**EXHIBIT10.26**

MORTGAGE NOTE
| $3,200,000.00 | January 14, 2004 |
|---------------|------------------|

 

FOR VALUERECEIVED, and without defalcation or setoff, Transnational Industries, Inc., aDelaware corporation, and Spitz, Inc., a Delaware corporation (individually,collectively, jointly and severally referred to as the “Maker”), with anaddress of P.O. Box 198, Route 1, Chadds Ford, Pennsylvania 19317 promises topay to the order of FIRST KEYSTONE BANK (“Payee”), a federally chartered stocksavings bank organized and existing under the laws of the United States ofAmerica, at Payee’s office located at 22 West State Street, Media,Pennsylvania, 19063, the principal amount of Three Million Two Hundred Thousand($3,200,000.00) Dollars, advanced pursuant to the terms, conditions, andprovisions of a certain Loan Agreement dated even date herewith, by and betweenMaker and Payee (the “Loan Agreement”), together with interest on theoutstanding principal balance of this Mortgage Note (the Note) from the datehereof at the rate of five and three quarter (5.750%) percent per annum,provided, however, effective January 14, 2006, and on that same day everythirty sixth (36th) month thereafter the rate of interest will adjust to afixed per annum rate equal to the greater of (i) five and three quarter(5.750%) percent, or (ii) three hundred (300) basis points (3.00%) over theThree (3) Year Constant Maturity Treasury Rate, the said fixed rate to be setfive (5) days prior to the effective date of the rate change; provided,however, that should the fifth day fall on a Saturday, Sunday or a bankholiday, the said fixed rate shall be set on the last day prior to such thefifth day for which a Three (3) Year Constant Maturity Treasury Rate isavailable. The rate of interest from time to time charged on the outstandingbalance of this Note is hereinafter referred to as the Rate.

1.  Payment.  The principal amount of this Note shall bepayable, together with interest thereon, in lawful money of the United States,in the following manner:

(a)  On January1, 2004, a payment of interest only scheduled to accrue on the principalbalance outstanding from the date hereof to January 31, 2004.

(b)  Commencingon the first day of March, 2004 and on the first day of each and every monththereafter, Maker shall pay to Payee the principal, together with interestaccruing hereunder at the Rate, in arrears, in amortized, consecutive, andsuccessive monthly installments sufficient to repay the principal balance ofthis Note, together with interest accruing thereon at the Rate, in full over atwenty (20) year amortization period (the “Amortization Period”), provided,however, interest on this Note shall be calculated on the basis of a threehundred sixty (360) day year, and charged for the actual number of days elapsed.Provided, however, Payee shall recalculate the amount of the monthly principaland interest installment due on this Note on the first day of the first monthfollowing the effective date of any change in the Rate. The recalculatedmonthly installment shall be equal to the monthly installment sufficient torepay the principal balance Maker is expected to owe as of the effective dateof any change in the Rate, together with interest accruing thereon at the Rate,in full over the remaining portion of the original Amortization Period.

1

----

(c)  Notwithstandingthe foregoing, and unless sooner paid, the entire outstanding principal amountof this Note, together with all interest accrued and not theretofore paid, andall other sums payable hereunder, shall be due and payable in full on January13, 2024 (the “Maturity Date”).

2.  Security.  The payment of this Note, and the performanceby Maker of all of its obligations under the commitment letter dated December19, 2003 (the “Commitment Letter”), and the Loan Agreement are secured by,among other things:

(a)  a certainOpen-End Mortgage and Security Agreement, dated even date herewith (theMortgage), secured upon certain real property premises currently occupied bySpitz, Inc., located at Route 1, Chadds Ford Township, Delaware County,Pennsylvania, being Folio No. 04-00-00034-02, and more specifically describedon the metes and bounds legal description, attached to the Mortgage and labeledExhibit A, and all improvements now or hereafter placed or made thereon andthereto (the Mortgage Premises), and creating a security interest under thePennsylvania Uniform Commercial Code in all fixtures, equipment and othertangible personal property, including, but not limited to, all machinery,appliances, furnishings, tools and building materials now or hereafter acquiredby Maker and installed or to be installed upon, or used or to be used inconnection with, the Mortgaged Premises;

