Exhibit
        10.2

    

     

     

    SECURITY
      AGREEMENT

    (Grantor)

    


    This
      SECURITY AGREEMENT is made as of December 1, 2008 (the “Agreement”), by RUBBER
      RESEARCH ELASTOMERICS, INC., a Minnesota corporation, with its chief executive
      office at 4500 Main Street NE, Fridley, MN 55421 (“Grantor”), in favor of
      RIVIERA INVESTMENTS, INC., with an office at 1138 Hartzell Street, Pacific
      Palisades, CA 90272 (“Lender”).

    


    RECITALS:

    


    A. Grantor
      has requested extensions of credit from Lender pursuant to the terms of that
      certain Letter Loan Agreement dated of even date herewith (the Letter Loan
      Agreement as it may be amended, modified, supplemented, increased or restated
      from time to time being the “Loan Agreement”) between Grantor and
      Lender.

    


    B. As
      a
      condition to such extensions of credit, Lender requires that Grantor grant
      a
      security interest in its assets in accordance with this Agreement.

    


    C. Grantor
      has determined that the execution, delivery and performance of this Agreement
      are in its best business and pecuniary interest.

    


    NOW,
      THEREFORE, for good and valuable consideration the receipt and adequacy of
      which
      are hereby acknowledged by each of the parties hereto, it is agreed as
      follows:

    


    ARTICLE
      I 

    DEFINITIONS

    


    As
      used
      herein, the following terms shall have the meanings set forth in this
      Section:

    


    “Accounts”
shall
      have the meaning provided in the UCC.

    


    “Chattel
      Paper”
shall
      have the meaning provided in the UCC and shall include, without limitation,
      all
      Electronic Chattel Paper and Tangible Chattel Paper.

    


    “Collateral”
shall
      mean all property in which a security interest is granted
      hereunder.

    


    “Commercial
      Tort Claim”
shall
      have the meaning provided in the UCC.

    


    “Controlled
      Property”
shall
      mean property of every kind and description in which Grantor has or may acquire
      any interest, now or hereafter at any time in the possession or control of
      Lender or any Lender Affiliate for any reason and all dividends and
      distributions on or other rights in connection with such property.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Data
      Processing Records and Systems”
shall
      mean all of Grantor’s now existing or hereafter acquired electronic data
      processing and computer records, software (including, without limitation, all
      “Software” as defined in the UCC), systems, manuals, procedures, disks, tapes
      and all other storage media and memory.

    


    “Default”
shall
      mean any event which if it continued uncured would, with notice or lapse of
      time
      or both, constitute an Event of Default.

     

    “Deposit
      Accounts”
shall
      have the meaning provided in the UCC and shall include, without limitation,
      any
      demand, time, savings, passbook or similar account maintained with a
      bank.

    


    “Document”
shall
      have the meaning provided in the UCC.

    


    “Electronic
      Chattel Paper”
shall
      have the meaning provided in the UCC.

    


    “Equipment”
shall
      have the meaning provided in the UCC.

    


    “Event
      of Default”
shall
      have the meaning specified in Article VI hereof.

    


    “Fixtures”
shall
      have the meaning provided in the UCC.

    


    “General
      Intangibles”
shall
      have the meaning provided in the UCC and shall include, without limitation,
      all
      Payment Intangibles and Trade Secrets.

    


    “Goods”
shall
      have the meaning provided in the UCC and shall include embedded “Software” to
      the extent included in “Goods” as defined in the UCC.

    


    “Grantor”
shall
      have the meaning provided in the preamble hereto.

    


    “Instruments”
shall
      have the meaning provided in the UCC.

    


    “Insurance
      Proceeds”
shall
      mean all proceeds of any and all insurance policies payable to Grantor with
      respect to any Collateral, or on behalf of any Collateral, whether or not such
      policies are issued to or owned by Grantor.

    


    “Inventory”
shall
      have the meaning provided in the UCC.

     

    “Investment
      Property”
shall
      have the meaning provided in the UCC.

    


    “Lender”
shall
      have the meaning provided in the preamble hereto.

    


    “Lender
      Affiliate”
shall
      mean any
      affiliate of the Lender which is party to a written agreement with Grantor
      providing for any extension of credit to Grantor.

    


    “Letter-of-Credit
      Rights”
shall
      have the meaning provided in the UCC.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Loan
      Agreement”
shall
      have the meaning provided in the recitals hereto.

     

    “Payment
      Intangibles”
shall
      have the meaning provided in the UCC.

    


    “Proceeds”
shall
      have the meaning provided in the UCC.

    


    “Products”
shall
      mean any goods now or hereafter manufactured, processed or assembled with any
      of
      the Collateral.

    


    “Supporting
      Obligations”
shall
      have the meaning provided in the UCC.

    


    “Tangible
      Chattel Paper”
shall
      have the meaning provided in the UCC.

    


    “Trade
      Secret”
      shall
      mean information, including a formula, pattern, compilation, program, device,
      method, technique, or process, that: (i) derives independent economic value,
      actual or potential, from not being generally known to, and not being readily
      ascertainable by proper means by, other persons who can obtain economic value
      from its disclosure or use, and (ii) is the subject of efforts that are
      reasonable under the circumstances to maintain its secrecy.

    


    “UCC”
shall
      mean the Uniform Commercial Code as enacted in the State of Minnesota, as
      amended from time to time; provided,
      however,
      that:
      (a) to the extent that the UCC is used to define any term herein, and such
      term
      is defined differently in different Articles of the UCC, the definition of
      such
      term contained in Article 9 shall govern; and (b) if, by reason of mandatory
      provisions of law, any or all of the attachment, perfection or priority of,
      or
      remedies with respect to, the Lender’s security interest in any Collateral is
      governed by the Uniform Commercial Code as enacted and in effect in a
      jurisdiction other than the State of Minnesota, the term “UCC” shall mean the
      Uniform Commercial Code as enacted and in effect in such other jurisdiction
      solely for purposes of the provisions thereof relating to such attachment,
      perfection or priority of, or remedies with respect to, the Lender’s security
      interest and for purposes of definitions related to such
      provisions.

