

     

    
      	
              D.

            	
              Federal
                Tax, State Tax, Judgment, UCC and Intellectual Property Lien
                Searches

            


    

     

    
      	
              (1)

            	
              Current
                searches of Company in appropriate filing offices showing that (i)
                no
                Liens have been filed and remain in effect against Company and Collateral
                except Permitted Liens or Liens held by Persons who have agreed in
                an
                Authenticated Record that upon receipt of proceeds of the initial
                Advances, they will satisfy, release or terminate such Liens in a
                manner
                satisfactory to Wells Fargo, and (ii) Wells Fargo has filed all UCC
                financing statements necessary to perfect the Security Interest,
                to the
                extent the Security Interest is capable of being perfected by
                filing.

            


    

     

    
      	
              (2)

            	
              Current
                searches of Third Persons in appropriate filing offices with respect
                to
                any of the Collateral that is in the possession of a Person other
                than
                Company that is held for resale, showing that (i) UCC financing statements
                sufficient to protect Company’s and Wells Fargo’s interests in such
                Collateral have been filed, and (ii) no other secured party has filed
                a
                financing statement against such Person and covering property similar
                to
                Company’s, other than Company, or if there exists any such secured party,
                evidence that each such party has received notice from Company and
                Wells
                Fargo sufficient to protect Company’s and Wells Fargo’s interests in
                Company’s goods from any claim by such secured
                party.

            


    

     

    
      	
              E.

            	
              Constituent
                Documents:

            


    

     

    
      	
              (1)

            	
              The
                Certificate of Authority of Company, which shall include as part
                of the
                Certificate or as exhibits to the Certificate, (i) the Resolution
                of
                Company’s Directors and, if required, Owners, authorizing the execution,
                delivery and performance of those Loan Documents and other documents
                or
                agreements described in or related to this Agreement to which Company
                is a
                party, (ii) an Incumbency Certificate containing the signatures of
                Company’s Officers or agents authorized to execute and deliver those
                instruments, agreements and certificates referenced in (i) above,
                as well
                as Advance requests, on Company’s behalf, (iii) Company’s Constituent
                Documents, (iv) a current Certificate of Good Standing or Certificate
                of
                Status issued by the secretary of state or other appropriate authority
                for
                Company’s state of organization, certifying that Company is in good
                standing and in compliance with all applicable organizational requirements
                of the state of organization, and (v) a Secretary’s Certificate of
                Company’s secretary or assistant secretary certifying that the Certificate
                of Authority of Company is true, correct and
                complete.

            


    

     

    
      	
              (2)

            	
              Evidence
                that Company is licensed or qualified to transact
                business
                in
                all jurisdictions where the character of the property owned or leased
                or
                the nature of the business transacted by it makes such licensing
                or
                qualification necessary.

            


    

     

    
      	
              (3)

            	
              An
                Officer’s
                Certificate
                of
                an appropriate Officer of Company confirming, in his or her personal
                capacity, the representations and warranties set forth in this
                Agreement.

            


    

     


    
      
        
        

      

      
        -
          50 -

        
          

        

      

      
        
        

      

    


     

    
      	
              (4)

            	
              A
                Customer
                Identification Information Form and
                such other forms and verification as Wells Fargo may need to comply
                with
                the U.S.A. Patriot Act.

            


    

     

    
      	
              F.

            	
              Real
                Estate Related Documents:

            


    

     

    With
      respect to the real estate that is encumbered by the mortgage or deed of trust
      given by Company or any third Person to Wells Fargo:

     

    
      	
              (1)

            	
              An
                appraisal ordered by Wells Fargo or its agent of said real property
                and
                all improvements thereon, conforming to Uniform Standards of Professional
                Appraisal Practice.

            


    

     

    
      	
              (2)

            	
              An
                American Land Title Association policy of title insurance, with such
                endorsements as Wells Fargo may require, issued by an insurer in
                such
                amounts as Wells Fargo may require, insuring Wells Fargo’s first priority
                lien on said real estate, subject only to such exceptions as Wells
                Fargo
                in its discretion may approve, together with such evidence relating
                to the
                payment of liens or potential liens as Wells Fargo may
                require.