(b)  thosecertain UCC-1 Financing Statements, dated even date herewith, identifying Makeras Debtorand Payee as the Secured Party, securing Payee’s interest in and toall fixtures, equipment and other tangible personal property, including, butnot limited to, all machinery, appliances, furnishings, tools and buildingmaterials now or hereafter acquired by Maker and installed or to be installedupon, or used or to be used in connection with the Mortgaged Premises;

(c)  anAssignment of Rents, Profits and Leases, dated even date herewith, pursuant towhich Spitz, Inc. has collaterally assigned to Payee all of its right, titleand interest in and to all rents, profits and income arising from the MortgagedPremises and from all leases now or hereafter in effect pertaining to all orany portion of the Mortgaged Premises, and;

(d)  aCollateral Assignment of Agreements Affecting Real Estate, dated even dateherewith, pursuant to which Maker has collaterally assigned to Payee all ofMaker’s right, title and interest in and to all approvals, permits, contractsand warranties, now or hereafter in effect, pertaining to all or any portion ofthe Mortgaged Premises.

All of theagreements, conditions, covenants and provisions contained in the CommitmentLetter, the Loan Agreement, and the documents listed in clauses (a) through (d)above (hereinafter referred to collectively as the “Loan Documents) are herebymade a part of this Note to the same extent and with the same force and effectas if they were fully set forth herein. Maker covenants and agrees to keep andperform, or cause to be kept and performed, all such agreements, conditions,covenants and provisions, strictly in accordance with their terms.

3.  Late Charge.  Maker is obligated to make payments ofinterest or principal or both on the above specified due dates in accordancewith the terms of this Note

2

----

without defalcation orsetoff and without notice or demand, and the failure to receive any notice ordemand from Payee shall not be a defense to, or excuse for, the failure to makesuch payments on the due dates. If any installment of interest or principal orboth, or any other payment required hereunder or under any of the LoanDocuments is not paid within fifteen (15) days after the due date of suchinstallment, or payment, a late charge equal to the greater of: (a) fivepercent (5.00%) of such overdue amount; or (b) seventy-five ($75.00) Dollarswill be due and payable to Payee to cover the additional expense incident tosuch delinquency. This shall not be construed to obligate Payee to accept anyoverdue installment (i.e., any payment remaining unpaid for a period of five(5) days after written notice of failure to pay the same when due) nor to limitPayee’s rights and remedies for Maker’s default, as hereinafter set forth.

4.  Default. Maker shall be in default hereunderupon the occurrence of any of the following events (an “Event of Default): (i)any installment of interest or principal and interest, or any other sumrequired hereunder, or any other payment required under any of the LoanDocuments, remains unpaid for the period of five (5) days after written noticeof failure to pay the same when due in accordance with the provisions hereof orunder any of the Loan Documents; (ii) after the expiration of any applicablenotice and cure periods, if any, the default by Maker under any of the LoanDocuments; (iii) the institution by or against Maker of any bankruptcy,insolvency, reorganization, arrangement, debt adjustment, receivership,liquidation or dissolution proceeding which, if instituted against any suchparty, is consented to by such party or remains not dismissed or stayed forsixty (60) days; (iv) the adjudication of Maker as a bankrupt or theappointment of a trustee or receiver for all or any part of Maker’s property;(v) the making by Maker of an assignment for the benefit of creditors; (vi) theadmission by Maker of an inability to pay his/her/its or their debts as theybecome due; (vii) after the expiration of any applicable notice and cureperiods, if any, the default by Maker or any affiliate, owner or subsidiarythereof, in making any payment for money owed or borrowed by Maker or anyaffiliate, owner or subsidiary thereof including, without limitation, theoccurrence of an event of default under that certain Line Of Credit Agreementdated June 12, 1997 between Payee and Maker, amended by that certainModification Agreement dated July 7, 2000, and further amended by that certainSecond Modification Agreement dated July 18, 2002, respecting a Two Million($2,000,000.00) Dollar commercial revolving line of credit; (viii) the untruth,in any respect regarded by Payee as material, of any warranty, representation,certification, financial statement or other information made or furnished byMaker in connection with the loan made by Payee to Maker pursuant to theCommitment Letter and the Loan Agreement; or (ix) the sale or transfer of anyright, title, or interest, legal or equitable, in the Mortgaged Premises or anypart or parcel thereof or a change of the majority of the members of the boardof directors of Maker during any twelve (12) month period.