    


    Other
      terms defined herein shall have the meanings ascribed to them herein. All
      capitalized terms used herein, not specifically defined herein, shall have
      the
      meaning ascribed to them in the Loan Agreement.

    


    ARTICLE
      II 

    SECURITY
      INTERESTS

    


    As
      security for the payment of all Obligations, Grantor hereby grants to Lender
      and
      each Lender Affiliate a security interest in all of Grantor’s right, title and
      interest in and to the following, whether now owned or existing or hereafter
      acquired or arising: 

    


    Accounts;

    Chattel
      Paper;

    
      	 	 	
              Commercial
                Tort Claims, if any, described on Exhibit B attached hereto and
                incorporated herein by reference;

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Controlled
      Property;

    
      	 	 	
              Deposit
                Accounts;

            


    

    Documents;

    
      	 	 	
              Equipment
                and Fixtures;

            


    

    General
      Intangibles;

    Instruments;

    Inventory;

    
      	 	 	
              Investment
                Property;

            


    

    
      	 	 	
              Letter-of-Credit
                Rights;

            


    

    
      	 	 	
              Proceeds
                (whether cash or non-cash Proceeds, including Insurance Proceeds
                and
                non-cash Proceeds of all types);

            


    

    Products
      of all the foregoing; and

    Supporting
      Obligations.

    


    ARTICLE
      III 

    REPRESENTATIONS
      AND COVENANTS OF GRANTOR

    


      Grantor
      represents, warrants and covenants that:

    


    3.1  Authorization.
      The
      execution and performance of this Agreement have been duly authorized by all
      necessary action and do not and will not: (a) require any consent or approval
      of
      the stockholders of any entity, or the consent of any governmental entity which
      has not been obtained; or (b) violate any provision of any indenture, contract,
      agreement or instrument to which it is a party or by which it is
      bound.

    


    3.2  Title
      to Collateral.
      Grantor
      has good and marketable title to all of the Collateral and none of the
      Collateral is subject to any security interest except for the security interest
      created pursuant to this Agreement or other security interests permitted by
      the
      Loan Agreement (such other security interests being “Permitted
      Liens”).

    


    3.3  Disposition
      or Encumbrance of Collateral.
      Grantor
      will not encumber, sell or otherwise transfer or dispose of the Collateral
      without the prior written consent of Lender except as provided in this Section
      or for Permitted Liens. Until a Default or Event of Default has occurred and
      is
      continuing, Grantor may sell Collateral consisting of: (a) Inventory in the
      ordinary course of business provided that Grantor receives as consideration
      for
      such sale an amount not less than the fair market value of the Inventory at
      the
      time of such sale; and (b) Equipment and Fixtures which in the judgment of
      Grantor have become obsolete or unusable in the ordinary course of business,
      provided that all net Proceeds of such sales of Equipment and Fixtures are
      delivered directly to Lender for application to the Obligations in such order
      as
      the Lender may elect.

    


    3.4  Validity
      of Accounts.
      Grantor
      warrants that all Collateral consisting of Accounts, Chattel Paper and
      Instruments included in Grantor’s schedules, financial statements or books and
      records are bona fide existing obligations created by the sale and actual
      delivery of Inventory or the rendition of services to customers in the ordinary
      course of business, which Grantor then owns free and clear of any security
      interest other than the security interest created by this Agreement or other
      Permitted Liens, and which are then unconditionally owing to Grantor without
      defenses, offset or counterclaim except those arising in the ordinary course
      of
      business that are immaterial in the aggregate and that the unpaid principal
      amount of any such Chattel Paper or Instrument and any security therefor is
      and
      will be as represented to Lender on the date of the delivery thereof to
      Lender.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.5  Maintenance
      of Tangible Collateral.
      Grantor
      will maintain the tangible Collateral in good condition and repair. At the
      time
      of attachment and perfection of the security interest granted pursuant hereto
      and thereafter, all tangible Collateral will be located and will be maintained
      only at the locations set forth on Exhibit A hereto. Except as otherwise
      permitted by Section 3.3, Grantor will not remove such Collateral from such
      locations unless, prior to any such removal, Grantor has given written notice
      to
      Lender of the location or locations to which Grantor desires to remove the
      Collateral, Lender has given its written consent to such removal, and Grantor
      has delivered to Lender acknowledgment copies of financing statements filed
      where appropriate to continue the perfection of Lender’s security interest as a
      first priority security interest on such Collateral. Lender’s security interest
      attaches to all of the Collateral wherever located and Grantor’s failure to
      inform Lender of the location of any item or items of Collateral shall not
      impair Lender’s security interest thereon.

    


    3.6  Notation
      on Chattel Paper.
      For
      purposes of the security interest granted pursuant to this Agreement, Lender
      has
      been granted a direct security interest in all Chattel Paper constituting part
      of the Collateral and such Chattel Paper is not claimed merely as Proceeds
      of
      Inventory. Upon Lender’s request, Grantor will deliver to Lender the original of
      all Chattel Paper. Grantor will not execute any copies of such Chattel Paper
      constituting part of the Collateral other than those which are clearly marked
      as
      a copy. Lender may stamp any such Chattel Paper with a legend reflecting
      Lender’s security interest therein.