            


    

     

    
      	
              (3)

            	
              An
                American Land Title Association survey certified to Wells Fargo and
                to the
                title company.

            


    

     

    
      	
              (4)

            	
              A
                current environmental site assessment indicating that the real property
                is
                subject to no “recognized environmental conditions”, as that term is
                defined by the American Society for Testing and Materials, in its
                standards for environmental due diligence, and is not in need of
                remedial
                action to avoid subjecting its owner to any present or future liability
                or
                contingent liability with respect to the release of toxic or hazardous
                wastes or substances.

            


    

     

    
      	
              (5)

            	
              A
                flood hazard determination form, confirming whether or not the parcel
                is
                in a flood hazard area and whether or not flood insurance must be
                obtained, and, if the real estate is located in a flood hazard area,
                a
                policy of flood insurance.

            


    

     

    
      	
              (6)

            	
              Copies
                of management services and maintenance contracts, fire, health and
                safety
                reports, certificates of occupancy, leases and rent
                rolls.

            


    

     

    
      	
              G.

            	
              Miscellaneous
                Matters or Documents:

            


    

     

    
      	
              (1)

            	
              Payment
                of fees and reimbursable costs and expenses due under this Agreement
                through the date of initial Advance, including all legal expenses
                incurred
                through the date of the closing of this
                Agreement.

            


    

     

    
      	
              (2)

            	
              Evidence
                that after making the initial Advance and satisfying all obligations
                owed
                to Company’s prior lender of even date herewith, and all trade payables
                older than 90 days from invoice date, book overdrafts and closing
                costs,
                the availability under the Line of Credit is not less than
                $1,000,000.00.

            


    


    
      
        
        

      

      
        -
          51 -

        
          

        

      

      
        
        

      

    


    
      	
              (3)

            	
              Any
                documents or other agreements entered into by Company and Wells Fargo
                that
                relate to any swap, derivative, foreign exchange, hedge, deposit,
                treasury
                management or similar product or transaction extended to Company
                by Wells
                Fargo not already provided pursuant to the requirements of (A)-(F)
                above.

            


    

     

    
      	
              (4)

            	
              Receipt
                and acceptance by Wells Fargo of real estate appraisal completed
                by Quest
                Realty Advisors.

            


    

     

    
      	
              (5)

            	
              Receipt
                and acceptance by Wells Fargo of real estate structural integrity
                study to
                be completed and delivered to Wells Fargo not later than August 30,
                2008.

            


    

     

    
      	
              (6)

            	
              Receipt
                and acceptance by Wells Fargo of legal status report from Canada
                law firm
                acceptable to Wells Fargo as to status, claims, defenses and issues
                relating to litigation involving FMI-Canada and litigation involving
                Company landlord.

            


    

     

    
      	
              (7)

            	
              Receipt
                and acceptance by Wells Fargo of Collateral examinations, Net Orderly
                Liquidation Value appraisal on Company’s Equipment and fair market value
                appraisal of Premises subject to
                Mortgage.

            


    

     

    
      	
              (8)

            	
              Receipt
                and acceptance by Wells Fargo of background check on senior management
                of
                Company.

            


    

     

    
      	
              (9)

            	
              Such
                other documents as Wells Fargo in its sole discretion may
                require.

            


    

     

    
      	
              (10)

            	
              Execution
                of this Agreement must occur not later than September 30,
                2008.