5.  Remedies. Upon the occurrence of any Event ofDefault, the entire unpaid balance of principal (including any additional loansor advances and all other sums paid by Payee to or on behalf of Maker or addedto the principal hereof pursuant to the terms of this Note or any of the LoanDocuments), with all accrued interest thereon, together with an attorney’scommission for collection of the greater of Five Thousand ($5,000.00) Dollarsor five (5%) percent of the total indebtedness, and all other sums due andowing hereunder or under the Loan Documents, shall, at the option of Payee,become immediately due and payable without presentment, demand or furtheraction of any kind, and one or more executions may forthwith issue on anyjudgment or judgments obtained by virtue of any provision of this Note orotherwise obtained and any security given to

3

----

secure the obligationevidenced by this Note may thereupon forthwith be enforced, and Payee may alsorecover all costs of suit and other expenses of collection involving, but notlimited to, reasonable attorney’s fees, the costs of title searches, the costsof eviction of any tenants and re-appraisals.

The rights andremedies provided herein or in the Loan Documents shall be cumulative andconcurrent and shall not be exclusive of any right or remedy provided by law,in equity or otherwise. Said rights and remedies may, at the sole discretion ofPayee, be pursued singly, successively or together as often as occasiontherefor shall arise, against Maker and/or the Mortgaged Premises or any othersecurity for this Note, as applicable. No failure on the part of Payee toexercise any of such rights or remedies shall be deemed a waiver of any suchrights or remedies or of any Event of Default hereunder.

Upon the occurrenceof an Event of Default, Payee shall have the right, but not the duty, to curesuch default, in part or in its entirety, and all amounts expended or debtsincurred by Payee, including reasonable attorneys’ fees, shall be deemed to beadvances to Maker, shall be added to the principal due under this Note, shallbe secured by the security for this Note, and shall be payable by Maker toPayee upon demand with interest at the Default Rate (hereinafter defined).

6.  Default Rate.  Upon the occurrence of an Event of Default,interest shall continue to accrue thereafter at the default rate of the Rateplus five (5%) percent per annum (the Default Rate) until this Note, and allsums due hereunder, are paid in full, including the period following the entryof any judgment. Interest after the occurrence of an Event of Default at theDefault Rate shall be calculated on the basis of a three hundred sixty (360)day year, but charged for the actual number of days elapsed.

7.  WARRANT OF ATTORNEY.  THE FOLLOWING SECTION SETS FORTH WARRANTS OFATTORNEY FOR ANY ATTORNEY TO CONFESS JUDGMENTS AGAINST MAKER. IN GRANTING THESEWARRANTS OF ATTORNEY TO CONFESS JUDGMENTS AGAINST MAKER, MAKER HEREBYKNOWINGLY, INTENTIONALLY, VOLUNTARILY, AND UNCONDITIONALLY WAIVE(S) ANY AND ALLRIGHTS MAKER MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THERESPECTIVE CONSTITUTIONS AND LAWS OF THE COMMONWEALTH OF PENNSYLVANIA AND THEUNITED STATES OF AMERICA.