    


    3.7  Instruments
      as Proceeds; Deposit Accounts.
      Notwithstanding any other provision in this Agreement concerning Instruments,
      Grantor covenants that Instruments constituting cash Proceeds (for example,
      money and checks) shall be deposited in Deposit Accounts with the Depository
      Bank. Grantor has granted to the Lender a direct security interest in all
      Deposit Accounts constituting part of the Collateral and such Deposit Accounts
      are not claimed merely as Proceeds of other Collateral.

    


    3.8  Protection
      of Collateral.
      All
      expenses of protecting, storing, warehousing, insuring, handling and shipping
      of
      the Collateral, all costs of keeping the Collateral free of any liens,
      encumbrances and security interests prohibited by this Agreement and of removing
      the same if they should arise, and any and all excise, property, sales and
      use
      taxes imposed by any state, federal or local authority on any of the Collateral
      or in respect of the sale thereof, shall be borne and paid by Grantor and if
      Grantor fails to promptly pay any thereof when due, Lender may, at its option,
      but shall not be required to pay the same whereupon the same shall constitute
      Obligations and shall bear interest at the Default Rate specified in the
      Revolving Credit Note (the “Interest Rate”) and shall be secured by the security
      interest granted hereunder.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.9  Insurance.
      Grantor
      will procure and maintain, or cause to be procured and maintained, insurance
      issued by responsible insurance companies insuring the Collateral against damage
      and loss by theft, fire, collision (in the case of motor vehicles), and such
      other risks as are usually carried by owners of similar properties or as may
      be
      requested by Lender in an amount equal to the replacement value thereof, and,
      in
      any event, in an amount sufficient to avoid the application of any co-insurance
      provisions and payable, in the case of any loss in excess of $10,000.00, to
      Grantor and Lender jointly. All such insurance shall contain an agreement by
      the
      insurer to provide Lender with 30 days’ prior notice of cancellation and an
      agreement that the interest of Lender shall not be impaired or invalidated
      by
      any act or neglect of Grantor nor by the occupation of the premises wherein
      such
      Collateral is located for purposes more hazardous than are permitted by said
      policy. Grantor will maintain, with financially sound and reputable insurers,
      insurance with respect to its properties and business against such casualties
      and contingencies of such types (which may include, without limitation, public
      and product liability, larceny, embezzlement, business interruption or other
      criminal misappropriation insurance) and in such amounts as may from time to
      time be required by Lender. Grantor will deliver evidence of such insurance
      and
      the policies of insurance or copies thereof to Lender upon request.

    


    3.10  Compliance
      with Law.
      Grantor
      will not use the Collateral, or knowingly permit the Collateral to be used,
      for
      any unlawful purpose or in violation of any federal, state or municipal
      law.

    


    3.11  Books
      and Records; Access.

    


    (a)  Grantor
      will permit Lender and its representatives to examine Grantor’s books and
      records (including Data Processing Records and Systems) with respect to the
      Collateral and make extracts therefrom and copies thereof at any time and from
      time to time, and Grantor will furnish such information and reports to Lender
      and its representatives regarding the Collateral as Lender and its
      representatives may from time to time request. Grantor will also permit Lender
      and its representatives to inspect the Collateral at any time and from time
      to
      time as Lender and its representatives may request. 

    


    (b)  Lender
      shall have authority, at any time, to place, or require Grantor to place, upon
      Grantor’s books and records relating to Accounts, Chattel Paper and other rights
      to payment covered by the security interest granted hereby a notation or legend
      stating that such Accounts, Chattel Paper and other rights to payment are
      subject to Lender’s security interest. 

    


    3.12  Notice
      of Default.
      Immediately upon any officer of Grantor becoming aware of the existence of
      any
      Default or Event of Default, Grantor will give notice to Lender that such
      Default or Event of Default exists, stating the nature thereof, the period
      of
      existence thereof, and what action Grantor proposes to take with respect
      thereto.

    


    3.13  Additional
      Documentation.
      Grantor
      will execute, from time to time, and authorizes Lender to execute from time
      to
      time as Grantor’s attorney-in-fact and/or file, such financing statements,
      assignments, and other documents covering the Collateral, including Proceeds,
      as
      Lender may request in order to create, evidence, perfect, maintain or continue
      its security interest in the Collateral (including additional Collateral
      acquired by Grantor after the date hereof), and Grantor will pay the cost of
      filing the same in all public offices in which Lender may deem filing to be
      appropriate and will notify Lender promptly upon acquiring any additional
      Collateral that may require an additional filing. Upon request, Grantor will
      deliver to Lender all Grantor’s Documents, Chattel Paper and Instruments
      constituting part of the Collateral.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.14  Chief
      Executive Office; State of Incorporation.
      The
      location of the chief executive office of Grantor is located in the State set
      forth in the preamble hereto and will not be changed from such state without
      30
      days’ prior written notice to Lender. Grantor warrants that its books and
      records concerning Accounts and Chattel Paper constituting part of the
      Collateral are located at its chief executive office. Grantor’s State of
      organization is the State set forth in the preamble hereto and such State has
      been its State of organization since the date of Grantor’s organization. Grantor
      will not change its State of organization from such State without 30 days’ prior
      written notice to Lender, Lender has given its written consent to such change,
      and Grantor has delivered to Lender acknowledgment copies of financing
      statements filed where appropriate to continue the perfection of Lender’s
      security interest as a first priority security interest therein.

    


    3.15  Name
      of Grantor.
      Grantor’s exact legal name and type of legal entity is as set forth in the
      preamble hereto. Grantor will not change its legal name without 30 days’ prior
      written notice to the Lender, the Lender has given its written consent to such
      change, and Grantor has delivered to the Lender acknowledgment copies of
      financing statements filed where appropriate to continue the perfection of
      the
      Lender’s security interest as a first priority security interest in the
      Collateral. Grantor has not used any other name within the past five years
      except those described on Exhibit A attached hereto. Neither Grantor nor, to
      Grantor’s knowledge, any predecessor in title to any of the Collateral has
      executed any financing statements or security agreements presently effective
      as
      to the Collateral except those described on Exhibit A attached
      hereto.