            


    


    
      
        
        

      

      
        -
          52 -

        
          

        

      

      
        
        

      

    

    


    Exhibit
      D to Credit and Security Agreement

    


    REPRESENTATIONS
      AND WARRANTIES

    


    Company
      represents and warrants to Wells Fargo as follows:

     

    
      	
              (a)

            	
              Existence
                and Power; Name; Chief Executive Office; Inventory and Equipment
                Locations; Federal Employer Identification Number and Organizational
                Identification Number.
                Company is a corporation organized, validly existing and in good
                standing
                under the laws of the State of Delaware and is licensed or qualified
                to
                transact business in all jurisdictions where the character of the
                property
                owned or leased or the nature of the business transacted by it makes
                such
                licensing or qualification necessary. Company has all requisite power
                and
                authority to conduct its business, to own its properties and to execute
                and deliver, and to perform all of its obligations under, those Loan
                Documents and any other documents or agreements that it has entered
                into
                with Wells Fargo related to this Agreement. The Company has done
                business
                solely under the names set forth below in addition to its correct
                legal
                name. Company’s chief executive office and principal place of business is
                located at the address set forth below, and all of Company’s records
                relating to its business or the Collateral are kept at that location.
                All
                Inventory and Equipment is located at that location or at one of
                the other
                locations set forth below. Company’s name, Federal Employer Identification
                Number and Organization Identification Number are correctly set forth
                at
                the end of the Agreement next to Company’s
                signature.

            


    

     

    [Omitted]

     

    
      
        
        

      

      
        -
          53 -

        
          

        

      

      
        
        

      

    

    


    (b) Capitalization.
      The
      Capitalization Chart below constitutes a correct and complete ownership
      structure of all Subsidiaries of Company.

     

    [Omitted]

     

    (c) Authorization
      of Borrowing; No Conflict as to Law or Agreements.
      The
      execution, delivery and performance by Company of the Loan Documents and any
      other documents or agreements described in or related to this Agreement, and
      all
      borrowing under the Line of Credit have been authorized and do not (i) require
      the consent or approval of Company’s Owners; (ii) require the authorization,
      consent or approval by, or registration, declaration or filing with, or notice
      to, any governmental agency or instrumentality, whether domestic or foreign,
      or
      any other Person, except to the extent obtained, accomplished or given prior
      to
      the date of this Agreement; (iii) violate any provision of any law, rule or
      regulation (including Regulation X of the Board of Governors of the Federal
      Reserve System) or of any order, writ, injunction or decree presently in effect
      having applicability to Company or of Company’s Constituent Documents; (iv)
      result in a breach of or constitute a default or event of default under any
      indenture or loan or credit agreement or any other material agreement, lease
      or
      instrument to which Company is a party or by which it or its properties may
      be
      bound or affected; or (v) result in, or require, the creation or imposition
      of
      any Lien (other than the Security Interest) upon or with respect to any of
      the
      properties now owned or subsequently acquired by Company.


    
      
        
        

      

      
        -
          54 -

        
          

        

      

      
        
        

      

    

    


    (d) Legal
      Agreements.
      This
      Agreement, the other Loan Documents, and any other document or agreement
      described in or related to this Agreement, will constitute the legal, valid
      and
      binding obligations of Company, enforceable against Company in accordance with
      their respective terms.

    


    (e) Subsidiaries.
      Except
      as disclosed below, Company has no Subsidiaries.

     

    [Omitted]

     

    (f) Financial
      Condition; No Adverse Change.
      Company
      has furnished to Wells Fargo its audited financial statements for its fiscal
      year ended December 29, 2007 and unaudited financial statements for the
      fiscal-year-to-date period ended June 28, 2008 and those statements fairly
      present Company’s financial condition as of those dates and the results of
      Company’s operations and cash flows for the periods then ended and were prepared
      in accordance with GAAP. Since the date of the most recent financial statements,
      there has been no Material Adverse Effect in Company’s business, properties or
      condition (financial or otherwise).

    


    (g) Litigation.
      There
      are no actions, suits or proceedings pending or, to Company’s knowledge,
      threatened against or affecting Company or any of its Affiliates or the
      properties of Company or any of its Affiliates before any court or governmental
      department, commission, board, bureau, agency or instrumentality, domestic
      or
      foreign, which, if determined adversely to Company or any of its Affiliates,
      would result in a final judgment or judgments against Company or any of its
      Affiliates in an amount in excess of $100,000.00,
      apart
      from those matters specifically disclosed below.