UPON THEOCCURRENCE OF AN EVENT OF DEFAULT, MAKER, WITHOUT FURTHER CONSENT OR NOTICE,DOES HEREBY IRREVOCABLY AND UNCONDITIONALLY AUTHORIZE AND EMPOWER ANY ATTORNEYOF THE PROTHONOTARY OF ANY COURT OF RECORD OF THE COMMONWEALTH OF PENNSYLVANIAOR ELSEWHERE TO APPEAR FOR MAKER IN ANY SUCH COURT, AND WITH OR WITHOUT ACOMPLAINT OR DECLARATION FILED, IN AN APPROPRIATE ACTION BROUGHT AGAINST MAKERON THIS NOTE, TO ENTER AND CONFESS JUDGMENT AGAINST MAKER IN FAVOR OF PAYEE ORITS SUCCESSORS AND ASSIGNS, FOR ALL OR ANY PORTION OF THE ENTIRE AMOUNT DUE TOPAYEE UPON SUCH EVENT OF DEFAULT AS PROVIDED HEREIN, TOGETHER WITH COSTS OFSUIT AND ATTORNEYS’ COMMISSION IN AN AMOUNT EQUAL TO FIVE (5%) PERCENT

4

----

OF THE PRINCIPAL AMOUNTOUTSTANDING UNDER THIS NOTE, BUT IN NO EVENT LESS THAN FIVE THOUSAND($5,000.00) DOLLARS; AND FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED BYAFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE AUTHORITY HEREIN GRANTED TOAPPEAR, ENTER AND CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY ONE OR MOREEXERCISE THEREOF OR BY ANY DEFECTIVE EXERCISE THEREOF, BUT SHALL CONTINUE AND BEEXERCISABLE FROM TIME TO TIME UNTIL THE FULL PAYMENT OF ALL AMOUNTS DUE FROMMAKER TO PAYEE HEREUNDER AND UNDER THE LOAN DOCUMENTS IS MADE. THE FOREGOINGRIGHT AND REMEDY IS IN ADDITION TO AND NOT IN LIEU OF ANY OTHER RIGHT OR REMEDYAVAILABLE TO PAYEE UNDER THIS NOTE OR OTHERWISE.

MAKER ACKNOWLEDGESHAVING HAD THE ASSISTANCE OF LEGAL COUNSEL OR THE OPPORTUNITY TO RETAIN LEGALCOUNSEL IN THE REVIEW AND EXECUTION OF THIS NOTE FOR THE PURPOSE OF EXPLAININGTHE MEANING AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OFJUDGMENT, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOINGPROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN EITHER FULLY EXPLAINEDTO MAKER BY SUCH COUNSEL OR FULLY UNDERSTOOD BY MAKER WITHOUT RELIANCE ON PAYEEIF MAKER HAS ELECTED NOT TO BE REPRESENTED BY LEGAL COUNSEL AND AS EVIDENCE OFSUCH FACT SIGNS HIS/HER/THEIR/ITS INITIALS.
|        | /s/ PLD              |   | /s/ JAS              |   |
|--------|----------------------|--------|----------------------|--------|
|   | (Initials of  Maker) |   | (Initials of  Maker) |   |

 

Maker herebywaives the benefit of any laws now or hereafter enacted providing for any stayof execution, marshaling of assets, exemption from civil process, redemption,extension of time for payment, or valuation or appraisement of all or any partof the Mortgaged Premises or any other security for this Note, exempting all orany part of the Mortgaged Premises, any other security for this Note or anyother property of Maker from attachment, levy or sale upon any such executionor conflicting with any provision of this Note or any of the Loan Documents.Maker waives and releases Payee and said attorney or attorneys from all errors,defects and imperfections whatsoever in confessing any such judgment or in anyproceedings relating thereto or instituted by Payee hereunder or under any ofthe Loan Documents. Maker hereby agrees that any property that may be leviedupon pursuant to a judgment obtained under this Note may be sold upon anyexecution thereon in whole or in part, and in any manner and order that Payee,in its sole discretion may elect.