    


    3.16  Disputes,
      Etc.
      Grantor
      shall advise Lender promptly of Inventory in excess of $10,000.00 for any one
      customer in any fiscal year or in excess of $25,000.00 in the aggregate for
      all
      customers in any fiscal year which are returned by a customer(s) or otherwise
      recovered from such customer(s) and unless instructed to deliver such Inventory
      to Lender, Grantor shall resell such Inventory for Lender and assign or deliver
      to Lender the resulting Accounts or other Proceeds. Grantor shall also advise
      Lender promptly of all disputes and claims in excess of $10,000.00 for any
      one
      obligor on the Collateral in any fiscal year or in excess of $25,000.00 in
      the
      aggregate for all obligors in any fiscal year and settle or adjust them at
      no
      expense to Lender. After the occurrence and during the continuance of an Event
      of Default, Lender may at all times settle or adjust such disputes and claims
      directly with the customers for amounts and upon terms which Lender considers
      commercially reasonable. No discount, credit, allowance, adjustment or return
      shall be granted by Grantor to any customer without Lender’s written consent
      other than discounts, credits, allowances, adjustments and returns made or
      granted by Grantor in the ordinary course of business prior to the occurrence
      and during the continuance of an Event of Default.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.17  Power
      of Attorney.
      Grantor
      appoints Lender, or any other person whom Lender may from time to time
      designate, as Grantor’s attorney with power, to: (a) endorse Grantor’s name on
      any checks, notes, acceptances, drafts or other forms of payment or security
      evidencing or relating to any Collateral that may come into Lender’s possession;
      (b) sign Grantor’s name on any invoice or bill of lading relating to any
      Collateral, on drafts against customers, on schedules and confirmatory
      assignments of Accounts, Chattel Paper, Documents or other Collateral, on
      notices of assignment, financing statements under the UCC and other public
      records, on verifications of accounts and on notices to customers; (c) notify
      the post office authorities to change the address for delivery of Grantor’s mail
      to an address designated by Lender; (d) receive and open all mail addressed
      to
      Grantor; (e) send requests for verification of Accounts, Chattel Paper,
      Instruments or other Collateral to customers; and (f) do all things necessary
      to
      carry out this Agreement. Grantor ratifies and approves all acts of the attorney
      taken within the scope of the authority granted. Neither Lender nor the attorney
      will be liable for any acts of commission or omission, or for any error in
      judgment or mistake of fact or law. This power, being coupled with an interest,
      is irrevocable so long as any Obligation remains unpaid. Grantor waives
      presentment and protest of all instruments and notice thereof, notice of default
      and dishonor and all other notices to which Grantor may otherwise be
      entitled.

    


    3.18  Patents
      and Trademarks, Etc.
      Grantor
      agrees with Lender that, until the security interest granted by this Agreement
      has been terminated in accordance with the terms hereof:

    


    (a)  Grantor
      will perform all acts and execute all documents including, without limitation,
      grants of security interest, in form suitable for filing with the United States
      Patent and Trademark Office, reasonably requested by Lender at any time to
      evidence, perfect, maintain, record and enforce Lender’s interest in the
      Collateral comprised of patents (collectively the “Patents”), patent
      applications (collectively the “Patent Applications”), trademarks or service
      marks (collectively the “Trademarks”) or of any applications therefor
      (collectively the “Trademark Applications”) or otherwise in furtherance of the
      provisions of this Agreement;

    


    (b)  Except
      to
      the extent that Lender shall consent in writing, Grantor (either itself or
      through licensees) will, unless Grantor shall reasonably determine that a
      Trademark (or the use of a Trademark in connection with a particular class
      of
      goods or products) is not of material economic value to Grantor: (i) continue
      to
      use each Trademark on each and every trademark class of goods in order to
      maintain each Trademark in full force free from any claim of abandonment for
      non-use; (ii) maintain as in the past the quality of products and services
      offered under each Trademark; (iii) employ each Trademark with the appropriate
      notice of application or registration to the extent required by applicable
      law
      to maintain such Trademark; (iv) not use any Trademark except for the uses
      for
      which registration or application for registration of such Trademark has been
      made, unless such use is otherwise lawful; and (v) not (and not permit any
      licensee or sublicensee thereof to) do any act or knowingly omit to do any
      act
      whereby any Trademark may become invalidated;

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)  Except
      to
      the extent that Lender shall consent in writing, Grantor will not, unless
      Grantor shall reasonably determine that a Patent is not of material economic
      value to Grantor, do any act, or not to do any act, whereby any Patent may
      become abandoned or dedicated;

    


    (d)  Unless
      Grantor shall reasonably determine that a Patent, Patent Application, Trademark
      or Trademark Application is not of material economic value to Grantor, Grantor
      shall notify Lender immediately if it knows, or has reason to know, of any
      reason that any Patent, Patent Application, Trademark or Trademark Application
      may become abandoned or dedicated, or of any adverse determination or
      development (including, without limitation, the institution of, or any such
      determination or development in, any proceeding in the United States Patent
      and
      Trademark Office or any court) regarding Grantor’s ownership of any Patent or
      Trademark, its rights to register the same, or to keep and maintain the
      same;

    