    
      
        
        

      

      
        -
          55 -

        
          

        

      

      
        
        

      

    

    [Omitted]


    (h) Intellectual
      Property Rights.

     

    (i) Owned
      Intellectual Property.
      Set
      forth below is a complete list of all patents, applications for patents,
      trademarks, applications to register trademarks, service marks, applications
      to
      register service marks, mask works, trade dress and copyrights for which Company
      is the owner of record (the “Owned Intellectual Property”). Except as set forth
      below, (A) Company owns the Owned Intellectual Property free and clear of all
      restrictions (including covenants not to sue any Person), court orders,
      injunctions, decrees, writs or Liens, whether by agreement memorialized in
      a
      Record Authenticated by Company or otherwise, (B) no Person other than Company
      owns or has been granted any right in the Owned Intellectual Property, (C)
      all
      Owned Intellectual Property is valid, subsisting and enforceable, and (D)
      Company has taken all commercially reasonable action necessary to maintain
      and
      protect the Owned Intellectual Property
      that is
      registered in the United States.

     

    (ii) Agreements
      with Employees and Contractors.
      Company
      has entered into a legally enforceable agreement with each Person that is an
      employee or subcontractor obligating that Person to assign to Company, without
      additional compensation, any Intellectual Property Rights created, discovered
      or
      invented by that Person in the course of that Person’s employment or engagement
      with Company (except to the extent prohibited by law), and further obligating
      that Person to cooperate with Company, without additional compensation, to
      secure and enforce the Intellectual Property Rights on behalf of Company, unless
      the job description of the Person is such that it is not reasonably foreseeable
      that the employee or subcontractor will create, discover, or invent Intellectual
      Property Rights. 


    
      
        
        

      

      
        -
          56 -

        
          

        

      

      
        
        

      

    


    (iii) Intellectual
      Property Rights Licensed from Others.
      Set
      forth below is a complete list of all agreements under which Company has
      licensed Intellectual Property Rights from another Person (“Licensed
      Intellectual Property”) other than readily available, non-negotiated licenses of
      computer software and other intellectual property used solely for performing
      accounting, word processing and similar administrative tasks (“Off-the-shelf
      Software”) and a summary of any ongoing payments Company is obligated to make
      with respect thereto. Except as set forth below or in any other Record, copies
      of which have been given to Wells Fargo, Company’s licenses to use the Licensed
      Intellectual Property are free and clear of all restrictions, Liens, court
      orders, injunctions, decrees, or writs, whether by agreed to in a Record
      Authenticated by Company or otherwise. Except as disclosed below, Company is
      not
      contractually obligated to make royalty payments of a material nature, or pay
      fees to any owner of, licensor of, or other claimant to, any Intellectual
      Property Rights. 

     

    (iv) Other
      Intellectual Property Needed for Business.
      Except
      for Off-the-shelf Software and as disclosed below, the Owned Intellectual
      Property and the Licensed Intellectual Property constitute all Intellectual
      Property Rights used or necessary to conduct Company’s business as it is
      presently conducted or as Company reasonably foresees conducting
      it.

     

    (v) Infringement.
      Except
      as disclosed below, Company has no knowledge of, and has not received notice
      either orally or in a Record alleging, any Infringement of another Person’s
      Intellectual Property Rights (including any claim set forth in a Record that
      Company must license or refrain from using the Intellectual Property Rights
      of
      any Person) nor, to Company’s knowledge, is there any threatened claim or any
      reasonable basis for any such claim.

    


    [Omitted]

     

    (i) Taxes.
      Company
      and its Affiliates have paid or caused to be paid to the proper authorities
      when
      due all federal, state and local taxes required to be withheld by each of them.
      Company and its Affiliates have filed all federal, state and local tax returns
      which to the knowledge of the Officers of Company or any Affiliate, as the
      case
      may be, are required to be filed, and Company and its Affiliates have paid
      or
      caused to be paid to the respective taxing authorities all taxes as shown on
      these returns or on any assessment received by any of them to the extent such
      taxes have become due.