8.  Prepayment.  Upon giving Payee at least thirty (30) daysprior written notice, Maker may prepay all or any portion of the outstandingprincipal balance of this Note by paying, in addition to (i) the prepaidprincipal amount, (ii) all accrued and unpaid interest to the date ofprepayment, and (iii) all other amounts due under this Note, a prepaymentpremium (“Prepayment Premium) equal to the greater of:

5

----

(a)             theproduct obtained multiplying (1) the difference between the then Rate and theyield rate of that U.S. Treasury Note the due date of which is closest to(either before, after or on) the end of the current three (3) year fixed rateperiod of this Note (the Period End Date) (however, if the period between thePeriod End Date and the due date exceeds six(6) months, the average of theyield rates of the two U.S. Treasury Notes with due dates next preceding andfollowing the Period End Date shall be used to compute such difference; and ifthere are two or more U.S. Treasury Notes with the same due dates, that onewith a whole yield rate closest to the Rate shall be used to compute suchdifference) as reported in the Wall Street Journal or similar publication onthe fifth (5th) business day preceding the prepayment date, and (2) the numberof whole and fractional years remaining between the prepayment date and thePeriod End Date, and (3) the prepaid principal amount; or

(b)            one(1%) percent of the prepaid principal amount.

Prepayment shallmean any event whereby the indebtedness evidenced by this Note is paid inadvance of the payment schedule or fully satisfied prior to the Maturity Datein any manner, whether voluntary or involuntary, including without limitationany payment after default, any payment after the Maturity Date is accelerated,or any payment under court order or bankruptcy proceeding. Payee shall not berequired to accept ay prepayment if it does not include payment of the requiredPrepayment Premium. Notwithstanding anything herein to the contrary, Maker mayduring each calendar year, upon giving Payee thirty (30) days prior writtennotice, prepay, in the aggregate, an amount equal to or less than ten (10%)percent of the outstanding principal balance of the indebtedness evidenced bythis Note determined as of January 1 of each calendar year without liabilityfor the payment of any Prepayment Premium.

Notwithstandingthe foregoing, no Prepayment Premium will be due and payable (i) in the eventof the receipt and retention by the Payee of proceeds from any casualty loss orcondemnation (ii) during the last 120 days of any three (3) year term of thisNote or (iii) as a result of the sale of all or a portion of the MortgagedPremises to an unaffiliated third party in an arms length transaction.

All prepaymentsshall first be applied to the Prepayment Premium, then on account of interestaccrued hereunder and other sums due hereunder other than principal, with thebalance applied to principal. No partial prepayment shall postpone or interruptpayments of interest or the payment of the remaining principal balance, all ofwhich shall continue to be due and payable at the times and in the manner setforth above.

9.  Waiver.  The Maker and all other endorsers, suretiesand guarantors hereby jointly and severally waive presentment and demand forpayment, notice of demand, notice of default (except as required in this Note),notice of dishonor, protest and notice of protest of this Note, and all othernotices in connection with the delivery, acceptance, performance, default orenforcement of the payment of this Note, and also waive notice of the exerciseof any options on the part of Payee hereunder.

The granting, withor without notice, of any extension or extensions of time for payment of anysum or sums due hereunder, or under any of the Loan

6

----

Documents, or for theperformance of any covenant, provision, condition or agreement contained hereinor therein, or the granting of any other indulgence, or the taking or releasingor subordinating of any security for the indebtedness evidenced hereby, or anyother modification or amendment of this Note or any of the Loan Documents, willin no way release or discharge the liability of Maker, whether or not grantedor done with the knowledge or consent of Maker.