    (e)  If
      Grantor, either itself or through any agent, employee, licensee or designee,
      shall file a Patent Application or Trademark Application for the registration
      of
      any Trademark with the United States Patent and Trademark Office, or any similar
      office or agency in any other country or any political subdivision thereof,
      Grantor shall promptly inform Lender, and, upon request of Lender, shall
      promptly execute and deliver any and all agreements, instruments, documents
      and
      papers as Lender may reasonably request to evidence Lender’s security interest
      in such Patent or Trademark and the goodwill and general intangibles of Grantor
      relating thereto or represented thereby;

    


    (f)  Unless
      Grantor shall reasonably determine that a Patent Application or Trademark
      Application is not of material economic value to Grantor, Grantor will take
      all
      necessary steps, including, without limitation, in any proceeding before the
      United States Patent and Trademark Office, or any similar office or agency
      in
      any other country or any political subdivision thereof, to maintain and pursue
      each Patent Application and Trademark Application (and to obtain the relevant
      registration) and to maintain each registration of the Patents and Trademarks,
      including, without limitation, filing of applications for renewal and affidavits
      of use;

    


    (g)  Unless
      Grantor shall reasonably determine that a Patent or Trademark is not of material
      economic value to Grantor, Grantor shall promptly notify Lender if any Patent
      or
      Trademark is infringed, misappropriated or diluted by a third party and either
      shall promptly sue for infringement, misappropriation or dilution and to recover
      any and all damages for such infringement, misappropriation or dilution, or
      take
      such other actions as Grantor shall reasonably deem appropriate under the
      circumstances to protect such Patent or Trademark; and

    


    (h)  Grantor
      agrees that it will not enter into any agreement (for example, a license
      agreement) which is inconsistent with Grantor’s obligations under this
      Agreement.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.19  Copyrights.
      Grantor
      agrees with Lender that, until the security interest granted by this Agreement
      has been terminated in accordance with the terms hereof:

    


    (a)  Grantor
      will perform all acts and execute all documents including, without limitation,
      grants of security interest, in form suitable for filing with the United States
      Copyright Office, reasonably requested by Lender at any time to evidence,
      perfect, maintain, record and enforce Lender’s interest in the Collateral
      comprised of copyrights or copyright applications (collectively the
“Copyrights”) or otherwise in furtherance of the provisions of this
      Agreement;

    


    (b)  Except
      to
      the extent that the Lender shall consent in writing, Grantor (either itself
      or
      through licensees) will, unless Grantor shall reasonably determine that a
      Copyright is not of material economic value to Grantor, publish the materials
      for which a Copyright has been obtained (the “Works”) with any notice of
      copyright registration required by applicable law to preserve the
      Copyright;

    


    (c)  Unless
      Grantor shall reasonably determine that a Copyright is not of material economic
      value to Grantor, Grantor shall notify the Lender immediately if it knows,
      or
      has reason to know, of any reason that any application or registration relating
      to any Copyright may become abandoned or dedicated or of any adverse
      determination or development (including, without limitation, the institution
      of,
      or any such determination or development in, any proceeding in the United States
      Copyright Office or any court) regarding Grantor’s ownership of any Copyright,
      its right to register the same, or to keep and maintain the same;

    


    (d)  If
      Grantor, either itself or through any agent, employee, licensee or designee,
      shall file an application for the registration of any Copyright with the United
      States Copyright Office or any similar office or agency in any other country
      or
      any political subdivision thereof, Grantor shall promptly inform Lender, and,
      upon request of Lender, execute and deliver any and all agreements, instruments,
      documents and papers as Lender may request to evidence Lender’s security
      interest in such Copyright and the Works relating thereto or represented
      thereby;

    


    (e)  Unless
      Grantor shall reasonably determine that a Copyright is not of material economic
      value to Grantor, Grantor will take all commercially reasonable steps,
      including, without limitation, in any proceeding before the United States
      Copyright Office or any similar office or agency in any other country or any
      political subdivision thereof, to maintain and pursue each application (and
      to
      obtain the relevant registration) and to maintain each registration of the
      Copyrights;

    


    (f)  In
      the
      event that any Copyright is infringed by a third party, Grantor shall promptly
      notify Lender and shall, unless Grantor shall reasonably determine that such
      Copyright is not of material economic value to Grantor, promptly sue to recover
      any and all damages or take such other actions as Grantor shall reasonably
      deem
      appropriate under the circumstances to protect such Copyright; and

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (g)  Grantor
      agrees that it will not enter into any agreement (for example, a license
      agreement) which is inconsistent with Grantor’s obligations under this
      Agreement.

    


    3.20  Control.
      Grantor
      will cooperate with Lender in obtaining control with respect to Collateral
      consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights,
      and Electronic Chattel Paper. Without limiting the foregoing, if Grantor becomes
      a beneficiary of a letter of credit, then Grantor shall promptly notify the
      Lender thereof and enter into a tri-party agreement with the Lender and the
      issuer and/or confirmation bank with respect to such letter of credit assigning
      the Letter-of-Credit Rights to the Lender and directing all payments thereunder
      to the Lender, all in form and substance reasonably satisfactory to the
      Lender.

    


    3.21  Further
      Acts.
      Where
      Collateral is in the possession of a third party, Grantor will join with Lender
      in notifying such third party of Lender’s security interest and in obtaining an
      acknowledgment from such third party that it is holding such Collateral for
      the
      benefit of the Lender.

    


    3.22  Commercial
      Tort Claims.
      Grantor
      shall promptly notify the Lender of any Commercial Tort Claim acquired by it
      and, unless otherwise consented to by the Lender, Grantor shall promptly enter
      into a supplement to this Agreement granting to the Lender a security interest
      in such Commercial Tort Claim.