    
      
        
        

      

      
        -
          57 -

        
          

        

      

      
        
        

      

    


    (j) Titles
      and Liens.
      Company
      has good and absolute title to all Collateral free and clear of all Liens other
      than Permitted Liens. No financing statement naming Company as debtor is on
      file
      in any office except to perfect only Permitted Liens.

     

    (k) No
      Defaults.
      Company
      is in compliance with all provisions of all agreements, instruments, decrees
      and
      orders to which it is a party or by which it or its property is bound or
      affected, the breach or default of which could reasonably be expected to have
      a
      Material Adverse Effect on Company’s financial condition, properties or
      operations .

     

    (l) Submissions
      to Wells Fargo.
      All
      financial and other information provided to Wells Fargo by or on behalf of
      Company in connection with Company’s request for the credit facilities
      contemplated hereby is (i) true, correct,
      accurate
      and
      complete in all material respects, and
      (ii)
      as to
      projections, valuations or proforma financial statements, present such
      projections, valuations and proforma condition and results in a good faith
      manner.

     

    (m) Financing
      Statements.
      Company
      has previously authorized the filing of financing statements sufficient when
      filed to perfect the Security Interest and other Liens created by the Security
      Documents. When such financing statements are filed, Wells Fargo will have
      a
      valid and perfected security interest in all Collateral capable of being
      perfected by the filing of financing statements. None of the Collateral is
      or
      will become a fixture on real estate, unless a sufficient fixture filing has
      been filed with respect to such Collateral.

     

    (n) Rights
      to Payment.
      Each
      right to payment and each instrument, document, chattel paper and other
      agreement constituting or evidencing Collateral is (or, in the case of all
      future Collateral, will be when arising or issued) the valid, genuine and
      legally enforceable obligation, subject to no defense, setoff or counterclaim
      of
      the account debtor or other obligor named in that instrument.

     

    (o) Employee
      Benefit Plans.

     

    (i) Maintenance
      and Contributions to Plans.
      Except
      as disclosed below, neither Company nor any ERISA Affiliate (A) maintains or
      has
      maintained any Pension Plan, (B) contributes or has contributed to any
      Multiemployer Plan, or (C) provides or has provided post-retirement medical
      or
      insurance benefits to employees or former employees (other than benefits
      required under Section 601 of ERISA, Section 4980B of the IRC, or applicable
      state law).

     

    (ii) Knowledge
      of Plan Noncompliance with Applicable Law.
      Except
      as disclosed below, neither Company nor any ERISA Affiliate has (A) knowledge
      that Company or the ERISA Affiliate is not in full compliance with the
      requirements of ERISA, the IRC, or applicable state law with respect to any
      Plan, (B) knowledge that a Reportable Event occurred or continues to exist
      in
      connection with any Pension Plan, or (C) sponsored a Plan that it intends to
      maintain as qualified under the IRC that is not so qualified, and no fact or
      circumstance exists which may have an adverse effect on such Plan’s tax
      qualified status.


    
      
        
        

      

      
        -
          58 -

        
          

        

      

      
        
        

      

    


    (iii) Funding
      Deficiencies and Other Liabilities.
      Neither
      Company nor any ERISA Affiliate has liability for any (A) accumulated funding
      deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC)
      under
      any Plan, whether or not waived, (B) withdrawal, partial withdrawal,
      reorganization or other event under any Multiemployer Plan under Section 4201
      or
      4243 of ERISA, or (C) event or circumstance which could result in financial
      obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue
      Service, the Department of Labor or any participant in connection with any
      Plan
      (other than routine claims for benefits under the Plan).

    


    [Omitted]


    
      
        
        

      

      
        -
          59 -

        
          

        

      

      
        
        

      

    

     

    (p) Environmental
      Matters.