Payee shall not bedeemed, by any act of omission or commission, to have waived any of its rightsor remedies hereunder, under any of the Loan Documents, at law or in equity,unless such waiver is in writing and signed by Payee, and then only to theextent specifically set forth in the writing. A waiver as to one event shallnot be construed as continuing or as a bar to or waiver of any right or remedyas to a subsequent event.

10.  Joint and Several Liability.  The obligations and liabilities hereunder ofthe persons or entities referred to as “Maker” shall be joint and several.

11.  Notice.  Regular monthly payment invoices and notice ofany change in the monthly installment of principal and interest due under thisNote shall be sent by regular mail, postage prepaid, to the address of Makerset forth above. All other notices and other communications required or givenunder this Note shall be given in the manner and to the addresses set forth inthe Loan Agreement

12.  Miscellaneous.  Notwithstanding any other provision containedherein, if, at any time, the Rate or the Default Rate shall be deemed by anycompetent court of law, governmental agency or tribunal to exceed the maximumrate of interest permitted by any applicable laws, then, for such time as theRate or the Default Rate would be deemed excessive, its application shall besuspended and there shall be charged instead the maximum rate of interestpermitted under such laws. Any amounts theretofore received by Payee hereunderin excess of the maximum rate of interest so permitted shall be applied by Payeein reduction of the outstanding principal balance of this Note, or if this Noteshall have theretofore been paid in full, the amount of such excess shallpromptly be returned by Payee to Maker.

In the event anyportion of this Note shall be declared by any court of competent jurisdictionto be invalid or unenforceable, such portion shall be deemed severable fromthis Note, and the remaining parts hereof shall remain in full force andeffect, as fully as though such invalid or unenforceable portion was never partof this Note.

The obligations ofMaker hereunder shall be binding on the successors and assigns of Maker, andthe benefits of this Note shall inure to Payee, its successors and assigns andto any holder of this Note.

Each and everyperson or entity signing this Note as an endorser binds himself, herself oritself as principal not as surety, and agrees to be bound by and comply withall of the terms, conditions and provisions of this Note.

7

----

Nothing hereincontained or contained in any of the Loan Documents shall be construed tocreate a partnership or joint venture between Payee and Maker, or to renderPayee in any way responsible for the debts or losses of Maker.

This Note, and allissues arising hereunder, shall be governed by and construed according to thelaws of the Commonwealth of Pennsylvania.

MAKER AND PAYEEHEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVETO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUTOF, UNDER OR IN CONNECTION WITH THIS NOTE, THE MORTGAGE, ANY OTHER DOCUMENT ORINSTRUMENT RELATING HERETO OR THERETO, ANY OTHER TRANSACTIONS CONTEMPLATEDHEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PAYEE OR THE MAKER IN CONNECTIONHEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE TOMAKE THE LOAN EVIDENCED BY THIS NOTE.

[THIS SPACEINTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS.]

8

----

IN WITNESSWHEREOF, Maker has caused this Note to be duly executed and sealed this 14thday of January, 2004.
| WITNESSES:              |    | MAKER:      |
|-------------------------|---------|-------------|
|                    |    |        |
|                    |    | SPITZ, INC. |
| /s/ Maria Pantano Bucci |    |        |   |   |
| /s/ Donn L. Guthrie     |    |        |   |   |
| WITNESS AS TO  ALL      |    |        |   |
|                    | BY:     |        |  /s/ Jonathan Shaw | (SEAL) |
|                    |    |        |   |
|                    | ATTEST: |        |  /s/ Paul Dailey | (SEAL) |
|                    |    |        |   |
|                    |    |        | TRANSNATIONAL INDUSTRIES, INC. |
|                    |    |        |   |
|                    | BY:     |        |  /s/ Jonathan Shaw | (SEAL) |
|                    |    |        |   |
|                    | ATTEST: |        |  /s/ Paul Dailey | (SEAL) |
|                         |         |             |  |  |  |  |

 

9

----