    


    ARTICLE
      IV 

    COLLECTIONS

     

    Except
      as
      otherwise provided in this Article IV, Grantor shall continue to collect, at
      its
      own expense, all amounts due or to become due to Grantor under the Accounts
      constituting part of the Collateral and all other Collateral. In connection
      with
      such collections, Grantor may take (and, at Lender’s direction given after the
      occurrence and during the continuance of an Event of Default, shall take) such
      action as Grantor or Lender may deem necessary or advisable to enforce
      collection of the Accounts and such other Collateral; provided,
      however,
      that
      Lender shall have the right at any time, without giving written notice to
      Grantor of Lender’s intention to do so, to notify the account debtors under any
      Accounts or obligors with respect to such other Collateral of the assignment
      of
      such Accounts and such other Collateral to Lender and to direct such account
      debtors or obligors to make payment of all amounts due or to become due to
      Grantor thereunder directly to Lender and, upon such notification and at the
      expense of Grantor, to enforce collection of any such Accounts or other
      Collateral, and to adjust, settle or compromise the amount or payment thereof
      in
      the same manner and to the same extent as Grantor might have done, but unless
      and until Lender does so or gives Grantor other instructions, Grantor shall
      make
      all collections for Lender. In addition to its rights under the preceding
      sentence to this Section, Lender, at any time, may require that Grantor instruct
      all current and future account debtors and obligors on other Collateral to
      make
      all payments directly to a lockbox (the “Lockbox”) controlled by Lender. All
      payments received in the Lockbox shall be transferred to a special bank account
      (the “Collateral Account”) maintained for the benefit of Lender subject to
      withdrawal by Lender only. After the earliest to occur of an Event of Default,
      Lender’s exercise of its right to direct account debtors or other obligors on
      any Collateral to make payments directly to Lender or to require Grantor to
      establish a Lockbox, Grantor shall immediately deliver all full and partial
      payments on any Collateral received by Grantor to Lender in their original
      form,
      except for endorsements where necessary. Lender, at its sole discretion, may
      hold any collections on the Collateral delivered to it or deposited in the
      Collateral Account as cash collateral or may apply such collections to the
      payment of the Obligations in such order as Lender may elect; provided,
      however,
      that
      after an Event of Default has occurred and is continuing, Lender shall apply
      all
      collections in accordance with Section 7.7. Until such payments are so delivered
      to Lender, such payments shall be held in trust by Grantor for and as Lender’s
      property, and shall not be commingled with any funds of Grantor. Any application
      of any collection to the payment of any Obligation is conditioned upon final
      payment of any check or other instrument.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
      V 

    ASSIGNMENT
      OF INSURANCE

    


    Grantor
      hereby assigns to Lender, as additional security for payment of the Obligations,
      any and all monies due or to become due under, and any and all other rights
      of
      Grantor with respect to, any and all policies of insurance covering the
      Collateral. So long as no Default or Event of Default has occurred and is
      continuing, Grantor may itself adjust and collect for any losses of up to an
      aggregate amount of $10,000.00 for all occurrences during any of Grantor’s
      fiscal years and Grantor may use the resulting Insurance Proceeds for the
      replacement, restoration or repair of the Collateral. After the occurrence
      and
      during the continuance of a Default or an Event of Default, or after the
      aggregate amount of losses arising out of all occurrences during any of
      Grantor’s fiscal years exceeds $10,000.00, Lender may (but need not) in its own
      name or in Grantor’s name execute and deliver proofs of claim, receive such
      monies, and settle or litigate any claim against the issuer of any such policy
      and Grantor directs the issuer to pay any such monies directly to Lender and
      Lender, at its sole discretion and regardless of whether Lender exercises its
      right to collect Insurance Proceeds under this Section, may apply any Insurance
      Proceeds to the payment of the Obligations, whether due or not, in such order
      and manner as Lender may elect or may permit Grantor to use such Insurance
      Proceeds for the replacement, restoration or repair of the Collateral.


    


    ARTICLE
      VI 

    EVENTS
      OF DEFAULT

    


    The
      occurrence of any Event of Default as defined in the Loan Agreement shall
      constitute an Event of Default hereunder (“Event of Default”).

    


    ARTICLE
      VII 

    RIGHTS
      AND REMEDIES ON DEFAULT

    


    Upon
      the
      occurrence of an Event of Default, and at any time thereafter until such Event
      of Default is cured to the satisfaction of Lender, and in addition to the rights
      granted to Lender under Articles IV and V hereof, Lender may exercise any one
      or
      more of the following rights and remedies:

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    7.1  Acceleration
      of Obligations.
      Declare
      any and all Obligations to be immediately due and payable, and the same shall
      thereupon become immediately due and payable without further notice or
      demand.

    


    7.2  Right
      of Offset.
      Offset
      any deposits, including unmatured time deposits, then maintained by Grantor
      with
      Lender, whether or not then due, against any indebtedness then owed by Grantor
      to Lender whether or not then due.

    


    7.3  Deal
      with Collateral.
      In the
      name of Grantor or otherwise, demand, collect, receive and give receipt for,
      compound, compromise, settle and give acquittance for and prosecute and
      discontinue any suits or proceedings in respect of any or all of the
      Collateral.

    


    7.4  Realize
      on Collateral.
      Take
      any action which Lender may deem reasonably necessary or desirable in order
      to
      realize on the Collateral, including, without limitation, the power to perform
      any contract, to endorse in the name of Grantor any checks, drafts, notes,
      or
      other instruments or documents received in payment of or on account of the
      Collateral. Lender may comply with any applicable state or federal law
      requirements in connection with a disposition of the Collateral and compliance
      will not be considered adversely to affect the commercial reasonableness of
      any
      sale of the Collateral. Lender may sell the Collateral without giving any
      warranties as to the Collateral. Lender may specifically disclaim any warranties
      of title or the like. This procedure will not be considered adversely to affect
      the commercial reasonableness of any sale of the Collateral.