     

    (i) Hazardous
      Substances on Premises.
      Except
      as disclosed below, there are not present in, on or under the Premises any
      Hazardous Substances in such form or quantity as to create any material
      liability or obligation for either Company or Wells Fargo under the common
      law
      of any jurisdiction or under any Environmental Law, and no Hazardous Substances
      have ever been stored, buried, spilled, leaked, discharged, emitted or released
      in, on or under the Premises in such a way as to create a material
      liability.

     

    (ii) Disposal
      of Hazardous Substances.
      Except
      as disclosed below, to the knowledge of Company, Company has not disposed of
      Hazardous Substances in such a manner as to create any material liability under
      any Environmental Law.

     

    (iii) Claims
      and Proceedings with Respect to Environmental Law Compliance.
      Except
      as disclosed below, there have not existed in the past nor are there to the
      knowledge of Company any threatened or impending requests, claims, notices,
      investigations, demands, administrative proceedings, hearings or litigation
      relating in any way to the Premises or Company, alleging material liability
      under, violation of, or noncompliance with any Environmental Law or any license,
      permit or other authorization issued pursuant thereto.

     

    (iv) Compliance
      with Environmental Law; Permits and Authorizations.
      Except
      as disclosed below, Company (A) conducts its business at all times in all
      material respects in compliance with applicable Environmental Law, (B) possesses
      valid licenses, permits and other authorizations required under applicable
      Environmental Law for the lawful and efficient operation of its business, none
      of which are scheduled to expire, or withdrawal, or material limitation within
      the next 12 months, and (C) has not been denied insurance on grounds related
      to
      potential environmental liability.

     

    (v) Status
      of Premises.
      Except
      as disclosed below, the Premises are not and never have been listed on the
      National Priorities List, the Comprehensive Environmental Response, Compensation
      and Liability Information System or any similar federal, state or local list,
      schedule, log, inventory or database.

     

    (vi) Environmental
      Audits, Reports, Permits and Licenses.
      Company
      has delivered to Wells Fargo all environmental assessments, audits, reports,
      permits, licenses and other documents prepared during the past two years
      describing or relating in any way to the Premises or Company’s
      businesses.


    
      
        
        

      

      
        -
          60 -

        
          

        

      

      
        
        

      

    

     

    [Omitted]

     

    
      
        
        

      

      
        -
          61 -

        
          

        

      

      
        
        

      

    


    Exhibit
      E to Credit and Security Agreement

    


    COMPLIANCE
      CERTIFICATE

     

    
      	
              To:

            	
              Wells
                Fargo Bank, National Association

            
	 	 
	
              Date:

            	
              _______________________,
                20 ___

            
	 	 
	
              Subject:

            	
              Financial
                Statements

            


    

     

    In
      accordance with our Credit and Security Agreement dated ________________,
      2008 (as
      amended from time to time, the “Credit Agreement”), attached are the financial
      statements of Merrimac
      Industries, Inc. (the
      “Company”) dated ______________, 20___ (the “Reporting Date”) and the
      year-to-date period then ended (the “Current Financials”). All terms used in
      this certificate have the meanings given in the Credit Agreement.

     

    A. Preparation
      and Accuracy of Financial Statements.
      I
      certify that the Current Financials have been prepared in accordance with GAAP,
      subject to year-end audit adjustments, and fairly present Company’s financial
      condition as of the Reporting Date.

     

    B. Name
      of Company; Merger and Consolidation.
      I
      certify that: 

     

    (Check
      one)

     

    
      	 	o 	
              Company
                has not, since the date of the Credit Agreement, changed its name
                or
                jurisdiction of organization, nor has it consolidated or merged with
                another Person.

            


    

     

    
      	 	o 	
              Company
                has, since the date of the Credit Agreement, either changed its name
                or
                jurisdiction of organization, or both, or has consolidated or merged
                with
                another Person, which change, consolidation or merger: o was
                consented to in
                advance by Wells Fargo in an Authenticated Record, and/or o is
                more fully described in the statement of facts attached to this
                Certificate.