    


    7.5  Access
      to Property.
      Enter
      upon and into and take possession of all or such part or parts of the properties
      of Grantor, including lands, plants, buildings, machinery, equipment, Data
      Processing Records and Systems and other property as may be necessary or
      appropriate in the reasonable judgment of Lender, to permit or enable Lender
      to
      store, lease, sell or otherwise dispose of or collect all or any part of the
      Collateral, and use and operate said properties for such purposes and for such
      length of time as Lender may deem necessary or appropriate for said purposes
      without the payment of any compensation to Grantor therefor. Grantor shall
      provide Lender with all information and assistance requested by Lender to
      facilitate the storage, leasing, sale or other disposition or collection of
      the
      Collateral after an Event of Default has occurred and is
      continuing.

    


    7.6  Other
      Rights.
      Exercise any and all other rights and remedies available to it by law or by
      agreement, including rights and remedies under the UCC as adopted in the
      relevant jurisdiction or any other applicable law, or under the Loan Agreement
      and, in connection therewith, Lender may require Grantor to assemble the
      Collateral and make it available to Lender at a place to be designated by
      Lender, and any notice of intended disposition of any of the Collateral required
      by law shall be deemed reasonable if such notice is mailed or delivered to
      Grantor at its address as shown on Lender’s records at least 10 days before the
      date of such disposition.

    


    7.7  Application
      of Proceeds.
      All
      Proceeds of Collateral shall be applied in accordance with the UCC, and such
      Proceeds applied toward the Obligations shall be applied in such order as Lender
      may elect.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    7.8  Patents
      and Trademarks.
      Upon
      the occurrence and during the continuance of an Event of Default:

    


    (a)  Lender
      may, at any time and from time to time, upon thirty (30) days’ prior notice to
      Grantor, license or, to the extent permitted by an applicable license,
      sublicense, whether general, special or otherwise, and whether on an exclusive
      or non-exclusive basis, any Trade Secret, Patent or Trademark, throughout the
      world for such term or terms, on such conditions, and in such manner, as Lender
      shall in its sole discretion determine;

    


    (b)  Lender
      may (without assuming any obligations or liability thereunder), at any time
      enforce (and shall have the exclusive right to enforce) against any licensor,
      licensee or sublicensee all rights and remedies of Grantor in, to and under
      any
      one or more license or other agreements with respect to any Trade Secret, Patent
      or Trademark and take or refrain from taking any action under any such license
      or other agreement, and Grantor hereby releases Lender from, and agrees to
      hold
      Lender free and harmless from and against, any claims arising out of, any action
      taken or omitted to be taken with respect to any such license or
      agreement;

    


    (c)  Any
      and
      all payments received by Lender under or in respect of any Trade Secret, Patent
      or Trademark (whether from Grantor or otherwise), or received by Lender by
      virtue of the exercise of the license granted to Lender by subsection (g) below,
      shall be applied to the Obligations in accordance with Section 7.7
      hereof;

    


    (d)  Lender
      may exercise in respect of the Trade Secrets, Patents and Trademarks, in
      addition to other rights and remedies provided for herein or otherwise available
      to it, all the rights and remedies of a secured party on default under the
      UCC;

    


    (e)  In
      order
      to implement the sale, lease, assignment, license, sublicense or other
      disposition of any of the Trade Secrets, Patents and Trademarks pursuant to
      this
      Section 7.8, Lender may, at any time, execute and deliver on behalf of
      Grantor one or more instruments of assignment of the Trade Secrets. Patents
      and
      Trademarks (or any application or registration thereof), in form suitable for
      filing, recording or registration in any country. Grantor agrees to pay when
      due
      all reasonable costs incurred in any such transfer of the Trade Secrets, Patents
      and Trademarks, including any taxes, fees and reasonable attorneys’ fees;


    


    (f)  In
      the
      event of any sale, lease, assignment, license, sublicense or other disposition
      of any of the Trade Secrets, Patents or Trademarks pursuant to this Section,
      Grantor shall supply to Lender or its designee its know-how and expertise
      relating to the manufacture and sale of the products relating to any Patent
      or
      Trademark subject to such disposition, and its customer lists and other records
      relating to such Trade Secrets, Patents or Trademarks and to the distribution
      of
      said products; and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (g)  For
      the
      purpose of enabling Lender to exercise rights and remedies under this Agreement
      at such time as Lender shall be lawfully entitled to exercise such rights and
      remedies, and for no other purpose, Grantor hereby grants to Lender, an
      irrevocable, non-exclusive license (exercisable without payment of royalty
      or
      other compensation to Grantor) to use, license or sublicense at such time any
      Trade Secret, Patent or Trademark, now owned or hereafter acquired by Grantor,
      and wherever the same may be located, and including in such license reasonable
      access to all media in which any of the licensed items may be recorded or stored
      and to all computer and automatic machinery software and programs used for
      the
      compilation or printout thereof.

    


    7.9  Copyrights.
      Upon
      the occurrence and during the continuance of an Event of Default:

    


    (a)  Lender
      may, at any time and from time to time, upon thirty (30) days’ prior notice to
      Grantor, license or, to the extent permitted by an applicable license,
      sublicense, whether general, special or otherwise, and whether on an exclusive
      or non-exclusive basis, any Copyright, for such term or terms, on such
      conditions, and in such manner, as Lender shall in its sole discretion
      determine;

    


    (b)  Lender
      may (without assuming any obligations or liability thereunder), at any time,
      enforce (and shall have the exclusive right to enforce) against any licensor,
      licensee or sublicensee all rights and remedies of Grantor in, to and under
      any
      one or more license or other agreements with respect to any Copyright and take
      or refrain from taking any action under any such license or other agreement
      and
      Grantor hereby releases Lender from, and agrees to hold Lender free and harmless
      from and against, any claims arising out of, any action taken or omitted to
      be
      taken with respect to any such license or agreement; 

    


    (c)  Any
      and
      all payments received by Lender under or in respect of any Copyright (whether
      from Grantor or otherwise), or received by Lender by virtue of the exercise
      of
      the license granted to Lender by subsection (f) below, shall be applied to
      the
      Obligations in accordance with Section 7.7;

    


    (d)  Lender
      may exercise in respect of the Copyrights, in addition to other rights and
      remedies provided for herein or otherwise available to it, all the rights and
      remedies of a secured party on default under the UCC;

    


    (e)  In
      order
      to implement the sale, lease, assignment, license, sublicense or other
      disposition of any of the Copyrights pursuant to this Section 7.9, Lender may,
      at any time, execute and deliver on behalf of Grantor one or more instruments
      of
      assignment of the Copyrights (or any application or registration thereof),
      in
      form suitable for filing, recording or registration in the Copyright Office
      or
      any country where the relevant Copyright is of material economic value to
      Grantor. Grantor agrees to pay when due all reasonable costs incurred in any
      such transfer of the Copyrights, including any taxes, fees and reasonable
      attorneys’ fees; and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (f)  For
      the
      purpose of enabling Lender to exercise rights and remedies under this Agreement
      at such time as Lender shall be lawfully entitled to exercise such rights and
      remedies, and for no other purpose, Grantor hereby grants to Lender an
      irrevocable, non-exclusive license (exercisable without payment of royalty
      or
      other compensation to Grantor) to use, license or sublicense any Copyright,
      now
      owned or hereafter acquired by Grantor, and wherever the same may be located,
      and including in such license reasonable access to all media in which any of
      the
      licensed items may be recorded or stored and to all computer and automatic
      machinery software and programs used for the compilation or printout
      thereof.

    


    ARTICLE
      VIII 

    MISCELLANEOUS

    


    8.1  No
      Liability on Collateral.
      It is
      understood that Lender does not in any way assume any of Grantor’s obligations
      under any of the Collateral. Grantor hereby agrees to indemnify Lender against
      all liability arising in connection with or on account of any of the Collateral,
      except for any such liabilities arising on account of Lender’s negligence or
      willful misconduct.

    


    8.2  No
      Waiver.
      Lender
      shall not be deemed to have waived any of its rights hereunder or under any
      other agreement, instrument or paper signed by Grantor unless such waiver is
      in
      writing and signed by Lender. No delay or omission on the part of Lender in
      exercising any right shall operate as a waiver of such right or any other right.
      A waiver on any one occasion shall not be construed as a bar to or waiver of
      any
      right or remedy on any future occasion.

    


    8.3  Remedies
      Cumulative.
      All
      rights and remedies of Lender shall be cumulative and may be exercised
      singularly or concurrently, at their option, and the exercise or enforcement
      of
      any one such right or remedy shall not bar or be a condition to the exercise
      or
      enforcement of any other.

    


    8.4  Governing
      Law.
      This
      Agreement shall be construed and enforced in accordance with, and the rights
      of
      the parties shall be governed by, the laws of the State of Minnesota, except
      to
      the extent that the perfection of the security interest hereunder, or the
      enforcement of any remedies hereunder, with respect to any particular Collateral
      shall be governed by the laws of a jurisdiction other than the State of
      Minnesota.

    


    8.5  Expenses.
      Grantor
      agrees to pay the reasonable attorneys’ fees and legal expenses incurred by
      Lender in the exercise of any right or remedy available to it under this
      Agreement, whether or not suit is commenced, including, without limitation,
      attorneys’ fees and legal expenses incurred in connection with any appeal of a
      lower court’s order or judgment.

    


    8.6  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the successors
      and
      assigns of Grantor and Lender.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    8.7  Recitals.
      The
      above Recitals are true and correct as of the date hereof and constitute a
      part
      of this Agreement.

    


    8.8  Severability.
      Wherever possible, each provision of this Agreement shall be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Agreement shall be prohibited by or invalid under such law, such
      provision shall be ineffective to the extent of such prohibition or invalidity,
      without invalidating the remainder of such provision or the remaining provisions
      of this Agreement. 

    


    8.9  No
      Obligation to Pursue Others.
      Lender
      has no obligation to attempt to satisfy the Obligations by collecting them
      from
      any other person liable for them and Lender may release, modify or waive any
      Collateral provided by any other person to secure any of the Obligations, all
      without affecting Lender’s rights against Grantor. Grantor waives any right it
      may have to require Lender to pursue any third person for any of the
      Obligations. 

    


    


    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    


    


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
      and
      year first above written.

    


    


    
      	
              RUBBER
                RESEARCH ELASTOMERICS, INC., a Minnesota
                corporation

            
	 
	
              By:
                /s/ Michael Nugent

            
	
              Name:Michael
                Nugent

            
	
              Its:
                Chairman of the Board of Directors

            
	 


    

    


    


     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

    


    


    
      	
              I.

            	
              Financing
                Statements on File Listing Grantor or Any Predecessor in Title as
                Debtor

            


    

    


    See
      Schedule 8(a) to the Loan Agreement which is incorporated herein by
      reference.

    


    
      	
              II.

            	
              Location
                of Inventory

            


    

    


    1. 4500
      Main
      Street NE, Fridley, MN 55421

    2. 

    


    
      	
              III.

            	
              Prior
                Names within the last five
                years.

            


    

    


    


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    EXHIBIT
      B

    


    COMMERCIAL
      TORT CLAIMS