            


    

     

    C. Events
      of Default.
      I
      certify that: 

     

    (Check
      one)

     

    
      	 	o 	
              I
                have no knowledge of the occurrence of an Event of Default under
                the
                Credit Agreement, except as previously reported to Wells Fargo in
                a
                Record.

            


    

     

    
      	 	o	
              I
                have knowledge of an Event of Default under the Credit Agreement
                not
                previously reported to Wells Fargo in a Record, as more fully described
                in
                the statement of facts attached to this Certificate, and further,
                I
                acknowledge that Wells Fargo may under the terms of the Credit Agreement
                impose the Default Rate at any time during the resulting Default
                Period.

            


    


    
      
        
        

      

      
        -
          62 -

        
          

        

      

      
        
        

      

    


    D. Litigation
      Matters.
      I
      certify that: 

     

    (Check
      one)

     

    
      	 	o 	
              I
                have no knowledge of any material adverse change to the litigation
                exposure of Company or any of its Affiliates or of any
                Guarantor.

            


    

     

    
      	 	o	
              I
                have knowledge of material adverse changes to the litigation exposure
                of
                Company or any of its Affiliates or of any Guarantor not previously
                disclosed in Exhibit D, as more fully described in the statement
                of facts
                attached to this Certificate.

            


    

     

    E. Financial
      Covenants. I
      further
      certify that: 

     

    (Check
      and complete each of the following)

     

    1. Maximum
      due from Costa Rica Affiliate.
      Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date,
      the amount due from Multi-Mix® Microtechnology S.R.L. was $________________,
      which o satisfies odoes
      not
      satisfy the requirement that such amount be not less than [_$_____________
      on the Reporting Date._][_ the applicable amount set forth in the table below
      (numbers appearing between “< >“ are negative) on the Reporting
      Date:

    


    
      	
              Period

            	 	
              Maximum Due 

            	 
	
               

            	 	 	 
	
              Through
                January 3, 2009

            	 	
              $

            	
              4,250,000.00

            	 
	 	 	 	 	 
	
              Through
                April 4, 2009

            	 	
              $

            	
              4,500,000.00

            	 
	 	 	 	 	 
	
              Through
                July 4, 2009

            	 	
              $

            	
              4,750,000.00

            	 
	 	 	 	 	 
	
              Through
                October 3, 2009, and each fiscal quarter thereafter

            	 	
              $

            	
              5,000,000.00

            	 


    

     

    2. Minimum
      Net Income.
      Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date,
      Company’s Net Income was [_$__________],
      which
o satisfies
      o does
      not satisfy the requirement that Net Income be not less than [$_______
      _] on the Reporting Date._][_ the amount set forth in the table below (numbers
      appearing between “< >” are negative) on the Reporting
      Date:


    
      
        
        

      

      
        -
          63 -

        
          

        

      

      
        
        

      

    

    


    
      	
              Period

            	 	
              Minimum
                Net Income

            
	
              Through
                January 3, 2009

            	 	
              Net
                loss of not more than <$265,000.00>

            
	
              Through
                April 4, 2009, and each fiscal quarter thereafter

            	 	
              Not
                less than 75% of Company’s projection of Net Income or not more than 100%
                of Company’s projection of Net Loss measured
                cumulatively

            


    

    


    3. Minimum
      Debt Service Coverage Ratio.
      Pursuant to Section 5.2(e) of the Credit Agreement, as of the Reporting Date,
      Company’s Debt Service Coverage Ratio was [______]
      to
      1.00,
      which o satisfies
      o does
      not satisfy the requirement that such ratio be not less than 1.10 to
      1.0 on
      the
      Reporting Date.

    


    4.
       Capital
      Expenditures.
      Pursuant to Section 5.2(g) of the Credit Agreement, for the year-to-date period
      ending on the Reporting Date, Company has expended or contracted to expend
      during the [_fiscal_]
      year
      ended [_______________,
      200___,_] for
      Capital Expenditures, [_$________________]
      in
      the
      aggregate and [_$______________],
      for
      each subsequent year end which osatisfies
      o does
      not satisfy the requirement that such expenditures not exceed [_$___________]
      for
      Capital Expenditures in the aggregate and [_$___________
      _] for
      each
      subsequent year end.

    


    5. Salaries.
      Company
      has not paid excessive or unreasonable salaries, bonuses, commissions,
      consultant fees or other compensation, or increased the salary, bonus,
      commissions, consultant fees or other compensation of any Director, Officer
      or
      consultant, or any member of their families, by more than ten percent (10%)
      as
      of the Reporting Date over the amount paid in Company’s previous fiscal year,
      either individually or for all such persons in the aggregate, and has not paid
      any increase from any source other than profits earned in the year of payment,
      if there then exists or as a result of such increase in payment there shall
      exist a Default Period or cause to exist a Default Period, and as a consequence
      Company o is
      o is
      not in compliance with Section 5.8 of the Credit Agreement.

    


    Attached
      are statements of all relevant facts and computations in reasonable detail
      sufficient to evidence Company’s compliance with the financial covenants
      referred to above, which computations were made in accordance with
      GAAP.

     

    
      	
              MERRIMAC
                INDUSTRIES, INC.

            
	  

	 
	
              By:

            
	
              Its
                Chief Financial Officer

            


    


    
      
        
        

      

      
        -
          64 -

        
          

        

      

      
        
        

      

    


    Exhibit
      F to Credit and Security Agreement

     

    [Omitted]

     

    
      
        
        

      

      
        -
          65 -

        
          

        

      

      
        
        

      

    

    


    SCHEDULE
      5.1(b)

     

    MERRIMAC
      INDUSTRIES, INC.

     

    [Omitted]

    

      
        
          
          

        

        
          -
            66 -

          
            

          

        

        
          
          

        

      



    EXHIBIT
      1.3

     

    NOTICE
      OF BORROWING

     

     

    _______________,
      2008

     

    
      	
              TO:

            	
              Wells
                Fargo Bank, N.A.

            
	 	
              119
                West 40th Street, 16th Floor

            
	 	
              New
                York, NY 10018

            
	 	
              Telecopier:
                (646) 728-3279

            
	 	
              Attention:
                Portfolio Manager for xxxxxxxxxxxxxxxls,
                Inc.

            


    

     

    We
      refer
      to that certain Credit and Security Agreement dated as of _______________,
      2008
      (as amended or modified to date, the “Credit Agreement”) by and between MERRIMAC
      INDUSTRIES, INC. (the “Company”) and WELLS FARGO BANK, NATIONAL ASSOCIATION
      acting through its Wells Fargo Business Credit operating division (“Wells
      Fargo”). Capitalized terms used herein but not otherwise defined shall have the
      same meanings assigned to them in the Credit Agreement.

     

    Pursuant
      to Section 1.3 of the Credit Agreement, we hereby request or confirm our request
      for an Advance on the date and in the amount(s) specified below.

    


    
      	
              Amount
                of Advance

            	 	
              Date
                of Borrowing

            
	
              $

            	 	 


    

    


    Company
      hereby elects the Floating Rate/LIBOR option.

    


    Please
      wire the proceeds of such advance directly to Wells Fargo Bank, NA as
      follows:

    


    Wells
      Fargo Bank, NA

    ABA
      No.
      121000248

    Account
      Number ________________

    Name
      of
      account – _________________, Inc.

    


    
      	
              MERRIMAC
                INDUSTRIES, INC.

            
	 	 
	
              By:

            	  

	 	
              Robert
                V. Condon,

            
	 	
              Chief
                Financial Officer

            


    


    
      
        
        

      

      
        -
          67 -

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      OF INTELLECTUAL PROPERTY

     

    [Omitted]

     

    
      
        
        

      

      
        -
          68 -